Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Thank you for joining us for the Repligen management presentation. My name is Matt Larew. I cover Repligen here at Blair. Very pleased to be joined this morning by Olivier Loeillot. Before we get to the presentation, I want to mention 2 things. First, the breakout session is in the Richardson room on the second floor. And then second, I'm required to inform you that for a complete list of our disclosures or conflicts of interest, please visit our website, williamblair.com. Again, very pleased to have Repligen here. I will turn it over to Olivier. Thank you.

Thank you so much, Matt. Good afternoon, everybody. And he pronounced my name pretty well, which is not often the case. So congratulations, Matt here. Guys, we're going to spend the next 25 minutes plus talking a bit about Repligen. Before we start, I just want you to have a quick look at the safe harbor statement. And with this, I'm going to move on and tell you a bit more about who is Repligen. I guess most of you already know the company quite a bit, but in case you don't, we're going to spend a few minutes on that first slide. So we like to call ourselves the innovation leader in bioprocessing. I mean that's really how we differentiate ourselves. We are pretty heavy on R&D, making sure we are launching products on the market that are really different and enabling our customers to manufacture their drug into a much more efficient manner, higher yield, better cost and enabling them to speed up to market. We have a pretty global manufacturing footprint. I was a bit surprised when I came down here, but we've got quite a lot of sites both in Europe and U.S. When we talk about tariff later on, that's obviously something we're pretty happy about in the current environment. We have about 1,700 employees worldwide. Well, one thing that is pretty specific about Repligen is our sales is about 65% clinical, 35% commercial, which is not unusual for a company of our age. We like to call ourselves 10 years young company in the bioprocessing industry. So that is pretty normal. This being said, most of our sales are going into monoclonal antibody. It's about 80% of our sales in monoclonal and about 18% in new modalities. So what are the 2% missing, that was still COVID last year and obviously, it's going to be gone this year. So we had a fantastic performance over the years in terms of growth, as you all know. I mean, obviously, there have been a couple of changes between 2019 and 2024. But when you look at the CAGR during the last 5 years, we had a 19% CAGR. And this came by a lot of disruptive product launches, but also via 15 acquisitions that I'm going to talk about later on. When you look at the product split, the biggest franchise we have within the business is filtration, chrom second and protein that used to be very significant back 10 years ago has slowly virtually become a smaller part of our total business. So what markets are we dealing with? I mean, nothing unusual. I mentioned about the split between mAbs and new modalities. If you look at mAbs, it's about a USD 250 billion market in 2024. The projected CAGR of that market is about 8% to 10% over the next 5 to 10 years. And then biosimilars is a subdivision of mAbs. The reason why we mentioned it is again, back to the fact we are 10 years young company, we didn't really have the breadth of the portfolio we have today when some of the first monoclonal antibody were being launched 10 to 15 years ago. Now with biosimilars, I mean, a lot of cards are being redistributed. And for us, it's a great opportunity now that we've got a much broader offering to start to get design into some of these very big molecule. And then finally, new modalities. I know you've heard us talking a lot about it. I mean, beyond the fact we like this market because it requires a lot of innovation, which you heard we are very strong at. The CAGR, the projected CAGR is significantly higher than for the rest of the businesses, expected 30% growth or so. So the market we're dealing with, I mean, we know even though there is a lot of macro noise lately, is supposedly going to be a very nice high single-digit growing market with a lot of aging population, a lot of regions in the world that don't have a lot of coverage yet with some of these biopharma drugs. And what we all know is development and manufacturing costs are going to be under more and more scrutiny, which is why we love to be innovative and bringing real breakthrough products to the market here to enable our customers to be more efficient here. So what does our portfolio consist in? I mean we have a really broad portfolio of products. And I tell you, coming from another company where I have really building that A to Z offering, it was really a great surprise for me when I joined here to realize like we had a lot of the different buckets. In fact, the one we decided to highlight in red is what we don't have today. And you see it's really mainly 3 different pieces of products, one being bioreactors, the second one being cell culture media and the third one being viral filters. We really have an offering across the board, more or less for anything else. And that's something, obviously, we are capitalizing a lot on lately because a lot of big pharma company who didn't know us a lot 5 years ago, so now they realize, wow, there is a new company now that is not only much more customer-centric than some of the other guys, but now they have a very broad portfolio of innovative products. So that's something, obviously, we are very excited about. So how are we different? Why do we think Repligen is really different? And why are we winning probably through that differentiation? So it's a mix of strategy and capabilities, obviously. And if you look at strategy, we are a 100% bioprocessing organization. Yes, we do have a bit of analytic products, but the analytic products we have are mostly here to help developing