Maravai LifeSciences Holdings, Inc.

Good day and thank you for standing by. Welcome to the Q1 2021 Miravai Life Sciences Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Deb Hart. Please go ahead.

Thank you, Mary. Good afternoon, everyone. Thanks for joining us on our first quarter 2021 earnings call. Our press release and the slides that accompany today's call are posted on our website and are available at investors.maravai.com under financial information, quarterly results. On today's call, we will cover our financial results and business highlights, and we'll provide updated financial guidance for 2021. As you can see on slide two, Carl will first provide you with a business update, and Kevin will review our financial results and guidance. Then we'll open up the call for your questions. On slide three, we'd like to remind you that the forward-looking statements that we make during this call including those regarding our business goals and expectations for the financial performance of the company, are subject to risk and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release we issued earlier today, as well as those that are more fully described in our various filings with the FCC. Today's comments reflect our current views, which could change as a result of new information, future events, or other factors, and the company does not obligate or commit itself to update these forward-looking statements, except as required by law. During this call, we will be using non-GAAP measurements of certain of our results and in providing guidance. Reconciliations of GAAP to non-GAAP financial measures are included in the press release we issued this afternoon, which is posted to Moravai's website and available via the EDGAR filings on the SEC website. The metrics we will be discussing in today's call include net income, adjusted EBITDA, income tax expense, and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to gap measures, but are intended to better enable investors to benchmark our current results against historical performance and the performance of our peers. Now, I'll turn the call over to Carl.

Well, thank you, Deb, and good afternoon, everyone. I'd like to take a moment to welcome our newest group of investors who participated in the company's recent follow-on offering, which closed in April. We are very pleased to have you with us today. In addition, I'd like to take this opportunity to extend my personal thanks to each and every member of the Maravai team who continue to execute at an incredibly high level, as you will shortly see. If we could start with slide number five. As we shared in our pre-announcement, Maravai had a very strong start to 2021 with the largest and most profitable quarter in our history. Today, we formally reported $148.2 million in revenue, growing 191% compared to the prior year and up 50% sequentially over last quarter. Our record top line performance also contributed to outstanding EBITDA, earnings per share, and free cash flow generation. I'll walk through some of the trends we're seeing across our end markets and geographies, and then Kevin will provide you with some additional color on our first quarter results and our thoughts for the remainder of the year. Turning now to slide six, in our nucleic acid production business, demand for clean cap messenger RNA continues to accelerate in all areas, clean cap reagents themselves, GMP manufacturing services, and custom mRNA constructs. mRNA is an established platform for vaccines, continues to be incredibly successful clinically and commercially due to its flexibility, scalability, and effectiveness. One question we are constantly asked is how we assess the durability of our COVID-19 clean cap revenues and what the future holds for Maravine. Let me try to address this upfront and share with you some of our very latest thinking. As I said last quarter, it is our belief that COVID-19 vaccinations will continue to be needed for years to come in order to address new strains of the virus that have emerged as preventative measures have been eased in many countries and as selective evolutionary pressure on the virus is intensified by numerous partially completed immunization programs. We expect COVID-19 to become an endemic disease, not dissimilar to influenza, that will require ongoing public health interventions for years to come. And we fully expect that reoccurring messenger RNA vaccinations will be an essential part of these continuing interventions. The clinical efficacy of both of the mRNA COVID-19 vaccines in widespread use today has not been equaled by any of the other types of vaccines currently authorized. In fact, the European Commission President Ursula von der Leyen, herself a physician, recently said, and I quote, we need to focus on technologies that have proven their worth. mRNA vaccines are a clear case in point, close quote. This followed the announcement that the EU was in negotiations with Pfizer for 1.8 billion additional doses of vaccine for delivery beginning in 2022 and 2023. Those negotiations were concluded successfully over this past weekend, resulting in the largest single contract to deliver COVID-19 vaccines to a governmental authority over a multi-year period. It also seems clear that the ultimate share of the vaccine market held by messenger RNA vaccines through global programs such as COVAX will further increase beyond initial expectations as alternative vaccine modalities contend with concerns, however unfounded, about their own safety profiles. The development of new generations of vaccines that either offer protection against emerging vaccine variants or that enhance immunity by offering booster doses of the first-generation vaccines are well underway. Regulatory authorization of mRNA vaccine usage across all groups of the population, adolescents, pediatric patients, and pregnant women, as examples, appear imminent and will also further expand demand in late 2021 and throughout 2022. We also anticipate increasing demand for CleanCap in 2022 as our other customers' own mRNA COVID-19 vaccines receive their own emergency use authorizations and as those customers ramp up for full-scale manufacturing, just as Pfizer and BioNTech have already done. These multiple concurrent tailwinds now cause us to believe that 2022 is likely to see mRNA COVID-19 vaccine capacity among our customers expand well beyond what was originally expected in 2021. For Maravai specifically, we expect continued strong demand from our existing COVID-19 clean cap customers in 2021 and 2022 as they dramatically increase their manufacturing capacity for existing vaccines. Pfizer confirmed this expansion of capacity in their recent earnings call, indicating then that they expected to be able to manufacture 3 billion doses in 2022, up 20% from their 2021 projections. And in an open letter released just last Friday, Albert Borla stated that Pfizer's internal objective is now to reach 3 billion dose capacity in 2021, and to expand even further to 4 billion doses during 2022. Yesterday, Shanghai Fosun Pharma announced the formation of a $200 million joint venture with BioNTech to build a manufacturing facility in China capable of producing 1 billion doses of COVID-19 vaccine each year. And this morning, BioNTech announced that it will also build a 1 billion-dose plant in Singapore scheduled to begin operations in 2023. As you can see, we have a great deal of confidence in the growing demand for CleanCap we will see this year, next year, and beyond from our largest customers. In addition, global investment in messenger RNA as a platform technology for several other COVID-19 vaccines is rapidly accelerating. Pfizer raised its guidance for R&D spending in 2021 by some $600 million last week to reflect its increased investment in additional mRNA-based development programs and COVID-19 antivirals. More and more industry experts are projecting that mRNA represents the future of vaccine development efforts. The infrastructure and expertise now exist to further expand beyond COVID variants into new infectious disease targets, such as seasonal influenza, malaria, or HIV, and the race for an mRNA vaccine for the flu has clearly already begun. Immuno-oncology applications that make direct use of mRNA or gene editing capabilities now include therapeutic cancer vaccines, and advanced immunotherapies, such as CAR-T cell therapies. Some of the earliest applications of mRNA therapeutics addressed other high-value, unmet clinical needs for enzyme replacement therapies and glycogen storage disorders. Many of these early-stage clinical programs were put on hold due to the pandemic, and a number of our customers are now resuming activity in these areas. Now, turning to slide seven, In addition to our nucleic acid products, Marley's other businesses complement and round out our product portfolio. In our biologic safety testing business, customers choose our Cygnus brand due to the breadth of our test kit menu and our reputation as the gold standard when it comes to detecting impurities in the biologics manufacturing process. We saw strong demand for all categories of kits during the quarter from generic and custom host cell protein assays to other ELISA impurity detection kits. First quarter revenues for our biologic safety testing products were at an all-time high and increased 23.5% from the prior year. Our protein detection business saw 7% revenue growth versus the prior year, driven by both our custom and catalog business. We are back to historical pre-COVID sales levels as research labs have reopened and resumed new discovery and development work. Finally, I'd like to comment briefly on the M&A landscape. As you know, we built our business by acquiring established and emerging companies with strong scientific foundations in our target markets, and then by investing in their systems, processes, and people, in order to accelerate their growth and expand the applications for their technologies. Going forward, we will continue to seek a balance between driving our substantial organic growth with opportunistic acquisitions that meet our stringent financial and operational requirements. And now moving on to slide eight, I'll now ask Kevin to cover our Q1 performance in some detail and to provide our updated guidance for 2021. Kevin?

