Good afternoon, everybody. We're wrapping up here. I'm Luke Sergott with Cover Life Science Tools and Diagnostics here at Barclays. With me, I have Kevin Herde, CFO, and Deborah Barbara.
Barbara.
Barbara, sorry. From VP of Strategy BizDev of Maravai. I think they're gonna kick off here. You guys are gonna kick off with the presentation.
Yeah.
Then we can dig into some questions.
Yeah, we will. Thank you for having us during happy hour. Appreciate it. Obviously led to a large attendance. We'll have drinks afterwards, I promise. Anyways, again, Kevin Herde, CFO. Happy to walk y'all through a few slides, just to kind of tee up Maravai and kinda refresh people on where we are, who we are, and then we'll get into your questions.
Sounds good.
Some forward-looking statements. We do use some non-GAAP measures, we have some caveats here with regards to that. Overall, obviously exiting another really strong year for Maravai. $883 million in revenue in 2022, which is a 10% overall growth. We did $1.80 in Adjusted EPS. Exited with 619 employees at the end of the year, have about 150,000 sq ft of manufacturing and lab space, which is a critical part of our infrastructure. We believe that's enabled us to be as successful as we have been, and then sets the stage for really what we're looking to accomplish, you know, over the near term, and we'll talk a little bit more about that as we move forward. What do we do?
Really focusing on two reportable segments and two end markets. The first one and our largest one is our nucleic acid production segment. What the key takeaways here are, is we really support discovery and research, preclinical, clinical, and then have an eye towards commercialization. We do obviously provide certain products to commercial ends at the moment, particularly with regards to the vaccine products and our capping CleanCap proprietary chemical cap that we provide for mRNA. A lot of the work that's being done and a lot of the work that's been the historical drivers of the business has really been in that early discovery research and preclinical. Still a lot of those programs, certainly for mRNA, are still in that phase.
The opportunity that we have to advance the pipeline with our customers and grow with those inflection points is one of the key growth factors that we're focused on moving forward. We talk about plasmid DNA, and now we've added enzyme capabilities as well. As we look at our business, one of the key components to us is increasing the breadth of our offering to enable ourselves to have more solutions and products for our customer base, our growing customer base, and that's an important, again, another growth factor for us as we look forward. Our second segment, which historically has been a little small, it'll be a little bigger part of our business moving forward, is biologic safety testing, and that is the testing for the overexpression of host cell proteins.
The contaminants in end biologics and then cell and gene therapies and things of that nature. We have a tremendous market share there and really considered the gold standard with our Cygnus-branded product in that marketplace. One of the things that we're excited about is serving high-growth end markets. This is a busy slide. There's a lot on here. I won't go through everything. Really what we're doing here is we've acquired companies, assets, technologies across a broad spectrum of technologies in nucleic acid production. Certainly capping our raw material capabilities, making the highly modified mRNAs, having the capability to do plasmid DNAs, doing custom oligonucleotides and other oligonucleotide synthesis inputs. We support diagnostics, we support sequencing, we support a whole bunch of technologies, all the generations of CRISPR, et cetera.
Some of that's with mRNA, some of that's with some of the building blocks that go into those products. We have great exposure to a lot of high growth end markets. Now with the acquisition of Alphazyme, we also have exposure to enzymes, and enzymes are certainly prevalent across this market. Certainly anything that involves nucleic acid starts with an enzyme reaction as well. biologic safety testing, same sort of profile. Host Cell Protein detection kits, other viral contaminations. Whether we're looking for endonuclease or Protein A or other contaminants that need to be below allowable limits, our Cygnus tests set the gold standard for really testing and doing lot release and helping with changes in development to make sure that the end product is something that's gonna be allowable at the end of the day.
