Repligen Corporation

Good day, ladies and gentlemen, and welcome to Replige Incorporation's fourth quarter and 2020 earnings conference call. My name is Sarah, and I will be your coordinator. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a zero. This event is being recorded. Please note that there will be a question and answer session following the company's formal remarks. 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 Repligen.

Sandra Newman Thank you, Sarah. Good morning, everyone. We appreciate you joining our call. This morning, we'll cover financial results and business highlights for the three-month and full-year periods ended December 31, 2020. We'll also provide financial guidance for the current year, 2021. 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 this 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 10-Q, the current report on Form 8-K, which we filed today, 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 also on SEC.gov. 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 gap 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. That's it for me. Now I'll call the turn call to Tony Hunt.

Great. Thank you, Sandra. And good morning, everyone, and welcome to our 2020 year-end update. We're really delighted with the way we finished off the year with 47% organic growth in the fourth quarter, 25% organic growth for the full year, and overall 2020 growth for the company coming in at 36%. As we all know, 2020 was a remarkable but challenging year where we observed accelerated demand for our products to support COVID-19 vaccine and therapeutic development. This came on top of very strong growth in non-COVID-related revenue, which grew 18% overall for the year. We were also able to complete a series of strategic acquisitions to advance our system strategy. In addition, we launched innovative new products. We continue to gain traction across our industry, including gene therapy accounts. I'm especially proud of how our team has risen to the challenges of 2020, showing a real drive to make a difference during the pandemic, making tremendous efforts to manufacture and deliver bioprocessing equipment and consumable products to our customers, and to scale our operations to keep pace with accelerating demand. Throughout the year, COVID-related orders increased, and by Q4, COVID programs accounted for 22% of our overall revenue, which is up sequentially from 15% in Q3. For the full year, COVID customers accounted for 13% of our revenue and 17 points of our 36% reported growth. Our order book also accelerated in the fourth quarter and finished the year up approximately 80%, with COVID programs contributing approximately half of this growth. Based on this order trend, we now expect COVID-related revenues to double from 46 million in 2020 to a range of 90 to 100 million this year, an increase from our previous projections of 50 to 70 million. Before jumping into our business highlights for Q4 in 2020, I want to spend a few minutes on the five strategic initiatives that we highlighted at the beginning of last year. Number one was around successful integration of seed technologies and expansion of their customer and application base. Second was around launching disruptive technologies from our R&D pipeline and expanding these technologies into new applications. The third one was around growing our gene therapy business by establishing our core technologies in viral vector manufacturing. Fourth, was around expanding our manufacturing capacity to support our business unit growth and our longer-term vision of attaining a billion dollars in revenue by 2025. And finally, number five was around adding new technologies through M&A with primary focus on building out our systems and fluid management portfolio. So let's start with C Technologies in our process analytics business. When we kicked off 2020, we set three goals for ourselves. We wanted to quickly onboard a team of 10 new salespeople to broaden our market presence across the regions, including going direct in Europe. We wanted to build a pipeline of new accounts and expand applications beyond maps into gene therapy. And finally, we wanted to focus on flow PPE. We wanted to demonstrate to customers the power of inline, real-time process monitoring and bring the next-gen flow technology to market. It's been an amazing year for our process analytics team. We hired and completed the onboarding of the commercial team in Q1. We focused on building the funnel with new accounts, which resulted in 50% of systems sold in the second half of the year coming from these accounts. We expanded the applications for our process analytics products into gene therapy with laser focus on viral vector analysis. Finally, the Flow BPE team moved more than 20 customers into clinical evaluations. At the same time, our R&D team delivered on advancing its next-gen Flow VBE technology, and we are now accepting orders for this instrument here in Q1. The business finished the year with pro forma growth of 30% and is on track for another strong year of growth in 2021 in the range of 20% to 25%. On the R&D front, our innovation engine continued to produce. We set a goal at the beginning of the year to launch five products and expand our technology adoption, especially in gene therapy. In filtration, we launched our Tangenex CS flat sheet cassettes into gene therapy. We ramped our marketing efforts for bench and process scale TFDF systems to significantly improve and simplify harvest clarification. And we completed R&D work on our next-gen ETF controllers. In proteins, we developed a ligand and resin for spike protein in under 10 months, working with Navigo GmbH and Pure Light Life Sciences. Finally, as mentioned earlier, in process analytics, we launched our next-gen flow VPE technology in the first quarter this year, which will be used for highly accurate inline protein concentration measurement. In gene therapy, the challenge in 2020 was really around gaining customer access and conducting evaluations during COVID. Our commercial and field applications teams were incredibly resourceful, and by the end of the year, we had firmly established OPUS prepack columns, TFDF, flat sheet cassettes, ATF, and BPE technology in viral vector manufacturing applications. Our products match up well with the needs of this customer base, which has