Repligen Corporation (RGEN) Earnings Call Transcript & Summary

All right. With that, we're ready to kick things off. Next up, we have Repligen. Representing the company are Jason Garland and Jacob Johnson. Welcome, both of you.

Good morning.

Hey, Dan.

So Jason, Jacob, this is your first public venue since earnings a couple of weeks ago. And I thought it would be worthwhile to kick things off by reflecting back on the quarter, what worked well, what didn't work well.

Yes. No, we were really happy with the quarter, 18% organic growth. I think what was really encouraging for us was -- it was strength across the portfolio, right? So there was just a testament to how much diversity we brought and the broad capabilities that we offer and really saw that everywhere. And that was the fourth quarter, I think, straight in a row that over 14% as well. So again, good momentum. And then just to keep that momentum going, orders, as we mentioned, were greater than 20% as well. So a lot of great standouts. At the margin level, if you look at gross margin, on a year-to-date basis, up greater than 200 basis points year-over-year. So again, really trending in the direction that we'd hope and a lot of great momentum going in front of us.

Did the breadth of the performance surprise you to any degree? Would you expect 1 business or 1 product line to recover at a bit of a faster rate as you're still in the recovery curve, I believe, as an industry?

I don't know that it's a surprise. I think what we find is that we might be lumpy, right? And so I mean, we've described that a little bit with the -- okay, protein's up in a given quarter or higher procured resin, and those tend to then drive some, I'll say, up and down on the gross margin level. But other than that lumpiness that might come with some key programs or key strengths, it was not a surprise to see that across the board. Even from a customer base, we continue to see strength in pharma, CDMOs as well. And I think the other thing we highlighted was some green shoots at the -- more of the emerging side of the customer base as well. You can't call it necessarily a trend off of a data point of one, but we finally saw some growth there. There were some specific programs that we were supporting that helped, but also encouraged by the funding in biotech going up as well quarter-over-quarter. That one won't translate immediately. It's probably 6 to 9 months. But again, a lot of good strength there.

Okay. And one of the topics that was pretty prevalent in Q3 earnings season that I was happy about was a lot more companies were willing to talk about 2026 than we typically have on a third quarter earnings season. You framed the forward outlook as well. Can you revisit your high-end framing thoughts, especially since it seems like that caused a little bit of confusion in the investor community?

Yes, sure. Look, we're -- first, we haven't given guidance, right? And so there's still almost, I guess, just under 4 months, 3.5 months still to see how things are going to play and before we issue a guide. But what we really stuck to and have been consistent with is this framework that we have the ability and multiple ways to grow, on average, 5 points above the market, right? So we start there. We also did call out though that there was the discrete new modality program, right, that offer -- that we took out of this year, and we see a headwind next year. So that may be 2 points of headwind. So you start with 500, you deduct 2 and you're at 300 over market. I think what maybe created maybe some difference of views was kind of the messaging from some of our peers and the broader set on, well, what does the market look like. So kind of coming into 3Q, you might have said, all right, we're still back -- we're back in that 8 to 12, so now it's 10 as a midpoint, plus 3, minus 2. But if now you're -- the messaging is well, the market is more high single digit, 8 to 9, well then they have a different jump-off point. And I think that's where some of the change may have come from an expectation perspective. But so if you use that 8 to 9, then that puts us through this kind of the 11 to 13 range with the 8 or 9 plus 5, minus 2. So that's how we're thinking about it today. Certainly, there's a lot more to come from what we can see discretely, right. Because, of course, we use that as a framework and our ability to grow above market, but then it's what we see and what we have path to, and that's what we'll share in February. And from a margin perspective, really, again, a commitment to continuing to expand. So we'll, again, put more ranges around that. But we've talked about this 100-point plus at the gross margin level and being able to get leverage beyond that at the operating margin, and that's absolutely still how we're thinking about it for 2026.

Okay. I mean, one of the big variables on the market growth rate for the forward year seems to be equipment recovery. And as we were talking earlier, it seems like equipment has already recovered for Repligen. So walk me through whether that is or is not true and how you're equipment business is doing in relation to what you would consider a normalized demand environment?

