Repligen Corporation

Good day, ladies and gentlemen, and welcome to Repligen Corporation's third quarter of 2020 earnings conference call. My name is Danielle, and I will be your coordinator. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. In order to accommodate all individuals who wish to ask questions, there will be a limit of two questions at a time. I would now like to turn the call over to your host for today's call, Sandra Newman, Head of Investor Relations for Refugen. Please go ahead.

Thank you, Danielle. Good morning to all of our participants. We really appreciate you joining our call. This morning, we'll cover financial results and business highlights for the three and nine-month periods ended September 30th, 2020. We'll also provide revised financial guidance for the year 2020. President and CEO Tony Hunt will cover business updates and our CFO, John Snodgrass, will cover our financial results and guidance. As a reminder, the forward-looking statements that we make during the call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our annual report on Form 10-K, our quarterly reports on Form 10Q, the current report on Form 8K, which we filed this morning, and other filings that we make with the SEC. Today's comments reflect management's current views, which could change as a result of new information, future events, or otherwise. The company does not obligate or commit itself to update forward-looking statements except as required by law. During this call, we're providing non-GAAP results and guidance. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's website and on sec.gov. The non-GAAP figures in today's report include the following. Revenue growth at constant currency, gross profit and gross margin, operating expenses, including R&D and SG&A, operating income and operating margin, income tax expense, net income, and earnings per share, as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Repligen's current results against historical performance and the performance of peers when evaluating investment opportunities. Now I'll turn the call over to Tony Hunt.

