Repligen Corporation (RGEN) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. Welcome to day 3 of the Stephens 2022 Conference. I'm Jacob Johnson, life science tools and pharma services analyst here at Stephens. Thank you all for joining us. Really pleased to be joined by the Repligen team for another year. We have CFO, Jon Snodgres, and Steven Chehames from Investor Relations. It will be a fireside chat format. But Jon, I'll let you make any introductory comments you'd like to make, and then we'll jump into Q&A.

Sure. So just a couple of short comments here before I jump in, though. I just want to say how great it is to be here, so thanks for having us again. And also I want to say it's great to see some smiling faces in the flesh here in the room. So a pleasure to see everybody, and thanks for being here today. Just wanted to jump in and say a few words about Repligen, and just kind of highlight one of the strategies we've been working on. It will be pretty indicative of what we do as a company overall. But if you talk to customers that we deal with in the bioprocessing arena, They'll talk about Repligen as a technology leader and the innovation leader in bioprocessing. And it's a great place to be. And I think the work that we've done over the years has really supported that. What we try to do is find the challenging areas that the customers are working through in their production lines, and really try to address those areas with technologies that are quite differentiated from what's in the market today to really help them improve efficiencies and drive better economics. And the biggest way that we can do that is to help them improve the production yields in their product run. So that's really what we've been focusing on over the years, and I think we've been pretty successful at it. I think as you -- maybe give -- just to give a little bit of an example of this is what we've been working on with our systems business over the last couple of years. With our systems business, we had a nice line of hollow-fiber based systems that we acquired with the Spectrum acquisition back in 2017. We followed that up in 2020, December of 2020 buying ARTeSYN, which also had a line of -- not a line but had customized systems that they used in chromatography and other areas in the manufacturing process. And so what we've really been trying to do over the last few years is really bring out standardized but configurable systems. So customers can have all the features and benefits they want, and we get the ease of consistent manufacturing and things of that nature. But we also give them the ability to configure those systems to tweak them how they want to use them in their manufacturing process. So we've been refreshing our hall-of-fiber line of systems over the last couple of years, we'll continue to do that, really bringing up this very current state. But we've also been, again, standardizing our systems that we bought chromatography -- or excuse me, with Artisan. And by doing that, we've created a full line of systems where they're very scalable for our customers. So if they buy a system and process development, they can feel comfortable that they'll have a system that they can -- or systems, a group of systems that they can scale all the way up through commercial production. So you'll have a half -- 0.25-inch version, a 0.5-inch version, a 0.75-inch version and a 1-inch version, which gives them that flexibility. I think the other beauty of the systems is -- Tony likes to call them single-use systems, and what he really means by that is the systems will be reused, but they will have single-use flow paths. And so they can very quickly process and transition over to a new drug campaign very quickly in the process by just changing out the flow path. And this ties back in with our fluid management strategy, where we've gone out, we bought some component providers for clamps and valves and single-use products like that, bottle tops, over-molding, things like that. And we can now use those products and bring them into our flow path assembly businesses, which we're creating now to provide customers. This gives us better margin opportunities, better opportunities to price in the market and win business. Also gives us that opportunity to attach a flow path to every single-use flow path, to every system that we sell in the market and go out and try to win business with every system we've sold in the market over the years. So systems have a lot of other advantages, like low hold-up volumes and things of that nature. So you're really not throwing away any product, you're using all the product, which is really beneficial for our customers. So -- and then finally, we've taken that a step further. And of course, you guys know we have a process analytics business. And with our process analytics businesses, now we've taken our process analytics devices, our FlowVPX device and potentially down the road, likely down the road, our Daylight Solutions where we've created a new partnership and bringing those systems in -- or those particular process analytics products into our systems and building that in. So creating in-line process monitoring for drug concentration, for aggregation, for nucleic acid, different things like that and they're critical in curing process, giving our customers real-time instantaneous feedback on how their production runs are doing. This is a huge advantage because things -- it keep things in spec. They don't have to wait for responses to find how their production runs are doing and things of that nature. So a real benefit to customers. That's just an example of some of the work that we're doing. And I think it's a relevant example that covers a pretty broad swath of products and strategies for the company. But we've got 4 main franchises in the business. We've got filtration, chromatography, we've got process analytics, we've got proteins. Each one of those has a very specific strategy. It's got M&A targets. It's got strategic R&D innovation that we want to do, and all focused on continuing to add value, grow profitably for our business. So with that, I will say we just finished up a strong Q3. Jacob, we -- I think we grew at 19% on a constant currency basis in the third quarter. So another good quarter on the board. Year-to-date, we're 32% growth on a year-to-date basis, solid finish to the quarter. And I think as you look forward to the company, we've given out guidance. We said we believe have given feedback and an aspirational goal of revenue of $2 billion by the year '27, '28 time frame. That represents an organic growth of about 16% to 20% if you do the math, to get up to that level. And I think we're well positioned to get there. So continuation of the strategies, the M&A strategy, the R&D strategy and the things that we do, I think, puts us in a good position to be able to get there. So glad you're here with us to enjoy it.

