Maravai LifeSciences Holdings, Inc.

Good day, and thank you for standing by. Welcome to Maraville Life Sciences' fourth quarter 2021 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 keypad. Please be advised that today's conference is being recorded. And if you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Deborah Hart, Head of Investor Relations. Ma'am, please go ahead.

Thank you, Rachel. Good afternoon, everyone. Thanks for joining us on our fourth quarter and year-end 2021 earnings call. Many of you tuned in for our Investor R&D Day last month, so we won't be repeating that information today. For any of you who missed it, the materials, including video clips and replays, are available on the IR site. 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'll cover our financial results and business highlights and we'll provide updated financial guidance for 2022. 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. We will then open the call for questions following the prepared remarks. On slide three, we remind you 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 risks 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 SEC. 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, which is posted to Marvi's website and via the EDGAR 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 GAAP. that are intended to better enable investors to benchmark our current results against historical performance and the performance of peers. Now, I'll turn the call over to Carl.

Well, thank you, Deb, and good afternoon, everyone. We appreciate having you join us for our call today. Let's start with our fourth quarter results on slide five. Maravai had a very strong fourth quarter, in fact, the largest quarter in our history, even without revenue contribution from our former protein detection business, which we divested in September of last year. Today, we reported $228.4 million in revenue for the quarter, growing 132% compared to the prior year and up 12% sequentially over the third quarter. Our adjusted EBITDA of $162.7 million grew 153% over the prior year. Our top-line performance and outstanding adjusted EBITDA resulted in adjusted EPS of 45 cents per share. 2021 was an incredible year for the entire business, as you can see on slide six. Full-year revenue was 799.2 million dollars. Net income was $469.3 million, with adjusted EBITDA margins at 73%. And most importantly, our 2021 base business revenue, excluding the clean cap revenue from COVID-19 vaccines, grew 33% for the whole year. Our base business continues to deliver well above market growth across the board, reflecting accelerated demand for our products, on top of well-established COVID vaccine tailwinds. We see momentum continuing to build across our global customer base as mRNA research and cell and gene therapy development accelerates on what seems like a daily basis. More on that in just a moment. Turning to slide seven, growth in nucleic acid production in particular remains very robust. Our nucleic acid production business had record revenue of $212.5 million in Q4, up 173% year-over-year and up 16% sequentially. For the full year, nucleic acid production revenue was $711.9 million, growing 245% over 2020. Demand for CleanCap mRNA continues to accelerate in all areas, CleanCap reagents themselves, GMP manufacturing services utilize CleanCap, and custom mRNA constructs. We have a unique opportunity to drive the inclusion of CleanCap across our growing mRNA customer base while providing critical GMP raw materials and our newest technology to improve in vitro transcription reactions. These programs will continue to bring value to our customers and help to improve the quality of manufactured mRNA for years to come. To further illustrate our increasingly prominent market position, let me share with you the traction we are seeing from customers wanting to enter into CleanCap supply agreements. On slide eight, you'll see that at the start of last year, we had six executed supply agreements for CleanCap in place. That's up by one from our earlier estimates and another handful of agreements under discussion. When we held our second quarter earnings call back in August, we had 13 supply agreements signed, 12 more inactive late-stage negotiations, and 25 more with term sheets under review. Today, we have 21 supply agreements signed, 12 more inactive late-stage negotiations, and 27 more with term sheets under review, an actual pipeline increase of 176% in a one-year period. Many of these new relationships are expected to be more expansive and more involved than some of the straightforward supply arrangements that we might have seen in the past. We believe that this underscores the incredible enthusiasm that exists for mRNA generally, and clean caps specifically. Even more encouraging is the fact that this global customer population spans the spectrum from the largest pharma to innovative biotechs to new and potentially transformative nucleic acid manufacturing platforms. From our perspective, mRNA and CleanCap are clearly here to stay in a durable and meaningful way, and Maravai is right in the thick of the action with a solid piece of the market for both infectious disease vaccines and mRNA therapeutics. Given this growth and the general enthusiasm for the markets we serve, we are also committed to increasing our investment in mRNA innovation as we scale our R&D operations, facilities, and quality systems and partner more closely with our customers. Turning now to slide nine. We acquired MyChem on January 27th, and the integration of the team is going extremely well. The addition of MyChem extends our capabilities in the manufacturing of critical raw materials that are used in cell and gene therapy, molecular diagnostics, and mRNA vaccine manufacturing. MyChem specializes in ultra-pure, chemically synthesized nucleotides and has been a critical supplier of key raw materials for several tri-linked products over the past few years. I'm very pleased that they are now allowing us to strengthen our supply chain for chemistry products. MyChem's ability to address life sciences markets broadly, inclusive of diagnostics and therapeutics, provides nice synergies across common customer segments. In addition to this type of inorganic investment, we are also making organic investments in our people, laboratory facilities, and program management resources, while adding new external scientific collaborations. We also remain active in pursuing additional inorganic growth opportunities and hope to be able to announce further acquisitions in 2022. We are committed to expanding our reach as a key raw material supplier, and we are actively working to expand our international footprint so that we may improve our ability to serve our global customer base directly. Now, turning to slide 10 in our biologics safety testing business. As you know, our products and services in BST support high-growth markets in cell and gene therapy, vaccines, and biologics drug manufacturing. Here, we set the global gold standard in household protein and process-related impurity analytics along with offering innovative viral clearance prediction solutions that help our customers ensure the safety of their biopharmaceutical products. Our fourth quarter revenue of $15.9 million in BST was up nearly 13% from last year. For the full year, our biologic safety testing revenue of $68.4 million grew 25% over 2020 levels. This notably strong revenue growth is driven by three main factors. First, continued high end-user demand for our products through both direct and distributed channels as a result of rapidly expanding new vaccine and adeno-associated virus-based gene therapy programs and their attendant analytical needs. Second, strong sales across the full breadth of our product line used routinely to and a number of already commercialized cell and gene therapies, immuno-oncology vaccines, and innovative biologics and biosimilars. And finally, the continuously expanding biopharma product development pipeline. We saw strong demand for all categories of kits during the quarter, from generic post-cell protein assays to other ELISA impurity detection kits to mass spectrometry-based analytical services. that also promote the use of our HCP kits. Additionally, a number of our customers entered into agreements with us to develop custom host cell protein assays to support their proprietary biologics programs. While our BST business is often overlooked by some in the investment community, simply due to the size and scale of the nucleic acid production business, BST remains key priority and a very attractive long-term growth opportunity from Marvi. We plan to continuously innovate and to scale our offerings to ensure superior technical support, to offer the highest quality services and products, and the most comprehensive catalog of products to meet our customers' needs. Now, moving on to slide 11. You saw from our press release that we are increasing our 2022 revenue guidance to $920 million to $960 million, which represents total revenue growth over 2021 of 18% at the midpoint. We have a strong internal outlook for the year, and we believe that we're in a great position to deliver value to our shareholders this year and beyond. I'll now ask Kevin to cover our fourth quarter and full year performance, along with more details on our updated guidance and our long-term model assumptions. Kevin?

