Repligen Corporation (RGEN) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. Thanks for joining us. We're going to get started. Welcome to the Jefferies 2023 Global Healthcare Conference. I'm Brandon Couillard, I cover the life sciences space. Very happy to have Repligen with us back at the conference this year. And here to share an update with us, Jon Snodgres, CFO. Jon?

Well, thank you, Brandon, and good day, everybody. Pleasure today to be here to give you an update on Repligen, and how we continue to move technology forward in our industry to become a leading company in bioprocessing. Sorry that we have to do it right after lunch. So hopefully, everybody has got a little bit of energy to get through this. No food comas here. Anyway, really quickly, I'll start with a company overview, talk a little bit about how we've developed our portfolio and our customer base over the years, and we'll get into some of the more detailed stuff on technology. So I think this chart does a reasonably good job of kind of depicting what we've been doing and the results we've been achieving. But if you take a look at us and talk to our customers, talk to other investors, we hear a lot that the industry views us as the leader in the bioprocessing industry in terms of technology. We've been focused over the years in finding pain points in the manufacturing process of our customers and helping them solve those problems to drive higher manufacturing yields, more flexibility, easier scalability and things of that nature. So -- and I think we've been relatively successful. If you take a look at this chart, you can see in 2022, we've grown the company to $802 million. A little bit hard to believe. I know back in 2014, when I joined the company, we were about $50 billion. So it's been an impressive feat. Overall organic growth last year was 22%. And if you strip out the COVID impacts, we grew our base business 39% organically last year, so pretty impressive numbers there. Taking a look longer term, you want to look at a 5-year window, 45% overall CAGR, and our average organic growth of -- or our average growth of our base business, 26% over the last 5-year period. So it's been an impressive run. And it's really indicative of the technologies that we have, the execution that we drive through our commercial teams in the marketplace and through our operations. We've done a lot of this through M&A. We also do it through our R&D efforts. And you can see here, M&A deals, 9 since 2016. There's been 12 of them since 2014. And we've brought to market 10 really disruptive new technologies, things like single-use ATF, single-use TFDF on the upstream clarification side, products like our analytics systems, process analytics, FlowVPX, other products like that, that we brought to the market. So really changing the market over, at this point in time, is, looking at '22, 7% of our revenue had come from products we had launched in the 2-year period, '21 and '22. It sounds like a small number if you're in automotive industry or something like that. But in our industry, that's a really significant number and that continues to grow as we'll talk about when we get to the first quarter. Overall, our mix of where we're selling our products into still remains in a very good position, and it's kind of inverted versus most of the peers that we have in the market. 65% of our sales go into commercial drugs -- excuse me, clinical drugs 65% and 35% go into commercial. So we have the nice luxury and are well positioned to be able to take those different drugs and ride them up through commercial -- or through clinical Phase I, Phase II, Phase III and up into clinical where we get into larger sizes with each acceleration there. And we also get into more and more runs using more and more single-use type components. So I think we're really well positioned for the long term, and you can see our track record is quite interesting and significant. So next, we'll take a quick look at the -- at basically our piechart on how we've grown from 2017 at $141 million to $802 million in 2022. Some of the significant adds here are really bringing process analytics into the fold in our portfolio for the first time back in 2019 with the purchase of C Technologies, our FlowVPX, SoloVPE systems represent that particular area. And that's going to be a key for us in terms of evolving technology as we go forward. We'll talk more about that here in a few minutes. We've also doubled down on our proteins business over this period of time. We used to be basically a CDMO or a contract manufacturer for GE back in the day and Millipore. We now own most of the IP in that portfolio as GE or Cytiva starts to in-source their ligand manufacturing. We've partnered with Purolite. They have a great deal going there. And we've doubled down on our proteins business with the acquisition of Avitide. So we're able to get into more gene therapy resins and other types of resins that we think we can grab share in. I'd say also another key area here is in our systems business. So we acquired a systems business back in 2017 with Spectrum. We've added on to that with the acquisition of ARTeSYN in 2020. And what we've been able to do with our systems business since that time is really create industry-leading positions in some of the systems that we have. The ARTeSYN systems, Tony Hunt refers to as the Ferraris of systems in the industry, simply because they just have exceptional technology, and they drive single-use Flow Paths and things of that nature, which are great for customers in terms of flexibility and drive significant revenue streams for the company. So it's an important component of our overall growth. And then finally, the fluid management business. So a couple of years ago, we didn't have a fluid management business. We began to pull together some acquisitions and buy components of fluid management. Now we create fluid management Flow Paths and have built that business out. And that's going to be a nice revenue driver