S-1/A 1 d73061ds1a.htm S-1/A S-1/A
Table of Contents

As filed with the Securities and Exchange Commission on November 13, 2020

No. 333-249733

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Maravai LifeSciences Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware    8731    85-2786970
(State or other jurisdiction of
incorporation or organization)
   (Primary Standard Industrial
Classification Code Number)
   (I.R.S. Employer
Identification No.)

 

 

10770 Wateridge Circle Suite 200

San Diego, California 92121

Telephone: (858) 546-0004

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Carl W. Hull

Chief Executive Officer

10770 Wateridge Circle Suite 200

San Diego, California 92121

Telephone: (858) 546-0004

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Robert M. Hayward, P.C.
Robert E. Goedert, P.C.

Michael P. Keeley

Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, IL 60654
(312) 862-2000

  

Alan F. Denenberg

Emily Roberts
Davis Polk & Wardwell LLP
1600 El Camino Real

Menlo Park, California 94025

(650) 752-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐

If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

 

Title of Each Class of
Securities to be Registered
  Amount to be
Registered(1)
  Proposed Maximum
Offering Price Per
Share(2)
  Proposed
Maximum
Offering Price(1)(2)
  Amount of
Registration Fee(3)

Class A Common Stock, par value $0.01 per share

  57,500,000   $27.00   $1,552,500,000   $169,377.75

 

 

(1)

Includes the aggregate offering price of shares of common stock subject to the underwriters’ option to purchase additional shares.

(2)

Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933.

(3)

The registrant previously paid a registration fee of $10,910 in connection with the initial filing of this Registration Statement.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

 

PRELIMINARY PROSPECTUS (Subject to Completion)

Issued November 13, 2020

50,000,000 Shares

 

 

LOGO

Class A Common Stock

 

 

This is the initial public offering of shares of Class A common stock of Maravai LifeSciences Holdings, Inc., par value $0.01 per share. Maravai LifeSciences Holdings, Inc. is offering 50,000,000 shares of its Class A common stock to be sold in the offering.

 

 

Prior to this offering, there has been no public market for the Class A common stock of Maravai LifeSciences Holdings, Inc. It is currently estimated that the initial public offering price per share will be between $24.00 and $27.00. Maravai LifeSciences Holdings, Inc. has been approved to have its Class A common stock listed on The Nasdaq Global Select Market under the symbol “MRVI.”

Maravai LifeSciences Holdings, Inc. has two authorized classes of common stock: Class A and Class B (together, the “common stock”). Holders of the Class A common stock and Class B common stock are each entitled to one vote per share. All holders of Class A common stock and Class B common stock will vote together as a single class except as otherwise required by applicable law. Holders of Class B common stock do not have any right to receive dividends or distributions upon the liquidation or winding up of Maravai LifeSciences Holdings, Inc.

 

 

Maravai LifeSciences Holdings, Inc. will use the net proceeds from this offering to purchase (i) newly-issued units (“LLC Units”) in Maravai Topco Holdings, LLC (“Topco LLC”) and (ii) outstanding LLC Units from Maravai Life Sciences Holdings, LLC (“MLSH 1”), the sole existing member of Topco LLC. The purchase price for the LLC Units will be equal to the initial public offering price of the shares of Class A common stock less the underwriting discounts and commissions referred to below. Topco LLC will use the net proceeds it receives from Maravai LifeSciences Holdings, Inc. in connection with this offering as described under “Use of Proceeds.” Upon completion of this offering, Maravai LifeSciences Holdings, Inc. will have 81,379,818 LLC Units representing a 32% economic interest in Topco LLC and, although Maravai LifeSciences Holdings, Inc. will initially have a minority economic interest in Topco LLC, it will be the sole managing member of Topco LLC and will operate and control its business. MLSH 1 will hold the remaining 176,458,692 LLC Units representing a 68% economic interest in Topco LLC. Each LLC Unit, together with one share of our Class B common stock, is, from time to time, exchangeable for one share of Class A common stock or, at our election, for cash from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). Maravai LifeSciences Holdings, Inc. will be a holding company, and upon consummation of this offering and the application of the net proceeds therefrom, its sole asset will be LLC Units of Topco LLC. Immediately following this offering, the holders of Class A common stock will collectively own 100% of the economic interests in Maravai LifeSciences Holdings, Inc. and have 32% of the voting power of Maravai LifeSciences Holdings, Inc. MLSH 1, through ownership of our Class B common stock, will have the remaining 68% of the voting power of Maravai LifeSciences Holdings, Inc.

 

 

Maravai LifeSciences Holdings, Inc. is an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, has elected to comply with certain reduced public company reporting requirements for this prospectus.

 

 

Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 26 to read about factors you should consider before buying shares of our Class A common stock.

 

 

Immediately after this offering, assuming an offering size as set forth above, funds controlled by our equity sponsor, GTCR, LLC (“GTCR”), will control approximately 81% of the combined voting power of our outstanding shares of Class A common stock and Class B common stock (or 78% if the underwriters’ option to purchase additional shares is exercised in full). As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of The Nasdaq Stock Market. See “Management—Corporate Governance—Controlled Company Status.”

 

 

PRICE $             A SHARE

 

 

 

       Per share        Total  

Initial public offering price

       $                      $              

Underwriting discounts and commissions(1)

       $                      $              

Proceeds, before expenses, to Maravai LifeSciences Holdings, Inc.

       $                      $              

 

(1)

See “Underwriters” for additional information regarding underwriting compensation.

At our request, the underwriters have reserved up to 3% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, for sale to certain individuals through a directed share program, including our directors, certain employees and certain other individuals identified by management. See “Underwriters—Directed Share Program.”

The underwriters have the option to purchase up to an additional 7,500,000 shares of Class A common stock from us at the initial public offering price less the underwriting discounts and commissions for a period of 30 days after the date of this prospectus.

 

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The underwriters expect to deliver shares of Class A common stock against payment in New York, New York on or about                     , 2020.

 

 

 

MORGAN STANLEY   JEFFERIES   GOLDMAN SACHS & CO. LLC
BOFA SECURITIES   CREDIT SUISSE               UBS INVESTMENT BANK
BAIRD   WILLIAM BLAIR   STIFEL   KEYBANC CAPITAL MARKETS
ACADEMY SECURITIES   LOOP CAPITAL MARKETS   PENSERRA SECURITIES LLC   TIGRESS FINANCIAL PARTNERS

                    , 2020.


Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission (“SEC”). We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.

For investors outside of the United States, neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.

 

 

Through and including                , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

i


Table of Contents

BASIS OF PRESENTATION

In connection with the consummation of this offering, we will effect certain organizational transactions. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the organizational transactions and this offering, which we refer to collectively as the “Organizational Transactions.” See “Organizational Structure” for a description of the Organizational Transactions and a diagram depicting our anticipated structure after giving effect to the Organizational Transactions, including this offering.

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “our business,” “the Company” and “Maravai” refer to and similar references refer: (1) on or following the consummation of the Organizational Transactions, including this offering, to Maravai LifeSciences Holdings, Inc. and its consolidated subsidiaries, including Topco LLC, and (2) prior to the consummation of the Organizational Transactions, including this offering, to Topco LLC and its consolidated subsidiaries. The term “GTCR” or “our Sponsor” refers to GTCR, LLC, our equity sponsor, and the term “Topco LLC” refers to Maravai Topco Holdings, LLC.

We will be a holding company and the sole managing member of Topco LLC and, upon consummation of this offering and the application of net proceeds therefrom, our sole asset will be LLC Units of Topco LLC. Topco LLC is the predecessor of the issuer, Maravai LifeSciences Holdings, Inc., for financial reporting purposes. Maravai LifeSciences Holdings, Inc. will be the reporting entity following this offering.

Accordingly, this prospectus contains the historical financial statements of Topco LLC and its consolidated subsidiaries. The unaudited pro forma condensed consolidated financial data of Maravai LifeSciences Holdings, Inc. presented in this prospectus has been derived from the application of pro forma adjustments to the historical consolidated financial statements of Topco LLC and its subsidiaries included elsewhere in this prospectus. These pro forma adjustments give effect to the Organizational Transactions as described in “Organizational Structure,” including the consummation of this offering and other related transactions, as if all such transactions had occurred on January 1, 2019. See “Unaudited Pro Forma Condensed Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the unaudited pro forma consolidated financial data included in this prospectus.

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research.

Our estimates are derived from publicly available information released by third-party sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe to be reasonable. We have not had this information verified by any independent sources. The independent industry publications used in this prospectus were not prepared on our behalf. While we are not aware of any misstatements regarding any information presented in this prospectus, forecasts, assumptions, expectations, beliefs, estimates and projects involve risk and uncertainties and are subject to change based on various factors, including those described under the headings “Forward-Looking Statements” and “Risk Factors.”

 

ii


Table of Contents

TRADEMARKS AND TRADENAMES

This prospectus includes our trademarks and service marks, “Maravai LifeSciences,” “TriLink BioTechnologies,” “Glen Research,” “Cygnus Technologies,” “Vector Laboratories,” “CleanCap®,” and “MockV,” which are protected under applicable intellectual property laws and are the property of Maravai LifeSciences Holdings, Inc. or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.

 

iii


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our Class A common stock. For a more complete understanding of us and this offering, you should read and carefully consider the entire prospectus, including the more detailed information set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes. Some of the statements in this prospectus are forward-looking statements. See “Forward-Looking Statements.” Unless otherwise stated, this prospectus assumes no exercise of the underwriters’ option to purchase additional shares.

OVERVIEW

We are a leading life sciences company providing critical products to enable the development of drug therapies, diagnostics, novel vaccines and support research on human diseases. Our more than 5,000 customers as of September 30, 2020 include the top 20 global biopharmaceutical companies ranked by research and development expenditures according to industry consultants, and many other emerging biopharmaceutical and life sciences research companies, as well as leading academic research institutions and in vitro diagnostics companies. Our products address the key phases of biopharmaceutical development and include complex nucleic acids for diagnostic and therapeutic applications, antibody-based products to detect impurities during the production of biopharmaceutical products, and products to detect the expression of proteins in tissues of various species.

 

 

LOGO

Our businesses principally serve high growth market segments in biopharmaceutical development and manufacturing. We estimate that the market segments we serve are growing at a weighted average blended rate of 20% per annum. In particular, the field of cell and gene therapy has emerged as one of the fastest growing treatment modalities to address a host of human conditions. There are more than 400 cell and gene therapies in development or launched and sales in this category are expected to grow more than tenfold by 2024, according to industry consultants and management estimates. Our portfolio offers key products for each stage of the cell and gene therapy development lifecycle. For example, our mRNA products are used in drug development to assist in the production of immune-activating antigens; our CleanCap® technology is used to stabilize mRNA; and we expect our upcoming plasmid DNA products will be used as templates for the production of our RNA products. We also provide biologics safety testing technology used to ensure the safety of the biological drug manufacturing process and drug products. We estimate that more than 64% of our revenue for the nine months ended September 30, 2020 was in support of vaccines and therapies in development, including biological drugs and cell and gene therapies.



 

1


Table of Contents

Our proprietary capabilities and products underpin the value we aim to provide to our customers. Among other capabilities, we are experts in RNA and mRNA products, which are challenging and often unstable molecules requiring significant chemical modifications to ensure their stability and efficacy in our customers’ applications. Notably, according to research commissioned by us consisting of over 70 interviews with our current and former customers, our competitors and industry experts focused across our three business segments (the “Industry Analysis”), we believe CleanCap® is viewed as a leading solution to ensure the stability of mRNA. CleanCap® is a novel chemical approach to produce a cap analog, which, in addition to making mRNA more stable, aids in protein production and helps prevent an unwanted immune response to the mRNA. As of September 30, 2020, CleanCap® had been used by over 100 customers and had been incorporated into several development programs targeting immunization against the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”). These programs included one phase II/III clinical program led by Pfizer in partnership with BioNTech, three phase I/II clinical programs led by Imperial College London, Fosun Pharma in partnership with BioNTech and CureVac and one pre-clinical program led by the University of Tokyo in partnership with Daiichi-Sankyo. In addition, CleanCap® is currently being used in three additional COVID-19 mRNA vaccine programs that are in earlier stages of development, led by Chula Vaccine Research Center in partnership with the University of Pennsylvania, eTheRNA Immunotherapies and Greenlight Biosciences. Given the early stage of these three programs, there can be no assurance they will continue to use CleanCap® through commercialization. We estimate our mRNA and CleanCap® products have also been incorporated in at least 33 therapeutic programs in development. Should one or more of these programs proceed to commercialization, we believe we will continue to supply our customers and our products will likely be incorporated in customer regulatory filings.

mRNA is at the core of our capabilities. We developed our expertise in mRNA with a belief in its potential as a therapeutic modality. With the COVID-19 pandemic, mRNA has shown its potential for more rapid vaccine design and manufacture when compared to traditional techniques involving culturing inactivated virus to elicit an immune response. According to the World Health Organization, there were 202 COVID-19 vaccine development programs as of November 3, 2020, with some of the lead candidates for approval in the RNA class. COVID-19 has helped highlight the potential advantage of mRNA as a treatment modality and directed significant resources to the developing base of knowledge about mRNA. We believe this knowledge will be directed at future vaccine programs as well as therapeutic agents for a host of human diseases. We are positioned to serve our biopharmaceutical customers in the fast-growing mRNA field across a range of clinical programs for a variety of diseases. Approximately 39% of our revenue was derived from products that support mRNA research for the nine months ended September 30, 2020.

Forming long-term partnerships with our customers is core to our strategy. We primarily serve our customers during the product development and process development phases. During product development, we collaborate with our customers to develop and synthesize nucleic acids, which in some cases comprise the active pharmaceutical ingredients (“APIs”) of our customers’ pre-commercial products. While we do not provide products that are themselves regulated as drugs or in vitro diagnostics, our customers frequently incorporate our products into their highly validated products and processes. For example, we provide oligonucleotides and antibody-based products used by in vitro diagnostic product manufacturers for their on-market products. Because of the extensive validation required for these products, these components are frequently purchased for the life of our customers’ products and we believe they are unlikely to be substituted. In addition, our analytical tools are used in the design and development of manufacturing processes and often will be used throughout the life cycle of our customers’ manufactured products. As a result, our customer relationships may span many years.

We believe we are a leader in providing critical products and solutions to life sciences customers worldwide to support all phases of biopharmaceutical development for innovative vaccines, therapies and diagnostics. The end markets we serve are growing rapidly, and we believe we will continue to benefit as biopharmaceutical companies increasingly look for partners like us with specialized and technical capabilities and products and services that span from research and development through commercialization. For the nine months ended September 30, 2020, we generated revenue of $185.7 million, representing 73% growth as compared to the nine months ended September 30, 2019. We generated net income of $64.3 million and Adjusted EBITDA of $104.8 million for the nine months ended September 30, 2020.



 

2


Table of Contents

OUR PORTFOLIO AND CAPABILITIES

Our products address our customers’ needs for nucleic acid production, biologics safety testing and protein detection, and our operations are aligned to these three segments. For the nine months ended September 30, 2020, we sold more than 53% of our products and services to biopharmaceutical customers and our products serve high growth applications in vaccines, cell and gene therapies, biological drugs and molecular diagnostics.

 

LOGO

 

*

Our plasmid DNA products are expected to launch in Q1 2021.

Nucleic Acid Production (69% of Revenue for the Nine Months Ended September 30, 2020)

We are a global provider of highly modified, complex nucleic acids and related products. We have recognized expertise in complex chemistries and products provided under exacting quality standards. Our core offerings include mRNA, long and short oligonucleotides, our proprietary CleanCap® capping technology and oligonucleotide building blocks. We offer a suite of CleanCap® analogs that are specifically made for therapeutics and vaccines. Based on the Industry Analysis, we believe our cap analogs are critical features of several mRNA vaccines in development. Our offerings address key customer needs for critical components, from research-grade to good manufacturing practices (“GMP”) grade materials. We market our nucleic acid products under the TriLink BioTechnologies and Glen Research brands.

Biologics Safety Testing (22% of Revenue for the Nine Months Ended September 30, 2020)

We provide products and services under the Cygnus Technologies brand that ensure the purity of our customers’ biopharmaceutical products, including biological drugs. For over 20 years, the Cygnus Technologies brand has been associated with products and services that enable the detection of impurities and contaminants present in bioproduction. Our biologics safety testing products are used during development and scale-up, during the regulatory approval process and throughout commercialization. We are recognized globally for the detection of host cell proteins (“HCPs”) and process-related impurities during bioproduction.

Protein Detection (9% of Revenue for the Nine Months Ended September 30, 2020)

We believe that we are a leader in labeling and detection reagents for immunohistochemistry, immunofluorescence and glycobiology, principally in research settings, with Vector Laboratories, the brand under which we market our protein detection products, having been cited over 350,000 times in scientific



 

3


Table of Contents

publications. Our products are used to detect the expression of proteins in tissue, which may indicate an ongoing disease process, with the use of antibody-based detection systems. We also manufacture lectins, proteins that preferentially bind to carbohydrates and which are used, for example, in the study of glycosylation, the process by which carbohydrates attach to proteins and lipids. Glycosylation is critical in a range of biological processes, including cell-to-cell adhesion, the performance of glycoprotein-based drugs and cancer. In addition, we manufacture bioconjugation reagents to allow rapid and quantifiable conjugation of all classes of biomolecules.

OUR COMPETITIVE STRENGTHS

We believe we are a leader in providing nucleic acid products and biologics safety testing products to biopharmaceutical customers worldwide. Our success is built on our ability to provide proprietary technologies and products under exacting quality standards to reliably serve our customers’ needs for critical raw materials.

Leading Supplier of Critical Solutions for Life Sciences from Discovery to Commercialization

We seek to be an important component of our customers’ supply chain by providing inputs that are central to the performance of their products and processes throughout the product lifecycle. By collaborating with customers early in the development phase, our products frequently follow our customers’ development path to commercialization and are likely to be incorporated as raw materials in their on-market products and processes. Our decades-long experience and track record, coupled with our ongoing investment in facilities and quality systems, allow our customers to rely on us for their critical products. Our approach is to be a trusted partner throughout the life cycle of our customers’ products.

Innovation, Proprietary Technologies and Knowhow Underpin Our Portfolio

Our expertise in complex chemistries leads customers to seek our collaboration in designing complex products that meet high performance expectations. Based on the responses to the Industry Analysis, we believe the solutions we provide, in many cases, cannot be provided effectively by our competitors. In certain cases, like our CleanCap® technology, our knowhow is backed by intellectual property. In other cases, such as our HCP products, our antibodies are proprietary and therefore can only be supplied by us. We believe the proprietary nature of our knowhow and products solidifies our long-term customer relationships.

Products with Outstanding Performance

We believe our products stand out when compared to our competitors because they present innovative solutions to customer needs, as indicated by the responses to the Industry Analysis, while providing reliable performance and quality. CleanCap®, for example, offers advantages over competing technologies in yield, stability and safety. Our oligonucleotides address complex chemistry challenges, which few competitors can address. The results of the Industry Analysis indicate that our HCP ELISAs have defined the market for impurity detection and we believe they have become a de facto standard in biologics safety testing. Our protein detection assays have been recognized for their performance for over 40 years.

Trusted Brands

Our TriLink BioTechnologies, Glen Research, Cygnus Technologies and Vector Laboratories product brands are well known in their respective markets for consistent quality and performance. This brand recognition has been earned over decades. Our manufacturing processes, quality standards, technical support and high-touch customer service ensure that we maintain the reputation of our brands.

State-of-the-Art Manufacturing Facilities

Our biopharmaceutical customers manufacture their products to meet stringent quality standards and expect their critical suppliers to meet their exacting requirements. Our customers further expect that we have the



 

4


Table of Contents

production capacity to meet their needs. As of September 30, 2020, we estimate that $70.0 million has been invested in our flagship San Diego, California facility and manufacturing suites to produce materials under GMP conditions, along with the necessary quality systems, to meet requirements specified by our customers. We similarly invest in our other sites to ensure we meet our customers’ expectations. We believe that the capacity to manufacture to stringent biopharmaceutical standards is constrained in the industry and our ability to meet this demand sets us apart from our competition.

Experienced Leaders and Talented Workforce

Our management includes experienced leaders with demonstrated records of success at Maravai and other highly regarded industry participants. In addition, as of September 30, 2020, approximately 17% of our workforce have advanced degrees and all receive rigorous on the job training. We believe the quality of our personnel is critical to ensuring the collaborative, long-standing relationships we maintain with many of our customers.

OUR MARKETS

We participate in three distinct market segments: nucleic acid production, biologics safety testing and protein detection, which together represented approximately $8.4 billion in annual spending in 2019 and which are expected to grow at a 15% compound annual growth rate (“CAGR”) through 2023 according to industry consultants and management estimates. Of that combined market, we estimate our addressable portion represents approximately $3.6 billion. Our addressable segments, adjusted for the mix of products we offer, are expected to grow at a weighted average blended rate of 20% per annum through 2023. We benefit from favorable industry dynamics in our broader market segments and specific growth drivers in our addressable market segments.

The biopharma space remains well-funded, as demonstrated by the substantial amount of capital that has been raised in recent years. In addition, the level of capital markets activity in this space over recent years underscores the rapid pace of biopharmaceutical innovation and increasing cost of drug development. According to Dealogic, the amount raised in initial public offerings and follow-on offerings by biotechnology companies in the U.S. public capital markets between 2015 and 2020 was more than $195.0 billion. This includes over $45.0 billion raised by companies across more than 228 initial public offerings, reflecting an average of 40 initial public offerings of biotechnology companies per year from 2015 to the six-month period ended June 30, 2020.

 

 

LOGO

Biopharmaceutical customers are increasingly relying on outside parties to provide important inputs and services for their clinical research and manufacturing, a development driving growth for suppliers with unique capabilities and the ability to manufacture at an appropriate scale to support customer programs. We believe that



 

5


Table of Contents

suppliers like ourselves, with this rare combination of capabilities, proprietary products and the required investment in manufacturing and quality systems, are benefiting from rapid growth as biopharmaceutical customers seek to partner with a small number of trusted suppliers.

In addition to the continued trend toward outsourcing, several market developments are driving increased growth, above the broader market growth rates, in our addressable market segments, including:

 

   

Pivot toward mRNA vaccines, driven in part by COVID-19. mRNA vaccine pre-clinical programs grew approximately 38% in 2019, before the COVID-19 pandemic. That rate is expected to increase to approximately 63% in 2020. The increased growth is being driven, in part, by 26 COVID-19 vaccine programs using mRNA as of November 3, 2020 according to the World Health Organization. Five of the 26, including one phase II/III clinical program led by Pfizer in partnership with BioNTech, three phase I/II clinical programs led by Imperial College London, Fosun Pharma in partnership with BioNTech and CureVac and one pre-clinical program led by the University of Tokyo in partnership with Daiichi-Sankyo, involve our CleanCap® products and up to three more in earlier stages of development, led by Chula Vaccine Research Center in partnership with the University of Pennsylvania, eTheRNA Immunotherapies and Greenlight Biosciences are currently using our CleanCap® products. Given the early stage of these three programs, there can be no assurance they will continue to use CleanCap® through commercialization. mRNA vaccine technology is gaining prominence as a result of its faster development time, lower manufacturing costs and improved safety because of the lower risk of unwanted immune responses. RNA expertise is highly specialized and customers seek partners to provide these complex products. A small number of providers, like ourselves, can provide this RNA capability.

 

   

Rapid growth in development of cell and gene therapies. Sales of cell and gene therapy drugs are expected to grow from $1 billion in 2019 to $25 billion by 2024, according to industry consultants. We support the development of these therapies with products used in gene editing and cell therapy research, and we are well positioned to supply materials for gene therapy with our launch of DNA plasmid products, which we expect in the first quarter of 2021.

 

LOGO    LOGO

 

   

Large and growing pipeline of protein-based therapeutics. In addition to cell and gene therapies, an increase in protein-based therapies is driving the need for impurity testing during process development and manufacturing.



 

6


Table of Contents

Protein Therapy Pipeline Growth

CAGR = 9%

 

LOGO

 

  

Protein Therapy Pipeline Mix

CAGR = 9%

 

LOGO

Source: Industry consultants. Included proteins are biosimilars, antibodies, recombinant proteins, hormonal products and coagulation factor

 

   

Rise in molecular diagnostics, driven by COVID-19: The market for molecular diagnostics is growing dramatically because of demand for new tests related to COVID-19. This growth is driving demand for our products, particularly oligonucleotides and related inputs.

 

   

COVID-19 providing both short-term and expected long-term growth: Several of our product categories are experiencing accelerated growth in 2020, notably our CleanCap® and oligonucleotide products. We expect the impact of COVID-19 on our growth to sustain in the longer term as the entire mRNA category benefits from lessons learned during the COVID-19 pandemic. We expect research in other therapeutic categories to experience increased growth as research conducted for COVID-19 diffuses more broadly into other vaccines and therapies.

 

LOGO

*

Our plasmid DNA products are expected to launch in Q1 2021.



 

7


Table of Contents

OUR STRATEGY

Our customers strive to improve human health. Our goal is to provide them with products and services to accelerate their development efforts, from basic research through clinical trials and ultimately to commercialization for drugs, diagnostics and vaccines.

Supporting Biopharma Customers from Product Development through Commercialization

Our customers include both emerging and established biopharmaceutical leaders developing novel therapies, diagnostics and vaccines. Emerging biopharmaceutical customers frequently seek the support we can offer in our state-of-the-art facilities under our stringent quality standards, with the capabilities that result from the capital and process investments we have made over the last several years. Although our products are exempt from current GMP regulations, we are capable of manufacturing reagents from research-grade to GMP-grade, which often exceeds the in-house capabilities of our pre-commercial customers. See “Business—Government Regulation.” The results of the Industry Analysis indicate that our emerging and established customers also seek us out for our leading capabilities in nucleic acid chemistries, especially in highly modified nucleic acids and mRNA, and process control assays. We further support our customers as they transition from product development to commercialization by providing critical raw materials for their drugs.

