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

All right. Good evening, everyone. I'm Tejas Savant, and I work on the life science tools and diagnostics team here at Morgan Stanley. Before we begin, for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, do reach out to your Morgan Stanley sales rep. So it's my pleasure to host Maravai this evening. And speaking on behalf of the company, we have CEO, Trey Martin; and CFO, Kevin Herde. Thank you so much for joining us today.

Maybe, Trey, just to kick things off, Maravai's gone through quite a strategic shift since you've joined the company over a year ago now. So just talk to us about how your transition to CEO has been. What areas do you think needed the most improvement and hit on what the team has accomplished over the last year?

Sure. Of course, the dynamics for the whole industry were, let's just say, interesting for 2023 as we came out of the pandemic and many companies in our space participated in the pandemic, maybe not so much as the impact that was on Maravai, which was transformational, obviously. The financial numbers are well known, but the effect of participating in this huge initiative to create the first RNA vaccines really validated the chemistry, had the company scale from grams of RUO to kilos and E&P product, and really brought in a bunch of capital that has been really well redeployed with additional M&A and capital investments in capacity facilities and so on. So I walked into a position that was really well stacked with a capability and some projects that I'm really thankful started before my arrival about a year ago. What we had though was a period in the pandemic where essentially one customer group and one product dominated all conversations. And now, what we have is an ever-increasingly diversified set of products and services that will contribute to revenue on a go-forward basis. We sometimes talk about the different phases of the company from the private equity phase to the IPO and the pandemic and now the endemic phase. And what I see there are huge opportunities, but we had to put in some mechanisms to work on forecasting the rest of the business since the business was no longer dominated by one customer and one take-or-pay contract. We had some new team members, some that came in right before me and adjusting. And then, of course, we had the challenge, but the necessary challenge to reduce the corporate costs going forward, which we dealt with in Q4. So there's been a lot of change and a lot of action. I would say that I'm really thrilled still with the position to take the helm of this company where we have, again, this really thoughtful redeployment of capital that came through the pandemic for capacity that can drive us for the next 5 to 10 years, an ever-increasing product set, a really fantastic team, just a lot of opportunity going forward.

Yes, that's a great overview. So let's start with NAP, specifically on the CleanCap side. And we get to your favorite topic, which is forecasting [ COVID ] sales in a bit. I think I'll let that be Kevin's sweet topic. So to kick things off, while the infectious disease, a drug and vaccine pipeline is a bit more mature, the oncology and rare disease by compliance remain in their relatively early stages. Do you think that the rapid rollout of mRNA-based COVID vaccines has helped accelerate those timelines to market for other mRNA candidates?

Absolutely. I think such a unique situation we've been speaking a lot about that certainly, there were decades of work to enable mRNA to have a clinical outcome, but not the traditional someone in one of our meetings today called it the slow walk of Phase I, some failure Phase II and reprise reconfiguration, Phase III, the methodical walk through that process. We really went from early phase to billions of doses of clinical vaccine and it worked and it was efficacious. It's an incredible statement for the technology. And I'm very hopeful that it pulls the whole industry forward by many, many years because we know at the end of the day that it works.

How are you thinking about sort of the broader mRNA pipeline opportunity, growth over the medium term? And how far away do you think we are from the next wave of mRNA-based vaccine therapeutics?

Yes. I think, well, the path to mRNA vaccines is now at least successfully traveled. So I think people see the easiest path there. And most of the work, as you've seen, is to go from single neoantigens to multiple neoantigens to try to combine immunization into one convenient shot. So obviously, there's some work to do to balance multiple like influenza A, influenza B, RSV, and so on. But that seems to be a very logical path that will ultimately have success. What I would say is important for the field is even in Phase III, there are programs that are varied and show that mRNA is a medical platform more so than a vaccine. So for example, there is mRNA used in CRISPR. There is mRNA as a tool, not as a therapeutic endpoint itself but as a tool to make cell therapies. There's personalized oncology. There's a lot going on even in the small dozen or so Phase IIIs that we're looking at and tracking that I think it's going to be really important for the field, the moment that one of those programs that's not an infectious disease prophylactic vaccine is approved for people to realize that this is not just a vaccine story. It's actually a new platform for programmable medicine.