Thanks for that Jon, and appreciate the kind of longer-term vision and really appreciate the Investor Day where I think you guys really spelled it out as well. And I'm going to say that and then pivot to the near term, because it is a unique environment and investors are hyperfocused on, I don't know, the next -- on 2023. So let's start with stocking and lead times and I'll steal Dan's line from yesterday, which is stocking seems to be highly topical this week, yet it's been highly topical for the last 18 months, but here I am asking about it. So on lead times and stocking, I think Tony had some interesting commentary on lead times last quarter, which could maybe suggest some potential softness to work through in the coming quarter or so. But can you talk about that dynamic? And then also kind of anything you're seeing from -- on the inventory management side from customers?

Yes. So I can give you what we know about area. So when we look at orders, Jacob, and I'm going to start with COVID first and we'll just kind of put that off the table. The COVID scenario, I think it's pretty well known. There's plenty of stocking in the COVID arena. Obviously, demand for vaccines and whatnot has come way down. So I don't think we need to spend a lot of on that area. I think another area where we specifically know we've seen inventory build is on components, right? So components that our customers are buying that they're putting into their flow paths and different things that. So we know there's some stocking there. There's been some customers trying to push out orders, different things of that nature. So we know there are some pockets of potential de-stocking going on in that area. So -- but let's translate or transition to the rest of the business, which is the bigger piece. When you look at order patterns, and I think Tony has highlighted this pretty significantly, we've seen, I'd say, our order patterns over the last 2 years, I'd say, before -- up until through Q2 of 2022, where order patterns that moved from generally 3 to 4 months historically up into that 6-, 9-, 12-month range. So that means people are taking deliveries and ordering early, taking deliveries over the long term. And I think that's bumped up book-to-bills in the industry over the last few years. And now that's moved back down in the third quarter, we started seeing about 80% of our orders deliverable within 3 to 4 months. So starting to see people have a lot more confidence in the supply chain in bioprocessing. And I think that makes a ton of sense, because there's been a ton of capacity build in the industry over the last couple of years. And there's also been a big reduction COVID supply that have had to be provided. So there's a lot of capacity in the industry. So lead times have come way down. So good support there. When we look at inventory stocking, some of the things that we look at are what order trends look like coming in the door. With the change in the order pends, there's going to be some slowdown in orders coming in, right, because people are now starting to say we're only going to place 3 to 4 months. So if they've got a 9-month order out there lasting, that may not get filled for another 6 months for the next round, right? So there could be some pockets there. But what we don't see going on is a lot of cancellations, pushouts and orders from our customer base. So I think that's -- the good news is that we're not seeing that occurring, right? And so that provides support to hey, maybe there's not a lot of stocking going on. So with what we know and believe, we believe there's probably pockets of inventory buildup in the markets, but we don't really believe it's particularly wide spread. And the other thing that kind of supports that, it was difficult to get a lot of products during the heyday of COVID simply because companies are mandated to provide COVID as a priority. And so some customers weren't able to get product. And I think that was pretty pervasive across the industry. So that's kind of our viewpoint on it, again, in pockets. Now I would say duration, right, because you're going to ask me about duration. So we might as well go ahead and save you some time and take that off the table right now. So the -- in terms of duration, how long could there potentially be destocking? We're not exactly 100% sure on this. But what we do have is a lot of insight and historical knowledge, a lot of people in the company have been through these phases before. They tend to happen once every 5 or 10 years or maybe twice every 5 or 10 years. And what we know about them typically is that they generally last 3 to 4 quarters in terms of fully being able to recover and get back to the right levels of projected volumes that we normally see. So -- that's information that we can apply on top of what we're seeing in the markets. And based on what we've seen historically in 2017 would be a good example, slowdown in '17. We were right back on the horse on '18 again, so moving well. And the second half of 2018 was a phenomenal time in bioprocessing. So to give some perspective and support to why we think it's probably a 3 to 4 quarter situation, which actually started now here in the third quarter of 2022.

