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spk04: Good day, ladies and gentlemen, and welcome to the Repligen Corporation's second quarter of 2021 earnings conference call. My name is Matt, 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 star then zero. 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. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to your host for today's call, Sandra Newman, Head of Investor Relations for Repligen. Please go ahead.
spk00: Thank you, Matt. Good morning to everyone on the call. We appreciate you joining again. This morning, we'll be covering financial results and business highlights for the three- and six-month periods ended June 30, 2021. We'll also update our financial guidance for the current year. We've got President and CEO Tony Hunt, who 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 can 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 Securities and Exchange Commission. 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 are 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. 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, other income and expense, 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 Replicant'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.
spk10: Hey, thank you, Sandra, and good morning, everyone, and welcome to our Q2 earnings call. We're very pleased with our performance in the second quarter and through the first half of 2021. Our reported organic revenue growth of 69% year-over-year, along with significant margin expansion, reflects the outstanding efforts by our entire team as we focus on capacity expansion and capital project programs to meet accelerating demand, on fast-tracking the hiring of more than 300 people, completing the next phase implementation of SAP, while delivering critical products to our expanding customer base. We also executed on our M&A strategy, adding an important player in hollow fiber technology to our fast-growing filtration franchise. As noted in prior quarters, we continue to see very positive performance in our non-COVID-based business, which was up 35%, accounting for 66% of revenue and 31 points of total growth. We had another strong COVID quarter, which represented 27% of our revenue or 42 points of our total growth. Finally, revenue from acquisitions we made in 2020, namely Artisan, EMT, and NMS, represented 7% of our revenue and 13 points of growth. We continue to be encouraged by the sustained strength in our non-COVID business, where all our franchises continue to perform above our expectations, led by our filtration franchise, which was more than doubled through the first six months of 2021. On the orders front, we continue to see strong momentum with orders up approximately 140% in the first half of this year compared to 2020. As customers continue to fill out the order book for the second half of 2021 and first half of 2022. In the quarter, COVID orders represented 28% of the order book. Given the strength in orders and overall first-half revenue performance, we now expect 2021 to finish between $625 and $645 million, with COVID revenue coming in between $170 and $180 million. Our base business growth should be north of 30%, reflecting the strong adoption of our core technologies and bioprocessing. Looking into 2022, we have increasing visibility into demand from COVID accounts, with orders currently being placed for next year. While there are still more accounts of yet-to-place orders, our COVID order book has filled up to greater than $100 million over the last few months, and we expect that COVID revenues in 2022 will be approximately $200 million. Before jumping into the quarterly results, I want to provide some commentary on our acquisition of PolyMEM, an update on the performance of EMT, NMS, and Artisan, and a progress report on our capacity expansion plans. As announced on the 1st of July, we close on the acquisition of PolyMEN, an expert in hollow fiber manufacturing spanning industrial and bioprocessing markets. This is a very important acquisition for us as it provides us with three main benefits. One, a meaningful and immediate two to three-fold increase in overall hollow fiber membrane and module capacity. Two, an innovator in membrane development with strong synergies in bioprocessing applications. Finally, three, an incredibly talented team with a strong cultural alignment with Repligen. We have worked with the team at PolyMEM over the last year, and they are now producing hollow fiber modules for our bioprocessing customer base as we ramp up our overall manufacturing production for our filtration products. Looking to the future and overall integration objectives, our goals are to continue to support Polymem's industrial customer base through increased capacity and broader commercial reach, to accelerate the R&D pipeline with a focus on innovation in membranes and modules, and to expand their manufacturing footprint to support bioprocessing demand. We expect their industrial business will grow in the range of 15% annually, and the bioprocess business will roll into our filtration franchise, supported by our commercial channel. With respect to EMT, NMS, and Artisan, we're extremely pleased with overall performance in the first half of 2021, as our commercial organization has moved quickly to integrate these products into our systems