Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Hi, everyone. Welcome to day 2 of the Wells Fargo Healthcare Conference. Good afternoon. We are excited to have Repligen here. We have CEO, Olivier Loeillot and CFO, Jason Garland. Very excited to have both of you here.

And so maybe the best place is to start. I think you guys have best organic growth, at least the companies that we cover, 13% in 2Q. Maybe just start there, kind of what the -- what's driving the strong growth for you guys? And maybe any kind of like puts and takes for the quarter?

Yes. No. Thanks for the question, Evan. I mean, obviously, very happy about how quarter 2 played out for us. You're right, we grew 13% organic. In fact, the real number was 14% because we lost a portion on tariff refund. So really a great quarter, which has enabled us to increase our guidance for the full year to 10.5% to 13.5% [before] 12% growth, which is exactly what we grew in the first half. I mean our growth in H1 was exactly 12%. So we felt like this is setting us up for a good year of 2026. You mentioned about performance of our franchises. I mean, particularly great performance of both analytics and protein as well. which has helped us mining protein grew more than 50 analytics more than 30. So this has helped us balancing quite a bit on the lower growth within on filtration. Great performance on margin, and I'm sure you're going to have a question for Jason on that later on. So I'll pass on it. What was very encouraging for us also was to see a specific rebound of a couple of market segments that we are tracking, one being emerging biotech and the other one being new modalities. And as you all know, I mean, there have been a couple of tough years on new modalities. So to see a rebounding new modality market segment for us was really a great signal. And then finally, obviously, very happy with the progress we're making on our strategy here and the acquisition -- the pending acquisition of BioLife obviously is a big milestone for us, and we're very excited about what comes around the corner here.

That's super helpful. maybe going to that point, I mean, 12% is the midpoint of the guide. You have a couple of discrete headwinds this year. I mean I kind of calculated to be about 40 basis points which really gets you to about 16 underlying. I mean is that a decent way to think about how this -- the business is performing at a fundamental basis? And then I know you're not going to talk about '27, but it is like -- I mean, unless you have some of these one-timers again, is that like where the industry is kind of at right now?

Listen, you're right. I mean we have been piling 2 headwinds this year, one that we -- we knew already a year ago, which was the gene therapy program that has cost us about 2 points of growth in 2026. And then the other one, which was totally unexpected that took place beginning of this year, which we informed Wall Street about, which is a couple of ATF customers, one having management of its inventory. This year, the other one having a delay of implementation of its manufacturing site. So this has indeed added a bit of an expected pressure to 2026 numbers. We are so glad that we are still managing to deliver the growth we do because it's a testimony indeed. We have that very broad portfolio of products that we've been talking about constantly over the last several years. So you're also right, Evan. I'm not talking about '27 today. I mean you know what we've been always saying, I mean, we are aiming to outpace market growth by 5 points. And we have such a diversified portfolio of products that, for whatever reason, we get bad news on one side, we were trying and we are managing to compensate on the other side. So that's kind of the story for '27 at this stage.

Got you. And the news all what a lot of people are trying to figure out is what all this mRNA news means for Repligen and bioprocessing companies. I know it's really challenging to kind of put numbers around it. But I mean, I think pre-BioLife, new modalities was 16% of sales, mRNA was kind of probably puts it in the low to mid-single-digit range. Just from a high level, is there anything about mRNA production that's particularly heavy in its use of either filtration or chromatography or kind of anything that you could just mRNA in particular? And then really, what parts of your portfolio are kind of geared towards that modality?

Yes. No, mRNA is a modality we like from a lot of angle. I mean, and first of all, think about it, I mean during COVID, billions of people around the world have been taking some mRNA vaccines. And this is what I like to call sometimes the largest clinical trial that has ever happened in the history of the world, somehow where indeed billions of people have been vaccinated. So to see that piece of news coming from the Moderna [INT] project combined with Merck project, this is very, very exciting for the entire industry because for bioprocessing company, mRNA is presenting a lot of opportunities. I mean if you look at products, as you ask, I mean, it can start with any type of resin that are being used in two steps. One, for the first step, which is the DNA plasmid manufacturing and the other one, which is for the final purification of the mRNA product. We launched the first catalog product. We launched enabling customers to get rid of the biggest impurity, you're getting an mRNA process, which is a double-stranded RNA. So that's a resin piece. Then if you have resin, you have to pack resins and very often, those mRNA customers, they have to pack hundreds of columns because it's going into smaller type of population, batches and so on. So they don't want very often to pack this column themselves. So they use column packing. So that's great [bony for opus]. Then you had the filters, then you had the free in management because for free -- as far as fleet management concern the needs are very different than the needs you have on some other businesses like monocular antibody, which are mostly dealing with very large processes. M&A process are much smaller and so all. And then finally, PAT technology. So of course, there are a lot of opportunities for suppliers like ours across the board in terms of the portfolio here.