Great. Thank you, Carl, and good afternoon, everyone. Our fourth quarter wrapped up an amazing year for Moravai. Given that Carl presented the financial highlights already, I will briefly cover some more details regarding our financial results for the fourth quarter and full year of 2021, and then dive into our detailed financial guidance for 2022. Let's start on slide 13. So beginning with our gap numbers, our net income before the amount attributable to non-controlling interests, was 127.1 million for the fourth quarter of 2021. Income from operations was 154.5 million in the quarter, an operating margin of 68%. Our R&D spend in the quarter of 9.2 million was an increase from previous quarters tied mainly to third party expenses incurred to assess and improve our clean cap manufacturing process. Net income for the year was 469.3 million. Turning to slide 14. Adjusted EBITDA, a non-GAAP measure, was $162.7 million for the fourth quarter compared to $64.3 million for Q4 2020. This represents 153% increase year-over-year. Our adjusted EBITDA margin was 71%, with a slight decline from recent quarters due mostly to the increased R&D spend in the quarter. EBITDA for the year was $582.8 million, a 244% increase over 2020. Our EBITDA margin was 73% for the full year. On slide 15, here we present EPS, fully diluted EPS, and adjustable fully diluted EPS. Basic EPS, a gap measure, is net income attributable to our Class A shares divided by the weighted average Class A shares. Our fully diluted EPS, also a gap measure, is net income prior to non-controlling interest divided by the weighted average for both Class A and Class B and other dilutive securities such as in equity awards to the extent that assumed conversion would be diluted under the if converted method for GAAP for which it was not in Q4 2021. Lastly, the simplest and most comparable metric of focus for us is adjusted fully diluted EPS. It's a non-GAAP measure which equals adjusted net income divided by the weighted average shares of both Class A and Class B shares and other dilutive securities. Our basic and fully diluted EPS for the fourth quarter were 42 cents. while adjusted diluted EPS was 45 cents per share. For fiscal year 2021, our adjusted EPS was $1.60 per share based on the overall weighted average shares of 257.8 million. Now, as we detailed in our 8K filed on January 3rd, 2022, our public company entity contributed 110 million of accumulated cash from tax distributions down to TopCode to effectively retire 2.6 million of the company's Class B common stock and increasing the percent ownership of Class A common shareholders by about 50 basis points, which will lead to lower overall combined share counts to start 2022 and will be reflected in our 2022 guidance that I'll discuss in a moment. At year-end, Class A shareholders have 51.5% of the voting power of MARVAE and Class B shareholders 48.5%. Let's move to slide 16. So we ended the year with $551 million in cash and $544 million in long term debt. Our strong EBITDA performance led to robust adjusted free cash flow for the quarter of $154.8 million. That calculation of adjusted free cash flow, a non-GAAP measure, is based on our adjusted EBITDA of $162.7 million, less capital expenditures in the quarter of $7.9 million. As we have repeatedly discussed, our strong financial performance balance sheet and cash flows provide us with tremendous financial flexibility. We recently demonstrated this by repricing our existing debt at a meaningfully lower effective interest rate that will save us about $7 million per year in cash interest expense versus the previous rate structure, with all other things being equal. Additionally, this financial strength allows us to make both organic and inorganic investments that drive innovation and build capacity, while also addressing customer needs and contributing to long-term growth. This is demonstrated by our announcement on January 24th of this year by putting $240 million of upfront cash from our balance sheet to work to acquire MyChem. And the fact that we're investing about $50 million into the expansion of our capacity with two new facilities coming online in 2022. Now to provide some more insights into our segment performance for the quarter. Moving to slide 17. As Carl mentioned earlier, our nucleic acid production business continues to drive overall growth. Nucleic acid production represented 93% of the company's total revenue in the quarter and generated $164 million in adjusted EBITDA in the quarter. The 77% adjusted EBITDA margin in this business continues to reflect the extraordinary value of our differentiated products and services. Clean cap revenues from our primary COVID-19 vaccine customers were estimated at $179.8 million in the fourth quarter of 2021. This was stronger than anticipated for the quarter as requests for additional clean cap product from our Pfizer BioNTech partnership came in, likely to address the added demand for vaccines as well as the global booster vaccine programs related to the Omicron surge. In the third quarter of 2021, our nucleic acid production business saw strong orders from both of our top two customers outside of their joint commercial collaboration for COVID-19 vaccines. Those orders did not repeat to the same extent in Q4. This is not unusual. Demand in pre-commercial stages of the ramp of MRA products can prove to be a bit lumpy. This is why we like to look at overall revenue performance for specific programs over a longer period of time. In 2021, our nucleic acid segment generated growth beyond the reported COVID vaccine contributions of 49%. And we see that overall annual growth rate continuing, as you'll see when I dive into our detailed 2022 guidance. Here on slide 18, we see that our biologic safety testing business contributed 7% of the company's revenue