for us as we move forward as well. So just some of the key highlights there in that particular area as we continue to build out a very robust platform for the company. This is just taking a bit of a look at revenue distribution. I'm not going to go into too much detail here. If you looked at us a few years ago, we had a very small sliver of systems. So we were basically selling consumables or razor blades into the market without owning systems. So we took a different approach to this. We have acquired some systems. We've further accelerated the advancement of those systems in the market. Now systems and equipment represent 25% of the company's revenue. And you're saying "So what? That's a nonrecurring revenue stream." The point of this is, is those systems drive Flow Path consumables, they drive component consumables as well. And so those -- that's a real nice driver for us as we move forward in terms of our consumables business. It ties together nicely. Revenue distribution by customer type, not a lot of surprises there. A big chunk of that's in biopharma and CDMO, also integrators. But if you look to the right, I think one of the things that's important to point out is the top 2 smaller components of the bar graph on the right side, is we have a significant business in cell and gene therapy. So newer emerging class of drugs. We have about $115 million of revenue there last year, very fast growing, much faster growing than the mAbs market. And we've proven that our products work well in that particular modality -- in those modalities. So pretty exciting news there. And then with the COVID, we were in vaccines. But what we've proven through being in the mRNA vaccines is that our products work well and are very well suited for mRNA and that opens up a range of possibilities that we'll talk about here in a few minutes. So now just taking a look at our markets overall. Here we go. So starting with a quick view on the modalities here. The top is monoclonal antibodies. Significant market, right? This is the end drug market, $150 billion, over 145 approvals here in the U.S. And you can see the pipeline of prospects in clinical, which is just very, very significant, giving us a nice platform for potential growth as we move into the future. Cell and gene therapy, maybe even more interesting, much smaller segment of the business but growing at over 25% annually, that particular market. Only 15 approvals, 10 of those are in cell therapy. We're a little less prevalent, 5 in gene therapy but this is a quickly emerging market. We're well positioned to compete in this market because there's just a lot of the manufacturing process has not been established yet, and there's not a lot of incumbents in this space. So we're able to compete very well here. And you can see the pipeline of cell and gene therapy prospects here is significant. So really great markets to be present in and setting -- again, setting ourselves up for a nice growth here going forward as we've seen in the last many years. So I think it's important on this next slide to take a look at biosimilars. It's part of the mAb environment. And you see a number of drugs that are starting with Humira going down through Rituxan. These are drugs that have recently come off patent. And you can see the number of biosimilars, 17 -- 15 launched, 27 approved biosimilars chasing after the market share for these big originator drugs. It's interesting about the originator drugs. We have very little content in the originator drugs simply because 25 years ago, most of our technologies didn't exist. Repligen didn't own a lot of the technology. So all these biosimilars coming through the clinical pipeline give us opportunities to give our products specced into the new manufacturing process for the biosimilars. And that's really a fast track on our way to being able to capture some of the commercial share that may have been held by the -- all the companies that were participating in the Humira drug. So big opportunity for Repligen here. mRNA is just another area where we have nice growth potential and opportunity. If you look at some of the names on this quite little companies that are named on this chart. A lot of big players here in this space really working on future vaccines, similar to what obviously we've done with COVID but also working significantly on cancer therapeutics in this area. So the demonstrated success through COVID has really created a big emergence in mRNA. Our presence in those vaccines is good. And it also gives us a very, very nice opportunity for long-term growth here as mRNA continues to move itself forward in terms of viability in the markets. I always like talking about this chart. It's a total available market chart for bioprocessing. It's $23 billion. Now we don't participate in $23 billion worth of bioprocessing. We participate in just over 1/3 at about $8.5 billion. And we continue to compete with our technologies in this space, and we continue to gain market share year-over-year. To the point where -- now where we actually have a double-digit market share in the lower right, calculation 9% to 10% market share, again, being a later entrant into the bioprocessing area and having most of our technologies introduced into bioprocessing in the last, say, 5 years. That's a really impressive statistic for gaining market share there. So just another indicator of a good opportunity that we have, a big market to compete in at $8.5 billion and good market share and good trajectory there. So I'll touch really quickly on our blueprint for success. You guys have seen these charts before. They haven't changed. We're pretty consistent about how we compete, how we go to market and how we're successful. So taking a look at the strategic M&A has been, and we expect will continue to be an important element of our success. So going out and finding technologies that we feel can be differentiating in the market and help our customers drive better process and economics in their manufacturing