Yes, that's a great question, Dan. So first, I'd start with there are a couple of somewhat unique things that have been helping us this year, especially. One is ATF, right? So again, everyone is aware of the strength we continue to see in ATF and the interest. When we sell ATF, we sell controllers that then help to control and operate the different filtration systems that go with it. That is reported in our equipment piece. So as we've seen growth in ATF and new systems, that has been a lift for us. And I think it's kind of outside of the broader hardware economic cycle, right? I mean, ATF is very discrete in terms of if the CDMO or the pharma producer have adopted it, then you're making a decision on do I invest in this ATF and what do I save in terms of either less investment for new lines or faster output. And so the economic decisioning is different than the broader sort of system. So that's one piece. Second -- and we called out this quite a bit in third quarter -- was a pickup in the upgrade cycle that we've seen in our analytics business. So from our CTech, we've been starting an upgrade approach to our SoloVPE to our SoloVPE PLUS. And we are in early innings on that one. So we saw that start. Certainly, we have incentives, and we've been helping to push -- get the word out there that it's an upgrade opportunity. So that was another real driver that we saw in the third quarter. So there's a couple of things, I think, put us maybe a little bit different than the traditional hardware system equipment. When you look at that piece of our business, we're still not up to where we were, right? So that's the reality is that maybe like the rest of the market, that still has some opportunity to grow and get back to levels that we were used to. But these other things have been helping to maybe offset that and still show growth.

Okay. So if I could play that back, it sounds like you have a couple of very idiosyncratic growth drivers which have shown up as a recovery in your instrumentation. But if you thought about your bread and butter flavors of KrosFlo and such, you're still below where you would expect to be, and then there's recovery opportunity still going forward?

Absolutely. Well said.

Okay. Well, I'll confess, I hadn't thought a lot about the SoloVPE to SoloVPE PLUS replacement cycle or upgrade cycle prior to you talking about that in Q3. How should we as investors frame that opportunity?

Yes. Like I said, it's early innings. I mean, we have a lot of -- a large installed base. We've only started to scratch the surface there. Again, this is our at-line product. So again, we still really encourage and have taken the strategy of coupling our in-line PAT capabilities with our downstream filtration systems. So we're getting, what, 4 -- I think 25%, 1 in 4 now are being sold that way. So we'll continue to really encourage that in-line. But for the customers that still want the at-line, this is a product that's been around for many years and a natural sort of upgrade cycle. And -- what it -- it's also helping us to think about are there other products in our portfolio that we can kind of take a similar approach, something that's been around a little while, and that could benefit from an upgrade. And so -- but again, on this one, in particular, it's still early, early days.

And I'm sorry, the difference between in-line versus at-line?

So -- and in-line is when they actually take a sample and then go to the lab and make a measurement versus the -- that's the at-line, and in-line is it does -- you don't have to take a sample, which is part of the flow.

Got it. So it's the at-line part of your analytics business...

That we're doing this upgrade cycle.

Opportunity to SoloVPE PLUS?

That's right.

Okay. Well -- and another topic worth talking about for Repligen as ever is the new modality opportunity. You mentioned when framing the forward year, there's one specific you're advising caution around. What about everything else in new modality?

Yes. So new modality, right, there's obviously a lot of segments within that. Gene therapy, there's cell therapy, the other pieces. So if you again look at gene therapy, where this particular program was, that's still an area that we're watching. But all the other areas and modalities within the new modality segment are really the same. They continue to grow. We have a lot of opportunities. Particularly excited about cell therapy and what opportunities we can offer there. And I think what's really great about Repligen is we -- our offerings are very well suited to that space in terms of the ability to scale, the flexibility we have and the technologies that we bring. And so again, we're still overall very bullish on new modality as a growth driver for us. But obviously, a little bit of a reset with this particular program. And I'd say the gene therapy, still recovering.

Has anything changed from a product development standpoint? I feel that one of the reasons why you have the exposure to gene therapy that you do is that you had very specific product launches for that market, specific types of resins that are good at purifying AAVs, that kind of thing. Is that getting the same amount of development effort today as it might have in some period in the past? Or have you shifted in any meaningful fashion?

