Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Yes, that's right.

I believe that's up from 25% [indiscernible] on downstream versus upstream usage, ATF versus TFF (sic) [ TFDF ] I mean these are the things that when you're not under the hood the way that you are, are sometimes difficult to keep track of. So I'd love to just understand as much as possible where demand is improving most?

Yes. And so on the upstream side, let's say, ATF and TFDF, obviously, TFDF is in its infancy of adoption, but we really like what we have. And we think we have the best combination of technology between ATF and TFDF for harvest clarification. So that to me is -- gives us a huge foundation, not only in the mAb world going forward, but also in the gene therapy world. So that's -- I view that combination as here to stay and being the -- will eventually become the market leader in harvest clarification. That's our intent. I think we've got great technology to be able to get there. When you start to move into downstream and the industry debates where downstream starts, some people say downstream starts when you leave the bioreactor. I grew up in the world of downstream starting after you did harvest clarification. So we tend to keep the harvest clarification as an upstream unit operation. And then when you get into chromatography and filtration and formulation, that's kind of the downstream piece. So we have a pretty deep portfolio in downstream. We have more products in downstream. Our tools in downstream than we have in upstream. So you have the flat sheet cassettes business, you have the hollow fiber module business. We've got ProConnex, which is the fluid management piece that's associated right now with hollow fibers. We have systems, right? So all our systems that we're selling that are the you know KR2i bench top systems or the larger production-based systems tend to go into downstream. And our VPE technology that we -- well, that's a different technology and analytics. But a lot of what we do is in the downstream world. Our main upstream products are really ATF and TFDF. So from a filtration portfolio, kind of have more shots at gold downstream because we have systems. We have the flat sheet cassettes. We have the hollow fibers. We have the fluid management. And then if you roll on top of that, the ARTeSYN components, we will have the high-end filtration that will marry up with our flat sheet cassettes portfolio and obviously, nonfiltration will also have the systems that will marry up with OPUS. So there's probably more shots at goal for us in downstream. I think, our -- clearly, our ATF business has been with us now for 5, 6 years. So that's doing well, and it's -- every year, it grows and grows substantially. But we have more products probably in our downstream filtration portfolio that are also growing pretty rapidly. So we like the portfolio. And of course, there's always a connection between upstream and downstream anyway.

Sure. Yes. We've -- maybe just on TFDF. We've done some work there. The early commentary from some of the customers we've spoken to has been really good. What is your expectation for, let's call it, the first year of launch? I don't know if you want to tackle that qualitatively or quantitatively. And then the follow-on would be, I think you're going to replace some technologies that you don't offer, but you might also replace some technologies that you do offer. So should we -- if we're being responsible with the way that we think of uptakes of your new products, should we also account for some cannibalization within your own portfolio?

Yes. So TFDF, I think we said at the beginning of the year, we would be a couple of million dollars. We'll be a little bit ahead of that, but not millions of dollars ahead. So it's a little bit ahead of that in the $2 million to $3 million range. And so I expect that the business doubles next year. It will double the following year. We've seen this pretty consistently with any new products that you bring to market. It takes time for people to do to get adoption happening. The nice thing is that we expanded the impact of TFDF in 2020, even during COVID. While, actually, the work started really in 2019, but by using TFDF for lentiviral processing, we were able to see a really nice benefit. There was a great paper published by Oxford Biomedica. That's really helped us in terms of establishing TFDF in the viral vector space for lenti. We're looking to extend that again and bring it into the world of AAV, which is a bigger part of the viral vector market. So we have CHO clarification. We have, right now, lenti clarification. So over time, we expect that, that business is just going to continue to ramp. There will be some cannibalization, you're right. Because as technologies -- there is some overlap between ATF and TFDF. But I think the market is so open right now with no new technology that you're not even going to see -- we'll have to make some technology choices as opposed to, well, I'm going to lose sales of ATF versus TFDF. In the end, if we get the sale, and it's an ATF system or it's a TFDF system, it doesn't matter to us. We have 2 key products that everybody really will want to use in the harvest clarification space. And the one thing I probably should add is the -- probably the technology that TFDF really take some share from is the depth filter portfolio. But even with TFDF, you still need a polishing depth filtration step at the very end to get to the clarity that's required before you go over to chromatography column. So we're not totally eliminating depth filtration, but we're dramatically reducing the amount of depth filtration that's required to do harvest clarification.

