Repligen Corporation (RGEN) Earnings Call Transcript & Summary

All right. Great. Welcome, everyone. Back to SVB Leerink Global Healthcare Conference. I'm Puneet Souda, I cover life science tools and diagnostics. And literally, and I mean it, saving the best for last. It's really wonderful to have team Repligen joining us. Tony Hunt, CEO; and Jon Snodgres, CFO. Wonderful to have you guys here.

Yes. Thanks, Puneet.

Good to be here.

Okay. Excellent. So just sort of [ 2 sense ] from my side. I mean Repligen is really a high-growth company in bioprocessing markets that's benefiting from core mAb expansion cell and gene therapy expansion and then vaccine and therapeutic production that has happened as a result of COVID as well. So a lot to talk about in the core markets with the capacity expansion that the team has done and a number of products, innovative products that they have launched in this market.

So maybe, Tony, just to start with, you put out, the question -- most first common question we had from investors, let me cover that and get that out of the way. The COVID guidance of $200 million to $220 million, I mean maybe tell us a little bit of a rationale for that range. Some of your peers were more flat. That guidance was a little bit up than what we had expected. And maybe just walk us through sort of the puts and takes there.

Yes, I think it was just how the whole year played out, right, when we were, I think, back chatting with you in the end of Q3, we were talking about -- we had $150 million, and orders in for COVID in 2022. By the time we finished the year, we had over $180 million. We have orders that go out essentially 9 months. We have orders to come in yet for Q4 of 2022. We think that range of $200 million to $220 million is probably accurate. It's nothing more than that. I think that's a fair reflection of what we think the demand is, and we'll see how it plays out as we go through the year.

Okay. And then on the guide -- long-term guide that you have provided, $1 billion in revenue by 2024. Maybe talk to us about the sort of the puts and takes into that COVID contribution that you're expecting and sort of the -- how much of the base business growth we should expect there? And sort of how much of COVID growth we should expect there? Now, I totally understand that's a hard question to answer, but maybe just help us understand your thoughts there.

Yes. I mean we've been -- we've had that $1 billion number out there for a while, where we don't see a reason at this stage to change that. We're very comfortable with our base business is growing. You can see last year, I think it was up 38% for the year. If you go back over the last few years, it's been around that 30% mark. We expect that our base business, it's going to grow in the low 20s this year coming off of a phenomenal year last year. We expect that we can grow in that rate. It's hard to predict COVID. It's -- everybody feels there's a long tail here, but people don't really know, and we won't really know until we get to the middle of this year, and we see how the second half of the year holds up, and then what kind of the order trends look like going into 2023. But I think on the call yesterday, we said, look, if you modeled a 25% decline in COVID in 2023, and another 25% decline in 2024, and essentially 50% of the, of -- let's call it, 2022 high, we're comfortable about hitting $1 billion. If it goes down significantly more than that. I still think we'll get close, but it just depends on what we can grow the base business. And you can do the calculations. It's in that 20% to 30% range. You need to be in with your base business to get to the $1 billion even if there is a drop off in COVID. And with -- the way we look at it is, we don't go out and do lots of announcements around product launches, but we had 11 to 12 products, which is sort of R&D last year. And our expectation is we'll do a similar number, right. Jon, this year, when you look at all the ARTeSYN skids, that are coming out. We've got 3 resins, we just launched earlier this week. It's got to add up, right? We're not putting out small little products that have tiny little revenue opportunities. These are really important products and are going to sustain the growth in the base business that we think is there.

Yes, absolutely. And what has impressed me over the last year, that the products -- new product launches that you talked about. And one of the things where -- if I could get your input is really leaving COVID aside sort of stacking these products in over the next 2 to 3 years and what they mean for you? Maybe just walk us through sort of what's on the top of that list where you're most excited about? And maybe a few more in that list that give you confidence maybe to $1 billion, maybe even more than $1 billion by 2020 focus sort of contribution wise. But I think the question is really more qualitative than quantitative.