in the fourth quarter. Our Cygnus branded products, which comprise all of this segment's business, were $15.9 million in the quarter. Our biologic safety testing business delivered $12.3 million of adjusted EBITDA in the quarter. While year-over-year growth in the fourth quarter moderated a bit to roughly 13%, the business has never been stronger. full-year growth of nearly 25% in 2021, strong market dynamics, and expanded product offering. As we articulated during our R&D day, this is a wonderful business. Corporate expenses that are not included in this segment adjusted EBITDA totals I just spoke of were $13.1 million in the quarter, up slightly from the previous quarter based on a $2 million contribution to kick-start the Maravai Life Sciences Charitable Foundation, as well as marketing spend and legal spend to expand our IP around clean cap. All in all, it was a very strong 2021 from RFI, and 2022 was off to a great start with multiple strategic accomplishments and great momentum. With that being said, let's go to slide 29 and discuss our detailed 2022 guidance. As Carl mentioned, today we're raising our 2022 full-year revenue guidance to $920 million to $960 million, up from our prior guidance of $840 million to $880 million, an $80 million increase at the midpoint. Included in our overall total revenue range is our revised estimate for 2022 clean cap revenues directly attributable to our top COVID-19 vaccine customers, which we are now estimating to grow between 12% and 14% in 2022, up materially from our previous guidance of 5% to 10%. This implies that the midpoint of our updated range of these COVID-specific revenue contributions would be about $630 million in 2022. well above the estimated $557 million in 2021. Again, I say estimated here as the CleanCap products we sell today are neither indication-specific nor customized for our customers. CleanCap can be used interchangeably by our customers for commercial demand and future new product development. We work closely with our customers to try and understand their specific end uses and internally track those orders that we believe are COVID-specific. In the case of the Pfizer-BioNTech collaboration, which is the prominent share of the reported total, that's a pretty straightforward exercise. Now, this total revenue guidance for the full year of 2022 reflects the expectation of around 15% annual growth for our biologic safety testing business. This is moderating a bit from recent years, but this business has also had a strong history of outperforming our expectations. Now, based on these details, all of this implies that the nucleic acid production segment revenues will be around $860 million at the midpoint of our guidance for 2022. When deducting for the midpoint of the disclosed COVID vaccine demand for CleanCap, the base nucleic acid production business is on track to grow to about $230 million in 2022, or growth of nearly 50%. While the law of large numbers causes most folks to focus primarily on our CleanCap results, the growth and profitability of our base nucleic acid production business should not be overlooked. Now, over the course of 2022, we currently see overall revenues gated relatively evenly. We see Q1 2022 revenues being roughly equal to Q4 2021, which would represent overall growth versus Q1 of 2021 of just north of 50%, and closer to 60% when adjusted for the divestiture of the protein detection segment. Now, based on those revenue expectations, we have updated our internal forecasts and our guidance for other key financial metrics. We expect EBITDA, a non-GAAP measure, our adjusted EBITDA, to be in the range of $630 million to $670 million, which at the midpoint of that range represents growth of about 12%, and an implied adjusted EBITDA margin of 69% at the midpoint of our 2022 revenue range. As we highlighted at our R&D day, we continue to focus more on operating spend towards advancing our product offerings to meet our customers' needs. Adjusted fully diluted EPS, also a non-GAAP measure, is expected to be in the range of $1.70 to $1.84 per share, the increase here directly tied to our revenue growth. Consistent with how we see revenue gating, we see adjusted EPS to be about at Q4 2021 levels for Q1 2022. Moving to slide 20, adjusted fully glued EPS based on the assumption that all Class B shares are converted to Class A shares results in a fully diluted share count of about $255 million to $257 million for the full year of 2022, reflecting the lower Class B shares as previously discussed, partially offset by the Impact Employee Equity Rewards Plan for 2022. Additionally, our adjusted fully diluted EPS includes certain adjustments that do not reflect core operations and are tax-affected at a range of 23% to 25%. As it relates to the other adjustments needed to get to our non-GAAP adjusted EBITDA range, we see the following items in 2022. Interest expense of between $22 million and $25 million. Depreciation amortization between $22 million and $25 million. Equity-based compensation, which we show as a reconciling item from GAAP to non-GAAP EBITDA to be $15 million to $20 million. And for 2022, we expect to invest about $50 million to $60 million for capital expenditures the vast majority tied to the new facility expansions as our maintenance capex continues to run below 2% of revenues. Our reconciliation of net income to GAAP EBITDA and from GAAP EBITDA to adjusted EBITDA is presented in our press release and at the end of this slide presentation. In addition, our segment-related information will be detailed in our Form 10-K, which we plan to file prior to the March 1, 2022 deadline. Thank you all for your time today. You can clearly see that 2022 is set up for another great year of overall growth. And now I'll turn it back to Carl for some final remarks on slide 21. Carl?

