Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Perfect. Good afternoon, everyone. This is Rachel Vatnsdal from the life science tools and diagnostics team here at JPMorgan. I'm joined on stage with the Repligen team. So as a reminder, this is a 40-minute session. First half roughly will be a presentation, followed by 20 minutes of Q&A. So with that, I will pass it to Olivier.

Thank you so much, Olivier. Welcome, everybody. Thanks for joining us today. We are very excited to have you here and tell you more about Repligen today. So just a quick reminder that the safe harbor statement is applying to any forward statement we may make during this presentation today. So who is Repligen? I guess most of you know a bit about us, but it's always good to get a bit of a reminder. We see ourselves really as being the innovation leader in bioprocessing, and we are basically serving any type of pharma, biotech company as well as CDMOs, whether on the hardware side or consumables. Again, in innovation -- you're going to hear me mentioning innovation several times today. It's really our engine, it's our DNA here. We like to disrupt norms. We like to really create solutions that do not exist that will help our customers to generate yield and cost efficiencies. We have a pretty global presence, in fact, almost half in U.S. and half in Europe in terms of manufacturing sites, which can offer our customers security of supply. What makes us a little bit different than many others is we are very much focused on clinical. I mean, about 65% of our business is going into clinical quantities, clinical trials and then certified into commercial. And then the last piece really is kind of probably more the norm, which is where 80% of our business going into monoclonal antibody and the rest going into new modalities. New modalities are very important for us. We'll talk quite extensively about it today. If you look on the right side, we've been really performing above market over the last several years. I mean we just mentioned here the numbers from 2019 to 2024. So that the noise in between with COVID is not too much appearing here, but we literally went from USD 270 million in 2019 to USD 630 million, USD 639 million. We are not reporting out our quarter 4 results today for the whole year of 2024. Again, talking about innovation, we launched what we call about 14 real disruptive technologies over the last 10 years. This is one of the reason why we've managed to generate that 19% CAGR over the last 5 years. So some business highlights from 2024, again, assuming we reach the midpoint of our guidance for quarter 4. So as most of you know, we entered into 2024 with a lot of headwinds, and we knew about some of the market headwinds, but we had our own specific Repligen headwinds coming mostly from the protein business. So at midpoint of the guidance, we would have generated a growth of 2% to 3% of revenue ex-COVID, which in the current environment, we estimate is really a solid performance for the industry. And this is basically really thanks to the main franchises we are dealing with, which are Filtration on one side, Chromatography and Analytics. I mentioned new modalities. It's absolutely a very important business for us, a growth in the range of 10% in the year 2024. And what we like among others is our funnel of opportunities has been growing very nicely across the entire year with a funnel above 50% probability being 15% higher than a year ago. I think the second column is probably the most important of that slide, and we made the math. So we calculated product line by product line. We want to say like about 80% of our portfolio today, we have almost 0 competition or only very little competition. And so that's really how we differentiate ourselves. I mean when you are #5 in an industry and the closest of your competitor #4 is 5x your size, you have to come with something differentiating. That is absolutely critical. We just mentioned a couple of examples of our product line. The ATF technology, which is our process intensification, big differentiator, the prepacked column business. And then even some of the systems we've developed, which you could say could be considered to be competitive with all the systems with other specific features like in-line protein concentration measurements that are making those systems being really very unique. In terms of margin, we increased our margin by about 100 basis points in 2024. And this is coming both from net price realization and also a very strong execution of what we call RPS, which is Repligen Performance System, which is refocusing on continuous improvement, both from a manufacturing, but from an overall cost point of view for the company as well. M&A is the other piece. I mentioned innovation really being in our DNA. M&A is really the other piece. I mean, we've done a lot of acquisitions over the last several years, I'll give you more details in a minute, 2024 has been no exception. We've been able to acquire this Taiwanese company called Tantti, which is now giving us a full play into resins. As you know, we are historically a ligand company with the acquisition of that base metrics, a company in Taiwan. Now we have our full destiny in our hands for the new modality, and that's coming in parallel with the collaboration we have with Purolite on the monoclonal antibodies. And then we integrated successfully Metenova, which was the last acquisition we made end of 2023 on the mixer side. Last but not least, EHS, I mean, that's something I'm really proud about because we are also very active on that side. So a couple of big achievements we had in 2024, reduction of scope 2 emissions by 68%. And today, about 88% of our electricity is coming from renewable energy. So overall, solid performance is what we all know was a really challenging year for the industry. So what markets are we playing in? I mean this is probably something many of you have already heard. I mean, I mentioned 80% of our business is going into monoclonal antibody. It's a USD 250 billion market today with projected growth anywhere between 8% and 10%. A subset of that market is obviously the biosimilar market, which we like to quote out specifically because -- and we call ourselves a 10 years young bioprocessing company. Meaning like for the first generation of monoclonal antibody, very often, we didn't really have a chance to designing our products because either we didn't have those products, or it was really early for -- in the life cycle of the company. So with biosimilars now where the accounts are being distributed, we have a real chance to get design in with our products today. And then new modalities, about $16 billion market today. We know we have a significant market share on that side. And what we love about it is that projected CAGR is in the range of 30%. I'll just pick up a couple of the market trend on the right side, not all of them. Maybe I think the most important is when you look at the funnel of our customers today, including big pharma as well is the majority of this funnel now is going into new modalities. And I know people struggle to figure out what is under new modalities. It's only cell gene therapy, mRNA, ADCs, oligonucleotide peptide, exosomes and so on. But at the end of the day, what has changed drastically in the industry in the last few years, is that now those big pharma companies are dealing with a really, really big diversity of molecule and they are expecting