resulted in robust demand. We added on average 10 to 15 new gene therapy customers per quarter in 2020, and we now have approximately 75 significant accounts adopting and implementing our technology. Even with some gene therapy customers shifting focus to COVID programs, which we exclude from our gene therapy revenues, we achieved approximately 30% growth from our $41 million base in 2019. In 2019 and 2020, we talked about the importance of capacity expansion, and the work done over the last two years really helped us as we were in the middle of a surge in demand. Having spent just over $26 million in 2020, we accelerated our capital investments. We will accelerate our capital investments in 2021 and expect to deploy $55 to $60 million as we build out our capacity, a major focus on our infiltration on single-use products. By mid-2021, we expect to have our European Centre for Pre-Pack Columns up and running. and to have significant capacity in our hollow fiber business. Finally, we plan to complete and build out an incremental 64,000 square feet of manufacturing space in Marlborough to support our TFF systems, ATF, and flat sheet cassette businesses. On the M&A front, we recognized back at the beginning of the year that our systems portfolio was gaining traction in the marketplace, especially for hollow fiber applications. We also realized that we were missing opportunities, especially in downstream apps where we did not have the breadth in our systems offerings to address customer needs. The acquisitions of Artisan, EMT, and NMS directly addressed these gaps with gold standard systems and consumables that truly extend our system offering to chromatography and downstream filtration. We now have a complete portfolio of systems and fluid management consumables, and our goal now is to invest in and expand our customer base as we roll these products out to our global commercial org. As we move into 2021, we will continue to be opportunistic on M&A, and we will focus on expanding our franchise footprint with differentiated technologies. So moving now to the fourth quarter and our business performance. As reported today, we had a record quarter with $108 million plus in sales. Each of our proteins, analytics, filtration, and chromatography franchises performed well and together delivered almost 47% organic growth in the quarter with our filtration business leading the way with approximately 60% organic growth. Our chromatography business was up over 20% for the quarter and finished the year up 14%. Within chromatography, our Opus revenues for the full year 2020 were up approximately 20% and column sales increased by 30%. With the investments we've made in 2019, our capacity increased significantly, and we now have best-in-class lead times for prepack columns in the industry. We continue to migrate customers to dropship resins, which has improved our overall margins, and we are very excited to bring additional capacity online in Europe in mid-2021. We believe this will position us well for the next three to five years, not only on the capacity front, but with respect to market opportunities. Finally, we're excited about the work we're doing with Navigo on the ligand development side, as this has resulted in new opportunities for us to deliver resins in our prepack column format, adding to the growth potential for our chromatography business. We expect chromatography will grow in the range of 30% to 40% in 2021. Our proteins franchise had a very strong quarter in Q4 and finished the year up 24%. This is the second year in a row where we've had 20% growth for this business. We started the year expecting the franchise to be down 15%, given the transition to in-house manufacturing of protein A ligands at Cytiva. With the onset of COVID, demand increased, and we saw across-the-board strength from our three main proteins customers, including increased demand from Cytiva, Milfor, and continued market traction for our NGL Impact A ligand, through the sale to PureLite's Jetta Day 50 resin. We expect 2021 to be another strong year for this franchise with growth in the range of 10 to 20%. Our filtration franchise was the big growth driver for Repligen in 2020, up greater than 60% in the quarter and up 46% for the year. We've benefited from continued traction at gene therapy accounts and COVID, where 60% of our total COVID revenues for the year came from our filtration portfolio. We are a key technology provider in many of the late stage and commercial vaccines and expect 2021 to be an exceptional year for filtration, given the strong order load and the overall global demand for our products. We expect the filtration franchise will grow in the range of 55 to 60% this year. Overall, we expect the company to grow at 37 to 43% in 2021, with organic growth in the range of 26 to 33%. We expect the first half to be very strong as many of our customers ramp up COVID manufacturing. As we move through the year, our strategic priorities will center on the following. Number one, we want to support ongoing demand for our customers while continuing to prioritize the health and safety of our employees. Number two, we want to build out capacity to support accelerating growth in our business. Three, we want to integrate artisan, EMT, and NMS. Four is around new product launches, including our spike protein resin, next generation flow VPE, and next gen TFF systems. And finally, we want to focus on continued traction in gene therapy. We believe we are well positioned to gain further market share in bioprocessing, relying on our strategy of growth through acquisition, continuous innovation, and expansion of our customer base. We believe that the M&As and highly differentiated new products developed and launched over the last 18 months will propel Repligen to above industry average organic growth over the next three to five years, and we have set our sights on achieving a billion in revenue by 2025. Before concluding, I wish to recognize our 1,100-plus employees around the globe. including our new colleagues at Artisan, EMT, and NMS for their commitment and leadership in 2020. I also want to thank our loyal shareholders and customers for their part in Refugee's success as we look forward to delivering another strong year here in 2021. Now I'd like to turn the call over to John for a report on the financial performance.