Thanks, Kevin. So to wrap up on slide 22, we had an incredible 2021 and are poised for future growth in 2022 and beyond. We are playing in the right target markets with strong leadership positions while building our product portfolio in other high-value areas. Since I know that we will get the inevitable question, but what about 2023? Let me try to address that proactively right now. We don't yet have a final forecast from our biggest customers about their full year 2023 purchase orders for CleanCat, which is the biggest single factor in how we develop the specific financial guidance that we share with you. But we are engaged in preliminary discussions with them, about their current volume expectations for the coming year. I can tell you that we see no current evidence of our biggest customers expecting a dramatic drop-off in vaccine volumes on a go-forward basis. In fact, it appears that our customers expect volumes to reflect relatively full utilization in 2023 of the COVID-19 vaccine manufacturing capacity that they have either already built or that will come online in 2022. Also, keep in mind that the Pfizer-BioNTech Consortium has a sustained market share of the global mRNA COVID-19 vaccine market of greater than two-thirds by all reports that I have seen. This positive future view reflects a number of individual factors, such as the need to initially vaccinate the billions of people globally who have yet to receive a single vaccine. I believe that some 2.7 billion people have yet to receive a single vaccination as of yesterday. The growing scientific understanding of the role of single or multiple boosters in maintaining adequate immune responses to SARS-CoV-2 among different populations, and the emergence of new variants with the potential for immune escape. The point here is that this is a complex virus and that the optimal public health response to it is neither static nor easily predictable. Changes in any one of the above factors alone do not necessarily tell us anything about the overall need for or future utilization of vaccines. And daily news reports about one-off preprint studies are unlikely to be reliable predictors of long-term vaccine volumes or clean cab demand. So from COVID-19 vaccines to vaccines for influenza, malaria, and shingles, to cell and gene therapies battling cancer, the transformative impact that mRNA is having on global human health will only accelerate. We at Moravine are proud of the key role that our customers, partners, and employees play are playing in making that happen. We are committed to building a strong foundation for long-term sustainable growth and will continue to focus on operational excellence, innovation, and people as our three strategic business pillars. I would now like to turn the call back over to Rachel to open the line for your questions. Rachel?