their suppliers to be capable to adapt to those new needs. And then the second one I would pick up is probably that local governments have been really pushing for localization. I mean, one specific country which is a very good example of that is Japan. I mean, where Japan might have been a little bit late on some of the biopharmaceutical drug. With the opening of COVID, the government realized there was an urgent need to become more self-sufficient and have injected a huge amount of money to make sure it would trigger the development of a local biopharmaceutical industry ready to tackle a future pandemic situation. And then AI, I'll come back to that, just a little teaser. We know it's going to be a big disruptor and we absolutely want to play a big role into that. This slide just shows you a typical workflow for the manufacturing of any type of biopharmaceuticals. So think about a monoclonal antibody. What's more important to show you is to whatever is going to appear in red in the next slide is where we don't have a play today as a company at Repligen. I have to say, myself, when I joined the company, I didn't realize we had such a broad portfolio of products because literally, the only 3 areas that Repligen doesn't have in its portfolio today are bioreactors, cell culture media and viral filter. All the rest, we've got a significant play, again on the resin side, mostly via the collaboration we have with Purolite and the future for new modality with the resin we are going to be developing on our own. But for the rest, we really have our own offering, and we are really excited about that. So how are we different? Because at the end of the day, and I mentioned it already, we have to be different. I mean you can't be successful in a market where the 4 big companies are so big that you can't just come with me-too products. So we like to talk about our value creation equation. And it really start with 2 components. You have to add a good strategy on one side to the right capabilities on the other side. And this can enable you to develop the really good results we had during the last 10 years, and we will deliver during the next 10 years as well. So if you start with strategy, we are really probably one of the very few companies that is really 100% focused on bioprocessing. We do have a play in analytics. And the reason why we like it so much is because we see a lot of bridges between the bioprocessing market and the analytical one, enabling really, again, systems to get more intelligence by getting the right level of PAT technologies put on the system. So disruptive technologies launches, obviously, to enable our customers to generate productivity gains. I get asked very often by investors, do you think there is overcapacity today? And my answer is absolutely not. Because when you think about the amount of the population today that get access to those drugs, it's probably in the range of 10% to 15% worldwide. So there will be a need for much more capacity but obviously at the right price, at the right cost. And this is where pharma company now are really expecting to get support from suppliers that can help us be much more productive, improving their yield and enabling them to tackle some of these new markets. We have a very extensive portfolio of products we talked about, and we have to be very disciplined with M&A. We've been re-managing in most cases to acquire assets that we were the only one talking to the company. That's really a playbook we want to keep on going for and being sure like when we acquire a company, the technology is a real fit with our culture, with our strategy, which is to be very differentiating. In terms of capabilities, obviously, innovation we talked about, I think I would just focus on the culture here. And when I joined the company, I have to say, what was particularly attractive to me was to see the nimbleness and the collaboration we have, the customer centricity with our customer and the ability, we have to be very transparent. I mean, we were just talking with our customers like totally openly, if we know we can't do something, we're going to tell it. If we are being challenged to do something, we're going to do our best to make it happening. And that's really one of the reasons why customers really want to open up the doors very, very broadly. Commercial and operation excellence, obviously. And the last piece, which is really essential to the discussion we have, Jason and I and the entire management team, is we need to get fit for growth. I mean, we know we're going to be a significantly bigger company a few years down the road. We just need to make sure we onboard the right amount of talent. We make sure we need to make sure we have the right ways of working processes and also strengthen our infrastructure further. So what are the results? I'm just looking backward for the time being. We increased our revenue by a factor of 10 between 2014, 2024. The adjusted EPS went from $0.24 to $1.54. What I think is really very impressive for us is now the total addressable market we have is about USD 12 billion of the overall USD 20 billion market. We were only at $4 billion a few years ago. So it means we've got considerable possibilities to grow further this business and become a double-sized company in the next few years. And then finally, market cap, I mean you're all very familiar with it. We went from about USD 600 million market cap to USD 9 billion today. So we are very confident. We know the playbook, we have been very successful. And now we're adding a few twists, but it's the fit for growth that makes us feel extremely confident that we're going to be able to grow above market during the next 5 years. So the algorithm, I would just really focus on the left part here, is how do we manage to grow above market. And we obviously ask ourselves a question, why have we been so successful? And how will we be even more successful in the future. And we realize like we are really winning from 3 different sides: The first one is we've been creating a lot of solution for unmet needs. I mean, if you look back at the last 3 launches we had, 2 of them are perfect example. Back in June of 2024, we launched that product called RS 10, which is a small-scale GMP TFF system for which there was just basically no solution on the market. I mean, our customers were telling us, "Hey, guys, we have to build it on our own because nobody is capable to supply us with the right system." So we put about a year of time in R&D, and we launched it in June. And guess what, obviously, a lot of people came to us and said, "Thank you, and we're going to move forward." So that's a good example. The other one, which is one of the most recent launches. So we acquired Tantti, as you know. We've been working with Tantti for about 1.5 years. And together, we developed a resin that is enabling to get rid of the main impurity you find in any mRNA process which is the so-called double-stranded RNA. And I tell you that could be a real game changer for the mRNA industry because basically everybody got injected in the past, some mRNA stuff with that impurity, but any of the products that have been developed have got that impurity as well. We just launched it, a lot of traction because people realize they have the solutions that they really needed. Then the second bucket is how do we increase our position in existing markets. And again, if you really want to gain market share, wherever we've got direct