Although some companies feast on drama to stay in the news cycle, most others hope to avoid it entirely. Unfortunately, sometimes the circus finds you.
Maravai LifeSciences (MRVI) recently announced its founder and long-time CEO Carl Hull would be stepping aside. His replacement, Trey Martin III, is a capable industry veteran expected to inject fresh ideas into operations. The change is occurring during a critical juncture in the company's trajectory.
The pandemic star supplies a key technology that makes it easier to manufacture mRNA products. It expects to report record annual revenue near $900 million in 2022, but waning demand for coronavirus vaccines means sales could fall to $500 million next year. Revenue could fall even further in 2024.
Maravai LifeSciences can wait years for mRNA tools to expand beyond vaccines or develop additional verticals to return to growth. The hiring of Mr. Martin meant the business decided to take action rather than sit idly.
However, the CEO transition will have to wait due to a pending lawsuit from Danaher Corporation (DHR), Mr. Martin's former employer.
The questionable legal move forced Maravai LifeSciences to reinstate Mr. Hull as CEO and pummeled shares of the biomanufacturing leader. What should investors make of the drama?
A Natural Time for Change
Maravai LifeSciences became one of the most important companies on the planet during the pandemic. It developed a technology that made it easier to manufacture mRNA products, which was a small niche until coronavirus vaccines became a reality. The business saw annual revenue surge from $143 million in 2019 to nearly $800 million in 2021.
The responsibly managed company generated operating profits, or was pretty close to breakeven operations, in the years before the pandemic. Although the business won't be able to sustain record levels of revenue as the world settles into a post-pandemic equilibrium, there's plenty of growth over the horizon.
mRNA tools are now accepted as a legitimate and de-risked therapeutic modality. Many vaccines could be replaced with mRNA technologies, which could generate between $10 and $20 billion in total annual revenue for drugmakers. That's a far cry from the $54.5 billion in sales generated from the two leading coronavirus vaccines in 2021, but still a respectable haul. mRNA products are also being evaluated as treatments for cancer and genetic diseases, although these indications aren't the optimal use of the technology.
Despite the long-term opportunity, the short-term come-down from the pandemic will be painful. Annual revenue from the two leading coronavirus vaccines will decline rapidly and could sink to $15 billion by 2024. While vaccine makers intend to greatly increase selling prices to manage revenue levels, Maravai LifeSciences generates sales from the volume of mRNA products sold.
The transition from the pandemic to a post-pandemic world makes it a natural time to install new leadership and welcome new ideas. Mr. Martin held senior roles at Danaher Corporation, a leading provider of biotech R&D tools, which he joined through the acquisition of DNA synthesis leader Integrated DNA Technologies (IDT). He's basically a perfect fit to lead the next phase of Maravai LifeSciences.
Will The Non-Compete Lawsuit Hold Up?
Three subsidiaries of Danaher Corporation filed a lawsuit against Mr. Martin arguing he's breaching non-compete agreements by taking over as CEO of Maravai LifeSciences. A court issued a restraining order prohibiting him from working for the pandemic star, which forced the company to put him on paid leave and reinstate Mr. Hull as the top executive.
The lawsuit is unlikely to unravel the CEO transition. Investors can thank the state of California, which routinely reminds employers and employees that noncompete agreements aren't enforceable. State Attorney General Rob Bonta's most recent public reminder makes the law pretty clear, stating, "California law prohibits employers, including those who operate out of state but employ California residents, from enforcing noncompete agreements." Mr. Martin is a resident of the state.
Although the lawsuit is likely to be resolved in favor of Mr. Martin, legal proceedings could drag on for months. The CEO transition and subsequent drama surrounding it have already driven a 35% decline in shares since the beginning of October.
The stock plunge is certainly painful. However, investors should acknowledge that steep revenue declines in 2023 and 2024 will require Maravai LifeSciences to be revalued lower. The current $4.25 billion market cap values the business at about 8.5x expected full-year 2023 revenue, which could still be considered a little expensive.
In other words, shares didn't deserve to fall on the recent CEO transition and drama, but would've needed to decline to account for lower revenue in the next few years. The recent plunge accelerated that process. Shares of Maravai LifeSciences are now the most attractive since the company went public during the pandemic. However, investors should await formal 2023 sales guidance, which has the potential to disappoint Wall Street, before getting too carried away gobbling up shares.
