Repligen Corp (RGEN) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Repligen Corporation's first quarter of 2015 earnings conference call. My name is Michelle and I will be your coordinator. (Operator Instructions)

I would now like to turn the call over to your host for today's call, Sondra Newman, Senior Director of Investor Relations for Repligen.

Thank you and good morning. The purpose of today's call is to discuss our first quarter of 2015 results, to review our financial guidance for the year, and to discuss recent business highlights.

Joining me today are Walter Herlihy, our President and CEO; Jon Snodgres, our CFO; and Tony Hunt, our COO and designated President and CEO.

At the outset, I would like to state that this discussion may contain forward-looking statements. These statements are subject to risks and uncertainties which may cause our plans to change or results to vary. In particular, unforeseen events outside of our control may adversely impact future results.

Additional information concerning these factors is discussed in our annual report on Form 10-K, the current report on Form 8-K, which we filed this morning, and other filings that we make with the Securities and Exchange Commission.

The forward-looking statements in this discussion reflect management's current views. They may become obsolete as a result of new information, future events, or otherwise. We may not update such forward-looking statements except as required by law.

Now I will turn the call over to Jon for a financial review.

Thank you, Sondra. Good morning. Today we reported our financial results for the first quarter of 2015, which were highlighted by record product sales of $20.8 million, an increase of approximately 45% compared to the first quarter of 2014 despite a 12% headwind from corporate foreign-currency fluctuations.

We saw strength in our sales of Protein A affinity ligand and growth factor products, solid revenue gains from our OPUS line of prepacked chromatography columns, and continued momentum in ATF System sales. As a reminder, in the first quarter of 2014 total revenue included an upfront payment of $2 million from BioMarin under the terms of our therapeutic outlicensing agreement. All revenue for the first quarter of 2015 was derived from bioprocessing product sales.

Gross profit for the first quarter of 2015 was $12.7 million, or 61.2% of product revenue, compared with $8 million, or 55.3% of product revenue, for the same period in 2014. The higher margin achieved in 2015 was the result of overall higher sales, resulting in strong volume leverage in our factories as well as favorable product mix.

Research and development expenses of $1.6 million for the first quarter of 2015 were $400,000 higher than the first quarter of 2014. We continue to invest in the development of new products. During the first quarter of 2015, we launched the first of three new products planned for 2015, which Tony will provide an update on later.

SG&A expenses of $6 million for the first quarter of 2015 were $2.6 million higher than the same period in 2014, driven by expected investments in our management and commercial teams and a $1.2 million increase in professional fees and other costs associated with the transfer and integration of the ATF business into our Waltham facility and systems.

Total operating expense for the first quarter of 2015 included $1.1 million of contingent consideration expense related to continued strength of sales in ATF Systems, which we acquired from Refine Technology LLC in June of 2014. We recorded this expense due to an increased probability that we will achieve the 2015 revenue milestone set forth in our asset purchase agreement with Refine.

Operating income for the first quarter of 2015 was $4 million, including the $1.1 million of contingent consideration expense. This compares to operating income of $5.3 million for the first quarter of 2014, which included the previously mentioned $2 million of non-product income.

Net income was $2.9 million for the first quarter of 2015 compared to $4.3 million for the first quarter of 2014. These figures again include the contingent consideration expense and the management -- the license fee income, respectively.

Lastly, EBITDA for the first quarter of 2015 was $5.3 million, compared to $6.2 million in the prior year. Please note that EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to GAAP measures of performance. We are providing EBITDA based on our belief that this measure better enables investors to benchmark the Company's results against historical performance and the performance of peers.

Today we are revising our financial guidance for the year 2015. We are raising our total revenue guidance to $75 million to $78 million, an increase from our previous guidance of $72 million to $75 million. Our revenue projection for 2015 is comprised exclusively of bioprocessing product sales and reflects a 24% to 29% sales growth, an increase from our previous guidance of 19% to 24% growth.

We expect organic sales growth in the same range of 24% to 29%. This includes a foreign exchange headwind of 8% that we expect will be offset by 12 months of ATF sales in 2015 versus seven months of ATF sales in 2014.

We now expect product gross margin to be 56% to 58%, an improvement from our prior forecast of 55% to 57% due to increased capacity utilization in our factories. We expect gross profit to be largely hedged from foreign-exchange exposure as we have a significant percentage of our manufacturing costs denominated in Swedish krona.