Thank you, Sandra, and good morning, everyone. Quarter three was another outstanding quarter for the company as we continued to execute on both our financial and strategic goals. The effort from our global team through the first nine months of 2020 has been exceptional. As demand has accelerated, we have focused on increasing capacity across many sites, delivering on key R&D programs and executing on three acquisitions. To support our continued growth, we added talent across the organization and we are now approaching 1,000 full-time employees. a 30% increase since January 1. In terms of overall revenue growth, our businesses delivered over 35% growth in the quarter, including 31% organic growth to reach $94.1 million, driven by strong demand from COVID and gene therapy programs. We estimate that COVID programs accounted for approximately 55% of our revenue growth for the third quarter and 35% to 40% of our revenue growth through the first nine months. while non-COVID-related growth was approximately 16% during the quarter and 17% to 18% for the year to date. So a really strong 2020 thus far, and we're really proud to be involved in the hard work being done worldwide to fight the pandemic. From an orders perspective, total orders were up approximately 80% in Q3, with COVID programs accounting for approximately half of this increase. Through the first nine months, order growth was greater than 50%, with COVID programs again accounting for approximately 40% of the increase. Based on continued strong performance in our core markets and increased demand from COVID customers, we now expect to end the year with overall revenues up 29% to 30% and organic growth in the range of 23% to 24%, with a strong order load heading into 2021. As you saw last week, We've also executed on our strategic goals with the closing of our acquisition of non-metallic solutions and the announcement of our intent to acquire artisan bio-solutions. The non-metallic solutions, our NMS deal, further strengthens our supply chain and gives us core competency in plastic fabrication and assembly, as well as rotor molding. When combined with engineered molding technology and our ProConnex businesses, we now have a deep portfolio of products focused on fluid management, which is critical to the performance of single-use systems. The proposed Artisan BioSolution deal expands our current systems portfolio with gold standard technology, infiltration and chromatography that complements our flat sheet cassette and Opus prepack column product lines. As with many of our acquisitions, the main focus will be on building out the commercial organization developing the sales funnel, integrating the operations into our global manufacturing network, and investing in select R&D programs to further expand and differentiate this unique offering. We expect Artisan to contribute $33 million to $36 million in revenue in 2021 and anticipate that the Artisan business will be breakeven on an adjusted EPS basis in 2021 and accreted in 2022. In summary, these acquisitions really complement each other and help to strengthen our existing filtration, chromatography, and process analytics franchises. A combination of Artisan, EMT, and NMS significantly expand our single-use systems and flow path portfolio well beyond hollow fibers and into downstream chromatography, flat sheet filtration, and buffer and media prep. These acquisitions in the longer term also position us very well as our industry pivots to downstream continuous manufacturing. We look forward to closing the artisan acquisition here in Q4 and to reporting out on our progress as we move forward. So moving now to Q3 results. As reported today, we had a record quarter with 94 million in sales and adjusted operating margins north of 28%. The story of the quarter was again the COVID impact on all our franchises and the continued traction for our products at Gene Therapy Accounts. As noted earlier, COVID revenue in the quarter accounted for about half our growth or approximately 14% of overall revenues. We now expect COVID impact for the full year to represent 10% of total REVs. Our non-COVID markets continue to perform well with organic growth in the quarter at 17% as customers continue to implement and scale our technologies in CoreMAP and buy similar applications. In addition, we continue to see strength in gene therapy accounts, where non-COVID revenues were up greater than 30% in the quarter and through the first nine months of 2020. We remain on track to achieve over 30% growth in gene therapy for this year. Turning to our franchises, our process analytics business continues to gain momentum, up approximately 30% in the quarter, There has been an accelerated adoption of flow VPE as customers implement this highly differentiated technology for downstream filtration and chromatography applications. To further strengthen our market position, we are now completing beta testing on our next-gen flow VPE systems and software, and we will be accepting orders by the end of the year. Last quarter, I talked about the expanding applications for VPE technology in gene therapy. Over the last four months, we are seeing clear traction at these accounts as solo VPE technology gets adopted to measure viral titers, plasmid concentration, and to determine empty versus full capsid ratios. Overall, we now expect analytics business to deliver close to $33 million in revenues for the year, slightly ahead of our predictions back in July. On the proteins front, we had another strong quarter with key players and ligands contributing to the franchise growth which came in close to 20%. We now expect our proteins franchise to be up another 5 to 10 points to a range of 15 to 20% by the end of the year as orders continue to increase with growth factor and COVID demand being key drivers. In related advances, we were really pleased to announce on the 1st of October the successful development of an affinity ligand targeting the spike protein through our partnership with Navigo Proteins in Germany. We are now scaling up this ligand in manufacturing and anticipate having an affinity chromatography resin in the market in early 2021 for potential use in the purification of COVID-19 vaccines. Our chromatography franchise continues to be driven by our Opus product line. The prepack column unit volume growth in the quarter was really impressive, upgraded than 40%, as our lead times have come down dramatically. based on capacity expansion and manufacturing investments we've made over the last 12 months. While we did not see any significant demand for OPAS for COVID programs in Q2, Q3 was a different story. Many of our CDMOs and BioPharm customers involved in COVID programs are turning to quick switch over prepack columns as they gear up for production, creating an increase in demand for both resins and our OPAS columns. We observed this demand starting in mid to late Q3, and this is carried over into order four. Our filtration portfolio also had an exceptional quarter with all product lines contributing to the franchise growth in excess of 50%. As we discussed last quarter, we anticipated that our Excel ATF business would pick up in the second half of 2020 as manufacturing campaigns that were delayed in Q2 due to COVID came back online. And we did, in fact, actually observe a significant uptick in activity for ATF and Q3, especially at CDMOs and large pharma accounts in Asia. Our flagship cassette business also had an excellent quarter with gene therapy and COVID accounts driving performance. As demand for our flagship cassettes has increased, we've invested and expanded our capacity in Marlborough, which puts us in a strong position as we finish off 2020 and move into next year. Our hollow fiber systems with ProConnect flow paths and modules also delivered an excellent quarter as customers continue to scale and implement this technology across many processes. Finally, EMT is off to a solid start with strong order demand since we completed our acquisition of the company back in July. Since then, we have invested in and increased overall capacity. We've brought onboard commercial expertise to drive the adoption of the portfolio. setting the stage for increased adoption of EMT silicon tubing and custom component products. So in summary, we've had an excellent quarter and first nine months in 2020. We have delivered on our financial goals, executed on three important acquisitions that strengthen our single-use portfolio and broaden our systems offering. We've also invested in people and infrastructure to ensure our ability to meet demand for our products. We've introduced exciting new products to improve the process of manufacturing biologics, and we remain committed to inspiring advances in bioprocessing through constant innovation. With a healthy balance sheet, we continue to invest in our people, our products, and our facilities to meet the demand of the bioprocessing market. And as we move through the final quarter of 2020, our focus will be accelerating the build-out of capacity to support the increased demand for our products, finalizing our new product launches, and supporting the integration and success of EMT, NMS, and Artisan. With that, I'll hand it over to John for a financial update.