Thank you, Carl. Good afternoon, everyone. I'm happy to review our financial results for the first quarter and to provide our revised financial guidance for the full year of 2021. Turning to slide nine of our presentation, as you've seen in our press release this afternoon, our record Q1 revenues of $148.2 million represented 191% reported growth from Q1 2020. Our gap-based net income before the amount attributable to non-controlling interests was $75.9 million for the first quarter of 2021. Moving to slide 10. Adjusted EBITDA, a non-GAAP measure, was $101.9 million for Q1 compared to $29.6 million for Q1 2020 and $64.3 million in the most recent fourth quarter of 2020. This represents a 244% increase year-over-year and a 58% sequential quarterly increase from Q4. Our EBITDA margin was 69% up from both the 58% in Q1 2020 and the most recent 65% result in Q4 2020. The increase in adjusted EBITDA was primarily driven by overall sales volume increases and margin improvements from our nucleic acid production business. On to slide 11. We present basic EPS, fully diluted EPS, and adjusted fully diluted EPS. Basic EPS is gap net income attributable to our Class A shares divided by the weighted average Class A shares. Our fully diluted EPS equals gap net income prior to non-controlling interest divided by the weighted average for both Class A and B shares and other dilutive securities such as equity awards. Adjusted fully diluted EPS equals adjusted net income divided by the weighted average of both Class A and Class B shares and other dilutive securities. Both our basic and fully diluted EPS for the first quarter were $0.24, while adjusted diluted EPS was $0.26 per share. Moving to slide 12. We continue to have a strong balance sheet in cash flows. Our cash and cash equivalents, which are gap metrics, totaled $248 million at March 31, 2021. Our strong EBITDA performance led to robust adjusted free cash flow for the quarter of $97 million. Adjusted free cash flow is a non-GAAP measure that we define as adjusted EBITDA less capital expenditures. So with $548.5 million in long-term debt, about $248 million in cash, and trailing 12-month adjusted EBITDA up $241 million, we set at a 2.3 times gross debt to adjusted EBITDA ratio and a 1.3 times net debt to adjusted EBITDA ratio. Now to provide some more insights into our business segment financial performance for the quarter. Turning to slide 13. As Carl mentioned earlier, our nucleic acid production business fueled the most significant portion of the revenue growth for the first quarter. Nucleic acid production represented 84% of the company's total revenue in the quarter and generated $95.6 million in adjusted EBITDA in the quarter. The 77% adjusted EBITDA margin in this business is a record margin for nucleic acid production and reflects the increasing value of our unique products as well as the productivity gains and efficiencies from our state-of-the-art San Diego manufacturing facility. Clean cap revenues from our major COVID-19 vaccine customers were approximately $91 million in the first quarter of 2021, a sequential increase of 76% from Q4 2020. Our biologic safety testing business contributed 12% of the company's revenue in the first quarter. Our Cygnus branded products, which comprise virtually all of the Cygnus business, grew to a record 17.6 million in the quarter, representing growth 23% from Q1 2020. This growth was driven by the increasing number of biologics and biosimilar drug development programs, as well as new customers gained in the quarter attributable to the high quality and breadth of our host cell protein ELISA kits. This included strong growth from our HEK kits used in vaccine and gene and cell therapy programs, as well as increasing contributions from BSA, bovine serum albumin, and endonuclease offerings. Further, we saw a strong quarter for our E. coli products used in biosimilar programs. Our biologic safety testing business delivered 14.3 million of adjusted EBITDA in the quarter. Our protein detection business, based on the different growth rates for each of our businesses, represented a smaller part of our overall business, accounting for just 4% of revenues in the first quarter and only 2% of our adjusted EBITDA. Corporate expenses that are not included in the segment adjusted EBITDA totals I just discussed were $10.3 million in the quarter, increasing from Q1 2020 levels of $4.3 million, mainly due to public company costs and continued investments in our Marvi-level marketing and other back-office support efforts that we centralized to support our businesses in the most cost-effective manner. Now moving to slide 14 in our updated 2021 guidance. Today, we are raising our 2021 full-year revenue guidance to $680 million to $720 million, up from our prior guidance of $580 million to $630 million, a $95 million increase at the midpoint. Included in that range is our estimate for 2021 clean cap revenues directly attributed to our major COVID-19 vaccine customers, which we are estimating at $440 million to $470 million, up $70 million at the midpoint from our prior guidance. This total revenue guidance for the full year of 2021 reflects the expectation of 20% annual growth for our biologic safety testing business. Coming off the record last quarter for this business, we continue to see solid market dynamics across our segments and geographies, fueling global growth in biologics. That, combined with new customer wins that build on the already strong base of repeat customers, is clearly supporting a more bullish outlook for this business segment in 2021. We also see protein detection growing by 20% this year off the