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

Hi, this is Paul Knight, the analyst at KeyBanc on life science tools, covering Maravai. It's a pleasure today to have Carl Hull talking about business in the world of mRNA and related programs. So welcome to the conference, Carl.

Well, thank you, Paul. It's good to be with you.

If you want to make a couple of opening comments, that's great, and you can start with why is the rain in California, but...

Well, you mean an atmospheric rivers are the problem the reason. No, look, I'm happy to field any questions or give your audience an overview of Maravai, whichever way you'd like to go.

I think like a 5 -- 4-minute update would be perfect.

Sure. Well, Maravai, obviously, we're focused on the cell and gene therapy markets. Broadly, we're a provider of tools that are used by ourselves and others in the industry to manufacture genetic therapies and cellular therapies that rely on gene editing techniques. So we make everything from messenger RNA all the way back to early precursor chemicals that are used to synthesize the various building blocks that go into messenger RNA. We're well known for our innovative CleanCap approach to putting a chemical cap on a messenger RNA molecule. This is essential in order to stabilize the molecule and to help it survive and do its function in the body and we pioneered that technology. And the business has been obviously subject to rapid growth. We went public in 2020 at about $880 million in revenue last year, obviously, much of that driven by COVID. And we're in good shape. The core business that we operate, which includes all those components I just mentioned to you, has been growing consistently at [ over ] 20%. We expect that for the business as a whole this year as well.

Great. Carl, we've seen some management sharp point here in a good way over in the last year. I know you're eventually going to step down as CEO. What's your kind of ideal talent look like each level -- each layer, CEO, COO? What are you trying to have continue as you retire?

Well, look, I think we've built a great team here that has gotten us through the pandemic and with flying colors, quite honestly. But we're also at a transition point for the company, where we're moving to the next stage of our growth. A lot of what's happened in the last couple of years has been people coming to us. We now think it's important for us to be equally effective on the commercial side. So the team that we've assembled that will lead the company when I stepped down in late July, includes Trey Martin. Trey is coming to us from other competitors in the field and has been active in oligonucleotide businesses for the last 25 years, I guess. Trey is currently running our Biologics Safety Testing business with Christine Dolan, and then will take over the full business in late July. We've also added recently Becky Buzzeo. Becky comes to us from Thermo, where she ran a number of services businesses for Thermo, excellent commercial experience and talent. She joined us about 6 months ago, and is heading up our commercial operations. And then finally, just recently, we announced that Drew Burch, also an external person, who has joined us as Executive Vice President and General Manager of our Nucleic Acid products group. So we now have both products and services within the Nucleic Acid business along with our recent acquisition of Alphazyme, which brings us the enzymes business. So that's the leadership team that's in place. We're super happy to have them all with us and feel that they will do a great job managing the next decade of growth for Maravai.

Got it. Okay. And then when you look at, call it, the non-Pfizer portion of the business, you've been guiding for growth in the kind of the low-20% area. What's your visibility on that type of growth rate?

Well, look, we have a pretty decent visibility into much of our business. There's always a little choppiness in the services business. Quarter-to-quarter, you can't necessarily look at last year's comps and say that that's apples-to-apples. So given that inherent choppiness, we've got pretty good visibility into what comprises the pipeline for us. We book out our clean room manufacturing suites, months, in some cases, even years in advance when customers expect campaigns needing to be coming into manufacturing. There is some flux in that because customers' plans do change, and so that varies a little bit. But we have good visibility into our plans in the services business. Products business has run a little bit more like a catalog business. So there, you just have normal seasonal ordering patterns and number of selling days that you have in the month and that sort of thing. And that also applies to our Biologics Safety Testing business. We would say that we're having a little less visibility than we would like in Biologics Safety Testing, mainly just because of China and its importance to that business. But we expect things to normalize here pretty quickly.

Meaning do you think that, that stimulus there happens and helps your results?

Yes, I think the stimulus is one factor plus there is stability of -- and the fact that the COVID endemic has gone through the most recent wave there.

Right. What are the foots on the feet on the ground telling you about the market? Is it kind of getting past it there?

We believe so. We're actually going to send Trey and a couple folks over to China here in the not-too-distant future to get their own view of what's happening with the customers.

So with the service and high content means or high level of revenue, in fact, all of it being service and product effectively, I guess, biosafety has some instrumentation, doesn't it?

Actually, we don't offer instrumentation directly. We partner with instrument providers who want to get the content from Cygnus onto their instruments, but we don't directly sell our service instruments.