Look, still, 80% of our business is still mAbs, right? And so you got to feed and fund and invest, right, for the core part of the business. So that still takes precedent. But I think what we've done is it's had a good balance. It's still, to your point, being able to fund there when we look at M&A or acquisition pipelines. We're also trying to understand, are there things within the new modality space and technologies that can be broad and that we can help further develop and couple with our own. And so there's different ways at getting at new technologies, right? And so for us, I think we've -- we're balanced in the way we're investing across the portfolio.

Okay.

The only thing I'd add -- I think you're right, Dan. On the protein side of things, we do have some specific offerings for that market, and we do have some additional launches coming for new modalities from the protein side of things. I think the broader -- you think about our portfolio, a lot of our products are modality-agnostic. And so yes, we do have some specific products for this market, but a lot of it is kind of across the broader portfolio. We're selling into a variety of modalities. And to Jason's point, that's why we still think new modalities are a strategic end market for us. We understand that sentiment can ebb and flow. What we can control is seeding our products into as many applications as possible.

Okay.

And the other thing we've been looking at too is, is there a way you can provide a more enterprise solution, right, more kind of soup to nuts offering for some of those new modality spaces as well. So that's another area that we continue to look at.

Got it. But the mAbs are still 80% of your revenue, and you've got to feed the mAbs?

Absolutely.

How would you frame -- of that 80% of revenue, the difference between the branded versus biosimilars and how you're thinking about the biosimilar mAb opportunity? Because there are some big ones that are nearing their patent expirations here pretty soon.

It's a great point. We like to say that we're only about 10 years young, right, in our journey. And so the reality is that we missed a lot of the originator drugs that when they were launched. And so now, biosimilars is a space that offers us now, I'll say, the next chance or another chance to get within that. And so for us, we see biosimilar certainly as a potential upside and a big opportunity base for us. And again, I think as not only with maybe I'll say, the competing companies, but even if you go back to then, the originators, they now need to compete with biosimilars. And so that means driving a new level of efficiency or other either speed or reduction in cost. And again, we feel like our products can help them in that as well if they're looking at a next generation to compete with biosimilars. So we think we're well positioned. Anything else on the biosimilar?

I mean, I think in terms of exposure, it's hard to say. The reality is if it's coming from a CDMO, they're not always telling us what molecule they're working on. I think if you look at kind of like the broader bioprocessing market, biosimilars are probably mid-single digits of that market. They're still relatively small versus the originators. That's probably the best proxy for our exposure, but it's hard to say.

I imagine there are big regional differences, though, between India and elsewhere?

Yes, I think that's probably a fair comment.

Okay. And then a number of these monoclonal antibody companies have been issuing press releases of late about investment intentions within different countries and borders. How are you doing at Repligen, that opportunity? Is it incremental for Repligen? Is it just substitution? Any high-level thoughts you can share?

Yes. And this is a big question, I think, on everybody's mind, especially with onshoring within the U.S. I think it starts with just the first question of, is there really incremental capacity? And you'll never -- we may never really know, did a pharma CDMO plan to invest in country A and now it's saying, okay, I'm going to shift that to the U.S. What we do think is that, again, just back to that our 10 years young, that now is we have likely new investment in the U.S. Whether it's incremental or not to the system, it gives us another chance, another swing. We have -- we're well covered from our production within the U.S. So again, where other suppliers might need to import, that kind of defeats maybe some of the purpose on the onshoring, and we have the benefit of being able to produce most of what we can what we sell within the U.S. So that becomes an incremental opportunity for us. I think what the people need to consider in their calculus on the consumables pull-through, again, if you've now added another line, unless your drug end use has gone up, that's going to stay the same and your consumables might be split across the multiple regions or lines. So I just think as, again, people do the calculus, even if you add your hardware, you don't get to use though, say, the same multiplier.

Are your folks in the field seeing initial planning happening for some of these facilities? And is it something you're actively participating in from a quote perspective or any other way?

