Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Maybe switching gears over to the protein side of the business. I mean, some pretty remarkable growth there recently. I think just bumped your guidance expectations for that segment up to like 20% to 30% for the year, which are my numbers, but about $100 million of revenue which is, I think, double, close to double relative to where it was in 2018. Can you parse out how much of that might be coming from vaccine contribution? Or is it more just base business demand? I like your core mAb markets.

Yes, yes, yes. And on the protein side, I would say that almost none of the revenue that we have is coming from the vaccine side because there's no kind of protein A resin sales into the vaccine. Now there's definitely some protein A resin cells into the COVID therapeutics, but it's hard for us to know when one of the -- whether it's Cytiva or Millipore or Purolite were to buy a protein A ligand from us, if that's going to go into a COVID therapeutic or not. We just don't have that level of detail. But I would say this, that when we look at our protein A ligands business, that's been really robust over the last couple of years. I think having -- clearly, Cytiva's demand for protein A resins went up and while they did move capacity in-house, it was almost offset by the increased demand that they saw in the marketplace. So we didn't really see a drop last year in terms of ligand demand from Cytiva. Then parallel with that, both Purolite and Millipore also had very strong [ light ] years, last year, and a lot of that demand has held up as we've moved here in through 2021. And then the last piece of the equation is really the growth factor business, and that continues to do really well. We were working through Millipore sigma as an exclusive distributor over the last 10-plus years because that was a contract that was in place, and we've just sort of pivoted to bringing that in-house in the last few months. So we'll have a little bit more control over the day-to-day customer interaction. We've got a really nice customer base. Millipore Sigma did a really nice job for us, but we think we can do a little bit more with our own sales force and continue to grow that business for Repligen over the foreseeable future. But it's not just protein A ligands that's driving that growth. It is actually a combination of our ligands plus what we're doing in growth factors.

Closing out this -- that piece of the business. Any update as far as how we should think about the second piece of the Cytiva contract, which I think is due for renewal next year? Is it more likely that, that gets renewed and maintained for some period longer?

Yes. I think -- look, we're -- as I've said, we are in active discussions with Cytiva. I think there's a genuine desire on both companies' part to get a contract extension done. At the end of the day, the piece that we'll get -- we'll have to sort of agree on is kind of volumes and pricing and stuff like that. But I fully expect we'll get a contract signed this year and in place for 2022.

Just -- M&A has really been a hallmark of Repligen. Certainly, Tony, since you took over, I think it's 5 or 6 years ago, can you talk about the areas of the portfolio that are priorities today? Where do you see opportunities that you'd like to fill in? And are you still able to find assets at reasonable multiples right now?

Yes. I can answer the kind of second part of your question. I think the reasonable multiple is in the eye of the beholder at this stage. But I remember when you and I were chatting back in 2015, when I took over here at Repligen, I think, we were talking about like 3x to 5x multiple, 3x, 5x multiples. A lot of bioprocessing assets are going in that 10x to 14x type multiples at the moment. So it's -- it just comes down to, honestly, strategy. What's important to you, to each company, in terms of what you want to accomplish. I think we've done a good job of identifying core assets that we think are important to Repligen. We've been able to transact on many of those without getting into the auction-type process. I think we're seeing more, Brandon, at the auction processes really last year and again this year. So I think there's a lot more banker activity where even the small and medium companies are working with the banks and coming out and goes through an auction process. And like everybody, you have -- if there's 5 companies, you've got a 20% chance of getting a deal done. I think at the end of the day, we look at each of our franchises and we have a strategy for each, and we have some targets that we think would make a ton of sense. As and if those become available, we try to act upon it. And so I don't think our strategy has changed that much at all. I think it just remain active, remain nimble and try and continue to do the types of deals that we've done.

Do you perceive areas where you can build out a good sizable business without kind of overlapping too much with kind of the big 4 or 5 players?