and fluid management portfolio. The performance reflects the strong fit with our overall bioprocessing business and the speed of integration into Repligen, which has gone well. We expect that these businesses will be at or above the high end of a $43 million to $46 million guidance range by the end of the year. We also expect Polymem to contribute $3 million to the second half of 2021. As noted in May, our number one priority continues to be building our capacity to support accelerating demand across all of our businesses. Our operations team continues to do an outstanding job, and this is clearly reflected in the margin performance in Q2, as we have systematically added capacity for Opus prepack columns, hollow fibers, flat sheet sets, and systems. To support our long-term growth targets and ensure that we have ample production capacity, we recently signed the lease for a 64,000-square-foot facility in Hopkington, Mass., and we are set to build out a 33,000-square-foot LEED Silver Certified Building in Waterford, Ireland, that was developed by the Irish Industrial Development Agency and is very close to our artisan headquarters. Both the Hopkington and Waterford sites will become centers of excellence for assembly, which include ProConnex flow paths for our systems. In addition, the Hopkinton plant will support our expansion plans for Affinity Ligand product lines that is already set up to support E. coli manufacturing. We are making quick progress and expect both facilities to come online in 2022. Coupled with our ongoing 67,000 square foot expansion in Marlborough, we will be well positioned to support our growth through the next five years. So moving now to our quarterly performance. The story of the quarter was the 35% non-COVID-based business growth and the continued strength of COVID accounts. Order load, as noted earlier, was exceptionally strong, with our non-COVID accounts contributing greater than 70% of this overall demand. Infiltration, our business more than doubled in Q2 and through the first six months of 2021. The strength infiltration was broad-based. our ATF business doubled in the quarter, with Asia now representing more than 30% of these sales. We saw strong demand for our single-use ATF devices in COVID applications, as well as in gene therapy, where ATF is fast becoming the standard for viral vector intensification. In our flagship cassette business, our non-COVID account revenue was up over 60%, reflecting best and last lead times as we have rapidly built out our capacity here in 2021. Our hollow fiber business on the system side was up approximately 100%, driven by the strong demand for our benchtop hollow fiber systems. Finally, we were able to add in some new vaccine and diagnostic wins, which will help bolster revenues in the second half of this year and in 2022. For the full year, we continue to expect our filtration business to double. Moving to chromatography, our Opus prepack column business had an excellent quarter driven by gene therapy and COVID customers who continue to implement prepack columns into their manufacturing process. As our customer base continues to adopt and implement Opus, we are delighted that our Breda facility is now online and ready to pack and ship columns here in Q3. This will give our European customer base a local manufacturing hub and will make it much easier for these customers to ship chromatography resins to Repligen for column packing. For the year, we anticipate that the chromatography franchise will grow in the range of 35% to 45%. Our OEM proteins business had another strong quarter as we have seen an uptick in demand for both our protein A ligands and growth factors. With a strong order book in Q3 and continued strength forecasted through to the end of the year, we now expect proteins to grow north of 30% this year. Finally, our process analytics business continues to accelerate as customers adopt solo VPE and new accounts and flow VPE into process analytic technologies or PAT applications. For the quarter, the business was up greater than 40%, very similar to our results in Q1, with new accounts again accounting for almost 50% of the systems sold. Our Flow VPX system was officially launched in the quarter and we are seeing high interest and strong adoption of this technology in applications ranging from chromatography to fill finish. As customers look to get accurate real-time protein concentration data on the manufacturing floor for their target drugs. We expect that the first half momentum will carry over into the second half and we now anticipate growth in the range of 30 to 35% for the year. So overall, we had another outstanding quarter in Q2, where we had really good balance between our COVID and non-COVID accounts and strong execution operationally, which drove the significant margin beat. We are especially encouraged by our base business growth, which we anticipate will be north of 30% this year. With additional capacity coming online, new products continue to hit the market, excellent performance by our recent M&As, the future is bright. and we continue to execute on our long-term growth targets, which we are now revising with the goal of surpassing a billion dollars in revenue in 2024. We look forward to updating you on our progress through the year, and with that, I'll turn the call over to John for the financial update.