So we've seen a lot of activity on RFPs kind of across the system. Some of those may be starting to lean into the onshoring. I think what it tells us, though, is that because we're being invited to a lot more RFPs, that when those onshoring discussions happen or as opportunities come, that we will likely be invited to the table as well. So I think that's still, I'll say, is yet to be seen if it's picking up for the onshoring in particular. And then I think your timing wise, is if you end up with an RFP, maybe you see an order in '26, maybe that slips a little bit later, and then you're going to have revenue kind of the following maybe 9 to 12 months. So I think it's still going to be time before anybody is really seeing the volume pick up. But we're really encouraged that we are going to be invited to participate in this.

Maybe just one thing I'd add quickly there. I mean, I think the reason we're seeing some of these RFPs for previously planned capacity additions is we've really built out a capital equipment portfolio over the last 5 years with the downstream systems, mixers, ATF, et cetera. But then we also launched this key account strategy a couple of years ago, which I think was fortuitous timing, and it's focused on going after large pharma and large CDMOs and getting in with the key decision-makers at those accounts. And so when you put those two things together, that's why we're seeing kind of these RFPs for some of the capacity.

And just to lean on that, the breadth of the portfolio, again, I mean, we -- we do think that we're -- we outpunch our weight class when it comes to the offering across the workflow, right, compared to some of the other players. So that, again, gives a chance for those producers to be talking to us about a series of products. And Fluid Management, again, is one as well that's helped even open some doors and both expanded some of the interest as well because now you can start connecting our systems across the workflow. And we're just, again, bringing alternatives to what's been maybe some of the same traditional players for a while.

Okay. And that's a good point, Jacob. So there's probably quite a bit of overlap between your key account strategy and the companies putting out the press releases on onshoring and such.

We don't comment on customers.

But to your point on fortuitous timing.

Yes.

How are you looking at the growth rate in China going forward?

Yes. So we feel like we've certainly bottomed out. We saw some growth in sales this quarter from order growth that we had last quarter. Now some of that, we do recognize likely were some, I'll say, timing related to some of the import duties and some of the trade discussions that have been going on. So for us, China is about our, I'll say, how we're attacking and approaching 2026. And we've talked about it briefly that we really feel like there's a need to get more, I'll say, inherently within country and to be able to provide. So we're exploring our opportunities there. That, of course, takes time to develop and work through. And so that likely doesn't fall through to sales until either later in the year or into '27. But we think, overall, the market is going to go in the right direction, and we'll be able to follow that, as well as with new leadership across our Asia Pac region, as well as new leadership within China and new, I'll say, a new heightened focus and resources that we'll be able to capture some of that. But for us, the real sea change becomes more of the '27 and beyond.

Okay. So a couple of years down the road?

Yes. With some, I think, again, converting -- changing from a headwind over the last probably 24 months and maybe still a bit more of a tailwind, but not, again, the type of growth that we think we can capture later on.

Sounds like 2027 is going to be a good year between the reshoring timing, China, et cetera. I'm trying to get you to provide 2027 guidance. Anyway. Joke.

No comment.

Moving on to a couple of company-specific questions. So your business mix looks quite a bit different than your peer set between clinical and commercial. I think you're about 2/3 clinical, 1/3 commercial today-ish. What does that look like in 5 years? And what are the implications for the business?

Yes, it's a great question. So we kind of snap that line once a year. And to your point, as we finished up '24 and we shared that in the beginning of '25, it was kind of a 2/3, 1/3. We've looked at it sort of, I'll say, initially, and we're -- absolutely, that needle is moving already in '25. I don't know that I know exactly the number we get to, but we'll continue to move that. And I don't know that there's a reason why we wouldn't get to a similar mix that our peers have over time. I don't know if that's a 5-year window or longer, but -- it's a great -- but in the meantime, it remains a great, I'll say, growth opportunity for us as well, right, as we move along the clinical stages and as you get the pickup in the commercial side. I think the other thing to keep in mind that's kind of broken a little bit of that paradigm is the ability to have our ATF products, in particular, be specced directly into commercial products, right? And so again, just with some of the changes in regulations from the FDA that happened a few years ago and a real focus on the ATF and perfusion and the opportunities that provides, we now find that a customer can -- within a year, if they push through, can have something that's been approved or that they've qualified. And so again, that's why you hear us talking about the 50-plus -- well, it's commercial and late-stage programs that were specced into on the ATF side. We've talked about some of the blockbusters. So again, that -- my only point on that is it's different than -- oh, I started in the clinical and I worked my way up, and that's certainly been helping us to shift some of that mix as well.

