Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Okay. Great. Welcome, everyone. I'm Puneet Souda, SVB Leerink tools and diagnostic analyst here. And it's a pleasure to be hosting Repligen management team. Joining us from Repligen is Tony Hunt, CEO; and Jon Snodgres, CFO. Hey guys, welcome. Glad to have you here.

Puneet, good to see you.

Great. So just before we get started, I mean, to me, look, Repligen is a high-growth company in the bioprocessing space that is benefiting COVID vaccine ramp and is increasingly seeing growth from high-growth markets of cell and gene therapy. So obviously, a lot to cover here. Please send me questions through the chat if you have any or through e-mail, and we'll cover them during the session.

But Tony, Jon, maybe just to start with first question, impressive growth here in the quarter, 47%, strongest of the year. I think you mentioned 22% of the mix came from COVID-related products in the quarter. Maybe just beyond COVID, walk us through what continues to be a strong driver. Because you have a unique position in the market where you're benefiting not only from vaccines, but at the same time, the underlying market is also solid. So just give us a view of how you saw visibility going into the quarter and how the quarter turned out.

Yes. And I think maybe look at it from a full year 2020 first, then we can talk about Q4. But from our perspective, the -- obviously, COVID was a big part of what happened last year. But our core non-COVID business grew in that 15% to 20% range, at the high end of that range. So that's a real positive for us. As you pointed out, Puneet, we have great technology. Our prepacked columns continue to do very well. ATF technology is doing well. We got TFDF really established on the CHO side and on the viral vector side. Systems has been a real bright spot for us, which has come out of the Spectrum portfolio. We've expanded that now through what we've done with ARTeSYN. So across the board. I think our filtration portfolio has done well. We're really happy with the way C Tech jumped into expanding their customer base and getting into the gene therapy space. So yes, I think we're really well positioned, whether COVID is around or not, to continue to do well in bioprocessing, and I think it's because we have a differentiated portfolio of products versus our competitors.

Great. In terms of the account access, I just wanted to get a sense. COVID has -- it appears that it has helped you gain access to accounts that you might not have been before traditionally. And so just wondering, what does that mean for you longer term? Obviously, these are specced-in products. So once you get into some of these accounts and drugs, you are there to stay. So maybe just talk to us as to how do you see it in this situation with COVID being first and then rest of their products being second.

Yes. And it's an interesting question in the sense that I'm not sure we've got into a whole lot of new accounts because of COVID. I think a lot of the accounts we got in on the COVID front was really accounts we're already established in. Because when you think about what happened back in sort of Q2 of last year, everybody was racing to develop a vaccine or a therapeutic. They went with companies that they know, that they have interacted with, that they understand the technology. So a lot of the work done last year was with companies we already had really a strong relationship with. Where you do pick up new accounts, honestly, is on the partner side, right? So where companies partner with 10 other companies to develop a vaccine or a therapeutic and some of those -- many of those are CDMOs. You get the opportunity then to work with maybe some of the CDMOs you haven't worked with to a huge extent in the past. So that's a very positive thing. And then as you develop those relationships with companies, yes, I think you're right. I think it'll ultimately result in Repligen being able to test either new technology, technology companies have never used before from us and build our presence at some of these companies as we go through the next few years. So that's kind of the COVID piece. The non-COVID story last year, I think gene therapy is a really good example. We added in 10 to 15 new accounts per quarter, even in a situation where it was hard to get in the door because customers really were limiting who could come in. We did a lot of virtual demos, or assisted customers virtually. That's been -- that's worked really well for us. But I think we're really pleased with the fact that we could add just as one example, and there's plenty of other parts of the business that are totally nongene therapy related, where we've been able to add new customers in. And those are the seeds that continue to grow and become really important accounts for us as we go through the next few years. So I think we're really well positioned with the portfolio. I think we're really well positioned with our global sales force and field applications for us to do well in this marketplace.