Thank you, Tony, and good morning, everyone. Today, we are reporting our financial results for the third quarter of 2020, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As you've seen in our press release this morning, we delivered record quarterly revenue and strong earnings growth in the third quarter of 2020, supported by continuing market strength and the positive impact we are seeing from COVID vaccine and therapeutic programs. As a continuation of realizing our vision of technology leadership in bioprocessing, we completed the acquisitions of EMT on July 13th and NMS on October 20th. On October 27th, we also announced the pending strategic acquisition of Artisan BioSolutions, which we expect will close in mid to late November. While not yet included in our 2020 guidance, as the close of the deal is still pending, we expect the Artisan acquisition to deliver revenue in the range of $33 to $36 million in 2021, with three-year revenue synergies in the range of $8 to $10 million. We also expect Artisan to return a positive return on invested capital of greater than 10% in five years. The financial impact of our EMT acquisition, which closed in Q3, is included in today's third quarter results, and the impact from the NMS deal that closed in Q4 is included in today's financial guidance. Now moving to specifics on our third quarter financial results. On our top line, we delivered record revenue of $94.1 million, representing 35% reported and 31% organic growth. Within the quarter, we recognized nearly three points of non-organic growth from our EMT acquisition and a one to two point foreign currency tailwind. Overall, in the third quarter, we achieved a 9% consensus speed on revenue, largely driven by COVID-related projects, where we recorded revenue in the range of 13 to 14 million. As Tony has mentioned, we continue to see strong year-over-year orders growth across each of our four product franchises, with overall order growth exceeding 80%. We saw particular strength in our direct filtration, chromatography, and process analytics franchises, where the aggregate orders of these product lines grew by 100% year-on-year. With respect to year-to-date revenue performance, we reported $257.6 million for the first three quarters of 2020, representing growth of 28% as reported and 22% organic, with double-digit organic growth in each of our four product franchises. On a regional basis, for the third quarter, Asia was once again the leader with both overall and direct revenue growth of greater than 45%, led by strong growth of our Excel ATF systems in China and Korea. Europe and North America also delivered strong performances with overall and direct revenue growth of greater than 50% and 20% respectively, with significant strength again coming from our filtration product lines. On a year-to-date basis, Asia was the top-performing region with both overall and direct revenue growth in excess of 40%. On the same year-to-date basis, Europe and North America delivered strong direct revenue growth of greater than 45% and 20%, respectively. For the year-to-date period, our North American region represented 52% of direct product revenue, with Europe and Asia accounting for 30% and 18%, respectively. With our strong core business and the gains we are seeing from COVID programs, we now expect approximately 35% organic revenue growth from our filtration franchise, 15 to 20% growth from our Opus product line, and 25 to 30% pro forma growth from our process analytics franchise for the year. We also expect our proteins franchise to close 2020 with 15 to 20% organic growth. an increase from our previous guidance of the high end of the 5% to 10% range. Now moving down our income statement. Third quarter 2020 adjusted gross profit was $54.6 million, reflecting an increase of $15.6 million, or 40%, compared to the same period in 2019. Adjusted gross margin for the third quarter was 58%, a 190 basis point increase compared to 56.1% for the third quarter of 2019. Overall increases were driven by sales volume leverage, productivity programs, and favorable product mix, including high filtration product volumes and Opus column to resin mix in our chromatography franchise. Adjusted gross margins were 58.2% year-to-date through the third quarter of 2020. As we look to the fourth quarter, we expect a modest reduction in adjusted gross margin levels to the 56 to 57% range, based on go-lives of CapEx projects like our Phase II SAP implementation and various manufacturing capacity and personnel investments. We now expect our adjusted gross margin for the year to be in the range of 57.5 to 58%. Next, we'll move to adjusted operating expenses. Adjusted research and development expenses were 4.4 million for the third quarter of 2020, compared to 5.1 million for the same 2019 period. Adjusted R&D expenses finished the year-to-date period at 5% of revenue, and we expect an increase in spend in Q4 as we continue to work on key development projects. For the full year, we expect adjusted R&D to finish in the range of 5.5 to 6% of revenue. Adjusted SG&A cost finished at $23.3 million for the third quarter of 2020 versus $18.7 million for the comparable 2019 period. The year-over-year increase of $4.6 million reflects our continuing investments to expand our customer-facing teams along with our operating infrastructure and IT systems, all in support of realized and expected growth. Now shifting to adjusted earnings and EPS. Third quarter 2020 adjusted operating income was 26.9 million, an upsurge of 11.7 million, or 78%, compared to 15.1 million reported in the third quarter of 2019. Operating margin finished at 28.6%, an expansion of 680 basis points compared to 21.8% in the third quarter of 2019, and was driven by strong growth and operational execution as well as by timing of R&D project spending, capacity expansion activities, and hiring. As we look to the fourth quarter, we expect a reduction in adjusted operating margin levels to the 23 to 24% range due to the acceleration of investments in Q3 and Q4 to stay ahead of demand. We now expect adjusted operating margins to be in the range of 26 to 26.5% for the full year. We are also reporting a strong third quarter adjusted net income performance of 21.2 million, representing an increase of 7.8 million, or 59%, compared to the third quarter of 2019. In addition to our strong revenue growth and operational performance, adjusted net income also benefited from a modestly lower adjusted income tax rate of 19.9% in the quarter, related to the combined impact of incentive stock transactions and U.S. tax reform changes. Benefiting from all elements of our third quarter performance, our adjusted EPS finished at 40 cents per fully diluted share in the third quarter of 2020, compared to 26 cents in the third quarter of 2019, an increase of 52% year over year. Our cash and cash equivalents, which are GAAP metrics, totaled $553.3 million at September 30, 2020, an increase of $24.9 million compared to year-end 2019. Note that this includes the July 13 impact from the close of our acquisition of EMT. For the first three quarters of 2020, we generated free cash flow of $33.1 million. inclusive of 47.8 million of operating cash flow, less 14.7 million of capital expenditures, most significantly related to our facility and capital capacity, excuse me, expansion projects and IT systems investments. This third quarter cash and cash equivalence figure does not reflect most of the acquisition impacts of NMS and Artisan Deals. as NMS closed and Artisan is expected to close in the fourth quarter of 2020. Now transitioning to 2020 full-year guidance. Our GAAP to non-GAAP reconciliations for our 2020 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2020 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2020 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a net zero impact on full year sales. Our guidance does include the impact of EMT and NMS acquisitions that closed in the third and fourth quarters of 2020, but does not include the potential impact of Artisan or any other future acquisitions that the company may pursue. An acknowledgement of the strength of the overall bioprocessing market, including uplifts from COVID vaccines and therapeutics, we are increasing our 2020 full-year revenue guidance, a gap metric, by $14 million at midpoint to $348 to $352 million, reflecting growth in the range of 29% to 30% as reported and 23% to 24% on an organic basis. This includes a modest $1 million in revenue from our NMS acquisition that closed on October 20, 2020. As highlighted earlier, we are increasing our adjusted gross margin guidance for 2020 by 100 basis points from our prior guidance up to 57.5 to 58%, reflecting our strong year-to-date performance. We are also raising our adjusted operating income guidance range by 9.5 million at midpoint to a range of 91 to 93 million, up from our prior range of 81 to 84 million. As mentioned earlier, this expands our adjusted operating margin guidance by another 175 basis points at midpoint, up to the range of 26 to 26.5% of revenue for the year, compared to our prior guidance of 24 to 25%. We continue to expect adjusted other income and expense to be zero, consistent with previous guidance. Regarding income tax, we are revising our 2020 full-year adjusted income tax rate guidance to approximately 70% of adjusted pre-tax income, an improvement of one point from our previous guidance of 18% to reflect third-quarter benefits realized from stock compensation, vesting, and exercises and impacts from updated U.S. tax reform guidelines. This guidance assumes an effective rate of 24.5% for the fourth quarter of 2020 and does not consider the potential impact of additional employee stock transactions, which we expect to be significantly lower in the fourth quarter compared to the third quarter year-to-date period. Based on the aforementioned financial improvements, we are raising our full year 2020 adjusted net income guidance range to $75 to $77 million, an increase of $8.5 million at midpoint compared to our previous guidance of $66 to $69 million. We are also raising our adjusted EPS guidance range by $0.165 at midpoint to $1.41 to $1.45 per fully diluted share. from our prior guidance of $1.24 to $1.29. Our guidance reflects an estimated 53.3 million weighted average fully diluted shares outstanding for the year. We are also increasing our adjusted EBITDA guidance by 9.5 million at midpoint to a range of 101 to 103 million for full year 2020. with depreciation and intangible amortization expenses expected to be approximately 10.7 and 15.8 million, respectively. Relating to capital expenditures, we continue to expect to invest 30 to 32 million in 2020, including key capacity expansion initiatives for our filtration and chromatography portfolios and continued SAP system implementation investments. Inclusive of our EMT and NMS acquisitions, but excluding Artisan, which is not yet closed, we expect year-end cash and cash equivalents, a gap metric, to be in the range of $535 to $545 million, with our CapEx investments being fully funded by cash generation from our operations. This completes our financial report and guidance update, and I will now turn the call back to the operator to open the lines for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster. The first question comes from Dan Arias of People. Please go ahead.