competition, you have to really come with something that is different. That's why we put the FlowVPX, this in-line concentration measurement on our system, which has got incredible traction lately. And finally, it's about the mix. I mean you can all fight for the same big babies, monoclonal antibody or you can say, let me try to adapt a bit more to what the specific needs of the new modality market is. And that's an area where we've been very successful by growing ourselves really tremendously over the last several years. So I talked about the total addressable market. So I won't spend too much time on that. I mean, again, from $4 billion to $12 billion just in the last 4 years. There are a couple of reasons. First of all, we created those new market segments I was talking about. Think about process intensification. I mean, with the ATF technology, we really created that market more or less on our own. But then on the other side, we also acquired several companies in the field of fluid management. We have a very broad offering today with the acquisition of Metenova last year, which we think is the best mixing technology with the magnetic support. We are now going to launch our own single-use mixes by beginning of quarter 2 of next year, which we think is going to be a huge disruptor into the mixing arena. So really big progress in terms of total addressable market. Back to M&A. So we've acquired 14 companies in the last 10 years, so it's quite significant. If you look at the slide on the left side, you will feel like these guys are only acquired company in filtration. That's how it looks like. This does include the fluid management acquisition we've made as well. I don't want to underestimate the importance of the 4 acquisitions we've made on the right side because the acquisition of Atoll has given us access to the prepacked column business several years ago, then Avitide plus Tantti now is giving us an incredible play into the resin market. And then finally, CTech, which was acquired in 2019, is our real analytical play that is enabling us now to -- got that PAT offering that is combined to our systems. So I talked a bit about the already launched products. So I'll go fast here. That's a picture of this famous RS 10. I don't think I've ever seen a pickup of a new hardware system that has been as fast as this one, again, for the reason I mentioned earlier. But what I love also very much about those specific new modality equipment pieces is it's taking you a fraction of the time it takes you to install a very large-scale monoclonal antibody plant. So not only you're generating those nice hardware sales, but the recurrence consumable sales that are coming alongside are coming very fast after installation. On a typical large-scale monoclonal antibody, you might have to wait 2 to 3 years before you have the plant up and running. On new modalities, it might be much faster than that. The AVIPure double-stranded RNA will -- I've talked a bit about it already. And then the last launch we had, which is exactly a week ago, first week of January. We've launched our new generation of the SoloVPE technology, which is this protein concentration measurement tool. It's much faster than before. I mean 30 seconds to get the result versus 2 minutes before. And at the same time, it's enabling us to tackle a much broader range of processes and partly also very highly concentrated processes. Okay. So what's going to happen in the next 5 to 10 years, yes? I'm sure you're delighted to hear about that. So we are really going to focus on 3 main areas: New modalities to start with. And look at the growth we had. I mean, our new modality sales went from $43 million in 2019 to $130 million in 2024. The breakout you see here is just indicative. I mean, we have not fully updated it yet. But obviously, what I want you to take away from today is people dealing with new modalities, which by the way are very often, the big pharma and the big CDMOs, they need to support from a different manner than they got earlier on the big product like recombinant protein and monoclonal antibody. The reason is it's much smaller scale. But very often, one process is very different to the other one, meaning you need to be capable to customize your solution and then really be able to turn around fast innovation. So -- and then I mentioned about the fast track to consumable revenue. So basically, a very big area of focus for us. The second one is the digitization journey. So for those of you who are familiar, the industry started to be very heavy on automation already about 5 to 10 years ago. I mean, most companies realize like when they operate a plant, they need to get a bigger play into automation to get more yield, to get more productivity. But what came a little bit later and where we think we want to say it's really right now in the middle of the growth mode is really PAT. I mean you need to be able to collect as much data as possible, whether during your process development, whether during your manufacturing steps. But that's not the ultimate goal because once you collect the data, you need to store it. Fair enough, lots of solutions already of digital providers. So the ultimate goal will obviously be to be able to analyze the data and get read out. And that's absolutely applicable for both process development and for manufacturing at the same time. We are -- we think we are leading the pack on the PAT side, and we've got a very ambitious plan here. We've got obviously this FlowVPX already. We acquired exclusive rights from a company called Daylight, which is going to enable us to also have product in place for protein aggregation measurement, and we are working on the other side because we are convinced this is going to become really the game changer for the industry. Finally, fit for growth, I mean, absolutely critical for us. We talked about it quite a bit. It's all about bringing the right people, making sure we've got operational excellence and finally, working with the right business processes. Okay. So wrap up, financials, I think we mentioned them already quite a bit. The only thing I would like to add, we have about $800 million of cash right now, which gives us a lot of flexibility to make further acquisition. Our debt has got maturity end of 2028, a great job from Jason. And we are very excited because this is giving us also a lot of flexibility on deals we might want to do. We talked already quite a lot about growth and cash flow. So finally, priorities for 2025. We are going to accelerate growth further. We are so glad to see market conditions becoming better and better. We want to expand our margins further. We'll continue to innovate, and we'll pursue and integrate our M&A acquisition like we did very well in the past. And again, we are going to get fit for growth. So why Repligen? What you should take away from this session today, breakthrough innovation is in our DNA. We are really positively influencing the bioprocessing market. We've brought a lot of top industry expertise in the last several years, but particularly in the last 12 months. I mean, we've had the luxury to be able to attract a lot of talent that likes the story we have and are willing to join us to enable us to scale up. We've earned really a lot of reputation from customer centricity, and we know we've got the right algorithm to continue to grow above market. So thanks so much, and happy to answer any questions you might have. Thank you.