Developing Proprietary Technologies that Deepen Our Relationships with Our Customers

We are experts in nucleic acids and our scientists aim to develop proprietary enabling technologies that become integral to our customers’ products. For example, CleanCap®, our proprietary chemical capping technology, has demonstrated its advantages in terms of the stability of the associated mRNA and its efficiency in protein production when compared to traditional capping technologies. This efficiency has led biopharmaceutical customers to employ CleanCap® in their vaccine and therapeutic programs. As those products proceed through development into commercialization, we believe CleanCap® will be a critical input in on-market vaccines and therapeutics, with over 100 customers having used CleanCap® as of September 30, 2020 and five COVID-19 vaccine programs incorporating CleanCap® as of September 30, 2020, including one phase II/III clinical program led by Pfizer in partnership with BioNTech, three phase I/II clinical programs led by Imperial College London, Fosun Pharma in partnership with BioNTech and CureVac and one pre-clinical program led by the University of Tokyo in partnership with Daiichi-Sankyo. We expect to supply our customers throughout their products’ life cycle.

Forming Long-Term Partnerships for Critical Biopharmaceutical Components and Process Tests

Our products are frequently incorporated into regulated and highly validated therapeutic and diagnostic products and processes. Our biopharmaceutical customers expect us to provide them with consistent, high quality products that meet narrow specifications, and that we ensure their supply chain for such products for the length of their programs. In many cases, we may be the sole source of the products we provide. Our emphasis on partnership generally leads to long-term relationships with our customers.

Focusing Our Efforts on High Growth End Markets

While biopharmaceutical research and in vitro diagnostics markets are experiencing strong growth, we target the highest growth segments within those markets. Our product portfolio is well positioned to serve the biologics, cell and gene therapy and mRNA vaccine and therapeutic end markets, which are currently experiencing above-market growth. By investing in technologies at the forefront of biopharmaceutical and in vitro diagnostics, we aim to remain focused on the highest-growth applications.



 

8


Table of Contents

Opportunistically Acquiring Leading Life Sciences Businesses and Supporting Their Continued Development

We built our business by acquiring established and emerging companies with strong scientific foundations in our target markets and investing in their systems, processes and people to accelerate their growth and expand their technologies. Going forward, we may opportunistically pursue strategic acquisitions that meet, or could meet after being acquired and expanded, the following criteria:

 

   

address our core target markets;

 

   

have a demonstrated adherence to high quality standards;

 

   

be leaders in their market niches;

 

   

have differentiated or proprietary products and processes that provide clear value to our biopharmaceutical and other customers; and

 

   

have a track record of attractive rates of growth and compelling returns on invested capital.

Our acquisition strategy is to invest significantly in our acquired businesses. We strive to rapidly integrate their information and financial systems, seek opportunities to invest in their facilities and personnel and augment their commercial capabilities through a combination of sales and marketing resources dedicated to each business, supported by our global marketing infrastructure. We will continue to seek a balance between driving growth organically and through opportunistic acquisitions.

RISKS ASSOCIATED WITH OUR BUSINESS

There are a number of risks related to our business, this offering and our Class A common stock that you should consider before you decide to participate in this offering. You should carefully consider all the information presented in the section entitled “Risk Factors” in this prospectus. Some of the principal risks related to our business include the following:

 

   

our history of losses, the risk that we may continue to incur losses in the future and our ability to generate sufficient revenue to achieve or maintain profitability;

 

   

the fluctuation of our operating results, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide;

 

   

our dependence on a limited number of customers for a high percentage of our revenue;

 

   

the use of certain of our products in the production of vaccines and therapies that represent relatively new and still-developing modes of treatment, which may experience unforeseen adverse events, negative clinical outcomes or increased regulatory scrutiny;

 

   

the impact of COVID-19 and any pandemic, epidemic or outbreak of infectious disease;

 

   

changes in economic conditions;

 

   

our dependence on customers’ spending on and demand for outsourced nucleic acid production, biologics safety testing and protein detection research products and services;

 

   

competition with life science, pharmaceutical and biotechnology companies who are substantially larger than we are and potentially capable of developing new approaches that could make our products, services and technologies obsolete;

 

   

the ability of our products and services to perform as expected and the reliability of the technology on which our products and services are based;



 

9


Table of Contents
   

the complexity of our products and the fact that they are subject to quality control requirements;

 

   

our reliance on a limited number of suppliers or, in some cases, sole suppliers, for some of our raw materials and our inability to find replacements or immediately transition to alternative suppliers;

 

   

our dependence on a stable and adequate supply of quality raw materials from our suppliers, and the risk of adverse impacts from price increases or interruptions of such supply;

 

   

disruptions at our sites;

 

   

our ability to manufacture in specific quantities;

 

   

natural disasters, geopolitical unrest, war, terrorism, public health issues such as COVID-19 or other catastrophic events that could disrupt the supply, delivery or demand of products and services;

 

   

our ability to secure additional financing for future strategic transactions;

 

   

our reliance on third-party package deliver services and adverse impacts arising from significant disruptions of these services, damages or losses sustained during shipping or significant increases in prices;

 

   

our ability to continue to hire and retain skilled personnel;

 

   

our ability to successfully identify and implement distribution arrangements and marketing alliances;

 

   

the market acceptance of our life science reagents;

 

   

the market receptivity to our new products and services upon their introduction;

 

   

our ability to obtain, maintain and enforce intellectual property protection for our current and future products; and

 

   

the other factors set forth under “Risk Factors.”

These and other risks are more fully described in the section entitled “Risk Factors” in this prospectus. If any of these risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, you could lose all or part of your investment in our Class A common stock.

OUR SPONSOR

We have a valuable relationship with our equity sponsor, GTCR. In connection with this offering, we will enter into a director nomination agreement (the “Director Nomination Agreement”) with GTCR that provides GTCR the right to designate nominees to our board of directors (the “Board”), subject to certain conditions. See “Certain Relationships and Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

Founded in 1980, GTCR is a leading growth-oriented private equity firm focused on investing in growth companies in the Healthcare, Financial Services & Technology, Technology, Media & Telecommunications and Growth Business Services industries. The Chicago-based firm pioneered The Leaders Strategy—finding and partnering with management leaders in core domains to identify, acquire and build market-leading companies through transformational acquisitions and organic growth. Maravai is an example of the Leaders Strategy, whereby GTCR is partnering with Carl Hull and Eric Tardif to build and grow a leading life sciences platform. Since its inception, GTCR has invested more than $18.0 billion in over 200 companies.



 

10


Table of Contents

GENERAL CORPORATE INFORMATION

Our principal executive offices are located at 10770 Wateridge Circle Suite 200, San Diego, California, 92121. Our telephone number is (858) 546-0004. Our website address is www.maravai.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our Class A common stock. We are a holding company and all of our business operations are conducted through, and substantially all of our assets are held by, our subsidiaries.

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the date on which we are deemed to be a large accelerated filer (this means the market value of common that is held by non-affiliates exceeds $700.0 million as of the end of the second quarter of that fiscal year), or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);

 

   

only required to present two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related management’s discussion and analysis of financial condition and results of operations;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements and executive compensation in this prospectus and expect to elect to take advantage of other reduced burdens in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Under the JOBS Act emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of the extended transition period for complying with new or revised financial accounting standards. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.

OWNERSHIP AND ORGANIZATIONAL STRUCTURE

Maravai LifeSciences Holdings, Inc. is a Delaware corporation formed to serve as a holding company that will hold an interest in Topco LLC. Maravai LifeSciences Holdings, Inc. has not engaged in any business or other activities other than in connection with its formation and this offering. Upon consummation of this offering



 

11


Table of Contents

and the application of the proceeds therefrom, we will be a holding company, our sole asset will be an equity interest in Topco LLC and we will operate and control all of the business and affairs and consolidate the financial results of Topco LLC. See “Organizational Structure” for a complete description of the Organizational Transactions.

In connection with the Organizational Transactions:

 

   

We will amend and restate Topco LLC’s existing operating agreement (the “LLC Operating Agreement”) to, among other things, (i) modify Topco LLC’s capital structure by replacing the membership interests currently held by Topco LLC’s existing owners (beneficially owned through MLSH 1) with a new class of LLC Units held initially by MLSH 1 and (ii) appoint Maravai LifeSciences Holdings, Inc. as the sole managing member of Topco LLC. See “Organizational Structure—Amended and Restated Operating Agreement of Topco LLC.

 

   

Certain of the entities (the “Blocker Entities”) through which GTCR and other existing members of MLSH 1 hold their ownership interests in MLSH 1 will form Maravai Life Sciences Holdings 2, LLC (“MLSH 2”) and engage in a series of transactions (the “Blocker Mergers”) that will result in each of the Blocker Entities merging with and into Maravai LifeSciences Holdings, Inc., with Maravai LifeSciences Holdings, Inc. remaining as the surviving corporation. As a result of such transactions, (i) the former equityholders of the Blocker Entities will become members of MLSH 2 and (ii) MLSH 2 will exchange all of the equity interests in the Blocker Entities for (x) shares of Class A common stock and (y) the right to receive payments pursuant to the Tax Receivable Agreement.

 

   

We will enter into an exchange agreement (the “Exchange Agreement”) with MLSH 1 pursuant to which MLSH 1 will be entitled to exchange LLC Units, together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash, from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). See “Organizational Structure—Exchange Agreement.”

 

   

We will enter into a tax receivable agreement (the “Tax Receivable Agreement”) with MLSH 1 and MLSH 2 that will provide for the payment by Maravai LifeSciences Holdings, Inc. to MLSH 1 and MLSH 2, collectively, of 85% of the amount of cash savings, if any, in U.S. federal, state and local income taxes (computed using simplifying assumptions to address the impact of state and local taxes) we actually realize (or, under certain circumstances are deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the Tax Receivable Agreement, as discussed below) as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the Blocker Entities, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we are required to make under the Tax Receivable Agreement. See “Organizational Structure—Tax Receivable Agreement.”

 

   

We estimate that the net proceeds to us from the sale of our Class A common stock in this offering, after deducting underwriting discounts and commissions and estimated expenses payable by us, will be approximately $1,184.5 million ($1,365.2 million if the underwriters exercise their option to purchase additional shares in full), based on an assumed initial public offering price of $25.50 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). We intend to use such net proceeds as follows:

 

   

$94.5 million to acquire 3,921,569 newly-issued LLC Units in Topco LLC and $942.7 million to acquire 39,121,430 outstanding LLC Units from MLSH 1 (or $1,096.2 million to acquire 45,489,067 outstanding LLC Units if the underwriters exercise their option to purchase additional



 

12


Table of Contents
 

shares in full), in each case at a purchase price per LLC Unit equal to the initial offering price per share of Class A common stock in this offering, less underwriting discounts and commissions; and

 

   

$167.6 million to pay MLSH 2 as consideration for the Blocker Mergers and, if the underwriters exercise their option to purchase additional shares in full, $27.3 million to acquire outstanding shares of Class A common stock from MLSH 2 at a purchase price per share equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

In turn, Topco LLC intends to apply the balance of the net proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares) to (i) repay $50.0 million of our outstanding indebtedness under the New Credit Agreement, under which $600.0 million was outstanding and which had an interest rate of 5.25% as of October 31, 2020, (ii) pay expenses incurred in connection with this offering and the Organizational Transactions and (iii) for general corporate purposes. See “Use of Proceeds.”

The diagram below depicts our historical organizational structure prior to the completion of the Organizational Transactions. This diagram is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us, or owning a beneficial interest in us.

LOGO



 

13


Table of Contents

The diagram below depicts our expected organizational structure immediately following completion of the Organizational Transactions. This diagram is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us, or owning a beneficial interest in us.

 

 

LOGO

 

(1)

Upon completion of this offering, GTCR will control the voting power in Maravai LifeSciences Holdings, Inc. as follows: (i) approximately 68% (or approximately 66% if the underwriters exercise their option to purchase additional shares in full) through its control of MLSH 1 and (ii) approximately 12% through its control of MLSH 2. See “Principal Shareholders” for additional information about MLSH 1 and MLSH 2.

(2)

Shares of Class A common stock and Class B common stock will vote as a single class. Each outstanding share of Class A common stock and Class B Common stock will be entitled to one vote on all matters to be voted on by shareholders generally. The Class B common stock does not have any right to receive dividends or distributions upon the liquidation or winding up of Maravai LifeSciences Holdings, Inc. In accordance with the Exchange Agreement to be entered into in connection with the Organizational Transactions, MLSH 1 will be entitled to exchange LLC Units, together with an equal number of shares of Class B common stock, for shares of Class A common stock determined in accordance with the Exchange Agreement or, at our election, for cash from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale).

(3)

Upon completion of this offering, we expect to award options to purchase an aggregate of 1,584,400 shares of Class A common stock with an exercise price set at the initial public offering price issued pursuant to the 2020 Omnibus Incentive Plan (the “2020 Plan”).

(4)

Assumes no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full, (i) the holders of Class A common stock will have 34% of



 

14


Table of Contents
  the voting power in Maravai LifeSciences Holdings, Inc., (ii) MLSH 1, through ownership of the Class B common stock, will have 66% of the voting power of Maravai LifeSciences Holdings, Inc., (iii) MLSH 1 will own 66% of the outstanding LLC Units in Topco LLC and (iv) Maravai LifeSciences Holdings, Inc. will own 34% of the outstanding LLC Units in Topco LLC.

Our corporate structure following the offering, as described above, is commonly referred to as an “Up-C” structure, which is commonly used by partnerships and limited liability companies when they undertake an initial public offering of their business. Our Up-C structure together with the Tax Receivable Agreement will allow the existing owners of Topco LLC to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “passthrough” entity, for income tax purposes following the offering. One of these benefits is that future taxable income of the Topco LLC that is allocated to such owners will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, because the LLC Units that the existing owners will continue to hold are exchangeable for shares of our Class A common stock or, at our option, for cash, from Topco LLC, the Up-C structure also provides the existing owners of Topco LLC potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. See “Organizational Structure” and “Description of Capital Stock.”

Following this offering, MLSH 1 will hold a number of shares of our Class B common stock equal to the number of LLC Units it owns. Holders of our Class A common stock and Class B common stock will each be entitled to one vote per share on all matters on which shareholders are entitled to vote.

Maravai LifeSciences Holdings, Inc. will also hold LLC Units, and therefore receive benefits on account of its ownership in an entity treated as a partnership, or “passthrough” entity, for income tax purposes. As Maravai LifeSciences Holdings, Inc. purchases LLC Units from MLSH 1 under the mechanism described above, it will obtain a step-up in tax basis in its share of the assets of Topco LLC and its flow-through subsidiaries. This step-up in tax basis will provide Maravai LifeSciences Holdings, Inc. with certain tax benefits, such as future depreciation and amortization deductions that can reduce the taxable income allocable to Maravai LifeSciences Holdings, Inc. Pursuant to the Tax Receivable Agreement, Maravai LifeSciences Holdings, Inc. will agree to pay MLSH 1 and MLSH 2, collectively, 85% of the value of these tax benefits; however, the remaining 15% of such benefits will be available to Maravai LifeSciences Holdings, Inc. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of LLC Unit exchanges and the resulting amounts we are likely to pay out to LLC Unitholders pursuant to the Tax Receivable Agreement; however, we estimate that such payments may be substantial. See “Organizational Structure—Tax Receivable Agreement.”

Generally, Maravai LifeSciences Holdings, Inc. will receive a pro rata share of any distributions (including tax distributions) made by Topco LLC to its members. Tax distributions will be calculated without regard to any applicable basis adjustment under Section 743(b) of the Internal Revenue Code (the “Code”) and will be based upon an assumed tax rate, which, under certain circumstances, may cause Topco LLC to make tax distributions that, in the aggregate, exceed the amount of taxes that Topco LLC would have paid if it were a similarly situated corporate taxpayer. Funds used by Topco LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business. See “Risk Factors—Risks Related to Our Organizational Structure.”

As a result of the Organizational Transactions:

 

   

the investors in this offering will collectively own 50,000,000 shares of our Class A common stock and we will hold 81,379,818 LLC Units;

 

   

MLSH 1 will own 176,458,692 LLC Units and 176,458,692 shares of Class B common stock;

 

   

our Class A common stock will collectively represent approximately 32% of the voting power in us, with shares of Class A common stock held by the public representing approximately 19% of the voting power in us; and

 

   

our Class B common stock will collectively represent approximately 68% of the voting power in us.



 

15


Table of Contents

THE OFFERING

 

Issuer

   Maravai LifeSciences Holdings, Inc.

Class A common stock offered by us

   50,000,000 shares.

Underwriters’ option to purchase additional shares of Class A common stock

  


7,500,000 shares.

Class A common stock to be outstanding immediately after this offering

  


81,379,818 shares (or 87,747,455 shares if the underwriters’ option is exercised in full). If all outstanding LLC Units held by MLSH 1 were exchanged for newly-issued shares of Class A common stock on a one-for-one basis, 257,838,510 shares of Class A common stock would be outstanding.

Class B common stock to be outstanding immediately after this offering

  


176,458,692 shares. Immediately after this offering, MLSH 1 will own 100% of the outstanding shares of our Class B common stock.

Ratio of shares of Class A common stock to LLC Units

  


Our amended and restated certificate of incorporation and the amended and restated operating agreement of Topco LLC will require that we and Topco LLC at all times maintain a one-to-one ratio between the number of shares of Class A common stock issued by us and the number of LLC Units owned by us (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

Voting

  

Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by shareholders generally.

 

Each share of our Class B common stock entitles its holder to one vote on all matters to be voted on by shareholders generally.

 

After this offering, MLSH 1 will hold a number of shares of Class B common stock equal to the number of LLC Units it owns. See “Description of Capital Stock—Class B Common Stock.”

 

Holders of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law.



 

16


Table of Contents

Voting power held by holders of Class A common stock

  


32% (or 100% if all outstanding LLC Units were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

Voting power held by holders of Class B common stock

  


68% (or 0% if all outstanding LLC Units were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

Use of proceeds

  

We estimate, based upon an assumed initial public offering price of $25.50 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we will receive net proceeds from this offering of approximately $1,184.5 million (or $1,365.2 million if the underwriters exercise their option to purchase additional shares in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds as follows:

 

•   $94.5 million to acquire 3,921,569 newly-issued LLC Units in Topco LLC and $942.7 million to acquire 39,121,430 outstanding LLC Units (or $1,160.0 million to acquire 45,489,067 LLC Units if the underwriters exercise their option to purchase additional shares in full) from MLSH 1, in each case at a purchase price per LLC Unit equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions; and

 

•   $167.6 million to pay MLSH 2 as consideration for the Blocker Mergers and, if the underwriters exercise their option to purchase additional shares in full, $27.3 million to acquire outstanding shares of Class A common stock from MLSH 2 at a purchase price per share equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

  

In turn, Topco LLC intends to:

 

•   use $50.0 million to repay a portion of the amount outstanding under our New Credit Agreement, under which $600.0 million was outstanding and which had an interest rate of 5.25% as of October 31, 2020; and



 

17


Table of Contents
  

 

•   apply the balance of the net proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares) to pay expenses incurred in connection with this offering and the Organizational Transactions and for general corporate purposes.

 

See “Use of Proceeds” and “Organizational Structure.”

Controlled company

   After this offering, assuming an offering size as set forth in this section, GTCR will control approximately 81% of the voting power (or 78% if the underwriters’ option to purchase additional shares is exercised in full) in us. As a result, we expect to be a controlled company within the meaning of the corporate governance standards of The Nasdaq Stock Market (“NASDAQ”). See “Management—Corporate Governance—Controlled Company Status.”

Directed share program

   At our request, the underwriters have reserved up to 1,725,000 shares of our Class A common stock, or 3% of the shares of our Class A common stock to be offered by this prospectus for sale, at the initial public offering price, for sale to certain individuals through a directed share program, including our directors, certain employees and certain other individuals identified by management. Shares purchased through the directed share program will not be subject to a lock-up restriction, except in the case of shares purchased by any of our directors or officers and certain of our employees and existing equityholders. The number of shares of our Class A common stock available for sale to the general public will be reduced to the extent these individuals or entities purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus.

Dividend policy

   We currently intend to retain any future earnings for investment in our business and do not expect to pay any dividends in the foreseeable future. The declaration and payment of all future dividends, if any, will be at the discretion of our board of directors (our “Board”) and will depend upon our financial condition, earnings, contractual conditions or applicable laws and other factors that our Board may deem relevant. See “Dividend Policy.”


 

18


Table of Contents

Exchange rights of holders of the LLC Units

   Prior to this offering, we will enter into the Exchange Agreement with MLSH 1 so that it may exchange LLC Units, together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). Any shares of Class B common stock so delivered will be cancelled. See “Organizational Structure—Exchange Agreement.”

Tax Receivable Agreement

   We will enter into the Tax Receivable Agreement with MLSH 1 and MLSH 2 that will provide for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of tax benefits, if any, that Maravai LifeSciences Holdings, Inc. actually realizes (or in some circumstances is deemed to realize) as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the Blocker Entities, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement See “Organizational Structure—Tax Receivable Agreement.”

Registration Rights Agreement

   We intend to enter into a registration rights agreement (the “Registration Rights Agreement”) with MLSH 1 and MLSH 2 in connection with this offering. The Registration Rights Agreement will provide MLSH 1 and MLSH 2 certain registration rights whereby, following our initial public offering and the expiration of any related lock-up period, MLSH 1 and MLSH 2 can require us to register under the Securities Act shares of Class A common stock, (including shares issuable to MLSH 1 upon exchange of its LLC Units). The Registration Rights Agreement will also provide for piggyback registration rights for MLSH 1 and MLSH 2. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

Risk factors

   Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

Symbol for trading on The Nasdaq Global Select Market

  


“MRVI.”



 

19


Table of Contents

Unless otherwise indicated, all information in this prospectus:

 

   

assumes the effectiveness of the Organizational Transactions;

 

   

assumes an initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus;

 

   

assumes that the underwriters’ option to purchase additional shares of Class A common stock is not exercised;

 

   

includes a 253,916.941-for-1 split of LLC Units, which was effected on November 11, 2020;

 

   

excludes the shares of Class A common stock that may be issuable upon exercise of redemption and exchange rights held by MLSH 1;

 

   

excludes 10,313,540 shares of Class A common stock, plus future increases, reserved for issuance under our 2020 Employee Stock Purchase Plan (the “ESPP”); and

 

   

excludes 25,783,851 shares of Class A common stock reserved for future issuance under the 2020 Plan, including (i) options to purchase 1,584,400 shares of Class A common stock that we will issue to certain employees upon completion of this offering, with an exercise price set at the initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus, and that vest in accordance with the schedule described in “Executive Compensation—Actions Taken in 2020 or in Connection with This Offering—Stock Option Grants” and (ii) 75,294 restricted stock units (“RSUs”) that may be settled for an equal number of shares of Class A common stock that we will issue to our six independent directors upon completion of this offering and that vest annually over three years.



 

20


Table of Contents

SUMMARY HISTORICAL FINANCIAL AND OTHER DATA

The following tables present, as of the dates and for the periods indicated, (1) the summary historical consolidated financial and other data for Topco LLC and its consolidated subsidiaries and (2) the summary unaudited pro forma financial data for Maravai LifeSciences Holdings, Inc. and its consolidated subsidiaries, including Topco LLC. Topco LLC is the predecessor of Maravai LifeSciences Holdings, Inc. for financial reporting purposes. The summary condensed consolidated statement of operations data for the nine months ended September 30, 2019 and 2020 and the summary condensed consolidated balance sheet data as of September 30, 2020 have been derived from the unaudited condensed consolidated financial statements and notes of Topco LLC and its subsidiaries included elsewhere in this prospectus. The summary consolidated statement of operations data for the years ended December 31, 2018 and 2019 and the summary consolidated balance sheet data as of December 31, 2018 and 2019 have been derived from the audited consolidated financial statements and notes of Topco LLC and its subsidiaries included elsewhere in this prospectus.

The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. The information set forth below should be read together with “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

The summary unaudited pro forma consolidated financial data of Maravai LifeSciences Holdings, Inc. presented below have been derived from our unaudited pro forma condensed consolidated financial statements and notes included elsewhere in this prospectus. The summary unaudited pro forma financial data as of and for the year ended December 31, 2019 and as of and for the nine months ended September 30, 2020, gives effect to the Organizational Transactions as described in “Organizational Structure,” including the consummation of this offering, the use of the net proceeds therefrom and related transactions, as described in “Use of Proceeds” and “Unaudited Pro Forma Condensed Consolidated Financial Data,” as if all such transactions had occurred on January 1, 2019, with respect to the condensed consolidated statement of operations data and September 30, 2020, with respect to the condensed consolidated balance sheet data. The unaudited pro forma financial data include various estimates that are subject to material change and may not be indicative of what our operations or financial position would have been had this offering and related transactions taken place on the dates indicated, or that may be expected to occur in the future. See “Unaudited Pro Forma Condensed Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial data.



 

21


Table of Contents

The summary historical consolidated financial and other data of Maravai LifeSciences Holdings, Inc. have not been presented as Maravai LifeSciences Holdings, Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no material assets or liabilities during the periods presented in this section.

 

    Historical Topco LLC     Pro Forma Maravai
LifeSciences Holdings, Inc.
 