Morning, guys. Thank you. Tony, I'd like to start in maybe a predictable place and ask if you can just sort of expand upon the way in which demand has evolved from the COVID vaccine manufacturers when you look at protein A and chrome infiltration. You made the comment on Opus, so thank you. But what should we look for when we think about mix as we go from phase three to hopefully some commercialization here on the higher profile projects? And then at the other end, are you able to sort of talk to the I guess you call it the tail of the curve. I think the WHO had 150 preclinical vaccine programs in the works the last time we checked. How do you think about that opportunity? And then I guess lastly, how does COVID work look within the context of the 100% order growth that you mentioned, just in terms of magnitude and when that translates to revenues? So starting off with a bunch there, so thanks.

Okay, thanks, Dan. Yeah, so probably the best way to look at this is from a revenue point of view and from an order point of view. I'd say from a revenue point of view, most of the growth we saw in the quarter really came from our filtration franchise. It was growth from some of the other, and this is COVID growth. Our COVID impact was really in the filtration franchise. We started to pick up some activity on our prepack columns. I think from an order perspective, it was across the board. When you look at our proteins business, our filtration business, our chromatography business, and actually even our analytics business, we're beginning to see orders come through as we sort of went through Q3, sort of mid-Q3 on, and even into Q4 has been a real increase on the order side, and it's across the board. It's not just one franchise that's seeing the orders. So that's a healthy sign as we go into 2021. In terms of how this all plays out in 2021, I think we'll know a lot more when we get to the end of the year and early next year. I think by the time we get to our February call, a lot of the early players on the vaccine side and the folks that are moving forward on the therapeutic side will at least have gone through phase two, phase three. So we have some ideas about where The companies we're working with, what that could translate into for next year, our estimate right now is if you look at what we're thinking for 2020, we think about 10% of our revenue. And if you take the midpoint of our new guidance, about $35 million will come from COVID. We see that as potentially doubling next year. So an incremental, say, $15 to $30 million or $15 to $35 million next year. So it's going to be somewhere in that range. But again, it depends on where these vaccines play out and where the therapeutics play out. In terms of the tail, I think, you know, we view that as just more activity, right? And so there definitely is early activity with folks who are in that phase one, preclinical phase one on vaccines. But we're nowhere close to addressing that total number. We're working with accounts we've always worked with. I think we'll pick up some revenue next year on those programs, but it'll probably be modest. And most of the incremental revenue on COVID will probably come from the players that have moved forward quickly on vaccines and therapeutic programs here in 2020.