Thank you, Tony, and good morning, everyone. Today, we are reporting our financial results for the fourth quarter and full year 2020. as well as providing our financial guidance for the year 2021. 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 revenue and strong earnings growth for both the fourth quarter and full year 2020, supported by strong overall biologics markets and the significant influence we are seeing from COVID vaccine and therapeutic programs. We've also continued to execute on our vision of driving technology leadership and bioprocessing during 2020 through new product launches that drive efficiencies for our customers, through the completion of three acquisitions that support our system strategy, and through new applications for our products as we expand their use into a broader set of drug modalities. We also continued to deliver on our plans expand our manufacturing footprint and capacity, and to build out our IT systems to drive down lead times to enable delivery of increased volumes of our critical consumables, equipment, and systems to help our customers support growth we are seeing in the biologic drug development and manufacturing around the world. Now moving to our fourth quarter and full year 2020 revenue commentary. On our top line, we realize record revenue of $108.6 million in the fourth quarter of 2020, representing 56% reported and 47% organic growth. Within these figures, reported growth includes a 3% tailwind from foreign exchange and a 6-point tailwind from our 2020 acquisitions. For full year 2020, we reported revenue of $366.3 million, with 36% reported growth and 29% organic growth. The reported revenue results include a 1% foreign exchange tailwind and a 6% contribution from acquisitions. The incremental revenue from acquisitions is comprised of partial year revenue from each of our 2020 acquisitions, Artisan, EMT, and NMS, Plus see technologies revenue for the 1st, 5 months of 2020. In the 4th quarter, we achieved a consensus speed of 14.7Million or 13.5% on revenue with approximately 75% of the beat driven by COVID related projects and approximately 25% related to the strength of our base business. Overall COVID programs represented 22% and 13% respectively of fourth quarter and full year 2020 revenues. These same COVID programs represented 17 points of our reported 36% growth for the year. As Tony highlighted, we continue to see strong full year orders growth across each of our four product franchises with overall order growth at approximately 80% in 2020. with about 40 points or half of this growth coming from COVID related projects. On a regional basis for the fourth quarter, Asia continues to be the lead with direct revenue growth of greater than 100%, led by the strength of filtration and chromatography product lines in China. Europe and North America also delivered strong performances with direct revenue growth of approximately 70% and 40% respectively. On a full year basis, Asia was again our top performer with direct revenue growth of approximately 60%. On the same full year basis, Europe and North America achieved direct revenue growth of greater than 50% and 25% respectively. For full year 2020, North America represented 52% of the company's direct product revenue, with Europe and Asia accounting for 30% and 18% respectively. Now moving down our income statement. Fourth quarter 2020 adjusted gross profit increased to 61.1 million, a ramp of 21.4 million or 54% compared to the same 2019 period. Adjusted gross margin for the fourth quarter was 56.3% versus 57.2% reported in the fourth quarter of 2019. Our fourth quarter performance included the impact of planned depreciation from equipment and systems coming online, as well as increased human resource expenses as we continue to focus on capacity expansion to support current and long-term growth. Full year 2020 adjusted gross profit was $211 million, an increase of $57 million or 37% compared to the full year 2019. Full year adjusted gross margin was 57.6%, reflecting a 60 basis point expansion versus full year 2019. Next, we'll shift to adjusted operating expenses. Adjusted research and development expenses increased to 6.7 million in the fourth quarter of 2020, compared to 4.9 million for the 2019 period. Adjusted R&D expenses finished the full year period at 19.7 million 5.4% of revenue compared to 18.8 million spent in the full year 2019 with 2020 spend levels coming in lower than originally planned as we had limited R&D staff on site in Q2 and Q3. Adjusted SG&A expenses for the fourth quarter were 27.2 million compared to 22.2 million for the 2019 period. Adjusted SG&A for the year was $93.4 million compared to $71.8 million for full year 2019, an increase of $21.6 million. The full year spend increase reflects the timing impacts of our 2019 and 2020 acquisitions, investments in personnel to support capacity expansion and commercial activities, and systems and occupancy costs all in support of realized and expected growth. Now moving to adjusted earnings and EPS. Adjusted operating income for the fourth quarter was 27.3 million, an increase of 14.6 million or 115% compared to 12.7 million reported in the fourth quarter of 2019. Fourth quarter adjusted operating margin was 25.1%, an expansion of 680 basis points compared to 18.3% in the fourth quarter of 2019. Adjusted operating income for the full year 2020 period was 98.1 million, an increase of 34.5 million, or 54%, compared to the same 2019 period. Adjusted operating margin for the full year period was 26.8%, representing a 330 basis point improvement over the 23.5% reported in the same period for 2019. Full year adjusted operating margin improvements versus the prior year were driven by strong volume growth, favorable product mix, operating expense leverage, and strong overall operational execution by the business. Fourth quarter adjusted net income was $28.7 million, representing an increase of $17.8 million compared to the fourth quarter of 2019. Full-year adjusted net income was $89.1 million compared to $52.5 million for the 2019 period, representing an increase of $36.6 million, or 70%. In addition to our strong revenue growth and operational performance, adjusted net income also benefited from a low adjusted income tax rate of 8.6% for the year, related to the combined impact of incentive stock transactions and one-time benefits from U.S. tax reform changes related to our U.S.-owned foreign operations. Adjusted EPS increased to 52 cents per fully diluted share in the fourth quarter of 2020, compared to 20 cents in the fourth quarter of 2019, an increase of 32 cents. For full year 2020, adjusted EPS was $1.65 per fully diluted share, an increase of 55% compared to $1.07 for the 2019 full year. Our cash and cash equivalents, which are GAAP metrics, totaled $717 million at December 31, 2020, an increase of $189 million compared to year-end 2019. Our year-end cash position includes the effects of closing our three second-half 2020 acquisitions and an increase of nearly $298 million from our follow-on equity raise closed on December 10, 2020. For full year 2020, we generated free cash flow of $36.3 million, inclusive of $62.6 million of operating cash flow plus $26.3 million of capital expenditures. most significantly related to our facility and capacity expansion projects and IT systems investments. Now we'll transition to our 2021 full-year guidance. Our gap to non-gap reconciliations for our 2021 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2021 2021 guidance, excuse me, discussed will be non-GAAP. Please also keep in mind that our 2021 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a nominal impact on full-year sales and does not include the potential impact of any future acquisitions that the company may pursue. In recognition of the continued strength of the overall bioprocessing market, including estimates of revenues from COVID vaccines and therapeutics that are in development and commercialization, we are setting our 2021 full year revenue guidance, a gap metric at 500 to 525 million, reflecting growth in the range of 37 to 43% as reported and 26 to 33% on an organic basis. Our adjusted gross margin guidance for 2021 is 57 to 58%. We expect adjusted operating income to be in the range of 134 to 140 million with adjusted operating margins in the range of 26 to 27% of revenue for the year. Adjusted other income and expense is expected to be 1 million of expense. relating to cash interest expense from our convertible notes. We're expecting our 2021 adjusted income tax expense to be approximately 20% of adjusted pretax income. We were expecting full year 2021 adjusted net income to be in the range of 106 to 111 million and adjusted EPS to be in the range of $1.86 to $1.94 per fully diluted share. Our adjusted EPS guidance reflects an estimated 57.1 million fully diluted shares outstanding for the full year, an increase of approximately 3.2 million shares. Adjusted EBITDA is expected to be in the range of 153 to 159 million for 2021, with depreciation and intangible amortization expenses expected to be approximately 19.3 million and 24 million, respectively. The company expects to invest 55 to 60 million into capital expenditures in 2021, inclusive of key capacity expansion initiatives for our filtration, chromatography, and proteins portfolios, as well as continued SAP system implementation investments. We expect year-end cash and cash equivalents, a gap metric, to be in the range of 740 to 760 million. with our CapEx investments being fully funded by cash generation from our operations. This completes our financial report and our guidance update, and I will now turn the call back to the operator to open the lines for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Please limit yourself to two questions. At this time, we will pause momentarily to assemble our roster. Our first question comes from Dan Arias with Stiefel. Please go ahead.