Yes. Okay. Just as an FYI, I'm seeing that my Internet connection is being described as unstable. So if you don't hear my question here, just give me a signal, and I'll repeat it. But maybe just going to chromatography, one of the questions that I get from investors is, where is the biggest source of differentiation in the chromatography portfolio? No disrespect to your product engineers, but from the outside looking in, it is a little bit easier maybe to understand why a product like TFDF might have a level of technology differentiation beyond what maybe OPUS does? I'm happy to hear, if that's incorrect. But it does from the outside looking and seem like that's the case. So is it really about the breadth of the offerings that you have? I mean, you have quite a few of those OPUS columns. I'm curious about how you view differentiations there?

Yes. Look, my whole background and my career was chromatography. So I know chromatography really well. And while we have chromatography products, we're not a big, big player in the chromatography world. We don't make chromatography resins, right, which is where the majority of the market is and where a lot of the competition is. So OPUS, I view as a service, right? It's a chromatography service where we're giving people the convenience of prepacked columns versus them doing it themselves. We're agnostic from a resin point of view. So it doesn't matter whether it's a Millipore resin or a thermo resin or a Cytiva resin or a Bio-Rad, we will pack those resins for customers and we've given them the flexibility. So we're the custom solution provider of prepacked columns, which, in my mind, is a service that we offer. And we're highly differentiated versus the main competitor from a technology point of view, which is Cytiva, right? So they provide their resins and their prepacked column, and that's kind of their strategy. They're not into saying, "we'll put the thermo resins into our prepacked columns. They put -- and they're the market leader in chromatography. So I don't think they need to do that. I think things begin to change for us and more around the -- your analogy around TFDF. I think the ARTeSYN portfolio now begins to give us a true system in chromatography, right? So those single-use skids that they sell will give us a lot more interaction with the chromatography folks. I think we have the absolute potential to be the market leader for chromatography skid-based systems with disposable fluid tops. So while the thermos of the world and Bio-Rads and Millipore and Cytiva sell a lot of resins, our playing chromatography will be kind of the prepacked columns with OPUS, but now the fluid management piece and the systems for doing downstream chromatography. So I think that's going to give us more traction. Now we'll add on top of that, over the next couple of years, we'll start to integrate FlowVPE into those systems. And now we'll be monitoring protein load and elute off the chromatography columns. And again, there are things that our customers really, really want. And you've heard me say this to you in one-on-one. I'm as excited about FlowVPE as I am about TFDF. I think FlowVPE has huge potential for us. And now we have a vehicle to drive FlowVPEs into the marketplace even further with the ARTeSYN portfolio because you need it on both the filtration side and you need it on the chromatography side. And then on top of that, the last piece of the puzzle, even though it's not going to turn out to be a huge revenue for us, but we are developing our own ligands. We are putting ligands on to agarose-based beads and selling them as Repligen products, right, not going through any third-party to do that. So they will be -- continue to build that portfolio up over time. We would love to have a resin component to what we do, where you're putting it into prepacked columns like OPUS and selling it as an integrated solution. It's hard. There are not -- there are very few companies left out there that are available to buy like that, and it takes a long time to sort of do it yourself. So that's -- so we've gone for some of the other parts of the workflow as opposed to being the resin player.

Okay. Yes. Your -- just to your comment on FlowVPE, I mean, I think what you had mentioned when we were talking about it was that the overall revenue trajectory for that product is actually not too far off than what you would envision for TFDF, which -- so probably a little bit what I heard is, I guess, maybe just naturally, I wasn't thinking of it as having that kind of ramp, but that certainly seems like it will help you in your out years.

Yes, absolutely. We've made huge strides this year. I think we have a significant number of customers now that are looking to implement FlowVPE and its current embodiment into clinical manufacturing. It's only going to be a matter of time before someone takes it from clinical to commercial. And then the next-generation version of the product is just going to make it easier for people to use and implement.

