Maravai LifeSciences Holdings, Inc. (MRVI) Earnings Call Transcript & Summary

Okay. So thanks, everyone. Good morning. Thanks for joining us for the Maravai management presentation. My name is Matt Larew. I cover Maravai here at Blair. Pleased to be joined by Kevin Herde, who is the CFO. Before we get into the presentation, I have to mention 2 things. So first, the breakout is in [ Jenny A ]. So you can follow my team and I up after the presentation. And then, second, for a complete list of our research disclosures or potential conflicts of interest, please visit williamblair.com. All right. So again, very pleased to have Maravai here. Kevin and Deb, thanks for your time. And Kevin, I'll turn it over to you.

All right. Thanks, Matt. I appreciate that. Thanks for having us. It's nice to see people in person. I haven't done one of these in a while. So it's always a treat to talk about Maravai to people that maybe don't know the story and tell you a little bit about what we do. So I'm going to dive into it here. And as Matt said, we'll save the questions for the breakout session. We do use some non-GAAP measures. Of course, we are a public company. So this is our disclaimer relating to that. And let's sort of dive into it here. So we're a life science company, a provider of tools for customers, meaning we necessarily don't have our own products that will end up being therapeutics or other applications, but we provide those to companies that incorporate them into their products. And we really target high-growth markets. So we're supplying products, raw materials, capabilities for cell and gene therapy, vaccines, biologic drug manufacturing; and really in 2 segments, that I'll talk about as we go through our presentation today. One is our Nucleic Acid Production segment, which is we're really a leader in highly modified complex nucleic acid. So when I say that, I mean, we're dealing with 500,000 base pairs, so very highly modified mRNAs and other constructs. We also have a proprietary product called CleanCap. All mRNA has to be capped, and there's different methods to use it. CleanCap, we believe, is the most superior method in the marketplace right now. And that's what's being adopted into certain products, including the Pfizer-BioNTech vaccine for COVID currently today. We also have a business called our Biologics Safety Testing business, which tests for the impurities that are in biologic or biosimilar manufacturing processes. So these could be the host cells on which the biologics are growing in, overexpression of them or other contaminants that are in those products. And we detect those levels, provide very specific test kits for those testing methods. In 2021, we were nearly $800 million in revenue. I guess I should have stayed on my commercial team. So it did end up to be $799 million. But nonetheless, it was a very successful year. Very strong EBITDA margins and free cash flows, which is a core component of our business. And I'll talk a little bit about the various companies we've acquired over the years and how Maravai came to be what it is today. At the end of the year, we had about 470 employees. That's up to, gosh, nearly 530 today. And we have quite a large footprint of manufacturing space. And that's really one of our core capabilities, is our capacity and our ability to address our customers' needs here in Nucleic Acid Production and Biologic Safety Testing. The management team. So Carl Hull and I go back about 15 years. We were part of the management team that was at Gen-Probe, for those that remember the molecular diagnostic company that was acquired by Hologic in 2012. From there, our core segments that I spoke of are led by Brian Neel. Brian has experience in both Life Technologies and Thermo Fisher. Christine Dolan runs our Biologics Safety Testing business and has decades of experience, including roles with Catalent and GE Healthcare. Our most recent addition to our team is Deb Barbara, and she's been heading up our Strategy and Corp Dev. She recently joined us from Thermo Fisher as well. So let's talk a little bit about our history. We were originally founded in 2014, and that's when Carl Hull and others partnered with GTCR, a private equity firm here in Chicago, to form a life science strategy. Since then, we've acquired 7 different assets. And the unique part about what we've acquired and grown is these are all founder-based companies, private companies that we acquired. And our strategy was to invest in all of them to maximize their potential. And this has allowed us to accelerate their historical growth and really increase their capabilities. A lot of times when you're buying high science founder-based companies, they sometimes get gated by just their own, I guess, limitations. A lot of these founders like to control everything from the customer interaction to the R&D to picking out the decorations for the holiday party. And sometimes that doesn't allow them to grow to the extent that they can. And our strategy was to buy these companies, back-office a lot of the things that we can do and have done historically in our careers, and let them really focus on the products, the technology and meeting the customer needs. And that's proven to be extremely successful in the assets that we've acquired over the last 6 to 8 years. So what do we do in our 2 segments? I'm going to talk a little bit about our capabilities in Biologic Safety Testing first and then talk about our capabilities in Nucleic Acid Production. And then follow this slide up with a short video that will even further demonstrate our capabilities in Nucleic Acid Production and give some insight into our facility in San Diego. So if you look at the top of this slide, you'll see that we really support customers throughout discovery and research, preclinical, clinical and then commercialization. And Biologic Safety Testing, that means, again, testing for the overexpression of host cell proteins. This is a requirement from a regulatory perspective in biosimilars and biologics to make sure those host cell proteins are below certain levels from a safety perspective. We also have viral clearance prediction kits in our MockV assays. And we also look for other process-related impurities, things like protein A that might be overexpressed or endonuclease or other contaminants in biologics. We provide these kits. We have a great breadth of offering. I think we have about 28 different kits, which is substantially greater than the next 4 competitors in the marketplace, which collectively have less than 10 between the 4 of them. So we're really considered the gold standard here as far as testing for host cell protein detection as well as other contaminants in biologics. And that's incorporated in process development as well as in lot release and final commercialized products. When it comes to Nucleic Acid Production, we do several things. We make highly modified oligonucleotides, mRNA and other nucleotides and nucleosides. We offer our capping product, which is our proprietary CleanCap product, which has a very broad IP estate, which goes through 2036. We make highly modified mRNAs. We also have plasmid DNAs or some of the initial oligo synthesis inputs and raw materials that are necessary for the manufacturing of nucleic acid production. And what I'm going to do now is hopefully show you a short video of our San Diego facility. We brought this facility online in 2019, and it was fortuitous to us that we built a facility that was highly automated. There's automated solvent delivery, waste disposal and really could scale tremendously. And because of that, that gave us the opportunity to meet the demands that we're seeing today with the current vaccine programs that we're involved in. So we brought that facility online again in December of 2019. We had a record quarter in that facility in the first quarter of '20. And then BioNTech, who was one of our first adopters of our CleanCap technology, came to us and said, "How much can you make?" And we said, "You're lucky. We have the capability here to scale up tremendously." And that's really been a key component and a really testament to our ability to invest in capacity capabilities and people. And we just had a great sort of all-hands-on-deck approach to helping our customers get what they needed on time to help produce the vaccines that have been very successful in addressing the pandemic. So with that having been said, I'm going to -- we're going to move on to a short video here with regards to our San Diego based facility. [Presentation]