Okay. Got it. Question is your non-COVID run rate. I'm trying to ask that in a different way. In other words, I guess we've kind of repeated the prior question, the growth rate of the non-COVID portion of the business being in the low-20s. I think that's kind of the gist of that, right?

Yes, that is. And that's a historical fact as well. It's not just a onetime data point. It's really what we've been doing with the base business all along. It's been kind of swamped by some of the contribution of CleanCap in the last 2 years. But as we look forward, we see that all the factors are in place to support that kind of robust growth in the future, and that includes the multiplicity programs that are out there. We disclosed in our recent quarterly earnings call that the number of mRNA programs utilizing CleanCap had increased by 70 just in the last 10 months, taking us up to a number somewhere around 250 programs that utilize CleanCap. So that in and of itself is an indicator, not only the acceptance of CleanCap, but also of the just growing number of programs that are being pursued. And I think very importantly, too, people have always wondered after COVID, will mRNA therapeutics get the same kind of treatment and the same kind of accelerated approvals that the world saw with various vaccines. And I think just as recently as Monday, Peter Marks, who runs the Center for Biologics Evaluation and Research at the FDA said basically that he thought personally that the FDA should pursue accelerated approvals for multiple gene therapies in the future. So if the regulators adopt that kind of posture, it's a very important catalyst to the continued development of the field.

Yes. That was an interesting comment by that FDA person wasn't it?

Yes. Very important one. Somebody said there's no way you can spend that one as a negative, and I agreed with them.

Do you think they have enough people yet?

Not yet. The FDA has embarked on hiring a large number of additional reviewers. I can't recall the exact number, but specifically focused on cell and gene therapies, given the explosion of NDAs that they're seeing in the field. I think the numbers are in the below 1,000.

Yes. I think PDUFA said and calls for over 100, but I don't really -- this could be more, I guess.

Yes, absolutely.

Okay. Question, I think, is interesting that's probably not dug into is the CleanCap costs compared to enzymatic capping. Is that an issue with early-stage customers, Carl, being commercial stage customers, meaning is CleanCap more expensive?

Yes, Paul, there's certainly an impression among some customers that, that's the case. You've done a great deal of work, both with our customers as well as with outsiders to evaluate that and realizing the CleanCap is an expensive component. There's no question about that. But looking at its utilization in actual programs and building a database of that. What we're finding is that, in fact, CleanCap is considerably cheaper when you take total program costs into consideration. And that's mainly driven by the fact that reducing a manufacturing step. So that's always a good thing in terms of cost reduction. And secondly, you're reducing an additional purification step, and that's very important in terms of yield. So when your intent is to get as much effectively capped mRNA product out of your process, you have to look at capping efficiency, you have to look at a number of steps in handling and you have to look at the ultimate yield. And we feel when we have the data to support that we're better than that. And our sales team has just been enabled with some additional materials and calculators to go out and show that to customers at all stages.

Got it. Okay. Perfect. And then the other is this concern about early-stage biotechs. Is it a significant part of pipeline? And are you seeing that in revenue streams from these -- from any customers?

Yes. That's a good question, and it's one that we have had repeatedly since, I'd say, 2021. And what we found is that most of the customers working in mRNA that are early stage, and there are a number of them, actually got pretty well funded in 2020 and pre the sort of window closing in '21. So we believe that our customer base is exceptionally well funded to begin with, number one. Secondly, as you'll know from following the press, each of the major pharma companies who have been involved in vaccines and therapeutics have made major commitments themselves to mRNA as a platform technology. So long term, you can expect them to drive a number of these programs as well. So all in all, we feel pretty good about it. You can see changes in prioritization, a smaller company might have been going after 5 rare diseases a couple of years ago. Maybe they've owned that focus down to 4 or 3, but it's not a dramatic effect yet.

Okay. And then kind of on the same line of questioning. It goes to the major customer, major biopharma marketplace and that is you've had a long relationship with BioNTech. Any changes in that relationship?

No. Our relationship with BioNTech goes back to the earliest days of mRNA therapeutic development. And in fact, some of the innovators who were involved in making the first messenger RNAs that could actually work therapeutically were customers of Maravai way back when, going back now 15, 20 years. And we're pleased to say that BioNTech was actually the very first customer for CleanCap. So our relationship is a long and enduring one. And it's an example of the relationship we'd like to cobble together with a number of other key players here.

Yes. Do people switch around a lot between enzymatic versus CleanCap?

