Repligen Corporation (RGEN) Earnings Call Transcript & Summary

All right. Good morning, everybody. Thanks for being here. Welcome to the Wells Fargo Healthcare Conference. I'm Brandon Couillard, cover Life Science Tools and Diagnostics. Thrilled to have Repligen with us back at the conference this year. Joining us for this conversation to my left from the company, CEO, Olivier Loeillot; and CFO, Jason Garland. Thank you both for being here.

Thanks, Brandon.

Thank you.

Olivier, maybe just the best place to start would be with the quarter you just reported. I mean you had 17% ex-COVID organic growth, continued to see a nice strong recovery just to unpack some of the key highlights and the positive surprises from your point of view coming out of the quarter?

Yes, sure, Brandon. I mean we're obviously really delighted about how Q2 played out overall for us. You mentioned the 17% ex-COVID organic growth, which is obviously a great testimony of a very strong rebound. We already had a really strong quarter 1. So this means like for the full first half of the year, we are really growing in the mid-teens top line and our orders growing 20%, which is obviously setting us up for a really nice full year 2025. So what I was particularly happy about is, I mean, we had really great performance across the entire portfolio. And this has enabled us to increase our guidance for the full year by about 50 basis points, even though we had to incorporate about 100 basis points of headwind coming from that specific gene therapy program that everybody is well aware about. So we decided to be very transparent about that one, just to show like the greatness of the rest of the portfolio is not only enabling us to compensate for it, but even increase our overall year guidance, which means like our monoclonal antibody business is doing very well. And then in terms of end market, we've seen really great performance during the first half with both pharmas and CDMOs, but also both on the consumable and on the hardware side, which I know is probably a little bit of a standout for us because not everybody is seeing the same we're seeing on the hardware side.

Within new modalities, is obviously getting a lot of attention, especially with Sarepta news, you I thought did a good job of kind of quantifying the exposure and you took it out of the framework for the year. First half was $10 million expectations from there or, I think, $7 million, but they're still making elevators, right? It's still on the market, but you've taken it all out of the second half of the year. Any update that you've heard since in the past month now on that front?

No. I mean, we've decided to be totally transparent on this one because we were hearing a little bit too much noise about what was going on and how much we could be impacted. But in fact, we've always been pretty transparent. I mean, we said last year, our biggest new modality business was 3% of our sales. If you make the math, 3% of $635 million, was in the range of USD 18 million, USD 19 million. This year, indeed, we had a pretty strong first half. We assumed and assumed still de minimis revenue from that specific program for the second half, and we assume no revenue from it next year at this stage, just to be on the safe side. And whatever might happen will be an upside, which is a good position to be at. And again, we've got so much goodness, greatness on the rest of the portfolio that including every other new modalities that we are not very, very worried about that at all.

Just remind us the new modalities bucket, capture cell, gene, a couple of things in there. How big is that revenue base? And is there something like 100 various customers that are comprised in there?

Yes. So it's around just less than 20% of the total business. And so we -- yes, we've got several customers that have some good scale. So it's more than $1 million right of business. So it's not just a lot of small pieces that add up. And so there's a lot of elements in there. And I think that's another piece of the testament of the portfolio, right? You might have gene therapy pressure, but we have cell therapy sort of tailwinds. And so that's the balance of that.

Just for first half, so new modalities were about 17% of our total sales in the first half. We will deep dive a bit more into the split between what is gene therapy, what is mRNA, what is cell therapy. And we came to the conclusion, probably gene therapy was about 50% of those 17%, and then mRNA being about 30%, the rest being in the cell therapy lentiviruses side. So it's a bit lower than we thought initially. And beyond that specific gene therapy program, the rest has been doing very well. And if you hear about some of the recent news, I mean, a couple of companies got really great funding on the gene therapy side, and we're seeing like the rest of gene therapy is still doing really well right now.

You did, I think, say, orders were flat in the quarter for new modalities, which would suggest a pretty muted kind of revenue outlook for the back half. Anything particular driving that, that you want to call out aside from Sarepta?

No. I mean, obviously, if you just make the math, I mean, when we assume de minimis revenue from Sarepta in the second half of this year, that's obviously a headwind. Again, the reason why we increased our guidance is because we are more than compensating for it with other stuff. But for this year, obviously, it will represent a little bit of a slowdown for our new modality business overall. But what we're really excited about and Jason alluded to it, we start to see a lot of cell therapy program moving forward. And we have a really strong offering where ATF starts to be implemented quite a bit for some of the most promising cell therapy projects, but also with the acquisition of 908, we've got a couple of PAT technologies that are focused particularly on the cell therapy side and then feed management also. So we definitely see a lot of traction on that side of the new modality arena right now.