Hey, good morning, guys. Thanks for the questions. Tony, I wanted to start with a guide for the year. If I back out $95 million or so from COVID-related revenues from the outlook, it kind of looks like you're more or less guiding to non-COVID growth that's on par with what you saw in 2020, maybe a point higher, but same ballpark. that seems like a pretty reasonable way to start things off. So can you just maybe talk to the puts and the takes that go into that view versus what you saw last year? Are there market or product areas where you think you see something a little bit different than in 2020? Where's the idea that, you know, you kind of probably see a continuation of the trends and the things that drove the non-COVID growth last year?

Yeah. So if you, I think really it's almost like Dan looking at it over the last couple of years, I think we've, Traditionally, being in that 10 to 15 percent organic growth range, this is even before COVID. But we're clearly getting increased traction for our products in the marketplace. We've done a nice job on the gene therapy side. And I think we're moving into that kind of the 15 to 20 percent. organic growth for the company and for the foreseeable future, just based on what we see right now. And then you layer on COVID on top of that. And clearly, I think having the right portfolio of products and the right relationships with many of the COVID vaccine developers put us in a good position in terms and that's kind of carried over here into 2021. So I think you're right. We're right in that 15 to 20% sweet spot. I do think that there is a bit of a trade off that goes on that I'm sure every other bioprocessing company will tell you is that there is a huge demand for capacity at the CDMO level. So CDMOs that are doing, you know, COVID related work, there's always going to be a trade off, right? So other projects and programs will get delayed slightly. you know, for us right now, we think we're in that 15 to 20% organic growth for non-COVID and then the COVID revenue in that 90 to $100 million range. And obviously, you know, obviously that's an incremental, you know, 55 million versus last year.

