Investment Overview – Maravai’s Monster IPO Amid COVID Vaccine Hype
Maravai LifeSciences (NASDAQ:MRVI) joined the Nasdaq back in November 2020, its Initial Public Offering (“IPO”) raising an astounding $1.62bn via the issuance of ~60m shares, priced at $27 per share.
Formed in 2014, via a partnership between life science industry veterans Carl Hull and Eric Tardif, and Chicago based private equity firm GTCR, in 2016, the San Diego based company described its business as “committed to catalyzing the growth of successful, entrepreneurial, life science companies by providing expertise, capital, processes and systems”, and its initial portfolio comprised companies Vector Laboratories, TriLink BioTechnologies, Cygnus Technologies and Glen Research, amongst others.
In 2016, Maravai acquired TriLink BioTechnologies, “a global leader in the synthesis of high-quality nucleic acid and mRNA products for research, diagnostics, therapeutics and OEM customers”, and the two companies opened their global headquarters in 2019 – a 105k square foot manufacturing facility.
TriLink went on to develop CleanCap analog technology, which is described as follows in Maravai’s 2022 10K submission / annual report:
CleanCap is a novel chemical approach to produce the 5’ cap analog, which, in addition to making mRNA more stable, aids in protein production and helps prevent an unwanted immune response to the mRNA. CleanCap had been incorporated into several mRNA programs targeting immunization against the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”).
These programs included two commercial programs led by Pfizer in partnership with BioNTech and one led by BioNTech in partnership with Fosun Pharma, as well as the bivalent booster vaccine developed by Pfizer in partnership with BioNTech to address the Omicron strain of the virus.
In other words, TriLink’s CleanCap technology was a key component of the Comirnaty COVID vaccine developed by Pfizer (PFE) and BioNTech (BNTX) that received Emergency Use Authorisation (“EUA”) in December 2020, with ~3bn doses manufactured by the end of 2021, which went on to generate ~$70bn of revenues for the two companies in 2021 / 2022.
This certainly helps to explain why Maravai was able to launch such a lucrative IPO, right at the peak of the COVID / messenger-RNA vaccine hype cycle. Supplying its CleanCap technology to Pfizer / BioNTech was extremely lucrative for Maravai – consider the following statement from the 2022 annual report:
Nucleic Acid Production revenue increased from $711.9 million for the year ended December 31, 2021 to $813.1 million for the year ended December 31, 2022, representing an increase of $101.2 million, or 14.2%. The increase in Nucleic Acid Production was driven by demand for our proprietary CleanCap analogs as COVID-19 vaccine manufacturers scaled production earlier in the year, and for our highly modified RNA products as this technology becomes incorporated into more therapeutic and vaccine development programs.
For the year ended December 31, 2022, we estimate that approximately $599.8 million, or 90.8%, of our $660.5 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs. For the year ended December 31, 2021, we estimate that approximately $557.4 million, or 93.0%, of our $599.1 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs.
Maravai’s total revenues in 2022 and 2021 were $883m, and $799m respectively, hence CleanCap COVID vaccine revenues were responsible for ~68% of Maravai’s total revenues in 2022, and ~70% in 2021. Maravai stock hit an all-time high of $61 per share in August 2021, valuing the business at ~$6.5bn, and although the stock lost a large chunk of value through 2022, as it became apparent that pandemic pressures were easing and mRNA vaccine production would be scaled down, in September 2022 shares still traded >$25.
An Inevitable Drop Off – 2023 Brings A Reality Check
Maravai was by no means the only company involved in COVID vaccine production that achieved an arguably over-inflated market cap during the pandemic.
Moderna (MRNA), the company that developed the SpikeVax mRNA COVID vaccine, earned >$35bn of revenue in 2021 / 2022 achieved a market cap valuation of $150bn, and share price of $450, up ~2,400% from its pre pandemic price. BioNTech stock rose from ~$18 pre-pandemic, to a high of $390, and Novavax (NVAX), another COVID vaccine developer, saw its share price climb from ~$4, to ~$290, despite its vaccine scarcely making any meaningful sales.
Nevertheless, with ~70% of its revenues entirely dependent on vaccine revenues remaining at 2021 / 2022 highs, it’s hardly surprising Maravai’s stock price came crashing down to earth this year.
On August 7th, the company reported its revenues for the first half of 2023, which amounted to $115m of nucleic acid production revenues – down from $449m across the prior year period, and $33m of biologics safety testing revenues, down from $38m in the prior year. Total revenues of $148m across 1H23 represented a 70% year-on-year drop.
Where the company generated a net profit of $303m in 1H22, across 1H23, net loss amounted to $($13.3m). Downgraded 2023 full year guidance was provided by management as follows:
Total revenue for 2023 is now projected to be in the range of $300.0 million to $325.0 million.
Adjusted EBITDA (non-GAAP) is now expected to be in the range of $70.0 million to $80.0 million.
Adjusted fully diluted EPS (non-GAAP) is now expected to be in the range of $0.04 to $0.08 per share.
On the plus side, Maravai reported a cash position of $580m, although after generating net income of $182m in 2021, and $220m in 2022, and completing a >$1.6bn IPO in 2020, it is tempting to wonder why that figure is not substantially higher.
Maravai also reported long term gross debt of $536m as of Q223, resulting in a net cash position of $44m. With revenues expected to drop by 65% year-on-year in 2023, and profitability in 2023 looking unlikely, Maravai looks to be headed for trouble.