What percentage of these mRNA pipeline programs are using CleanCap today? And are the rest essentially using enzymatic capping approaches?

There are legacy approaches, enzymatic and what's called ARCA Chemical. But we have reported previously, and we paid for third-party studies. We've now brought this in-house so that we can more rapidly update it. But when we announced the third-party study last, we saw still that we had maintained roughly 30% to 35% market share, about 350 programs out of 1,000. And, yes, we see that holding steady, and I think we look forward to continuing to innovate so that we can increase that percentage.

And on that point, Trey, presumably, you're probably not running into ARCA as much, but when it comes to a competitive bid, how does the selection typically happen in terms of which capping approach to go with, and especially now that we are sort of a couple of years removed from the pandemic?

Yes. The thing is we're talking about clinical trials now Phase II, Phase III, where these decisions were made 3 to 5 years ago. And then if during the pandemic, there was an even, I would say, generally speaking, that up to the last year or so, largely these programs were just based on what people had done in discovery and scaled what they knew. And now, we're getting into an environment where people have the time to step back, due process optimization, and look at all the different inputs rather than just go with whatever, for example, was in their high throughput or medium throughput R&D line. And so, we get to have the actual value-based discussions, the purity discussions which includes the purity of the drug substance, but also the lack of impurities and all the benefits that can come from what was 3 years ago, a conversation about CleanCap is now a conversation about all of the constituent enzymes, all of the chemical inputs, the entire product input ecosystem. We now have vertical, which I think is fantastic. And so, we can really talk to customers about the total economics and help affect those for them.

Kevin, the inevitable sort of question on vaccine work. Visibility is obviously challenging to come by in that particular niche. But as we think about a fair estimate for run rate revenues here in Demic states, a few different things to consider, right? On the one hand, Daiichi was clearly a large driver of your 2024 high-volume GMP sort of number. Is reimbursement still in place in Japan? And so, do you feel good about that portion of the revenue? Of course, with Pfizer-BioNTech, it's a little bit different because they can use it across multiple programs. On the other hand, we have been letting governments cancel orders without sort of imposing any penalties in them. So as you look at sort of the 2 biggest drivers of that high-volume GMP contribution to CleanCap, how are you thinking about not just the back half of this year, which is de-risked but next year?

Yes. I think that the interesting thing for us is, we support I think there are about 5 approved vaccines right now that sort of create high volume demand for capping. Moderna has 2 of them and we're in the other 3. So we have a stable of customers that have commercial programs. And all of our customers have multiple programs they're working on. And so, historically, as we've talked about, we see this as COVID-related CleanCap revenues, there was probably a percentage of that, that was going to other things, certainly, but it was our best estimate at the time. And that goes back certainly starting back in 2020, where we had about $100 million and $550 million and $600 million, then down to $60 million last year. And this year, we started the year with $50 million of orders in hand that were for from those high-volume customer group that we talked about. And we didn't really want to call it specifically COVID since our CleanCap product is not indication-specific and its fungible in the hands of our customers, and they're not required to tell us how they use it. When I think underlying that specific to Daiichi, they've been ordering around that level for several years now, and they have multiple programs. And we think they're going to continue to incorporate CleanCap as the primary capping program for their mRNA. So that's a good customer of ours, and Trey and I just went and visited them and had a nice conversation with them. And I think they're here as well. So it's certainly been successful. I think the high-volume CleanCap is going to continue to evolve. I'd say, the potential upsides over time certainly are a combination, I think, vaccines. I think that the continued pressure in which we did not assume. I think the industry did not assume a couple of years ago is that the kind of the compliance rate would be below flow. I think everyone thought and we think back over the last few years, we all thought it would be higher, and it's been below. And so, we'll see how that impacts the combination potentially and some of these other programs. So it's tough to predict what the endemics that ultimately is going to be because I think there is a combination of upsides to incorporating into multiple programs. And then I think there's this continued pressure that people aren't concerned. And I think that continues to be some of the downside as well. But from what it's interesting, when we go way back, I'm CFO and historian of Maravai, given how long I've been here. And when we made the acquisition of TriLink, the demand profile for CleanCap was not a big driver for us. We were looking at obviously, their ability to do highly modified oligonucleotides and their participation in the handful or so companies that were involved in mRNA at the time, and we are excited about different things at that point in time and then the progression to GMP level quality. And those are the sort of things that informed why we built our first purpose-built building that ultimately became the foundation to allow us to scale up and address the pandemic and allow us then to benefit from it to build out the rest of the capabilities we have. So I think the endemic volume of CleanCap is fine. It kind of sits at top of our demand pyramid where you have large pharma buying just CleanCap. And I think you're going to always have that dynamic. But what we've built out and what we continue to be focused on the reason why Trey's here and I think is excited is that next tranche down, which is all of those companies that we can sell multiple products to and services to and that are going to be addressing the therapeutic side. And that's what we're really excited about. We hope to keep that foundation of high-volume CleanCap users, certainly because we think it is the best capping methodology out there and then also drop that down and apply that technology and others to build out a lot of good singles and doubles to replace the big home run that we enjoyed over the last few years.