lower 2020 base as this business has returned to pre-pandemic quarterly revenue totals. Now, since all of you listening to this call are really good at math, I'll jump straight to what this implies for our nucleic acid production business. This guidance at the midpoint implies that nucleic acid production segment revenues will be around $600 million for 2021. Also, subtracting the midpoint of the COVID-19 clean cap revenue guidance, you'll see that our base nucleic acid business is shaping up to be roughly 150 million for the year, which would represent growth of over 35% versus the comparable total in 2020. We continue to see good momentum and traction across our offerings here, with strong clean cap demand coming from outside of the major COVID-19 players as well, including initial orders for non-COVID vaccine development. Furthermore, our blue-chip customer base of gene and cell therapy companies represent exciting mid- to long-term opportunities, the validation of mRNA as a development platform is fueling rapid segment growth. We are extremely busy here, and we are very excited about our role as a key contributor to these new mRNA platforms for the foreseeable future. As Carl mentioned, we continue to see growing interest in a number of our other nucleic acid products, particularly for some of these mRNA-based platforms. We see that as being really exciting for the long-term growth prospects for Maravai. Now turning to the quarterly gating of revenues. Because of the continually evolving demand for CleanCap, as well as the inherent shoppiness in supporting our gene and cell therapy customers through their development phases, we will not be providing quarterly estimates for revenues at this stage. However, we do see the second quarter being up meaningfully from Q1, based primarily on our book of CleanCap orders that continue to grow as a result of our major customers' commercial successes and the expanding global rollout of vaccines. Given the size and fluidity of these forecasts for CleanCap to address global vaccine demands, we are working closely with all our customers to develop the most accurate forecast possible. We currently project second quarter total revenues for all of Norabai to be up at least over 30% from our current record Q1 levels. As discussed on our last call, our revenue guidance is in large part based on our largest customers rolling forecasts that extend out for several quarters and that are further supported in the shorter term by binding POs, which may go out for several months. On top of that, we have a forecasted funnel for our GMP suites, which are used to mainly support bills for our customers' nucleic acid therapeutics programs. Based on these factors, our fiscal year 2021 revenue guidance comes with a considerable degree of forward visibility, but will be subject to some quarterly fluctuations. Based on those revenue fluctuations, we have our expectations. We have updated our internal forecasting guidance for other key financial metrics. We expect our non-GAAP adjusted EBITDA and non-GAAP measure to be in the range of $440 to $470 million, which at the midpoint of that range represents growth of nearly 170% and implied adjusted EBITDA margin percentage of 65% at the midpoint of our revenue range. This margin is slightly lower than our mostly recently reported EBITDA margins since it reflects some level of focused organic investment in our business to continually reinforce our ability to support long-term growth. Adjusted fully diluted EPS, a non-GAAP measure, is expected to be in the range of $1.04 to $1.12 per share. Moving to slide 15. Adjusted fully diluted EPS is based on the assumption that all Class B shares are converted to Class A shares, which results in a forecasted fully diluted share count of 260 million shares for the full year of 2021. The net income included in the adjusted fully diluted EPS has been adjusted to eliminate any net income or loss attributable to non-controlling interests as a result of an assumed full conversion of Class B to Class A shares. Additionally, our adjusted fully diluted EPS, including certain adjustments that do not reflect our core operations, are based on an adjusted effective tax rate of 23% to 25%, the effective tax rate reflecting some forecast improvement based on the geographical distribution of our growing revenue base. As it relates to certain other adjustments needed to get to our non-GAAP-adjusted EBITDA range, we see the following items in 2021. Interest expense of between 30 and 35 million, depreciation and amortization also between 30 million and 35 million, an adjusted tax rate of 23% to 25%, equity-based compensation, which we show as a reconciling item from GAAP to non-GAAP EBITDA, to be $10 million to $12 million in 2021. And for 2021, we expect to invest an estimated $20 million to $25 million for capital expenditures, which is approximately 3.5% of total revenues. Our reconciliation of net income to GAAP EBITDA and from GAAP EBITDA to adjusted EBITDA is presented in our press release. In addition, our segment-related information will be detailed in our Form 10-Q, which we plan to file in the coming days. Lastly, I'd like to continue to express my personal gratitude to all the employees, vendors, and service providers of Maravai that continue to be incredibly committed and are such a great part of our overarching mission to support our customers with quality products that are enabling them to make such great contributions to numerous advances in life sciences. So thank you for your time today. Thank you for your support of Maravai. And now I'll turn it back to Carl for some final remarks.