spk09: Thank you, Tony, and good morning, everyone. Today, we are reporting our financial results for the second quarter 2021, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we again delivered record revenue and strong earnings growth for the second quarter of 2021. We are also seeing significant order intake, supporting our outlook for the second half of 2021 and into 2022. As Tony highlighted, our base business continues to perform very well, up 35% year over year, and contributing 31 points to overall revenue growth of 86%. The strength of our base business, which excludes COVID-related revenue and inorganic M&A revenue, was driven by across-the-board gains in each of our four product franchises. We also continue to see robust sales and orders from our COVID-related business, which contributed 42 points to overall revenue growth in the second quarter. Finally, inorganic growth from our 2020 acquisitions of EMT, NMS, and Artisan drove 13 points of the 86% growth in the second quarter. Overall, we continue to benefit from an acceleration in demand for our products from a robust biologics market that continues to pivot towards more flexible and efficient manufacturing solutions. During the second quarter, our operational focus was on capacity expansion, integrations of our 2020 acquisitions, and the completion of deal-related activities for our Polymem acquisition that closed on July 1st. We also completed phase three of our SAP implementations with our Sweden, Germany, and Clifton Park, New York locations going live in May. On the hiring front, we've continued to expand our R&D and global commercial teams and operating infrastructure. During the first half of 2021, we added over 300 individuals to our team, a 30% increase from year end 2020. These operational investments are key to supporting the acceleration of growth across all of our product lines as we focus on driving best-in-class lead times. Now shifting to our second quarter 2021 revenue commentary. On our top line, we generated record revenue of $163 million in the second quarter of 2021, representing reported growth of 86% and organic growth of 69%. Included in our reported growth figures is a five-point tailwind from foreign exchange. Overall, the composition of our second quarter revenues includes our base business representing 66% of total revenue, COVID program revenues representing 27%, and our 2020 acquisitions contributing about 7%. Complementing our revenue growth, we continue to see excellent orders traction in each of our product franchises, with overall order growth of nearly 140% through the first half of 2021. In terms of regional revenue growth for our direct products in the second quarter, we continue to see very positive momentum. Revenues from Asia rest of the world were up more than 115%, led by the strength of our filtration products in China, Korea, and India. Europe grew at greater than 170 percent in the quarter, and our North America region also continued to perform well with revenue growth of greater than 70 percent. As it relates to direct product revenue composition for the second quarter of 2021, North America represented 42 percent, with Europe and Asia representing 36 percent and 22 percent, respectively. Now, moving down our income statement. Adjusted gross profit increased to 101.1 million in the second quarter of 2021, an increase of 50.1 million, or 98%, versus the second quarter of 2020. Adjusted gross margin increased to 62% in the quarter, compared to 58.2% from the same period in 2020. This 380 basis point improvement reflects benefits from positive volume leverage, higher column versus resin content of our OPUS product line, and the timing of planned expense increases in facilities, equipment depreciation, and headcount additions tied to our capacity expansion initiatives. Based on the strength of our year-to-date 2021 performance and our expectations for a strong second half of the year, we are increasing our full-year adjusted gross margin guidance to 59% to 60%, up from our prior anticipation of 57% to 58%. We'll now transition down the P&L to adjusted operating expenses. Adjusted research and development expenses increased to $8 million in the second quarter of 2021, compared to $4.1 million in Q2 of 2020. R&D dollars continue to be directed towards expanding our global R&D team capabilities in systems, filtration membranes, and gene therapy. We also increased spend on key R&D programs spanning our four product franchises, with the goal of launching several new products in the next 12 months. Second quarter 2021 adjusted SG&A expenses were $36.4 million, or 22.3% of revenue, compared to $21.2 million, or 24.3% of revenue for the 2020 period. The increased SG&A spend on a dollar basis was related to the timing of our 2020 acquisitions, plus investments in personnel and occupancy, and depreciation expenses. Now moving to adjusted earnings and EPS. Second quarter 2021 adjusted operating income was 56.6 million versus 25.5 million reported in the second quarter of 2020, an increase of 31.1 million or 122%. Second quarter adjusted operating margin was 34.7%, an improvement of 550 basis points compared to 29.2% in the 2020 second quarter. Adjusted operating margin expansion in the second quarter of 2021 reflects the impact of strong volume leverage, with our revenue growth accelerating faster than our capacity-related investments. Based on our first half of 2021 performance and the expected strength of our markets and operational performance for the second half, we are increasing our full-year adjusted operating margin expectations to 29% to 31%, up from our prior outlook of 27% to 28%. Adjusted net income was $44.9 million in the second quarter of 2021, representing an increase of $22.4 million, or 99%, versus $22.5 million in the 2020 period. Our