(in thousands, except per share and per unit
data)
  Year Ended December 31,     Nine Months Ended
September 30,
    Year Ended
December 31,

2019
    Nine Months
Ended
September 30,

2020
 
  2018     2019     2019     2020  
                (Unaudited)     (Unaudited)  

Consolidated Statement of Operations Data:

           

Revenue

  $   123,833     $   143,140     $   107,180     $   185,745     $   143,140     $   185,745  

Operating Expenses:

           

Cost of revenue

    60,765       66,849       49,019       56,254       66,849       56,254  

Research and development

    4,499       3,627       2,648       7,212       3,627       7,212  

Selling, general and administrative

    41,194       48,354       32,570       52,624       57,586       58,329  

Change in estimated fair value of contingent consideration

    939       322       241             322        

Gain on sale and leaseback transaction

                      (19,002           (19,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    107,397       119,152       84,478       97,088       128,384       102,793  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    16,436       23,988       22,702       88,657       14,756       82,952  

Other income (expense):

           

Interest expense

    (27,399     (29,959     (22,240     (21,934     (29,165     (22,980

Loss on extinguishment of debt

    (5,622                              

Other income

    87       118       95       132       118       132  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (16,498     (5,853     557       66,855       (14,291     60,104  

Income tax expense (benefit)

    417       (652     308       2,511       (1,559     6,015  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (16,915   $ (5,201   $ 249     $ 64,344       (12,732     54,089  

Net (loss) income attributable to noncontrolling interests

    (12,443     (731     (672     582       (9,335     39,415  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Topco LLC member

  $ (4,472   $ (4,470   $ 921     $ 63,762       (3,397   $ 14,674  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common unit attributable to Topco LLC member—basic and diluted

  $ (0.07   $ (0.03   $ (0.01   $ 0.21      

Weighted-average common units outstanding

    253,916,941       253,916,941       253,916,941       253,916,941      

Per Share Data(1):

           

Pro forma weighted average shares of Class A common stock outstanding:

           

Basic

 

    84,465,072       84,465,072  

Diluted

 

    84,465,072       84,499,582  

Pro forma net loss available to Class A common stock per share:

           

Basic

 

  $ (0.04   $ 0.18  

Diluted

 

  $ (0.04   $ 0.18  

Selected Other Data:

           

Adjusted EBITDA(2)

  $ 53,000     $ 62,014     $ 48,150     $ 104,840      

Adjusted Free Cash Flow(3)

  $ 49,263     $ 42,101     $ 34,713     $ 83,118      


 

22


Table of Contents
    Historical Topco LLC     Pro Forma
Maravai
LifeSciences
Holdings, Inc.
 
    As of December 31,     As of September 30,     As of
September 30,
2020
 
    2018     2019     2020  
                (Unaudited)     (Unaudited)  

Consolidated Balance Sheet Data (at period end):

       

Cash

  $ 21,866     $ 24,700     $ 124,882     $ 171,657  

Working capital (deficit)(4)

    17,883       30,990       (46,330     157,341  

Total assets

    539,676       577,796       738,112       1,093,031  

Long-term debt, less current portion

    335,550       334,783       349,204       530,100  

Total liabilities

    391,660       433,169       702,118       1,003,340  

Total member’s/shareholders’ equity

    148,016       144,627       35,994       89,691  

 

(1)

See the unaudited pro forma consolidated statement of operations in “Unaudited Pro Forma Consolidated Financial Information” for the description of the assumptions underlying the pro forma net loss per share calculations.

(2)

Adjusted EBITDA is a supplemental measure of operating performance that is not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and that does not represent, and should not be considered as, an alternative to net loss, as determined in accordance with GAAP. We define Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.

We use Adjusted EBITDA to understand and evaluate our core operating performance and trends and to develop short-term and long-term operating plans. We believe that Adjusted EBITDA facilitates comparison of our operating performance on a consistent basis between periods and, when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Adjusted EBITDA should not be considered as a replacement for net loss, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, is as follows:

 

    Historical Topco LLC  
(in thousands)   Year Ended
December 31,
    Nine Months
Ended
September 30,
 
  2018     2019     2019     2020  

Net income (loss)

  $ (16,915   $ (5,201   $ 249     $ 64,344  

Add:

       

Amortization

    20,122       20,274       15,118       15,156  

Depreciation

    2,225       3,810       2,331       4,756  

Interest expense

    27,399       29,959       22,240       21,934  

Income tax expense (benefit)

    417       (652     308       2,511  
 

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    33,248       48,190       40,246       108,701  


 

23


Table of Contents
    Historical Topco LLC  
(in thousands)   Year Ended
December 31,
    Nine Months
Ended
September 30,
 
  2018     2019     2019     2020  

Acquisition contingent consideration(a)

    939       322       241        

Loss on extinguishment of debt(b)

    5,622                    

Acquisition integration costs(c)

    7,529       6,170       4,061       3,588  

Amortization of purchase accounting inventory step-up(d)

    2,967       1,856       1,856        

Acquired in-process research and development costs(e)

                      2,881  

Unit-based compensation(f)

    2,121       1,679       1,163       2,933  

GTCR management fees(g)

    574       523       421       555  

Gain on sale and leaseback transaction(h)

                      (19,002

Merger and acquisition related expenses(i)

          3,274       162       218  

Financing costs(j)

                      4,966  
 

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 53,000     $ 62,014     $ 48,150     $ 104,840  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)   Refers to the change in fair value and settlement of earn-out payments related to a 2017 acquisition.
  (b)   Refers to non-operating cash expense incurred on extinguishment of debt.
  (c)   Refers to incremental costs incurred to execute and integrate completed acquisitions.
  (d)   Refers to a non-cash charge related to the amortization expense of the step-up of inventory from purchase price accounting.
  (e)   Refers to an in-process research and development charge associated with the acquisition of MockV Solutions, Inc.
  (f)    Refers to non-cash expense associated with unit-based compensation.
  (g)   Refers to cash fees paid to GTCR pursuant to the advisory services agreement that will terminate in connection with this offering.
  (h)   Refers to the gain on the sale of our Burlingame, California facility, which was leased back to the Company in 2020.
  (i)    Refers to diligence, legal, accounting, tax and consulting fees incurred associated with an acquisition that was not consummated.
  (j)    Refers to transaction costs related to this offering and the refinancing of our Credit Facilities that are not capitalizable or cannot be offset against proceeds from such transactions.

 

(3)

Adjusted Free Cash Flow is a supplemental measure of operating performance that is not prepared in accordance with GAAP and that does not represent, and should not be considered as, an alternative to net loss, as determined in accordance with GAAP. We define Adjusted Free Cash Flow as Adjusted EBITDA less capital expenditures.

We believe that Free Cash Flow facilitates comparison of our operating performance on a consistent basis between periods and, when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.

Adjusted Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under GAAP. Because of these limitations, Adjusted Free Cash Flow should not be considered as a replacement for net loss, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.



 

24


Table of Contents

A reconciliation of Adjusted Free Cash Flow is as follows:

 

     Historical Topco LLC  
     Year Ended
December 31,
    Nine Months Ended
September 30,
 
     2018     2019     2019     2020  

Adjusted EBITDA

   $ 53,000     $ 62,014     $ 48,150     $ 104,840  

Capital expenditures(a)

     (3,737     (19,913     (13,437     (21,722
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ 49,263     $ 42,101     $ 34,713     $ 83,118  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)   We define capital expenditures as purchases of property and equipment, which are included in cash flows from investing activities, and accounts payable and accrued expenses.

 

(4)

We define working capital (deficit) as current assets less current liabilities.



 

25


Table of Contents

RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before making a decision to invest in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Strategy

Until the 2020 fiscal year, we had incurred losses for each fiscal year since inception, we may incur losses in the future and we may not be able to generate sufficient revenue to maintain profitability.

Until the 2020 fiscal year, we had incurred losses for each fiscal year since our inception. For the years ended December 31, 2018 and 2019, we incurred net losses of $16.9 million and $5.2 million, respectively. As of December 31, 2019, we had an accumulated deficit of $42.4 million. Although we generated net income of $64.3 million for the nine months ended September 30, 2020 and had retained earnings of $21.4 million as of September 30, 2020, we expect that our operating expenses will continue to increase as we grow our business and as a result of our becoming a public company, and we may be unable to maintain profitability for the fiscal year ending December 31, 2020 or any future period. Since our inception, we have financed our operations primarily through the incurrence of indebtedness, revenue from our products and services and the sale of our equity securities. We will need to generate significant additional revenue to maintain profitability and we cannot be sure that we will remain profitable for any substantial period of time. We may never be able to generate sufficient revenue to maintain profitability and our recent and historical growth should not be considered indicative of our future performance.

Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may be driven by a variety of factors, many of which are outside of our control, including, but not limited to:

 

   

demand from our largest customers, which account for a significant percentage of our sales and orders, may not meet our expectations regarding volume and price in any given time period;

 

   

the level of demand for our products and services, which may vary significantly, and our ability to increase penetration in our existing markets and expand into new markets;

 

   

customers accelerating, canceling, reducing or delaying orders as a result of developments related to their pre-clinical studies and clinical trials;

 

   

impacts on us, our suppliers and our customers as a result of the COVID-19 pandemic;

 

   

the relative reliability and robustness of our products and services;

 

   

changes in governmental regulations or the regulatory posture toward our business;

 

   

the volume and mix of the products and services we sell or changes in the production or sales costs related to our products and services;

 

   

the success of our newer products, such as our CleanCap® mRNA products, and the introduction of other new products or product enhancements by us or others in our industry;

 

26


Table of Contents
   

the timing and amount of expenditures that we may incur to acquire, develop or commercialize additional products, services and technologies or for other purposes, such as the expansion of our facilities;

 

   

changes in governmental and academic funding of life sciences research and developments or changes that impact budgets, budget cycles or seasonal spending patterns of our customers;

 

   

future accounting pronouncements or changes in our accounting policies;

 

   

difficulties encountered by our commercial carriers in delivering our products, whether as a result of external factors such as weather or internal issues such as labor disputes;

 

   

general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors; and

 

   

the other factors described in this “Risk Factors” section.

The impact of any one of the factors discussed above, or the cumulative effects of a combination of such factors, could result in significant fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparisons of our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.

As a result of variability and unpredictability, we may also fail to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall short of the expectations of analysts or investors or any guidance we may provide, or if the guidance we provide falls short of the expectations of analysts or investors, the price of our Class A common stock could decline substantially. Such a stock price decline could occur even when we have met or exceeded any previously publicly stated guidance we may have provided.

We depend on a limited number of customers for a high percentage of our revenue. If we cannot maintain our current relationships with customers, fail to sustain recurring sources of revenue with our existing customers, or if we fail to enter into new relationships, our future operating results will be adversely affected.

For the years ended December 31, 2018 and 2019, revenue from our ten largest customers accounted for 33% and 34% of our total revenue, respectively. For the years ended December 31, 2018 and 2019, revenue from our five largest customers accounted for 25% and 26% of our total revenue, respectively, and revenue from our sixth to tenth largest customers accounted for 8% and 9% of our total revenue during the same periods, respectively. For the nine months ended September 30, 2020, revenue from our ten largest, five largest and sixth to tenth largest customers accounted for 53%, 43% and 9% of our total revenue, respectively. As of December 31, 2018, one single customer represented 13% of total consolidated accounts receivable. As of December 31, 2019, two customers accounted for 11% and 10% of total consolidated accounts receivable. Our largest customer, Thermo Fisher Scientific Inc., accounted for 9% and 10% of our total revenue for the years ended December 31, 2018 and 2019, respectively. As of September 30, 2020, two customers accounted for 52% and 14% of total consolidated accounts receivable. Our largest customer, Pfizer Inc., accounted for 14% of our total revenue for the nine months ended September 30, 2020. No other customer has accounted for 10% or more of our total revenue for these periods. The revenue attributable to our top customers has fluctuated in the past and may fluctuate in the future, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. In addition, the termination of these relationships, including following any failure to renew a long-term contract, could result in a temporary or permanent loss of revenue.

Our future success depends on our ability to maintain these relationships, to increase our penetration among these existing customers and to establish new relationships. We engage in conversations with other companies and institutions regarding potential commercial opportunities on an ongoing basis, which can be time consuming. There is no assurance that any of these conversations will result in a commercial agreement, or if an agreement is reached, that the resulting relationship will be successful. Speculation in the industry about our existing or potential commercial relationships can be a catalyst for adverse speculation about us, our products, our services and our technology, which can adversely affect our reputation and our business. In addition, if our customers

 

27


Table of Contents

order our products or services, but fail to pay on time or at all, our liquidity, financial condition, results of operations, cash flows and prospects could be materially and adversely affected.

We cannot assure investors that we will be able to further penetrate our existing markets or that our products or services will gain adequate market acceptance. Any failure to increase penetration in our existing markets would adversely affect our ability to improve our operating results.

Certain of our products are used by customers in the production of vaccines and therapies, some of which represent relatively new and still-developing modes of treatment. Unforeseen adverse events, negative clinical outcomes, or increased regulatory scrutiny of these and their financial cost may damage public perception of the safety, utility, or efficacy of these vaccines and therapies or other modes of treatment and may harm our customers’ ability to conduct their business. Such events may negatively impact our revenue and have an adverse effect on our performance.

Gene therapy and nucleic acid vaccines remain relatively new and are under active development, with only a few gene therapies and no nucleic acid vaccines approved to date by regulatory authorities. Public perception may be influenced by claims that gene therapy or nucleic acid vaccines are unsafe or ineffective, and gene therapy may not gain the acceptance of the public or the medical community. In addition, ethical, social, legal and financial concerns about gene therapy and nucleic acid vaccines could result in additional regulations or limitations or even prohibitions on certain gene therapies or vaccine-related products. More restrictive regulations or negative public perception could reduce certain of our customers’ use of our products and services, which could negatively affect our revenue and performance. In addition, certain of the COVID-19 vaccine development programs that may incorporate our CleanCap® products are still in early stages of development, including those with Chula Vaccine Research Center in partnership with the University of Pennsylvania, eTheRNA Immunotherapies and Greenlight Biosciences. There can be no assurance that these vaccine programs will proceed to clinical trials or result in a commercial product, or that any resulting vaccine will incorporate our CleanCap® products.

A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, has affected, and may continue to materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.

In late 2019, COVID-19 surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple other regions and countries, including the San Francisco Bay Area, where our protein detection business is located, the San Diego, California and Washington, D.C. areas, where our nucleic acid production business is located and the Wilmington, North Carolina area, where our biologics safety testing products business is located. The COVID-19 pandemic is evolving and to date has led to the implementation of various responses, including government imposed shelter-in-place orders, quarantines, travel restrictions and other public health safety measures, as well as reported adverse impacts on healthcare resources, facilities and providers in California, across the United States and in other countries. In response to the spread of COVID-19, and in accordance with direction from state and local government authorities, we have restricted access to our facilities mostly to personnel and third parties who must perform critical activities that must be completed on-site, limited the number of such personnel that can be present at our facilities at any one time, and requested that many of our personnel work remotely. In the event that government authorities were to further modify current restrictions, our employees conducting research and development or manufacturing activities may not be able to access our laboratory or manufacturing facilities and our core activities may be significantly limited or curtailed, possibly for an extended period of time.

As a result of the COVID-19 pandemic, or similar pandemics and outbreaks that may occur in the future, we have experienced and may in the future experience severe disruptions, including:

 

   

interruption of or delays in receiving products and supplies from the third parties we rely on to, among other things, manufacture components to our products, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may impair our ability to manufacture and sell our products and services;

 

28


Table of Contents
   

limitations on our business operations by the local, state or federal government that could impact our ability to manufacture, sell or deliver our products and services;

 

   

on-site visit limitations and prohibitions imposed by customers that could impact our ability to engage in pre-sales activities, and to provide post-sale activities, such as training, service and support;

 

   

delays in customers’ purchasing decisions and negotiations with customers and potential customers;

 

   

business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cyber security and data accessibility limits, or communication or mass transit disruptions; and

 

   

limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.

Any of these factors could severely impact our research and development activities, manufacturing business operations and sales or delay necessary interactions with local regulators, third-party vendors and other important contractors and customers. These and other factors arising from the COVID-19 pandemic could worsen in countries that are already experiencing significant levels of COVID-19 infections, could continue to spread to additional countries or could return to countries where the pandemic has been partially contained and could further adversely impact our ability to conduct our business generally and have a material adverse impact on our business, financial condition, results of operations, cash flows and prospects. For example, our protein detection segment experienced a decrease in sales for the second quarter of 2020 relative to the same period in 2019 due to stay-at-home orders in the San Francisco Bay Area and the closure of many academic laboratories that are the main customers of this segment and the reduced operations of other customers. Prolonged closures or shutdowns as a result of the COVID-19 pandemic would continue to affect sales of our protein detection segment adversely.

The extent to which the pandemic may negatively impact our consolidated operations and results of operations or those of our third-party manufacturers, suppliers, partners or customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, the extent of travel restrictions, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and actions to contain the pandemic or treat its impact, such as social distancing, quarantines, lock-downs or business closures.

We cannot presently predict the scope and severity of any potential business shutdowns or disruptions as a result of the COVID-19 pandemic. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Changes in economic conditions could negatively impact our revenue and earnings.

Our reagents are sold primarily to biopharmaceutical and academic organizations developing novel vaccines and therapies and performing basic research. Research and development spending by our customers and the availability of government research funding can fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic conditions and institutional and governmental budgetary policies. Our biologics safety testing customers are biopharmaceutical companies, contract research organizations (“CROs”), contract development and manufacturing organizations (“CDMOs”) and life science companies, which largely serve the biopharmaceutical industry. Our nucleic acid production customers are largely vaccine and therapeutic drug makers or diagnostics manufacturers, which rely in part on government healthcare-related policies and funding. Changes in government funding for certain research or reductions in overall healthcare spending could negatively impact us or our customers and, correspondingly, our

 

29


Table of Contents

sales to them. Currently, the U.S. and global economies are experiencing a period of economic downturn as a result of the COVID-19 pandemic. Other global economies have been slow to recover from past downturns. Any continued or further economic downturns or reductions or delays in governmental funding could cause customers to delay or forego purchases of our products and services. In addition, the majority of our customers’ contracts can be terminated, delayed or reduced in scope upon short notice or no notice. Changes in the level of orders received and filled can cause fluctuations in our quarterly revenue and earnings.

We are dependent on our customers’ spending on and demand for outsourced nucleic acid production, biologics safety testing and protein detection research products and services. A reduction in spending or demand could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

The success of our business depends primarily on the number and size of contracts with our customers, primarily pharmaceutical and biotechnology companies, for our products and services. Over the past several years, we have benefited from an increased demand for our products and services as a result of the continued growth of the global biologics market, increasing research and development budgets of our customers and greater degree of outsourcing by our customers. A slowing or reversal of any of these trends could have a significant adverse effect on the demand for our products and services.

In addition to these industry trends, our customers’ willingness and ability to utilize our products and services are also subject to, among other things, their own financial performance, changes in their available resources, their decisions to acquire in-house manufacturing capacity, their spending priorities, their budgetary policies and practices and their need to develop new biological products, which, in turn, are dependent upon a number of factors, including their competitors’ discoveries, developments and commercial manufacturing initiatives and the anticipated market, clinical and reimbursement scenarios for specific products and therapeutic areas. In addition, consolidation in the industries in which our customers operate may have an impact on our customers’ spending as they integrate acquired operations, including research and development departments and associated budgets. If our customers reduce their spending on our products and services as a result of any of these or other factors, our business, financial condition, results of operations, cash flows and prospects would be materially and adversely affected.

We compete with life science, pharmaceutical and biotechnology companies who are substantially larger than we are and potentially capable of developing new approaches that could make our products, services and technology obsolete.

The market for pharmaceutical, reagent, therapeutic and diagnostic products and services is intensely competitive, rapidly evolving, significantly affected by new product introductions and other market activities by industry participants and subject to rapid technological change. We also expect increased competition as additional companies enter our market and as more advanced technologies become available. We compete with other providers of outsourced biologics products and services. We also compete with the in-house discovery, development and commercial manufacturing functions of pharmaceutical and biotechnology companies. Many of our competitors are large, well-capitalized companies with significantly greater resources and market share than we have. As a consequence, these competitors are able to spend more aggressively on product and service development, marketing, sales and other initiatives than we can. Many of these competitors also have:

 

   

broader name recognition;

 

   

longer operating histories and the benefits derived from greater economies of scale;

 

   

larger and more established distribution networks;

 

   

additional product and service lines and the ability to bundle products and services to offer higher discounts or other incentives to gain a competitive advantage;

 

   

more experience in conducting research and development, manufacturing and marketing;

 

30


Table of Contents
   

more experience in entering into collaborations or other strategic partnership arrangements; and

 

   

more financial, manufacturing and human resources to support product development, sales and marketing and patent and other intellectual property litigation.

These factors, among others, may enable our competitors to market their products and services at lower prices or on terms more advantageous to customers than we can offer. Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. Additionally, our current and future competitors, including certain of our customers, may at any time develop additional products and services that compete with our products and services and new approaches by these competitors may make our products, services, technologies and methodologies obsolete or noncompetitive. We may not be able to compete effectively against these organizations.

In addition, to develop and market our new products, services, technologies and methodologies successfully, we must accurately assess and meet customers’ needs, make significant capital expenditures, optimize our development and manufacturing processes to predict and control costs, hire, train and retain the necessary personnel, increase customer awareness and acceptance of our services, provide high-quality services in a timely manner, price our products and services competitively and effectively integrate customer feedback into our business planning. If we fail to create demand for our new products, services or technologies, our future business could be harmed.

If our products and services do not perform as expected or the reliability of the technology on which our products and services are based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products and services, increased costs and damage to our reputation.

Our success depends on the market’s confidence that we can provide reliable, high-quality life science reagents. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our products, services and technologies may be impaired if our products or services fail to perform as expected.

Although our products are tested prior to shipment, defects or errors could nonetheless occur. Our operating results depend on our ability to execute and, when necessary, improve our quality management strategy and systems and our ability to effectively train and maintain our employee base with respect to quality management. A failure of our quality control systems could result in problems with facility operations or preparation or provision of products. In each case, such problems could arise for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials or environmental factors and damage to, or loss of, manufacturing operations. Such problems could affect production of a particular batch or series of batches of products, requiring the destruction of such products or a halt of facility production altogether. Furthermore, some of the products that we manufacture are subsequently incorporated into products that are sold by other life sciences companies and we have no control over the manufacture and production of those products.

In addition, in the event we, or our suppliers, fail to meet required quality standards and if our products experience, or are perceived to experience, a material defect or error, our products could be recalled or we may be unable to timely deliver products to our customers, which in turn could damage our reputation for quality and service. In the past, certain of our custom mRNA and CleanCap® reagent products have been sold with insufficient capping efficiency or with incorrect transcription instructions. Additionally, several lots of our HCP ELISA biologics safety testing kits have experienced a possible instability drift and decrease in accuracy. Although we have taken steps to improve our quality review, product documentation and reference testing procedures, we cannot guarantee that we will not experience quality assurance issues with our products in the future. Any such failure could, among other things, lead to increased costs, delayed or lost revenue, delayed

 

31


Table of Contents

market acceptance, damaged reputation, diversion of development resources, legal claims, reimbursement to customers for lost drug product, starting materials and active pharmaceutical ingredients, other customer claims, damage to and possibly termination of existing customer relationships, increased insurance costs, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products, any of which could harm our business, financial condition, results of operations, cash flows and prospects. Such defects or errors could also narrow the scope of the use of our products, which could hinder our success in the market.

Even after any underlying concerns or problems are resolved, any lingering concerns in our target markets regarding our technology or any manufacturing defects or performance errors in our products or services could continue to result in lost revenue, delayed market acceptance, damage to our reputation and claims against us.

In addition, we may be unable to maintain the quality, reliability, robustness and expected turnaround times of our products and services to continue to satisfy customer demand as we grow. To effectively manage our growth, we must continue to improve our operational, manufacturing and quality control systems and processes and other aspects of our business and continue to effectively expand, train and manage our personnel. The time and resources required to improve our existing systems and procedures, implement new systems and procedures and to adequately staff such existing and new systems and procedures is uncertain, and failure to complete this in a timely and efficient manner could adversely affect our operations and negatively impact our business and financial results. We may need to purchase additional equipment, some of which can take several months or more to procure, set up and validate, establish new production processes and increase our personnel levels to meet increased demand. There can be no assurance that any of these increases in scale, personnel expansion or equipment or process enhancements will be successfully implemented, or that we will have adequate space, including in our laboratory and production facilities, to accommodate such required expansion. Failure to manage this growth or transition could result in delays in turnaround times, higher product costs, declining product quality, deteriorating customer service and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our products and services and could damage our reputation and our business, financial condition, results of operations, cash flows and prospects could be adversely affected.

Our products are highly complex and are subject to quality control requirements.

Whether a product is produced by us or purchased from outside suppliers, it is subject to quality control procedures, including the verification of stability and performance and, for certain products, additional validation required by certain GMP that we voluntarily follow, European Conformity (“CE”) marking and ISO 9001:2015 compliance, prior to final packaging. Certain of our products are manufactured following the voluntary GMP quality standards of the International Council for Harmonisation’s GMP Guide, comparable GMP principles for the European Union and customer-specific requirements. We believe these products are exempt from compliance with the Food, Drug, and Cosmetic Act (“FDCA”) and the current GMP (“cGMP”) regulations of the Food and Drug Administration (“FDA”), as our products are further processed and incorporated into final drug products by our customers and we do not make claims related to their safety or effectiveness. In the event we, or our suppliers, produce products that fail to comply with required quality standards, we may incur delays in fulfilling orders, write-downs, damages resulting from product liability claims and harm to our reputation.

We rely on a limited number of suppliers or, in some cases, sole suppliers, for some of our raw materials and may not be able to find replacements or immediately transition to alternative suppliers.

Certain of our raw materials are sourced from a limited number of suppliers and some materials, including a proprietary DNA reagent, certain packaging materials, specific cell lines for Cygnus Technologies’ operations and certain raw materials used in our nucleic acid production products, as well as those raw materials sold under the Glen Research brand, are sole sourced. Delays or difficulties in securing these raw materials or other laboratory materials could result in an interruption in our production operations if we cannot obtain an acceptable

 

32


Table of Contents

substitute. Any such interruption could significantly affect our business, financial condition, results of operations, cash flows and prospects. While we may identify other suppliers, raw materials furnished by such replacement suppliers may require us to alter our production operations or perform extensive validations, which may be time consuming and expensive. There can be no assurance that we will be able to secure alternative materials and revalidate them without experiencing interruptions in our workflow. If we should encounter delays or difficulties in obtaining raw materials, our business, financial condition, results of operations, cash flows and prospects could be adversely affected.