Got it. That's helpful. And you're trying to answer all my questions. But I want to kind of go back to that last comment, which was 2017 was kind of the last slowdown in the industry. Can you just compare and contrast the state of the industry, and maybe Repligen itself now versus then? And I think to -- maybe something to call out yes, it was a lighter growth here, but I think some of your key franchises still were up in the double digits in 2017. So you still performed really well, even in kind of a softer backdrop. But kind of now versus 2017, similar or different, whatever.

I think both. If you look -- the COVID situation with the very rapid and significant ramp-up of COVID volumes, pretty unprecedented right? So there's no similarity between that, what happened in 2017. And then the slowdown and drop off of COVID again, no similarity there. What is similar is in 2017, we had a number of customers who decided that because biosimilars are starting to kick in, decided that they didn't need to do production runs, and they needed to burn down some of their inventories on the shelf. And products have shelf life issues and things of that nature. So they were managing that plus biosimilars coming in that may take some of the market. So they went into -- they stopped running campaigns, started destocking. That started bleeding down into the tools providers like us. And so what we saw was some destocking. And maybe that caught a little bit of fire because people panicked a little bit and we saw some destocking. So potentially, that could be a similar situation to what we have today with -- if people built up inventories, they may want to go through the same kind of destocking that we've seen. What -- you're right, we had a couple of products that continue to grow there. But Repligen was a different company. We're a very small company back then. And so -- and I think a lot of our products are very new in the markets and not highly penetrated. So we were able to grow off a smaller base. And overall, our business organically in 2017 grew at 9%. And I think a lot of companies were either flat or down so in our space. So similar there, but I'm not -- certainly not the same as the COVID situation that we're seeing.

Yes. And maybe getting to kind of the other wrinkle this time around. I mean I think biotech funding, it's going to be down this year. Not nearly 2020, 2021, great years, and we're not far off probably from 2017 to 2019. So it's still pretty healthy. But -- but we did have a large CDMO highlights, the potential prioritization of pipelines by biopharma a couple of weeks ago. I think investors are focused on kind of early-stage biotech exposure, which is not really where you play, but maybe you can touch on that. But are you seeing anything as it relates to kind of customers and the funding environment impacting you right now?

Yes. We don't see that right now. And honestly, we don't put a lot of product into the R&D, right? And so that's where a lot of the funding for biotech does. So we don't put a lot of product there. I will say, though, customers are always looking at their pipelines, right? And it's anyway you would make investments in your own stock portfolio. Those things that you think are going to return money, you will prioritize those. And the ones that you don't or you think maybe a little bit long term, you might de-prioritize at a point in time. So I would view that selection criteria the same. And I think biopharmaceutical companies do that all the time. They're always looking at their portfolio, saying ease of bring this through likelihood of bringing it through clinicals, into commercial, how big is it economically desirable? Is it going to be for me, and you're bouncing all the different products off each other, picking and choosing those that you think are going to be the best and most likely for success. So if that's intensified now at the lower early level in R&D, I would say that it could be. But it's not really significantly different than what we've seen in the past, and we don't see this really early stage impacting us. Now if funding, defunding and lack of funding occurs over a 5- or 10-year period, that could hit us, right, because you're going to see less candidates going into Phase I, Phase II ultimately. But that's a really, really a longer-term play.