Yes. So as you can see, one of our core capabilities is partnering with our customers. And this is really core to our strategy. This is providing mRNA-based services very early on in target discovery to help our customers with what they're looking to get accomplished and then being able to take them throughout the journey up through commercialization here. And it's various capabilities in nucleic acid production, so it's raw material inputs, highly modified mRNAs. It's very consultative and partnering services with our customer base. We work with 18 of the top 20 R&D-funded pharma and biotech companies in the world, and we have very unique capabilities and intellectual property in this area. And that brings them to us. And we've been able to meet those demands, both for high-end capping as well as our custom mRNA services. And we continue to invest in this infrastructure. We feel like we're in the very early days of what mRNA is going to do for science and therapeutics. And I think as we go through this, you'll get a sense of some of these applications. As we sit here today, we are in over 180 different programs, our technologies, and working with our customers. And these have a vast array of applications. There's only one on market today. That's the Pfizer and BioNTech vaccine for COVID. But we also are involved in roughly 60 other vaccine programs. Some of which are COVID-related, but the vast majority are not. They're related to looking at existing vaccine markets, things like flu, influenza, malaria, RSV, things of that nature, applying mRNA technologies, which we believe are going to be both safe and effective. And we're working with our customers to that end. In addition to vaccines, we're working with our customers for therapeutic indications. And this spans a wide variety of therapeutic pieces around particularly oncology, cell and gene editing and things of that nature, where they're utilizing either highly modified mRNAs or high -- or modified mRNAs with our CleanCap or some of our other services. So for us, it's really about building out these capabilities, this talent. And that means people. That means processes, systems, facilities and being able to meet the demand that we see being generated over the next 5 to 10 years as mRNA technology really comes to the forefront of new therapies and vaccines. And we're really there to help support them and drive that growth, as you've seen in the business. It's a really high growth and exciting business for our team, and great applications they're seeing on almost a daily basis now with some of the readouts that we're getting from our customers. So where do we operate? We're all U.S.-based at this point in time. We have our key facilities in the San Diego area, where we're going to have about 183,000 square feet by the end of the year when we finish what we're calling our Flanders facility, which is going to complement our existing Wateridge facility. And that's going to give us the capabilities to produce roughly $2 billion in potential output for nucleic acid production through those 2 facilities based on their capacity. We also have a facility in Sterling, Virginia that supports nucleic acid production, primarily products for sequencing and diagnostic companies. And then lastly, we're moving our Biologic Safety Testing business to a larger double-sized facility at the end of the year in Leland, North Carolina. Again, that's going to enable this business, which has been consistently growing at around 20%, to continue to support that growth and also add more services to the offering. And that's something I'll touch on as well. So one of the key points here is we have CleanCap, again, as I spoke to, not only within various vaccine programs, but we're also adopting this in various broad and growing mRNA therapeutic pipelines. So a broad diversity of disease states, multiple therapeutic modalities. And the interesting thing about therapeutic uses of mRNA is sometimes the amount of mRNA you need is up to 100, 500x more than you'll see in a vaccine. So even though the target market or population is much smaller than a potentially large [ broad ] vaccine like the COVID vaccine, the amount of active product you need to trigger the body's response is many times greater. And so you'll actually have a potential market that is bigger than you would think based upon the amount of active product that you need. And so as we look -- I talked about, there's a lot of interest in mRNA vaccines. Our customers are working on many things outside of what we're seeing for COVID today, which has really been a validation of the platform in our space. So