Yep. Okay. And then just maybe on new products, because you do have a bunch of those that are in the mix here. Do you have a view on the contributions to organic growth that the stuff that's been internally developed over the last, you know, call it 9 to 12 months, TFDF, ATF controller, FlowVP, what are you kind of penciling in for this year if you have a number? And then specifically for TFDF, how is the launch of that product going now that we're a couple of quarters in? How are you feeling about taking share within TFDF? the depth filtration mark. And then if I could just also ask, what is the outlook there for cell and gene therapy? I remember that Oxford Biomedica paper last year kind of making it seem like that could prime the pump for that product in that area. Thanks a bunch.

Yes, I'll start with TFDF. Obviously, this will be the second full year that we've put TFDF in the market. We started off with the CHO strategy. That continues to be probably the primary driver of growth right now. So we've got many valuations that have gone on, very successful valuations. Like all products, though, and I think we said this a year ago, we expect, you know, it's a business that we expect will double every year for the next few years. And we had set a target of a couple of million dollars for TFDF last year. We beat that. We're in that two to three million dollars in revenue. We expect it will double this year. Adding in the gene therapy piece and the Oxford paper that you referenced, yeah, has resulted in additional evaluations going on, and we expect that that's going to be another catalyst and another application area for TFDF technology. So I think all of that is very positive. I think if you start to look at it purely from what are we factoring in to our organic growth this year coming from new products, it's a couple percent down. It's not much more than that.

Hello. Our next question comes from by Jill Peterson with JP Morgan. Please go ahead.

Hi, good morning. This is Julia on for Tyco. Thanks for taking a question. So starting with the vaccine tailwind that you've got it to, obviously it's been up from the previous range of 50 to 70. I'm just wondering if you could elaborate on what kind of factors are driving the change. Is it just scale up with your existing customers? Is it perhaps a new, you know, COVID variant speeding up development of next generation vaccines or is it like incremental contribution from the new ligand or the next gen flow VPE that you caught out earlier?

Yeah, it's essentially just increased demand for those vaccines and therapeutics that we're involved in. And, you know, as we went through, As John pointed out, when you look at our Q4 performance, the 75% of the beat came from COVID. That came from increased demand from the vaccine developers, from the therapeutic companies that we're working with. And that's what's really driving the increase again here in 2021. We have more visibility, Julian, now to what's required in 2021 versus three months ago or six months ago. And we'll see as we go through the year how that plays out. I can say there's very little that is around next generation vaccines or therapeutics. It's really the processes and opportunities that we're in today.

Got it. And then regarding your product level guidance for 2021, I'm just curious because obviously the filtration guidance is significantly stronger than for the other product segments. So just wondering what really, you know, is allowing filtration to benefit, you know, that damage more significantly from, you know, from COVID vaccine therapeutics. And then separately for the protein outlook, Obviously, very strong outlook for 2021, but I also remember that the prior expectation for the Cytiva contract was by the end of this year, so has that been extended out, or how should we think about, you know, the insourcing expectation?

Sure. On the filtration front, you know, if you've If you think through some of the comments we made already this morning, you know, 60% of our COVID revenue in 2020 came from filtration. So, you know, if you also look at what we have in our filtration portfolio, it's the biggest portfolio of products that we have. If you look at chromatography as a sort of an example, the main driver in chromatography is our prepack comms, Opus. If you look at filtration, we have hollow fiber technology. We have flat sheet technology. We have systems. We have the fluid management ProConnex product line. We've got new products coming in from Artisan and EMT NMS. So it's just a bigger portfolio, Julia. And as I said, we've benefited on the COVID side. front from our filtration portfolio. We are obviously selling our Opus prepack comms into those applications as well, and we're selling our Solo and Flow VPE technology into those applications. But there's a lot more shots at gold because of the depth and breadth of our filtration portfolio, and that's really the reason why it's growing faster than the other product lines. On your proteins question, yeah, we've said that our goal is by the end of this year to work with Cytiva to extend our contracts. We'll continue to have those discussions, and we'll update you guys as we move through the year.

Got it. Thank you.

Our next question comes from Paul Nye with KeyBank. Please go ahead.

Hi, Tony. On the hollow fiber filtration technology, is that an alternative to Protein A, or is the technology there yet?

Yeah, so on the hollow fiber side, Paul, it's really the main application is downstream. It would be after the Protein A step. So it's more like a diafiltration, ultrafiltration type application. So they're connected, but they're not replacements for each other.

Right. And then what do you worry about this year? Are you getting enough raw material supply, polymers, et cetera?

Yeah, I would say if you speak to the bioprocessing industry, everybody is – you know, hiring as fast as we can. We're all trying to build out excess, extra capacity. Everybody's got pretty strong order books. It's really around execution.

Right. And then lastly, do you think customers are building for the equivalent amount of vaccine production in 2022, or can you even tell?

