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

The topic is a bit different. We're going to pivot a bit to the genomic medicine supply chain going from earlier discussions have been largely centered around genomic technologies and applications, including as that last panel discussed, applications in the diagnostics realm. Now I want to talk a bit about what are the picks and shovels and raw materials and suppliers that can really help go from research to actually the production of genomic medicines, which is the ultimate goal. So to speak to that topic, we've got a great group. To my immediate right here, Stephen Gunstream from Alpha Teknova, Trey Martin from Maravai and then Jian Han from iRepertoire. Welcome all of you.

Thanks.

Thank you.

Now you each touch a different part of the supply chain. So to set the table best, I think it's probably -- each one you could offer a brief introduction of your efforts and your role. Stephen, we will start with you.

Yes. Okay. Great. Well, first, thanks for having me, Dan. I'd say Teknova is a true pick-and-shovel business. We've been around since 1996. We supply agar plates, bacterial cell culture media and buffers, license buffers, TE buffers, you name it, across the board for the entire life sciences. Been around since '96, as I said, and we're in every major life science tools, biotech, pharma stockroom right now, right? So that has been a historical business where we supported a lot of the discovery in the space. About 4 years ago, we recognized that there was a big opportunity, particularly in these novel therapies, cell and gene therapy, mRNA and others that the need for a much smaller batch as much custom -- more custom, more personalized scale than what has been built out for a monoclonal antibody bioprocessing was there, and we were in a good spot to be able to deliver on that. So the last 3 or 4 years, we've invested substantially in building a brand-new facility, infrastructure quality system to make that happen. Today, we're a leader providing these less-than-1,000 scale reagents for making these therapies. And so we scaled up from about 6 clinical customers to 43 in the last couple of years. Many of those -- 39 of those 43 are biopharma-related customers, 23 of which are cell and gene therapy. And we're happy to support those as they go down the pipeline, but it's also important to state that a lot of the presenters so far today have actually used our products, whether it's sequencing or spatial genomic companies, the diagnostic companies all use some of our reagents as part of that pick-and-shovel business.

Understood. And Trey?

Sure. Maravai is a public entity with 4 businesses underneath. We report in 2 different segments. The segment most aligned with the theme here today in genomic medicines is called nucleic acid production or NAP, and that's a collection of 3 businesses, 4 divisions. The one that gets most of the headlines is a company called TriLink that has a technology that was included in the COVID vaccines, specifically the Pfizer-BioNTech vaccine. But what we've assembled there in NAP is now a broad array of essentially all the inputs focused on the mRNA modality. So nucleic acid chemistry, all the chemical inputs that go there, the enzyme inputs and so on. And there's quite a bit of experience in the TriLink business in the service realm, which is to say the assembly of all of those inputs into the finished mRNA drug substance. That was a preclinical Phase I focus pre and during the pandemic, and now with the recent opening of our Flanders facilities, we've got the ability to support clinical commercial programs all the way through in the service realm as well. So it's a rather unique position specific to mRNA, where you have the reagent inputs from RUO to GMP and a service capability to produce the mRNA drug substance itself from RUO to GMP. On the other side, we have a reporting segment called Biologics Safety Testing, which is specifically a company that has the gold standard test for looking at host cell protein detection in all biologics manufacturing. And the part there for the next-generation medicines that we're particularly proud of is that all 23 approved cell and gene therapies, CAR-T therapies, use the Cygnus system for checking their host cell protein detection. So we participate in different ways, but specific to genomic medicine supply chain, I'm sure we'll be talking about the NAP segment mostly.

Absolutely. And then, Jain, you work with a number of these cell and gene therapy companies as they try to get their products over the finish line. Could you please educate the audience on iRepertoire's role?

Yes. iRepertoire is supply -- in a sense, supply biomarkers. We test T cell, B cell receptors through high-throughput sequencing after multiplex PCR, so we can sequencing [ 07 ] chance of T cell B cell receptors from 1 sample in 1 reaction quantitatively. And automatically, we have a machine to do that as well. So that turned out to be a -- today's immunotherapy and cell therapy, many of the biopharmas use our technology as a companion diagnostic, help them to identify patients before treatment started, who may be most likely responding to their therapy, improving the protocol of cell therapy during culture, QC and after introducing the cell back into the patients to monitor the response.

