When a founder CEO transitions out of their role, it's always a good idea to investigate further. That announcement from Maravai LifeSciences (MRVI) earned the swift and immediate disapproval of Wall Street earlier this week. Shares have slumped almost 15% since the news hit the wires.
Investors should be careful not to let a kneejerk reaction from Mr. Market do their thinking for them.
Although founder and former CEO Carl Hull will be stepping down and into the role of Executive Chairman of the board of directors, incoming CEO Trey Martin III is a perfect fit for the company. The road ahead won't be easy. Maravai LifeSciences will see revenue fall sharply as coronavirus vaccine uptake declines to a new post-pandemic normal. But the business appears to be in excellent hands as it embarks on its strategy to achieve sustainable growth in the years ahead.
An Important, Albeit Niche, Company
Maravai LifeSciences is one of the leading manufacturers of nucleic acids for drug development applications. Investors are likely familiar with the terms DNA and RNA, which are the information molecules that retain the instructions for life. The "-NA" in both stands for "nucleic acid."
Customers rely on Maravai LifeSciences to manufacture high purity RNA for drug candidates, drug products, and research tools for genetic engineering applications. The company launched onto the public market and the radars of investors by being a key supplier for coronavirus vaccines from Moderna (MRNA) and BioNTech (BNTX).
As investors might imagine, the coronavirus pandemic became the perfect proving ground for the company's technology platform and manufacturing assets. Maravai LifeSciences saw revenue jump from $143 million in 2019 to $799 million in 2021.
On the one hand, the company generates revenue from more than just mRNA vaccines and mRNA clinical trials. The business has delivered operating profits since at least 2019, so it should remain profitable after the pandemic fades into the background.
On the other hand, revenue is expected to fall off a cliff. According to Yahoo! Finance, Wall Street expects full-year 2022 revenue of $891 million and full-year 2023 revenue of $583 million. The estimate for next year's revenue would still be more than double that of 2020, but mark a 35% drop from the all-time high nonetheless.
This closely mirrors expectations from vaccine makers Moderna and BioNTech, which expect the total coronavirus vaccine opportunity to shrink to as little as $5 billion of annual revenue. Low uptake and the loss of government supply contracts are the primary culprits.
A Perfect Fit for the Road Ahead
Maravai LifeSciences will clearly benefit in the long run from having stepped up to the challenge of the global coronavirus pandemic. It's probably one of the most important companies you've never heard about. Nonetheless, the business won't return to its former high watermark in revenue until the second half of this decade.
Luckily, Mr. Martin appears to be a perfect fit for the task ahead. He came from Danaher Corporation (DHR) via the acquisition of Integrated DNA Technologies (IDT). Investors can think of IDT as a DNA synthesis company similar to the more well-known Twist Bioscience (TWST). The two are fierce competitors on pricing and quality even to this day. Investors may not be aware, but IDT is generally considered to have better quality.
Although Maravai LifeSciences and IDT serve different customers today (there's some overlap), both are in the business of manufacturing high quality nucleic acids for biotech and synthetic biology applications. In fact, IDT was a key supplier to the International Genetically Engineering Machines (iGEM) competition during Mr. Martin's tenure. iGEM is an annual competition where universities from around the globe assemble teams to solve problems with biology. Over one dozen former teams have become biotech startups, including Ginkgo Bioworks (DNA) .
Therefore, investors shouldn't be surprised to see the new CEO explore exciting business opportunities that branch out into synthetic biology applications. It wouldn't be a surprise to see Maravai LifeSciences get directly involved in DNA synthesis and become a competitor to IDT and Twist Biosciences, perhaps on the next frontier through a next-generation technology called enzymatic synthesis.
For example, the company could acquire startups such as Molecular Assemblies to expand inorganically, or build in-house technology to grow organically. Maybe a combination of the two is over the horizon.
Another low-hanging fruit might be to explore peptide synthesis. Peptides are increasingly used to help genetic medicines and other biologic drug payloads target the intended tissue inside the body. They're attached to the active pharmaceutical ingredient and act like a homing device. For example, a specific peptide could help a drug payload find its way into lung cells through an inhaled formulation, while another could help a drug make it into muscle cells through a subcutaneous ("a simple shot") injection. Although not quite the same as nucleic acid manufacturing, there are enough parallels and gargantuan opportunities in the vertical to see a good fit with Maravai LifeSciences.
Simply put, the coronavirus pandemic served as the perfect proving ground for the business. It also helped amass a cash hoard of $550 million to go along with already profitable operations. The sky is the limit for Maravai LifeSciences, but the valuation will need to adjust to the post-pandemic reality in the near term. At least it has a potentially great CEO at the helm to execute on the next phase of the growth strategy.
For full disclosure, author Maxx Chatsko judged the iGem competition multiple years in the past when IDT was a sponsor.