Based on what we see right now, I would say that what they're building is what's required. And, you know, every company is trying to produce more. And I think that's part of the increase we saw in Q4. And obviously, I think it's a big part of the guidance that we're putting out today. But I don't think it's 2022. I think it's all 2021. Right. Okay. Thanks. Thanks, Paul.

Our next question comes from Jacob Johnson with Stevens. Please go ahead.

Hey, thanks. In terms of the COVID orders you're receiving right now, how much visibility do you have today for full year 2021 demand? It sounds like guidance assumes these revenues are maybe heavier in the first half of the year. If we see customers continue to manufacture in the second half of the year, would that be additive to your outlook? And I guess, how should we think about the cadence of COVID-related revenues in 2021?

Yeah, it's definitely some accounts we have visibility for the full year, but orders placed for the first half of the year. Others we have visibility through the first half of the year. Our guidance is based on where we see 2021 playing out, especially on the COVID side. But we don't have full visibility, Jacob, to you know, what's going to be required by various companies that we're working with. We have a good sense. We have definitely got orders from some of the companies that go out through Q4. Others, we have orders that are in the first and second quarter.

Got it. That's helpful. And then it looks like the Defense Production Act worked to secure a variety of inputs for vaccines. That actually included tangential flow filtration products Can you just talk about demand for those products relative to your capacity right now and if you're having to prioritize these products for vaccine customers?

Yeah, look, I don't think we're any different than anyone else in the industry. We're all trying to prioritize COVID vaccines and therapeutics and at the same time trying to balance getting product to all the other customers that we have. So that's really the challenge that everybody's facing in the industry. So it's a It's a balancing act. The demand for COVID is based, you know, vaccines and therapeutics. And whether it's TFF or it's, you know, chromatography resins or it's, you know, prepack comms or whatever the product line is, there is a real strong demand right now. And everybody is trying to prioritize the COVID customers as high as we can, but at the same time still trying to provide to all the other customers that we have in our industry. in our portfolio and company.

Got it. Thanks for taking the questions, Tony.

Our next question comes from Matt Hewitt with Craig Helm Capital Group. Please go ahead.

Good morning. Congratulations on a fantastic year. Just a couple for me. First off, once you've finished integrating the Artisan system, we should start to see some pull through for chromatography and some of the other products in the portfolio. Has that been baked into guidance, or would that represent upside?

Yeah, the pull-through, probably not baked into any of the guidance. But when we look at our – just like every deal we've done over the last six, seven years – year one, which is really this year, is all around building out the infrastructure. So we need to build out the commercial team for systems. The good news is that because we sell hollow fiber systems, we do have a very strong team of folks that are out in the field that are specialists on systems. So we just need to expand that group and build it out. At the end of the day, we've set some targets for ourselves. The revenue synergies pulled through really won't start to kick in until 2022. So this year is around getting all the foundational pieces right, making sure we have the right funnel of opportunities, make sure everybody's trained, make sure the customers that Artisan has spent many years nurturing and developing that they're taken care of. and we just expand that overall customer base. So that's the goal. And, yeah, I think it will be 2022 before we start to see kind of pull-through opportunities.

Okay, great. And then regarding Flow VPE, I think you mentioned in your prepared remarks you're up to 20 clinical evaluations now. Maybe walk through the ramp there. What did that look like maybe in Q3? And then what does that – I don't know if it's not necessarily order book, but how are the discussions ramping up? I mean, are you adding 10 to 20 a quarter, or just maybe help us directionally think about that business? Thank you.

Yeah, so, you know, flow of VPE is something that I'm a huge fan of, and I just think that And this goes back to even my own role in the 1990s at companies like Perceptive Biosystems. There's a real need for in-line process monitoring, and Flow VPE solves a major problem that's out in the marketplace, which is can you measure antibodies, proteins, nucleic acid at very high concentrations without having to do any dilutions? And that's what Flow brings to the table, and you get those results in seconds. So, you know, I think as we've increased our team, right, in terms of commercial and applications people, we've got a dedicated team focused on flow. They continue to have technical discussions with big players in our industry about implementing a technology like this. where we were 12 months ago versus where we are today is night and day, right? I think there's a lot more customers who absolutely see the value. They'll go through evaluations at the process development level, and eventually they start to move into the clinical sort of manufacturing arena. So we expect that, you know, the business will ramp this year, but I would say 2022, 2023, 2024 is where we're going to start to see, you know, a lot more flow VPE, especially the next gen version of the technology being put into the manufacturing and going all the way through to commercial manufacturing of drugs. Got it.

All right. Thank you very much.

Our next question comes from Punit Sudha with SBB LearLink. Please go ahead.

Hey, great. Thanks, Toni. So my first question is on, and I don't know if this was covered before, but in terms of gene therapy, what are you seeing? Obviously a strong growth there and wondering what you're baking in for the full year here in the guidance.