Perfect. Thank you, Olivier. So first, I just want to ask you a question. Given you recently joined as CEO in September. So you've had a few months in your role now. So I wanted to walk through, what are the high-level themes that you have been focusing on your first few months in the seat? And then given the track record that Repligen has had over the last dozens of years at this point, what are, if anything, that you're focused on in terms of changing within the strategy?

Yes. So I'd like to start by saying we had a really fantastic transition between Tony and I, and we had the luxury to work together for a year before I took over from him. I worked with the entire team for a year before I took over. And the company has been doing so well like there is no need to make a lot of changes. I mean -- so one thing that we have been focusing on and that we will keep on focusing on is the future is innovation. I mean we are where we are because of innovation, we'll keep on going on that side. Another thing I would mention here is we've been really starting to invest heavily into a big key account management and so on because when you are a leading company in innovation, you need to make sure you get access to the C-suite level people to trigger the embedding of those new technology as fast as possible. And that has been for us a fantastic tool to really accelerate some of the pickup of these new technologies. And then the last piece I mentioned, fit for growth several times during the presentation is we know we are growing. We know we're going to be growing fast. So we just need to get ready to have the right amount of muscles to be successful. And I mean, I had a chance to go through that journey. I mean I've seen a business going from a few hundred million USD to several billion USD. So I think we know quite a bit what we have to do here.

