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1 Biotech Stock Investors Should Know About

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Its selling shovels amid the gold rush in mRNA medicines.

When there's a hot new field that's attracting a ton of investment and a ton of competition, sometimes it pays to invest in a company that's upstream in the value chain rather than one that's competing directly. Buying shares of key suppliers can reduce your exposure to risk, as you'll be avoiding owning the companies doing the hard work of actually figuring out how to do business in uncharted territory. 

Typically, it's hard to find suppliers to the biotechnology industry that are meaningfully exposed to the upside of new trends in drug development, but I'm going to discuss an exception. Maravai LifeSciences Holdings (MRVI -9.13%) is compelling because it's profitable, growing rapidly, and engaged in one of the absolute hottest areas of the last couple of years. And it could be even better off in the near future, which is why it could deserve a spot on your watch list. 

Image source: Getty Images.

This niche has never been more exciting than it is today

Maravai's business model is to manufacture and sell customized nucleic acids like DNA (deoxyribonucleic acid) and RNA (ribonucleic acid) to biopharma companies. It also provides safety-testing services for companies developing biologic therapies, though that isn't a primary focus.

If your eyes are already starting to glaze over from the science talk, don't worry. All you need to know is that Maravai is worth keeping an eye on because its nucleic acid products are going to be in higher and higher demand over time. 

The reasons for this are quite simple. Pfizer and Moderna both use mRNA technology in their coronavirus vaccines, and now there's broad interest in seeing what else the tech can be useful for. But many of the biotechs and pharmas that are initiating or advancing mRNA vaccine programs lack the manufacturing capabilities to produce mRNA and other nucleic acids at the scale necessary for research and clinical investigations. And that's precisely the scale which Maravai's subsidiary TriLink BioTechnologies is designed to help. 

Per its latest earnings call, in 2021, Maravai's revenue from sales of nucleic acids like mRNA increased by 245% year over year, reaching $711.9 million. Of that sum, $557.4 million is directly attributable to sales in support of coronavirus vaccine development. In total, during 2021, management reported net revenue of $799.2 million, an increase of 181% from 2020, and it's expecting a haul of as much as $960 million for 2022. 

In other words, now that we live in the world of mRNA medicine, Maravai's products are hot sellers. And if the biopharma industry's predilection for chasing the trendiest approaches to developing new medicines is consistent with the past, it'll be at least a few years before interest in mRNA medicine comes to a peak. Therein lies the investment thesis for Maravai. 

Just add it to the watch list for now

Still, a pair of important caveats should pour some cold water on anyone jumping to buy the stock today. 

The first is that management is only expecting a maximum of 14% growth in its coronavirus-related sales. Likewise, the midpoint of its 2022 revenue estimate only implies top-line growth of around 9%. That's hardly the snappy pace of a growth stock, and it means investors might need to wait quite a while for their purchase to start paying off.

The second issue is Maravai's weak stock performance amid its tremendous revenue growth. Over the last 12 months, its shares only rose by 4.3%, which is somewhat less than the market's return of 7.3%. Though that doesn't speak to the competitive capabilities of the business, it does suggest that the market isn't highly enthusiastic.

The reason for that might have something to do with the biopharma industry's trend-following behavior, which I mentioned earlier. 

From the perspective of today, it's true that mRNA medicines are ascendant, and the possibilities for their use seem endless. If you've ever lived through a grand multiyear hype cycle before, you'll instantly be on guard after reading the 'endless' bit. No matter how great mRNA technology might be (and I believe that it'll be pretty darn helpful in a huge number of contexts), it won't always be the big and popular thing. 

Limitations will be encountered, projects will founder, and eventually the next big trend will come along. And when it does, Maravai might find it incredibly hard to continue expanding by selling nucleic acids, and it's entirely possible that its business will actually shrink. Still, it's hard to say exactly when that might occur. If the duration of the popular obsession with CRISPR is any indication to go by, I'd guess that mRNA medicines will be in vogue for the next four years or so. 

But remember: Maravai's revenue projections for 2022 might mean that it's already plateauing, which would probably make it a bad investment today. So it's worth adding the stock to your watch list to see if its prospects get any better with a bit of time.

More earnings reports that show a continuation of tapering revenue growth are a definite red flag for investors. In contrast, news of diversification beyond nucleic acids and biologic safety testing would be a positive sign, even if interest in mRNA starts to ebb.

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