MRVI (2021 - Q4)

Good day, and thank you for standing by. Welcome to the Q3 2021 Maravai LifeSciences Fourth Quarter 2021 Earnings Conference Call. [Operator instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Ms. Deb Hart, Head of Investor Relations. Ma’am, please go ahead. Deb Hart

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 us 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 www.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. As you can see on Slide 2, 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 3, 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 the Maravai 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 but 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 5. 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 $0.45 per share. 2021 was an incredible year for the entire business as you can see on slide 6. Full year revenue was $799.2 million, net income was $469.3 million with adjusted EBITDA margins at 73%. And, most importantly, our 2021 based business revenue, excluding the CleanCap revenue from COVID-19 vaccines grew 33% from full 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 and 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 7, 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 and cells, GMP Manufacturing Services utilize CleanCap and custom mRNA constructs. We have a unique opportunity to try 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 customers wanting to enter into CleanCap supply agreements. On slide 8, 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, 12 were actively staged negotiations and 25 more with term sheets under review. Today, we have 21 supply agreements signed 12 more in active late stage negotiations and 27 more with term sheets under review, an actual pipeline increase of 176% in a one year period. These new relationships are expected to be more expensive and more involved than some of the straight forwards plan arrangements that we might have seen in the past. We believe that this underscores incredible enthusiasm that exists for mRNA generally, in CleanCap specifically. Even more encouraging is the fact that this global customer population spans the spectrum from the largest pharma to innovative biotech 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 all pieces of the market for both infectious disease vaccines, and mRNA therapeutics. Given this growth and the general enthusiasm 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 ever more closely with our customers. Turning now to slide 9. We acquired MyChem on January 27. 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 trialing 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 LifeSciences 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 at 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 materials 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, and our Biologics Safety Testing business. As our products and services and BST support high growth markets and cell and gene therapy, vaccines and biologics drug manufacture. 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 biological 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 no associated virus based gene therapy programs and their attendant analytical needs. Second, strong sales across the full breadth of our product line use routinely in 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 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 for Maravai. 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 update and 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 Maravai. Given the 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 GAAP 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 and 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 CleanCap manufacturing process. Net income for the year was $469.3 million. Turning to slide 14. Adjusted EBITDA and 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 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 GAAP measure is net income attributable for our Class A shares divided by the weighted average Class A shares. Our fully diluted EPS also a GAAP measure is net income prior to non-controlling interests divided by the weighted average for both Class A and Class B and other dilutive securities, such as an equity award to the extent that assume conversion would be diluted under the if converted method for GAAP, for which it was not in Q4 2021. Lastly, the simplest and the 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 diluted securities. Our basic and fully diluted EPS for the fourth quarter were $0.42 while adjusted diluted EPS was $0.45 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 8-K filed on January 3, 2022, our Public Company Entity contributed $110 million of accumulated cash from tax distributions down to Topco to effectively retired 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 accounts to start 2022 and will be reflected in our 2020 guidance that I'll discuss in a moment. At year end, Class A shareholders have 51.5% of the voting power of Maravai 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 to drive innovation and build capacity, while also addressing customer needs and contributing to long-term growth. This is demonstrated by our announcement on January 24 of this year by putting $240 million of upfront cash on 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 extraordinary value of our differentiated products and services. CleanCap 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 CleanCap 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 Biologics Safety Testing business contributed 7% of the company's revenue in the fourth quarter, our Cygnus branded products, which comprise all of the segments 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 too roughly 30%., the business has never been stronger. With the full year growth of nearly 25% in 2021, strong market dynamics and expanded product offering as we articulated during our R&D debt, this is a wonderful business. Corporate expenses that are not included in the segment adjusted EBITDA total as I just spoke up were $13.1 million in the quarter, up slightly from previous quarter based on a $2 million contribution to kick start the Maravai LifeSciences Charitable Foundation, as well as marketing spend and legal spend to expand our IP around CleanCap. All-in-all, is a very strong 2021 for Maravai and 2022 was off to a great start with multiple strategic accomplishments and great momentum. But that being said, let's go to slide to 19 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 and $80 million increase at the midpoint. Included in our overall total revenue range is our revised estimate for 2022 CleanCap revenues directly attributable to our top COVID-19 vaccine customers, which we are now estimated grow between 12% and 14% in 2022, up materially from our previous guidance of 5% to 10%. This implies at the midpoint of our updated range at 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 is the CleanCap products we sell today are neither indication specific nor customized to our customers. CleanCap can be used interchangeably by our customers both 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 this these details, all of this implies that nucleic acid production segment revenues will be around $860 million at the midpoint of our guidance for 2022. When deducting for the midpoint of 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 or 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 spent 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 increased share 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 diluted EPS based on the assumption 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 that lower Class B shares as previously discussed, partially offset by the impact employee equity award plan for 2022. Additionally, our adjusted fully diluted EPS includes certain adjustments that do not reflect co-operations and are tax effective 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 and 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 the 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 the 2022 setup 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 CleanCap, which is the biggest single factor and how we develop a specific financial guidance to 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've seen 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 margin 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 kind 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 will 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 CleanCap 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 only accelerate, we at Maravai are proud of the key role that our customers, partners and employees are playing in making that happen. We are committed to building a strong foundation for long-term sustainable growth. And we'll 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 over the line for your questions. Rachel?