strong growth in operating performance in the quarter was partially offset by a higher adjusted income tax rate of 19.3%. compared to the 9.1% adjusted tax rate from the second quarter in 2020, which benefited from unusually high stock vesting and exercise impacts. Adjusted EPS increased to 79 cents per fully diluted share in the second quarter of 2021, compared to 42 cents in the 2020 period, an increase of 37 cents or 87%. Our cash and cash equivalents, which are GAAP metrics, totaled $734 million at June 30, 2021. We'll now transition to our 2021 full-year guidance. Our gap to non-gap reconciliations for our 2021 full financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2021 financial guidance discussed will be non-gap. Please also keep in mind that our 2021 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 3% tailwind on full-year sales. and does not include the potential impact of any future acquisitions that the company may pursue. Based on the continuation of our robust bioprocessing market and the strong operational execution in our business, we are increasing our 2021 full-year revenue guidance, the GAAP metric, by $57.5 million at midpoint up to $625 to $645 million. This represents reported growth in the range of 71 to 76% and organic growth of 57 to 62%. We are increasing our 2021 adjusted gross margin guidance to 59 to 60%, up two points from our previous guidance range of 57 to 58%. We are raising our adjusted operating income guidance by 35.5 million at midpoint to a range of 192 to 197 million and boosting our adjusted operating margin range by 250 basis points at midpoint to the range of 29 to 31% of revenue for the year. With respect to adjusted other income and expense, we are increasing expense to $2 million from our prior guidance of $1 million related to transactional foreign exchange exposure realized in the first and second quarters of 2021. We continue to expect full year 2021 adjusted income tax expense to be approximately 19% of adjusted pre-tax income. This guidance assumes an adjusted tax rate of 21% for the second half of 2021 and does not consider the potential impact of additional employee stock transactions, which we expect to be modest for the remainder of the year. We are raising our adjusted net income expectations for full year 2021 by $28 million at midpoint to the range of $154 to $158 million. And we are boosting our adjusted EPS range expectations by $0.50 to $2.71 to $2.78 per fully diluted share. Our adjusted EPS guidance reflects an estimated 57 million weighted average fully diluted shares outstanding for the year. Our full year 2021 adjusted EBITDA range is being increased by 34.5 million at midpoint to the range of 210 to 215 million with depreciation and intangible amortization expenses expected to be approximately 19 million and 21.3 million respectively. Company continues to expect to invest $60 million into capital expenditures in 2021, consistent with our previous guidance. This includes key capacity expansion initiatives for filtration, chromatography, and proteins portfolios, as well as continued SAP system implementation investments. Inclusive of the compensation paid for our PolyMem acquisition, which closed on July 1st, we expect year-end cash and cash equivalents, a gap metric, to be in the range of $740 to $750 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.
spk04: 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. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. In order to accommodate all individuals who wish to ask questions, there will be a limit of two questions at a time. At this time, we will pause momentarily to assemble our roster. Our first question will come from Dan Arias with Stifel. Please go ahead.
spk08: Hi, good morning guys. Congrats on the quarter. Sorry for the cold here. John wanted to start with the gross margin performance and the margin guide for the year. Well above what we were looking for for the quarter. How should we think about the impact of just the leverage on the higher volume and the capacity changes versus the timing element on, I think payments that you mentioned. If I look at the gross margin outlook for the year, It kind of looks like you need to dip down a couple of hundred basis points in order to get to the middle of the 59% to 60% range. So is there something discreet there? And to what extent should we kind of think about a new floor going forward at the gross margin line?
spk09: Yeah, so I can give you a good overview of that, Dan. For Q2, obviously, we're at 62% adjusted gross margin. And then year-to-date, we're at about 60.8%. So, you know, as a result of the first half performance, we did see, you know, very nice volume leverage. We also saw some mixed benefits that we touched on within our Opus product line. as well as a high degree of volume from proteins and filtration, which was favorable from a mixed perspective in the first half. As we look at this, we've raised our overall guidance by about two points, up from that 57% to 58%, up to 59% to 60%. And what this implies actually for the second half is a midpoint of gross margin for the second half of the year of 58% to 58.5% in that range. And so what we expect to see for the second half of the year is just a number of investments that we've been making throughout the year but should intensify with our expanded footprint, with more depreciation expenses and more headcount expenses as we come through the second half of the year. But Definitely a little dip down, but, you know, 58.3% or 58.5% is pretty formidable for the second half compared to historical margins we've had.
spk08: Okay. Any thought on next year? I mean, I know we're not there yet, but just given where you went to this quarter, sort of like level set where you might come back to for 2022? Yeah.