flow. Same thing with R&D. We continue to develop products internally. We continue to evolve products that we acquired through internal R&D efforts. And so continue to put great products in front of our customers. Adoptions have been good, and that's another key driver of our growth, and we'll cover these in a little bit more detail. And then, of course, operational excellence. If you can't produce the product, well, you might as well not develop them. So have to have good operational excellence, good lead times for customers and good sufficient capacity to be able to deliver products. So a 3-tiered approach and it's been part of our strategy for a long time. So quickly, we'll take a snapshot at the M&A piece of that. This is just a snapshot, I think, of 10 acquisitions of the 12 we've done over the -- since 2014. These just happen to be focused on filtration, analytics and fluid management. In filtration, in 2014, we didn't have a filtration business. So to be able to build that business to almost to that $500 million range, a very impressive feat. And you can see the rapid trajectory of growth. Those businesses when we acquired them in Filtration were just $60 million. Now they're $500 million approximately. So really nice growth. And it just shows when we make a deal, we do our homework on making sure it's great technology, make sure we can grow the business, make sure we can do it profitably and be accretive to the company. And so we stick to our knitting very well when we do acquisitions. This is a good indication. Process analytics is a game changer it's in its early days of being out in the markets, but the FlowVPX technology, which is the in-line measurement, allows companies the opportunity to manage their production flow much more expediently and be able to keep things in line, improve yields and everything else that goes along with that. So that's going to be game changing. We'll talk about how we're integrating that into our systems and whatnot here in a little bit. And then Fluid management is a little bit the later development for us over the last couple of years, 2 to 3 years. We acquired a bunch of component businesses, components which go into Flow Paths. And so this ties nicely into our system strategy. Now we have created Flow Path manufacturing in the U.S. and Europe along with owning a number that goes in 2s. So we have a nice margin performing fluid management business as well. And we expect this business to grow really well as we go forward. And we'll talk about that in a few minutes. Actually, we'll talk about it right now. So next slide is just a summary of our fluid management business. You can see on the left side, some of the different businesses that are in there. All different technologies. What we consider best-in-class type products in fluid management. We've then built out our assembly centers through capital expansion in Ireland and in Hopkinton, Massachusetts. And we expect, obviously, this business to continue to grow like all of our businesses. We're projecting this business -- this will be a $200 million business by the year 2027. This is nice because it couples greatly with our systems business. We sell systems. We sell the Flow Paths with the systems. It's a nice way to drive growth. And you'll see how this becomes part of a larger integrated offering as we move forward in the presentation. So next, R&D innovation. You can see some of the first to markets and things that we've brought out for competitors. They're game-changing technologies that drive improvements in the manufacturing process, upstream process intensification, downstream systems and single-use products that we've brought out to market and then differentiated analytics products with our C Technologies and fluid management products that really support our systems. So key to being first to market, just like any drug, you want to be first out, same thing with technology in the industry. You want to be first out. You want to grab market share before anybody knows what you're doing. This is just the operational excellence piece, capacity expansion. One might argue that we have a little bit too much capacity now with COVID coming down in our business over the last year or 2. And that's true, but we have capacity now to be able to grow for 3 to 5 years without having to add significantly more capacities. So we're in a great position here. We can control the variable cost component of this with people, when we need them, we add them, but we have the fixed capacity available to rapidly grab and accommodate market share and volume as we want to move forward. So now we'll jump into these more integrated solutions and how we're setting new standards in the overall industry. So the goal, again, as I mentioned earlier, is really to be first to market with solutions that help our customers before anybody sees or knows what we're doing and then go ahead and grab share while we're at that. You see a number of the products here on the upstream side, ATF, single-use TFDF, really game changing for our customers in terms of improving process intensification and it's been a big differentiator for many companies, and you'll see some customer testimonies here in a minute on that. And then on the downstream side, the low hold-up volume systems that we produce at ARTeSYN. We've created standardized 0.25 inch, 0.5 inch, 3/4 inch and 1-inch systems for chromatography and for filtration. These can be scaled all the way from process development all the way up through commercial manufacturing. One of the huge benefits of these is low hold-up volumes, which basically means you don't waste a lot of product when you stop a run. And so it's a big deal. Customers like it. You can see the RS 20 system there that's specifically designed for cell and gene therapy where you're doing small runs and having a lot of waste product there is even worse. So big benefit products here. And then the Solo and FlowVPX that's shown here stand-alone, and we'll talk in a minute how