Thank you, Kevin. So to wrap up with slide 17, we're off to an incredibly strong start in 2021 in our first full year as a public company. We feel very good about the momentum we're seeing across all of Marlowe. It is clear that this momentum is building across our entire global customer base as mRNA research and development moves to the forefront of modern medicine. We have a direct line of sight into the book of clean cap demand for 2021, which continues to grow. And our 2022 outlook is building nicely with additional mRNA vaccines coming to market and with the expansion of our strong existing partnerships with industry leaders and mRNA therapeutics. While we still aren't in a position to provide guidance for 2022, we are seeing customers already booking production capacity throughout the first half of that year. And in the category of even more late breaking news, we have been on the receiving end of a number of inbound calls about the reports last week that the US government is supportive of some as yet unspecified waiver of intellectual property rights concerning COVID-19 vaccines. The stated intent of this effort is to promote the availability of more vaccine doses globally more rapidly. Marvi is fully committed to working with all of our current and potential partners to ensure the broad global production of and widespread access to vaccines as quickly as we can. In fact, we are supplying vaccine programs based in the US, Europe, Japan, Thailand, and China already. we would note that the availability of our mRNA capping reagents has never been a rate limiting factor for vaccine production by any of our partners. While we don't yet know any details about what the Biden administration is prepared to support at the World Trade Organization, our understanding is that any direct negotiations on this issue will take time and will ultimately require unanimous consensus among the 164 members of the WTO. Ambassador Tai, the US Trade Representative, was quoted in a statement last week as saying, quote, those negotiations will take time, close quote. While IP waivers might have the potential to enable a more diverse set of global vaccine suppliers over a long period of time, Access to IP is only one element of a complex set of requirements needed to produce mRNA-based vaccines of quality and at scale. A Pfizer spokesperson recently noted that the company's vaccine requires 280 components from 86 suppliers in 19 different countries. Making hundreds of millions of doses of mRNA-based vaccines also demands highly specialized equipment and personnel, both of which are in short supply, and complex and time intensive technology transfers between partners and their global supply and manufacturing networks. It is absolutely critical that whoever may be producing the vaccines and those supplying the raw ingredients for them have the expertise and demonstrated capabilities to do so consistently and safely. We believe that the waivers being discussed will not meaningfully expand the supply of COVID-19 vaccines in the next two years. With the pandemic still raging today, particularly in the unvaccinated corners of the developing world, we believe that increased investment in the production capacity and distribution channels of the proven manufacturers of these complex biologics is the most productive step that policymakers can take. From COVID-19 vaccines to vaccines for influenza to cell and gene therapies battling cancer, the transformative impact mRNA will have on global human health is only accelerating. And we at Moravine are proud of the key role that our customers, partners and employees are playing and making that happen. I would now like to turn the call back over to Mary to open the line for your questions. Mary?

