Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Great. We're live. It's Luke Sergott. There we go. We're live. I'm Luke Sergott. I cover life science tools and diagnostics here at Barclays. My pleasure to have Repligen's CFO, Jon Snodgres with us. I think he's going to go through a couple of slides here, and then we'll dive into some questions. And with that, Jon, go ahead and take it away. Thanks for coming.

All right. Thank you, Luke, and good afternoon, everybody. Appreciate the time this morning. I'll give you a little bit of an overview on what we're up to at Repligen these days and our progress towards becoming a premier bioprocessing company. So before I jump into the slides, I wanted to chat a little bit about some of the important trends we're seeing in the bioprocessing market these days. And these are all about increasing overall efficiency and increasing overall productivity really around the manufacturing processes. So the first real trend that we're seeing is the industry continuing to move towards smaller, more modular, flexible, single-use type manufacturing facilities. And the effectiveness of these facilities is that customers are able to pivot from manufacturing drug A to manufacturing drug B within a very short period of time, typically within 24 hours or so. And ultimately, that relates into much more uptime, much more factory run time, better utilization and leverage of fixed costs. So that's one of the trends. I think the other trend is really the continued importance and movement towards improving output in the manufacturing process overall. And so the trends are really starting with process intensification. And then transitioning into semi continuous manufacturing, and ultimately, all the way into full continuous manufacturing. And that's a journey we expect to see transpire over the next 5 to 10 years as we go forward. I think at the same time, as you look at those 2 trends, we're also seeing a pretty significant emergence of new drug candidates coming in through gene and cell therapy drug classes. And these are all in very early years of maturity, also in early years of adoption. And what that effectively means for a company like Repligen, as these companies don't have very mature seasoned manufacturing processes, and really, that opens up the door for companies like us to work with those types of companies, to actually put in good manufacturing processes where they're consistent, reliable and they're producing higher yields and higher outputs of drugs as they go forward. So a nice opportunity there. And we feel like Repligen is well positioned in the industry to be able to support customers through these transitions as we go forward. So now I'll jump into this slide. Just taking a look at this, you can see how Repligen's really established ourselves in the industry. The first kind of box here looks at 5-year CAGR from 2015 to 2020. We've been able to post a 37% 5-year CAGR over the last 5 years, which is a pretty solid number indicative of the customers appreciating and using our products. I think the other thing that we wanted to highlight here is the overall total available market. We actually participate in about $3.7 billion of bioprocessing market. The overall market is about $12 billion, right? And so what that kind of means is, hey, we've got the potential to expand that TAM over time and get into a bigger segments of the overall market. So that's built up nicely over the years. I think the other comment I would want to make on this particular slide is the -- is talking about our technologies, right? We've really -- one of the pillars of the company is really to make sure that we're bringing best-in-class technologies into the market that really can help our customers improve yields, improve efficiencies in manufacturing in a lot of cases, displace some older technologies that aren't very efficient and easy to use. And we do this through M&A as well as through R&D. And then a lot of times, we couple R&D on top of M&A and really take products that we've acquired and expand them into different applications and into single-use componentry. The other thing that we like to do is expand applications. So to the extent that we have products that are very successful in the manufacturing of monoclonal antibodies, can we take those products and build applications data to show that they perform very well in gene and cell therapy, viral vector manufacturing and things of that nature. So expanding applications is a key part of our growth as well. And again, that helps increase the overall TAM. And then finally, a company with growth like this, we continue to grow as well and invest in talent as well as in capacity and footprint and systems and everything else related to a growing business. And actually, as of February, we finished at about 1,200 employees. We expect that number to grow in excess of 1,500 by the end of the year this year. So significant growth platform we're working with here. So next slide, Sondra. Thank you. So on this next slide, I direct you to the center pie chart on this slide. What we really show here is that we've got a really strong portfolio of technologies led by filtration, chromatography, process analytics and proteins. And every one of these product groups in this chart have differentiating technologies that are helping our customers with the transitions we talked about at the beginning of the set here. And this is obviously helping us drive above-average growth in the industry year-on-year-on-year. If you pivot over to the right, you can see our 2020 financial profile. We've built -- Tony and I arrived here in 2014. And we've really built this into a formidable company, $366 million of revenue in the year 2020, with 36% revenue growth, 29% organic growth. And really, if you look up and down the P&L, a really compelling income statement. If you pivot over now to the guidance for 2021, what's interesting is, yes, we came off a great year. But you can see the guidance for next year, revenue at $500 million plus and solid contributions up and down the P&L