spk09: Yeah, a lot's going to depend on volumes and what we're able to see coming into the revenue forecast. It's a little bit early to say that, but I would say, Dan, if we're finishing the second half of the year in that 58% to 58.5%, that's probably likely a good starting point for the year, and hopefully it would ramp up a bit through the year.
spk08: Yep. Okay. Thanks a bunch. Tony, maybe just one for you, obviously pretty strong performance on the non-COVID business to your point. Can you just maybe walk through some of the factors that you think are driving acceleration just when it comes to clinical development advancement, phase 1s to 2s, 2s to 3s, larger orders. I mean, I know you've mentioned selling capabilities when it comes to the portfolio. So just curious to get your thoughts on what you think is driving the acceleration there. And then along those lines, I mean, one of the other things that you mentioned or referenced anyways is just that some of the COVID work that you've done for the government or that you've been obligated to do, has at times put a bit of a constraint on the non-COVID business at some point. So is there anything to read into the results here that says that maybe that's easing a bit, or is it just sort of a different dynamic altogether?
spk10: Yeah, I mean, when you look at the overall performance in Q2, and honestly, when you look at it for a full year where we're projecting out now 30% growth for the non-COVID business, it is across the board. We're really pleased with the filtration portfolio when you look at our hollow fiber performance. modules, you look at our systems, the flat sheet cassette business, the artisan systems that we've now added in, all of those have really added to the overall growth. I think it's more of a reflection of the work that's been done over the last four or five years. We have a pretty healthy funnel of early-stage to mid-stage opportunities that continue to move through the clinical pipeline. I think ATF is a great example. I think for the last maybe five-plus years, ATF, we've lots of phase one, phase two. We've seen a lot more companies bring the technology through to phase three commercial, and we've definitely benefited from that. Other product lines, our analytics business is up 40% again year over year. This is just the focus of putting a commercial organization in place. So if I had to summarize, I would say it's the investment we've made in commercial over the last few years to really, you know, make our territories a little smaller, a little bit more focused. And then I would say over the last 12 months, it's the investment we've made in capacity that many of our product lines, we've really got ahead of the capacity challenge, and we're benefiting a little bit from sort of shorter lead times.
spk08: Okay, super. Thank you, Tonya.
spk04: Our next question will come from Punit Sudha with SVB Lyric. Please go ahead.
spk11: Great. Thanks. And Tony, congrats on the strong quarter here. First one on COVID, the 170 to 180 million. I know historically you have said that that could potentially be from new vaccines. And the 200 million number that you're giving for 2022, that could be from sort of new vaccines and therapies that are in the phase two, phase three sort of trials right now. But at this point, we have seen a significant adoption of the mRNA-based vaccines, and some of the proteins, one, have lacked a bit or had limited traction and not so remarkable data. So when you look at this number in sort of 2022, and it's great to see that it's up, as you pointed out even before, just trying to understand, you know, is that specificity still from the new vaccines that could emerge here? Or is it just expansion of the current volumes? And just wondering if you're making any boosters into that as well.
spk10: Yeah, maybe start with the last question. Yeah, when you look at next year on COVID, obviously the last, I would say, four to eight weeks, we've seen a significant number of orders come in for 2022. And so that's why, you know, we have well over $100 million in booked orders for next year. Coming from the commercial vaccines that we're in, which is the majority we're definitely in the therapeutics as well. But the majority of our revenue is coming from vaccines. I think in terms of companies that are still face to face 3. I think their orders really go out to the end of this year, but we have forecasts of where we think people are going to be next year. So we feel confident about the $200 million number, Puneet. We think, you know, halfway through the year, we're well over 50% of what we see as the order book for COVID for 2022. And we think that that's a fair reflection of where we think COVID is going to be. On the $170 to $180 million this year, Again, some of the revenue in the second half of the year is definitely coming from phase two, three, and potentially commercial drugs or commercial vaccines. And I expect that most of our large customers have placed their orders for this year. So I think that's a pretty solid number.
spk11: Got it. Okay, that's very helpful. And then on the capacity side of things, obviously you're pointing to higher demand here, continued strong acceleration in the market, and thus the capacity expansion. Could you maybe just give us a sense of sort of where the sentiment since today is? um you know we've seen industry expansion across industry and across repulsion and capacity so far uh your capex commitment is is now still you know remains the same so and and and you know we saw up here announced this morning uh a significant capacity expansion too so maybe if you could give us um you know your view into continued capacity expansion as we go you know into 2022 And just sort of trying to get a sense of, you know, we've seen continued expansion and demand in this market. Are we reaching some of those peak levels at this point in time? So just trying to get a sense of that.