And then just maybe to put a bow on like the top line in 2023. I know you guys will formally give guidance in January or February, but you did give some color into 2023 on your call a couple of weeks ago. So as we think about this base business growth of 16% to 20% next year, what are the key puts and takes on you achieving that growth? And I guess the things that come to mind or some of the things you mentioned initially, the system strategy is an opportunity. You always have the potential for customers to move towards commercialization, new product launches and then stocking macro-related factors.

Yes. I think it's a little bit earlier for us to go through all those pieces. You guys know the areas we're growing. We're growing in systems or growing in process analytics in areas that are newer in their stages of adoption and whatnot. I think probably the more prudent thing to talk about as we pull this out is really taking them to make sure we're guiding properly and for investors and analysts, to make sure that they have the proper expectations and not be surprised. So one of the challenges we've been straight up about, we're very honest about these things, is the COVID volumes for next year. So COVID volumes we've anticipated are going to be down about $100 million for next year. So that's a pretty significant headwind. If you take kind of a walk down, you take a look at foreign exchange. Foreign exchange is going to be -- right now, it's looking like it's going to be a $25 million to $30 million headwind for next year. So when you start to think about then taking your base business and building up your base business.com with the draw down some of these other areas in FX and COVID. So we just want to make sure that people are looking at this appropriately and maybe not getting over their skis too far on 2022. And the COVID, I guess, the COVID drawdown has kind of been in the sites for a while. It's been -- it's pretty inevitable. But the nice thing is we'll be down to a much lower level. I think we've guided are not guided. We've talked about the potential of being $30 million to $40 million next year. So it will be a much less -- much smaller challenge for us as we move into '24, which will be good. But that's kind of how we view that. And we'll give what we're going to be watching, monitoring the situation in 3.5 months or so when we guide in February for 2023. And we'll certainly give you guys a lot more insights on drivers and what's happening. And we'll be a lot smarter in 4 months too, Jacob.

Yes, no I totally understand. It's not going to stop me if I'm continuing to try to ask some questions around this. But no, I think we are all looking forward to 2023 guidance from everybody. But on the inflationary environment and just pricing side of things on that dynamic, where are you seeing the most inflation? And then can you just talk about your ability to take price this year? And then maybe any thoughts about that into next year?

Yes. So as we look at the cost inflation side of the -- it's coming everywhere, right? It's coming in wages. It's coming in product costs. It's coming from utility providers. It's coming from shipping companies. I mean it's coming from everywhere. Probably the biggest piece you asked about is probably our material cost because that's a really large component of our cost of sales. And so we definitely see inflation coming there. We're working to combat it the best that we can, like all companies do. No customer ever likes to take a price increase, right? So -- but we try to -- and let me turn that around on pricing. So we've had a good year this year on pricing, right? We had a -- will yield about 5% net realized price increase, maybe slightly above that this year. And so that's a pretty good year for us. I think historical averages are about 1.5% to 2% yielded price that we see when we look at historical year. So as we move into next year, I still think we have a lot of leverage to raise price. We certainly have good fact patterns on why we want to raise price. We'll work with our customers on those share that information. And I think we'll obviously have a good price increase here in 2023 as well, and this will be something that everybody can live with.

Got it. And then just finally, to kind of a bow on 2023 conversation. Just your guidance for this year implies gross margins, op margins down decently in 4Q. Why or why not? Is that the right kind of jumping off point for next year? And any kind of thoughts around margin expectations in the next year.