Okay. So pretty broad relationship with the genomic medicine companies across the different touch points that your companies represent. One of the topics I want to address, which I think is interesting to have suppliers here. If I had any one specific therapeutic company on stage, we will be talking very narrowly about their own opportunity and progress. But with a few suppliers, you can perhaps offer a broader overview of just the market. And where are we in the market and give us a market update on what you're seeing from a supplier perspective.

Sure. Happy to start. So my perspective, I think things have definitely stabilized in the space. And I think if I go back to 2022, right, I think we lowered guidance in the midpoint of 2022 after quite a bit of growth in the first half. We were one of the first companies, I believe, in the space to actually do that. And it was obviously not terribly fun at the time. But the reality was, I think it's because of what you said, we supply a lot of these players out there and then when the funding dries up, we are one of the first companies to see that because there's not -- a lot of our products are made custom and they go directly to the customer as opposed to being stocked and then held for some time. 2023, a lot of our largest customers in 2022, and we're talking about customers for us. I mean we're relatively small, just under $40 million in guidance for the year. $1 million account for us is a big percent of our revenue. We had a handful of those in '22 that were ordering from us, and that really did not order from us in '23, and we're starting to see those conversations pick back up right now. Biotech fundings improved. You can see that. And then obviously, in the cell and gene therapy, if you look at the Alliance for Regenerative Medicine report on the funding so far in the first half of this year, it's actually above 2023 funding. We track all this stuff very closely. You can tie a lot of our revenue directly to a 4-quarter lag from the time the funding happens to the revenue recognition. And so that's why we're feeling pretty optimistic as we look towards 2025. And like I said, there has been a lot of stabilization in the space. And we just did our update earnings call yesterday. All that's very fresh in my mind. But midpoint of our guidance for the back half of this year is actually double-digit growth compared to the back half of last year. So we're starting to feel like, hey, things are starting to turn, which is great to see in the space.

Okay. Trey, can you talk about what you're seeing from a market demand perspective?

Yes, for sure. And with, of course, the mRNA modality, it's definitely a tale of 2 different cities, right? The rising tide of funding and activity of the pandemic carried up all modalities, all funding, everything. mRNA was, of course, a meteoric rise as we went from essentially no approved mRNA modalities of any type to global vaccine dosage in the billions. The amount of flex in the supply chain then for mRNA was astonishing and the complexity of the supply chain was astonishing. What everyone achieved during that period is truly remarkable. Now people have time to optimize their process workflows, to incorporate newer chemistries, which, of course, we're very excited about and supply chains are clarifying quite a bit. But the activity level when compared to '21, '22 is, of course, almost a logarithmic scale. We are really excited about the growth of new programs. We're tracking over 1,000 programs now cumulatively that are still active, but these are on a totally different scale, of course, than a global pandemic response. So -- but at the same token, that to us is attractive from a -- to have a more broadly diversified group of clinical programs that we participate in. And then, of course, to see the discovery market, it's what we call the RUO market, which ultimately will drive the inclusion of these new workflows and technologies into these clinical programs. So there's a lot of activity preclinical, a lot of activity Phase 1, and we see a -- certainly, a more clarified and reliable supply chain than what literally had to be created during the pandemic.

I want to circle back to that in a moment. But Jain, I'd love to give you an opportunity to comment on what you're seeing in the cell therapy market.

Well, I think in the cancer treatment, physical therapy, chemotherapy, small molecule, not a large molecule and migrated to cell therapy because people believe it's a cellular level that addressed the question. So cell therapy is growing, but cell therapy has a lot of problem by itself. All the assays, for example, we work with Iovance, get their TIL approved as basically a companion diagnostic, help them identify the patients. But first of all, we have to design the assay for T cell, B cell receptor sequencing limits of detection, repeatability, sensitivity, all that answer to FDA and validate those assays and work with them in the clinical setting to identify patients may respond to their therapy. Also developing assays, some of the unique assays like feeder cell assay, nobody heard about it because you need to feed the cell with other unrelated people's PBMC and the FDA worried about what if the cell is still alive and you got graft-versus-host disease. Sterility test, potency assays, all these assays associated with the new therapy are need to be developed, validated and work with the company as early as possible. So there's a lot of demand for this kind of assay.