Maravai’s Revenue Prospects ex-CleanCap Appear Non-Existent
Maravai was not set up with the intention of providing a key ingredient in a vaccine administered to hundreds of millions of people – its purchase of TriLink was apparently in anticipation of an mRNA vaccine market reaching ~$6.4bn in size by 2025.
Ironically that is probably about the size it will reach in 2025 (having been worth close to $100bn per annum in the pandemic years of 2021 / 2022), but that is now a hugely problematic figure for Maravai, which has grown into a >600 employee company, around one fifth of whom have advanced degrees, and therefore command a high salary.
Maravai now boasts ~200k square foot of lab space, at 7 different locations (according to its investor day presentation), and a “global commercial presence” – but does the company have the revenue generating products to sustain all of these staff, and labs, while supporting research into “9 major innovation areas”?
Maravai says that “96% of top R&D spenders” in the biotech / pharmaceuticals industries are clients, including major companies such as Eli Lilly (LLY), AstraZeneca (AZN), AbbVie (ABBV), Sanofi (SNY), Roche (OTCQX:RHHBY) but the reality is that these companies must be spending very little with Maravai, and CleanCap aside, Maravai’s products are not in high demand from any sector of the pharmaceuticals business, which explains its declining revenues.
According to Maravai’s latest quarterly report / 10Q submission:
For the three months ended June 30, 2023, we estimate that approximately $11.6 million, or 42.4%, of our $27.3 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs.
Biologics Safety Testing revenue decreased from $17.5 million for the three months ended June 30, 2022 to $15.6 million for the three months ended June 30, 2023, representing a decrease of $1.8 million, or 10.5%.
With total nucleic acid revenues recorded as $53m last quarter, Maravai earned ~$26m in non CleanCap revenues, and within the safety testing division, revenues also declined. For a company with a market cap valuation of $1.6bn at the time of writing, a smidgen over $300m revenues annually with no meaningful profits suggests to me that even after declining 63% in the last 12 months, Maravai stock looks overvalued.
In the past few weeks, Pfizer has downgraded its COVID vaccine revenue guidance for 2023 – by ~$2bn – advising that the fall vaccine season will see ~17% of Americans paying ~$120 per dose for a Comirnaty vaccine. Even that figure – coming from the company itself – may be overblown. Moderna is guiding for ~$6bn of SpikeVax revenues in 2023, but has declined to provide guidance for 2024.
The hard truth is that Maravai may have to face is that its CleanCap revenues could all but dry up in 2024, and scanning through the company’s earnings releases, investor presentations etc. I cannot find any products the company is selling that could replace these lost revenues. Cygnus, which is apparently used by “all of the 15 existing FDA-and EMA-approved CAR-T Cell and Gene Therapies”, falls under the safety testing umbrella, so is already accounted for.
Concluding Thoughts – I Make Maravai A Sell Based On High Costs, Evaporating Revenues
Back in May it was rumoured that a private equity firm, Thomas H. Lee Partners, approached Maravai with a takeover offer, which the company declined, and in February 2022, Maravai also rejected a $42 per share offer for its business from Sartorius AG. Today, that seems like a particularly poor decision from management, with shares trading at just over $6.
It seems doubtful if any company would offer much more than $5 per share for Maravai’s business, which looks likely to become loss making, has negligible growth potential, few products of note, and plenty of expensive lab space to maintain, and staff to pay.
Perhaps there are some redeeming features. Moderna, BioNTech and Pfizer are all still working on mRNA vaccines, addressing diseases such as RSV, CMV, malaria, shingles, and an influenza / COVID combo vaccine, and Moderna believes its respiratory division could generate revenues of $8-$15bn by 2027, and is promising $20 – $30bn of revenues from mRNA based products long term, including a cancer “vaccine” developed in combo with Merck and its “mega-blockbuster” cancer drug keytruda.
The trouble is, Moderna does not use Maravai’s CleanCap, or its other products (so far as I am aware), and Maravai operates in a highly competitive marketplace, listing its competitors as Thermo Fisher (TMO), Catalent (CTLT), Danaher (DHR) and others. In fact, Maravai poached a Danaher employee, Trey Martin, to be its new CEO last year, but had to delay his appointment, as Danaher threatened to sue the company.
While the major Life Sciences industry incumbents such as Thermo and Danaher typically go from strength to strength, using economies of scale, the same cannot be said of challenger companies such as Maravai, or other companies that IPO’d on the basis of a sudden burst of COVID revenues, such as e.g. AbCellera (ABCL). These companies’ share prices have suffered as their attempts to turn the promise of mRNA, RNA, and other “bleeding edge” biopharma technologies into value-adding, revenue generating products have largely failed outside of COVID, and that era is (hopefully) disappearing into the rear view mirror, along with these companies’ only meaningful source of revenue.
Other companies – Telesis Bio (TBIO), Exscientia (EXAI), Generation Bio (GBIO), Clarivate (CLVT), to name a few, have suffered massive share price losses as they try to turn scientific biopharmaceutical promise into a viable business model. It is clearly harder than it looks, and with Maravai almost certain to guide for lower revenues in 2024 than in 2023, its current valuation of ~$1.6bn, nearly the same as the money it raised in its 202 IPO, looks far too high.
I would not be surprised if it was 50% lower by the middle of next year – a $750m market cap might even flatter a company likely to guide for revenues <$200m, with negligible profitability, and mounting financial problems. I hope I am wrong as I find the work the company is doing valuable and intriguing, but unfortunately it does not yet add up to a workable business model.
Read the full article here