Thank you. As a reminder, to ask a question, you will need to press star followed by one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press the pound key. Your first question comes from the line of from Morgan Stanley. Your line is now open.

Hey, guys. Good evening. Carl, just one opening question for you in terms of what's included versus what would represent upside to your revised guidance here. So the FDA apparently just issued an EUA on approving the vaccine for 12 to 15-year-olds. Was that contemplated in your guide? I know you mentioned in the prepared remarks that, you know, these new vaccine categories, including pregnant women and pediatric vaccinations, are now imminent. So that's the first part. And the second part is, to the extent that, you know, your customer CureVac, their vaccine is expected to be stable at, I believe it's around five degrees for three months. and BioNTech is also working on a vaccine that's potentially stable in the two to eight degree range for up to six months, which suggests that there is room here for adoption in emerging markets down the road. Is that something that's contemplated in sort of your comments around 22 and beyond?

Well, thanks for the questions, Tejas. And let me start by saying that it's hard to look at any specific indication of or group of new vaccinees and say yes that's in the guidance or no that's not in the guidance. We're operating obviously at an aggregated level of demand from our big customers. But I think it's fair to say that those big customers are highly focused on their own capacity and what their needs are to support the regulatory plans and approvals that they know they have in process. So my answer to your first part of your question is Yeah, I think it's reasonable to assume that those expansions of coverage would have been anticipated by our partners, and that's then reflected in the orders that we get and in the way we build our guidance, as Kevin explained. And then on the second question, I absolutely believe that you will see much more use of mRNA vaccines in the developing world than we ever thought even three or four months ago. Before the first cold chain changes were approved by the FDA, that seemed like a momentous hurdle or monumental hurdle to get over. But right now, it looks like that's becoming much more manageable. So I would expect that you're going to see mRNA vaccines will be used in a large number of places that were not previously anticipated. As to whether that's incorporated or not, I think it's less likely that those changes have been fully anticipated or baked in.

Perfect. And then, Carl, on the EU contract expansion commentary that you made, obviously Ursula von der Leyen's comments are pretty supportive of the mRNA approach, and 1.8 billion doses is a lot of doses. Is that all upside starting in 22, or will some of that help later this year as well? And then second, there was also a comment she made around a push to source all ingredients locally. So with that in mind, I mean, is a European clean cap expansion something that you would need to consider, or do you feel pretty comfortable that Pfizer and BioNTech can continue sort of sourcing the ingredients from your current facility here in the States?

Yeah, look, on the latter question, I simply don't know, Tejas. I think there's probably, you know, an admirable motivation by stating that. But if you look at Pfizer's commentary that they source components from 19 different countries, it seems quite unlikely to me that there's duplicate supply of every one of those 280 components all in the EU. So as a practical matter, that may be a little bit more difficult. Now, with respect to the timing, what we heard is obviously this is 900 and 900, so it's a purchase obligation for 900 million doses, and then an option for the EU on the additional 900 million doses. I've heard that the very first shipments under this expanded order might occur in December, which would suggest you would have some ramp in the fourth quarter of this year. but the vast majority of the demand is in 2022 and 2023.

Got it. Very clear. Helpful. And then, Carl, one final one. You know, the comments you made around the IP waiver, that helps clarify, you know, a couple of inbounds we had gotten as well. But can you just sort of put a finer point on it in terms of how you expect that to play out in terms of the price per dose for CleanCap? Is it fair to assume that given that the price per dose is so small relative to the overall sort of like cogs of the vaccine and the final price point as well, perhaps at least the one in the developed world, you should not see much of an impact, or is that something that you might need to revisit for emerging market production?

Well, are you asking if we would not see impact because of the IP waiver? Sure.

Yes, exactly, exactly.

Yeah, look, Tejas, I don't see how those two things can possibly be linked together. You know, if somebody suspended the IP on all the components that are being used in vaccine today, you'd still have to have suppliers geared up and capable of producing that exact compound, and then you'd have to go through the regulatory submissions related to changing compounds. I just don't see that as being a terribly likely occurrence. And thus, I don't think we would see price pressure. Perfect. Thank you. All right. Thank you. Appreciate the questions.