We're still really excited about MockV and our viral clearance testing and looking at how we can help customers have earlier predictors for how they're gonna stand up for that viral clearance testing at the end of their development cycle. Here's a great example of a customer. We get this question quite a bit. You have all these customers, so what? What does it mean? How's this gonna advance your business? How are you gonna grow with this customer base? What does that magnitude look like? This is a good example of a customer that historically, over the course of 2018, 2019, 2020, was doing discovery. They're trying to pick their target, they're trying to figure out what they were gonna advance. Through that, they were around $1 million.
We have a lot of customers like this. Half a million to a million dollars worth of sales, buying the mRNA or buying CleanCap and going through that discovery process, and we work very closely with them on that. They're kind of ordering products and going through their internal R&D process. They pick their candidate, and they start to move into the clinical trial. What does that mean for the value of an account? You can see here, you know, it's in this instance, and this is just moving to phase one because I know this specific customer, this is about a tenfold increase. If you go to phase two and beyond, you can see another step function there.
When people say, "Well, how are you gonna backfill the COVID cliff, if you will, the half a billion dollars that is not coming to your business next year, if you assume this kind of endemic $100 million run rate for that vaccine." This is an example of how growing with the customers, growing with those advanced phases, just CleanCap alone is in 250 individual mRNA programs. You have a certain success rate of those programs. A lot of them will at least advance to phase 1 and so on, you can see that step function, you add all of those up, you start to see how we get that growth and that recoverability and grow the business over time with the customers. You add to that the conversion from RUO to GMP quality.
You add to that the breadth of offering and getting a bigger share of the wallet as we allow our customers to buy more of our products and technologies that we either have today or continue to acquire through, you know, using our balance sheet to make smart M&A, gives us different growth drivers that compound to get to higher than market growth rates. That's what we're really excited about. All right, I'm just gonna go through the last few real quickly again. Nucleic acid production, about 92% of our business last year in focusing on building out the catalog and going into other adjacencies, introducing things like GMP level N1-methylpseudouridine, again, is really market leading as far as being able to offer these products under these conditions.
We're gonna continue to introduce additional raw materials under GMP quality levels with our new facility here in 2023. Biologic safety testing, a smaller part of our business, but just a great business for us. Really high margins, really diverse offering. We have, you know, more expression kits than the next three competitors combined, and really seen as the gold standard and referred to. In fact, you know, when we made this slide, we were had 15 out of 15 commercialized CAR T-cell and gene therapies using Cygnus kits as lot release. I think there's been a few more approved since then, and we're doing a lot release for them as well. People definitely want to use Cygnus kits and to move their lot release testing forward.
Lastly, I just want to touch on this real quickly. We're making substantial investments continually. I mean, we have our foot down on the pedal as it relates to expanding our capabilities and our capacity, because you have to have these things in place as you start to move forward, and especially in nucleic acid products and services. We're focused on that. We have two key facilities going live this year with Flanders and San Diego. That's gonna enable redundancy for CleanCap. It's gonna enable us to do high volume GMP level raw materials, and the second part of that will enable us to do, you know, phase two APIs for our customers. In Leland, we're moving our biologic safety testing to a purpose-built facility, sort of for the first time.
They've been in the founder-based facility for a long time. Again, gives them the absolute capabilities to grow that business, offer more services, and really be efficient and effective to take that business forward. I will pause there. I think that's a nice little recap of Maravai, and we'll head on to a little Q&A.
Awesome. Let's start on the COVID piece. As you mentioned the COVID cliff. I mean, there's a couple here, obviously. Let's start off with, you know, the maturity of your pipeline as you're talking, you showed that slide as you're growing from phase one to phase two. I know the big step up in revs that you guys get from that. How much of your pipeline right now is expected to mature and take that phase one to phase two in the year?
Yeah. Look, I think, you know, if you look at the all the products that we're involved in, all the programs we're involved in that we have information on, I mean, they're not our programs.
Mm-hmm
... We're working with either our marketing consultants or our customers to understand that. You know, the vast majority of them, we're probably talking, you know, 80% of them are still in that phase one pre-clinical timeframe. When they exit is a little bit unknown to us exactly.
Yeah.