Okay. So as products migrate to commercial approval like the Iovance TIL product, you mentioned that that's carrying a long demand for these different assay technologies. Is that a fair summarization?

Yes. Yes.

Trey, you made a comment I want to touch on. Supply chains are clarifying. One of the interesting things in some of the work that you put out in terms of market research that you share with investors what I thought was the insight that Pfizer had 80 different suppliers for their COVID vaccine. Is that typical? What does that supply chain look like in the future when maybe we're not dealing with a pandemic, but there's an mRNA therapeutic? Is 80 a different number? Any thoughts on that.

Yes. I think there is a lot more than that during the initial scale-up. I think it was a multi-continent hundreds-of-supplier situation. Yes, the -- and to be honest, their supply chain, they've probably done a remarkable amount of work. What I can comment about is where we have gone in that period of time, which is we -- our participation, Maravai specifically, our participation in the Pfizer vaccine was in 1 reagent, 1 technology we have that was scaled literally from grams of RUO to kilos of GMP during that period of time. That's '21-'22. Now where we sit in '24, we have the ability to produce all the nucleic acid chemistry. Well, of course, that CleanCap, the HALO product there. But all of the NTPs that go into the reaction, the enzymes that catalyze the reaction, all the buffers, et cetera. So our own supply chain for our service business now is almost completely vertical, for example. And where we were 1 reagent input in just a few short years ago, now we have the capability to supply all of them, RUO and GMP.

So in the future, Maravai specifically would be able to offer just a far broader swath of products and services to that -- to any one specific customer, I'm not to use Pfizer by name, but any one specific customer in order to narrow and better stabilize their supply chain to use your words?

Right, exactly. You go from having to source from hundreds to likely -- well, I won't give a specific number. It depends on everyone else -- their individual supply chains, but just in 2 to 3 short years, that's where we've come in offering a broader array, all the inputs essentially, to the workflow.

Okay. Stephen, you made a comment that -- and I don't think I could fairly reiterate it, but something to the degree of there's a difference in supplying your customers as opposed to a monoclonal antibody workflow, so genomic medicine as opposed to monoclonal antibodies. Can you elaborate on that? What are the sort of different customer requirements, skill sets that a customer in this supply chain is looking for?

Yes, absolutely. I mean that's sort of the basis for our strategy and investment we've made. When we started -- when I started about 4.5 years ago at Teknova, we looked at some of our largest customers, and they were -- the cell and gene therapy and some mRNA therapy in development. And clearly, they're coming to us for a reason, right? And the reason, as I came to find out as I visited them was the fact that we could do custom GMP products really quickly. And a lot of the reality of the space from like monoclonal antibody therapeutics is these have been established. They're stable, they're predictable, but they're also done in 10,000-liter vessels. Whether you're making a drug for a cancer or another disease, that monoclonal antibody, manufacturing processes are pretty much the same. And when you start to think about these cell and gene therapies and then, of course, mRNA came along as well, the nuances in making these are very different, right. Making an AAV virus for a gene therapy is very different than making a cell therapy, which is very different than making an mRNA and even in -- within like an AAV, for example, the size of the gene and the packaging changes actually what reagents you need to purify that and separate what we call empty and full capsids. And so when we set out to say, "Hey, we can expand on this. Let's make scale that are much smaller. We're going to much more personalized, smaller batches, rare disease, smaller patient populations, generally, and let's do it really quickly on that custom side of things." And that's investment we made in our facility, our quality system and everything like that. So there's one more aspect, obviously, which is these processes are not yet efficient and reproducible as they should be. And so you do as a business, like we have in our facility, to make sure you built in the flexibility for what might come in the future. And so I think we've done all that. I think we're set up, and we're supplying a lot of those customers now. And much like Trey mentioned on mRNA, a lot of the stuff is still preclinical, right, in Phase I. So as we onboard these customers and then we'll support them all the way through that clinical pipeline, the commercialization. And so we're now in a great position to do that.

So the primary differences -- to play it back, the primary differences are speed and flexibility, scale, right?

Scale is a big one, right? So making hundreds to thousands of liters of reagents versus tens of thousands of liters is definitely one. And then, yes, that customization flexibility there.

Trey, I feel like that's something you built into Flanders 2, having just been there and seen the different suites. Could you elaborate on that?