Operating expenses for 2015 are expected to be $62 million to $64 million, an increase from our prior guidance of $60 million to $62 million. 2015 operating expenses include SG&A expenses of $21 million to $23 million, R&D expenses of $6 million to $7 million, and contingent consideration of $1.5 million, of which we recorded $1.1 million in the first quarter. The expense increases are driven by higher product volumes and incremental investments in product development.

Total income from operations for 2015 is expected to be $14 million to $16 million, an increase from our previous guidance of $12 million to $14 million. We are raising our net income guidance to $10 million to $12 million from our previous guidance of $8 million to $10 million, including estimated income taxes of approximately $4 million. Our 2015 guidance does not include the impact of future fluctuations and foreign-exchange rates, potential milestone payments from BioMarin, or potential acquisitions.

I will now turn the call over to Tony to comment on business highlights for the first quarter.

Thanks, Jon. So adding some more color to our first-quarter results, while our core affinity and growth factor businesses were very strong performers, all of our products groups contributed to our growth in Q1.

Affinity sales were driven by increased demand; not only for the newer ligands, but also for the legacy Protein A ligands that we manufacture. Strength in affinity ligands aligns with the market for monoclonal antibodies including expansion of established antibodies, rapid market penetration of newly improved antibodies, and commercial preparation for anticipated approvals.

For example, Roche in April reported continued growth from mature monoclonal antibodies such as Aricept and Rituxan. Merck's first-quarter sales of its recently approved PD-1 antibody, Keytruda, exceeded $80 million. In addition, anticipated approvals of PCSK9 antibodies to lower LDL cholesterol levels are contributing to the momentum.

With respect to our proprietary bioprocessing products, we have seen a recent uptick in demand for our growth factors as products in development move into scale-up or pre-commercial manufacturing. We continue to be impressed with market adoption for both OPUS and ATF systems. OPUS prepacked column sales in Q1 were driven by our larger units, particularly our OPUS 45 centimeter diameter columns.

ATF sales were driven by demand for both benchtop and process systems. We view the continued strength in benchtop sales as a leading indicator of future demand as customers typically purchase benchtop units to develop processes that are scaled up to our larger ATF units.

During the fourth-quarter call in March, we discussed the importance of executing on multiple fronts, from R&D to operations and commercial. Our R&D team successfully completed the development of the 60 centimeter diameter OPUS column, which we formally launched in the US in March and Europe in April. The OPUS 60 columns are suitable for use with 2,000-liter bioreactors, which are fast-becoming a standard in single-use facilities.

Our customers are enthusiastic about this latest product offering and, similar to our experience in launching the OPUS 45, we are already filling multiple column orders for the OPUS 60 from leading pharma customers.

As a reminder, we are the only company supplying 45 and 60 centimeter diameter columns and we believe that this combination positions us well to capture not only technology leadership but also market leadership. We expect that our larger OPUS columns will continue to be the major drivers of growth for the OPUS line.

Our R&D team is now focusing on finalizing the development and commercialization of our Protein A media and single-use ATF products, and both programs are on schedule to hit their launch dates this year.

With respect to operations, in February we announced the completion of an 11,000 square foot expansion of our US manufacturing facility, including dedicated areas for the production and assembly of ATF Systems and additional suite space for OPUS. When we acquired the ATF Systems in June last year, we knew that the technology was market-leading and was considered by customers to be the gold standard in the industry for cell retention.

Our plan was to accelerate the adoption of ATF by building out this dedicated manufacturing facility and adding in a quality infrastructure, along with field service, to better support product implementation at customer sites. We are pleased that we are now producing and shipping ATF Systems from our Waltham facility under our quality system.

With our extended commercial team, we are now well-positioned to support our new product introductions and to accelerate the adoption of our existing portfolio at key global accounts. The pipeline of OPUS and ATF opportunities is growing rapidly and we anticipate we will see the full impact of the commercial organization in the second half of 2015.

To support our sales efforts, we are rolling out a series of customer-facing global technical seminars in the US, Europe, and Asia in Q2 and Q3. Our global seminar series leverages our deep customer relationships, where we are viewed as a trusted partner. We look forward to hearing from our customers on their implementation of our technologies spanning upstream and downstream workflows.

As we continue to gain momentum, we are confident that we will be able to expand further into high-growth bioprocess markets through internal development programs, partnerships, and acquisitions that will allow us to deliver on our medium- to long-term business goals, which include achieving sustainable operating margins in the mid-20%s. In summary, our team remains focused on providing best-in-class products and services to our customers and we've executed well to deliver exceptional financial results here in Q1.

Now before handing over to Walt to share some concluding remarks, I would like to take this opportunity on behalf of all Repligen employees, management, our Board, and shareholders to thank Walt for his many years of service, including his 20 years at the helm as CEO here at Repligen.