the bioprocessing portfolio of products. Think about the FlowVPX in-line concentration measurement tool we launched about 1.5 years ago or so now. It's really mostly being developed to be able to come with our large-scale system for filtration and for chromatography. So it's really 100% bioprocessing focused. Disruptive technology, we talked about the extensive portfolio as well. M&A has been in our DNA. And as you know, we've been very heavy, 15 acquisitions over the last several years. We just did another one in quarter 1. So this is really has enabled us combined to our very unique R&D capabilities to make sure we are ahead of others in terms of technologies. And in terms of capabilities, I will just mention one because I think this is for me the most important, which is the second bullet point. We are really a nimble, collaborative and transparent company. And it may sound like this is a little bit fuzzy and so on. It is so important in that arena. I can tell you the reason why most customers when we meet with them tell us, we want to do more business with you is because we are just customer-centric. We take the time. We listen to our customers. We understand what their needs are. But back to new modalities, still today, a vast majority of products that people use for new modalities are products that were developed back 10 years ago for monoclonal antibodies. New modalities require different products. Now they finally have a partner that is capable to develop those new products, but also develop them at a fast pace to enable them to be efficient as fast as possible. So the results, I mean, we talked quite a bit about it already. We increased our revenue by factor 10. EPS went up from $0.24 to $1.58. What I think is the most important from my point of view is the TAM that has increased by a factor 3 over the last few years, meaning like the total addressable market we're dealing with today is about USD 12 billion. You make the math, I think, on one of the next slides, we did about USD 600 million of business last year. So it's about 5% market share we have in the total market. So we've got a huge amount of opportunity to grow, obviously, over the next 5 years. And that's why our goal is to really double our size within the next few years, and then that's going to be really with a lot of organic double-digit growth and probably some smaller acquisition to add on in the next few years here. So that's our goal. And why do we grow faster than others? So we love to call it the algorithm for consistent growth above the market. And I would really focus on the first 2, probably more than #3 at this stage. The first one is we are really creating new market segments. We think like about 80% of our portfolio is really differentiating, meaning we don't really have competitors. And why is that? It's just because we created something that didn't exist before. So think about ATF, which is one of our flagship franchise, so-called process intensification. Up to a few years ago or so, you were running your manufacturing in batches. You were typically needing your 2 weeks and then you would stop your upstream process, you would get whatever yield you would get and then you have to clean everything and you have to restart the second batch and so on. Now with process intensification, you are capable to keep on going and manufacturing upstream for another couple of weeks, if not sometimes even more than that. So with exactly the same footprint, you can almost double the manufacturing volume you're capable to manufacture with the ATF technology. That's a big game-changer, especially if you are CapEx constrained as a company, you don't want to build sites everywhere around the world, you're capable to implement process intensification. That's really something we created a brand-new solution that people didn't have access to. Let me pick up another one, the FlowVPX in-line concentration measurement. We brought that technology as well to market about 1 year, 1.5 years ago. So people realize like instead to have to take sample every 6 hours, 10 hours, 12 hours, never being sure about whether the process is running as efficiently as they expected and so on, they can now see it live, meaning they can just stop their processes exactly at the right time at the highest amount of products they've been manufacturing and so on. So these are the type of solutions we are creating new markets for, and we are really differentiating ourselves to create a bigger bioprocessing market overall. Then number two, it's really about gaining share. I mean you make the math. I mean if we've got 80% of our product line, which is differentiating, it means like about 20% of it today, we are really fighting to gain market share. And that's what we are doing in a certain part of our portfolio, flagship cassettes, fluid management. But here, again, we are making sure we're differentiating ourselves. So flagship cassette, we launched a new version, which is a cell content version that is perfect for ADC. So anybody who is now involving into antibody drug conjugate is willing to use this type of flagship cassettes solution that is much more convenient to manufacture those type of drugs. And in terms of fluid management, we decided to be more or less fully back integrated. During COVID, it was impossible to find tubes, clamps, whatever was it commodity, we said we are going to enter into fluid management, being fully back integrated. We had a lot of win recently. And one of the reasons is because we feel like with a company like Repligen, we know they are completely backward integrated here. And the last one is the mix. I mean, yes, I mentioned about the 80% mAb, 18% new modalities, whereas the vast majority is still on mAb. I mean we like to be about 18% of our business in new modalities because we know this is the [ fastest ] in the next 5 to 10 years. So of course, there is a lot of noise those days. Just first of all, to mention