Well said, yes. We scoped. So Flanders 1 is the bulk cGMP production for nucleic acid chemistries. That's a 4-suite building. And Flanders 2 is the mRNA services building, which can take, now, customers through clinical commercial approval. And that's a 3-suite building and we scoped the size of the suites and their service capability, not for the next pandemic on the service side, but for -- to support multiple parallel programs. Like Stephen said, smaller programs, rare disease indications and so on with the idea that diversity will grow significantly in the clinical pipeline. And we won't be needing billions of doses of these things, we'll need -- we'll have many, many programs that need thousands, tens of thousands or even single doses.

Can you talk about how you build the business off the back of that? There's -- a lot of the genomic medicines are targeted towards small indications, small patient populations, rare diseases. How does that become a big opportunity then for suppliers?

Yes. Well, the -- in our case, the position that I'm happy that we hold is that we are really product and technology inclusion first. Our service capabilities on the discovery side help -- intend to help our customers reach their -- well, narrow down their indications and choose their lead candidates more quickly, drive the industry forward, and then we have the ability to phase with them all the way through clinical. But the service really enables the inclusion of the products, if that makes sense. So I think it's -- look, mRNA is a platform. It's like software for the cell. So whether it is for the spike protein in COVID or for an individualized oncology therapy or a protein replacement or to express the endonuclease for CRISPR gene editing, whatever it is, the mRNA modality, the structure is very, very similar. The only difference is the configuration of bases. And so it's now thought of, I think, broadly in the investment community as a COVID vaccine, but it's a platform for the next generation of medicine. And it could and will evolve in a lot of different ways as a tool to create cell therapies. There are just -- there are so many different possibilities there. And our intent is to try to get differentiated -- our differentiated technologies in as many of those programs as we can.

So your argument would be that mRNA as a platform is a very large opportunity, even if any individual indications are small opportunity?

Absolutely. Yes. And again, the reagent inputs and the process are largely the same, no matter which of those branches you're taking.

Stephen, do you have anything to add to that?

Similar, I would just -- I would add, obviously, this is -- you need lots of shots on goal. We need to bring in as many of these clinical customers as possible. And that is, when we look at what we built out, that is our strategy and how do we ramp those customers up. And then obviously, as they go down the pipeline, the spend goes up, and it's a very sticky base, right? So we model about a 30x increase from Phase I to commercialization. And so we bring those customers in. Obviously, it's a binary impact whether or not they get approved. But if you bring enough of those in, they certainly scale. And then, of course, we have -- different than Maravai in what we offer, we're more of a supplier to a lot of the CMOs, we have a piece of all of them, right? So it doesn't matter if it's, let's say, mRNA or gene therapy or cell therapy or if they're just looking for some other reagents along the way, we support across all the technologies and hope to scale with them as they go through to clinical trials.

Jain, I'd love your thoughts on the expansion of indications in cell therapy.

Yes. Not only that, I think to go with RNA, I'm trained as Medical Genetics and Board Certified, but I didn't go to sequencing the genome and go after the immune repertoire because T cell, B cell receptors there are disease sensors. They are more sensitive. They are more specific, and they are just in your blood and more directly related to the disease. So pretty soon with all these companies developing high-power, high-throughput sequencing. Genome is boring to sequence. It's -- everybody is basically identical. But you and I, we are sharing only 3% of our new repertoire. Identical twins only share 6%. And every one of us have our own makeup. And so sequencing genome is like you're sequencing the iPhone out of the gate and its operation system, the app is all identical, but that is the fate. Sequencing new repertoire, we call Adaptive, adaptive immune [ OMC ], it is like you're sequencing your fortune. And maybe protein, I'm a little biased, protein is sequencing feng shui. So it's everything you can do, but smaller impact. So where do you find the next wave of biomarkers that is informative, that you can get rid of the noise and help all kind of treatment, not just cell therapy or big molecule, but even because the immune system sees everything and all the diseases, either something broke or something growing and doesn't matter what happened, there are supposed to be disease-specific antigens. And that you see the repertoire can help you guiding what disease you may have, so either diagnosing disease or evaluating health. So pharma is only part of the companies now using us, but down the road, diagnostics, wellness management, insurance. So there's more utility with immune repertoire sequencing. I think I argue then the genome at least we complement each other.

