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

Good afternoon, everyone. Welcome to RBC Capital Markets 2024 Global Healthcare Conference. I'm Conor McNamara, the Life Science Tools and Diagnostics Analyst at RBC. It's my pleasure to have Maravai on stage. With me today are Trey Martin, the company's CEO; and Kevin Herde, CFO. Gentlemen, thanks for joining us.

Thanks for having us.

Yes, thank you.

Trey, let's just start with you. Just we're going to start high level, then we're going to go into kind of the recent quarter and the near term, and then we're going to get into the things ahead if that's okay with you.

I'm good.

So just high level, you joined the company. You've got arguably more experience in this space with what you did in the business you sold to Danaher. And just give investors a little bit of background about what attracted you to Maravai.

Sure. So I've been in, now for 30 years, in synthetic nucleic acids and I had the benefit of working with the founder of IDT from the very beginning of my career, growing that into a very large business that, as you said, we sold to Danaher. The foundations there were in nucleic acid chemistry. The chemistry makes, in that case, the synthetic oligos, which ultimately led to synthetic genes. And honestly, it was a scale-out business. Here in health care, we talk a lot about scale-up businesses, things progressing from Phase I, II, III clinical trials, bigger bulk, lots of the same thing. But in that case, we scaled out from tens to hundreds of thousands of custom sequences per day. And of course, those have applications in basic research and diagnostics and so on, also with synthetic biology. What I saw in Maravai was, interestingly enough, one of the companies Maravai had brought in, TriLink, was founded by the last person to have my job at IDT in Iowa City, Iowa, small world. But also a company that had a very, very strong base in nucleic acid chemistry, but had pivoted to therapeutic applications and had been fostering the semi-nascent mRNA space well before the pandemic, actually into the early 2000s with some of this custom nucleic acid chemistry and indeed RUO mRNA services. Of course, the pandemic brought Maravai fully into light and have the company scale from RUO chemistry to full GMP chemistry inclusion in the COVID vaccines and billions of doses, which nicely, of course, proved the safety and efficacy of our technology and approach and opened the door, I hope, for the next generation of programmable medicine, which is mRNA and CRISPR, where regardless of the end game for a neoantigen, for an infectious disease vaccine, or for a personalized cancer vaccine, or a protein replacement therapy, or translating the protein for endonuclease and CRISPR gene editing, all of those mRNAs I just described are made roughly the same way, and they're just a configuration of nucleic acid sequence. So at the end of the day, this medicine will come full circle and will be programmable by scaling out the number of custom sequences that can be synthesized any given day, any given time. And so it's -- hopefully, the next arc for me is helping in therapeutics.

Thank you for that background. And one of the questions I get a lot from investors or one of the concerns about your stock or your company is Maravai is a COVID company and Maravai, all they make are mRNA vaccines or they're an mRNA vaccine company. And I eloquently usually try to say, that's not correct. But if you were given that, how would you respond to that, to investors?

I would say that's not correct.

Okay. Well, investors love more than that I [indiscernible] tried, but...

Well, absolutely. So look, COVID CleanCap was a massive sea change for this company. Maravai, first of all, was a focused consolidation of scientific, founder-driven, category-leading companies. So Maravai is TriLink, which has the CleanCap technology, but it's also a company called Glen Research; a biologics safety testing company called Cygnus; most recently, an enzyme company called Alphazyme. So there are several companies in our family. CleanCap got all of the press, because CleanCap went from being a differentiated technology in research mRNA to being chosen to be in the Pfizer-BioNTech vaccine. And we went from making grounds of RUO-scale chemistry to making kilos of GMP-scale chemistry. And of course, that drove an amazing amount of revenue and changed the company substantially. The outcome of that is, like I said before, we have the safety and efficacy of our chemistry and our approach proven now in billions of doses of vaccines, but we also have 4 new facilities, 2 more acquisitions and $0.5 billion cash in the bank or what will be the next generation. Sure, there will be infectious disease vaccines. mRNA is really the best possible modality, because you can go so quickly from sequence to shot. But I'm excited about the applications in oncology, in gene editing, in protein replacement therapy and everything else. Certainly, you could look back at the pandemic era of '21 and '22 and say most of the revenue came from COVID CleanCap from Pfizer. But all you have to do is look at our 10-K and see that, that wasn't the case in 2023. And so now we hope to build a broad and diversified base of business with the unique position that we span. First, products and technologies from RUO to GMP and now in support of those products, service element that spans from RUO to full commercial scale GMP. So all of those elements are what Maravai is, not just COVID CleanCap.

And I'll come back to that a little bit when we talk about longer term. But just maybe, Kevin, this is probable this for you, this is probably for both of you. But in Q1, you outperformed your guidance, you outperformed expectations. You look at what you're guiding for the second quarter, it implies roughly a flat first half to second half, which if you -- those of you that know the life science tools space right now, most are facing a tough first half, and most are assuming a ramp in the second half. And so I understand if there's some conservatism, you don't have to admit that. But is there anything you're seeing in end markets that would say, maybe there won't be a ramp in demand in the second half versus the first half because maybe the biotech funding isn't flowing through, or pharma still isn't spending or researchers are pulling back on the dollars? Is there anything that you see like that, that led to kind of the way you think about the second half versus the first half?