Okay. So I talked a little bit about Q4 and what we're seeing there. As we've gone through the year in Q1 and Q2, we had price increases that launched, and the FX situation wasn't quite as bad and challenging for us. And so margins were quite good for the company in the first half of the year. In the second half of the year, we knew even coming into the year, a couple of things were going to happen. One, we carried quite a bit of inventory into the year from 2021 that we purchased at 2021 prices. So it was kind of the pre heavy inflation time. And so we've been able to -- through the first 2.5 quarters of this year, really burn off inventories that we purchased at 2021 value. So we're on a FIFO methodology, makes sense. So what that means is in the third quarter, we received -- we experienced about half of the increase that we're going to experience in 2022. And in fourth quarter, we're going to have that full impact of the inflation there. So that's one item that's going to cause some challenges for the fourth quarter. The second thing is, obviously, foreign exchange. So foreign exchange, we've seen a massive impact. We saw a 6-point impact on our top line. We do have a partial natural hedge because we've got manufacturing facilities in Europe, and we've got also a selling organization there along with Asia and India. But that's probably going to cover a small portion, right? So say 80% of that FX impact drops through to the bottom line, we're going to see a little bit of volume deleverage with our guide implied revenues in Q4. So we're going to see a little bit of volume deleverage there. And we're also going to be absorbing all of the capacity expansions that we've done in and done. So it's facility costs. It's the lease costs around that, its utilities. It's janitorial. It's all those different things that go with supporting that. And it's also the depreciation on the CapEx, spending $85 million of CapEx this year. That depreciation is going to flow through our P&L over time. And so we do have a lot of capacity. We've got some excess capacity because obviously, COVID has come down as well. On the fixed side, we're not going to be staffing all the production lines because we don't need that. We don't have the volume yet. But I think everybody who knows the industry and has heard me say a bunch of times, we've got enough capacity for 3 years and then 1.5 years later, we're adding more. The capacity can fill up really fast in this industry. And I think indicative of what I talked about in systems earlier and things like that, I think our strategies are right. I think they're going to continue to put us on the forefront with innovation and continuing to grow the company. So what will happen over time is we'll wind up growing out of the margin compression over time with volume and leverage and things of that nature. So the Q4 point that you made about margins being down a bit, that's a legitimate concern given the factors that I've talked about, positions us really well for the long term. And I think that probably will be the appropriate starting point for next year. And I hope -- as things hopefully get better in the second half of the year with volumes and whatnot, that we can continue to drive margin growth out of that. And I do want to remind people margin is one of the things at the forefront of our minds. It's an important thing for investors. We did over the 3-year period, '19, 2021, we grew our operating margin by 1,180 basis points. So it's something that we're cognizant of, but it's really important that we're continuing to reinvest back into the business for long-term growth. And I know that's a priority.

I guess just one follow-up on that. I have another kind of quasi bioprocessing peer of yours came out last quarter and kind of said, there were some productivity gains because we're making a lot of the same things for COVID. Do you think you saw anything like that from your portfolio? Or is it so many different products that not so much?

I think some of the products that we ship into COVID are higher-margin products that we have in our business. Generally speaking, consumables generally tend to drive a higher volume than, say, systems, right? And so there could be some mix challenges. But some of the backfill on that with base business is going to be in...

Same thing.

In the filtration lines. Some of it -- maybe we make up for some of it systems in other areas. But we're not anticipating a huge mix impact from that, I think, is what you're really asking about, and that's something that we think we can absorb and move done. But we're going to be able to give you a lot better perspective on that whole impact here in February.

All right. I do want to get to long-term drivers, but one last question. You mentioned $2 billion by 2027 to 2028.

But wait, there's more.

There is more. you mentioned $2 billion by 2021 to 2022. So let's talk medium term. There's also $1 billion in 2024. Just any -- given where numbers are for 2023, that would seem to be -- you'd have to have a really good growth year in 2024. I know you're not guiding to that yet, but just any thoughts around that $1 billion and I have question on that. I have a question on it.