We depend on a stable and adequate supply of quality raw materials from our suppliers, and price increases or interruptions of such supply could have an adverse impact on our business, financial condition, results of operations, cash flows and prospects.

Our operations depend upon our ability to obtain raw materials at reasonable prices. If we are unable to obtain the materials we need at a reasonable price, we may not be able to produce certain of our products at marketable prices or at all, which could have a material adverse effect on our results of operations.

Although we believe that we have stable relationships with our existing suppliers, we cannot assure you that we will be able to secure a stable supply of raw materials going forward. Our suppliers may not be able to keep up with our pace of growth or may reduce or cease their supply of raw materials to us at any time. In addition, we cannot assure you that our suppliers have obtained and will be able to obtain or maintain all licenses, permits and approvals necessary for their operations or comply with all applicable laws and regulations, and failure to do so by them may lead to interruption in their business operations, which in turn may result in shortages of raw materials supplied to us. Some of our suppliers are based overseas and therefore may need to maintain export or import licenses. If the supply of raw materials is interrupted, our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

Our business could be adversely affected by disruptions at our sites.

We rely upon our internal manufacturing, packaging and distribution operations to produce many of the products we sell and our warehouse facilities to store products pending sale. Any significant disruption of those operations for any reason, such as labor unrest, power interruptions, fire, hurricanes, the COVID-19 pandemic, earthquakes or other events beyond our control, could adversely affect our sales and customer relationships and therefore adversely affect our business. We have significant operations in California, near major earthquake faults, which make us susceptible to earthquake risk.

If we are unable to manufacture in specific quantities, our operating results will be harmed.

Our revenue and other operating results depend in large part on our ability to manufacture and ship our products in sufficient quantities. Any interruptions we experience in the manufacturing or shipping of our products could delay our ability to recognize revenue in a particular quarter. Manufacturing problems can and do arise, and as demand for our products increases, any such problems could have an increasingly significant impact on our operating results. While we have not generally experienced problems with, or delays in, our production capabilities that resulted in delays in our ability to ship finished products, there can be no assurance that we will not encounter such problems in the future. We may not be able to quickly ship products and recognize anticipated revenue for a given period if we experience significant delays in the manufacturing process. In addition, we must maintain sufficient production capacity in order to meet anticipated customer demand, and we may be unable to offset the associated fixed costs if orders slow, which would adversely affect our operating margins. If we are unable to manufacture our products consistently, in sufficient quantities and on a timely basis, our revenue, cash flow, gross margins and our other results of operations will be materially and adversely affected.

 

33


Table of Contents

Natural disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events could disrupt the supply, delivery or demand of products and services, which could negatively affect our operations and performance.

We are subject to the risk of disruption by earthquakes, hurricanes, floods and other natural disasters, fire, power shortages, geopolitical unrest, war, terrorist attacks and other hostile acts, public health issues, epidemics or pandemics, such as the COVID-19 pandemic, and other events beyond our control and the control of the third parties on which we depend. Any of these catastrophic events, whether in the United States or abroad, may have a significant negative impact on the global economy, our employees, facilities, partners, suppliers, distributors or customers, and could decrease demand for our products and services, create delays and inefficiencies in our supply chain and make it difficult or impossible for us to deliver products and services to our customers.

In addition, a catastrophic event that results in damage to specific equipment that would be difficult to replace, the destruction or disruption of our research and production facilities or our critical business or information technology systems would severely affect our ability to conduct normal business operations and, as a result, our operating results would be adversely affected.

Future strategic transactions or acquisitions may require us to seek additional financing, which we may not be able to secure on favorable terms, if at all.

We plan to continue a strategy of growth and development for our business. To this end, we actively evaluate various strategic transactions on an ongoing basis, including licensing or acquiring complementary products, technologies or businesses that would complement our existing portfolio of products and services. In order to complete such strategic transactions, we may need to seek additional financing to fund these investments and acquisitions. Should we need to do so, we may not be able to secure such financing, or obtain such financing on favorable terms because of the volatile nature of the biotechnology marketplace. In addition, future acquisitions may require the issuance or sale of additional equity, or equity-linked securities, which may result in additional dilution to our shareholders. Further, on October 19, 2020, we entered into a new credit agreement (the “New Credit Agreement”), which contains a number of restrictive covenants that impose significant restrictions on our ability to make acquisitions or certain other investments.

Because we rely heavily on third-party package-delivery services, a significant disruption in these services, damages or losses sustained during shipping or significant increases in prices could adversely affect our business, financial condition, results of operations, cash flows and prospects.

We ship a significant portion of our products to our customers through independent package delivery companies, such as FedEx, UPS and DHL. If one or more of these third-party package-delivery providers were to experience a major work stoppage, preventing our products from being delivered in a timely fashion or causing us to incur additional shipping costs we could not pass on to our customers, our costs could increase and our relationships with certain of our customers could be adversely affected. In addition, if one or more of these third-party package-delivery providers were to increase prices, and we were not able to find comparable alternatives or make adjustments in our delivery network, our profitability could be adversely affected. Furthermore, if one or more of these third-party package-delivery providers were to experience performance problems or other difficulties, it could negatively impact our operating results and our customers’ experience. In the past, some of our products have sustained serious damage in transit such that they were no longer usable. Although we have taken steps to improve our packaging and shipping containers, there is no guarantee our products will not become damaged or lost in transit in the future. If our products are damaged or lost in transit, it may result in a substantial delay in the fulfillment of our customer’s order and, depending on the type and extent of the damage, it may result in a substantial financial loss. If our products are not delivered in a timely fashion or are damaged or lost during the delivery process, our customers could become dissatisfied and cease using our products or our services, which would adversely affect our business, financial condition, results of operations, cash flows and prospects.

 

34


Table of Contents

If we are unable to continue to hire and retain skilled personnel, we will have trouble developing and marketing our products and services.

Our success depends largely upon the continued service of our management and scientific staff and our ability to attract, retain and motivate highly skilled technical, scientific, management and marketing personnel, who deliver high-quality and timely services to our customers and keep pace with cutting-edge technologies and developments in biologics. We also face significant competition in the hiring and retention of such personnel from other companies, other providers of outsourced biologics services, research and academic institutions, government and other organizations who have superior funding and resources. The loss of key personnel or our inability to hire and retain skilled personnel could materially adversely affect the development of our products and services and our business, financial condition, results of operations, cash flows and prospects.

We may enter into additional distribution arrangements and marketing alliances for certain products and services and any failure to successfully identify and implement these arrangements on favorable terms, if at all, may impair our ability to effectively distribute and market our products.

We may pursue additional arrangements regarding the sales and marketing and distribution of one or more of our products and services and our future revenue may depend, in part, on our ability to enter into and maintain arrangements with other companies having sales, marketing and distribution capabilities and the ability of such companies to successfully market and sell any such products and services. Any failure to enter into such arrangements and marketing alliances on favorable terms, if at all, could delay or impair our ability to distribute or market our products and services and could increase our costs of distribution and marketing. Any use of distribution arrangements and marketing alliances to commercialize our products and services will subject us to a number of risks, including the following:

 

   

we may be required to relinquish important rights to our products;

 

   

we may not be able to control the amount and timing of resources that our distributors or collaborators may devote to the distribution or marketing of our products;

 

   

our distributors or collaborators may experience financial difficulties; and

 

   

business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement.

Our success depends on the market acceptance of our life science reagents. Our reagents may not achieve or maintain significant commercial market acceptance.

Our commercial success is dependent upon our ability to continue to successfully market and sell our life science reagents. Our ability to achieve and maintain commercial market acceptance of our products and services and provide customers access to our life science reagents will depend on a number of factors, including:

 

   

our ability to increase awareness of the capabilities of our technology and solutions;

 

   

our customers’ willingness to adopt new products, services and technologies;

 

   

whether our products and services reliably provide advantages over legacy and other alternative technologies and are perceived by customers to be cost effective;

 

   

our ability to execute on our strategy to scale-up our CleanCap® technology to meet increasing demand and provide channels to access our CleanCap® technology and life science reagents;

 

   

the rate of adoption of our products and services by biopharmaceutical companies, academic institutions and others;

 

   

the relative reliability and robustness of our products and services as a whole and the components of our life science offerings, including, for example, CleanCap®, our assays for detecting host cell proteins and research products for labeling and detecting proteins;

 

35


Table of Contents
   

our ability to develop new tools and solutions for customers;

 

   

whether competitors develop and commercialize products and services that provide comparable features and benefits at scale;

 

   

the impact of our investments in product innovation and commercial growth;

 

   

negative publicity regarding our or our competitors’ products resulting from defects or errors; and

 

   

our ability to further validate our technology through research and accompanying publications.

We cannot assure you that we will be successful in addressing these criteria or other criteria that might affect the market acceptance of our products and services. If we are unsuccessful in achieving and maintaining market acceptance of our products and services, our business, financial condition, results of operations, cash flows and prospects could be adversely affected.

The market may not be receptive to our new products and services upon their introduction.

We expect a portion of our future revenue growth to come from introducing new nucleic acid products, including plasmid DNA. The commercial success of all of our products and services will depend upon their acceptance by the life science and biopharmaceutical industries. Some of the products and services that we are developing are based upon new technologies or approaches. As a result, there can be no assurance that these new products and services, even if successfully developed and introduced, will be accepted by customers. If customers do not adopt our new products, services and technologies, our results of operations may suffer and, as a result, the market price of our Class A common stock may decline.

It may be difficult for us to implement our strategies for revenue growth in light of competitive challenges.

We face significant competition across many of our product lines. In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers, resulting in increased pricing pressure on us. Moreover, customers may believe that larger companies are better able to compete as sole source vendors, and therefore prefer to purchase from such businesses. Failure to anticipate and respond to competitors’ actions may impact our future revenue and profitability.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Addressable market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. These estimates and forecasts are based on a number of complex assumptions and third-party estimates and other business data, including assumptions and estimates relating to our ability to generate revenue from existing products and services and the development of new products and services. The estimates and forecasts in this prospectus relating to the size and expected growth of our markets may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at the rate we anticipate, if at all.

Product liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing products and limit commercialization of any products that we may develop.

Our business exposes us to the risk of product liability claims that are inherent in the development, production, distribution, and sale of biotechnology products. We face an inherent risk of product liability exposure related to the use of certain of our products in our customers’ human clinical trials and product liability lawsuits may allege that our products or services identified inaccurate or incomplete information or otherwise failed to perform as designed. We may also be subject to liability for errors in, a misunderstanding of or

 

36


Table of Contents

inappropriate reliance upon, the information we provide in the ordinary course of our business activities. If any of our products harm people due to our negligence, willful misconduct, unlawful activities or material breach, or if we cannot successfully defend ourselves against claims that our products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in the following, any of which could impact our business, financial condition, results of operations, cash flows and prospects:

 

   

decreased demand for our products and any products that we may develop;

 

   

injury to our reputation;

 

   

costs to defend the related litigation;

 

   

loss of revenue; and

 

   

the inability to commercialize products that we may develop.

We maintain product liability insurance, but this insurance is subject to deductibles, limits and exclusions and may not fully protect us from the financial impact of defending against product liability claims or the potential loss of revenue that may result. Any product liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future.

We are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies and contractual obligations could adversely affect our business, financial condition, results of operations, cash flows and prospects.

We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of proprietary information and personally-identifying information, which among other things, imposes certain requirements relating to the privacy, security and transmission of certain individually identifiable information.

Numerous other federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and security of personal information. These laws continue to change and evolve and are increasing in breadth and impact. Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. Additionally, if we are unable to properly protect the privacy and security of personal information, we could be found to have breached our contracts.

Many states in which we operate have laws that protect the privacy and security of personal information. For example, the California Consumer Privacy Act of 2018 (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This law and others like it are as yet untested and may subject us to increased regulatory scrutiny, litigation, and overall risk. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject, if it is enacted.

Various foreign countries in which we operate also have, or are developing, laws that govern the collection, use, disclosure, security and cross-border transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy

 

37


Table of Contents

and data protection issues that have the potential to affect our business. For example, privacy requirements in the European Union (the “EU”) govern the transfer of personal information from the European Economic Area to the United States. In the EU and the United Kingdom, the collection and use of personal data is governed by the provisions of the General Data Protection Regulation (“GDPR”), in addition to other applicable laws and regulations. The GDPR came into effect in May 2018, repealing and replacing the European Union Data Protection Directive, and imposing revised data privacy and security requirements on companies in relation to the processing of personal data of EU and United Kingdom data subjects. The GDPR, together with national legislation, regulations and guidelines of EU member states and the United Kingdom governing the processing of personal data, impose strict obligations with respect to, and restrictions on, the collection, use, retention, protection, disclosure, transfer and processing of personal data. The GDPR authorizes fines for certain violations of up to 4% of a company’s total global annual turnover for the preceding financial year or €20 million, whichever is greater. Such fines are in addition to any civil litigation claims by data subjects. Brexit may also lead to further legislative and regulatory changes and increase our compliance costs. The United Kingdom has transposed the GDPR into domestic law, with a United Kingdom version of the GDPR taking effect in January 2021, after the end of the Brexit transitional period. This could have the result of exposing us to two parallel data privacy regimes in Europe, each of which potentially authorizes significant fines for certain violations. Other jurisdictions outside the EU are similarly introducing or enhancing privacy and data security laws, rules and regulations, which could increase our compliance costs and the risks associated with noncompliance. We cannot guarantee that we are, or will be, in compliance with all applicable international regulations as they are enforced now or as they evolve.

It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. We must devote significant resources to understanding and complying with this changing landscape. Failure to comply with federal, state and international laws regarding privacy and security of personal information could expose us to penalties under such laws, orders requiring that we change our practices, claims for damages or other liabilities, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

We may be unable to efficiently manage growth as a larger and more geographically diverse organization.

Our strategic acquisitions, the continued expansion of our commercial sales operations and our organic growth have increased the scope and complexity of our business. As a result, we will face challenges inherent in efficiently managing a more complex business with an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs. Our inability to manage successfully the geographically more diverse and substantially larger combined organization could materially adversely affect our operating results.

Opportunistic acquisitions may pose risks and challenges.

We have completed six acquisitions and several investments since April 2016 and, going forward, we may opportunistically pursue strategic acquisitions. However, we may be unable to continue to identify or complete promising acquisitions for many reasons, including competition among buyers, the high valuations of businesses in our industry, the need for regulatory and other approvals and the availability of capital. There can be no assurance that we will engage in any additional acquisitions or that we will be able to do so on terms that will enable us to realize the anticipated benefits. In addition, acquisitions financed with borrowings could increase our leverage and interest expense, which could make us more vulnerable to business downturns.

 

38


Table of Contents

Our internal computer systems, or those of our customers, collaborators or other contractors, have been and may in the future be subject to cyber-attacks or security breaches, which could result in a material disruption of our product development programs or otherwise adversely affect our business, financial condition, results of operations, cash flows and prospects.

Despite the implementation of security measures, our internal computer systems and those of our customers are vulnerable to damage from computer viruses and unauthorized access. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Cyber-attacks also could include phishing attempts or e-mail fraud to cause unauthorized payments or information to be transmitted to an unintended recipient. A material cyber-attack or security breach could cause interruptions in our operations and could result in a material disruption of our business operations, damage to our reputation, financial condition, results of operations, cash flows and prospects.

In the ordinary course of our business, we collect and store sensitive data, including, among other things, personally identifiable information about our employees, intellectual property, and proprietary business information. Any cyber-attack or security breach that leads to unauthorized access, use or disclosure of personal or proprietary information could harm our reputation, cause us not to comply with federal and/or state breach notification laws and foreign law equivalents and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. In addition, we could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company and our vendors, including personal information of our employees, and company and vendor confidential data. In addition, outside parties have previously attempted and may in the future attempt to penetrate our systems or those of our vendors or fraudulently induce our personnel or the personnel of our vendors to disclose sensitive information in order to gain access to our data and/or systems or make unauthorized payments to third parties. Like other companies, we have on occasion experienced, and will continue to experience, data security incidents involving access to company data, unauthorized payments and threats to our data and systems, including malicious codes and viruses, phishing, business email compromise attacks, or other cyber-attacks. The number and complexity of these threats continue to increase over time. If a material breach of our information technology systems or those of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged.

We could be required to expend significant amounts of money and other resources to respond to these threats or breaches and to repair or replace information systems or networks and could suffer financial loss or the loss of valuable confidential information. In addition, we could be subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely and there can be no assurance that any measures we take will prevent cyber-attacks or security breaches that could adversely affect our business, financial condition, results of operations, cash flows and prospects.

We are subject to export and import control laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations.

We are subject to U.S. export controls and sanctions regulations that restrict the shipment or provision of certain products and services to certain countries, governments and persons. While we take precautions to prevent our products and services from being exported in violation of these laws, we cannot guarantee that the

 

39


Table of Contents

precautions we take will prevent violations of export control and sanctions laws. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise. Complying with export control and sanctions regulations may be time consuming and may result in the delay or loss of sales opportunities or impose other costs. Any change in export or import regulations, economic sanctions or related legislation, or change in the countries, governments, persons or technologies targeted by such regulations, could result in our decreased ability to export or sell certain products and services to existing or potential customers in affected jurisdictions.

We are subject to risks related to Brexit.

On January 31, 2020, the United Kingdom (the “UK”) left the EU, which is commonly referred to as “Brexit.” Brexit creates an uncertain political and economic environment in the UK and potentially across other EU member states for the foreseeable future, including during any period while the terms of the future relationship between the UK and EU are being negotiated and such uncertainties could impair or limit our ability to transact business in the member EU states. Additionally, there also is a risk that other countries may decide to leave the EU.

Further, Brexit could adversely affect European and worldwide economic or market conditions and could contribute to instability in global financial markets, and the value of the Pound Sterling currency or other currencies, including the Euro. We are exposed to the economic, market and fiscal conditions in the UK and the EU and to changes in any of these conditions. Consequently, no assurance can be given as to the impact of Brexit, or continued uncertainty regarding it, and, in particular, no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.

Changes in political, economic or governmental regulations may reduce demand for our products and services or increase our expenses.

We compete in many markets in which we and our customers must comply with federal, state, local and international regulations, such as environmental, health and safety and food and drug regulations. We develop, configure and market our products and services to meet customer needs created by those regulations. The U.S. and international healthcare industry is subject to changing political, economic and regulatory influences that could significantly affect the drug development process, research and development costs and the pricing and reimbursement for pharmaceutical products. Any significant change in regulations could have an adverse effect on both our customers’ business and our business, which could result in reduced demand for our products and services or increases in our expenses. For example, we provide products and services used for basic research, raw materials used by biopharmaceutical customers for further processing, and active pharmaceutical ingredients used for preclinical studies and clinical trials.

Changes in the FDA’s regulation of the drug discovery and development process may have a negative impact on the ability of our customers to conduct and fund clinical trials, which could have a material adverse effect on the demand for the products and services we provide these customers. Additionally, the U.S. government and governments worldwide have increased efforts to expand healthcare coverage while at the same time curtailing and better controlling the increasing costs of healthcare. If cost-containment efforts limit our customers’ profitability, they may decrease research and development spending, which could decrease the demand for our products and services and materially adversely affect our growth prospects. Any of these factors could harm our customers’ businesses, which, in turn, could materially adversely hurt our business, financial condition, results of operations, cash flows and prospects.

We are subject to financial, operating, legal and compliance risk associated with global operations.

We engage in business globally, with approximately 40%, 41% and 42% of our revenue for the years ended December 31, 2018 and 2019 and the nine months ended September 30, 2020, respectively, coming from outside

 

40


Table of Contents

the U.S. In addition, one of our strategies is to expand geographically, both through distribution and through direct sales. This subjects us to a number of risks, including international economic, political, and labor conditions; currency fluctuations; tax laws (including U.S. taxes on income earned by foreign subsidiaries); increased financial accounting and reporting burdens and complexities; unexpected changes in, or impositions of, legislative or regulatory requirements; failure of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing international operations; delays resulting from difficulty in obtaining export licenses for certain technology; tariffs, quotas and other trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and fraudulent business practices; and other factors beyond our control, including terrorism, war, natural disasters, climate change and diseases.

The application of laws and regulations implicating global transactions is often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions, prohibited business conduct, and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which may be substantially different from those in the U.S.

We may expand our operations in countries with developing economies, where it may be common to engage in business practices that are prohibited by anti-corruption and anti-bribery laws and regulations that apply to us, such as the U.S. Foreign Corrupt Practices Act (FCPA), the U.S. Travel Act, and the UK Bribery Act 2010, which prohibit improper payments or offers of payment to foreign governments and political parties by us for the purpose of obtaining or retaining business. Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors, distributors and agents, including those based in foreign countries where practices which violate such U.S. laws may be customary, will comply with our internal policies. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our business and result in significant fines or penalties.

Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.

We have made in the past, and may make in the future, selected opportunistic acquisitions of complementary businesses, products, services or technologies. In April 2016, we acquired Vector Laboratories, Inc. (“Vector Laboratories”), which allowed our entry into the protein detection business. In September 2016, we acquired TriLink BioTechnologies, Incorporated (“TriLink BioTechnologies”), in December 2016 we acquired the assets of Solulink Incorporated (“Solulink”) and in December 2017 we acquired Glen Research Corporation (“Glen Research”), which together have formed our nucleic acid business and production capabilities. In October 2016 we acquired Cygnus Technologies, LLC (“Cygnus Technologies”) and in March 2020 we acquired MockV Solutions, Inc., which together constitute biologics safety testing business.

Any acquisition involves numerous risks, uncertainties and operational, financial, and managerial challenges, including the following, any of which could adversely affect our business, financial condition, results of operations, cash flows and prospects:

 

   

difficulties in integrating new operations, systems, technologies, products, services and personnel of acquired businesses effectively;

 

   

problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems;

 

   

lack of synergies or the inability to realize expected synergies and cost-savings, including enhanced revenue, technology, human resources, cost savings, operating efficiencies and other synergies;

 

41


Table of Contents
   

difficulties in managing geographically dispersed operations, including risks associated with entering foreign markets in which we have no or limited prior experience;

 

   

underperformance of any acquired technology, product, or business relative to our expectations and the price we paid;

 

   

negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges;

 

   

the potential loss of key employees, customers, and strategic partners of acquired companies;

 

   

declining employee morale and retention issues affecting employees of businesses that we acquire, which may result from changes in compensation, or changes in management, reporting relationships, future prospects or the direction of the acquired business;

 

   

claims by terminated employees and shareholders of acquired companies or other third parties related to the transaction;

 

   

the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash;

 

   

the issuance of equity or equity-linked securities to finance or as consideration for any acquisitions that dilute the ownership of our shareholders;

 

   

the issuance of equity securities to finance or as consideration for any acquisitions may not be an option if the price of our Class A common stock is low or volatile which could preclude us from completing any such acquisitions;

 

   

any collaboration, strategic alliance and licensing arrangement may require us to relinquish valuable rights to our technologies or products, or grant licenses on terms that are not favorable to us;

 

   

disruption of our ongoing operations and diversion of management’s attention and company resources from existing operations of the business;

 

   

inconsistencies in standards, controls, procedures, and policies;

 

   

the impairment of intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies;

 

   

assumption of, or exposure to, historical liabilities of the acquired business, including unknown contingent or similar liabilities that are difficult to identify or accurately quantify, litigation-related liabilities and regulatory compliance or accounting issues, and potential litigation or regulatory action arising from a proposed or completed acquisition;

 

   

the need to later divest acquired assets at a loss if an acquisition does not meet our expectations; and

 

   

risks associated with acquiring intellectual property, including potential disputes regarding acquired companies’ intellectual property. In addition, the successful integration of acquired businesses requires significant efforts and expense across all operational areas, including sales and marketing, research and development, manufacturing, finance, legal, and information technologies.

There can be no assurance that any of the acquisitions we have made, or that we may make, will be successful or will be, or will remain, profitable. Our failure to successfully address the foregoing risks may prevent us from achieving the anticipated benefits from any past or future acquisition in a reasonable time frame, or at all.

Our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates.

We conduct a significant portion of our business in international markets. We are exposed to the risk of an increase or decrease in the value of certain foreign currencies relative to the U.S. dollar, which could decrease the

 

42


Table of Contents

value of our revenue when measured in U.S. dollars. As a result, our results of operation may be influenced by the effects of future exchange rate fluctuations and such effects may have an adverse impact on the market price of our Class A common stock.

Our products could become subject to more onerous regulation by the FDA or other regulatory agencies in the future, which could increase our costs and delay or prevent commercialization of our products, thereby materially and adversely affecting our business, financial condition, results of operations, cash flows and prospects.

We make certain of our products available to customers as research-use-only (“RUO”) products. RUO products are regulated by the FDA as medical devices, and include in vitro diagnostic products in the laboratory research phase of development that are being shipped or delivered for an investigation that is not subject to the FDA’s investigational device exemption requirements. Although medical devices are subject to stringent FDA oversight, products that are intended for RUO and are labeled as RUO are exempt from compliance with most FDA requirements, including premarket clearance or approval, manufacturing requirements, and others. A product labeled RUO but which is actually intended for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the FDCA, and subject to FDA enforcement action. The FDA has indicated that when determining the intended use of a product labeled RUO, the FDA will consider the totality of the circumstances surrounding distribution and use of the product, including how the product is marketed and to whom. The FDA could disagree with our assessment that our products are properly marketed as RUO, or could conclude that products labeled as RUO are actually intended for clinical diagnostic use, and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would reduce our revenue, increase our costs and adversely affect our business, prospects, results of operations and financial condition. In the event that the FDA requires us to obtain marketing authorization of our RUO products in the future, there can be no assurance that the FDA will grant any clearance or approval requested by us in a timely manner, or at all.