Yes, for sure. Maybe one question just given how dynamic of a year that this has been for bioprocessing really over the last few years. I guess can you unpack for us what gives you confidence in the market underlying from like a long-term perspective?

Yes. So for those of us who have been in that business for a long time, I mean, we remember the good old time where a bad year was 8% growth, a great year was 12% growth. I mean, I don't see many reason why this shouldn't go back to the same pattern. When you think about it, the only 2 big game changers between before COVID and now is the emergence of new modality on one side and then potentially the different China that we face today versus what we experienced before COVID. But beyond that, we are very confident we're going to go back to those same type of growth. Then really -- the question really is more how do we make sure we keep on growing much faster than competition here. And we are very confident we've got the right real focus with our innovative products and that we're going to deliver faster growth than others on that side.

For sure. Maybe looking a little bit more near term on the trends within bioprocessing now that 2024 is behind us. Can you unpack for us how did 4Q play out? What trends do you really see? And did it come in line with expectations or not?

Yes. So we unfortunately don't report out our Q4 results during that event. What I want to say, obviously, when we entered into Q4, and then we obviously confirm our earlier guidance. And we said in order for us to deliver the midpoint of our guidance, we only needed to deliver 4% of order growth, 8% of top line growth. Knowing Q4 has been historically the strongest quarter every year before COVID happened, we entered into the quarter being very confident we would be able to hit our targets. But I think what's really important and I'd like to mention it here. And when you remember about our Q3 earnings call, what has been the real game changer for us in quarter 3 was like to see the CDMO business being back, yes? Because we like to say like the health of CDMO is showing you the overall health of the ecosystem. And we had our orders and sales going up more than 20% in quarter 3 with CDMOs. We were like feeling, this is exactly the last piece we were missing to feel very comfortable that the turnaround is here.

