Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Okay. We'll go ahead and get started. Thanks, everybody, for being here. Welcome to the Jefferies 2022 Global Healthcare Conference, back in-person. Great to see everybody, again, and thanks for being here. I'm Brandon Couillard. I cover the Life Science Tools and Diagnostics sector. Very happy to have Repligen with us back at the conference today here and share an update on all the exciting things in the story, CFO, Jon Snodgres. Jon?

Thank you, Brandon, and good morning, everybody. It's great to see everybody. It's been 3 years since we were fortunate enough to be able to stand on the stage here and talk to you about Repligen. And a lot has happened in the last 3 years. So we've been giving you virtual updates, but I think it's great that we can get in front of you in-person today and give you a personal update. So just getting started here. We'll jump right in. I want to walk through some of the key metrics that we have that we watch and we look at, I think will be of interest to you. But to kick this off, I think it's important to note that our position in the industry is to be an innovation leader in the industry. So what we've been trying to do over the last several years is either acquire or through internal R&D means, create products and bring products to market that really help our customers be able to produce product more efficiently, to drive higher yields and higher output in their manufacturing processes. And that strategy has been working. We'll walk through a bit of that today, and we'll start here with a few key metrics. And with that said, we are known in the industry, if you ask customers who is the innovation leader in the industry, they will, with all due respect to every other company and peer in our space, they will say Repligen is the innovator in the industry. So jumping in, I think these results will show you that that's indeed true. In 2001 we finished the year with $671 million in revenue. That represented a 71% organic growth rate for the year, which is pretty impressive. Now we did get a benefit from COVID activities in that, but our overall growth rate with acquisitions and everything else and was 83%. And our base business, when you strip out COVID and M&A, was up 38% on the year. So a really impressive performance on the base business as well. If you take that and you look back at a 5-year CAGR, the 5-year CAGR for Repligen is 45%, which is, I'd say, an impressive number. And if you stripped out the COVID activity from that, that will be about 37% CAGR over the last 5 years. So again, another impressive number. And I think that's a testament to the innovation that we've been able to develop in the company and launch, also to the acquisitions we've done. I think we've done smart acquisitions and we've integrated them well. It's also a testament to a strong overall biologics market and bioprocessing market that we've been able to capitalize on. And fourth, really strong overall execution by all of our business partners in Repligen. Another area I like to look at as a barometer of how well a company is doing is how well are you positioning yourself in newer drug modalities, basically maybe the future newness in the overall bioprocessing industry. And if you take a look at the green box in the center, you can see that 38% of our revenue in 2021 came from the gene and cell therapy area or the newer COVID drugs that had come out over the last couple of years. I think the important component of this is that COVID came very quickly. mRNA is a very new modality. We were able to get a lot of our products spec-ed in, have done very well in that domain and as well as the gene therapy space. So our products are well suited to go right into gene and cell therapy and other modalities, including mRNA. So I think that's a very positive element as well. We like to talk about the breakthrough technologies that we brought into the market that are very disruptive. These have given us an opportunity to be first to market in a number of places with 10 of them and really go in and grab market share and become market leader very early in the process. Some examples of this would be your single-use ATF, TFDF, the FlowVPX system and then our ARTeSYN systems would also fit into that bucket there. So really good execution there. And then another thing we like to look at overall is our clinical versus commercial mix, right? You want to have a healthy mix here. A lot of Repligen's products are a little bit newer in this space. And so we're not heavily embedded in a lot of the originator drugs that are in monoclonal antibodies, right? And so we have a much higher mix and a much better win rate now in the overall clinical space, which bodes really well for long-term growth because a lot of those candidates are going to move into commercial over time with larger scale and larger volume. So next we'll touch really quickly on the market. So a lot of growth companies have a lot of good characteristics behind them. And one for us is the overall biologics market, which really drives bioprocessing. If you take a look at this slide, the green section, monoclonal antibodies are the, I'd say, foundational piece of the overall business, been around for 30-some years and we've participated in that interest for a long time. Many of our products, again, newer, weren't around 30 years ago, but have been around the last 5 to 10 years, and we're getting nice wins there. But this particular part of the business represents about 61% of the 2021 revenue and it's growing at about -- expected to grow between 2020 and 2025 at about 10% to 12% per year. So a nice growth trajectory there in a pretty mature overall industry. And then you layer on top of that, gene and cell therapy, the new guy, right, new person in town, new modalities in town, growing at 25% per year plus expected and representing about 11% of our overall revenue. So we're