Our raw material products are manufactured following the voluntary quality standards of ISO 9001:2015. Our GMP-grade raw material products follow ISO 9001:2015 standards, additional voluntary GMP quality standards and customer specific requirements. We believe these raw material products, including our GMP-grade raw material products, are exempt from compliance with the FDCA and the cGMP regulations of the FDA, as our products are further processed by our customers and we do not make claims related to their safety or effectiveness. We provide API products to customers for use in preclinical studies through and including clinical trials. Our API products are manufactured following the principles detailed in the International Council for Harmonisation (ICH) Q7, Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients (Section 19, APIs For Use in Clinical Trials) in order to comply with the applicable requirements of the FDCA, and the comparable GMP principles for Europe; European Community, Part II, Basic Requirements for Active Substances Used as Starting Materials (Section 19, APIs For Use in Clinical Trials). Manufacture of APIs for use in clinical trials is regulated under § 501(a)(2)(B) of the FDCA, but is not subject to the current GMP regulations in 21 CFR § 211 by operation of 21 CFR § 210. Our API products are provided to customers under customer contracts that outline quality standards and product specifications. As products advance through the clinical phases, requirements become more stringent and we work with customers to define and agree on requirements and risks associated with their product.

The FDA could disagree with our assessment that our products are exempt from current GMP regulations. In addition, the FDA could conclude that the raw material and API products we provide to our customers are actually subject to the pharmaceutical or drug quality-related regulations for manufacturing, processing, packing or holding of drugs or finished pharmaceuticals, and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would reduce our revenue, increase our costs and adversely affect our business, prospects, results of operations and financial condition. In the event that the FDA requires us to comply with FDA regulations, for our raw material and API products in the future, including the FDA’s current GMP regulations, there can be no assurance that the FDA will find our operations are in compliance in a timely manner, or at all.

 

43


Table of Contents

Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code, and it is possible that certain transactions or a combination of certain transactions may result in material additional limitations on our ability to use our net operating loss and tax credit carryforwards.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, contain rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term, tax-exempt rate and the value of the company’s stock immediately before the ownership change. As a result, following any such ownership change, we might be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire, in which event we could incur larger federal and state income tax liabilities than we would have had we not experienced an ownership change.

Our activities are and will continue to be subject to extensive government regulation, which is expensive and time consuming.

We are subject to various local, state, federal, foreign and transnational laws and regulations, and, in the future, any changes to such laws and regulations could adversely affect us.

We provide products and services used for basic research, raw materials and life science reagents used by biopharmaceutical customers for further processing, assays for biologics safety testing and active pharmaceutical ingredients used for preclinical studies and clinical trials. The quality of our products and services is critical to researchers looking to develop novel vaccines and therapies and for biopharmaceutical customers who use our products as raw materials or who are engaged in preclinical studies and clinical trials. Biopharmaceutical customers are subject to extensive regulations by the FDA and similar regulatory authorities in other countries for conducting clinical trials and commercializing products for therapeutic or diagnostic use. This regulatory scrutiny results in our customers imposing rigorous quality requirements on us as their supplier through supplier qualification processes and customer contracts.

Additionally, regulatory authorities and our customers may conduct scheduled or unscheduled periodic inspections of our facilities to monitor our regulatory compliance or compliance with our quality agreements with our customers. There are significant risks at each stage of the regulatory scheme for our customers.

Regulatory agencies may in the future take action against us or our customers for failure to comply with applicable regulations governing clinical trials and the development and testing of therapeutic products. Failure by us or by our customers to comply with the requirements of these regulatory authorities, including without limitation, remediating any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal sanctions, or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition, such a failure could expose us to contractual or product liability claims, contractual claims from our customers, including claims for reimbursement for lost or damaged active pharmaceutical ingredients, as well as ongoing remediation and increased compliance costs, any or all of which could be significant.

We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of substances that could be classified as hazardous, and our business practices in the U.S. and abroad such as anti-corruption and anti-competition laws. Any noncompliance by us with applicable laws and regulations or the

 

44


Table of Contents

failure to maintain, renew or obtain necessary permits and licenses could result in criminal, civil and administrative penalties and could have an adverse effect on our results of operations.

We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets, or other investments become impaired.

We are required under GAAP to test goodwill for impairment at least annually and to review our goodwill, amortizable intangible assets and other assets acquired through merger and acquisition activity for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to impairment of goodwill, amortizable intangible assets and other assets acquired via acquisitions include significant adverse changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment) and declines in the financial condition of our business. We may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets or other investments become impaired. Any such charge would adversely impact our consolidated financial results.

Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.

We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a material effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results. For example, during February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842). The updated standard requires the recognition of a liability for lease obligations and a corresponding right-of-use asset on the balance sheet, and disclosures of certain information regarding leasing arrangements. We are currently assessing the timing and impact of adopting the updated provisions.

Our revenue recognition and other factors may impact our financial results in any given period and make them difficult to predict.

Under accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, (“ASC 606”), we recognize revenue when our performance obligations have been satisfied in an amount that reflects the consideration that we expect to receive in exchange for those performance obligations. Our revenue includes revenue from the sale of manufactured products, including products that can be purchased out of a catalog and custom manufactured products, and services, including custom antibody and assay development contracts, antibody affinity extraction and stability and feasibility studies, as well as certain licensing and royalty arrangements. The majority of our contracts include only one performance obligation, namely the delivery of products, both custom and catalog, and services. We also recognize revenue from other contracts that may include a combination of products and services, the provision of solely services, or from license fee arrangements which may be associated with the delivery of product. Our application of ASC 606 with respect to the nature of future contractual arrangements could impact the forecasting of our revenue for future periods, as both the mix of products and services we will sell in a given period, as well as the size of contracts, is difficult to predict. We adopted the requirements of ASC 606, effective January 1, 2019 using the modified retrospective method. Under the modified retrospective method, this guidance is applied to those contracts that were not completed as of January 1, 2019, with no restatement of contracts that were commenced and completed within fiscal years prior to January 1, 2019, and the prior period comparable financial information continues to be presented under the guidance of ASC 605, Revenue Recognition (ASC 605).

Furthermore, the presentation of our financial results requires us to make estimates and assumptions that may affect revenue recognition. In some instances, we could reasonably use different estimates and assumptions, and changes in estimates may occur from period to period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Revenue Recognition.”

 

45


Table of Contents

Given the foregoing factors, comparing our revenue and operating results on a period-to-period basis may not be meaningful, and our past results may not be indicative of our future performance.

Fluctuations in our effective tax rate may adversely affect our results of operations and cash flows.

We are subject to a variety of tax liabilities, including federal, state, foreign and other taxes such as income, sales/use, payroll, withholding, and ad valorem taxes. Changes in tax laws or their interpretations could decrease our net income, the value of any tax loss carryforwards, the value of tax credits recorded on our balance sheet and our cash flows, and accordingly could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. In addition, some of our tax liabilities are subject to periodic audits by the relevant taxing authority, which could increase our tax liabilities.

Our business is subject to a number of environmental risks.

Our manufacturing business involves the controlled use of hazardous materials and chemicals and is therefore subject to numerous environmental and safety laws and regulations and to periodic inspections for possible violations of these laws and regulations. In addition to these hazardous materials and chemicals, our facility in Burlingame, California also produces certain toxins for research use that can cause severe illness in humans. The costs of compliance with environmental and safety laws and regulations are significant. Any violations, even if inadvertent or accidental, of current or future environmental and safety laws or regulations and the cost of compliance with any resulting order or fine could adversely affect our operations.

Risks Related to Our Intellectual Property

If we are unable to obtain, maintain and enforce intellectual property protection for our current or future products, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our products successfully and to compete effectively may be materially adversely affected.

Our success depends on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our current and future proprietary products. We rely upon a combination of patents and trade secret protection to protect the intellectual property related to our technology, manufacturing processes, and products. Our commercial success depends in part on obtaining and maintaining patent and trade secret protection of our current and future products, if any, and the methods used to manufacture them, as well as successfully defending such patents and trade secrets against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent to which we have rights under valid and enforceable patents and other intellectual property that covers these activities.

The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we or our collaborators may only pursue, obtain or maintain patent protection in a limited number of countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used to invalidate or narrow the scope of an issued patent or prevent our pending patent applications from issuing as patents. Because patent applications in the United States, Europe and many other non-U.S. jurisdictions are typically not published until 18 months after filing, or in some cases not at all, because publications of discoveries in scientific literature lag behind actual discoveries, and because we cannot be certain that we or our licensors were the first to make the inventions claimed in any of our owned or any in-licensed issued patents or pending patent applications, or that we or our licensors were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Even if

 

46


Table of Contents

patents do successfully issue, such patents may not adequately protect our intellectual property, provide exclusivity for our current or future products, prevent others from designing around our claims or otherwise provide us with a competitive advantage. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid or unenforceable or will be threatened by third parties. In addition, third parties may challenge the validity, enforceability, ownership, inventorship or scope of any of our patents. Any successful challenge to any of our patents could deprive us of rights necessary for the successful commercialization of our current or future products and could impair or eliminate our ability to collect future revenue and royalties with respect to such products. If any of our patent applications with respect to our current or future products fail to result in issued patents, if their breadth or strength of protection is narrowed or threatened, or if they fail to provide meaningful exclusivity or competitive position, it could dissuade companies from collaborating with us or otherwise adversely affect our competitive position.

The patent positions of life science companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in life science patents has emerged to date in the United States. The standards applied by the United States Patent and Trademark Office (the “USPTO”) and foreign patent offices in granting patents are not always applied uniformly or predictably, and can change. Additionally, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement, misappropriation, or other violation of our patents or other intellectual property, including the unauthorized reproduction of our manufacturing or other know-how or the marketing of competing products in violation of our intellectual property rights generally. Any of these outcomes could impair our ability to prevent competition from third parties, which may have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Further, the existence of issued patents does not guarantee our right to practice the patented technology or commercialize products covered by such a patent. Third parties may have or obtain rights to patents which they may use to prevent or attempt to prevent us from practicing our patented technology or commercializing our patented products. If any of these other parties are successful in obtaining valid and enforceable patents, and establishing our infringement of those patents, we could be prevented from selling our products unless we were able to obtain a license under such third-party patents, which may not be available on commercially reasonable terms or at all. In addition, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency of competent jurisdiction may find our patents invalid or unenforceable. Our competitors and other third parties may also be able to circumvent our patents by developing similar or alternative products in a non-infringing manner. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

In addition, competitors may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States and Europe. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing with us. Proceedings to enforce our patent rights, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or held unenforceable, or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual

 

47


Table of Contents

property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop, acquire or license.

Intellectual property that we own or in-license may be subject to a reservation of rights by one or more third parties. For example, one of our patents is co-owned with third parties and some of our patent rights in the future may be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patent rights, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of such patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Moreover, the research resulting in certain of our patents and technology was funded in part by the U.S. government. As a result, the U.S. government has certain rights to such patent rights and technology, which include march-in rights. When new technologies are developed with government funding, in order to secure ownership of such patent rights, the recipient of such funding is required to comply with certain government regulations, including timely disclosing the inventions claimed in such patent rights to the U.S. government and timely electing title to such inventions. Additionally, the U.S. government generally obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention or to have others use the invention on its behalf. Accordingly, we or our licensors have granted the U.S. government a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States, the inventions described in the patents and patent applications relating to such inventions. If the U.S. government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. The government’s rights may also permit it to disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use such government-funded technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. If we fail to comply with those requirements, we could lose our ownership of or other rights to any patents subject to such regulations. Any exercise by the government of any of the foregoing rights or by any third party of its reserved rights could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects.

Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its effective filing date. Various extensions may be available, however, the life of a patent and the protection it affords is limited. Given the amount of time required for the development, testing, regulatory review and approval of new products, our patents protecting such candidates might expire before or shortly after such candidates are commercialized. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be further reduced. Even if patents covering our future products are obtained, once such patents expire, we may be vulnerable to competition from similar products. The launch of a similar version of one of our products would likely result in an immediate and substantial reduction in the demand for our product. For example, certain patents related to our SoluLINK products expired in 2020 and certain other patents related to such products are due to expire in 2021 and 2022. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be materially adversely affected.

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. To maintain the confidentiality of trade secrets and other proprietary

 

48


Table of Contents

information, we enter into confidentiality agreements with our employees, consultants, contractors, collaborators, contract development and manufacturing organizations (“CDMOs”), contract research organizations (“CROs”) and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or entity or made known to the individual or entity by us during the course of the individual’s or entity’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees as well as our personnel policies also generally provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property or that we may obtain full rights to such inventions at our election. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, collaborators, CDMOs, CROs and others may unintentionally or willfully disclose our information to competitors. We also face the risk that present or former employees could continue to hold rights to intellectual property used by us, demand the registration of intellectual property rights in their name, and seek payment of damages for our use of such intellectual property.

Enforcing a claim that a third party illegally obtained or is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. We may not have adequate remedies in the event of unauthorized use or disclosure of our trade secrets or other proprietary information in the case of a breach of any such agreements and our trade secrets and other proprietary information could be disclosed to third parties, including our competitors. Many of our partners also collaborate with our competitors and other third parties. The disclosure of our trade secrets to our competitors, or more broadly, would impair our competitive position and may materially harm our business, financial condition, results of operations, cash flows and prospects. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our rights, and failure to maintain trade secret protection could adversely affect our competitive business position. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop substantially equivalent or superior knowledge, methods and know-how, and the existence of our own trade secrets affords no protection against such independent discovery.

We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful and could result in a court or administrative body finding our patents to be invalid or unenforceable.

Even if the patent applications we own or license are issued, third parties may challenge or infringe upon our patents. To counter infringement, we may be required to file infringement claims, which can be expensive and time-consuming. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including novelty, non-obviousness (or inventive step), written description or enablement. In addition, patent validity challenges may, under certain circumstances, be based upon non-statutory obviousness-type double patenting, which, if successful, could result in a finding that the claims are invalid for obviousness-type double patenting or the loss of patent term if a terminal disclaimer is filed to obviate a finding of obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution.

Third parties may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our current or future products or provide any competitive advantage. The outcome following legal assertions of invalidity and unenforceability is unpredictable. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we could lose part or all of the patent protection on one or more of our current or future products, which could result in our competitors and other third

 

49


Table of Contents

parties using our technology to compete with us. Such a loss of patent protection could have a material adverse impact on our business, financial condition, results of operations, cash flows and prospects.

Interference proceedings, or other similar enforcement and revocation proceedings, provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, infringement, misappropriation or other violation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

In an infringement proceeding, even one initiated by us, there is a risk that a court will decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions they describe. There is also the risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to these patents.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us, especially as we gain greater visibility and market exposure as a public company.

An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

If we are sued for infringing, misappropriating, or otherwise violating intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our current or future products.

Our products may infringe on, or be accused of infringing on, one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights.

Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications, or that we were the first to invent the technology. Others, including our competitors, may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications or patents, which could further require us to obtain rights to issued patents by others covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions.

 

50


Table of Contents

Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our current or future products or the use of our current or future products. After issuance, the scope of patent claims remains subject to construction based on interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages.

The life sciences industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Third parties have, and may in the future have, U.S. and non-U.S. issued patents and pending patent applications that may cover our current or future products. Such a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third party’s patent rights and may go to court or a tribunal to stop us from engaging in our normal operations and activities, including making or selling our current or future products. In the event that any of these patent rights were asserted against us, we believe that we have defenses against any such action, including that such patents would not be infringed by our current or future products and/or that such patents are not valid. However, if any such patent rights were to be asserted against us and our defenses to such assertion were unsuccessful, unless we obtain a license to such patents, we could be liable for damages, which could be significant and include treble damages and attorneys’ fees if we are found to willfully infringe such patents, and we could be precluded from commercializing any future products that were ultimately held to infringe such patents, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

If we are found to infringe the patent rights of a third party, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on reasonable terms, or at all. In particular, any of our competitors that control intellectual property that we are found to infringe may be unwilling to provide us a license under any terms. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. Further, if a patent infringement suit is brought against us or our third-party service providers and if we are unable to successfully obtain rights to required third-party intellectual property, we may be required to expend significant time and resources to redesign our current or future products, or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis, and may delay or require us to abandon our development, manufacturing or sales activities relating to our current or future products. A finding of infringement could prevent us from commercializing our future products or force us to cease some of our business operations, which could harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

 

51


Table of Contents

Intellectual property litigation and other proceedings could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Even if resolved in our favor, intellectual property litigation or other legal proceedings relating to our, our licensors’ or other third parties’ intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. Patent litigation and other proceedings may also absorb significant management time. If not resolved in our favor, litigation may require us to pay any portion of our opponents’ legal fees. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Our competitors or other third parties may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from our participation in patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Furthermore, because of the substantial amount of discovery required in certain jurisdictions in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, the perceived value of our current or future products or intellectual property could be diminished. Accordingly, the market price of our Class A common stock may decline. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business, financial condition, results of operations, and prospects.

If we fail to comply with our obligations under any license agreements, disagree over contract interpretation, or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are necessary to our business.

We rely, in part, on intellectual property and technology which we have in-licensed. We may also need to obtain additional licenses in the future to advance our research or allow commercialization of our future products and it is possible that we may be unable to do so at a reasonable cost or on reasonable terms, if at all. Moreover, such licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our future products.

In addition, our existing license agreements impose, and any future license agreements we enter into may impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement or other obligations on us. Our license agreements, and any future license agreement we enter into, may also impose restrictions on our ability to license certain of our intellectual property to third parties or to develop or commercialize certain current or future products or technologies. In spite of our best efforts, our counterparties may conclude that we have breached our obligations under our agreements, or that we have used the intellectual property licensed to us in an unauthorized manner, in which case, we may be required to pay damages and the counterparty may have the right to terminate the agreement. Any of the foregoing could result in us being unable to develop, manufacture and sell products that are covered by the licensed intellectual property or technology, or enable a competitor to gain access to the licensed intellectual property or technology.

We might not have the necessary rights or the financial resources to develop, manufacture or market our current or future products without the rights granted under our license agreements, and the loss of sales or potential sales in current or future products covered by such license agreements could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Disputes may arise regarding intellectual property subject to license agreements, including:

 

   

the scope of rights granted under the license agreement and other interpretation related issues;

 

52


Table of Contents
   

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;

 

   

the sublicensing of patent and other rights under our collaborative development relationships;

 

   

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

our financial obligations under the license agreement;

 

   

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

   

the priority of invention of patented technology.

In addition, the agreements under which we currently license intellectual property or technology to or from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected future products.

In some cases, we may not have primary control over prosecution, maintenance, enforcement and defense of patents and patent applications that we have in-licensed from third parties, and instead we rely on our licensors for these activities. We cannot be certain that such activities have been or will be conducted in compliance with applicable laws and regulations or in a manner consistent with the best interests of our business. If we do undertake any enforcement of our in-licensed patents or defense of any claims asserting the invalidity of such patents, such actions may be subject to the cooperation of our licensors or other third parties. If our licensors or other third parties fail to prosecute, maintain, enforce and defend intellectual property licensed to us, or lose their own rights to such intellectual property, the rights we have licensed may be impaired or eliminated and our ability to develop and commercialize any of our products that are subject to such rights could be adversely affected.

In-licensing or acquisition of third-party intellectual property is a competitive area and a number of more established companies are also pursuing strategies to in-license or acquire third-party intellectual property rights that we may consider attractive or necessary for our business. These companies may have a competitive advantage over us due to their size, cash resources and greater capabilities with respect to clinical development and commercialization. Furthermore, companies that perceive us as a competitor may be unwilling to assign or license rights to us. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have on reasonable terms or at all, we may have to abandon development of the relevant program or current or future product and our business, financial condition, results of operations, cash flows and prospects could suffer.

Changes to the patent law in the United States and other jurisdictions could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, thereby impairing our ability to protect our technologies and current or future products.

As is the case with other life sciences companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the life sciences industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents.

 

53


Table of Contents

For example, the Leahy-Smith America Invents Act (the “America Invents Act”), was signed into law on September 16, 2011, and many of the substantive changes became effective on March 16, 2013. The America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Specifically, the America Invents Act reforms United States patent law in part by changing the U.S. patent system from a “first to invent” system to a “first inventor to file” system. Under a “first inventor to file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor was the first to invent the invention. This will require us to be cognizant going forward of the time from invention to filing of a patent application and be diligent in filing patent applications. Circumstances may arise that could prevent us from promptly filing patent applications on our inventions and allow third parties to file patents claiming our inventions before we are able to do so. The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by the USPTO administered post grant proceedings, including reexamination proceedings, inter partes review, post grant review and derivation proceedings. These adversarial proceedings at the USPTO review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts, and use a lower burden of proof than used in litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third party to have a U.S. patent invalidated in a USPTO post-grant review or inter partes review proceeding than in a litigation in a U.S. federal court.

In addition, the patent positions of companies in the life sciences industry are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways. In addition, the complexity and uncertainty of European patent laws have also increased in recent years. Complying with these laws and regulations could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and patent applications will be due to be paid to the USPTO and various government patent agencies outside the United States over the lifetime of our patents and patent applications and any patent rights we may own or license in the future. Additionally, the USPTO and various government patent agencies outside the United States require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In certain cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we or our licensors fail to maintain the patents and patent applications covering or otherwise protecting our current or future products, it could have a material adverse effect on our business. In addition, to the extent that we have responsibility for taking any action related to the prosecution or maintenance of patents or patent applications in-licensed from a third party, any failure on our part to maintain the in-licensed intellectual property could jeopardize our rights under the relevant license and may have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

 

54


Table of Contents

We may be subject to claims by third parties asserting that our employees, consultants, independent contractors or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property and proprietary technology.

Many of our employees were previously employed at universities or other life science, biotechnology or pharmaceutical companies, including our competitors or potential competitors. We try to ensure that our employees do not use the proprietary information or know-how of others in their work for us. We may, however, be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer or that patents and applications we have filed to protect inventions of these individuals, even those related to one or more of our current or future products, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending ourselves, such litigation could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on an exclusive basis or on commercially reasonable terms or at all.

In addition, while we typically require our employees, consultants and independent contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, or such agreements may be breached or alleged to be ineffective, and the assignment may not be self-executing, which may result in claims by or against us related to the ownership of such intellectual property or may result in such intellectual property becoming assigned to third parties. If we fail in enforcing or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

We may not be able to protect our intellectual property and proprietary rights throughout the world.

Filing, prosecuting, and defending patents on current or future products in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Third parties may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to

 

55


Table of Contents

enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

We rely on confidentiality agreements that, if breached, may be difficult to enforce and could have a material adverse effect on our business and competitive position.

Our policy is to enter agreements relating to the non-disclosure and non-use of confidential information with third parties, including our contractors, consultants, advisors and research collaborators, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them. However, these agreements can be difficult and costly to enforce. Moreover, to the extent that our contractors, consultants, advisors and research collaborators apply or independently develop intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to the intellectual property. If a dispute arises, a court may determine that the right belongs to a third party, and enforcement of our rights can be costly and unpredictable. In addition, we rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:

 

   

these agreements may be breached;

 

   

these agreements may not provide adequate remedies for the applicable type of breach; or

 

   

our trade secrets or proprietary know-how will otherwise become known.

Any breach of our confidentiality agreements or our failure to effectively enforce such agreements would have a material adverse effect on our business and competitive position.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names or marks which we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

 

56


Table of Contents

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our proprietary and intellectual property rights is uncertain because such rights offer only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

   

others may be able to develop products that are similar to, or better than, our current or future products in a way that is not covered by the claims of the patents we license or may own currently or in the future;

 

   

we, or our licensing partners or current or future collaborators, might not have been the first to make the inventions covered by issued patents or pending patent applications that we license or may own currently or in the future;

 

   

we, or our licensing partners or current or future collaborators, might not have been the first to file patent applications for certain of our or their inventions;

 

   

our pending owned or in-licensed patent applications may not lead to issued patents;

 

   

we may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property;

 

   

our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

it is possible that there are prior public disclosures that could invalidate our or our licensors’ patents;

 

   

the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business;

 

   

any patents that we obtain may not provide us with any competitive advantages or may ultimately be found not to be owned by us, invalid or unenforceable; or

 

   

we may not develop additional proprietary technologies that are patentable.

Should any of these events occur, they could significantly harm our business, financial conditions, results of operations, cash flows and prospects.

Risks Related to Our Indebtedness

Our existing indebtedness could adversely affect our business and growth prospects.

As of September 30, 2020, we had total current and long-term indebtedness outstanding of approximately $351.7 million, including term loans of $345.0 million, $15.0 million in borrowings under the Revolving Credit Facility (as defined herein) and unamortized debt issuance costs of $8.3 million. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in the New Credit Agreement have important consequences, including:

 

   

limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt;

 

   

limiting our ability to incur or prepay existing indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes in the nature of the business, among other things;

 

57


Table of Contents
   

making us more vulnerable to rising interest rates, as certain of our borrowings, including borrowings under the New Credit Agreement, bear variable rates of interest; and

 

   

making us more vulnerable in the event of a downturn in our business.

Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, tax laws, including the disallowance or deferral of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial condition, results of operations, cash flows and prospects. Further, our New Credit Agreement contains customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.

We expect to use cash flow from operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures. The ability to make these payments depends on our financial and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.

Despite current indebtedness levels, we may incur substantially more indebtedness, which could further exacerbate the risks associated with our substantial indebtedness.

We may incur significant additional indebtedness in the future. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. If new debt is added to our current indebtedness levels, the related risks that we face could intensify.

Variable rate indebtedness that we have incurred or may in the future incur will subject us to interest rate risk, which could cause our debt service obligations to increase significantly.

Certain of our borrowings, including certain borrowings under our New Credit Agreement, bear variable rates of interest. An increase in interest rates would increase our debt service obligations, which would have a negative impact on our net income and cash flows, including cash available for servicing our indebtedness.