Yes. And these products that we're talking about, the life cycle in bioprocessing is pretty long. So if you launch good products 5 years from now, there are significant revenue drivers. And you kind of have to almost go back a couple of years ago and say, so why don't we launched in, let's say, from 2 years ago versus what we're going to launch in the next 2 years. In that 4-year time frame, what are the kind of the killer products that we think are out there. And so TFDF is continues to do well in the marketplace. The FlowVPX technology, I'm totally bullish on a [ VPE big flow ]. Not many people thought that we would be able to double CTech revenue in 2 years. And we went from $25 million to $48 million. That tells you that there is demand for in-line technology, at-line technology. So we feel that's a great product line. It's going to do really well. The ARTeSYN skids, we've taken something that's been really a custom shop. In other words, say, tell us what you want? We build it with all the [ bells and whistles to now ], we're going to give you a standard platform, and you'll have options. And we're in that transition. And we've done some of the chromatography skids in 2021. We will finish off the whole portfolio this year. So there's big bet being placed on the systems. And with the systems comes a new consumable stream, which is all the Flow Paths. So when you look at where the buckets of R&D-driven revenue is going to come from. It's purely going to come out of analytics. It's going to come out of systems. It's going to come out of the Avitide resins -- and there's a lot of other products in our portfolio beyond that. But I would say there are 3 really good examples of products that we think have real upside for us.

Got it. That's super. Tony, one question, and I'm sorry for jumping around. But one question I've been asking you for some time is really what are you hearing from the customers in terms of the demand? What did you sort of -- what are you hearing now at this point in time? Do they have enough? Is the demand continuing to outstrip sort of the supply? Or is it things are stabilizing more at this point. And this is kind of tied to the question that we've been getting from investors is the inventory levels at the customers are they overstocked?

Yes. So maybe start with that and Jon, chime in as well. But it's pretty clear to us that last year, there was -- some of the growth came from the increased stocking levels. I mean we just have to look at what we did as a company. We went from 3 months to 6 months in inventory with lot of the products that we need in manufacturing. So we're doing that. We know -- and we know everybody was doing that. And so that means our customers have to be doing it as well. I think -- and I'll let Jon to comment on this now. But we think that, that stocking level is probably at its point, so you probably don't pick it up this year. But Jon, do you want to add to that, and I'll come back and talk about what we're hearing from customers about demand in general.

Yes, I can a little bit. I mean, one of our peers actually came out publicly. And I think these were estimates on their part, but said that potentially 5 points of their growth in 2021 may have come from stocking, right? So if [ I had add to us ] that could have contributed a pretty decent amount to our growth last year, 5 points of it per se. And I think we're at a point now, we believe everybody is kind of topped up on their inventory levels. I know we're looking at our levels and thinking there, we're probably at levels that are going to be good for us for the foreseeable future. And so should companies not continue that stocking up, that's 5 points of growth that we have last year that, that probably won't be there this year for us, right? So that's kind of the way we're looking at it. Over the long term, or over the midterm, we don't think anybody is going to drop through inventories down. We -- I think a lot of people felt like they were a little bit snakebitten by not having enough supply. There's still plenty of peaks in the demand curve from our different customers and expected delivery dates. We think people are going to pretty much stabilize with the inventory levels where they're at, or at least for the foreseeable future before they come back down. So, wouldn't expect a lot of impact, a negative impact from that in 2022 from the drop.