Yes, it's getting harder. I think that was an easier question to answer about 5 years ago, where we only had a few products in our portfolio. But I would say, if you had to pick one business area where there wouldn't be a whole lot of overlap, it probably would be on the analytics side. But I think when you're in chromatography and you're in filtration, I think there is a fair amount of overlap in terms of what you want the technology to do, right, in the world of bioprocessing. So you may not overlap with all 5 of the other big players, but you probably overlap with 2 or 3 of them. So that's and then that comes down to any asset that's going to become available at chromatography or filtration, is probably going to have at least 2 or 3 big players looking at it.

Tony, high level, if we sort of ignore the COVID vaccine piece and therapeutics and just look at kind of the underlying bioprocessing market, what do you see is kind of the midterm growth trajectory for the market? And then for your business, in particular, I feel like you've been more comfortable sort of talking about the sustainability of your base business to grow at the higher end, kind of that 10% to 15% range that you've historically talked about. Do you feel like that's a relevant kind of midterm growth rate to think about for Repligen, let's say, next 3 years or so?

Yes. I think if you take COVID to one side, I mean, clearly, COVID has changed the whole market growth rate. But I think the -- probably the underlying market growth is probably still in that -- depending on the year in that 8% to 12% range. Clearly, the last few years, I think the market growth has been on the higher end of that range. The -- I think for Repligen, I think we've moved a little bit over the last sort of 12 to 18 months. I think we see ourselves more in that 15% to 20% growth on a go-forward basis, stepping for the next 3-plus years. And obviously, this year, we're on the high end of that range. Hard to know, will we stay at the high end of the range or be in the middle of the range, but I think we're in that 15% to 20% range on a go-forward basis. And then obviously, COVID begins to -- that kind of is a little bit of a wildcard, right? So if you're -- COVID is up 10%, then that's actually probably really good. If it's flat, then you got to -- you kind of cut that overall growth for the company by a little bit in the odd years. So look, I think the -- I think we feel pretty confident with the portfolio that we have, with the products that are coming out of R&D with the impact that the technologies that we've developed over the last 7 years. We're -- and I think you said at the very beginning, if you think about our 2/3 for our business being clinical and 1/3 being commercial, we have a lot of opportunities that are moving through that clinical pipeline. And as those hit the commercial piece that's what's probably giving us more confidence that we're going to be in that 15% to 20% range coupled with the R&D investment and products we brought to market.

And then just a question on margins, Jon, you did -- I think it, 32% EBIT margin in the first quarter, which is kind of well above even your sort of mid-term targets. Is there a reason why that's not a relevant benchmark sort of think about sort of the profitability longer term? And then for this year, guidance implies some margin compression over the balance of the year relative to the first quarter. Just kind of talk about why that -- would that certainly be the case?

Yes. I mean, it's the first quarter. 32% was really a dynamic of revenue coming in a bit faster than we originally expected and maybe some delays in timing of cost additions, right? Be it personnel or for capacity expansion type cost. So we got caught here in the first quarter with high revenue and maybe a lower cost base and we're expecting for the rest of the year. But we're continuing to work on the capacity expansion projects. We're continuing to add people. We're suggesting we're going to add 300 to 500 people here by the middle part of the year. So that's a pretty big influx of cost, which will line up more closer to the revenue growth that we have and the percentage of cost growth with the percentage of revenue growth. And so that's what we're expecting to see through the second -- for the last 3 quarters of the year. And then going forward, that will become our new baseline, and we'll continue to work to build operating margins off of that. But that said, we've grown operating margins the last 2 years by 650 basis points combined in total. And this year, we're guiding to 100 basis point expansion and should revenue be higher or should the cost additions come in a little bit slower than we expect, then we will be able to take that up in our guidance in later quarters.

Got you. Well, unfortunately, we're out of time. So I have to leave it there. Tony, Jon, thank you so much for being here. Appreciate the time. Everyone on the line, have a great day.

Thanks, Brandon.

That was pleasure. Thank you.

Thank you.