The phase-out of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

Borrowings under our New Credit Agreement bear interest at rates determined using LIBOR as the reference rate. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted, and currently it appears highly likely that LIBOR will be discontinued or substantially modified by 2021. If LIBOR is unavailable, we may be required to pay interest on borrowings based on historical LIBOR, which may be higher than market rates prevailing at such time. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks. Furthermore, we may need to renegotiate our New Credit Agreement or incur other indebtedness, and changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness.

 

58


Table of Contents

We may not be able to generate sufficient cash flow to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance outstanding debt obligations depends on our financial and operating performance, which will be affected by prevailing economic, industry and competitive conditions and by financial, business and other factors beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness. Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our creditworthiness, which would also harm our ability to incur additional indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures and acquisitions, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants. Refinancings may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service obligations. The financing documents governing our New Credit Agreement include certain restrictions on our ability to conduct asset sales and/or use the proceeds from asset sales for certain purposes. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe are fair and any proceeds that we do receive may not be adequate to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our indebtedness.

The terms of the financing documents governing our New Credit Agreement restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The financing documents governing our New Credit Agreement contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

 

   

incur additional indebtedness;

 

   

incur liens;

 

   

merge, dissolve, liquidate, amalgamate, consolidate or sell all or substantially all of our assets;

 

   

declare or pay certain dividends, payments or distribution or repurchase or redeem certain capital stock;

 

   

permit our subsidiaries to enter into agreements restricting their ability to pay dividends, make loans, incur liens and sell assets; and

 

   

make certain investments.

These restrictions could limit, potentially significantly, our operational flexibility and affect our ability to finance our future operations or capital needs or to execute our business strategy.

We may be unable to refinance our indebtedness.

We may need to refinance all or a portion of our indebtedness before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.

 

59


Table of Contents

Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our competitive position and results of operations.

We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms or at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:

 

   

develop and enhance our product offerings;

 

   

continue to expand our organization;

 

   

hire, train and retain employees;

 

   

respond to competitive pressures or unanticipated working capital requirements; or

 

   

pursue acquisition opportunities.

In addition, if we issue additional equity to raise capital, your interest in us will be diluted.

Risks Related to Our Organizational Structure

Our principal asset is our interest in Topco LLC, and, accordingly, we depend on distributions from Topco LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement. Topco LLC’s ability to make such distributions may be subject to various limitations and restrictions.

We are a holding company and have no material assets other than our ownership of equity interests in Topco LLC. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes, satisfy our obligations under the Tax Receivable Agreement and pay operating expenses or declare and pay dividends, if any, in the future depends on the financial results and cash flows of Topco LLC and its subsidiaries and distributions we receive from Topco LLC. There can be no assurance that Topco LLC and its subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in debt instruments of Topco LLC and its subsidiaries, will permit such distributions.

Topco LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to any entity-level U.S. federal income tax. Certain wholly-owned subsidiaries of Topco LLC are taxed as corporations for U.S. federal and most applicable state, local income tax and foreign tax purposes. For U.S. federal income tax purposes, taxable income of Topco LLC is allocated to the LLC Unitholders, including us. Accordingly, we incur income taxes on our distributive share of any net taxable income of Topco LLC. Under the terms of the LLC Operating Agreement, Topco LLC is obligated to make tax distributions to LLC Unitholders, including us. In addition to tax and dividend payments, we also incur expenses related to our operations, including obligations to make payments under the Tax Receivable Agreement. Due to the uncertainty of various factors, we cannot estimate the likely tax benefits we may realize as a result of our purchase of LLC Units and LLC Unit exchanges, and the resulting amounts we are likely to pay out to LLC Unitholders pursuant to the Tax Receivable Agreement; however, we estimate that such payments may be substantial. Under the LLC Operating Agreement, tax distributions shall be made on a pro rata basis among the LLC Unitholders, and will be calculated without regard to any applicable basis adjustment under Section 743(b) of the Code.

We intend to cause Topco LLC to make cash distributions to the owners of LLC Units in amounts sufficient to (1) fund all or part of their tax obligations in respect of taxable income allocated to them and (2) cover our operating expenses, including payments under the Tax Receivable Agreement.

 

60


Table of Contents

However, Topco LLC’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would violate either any contract or agreement to which Topco LLC or its subsidiaries is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Topco LLC or its subsidiaries insolvent. In addition, recently enacted legislation that is effective for taxable years beginning after December 31, 2017 may impute liability for adjustments to a partnership’s tax return on the partnership itself in certain circumstances, absent an election to the contrary. Topco LLC may be subject to material liabilities pursuant to this legislation and related guidance if, for example, its calculations of taxable income are incorrect. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax Receivable Agreement, such payments generally will be deferred and will accrue interest until paid. Nonpayment for a specified period, however, may constitute a breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, unless, generally, such nonpayment is due to a lack of sufficient funds. See “—Risks Related to Our Class A Common Stock and This Offering,” “Dividend Policy,” “Organizational Structure—Tax Receivable Agreement” and “Organizational Structure—Amended and Restated Operating Agreement of Topco LLC.”

Conflicts of interest could arise between our shareholders and MLSH 1, which may impede business decisions that could benefit our shareholders.

MLSH 1, which is controlled by GTCR and which will be the only holder of LLC Units other than us upon consummation of this offering, has the right to consent to certain amendments to the LLC Operating Agreement, as well as to certain other matters. MLSH 1 may exercise these voting rights in a manner that conflicts with the interests of our shareholders. Circumstances may arise in the future when the interests of MLSH 1 conflict with the interests of our shareholders. As we control Topco LLC, we have certain obligations to MLSH 1 as an LLC Unitholder that may conflict with fiduciary duties our officers and directors owe to our shareholders. These conflicts may result in decisions that are not in the best interests of shareholders.

The Tax Receivable Agreement requires us to make cash payments to MLSH 1 and MLSH 2 in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.

In connection with the consummation of this offering, we will enter into a Tax Receivable Agreement with MLSH 1 and MLSH 2. Pursuant to the Tax Receivable Agreement, we will be required to make cash payments to MLSH 1 and MLSH 2, collectively, equal to 85% of the tax benefits, if any, that we actually realize, or, in some circumstances, are deemed to realize, as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the Blocker Entities, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of the purchase of LLC Units and LLC Unit exchanges, and the resulting amounts we are likely to pay out to MLSH 1 and MLSH 2 pursuant to the Tax Receivable Agreement; however, we estimate that such payments may be substantial. See “Organizational Structure—Tax Receivable Agreement.” Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, which tax reporting positions will be based on the advice of our tax advisors. Any payments made by us to MLSH 1 and MLSH 2 under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make payments under the Tax Receivable Agreement, such payments generally will be deferred and will accrue interest until paid. Nonpayment for a specified period, however, may constitute a breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, unless, generally, such nonpayment is due to a lack of sufficient funds. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive

 

61


Table of Contents

target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement. The payments under the Tax Receivable Agreement are also not conditioned upon MLSH 1 maintaining a continued ownership interest in Topco LLC. See “Organizational Structure—Tax Receivable Agreement.”

The actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the timing of exchanges by MLSH 1, the amount of gain recognized by MLSH 1, the amount and timing of the taxable income we generate in the future and the federal tax rates then applicable.

The amounts that we may be required to pay to MLSH 1 and MLSH 2 under the Tax Receivable Agreement may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.

The Tax Receivable Agreement provides that if (1) certain mergers, asset sales, other forms of business combination or other changes of control were to occur, (2) we breach any of our material obligations under the Tax Receivable Agreement or (3) at any time, we elect an early termination of the Tax Receivable Agreement, then the Tax Receivable Agreement will terminate and our obligations, or our successor’s obligations, to make payments under the Tax Receivable Agreement would accelerate and become immediately due and payable. The amount due and payable in that circumstance is based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement. See “Organizational Structure—Tax Receivable Agreement.” We may need to incur debt to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise.

As a result of a change in control, material breach or our election to terminate the Tax Receivable Agreement early, (1) we could be required to make cash payments to MLSH 1 and MLSH 2 that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement and (2) we would be required to make an immediate cash payment equal to the anticipated future tax benefits that are the subject of the Tax Receivable Agreement discounted in accordance with the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon MLSH 1 and MLSH 2 that will not benefit the other common shareholders to the same extent as they will benefit MLSH 1 and MLSH 2.

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon MLSH 1, as the only other LLC Unitholder, and MLSH 2 that will not benefit the other holders of our common stock to the same extent. We will enter into a Tax Receivable Agreement with MLSH 1 and MLSH 2, which will provide for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the Blocker Entities, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement. Due to the uncertainty of various factors, we cannot estimate the likely tax benefits we will realize as a result of purchases of LLC Units and LLC Unit exchanges, and the resulting amounts we are likely to pay out to MLSH 1 and MLSH 2 pursuant to

 

62


Table of Contents

the Tax Receivable Agreement; however, we estimate that such payments may be substantial. See “Organizational Structure—Tax Receivable Agreement.” Although we will retain 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A common stock.

We may not be able to realize all or a portion of the tax benefits that are currently expected to result from the tax attributes covered by the Tax Receivable Agreement and from payments made under the Tax Receivable Agreement.

Our ability to realize the tax benefits that we currently expect to be available as a result of the attributes covered by the Tax Receivable Agreement, the payments made pursuant to the Tax Receivable Agreement, and the interest deductions imputed under the Tax Receivable Agreement all depend on a number of assumptions, including that we earn sufficient taxable income each year during the period over which such deductions are available and that there are no adverse changes in applicable law or regulations. Additionally, if our actual taxable income were insufficient or there were additional adverse changes in applicable law or regulations, we may be unable to realize all or a portion of the expected tax benefits and our cash flows and shareholders’ equity could be negatively affected. See “Organizational Structure—Tax Receivable Agreement.”

In certain circumstances, Topco LLC will be required to make distributions to us and MLSH 1 and the distributions may be substantial.

Topco LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income is allocated to its members, including us. We intend to cause Topco LLC to make tax distributions quarterly to the LLC Unitholders (including us), in each case on a pro rata basis based on Topco LLC’s net taxable income and without regard to any applicable basis adjustment under Section 743(b) of the Code. Funds used by Topco LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business. Moreover, these tax distributions may be substantial, and will likely exceed (as a percentage of Topco LLC’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. As a result, it is possible that we will receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. While our Board may choose to distribute such cash balances as dividends on our Class A common stock, they will not be required to do so, and may in their sole discretion choose to use such excess cash for any purpose depending upon the facts and circumstances at the time of determination. See “Dividend Policy.”

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.

We are subject to income taxes in the United States, Canada and the U.K. Our tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowances;

 

   

expiration of, or detrimental changes in, research and development tax credit laws; or

 

   

changes in tax laws, regulations or interpretations thereof.

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state and foreign authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.

 

63


Table of Contents

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if it (1) is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

As the sole managing member of Topco LLC, we will control and manage Topco LLC. On that basis, we believe that our interest in Topco LLC is not an “investment security” under the 1940 Act. Therefore, we have less than 40% of the value of our total assets (exclusive of U.S. government securities and cash items) in “investment securities.” However, if we were to lose the right to manage and control Topco LLC, interests in Topco LLC could be deemed to be “investment securities” under the 1940 Act.

We intend to conduct our operations so that we will not be deemed to be an investment company. However, if we were deemed to be an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Risks Related to Our Class A Common Stock and This Offering

GTCR controls us, and its interests may conflict with ours or yours in the future.

Immediately following this offering, investment entities affiliated with GTCR will control approximately 81% of the voting power of our outstanding common stock, or 78% if the underwriters exercise in full their option to purchase additional shares, which means that, based on its percentage voting power controlled after the offering, GTCR will control the vote of all matters submitted to a vote of our shareholders. This control will enable GTCR to control the election of the members of the Board and all other corporate decisions. Even when GTCR ceases to control a majority of the total voting power, for so long as GTCR continues to own a significant percentage of our common stock, GTCR will still be able to significantly influence the composition of our Board and the approval of actions requiring shareholder approval. Accordingly, for such period of time, GTCR will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common stock. In particular, for so long as GTCR continues to own a significant percentage of our common stock, GTCR will be able to cause or prevent a change of control of us or a change in the composition of our Board and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of us and ultimately might affect the market price of our Class A common stock.

In addition, in connection with this offering, we will enter into a Director Nomination Agreement with GTCR that provides GTCR the right to nominate to the Board a number of designees equal to at least: (i) 100% of the total number of directors comprising the Board, so long as GTCR beneficially owns shares of Class A common stock and Class B common stock representing at least 40% of the total amount of shares of Class A common stock and Class B common stock it beneficially owns as of the date of this offering, (ii) 40% of the total number of directors, in the event that GTCR beneficially owns shares of Class A common stock and Class B common stock representing at least 30% but less than 40% of the total amount of shares of Class A common stock and Class B common stock it owns as of the date of this offering, (iii) 30% of the total number of directors,

 

64


Table of Contents

in the event that GTCR beneficially owns shares of Class A common stock and Class B common stock representing at least 20% but less than 30% of the total amount of shares of Class A common stock and Class B common stock it owns as of the date of this offering, (iv) 20% of the total number of directors, in the event that GTCR beneficially owns shares of Class A common stock and Class B common stock representing at least 10% but less than 20% of the total amount of shares of Class A common stock and Class B common stock it owns as of the date of this offering and (v) one director, in the event that GTCR beneficially owns shares of Class A common stock and Class B common stock representing at least 5% of the total amount of shares of Class A common stock and Class B common stock it owns as of the date of this offering. The Director Nomination Agreement will also provide that GTCR may assign such right to a GTCR affiliate. The Director Nomination Agreement will prohibit us from increasing or decreasing the size of our Board without the prior written consent of GTCR. See “Certain Relationships and Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

GTCR and its affiliates engage in a broad spectrum of activities, including investments in our industry generally. In the ordinary course of their business activities, GTCR and its affiliates may engage in activities where their interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Our certificate of incorporation to be effective at or prior to the consummation of this offering will provide that none of GTCR, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) or its affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. GTCR also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, GTCR may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you or may not prove beneficial.

Upon listing of our shares of Class A common stock on The Nasdaq Global Select Market, we will be a “controlled company” within the meaning of the rules of NASDAQ and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to shareholders of companies that are subject to such governance requirements.

After completion of this offering, GTCR will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of NASDAQ. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of our Board consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exceptions. As a result, we may not have a majority of independent directors on our Board, our compensation and nominating and corporate governance committees may not consist entirely of independent directors and our compensation and nominating and corporate governance committees may not be subject to annual performance evaluations. Accordingly, you will not have

 

65


Table of Contents

the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of NASDAQ.

We may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment, and the failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government. These investments may not yield a favorable return to our shareholders. If we do not invest or apply the net proceeds from this offering in ways that enhance shareholder value, we may fail to achieve expected results, which could cause our stock price to decline.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our Class A common stock.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation prior to becoming a public company or in a timely manner thereafter. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline, and we may be subject to investigation or sanctions by the SEC.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of the end of the fiscal year that coincides with the filing of our second annual report on Form 10-K. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We will also be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company” as defined in the JOBS Act if we take advantage of the exemptions contained in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our

reported financial information, all of which could materially and adversely affect our business and stock price.

 

66


Table of Contents

To comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition, results of operations, cash flows and prospects.

We are an “emerging growth company” and we have elected and expect to elect to comply with reduced public company reporting requirements, which could make our Class A common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we are eligible for certain exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved and (iv) not being required to provide audited financial statements for the year ended December 31, 2017 or five years of Selected Consolidated Financial Data in this prospectus. We could be an emerging growth company for up to five years after the first sale of our Class A common stock pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2025. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have made certain elections with regard to the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take advantage of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our common stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our Class A common stock less attractive as a result of reliance on these exemptions. If some investors find our Class A common stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our Class A common stock and the market price for our Class A common stock may be more volatile.

The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are electing to take advantage of this extended transition period for complying with new or revised accounting standards provided for by the JOBS Act. We will therefore comply with new or revised accounting standards when they apply to private companies. As a result, our financial statements may not be comparable with companies that comply with public company effective dates for accounting standards.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”

As a public company, we will incur legal, accounting and other expenses that we did not previously incur. We will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Sarbanes-Oxley Act, the listing requirements of NASDAQ and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial condition, results of operations, cash flows and prospects. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition,

 

67


Table of Contents

results of operations, cash flows and prospects. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and there could be a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.

Our certificate of incorporation and bylaws to be effective at or prior to the consummation of this offering and the Delaware General Corporation Law (the “DGCL”) contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Among other things:

 

   

these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders;

 

   

these provisions provide for a classified board of directors with staggered three-year terms;

 

   

these provisions provide that, at any time when GTCR controls, in the aggregate, less than 40% of the outstanding shares of our Class A common stock, directors may only be removed for cause, and only by the affirmative vote of holders of at least 6623% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

 

   

these provisions prohibit shareholder action by written consent from and after the date on which GTCR controls, in the aggregate, less than 35% in voting power of our stock entitled to vote generally in the election of directors;

 

   

these provisions provide that for as long as GTCR controls, in the aggregate, at least 50% in voting power of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of a majority in voting power of the outstanding shares of our capital stock and at any time when GTCR controls, in the aggregate, less than 50% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by

 

68


Table of Contents
 

our shareholders will require the affirmative vote of the holders of at least 6623% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and

 

   

these provisions establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings; provided, however, at any time when GTCR controls, in the aggregate, at least 10% in voting power of our stock entitled to vote generally in the election of directors, such advance notice procedure will not apply to GTCR.

We will opt out of Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested shareholder for a period of three years following the date on which the shareholder became an interested shareholder. However, our certificate of incorporation to be effective at or prior to the consummation of this offering will contain a provision that provides us with protections similar to Section 203, and will prevent us from engaging in a business combination with a person (excluding GTCR and any of its direct or indirect transferees and any group as to which such persons are a party) who acquires at least 85% of our common stock for a period of three years from the date such person acquired such common stock, unless board or shareholder approval is obtained prior to the acquisition. See “Description of Capital Stock—Anti-Takeover Provisions.” These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you desire, including actions that you may deem advantageous, or negatively affect the trading price of our Class A common stock. In addition, because our Board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team.

These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for shareholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board, including actions to delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our Class A common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see “Description of Capital Stock.”

Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our certificate of incorporation, which we will adopt at or prior to the consummation of this offering, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any claims in state court for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine; provided that for the avoidance of doubt, the forum selection provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including any “derivative action,” will not apply to suits to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our certificate of incorporation will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Our certificate of

 

69


Table of Contents

incorporation will further provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above. See “Description of Capital Stock—Forum Selection.” The forum selection provisions in our certificate of incorporation may have the effect of discouraging lawsuits against us or our directors and officers and may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us. If the enforceability of our forum selection provisions were to be challenged, we may incur additional costs associated with resolving such challenge. While we currently have no basis to expect any such challenge would be successful, if a court were to find our forum selection provisions to be inapplicable or unenforceable with respect to one or more of these specified types of actions or proceedings, we may incur additional costs associated with having to litigate in other jurisdictions, which could have an adverse effect on our business, financial condition, results of operations, cash flows and prospects and result in a diversion of the time and resources of our employees, management and board of directors.

If you purchase shares of Class A common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our Class A common stock is substantially higher than the net tangible book value per share of our Class A common stock. Therefore, if you purchase shares of our Class A common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on an assumed initial public offering price of $25.50 per share, the mid-point of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $26.73 per share, representing the difference between our pro forma net tangible book value per share at September 30, 2020 after giving effect to this offering and the initial public offering price. In addition, purchasers of Class A common stock in this offering will have contributed 88% of the aggregate price paid by all purchasers of our Class A common stock but will own only approximately 61% of our Class A common stock outstanding after this offering. See “Dilution” for more detail.

An active, liquid trading market for our Class A common stock may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our Class A common stock. Although our Class A common stock has been approved for listing on The Nasdaq Global Select Market under the trading symbol “MRVI,” an active trading market for our Class A common stock may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our Class A common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our Class A common stock. The market price of our Class A common stock may decline below the initial public offering price, and you may not be able to sell your shares of our Class A common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing additional shares of our Class A common stock or other equity or equity-linked securities and may impair our ability to acquire other companies or technologies by using any such securities as consideration.

Our operating results and stock price may be volatile, and the market price of our Class A common stock after this offering may drop below the price you pay.

Our quarterly operating results are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations, including as a result of the COVID-19 pandemic. This market volatility, as well as general economic, market or political

 

70


Table of Contents

conditions, could subject the market price of our Class A common stock to wide price fluctuations regardless of our operating performance. Our operating results and the trading price of our Class A common stock may fluctuate in response to various factors, including:

 

   

market conditions in our industry or the broader stock market;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new products or services by us or our competitors;

 

   

issuance of new or changed securities analysts’ reports or recommendations;

 

   

sales, or anticipated sales, of large blocks of our stock;

 

   

additions or departures of key personnel;

 

   

regulatory or political developments;

 

   

litigation and governmental investigations;

 

   

changing economic conditions;

 

   

investors’ perception of us;

 

   

events beyond our control such as weather, war and health crises such as the COVID-19 pandemic; and

 

   

any default on our indebtedness.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our Class A common stock to fluctuate substantially. Fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares of Class A common stock and may otherwise negatively affect the market price and liquidity of our shares of Class A common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

A significant portion of our total outstanding shares of Class A common stock are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of Class A common stock intend to sell shares, could reduce the market price of our Class A common stock. After this offering, we will have 81,379,818 outstanding shares of Class A common stock based on the number of shares outstanding as of September 30, 2020. This includes shares of Class A common stock that we are selling in this offering, which may be resold in the public market immediately unless purchased by one of our affiliates. Following the consummation of this offering, substantially all of the shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under lock-up agreements executed in connection with this offering described in “Underwriters” and restricted from immediate resale under the federal securities laws as described in “Shares Eligible for Future Sale.” All of these shares of Class A common stock will, however, be able to be resold after the expiration of the lock-up period, as well as pursuant to customary exceptions thereto or upon the waiver of the lock-up agreement by the representatives on behalf of the underwriters. We also intend to register shares of Class A common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements. As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares of Class A common stock sell them or are perceived by the market as intending to sell them.

 

71


Table of Contents

Because we have no current plans to pay regular cash dividends on our Class A common stock following this offering, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.

We do not anticipate paying any regular cash dividends on our Class A common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under our New Credit Agreement. Therefore, any return on investment in our Class A common stock is solely dependent upon the appreciation of the price of our Class A common stock on the open market, which may not occur. See “Dividend Policy” for more detail.

If securities or industry analysts do not publish research or reports about our business, if they publish unfavorable research or reports, or adversely change their recommendations regarding our Class A common stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

If a trading market for our Class A common stock develops, the trading market will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. As a newly public company, we may be slow to attract research coverage. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research, issue an adverse opinion regarding our stock price or if our results of operations do not meet their expectations, our stock price could decline. Moreover, if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.

Our certificate of incorporation will authorize us to issue one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our Class A common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our Class A common stock.

 

72


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

 

   

our history of losses, the risk that we may continue to incur losses in the future and our ability to generate sufficient revenue to achieve or maintain profitability;

 

   

the fluctuation of our operating results, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide;

 

   

our dependence on a limited number of customers for a high percentage of our revenue;

 

   

the use of certain of our products in the production of vaccines and therapies that represent relatively new and still-developing modes of treatment, which may experience unforeseen adverse events, negative clinical outcomes or increased regulatory scrutiny;

 

   

the impact of COVID-19 and any pandemic, epidemic or outbreak of infectious disease;

 

   

changes in economic conditions;

 

   

our dependence on customers’ spending on and demand for outsourced nucleic acid production, biologics safety testing and protein detection research products and services;

 

   

competition with life science, pharmaceutical and biotechnology companies who are substantially larger than we are and potentially capable of developing new approaches that could make our products, services and technologies obsolete;

 

   

the ability of our products and services to perform as expected and the reliability of the technology on which our products and services are based;

 

   

the complexity of our products and the fact that they are subject to quality control requirements;

 

   

our reliance on a limited number of suppliers or, in some cases, sole suppliers, for some of our raw materials and our inability to find replacements or immediately transition to alternative suppliers;

 

   

our dependence on a stable and adequate supply of quality raw materials from our suppliers, and the risk of adverse impacts from price increases or interruptions of such supply;

 

   

disruptions at our sites;

 

   

our ability to manufacture in specific quantities;

 

   

natural disasters, geopolitical unrest, war, terrorism, public health issues such as COVID-19 or other catastrophic events that could disrupt the supply, delivery or demand of products and services;

 

   

our ability to secure additional financing for future strategic transactions;

 

   

our reliance on third-party package delivery services and adverse impacts arising from significant disruptions of these services, damages or losses sustained during shipping or significant increases in prices;

 

73


Table of Contents
   

our ability to continue to hire and retain skilled personnel;

 

   

our ability to successfully identify and implement distribution arrangements and marketing alliances;

 

   

the market acceptance of our life science reagents;

 

   

the market receptivity to our new products and services upon their introduction;

 

   

our ability to implement our strategies for revenue growth;

 

   

the accuracy of our estimates of market opportunity and forecasts of market growth included in this prospectus;

 

   

product liability lawsuits;

 

   

the application of privacy laws, security laws, regulations, policies and contractual obligations related to data privacy and security;

 

   

our ability to efficiently manage our growth;

 

   

the success of any opportunistic acquisitions;

 

   

the integrity of our internal computer systems;

 

   

the impact of export and import control laws and regulations;

 

   

risks related to Brexit;

 

   

changes in political, economic or governmental regulations;

 

   

financial, operating, legal and compliance risks associated with global operations;

 

   

risks associated with our acquisitions;

 

   

impacts from foreign currency exchange rates;

 

   

the risk that our products could become subject to more onerous regulation in the future;

 

   

our ability to use net operating loss and tax credit carryforwards;

 

   

the fact that our activities are and will continue to be subject to extensive government regulation;

 

   

the risk that we may be required to record a significant charge to earnings if our goodwill or other amortizable intangible assets become impaired;

 

   

unfavorable accounting charges or effects driven by changes in accounting principles or guidance;

 

   

impacts on our financial results from our revenue recognition and other factors;

 

   

fluctuations in our effective tax rate;

 

   

environmental risks;

 

   

our ability to obtain, maintain and enforce intellectual property protection for our current and future products;

 

   

our ability to protect the confidentiality of our proprietary information;

 

   

risks associated with lawsuits to protect our patents or with respect to the infringement, misappropriations or other violations of intellectual property rights of third parties;

 

   

risks associated with failures to comply with our obligations under license agreements;

 

   

potential changes in patent law in the United States and other jurisdictions;

 

   

our ability to obtain and maintain our patent protection;

 

74


Table of Contents
   

impact of claims by third parties that we or our employees, consultants or independent contractors have infringed, misappropriated or otherwise violated their intellectual property;

 

   

our ability to protect our intellectual property and proprietary rights throughout the world;

 

   

our reliance on confidentiality agreements;

 

   

our ability to protect our trademarks and trade names;

 

   

threats not related to intellectual property; and

 

   

other risks addressed under the heading “Risk Factors” herein.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

75


Table of Contents

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we are responsible for all disclosure in this prospectus, and we believe the information presented in this prospectus is generally reliable, forecasts, assumptions, expectations, beliefs, estimates and projects involve risk and uncertainties and are subject to change based on various factors, including those described under “Forward-Looking Statements” and “Risk Factors.”