That's great. Another area that we get a lot of questions, BioLife acquisition, obviously, biggest in the company's history. Seemed attractive. I mean, high consumables mix, dominant market share, why did you think that this was the right asset? And particularly, I guess, the questions that we get is like why cell therapy? And I know you've touched on it, but just to -- if you can provide anything there, that would be great.

Yes, sure. I mean, first of all, we did a lot of homework even. I can tell you, we spent like 6, 7 months in total to re-make sure we were making the right decision here doing multiple markets is about cell therapy in general, understanding what the trends were, trying to overcome potential risk like the potential emergence of in vivo therapies and so on. So we did that homework first, and then we realized, well, first of all, it's a huge new modality for our customers. 25%, so 1 product out of 4 in the overall funnel pipeline of pharmaceutical -- biopharmaceutical drug today is a cell therapy drug. And then you have -- today, it's mostly CAR-Ts that are commercial. You start to see the emergence of allogenic drugs and later on iPSCs as well. We realize this is a very fast-growing market for the next decade, for sure. And then secondly, looking at that specific asset, I mean, BioLife has done an amazing job to really differentiate itself. And as you know, we like to say 80% of our portfolio is differentiated. Their portfolio is very differentiated as well. So the fit is also very good here. I mean, on biopreservation media, they are already designing 18 commercial drugs. They are designing in more than 80% of any Phase II and Phase III drug as well. So we know like there is a lot of tailwind that's going to come in the next few years from the next FDA approval across the board here. And then finally, I mean 2 things. First of all, there's a little joke. I mean we're going to hit the USD 1 billion number next year, which for a company like Repligen. It's a big milestone for us. I mean we've been -- we've been growing very nicely, as you all know. I don't think there are a lot of people who would have paid that repeated would be USD 1 billion by 2027 several years ago, and that's a big milestone for us. And one of the reasons why is because we've got that very diversified portfolio of products, but also a very diversified end market approach. I mean we talked a lot about mRNA. We talked a lot about gene therapy in the past. We had a very small pain cell therapy. Now with this acquisition, we are going to balance our play into new modalities much more evenly between cell therapy, mRNA and gene therapy as well. So across the board really exciting for us. And as we mentioned, it's accretive across the board. I mean I tell you, I've looked at a lot of acquisitions in my career. I've never seen an acquisition target that was accretive to top line growth gross margin and EBITDA margin as well. So we like it. And at the end of the day, pretty simple integration and pretty low-hanging fruit as well for generating synergies here.

Yes. And when you look at the synergies we feel like they're pretty straightforward, right? So we called out about $20 million in year 1. Most of that $15 million of that is in the OpEx side, very much tied to public company costs, leadership costs, right, CEO.

He's being paid pretty well. Yes.

So fortunately, he'll want to find some retirement home here next. And then that leaves us with, I think, again, a lot straightforward synergies on top of the leadership side, there's the redundant public company costs that come with that Board expenses, et cetera. And then the rest is on the cost of good old side, which really has to do primarily to start with helping them to work through some of the yield and bag issues that they've shared with. And luckily, we are a supplier of single-use bags, and so we're able to find a path with them to create benefit with that. So we feel like we've been pretty conservative with the overall modeling, both from the synergies, and we didn't bake any top line synergies in , but we do expect there to be in both directions, right? They're spectoseveral commercial drugs, we are not, right? So we'll be able to tap into the relationships they have, sell that broader portfolio that Olivier just talked about and be able to continue to drive some good benefits. So we love the deal overall. Financials are great.

Yes. I mean just something you said that just kind of struck me. So the synergies going both ways revenue. So if they're in a commercial drug, how easy is that for them to switch to Repligen if you're not in there already, if it's commercial?

I think what Jason wanted to say is, indeed, they are designing in 18 commercial therapy drugs. I don't think we -- what is in any of these 18 with the Repligen portfolio. What I think Jason was alluding to is that's going to open up doors for the Repligen portfolio and maybe not for those commercial drug specifically but more broadly for the pipeline where we might not have had those high-level contact at those accounts that we will have now because we are supplying them a very important product for those drugs, yes.