spk10: Thank you. Yeah, I don't think Repligen is doing anything different than any of our peers, right? Everybody is expanding capacity. Everybody is investing. You saw the announcement this morning from some of our peers in terms of what they're doing. We've seen this over the last four or five months. We're investing about $100 million in capacity expansion programs. I think... When you look at where we're trying to go in terms of capacity plans, what we've done just in the last month and a half in terms of taking a lease on the doing a lease on the Waterford building that gives us tremendous capacity in 2022. And now on top of that, we've got the Marlboro building. You shouldn't discount the fact that Polyman is an immediate capacity play for us as well, because on the hollow fiber side, we've gone ahead and acquired a company. We really like their technology. We like what they have in terms of manufacturing capabilities. and we get immediate boost in capacity. So our view of the world is you have to have really good lead times, and everybody in our industry is working towards that goal. I don't think there's an overcapacity right now, or I don't know if we're reaching our highs. I don't think anyone can really predict that, but Our order books have been good. I think everybody else in the industry is indicating their order books are also very strong. So I think there's a high degree of confidence that, you know, this growth that we're all seeing is going to go well into 2022. Great. Thanks for that.
spk04: Our next question will come from John Krieger with William Blair. Please go ahead.
spk01: Thanks very much. Hey, Tony, could you just expand a little bit more on the lead time comment that you just made? If you kind of reflect back a couple years ago in a more sort of normal market environment, what would sort of typical competitive lead times have been versus where they're running now? And then maybe as a follow-on, I know, Polymem, you talked about having a, you know, gaining a competitive advantage in the hollow fiber area. Again, can you just sort of talk about what your lead times were before that deal? Thanks.
spk10: Yeah, so on the lead times, if you went back a few years ago, I think if it was a consumable, you know, obviously you have some consumables that are off the shelf, but I would say six to 12-week lead times are pretty common in our industry. And then on, you know, capital equipment, it could be anywhere from, you know, nine weeks to 15, 16 weeks. I would say, you know, when COVID hit, pretty much lead times doubled and in some cases went out even further than that across our industry. We've worked really hard to keep our lead times, you know, as short as possible. Sometimes that works, right? Sometimes we're challenged even on the supply side. Great example is our prepack columns. We have Just great capacity right now, but there's still some constraints in the industry on supply of chromatography resins. So that's a little bit outside our control. But I think in general, you know, every product line in our portfolio is at a different stage of its journey in terms of where we want to get to lead times. But we're trying to get back to, you know, lead times that we have. three, four years ago. When it comes to Polymem, I think the impact of Polymem will really be felt in 2022. Right now, we're just going through the integration piece. They are online producing fibers and modules for us, and they will drive down lead times when we get into next year, which will be back to more normal ranges that I spoke about earlier.
spk01: Great, thanks. And then maybe just a follow-up for John. Your margins would suggest not much of this, but are you seeing any sort of supply chain constraints that are limiting your ability to ramp capacity on schedule?
spk09: I think that the most significant supply chain constraint that we have is the, uh, as the residence, uh, situation for Opus that Tony talked about. Um, you know, we, like everybody else are, are hiring a lot of people. So there's some, you know, there's definitely, uh, um, under supply and over demand, uh, on the, uh, on the personnel side. Um, you know, but we continue to work through it like our competitors do. And, um, you know, we've been able to, to pretty much overcome any major, uh, major issues, but, um, You know, there's definitely pent up too much demand, not enough supply, and there's a little bit of inflation that we're absorbing. But, you know, that's the same as all of our competitors. But nothing's show-stopping there.
spk01: Great. Thank you.
spk04: Our next question will come from Julia Quinn with J.P. Morgan. Please go ahead.
spk05: Hi, good morning. Congrats on the quarter. I want to take a step back and look at maybe the more lasting impact from the pandemic. Obviously, the entire industry has, you know, seen broad-based supply chain challenges, and you and a few peers have previously noted that customers are ordering more in advance. I'm curious if you've also seen increased customer dual sourcing as a result of this, or if you expect the pandemic to have an impact on customer dual sourcing behavior in the future. I'm basically trying to understand what this could mean in terms of creating incremental opportunities for equity. Thanks.