winning in that space. Obviously there's nice growth trajectory behind that. We need to see more wins. There's only 7 commercially approved drugs in the U.S. or applications in the U.S., but we need to see continued success there, but well embedded there. And then the COVID side of it. Well, we all know COVID, we had a spike, right, in 2021. That's drifting down a little bit. But the key point here is mRNA was a newbie there, right, a new modality and we did really well, getting embedded in those processes, generated about 28% of our overall revenue last year. And that bodes well for the future, as I'll talk about in a couple of more slides. But not to forget, if our products fit nicely in these other areas with COVID therapeutics and vaccines and gene and cell therapy, very likely to also port well over into exosomes and other areas. So -- and mRNA areas beyond COVID, right, so non-COVID applications. So next, we'll dive in. We've looked at overall biologics market and the growth trajectory there. Jumping into our total available market, where do we compete within bioprocessing underneath biologics. And if you take a look at this, it's a $22 billion biologics market out there, right? And we don't compete in that entire market, but we do compete in a bit over $8 billion of that $22 billion market. And I think it's important to note, when you look at our growth rates, we're winning more than our fair share in this market as we go forward. And our TAM, Total Available Market, is growing every year as we introduce new products into new spaces and as we acquire additional product lines. So I'll jump right into the -- before I jump into this, again, I want to repeat the story of -- you don't to look at this and you say, wow, Repligen is doing really well. Their market share is relatively low. And the reason for that is many of our products are newer in the space. So they weren't around 20 or 30 years ago. They're not embedded in a lot of those commercial applications, but we're winning a lot in the clinical areas, which will then, over time, obviously carry through to commercial. So it's really a good position to be in and we continue to grow our market share. If you look down at filtration here over to the right, we compete in about a $4.3 billion segment. We represented about 9% market share in that area. Over $400 million of our '21 revenue came from that. But we're seeing a 3-year CAGR in that area of greater than 60%, again, indicative of us winning in the clinical areas. Shifting over to the left top, proteins and affinity resins, we participate mostly in this area with affinity ligands, which are just a component of the overall resin area. And now with the acquisition of Avitide, we'll be even more present in this area, in other areas outside of protein A ligands. And so you can see here, we represented about 6% of the market, $124 million in 2021. And also impressively, this area had grown in the last 3 years cumulative annual growth rate of greater than 30%. Dropping down to process analytics, similar story, $1.1 billion market. We're only 4% to 5% of that market. But again, newer entrant into the market, better technology than is out there by far. And we continue to win, growing at greater than 35% in that space as well. And then finally, chromatography, very similar story at 12% to 13%, $91 million in revenue last year in the chromatography area and, again, growing at greater than 25%. So really nice overall position. Bottom right corner, you can see in 2021, overall market share about 8%, but revenue growth last year, including M&A, 83%. So we're winning. So now we'll jump into some of the highlights here on important trends in the overall industry. And I think Repligen is a company that's helping move the needle in this area for new trends, process intensification. You hear about single-use, scalability, flexibility, automation, process monitoring, condensing steps in the manufacturing process. And all of those things are synonymous with a lot of the products that Repligen delivers to our customers. And it's all about continuing to set the standards to deliver higher yields and higher output in the industry. Taking a look at the left side of the screen, on the upstream side, we participate very well there with our ATF technology, our TFDF technology. So we cover both fed-batch as well as perfusion as well as N-1 on the upstream side with best-in-class products. If you look downstream, a number of more products, we've got significant more entries in that area. You look at our AAV resins that we just launched here in Q1 of 2022. Our ARTeSYN, chromatography and flat sheet filtration systems are going to play a big part in this side of the house as well. You can see that the FlowVPX systems in here as well, along with our cross-flow hollow fiber system. So we're really making a difference in this area and changing the way the industry looks at the workflow. So overall, and I'll touch on these points throughout the rest of the presentation, how is Repligen winning? It's really -- it's a pretty simple formula. The key here is that we execute on it pretty well. So if you look at the overall market, it's a 3-pronged approach that we take to winning here, strategic M&A. So we've done 11 deals since 2014, the year Tony and I joined the company. It's been a strong focus on technology and M&A. So you pick the right technologies, take the right integration steps to drive profitable growth, you can do really well in the acquisition front. So we've done well there and that continues to be our strategy going forward. Second is R&D, right? Can we get more products out through R&D that are game-changing and helping our customers drive better economics and better performance for them and more efficiency. And so we've launched, as I mentioned on the prior slide, a number of new technologies. We've been first to market. We've been able to get in and generate and take a leading