those noise are in the U.S. and nowhere else. I can guarantee you new modalities are still on top of the list for every single region in the world, including Asia. But on top of it, even a country like the U.S., all those big pharma companies are still very heavy on it. I would say probably close to 50% of the funnel of big pharma company today, including in the U.S., is on new modalities. So we are definitely very, very focused on that as well here. So talking about the TAM, as I mentioned earlier, it went up from $4 billion to $12 billion in the last 4 to 5 years. I love that. I love to have a chance to grow my business and gain market share with our new solutions and gaining market share on where we are competing with each other. The big change, obviously, as you can see here, is filtration has become obviously a big market potential for us because now that we got to play into fluid management, which is a massive market, we are capable to tackle a lot of those opportunities we were not capable to tackle a few years ago before we made the acquisition. The 5% market share I already mentioned, so I'll skip that. M&A. So we have indeed 15 acquisitions in the last 10 to 11 years. Quite a lot were coming on the filtration side. So I'm just going to mention a few because I think they are important. Refine is really where we put our first fit into the ATF technology. Believe it or not, this didn't happen yet today. I mean, we acquired that company more than 10 years ago. So just to say like we are in businesses where things take time. I mean, where ATF now is really, really growing very fast and so on. I mean it has taken a bit of time to get the seats to get people really to embed this type of new technologies and be in the situation where we are today. [ Spectrum ] ARTeSYN is really what has enabled us to enter into the system arena, which we love a lot because the more systems you sell, the more recurrent sales you're going to generate of consumable after. And I like to call the ARTeSYN business a little brother of ATF because where we started to seed a lot of ATF system back 3 to 5 years ago, and now we are collecting the fruits on the consumable side. We are doing exactly the same now with our TFF and chrom system, where we are positioning a lot of system to start with, and we're going to start to see a huge flow of consumable coming over the next 3 to 5 years. Chrom, you're very familiar. That's one of the historical part of the portfolio, which is the pre-packed column, which we are really still the single true broad supplier of pre-packed column in the industry. Proteins, I mean, we came from being a pure OEM ligand supplier to Cytiva and Millipore to now have most of our -- within in our hands. And I can't tell you how excited I am. I mean I know that business particularly well. It's very high margin. And now that we've demonstrated the ability to develop new ligand and new resins within 6 to 9 months, which is almost 3 to 4x faster than any of our direct competitors we're starting to get a lot of traction on our own resins. And one of the reasons why we [ bid Consensus ] in quarter 1 is because one of the resins we developed specifically for one big pharma company that started now to decide to use it for one commercial drug and the pickup is very nice. So to be replicated with other projects in the next few quarters. And then finally, analytics. Talked a bit about it already. Beyond having this beautiful product like the SoloVPE PLUS for protein concentration measurement, beyond the acquisition of 908 for the different product line, REBEL and MAVEN and MAVERICK, the real reason why we acquired those technologies is to be able to combine them with our system, so that we make sure like our customers are capable to run their manufacturing into a much more intelligent manner in the next few years than they are today. The story, and I think you heard me saying that a few times already is that even people who bought our competitor system in the last few years now, they are coming to us to ask whether we would be willing to put our PAT technologies into our competitor system. So we had a couple of discussions. Internally, we decided to support them here, thinking that's going to really convince them in the future to buy system directly from us. So that's really the disciplined M&A. I mean, you heard me saying earlier, we've got a lot of products in our hands already to generate this double-digit growth over the next several years. We are always looking at other potential breakthrough technology acquisition, and we are making sure like if we move forward with an acquisition, there is a strategic relevance for us. We just made 2. So we are still in the integration mode for both Tantti and for 908. So that's what we are focusing on for the timing on the M&A side. Good. What about the next 5 to 10 years? That's what you want to hear, right? So -- and before I talk really about the next 5 to 10, I thought it was important to show you a little bit how our business has evolved over the last 10 years because I'm not sure you all realize that. 10 years ago or so, 81% of our business was in the hand of 10 customers. That's not something you like. That's not something you want. I mean it's too dangerous. Today, you look at the blue part, it's only 1/3 of our sales that's going to our top 10 customers. We were even more specific during the last earnings call. I mean our biggest customer across the board is 6% of our sales. Our biggest new modality customer is 3% of our sales. So we have a very well diversified business across a lot of different customers. But look at the segment as well. We've had a lot of changes. I mean, back in 2015, 70% of our business was in protein. Now it's only 12%. I want it bigger, by the way, because I love the margin on protein. So that's why we are so focused right now to increase our business on the resin side. But the portfolio has changed quite a lot. And then the