Thank you, Carl. And as a reminder, to ask a question, you will need to press star 1 on your telephone keypad. And to withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brandon Collard with Jefferies. Sir, please proceed with your question.

Hey, thanks. Good afternoon. Carl, I appreciate all the detail. on the business development and future outlook into 23. Just on the COVID, or excuse me, on the clean cap supply agreement funnel, the expansion to 60 relationships in varying degrees now, are you able to quantify how many different drug programs are actually involved across those 60 customers or quantify that in terms of the number of therapeutic programs in any way?

No, it's a little bit hard for us to do that, Brandon, because our customers, when they sign a supply agreement, may be thinking of only one program or they may have a whole portfolio of programs that they're going after, and those aren't disclosed to us typically at the time of the supply agreement. So we can't really give you a good estimate there.

Gotcha. Okay. And then, Kevin, in terms of the outlook adjusted, EBITDA guidance, you know, this would suggest maybe 400 basis points step down in the margin. I know you've talked about R&D stepping up, you know, closer to 5% over time. It might suggest that kind of gross margin is the plug there. Why would gross margins necessarily step down next year other than kind of new capacity coming along? Can you just help us understand kind of the puts and takes behind that?

Yeah, actually gross margin is relatively consistent. You know, there's a few areas where we're seeing increased spend as we look to 2022. Certainly, the bringing on of the additional facilities in the second half of the year, I mean, those expenses come a little bit ahead, you know, of the overall capacity, so that's going to weigh a little bit on our margins. Also, we have the impact of the additional spend in R&D that we're looking to do, and you saw a little bit there in the fourth quarter. We're certainly also building out, you know, continue to build our commercial footprint, our marketing team, and our support of our infrastructure, particularly, you know, the quality side as well as the legal side and the focus in and around the IP and clean caps. So, you know, we feel real good about gross margins in each of the segments. Pricing is very steady. I think as you've seen over the last few years, it's really the reinvestment for some organic growth via facilities, commercial channel, R&D, and protection and continued growth. expansion of our IP around clean cap. Great. Thank you. You bet.

Thank you. Your next question comes from the line of Tejas Savant with Morgan Stanley. Please proceed with your question.

Hi, this is Yuko. I'm on the call for Tejas. Thank you for taking our question. Over the past four quarters, visibility of Pfizer contract has improved significantly. Is it fair to assume that on a go-forward basis, magnitude of upside will be much more modest than driven by non-COVID factors?

Let me think about that for a second, Hugo. Realistically, I think we're getting to a point where we have better visibility, as you suggest, into what our customers' needs are. Some of that is a closer relationship with those customers. and some of that is customers improving their own views of what they're going to need and what their capacity and demand will be as a result. So I think both factors are in play here. And quite honestly, I think these are numbers that we're very comfortable with, both on past history as well as current expectations. Does that answer your question?

Yes, thank you. And then a follow-up. By our math, we were getting to roughly 100 million upside to prior provided 22 revenue guide of 840 to 880 from MyChem and the modified DOD contract for an additional 300 million doses of the Pfizer vaccine announced earlier this year. Are there offsets in that math that you could point us to or is this just an element of conservatism baked in given it's still early in the year?

Yeah, I'd be happy to take Yeah, I'm happy to take that look. I mean, we don't guide or tweak our revenues based on our customers' direct output or contracts that they sign. Again, we're grounding our guidance, our forecasts in the forecast they're providing us and the POs they're providing us, and those aren't necessarily directly correlated to additional changes in either the demographics or contracts or other things. that's where we stay grounded. And typically, that's been relatively conservative. We've talked about the contribution of the MyChem acquisition being roughly equal to that of our previously divested protein detection business. Very true for the size of the business. Let's say the one caveat there is some of that revenue was to us historically. So that obviously gets eliminated and will show up as improvements in EBITDA and margins and those sort of things, but not necessarily contributing fully to all of the top-line growth that we're seeing in nucleic acid production. So we look at all those different factors, and we use that to kind of triangulate on the roughly $80 million midpoint increase that you're seeing right here, and that's just kind of through our normal forecast, and that's where we've come out.

Great. Thank you so much for that, Collar.

Thank you.

Your next question comes from the line of Matt Sykes with Goldman Sachs. Please proceed with your question.

Hey, this is Nick from Matt. Just two for me. The first question, so a portion of that 2022 revenue guidance raise is coming from higher base business expectations. Could you just kind of talk a little bit more on the drivers of those better expectations?

Yes, certainly. I'm happy to, and Carl can provide some color. Yeah, look, I think the biologic safety testing business starting there I think is continuing to perform well and about 15% growth there. A little moderated from where it has been historically, but should be no surprises given where the market is and kind of where that business has been performing. Within nucleic acid production, again, same sort of percentage growth when you kind of strip out the midpoints of our guidance for roughly 50%. So you look at that and you see various things, and that is really clean cap demand, as we're seeing as these contracts build up that Carl mentioned for things outside of COVID, and that's sort of kind of the next biggest bucket after the COVID bucket. We have the clean cap for all other indications and demand that we're seeing. And then the rest of the business, you know, continues to be performing as a sort of we always planned it several years ago, and that is just the onvent and the maturation of our customers' investments in mRNA products, therapeutic products, and the building blocks for those products, and that's really where we see it. So, you know, as we progress and as has happened over the last several quarters, there continues to be additional flow of funding into our customers, more and more people interested in getting meaningfully involved in mRNA, and those things are just slowly increasing, you know, our outlook as we look forward to 2022 and, frankly, beyond.

Yeah, Matt, the only color I would add there is that a lot of this new interest is coming from new entrants into the market who may not have the capabilities to do a lot of the early synthesis and development work themselves, and they're looking for partners to help them get up to speed quickly, and we're very, very well positioned for that.

Got it. Thank you. That's helpful. And then another strong quarter of cash generation. Is there continued appetite for M&A in any color into specific areas of focus, if that's the case?

Yeah, I mean, there's certainly clear appetite on our part for continued M&A. I think MyChem is a classic example of the deals that we pursued as we were first building Marlai. and they represent a success formula for us in the future. So we're always interested in looking at our supply chain and to some degree onshoring that to the extent that we can. We're also interested in very adjacent products and services that would go to the same customers that we're serving today. And I think those are the two main avenues of focus. Kevin, maybe you want to comment a little bit about Quantum and kind of how you feel about the debt structure?