Yes. So following up on that, actually, just on the CDMO piece because obviously, it has been a little bit lumpier earlier in the year, and I think 3Q is when you finally kind of called a win there. So have you seen any shift in the trend throughout 4Q? And then also, I think another thing that also may have impacted this is just BIOSECURE Act. Obviously, I think a lot of us thought that was going to pass in 2024. It didn't. So any update on your expectation there and how that's impacted customer conversations within the CDMOs?

Yes. So I'll start maybe first with the CDMO market in general. I mean, I'm sure many of you are incredibly surprised to see how many good news have been coming from the bigger CDMOs over the last several weeks. I mean, I've been in that industry for 30 years. I don't think I remember a time where the top 2 or 3 CDMO were announcing deals of the size they've been announcing over the last couple of months. I mean -- and having worked for one of them for 12 years myself, I know that once you have the luxury to have this very big amount of orders as a base business for the next 5 to 10 years, then you can really start building a very strong business on top of it because you are very relaxed that you know you're going to be doing well. So I think on the large CDMO side, the industry is doing very well. We are tracking small CDMO separately because we very often connect them to small biotechs but also, we connect them to the BIOSECURE Act as well, which is linked to the second part of your question. And what we've seen happening, which was really interesting in quarter 3 is that where our sales to small biotech was doing very well, our sales to small CDMO was doing very well. And trying to deep dive a little bit more we understood like one of the reason was probably some of the BIOSECURE Act customers, meaning moving from their current supplier to some of the smaller CDMOs in the U.S. So that is something we seem to have seen a bit of a trend here in quarter 3, Rachel.

Perfect. That's helpful. Maybe then along those lines, just pharma customers and the trends that you've seen there. One of the updates we got in the quarter was the election. Obviously, the new administration. So I think some investors are concerned about things like vaccines and your exposure there. So how much exposure do you have within vaccines? Have you seen any change in customer behavior across this pharma and biotech customers since the election?

Yes. We're still monitoring the impact from the elections, but our exposure to U.S. vaccination is less than 4%. And even at that, you can say half of it is more traditional long-term vaccines, and it's only 2% that's kind of the more recent side. I think there's also some dialogue with new administration. Maybe there's more trials, more approvals, right? So that could be a tailwind, maybe on a positive note. And I think the big open question or wildcard is tariffs, right, and where that plays out. We don't have a lot of exposure to the top countries that have come up in this dialogue. I think what we'll watch is our broader trade sort of, I don't say, war, but other countries coming back and saying we're going to raise. And then when we're importing to other -- our customers' locations, we end up with pressures there. So that's the piece. But overall, I think it's no immediate impact, right, for us.

Perfect. That's helpful. Maybe shifting to just 2025 expectations. Repligen has talked about how you recognized some COVID revenue in 2024. That becomes roughly a 2-point headwind as we look into 2025. So what are your thoughts on the setup there in 2025? And specifically, should we think of Repligen as a low double-digit grower, including and excluding that COVID headwind?

Yes. So low double digit, excluding that COVID. So it's about $11.5 million. And the other footnote I'd make now that might be a little bit different when we first started talking about this is just the open switch on currency, right? So with FX rates where they're at, if I kind of put it in a worst-case scenario box, if they stay where they're at today and for the entire year, that's probably up to a 2-point headwind for top line. And then that will fall through as well, kind of, let's call it, the gross margin sort of level. So that's the other piece. But outside of that, low double-digit ex-COVID is absolutely still the way we're thinking about the year.

Maybe just on the margin profile. I think there initially was maybe some confusion on how does this COVID comp impact margin expansion as we look into 2025. So could you level set for us how much of that comp impacts the gross margin line versus operating margins as we look to '25?