And Kevin, a quick follow-up there. Even at sort of current levels of contribution, is the CleanCap business margin accretive to both NAP and corporate EBITDA margin?

Yes. I mean the CleanCap product, when we make it at scale is one of the higher-margin products we have. I think for us, the interesting thing about where we are, and I think it's exciting as we look forward is we put together all the infrastructure now we really need. And that's a combination of facility infrastructure now that we've completed our Flanders building and acquisitions and technologies we have. So from enzymes through the cap, we have a very vertical solution there, and we do it with less than 600 employees in highly automated facilities that are completed, and we're not going to need to tilt up any more buildings. So understand our cost structure, a ton of capacity, as we've proven and now evolved into late stage and even commercial FDA drug substance capabilities gives us a lot of flexibility to address the market demand and now it's fill up the factory sort of mantra if you will.

Turning to the rest of the nucleic asset business outside of CleanCap. I think sometimes when I talk to investors, they're still shocked about the size of that business even within NAP. So could you just help us, first of all, to mention the relative sizes of the different pieces. You've got the long mRNA platform, plasmids, custom oligos, oligo synthesis. And then second, Trey, could you chime in on how differentiated that portfolio is? And how do you compete effectively versus larger life science companies that play there, including IDT, Aldevron, you've got Thermo [indiscernible], et cetera, as well?

Well, sub segmenting NAP, I'll give that to Kevin.

Well, yes, so, really, we look at the NAP segment, there's the high-volume CleanCap that we talked about. And then there's the discovery part of the business we're doing RUO. And we've really focused on, as you've seen with some of the trailing releases, a new suite of products, and Trey's really driving that. I mean I think he has but one of the things he brings to the table is a great knowledge of what the research market really needs. And no one's really doing that today, addressing that head-on in a matter that's effective, efficient, allowing for high-volume screening of targets. And we want to do it and we want to do it with our technology. That also informs things like the John Hopkins collaboration, see academia, see the research market earlier, get them on your technology, used to using it and then allow that to bear fruits down the road. So focusing on Discovery is still a key part of what we're looking to do. Then you roll into GMP products both on the CleanCap side, but also on the mRNA side. And then also looking at potentially GMP oligos, GMP enzymes, other things that support where the industry is going. Certainly, we also do supply oligonucleotide synthesis products through our blend research, which has been a very solid performer for us. And then certainly, the Alphazyme acquisition and being able to do both custom scale-up as well as products and services. Those kind of break down into really the business units underneath this segment. And they all have slightly different dynamics. Again, we continue to be excited about Discovery and really, I think that's important for long-term success. And then now that we have these full capabilities under GMP to be able to do NTPs to be able to do capping to be able to do mRNA services all the way through the commercial ligand drug substance. That historically was our fastest growing base business segment we used to refer to it. And I think it can return there just given the capabilities and the area we're focused. And really, I think the key thing to understand with our "services," we're making custom products, right? I mean and it's not a CDMO for the sake of bringing out other people's technologies and just having an assembled workforce than a big plant, it is specific to our customers using our products and helping them with a better final product. And I think that's what's the exciting thing about we do. It's still very niche. And we're not going to go and take, we're not going after high-volume fill finish or something like that. We're applying our technologies, our science to customers in a very collaborative relationship. And that's where I think the growth rate can outstrip the market because of the uniqueness of that.