 

76


Table of Contents

USE OF PROCEEDS

We estimate, based upon an assumed initial public offering price of $25.50 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we will receive net proceeds from this offering of approximately $1,184.5 million (or $1,365.2 million if the underwriters exercise their option to purchase additional shares in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use such net proceeds as follows:

 

   

$94.5 million to acquire 3,921,569 newly-issued LLC Units in Topco LLC and $942.7 million to acquire 39,121,430 outstanding LLC Units (or $1,096.2 million to acquire 45,489,067 LLC Units if the underwriters exercise their option to purchase additional shares in full) from MLSH 1, in each case at a purchase price per LLC Unit equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions; and

 

   

$167.6 million to pay MLSH 2 as consideration for the Blocker Mergers and, if the underwriters exercise their option to purchase additional shares in full, $27.3 million to acquire outstanding shares of Class A common stock from MLSH 2 at a purchase price per share equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

In turn, Topco LLC intends to apply the balance of the proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares of Class A common stock) to (i) repay $50.0 million of our outstanding indebtedness under the New Credit Agreement, under which $600.0 million was outstanding and which had an interest rate of 5.25% as of October 31, 2020, (ii) pay expenses incurred in connection with this offering and the Organizational Transactions and (iii) for general corporate purposes.

Pending use of the net proceeds from this offering described above, we may invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.

Assuming no exercise of the underwriters’ option to purchase additional shares, each $1.00 increase or decrease in the assumed initial public offering price of $25.50 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) would increase or decrease the net proceeds to us from this offering by approximately $47.3 million, assuming the number of shares of Class A common stock offered, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each 1,000,000 increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease the net proceeds to us from this offering by approximately $24.1 million, assuming that the initial public offering price per share for the offering remains at $25.50 (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

77


Table of Contents

DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. Additionally, because we are a holding company, our ability to pay dividends on our Class A common stock may be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us. Any future determination to pay dividends will be at the discretion of our Board, subject to compliance with covenants in current and future agreements governing our and our subsidiaries’ indebtedness, including our New Credit Agreement, and will depend on our results of operations, financial condition, capital requirements and other factors that our Board deems relevant.

Under the terms of the LLC Operating Agreement, Topco LLC is obligated to make tax distributions to current and future unitholders, including us and shall be made on a pro rata basis among the LLC Unitholders based on Topco LLC’s net taxable income and without regard to any applicable basis adjustment under Section 743(b) of the Code. These tax distributions may be substantial, and will likely exceed (as a percentage of Topco LLC’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. As a result, it is possible that we will receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. While our Board may choose to distribute such cash balances as dividends on our Class A common stock (subject to the limitations set forth in the preceding paragraph), they will not be required to do so, and may in its sole discretion choose to use such excess cash for any purpose depending upon the facts and circumstances at the time of determination.

 

78


Table of Contents

CAPITALIZATION

The following table describes our cash and consolidated capitalization as of September 30, 2020:

 

   

of Topco LLC and its subsidiaries on an actual historical basis;

 

   

of Maravai LifeSciences Holdings, Inc. on a pro forma basis, after giving effect to the Organizational Transactions; and

 

   

of Maravai LifeSciences Holdings, Inc. on a pro forma as adjusted basis, after giving effect to the Organizational Transactions, our sale of 50,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $25.50 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (assuming no exercise of the underwriters’ option to purchase additional shares) and the application of the net proceeds of the offering as set forth in “Use of Proceeds.”

You should read this table in conjunction with the unaudited condensed consolidated financial statements and the related notes, “Use of Proceeds,” “Organizational Structure,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

     As of September 30, 2020  
     (unaudited)  
(dollars in thousands, except share data and par value)    Historical
Topco
LLC
    Pro Forma for
the
Organizational
Transactions
    Pro Forma As
Adjusted for the
Organizational
Transactions
and the Offering
 

Cash

   $ 124,882     $ 127,157     $ 171,657  
  

 

 

   

 

 

   

 

 

 

Indebtedness:

      

Credit Facilities(1)

   $ 351,704     $ 584,600     $ 534,600  
  

 

 

   

 

 

   

 

 

 

Class A common stock, $0.01 par value per share, no shares authorized, issued or outstanding, on an actual basis; 500,000,000 shares authorized, 31,379,818 shares issued and outstanding, on a pro forma basis; 500,000,000 shares authorized; 81,379,818 shares issued and outstanding, on a pro forma as adjusted basis

           314       814  

Class B common stock, $0.01 par value per share, no shares authorized, issued or outstanding, on an actual basis; 300,000,000 shares authorized; 176,458,692 shares issued and outstanding, on a pro forma basis; 300,000,000 shares authorized; 176,458,692 shares issued and outstanding, on a pro forma as adjusted basis

           1,765       1,765  

Additional paid in capital

           58,550       105,298  

Contributed capital

     14,777              

Accumulated other comprehensive loss

     (164     (25     (52

Retained earnings (deficit)

     21,381       (60,706     (61,373
  

 

 

   

 

 

   

 

 

 

Total member’s/shareholders’ equity (deficit)

     35,994       (102     46,452  

Non-controlling interests(2)

           (12,267     43,239  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 387,698     $ 572,231     $ 624,291  
  

 

 

   

 

 

   

 

 

 

 

(1)

Includes (a) a first lien credit agreement (the “First Lien Credit Agreement”) entered into on August 2, 2018 and providing for a $250.0 million first lien term loan facility (the “First Lien Term Loan”) and a $50.0 million revolving credit facility (the “Revolving Credit Facility”) and (b) a second lien credit agreement (the “Second Lien Credit Agreement”) providing for a $100.0 million second lien term loan facility (the “Second Lien Term Loan” and, together with the First Lien Term Loan and the Revolving

 

79


Table of Contents
  Credit Facility, the “Credit Facilities”), and reflects $8.3 million of unamortized debt issuance costs. On October 19, 2020, we entered into the New Credit Agreement, which provides for a $600.0 million term loan and a $180.0 million revolving credit facility. The proceeds from the borrowings under the New Credit Agreement were used in part to repay $363.0 million of pre-existing debt and accrued interest under the Credit Facilities, make a distribution of $88.6 million to MLSH 1 and repurchase incentive units and noncontrolling interests of $9.1 million and $120.0 million, respectively, in one of our subsidiaries. On a pro forma as adjusted basis, the amount reflects the repayment of $50.0 million of the amount outstanding under the New Credit Agreement with a portion of the net proceeds of the offering.
(2)

On a pro forma as adjusted basis, includes the Topco LLC interests not owned by us, which represents 68% of Topco LLC’s LLC Units. MLSH 1 will hold the non-controlling economic interest in Topco LLC. Maravai LifeSciences Holdings, Inc. will hold 32% of the economic interest in Topco LLC.

A $1.00 increase or decrease in the assumed initial public offering price of $25.50 per share (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease each of cash, total shareholders’ equity and total capitalization on a pro forma basis by approximately $0.0 million, assuming the number of shares of Class A common stock offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each 1,000,000 increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease each of cash, total shareholders’ equity and total capitalization on a pro forma basis by approximately $0.0 million, based on an assumed initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of Class A common stock to be outstanding after the completion of this offering, excludes 176,458,692 shares of Class A common stock that may be issuable upon exercise of redemption and exchange rights held by MLSH 1, 10,313,540 shares of Class A common stock reserved for future issuance under our ESPP and 25,783,851 shares of Class A common stock reserved for future issuance under the 2020 Plan, including (i) options to purchase 1,584,400 shares of Class A common stock that we will issue to certain employees upon completion of this offering, with an exercise price set at the initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus, and that vest in accordance with the schedule described in “Executive Compensation—Actions Taken in 2020 or in Connection with This Offering—Stock Option Grants” and (ii) 75,294 RSUs that may be settled for an equal number of shares of Class A common stock that we will issue to our six independent directors upon completion of this offering and that vest annually over three years.

 

80


Table of Contents

DILUTION

Because MLSH 1 does not own any Class A common stock or other economic interests in Maravai LifeSciences Holdings, Inc., we have presented dilution in pro forma net tangible book value per share after this offering assuming that MLSH 1 had all of its LLC Units redeemed or exchanged for newly-issued shares of Class A common stock on a one-for-one basis (rather than for cash and based upon an assumed offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and the cancellation for no consideration of all of its shares of Class B common stock (which are not entitled to receive distributions or dividends, whether cash or stock, from Maravai LifeSciences Holdings, Inc.) in order to more meaningfully present the dilutive impact to the investors in this offering. We refer to the assumed redemption or exchange of all LLC Units for shares of Class A common stock as described in the previous sentence as the “Assumed Redemption.”

Dilution results from the fact that the initial public offering price per share of the Class A common stock is substantially in excess of the pro forma net tangible book value per share of Class A common stock after this offering. Net tangible book value (deficit) per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of Class A common stock outstanding. If you invest in our Class A common stock, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock after this offering.

Pro forma net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock, after giving effect to the Organizational Transactions, including the sale of 50,000,000 shares of Class A common stock in this offering at the assumed initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and the Assumed Redemption. Our pro forma net tangible book value (deficit) after this offering as of September 30, 2020 was $(317.4) million, or $(1.23) per share of Class A common stock. This represents an immediate increase in our net tangible book value to MLSH 1 and MLSH 2 of $0.79 per share and an immediate dilution to new investors in this offering of $26.73 per share. We determine dilution by subtracting the pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock. The following table illustrates this dilution:

 

Assumed initial public offering price per share

     $ 25.50  

Pro forma net tangible book value (deficit) per share as of September 30, 2020 prior to this offering(1)

   $ (2.02  

Increase in net tangible book value per share attributable to the investors in this offering

   $ 0.79    
  

 

 

   

Pro forma net tangible book value (deficit) per share after this offering

     $ (1.23
    

 

 

 

Dilution in net tangible book value per share to the investors in this offering

     $ 26.73  
    

 

 

 

 

(1)

The computation of pro forma net tangible book value per share as of September 30, 2020 before this offering is set forth below:

 

(in thousands, except per share data)

      

Book value of tangible assets(a)

   $ 339,467  

Less: total liabilities(a)

   $ 759,246  

Pro forma net tangible book value(a)

   $ (419,779
  

 

 

 

Shares of Class A common stock outstanding(a)

     207,839  
  

 

 

 

Pro forma net tangible book value per share prior to this offering

   $ (2.02
  

 

 

 

 

  (a)   Gives pro forma effect to the debt refinancing and partial MLSC minority interest buyout, as well as, the Organizational Transactions (other than this offering) and the Assumed Redemption.

 

81


Table of Contents

A $1.00 increase in the assumed initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase pro forma net tangible book value by $11.6 million, or $0.00 per share, and would increase the dilution per share to the investors in this offering by $1.00 based on the assumptions set forth above. A $1.00 decrease in the assumed initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would decrease pro forma net tangible book value by $13.6 million, or $0.00 per share, and would decrease the dilution per share to the investors in this offering by $1.00 based on the assumptions set forth above.

The following table summarizes as of September 30, 2020, after giving effect to the Organizational Transactions (including this offering), the number of shares of Class A common stock purchased from us, the total consideration paid and the average price per share paid by MLSH 1 and MLSH 2 and by the purchasers in this offering, based upon an assumed initial public offering price of $25.50 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and before deducting estimated underwriting discounts and commissions and offering expenses, after giving effect to the Assumed Redemption:

 

     Shares of Class A
Common Stock
Purchased
    Total Consideration        
     Number      Percent     Amount      Percent     Average
Price

Per Share
 

Existing owners(1)

     207,838,510        80.6   $ 45,698,000        3.5   $ 0.22  

Investors in this offering

     50,000,000        19.4       1,275,000,000        96.5       25.50  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     257,838,510        100   $ 1,320,698,000        100   $ 5.12  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

(1)

The total consideration provided by the existing owners does not give effect to the $167,646,000 liability payable to MLSH 2 resulting from the Blocker Mergers consummated immediately prior to the completion of this offering. This liability will be satisfied with Class A common shares equal to the fair value of the Blocker Mergers less the amount of proceeds from this offering paid as consideration.

The discussion and tables above assume no exercise of the underwriters’ option to purchase additional shares. In addition, the discussion and tables above exclude shares of Class B common stock, because holders of the Class B common stock are not entitled to distributions or dividends, whether cash or stock, from Maravai LifeSciences Holdings, Inc. If the underwriters’ option to purchase additional shares is exercised in full, after giving effect to the Assumed Redemption, MLSH 1 and MLSH 2 would own approximately 77.7% and the investors in this offering would own approximately 22.3% of the total number of shares of our Class A common stock outstanding after this offering. If the underwriters exercise their option to purchase additional shares in full, after giving effect to the Assumed Redemption, the pro forma net tangible book value (deficit) per share after this offering would be $(1.23) per share, and the dilution in the pro forma net tangible book value (deficit) per share to the investors in this offering would be $26.73 per share.

The tables and calculations above are based on the number of shares of Class A common stock outstanding as of September 30, 2020 (after giving effect to the Organizational Transactions), and exclude an aggregate of 10,313,540 shares of Class A common stock reserved for issuance under our ESPP and 25,783,851 shares of Class A common stock reserved for issuance under our 2020 Plan, each of which we expect to adopt in connection with this offering, including (i) options to purchase 1,584,400 shares of Class A common stock that we will issue to certain employees upon completion of this offering, with an exercise price set at the initial public offering price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus, and that vest in accordance with the schedule described in “Executive Compensation—Actions Taken in 2020 or in Connection with This Offering—Stock Option Grants” and (ii) 75,294 RSUs that may be settled for an equal number of shares of Class A common stock that we will issue to our six independent directors upon

 

82


Table of Contents

completion of this offering and that vest annually over three years. To the extent that any new options or other equity incentive grants are issued in the future with an exercise price or purchase price below the initial public offering price, new investors will experience further dilution.

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent additional capital is raised through the sale of equity or equity-linked securities, the issuance of these securities could result in further dilution to our shareholders.

 

83


Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present, as of the dates and for the periods indicated, the selected consolidated financial data for Topco LLC and its subsidiaries. Topco LLC is the predecessor of Maravai LifeSciences Holdings, Inc. for financial reporting purposes. The selected consolidated statement of operations data for each of the years ended December 31, 2018 and 2019 and the selected consolidated balance sheet data as of December 31, 2018 and 2019 presented below have been derived from the audited consolidated financial statements and notes of Topco LLC and its subsidiaries, included elsewhere in this prospectus. The selected condensed consolidated statement of operations data for each of the nine months ended September 30, 2019 and 2020 and the selected condensed consolidated balance sheet data as of September 30, 2020 presented below have been derived from the unaudited condensed consolidated financial statements and notes of Topco LLC and its subsidiaries, included elsewhere in this prospectus. In the opinion of management, such unaudited condensed consolidated financial statements and notes include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year.

The information set forth below should be read together with the “Prospectus Summary—Summary Historical and Pro Forma Consolidated Financial Data,” “Use of Proceeds,” “Capitalization,” “Unaudited Pro Forma Condensed Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

 

84


Table of Contents

The selected consolidated financial data of Maravai LifeSciences Holdings, Inc. have not been presented as Maravai LifeSciences Holdings, Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no material assets or liabilities during the periods presented in this section.

 

    Historical Topco LLC     Pro Forma Maravai
LifeSciences Holdings, Inc.
 
    Year Ended December 31,     Nine Months Ended
September 30,
    Year Ended
December 31,

2019
    Nine Months
Ended
September 30,

2020
 

Consolidated Statement of Operations Data:

  2018     2019     2019     2020  
                (Unaudited)     (Unaudited)  
    (in thousands, except per unit and per share data)              

Revenue

  $ 123,833     $ 143,140     $ 107,180     $ 185,745     $ 143,140     $ 185,745  

Operating Expenses:

           

Cost of revenue

    60,765       66,849       49,019       56,254       66,849       56,254  

Research and development

    4,499       3,627       2,648       7,212       3,627       7,212  

Selling, general and administrative

    41,194       48,354       32,570       52,624       57,586       58,329  

Change in estimated fair value of contingent consideration

    939       322       241             322        

Gain on sale and leaseback transaction

              (19,002           (19,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    107,397       119,152       84,478       97,088       128,384       102,793  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    16,436       23,988       22,702       88,657       14,756       82,952  

Other income (expense):

           

Interest expense

    (27,399     (29,959     (22,240     (21,934     (29,165     (22,980

Loss on extinguishment of debt

    (5,622                      

Other income

    87       118       95       132       118       132  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (16,498     (5,853     557       66,855       (14,291     60,104  

Income tax expense (benefit)

    417       (652     308       2,511       (1,559     6,015  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (16,915   $ (5,201   $ 249     $ 64,344     $ (12,732     54,089  

Net (loss) income attributable to noncontrolling interests

    (12,443     (731     (672     582       (9,335     39,415  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Topco LLC member

  $ (4,472   $ (4,470   $ 921     $ 63,762     $ (3,397     14,674  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common unit attributable to Topco LLC member—basic and diluted

  $ (0.07   $ (0.03   $ (0.01   $ 0.21      

Weighted-average common units outstanding

    253,916,941       253,916,941       253,916,941       253,916,941      

Per Share Data(1):

           

Pro forma weighted average shares of Class A common stock outstanding:

           

Basic

 

    84,465,072       84,465,072  

Diluted

 

    84,465,072       84,499,582  

Pro forma net loss available to Class A common stock per share:

           

Basic

 

  $ (0.04   $ 0.18  

Diluted

 

  $ (0.04   $ 0.18  

Selected Other Data:

           

Adjusted EBITDA(2)

  $ 53,000     $ 62,014     $ 48,150     $ 104,840      

Adjusted Free Cash Flow(3)

  $ 49,263     $ 42,101     $ 34,713     $ 83,118      

 

85


Table of Contents
     Historical Topco LLC  
     As of December 31,      As of September 30,  
     2018      2019      2020  
Consolidated Balance Sheet Data (at period end):                  (Unaudited)  

Cash

   $ 21,866      $ 24,700      $ 124,882  

Working capital (deficit)(4)

     17,883        30,990        (46,330

Total assets

     539,676        577,796        738,112  

Long-term debt, less current portion

     335,550        334,783        349,204  

Total liabilities

     391,660        433,169        702,118  

Total member’s equity

     148,016        144,627        35,994  

 

(1)

See the unaudited pro forma consolidated statement of operations in “Unaudited Pro Forma Consolidated Financial Information” for the description of the assumptions underlying the pro forma net loss per share calculations.

(2)

Adjusted EBITDA is a supplemental measure of operating performance that is not prepared in accordance with GAAP and that does not represent, and should not be considered as, an alternative to net loss, as determined in accordance with GAAP. For a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, see “Prospectus Summary—Summary Historical Financial and Other Data.”

(3)

Adjusted Free Cash Flow is a supplemental measure of operating performance that is not prepared in accordance with GAAP and that does not represent, and should not be considered as, an alternative to net loss, as determined in accordance with GAAP. For a reconciliation of Adjusted Free Cash Flow, see “Prospectus Summary—Summary Historical Financial and Other Data.”

(4)

We define working capital (deficit) as current assets less current liabilities.

 

86


Table of Contents

UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma consolidated balance sheet as of September 30, 2020 and the unaudited pro forma consolidated statements of income for the nine months ended September 30, 2020 and the year ended December 31, 2019 present our financial position and results of operations after giving effect to the following pro forma transactions (the “Pro Forma Transactions”):

 

  (1)   The effects of the Company’s refinancing of its debt and the use of a portion of the proceeds to make a distribution to MLSH 1, as described under “Description of Certain Indebtedness;”

 

  (2)   The effects of using a portion of the proceeds from the Company’s refinancing of its debt to repurchase minority interests at one of its subsidiaries, MLSC Holdings, LLC.

 

  (3)   The Organizational Transactions described under “Organizational Structure.”

 

  (4)   The effects of the tax receivable agreement, as described under “Certain Relationships and Related Party Transactions—Tax Receivable Agreement;”

 

  (5)   A provision for corporate income taxes on the income attributable to the Company at a tax rate of 24.19% and 24.01% as of December 31, 2019 and September 30, 2020, inclusive of all U.S. federal, state, local and foreign income taxes; and

 

  (6)   This offering and the application of the estimated net proceeds from this offering as described under “Use of Proceeds.”

The unaudited pro forma consolidated statements of income for the nine months ended September 30, 2020 and for the year ended December 31, 2019 give effect to the Pro Forma Transactions (as defined above) as if the Pro Forma Transactions had occurred or had become effective as of January 1, 2019. The unaudited pro forma consolidated balance sheet gives effect to the Pro Forma Transactions as if the Pro Forma Transactions had occurred or had become effective as of September 30, 2020.

Our historical consolidated financial information has been derived from our consolidated financial statements and accompanying notes to the consolidated financial statements included elsewhere in this prospectus. Maravai LifeSciences Holdings, Inc. was formed on August 25, 2020 and will have no material assets or results of operations until the completion of this offering. Therefore, Maravai LifeSciences Holdings, Inc.’s historical financial information is not included in the unaudited pro forma consolidated financial information.

The unaudited pro forma consolidated financial information has been prepared on the basis that we will be taxed as a corporation for U.S. federal and state income tax purposes and, accordingly, will become a taxpaying entity subject to U.S. federal, state and foreign income taxes. The presentation of the unaudited pro forma consolidated financial information is prepared in conformity with Article 11 of Regulation S-X and is based on currently available information and certain estimates and assumptions. The unaudited pro forma consolidated financial information has been adjusted to give effect to events that are (i) directly attributable to the transactions, (ii) factually supportable and (iii) with respect to the statements of operations, expected to have a continuing impact on the results of operations. See the accompanying notes to the Unaudited Consolidated Pro Forma Financial Information for a discussion of assumptions made.

The unaudited pro forma consolidated financial information is not necessarily indicative of financial results that would have been attained had the Pro Forma Transactions occurred on the dates indicated above or that could be achieved in the future. The unaudited pro forma consolidated financial information also does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings that may result from the Pro Forma Transactions or any integration costs that result from the Organizational Transactions or any costs that do not have a continuing impact. Future results may vary significantly from the results reflected in the unaudited pro forma consolidated statements of income and should not be relied on as an indication of our results after the consummation of this offering and the other transactions contemplated by such unaudited pro forma

 

87


Table of Contents

consolidated financial information. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the Pro Forma Transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma consolidated financial information.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, fees to comply with the reporting requirements of the SEC, transfer agent fees, hiring of additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.

For purposes of the unaudited pro forma consolidated financial information, we have assumed that we will issue 50,000,000 shares of Class A common stock at a price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and, as a result, immediately following the completion of this offering, the ownership percentage represented by LLC Units not held by us will be 68%, and the net income attributable to LLC Units not held by us will accordingly represent 68% of our net income or loss. Except as otherwise indicated, the unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of their option to purchase additional shares of Class A common stock.

As described in greater detail under “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” in connection with the consummation of this offering, we will enter into the Tax Receivable Agreement with MLSH 1 and MLSH 2 that will provide for the payment by Maravai LifeSciences Holdings, Inc. to MLSH 1 and MLSH 2, collectively, of 85% of the amount of cash savings, if any, in U.S. federal, state and local income taxes (computed using simplifying assumptions to address the impact of state and local taxes) we actually realize (or under certain circumstances are deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the Tax Receivable Agreement, as discussed below) as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the Blocker Entities, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement.

We expect to benefit from the remaining 15% of cash savings, if any, that we realize. As a result of the Organizational Transactions and the purchase of currently outstanding LLC Units from MLSH 1 with a portion of the net proceeds from this offering, we are recording a liability under the Tax Receivable Agreement of $279.8 million as described in more detail below. Due to the uncertainty in the amount and timing of future exchanges of LLC Units by LLC Unitholders and purchases of LLC Units from LLC Unitholders, the unaudited pro forma consolidated financial information assumes that no future exchanges or purchases of LLC Units have occurred and therefore no increases in tax basis in the Topco LLC assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if all of the LLC Unitholders were to exchange or sell us all of their LLC Units, we would recognize a deferred tax asset of approximately $1,548.5 million and a liability under the Tax Receivable Agreement of approximately $1,374.8 million, assuming: (i) all exchanges or purchases occurred on the same day; (ii) a price of $25.50 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus; (iii) a corporate tax rate of 24.19% and 24.01% as of December 31, 2019 and September 30, 2020; (iv) that we will have sufficient taxable income to fully utilize the tax benefits and (v) no material changes in tax law. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the exchanges, the price per share of our Class A common stock at the time of the exchange, and the tax rates then in effect.