Great. Maybe another one for Jason on margins. Like you said, really great quarter, I think up 380 basis points. You have this goal of 30% EBITDA margins by 2030. My math is kind of like 200 -- over 200 basis points a year. It's a lot. So how should we think about kind of the trajectory of that? And I think all this was kind of contemplated before [Polynem] and BioLife. And so how should we think about that goal in light of those changes?

Yes. So you're right. It's a big step in each year. We announced earlier this year the transformation office that we've been executing. So that's the way to help accelerate that. So we actually feel like some of the growth will come over the next couple of years versus all being [back-ended loaded]. So we do see that benefit. [PolyMem] was contemplated within the transformation office. But to your point, certainly, the BioLife acquisition was not -- at this point in time, before we close and build out a consolidated set of financials that we'll share, we really think of that as helping to accelerate that path to the 30%. So but we'll pull all that together and kind of reprofile how we see it playing out. But I think the other thing for us is that as we continue to execute that margin expansion, it also gives us more room and flexibility to reinvest, right, making sure that whether it's in more R&D spend or technology, whether we want to double down more in some commercial and sales resources, to really help bolster our top line growth that we're going to have some of that flexibility. So we're really happy with the trajectory we've had, the discipline that the team has built, and we'll be able to leverage that more broadly.

Great. Very exciting. Maybe on AI. I know this is an important topic for you guys, transformation office, working on that, putting that internally. I guess I'm more interested in maybe your -- in terms of your products and how that is going to be aimed or is aimed at helping your customers implement AI and do things faster, increase throughput. I think your PAT portfolio technologies and integrating that with your system seems like an obvious place, you had the [Novosin] deal, [NextGen TFF], you've talked about. But just how important can you talk about this and then say, explain how important that is integrating AI in your portfolio in order to kind of differentiate your offering?

Yes. And I think you phrased it well already in your question, Evan. I mean, it's a 3-step journey really. It starts with PAT. It's going to be emphasized by digital twin. And then finally, it's going to conclude to AI. So trying to be a bit more specific here, in order to use AI, you need data, whatever business you look at, I mean you can't use AI if you don't have data. The only way we can help our customers to start with is to enable them to collect that data the data. And the data are going to collect from 2 front. One is going to be on the process development side, and the other one is going to be the manufacturing side. And the only way to collect data right now via PET technologies. I mean, I'll give you a number that's going to probably strike you and people here is last year, we said probably 20%, 25% of the system we were selling coming alongside our PAT technologies. In the last 3 months, it went up to 80% to it's only 3 months. But I mean, for us, it's extremely encouraging because it's been like those people who have started to embed those PAT technologies have used them and like them now they say, "Well, I'm just not going to buy a system now without having the PET technology alongside." So that's really the first step and we've technologies. Only one is in line right now. We are going to work to make sure we get a second and if not the third one in line over the next couple of years. Then this is what digital wind comes, which is what is digital twin? Digital twin is a software that enable you to kind of try to understand what the data you're collecting means. So are you going to be better at developing a process using [atresian]? Are you going to be better at running the process under this type of parameters and so on by using this digital twin capabilities, it's giving you a first hit. And then later on, once you're going to be having a lot of data on with your PET technologies, once you're going to have used digital twin to become faster at developing our processes and so on, then you're going to start to use those very broad AI engine that will enable you to just look at the data you collected over the last 10, 20 batches you manufacture and being able to tell you after 1 hour, that's going to be a good batch, that's going to be a bad batch, and then you can stop it after 1 hour instead of waiting for 2 weeks. So can you imagine if you are a CDMO, it's a big game changer because, I mean, for CDMO, it's all about the time you used to sell -- to manufacture and sell products, you don't want to run a [badge] that's going to be a bad patch. So it's going to be a multiyear tonic what's going to be really important is today, we sell the PAT technologies. We are going to try to sell the digital twin technology as well. And then later on, partnering with the right AI company and so on is hopefully starting to be able to also sell the AI software to become like an extension of our customers in a way.

Got you. Maybe moving to proteins. I mean, 50% growth there. I don't think we expect that to be the same going forward. But can you just talk about what you're seeing in that business? And as we think about the long-term growth opportunities there. I mean, how should we be thinking about things?