It's a unique setup, certainly unique in the space. The core capabilities that Kevin has described, particularly with TriLink were about custom nucleic acid chemistry, which may be an eye-glazing thing for most of our audience here at 5:00 p.m., but custom nucleic acid chemistry enables things like next-gen sequencing when you were looking at them before. When Weissman and Care Co did their Nobel Prize winning work with custom chemistry to enable mRNA to be less immunogenic, they use trialing chemistry. So that participation in the early stages of that industry has existed. TriLink has been in the oligo business for a long time, Glenn Research, as Kevin said, supplies the oligo business. But everything really starts there with chemistry. And because of CleanCap NTP, pseudouridine, all the other inputs for mRNA, we have this rather unique position where we span very early custom research, custom chemistry all the way through CGMP APIs like CleanCap for the vaccine. But, as Kevin said, there's another layer, which is a service layer where we will use those products to build research scale or phase preclinical screening hit to lead all that stuff for mRNA. And now thanks to Flanders 2 as a few months ago, can take that customer all the way through clinical, commercial. But as Kevin said, the difference is not only the unique position of having service from RUO to GMP and product from our RUO to GMP, but the service is completely vertical for product. So it's not a traditional CDMO approach, like Kevin says, our service is really there to assist people to incorporate the products into their programs.

That's actually a great segue to my next question, Trey. Just talk to us a little bit about the early evidence of customer stickiness and how they're responding to your push to essentially capture that business throughout the development process and beyond?

Yes. I mean, one of the tricks we were talking about this earlier that if you're in Phase 2 or 3 right now, you pushed that boat into the water, so to speak, 3 to 5 years ago and the stickiness works both ways. It's unlikely you're going to get someone to make a material input change or a process change in Phase II or Phase 3 you really have to establish that connection and then you become very sticky really post Phase I. And so, that's one of the reasons why we want to focus so much on the opportunity we have to drive really the screening and discovery part of the industry forward. Not only can we help move the industry forward even faster, as you said, we know at the end of the road that it works, say. So now it's about essentially filling in the pipeline and the ecosystem that would have otherwise evolved over a decade that was skipped when we went to early phase to billions of doses and didn't pass go in the middle, right? We went right from the beginning of the Monopoly board to the end, so to speak. And so, we have the opportunity to build around the board, if I torture that analogy, and really drive not only the industry forward with Discovery, but also concurrently drive the inclusion of our products, which are incredibly sticky as people progress preclinical IND Phase I/II/III, all that.

You mentioned earlier, Trey, that you were lucky enough to participate in the sort of the COVID Bonanza and you deployed that free cash flow to significantly add and upgrade capacity. What is the current sort of rate of utilization at Flanders 1 and 2? And where do you view that exiting sort of 2025 based on the demand you see today in the pipeline?

Flanders 2 just opened. So the good news is we've been, in Kevin's previous comments, I'll add that we've been bearing the occupancy cost of Flanders 1 and 2 for almost a year now. It's not a super heavy burden, but we've been bearing that cost without running revenue through. We're officially open for business now in Flanders 2 to as of literally 1.5 months, 2 months ago. And as everything we add is incrementally better. But the best way I can answer your question is we are not capacity limited at this point nor will we be for some time. We built Flanders 2, for example, to have 3 parallel suites that can scale all the way to commercial. So we're running 1 shift at this point one at a time, but we can be running all 3 in parallel. We have a lot of filling to do where we have any sort of constraint on dynasty. And on the other end of the spectrum, Flanders 1 has 4 chemical labs that are analogous to the single lab that supported the entire pandemic in the water ridge facility. So we have built and frankly, a pretty reasonable cost, incredible parallel capacity to sustain the business for 5 to 10 years.

Switching to biologics safety testing. Trey, you've got a very broad portfolio of kits at Cygnus and I think you've announced the addition of 3 more last quarter. What's the uptake been like on the new kids, but more importantly, explain to us by portfolio breadth matters in terms of the competitive positioning.