 

88


Table of Contents

For each 5% increase in the amount of LLC Units exchanged by or purchased from MLSH 1 and MLSH 2, our deferred tax asset would increase by approximately $13.6 million and the related liability would increase by approximately $12.1 million, and for each 5% decrease in the amount of LLC Units exchanged by or purchased from MLSH 1 and MLSH 2, our deferred tax asset would decrease by approximately $13.8 million and the related liability would decrease by approximately $13.3 million, assuming that the price per share and corporate tax rate remain the same. For each $1.00 increase (decrease) in the assumed share price of $25.50 per share, our deferred tax asset would increase (decrease) by approximately $10.9 million and the related liability would increase (decrease) by approximately $9.3 million, assuming that the number of LLC Units exchanged by or purchased from MLSH 1 and MLSH 2 (or their transferees of LLC Units and other assignees) and the corporate tax rate remain the same. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and liability under the Tax Receivable Agreement that we will recognize will differ based on, among other things, the timing of the exchanges and purchases, the price of our shares of Class A common stock at the time of the exchange or purchase, and the tax rates then in effect.

The unaudited pro forma consolidated financial information should be read together with “Organizational Structure,” “ Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions” and the audited annual consolidated financial statements of Topco LLC and related notes thereto as well as the unaudited interim consolidated financial statements of Topco LLC and related notes thereto, each of which are included elsewhere in this prospectus.

 

89


Table of Contents

UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET

AS OF SEPTEMBER 30, 2020

 

(In thousands, except per share data)

  Topco LLC
As Reported
    Debt Refinancing
and MLSC
Minority Interest
Buyout
Adjustments
          Topco LLC
As Adjusted
    Organizational
Transaction
Adjustments
          Maravai
LifeSciences
Holdings, Inc.
Pro Forma
 

Assets

             

Current assets:

             

Cash

  $ 124,882     $ 510       (1)     $ 125,392     $ 46,265       (9)(10)(11)     $ 171,657  

Accounts receivable, net

    73,301               73,301               73,301  

Inventory

    26,586               26,586               26,586  

Prepaid expenses and other current assets

    9,352           9,352       (2,574     (12)       6,778  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

    234,121       510         234,631       43,691         278,322  

Property and equipment, net

    96,089               96,089               96,089  

Goodwill

    224,275               224,275               224,275  

Intangible assets, net

    182,820               182,820               182,820  

Deferred tax asset

                        307,346       (13)(14)       307,346  

Other assets

    807       3,372       (6)       4,179               4,179  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

  $ 738,112     $ 3,882       $ 741,994     $ 351,037       $ 1,093,031  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Liabilities and member’s/stockholders’ equity

             

Current liabilities:

             

Accounts payable

  $ 7,796     $       $ 7,796     $       $ 7,796  

Accrued expenses

    33,683       (3,004     (2)       30,679       14,298       (12)       44,977  

Repurchase liability for incentive units

    9,140       (9,140     (3)                      

Redeemable noncontrolling interest

    166,427       (120,005     (4)       46,422       (46,422     (15)        

Deferred revenue

    60,674               60,674               60,674  

Other current liabilities

    231               231       2,803       (16)       3,034  

Current portion of long-term debt

    2,500       2,000       (5)       4,500               4,500  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

    280,451       (130,149       150,302       (29,321       120,981  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Long-term debt, less current portion

    349,204       230,896       (6)       580,100       (50,000     (11)       530,100  

Deferred tax liabilities

    13,422               13,422               13,422  

Facility financing obligations, less current portion

    56,440               56,440               56,440  

TRA liability

                        279,796       (14)       279,796  

Other long-term liabilities

    2,601               2,601               2,601  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities

  $ 702,118     $ 100,747       $ 802,865     $ 200,475       $ 1,003,340  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

90


Table of Contents

(In thousands, except per share data)

  Topco LLC
As Reported
    Debt Refinancing
and MLSC
Minority Interest
Buyout
Adjustments
          Topco LLC
As Adjusted
    Organizational
Transaction
Adjustments
          Maravai
LifeSciences
Holdings, Inc.
Pro Forma
 

Member’s/stockholders’ equity:

             

Class A common stock, par value 0.01 per share 500,000,000 shares authorized; 81,379,818 shares issued and outstanding

                    814       (9)(17)       814  

Class B common stock, par value 0.01 per share 300,000,000 shares authorized; 176,458,692 shares issued and outstanding

                    1,765       (10)       1,765  

Additional paid in capital

                    105,298       (21)       105,298  

Contributed capital, 253,916,941 units authorized, issued and outstanding

    14,777       (14,777     (7)                   (15)(18)        

Retained earnings (accumulated deficit)

    21,381       (82,087     (7)(8)       (60,706     (667     (19)(20)       (61,373

Accumulated other comprehensive loss

    (164             (164     112       (20)       (52
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total member’s/stockholders’ equity (deficit)

    35,994       (96,864       (60,870     107,322         46,452  

Noncontrolling interests

                        43,239       (20)       43,239  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total member’s/stockholders’ equity (deficit)

    35,994       (96,864       (60,870     150,561         89,691  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities and member’s /stockholders’ equity

  $ 738,112     $ 3,883       $ 741,995     $ 351,036       $ 1,093,031  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

91


Table of Contents

NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET

 

(1)

Represents the net adjustment to cash to reflect the net cash proceeds of $594.0 million ($600.0 million less $6.0 million of original issue discount) received from the issuance of the New Term Loan and the payment of (i) $360.0 million to repay historical long term debt as discussed in note (6), (ii) $129.1 million in cash consideration to repurchase a) outstanding time-based MLSC Holdings, LLC incentive units for $9.1 million and b) MLSC Holdings, LLC Class B preferred units and common units for $120.0 million, (iii) an $88.6 million distribution to MLSH 1, (iv) $12.8 million related to the payment of debt issuance costs and (v) $3.0 million related to the payment of accrued interest on the historical First Lien Term Loan and Second Lien Term Loan.

 

(2)

Represents the adjustment to accrued expenses to reflect the payment of $3.0 million in accrued interest associated with repayment of the historical First Lien Term Loan and Second Lien Term Loan.

 

(3)

Represents the repurchase and settlement of all outstanding time-based MLSC Holdings, LLC incentive units for $9.1 million in cash from the investors of MLSC Holdings, LLC, the parent of Cygnus Technologies.

 

(4)

Represents the repurchase and settlement of 43,264 MLSC Holdings, LLC Class B preferred units and 18,387,206 common units for $120.0 million in cash from the investors of MLSC Holdings, LLC, the parent of Cygnus Technologies.

 

(5)

Represents the net adjustment to the current portion of long-term debt to reflect (i) the repayment of $2.5 million of the current portion of the historical first lien and second lien term loans and (ii) the current portion of the New Term Loan of $4.5 million.

 

(6)

Represents the net adjustment to total long-term debt associated with the debt refinancing (in millions):

 

Issuance of the New Term Loan, net of current portion of $4.5 million

   $ 595.5  

Original issuance discount of New Term Loan

     (6.0

Debt issuance costs of New Term Loan

     (9.4

Repayment of historical First Lien Term Loan, net of current portion of $2.5 million

     (242.5

Repayment of Second Lien Term Loan

     (100.0

Repayment of Revolving Credit Facility

     (15.0

Write-off of unamortized debt issuance costs associated with extinguishment of outstanding debt

     8.3  
  

 

 

 

Net adjustment to long-term debt

   $ 230.9  
  

 

 

 

Additionally, an adjustment of $3.4 million was made to other assets to reflect the debt issuance costs related to the New Revolving Credit Facility.

 

(7)

Represents the adjustment to reduce contributed capital to zero to reflect $14.8 million of the total $88.6 million distribution paid to MLSH 1 in connection with the debt refinancing. The remainder of the distribution, $73.8 million, has been reflected as an increase to accumulated deficit as discussed in note (8).

 

(8)

Represents the adjustment to retained earnings (accumulated deficit) to reflect (i) the write off of unamortized debt issuance costs of $8.3 million in connection with the debt repayments discussed in note (6) and (ii) $73.8 million of the distribution paid to MLSH 1 discussed in note (7).

 

(9)

We estimate that the proceeds to us from this offering will be approximately $1,204.9 million (or $1,385.6 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), based on an assumed initial public offering price of $25.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting $70.1 million of assumed underwriting discounts and commissions. We intend to use the net proceeds from this offering to (i) acquire 3,921,569 newly issued LLC Units from Topco for $94.5 million, (ii) acquire 39,121,430 currently-outstanding LLC Units from MLSH 1 for $942.7 million and (iii) pay MLSH 2

 

92


Table of Contents
  $167.6 million as consideration for the Blocker Mergers. In turn, Topco intends to apply the proceeds it receives from us to {i) repay a portion of the New Term Loan discussed in note (11), (ii) pay expenses incurred in connection with this offering discussed in note (12) and (iii) for general corporate purposes. For more information, see “Use of Proceeds.”

 

(10)

Reflects the issuance of Class B common stock to LLC Unitholders, on a one-to-one basis with the number of LLC Units they own, in exchange for cash consideration of $1.8 million equal to the par value of the Class B common stock issued, as described in greater detail under “Organizational Structure.”

 

(11)

Reflects the partial repayment of the New Term Loan using $50.0 million of proceeds received from the offering.

 

(12)

We are deferring certain costs associated with this offering. These costs primarily represent legal, accounting and other costs directly associated with this offering. As of September 30, 2020, $2.6 million of these costs were recorded to prepaid expenses and other current assets, and an additional $3.2 million of capitalizable costs were incurred subsequent to September 30, 2020. Upon completion of this offering, these deferred costs will be charged against the proceeds from this offering with a corresponding reduction to additional paid-in capital as discussed in note (21). After September 30, 2020, the Company incurred an additional $0.9 million of costs associated with this offering that were not eligible for capitalization. These costs were expensed as incurred and were recorded to accrued expenses and retained earnings.

 

(13)

Maravai LifeSciences Holdings, Inc. is subject to U.S. federal, state, local and foreign income taxes and will file consolidated income tax returns for U.S. federal and certain st

  ate, local and foreign jurisdictions. This adjustment reflects the recognition of deferred taxes in connection with the Organizational Transactions assuming the federal rates currently in effect and the highest statutory rates apportioned to each state, local and foreign jurisdiction.

We have recorded a pro forma deferred tax asset adjustment of $307.3 million. The deferred tax asset includes (i) $251.9 million related to temporary differences in the book basis as compared to the tax basis of our Company’s investment in Topco LLC and (ii) $57.8 million related to tax benefits from future deductions attributable to payments under the tax receivable agreement as described further in note (14). A valuation allowance of $2.4 million has been recorded for those deferred tax assets which Maravai LifeSciences Holdings, Inc. has determined are not more likely than not to be realized. Maravai LifeSciences Holdings, Inc. has determined it is more likely than not the remaining $307.3 million of deferred tax assets will result in ordinary income tax deductions that will be realized based on projections of future taxable income. Maravai LifeSciences Holdings, Inc. will continue to assess all positive and negative evidence and will adjust the valuation allowance to the extent it is more likely than not its assessment changes.

 

(14)

Prior to the completion of this offering, we will enter into a tax receivable agreement with MLSH 1 and MLSH 2. The agreement provides for the payment to MLSH 1 and MLSH 2 of 85% of the benefits, if any, that we realize as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the Blocker Entities, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement. The Tax Receivable Agreement will be accounted for as a contingent liability due to related parties, with amounts accrued when considered probable and reasonably estimable. We will record a $279.8 million liability based on the Company’s estimate of the aggregate amount that it will pay to MLSH 1 and MLSH 2 under the tax receivable agreement as a result of the Organizational Transactions. As mentioned in note (13) above, we will record an increase of $57.8 million in deferred tax assets related to tax benefits from future deductions attributable to payments under the tax receivable agreement as a result of the Organizational Transactions. Additionally, we will record a decrease to additional paid-in capital of $222.0 million, which is equal to the difference between the increase in deferred tax assets and the increase in liabilities due to existing owners under the tax receivable agreement as a result of the Organizational Transactions.

 

93


Table of Contents

No adjustment has been made to reflect future exchanges by LLC Unitholders (or their transferees of LLC Units or other assignees) of LLC Units for cash or shares of our Class A common stock, as applicable.

 

(15)

Represents the contribution to MLSH of the remaining 16,736 MLSC Holdings, LLC Class B preferred units and 7,112,794 common units from the investors of MLSC Holdings, LLC, the parent of Cygnus Technologies in exchange for a variable number of common units of MLSH 1 with a fixed total value of $46.4 million.

 

(16)

Reflects the conversion of MockV Solutions, Inc. to a limited liability company, which is expected to be treated as a taxable liquidation resulting in an increase of $2.8 million in taxes payable.

 

(17)

As part of the Organizational Transactions, the Blocker Entities will merge with and into Maravai LifeSciences Holdings, Inc. with MLSH 2 receiving as consideration 31,379,818 shares of Class A common stock and $167.6 million of proceeds from the offering, as discussed in note (9). As a result of the Blocker Mergers, Maravai LifeSciences Holdings, Inc. will obtain 38,336,819 LLC Units of Topco LLC.

 

(18)

Represents an adjustment of $46.4 million to reflect the reclassification of contributed capital to additional paid-in capital after giving effect to the distribution paid to MLSH 1 as part of the debt refinancing discussed in note (7), and the contribution to MLSH 1 of the remaining MLSC Holdings, LLC Class B preferred units and common units from the investors of MLSC Holdings, LLC, the parent of Cygnus Technologies as described in note (15) above.

 

(19)

Represents an adjustment of $3.5 million to retained earnings and additional-paid-in-capital to reflect the vesting of 277,500 MLSH 1 performance-based incentive units whose performance condition is satisfied upon the completion of this offering.

 

(20)

As a result of the Organizational Transactions, the limited liability company agreement of Topco LLC will be amended and restated to, among other things, designate Maravai LifeSciences Holdings, Inc. as the sole managing member of Maravai Topco Holdings, LLC. As sole managing member, Maravai LifeSciences Holdings, Inc. will exclusively operate and control the business and affairs of Maravai Topco Holdings, LLC. The LLC Units owned by LLC Unitholders will be considered noncontrolling interests in the consolidated financial statements of Maravai LifeSciences Holdings, Inc. The adjustments to (i) non-controlling interest of $43.2 million, (ii) additional paid in capital of $47.1 million, (iii) retained earnings of $3.8 million, and (iv) accumulated other comprehensive income of $0.1 million reflect the proportional interest in the pro forma consolidated total equity of Maravai Topco Holdings, LLC owned by MLSH 1.

 

(21)

The following table is a reconciliation of the adjustments impacting additional paid-in-capital (in millions):

 

Net proceeds from offering of Class A common stock

   $ 1,204.4       (9)  

Purchase of LLC Units from MLSH 1

     (942.7     (9)  

Reclassification of deferred costs incurred in this offering to additional paid-in capital

     (16.0     (12)  

Net adjustment from recognition of deferred tax assets and payable to related parties pursuant to the Tax Receivable Agreement

     24.7       (13)(14)(16)  

Acquisition of Blocker Mergers

     (168.0     (17)  

Reclassification of contributed capital

     46.4       (18)  

Adjustment for vested incentive units

     3.5       (19)  

Adjustment for non-controlling interest

     (47.1     (20)  
  

 

 

   

Net additional paid-in capital pro forma adjustment

   $ 105.3    
  

 

 

   

 

94


Table of Contents

UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

 

(In thousands, except per share data)

  Topco LLC
As Reported
    Debt Refinancing
and MLSC
Minority Interest
Buyout
Adjustments
          Topco LLC
As Adjusted
    Organizational
Transaction
Adjustments
          Maravai
LifeSciences
Holdings, Inc.
Pro Forma
 

Revenue

  $ 185,745             $ 185,745             $ 185,745  

Operating Expenses:

             

Cost of revenue

    56,254               56,254               56,254  

Research and development

    7,212               7,212               7,212  

Selling, general and administrative

    52,624       (1,483     (1)       51,141       7,188       (4)       58,329  

Gain on sale and leaseback transaction

    (19,002             (19,002             (19,002
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    97,088       (1,483       95,605       7,188         102,793  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income from operations

    88,657       1,483         90,140       (7,188       82,952  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Other income (expense):

             

Interest expense

    (21,934     (3,224     (2)       (25,158     2,178       (5)       (22,980

Other income

    132           132           132  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income before income taxes

    66,855       (1,741       65,114       (5,010       60,104  

Income tax expense

    2,511           2,511       3,504       (6)       6,015  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income

    64,344       (1,741       62,603       (8,514       54,089  

Net income (loss) attributable to noncontrolling interests

    582       (420     (3)       162       39,253       (7)(8)       39,415  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss) attributable to Maravai LifeSciences Holdings, Inc.

  $ 63,762     $ (1,321     $ 62,441     $ (47,767     $ 14,674  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Pro Forma Earnings Per Share

             

Basic

              (9)     $ 0.18  
             

 

 

 

Diluted

              (9)     $ 0.18  
             

 

 

 

Pro Forma Number of Shares Used in Computing EPS

             

Basic

              (9)       84,465,072  
             

 

 

 

Diluted

              (9)       84,499,582  
             

 

 

 

 

95


Table of Contents

UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2019

 

(In thousands, except per share data)

  Topco LLC
As Reported
    Debt Refinancing
and MLSC
Minority Interest
Buyout
Adjustments
          Topco LLC
As Adjusted
    Organizational
Transaction
Adjustments
          Maravai
LifeSciences
Holdings, Inc.
Pro Forma
 

Revenues

  $ 143,140             $ 143,140             $ 143,140  

Operating Expenses:

             

Cost of revenue

    66,849               66,849               66,849  

Research and development

    3,627               3,627               3,627  

Selling, general and administrative

    48,354       (352     (1)       48,002       9,584       (4)       57,586  

Change in estimated fair value of contingent consideration

    322               322               322  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    119,152       (352       118,800       9,584         128,384  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income from operations

    23,988       352         24,340       (9,584       14,756  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Other income (expense):

             

Interest expense

    (29,959     (1,942     (2)       (31,901     2,736       (5)       (29,165

Other income

    118               118               118  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Loss before income taxes

    (5,853     (1,590       (7,443     (6,848       (14,291

Income tax (benefit) expense

    (652             (652     (907     (6)       (1,559
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss)

    (5,201     (1,590       (6,791     (5,941       (12,732

Net income (loss) attributable to noncontrolling interests

    (731     527       (3)       (204     (9,131     (7)(8)       (9,335
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss) attributable to Maravai LifeSciences Holdings, Inc.

  $ (4,470   $ (2,117     $ (6,587   $ 3,190       $ (3,397
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Pro Forma Earnings Per Share

             

Basic

              (9)     $ (0.04
             

 

 

 

Diluted

              (9)     $ (0.04
             

 

 

 

Pro Forma Number of Shares Used in Computing EPS

             

Basic

              (9)       84,465,072  
             

 

 

 

Diluted

              (9)       84,465,072  
             

 

 

 

 

96


Table of Contents

NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME

 

(1)

Represents the adjustment to remove unit-based compensation expense of $1.5 million and $0.4 million for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, that was previously recognized for the MLSC Holdings, LLC incentive units that were repurchased from the investors of MLSC Holdings, LLC, the parent of Cygnus Technologies.

 

(2)

Represents the net adjustment to interest expense associated with the debt refinancing (in millions):

 

     Nine months
ended
September 30,
2020
     Year ended
December 31,
2019
 

Interest expense—New Term Loan

   $ 25.2      $ 31.9  

Interest expense—First Lien Term Loan and Second Lien Term Loan

     (21.9      (30.0
  

 

 

    

 

 

 

Net adjustments to interest expense

   $ 3.2      $ 1.9  
  

 

 

    

 

 

 

The interest rate on the New Term Loan reflects a LIBOR floor of 2% plus a margin of 3.25%. For each 0.125% increase in the interest rate on the New Term Loan, interest expense would increase by approximately $0.6 million and $0.7 million in the nine months ended September 30, 2020 and year ended December 31, 2019, respectively.

 

(3)

Represents the $0.4 million reduction to net income attributable to noncontrolling interest for the nine months ended September 30, 2020 and the $0.5 million reduction to net loss attributable to noncontrolling interests for the year ended December 31, 2019 to reflect the repurchase and settlement of the outstanding 43,264 MLSC Holdings, LLC Class B preferred units and 18,387,206 common units from the investors of MLSC Holdings, LLC, the parent of Cygnus Technologies.

 

(4)

Reflects the recognition of compensation expense totaling $7.2 million for the nine months ended September 30, 2020 and $9.6 million for the year ended December 31, 2019 related to (i) the granting of 1,584,400 stock options to employees to purchase Class A common stock and (ii) the issuance of 75,294 restricted stock units to our non-employee directors in connection with the offering. The foregoing amounts are based on an assumed initial public offering price of $25.50 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). The stock options are expected to vest one-fourth on each of the first four anniversaries of the grant date and the restricted stock units will vest ratably over three years.

 

(5)

Represents a reduction to interest expense associated with the partial repayment of the New Term Loan using $50.0 million of proceeds received from the Offering (in millions).

 

     Nine months
ended
September 30,
2020
     Twelve months
ended
December 31,
2019
 

Interest expense—Partially repaid New Term Loan

   $ 23.0      $ 29.2  

Interest expense—New Term Loan

     (25.2      (31.9
  

 

 

    

 

 

 

Reduction to interest expense from partial repayment

   $ (2.2    $ (2.7
  

 

 

    

 

 

 

 

(6)

Following the Organizational Transactions and offering, Maravai LifeSciences Holdings, Inc. will be subject to U.S. federal income taxes, in addition to state, local and foreign taxes. As a result, the pro forma statements of income reflect an adjustment to our provision for corporate income taxes to reflect a pro forma tax rate, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and foreign jurisdiction. Topco LLC has been, and will continue to be, treated as a partnership for U.S. federal and state income tax purposes. As such, Topco LLC’s profits and losses will flow through to its partners, including Maravai LifeSciences Holdings, Inc., and are generally not subject to tax at the Topco LLC level.

 

97


Table of Contents

The pro forma adjustments for income tax expense represent tax expense (benefit) on income that will be taxable in jurisdictions after our Organizational Transactions that previously had not been taxable. The adjustment is calculated as pro forma Topco LLC pass-through net income multiplied by the ownership percentage of the controlling interest and multiplied by the pro forma corporate tax rate.

 

     Nine months
ended
September 30,
2020
    Twelve months
ended
December 31,
2019
 

Pro forma Topco LLC net income (loss)

   $ 57.6     $ (13.6

Pro forma Topco LLC net income (loss) taxed at the corporate rate

     (11.4     1.8  
  

 

 

   

 

 

 

Pro forma Topco LLC pass-through net income (loss)

   $ 46.2     $ (11.9

Ownership percentage of the controlling interest

     31.56     31.56
  

 

 

   

 

 

 

Pro forma taxable income (loss) attributable to the controlling interest

     14.6       (3.7

Pro forma corporate tax rate

     24.01     24.19
  

 

 

   

 

 

 

Pro forma income tax expense adjustment

   $ 3.5     $ (0.9
  

 

 

   

 

 

 

 

(7)

Represents the $0.2 million reduction to net income attributable to noncontrolling interest for the nine months ended September 30, 2020 and the $0.2 million reduction to net loss attributable to noncontrolling interests for the year ended December 31, 2019 to reflect the exchange of the outstanding 16,736 MLSC Holdings, LLC Class B preferred units and 7,112,794 common units into a variable number of common units of MLSH 1 with a fixed total value of approximately $46.4 million.

 

(8)

Following the Organizational Transactions, Maravai LifeSciences Holdings, Inc. will become the sole managing member of Topco LLC, and upon consummation of this offering, Maravai LifeSciences Holdings, Inc. will initially own approximately 32% of the economic interest in Topco LLC but will have 100% of the voting power and control the management of Topco LLC. The ownership percentage held by the noncontrolling interest, MLSH 1, will be approximately 68%. Net income attributable to the noncontrolling interest will represent approximately 68% of net income.

 

(9)

The weighted average number of shares underlying the basic earnings per share calculation reflects only the 81,379,818 shares of Class A common stock outstanding after the offering as they are the only outstanding shares which participate in distributions or dividends by Maravai LifeSciences Holdings, Inc. The net proceeds from the sale of 50,000,000 shares of Class A common stock in the IPO will be used to (i) acquire 3,921,569 newly issued LLC Units from Topco, (ii) acquire 39,121,430 currently-outstanding LLC Units from MLSH 1, and (iii) pay MLSH 2 $167.6 million as consideration for the Blocker Mergers. Pro forma diluted earnings per share is computed by adjusting pro forma net income attributable to Maravai LifeSciences Holdings, Inc. and the weighted average shares of Class A common stock outstanding to give effect to potentially dilutive securities that qualify as participating securities using the treasury stock method, as applicable. Shares of Class B common stock are not participating securities and therefore are not included in the calculation of pro forma basic earnings per share. LLC Units, together with an equal number of shares of Class B common stock, may be exchanged, at our option, for shares of our Class A common stock or for cash. After evaluating the potential dilutive effect under the if-converted method, the outstanding LLC Units for the assumed exchange of non-controlling interests were determined to be antidilutive and thus were excluded in the computation of diluted earnings per share. The diluted weighted average share calculation assumes that certain equity awards were issued and outstanding at the beginning of the period. The following table sets forth a reconciliation of the numerators and denominators used to compute pro forma basic and diluted earnings per share.

 

98


Table of Contents
     Nine Months
Ended
September 30,
2020
     Twelve Months
Ended
December 31,
2019
 

Earnings (loss) per share of common stock

     

Numerator:

     

Net income (loss) attributable to Maravai LifeSciences Holdings, Inc.’s shareholders (basic)

   $ 15,049 &nb