You know, it is part of our revenue trajectory for 23. Gonna be a bigger contributor, I think 24, 25, 26. I still see this as a little bit in the infancy, we're still getting out of, you know, this pandemic situation.
Mm-hmm.
People are just kind of getting back to their core missions that were pre-COVID, getting their workforce back, moving these programs forward. We're seeing some progression, not as much as I think we'll see as this starts to accelerate in the back half of this year and in 2024 and 2025. We don't tag it exactly to say we know when this program's gonna advance.
Yeah.
We do see, you know, the ordering patterns, and that's why we still have a little bit of inherent volatility and lumpiness because these things come in waves, if you will.
Yeah.
Someone will order a lot of product for a phase one, you know, build to have the product for that clinical study, then they'll go away and they'll come back in six months or nine months if they don't have another program. We'll still see that as we move throughout the course of the year, but we're getting continued momentum there. Again, we're very optimistic about our customers getting back on to their focus, and that's both on the vaccine side as well as on the therapeutic side. I think we'll see the infectious disease, additional vaccines be the first next-
Mm-hmm
... Sort of larger, programs that come through and get commercialized. You'll see the therapeutic pull-through after that. You'll see the stacking of that demand coming. Again, that's the reason why we're really focused on getting all of our infrastructure in place heading into 2024.
Yeah, that makes sense. Are, as the, you know, the biotech funding environment, it's always gonna come up, but one of the negative knock-on effects is just everybody's tightening their belt right now.
Mm-hmm.
Talk about what you're seeing from the demand among these customers and, you know, frame us your exposure toThose customers that are, you know, emerging biotech versus large pharma, and then if any exposure of these guys to SVB that you know of.
Yeah, sure. Well, I'll start and I'll let Deb finish. You know, a couple things. I think it was a really unique period from the second quarter of 2020 through the second quarter of 2022. You know, we were getting, you know, flooded with demand, flooded with people who wanted to place POs for the next 12 months, 18 months, secure up their supply chain onshore, you know, either deal with COVID or deal with making sure they had access if their other vendors weren't manufacturing and other things. You know, that was a crazy period of time. We're past that.
Yeah.
Certainly.
Okay.
The ordering patterns are changing. People are a little more pragmatic, a little more, as you said, calculated in making their commitments. I think that's ultimately good, and it's good for a company like ourselves because we want people to look at everyone that's available to help them and come and do the site visits and look at our facility and look at our capabilities. We feel very strongly that gives us a leg up on a lot of our competition, as well as our availability, our capacity, our availability to meet their demand in the near term, not have long lead times, and then obviously our intellectual protected, assets that we have that they can't get anywhere else. It's a very compelling, business that we have.
You know, getting into a more thoughtful ordering process that ends up being a larger sale or a more strategic platform investment with our technologies and our customers serves us well. I think that's gonna set us up certainly for longer term success. You know, we're not seeing much on the way of customers falling out from any funding concerns. I think you're gonna see program rationalization. I think that happens anytime there's uncertainty in the marketplace, and we all know there's a lot of uncertainty in the marketplace globally on a lot of different aspects of that. That's natural. I think that'll flush itself out. Confidence will bring those programs back to where they normally should be. On the SVB exposure, you know, we don't bank with them, we don't have assets with them.
We looked across our customer base because we know where the money's coming from to pay AR and things like that. I think we had about half a million dollars of AR tied to those accounts. It's not a material amount. I'm not concerned about those programs or those customers. We're in good shape as it relates to that. I think that will have knock on effects with regards to, you know, using leverage and other things.
Right.
Ultimately, we're an acquirer of assets and have a great balance sheet. I was somewhat joking today, we probably have a better balance sheet than some regional banks do, which probably might put us in good shape to do M&A and be opportunistic. Again, strong companies can get through these periods, and we feel we're a strong company in that manner. Deb, if you want to touch on any things you're saying.