Well, I'll answer the latter half of that first as best as I can. The biologic production market is still really dominated by a few cell lines. Frankly, E. Coli and can show are the vast majority of programs today, but people have done more and more evolutionary work on the cell lines that are hosts for biologic production. And frankly, Cygnus as a start-up essentially help create the wholesale protein and ELISA market by essentially leaning forward and saying people are doing early work. I think this could work, and I think this will be important someday. So Ken Hoffman, the founder of Cygnus 20 years ago plus, just started making these kits in anticipation that some of these cell lines could be particularly useful and beneficial and differentiated the company technically by making the most sensitive kits with the widest coverage. So I think that principle still applies today. And this is a process that takes a year to create essentially a host cell protein signature polyclonal antibody, create the lysis, test, revise, all that stuff. So we don't want to miss the next great cell line in other words. And Cygnus is really differentiated in that way. Like you say, I think it's 26 or 27 cell lines are covered. The next nearest competitor in the space has 4, 5. So now, of course, they could rationally say, we're going to focus on the 3 that drive close to the industry, but we don't want to miss the next great thing. And so, it's about being ready for the wave that's coming, rather the wave that's here, and applying essentially the differentiated approach to all cell lines, no matter which one people choose, we can be there to help.

As we think about your biologic safety testing revenues, Trey, how do the breakdown between research versus commercial production workflows?

One of the things we say about BST Cygnus specifically is that it's actually kind of an inverse funnel, where when people use more whole cell protein detection kits when they're starting their process than at the end, now we are very proud to be in all, I believe the number is now 23 approved CAR-T cell and gene therapies to be running the whole cell protein, QC on all of them. But really, the activity is heaviest when people start that process. When they do validation and engineering runs, when they test their run parameters, they will use a lot more kits than at the end when everything is dialed in. The good news is they dial it in and we are spec-ed in with that program. But Cygnus really ends up being a proxy for program starts in biologics. Obviously, we're happy to have the commercial participation, whether they do a run every quarter or every year, or whatever it is, we'll be there. But program starts are interesting. And because there was a bellwether for activity industry. And that's where we participate more. So we see when programs start slow down like we did in the second half of '22 and we are there first when they pick up.

So maybe can you just remind us about the percentage of that segment's revenue that is indexed to China? And what's the performance in the region then like of late? I think you talked about some uncertainty leading to unexpectedly soft results in the prior quarter. Has that sort of customer sentiment stabilized through September or maybe even improved a little bit? And what are you hearing from your distributors in the region? Is there an inventory destocking situation that you're coming up against?

No. Well, so, our China exposure is vast majority Cygnus. So China is really a Cygnus story. I talk about it a lot for that reporting segment. And what we saw actually, I just mentioned it, we saw a slowdown, particularly in China, really second half of '22. But then, part of that was a function of comparison where a great deal of the Cygnus growth during the pandemic actually came from China biologic activity, whether it was COVID antibody-based or vaccine production or whatever it was, there was a lot of lift and a lot of growth in '20 and '21 and '22. So second half of '22 slowed down, and that growth, of course, became a headwind. But things, particularly if you focus on BST-China were stable, flat. They took a step down and they were flat. And when we looked at projecting this year for the BST segment, we did not expect any growth in China. But what we had was a history of 5 flat quarters. So we just stayed flat. The surprise that we mentioned in Q2 was an unexpected step down in Q2 from the previous at that point, 6 quarters of very steady state performance. And to answer your question specifically, China was 20% to 21% of BST for those 6 quarters and then went to 14%. Just step function. What are we hearing from our distribution partners and our people on the street? They still expect -- well, they still have the same goals for the year. But we thought what we would do not wanting to count on any growth being conservative is just take that step down out of the number for the guidance for the year.

Longer term, would it be fair to say that 10% plus growth if China doesn't get better with a path to mid-teens if China goes back to normal?