And then I would say, Puneet, within our industry, and you think about the types of products people are buying, whether they're buying them from Repligen or they're buying from some of the others bioprocessing companies. There's still significant pockets of long lead times. So in terms of ability then to build a lot of inventory for long lead time items, it's kind of hard, right? I mean, if you have perfect example is chromatography resins, our customers who supply those resins to us to pack OPUS columns have really struggled to get the resin in time. So there's no way they're building inventory, right? It's just nothing is happening on that side. You could look at where we were a year ago on the hollow fiber. We needed capacity. We increased our capacity ninefold. There was no one building inventory on hollow fiber modules or membranes in 2021. So I think those pockets that, it's literally, hey, you need this? When do you need it, [ get it ] there. And I think the industry is kind of settled down a little bit because the other dynamic that people have forgotten about that happened last year was, was that the government came out and basically mandated COVID orders and prioritize COVID orders ahead of every other order that companies like Repligen could fulfill. So that kind of set up, that kind of an interesting dynamic. So if you're a customer and you're not buying products from us for COVID, you're prioritized in the first half of last year at a lower level, right? So then when that freed up in the second half of the year, I think that's what we started to see, and that's what Sartorius and others started to see is people who had been waiting. There was a pent-up demand to get product. And then there was a pent-up demand to try and add a little bit of safety stock, if you could, for those product lines where there was ample supply. So I think that's the dynamic we're dealing with. That's all kind of passed, right? You don't have the COVID mandated orders. I think there's -- customers have settled into -- here's what the lead times are, here's what we expect. And our orders in Q4 kind of returned more to a normalized level, right? And we heard that from our peers as well. So there was nothing about what happened in the bioprocessing industry that was different from -- for Repligen than any of the other players. We all experienced the same dynamic, which was this huge order trends from Q4 of 2020 all the way through Q3 of 2021. And then it's kind of returning back to more of a normalized order pattern. And that's what we're seeing as well.

Got it. No, that's super helpful. Thanks for the context there. Tony, this is maybe a broader industry question. We're hearing from peers that the COVID -- COVID is essentially in the 2023, 2024 time frame as COVID comes off, vaccines come off, those capacities or those facilities can be potentially filled with other products. There is confidence on that. But again, we don't have a list of the drugs, which are exactly going to sort of fill that bucket. Maybe just talk to us in what are some -- what are you seeing out there that can potentially -- or broadly speaking, mAbs cell gene therapy, cell and gene therapy and other products? And how much of a momentum are you seeing there? Do you see that sort of filling that gap, if it was to happen at the level that folks are speculating?

Yes, there's -- you look at the CDMO situation for the last 12 months or so, 18 months, many of them have been pulled into the COVID manufacturing piece. It wasn't like they had empty facilities before COVID. They have a long list of customers that needed to scale up product. So I'm feeling -- my sense is it's going to move back to more of the sort of pre-COVID levels in terms of who needs production, who's lined up for various CDMOs. It's hard for us as a company to say, here's what's going to happen in the CDMO. We're seeing no slowdown in CDMO demand. I can tell you that. But I think the group to really talk to would be the CDMO manufacturers themselves and asked them, if they're saying they have the queue of customers to fill up that capacity, then totally we believe them because they know exactly what their funnel looks like.

Excellent. And then just briefly on gene therapy. You believe the reported growth there was 40%. Outlook is about 30%, I think, you said for 2022. Maybe just longer term, how should we expect that market to grow? What sort of -- what are you baking into your model?

Yes, I think a similar type of growth, honestly, above the 30% for the foreseeable future. We know that most of the customers we're working with are working on scale up, right? We're not in -- even though we're adding a lot of customers like one customer per week, that's a new customer. We have a lot of customers who are scaling. Obviously, we've got a lot of products that can help customers scale. I said this a few years ago, we need to continue to see some approvals. We had 3 last year, that number needs to go up. I think it just drives and builds confidence. I think gene therapy is fantastic. Just the market needs -- the whole business model is maturing, it's evolving. Great to see customers scaling. We just need to see a few more approvals. I think that will drive a lot more volume for the bioprocessing players. I mean you'd start getting into an approved drug versus a Phase I, Phase II or Phase III. And all of a sudden, you have a recurring consumable.

Okay. Excellent. I'm getting a few questions here from the audience, so let me cover those. On ARTeSYN revenue for fiscal year '21, can you just elaborate, did you meet the original sort of guidance expectations on that? And do you expect that business to sort of accelerate in '22 and with cross-selling, what are some of the cross-selling opportunities? And how should we think about that business being a growth driver in 2023? Is it more of a 2022 or as more as of 2023?