Yeah, obviously we ended the year in a real strong position with cash being just north of the debt load and then threw out about $240 million of upfront cash consideration for the acquisition of MyChem. As Carl mentioned, a real deal right in our sweet spot, founder-based company, great technology, real sticky customer base, integrates right in with nucleic acid production. That's certainly the segment we see the most opportunity to continue to apply our capital. MyChem was done with just cash off the balance sheet, and when we did the debt repricing, we kept our total debt loads exactly the same. So we still continue to have tremendous flexibility, great relationships with our lenders. And if we see something larger, we would certainly take a look at it, but we know where our sweet spot is, and we We like what we acquire and the ability to integrate it. We do have some flexibility to go up in size from what we just did, but that has to be the right assets and has to be the right fix. Again, I think we're always looking to make organic and inorganic growths that support our customers and still hold the thesis true that there's going to be consolidation in this industry, particularly for the suppliers of the customers that are providing the new programs and products just to help them really drive their products home. And we hope to be certainly the accumulator of those assets to make it easier for our customers to move their programs quicker and with the highest quality possible.

Got it. Thank you.

Thank you. The next question comes from the line of Paul Knight with KeyBank. Please proceed with your question.

Carl, on the ex-vaccine nucleic part of the business, it was down from 3Q. Was this fluctuations? I think you mentioned one in clinical trial activity. I think you're guiding 50% growth this year. Could you Give color on how visible you see that portion of the business and the history and then visibility on this guide of 22.

Yeah, sure, Paul. I wouldn't read too much into those quarter-to-quarter fluctuations, as Kevin alluded to in his comments. We see lumpiness in both parts of the business, both in terms of the COVID vaccines as well as in the base business, and those are project or program specific, almost impossible to predict. It really just depends on the success scientifically and clinically in some cases of those programs. So don't really read much into that right now, and we certainly don't see that being a trend.

And then on the – Are your customers, what, looking at, are they having to order out a year, six months? What portion of the business is your view on 22?

Yeah, look, I think we told you all that last time we spoke that we had coverage on our COVID-related clean cap of over 75% of the POs for 22 years. That has only improved since that time, so we feel very comfortable with that chunk of the business. For the rest of the business, it truly is customer-specific as to how critical these programs are to customers' future plans and how much they need to rely on outside vendors to versus how much they can bring in-house themselves. And so we see very different profiles from individual customers, where some of them are quite interested in securing manufacturing slots and guaranteed supply of raw materials a year to 18 months out, and others are more transactional in nature, so it varies. Thanks. You bet.

Your next question comes from the line of Matt LaRue with William Blair. Please proceed with your question.

Hey, good afternoon. Kevin, you mentioned, you know, think about gross margins flat year over year, but clearly you're bringing capacity online. You know, at your investor day recently, you outlined some new streamlined manufacturing processes and how that's going to lead to higher yields. So I guess just maybe I'll have to think about what gross margins could look like once this new capacity is built up and it's starting to get soaked up.

Yeah, I think that's a good question. I think, you know, there's a couple things that we've done extremely well. Certainly automation has been one of them, and that's been a big contributor to our ability to manufacture as a volume scale and still have capacity to meet increases. I tell you, when we look forward here in 2022, you know, we don't need these new facilities for the existing book of businesses. It's more about looking forward, as we're always trying to do so, and putting in place the building blocks for 23, 24, 25. I think from our perspective, to the extent, and again, we're seeing solid growth here. We're looking at 18% overall growth. That absorbs certainly a lot of overhead, particularly given our variable contribution margin of the products that we have, which is extremely high, and that's been the driver of over and above a lot of the other investments we've made in our infrastructure. So we see very consistent margins. And the nice thing is we're seeing that really from both sides a little bit too. We were able to kind of cushion the impact of additional facilities and investments there, as well as additional labor costs as that's continuing to increase by steady pricing, overall growth, and then great control of our own supply chain. So our own commodities that we bring in-house are as we buy at scale, as we negotiate longer-term master contracts with price declines from our vendors and or acquire them, as is the case of MyChem, we pick up some points there. So those are kind of the give and takes and the puts and takes that we see in the margin line, but it looks like a real steady gross margin line for this year with a few investments in the OPEX, as I talked about previously.

Okay. And then, Carl, on the plasma side, just be curious if you're thinking about the long-term opportunity there. I know it started with sort of your current customers and integrated some of their offerings there. But long-term, do you intend to remain sort of focused specifically on plasmids that will be used as templates for IBT of mRNA, or is that an opportunity to be able to leverage your new capabilities to create plasmids used as raw materials for viral vectors or other kind of markets.

Yeah, look, I think that is certainly a potential in the future, but right now there's still a capacity shortage in the industry that's significant. Our customers, particularly smaller customers and newer customers, are kind of at the back of the line with some of the other providers, and we think there's ample opportunity for us to concentrate in that area and enable them so that they can become viable mRNA customers with us. And I think that's going to be our focus at least through 2022. Okay. Appreciate the question. Thanks. Thank you. Appreciate it.

Your next question comes from the line of Catherine Schultz with Baird. Please proceed with your question.

Hey, guys. Thanks for the questions. I guess first, for the 80 million raised, your 22 guide, you know, last quarter, I think you talked about expecting about 550 to 575 million of COVID-related clean cap in 22. So it seems like about 70 million of that raise is from COVID. And then for MyChem, you know, your protein detection business was running at 25 to 30 million dollar run rate when you divested it. So I guess I'm just trying to get a better sense for you know, how much of MyChem's revenue was supplying you and is getting canceled out versus, you know, thinking that the non-COVID-based business has lower expectations in the updated guide.