Fluid Management is the other one, too, that we can get specced into in the existing commercial drug relatively quickly.

Okay. Well, that's a great segue into my next line of questioning, which is on ATF specifically. How are you thinking about the durability of the ATF growth trends?

We are very confident on that. I mean, we've been the ATF player, we've been around for 10 years. And it's taken time, of course, to help, I'll say, get awareness and acceptance of the product. And so we're still going to be really that name in the industry that everyone can rely on. We continue to innovate. We know there's alternatives, TFF is an alternative to ATF. We offer that as well. And frankly, when Olivier came, he made it very clear, hey, you don't only have to sell ATF. If a customer is really committed to TFF as a product, then we can provide that as well, so for intensification purposes. So we will continue to, like I said, innovate. That will be in refining our current products. We may be scaling further to offer more scale and larger sizes. So there's a lot of opportunity that we have. And again, I think we still are the very credible and I'll say, the leader right now that will, I think, help us to continue that trajectory.

Can you speak to what inning you feel like we're in, in perfusion more generally?

It's hard to say. I think, again, from a commercial adoption, it's probably very early innings, right? There's a lot more that can happen. Again, even if it's something that started in the clinical stage, I feel like, again, maybe we're in the middle innings when it comes to the acceptance of perfusion and the use of process intensification. Again, we've talked about this as well. We're primarily specced in, in the N-1 stage. So there's a whole opportunity of can that shift to the end stage. We do have some examples there as well, but less so. So I still think there's a lot of runway on this. And again, when you can increase your output and/or get to the output level you want in a much shorter time and ultimately either reduce the need for further CapEx investments, the economic value is very clear. I think it's just -- we're in an industry that maybe takes time to change. And so -- but we've seen a lot of that happening. And then back to your point earlier, if you're entering biosimilars or other stages of development of drugs, it allows another window of opportunity to jump in and relook at the process flow.

Do you think with reshoring efforts and the time sensitivity of those, would perfusion types of processes -- compared to fed batch, would perfusion be more favorably viewed as companies are trying to spin up new manufacturing within borders within a certain time frame?

I think it could be. Again, it's still back to what's their planning on how that looks 5, 10 years later and what their growth assumptions are. Because, again, if you can make an early investment in some of the perfusion intensification, then you may prevent the need to have further investments later. And again, I think the economics become very clear pretty quickly. Anything you'd add there?

No.

All right. Can you talk a little bit about your in-house resin efforts? I feel like there's a lot of activity there, and you have a pipeline of new resins coming forward. How are you framing that opportunity for Repligen?

Yes. So obviously, we have our partnership with Purolite, but through our in-house efforts as well, that allows us to hold a little bit more of that destiny in our own hands. The -- what we've also gone further with the custom ligands is -- as you know, we made the acquisition of Tantti, which offers the beads as well or the underlying base matrix to then attach ligands for your resin. So what we're finding too is just the speed at which we're able to develop custom resins for customers is, we think, very competitive. Actually, we're leading edge. And so that we can do that quickly. And so we're right now in a space of how do we build that business out and be less reliant on the growth through the Purolite. Although again, we find them to be a great partner. We spent a lot of time with them on development and with commercial relationships, but we really want to have a two-pronged strategy there.

Well, the resin businesses of some of your peers are very big parts of their portfolio. Is there a day in the future as part of your strategic plan where the resin business is a very meaningful part of Repligen's business?

