Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Does that give you pricing power because you're already in there? And when do those pricing conversations start? Is that in the preclinical? Or is it when you kind of get to that next phase?

Look, I think in any sort of ramp up, there's always an implied volume price correlation, right? So I think the dialogue is more about not -- okay, if we're spec-ed in, here's where you're at, but how do you see volume growing and with volume growth, and we're able to provide better pricing or maybe more discount, if you will, off of the list prices that we have. But again, we're going to price it in a way that's attractive for them to trial, right, and bring our process in. We're going to say, hey, it's a small run as you go through the phases, prices accordingly and then with the idea that at a commercial level, the volume is going to be a different game.

Great. Now just getting to Q1 and guidance for the year. There's -- the book-to-bill has been talked about a lot the last 5 quarters, and I think you probably before that, you guys weren't asked about book-to-bill in 6 years or 10 years. So just walk me through what gives you confidence there's a small step down in book-to-bill. And should we be concerned about maybe that means there's some softness? But at the same time, you've got a lot going on between the proteins business rolling off and then you've got the COVID business no longer there. So just what should we think about from that book-to-bill? And what gives you confidence in hitting numbers this year?

Yes. I mean we were sharing with some of the earlier discussions this morning. I mean, we're like 0.993 or something. So like we are so close to being able to round to 1. We're like, well, okay, to us, a point where we were at 0.99 was the same as 1, and that's why we were thinking about really the first half, and then we shared that for the first last 9 months were 1.03. I think that -- all that said, I mean, really, it's book-to-bill as your orders -- as you guys know, orders to your revenue, the way for a higher book-to-bill could have been to have lower revenue in the first quarter, right? So -- and we're only sequentially versus fourth quarter, we were down about 3%. And orders, if you take out really proteins, we are flat. And so for us, I thought we were comfortable with where we landed. Again, a 0.99 versus 1. And I know that, that -- there was a lot of reaction to that and that small difference. But I think for us now, it's about do we have the orders and trajectory on the orders in order to deliver the revenue guidance that we've shared for the first half. We've talked about 300 to 310. So that implies, call it, some around at a mid point, call it, 150, 455 for sales in the second quarter right? So it certainly as where we stand today, we have line of sight. And then really now, it's the next few months of taking orders in, in order to have to deliver the second half. And where that book-to-bill now lands for the second quarter and the third is less about the book-to-bill and more about the absolute orders that we have and the backlog we're filling. So look, we continue to push commercially with our customers. And -- but it will be a mix of what we can deliver as well as just that overall market demand.

And the headwind from the protein side, can you just walk us through the absolute number? And why is that there? And should we have confidence that that's not going to be a headwind beyond this?

Yes. It's a great question. And I think it's for us, it's fairly unique to Repligen as well as a 2024 headwind. And so there's really 3 pieces to it. We talked about the Cytiva business that we've been a big part of the partner with them for years and years. They've also been in-sourcing over the last several years. That finally has now reached a point where anything we sell to them is de minimis, but we still had $10 million of revenue in 2023. So that -- so again, as you go into '25, not a headwind. The other piece of proteins is there was one of our partners did announce the discontinuation of a couple of other products that we support. And so those -- those move out. Again, we don't see that as a headwind. We're not aware of any other major discontinuations. And then the third piece is one of our key partners that we've really putting our efforts into growth with frankly, I think, built up more inventory in 2023 than they had expected. And so that's now -- it's kind of another form of destocking. It's not the famous COVID destocking, if you will, but an element of that. And again, they have line of sight to get through that inventory in '24. So then as we go into '25, we put behind -- there's no more Cytiva headwind -- the discontinuation is over and we're back to growth. And that's why we've talked about being back to double-digit growth on the proteins franchise in 2025.

Great. And can you just -- any update on China? That's -- you've got -- you're really strong in the first half of 2023 from a sales perspective. So you've still got another quarter of comps. But is there any movement there? Anything that you've seen out of China that gives you confidence in a rebound in that?