But even with CAR-T specifically, that product category started in HemOnc and it seems to be branching into other areas beyond oncology. I don't know if that's something that you're seeing as well in your work?

I'm seeing but I'm also seeing a lot of failures of going -- CAR-T to go to solid tumors. The reason I don't think it's a technology, I think maybe it's a science is where we believe -- we still believe cancer is a genetic disease because we see mutations. But I've been doing repertoire sequencing for 15 years. We have sequenced 300,000 samples. I believe cancer maybe is an immunology disease, where your immune system have a host and allow the cancer a chance to grow and accumulate mutations. So which one comes first? And if the -- we actually published a paper with NYU showing that using our multi-chain sequencing technology and find out those CD8 cells in cancer tissue, most of them do not recognize the so-called new antigen or mutation. So that maybe the CAR-T targeting particular mutations, maybe not the -- what the immune system sees and so that requires new tools and new science and new theories to guide us.

Interesting. Stephen, you mentioned a 30-fold increase, I think, between catalog to GMP. Is that right?

Between Phase I and commercialization, yes.

Phase I and commercialization. And just again, sticking with the topic of how you build a big business on the back of this industry. So that would be one of the ways these products have to matriculate into a commercial format?

Yes, absolutely. So we have -- I mean, just for everyone, we have a catalog business, like I mentioned, we're in stock rooms. We also do a lot of OEM in the license tools and other spaces. That's the foundation of our business. It's probably about 2/3 of the business, right? And we do some analysis basically to say, "Hey, of those customers that only buy catalog products from us, right, what is that spend of the GMP customers relative to those ones that only buy catalog?" And that is in the 70, 80x range, right? So for us, it's about migrating that giant catalog customer base, which is about 2,500 customers in the United States to GMP, right? But then once they're in GMP, that's typically around Phase 1 for us. And then as they scale from there, it's about a 30x increase as they go down those clinical trials as they increase the patient numbers. So we kind of think of our business, we have 2 pieces. One is we have to run a very good business on the foundation that's kind of driving historical growth of the business and then pull from there and migrate them to GMP and then have them go down those clinical trials. So one aspect, you'll see -- you'll hear, I talk a lot about the number of customers on our clinical side. Like I said, we've gone from 6 to 43, right, on the, what we call the lab essential side, which is much more the RUO side. We talked about the average spend per customer. So we're looking at wallet share there. And so -- but absolutely, our historical growth since 2009 has been about 13% average CAGR. And that is basically contemplating that research side. The additional clinical piece is where we think that we can get quite a bit more growth out of the business over time.

And then, Trey, I think they're speaking from the concept of multiplier effects, I think there have been a couple of different multiplier effects for Maravai's business as we've talked over the years. One is the phased progression of drugs through the clinic. But can you remind me -- I recall that even a phase shift from 2 to 3 could be quite meaningful for your business, even pre-commercial and just remind me what that looks like. And then further, just the concept of different amounts of active pharmaceutical ingredient across different indications and the implications of that for your business, if you could just bring me up to speed.

Yes, I mean, that's a good way to phrase it, Dan, because it's difficult to come up with an average, right, as we were just talking about. In our case, we have involvement in 3 of the 4 commercially approved mRNA vaccines. And they -- those are all similar indications, similar dosage and things like that, but the -- all of the variety and diversity of the programs that are coming through the clinical trial now, like we were talking about before, means that there are some things for a handful of patients, some things for hundreds, some things for thousands. The quantity of drug substance needed for a protein replacement or for the involvement in CRISPR for a personalized vaccine, all of those are very different. So there are a lot of overlapping curves. There's not really an average anymore as all the programs diversify. So we're not really looking at things that way yet because we frankly don't have enough experience with all those different indications to say this kind of program goes from Phase I, II, III, it looks like that. We just don't have enough clinical experience yet because the vast majority of the activity is still in preclinical Phase I.

Can you reflect then a bit on the value to your customers of offering a broader suite of products and services, which has been a big part of your business strategy?