[Operator Instructions] Your first question comes from the line of Brandon Couillard with Jefferies.

Hey, thanks. Good afternoon. Carl appreciate all the detail on the business development and future outlook into ‘23. Just on the COVID or excuse me on the CleanCap supply agreement funnel the expansion to 60 are 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 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 can't really give you a good estimate there.

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

Yes, it's actually gross margin is relatively consistent. There's a few areas where we're seeing increased spend as relate to 2022. Certainly the bringing on the additional facilities in the second half of the year, I mean, those expenses come a little bit ahead of the overall capacity. So that's going to weigh a little bit on our margin. Also, we have the impact of the initial spend in R&D that we're looking to do and saw a little bit there in the fourth quarter, we're certainly also building out, continue to build our commercial footprint, our marketing team, and our support of our infrastructure, particularly the quality side, as well as the legal side and the focus in and around IP and CleanCap. So we feel real good about our gross margins in each of the segments, our pricing is very, very steady. I think, as you've seen over the last few years, it's really the reinvestment for some organic growth via facilities, c6ommercial channel, R&D and protection and continued expansion of our IP around CleanCap.

Your next question comes from the line of Tejas Savant with Morgan Stanley.

Hi, this is Yuko Oku on the call for Tejas. Thank you for taking your 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. 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 as 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, but based 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 million to $880 million 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 elemental conservatism baked in given it's still early in the year?

Yes, Kevin, do you happy to take?

Yes, I am 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 -- the forecast that are 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. So 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 our previously divested protein detection business. Very true for the size of the business. I'd 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 sorts of things, but not necessarily contributing fully to all the top line growth that we're seeing in nucleic acid production. So and 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 put through our normal forecast, and that's where we've come out.

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

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

Yes, so I am happy to and Carl can provide some color. Yes, look, I think the Biologics Safety Testing business starting there, I think it's continuing to perform well it went about 15% growth there, now 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. In within nucleic acid production, again, same sort of percentage growth, and you kind of strip out the midpoints of our guidance of a roughly 50%. So you look at that, and you see various things. And that is really CleanCap demand, as we're seeing as these contracts build up that Carl mentioned, for things outside of COVID. And that's sort of the kind of the next biggest bucket after the COVID bucket, we have the CleanCap for all other indications and demand that we're seeing. And then the rest of the business continues to be performing as sort of we always planned it several years ago. And that is just the [Indiscernible] of 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, as we progress, and as has happened over the last several quarters, that continues to be additional flow of funding into our customers, more and more people are interested in getting meaningfully involved in mRNA. And those things are just encrypted, slowly increasing our outlook as we look forward to 2022 and frankly, beyond.