Yes. I mean I would kind of change the guidepost on that I think we're going to see how things play out here in 2023, obviously, with the environment in hand, I think you can expect us to continue to grow above the market. I'm not going to make a commitment on whether we're going to be there or not. There's a tremendous headwind here on FX, on COVID and other things. And I think if we're not there, I think we'll be relatively close to it. And obviously, our commitments now shifted to '27, '28. And that's not why we put the '27 '28 number out there. But aspirationally, I think that's a really good place for us to be. And you'll continue to see good growth out of the company compared to market.

Put another way, I'll get that guidance in '16,15.5 months? Maybe I'll see if there's any questions in the audience. Any questions before I kind of move to kind of higher level long term? Okay. All right. Let's talk about things that are not 2023. Biosimilars. I think, well, I said not 2023, but 2023 is kind of the beginning of the wave of biosimilars coming for the industry. Can you just talk about how big of an opportunity that is for Repligen, especially when we think about some of these larger biosimilars that could come to market, kind of what areas of the portfolio most suited to support those?

Yes, so I'd first start to say when you think about biosimilars, you're probably looking at drugs that are going to expect to be high-volume drugs, right? And people are going to go after those with the biosimilars. So I know certain drugs out there HUMIRA, obviously, being one. A lot of those biosimilars were basically designed and spec-ed in many, many years at this point. I think AbbVie has been pretty good about defending their territory there. But some of those products were developed before Repligen's products came into being, right? So a little bit earlier days. And we probably have some products in some of those, but those products are going to come in. But anything that's kind of coming in after that later developed in the last 5 years. Very likely has a good ample supply of our products in there because people are trying to do with biosimilars, that take old manufacturing processes and make those products a lot cheaper now with the new biosimilars. And so we'd expect to be spec-ed into those. And those are a great way for us to be able to take share out of those big drugs that are in commercial. And so it's an avenue for growth with us. Things would be spec-ed into biosimilar the same way they spec-ed into any potential new drug that's coming down the pipeline. So great opportunities for us and we'll definitely get our fair share of market in those. And we've done really well. I mean if you look at our success, we've done really well at getting specced-in into process development and early-stage clinical and -- we're going to continue to see us ride that wave up with more and more drugs coming through into commercial.

Got it. And then the other thing that we've talked about off and on over the last, I don't know, 1.5 years, 2 years is what you just referenced, which was a lot of the products that you're selling today have been seeded in the last 5 years. So you do support commercial therapies, but you've got a lot in clinical. Can you remind us of that mix? And then how powerful that could be if that starts to flip to more commercial over the next 5 years?

Yes. So yes, currently, our mix between clinical and commercial, excluding COVID, I think it's appropriate to go at it that way. It's about 65% of our products we sell are going into process development and clinical stage activities, which means about 35% is in commercial. Again, this is because we're a bit -- I'm not going to say we're a young company, but since we got out of biotech into bioprocessing, it's really been in the last 8 to 10 years, right? And so a lot of the technologies that we have are newer. They're getting spec-ed into those clinicals. We'll be able to ride those up through commercial. And every year, from a company perspective, you'll expect to see 35% commercial go to 36% to 37% to 40%. And so we'll inch up every year with more and more commercial. And that's really because you'll get a nice exaggerated or significant volume increase. As products move into commercial, you're doing a lot more runs, you're using larger scale products and you're producing a lot more product there. So that will be a nice advantage for us. And I think we've been seeing that over time as well, over the last several years, which is part of the reason our growth rates are a bit higher than some of our competitors. And I think a lot of our competitors are in the opposite situation where they probably have a much heavier amount in commercial than they do clinical. So again, being a young company has its advantages, this being one of them.

Yes, that makes sense. And then the last couple of years, I think you guys have really doubled down and focused on the system strategy. So I guess 2 questions there: Why are systems so important for your customers? And why do they want them? And for investors, why should we be focused on that as an opportunity?