Yeah, so probably a similar year. Again, I think there's a little, you know, when we look at the gene therapy customer base for us in 2020, there was, you know, a significant number of companies that are actually working on COVID-based, you know, viral vector drugs. So we excluded those in terms of our calculations. We're around that 30% mark. We expect we'll be in that 25% to 30% growth. Again, there'll be some tradeoffs, but we really, really like the portfolio of products that we have. Our customers really see the value, and we're going to continue to focus in this area. Like many players in bioprocessing, we see this as one of the growth drivers for the foreseeable future. So, yeah, it'll be in that 25% to 30% range is our guess right now.

Okay, that's great. And then if I could ask on capital deployment, I mean, you obviously have been very active here, Artisan, EMT, other acquisitions that you have made. As you look at the current landscape, Tony, you know, valuations-wise and overall, the demand in the market, what are you seeing out there? And just help us understand if anything has changed in your strategy in terms of acquisitions and inorganic growth, as well as if John could talk about the capital deployment broadly, that would be great too.

Yeah, so on the M&A front, nothing's really changed in the sense that the strategy we've deployed over the last four or five years is the strategy we're going to deploy over the next four or five years. It's highly competitive, as you know. Everybody is looking for technology assets, so it's maybe a little different than three, four, five years ago when you might be competing with one other company when you look at potential targets. But there's a lot of banker activity out there. There are a lot of, you know, technologies that are available. You know, we'll continue to, you know, select the targets that we think make the most sense for Repligen. So I don't think the pace is going to be any different, Puneet. I don't think – I think we've got a good strategy. We have a strategy for each of our divisions. And so each of those divisional strategies have an M&A element to it. And as we see targets or opportunities to execute, we'll go ahead and execute. And obviously being able to do capital raise back in December puts us in a pretty good position from a cash perspective.

I can talk to Capital Deployment. This opening, you know, we finished the year with about $717 million in cash. You know, puts us in a really nice position. Obviously, we're going to continue to look at M&A opportunities and opportunistically, you know, continue to work on those things. You know, the other things that we're doing this year with Capital, obviously, we're reinvesting quite a bit in the business to build out capacity. And across all of our, you know, filtration franchises, Um, systems, um, even even in proteins, we're looking at opportunities to expand capacity, um, both from a, from a, you know, from a footprint and equipment perspective, but also from a headcount perspective, and we're adding headcount pretty quickly. And then I think the third thing that we're putting an emphasis on is obviously we want to make sure our part of the supply chain is not being disruptive to our customers. So we are making investments in working capital in areas like that, like inventory as well. So you should continue to see those strategies be active throughout 2021 and 2021. Obviously, we'll continue to relook at things as we get through the year 2021 and into 2022 about what we need for the future, just to support, obviously, the current growth we're seeing, but also the future growth that we expect.

That's very helpful. And last one, if I could, Ms. Tony asked on the Navigo proteins that you launched, the affinity resin that was launched recently. What's the expectation there? Obviously, these vaccines productions have already started. So could you just give a sense of how they get plugged into the current productions and what's your expectation for that product this year?

Yeah, so we have not built a lot of revenue in for the spike resin, and it's not like we're not excited about being able to develop and bring that to market. But you're right. I mean, anyone who's in a commercial process, it's going to be challenging for them to go ahead and swap out. So I think it's really going to be around next-generation vaccines. And just for everybody on the call, this particular resin does not work with mRNA-based vaccines or viral vector-based vaccines. It's all based on protein-based vaccines, such as spike protein. So it binds to spike protein. So that's the target. So the subset of vaccine manufacturers is smaller than the total set that's out there.

Okay, that's great. And great to see what you're doing here for the vaccines.

I appreciate it.

Thanks, guys.

Yeah, thanks, Puneet.

Our next question comes from Brandon Quillard with Jefferies. Please go ahead.

Good morning. Tony, in terms of the gene therapy customer base and the recent and the expected growth from that in-market, I'm curious if you're able to characterize the contribution from new accounts as opposed to existing customers to whom you're selling, you know, more products into and maybe taking a greater percent of wallet share, you know, and really, you know, of that, you know, call it 75 kind of core customers. If we look at maybe like the top 10 or 15, are they buying, you know, a fraction of the portfolio or are they kind of buying sort of a full suite of products?

Yeah, great question. I would say that it's definitely a subset of the portfolio. So we've attended, you know, I would say that our You know, ATF technology, prepack comms, hollow fiber technology systems. So it's probably at least half our portfolio is definitely selling into these accounts. And especially the bigger accounts, they're buying and utilizing multiple products in our portfolio. I don't have the exact breakdown on new account contribution. But, you know, my just recollection is you're going to have every year accounts that were Let's say in that top 75 significant accounts in, let's say, 2021, probably some of those will move out and they may be slower in, let's say, last year, 2020. In 2021, they may slow down. Some of them might slow down, but you'll see others coming in. I think what's really encouraging, Brandon, is the fact that we were adding that 10 to 15 new accounts per quarter last year. The contribution from those accounts is going to be pretty small in terms of revenue in 2020, but they'll start to pick up here in 2021. Those accounts, some of those will definitely move into our top positions. you know, 75 or top 100 as we go through the year. And I think to me, it's a little bit like just build a funnel, because I think if we build a funnel, then we have more shots at gold and we'll continue to see the growth in this part of the market for Repligen. So really encouraged. I think a year ago, we had probably 50 significant accounts. Now we have 75. So I think we're heading in the right direction.