Definitely. Well, it comes back to your core theme here of supply chain being inordinately complicated. Again, the mRNA modality was sort of in its last mile during the pandemic and some incredible efforts, some investments made it possible to go from no approved specific program to billions of doses of vaccine. But the ecosystem to support a traditional clinical trial funnel that has evolved over 10 years didn't exist yet because it hadn't had the time to go Phase I, certain amounts of failure. We're talking about failures Phase II, certain amounts of failures, evolution, Phase III and so on. We skipped right ahead to the end. The great news is that the platform worked incredibly effectively. And now in essence, we're sort of filling in that traditional funnel that would have evolved over 5 to 10 years. And it's important then because that whole ecosystem is so new to try to make it as easy for people to progress their program as quickly as possible, which is the reason to try to diversify all the inputs.

So customers aren't actively -- that was a special case where you had the 80-plus suppliers. Customers in normal circumstances where a supply chain is progressing over a decade, would prefer to work with a one-stop shop and...

Well, it depends on size, right? The major top 10 pharma players are going to either have their existing production partners or be in-house. All of the new startups being excited about the new platform, range in size and range in funding. They may need 1 reagent, they may need all the reagents or they may need the entire service. So because it's such a new funnel as we're talking about, we think it's best for the inclusion of our technologies to be able to support any of them. Obviously, most of the headlines during COVID were supporting, again, with essentially 1 reagent or technology for 1 customer. The future is a lot more broadly diversified than that in a range of customer participation, in a range, getting back to your question of the amount of material needed, the amount of doses for a given program, the concentration of said dose depending on what the indication is, the target tissue and so on. The bad news for modeling is that there's just no normal distribution answer for it because we don't have enough experience in all those different target indications. The good news is that it's broad, diversified. And I obviously believe it's going to be one of the major platforms for medicine going forward.

Are there any early anecdotes you can share about cross-selling or attachment rate or anything along those lines, which I'm sure you're tracking?

Yes, that's what we're working on. And I guess probably the one that we have disclosed before is that the vast majority of our service business includes our CleanCap reagent. That's the one that's out there and that is logical, and it sort of supports the thesis that we want to be product and technology leading and service to enable the inclusion of those products and technologies. And again, that will be broader and deeper depending on the size of the customer, the size of their program and so on. But we're here to help, RUO to GMP, 1 dose to a billion.

Before I run off the clock, I can't host a supply chain panel without talking about the geography of supply chains and your conversations with customers and how important or not is geographic location in your conversations nowadays and how has that changed places? Maybe I don't know, Stephen, if you want to start off and then Trey.

I think 97% of our sales are in the United States, our customers obviously are global in nature. I would say that local supply for a lot of the stuff we do because it is fast turnaround time is important, right? We don't serve as much outside the United States. We don't have a facility out there to manufacture it, which brings a lot of this stuff. Obviously, our catalog products we can ship over there and things like that. But when you're talking about fast turnaround time with some of these custom products, the fact that we're in the United States is part of the reason they were selected, and from a supply chain perspective, we've done a whole lot to make sure around materials as much as possible coming from the United States and that we are making sure that we have secondary sources for all those things, I would say. So from our side, maybe it's a little bit of a simple answer, right? We see a lot of interest in the United States in what we do and have been very focused there. But they are not looking at -- for these type of reagents for the clinical, but looking at going outside the United States for most of the stuff right now.

Trey, how have your conversations evolved?

For reasons, I think, that are on the top of mind for everyone in the room, we have a lot more interest in the fact, which like Stephen just described, just happens to be the evolution of the company that we're making RUO and now GMP nucleic acid chemistries, bulk chemistries, differentiated chemistries and enzymes, all in the United States. And that has become of, let's just say, increasing interest of late to those that we supply the reagents, but also those who are interested in our service offerings because we're vertical for those inputs and Dan, you were just at Flanders 2. It's pretty powerful to say that the NTPs and the caps come from next door in Flanders 1, right there in San Diego.

Okay. Yes, you mentioned for reasons we're all familiar with. We read the papers and it's often curious for me to learn if what I'm reading in the papers is actually impacting business discussions, and it sounds like it is.

It is. People are much more interested in going down the line in the workflow source -- where the source of material and inputs comes from. That was not a primary focus of conversation in the service business 5 years ago, not at all.

Great. Well, we covered a lot of ground. Let's wrap it up, we're out of time. But Stephen, Trey, Jian, thank you all for your time.

Thank you.

Thank you.

Thank you.