Instruments were certainly a highlight for me in the quarter. I think you talked about revenues up high teens orders of over 20%. That's been a real laggard, right, in terms of the recovery. And that message is different from what we're hearing at other peers. Is this Repligen specific? Is it an industry -- what is your kind of assessment on the industry outlook for equipment? And yes, maybe start there.

Yes. No. I mean if you look at the last 4 quarters, really the only quarter where we were not very happy about the performance of our hardware business was in Q1. But second half of last year, we already saw a pretty nice rebound in Q3, very strong in Q4. And Q1 was a bit of a disappointment. But the good news is, indeed, we had a very strong funnel and a lot of it materialize in quarter 2. And maybe just to ground everybody for us. Hardware is ATF hardware on one side, which we all know is really booming -- has been booming for the last several years. And then we've got all of our downstream hardware, which is both TFS and chrome system. And on that side, we are definitely gaining market share lately, because, first of all, our systems are really very high tech, probably the most high tech on the market. And as you know, we are combining those downstream system with our PAT technology, the FlowVPX technology that enables to measure protein concentration live. Now 1 system out of 4, we're selling include that PAT technology. And I mean, I'd like to always compare with the iPhone story where -- when you bought your first iPhone, you said why am I buying it? I don't need a camera on it. I have my own camera, and now you're just buying the new version because of the camera. I think the same is going to happen with our system and PAT technology where people start to really learn how to use it, and they realize this is generating a lot of productivity gain for them. And now we see like even people who have bought system from competition, they are asking us to consider implementing our PAT technology on the competition system. So we have a lot of traction because of that, for sure.

That really sounds like Repligen-specific innovation. I mean I think one view has been, look, during COVID, there was a lot of excess capacity built. We've started to absorb that. It's getting stopped up, and that would be perhaps a catalyst for instrument or equipment growth to normalize. Is that consistent with sort of your macro view of where we are in the cycle?

I have been in that industry for more than 30 years now, Brandon. So I've seen those cycle happening more or less my entire carrier, where indeed CapEx spending growth more or less for 7 years in a row, and then you enter into a 3-year cycle that might be a little bit more challenging. I strongly believe like when you look at available capacity right now, which starts to be somewhat limited in specific geographies. And when we look at the upcoming growth from market like Asia, particularly and so on, I think we're going to enter into that 7 years growth cycle for hardware very soon again. So I'm very optimistic about that.

Okay. Maybe switching gears. Biopharma revenue and orders up over 20% in the quarter. Anything in particular supporting that either in terms of consumables, instruments or geographically?

I mean I said it already, it was really pretty much across the board. I mean, one thing we didn't talk about here is, as you know, we focus a lot on the key account management strategy back 2 to 3 years ago and we couldn't be more delighted about the results we have. I mean I'm going to celebrate my 2-year anniversary in the company. When I joined, I want to say, looking at the top 10 pharma, we were typically selling only one of our products. Now if I look at an average, we are probably selling 3 or 4 of our products to each of these big pharma. And we're just starting, meaning like if you start selling -- imagine you start selling fluid management, you stop selling system to a big pharma company, you can expect really significant growth coming over the next several years. So I mean that key account management strategy has been very good, particularly for a company like us, where it's all about innovation, you need to get access to the key decision maker like the head of R&D, what we call MSAT, Head of Manufacturing because these are the guys who are going to push a button saying we're going to embed the innovation from Repligen. And I have to say we've had so much success with that. We're really excited here.

I'd like to spend a little time on China, which I know is a small part of your business now, but it's still an important market, right, for you? You can't leave it. I mean all the biotech activity is substantially happening there. You made an interesting, I think, comment on the last call where you kind of attributed the China weakness the last few years to government desire to shift from focusing on biosimilars to innovative drugs, which caused an air pocket, which I think different than common belief that it was kind of COVID related? Can you just unpack what you were trying to express with that comment?