Yep. Okay. Helpful. Maybe on the non-COVID side of the equation, it seems like demand there is at the very least tracking in line with your expectations We were listening to a webinar yesterday on gene and cell therapy, and the speaker from the FDA kind of made a comment about capacity for some of these manufacturing sites being ready for sort of the mid-sized patient populations, but as you start to push above 100,000 patients per year or so, it would probably require some sort of scale-up. Do you have a view on where the industry is in terms of just accommodating larger patient populations and the potential step up in production and what that might mean for you guys. Do you think that that's something that's necessary?

Yeah, maybe start with the first part of your question. I think overall our non-COVID markets have done really well. I think part of the commentary that I made in my opening remarks was really to point that out, that it's been a solid year. in terms of performance in MABS by as similar as gene therapy. Gene therapy is up over 30% year-to-date, and that's where it'll finish by the end of the year for us. In terms of scale, I think it's still very much a split between some of the big players on the gene therapy side doing their own manufacturing or partnering with CDMOs, and then you have CDMOs like Brammer and Catalan, the Paragon part of Catalan, all doing a ton of work in the gene therapy space, Lonza as well, and there are other players jumping in. So I think it just comes down to, you know, what the capacity expansion plans are at the CDMO level and, you know, which companies that are bigger gene therapy companies are considering to sort of go it alone or build out their own manufacturing capacity. So I think it's probably a good question for the CDMOs as to how fast they feel they're going to ramp. But from what we're seeing right now, it's very active. There appears to be good capacity. But I'm sure as more drugs come through from phase one to phase two, phase three, it will put some pressure on manufacturing. But so far, we haven't seen any sort of slowdown there.

Okay. Thanks a bunch, Tony. Appreciate it.

The next question comes from Vinit Sudha of SVB Clearing. Please go ahead.

Hi, Tony. Congrats on the quarter. Great to see the growth in the order book here. First one, if I could, on the, you know, sort of when you think about the long-term outlook, traditionally we have thought about a mid-teens type of a growth. But as CTEC and the EMT now with Artisan and NMS and a number of these acquisitions, Is that still the right way to sort of think about the business? Obviously, significant tailwinds for you in 2021 from COVID, but just thinking about the base business and how you're building that, would love to sort of get thoughts on long-term there. And then secondly, on the The portfolio that you're building with EMT and Artisan and NMS, and could you just walk us through, you know, how does that fit into the long-term strategy for Replugin and offering the products and sort of comprehensive suite of offerings and, you know, attracting the customer or making the customer more, essentially purchasing more and more products from you and more solutions? Could you walk through that?

Yeah, sure. I'll start with the last part of the question on the EMT, Artisan, NMS. As we looked at our systems business at the beginning of 2020, we really believed that we had a very differentiated portfolio, which came really from the Spectrum acquisition back in 2017. We could see real traction with our TFDF technology we could see the success of our hollow fiber business and the associated system sales. I think it was over about a year and a half, two years ago, I talked about the fact that we would build out a systems team within Repligen. We've done that. We've invested a lot in our systems manufacturing, especially in Marlboro. So we felt that as we move forward, there were pieces of the workflow that we were still missing. So EMT gives us the silicone piece, the over-molding piece, and it fits very nicely into what we call ProConnex at Repligen, and that's our kind of our fluid management flow path, very much associated with hollow fibers. But by having the EMT component, we have a lot more control over supply chain. That should ultimately lead to shorter lead times for our customers, NMS is a company we're also very familiar with. They're excellent at plastic fabrication. They do a lot of the bottle top assemblies. And so when you look at the fluid management, again, you really do need those components in fluid management. And then the final piece of the puzzle was we could see that we were doing well with our hollow fiber business. We clearly have seen very good traction with our flat sheet cassette business, but we didn't really have systems to wrap around that or even around our Opus portfolio. And so with Artisan, they bring to the table chromatography skids, filtration skids that are single-use. Again, they have single-use flow path assemblies. They work actually very closely with EMT, so there's a nice synergy there. And now we just have a broader portfolio that we see as a good portfolio in the marketplace. It gives us a lot more flexibility. We can start to integrate the Flow VPE technology from SeaTac into some of these skids, especially in chromatography and filtration. So a lot of exciting steps ahead, but obviously we have to get to closing the deal first, and 2021 will be around really the commercial and operational integration, and I expect to see new products probably 2022, 2023 time frame. Remind me again, Puneet, the first part of the question.