Yes, Matt, the only color I would add there is that a lot of this new interest is coming from new entrants into the market, they 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 them.

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

Yes, I mean, there's certainly clear appetite on our part for continued M&A. I think MyChem is classically sample of the deals that we pursued as we were first building Maravai, 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 on ensuring 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 kind of how you feel about the debt structure?

Yes, obviously, we ended the year in real strong position with cash being just north of a debt load. And then, throughout about $240 million 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 try 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 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. And, again, I think we're always looking to make organic and inorganic growth that support our customers and still hold the thesis prudent 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.

The next question comes from the line of Paul Knight with KeyBanc.

Carl on ex vaccine nucleic part of the business it was went down initially from 3Q, was this fluctuations? I think you mentioned what in clinical trial activity yet. Yes, 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?

Yes, sure, Paul. I wouldn't get too much into those quarter-to-quarter fluctuations as Kevin alluded to in his comments, we see the lumpiness in both parts of the business, both in terms of because of 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 then we certainly don't see that being a trend.

And then on the outlook, are -- do your customers was looking at? Are they having to order out us a year, six months? What portion of businesses review in ’22, Carl?

Yes, look, I think we told you all that. Last time, we spoke that we had coverage on our COVID related CleanCap of over 75% of the POS from ‘22. That has only improved since that time. So we feel very comfortable with that chunk of business, and the rest of the business, it truly is customer specific as to how critical these programs are to customer’s future plans, and how much they need to rely on outside vendors, 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 slot in guaranteed supply raw materials a year to 18 months out, and others are more transactional in nature. So it varies.

Your next question comes from the line of Matt Larew with William Blair.

Hey, good afternoon. Kevin, you mentioned think about gross margin is flat year-over-year. But clearly, you're bringing capacity online, at your Investor Day recently you outlined some new streamlined manufacturing processes and how that's going to lead to higher yield. So I guess just maybe I'll speak about gross margins could look like what's this new capacity is built up and started to get choked up?

Yes, I think that's good question. I think, there's a couple things that we've done extremely well, certainly automation, it's been one of them. And that's been a big contributor of our ability to manufacture the volume scale and still have capacity to meet increases, I tell you, when we look forward here in 2022, we don't need these new facilities for the existing book of business, 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 again, we're seeing solid growth, 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 over and above a lot of the other investments we've made in our infrastructure. So we say 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. So as additional labor costs is 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 as we buy at scale as renegotiate longer term master contracts with price declines from our vendors or and/or acquire them as the case of MyChem. We picked up some points there. So there's kind of a given takes and the puts-and-takes that we see in the margin line, but looks like a real steady gross margin line for this year with a few investments in the OpEx I talked about previously.

Okay, and then, Carl on the pleasant side, just be curious of your update about how are you 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 to focus specifically on plasma that will be used as templates for IVT of our mRNA? Or is there an opportunity to be able to leverage your new capabilities to create plasma used as raw materials for viral vectors or other kinds of markets?

Yes, look, I think that is certainly a potential in the future of the right now, there's still a capacity shortage in the industry that's significant. Our customers, particularly smaller customers, and new 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.

Your next question comes from the line of Catherine Schulte with Baird.

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

Yes, sure. I mean, look, I think the protein detection business did $22.9 million in ’20 was as you said running closer to $25 million in 2021. So you looked at that, that low $20 million to $25 million range, I think that's a fair proxy, we were a reasonable sized customer, we're not going to get in all the specifics there. But it takes a bite off of that number. So that's part of it. 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 the base nucleic acid production business grew roughly a little about low 40s in 2020, 49% in 2021 we are guiding to roughly 50% growth in 2022, I think we're really happy with those both 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, but then each customer and that's what we're really excited about. So 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 a fourth quarter, is this the new level, we should be thinking about? Or was the work with a third party in a more of a onetime 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?