position overall. And then finally, none of this happens if you can't produce a product, right? And so operational excellence becomes the third lever here that I'll talk about. We've been busy the last 3 years, really building out significant capacity expansion, we'll touch on later. Multi-site manufacturing because a lot of our customers are looking for continuity of supply and then also driving overall lead times down so that we can be more competitive and take more share in the market, particularly in the short-term as people try to catch up. So quite simply, if you look at this best products, great lead times should equal strong growth, right? And I think we've seen that. So next, I'll move into a little more detail on our M&A. So overall, M&A is accelerating, obviously, in our business. It's elevating our presence and it's accelerating our position in the market. We've got 5 key acquisition criteria, one of them being never sacrifice on technology. So if we're going to buy a product, it's got to have an opportunity to be the best in the business. So that's our key focus. It needs to strengthen and fit within the Repligen bioprocessing portfolio where we can commercialize and really take a strong market position. It needs to be underinvested in a certain area. A lot of times we buy from sole proprietors and they've got enough money to invest in R&D, but maybe not commercial or they haven't invested much in operations. So we like to take those types of businesses, invest in them and enable additional growth there. It needs to have strong financial trajectory, in terms of margins, revenue growth as well as in the short-term we need to be able to drive incremental and be accretive to our overall adjusted earnings per share. And so those are really the criteria we focus on. If you look to the right, I won't touch on all of these, but you can see all of our product areas are pretty well represented here in our acquisition strategy. These are just a handful of sampling. And you can see the areas where we've had to invest in commercial or put additional resource and support in R&D and operations, which we've done. C Technologies, when we acquired it back in 2019, had one salesperson, $20-plus million business through one salesperson. Technology must be really good, right? So we were able to acquire that. We built that sales team up to a team of 12 with global support. We also really helped focus the business on the FlowVPX technology because we believe continuous protein concentration measurement and drug concentration measurement is the thing that's going to be big in the future of the industry. And so we focus the efforts on getting that technology out, complete it and into the market. So for ARTeSYN, I'll cover one more and then I'll move to the next slide. ARTeSYN was a business that developed high-end top-performing custom systems, but we didn't view that as necessarily a sustainable model for growth, right? So we've come out and we said we're going to develop 4 different sizes of chromatography systems, 4 different sizes of TFF filtration systems, flat sheet filtration systems and we're going to allow our customers to -- they're going to be standard, but we're going to allow them to accessorize those systems and build in additional capabilities that they may need. So it's more of a standardized, but upgradable type system. And we think that's the right business model. And working through R&D and operations there, we think we're going to have very good success into the future. But that's a couple of examples of what we've been doing on M&A. So down to 6 minutes here, so I got a buggy, but 2014 through 2019, we built out our filtration portfolio, and we built out -- started the build-out of our analytics franchise. So we've acquired Refine back in 2014, TangenX flat sheet filtration in '16 and Spectrum in 2017. So we've had the flat sheet filtration as well as the hollow fiber filtration. If you add up the first year's full years in Repligen, that was $53 million of revenue with, as you can see, really strong growth rates in that first year. Those businesses, combined with a few other smaller components today are over $400 million for Repligen. So we've built a really strong filtration portfolio. C Technologies, we've talked about, that business up to $48 million in 2021. So we've seen really nice growth there with some of the tactics we talked about. But it's all about knowing which technologies to buy and obviously focusing in the right areas for integration. Next, I'll touch on '20 to '21, where we built out our fluid management portfolio. So that's a new vertical for the company, and I'll talk more about that in a minute. And also continuing to build and strengthen our other product lines like filtrations, chromatography and filtration, you can see fluid management. We saw that as an opportunity to bolster our systems business with the single-use flow paths that every customer needs on every drug run that they do. And so we focused on acquiring components that go into the fluid management side. You can see we acquired EMT, NMS and BioFlex, various pieces, high-end components where they operate, built that out. We bought, at the same time, we were porting the ARTeSYN business with systems, and we're able to close out on that acquisition as well. So that gave us the systems and the flow paths to help drive all the different component tree in the overall portfolio and really created a new consumable stream for us, a high-volume consumable stream. We acquired Avitide, giving us additional products in the proteins area. So it's more non-protein A affinity ligands and resins that we'll be able to produce through there. We launched our first AAV resins into the gene therapy side for viral vector in Q1 2022. So that happened very quickly after we bought the business. And then Polymem, we acquired that to gain huge amounts of capacity, to add expertise in high volume