Yeah, sure. Thanks, Kevin. You know, touching on the program or pipeline rationalization topic, right? When you look across the chasm of cell transcriptional and gene therapies, when you think about what our customers are doing, the rationalization is actually happening more frequently around cell therapy programs for a number of reasons, including difficult to manufacture, pipeline success or lack of success, difficulties around getting things through the regulators. When we think about what's going on in the pipeline rationalization around mRNA, it really is rational.
Mm-hmm.
It's not about letting programs go, but more about how do we right size the number of programs, leads, and candidates that we have in the in the pipeline at any one time.
That makes sense. Yeah. I mean, that's kind of consistent with what we've been hearing as well.
Yeah.
On the you mentioned a little bit with the inventory build up during COVID, which...
Yeah.
Completely understand. What's the timeframe for things to get back to normal in?
Great question. I, you know, I look, I think it's pretty obvious that there was built up demand and inventory that was building up in the system heading into the back half of 2022 that's spilling over into the first half of 2023. We think that's pretty contained within the demand for CleanCap, particularly for COVID programs, just because, again, we made a lot of that product in the early part of 2022. They had scheduled shipments, they had obligations to take it, so on and so forth, that certainly is impacting, you know, our guidance and how we see 2023 shaping up, and we're taking that into consideration, we believe appropriately. I outside of that, we don't see it impacting us directly.
That having been said, again, combination of that, combination of the uncertainty in the market, combination of having a really strong end of the year and getting out of that kind of frantic ordering pattern, I think creates a slower first half of the year for a lot of people in our space.
Yeah.
Including ourselves. You know, I think that tempers our overall growth for the year, but doesn't change our overall outlook for where we see the business going. We think it's temporal. We think it flushes out here in the first half of the year and we get back to, you know, comps and acceleration of growth patterns in the second half of the year as it relates to the base business moving forward.
Yeah, that's consistent. Again, I mean, everybody's been saying pretty much the same thing. Can we talk a little bit about Alphazyme with the enzymes? It looks like a really interesting business. Talk about how it fits within the portfolio.
Mm-hmm.
You know, like you said, you guys have been pretty acquisitive in nature, right?
Yeah.
You're rolling it all together, so how much more to go after this one?
Yeah, no, it's a great question. We really like Alphazyme. We really like enzymes. They're nimble. They're very similar to our nucleic acid chemistry in the fact that it serves many different markets and very many different needs in those markets. We like the idea that Alphazyme not just serves our core markets of in vitro transcription, but that they also serve adjacent markets in NGS as well as molecular diagnostics, which I like to think about as our legacy markets.
Mm-hmm.
I mean, since that TriLink had been serving for decades.
Yeah.
Very excited about that.
From a revenue and growth, can you give us some type of idea what the metrics are from fundamentals?
Yeah. I mean, we said on our last earnings call that we saw Alphazyme adding, you know, 2%-3%, and I think 100 basis points or so of growth on the base business. That puts it net, you know, $6 million-$8 million.
Yeah
... Of the contribution. Relatively small, but a nice business. Great growth rates, faster than the corporate growth rates. Looking for them to be, you know, adding to EBITDA this year for us, so which is great for a company of that size. They're in a facility that'll allow them to grow for several years. As Deb pointed on, great people, and great leadership, and they really know this space. This space is, you know, having enzyme knowledge and capabilities is prevalent across all of nucleic acid production. It really allows us to, you know, fit that technology and that understanding with our M&A, with our CleanCap, with all the things we provide to get to that ultimate product as effectively as possible.
Having that all in-house just gives us a great advantage to meet our customers' expectations to get them the best product possible.
Are there any underserved markets that Alphazyme had that you guys are overexposed to for like cell and gene therapy, where you see a big synergy opportunity to have them get onto your platform and get scale?
Hmm.
I don't.
Yeah.
Yeah.
I'm not sure.
Yeah, I'm not sure either. That's a great question.
I'm not sure about that. You know, I think we're gonna let them, you know, we are gonna work with them very closely with helping, you know, again, those synergies that I talked about.