Next question comes from the line of Matt Sykes of Goldman Sachs. Your line is now open.

Great. Thanks for taking my questions. Just my first one, just pivoting away from COVID for a minute. You actually gave some additional color on some of the other non-COVID mRNA vaccines and therapies you're working on, flu, potentially malaria, and some other indications. Could you just give a little bit more color? It sounds like some of these projects are coming back online post sort of the more strict COVID lockdowns. Could you just give us a little more color in terms of maybe disease areas or any other new programs that you're involved with on a non-COVID basis?

Well, yeah, Matt, obviously it's our customers who are doing all this work. We wouldn't want to propose to take credit for that. But at the end of the day, I think that the vaccine work has been accelerated with the most noise and the most discussion around seasonal influenza vaccine alternatives. And those can be combos, multivalent, however you want to look at it. So I think that that one is the most obvious and has had the most commentary around it. The other programs, including malaria and HIV, have been vaccine targets that have been resistant to alternate ways of doing vaccines for a long, long time. So the validation of the mRNA platform has caused a lot of experts in the field to feel that these represent valid next targets for the mRNA platform. And we do know that there are people working on those. In addition, there are a large number of, I'll call them lesser prevalent diseases, again, similarly resistant or with perhaps hyper-variability that mRNA was being used for. These include things like Ebola, rabies, et cetera. And I think the other infectious disease vaccine targets are now in full swing, and those other programs that might have been put on hold as people concentrated on COVID are also reemerging. Great.

Thanks for that. And then just on the CapEx, I know you guys had put a lot of money into the tri-link facility to get it up to, I think, a capacity of about a billion in sales. Are you shifting? And, one, are you continuing to focus on that to prepare for the types of volumes you might see, even on a longer basis? Or are you shifting CapEx to other areas? If so, where are you shifting your CapEx towards?

Kevin, would you like to start with that? Yeah.

Sure, Matt. Yeah, I mean, right now, really, the focus has been predominantly on the completion of the San Diego-based facility for nucleic acid production. Again, you know, we had built out all of the square footage available to us now, I think, except for about 5,000 square feet and are making sure those lines are up and doing the size runs that we need and we have all the equipment. So that's really as far as the recent focus in the last quarter as well as this recent first quarter. And from this point forward, I think we're going to continue to look at a lot of different things. Certainly, the biologics business continues to expand a little bit above our expectations, so we're evaluating that. Also, as we've talked about, with our free cash flow, outside of the M&A that Carl mentioned, the organic investment in ourselves is going to continue to be something we evaluate. So whether that's additional facilities or additional infrastructure and additional geographies, As we continue to expand, as we look forward, as we always have for several years to make sure we have the capacity to meet this growing demand, that's something we're turning our attention to. We previously talked about the capacity of nearly a billion dollars here in San Diego output, but if you take where we are today and you look at how we're growing, at least from a percentage perspective, even with the non- COVID-related vaccines, you know, that's potentially a couple years away, so we have to stay in front of that as well, and those are all things that we're currently looking at. But what you've seen in the last couple quarters is predominantly focused on the NAP segment.

Great. Thanks for the time, guys. Appreciate it. Thank you, Matt.

Next question comes from the line of Brandon Collard of Jefferies. Your line is now open.

Hey, thanks. Good afternoon.

Carl, maybe...

Maybe shifting gears back over to CleanCap, is it reasonable to think about CleanCap pricing coming down somewhat in 22, or would that be premature based on your conversations with your biggest customers today?

I think it would be premature.

Very clear. Maybe shifting gears over to the PlasmaDNA build-out, can you just give us an update now that you're several months into that launch? Anything tangible you can share with us in terms of a number of customers to date?

Yeah, I mean, it's in its early stages. We didn't have high expectations right out of the box in terms of contribution given the rapid growth of CleanCap on the side. But it's tracking along well, and particularly for customers who who want end-to-end services to go from sort of custom mRNA construct all the way through to finished product, this story is resonating in the capacity that we think will be well utilized. Thank you. Thank you.

Next question comes from Matt Leroux of William Blair. Your line is open.

Hi, good afternoon. You know, Kari, you alluded to sort of the complexity or fragility of the global supply chain with respect to the Pfizer vaccine. Obviously, you know, Brandon's asked about the plasmid offering, but just curious if the COVID experience as a supplier has highlighted any other bottlenecks in particular, where do you think, you know, scale and manufacturing expertise could be particularly helpful?