In general, no. And the reason for that is, while this is the one part of the messenger RNA synthesis one, this one is very important to the performance of the drug substance in the human body. So once you've locked in on a platform that works for you from a manufacturing point of view and once you've had regulatory and thus clinical success with that platform, there's really absolutely no incentive. And in fact, there's disincentives to changing anything about that. So it tends to be relatively sticky. Our objective and our entire strategy commercially is to win in discovery. We believe that by winning in the earliest stages of the selection process that gives us the best chance to progress with a particular drug all the way through its development.

And I myself been part of this. We tend to only talk about CleanCap, but can you talk about kind of the broader strategy at Maravai, not just CleanCap, Carl?

Sure. We've definitely got a broader product portfolio and our commercial strategy than CleanCap, although CleanCap have been a very exciting ride for us up until now. So if you think about the cell and gene therapy market and break it down into a couple of different buckets, first, in gene therapy, you have to deliver the DNA or RNA to the cell in order to introduce a change that's cell genetic profile, right? And we provide the DNA plasmids that can do that. We provide the mRNA constructs or the transcripts that are going into that. We provide CleanCap that can go into the mRNA. And now we have modified nucleotide reagents as well as enzymes following the acquisition of Alphazyme. So any 1 or all of these ideally can be utilized in a gene therapy program. In cell therapies, messenger RNA is used a little bit differently, and that is to directly engineer the cells that are being altered or treated for the patient. And so we provide those same key components for that. And mRNA in that case, is also considered a critical raw material that's used in the manufacturing process. So it's our ability to provide a range of the materials that these customers need that's super important to us. And then finally, in gene editing, if you want to think about that separately, this is the area typically referred to as CRISPR. CRISPR/Cas9 or one of the other Cas enzymes. The key here is to actually providing the mRNA that can produce the Cas enzyme in the body so that the CRISPR system can work and we provide all of those components. So we're a lot broader in the Nucleic Acid Production business than just CleanCap. And then in our Biologics Safety and Testing business, we also provide key reagents, the whole cell protein and impurity reagents that are used by all the cell and gene therapy manufacturers in producing their own products. So we've got a broad exposure to the space.

Got it. One question around why is CleanCap process not spec-ed in? Would there be a chance of FDA requiring this type of specificity?

Well, it is a question that the regulators will review all of the data associated with what's called the CMC package that goes in with a particular drug, and they approve the process as well as the end product. So at the time that somebody utilizes CleanCap as part of their submission, it is effectively spec-ed in.

Yes. Got it. The pipeline for this portfolio build-out, I guess you're basically still going to have to do and you have the ability to do continuing M&A, is that a fair assumption, Carl?

It is. We have a considerable cash generation capability within the business. And we have utilized that cash to invest in our future growth. And the obvious areas are both R&D. So let's talk about innovation itself as well as the new product development pipeline. That's an area where we're making a significant incremental investment today. We've invested in facilities necessary to support our capacity needs in the future. And remember that sometimes as a product moves through the development process, it needs to be produced in a different facility at times. Some with higher quality system standards and more sophisticated processes in place. And so we have developed those facilities, and they're coming online this year. And we've invested and we'll continue to invest significantly in the commercial channel and our presence on a global basis.

Got it. What's the likelihood we -- obviously, Moderna has not really been a CleanCap customer. But are these research R&D groups, are they agnostic? Will they consider different capping methods based on a given indication or are they kind -- do they get kind of stuck on a particular capping method?

Well, I think in a rapidly evolving field, such as this, probably the first principle is, if any broke, don't fix it. So I think that, that's been driving a lot of the warp speed type activity you've seen over the last 3 years. But I think more fundamentally, this is about science, and this is about medicine and people can be open to making changes in their future programs. Going back to what I said earlier, though, existing programs because of their success and their importance, you probably are not incented to make changes in those. But if you can demonstrate that there's a better mouse trap, a newer process or a new component that helps you in future programs, I think that's where the opportunity lies.

Yes. Got it. Somebody was asking about the primate shortage issue that emerged a month or so ago. What do you -- anything you hear in the industry?

Just what I read in the papers. So literally, I don't have any further insights there. The expectation was it could slow down some programs that we would not hear about that from customers.

Right, right. I mean, with that said, the programs like the FDA does seem to have fast track both the BioNTech and the Moderna programs, I can't remember, is it in flu and/or RSV or a combination of the 2. Isn't that kind of encouraging around this FDA comment that why not fast track more cell therapies?