I would certainly love it to be. My whole line of margin questions would probably be simplified, my life would be a lot easier. I mean, because resins in particular, for many of the -- to your point, some of the bigger players have a overweighted size of the business in that direction at very, very high margins. So we'll continue to aspire to grow there. I think again, we're -- when we've talked about a couple of the areas that we will be, I'll say, over-indexing our investment for growth, it's -- proteins is one of them, as well as certainly, ATF as well. So those become some of those areas that we want to continue to really push and grow on. And what comes with those are also, like I mentioned, accretive top line as well as accretive bottom line growth as well.

That's a good segue into the margin discussion in the last 5 minutes we have here. You had some -- you had margin expansion in Q3, but there were some puts and takes and some headwinds you flagged on the call. Can you revisit those in the context of how you're thinking about managing the business? And what's the right algorithm for Repligen to drive margin expansion?

Yes. No, great. A couple of things. One, I would just kind of highlight that our quarterly -- if I just look at the gross margin level, which certainly passes through, but at the gross margin level, our quarterly sales mix can have a big impact, right? And you've seen that with just the sort of the trajectory we've had. And the first quarter being north of 53, 51. In the second, back up to -- so there's -- it can swing with, again, that mix of proteins, that mix of big ATF. It could swing with -- we've talked -- highlighted as well when we procure resin for our customers as well, that can be quite dilutive. So that's where there can be volatility. But again, I talked about the year-to-date. We're absolutely growing year-to-date, we're over 200 bps on the gross margin and still in that range that we talked about for the year. But again, I would just ask people to not always expect it to, oh, if sales goes up for any given quarter, automatically, the margin passed through. At the EBIT level or the EBITDA level, I think the other dynamic to highlight is that we have to continue to balance the investment in our fit for growth journey, which is having the right team and leaders. It's having the right infrastructure in our processes. It's having the right systems. And we have to balance that with margin expansion, and we're going to do both. I'm not saying it's one or the other, but I could sacrifice some of those investments today to get more EBIT or margin expansion now. But I think we're going to see that a year or 2 or 3 from now that, that will cause more pain. And so we're just being balanced and want to play the long game on this one to make sure that we're making the investments. Because what it took as a company to go from $100 million 10 years ago to now, to then to double, right, like we've talked about over the next 5 years, it's very different. And all those things, the teams, the processes, the leadership and -- sorry, and the systems. And so we are tightening and making our ability to grow more robust, and that's going to be incredibly important. So that's the balance we're trying to drive. But always with the full commitment to expand margin. We're doing it this year. And our framework for next year will indicate the same.

Understood. And so that margin expansion corridor you talk about, and I think it's been 100 to 200 basis points a year that you've communicated previously. That's purely a function of top line growth. There isn't a pipeline of internal programs you're trying to execute on in order to achieve expansion, if I'm playing the...

That's -- no. In fact, there aren't -- so if you think about our biggest levers for margin growth, so certainly, the top line is one. It's mix, but not just the mix of what we sell, but actually working on margin expansion on the programs or the lines or the franchises that are lower than average, right? So if you look at our 5-year road map, where we talked about being able to grow EBITDA kind of north towards that 30%, within that as a road map to take, for example, our Fluid Management business, which we've highlighted is below corporate average to help that grow. So that would be a specific program. We also have a footprint that we believe we can optimize further, right? I mean, this is the -- we love acquisitions, from the technologies they bring, the growth, but every acquisition you do, you get a site or 2 or 3, right, to then to optimize. And so we also have a site optimization as part of that road map. And then there's, again, continuing to get kind of that low single-digit price. And then we're doing a lot in sourcing. I've been really proud of the team, where we've been able to really offset a lot of the inflation that comes with the market with real sourcing initiatives. And then, again, continuing just to grow our muscle on generating manufacturing productivity year after year. And again, the one thing that's been tricky with growing, and we've seen that this year is when you have to grow your labor, you need to grow months ahead of when you're actually delivering. And so there's always sort of that learning curve as well. So there's a lot of the levers we have to continue to expand margin.

Okay. So it sounds like you have a rich pipeline of internal programs in flight.

We do.

Perfect. Well, we'll leave it there. We're out of time. Jason, Jacob, thank you both for joining us today.

Thank you. Thanks very much.