Mm-hmm.
We're also not going to distract them from the path that they're on because they're on a great path.
Yeah. Yeah.
You know, I think anytime you acquire companies, and we've been doing this for a while now, you have to balance out those, you know, quote, "synergies." We don't model cost synergies, never have.
Yeah.
We've always been about finding great companies, giving them access to capital, giving them access to our back office so we can take that off their plate, allow them to focus on the customer, the technology, the product, and amplify their growth.
Mm-hmm.
We've done that time and time and time again. I don't think Alphazyme's any different. We're gonna let them focus on that, but we're also gonna take their expertise where we need it and see if there's those opportunities, right?
Yeah.
Could this help a different segment? Could this help if we wanna scale this up in a GMP manner or otherwise? I think that those are the nice things to have the capabilities in-house to be able to pursue. Then person to the earlier part of your question, are there other things to go after? Absolutely.
Yeah.
You know, we still see some really neat technologies, some really interesting companies. Our M&A pipeline is always active. We walk away or say no to a lot of things 'cause we have a high bar for quality. You know, we still see some meaningful acquisitions coming out that I think are actionable for us, so we're gonna continue to keep Deb and her team extremely busy over the course of 2023.
Yeah. Got you. The capital deployment.
Yeah. Look, I mean, we're.
Still on that one.
... We're still in a net cash position, you know,
Yeah
... Have over $600 million of cash and have a very, cost-effective debt structure that we keep in place to have the dry powder on the cash balance to be able to do these deals. You know, anything, probably half a billion dollars or less is actionable off our balance sheet.
Mm-hmm.
We can do so quickly. We don't see much north of that at the moment. Anyways, you know, most of these smaller founder-based tuck-ins that bring new technology and products that we're really good at, integrating and doing exactly what I said is integrating but also allowing them to, you know, stay with their customers, stay with their brand, and stay with the success that's got them there and balancing those two things, I think is been a big part of our success. We're gonna keep going down that path, and love to bring in a few more companies and a few more technologies 'cause we have, you know, a customer appetite that is building, and we believe giving them more access to unique, differentiated technologies under one umbrella is a winning formula.
I think we're very focused on our core-.
Yeah
... The things we do well. We're also open to the near adjacencies in terms of our opportunities. We're keeping our mind open and our funnel open to looking at those opportunities as they arise.
Yeah. Okay. That's great. Lastly here, let's talk a little bit about China. The, you know, the dynamics that you're seeing there, I mean, this has been pretty wild to watch. This country either shut down or everybody had COVID, and so the recovery there, talk about what you're seeing, how that's progressed, versus your original expectations.
Yeah.
Yeah.
Yeah. Look, I think that, you know, it was a great growth driver, certainly for our biologic safety testing business over the course of 2020 and 2021. You know, certainly 2022 in the, in the second half of the year, we started to see the headwinds.
Mm-hmm.
It's interesting because if you look at our geographical growth factors within that business, North America was right on target where we thought it was gonna be. You know, EMEA, right on target where we thought it was gonna be. China started declining. I mean.
Yeah
... It was all related to that geography. You know, we feel that it's gonna bounce back. I think that that spring's a little rusty right now, it hasn't-
Yeah.
I don't think we're seeing it yet. I think that that's probably a little longer than we had hoped. I think that's not an uncommon piece of commentary. Look, I think the underlying outputs from biologics, and biosimilars and cell and gene therapy, they're not slowing down.
Right.
You know, that demand on that infrastructure that's there is still there, so we think it's temporal. Again, as best we can tell, this is gonna flush itself out in the first six months of this year and get back to normalized rates because the underlying production value is still there.
Yeah. The stimulus, are you guys hearing anything regarding that and how you're positioned?
You know, I'm not close enough to it to answer that question.
Okay. Awesome. This is all for me. Thank you.
Okay. Thanks, everybody.
Yeah. Thank you.
Enjoy happy hour.
Drinks are on Kevin.
Yeah. Right.
See you.