with solid growth. It doesn't look like we're slowing down, right, going into next year. So I think it's a pretty compelling guide to the Street as we came out with our earnings. I pivot you over now to the left and I wanted to highlight a few areas we're specifically heavily involved. One is supporting a majority of the COVID-19 vaccines that are either in commercial scale or in late stage clinical. So we're present in a majority of those, and you'll see later, we're reaping pretty good revenue from those programs. As well, we're also participating in the therapeutics programs. We're also engaged heavily this year -- and have been over the last couple of years, in building out capacity. So this rush from COVID-19 has put a big surge of demand on the industry and us, like other competitors in our space, are straggling to build out capacity. We're in great shape on many of our product lines and others we're building up capacity to catch up. And we're really doing that through a 5-year lens to make sure that we're well set up for the future. And I think the third thing to highlight is, and we talked about game-changing technologies. We're continuing to invest in R&D, continuing to look at the M&A opportunities of which we closed 3 in 2020 to continue to bring best-in-class technologies to our customers to help them transition with the changes in the industry that are occurring. So I feel like we're well set up there as well. I personally love this slide, and I think it talks a lot about the traction that Repligen is getting in these rapidly emerging areas of biologics. And so we start with COVID-19 vaccines and therapeutics. Repligen had a $46 million of revenue in this area in 2020. We're expecting to grow at 100%, in that 100% range here in 2021, up to $90 million to $100 million. So really a good presence in there. And when you talk about trends and things coming up quickly and changing in the industry, this shows how we're well positioned to take advantage of those opportunities. If you shift over to the right and take a look at gene and cell therapy here, this is a $54 million business for us, excluding those revenues that are part of COVID, right? So there are some gene therapy revenues in the COVID areas as well. But $54 million excluding COVID programs, we grew at 30% last year. We expect to grow at 25% to 30% here in 2021, close to that $7 million top end of the range there. So really nice traction in these areas. And I'd be remiss if -- one thing we could see even more excited about the industry today is when you take a look at the number of drugs approved and the number of drugs in clinical trials in the various drug classes here. And we're showing you maps here. There's 120 drugs approved plus there's over 630 drugs right now in the clinical pipeline, all of which are helping to drive revenues for the industry and many of them for Repligen. Transitioning to the right, there's 3 vaccines approved. We all know that. We all know who those are. There's over 1,500 different COVID vaccines and therapeutics right now in clinical stages. So tees up a really nice potential future for the industry and for Repligen. And then the same kind of dynamics for -- in gene and cell therapy where a couple of handfuls of approved drugs, but there's over 1,000 new potential drugs here in the market. So this bodes well, and it's very encouraging for the health of the industry as we move forward. Next, we're just going to touch on some of the 2020 highlights. We talked about the financials already. I showed those. They were very compelling. But operationally, we had a fantastic year as well. Here, we're showing -- orders were up 80%. About half of those orders, that increase came from COVID-related programs. The other half came from base business. So really strong underlying business as well as our COVID business. We also closed 3 important acquisitions for Repligen that were part of our overall systems and custom flow paths strategy with the acquisitions of ARTeSYN, EMT and NMS in the second half of 2020. And so we think that positions us really well, again, to take advantage of moving to that more continuous processing and continuous manufacturing stages that we've talked about as well as serving specific points on the manufacturing train. We've also successfully integrated C Technologies in the year 2020 as well. And you can see the growth that we posted there at 30%. But I think that's only part of the story. We built out the commercial team, like we said we were going to do for this overall business. We also completed the development of our next-generation FlowVPE system and GMP-compatible software. And we feel like this really puts us in a great position to be able to take advantage of process monitoring in the manufacturing process as we go forward. A new trend has -- it's new and emerging, but we feel like we're well positioned to take advantage of that trend with our C Technologies business. And then finally, we finished the year here with a very nice cash position overall. But nice generation of cash from operations as well. We made 3 deals in 2020. We were able to top off the cash position at the end of the year with an equity raise to really help support us in M&A as we go forward. So in closing here, I want to just highlight, we've built 4 strong franchises in our business. And you can see the gross -- the growth projections here for 2021. Lot of industries would love to see those type of growth projections. So we feel like we've built a really strong business here with great technologies. We're continuing to bring new technologies to market. We're going to continue to be active in M&A and identifying those best-in-class type technologies to bring to our customers to help them transition as we go forward into these new and emerging transitions that the market is going through. We have a strong cash position, and we're quite optimistic about our goal of becoming a $1 billion revenue company here coming up here in 2025. So with that, I hope that was a good overview for everybody. I'll pass it back to Luke for Q&A.