That's very helpful. And then just one more on the COVID side. In terms of the revenue contribution, can you talk about the breakdown between COVID vaccines as opposed to MAP-based therapeutics, and if that mix is any different between last year and 2021?

No, I don't think there's any real difference in 2021 versus 2020 on a percentage basis. The vast majority of our COVID revenue is coming from vaccines. Gotcha. Thank you.

Again, if you'd like to ask a question, please press star then one. Our next question comes from Ram. Please go ahead.

Thanks very much for taking my questions and really impressed with all the solid performance over the course of 2020 during a really challenging and disruptive time for most people, which doesn't seem to have broken your stride at all. Wanted to ask two things. Firstly, regarding the vaccines, can you give us a sense of which types of vaccines in particular you're most likely to have your technology be applicable to. If you can maybe cite specific products, that would be very helpful, but I understand if you're not in a position to do that. And if you can also talk through a little bit about the sustainability of these revenues given all the discussion around how COVID-19 is going to be an endemic problem, the emergence of these new coronavirus variants, which appear to indicate that vaccines for COVID-19 are going to be part of the landscape for a very, very long time. And then I had a follow-up on the gene therapy side of the business. Thanks.

Yeah, on the COVID front, yeah, we haven't come out and said, oh, we're in vaccine X and Y. But I think when you go back and look at what I said in my prepared remarks, we're in the majority of the late stage in commercial processes. So we're definitely working with viral vectors and mRNA and protein-based vaccine manufacturers. And all our products, if you think about it, You know, anyone who's working on viral vectors, all the work we've done in the gene therapy space, those technologies work just as well if it's, you know, a viral vector that's in gene therapy or a viral vector that's going into a vaccine. On mRNA, we've been working on the mRNA front for a number of years. Again, you know, majority of what we're doing there is probably filtration-based and prepack comms. And then on the protein side, you know, we're working with companies on that as well. And, again, it goes across the board in terms of products, whether it's our products in our filtration portfolio, in our prepack comms, and, you know, down the road, hopefully the spike resin will be something that will be used for next-generation vaccines. You know, in terms of where the frequency of vaccination is, It feels like a bit of a roller coaster over the last nine months. I think six, nine months ago, everybody was like going, well, maybe it's a shot every two to three years. Some people were thinking every five years. Now everybody's thinking it's every year. I just don't think we know. And, you know, what we're doing right now is just focused on 2021. on the execution that needs to happen to support the customers that have asked us to work with them, who have basically adopted our technologies at the same time trying to also to get the products out to all our other customers on our list. So that's really our focus. Where it plays out, Ram, on the frequency of vaccinations, and whether, you know, we'll have additional vaccines for variants and whether that will be an annual shot or every two years. I just don't know right now. I don't think anyone really knows, and we'll see how that plays out as we go through 2021.

Rob, I'd just add on that, on the capacity side, you know, we're taking a longer-term view of that, but certainly, you know, we don't know how that's going to evolve in terms of the recurrences of vaccines coming through.

Okay, and then just very quickly on the gene therapy side of the business, I was wondering if you could give us a little bit more color on your sales and marketing process as you reach out to potential new gene therapy customers. And, you know, what is the principal thrust of the sales argument for potential gene therapy entrants, gene therapy companies to utilize Repligen systems, Repligen suite of applicable products? Thanks.

Yeah, and the world has changed in the last 12 months. So a lot of what we're doing now is virtual, right? So a lot of the marketing is digital marketing. So we're focused on technology seminars to get initial interest in place. And then that's followed up a lot with applications-based work by our field applications team. And once all that's done, then that results in a decision at the customer level, whether it's you know, a technology that Repligen has outperforms a technology that comes from one of the other bioprocessing players or we solve a problem that hasn't been addressed before. I think for us, you know, we're focused on improving the overall efficiency of a process and improving overall yield. So if we stay focused on those two things, then it allows us to have really good conversations with customers. But 90% of what goes on in our industry comes down to a bake-off. In other words, a technical evaluation and a decision based on data. So that's really how we play. That's how we win. And I think we're happy with the portfolio of products that we have. Thank you so much.

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

I just want to thank everybody for joining us today. Obviously, 2020 was an outstanding year for the company. Clearly, we have set some high expectations for ourselves for 2021, and I look forward to jumping back on a call in May and bringing you guys up to speed on where we're at. So thanks for joining.

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