I think biologic safety testing grew from '18 to '22, I think, 16%. And I would say most people would say that the market growth for Biologics was around 12% to 14% in site. So we've always done a few hundred basis points better than the market because of the breadth of offering, adding more services in housing some of those services, the shift to CDMOs and then wanting to use the gold standard that Cygnus represents as well as getting some traction with MockV predictive viral clearance studies. So that all helped. Obviously, it's been flat now for a little while. I think most people are seeing that will return to growth probably may be a little lighter just because of some of the dynamics. So probably an 8% to 10% market growth there and are we going to continue to do a little bit better to an extent, you can only do better than the market for so long. So I would put it in that 10% to 11% range. I think that's a fair long-term CAGR for BST, and there's some upside there, certainly with MockV. I mean, we're planting those seeds now. I think it has a great opportunity to be very meaningful over time, just given the cost-benefit of being able to do predictive bio clinic studies using a MockV particle versus real virus and trying to clear that. So we're excited about that opportunity, too, certainly.

Yes. There are 3 strategic vectors for -- I mean, Cygnus is the gold standard for whole-cell protein detection by ELISA. About 1/3 of the biosafety testing market is actually in whole-cell DNA. So we have some fresh initiatives there. And like Kevin says, where we're most excited, it was actually a very small technology acquisition, the MockV, which would be essentially creating a new segment, which is a means of significantly lowering the cost and increasing the efficiency of viral clearance studies also right down the fairway for what Cygnus adds value in the market. And then Cygnus has been in the service business for a few years, which is next level, Your ELISA lights up. It shows you the whole-cell protein or this number of whole-cell proteins. And then you can do essentially a follow-on contract mass spec study to look at the specific proteins they are, get ID, and stuff like that. So there are still 3 very exciting growth vectors for them.

On the financials, before we wrap up, guys, one of the large preclinical CROs call out weakness on the global pharma side of things recently and just slower improvement in biotech as well, particularly in that June, July, and August time frame. Has the tenor of your conversations with either of those customer sets changed at all in the last couple of months?

The tenor, not really. And one thing to remember of it so, first of all, Maravai's collection of companies is 100% consumable. The biologic safety testing market at large includes CROs that do service. Cygnus, I was just saying has a growth vector in service, but it's still 90% products. And those products are largely stock products, these 27 kits we talked about or cell types, and people will order the volume they need when they need them. So we don't have as much, I would say, it's more of a transactional business. We don't have as much visibility as, say, a big CRO would have that is, for example, negotiating very large service contracts because those will be negotiated in advance, where Cygnus starts any given quarter with less than 50% of that quarter booked because it's such a transaction on these products specifically. So we don't have those kinds of conversations as much.

Just to complement that, of over 1,000 drugs that are non-COVID-related that we're tracking, they're still very early stage, people aren't. Those programs, and that's our sweet spot. They're not reaching out to schedule large commercial builds, right? So a different part of the market for us, different time and the continuum of where mRNA is going. And so, we're still in those early days of sort of the therapeutic applications of mRNA and working with the next level of customers that are going to make that a reality. And they're not reaching out to the large CDMOs at this stage. That will be a few years away, but they're reaching out to us because that's our sweet spot, and that's where they're at. And so, the market for us, again, continues to be really focusing on laying those really discovery seeds supporting that screening and development, moving them through into the Phase I and then being able to do the later stage, and that will come, it's starting a little bit, obviously, with us the second half of this year with a couple of customers that are doing a Phase II and a Phase II/III pivotal build with us. But that's coming. And I wouldn't expect the large CMOs or people that are doing large builds to be doing that for mRNA therapeutics right now. That's a little premature.

Yes. And so, we're early days still in mRNA. The potential is enormous, and our position is completely unique there. In biologics, there's a lot of different forces at play. There's no question about it. I would say, the geo location of jobs with bio secure affects people's decisions for maybe the future. But we like our position in biologics with Cygnus as 90-10 products, 100% consumable, and we like our position in the wave to come in mRNA.

Just a couple of quick financial ones. One of the benefits of going last is we can just keep going. So I do want to ask about your long-term targets. It's a pretty improbable ramp. So could we see you issue revised long-term targets of a 2024 revenue base?