runs and we've been able to incorporate that business, build out our capacity. They've also got some great R&D capabilities that we'll leverage. So now I'll jump into R&D. I'm only going to cover one slide here because I think it really brings the story together of what we're trying to do here. So if you look at the upper right, you can see in the N-1 perfusion clarification area up around the bioreactor and we've got ATF and TFDF, 2 of the industry standards, the gold standard in the industry there. If you move over to the right, we had a nice presence in chromatography, particularly in the clinical space with our OPUS prepacked columns. We now have content, more content outside of just protein A with the Avitide acquisition that we can put in column. So again, starting to piece these things together. Look over to the right and you're talking about concentration, buffer exchange, we offer the customer both flat sheet or hollow-fiber options, whatever works best for their particular application. Again, a lot of these components require systems to drive them, right? So we then went out and acquired additional systems technology with ARTeSYN. We also have our Spectrum cross-flow technology. But, hey, if you're going to do that, why not go ahead and buy a bunch of fluid management components because those systems and all of these other products are going to drive consumption of fluid management. You have to move the fluid around. And so that's where we decided to build out. So you can kind of see here on top of that, one more comment, the process analytics business that we acquired from C Tech, we're now starting to incorporate into the systems. Project not done yet, but that adds another component of differentiation in our systems with a lot of IP protection around the process analytics business. So you start to see how we're weaving these things together, changing the workflows and really changing the industry over, which we think is going to be a great recipe for success as we go forward. So I'll touch on operational excellence. A key part of our strategy is really building out capacity. We've been doing it for the last 3 years from 3x to 9x capacity build-out for our various products. You might say, wow, that's a lot. But if you look at our historical growth rates, that fills up pretty fast, right? So we think that's an important element. And it also helps drive down lead times when you've got additional capacity to manage peaks in the production process. But the goal here, best-in-class lead times for our customers, and we're well on our way there, driving business continuity and assurance for our customers who want dual source manufacturing to make sure they have assurance of supply and then securing our own supply chain, as we talked about in the fluid management business, buying those pieces of the business, assures that we can get them. It's good for margin and those are great technologies. So that's really the scenario there. And this is all about making it easier for our sales force to sell the product. We talked about global presence. You can see here, we are spread throughout the globe since 2014, either through acquisitions or -- et cetera. We've been able to build out a nice platform of manufacturing and selling capability around the world. We've got a great mix, to upper left, to our overall regional sales with Asia Pac growing the fastest. And we built out a global commercial team of over 200 people. Back in 2014, we had 3, and that basically included customer service. So the business has been transitioned quite significantly over the years. Now I'll jump into financial performance. I'm not going to spend a lot of time on this because I'm running out of time here. Q1 was a phenomenal quarter, $206 million in revenue, 44% overall organic revenue growth, our base business, ex-COVID and ex-M&A implications grew at 37%. So really strong performance. Q1 74% of our overall sales came from non-COVID. And so that's an area that will continue to grow as we start to transition from our COVID times here. Great margins in the first quarter, as you can see here, gene therapy business doubled, which was fantastic for us. And we finished the quarter with a really strong order book, growing our base business, 20% on a year-over-year basis and 17% sequentially from Q4. So really nice overall order intake performance with a 1:1 book-to-bill ratio overall. So strong position as we exited Q1. Overall guidance here for the year, 15% to 19% overall revenue, 24% to 31% for our base business. That's important because we've seen a decline in the COVID, but we've been able to make up for a nice piece of that with our base business overall. Still strong margins. We're expecting margins to dip down a little bit in the second half because of all the capacity expansion investments and because of some inflationary impacts or time more in the second half of the year. But overall, really strong numbers guided here for the '22 horizon. And you can see over to the right, some of the 3-year CAGR numbers are really impressive with 51% on the top line and 4.6x over 3 years on EPS. So overall, the company is really well positioned for long-term growth. Technology leadership, absolutely critical, but we have the right portfolio. We're investing in R&D and have a great R&D engine. We're investing in capacity, starting to deliver world-class lead times and nice cash position. So great portfolio of products, all growing. Proteins down a little bit because of the Cytiva in-sourcing activity, but that will be back into growth levels in the next year or 2. So a really solid portfolio here. And we look forward to keeping you informed as we go forward here through 2024, when we expect to be a $1 billion company at that point. I want to thank you, and I appreciate it. I'm sorry for going on.

That's all right. Unfortunately we're out of time. That's great, Jon. Thanks for being here.

Thank, Brandon.