I'll take that, Conor. I would say that we don't see the year that much differently than we did when we gave our initial guidance 3 months ago. What we get visibility to the changes timing are bulk orders of volume that our customers place with us that run through our nucleic acid production segment predominantly as well as the scheduling out of GMP jobs. So part of what we do is on the GMP services side where we incorporate our technologies into mRNA builds and do that as a service for a fixed price, much like some of the traditional CDMO will do. So we have visibility and as those things move around a little bit, and you'd see if you know our history that our quarters don't always go in a linear fashion just because of how our customers want our products. And ultimately, that's what we're here to do is provide them what they need, when they need it and move their schedules. So that's just the way I'm saying. We'll see some volatility throughout a given quarter-to-quarter. But overall, I think we feel as equally balanced on the years as we've recently guided. I think that's a good thing for us. Certainly, given the coverage we have in the second quarter, we feel good about the revenue projections there. And I think we'll wait and see on what that means for the year after we report Q2. I think we continue to see a range of outcomes. But I think on a whole, we feel about the same as we did 3 months ago with the overall market which is, again, I think a leveling out and a generally positive and cautiously optimistic tone.

Great. If you just -- so Trey, we've got -- if you look at the cell and gene therapy market, there's roughly, give or take, 2,000 programs in the either discovery, preclinic, or in the clinic and maybe there's more, maybe there's less. But how do you think about the health of those -- of that market cell and gene therapy research? And of those 2,000 programs, how many do you think you are currently involved in?

Well, so here, I'll give a little air play to our -- the other segment, which is Biologics Safety Testing. That segment really comprises our participation in what I would call the biologics market real large. And one of the things that we continue to trumpet is that all of the FDA-approved cell and gene therapies here in the U.S. are QC'd with Cygnus kits. So there are many biologic-driven cell and gene therapy programs that are using viral vector gene therapy, for example. What we -- the clinical data that we recently gave in Q4 was specific to mRNA programs. And there -- that's about 1,000 of the 2,000. So there are broad categories here. And one of the things that obfuscates the number of programs is that mRNA can be a vaccine, it can be a protein replacement. It can be a tool to create a cell or gene therapy. CRISPR gene editing is the same thing. It can be a direct therapy or it can be a tool to engineer a cell therapy. So we were specific having done some third-party work in a deep dive to our participation in mRNA programs at about 35%. In that case, about 350 programs. Cell and gene therapy, knock on wood, that Cygnus so far on the biologics side, is participating in 100% of those programs in their niche Biologics Safety Testing.

Once those are approved? Or is the participation prior?

Prior for sure. In fact, Cygnus does more work with partners early phase while they're doing their process development. So they actually consume more Cygnus kits in preclinical Phase I and process development. But then, of course, we're expecting to stay with them through commercialization.

And in the 350 mRNA programs within the cell and gene therapy on the non-Cygnus side, what's the typical revenue ramp as the program goes from preclinical to Phase I, Phase I/Phase II, et cetera?

We actually showed some data like that, I believe, in a quarter that preceded me. So maybe I'll tap the resident historian to talk about what actually goes...

Actually those are 10x.

Yes. And again, all these programs will vary. I think one of the things getting back to being a vaccine company versus a tools company, which we are more broadly certainly is the level of mRNA that you have in different end applications is incredibly different, right? Prophylactic vaccines are going to be very small. Something that's doing a gene or cell replacement, that's going to be substantially larger and good dose multiple times in a given year. So you have a wide range of potential outcomes here as far as the amount of mRNA or the amount of capping material that you need that correlates to that mRNA. But generally speaking, we do see nice inflections as we stay with people through phased progression. And that's a big part of the future of Maravai as we sit here today. We historically were very successful and continue to be successful in the discovery side and the research side and the preclinical support. But where we start to get bigger inflections and bigger moves is when people go to Phase I, Phase II, Phase III, obviously, what we've seen with the commercial impact of vaccines and because of the volume demands those include. The nice thing about where we are today, we're still growing, we're still successful. We like our position, but we haven't started stacking multiple approved products yet. Really, that is when we look forward over the next 5 to 10 years, specifically as mRNA modalities move more into the later stage and hopefully multiple approvals come, that's when you really start to build in that annuity stream with your participatory in your technologies, or you're building it or both. And we're unique because we're one of those companies that provides both the products and the services. So as we start stacking those approvals, you do move from a lower run rate of dollars to a nice inflection when they do a Phase II build, for example, then they might go away for 3 or 4 quarters and then hopefully do a Phase III or get approved and then you start to see that build up. So they can be -- go from $1 million to a $5 million to a $10 million campaign and hopefully something at that level in perpetuity annually that once they get approved is really kind of how we can build our business over and above the market growth rates that we're already seeing.

Great. And does having the GMP facility online now, does that allow you to address more of those programs as they go from -- as they go into Phase I, because you've got to have GMP product to go into Phase I. Is that correct?

Yes, for the API, you do. So it's something included in the final product. But we really have, first of all, scaled. So Flanders 1, the facility, has scaled to commercial-scale cGMP inputs like CleanCap, like NTPs. We are working on the same transition for our enzyme business. And then Flanders 2 is the service-oriented piece, the building specifically designed to do full mRNA builds under. The delta for us was that we were supporting many. We've actually done over 100 GMP mRNA runs preclinical in Phase I in our prior building. But we needed a different level of facility control and quality system to support Phase II, III, and commercial. So what we just opened last month, Flanders 2, is our new essentially asset that allows us to support people all the way through [indiscernible].

Okay. And at what point in that process does Maravai get spec-ed in on these programs?

Typically, you're completely locked at Phase II plus, but very often -- well, I mean honestly, with the long history in discovery, one of the reasons you hear us talk about winning in discovery is that very often, people will accumulate their data and stick with particularly technologies like CleanCap all the way through from discovery on. In fact, almost all of our GMP service business starts in discovery.