Well, I mean, certainly when you think about the mRNA vaccines, right now the biggest challenge is just the supply of enough lipids to go into the manufacture of the lipid nanoparticle and the equipment needed to formulate this high volume of demand. So that's certainly a consideration that I'm sure is consuming a lot of our customers' time and efforts at this point. Beyond that, you know, we concentrated on our own supply chain making sure that we could source all the materials in increasing quantities as the demand grew, and making sure that we had viable backup suppliers in case something happened with our primary suppliers. And I'm pleased to say that that effort has gone well. We haven't had any massive delays in getting components. Obviously, being a U.S.-based manufacturer and all of this stuff being under the rubric of the Defense Production Act at some level then our ability to get the materials that we need hasn't been in question. So we feel pretty good about how it's set up today. That doesn't mean that there aren't other, you know, problems that other folks are having.

Okay. And then Kevin maybe touched on this a bit, but just wanted to follow up in terms of thinking about infrastructure. He mentioned a scale into a billion dollars, perhaps faster than you may have thought six months ago. Carl, you alluded to the FOSEN partnership and Biontech expand in Singapore. Just curious within that context and then thinking about COVID perhaps as an endemic, if there's thought to redundancy that you're thinking about and other kind of global manufacturing and footprint considerations.

Yeah, certainly there are. I mean, certainly redundancy is something that our customers certainly want to see and we think is also very important, so we're evaluating that. And that can take several forms, right? It could be organic investment in additional buildings. It could be partnering or enabling someone to help us with overflow capacity as needed long-term, either domestically or internationally. So we're constantly evaluating that. We have several different conversations ongoing, and I think that, you know, whether it be strictly organic or via partnership or, you know, getting additional capacity through M&A. Those are all opportunities. And, again, we're looking at each one of them. We're very, very sensitive to the fact that we want to continue to ensure that we are supplying all of the demand that's out there. That's been something we've been focused on for years now, and it's served us well. So we're going to continue to invest in ourselves in that capacity long term.

Okay. Thanks for the time. Thank you.

Again, to ask a question, the star followed by one on your touchstone dollar sign. Next question comes from Derek De Bruin of Bank of America. Your line is open.

Hi. Good afternoon. Hey, Derek. Hey. So, Brendan sort of asked it, but I'm going to ask it a different way. You're talking about a 65% EBITDA margin in 21. Does that hold into 22? Is that a good way to sort of think of that initial model?

Yeah.

Go ahead, Carl.

Go ahead, Carl. Okay. I was going to say, yeah, I mean, certainly to the extent, you know, the mix stays the same, I think it will continue to, you know, be around that level. I mean, again, we're not going to – necessarily squeeze the P&L to force a certain margin at the sacrifice of long-term growth. I think what you're seeing now is sort of the natural margin that the business has been generating. As I said in my remarks, we're continuing to invest in the right areas, be it commercial marketing, be it quality, be it R&D. I think you'll see some of that as we get into the second half of the year, and that's going to continue to be important for us long-term. But You know, the business is throwing off really high margins because of the growth that we have in nucleic acid production and the infrastructure and the cost controls that we have in place. As Carl mentioned, you know, if you're a little bit about pricing, where those contracts stand, if you're a little bit about supply chain, where the inbound stands. So given most of that's being driven by the gross margin, I think those margins right now are pretty sustainable.

Got it. And is that still assuming a $30 million to $35 million depreciation mortization for the year?

Yeah, $30 million to $35 million DNA for the year, correct.

Got it. And, you know, given the demand and, you know, obviously there's a huge interest here, I mean, are you actually going to be able to take pricing up as people sort of like rush to go down this pathway of MRNA projects?

Yeah, look, I don't think we would in the current situation expect to take pricing up in a systematic way affecting a large number of people. involved in these critical programs will look for opportunities to enhance the products to make them fit individual customers' workflows or applications better, and to the degree that those improvements contribute added value to the customer, you could expect that they'll pay for some portion of that. But systematically, no, I don't see this as being a business where we take three or four percent price per year across the board. And keep in mind that we have multi-year material service agreements or material supply agreements with some of our big customers that would preclude activities outside of the contract.

Great. And then just one final one. Any incremental color on M&A? Basically, adjacents, new verticals, just sort of your general thoughts as you look at it. What's the right strategy for the company or what's your current thinking for the company?

You know, look, it's still the same. We're focused on adding more capabilities to meet the needs of our existing customers. That would be in each of the three verticals that we participate in right now. I can tell you we've been super active over the last few months in looking at some potential add-ons or significant acquisitions within those spaces. Don't think we have anything, you know, happening short-term there. But it is a continued focus for us, and we'll always try to balance the super high organic growth that we're seeing with M&A that reflects what we've done in the past, which is to look for those target companies with great science in our target markets and then to be able to conclude deals. So I think that remains unchanged. Great. Thank you very much. You bet.

Next question comes from Don Brennan of UBS. Your line is open.