spk10: Yeah, the line was a little hard, but you're asking a question on increased dual sourcing. Dual sourcing, yeah. Benefits and... So I would say that right now... If a customer has a supply issue, they're definitely going to look at dual sourcing. There's no doubt about it, Julia. So it just really depends on the product line. I think that our customer base realizes after going through the first year and a bit of COVID that having multiple suppliers is only a benefit. You'll always have primary supplier, but I think there will be opportunities for companies that have not been at accounts to be able to come in as a second supplier, especially when some of the products might have long lead times.
spk05: Great. And then in relation to recent kind of headlines, can you talk about Repligen's exposure to Alzheimer's therapeutics and, you know, how big the opportunity can be for Repligen?
spk10: To I'm sorry to Alzheimer's Alzheimer's. Yeah. On the. I would say in its early days on Alzheimer's, I think when we look at at at accounts, we look at accounts really from how do we get platformed into an account? So we don't worry about the individual drug. I think as a class of drugs around Alzheimer's begins to take off, you'll see multiple companies moving forward with phase three commercial approvals. It'll start to move through the CDMO-type organizations that traditionally happens with large blockbuster drugs. So I think Repligen will get its fair share. But I think our number one priority is really around... penetration of accounts and getting in as platform technology, whether it's, you know, an ATF technology or it's Opus Prepacoms or it's systems. That's always been our approach. We don't really look at it drug by drug. And, in fact, most of our customers don't really talk about which drugs you're in. They just talk about what's required and, you know, you're in a phase one or a phase two or you're used as a platform across multiple drugs. Got it. Thank you.
spk04: Our next question will come from Jacob Johnson with Stevens. Please go ahead.
spk03: Hey, thanks. Good morning, guys. Maybe a question on the gene therapy side as it relates to viral vector yields. I think they're relatively low today, but everybody seems to be working on kind of optimizing those workflows. How do you see that trending, Tony, and maybe what opportunity does it present for you? It seems like ATF is benefiting here.
spk10: Yeah, so the viral vector side, look, I would say that almost every company is looking to optimize their manufacturing process or processes. And yield is king. And if you can improve yield, then you're going to get a fair evaluation and an opportunity to move into many of these drugs. So from a Repligen perspective, I would say that, you know, our upstream portfolio of ATF and TFDF is really well positioned to focus on what you just referred to as viral vector yield improvements. And that's something that we've been working on over the last couple of years. We've definitely made some progress. We've had some nice wins. But there are other technologies out there as well that people will evaluate. But we feel pretty bullish about the impact of ATF, TFDF in this space.
spk03: Thanks for that, Tony. And then just on the fluid management capabilities you added, via the, I think, EMT and NMS deals. Can you just remind us of the strategy here? It seems like that is something that could be important, especially as cell and gene therapy customers look to develop closed manufacturing processes. Is that a piece of it, or maybe it's broader than that?
spk10: Yeah, when you look at, I think it's all centered on our system strategy, which, you know, obviously, you know, in 2017, we did the Spectrum deal, which gave us the hollow fiber systems from benchtop all the way to production. By acquiring Artisan last year, we added in high-pressure quadruple pump systems for downstream, chromatography systems with low holdup volumes, and other systems for media prep and for viral filtration. When you think about consumables around systems, a lot of customers use what we call fluid management flow paths. So when we talk about ProConnects, that's kind of a perfect example of hollow fiber module with the whole fluid management components added into it. So as we, you know, think about fluid management, we're thinking about fluid management around the systems we have as opposed to selling the flow paths independent of our systems. Now, we do that, but I think our goal is to have the flow paths sold with our systems. And so the customers have an ability to get not only the system to do the work, whether it's upstream or downstream, but also the fluid management components that go side by side with it.
spk03: Thanks for taking the questions, Tony.
spk04: Our next question will come from Matt Hewitt with Craig Hallam Capital Group. Please go ahead.
spk07: Good morning and congratulations on the strong quarter. Just a couple for me regarding some of the newer products, specifically FlowVPX. Last quarter was the launch. You commented that it was off to a very strong start. Just curious if we could get an update there. And then regarding the COVID-19 spike protein affinity resin that was being evaluated, have you seen any orders come in for that, and how is that looking? Thank you.