Yeah, long-term mid-teens. Oh, yeah, yeah.

So on the long-term growth, I mean, clearly, you know, over the last couple of years, we've been signaling that with the investments we're making in R&D and the new products that are coming through, we feel like we would be at the mid to high end of our long-term growth of 10% to 15%. We clearly have moved into that space. We're going to take a look at it at the end of the year and when we get to the February call and just really start to see what we think is the sort of future longer-term growth. But we've clearly inched up. We're no longer, you know, 10%, 12%, 13%. We're in a higher organic growth range than what we've seen historically. And I think with some of these acquisitions, this really helps us for the future. On top of that, it's a little tricky on COVID because you're not going to really know what the impact of COVID is going to be until we see where some of these clinical trials go. So I think the February timeframe should work actually quite nicely because at that stage, we'll understand a little bit more about the demand and be able to give a little firmer sort of percentage of growth that we might anticipate in 2021.

Okay, great. And the last one, if I could squeeze in on the COVID-19 affinity ligand, Could you speak to the significance of that and if you could explain whether, you know, how it's going to be integrated into the workflow? Obviously, this is in 2021. Some projects are already ramping up. Is it fairly easy to integrate into that at that point? And sort of the capacity build-out for it, it appears that this is going to be used in the, you know, essentially manufacturing and production areas. So I just wanted to get a sense on the capacity and if you could provide any expectations around what the contribution for this could be in 21. I appreciate it. Thank you.

Yeah, probably a little early, Puneet, to really figure out what the impact might be of the ligand and the resin. Clearly, our partners, Navigo, have done a great job of identifying targets and figuring out what the right – Ligand structure needs to be for spike protein, so that's been obviously very positive. We've been ramping very quickly to scale up ligand manufacturing and then move to the resin manufacturing component of this. So expect that we'll have a resin on the market beginning of next year. I think it's going to be hard for us to jump into commercial processes or close to commercial processes. I think it's going to be more next-gen versions of vaccines. that we'll be able to be evaluated for. And so I think revenue for 2021 is going to be very modest. I think it's going to be more evaluations. And if we are successful with this, I think you'll see revenue really in the 2022 timeframe. Okay. That's very helpful. Thank you.

The next question comes from John Krieger of William Blair. Please go ahead.

Hi. Thanks very much. Tony, you talked about 80% to 100% order growth. I'm guessing that's above what you were planning a few months ago. Can you just give us an update on how your capacity increase plans have changed and where do you see the biggest sort of wait time challenges in your order book at this point?

Yeah, so no doubt the order growth really accelerated, and it's really been from sort of mid Q3 on. It was really tracking to where we were expecting right up until probably middle of August. So really the last five, six weeks of the quarter has been exceptionally strong, and it's held even into Q4. It is across the board. I think we're no different as a bioprocessing company versus anyone else in our industry. I think everybody is stretched. to get product out the door. The demand has gone up significantly. And so every product line in our portfolio, we're pushing, we're adding more people, we're expanding. So there's no one product line where you were looking at it saying, we have to do major capital expansion. I think for us, Last year was a good year in the sense that we really expanded on Opus. We did expand on our flat sheet cassette business with a brand new facility in 2019. We had plans to expand over in Rancho starting this year, so that's kind of in line with what we wanted to do. But everybody in our industry is definitely stretched. We're stretched. We're pushing. Our people are working seven days a week, basically all shifts as we try and keep up with existing demand and also keep up with the demand for COVID. So hats off to our employees. They've been exceptional.

Great, thanks. And maybe any kind of early comments on what you'd like to accomplish in 21 in terms of new product flow? I know you had a very busy year this year on the new product front. Thanks.

Yeah, I think on the new product side, it's a little early, John, to say, oh, we're going to have X and Y coming through. I think all the work we've done this year to get whether it's next-gen controllers out for ATF to flow VPE next-gen for CTAC to what we've done on the flat-sheet cassettes and what we're doing on the ligand side and what we're doing with TFDF. There's still brand-new products, so I think a lot of our focus next year will still be on making those products a success. There's clearly other activities going on in R&D. We haven't really spoken about it, so maybe in February we'll talk a little bit about plans for 2021. But I would expect, if I just fast forward three or four months, I would think that there'll be three priorities for next year. One, all the products we've developed this year, we've got to double down and make sure they're successful in the marketplace. Two, we've got to make sure we have the right capacity to meet the demand for COVID and existing customers. And then the third one will be the integration of the three deals that we've done. So making sure that we continue to work very closely with leadership at EMT, NMS, and then Artisan to get off to the right start and hit the targets that we've set for ourselves in 2021.

Sounds good. Thank you.