Got it. One of the questions that we get in these high-growth times is, obviously, an element of stocking, which we have seen in this market before. I'm sure these companies are trying to keep enough production supplies and inventories on hand. So wondering if this is leading them to buy more aggressively? And is there any element of stocking that you're observing now or that you expect here in the year?

Yes. It's interesting, right? I -- it's a hard one to really figure out if a customer is stockpiling or they have an immediate need that has to be filled in the next 6 to 8 weeks, right? But I think the whole industry is dealing with this capacity -- well, it's not even capacity, it's a demand challenge, right, that is resulting in prioritization. So the stocking piece almost takes care of itself because almost every customer who is non-COVID-related is being asked the question, when do you need product and by what date, with what volumes? There's definitely some stocking that's going on. I think people are increasing their safety stock levels. So people -- customers that might have had a policy of holding 3 months of safety stock, might now be trying to build that up to 5 months and 6 months. We definitely see and hear that going on in the industry. But I think there's such demand out there right now that people are just trying to get what they need and working within the time frame that they've been given and the lead times that they've been given based on the product that they're trying to purchase.

Okay. That's helpful. In terms of the 2020 and just as we look out into 2021, you highlighted 5 strategic initiatives that were a priority for you. Just as we go into 2021 and beyond, what are the key priorities? Obviously, significant growth here, new additions of accounts and obviously, growth across COVID. So what has changed among those priorities?

Yes. I think maybe the way, Puneet, to look at this is to really talk maybe for a minute or 2 about what did we see as our goals for last year? And then why does that -- and how does that sort of translate into 2021 goals? And I think for us, last year, making C Tech a success was a big part of what we wanted to do, right? And we hired the salespeople. We grew the business 30%. We developed the next-generation FlowVPE technology. And to put that in perspective then, if you look at kind of 2021 and 2022, to me, it's all around expand the applications for this technology and laser-focused on FlowVPE. We -- I personally think, we think, that Flow is a highly differentiated technology in the marketplace, and it's something that we need to focus on. It's something that we need to make part of our systems portfolio. And if you were having this conversation with me in 2023 and 2024, I should be talking about the fact that FlowVPE has been a huge success for Repligen. And the other technology that I would put into the same bucket is TFDF, right? So last year, we did set a goal for ourselves that we want to get the systems launched around TFDF. We wanted to get those monoclonal antibody customers working on CHO-based harvest clarification use in TFDF, but we also wanted to expand the applications into gene therapy. We did both. This year is about building out those successes. So making sure that we are now getting those customers who did their evaluations last year to go into a scale mode, expand the applications for TFDF, start to really marry that up with other harvest clarification technologies that we have, build that into our system strategy. So that's kind of the first part of sort of how last year on technology translates into 2021. On the other areas, like capacity was a big thing for us last year. It's a big thing for us this year, right? We built out capacity in many areas in 2019 and 2020, which has allowed us to produce a lot of products during COVID through adding people in, right? So it became a people titration piece. But we're going to spend $55 million to $60 million this year on CapEx, made a lot of that going into physical capacity build out. And we will spend $40 million plus next year to finish those programs off. But we want to be -- by the time we hit mid-2022, we want to have all the capacity in place that gets us to 2025, right? And so then at that stage, it becomes adding people in as we see the business grow in scale. We've mentioned gene therapy. For us it was around -- last year was around getting enough customers to really scale and implement the technology, and that happened. I think we're very -- we're in a good position. The products that we brought to market to address monoclonal antibody pain points are the same products that are needed in gene therapy. And I think that's one of the reasons why we've benefited so much in the viral vector plasma part of gene therapy. We need to continue to focus on it. We've put a dedicated team in place last year. We're building out a gene therapy lab this year that will run in our Waltham facility. That's going to help us understand the applications that we think are most important for Repligen and for our technologies, and that will become a catalyst for us in 2022 and 2023. So that was probably the fourth goal. And then the last one is around M&A, right? We didn't tell people back at the beginning of last year, when you would ask me, "Hey, Tony, what do you think about in M&A?" I would tell you, "Yes, all businesses are important." But we were laser-focused on building out our systems business, and ARTeSYN was very high on our list. And we knew that there was some -- that we could integrate our supply chain with deals like EMT and NMS. So we've done a really nice job of giving us now depth and breadth on the systems side, which sets us up as you think about concepts like semi-continuous and continuous manufacturing over the next few years. So we're well positioned. So I think if you think about this year, it's capacity expansion. It's continued traction in gene therapy. It's the success of the EMT, NMS and ARTeSYN, making those deals successful. And it's continued working through the -- on the M&A front. So how do we bring new technology to market, whether it's R&D or M&A. And obviously, making sure that we stay ahead of the demand curve or keep up with the demand curve for COVID.