As you know, Walt will be retiring in a few weeks and he has set the vision, the strategy for Repligen in bioprocessing. It is his passion, his leadership, and integrity that has brought us to where we are today so we aim to act with a similar sense of purpose and passion as we build upon this great foundation. So, Walt, wishing you much success in your next endeavors and we all know you will be keeping an eye on us.

Thank you, Tony, and good morning. I'm pleased to be able to transition the Company to a new leadership team at a point in which we are experiencing strong organic growth and impressive financial metrics.

In 2011 we made a commitment to build our bioprocessing business, which indirectly was also a bet on the continued advancement of the monoclonal antibody sector. In 2012, this became our sole focus. Since then, we have scaled our business through a combination of internal product development and several strategic acquisitions that diversified our product offering and enabled us to cost-effectively build a commercial organization.

I am particularly proud that our expansion has been accompanied by improving margins that are consistent with our shared vision of creating a best-in-class life sciences company. I look forward to Repligen's continued success in 2015 and beyond as the team executes on our growth plan and continues to focus on building shareholder value. Finally, I would like to thank our dedicated employees for all of their efforts and our shareholders for your continued support.

Operator, at this point we would like to open the call to questions.

(Operator Instructions) Brandon Couillard, Jefferies.

This is [Sachin] in for Brandon. Tony, as you look across the business, how much visibility do you have around second-half revenues? What would be the two or three variables that would put you toward the higher end of that range potentially?

We have raised our guidance up to $75 million to $78 million and that is really based on our visibility now, better visibility into the second half of the year. So we are very comfortable with the range and I think when we get to our next earnings call we will obviously have a little bit more information on how the second half is shaping up. But right now we're confident about the year and confident about the numbers that we are guiding to.

Got it. What were the biggest drivers of gross margin expansion in the current quarter? The revised guidance for the year suggests like a steep step down over the balance of the year. Why would that necessarily be the case?

This is Jon. If you look at our history, typically we have higher, better mix of affinity ligands and at times higher growth factor volumes in the first half of the year and a little bit lower in the second half of the year. We also have seasonality effects with higher vacation and things like that that contribute to lower margins in the summer months and also in the holiday periods. So those are some of the key drivers.

This year in particular we had a very strong mix of our growth factor in affinity ligands the first half of the year, which tend to drive higher margins because we have higher contribution margins potentially from incremental volumes of those products. So we had a very good mix. In addition, just strong volume in general. So we had very strong leverage of our factory here in the first quarter, as you could tell by the $20.8 million sales number.

All right, and one last one for Tony. In light of the strong demand environment, how do you think about the reach of your expanded salesforce? Is there scope to make additional sales hires in the second half, given the growth backdrop?

Yes, I think our commercial organization, as I said a few moments ago, is pretty much up to speed. We've completed the training. We are rolling out a series of technical seminars and I think with the training in place and the goals set for each sales rep, I think we are very confident about their performance in the second half. And, clearly, we would expect to see an uptick from our sales team in H2 and obviously next year in 2016.

Finally, I would say that in Asia we are definitely seeing an uptick and that's a direct result of having a salesperson dedicated there, plus the contribution from our distributors. So we are very excited about the business so far this year in Asia and the potential as we go into the second half of the year.

All right, thank you.

Drew Jones, Stephens Inc.

Good morning, thank you. Jon, could you tell us what the organic growth was in the first quarter?

I will say we have guided 24% to 29% for the year. We've indicated that we've had a 12% FX headwind. And I would be happy to say that our organic growth is in excess, nicely in excess of our full-year organic growth in the first quarter, putting us in a very, very good position to achieve the revised guidance. I hope that helps.

Yes. And then, Tony, you touched on this a little bit, just the strength with Protein A and IGF in the first quarter. Given new approvals, given the PCSK9s and how that can be a needle-mover for volumes, is this the new normal for those two products as far as you guys are concerned?

Great question. I would say, based on the discussions we have had with our partners on affinity, they have upped their forecasts for the rest of the year and it's obviously based on -- when you look at the data it's across the legacy ligands and also obviously supporting new product launches. So for 2015 I think this is the new norm. I can't really say what 2016 is going to look like at this stage.

Then last one for me, you guys, with the new 60-centimeter launch at the end of March, can you give us a peek as to what maybe orders look like in April or how initial demand has looked?

Yes, we have multiple orders that we will be delivering here in Q2. And we have an exciting pipeline as we look into the second half of the year.

Great. Thanks, guys. Congrats to both you and Walt.