Yes, that was great. Had to get off of mute there. So you gave a lot of overview background on the overall business, kind of the technology picture. But as you think about the [indiscernible] of COVID, you had that slide up where you had 2020 in the pie chart. Give us an idea of what you're expecting from COVID revenue in 2021, and then comment on the durability of that.

Yes. Sure. So in 2021, obviously, we're coming off of 2020, where we had about $46 million of COVID revenue. In 2021, we're expecting to be somewhere in the range of $90 million to $100 million in revenue, which is really a growth of about 100%, right? So again, feel like we're well positioned. We've got pretty good half a year of COVID type revenues in 2020. And obviously, we're expecting to get a full year complement of those revenues coming up here in 2021.

Okay. That's helpful. And then as you think about just the base business recovery from a COVID. You guys have a unique view into the manufacturing capacity process. And so as you're seeing new projects come online, give us an idea of how much that work is COVID work and how much of that over the next 6 to 12 months is just regular work? And then how much of that is recovery from last year that was just pushed out?

Okay. Yes. And I think the part of the answer to your other question was longevity, right? And I think this kind of ties right into that question. So we -- currently, right now, with the visibility we see, we expect the COVID, this initial wave of COVID to continue through 2022, right? And -- but we think it's going to take that long to really vaccinate the entire world. A lot of poorer countries are going to be on the back end of the vaccination wave. And so we expect strength here through 2022 with the current level of activity that we see. If you look at 2021, we've guided about $100 million, right, for COVID level business, so 500 -- a little over $500 million midpoint on our revenue. So you can see that it represents about 20% of the overall revenue of the company this year is what we're expecting. But I can tell you for certain that it's not representing 20% of the company. As we look forward, one of the key areas for us to focus on this year is really building out capacity. The entire industry is a bit backlogged with the demand that's coming in. And we're all building capacity, looking to the future to be able to support the revenue streams. We believe, at least in terms of the long term, that any additional funds that we build out capacity and spend on capacity are going to be consumed. And even if there were a drop-off in COVID-type revenues going forward, we should be able to quickly -- fairly quickly backfill that with just ongoing industry revenue growth. And again, us typically being on the high end of that, right, or well above the industry overall growth. So we think we'll be able to fill that capacity going forward. But the efforts this year in terms of capacity build-out are significant. And it's taken a lot of our time, even though it may only represent about 20% of our overall revenue.

That actually makes sense, yes. And so when you Think about capacity on the horizon for the industry, do you guys need to build out additional to meet that?

Yes, absolutely. I mean it's -- every year, we build capacity in some -- one of our product lines or a few of our product lines. COVID has put a lot of companies on the edge, at least in terms of fill orders. And us, like many other companies, are trying to prioritize COVID deliveries first, right, because it's such a major crisis. The pandemic is for the world. So we're all working on that. At the same time, we're all working on building out capacity. And it's something that we're investing a lot of capital in, a lot of human capital as well as going into that. But again, we think it's going to be used in our long-term -- in the long term, regardless of how COVID plays out. So the plan here is really build out the physical capacity, right, that we think we're going to need for 5 years. And then we titrate in people as we need, right? So people is the variable component that we can work with over time as we see how things evolve.

Okay. And then give us an update -- I mean, you had a good slide there as well in gene therapy. Give us -- provide us like what the -- what happened in 2020 as that progressed? And then what you're expecting in '21 and really where you're positioned here over the next 3 to 5 years and how you see that market shaking out?