Yeah, sure. I mean, look, I think, you know, the protein detection business did $22.9 million in 2020, was, you know, like you said, running closer to $25 million in 2021. So you look at that, you know, that low $20 to $25 million range, I think that's a fair proxy. You know, we were a reasonable-sized customer. We're not going to get into all the specifics there, but, you know, it takes a bite off of that number. So that's part of it. You know, certainly the strength we're seeing in COVID is a big part of that overall guidance increase that's coming directly from our firm purchase orders. And, you know, the base nucleic acid production business, you know, grew roughly a little low 40s in 2020, 49% in 2021. We're getting to Guiding to roughly 50% growth in 2022, I think people are really happy with those growth percentages. And again, we see this as early days. You look at the run rate of the contracts, which is our real leading indicator of where that core business is going to go, because the vast majority of those are working on non-COVID-related programs and multiple programs. within each customer, and that's what we're really excited about. And we think these are good base fundamentals for guidance to start the year, and we're excited about where it goes from there.

Okay. And then maybe on the step up in R&D in the fourth quarter, is this the new level we should be thinking about, or what was the work with the third party you know, more of a one-time project. And then on that topic, can you just talk a little more about that project and what kind of manufacturing process improvements you're looking to make for CleanCap?

Yeah, I'll talk a little bit about the financial component real quick, and Carl can talk a little bit more about, I think, the project. But, yeah, look, it was a discrete project related to working on CleanCap and some evaluating how we make the product and looking for improvements as we always are. I think we learned a lot from it. I would say it's probably not going to be at that level necessarily every quarter going forward, but it is an area, as we talked about, where we want to start moving up over time meaningfully. I think our R&D day really kind of showed you some of the areas that we can really expand on. So we're looking to move that up a few hundred basis points here over the course of the next year or two. on the right products organically, but it won't be at that same fourth quarter level repeatedly throughout 2022. That was a bit of a spike related to a discrete project.

Yeah, and Catherine, to give you a little insight as to what we're looking at, we're trying some innovative technologies that haven't been applied in this space before, but may have been used in other areas of chemical manufacturing for some As an example, process-driven synthesis where you're not doing things in batches, but instead you're doing them in a continuous process. And it's adaptation of known technologies to this particular application that we think is pretty exciting and may give us some leverage in the future.

All right, great. Thank you.

You bet.

Thank you. And once again, if you have a question, just press star and then the number one on your telephone keypad. Your next question comes from the line of Michael Ryskin with Bank of America. Please proceed with your question.

Thanks for taking the question and squeezing me in. I want to follow up on the last question there on sort of the reinvestment in the business and priorities in R&D and SG&A going forward. And you touched on the gross margins for next year a little bit earlier. But I'm just trying to get a sense of as you go out the next couple of years and some of the contribution, especially from the COVID business, starts to fade a little bit or maybe just become a smaller part of the overall business, how do you think about the margin profile normalizing? I think we had talked to in the past more of a maybe mid-single digit 5% of revenues to R&D. I think we're looking at something close to maybe 20% on SG&A and then maybe, you know, high 70s or 80 for gross margins. I'm just wondering if you could sort of walk us through the moving pieces there. And what I'm getting at is just sort of how we should think about normalized EBITDA margin profile, you know, in the out years, again, as that COVID base normalizes a little bit.

Yeah, look, I think from us, you know, we're really focused on the overall demand for CleanCap from all the sources because, again, it's not a differentiated product for indication. So, When we look at all the various demands, I think if you continue to see that overall line for COVID staying strong, that's going to continue to provide very strong margins going forward, and that's really what we're looking at. You're right, moving that R&D spend up from one or two full points up to four or five is going to be a little bit in line with market. That'll take probably some time unless we do some collaborations with third parties as we did in the fourth quarter. I think your estimates on SG&A may be a little bit high. We hope to get a little leverage there, but, you know, I think that's certainly something that's not unreachable, and we see margins being very steady. You know, a lot of what we do, particularly here, you start getting into customization of products, working with our customers very specifically. We've talked about in the past a lot of our sort of almost development-like resources are embedded in our COGS line just because they're working closely with our customers, but we're getting paid for it. So they become cost of goods sold or cost of services provided, particularly we're seeing that in biologic safety testing where we're seeing a lot more service work, mass spec work, and then working with our customers and other CDMOs as well. So, you know, it's a very good business model, certainly a very profitable one, you know, outside of, you know, the investments in organic products investment for R&D, I think the rest of the model is going to stay relatively consistent over time. I think that we're seeing our cost structure maybe catch up a little bit to the big spike in revenues we saw the last couple of years. But as we go from 2022 forward, given the cumulative buildup of CleanCap from all demand, as well as the continued customization of our products for mRNA, as well as in biologic safety testing, those allow us to have very strong margins and offer very unique products that really help our customers get to market faster and also help them with the most cost-effective manufacturing for capping. So those combinations work out really well, and that's why we're looking at fairly consistent margins over time.