modality, we talked already quite a bit. So a lot of changes over the last 10 years. One thing we are absolutely convinced about is the future is going to be through digitization. And that's why you're seeing us being so heavy on PAT and so on, is the way our pharma customers are going to be running their operations, not only in manufacturing but also in process development, is going to be totally different in the next 5 to 10 years, and that's going to definitely be capitalizing on all of these digitization tools that are being developed. It all started with process automation. When you look at manufacturing plant today, it's fair to say like probably 70%, 75% of manufacturing plants are using automation, but what has not happened yet really is the pickup of PAT, which is enabling you to collect all of these critical data, both on the process development side and on the manufacturing side to enable you to be much more efficient. We are leading the pack. We've got 6 PAT technologies in our hands, which is more than anybody else in the industry. And then the ultimate goal, if you go around the circle is to really be able to collect that data and then analyzing it and then using digital twin and artificial intelligence motor to figuring out how your process is really running. So instead of having to wait 2 full weeks before you realize the batch is not going to work out, you want to pick that up after 2 hours, especially if you are a CDMO, that's going to be a total game-changer here. And then finally, fit for growth. I can't tell you how much time I've been spending with the team over the last 1 year, if not 1.5 years to making sure we are ready indeed to achieve that goal of doubling the size of the company. So it's a mix of people, operational excellence and business processes. So we've been pretty heavy. I have to say we have had the luxury, at least since I joined 1.5 years ago to attract more or less any talent we wanted. I mean the name Repligen resonates quite a bit in the industry right now. We're back to what I was thinking about the culture, about the customer centricity and so on. We've managed to attract really a lot of great talent. The bench we have today is absolutely great. And I think we are doing fantastic on that side. On the operational excellence side, we have to keep on going, optimizing our global footprint. We have still too many sites. So it means a bit of rooftop consolidation and then making sure we deliver world-class quality and services. And finally, on the business processes, I mean, we've been using the so-called Repligen performance system now for several years, which we are very happy about. It's a very concrete version of lean manufacturing, where every year, we identify about our top 5 projects to regenerate productivity gains or margin gain or cost saving and so on. And we focus on those 5 projects. We've got a very specific number to hit, which last year, we were about 20% higher than the target we have. So every year, we have that, and that's how we are running the company. And then making sure we start to use tools that are enabling us to scale up, giving you an example. We are just implementing a tool called Workday for our human resource management, which for a company of our size now makes total sense here. So wrap up, we had a really strong quarter 1. I mean, we were very happy about it. I mean, as you know, and there are a lot of growth number reported because we still had a restatement in the first half of last year. Quarter 2 will be the last quarter where we have to talk about a specific bunch of 3 different numbers because of the restatement, but we grew 14% in quarter 1 organic non-COVID, which we are very happy about. But even more than revenue, what I was really excited about was the order intake, where our order intake was up close to 20% versus quarter 1 of 2024. And within the 4 different franchises, all of them grew double digits, which is something we were very happy. Last year, the pre-packed column business was a bit behind. In quarter 1, it really performed extremely well. So across the board, we had a good performance. And then our opportunity funnel, which is the second bucket we were looking at beyond order intake because it's showing you what's coming around the corner for the next quarter was also up more than 30%. In terms of margin, obviously, with the volume and with a nice product mix in quarter 1, our gross margin was up 440 basis points and our operating margin was up 490 basis points. And in terms of business highlights, you know like both pharma and consumable have been doing very well for us for the last several quarters. What was really important for us in quarter 1 is the order intake at CDMO was really high. I mean it went up more than 40% versus quarter 1 of 2024. We closed the acquisition of 908, and we launched a SoloVPE PLUS system. So for the full year, the only thing which changed in our guidance end of April versus the prior one is the inclusion of the 908 sales. That's why you're seeing a bump of $10 million because we are consolidating 908 from March until the end of December. So we assume $10 million sales coming from that. We didn't include anything else than that in our guidance for 2025. No impact from tariff or no impact from FX, at least in the guidance we gave because there are so many moving pieces. We came to the conclusion that if we start to put a new number, we're going to have to change the number every other day. So we said, hey, we stick to what we had earlier, and we are going to see during the year how things move, both from a tariff point of view and both from an FX point of view. I'm sure we're going to talk about that during the discussion later on. Okay. So 5 minutes left, 2025 priorities. So we want to keep on accelerating growth, of course. But beyond just accelerating growth, I really want to make sure we are transforming our customer experience. I mean for those of you who