Yes. So gene therapy, gene and cell therapy are early years, right, or early days of adoption. I think we showed there were 9 approvals in gene therapy. And there's over -- in gene and cell therapy, there's over 1,000 in development. So we had $54 million, plus some of the COVID revenue is gene therapy as well. So we've got a nice foothold there. In year 2018 and 2019, we had grown our revenue base in these areas by about 100% a year. This last year was about 30% year-on-year growth, again, excluding the COVID activities. So we're guiding 25% to 30% growth here as we come into 2021, $68 million to $70 million in our revenue. And it's -- we think this market is healthy, right? People talk about certain failures and things of that nature that are happening, maybe give it a little bit of -- people a little bit of concern. But when we look back at what's happened over the last 25 years of monoclonal antibodies, so were failures as well, right? And you see a lot more successes and a lot more efficient manufacturing processes and things like that in monoclonal antibodies today. And we expect that same kind of activity to happen in COVID -- or in gene and cell therapy. There are going to be failures, there are also going to be successes. And we're going to be there for those customers. And whether they're -- whichever end of that they're on, we're going to be there to help them make their manufacturing processes more smooth with higher productivity and help establish the standards for that industry, similar to the way they've been established for monoclonal antibodies over the years. So we think this industry is here to stay.

Yes. Okay, I mean, there's no question about that. But the difference between cell and gene therapy and mAbs is that the manufacturing process is essentially the drug, right? And so whereas monoclonal antibodies, it's the efficacy or binding affinity or the downstream signaling that's produced, the cell and gene therapy is essentially -- and that's a recombinant old school technology where cell and gene therapy is relatively new. So how is it -- as you think about -- it's a technology problem versus a chemical or biology problem. I know it's kind of splitting hairs there, but really trying to figure out as the therapies progress in cell and gene therapy, what technologies are going to need to come to fruition? And how are you guys playing in that?

Okay. Fair enough. A little bit out of my element with some of that. But effectively...

I'm not [ an all of our element ] with that.

I told you we were -- you have a better answer, I'm certain. But what I can tell you is our products support the production process, right, the manufacturing process. It's -- we heavily use filtration products in gene and cell therapy. We're using chromatography columns as well. More and more, we'll be using process analytics, right, from our C Technologies acquisition. A lot of this boils down to experience, right? It's experience, it's trial and error. And over time, any time you have, 10, 20, 30 years of experience in doing something you're going to figure out ways to make it better. And so a lot of this is science. It's new. And it's in early days. So we think we'll continue to use those same products that we have. I'm sure we'll acquire more products over time and develop more products over time that will work well in this industry. But we'll continue to work with those customers to assist them in helping to design the processes and develop them over time.

Okay. That's really helpful. And then just as -- from a technology perspective, you guys have always been -- the channel checks are just fantastic on you. It's like a -- when they talk about column packing that is still in art, and that's really what you do best. And that's like kind of the old technology of what you've built around. So as you think about the new technology and leveraging those relationships, give us an idea of how the recent acquisitions of the ARTeSYN and EMT, NMS, like those are all relatively recent transactions. Give us an idea of where you're taking this portfolio.

Yes. So we talked earlier, right, about moving to semi continuous manufacturing, full continuous manufacturing. So picture a scenario where you have a bioreactor, and you're using either your TFDF or ATF technology on that bioreactor for clarification and harvest, right? So you've already gone to semi automation or semi flow, semi continuous there, right, because you've removed some of the steps of taking product off-line, running [ certification ], running depth filtration. So you've already gone to semi continuous flow manufacturing. Now take ARTeSYN, right, for an example. So ARTeSYN, you have systems where you can actually take that to potentially and connect the upstream harvest step with the first chromatography column, right? And so what you're seeing there is starting to become continuous as you work your way downstream through potentially the first chromatography column. And I would say, ARTeSYN, a lot of things that people don't see about it, yes, you bought a systems business. But the special thing about that systems business is the flow paths, right? The flow paths that are used for that for either filtration or in chromatography or in buffer exchange or whatever application you're using it for, are going to be a consumable. And that could be a $10,000 to $25,000 per run consumable that we're now adding into our portfolio to go along with those systems. So it's a really nice formula. And as we talk about transition of the industry, it's really going to be an enabler for customers longer term. And we're still working out those things as we go forward, but that's really the vision.

Okay. It makes sense. It's a fun company to cover, for sure, especially when you're looking for pure-play bioprocessing guys. So thanks again for the time, Jon, and I look forward to staying contact here shortly.

Sounds great, Luke. Thank you so much, and thanks, everybody, for joining us today.

All right. Take care.