Yes. So it's a great question. When we did the ARTeSYN deal, and I'm not so sure how many investors truly understand the connection between the EMT deal and the ARTeSYN deal. Without EMT, we can't provide the consumables or would have been much harder for us to provide the consumables that go with ARTeSYN systems. And I mean consumables Flow Paths and the liners that go into the components and the valves of pinch valve, diaphragm valves, all the exoskeletons, all of that comes with the consumable. It's a silicone extruded tube overmolded with basically designed exactly the way the customer wants. That comes from EMT. So those companies are essentially joined at the [ hip ]. And they did with -- that strategy of doing the deal. We needed to do both to really get the deal done right. The fact that we did EMT first before we did ARTeSYN was just a timing issue. But we reported out on EMT, NMS and ARTeSYN coming in around 26%. That was exactly where we were expecting it to come in. What you don't see is the impact that those 3 companies had on our internal manufacturing. So we didn't just buy those companies to just sell the ARTeSYN systems and associated consumables. We also bought those companies to make a lot of internal products that would go in a care to eye system or many other products that we have in our portfolio. A lot of that is being made. There's a certain percentage of each of those companies that is dedicated to making products for Repligen that ends up in another part of our portfolio. So that -- so their impact actually was lot greater than even the 26%. That said, if you just looked at ARTeSYN alone, it fell right in the range that we thought it was going to hit. And a lot of people have forgotten about the fact that when we acquired ARTeSYN, the year before we bought, they were like $8 million or $9 million in revenue, and they move them up into the sort of mid -- not mid-20s, high 20s in revenue. And I've been in this industry for quite a while. When you do that [ type of the jump ], your goal is, hold the line, right, and then kind of surge again. And we more than held the line, we grew last year, and we expect this year with the new products coming out and really, really good year for ARTeSYN this year. And we think it takes off in a very significant way over the coming years. Because we have the portfolio, we have the consumable. So we kind of control our own destiny here. We don't just get down into the brass tacks selling.

Yes, ARTeSYN, lot deeper as we move forward as while pulling through flat sheet cassettes, pulling through chromatography columns, even the integrated FlowVPX that we've been talking about with the ARTeSYN systems, that's not going to probably be out there until 2023. But a lot of those products should be able to help pull through additional volumes for us overall. So it should be good.

And I think, Puneet, the other one to think about on ARTeSYN is that, if you went back 4 years ago and you looked at our portfolio, we were more of a consumable company, right? We had flat sheet cassettes, we had hollow fibers, we had OPUS Pre-packed columns. It wasn't until we acquired Spectrum that we really saw the advantage of having systems. And then ARTeSYN has kind of totally changed our view of where we can go with systems portfolio. And now you load the Flow Paths in on top of it. Now we have a lot more integrated solutions for customers. It sounds like we're trying to give them the whole workflow. But within the piece of the workflow, we have the system. We have the consumable. We have the Flow Paths. We have the sensors. And that just gives the customer a much more integrated package when they're trying to run a TFF UFDF step, right?

Yes. No, excellent. And then Jon, a question for you on that. As you provide these systems capability, as Tony said, you might not be providing the entire workflow, but parts of the workflow, what does it mean for? As you provide more systems capability, what does it mean for margins?

Yes. I mean we make decent margins on our systems. We'll pull back -- we'll pull through Flow Paths as well. We have margins with them, right? So those are going to be key to driving that volume. So that package together should drive good margins for us. And I think great value for our customers at the same time.

Okay. And Tony, CTech, you mentioned that earlier for Process Analytics, as we go forward into gene therapy, mAbs, and how do you see the adoption of this product sort of in this post-COVID world? And what do you need to do in order to sort of maintain those growth rates? And then Jon, for you and sort of how should we think about the margin profile there for Process Analytics longer term?

Yes. So the business itself, the good news is that there really is a very small COVID component, it's -- it versus other business like filtration have. 40% of our filtration franchise revenue is COVID revenue. But when you look at something like Analytics, it's a much, much smaller percent of the Analytics business. So we're not at all concerned about any sort of headwind coming from COVID on our Analytics business. Our biggest challenge in Analytics was building out the customer base beyond the core customers that CTech had put in place prior to us doing the acquisition in 2019. So adding in the sales team, 60% of all our revenue in Q4 came from new customers. So it just really shows you what you can do if you put the right sales team in place. And on top of that, you have the right products. So we think great technology, great products. There wasn't a system sold into cell and gene therapy prior to 2020. Now we're selling into cell and gene therapy into the applications using the technology. It's a new sort of avenue for the sales team. And we expect there'll be other ones, whether it's oligos or exosomes, whatever it is. There's just a lot of applications out there that the technology can be used in. And I think the flow technology is at it's just at the infancy of adoption. And we think that that's going to be as big as the Solo technology.