we're integrating that into our systems portfolio. So one of the things I was going to talk about was customer testimonials on the ATF and the TFDF systems. These just happen to be a few that have partnered with us to do experiments to put this technology in their manufacturing lines, Samsung and McGill University as well. And you can see the amount of improvement they've had in yield improvement and time and cell density, et cetera, significant drivers in the industry. And anytime you can have your customers selling for you and marketing for you, that's a very positive dynamic. So really pleased with these particular products. We have a lot of customers that could say the same thing, but it just gives a good indicator of why these products are being successful in the overall market. So next is downstream, expanding our presence downstream. You can see a couple of systems here at chromatography and a filtration system, high-end systems, best-in-class type systems, running Repligen Flow Paths on it. So you get a single-use consumable every time you use it, not only the Flow Path, but also the filtration or you'll get -- or you use your chromatography columns on these. Also, we're moving in towards making all these things PAT enabled, which is process analytics enabled. So it's one thing to be able to view process analytics and how is your product doing. It's another thing to be able to take that information and modify and change your manufacturing process, tweak things early in the process to be able to improve yields. And so these systems are already best-in-class with PAT being involved in the smaller benchtop version now and a big project this year is to get that put into all the larger scale systems. So now they're scalable all the way from process development, all the way into commercial manufacturing. Innovating in gene therapy and mRNA. So this system is the RS 20 system. We talk about low hold-up volumes and that being a big deal. These particular drugs and therapies run in small volumes. So any time you have a bunch of hoses out there that are full of fluid and whatnot and you shut the line down, you throw that away. You're wasting product. And so we've made this compact, not a lot of tubing. We've used pinch valves and other overmolding technologies and whatnot to limit the amount of product that remains in the system at the end of a run, which is a big benefit to our customers. This has just recently launched, is getting great traction in the market. So just another way we're innovating with technology and driving benefit to our customers. So we're almost there. We've got 1.5 minutes left. This just talks about integrated solutions and how we're changing the market. Take a look here, what's on the left side of the page is what we used to go to market and sell. We used to sell unit solutions. And now more recently, we're now selling systems. We're selling the Flow Paths that connect the systems to the unit solutions, and we're starting to integrate advanced analytics into those systems. And so that's really game changing for customers. Nobody has the capability to put those analytics in the systems. And our -- again, our fluid management side and systems with low hold-up volume, give those benefits. So we think this is a great recipe for success going forward. And then, of course, the continuing ability to have Flow Paths and the consumables go out with that and long term be provided with those systems is a big deal for us. Many of those being single-use type products. So I'll close real quick with an update on financials for Q1. Given the current environment, we're in the midst of an industry reset. I think all of you know that. Post-COVID, a lot of inventory built during COVID. That's being burned off by our customers. Still able to grow our base business at constant currency and organically at 7% on a year-over-year basis, which is really good. We declined in COVID by $30 million. Next year, we don't expect we'll have any COVID volume. So we're burning that down, and that's just a circumstance that we're in right now. But our base business continues to do well. You can see here, cell and gene therapy orders increased 40% year-over-year. Process Analytics orders increased 30% year-over-year. Cell and gene therapy was versus Q4, excuse me. And we've had some headwinds in China. So it's a little bit of the Whac-A-Mole, as Tony says, with some things going up and down. But the industry is starting to correct in a lot of areas, and that's a very positive thing through the May earnings call. And then from a new products perspective, I said 7% on the first slide of our sales in last year were in new products introduced in the last 2 years. That number is up to 10% in the first quarter. So a very good indication that our emphasis on technology and focus on the customer needs is driving improvements in our business and setting us apart. This is just a snapshot of our guidance as of our Q1 call on May 2. Growth in base business expected to be 4% to 8%. But overall, with the decline in COVID, our revenues are coming down a little bit. We're seeing some deleverage on our factories, just compressing our margin a little bit, especially as we've built out additional capacity. The good news is plenty of capacity for the next 3 to 5 years and incremental volume as it comes back in at the higher contribution margins that we see without having to add fixed cost should enable margins to be expanded back up over the next few years as we continue to grow. So I think we leave the business here in this presentation in pretty good shape, well positioned for growth overall. You can see some of the bullets here. Continue to focus on the long term. And yes, continue to be focused on $2 billion in that '27, '28 time frame as our overall objective for the company. So with that, I want to say thank you, and I appreciate everybody's attendance and all the questions that we got today.

Great. Thanks for being here, Jon. You have a great day. Thank you.