Got it. That's excellent. That's wonderful details, Tony. In terms of the C Technologies, a clearly meaningful innovation in this space. Maybe just walk us through in terms of the commercial sales force ramp that has happened there, the launch of the FlowVPE and how do you see this product positioned in gene therapy and other applications both upstream and downstream? Just walk us through that and also in the core mAb portfolio.

Yes. I think it's more of a downstream technology than it's an upstream technology. I just think upstream, I don't mean this in a bad way, it's kind of too dirty of a process, right? You got lots of cells in there. So it's just harder to get a lot of value in the -- on the upstream applications. But once you've got a clarified harvest, then I think VPE technology plays a very big role. And there really isn't anything out there that truly competes with it because you can get real-time measurement on proteins, you can get real-time measurement on plasma DNA, you can get that on nucleic acid. I think if Craig was on, who's the founder and runs the business, he would say the big change in the last 12 months is the extension of the applications. So they were laser-focused on mAbs, still laser-focused on mAbs. But there's a lot of other entities, moieties that you want to be able to measure. So nucleic acid measurement became really important. So we're generating the applications' data. I think the industry wants and needs to move to in-line monitoring. And we're positioned now with that technology, with the sales team, with a broader systems portfolio. Think about our systems. Now 12 months ago, we had systems that ran hollow fiber technology. Now we have systems that can run chromatography columns. We have systems that can run hollow fiber technology. We have systems that -- with [ Quattroflow ] pumps that can run flat sheet cassettes. They're all single-use. And we can start to really look to differentiate what we do in the marketplace by adding that type of sensor technology into the equation. So that's kind of how we see it: well positioned, good technology. And the C Tech team did a phenomenal job in 2020 for us.

That's great. And just remind us of where the current sales reps are? And do you have any plans for expansions there?

Yes. We have -- I don't have the exact number, but it's about 10 or 12 sales reps, really concentrated in North America and Europe. We have some specialists in Asia. If I had to pick where we would expand, it's not that different than when we were talking about Repligen 2015, 2016, and we had 10 salespeople. You add them where you need them, right, and where you start to see traction in the marketplace. So Asia, we'll be adding some more, for sure, over time. But we've taken advantage of our own sales team in Asia. It's not like we need to create a whole brand-new sales force in Asia because you need a few specialists and then I think the rest of the sales team can sell this portfolio of products in Asia. As we look at Europe and North America, there is a real benefit to having the specialists. It's a different conversation. You can't expect your regular salesperson to be able to go down to all the detail and nuances of an analytics technology versus selling filters or chromatography products or systems. So it's just bandwidth. And we think this model we've put in place of specialists and generalists is really -- really works for us.

That's great. But one question that we've been getting is the specced-in nature of the product. Obviously, with OPUS, ATF, TFDF and VPE, I mean they're getting utilized by some of the COVID customers. What's your confidence level here in terms of as those next set of campaigns evolve, as maybe more scale-up happens or more variants continue to show up and expansion on vaccines happen? And initially, we were thinking that, hey, 95% efficacy is great, but we are now dialing some of those back with the variants. And so this could be a longer term. So how should we -- how -- what's your level of confidence that these products will continue to remain -- be a part of the production chain there?