Yes. So from a customer perspective, our systems really make their lives easier. If you think about customer buying a flat sheet filter or a halo fiber filter, somehow you have to get fluid to that product, right, through the manufacturing process. And that's what systems do. So if you can produce systems, you can have our flow path with it, single-use flow path attached, you suddenly created an integrated solution for the customer. So they don't have to go out and buy somebody else's system or cobble together their own system to move fluid around, you've given them the full solution. Those resources that do kind of work can then be redeployed into R&D and into other areas in the business that may be more value added for the customer. I talked a little bit about -- so I think that's a real advantage, right? And I think that also drives additional revenue streams because right now today, we don't have a lot of flow path business, right? So that's going to bring in an additional consumable flow path that could be a significant price point. Every time the customer does a run mill, they'll use 1 of our flow path as well as one of our filters chromatography column. So that's great. And I guess, did I cover the last part of your question?

I think -- I mean you could tell me how large systems could be on a revenue base? Yes, yes.

Well, I'm not going to give you that. But the other thing I did want to mention, sorry, I got off track there is the holdup volume issue, right? And so -- we've talked about hold-up volumes before. It's important that you don't leave fluid in the system or not get the fluid process through the system. And so our systems are designed well, they're easy to use and easy to control that kind of thing. So that's going to be helpful as well. And then quite simply, with single-use systems, the ease of changeover, right, from going to 1 drug campaign to another -- all the new -- many of the new, most of the new manufacturing plants are in small rooms like the one we're in. And they're running everything at small scale. A lot of them are running in perfusion based or continuous flow. They're going to want to manufacture a lot of product in a small area as quickly as they can. And they want to have a lot of -- they want to limit idle capacity or idle time, right? And so being able to transition those systems over from campaign -- drug campaign, aided drug campaign B, within a very short period of time, our systems enable that with the single-use nature of the flow path. So that's just another nice convenience for the customer. In terms of dollars, I am not going to answer that question, but I appreciate you asking it. But let's put it this way. We're a fairly early days in our systems. I mean we've been putting a lot of smaller-scale benchtop in place. We're a little very early in -- early innings in bringing larger scale systems into market. So there's a lot of room there for us to continue to grow that business.

Got it. Yes. When you do see them in person, you see how easy it there's kind of snap things in place if that's going to come to life. But just on Artisan, I think when you bought that, which is 1 of the key pieces of the system strategy. I think it was a lot of custom systems for people and you guys work to kind of standardize them and have a more off-the-shelf version. Can you just talk about how that journey is going. And that's probably making a lot of the same things, very a little bit different than what they were initially good at. So how is that kind that pivot done?

I guess I can liken it to just about anything I've seen historically in my career. When you have a customs business, it's hard, right? It's -- you're trialing things on the fly, you're trying to build something to customer specs and you can do all the research you want, things happen. And so it's -- I would say it's not a highly repeatable process. In addition, when you're focused on customs, you get no synergy benefits of I know how to make this system, but it doesn't apply to this customer, right? And so when you work with a model like ours with standardized systems, with sets of standardized features and configuration upgrades, you can get the benefits of repeatability, the benefits of synergy in your manufacturing process, the benefits of not having all these oddball pieces of inventory laying around and trying to manage your working capital that's really challenging in a customer's business. So I think there's a lot of upside to that. And I think the features and benefits of the product, I know Tony has referred to the Artisan systems as Ferraris, right? And very good systems, and now we're actually standardizing that and making that much more applicable to be a scalable business for -- we're very excited about that. On top of the -- as I mentioned earlier, the ability to start to integrate our process analytics platforms in there and give people real-time, in-line readouts on what's going on in their workflows.

I want to get to the process analytic piece of that because I think that's super interesting. The other kind of key piece of the system strategy over the last couple of years is fluid management, EMT, NMS, Artisan maybe had a little bit of it to Yes. So tubes, clamps, bottles, BioFlex. Yes. Yes, BioFlex, yes, I forgot that one. So a number of these deals kind of buying things that maybe are different than some of the more technology-driven deals you've done but there is a strategy around fluid management that fits within systems. So can you just talk about what those deals have added and how much more you could do there in terms of an M&A strategy for every segment? I know fluid management isn't 1 technical yet, but it certainly seems like it's heading that way.