Yes, 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 yes, 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'd 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 shows you some of the areas that we can really expand on. So we're looking to move that up a few 100 basis points here over the course of the next year or two, on the right products or 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.

Yes, 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 the space before, but may have been used in other areas of chemical manufacturing, for as an example, process driven synthesis where you're not doing things in batches. And instead you're doing them in a continuous process and adaptations of known technologies to this particular application. We think is pretty exciting. That may give us some leverage in the future.

Your next question comes from the line of Michael Ryskin with Bank of America.

Thanks for taking the question, 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 am 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 to something close to maybe 20% on SG&A, that maybe, 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 sort of the how we should think about normalized EBITDA margin profile in the out years, again, if that COVID base normalizes a little bit.

Yes, look, I think for us, we're really focused on the overall demand for CleanCap from all the sources because again, it's not 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, I think you're right, moving that R&D spend up from one or two basis, 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 maybe a little bit high, we'll get a little leverage there. But I think that's certainly something that's not unreachable. And we see margins being very, very steady. A lot of what we do particularly here, and we 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 that 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 working with our customers and other CDMOs as well. So, it's a very good business model, certainly, certainly a very profitable one, outside of the investments in organic 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 biologics safety testing, those allow us to be, 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 really 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 first the contribution from some of those new products, either in ‘22, or 2023. I mean, some of it, I think you're already commercializing or to use the new 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?

Yes, I wouldn't say that it's going to be a significant driver revenues in 2022. Some of what we're talking about, some of what we're spending our time on is improving, if you will, manufacturing grade of the materials 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 in research grade for a number of years.

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

Yes, look, I mean, CureVac has been a very long standing and supportive customer partner for us. And it hasn't 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 second generation vaccine, they and their new partners as 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're moving forward with their first generation vaccine candidate, but you would expect with success as they moved through the development process that will follow a very similar curve, and we see nothing which suggested their commitment to those programs and other infectious disease vaccines is in any way waning. Rachel, I think we have time for one more question.

And our last question will be coming from John Sourbeer with UBS.

Thanks for taking my question here at the end. Just maybe I could sneak in to, one, anyway to think on just pricing and the company's ability to maybe pass on the increases that you're seeing this in supply cost and inflation on the customers.

John, I think right -- go ahead, I am sorry. It’s to you, Kevin, go.

So it happens when we are not in the same room sometimes. Anyway, yes, 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 the 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 seen cost increases is in the manufacturing of the facilities and bringing those online, and then the people, certainly there's inflationary pressures there with labor and those sorts of things. But overall, those are being mitigated by their wealth growth we're seeing, and some of the savings I've seen on the wrong 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, logistically, we're not overly challenged. I mean, our products are extremely small in nature, and certainly going out and some of our contracts have a lot of our customers picking up the tab on that. So I don't, we, pricing being stable, I think it's 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's just depends a lot on scale and complexity, and the total inputs and what they're looking to get whether it's just modified mRNA, or whether it's mRNAs with CleanCap, and at what scale. And those sorts of cost price calculators, margin calculators drive most of our quoting and most of our business decisions.

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

Yes, 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 we think that is for us to give you a reliable number on cell and gene therapy is probably a little bit premature. 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 participating in the number of vaccines or the percentage of vaccines that are there. As I mentioned, the sort of greater than two thirds market share of Pfizer BioNTech have mRNA COVID may actually be as high as 75%. We feel very comfortable with that's both sustainable, and kind of a reliable estimate of what our participation in that market is.

Guys, I appreciate the color. Thanks for taking the questions.

Thank you, John and Rachel, and with that think we'll conclude and sort of back over to Deb for closing remarks.

Yes. 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 15. And we'll also be participating in the Keybanc Capital Markets Life Sciences Forum on March 23. 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 conclude today's conference call. Thank you all for participating. You may now disconnect.