Sure. Okay. We are winding down here amazingly. I do want to hit on gene and cell therapy, that's obviously an important market for you. I think the growth that you're kind of looking for out of that market is 30% plus right now. How are you looking at how the industry is ready to handle the scale-up in that particular therapeutic space? We found this really cool paper not too long ago that just talked about the number of drugs that are expected in that market over the next couple of years being something like 25 to 30 by 2024, and that's up from the high single digits today. And the number of patients going from something like 10,000 to 60,000 or 70,000. So as a supplier to these companies, in talking with these customers, how do you feel like they are prepared for that scale up? Is there a capacity increase that you're expecting? And does it feel like they're slowly starting to ramp on the thought process on what they might need from you?

Yes. It's -- yes, there's going to be an evolution on gene therapy for sure, right? And if you look at the place where we play, we're playing in the plasma space. So companies like the Aldevrons of the world that are the biggest sort of plasma producers to the CDMOs like Brammer and Paragon and Lonza, who's also jumped in, in a pretty big way. Other CDMOs are also beginning to get involved. So I think it's just going to be a natural evolution that CDMOs are going to invest. They clearly are. They're expanding. They're growing. They're the consolidator of all the sort of small and medium-sized gene therapy companies that are out there. They are providing the manufacturing capacity. I think this has been going on now for 2 or 3 years where companies are anticipating where they need to be in 2022 and 2023. And I'm not worried that there's going to be a capacity crunch. I do think that the CDMOs are on top of it. I think some of the bigger gene therapy, cell therapy companies are also beginning to build out their own manufacturing capabilities. So it's going to be a good market for anyone in bioprocessing, right? I just think it just adds another modality in vector and market that 6 years ago, 5 years ago, you and I would have been chatting about monoclonal antibodies and biosimilars. Now we're talking about monoclonal antibodies biosimilars, gene therapy. Now we're talking about mRNA as a vaccine. So there's probably going to be a lot of discussions about nucleic acid-based vaccines or protein-based vaccines. And then you've got technology still that's been around for 20, 30 years, like antisense DNA that is continuing to be used. I think exosomes are going to be really important over the next 5-plus years. So there's going to be a lot more modalities that companies are going to be working on. So if you go to any of the big players, we go out 5 years from now and my guess is, they will have teams working on all of those modalities. And if you had gone back to say, 2004, 2005, all the big pharma companies, most of what they were working on was small molecule drugs. So it's like 60%, 70% small molecule drugs and 30% large molecule and then they pivoted, right? And so it's a lot more large molecule now than small molecule. They're going to start to add in gene therapy into their portfolios. They're going to start to add in -- they're already vaccine manufacturers as part of the large pharma guys anyway. Yes, I just think it's a good place to be. It's a healthy market. And there's a lot more modalities now than there were -- there was 10 years ago or 20 years ago.

Yes. What do you think this translates to as far as the biggest risk those for the company? And, Jon, maybe this is about expenses as much as it is anything else? Do you feel like there is an incremental risk associated with what it might cost to service this market? Or just getting the timing right? Or what the P&L might look like on the R&D line just going forward in order to stay in the position that you're in?

Yes. For me and Jon is the same way on this. This is about our ability to continue to execute. We started this journey 6 years ago. We talked about execution then. It's still around our ability to execute. We've got to invest in capacity. We've got to make sure lead times are as short as possible for customers. The whole industry, our whole industry in bioprocessing has been -- the COVID situation has been great for everyone, but it's also been challenging for everyone because all the bioprocessing companies are stretched as we try and ramp up capacity and make the investments that are required. So like no surprise. We've spent close to $32 million this year between our SAP programs and capacity expansion. We'll be spending more next year. We saw Cytiva talk about putting $500 million into capacity expansion programs over the next, I think, it was 5 years or whatever it was. We're going to be spending a lot of money in the next 5 years as well on capacity expansion and it's about product demand. It's about trying to think 3 years out rather than 1 year out. And to me, that's the big thing we have to focus on is, we have great products, and we've built out our commercial engine. We just need to continue to focus on producing and continuing to differentiate ourselves in the marketplace with the TFDFs and the FlowVPEs of the world.

Okay. I could ask you a question for another 1 hour, if I had the time, but we did reach 30 minutes pretty quickly. So guys, thanks a bunch for joining us. Stay safe, and have a good Thanksgiving holiday, if I don't talk to you before then.

Yes. Thanks, Dan.

Likewise. Thanks, Dan.

Thanks. Appreciate it.