The next question comes from Tycho Peterson of JP Morgan. Please go ahead.

Hi, good morning. This is Julia on for Tycho. Thanks for taking the question. Tony, I was wondering if you could talk a little bit about the bioprocessing industry capacity bill and the expected pace of future expansions over the next year or so. Obviously, we've yet to see approvals and commercial scale-up for the vaccines, but many manufacturers have committed capacity at risk already. So just wondering how are you thinking about incremental industry capacity expansion from here? And then to what extent is your growth levered to these upfront capacity built versus ongoing production on the consumable side? Thank you.

Yeah, it's Julia. Look, a really good question. I don't think we're any different than any of the other players in our industry. We're all investing in terms of capacity. We're going to spend $30 million plus this year. We're going to have probably above that in spend next year. We'll obviously talk about that in a couple of months, but Yeah, every single business in our portfolio we've assessed in 2020. We've done that as well in 2019. So plans to, you know, double and triple capacity, they're all in place, and we're working towards those. So, you know, for me, I think this is an incredibly healthy industry, bioprocessing. And regardless of what happens with COVID, I just think that as a as an industry, we all have to invest in capacity, and it becomes a really important part of what each and every bioprocessing company is doing. So for me, it's around making sure we have the right capacity for our prepack columns, right capacity, future capacity for our filtration franchises, same thing on proteins, same thing on analytics. So we're fully committed to investing in And we think the growth is there no matter what happens with COVID. We think this is a very healthy market. We think gene therapy is really good. We think we're very well positioned. We think the acquisitions we've done strengthens where we're going. And I don't think there's really any risk to us increasing capacity. It's a matter of just making sure we get it done quickly.

Okay. And then do you believe the pandemic has permanently accelerated the adoption of single-use technologies? Or do you see the industry likely reverting to digital stainless steel equipment for large-scale production once we settle on a few winning vaccines? And what are the implications of either scenario for your business?

Yeah, I don't think COVID vaccines has accelerated the adoption of single-use. I think single-use has been the primary driver of growth within bioprocessing and at the top accounts whether it's the big pharma or it's the CDMO. So that whole trend of single-use technology has been there. There's clearly, you're going to have vaccine manufacturers that are using single-use and you're going to have vaccine manufacturers that are stainless steel, depending on what facilities they want to work with. So I think COVID is an important part of what's going on. I think it's clearly a driver of growth for the industry over the next few years. But I think the single-use technology train has been already on the tracks for a few years, I think it's going to continue to move forward. I think customers will continue to want single-use technology, single-use flow paths. I think it's a healthy spot for everyone in bioprocessing right now.

Got it. And just lastly from me, one of your peers who reported recently noted some customer inventory buildup. So just wondering if you're seeing a similar dynamic

Yeah, that's a hard one to answer simply because we don't really know how much of it is going into inventory and how much of it is being used straight away. So I think the better way maybe to look at that is that I think customers are ordering further out than what they've done before. So in other words, if a company really was looking at ordering out two to three months in advance. I think we're definitely seeing customers ordering out four to six months in advance. So a lot of the orders we've taken in Q3 and here in Q4 are definitely going into Q1 2021. Got it.

Very helpful. Thank you. The next question comes from Jacob Johnson of Stevens. Please go ahead.

Hey, thanks for taking the questions. Congrats on the quarter. Just Tony going back to the order growth commentary, you know, a hundred percent order growth in your direct product portfolio. How should we think about the timing of realizing those orders? Maybe what are the lead times on these orders? And should we think of these maybe flowing through revenues in the first half of next year, rather than the fourth quarter?

Yeah. I mean, I think the way to look at it is a significant chunk of that is going into Q1 and early Q2, 2021. Obviously, there's orders that have come through in Q3 that are going to be for Q4. So I think you should look at our guidance in terms of where we're going to finish for revenue, and that's a pretty good range for us. There may be potentially a little bit of upside to that, but that will come from just timing of when people want product delivered. So right now, you might have something that's sitting in January and the customer is asking to get it delivered early. We have to do that. But in general, I'd say more of those orders are slated for Q1.

Got it. And then maybe a bigger picture question. You bought EMT and NMS this year. I think Repligen was a customer of both. Can you just talk about the strategy to vertically integrate here? Is this about ensuring the supply of critical components in a tight bioprocessing market? Or is there also just a component that these are kind of opportunistic deals that fill in some gaps in your portfolio?

Yeah, it's a bit of both, I think. There's no doubt that owning your supply chain, especially for critical components, is a really good thing to have in your portfolio. So we really like what EMT and NMS bring to the table. EMT becomes a very important part of what we're doing or will do in the future with Artisan. So that is an important part of our thinking on this. And then there is an opportunity because both companies sell to companies like Repligen, other companies in our space, other bioprocessing companies. And so there's an opportunity here to continue to build off all the good things that EMT and NMS have done over the last five, ten years, and with a little bit of effort on the commercial side, I think we can continue to grow those businesses while still benefiting ourselves from having control over our supply chain and hopefully driving down to shorter lead times for customers.