might have seen me in a different life, and I've always been extremely customer-focused because I've always said if you take care of your customer and your people, I mean, 80% of the job is done. I mean we have to make sure we improve the customer experience. Now typically, where they were dealing with us on one product line maybe 3 years ago, so now they deal with us on 3, 4, 5 different product lines, we want to make sure like we delight them every time we deal with them, whatever the number of products. We have to expand our margins. I mean, so we said we are targeting 100 to 200 basis point EBIT expansion in 2025. We had a very good start. Again, product mix was favorable in quarter 1. I mean we had a lot of protein sales in quarter 1. So probably we'll see a little drop Q2, Q3 in terms of gross margin back to higher in quarter 4, but definitely targeting the 100 to 200 basis point EBIT expansion for the entire year. Innovation, we launched Solo. We launched our single-use mixers. We are going to launch 2 to 3 new resin over the next 1 or 2 quarters and a few more products. Keep on integrating our M&A. So we've already done one deal, as you know, with 908 and then getting Fit for Growth, we talked about already. So why? Why Repligen? Why is Repligen such an attractive company? Again, innovation is really in our DNA. I mean I've been blessed by the capabilities we have, not only thinking out of the box about what customer needs, but also the speed at which we are capable to develop and launch those products. And we know we are influencing really the future of bioprocessing. We opened our RTIC center, training center in Waltham back in September of last year. This week, we've got 5 customers, 1 every day coming to the center. And 3 of them are big pharma company, one was there yesterday, 20 people. To the second one, they've got their entire MSAT team and then another one, I think Thursday of this week. So we are really getting those people coming to understand exactly about the breadth of the portfolio we have. The industry expertise, we've enriched it further by adding some of the talent I was talking about. One thing maybe for you, if you're not familiar with our management team, most of us are coming from 1 of the 4 big guys. More or less every other meeting we have together, we remind to ourselves, we don't want to become one of these guys in terms of the way we were -- the reason why we left some of this company was because of the lack of flexibility and so on, who are really willing to take advantage of the expertise we have on one side, but at the same time, making sure we keep the flexibility and the customer centricity we want to keep. And then finally, you heard about the algorithm to continue to grow above market. So if we manage to fit for growth at the same time, then everything should be running really fine. So thank you for listening today, and very happy to go to the next session.

Yes. I think we have time for maybe 1 or 2 questions. So, maybe I'll start off. The bioprocessing end market finally is maybe the safer and more durable place within the broader life sciences category this year. But much of that, I think, is because it supports commercial therapeutics and the destocking has worked out. Of course, your business, as you alluded to, is not 70-30 commercial-clinical like the other guys, but 30-70. So maybe just talk about that 30% of your business, what the composition of is it in terms of various stages of clinical work and how much visibility you have there versus the commercial side?

Yes. No absolutely. So first of all, we are in the journey to move toward more commercial. And in fact, indeed, we landed end of last year exactly at the same split, 65-35 as a year ago. But as some of you might remember, last year, we lost about USD 30 million of sales to protein going to Cytiva and to Millipore. And we assume these were part of commercial drug because those guys are mostly into commercial. So if we wouldn't have lost those $30 million, the split at the end of last year would have been 60-40. So I think we're in a journey where probably every year, we're going to move about 5% more towards commercial, meaning it's not going to happen exactly this way, but I would imagine it's very likely that in 3 years from now, we should be almost 50-50. The second piece of answer is like most of our clinical business is into the later phase products, obviously, because this is where volume is taking place, and we're about a 10-year young company, meaning we started designing in a lot of our products already 5, 10 years ago. So the majority of our clinical business is really more towards Phase II and Phase III, meaning a lot of these products are going to be moving. And if you're a pharma company today, the last thing you're going to do is to slow down your late-phase products because you know like you're struggling to find earlier phase products because small biotech in the U.S. don't have a lot of funding. But you know that on the other side, you've got all of these generic biosimilar companies that are waiting to get the product off patent, too. So we've seen absolutely 0 slowdown from our customers, I should say, big pharma in terms of moving the needle with innovation. What obviously is happening right now is like instead of maybe sourcing a lot of these early phase projects from small biotech in the U.S., they start to look outside of the U.S. And you've seen multiple deals happening in the last few months buying assets from China. I mean Pfizer just bought one for USD 1.2 billion, I think, a week ago or so. So that's probably going to start to happen more and more. And for whatever innovation doesn't pick up faster here in the U.S., it's probably going to be coming from Europe and from Asia.

That makes sense. All right. Well, thank you very much for joining us. And again, we'll be upstairs for the breakout if you want to follow us up there. Thank you.

Thank you.