Yes. So if fluid management is highly untapped in terms of flow path business. But what we started out in 2020, looking at wanted to buy, obviously, by systems business, which we were able to accomplish in December, but we also have the vision of being able to create a flow path business to go along with. And so as a starting point for that, if you want to have a profitable flow pass business with good margin, you need to own some of the components of that because if you're just assembling a similar margin, it's not the type of margin that we want to have, so -- and that you want us to have. So we went out and started picking up at reasonable prices, component businesses in the market. And so we've made really I'd say 3 specific component acquisitions and then 1 combination system component business. And so with those components now in hand, we've quickly moved to start to set up assembly centers, to now be able to our own flow pass. And we staff the assembly centers. We've got great leadership in those businesses. There's a huge opportunity now to sell flow path for every system we put out into the market and also to go after our systems that have already been placed in the market over the years and bring flow path's out with those. So that's another nice new revenue stream for us. We'll still continue to sell components into the market from these businesses because -- that's another nice revenue stream. But we think this is now a much more scalable business and has the opportunity to be highly profitable and also priced at a midpoint where we can compete. And we will also sell flow paths to customers who don't buy our systems. We're happy to do that as well. And you can do that in volume. When you think about the number of runs a company might do in a year, that could be a lot of flow paths and a lot of revenue. So we're about a $50 million company right now in this business. It should be able to grow nicely above market over the -- in the future. And we're -- obviously, we're starting from a reasonably small base right now.

Yes, and then process analytics, which you alluded to earlier, I think CTech has performed well out of the gate. But I think when I hear Tony talked about process analytics, process analytics, you guys did this daylight partnership. Tony was very excited about that at your Investor Day. If Tony is excited about something, that means we probably should all be paying attention to it. So can you just talk with that process analytics so can you talk about process analytics and where you are in that journey of integrating them into systems and what that could look like over the next 5 years?

So process analytics itself in our business, in particular, when you talk about in line, it's early innings, right? It's probably the first setting of its evolution of if that it's like 1 out in first being adopted into CDMOs and bioprocessing manufacturing process. So it's a great opportunity for that. we're selling in line. It's getting rave reviews, so it's helping our customers. The whole industry is going to be moving to more closed-loop manufacturing systems. They want real-time information, right? And so this business gives them access to those, along with the -- obviously, along with the daylight solutions, which gives us access to some other different opportunities there. So great opportunity here. As we think about building that into our systems business, we're in the middle of that right now. We're starting with the smaller scale systems and building the inline in my process measurement capability in there. And we'll scale that up until the larger systems over time. So it's just another further point of differentiation and I think we've been good over the years at looking into the market and defining where the opportunities are, where is the market going and really trying to get ahead of that with things like single-use in the same-line analytics is just another great example of that.

Got it. So maybe last question, proteins, filtration, chromatography, process analytics and we'll throw in fluid management as kind of the other kind of piece of the business. Do you need to add another leg to the stool? Or do you think M&A and kind of organic investment is largely going to focus on those existing verticals, going forward?

Yes. So we love the verticals that we have. And each one of those verticals has its own defined strategy. It's got its own M&A strategy. We know what, bits and pieces we'd like to add on to. So we'll continue to focus our efforts on looking for M&A opportunities that further supports those businesses. If there's other opportunities within bioprocessing that kind of fit the mold of what Repligen's trying to do, be highly differentiated, brings solutions to our customers, obviously we're going to take a look at that. So we're not limited to the 4, if you want to call it, bioproduct areas that you talked about, we're obviously open to looking at things outside of that. But we love the franchises that we have, and I think they've each been quite successful over the years. And we want to continue to build on those too.

All right. With that, we've hit our time. Jon, thanks for being with us in Nashville. Always a pleasure.

Thank you. Thank you, Jacob. A pleasure. Thanks, everybody.