Yes. No, I had the chance to live in the region for about 3 years, about a decade ago. So I've seen the China growing like more than 20% year-on-year for several years and so on. I think indeed what people or what all of us underestimated was, the day, the government indeed decided to stop subsidizing company to develop the #8 or #10 or #15, biosimilar of AVASTIN, HERCEPTIN, RITUXAN, you call it I mean, it was a huge turmoil for the industry because those CEOs who are mostly coming from U.S. West Coast big pharma companies, they know very well how to develop and launch biosimilars, they were just not capable to really work on very innovative drugs. So this happened probably about 6 years ago or so, but what everybody knows is China is very fast at adapting and so on. So they had to immediately start to develop innovative drugs. So what did they do? They went to what was the closest to what they were doing so well biosimilar, meaning they looked at antibody drug conjugate, they looked at antibody bispecifics, which was a closest in terms of technology. And here we are 5, 6 years later, where you've got almost half of the worldwide funnel of antibody bispecific that is sitting in China and no surprise that now you start to see a lot of U.S. company buying this IP from China because with a little bit of a slowdown on small biotech in the U.S. There is so much IP sitting in China. So I think the beauty of what's happening right now for China is that there is a lot of money being injected in China, and I think that will accelerate further the growth of the pharma market down there.

I was just going to touch on that. You mentioned on the last call, there's billions of dollars that have been injected, licensing deals, there's a lot of content that's being bought from China and that, that should support or may support an improvement in demand in '26. Is that kind of the right way to think about it? And how do you think about China just long term sort of growth profile and bioprocessing?

No. I think the China biopharma market is going to start to grow like probably faster than any other market probably at early second half of 2026. So what does it mean for bioprocessing like us and then others based in Europe and U.S. it means you need to have a very specific China strategy. And what I'm absolutely convinced is that China's strategy cannot be the same we all had before COVID, because before COVID, you had maybe 1 local actor for each of the key franchises. Now you probably have 3 or 4 and then where before COVID probably a new molecule developed in China would have 80% content from the European U.S. bioprocessing company and 20 local, now it has almost flipped the other way around, where, it's probably about 65 local and 35 U.S. European. So we're absolutely convinced the way forward is to have a play in China for China and certainly considering collaborating with local companies down there. We're very active on that side. I mean I brought 2 brand leaders -- new leaders in the organization that I knew from my past life and so on, and we are working on a very aggressive strategy in China and outside of China as well.

Last one on China. What's your assessment of the local competition, local competitive market and what product categories? Is that most -- does that most proliferate? And any 1 or 2 things you'd like to call out as far as the kind of changes you made to your China organization or strategy in the last 6 months?

As I mentioned earlier, Brandon, I mean, there are now quite a lot of well-established company. And there is one big one on the filtration side. There is a pretty big one on the equipment side. There are a couple on the chromatography resin side, but beyond those leaders in each of the different submarkets, you've got 2 or 3 companies behind. So I think really for a company like ours right now is to make sure we identify the right partner. I know people always ask what about IP here. If you pick up the right partner, and I had the chance to do that a couple of times in my previous slides and so on. I mean, they can be absolutely very loyal to you. And at the end of the day, you've got 2 choices. You don't try anything in China, then you're going to miss what's going to probably become one of the fastest-growing markets or you take limited calculated risk, and I think it can be a very, very strong positive story here.

Maybe switching gears over to the product categories within filtration. You talked about ATF being a positive story. There's been some rumors about the potential competitive product, this nearing release. Do you care to comment kind of on that investor debate?

No, absolutely, Brandon. So I've been hearing those rumors for the last 2 years. And all I can tell you is we probably have the strongest position we ever had on that side. And the reason is the following. I mean, most pharma companies and most CDMO have switched to use ATF today. And the ones that are not using it are using TFS, which we also have in our portfolio. And when I joined 2 years ago, I say, "Hey, when you deal with a very convicted -- convinced Head of R&D, who says, I prefer TFS from ATF just agree with it and just make sure we sell the TFS solution to those companies. And that's what exactly happened. I mean, it reach 3 pharma company right now out of the top 15 that are still more focused on TFS. We sold those guys their process intensification technology in the last 2 years. One of them, we are about to convince to move to ATF. So I'm absolutely very, very comfortable what's going on. I'm not saying there will never be a competition. I mean I'm surprised there is none to be honest with you. I think there might be 1 day this business we are dealing with is a long time of development type of business where we started putting some of our ATF small-scale equipment in 2014, so 11 years ago. So yes, there will probably be somebody coming 1 day. It took us 11 years to go from 0 to where we are today. So I'm reasonably confident like we are going to be in a fantastic shape for the next several years here.

I think it was in the second half of last year, you alluded to a couple large blockbuster programs that you've been involved in. Do you still expect the large blockbuster equipment revenues to begin in the second half of this year? And any color on the cadence of how you expect that to fall maybe Jason, from 3Q, 4Q?