Got it. Thanks for taking the questions.

As a reminder, if you have a question, please press star 1. The next question comes from Matt Hewitt of Craig Hallam Capital Group. Please go ahead.

Good morning and congratulations on a very strong quarter. One question for me, and it's kind of a two-part, but with 10% of your revenues coming from COVID, how should we be thinking about the durability of that opportunity? I realize you don't have a crystal ball, but are you expecting that this is going to have a little bit longer tail as the vaccines get out and possibility of that becoming an annual opportunity? And then as far as the capacity is concerned, and you addressed this a little bit, but You've added space. You've added some shifts. Are you right now staying ahead of the demand, or in some ways are you playing a little bit of catch-up? And what kind of flexibility do you have with that capacity as we get into later next year and maybe into 22? Do you have the ability to kind of scale back in some areas and add capacity in others, depending upon the volumes for the products that you're seeing? Thank you.

Yeah, on the revenue side, the COVID impact, obviously we're – we think it'll be around 10% of our total revenues for the year. It's hard to tell what that really will translate into in 2021, but we think there's an incremental sort of 15 to 35 or 20 to 35 million of revenue on top of that 35 in 2021. But that depends a lot on where where these vaccines and therapeutic programs go in the next three or four months. So the crystal ball is hard because I think we just have to wait it out. And I think, you know, the February earnings call would be a good time to say what we think that's going to be in 2021. But that's at least our best guess right now is an incremental sort of 15 to 35 million in 2021. In terms of capacity, as I said earlier, we're definitely adding people, bringing in equipment, expanding, and we're doing exactly what everybody else in bioprocessing is doing. Everybody is pushing really, really hard. There's no doubt that lead times are going out a little bit because the demand is so high, but also we have a program in place across all our businesses where we are trying to get ahead of this and expect by sort of mid-next year, places where we're maybe a little bit behind, we should be ahead. So there's like six months to eight months of a lot of investment that has to happen. And then hopefully at the back end of that, you get that sort of pressure relief valve and you have a lot more capacity to deal with increased demand over the following years. So that's kind of the way we're looking at it.

Understood. Thank you.

The next question comes from Brandon Colliard from Jefferies. Please go ahead.

This is Matt on for Brandon this morning. Thanks for taking the question. Tony, one for you on the new product side. You mentioned earlier this year has been a busy one for Repligen. Last quarter, you talked about some of the challenges in a COVID world in terms of customers evaluating these products. If we look out to next year, assuming things improve or start to normalize, is there an opportunity for some pent-up demand for some of the new products you've had here in 20? And then as we start to think about next year, any color you can provide on what you're penciling in for a contribution from these in 2021. Thank you.

Yeah, so I think in terms of new product impact, there's no magic formula here in terms of you launch a product and all of a sudden you get this massive ramp in demand. So technology like TFDF, which we launched in 2019, has done really well. And it's tracking maybe a little bit ahead of where we thought it was going to be, but not dramatically ahead. So It's a process, right? You know, if you've got a good product out there, you're going to pick up a couple of million dollars of revenue in the first full year that you're out in the marketplace. So, you know, when I look at the new products we have right now, they're probably going to, one to two percent probably is a good range to think about in terms of what their impact would be in 2021, because it takes a while for new products to get adopted. And these products will be still selling them to customers 15 years from now. So it's not like we launch it and then four years from now the product's gone away because it's obsolete. These products tend to stay in the market for quite a while. So early days, I don't see it as a huge impact. Next year, maybe one to two points of growth. And then the other part, Matt, was... I'm sorry.

It was just around, you know, Last quarter, you talked a little bit about some of the challenges in terms of customers evaluating these products. Is there any kind of pent-up demand you'll pick up next year as we hopefully return to a more normalized environment?

I think COVID has forced us to be more quality than quantity in terms of evaluation. So we've had to really pick and choose and work with the accounts that really want to implement technology. So that's really what's happened this year. I think, you know, our R&D teams, you know, unfortunately, we've had, you know, a lot of our team has worked from home through, you know, especially through the spring and early summer, people have come back. That's why our, you know, percent of sales and R&D spend is lighter than what you might have anticipated. Expect that will go up next year. Expect that things will open up more. It definitely has opened up since the summer. Hard to tell right now if kind of the second wave that's going through Europe, how that impacts us in Q4 from an evaluation point of view. But we're going to be dealing with these waves and companies allowing people in or not allowing people in probably for the next 12 months.

Super. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Tony Hunt for final remarks.

Yeah, I'd just like to thank everybody for joining us this morning. Obviously, a lot going on. We've had a tremendous Q3, looking strong for the year. I just want to take a moment to thank our employees. I mean, the work that this team is doing, especially during COVID, to get products out the door to meet the demand of customers has really been exceptional. So I look forward to finishing off the year and catching up with everybody in the February timeframe.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.