Great. Thank you. Thanks for taking the questions. Maybe just thinking about 22, you kind of talked about the EU contract and, you know, Pfizer coming out and talking about 4 billion doses. Can you just remind us again, like how far in advance do you typically see orders come in? And then number two, can you just remind us your capacity? I know you talked about the supply chain and you've kind of set that up and, you know, you're prepared. to ramp, but, like, do you currently have capacity to meet potentially 4 million doses in 22, if that unfolds?

Kevin, would you like to try that?

Yeah, certainly.

I mean, the straight question for your second part of your question there, yes, we do have the ability to meet that capacity. You know, probably right now, as we look at where we're at, we're probably 50 to 60 percent capacity. So we certainly have the ability to ramp up substantially from where we're at. And, you know, that just comes with flexing and labor and lot build sizes and those sort of things. And that comes into long-term production planning, and that's why we work with our customers to look at their demand a year forward. I mean, they have forecasts. They're sort of kind of in a collaboration with us in the MSAs that Carl mentioned that give us one year worth of visibility. And, again, that's for us to plan and make sure we can meet their demand. And then we use that. And they typically will place orders based on the contracts and binding POs out for a few months, if not a couple quarters. Some of our customers provide those rolling forecasts and place a PO going out all the way into 2022 already. Some of them, I guess, they just really want to make sure they have their slots. So it's a little bit different, but the requirements are a little bit in the shorter term. But, again, nice visibility looking forward. And it's just been a great relationship with many of these high-volume customers and working with them to make sure we meet the demand. And that's certainly something we've been able to do and will continue to be able to do as we look forward.

Right. And then is there any risk around a volume scale? I'm just wondering whether or not an enzymatic approach could potentially become more economical. I don't know what higher volumes may be. There are some cost savings. I'm just wondering, you know, whether or not CleanCap gets more locked in, or is there any risk of kind of some of the vendors looking to switch?

You know, I think we believe that the cost of switching here, especially regulatory re-registration costs, are frankly much more significant than any differences in costs and methodologies. And as our customers are getting more experience with their processes, they're getting greater yields and they're able to be more efficient overall. So I would think that this is not a point in time at which you'll see somebody switch from clean gas to enzymatic or vice versa.

And kind of to date, I guess, Have you faced any challenges yourself in terms of being able to scale? Can you just walk through how things have gone according to plan? It's been, you know, an unprecedented volume rant that, you know, an mRNA seems to be just capturing more and more share given the issues we've seen in some other modalities. I'm just wondering how you characterize your own kind of commercial scale today.

Yeah, well, look, I don't want to minimize the efforts of Brian Neal and his team at Trilink, but we have not had problems in our ability to to meet this growing demand. Keep in mind that in addition to purpose-designed, brand-new facilities with lots and lots of space to grow, which we started with, Brian and team are focused very heavily on process improvements. And specifically, that means doing things in larger scales. So if you wind the clock back a year and a half, a 5-gram or a 10-gram order for clean cap would have been a significant quantity. Today we're operating at scales that have us filling orders from multiple kilograms of that material. So a lot goes into it and they all contribute, but we've been doing several things simultaneously that have allowed us to keep pace with the demand and we still see further room for improvement opportunities.

And, Connie, you mentioned flu, and that came up a few times, and we've kind of looked into that as well, and obviously there's been a lot of discussion from some of the sponsors about using mRNA for flu. Would the pricing of CleanCap vary at all? When you think about the content of CleanCap in flu, how would we think about the opportunity set versus COVID?

You know, I think it may be a little bit too early to tell. If there are opportunities for us to make modifications to CleanCap, that make it work better in a flu vaccine, then you might have a different basis for pricing. I don't think it's going to be step functions or orders of magnitude different, but there may be some added value we can deliver. And of course, it also depends on the quantity of material that you need to do. So how much mRNA do you need to use? Is this a self-amplifying construct or a straight construct? Those things are all a little bit too early to give you anything definitive on.

And then the final one, just on IP, is there any risk around Maravai having to open up its own IP for COVID Clean Cap if the sponsors are being potentially forced to do that? Is that something that potentially is a risk to yourselves that knockoffs could just replicate what you've done using your patents and just supply it at a much lower price?

Honestly, Dan, we don't know. There's not enough specificity in the little bit of information that's been provided about some of these initiatives. And so we stand by what I said earlier about this is kind of the wrong solution to the wrong problem.

Great. Well, thank you, and congrats.

Well, thanks so much. We appreciate it. And with that, I think Deb will turn it back over to you.

Great. Well, thanks, everyone, for joining us today. I just wanted to tell you we'll be at the Bank of America conference this Wednesday, May 12th. We'll also be participating at the UBS Healthcare Conference later in the month. Both presentations will be available both live and replay on our website. Feel free to contact me if you have any questions, and we look forward to staying in touch with you during the course of 2021. Thanks for your time. Bye-bye.

That concludes today's conference call. Thank you all for your participation. You may now disconnect.