Okay. And going back to the R&D day that you hosted just last month, anything you can talk about in terms of what the expectation is for contribution from some of those new products either in 2022 or 2023? I mean, some of it I think you're already commercializing. Those are used in your processes. Some of it is a little bit sort of work in progress that could be down the line. So just sort of how meaningful is that in terms of 2022 contribution?

Yeah, I wouldn't say that it's going to be a significant driver of revenues in 2022. Some of what we're talking about, some of what we're spending our time on, is improving the, if you will, manufacturing grade of the materials, so moving from a research grade that we may already offer, so technically already on market, but then switching that to GMP or higher quality grades in the meantime. So a little bit hard to tease those things apart, but we see the growing trend in the industry towards better quality standards for products that we may have been supplying at research grade for a number of years.

Okay. And then one last one for me, if I could squeeze it in. Sure. Anything you can say in terms of CureVac and where that plays in terms of the contribution to COVID clean cap? Obviously, they've been in the news a lot recently. So I know you talked at the touchdown, 3Q, 4Q, just some of that variability in the clean cap COVID numbers, but I'm just wondering if if CureVac played a role there or not.

Yeah, look, I mean, CureVac has been a very long-standing and supportive customer and partner for us, and it has been a significant factor in our revenue numbers in past quarters, so no question about that. I think as they made the decision strategically to concentrate on a second-generation vaccine, They and their new partners at GSK are moving forward very aggressively with that program. So I think what you could expect to see is that they may not be today at the same level of purchases that they were historically as they were moving forward with their first-generation vaccine candidate, but you would expect with success as they move through the development process that it will follow a very similar curve And we see nothing that suggests that their commitment to those programs and other infectious disease vaccines is in any way waning. Okay. All right. Thanks so much. You betcha. Rachel, I think we have time for one more question.

Yes. And our last question will be coming from John Sarbier with UBS. Please proceed with your question.

Thanks for taking my question here at the end. Just maybe if I could sneak in two. You know, one, any way to think on just pricing and the company's ability to maybe pass on any increases that you're seeing in supply costs and inflation on the customers?

Yeah. Well, John, I think Roy, go ahead. Go ahead, Kevin. Sorry. I was just going to say, it's you, Kevin, go.

So it happens when you're not in the same room sometimes, right? Anyway, yeah, I would say on the commodity side, look, we're not seeing increases on the commodity side, so that's good. I think if anything, as I talked about, we're seeing economies of scale from our volumes and the maturation of our supply chain group, and they do a great job there. So I think we're very happy with the inputs. Where we see cost increases, as everyone's seeing cost increases, is you know, in the manufacturing of, you know, the facilities and bringing those online and then the people. Certainly, there's inflationary pressures there with labor and those sort of things. You know, but overall, those are being mitigated by the well growth we're seeing and some of the savings that have set on the raw material side. So, I think we feel real good about that. So, that's not putting pressure on us at this point in time. And certainly, you know, logistically, we're not overly challenged. I mean, our products are extremely small in nature. We're certainly going out and Some of our contracts have a lot of our customers picking up the tab on that. Pricing being stable, I think, is a very comfortable position with us and our customers, and they certainly see the value at the price points we're at. Again, a lot of our business is also custom quoted, so it just depends a lot on scale and complexity and the total inputs and what they're looking to get, whether it's just modified mRNAs or whether it's mRNAs with CleanCap and at what scale. And those sort of cost-price calculators, margin calculators drive most of our coding and most of our business decisions.

Thanks. And then, you know, just appreciate the color on, you know, the supply agreement funnel and, you know, the additional, you know, questions, I guess, on cell and gene therapy earlier. Just maybe just kind of building on that, any way to kind of think about, you know, how many programs on cell and gene therapy you serve today and, you know, just any way to quantify, you know, what you see for this opportunity in 2022? Yeah.

Yeah, John, on cell and gene therapy, it's a little bit hard because obviously that's a very big number of programs and changing quite rapidly. So I think that for us to give you a reliable number on cell and gene therapy is probably a little bit premature. You know, certainly we feel that within the world of mRNA and clearly commercialized mRNA products focusing on the vaccines, we have a significant share not only of the supply market when it comes to capping, but also, you know, participating in the number of vaccines or the percentage of vaccines that are there. As I mentioned, you know, the sort of greater than two-thirds market share that Pfizer-BioNTech have and mRNA COVID may actually be as high as 75%. We feel very comfortable with that's both sustainable and, you know, kind of a reliable estimate of what our participation in that market is.

Got it. I appreciate the call. Thanks for taking the questions.

Thank you, John. And, Rachel, with that, I think we'll conclude and turn it back over to Deb for closing remarks.

Yeah, thanks, Carl. Thanks, Kevin. And, Rachel, thanks for your help today. Thank you all for joining us. I just want to remind you we'll be at the Barclays Healthcare Conference on March 15th. And we'll also be participating in the KeyBank Capital Markets Life Science Forum on March 23rd. So both presentations will be viewable both live and on replay from our website. So we look forward to updating you throughout the year. Feel free to reach out to me with any questions. Thanks for your time.

This concludes today's conference call. Thank you all for participating. You may now disconnect.