Very interesting. Tony, are you seeing any competition in that market yet?

There is competition out there. I mean, but it's more traditional technologies, whether it's [ UV Biz ]. Yes, but it's -- they all suffer from the same problem, which is dilution. And the whole CTech portfolio has a really nice patent portfolio. So look, we're moving ahead. There's always going to be competition. You can almost guarantee that every product in our portfolio will have some level of competition as we go through the next few years. It's up to us to stay ahead.

Got it. I was going to... Yes, please.

Puneet, I think us launching the FlowVPX and the new Viper software, which is all GMP compatible product. So that really enables the customers to be able to scale all the way up into commercial. I think that was another nice win for us in the process. And you had asked about margins. We're very happy with the margins on these products. They'll be good for Repligen, for sure.

And Jon, just following up on the M&A side of things, I mean, you obviously have done well in the past. And as you sort of look at now the market valuations are coming down, at least in the public markets. I don't know what you're seeing on the private market side of things. But maybe when you look at the portfolio today, what are some of the capabilities that -- what are some of the areas for potential expansion? Again, you don't have to give me the exact detail, but it's sort of a high level [ alias ], what can you provide to me and capital deployment overall, if you could talk about that?

Yes. I think [ sellers' appetites ] and valuations may not have caught up to the public markets yet. But maybe over time, that will happen. That won't be the best thing that could happen for all of us, I don't think necessarily. But hey, you know what, and Tony has talked about this. There's other opportunities for us in filtration. We love the Process Analytics space. You can see we've been active now adding to our proteins business at Avitide. So love those types of deals. There are opportunities out there for us. We've got well over $600 million in cash on the balance sheet. So we've got some dry powder to go out to markets with. We could certainly take on net debt if we wanted to and needed to for a deal that, that had really great returns. So we'll always follow our acquisition criteria, make sure we're bringing value to investors for ourselves to the company. But yes, we've got the [ Avitide ], I think and the means to do more deals, and I would expect us to do. I don't know if Tony wants to add anything...

No.

The additional capabilities there, but [indiscernible]

Excellent. Tony, given the time -- let me -- a couple of quick questions on resin side and the protein side of the business, maybe this $10 million in revenue that you're expecting for Avitide in 2022, sort of how should we think about the growth forward? And I think one of the questions that came through the audience as well was, how do you take share in that market versus the competition? And what's your sort of where you're positioned in that market today?

Well, our position in the market today is at the very little market share. So [ being on first to ] when we have to take market share. There's no doubt about it. And the only way you're going to do that is you've got to launch products that are differentiated. The good news is we just launched 3 products that are differentiated. We will have to see now what happens with our sales team, with the customer evaluations. I would say this year is all about seeding, next year is about growth. But I think with the content that we have from Avitide and the work that we've done with Navigo over the last few years, I think we have enough content coming through that is going to give us a little bit of a differentiated view in the marketplace versus maybe some of the other players. It's a focus for us. I think we have a great opportunity. I think it's going to be one of the drivers. And one of the highlights that I had earlier as well, I think it's one of the key product lines for us.

Okay. And then just shifting a little bit to chromatography side of things, OPUS that capability has done really well for you. Obviously, I mean a big part of COVID as well. But where do you see prepacked column sort of momentum in the market, where do we stand in the transition towards more prepacked?

Yes. Look, the biggest drag on prepacked columns right now is resin availability. We see that opening up in the second half of this year. I think we gave the numbers yesterday, low 20% growth for OPUS last year, could easily have been twice that level of growth if the resins were available. So look, we expect that to improve as we go through the year. We're shipping, packing and shipping a lot of [ cans ] around the world, expect that that's only going to get better. And now having [ Bright online ] just really helps us in Europe.

Got it. Okay. Well, that's all the time we have. I think we had most of the questions. So, thank you, again. Really wonderful having you. Thanks for joining our conference, guys. Tony, anything...

It was a pleasure. Thank you.