(Operator Instructions) Paul Knight, Janney Capital Markets.

This is actually Bryan Kipp on behalf of Paul. First off, Walt, congratulations. It's been a pleasure working with you. You'll surely be missed. I hope you have a good time on your boat, etc.

I guess I want to tease out a little bit more in 1Q. You guys continue to cite the lumpiness and we all know the lumpiness that exists in Protein A ligands and growth factors. Can you give us an idea of what the incremental volume was in the quarter, a couple million here and there?

Just -- the reason why I'm asking is in context. 1Q is typically your second-softest quarter despite the strength there and with new products coming online, in light of your guidance, it would be likely the strongest quarter for you during the year. So I'm just trying to think of the strength in Protein A and IGF in 1Q product launches in light of your guidance and just trying to think about how you look at it going forward.

I will start and then maybe Jon can fill in. This is Walt. Typically Q2 is the strongest quarter for affinity ligands and we think we're going to have a very good Q2, so I don't think Q1 is going to be an outlier versus the second, third, and fourth quarters. Typically, as you know, Q4 is on the weaker side and we would continue to forecast that as part of our overall annual forecast.

I concur. That also kind of ties into the gross margin discussion that we talked about earlier as well, so we expect a very strong first half of the year continued. And as -- one thing we noticed last year with the business, as we have acquired ATF, which is a more capital and product-intensive business, we saw that some of the lower affinity volumes in the fourth quarter were kind of picked up by the capital-intensive ATF business, which helped level out our sales for the year. So we expect similar dynamics to occur this year.

Okay. Just want to circle back, so you still think 2Q will probably be one of your strongest quarters? You do have support from new products and there should be some inherent capitulation on seasonality just because of the nature of your products, a la the launch of a single-use, the ATF consolidation, etc., in 4Q.

So to go back to the affinity, clearly Q2 is always a strong quarter for us and, as I had said a few moments ago, we have had increased demand and updated forecasts from our two partners and they are very strong for the year. So we are confident about the affinity business and the guidance that we've put forward today. Clearly, the other businesses are also going really well. So as we move into H2, we expect to have a strong second half for ATF and also for OPUS and the other products in our portfolio.

Bryan, you had asked about new products as well as. And I think we had previously guided and we're still kind of sticking to a $1 million to $2 million contribution from the new products, mostly in the second half of the year. We expect some time delays in terms of adoption, which is kind of normal for our industry of the new products.

Okay, that's helpful. Then have you guys seen any bookings related to your media? I know your ongoing conversations; it plays right into CMO -- sweet spot for CMOs. Have you seen any conversations or have any contracts in hand once you launch the media?

No, the product is not launched yet and clearly we are -- like any new product launch, you go through alpha, beta testing. We are doing that. Again, the feedback on the product is very positive so that's really where we are. We are really in a seeding mode.

Okay. And then I guess the last one for me, you talked about it a little bit, the conversions towards 2,000 liter. Just want to kind of get your thoughts on the overall dynamics.

Do you think -- Walt or Tony, do you still think we are two years away from a fully-continuous workflow on the 2,000-liter bioreactor in commercial scale, or do you think it could be faster than that, or you think tail might even be longer?

I think in terms of the use of 2,000-liter bioreactors disposable, that is clearly happening. When you look at what we have with the ATF System, that allows you to do continuous processing in the upstream part of the workflow.

I do think it's going to be two-plus years, maybe even a little longer than that before the customers start to connect upstream and downstream in more of a continuous fashion. But, for sure, the upstream part of the workflow is trending and moving towards continuous. I think downstream is going to take a little longer. Maybe Walt has some other comments.

Yes, and I think either way though we will be able to benefit from the adoption of the 2,000, whether it's continuous or batch. Either way they are going to need that 60-centimeter column so we're somewhat agnostic to continuous versus batch.

Okay, but it's still pretty early a clinical trial-based Phase 2/Phase 3 2,000-liter bioreactor? We are still not seeing that sweet spot on the CMO nor pharma side for commercialization, right?

I think the 2,000-liter bioreactor and the 60-centimeter OPUS column gets us into the Phase 2/Phase 3, but there will be commercial processes using 60 centimeter. It's just they are going to be more of the orphan drugs or highly potent drugs that won't require 10,000-liter bioreactors.

Appreciate it, guys.

I'm showing no further questions. At this time I would like to turn the call back over to Sondra Newman for any closing remarks.

Thank you, everyone, for joining our call today. Please feel free to ring me if you a follow-up questions. Have a great day and we'll look forward to updating you on our Q2 call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.