that's flu, that's malaria, HIV, Zika, Ebola, shingles,, Lyme disease, many existing legacy type of technologies that are addressing these indications with vaccines today. We believe that mRNA will be more effective. A great example of this is in flu. As you know, every year, they do a different sort of variant for flu to try and capture what's going to be the most prevalent in various hemispheres. And they try and guess what that is basically right now for the fall. mRNA will allow you to wait a lot longer because the ability to generate an mRNA vaccine is a lot quicker than historical methods. So you can get closer, more accurate and likely more effective to capture the variants of concern. You'll see that for flu, and you're likely to see that now, again, with COVID. I think we all know that the initial vaccine targeted a certain variant. The variants of concerns today are different. And I think all of our customers are now working on and hoping that the regulatory pathway will enable us to have the same sort of booster strategy, where we're picking up variants of concern and giving people an opportunity to get those shots to cover that and improve health care for COVID-19 and other indications as we move forward. And then we talk about therapeutics. And again, it's being applied to just a really broad range of things across health care: cancer, CF, protein replacement, metabolic disorders, et cetera. So a very exciting time for us. And again, we are supplying tools, we're supplying capabilities, we're supplying raw materials and we're supplying proprietary capping technologies, all of which are crucial in the industry right now and very well suited for the coming years and what we believe is going to be a very exciting time for mRNA therapeutics. So these certainly are big markets. Right now, I think we have a $4.7 billion addressable market that's growing nicely. Overall, that's a subset of about a $15 billion total market size. Strong market growth. Our Biologics Safety Testing business has a 10% to 13% market growth. Our Nucleic Acid Production has market growth that vary from 5% to 10% to as high as 50%. Within our first quarter of 2022, our core Nucleic Acid Production business outside of the COVID contribution grew by about 50%. So a really nice base business that's also being complemented by the demand for our capping material for the COVID vaccine. Our last quarter was another record quarter for us: $244 million of revenues, a very strong EBITDA margin and free cash flow. And again, base business growth of 25%, incorporating all the various businesses when you pull out the COVID-19 CleanCap contribution. One of the hallmarks of our business has been free cash flow. We sit here today in a net cash position. We've been very acquisitive. We continue to focus on both organic investments to drive capabilities as well as looking at continued M&A. And we continue to constantly diligence, and hopefully, bring across the finish line additional capabilities and resources that we think are going to be important for our customers over time and will be adding value to Maravai. We've been very successful in integrating our acquisitions and have a really good track record with the assets that we do acquire. So overall, just to kind of sum this up. I mean we really are one of the leading suppliers in life science, again, spanning early discovery through commercialization. We have a really great customer base and a very high quality, very sticky customer base, great retention of our customers. Once you lock in some of our technologies, it's really part of the platform for these companies going forward, and that enables us to grow with them. Very good high-growth markets. We've really stayed ahead of the need for infrastructure, and we'll continue to do so because we think we're in the very early innings of this opportunity. And we've built a business that has a great profile as far as our business profile and margins and cash flows. And a lot of us that are working here have been doing this for a very long period of time and are really excited about working for Maravai and the opportunity that lies ahead. So with that, that sort of wraps up my prepared remarks today. I just want to thank you all for coming. And we'll have a breakout session to get into some of Matt's hard-hitting questions here in a few minutes.

Great. Yes, the breakout session is in [ Jenny A ]. I know we have a few minutes. So I think that concludes our presentation. If you want to follow up and ask any questions along the way, feel free to come up and join us on our walk. Thanks.

Thank you for the time. Appreciate it.