Yes, I think it is. And it shows the remarkable flexibility that the agency has adopted over the last 3 years. I've dealt with the FDA throughout my career, some 35, 40 years now. And I've seen examples in the past when particular public health emergencies emerged, where the agency did demonstrate the same kind of flexibility. You can go back to the HIV crisis and think about actually the accelerated approval process that's being discussed for gene therapy today grew out of the AIDS activism in the '80s, where getting access to novel therapies outside of placebo-controlled clinical trials became a major objective for a lot of patient advocacy groups. So there is a rich history in the agency of doing this, and we're fully supportive of their intent, they always keep safety top of mind, but they now know a lot more about mRNA platforms than they did 3 years ago. And I think that gives them the confidence that especially when you think about these gene therapies or diseases for which there is absolutely no alternative treatment available that this is the right way to use the accelerated approval pathway.

Question is, the hire of Andrew Burch, his background at Thermo.

Yes. The question is what was his background?

Yes.

Andrew had a number of senior management responsibilities. I think he's a reformed investment banker. So that's how he...

Yes, that's right.

Got into Thermo with their M&A and Strategy and Corporate Development group. Then spent time as an operating executive, supervising businesses as diverse as -- I can't remember if it's the softgel business, it's one of the capsulation businesses that CDMO with multiple sites all over the world that run the field services organization for Thermo, which is 5,000-plus person organization servicing the entire Thermo instrument base on a global basis. And so really well experienced operator across a number of different businesses.

Does CleanCap make the process of fill/finish easier with CleanCap? I guess the question really is, how does it work with the fill/finish providers? Is it easier than other methods, et cetera?

No, I don't think there would be a material difference. At the point that you go to fill/finish, you have a drug substance that has been produced, and it doesn't matter how it was capped at that point.

Okay. Got it. And then in the area of CleanCap, any other technologies in the market that you're developing, or you see in development? Is there always a development cycle in that part of the market? Or what are your thoughts there?

Yes. Really, there are a number of things that we're pursuing because our knowledge of how mRNA works and gets translated in the body has obviously grown immensely over the last couple of years at a pace that nobody ever imagined. So we're looking very carefully at how modifications to CleanCap or other approaches can allow us to help the body's cellular machinery do what it does even better than it does today, and there may well be opportunities for improvement there. So that's 1 area. As you think about other technologies that are out there, it's really important to remember that in the field of RNA as a therapeutic, this work has been going on for 25-plus years now. And at different points in time, different types of RNA have attracted, I guess, the community's enthusiasm and intention. So we've seen small -- short interfering RNAs, we've seen RNAi, we have seen micro RNAs, and, let's say, messenger RNA and now transfer RNA. So each one of the developments has taken literally decades to come to fruition. So there are some new technologies in RNAs that refer to circular RNAs that are pretty much in their infancy. They don't require caps and tails like the existing products, but we think those are way down the road.

Okay. Got it. The other question here is, regarding therapeutics, there's going to be more volume of mRNA requiring some therapeutics versus vaccines. Does that -- how does that translate on pricing of product? Or is it more I've got a batch, and a batch is a batch?

Yes, a little bit of both. I think we are listening to feedback from our customers about what they would like to see in terms of approaches related to licensing and product availability. And you may see us introduce some innovative licensing approaches that again, help us to win in discovery. And the more that we can do to get CleanCap adopted early, the better is our basic philosophy. But as you think about the volumes, just a crude example, there are some therapeutic applications of messenger RNA that could require a single patient to receive 30,000x more mRNA in a year than a vaccine would give them. So it is orders of magnitude different. Now the number of people who got vaccinated, as an example, was in the billions. You're talking about with most of the early gene therapies, much smaller patient pools.

I'll make the last question a little more fun and that is, what was it like during the height of COVID being in such a vital area of national and international interest, Carl?

Every day was a new adventure as they say. I think that for many of us, who were able to participate in that, it was a life-changing experience. It was rewarding, but literally, it was different every single day. And the challenge is that you faced operating your businesses, the challenges that you faced meeting the demands and then the challenges we all faced as parents and family members caring for our extended families. It just tried us in ways that I don't think any of us are anxious to try.

Yes. Well, congratulations on the tremendous amount of success of Maravai had during that time. And we look forward to continuing innovation and certainly an exciting future for Maravai and congratulations even as well for you on your July retirement, but I'm sure you'll be in close touch with it.

Thanks, Paul. It's a pleasure to see you today.

Okay. Bye-bye.

Bye.