Well, look, I think that things have changed a lot since we did that. I think most people would understand that there might be some shifting there, certainly. Our industry is probably addressing a couple of things, and one of them is visibility. That continues to be things that is top beta kind of pre-pandemic levels there. And especially when you're an all-consumable company, you don't have those scheduling that capital equipment or even a large CRO would have to look forward 3, 4 quarters to book things and see how that's going to shape up because we are all consumable. So it makes it challenging. But we believe in the long-term growth rates, we really do. I mean, we look back to nucleic acid production growing over 35% 18 to 22. Again, BST growing 16%. So those are not unrealistic growth rates. And I would say that, that market in NAP was probably in the mid-20s at the time, and we were doing substantially better because of our investment in that space. And I think we can continue to meet or exceed market expectations. And I think when it comes to long-term, CAGR is there, we believe it's a 20%-plus CAGR for NAP. And we believe, as I mentioned, it will be in the low teens for BST. I don't know if you do that math, that gets you to those numbers in that time frame. But we're all here because we believe in it. And I think the number of programs continues to support that and form our decisions. When we look at Phase 1, 2, 3 progressions in velocity, there's 40% more programs there than it was a year ago in the drugs that we're tracking. And that, again, continues to be a leading indicator, we believe. And we think we're as well suited as anybody to take advantage of that growth and win our fair share of wallet from those drugs.

How would you characterize margin visibility at this point, Kevin? The cost cuts are largely done and mix is not something you can particularly control on a quarterly basis. And then you've got the GMP CleanCap sort of situation as well. And it is a sort of fixed cost-heavy business model in the. And so, as you think about that visibility, at what point do you think it gets better? I mean, it's largely just demand bungee the recovery happens in the market, that's when…

It is. It's largely volume over that fixed cost structure. Again, we made, I think, the right cost corrections heading into the year. I think if you look at our revenue per employee, our EBITDA per employee, it's among the highest in life sciences, we have all of the facilities were done with that capital investment cycle, and it's not a huge burden on our P&L, the overall cost of our facilities. And our variable margins continue to be very strong. Pricing is solid. Inputs are consistent. So for us, it's labor, it's facilities and it's a little bit of variable cost. The great thing about having high variable margins is as great as revenue grows, doesn't give you a lot of flexibility when they don't, right? And that's why we had to make labor adjustments or dip into that kind of semi-variable pool that's fixed in the short term and more variable in the long term. But, yes, we think we like where we're at from a cost structure perspective and the economics of our business model. And it is 80% of revenue game and, again, filling up that factory, leveraging those costs. And with that, margin expansion as we've seen historically, nothing has changed in that dynamic, and we have the same sort of leverage there. And if anything, given we have more capabilities now, that opportunity is as robust as ever, but it's going to be a focus on the top line.

I'm not going to ask you to comment on M&A speculation. But as you think about just consolidation in the space more broadly, what kind of strategic value do you think Maravai would bring to a buyer? And then is there a fundamental value in keeping the biologics and app segments together in your mind, not just from a buyer's perspective, but also from Maravai's perspective?

Yes. I mean, I've talked already about the unique position we hold in mRNA. That's a modality that is the wave to come, I would say, and we believe in it so much that I mean, I live in San Diego now, so, I'll use the surfing analogy. We're paddling variously to catch that wave in a way that I think is unique. We obviously don't comment on any speculation. We just don't. And admittedly, biologics is the wave that's here, I guess, to talk about the 2 different segments. There's a reason that Cygnus sits in its own segment. That's an unfortunate thing to do to a $70 million business that's highly profitable because when you're at that level as your own reporting segment, every little move you make $100,000 is relevant. It's a lot to ask about business. But it's a great business that we see upside in. And if you have a unique position in the wave of medicine that's here in a really unique position in the way of medicine to come, that's a great place to be.

And because as we look at companies, the things that attract us, high customer retention, good long-term growth markets to high variable margins, good quality, good turnaround time, good customer feedback or market feedback. So when I look at us using that same criterion, we check all those boxes, right? So I think I like where we're at. Those are the intangibles that you have a very hard time recreating if you don't have them. So we have all those. And again, I think it's a testament to the founders that create the very fabric and foundation of the customers just great products, great legacies. And we've rolled those together, and I think we can take them all forward successfully.