Yes. Look, we will be -- China will be about 5% of our sales in 2024. It was 7% last year, right? I think our view is that, that it's sort of bottomed out, if you will, in '24. I don't know that we are bullish yet next year. But I think the headwind that we've seen this year going from 7% to 5%. Certainly, it's is less of 1 in '25. I think there's still a lot of shaking out on biosecure. I don't know if everyone heard too, but this morning, he talked about now grandfathering things into 2032. So again, more time for company that's the latest proposal that's being voted on. So more time for companies to sort through that. We also, again, have the advantage that if we're in the process, even if the production leaves China and ends up in another country, another company, we'll still likely follow within the production side. So right now, our view is that there's still going to be long-term opportunity, but whether that shakes out much in '25. Right now, we wouldn't be basing a lot of growth in our outlook for 2025.

Great. With just over 5 minutes this is a chance. I don't know if you weren't here last year, but I'd like to have a little bit of fun with you guys. And so for the last 5 minutes, I'm going to test your problem solving skills, your ability to multi-talent -- is under pressure. So you get to work on this rubric cue while I continue to ask you questions you could finish that 5 minutes.

This is -- so my days in the '80s.

So let's see how far you get in 5 minutes good. And so now the most common question I get about Repligen is why are -- how is Repligen able to grow so much faster than the bioproduction market?

Yes. It's a speed of innovation, right? I mean it's back to what you asked me why did I come to Repligen? It's that ability to be scrappy to focus and prioritize innovation. And that allows us to get new products out, again, demonstrate benefit. I'm not finding a good side here to actually get done here.

But the leadership skills, the ability to delegate.

That's agreed. But that innovation cycle, again, gives us room to grow faster than the market. And frankly, which, again, at the end of the day, is taking share by bringing -- by again, that higher efficiency, higher yield that we can help for our customers through innovation.

Figured out. Making some progress over there. Capital deployment over the next near- and medium-term, you guys have a clean cash position, how much M&A is required? And it sounds like you guys are in good shape as far as capacity build out. So how should we think about capital deployment?

Yes. Look, the M&A strategy teams executed the last several years is -- has been amazing. And I think the one thing, again, as a new set of eyes to the company is I think Repligen is second to none on the way we integrate the technology within the products of the companies that become a part of the family. And even as I've talked with Tony, the discipline on ensuring that we can bring value to a company, versus all right, it's a high grower, it's accretive to margin, let's buy it and it's a no, what can we do to help it grow and -- or help it integrate with our products. And so that is our focus. We're still very active. We have an active pipeline and always interested to see. But we're not going to settle. I think to that point about discipline, we're not going to settle for something shiny new. We're going to continue to look for the right companies that can be a part of the portfolio. And we have the balance sheet to execute a lot of that, especially the tuck-in sort of bolt-on size companies that we've done.

And on pricing, you guys took -- obviously, during the pandemic, there's a lot of pricing that you guys were able to take. Yes, how you doing over there, Steven. So where does pricing stand now? How are your customers willing to give price? And how should we think about price this year?

So we've shared that we're assuming flat price for 2024. What that really means is a lot of ups and downs within the portfolio and with our customer base. So there's certainly be products that are up, others that will be down. We did increase our prices, our price list and sort of pricing at the end of the year. Some of that will fall through. But we've also been, I'll say, prudent in that as we continue to build out on our key account strategy, right? We recognize that to move the needle on growth for us. We need to be partnered with the big players in the industry and we've added a new commercial team, brought in experienced leaders in that space. Oftentimes, that will come at the cost of more volume for lower price. And so that's why especially also in an environment where the market is still, I'll say, recovering or stabilizing that, that now is not the time to go out and be super aggressive on pricing. So that's why we've taken a prudent view of flat overall. But we certainly will be achieving prices in some places.

And then you mentioned some of the key accounts. If you look at the new modalities versus the mAbs, is there an opportunity for more bundling? Or are those modalities going to require more products from you guys? Or are they going to look to more vendors? And how important is the ability to bundle and offer kind of the complete bio production line on some of those modalities?

Yes, I think one of the things that -- one of the biggest tailwinds of COVID from Repligen was just demonstrating how we could supply in that space, particularly mRNA and that what we can bring to advantage. And so it's that demonstration plus the relationships we have with big players on the mAb space that give us the credibility to say, okay, you're entering in new modalities, we can be a part of that and can help you. And so that relationship and credibility and demonstration of what we've done really forms the foundation of that.

Great. I think that brings us to the end of our time, Steven...

Steven, you got anything? Not even a side?

He didn't even finished a side. Well, I think guys are going to work on that. But thanks for your time. We appreciate having you guys here.

All right. Thanks a lot. Thanks, everyone.