spk10: Yeah, maybe start with the spike protein resin. Yeah, we definitely have had orders through the first half of the year and we'll have more orders in the second half. As we said, I think the spike resin will play a role in next generation vaccines. So I wouldn't expect a whole lot of revenue from that product in 2021. And we'll see where we get to in 2022. On the Flow VPX, I think this is a technology very like, you know, the excitement that we feel around TFDF. We have the same level of excitement around Flow VPX. We think that PAT technologies are definitely on the rise, and our customers are definitely looking to get real-time process monitoring data. That's what Flow VPX brings to the equation. We've seen really nice adoption of the new product through the first half of the year, expected to accelerate further as we go through 2021 and 2022. And we think we're right at the beginning of the journey of finally seeing PAT technologies get adopted in bioprocessing, which sets up a very long runway for products like FlowVPX as we go through the next few years.
spk04: That's great. Thank you. Our next question will come from Paul Knight with KeyBank. Please go ahead.
spk02: Hi, Tony. On the capacity expansion you mentioned earlier, is it the Waterford, is it the existing pre-built IDB facility there? And then on the French acquisition, it sounds like you're ramping very quickly. What's enabling that?
spk10: Yeah, so maybe start with the French acquisition, Paul. The Polyman facility was already set up in terms of their manufacturing capabilities to pivot to making bioprocessing fiber and modules. So they had a lot of core competency that complemented exactly what we have. So because we've been working with them for the best part of the year, Really, the first half of this year has been around ramping up their manufacturing, qualifying it in, and then working with our customers to qualify in a second supplier for membranes and modules. And that's exactly what we've been doing through the first half, and we're starting to ship modules to our customers here in Q3. In terms of the Waterford site, it's an IDA building, brand-new building. It's very close to the Artisan headquarters, probably about three or four kilometers away. Our goal, Paul, would be over the next 12 months to build that out as a European assembly center. So not only will it make the flow paths for, say, the Artisan skids, it'll also make flow paths for what we call the ProConnex product line. So I think it's really an important addition for us because we feel like we need dual manufacturing, especially for, you know, European and North America customers. This gives us a European center of excellence for our low-fat and fluid management products and expect that that will come online in 2022.
spk02: And lastly, Tony, with industry growth perhaps, what, 20% and you're well above that, is it your novel products like ATF, do you think that kind of thinking is clear?
spk10: Yeah, look, I would say that everybody in bioprocessing has great products in their portfolio that are growing probably close to where we're growing. I just think we're a smaller company with... very focused, highly differentiated technology. So we haven't moved into the commodity side of bioprocessing. I think that's our differentiator. I mean, all our products are technology leaders, and for the most part, actually market leaders where we play. I think that allows us to basically accelerate our growth. I think the other part is that When you look at our pipeline, I think we probably don't have as many products or customers who have put our products into commercial processes. We've got a big customer base that are using our products in phase one, phase two, phase three. We definitely have commercial processes. but as those products come through, then the consumables associated at the commercial level definitely become an accelerator of growth for us. So I think that's part of why we're growing above the market growth rate. Thanks.
spk04: Again, if you have a question, please press star then 1. Our next question will come from Ram Selvarahu with HC Wine Right. Please go ahead.
spk12: Hi, thanks very much for taking my questions, both related to COVID. Can you comment on what the implications might be for future approvals of boosters for the main marketed COVID-19 vaccines, the extent to which this might impact durability recurrence on the COVID-19 revenue front? And also, if you could comment on the COVID-19 therapeutic side, what category of COVID-19 therapeutic is likely to be the most significant long-term driver of revenues? And I'm asking these specifically in the context of the fact that it appears to be the case that with these new variant strains, the high likelihood is that COVID-19 is on its way to becoming endemic. Thanks.
spk10: Yeah, on the therapeutic side, I would say that, you know, I really can't comment on, you know, which therapeutics are going to be the major drivers of growth. The way we look at it is the majority of companies that are working on therapeutics and vaccines, we're working with them. They're using our products. I think we've benefited over the last year and a half. More on the vaccine side because the volumes have been high. and we've had the right technology at the right time to be able to work with those customers to move forward. I think there will be opportunities for us on the therapeutic side above and beyond what we're doing today. In terms of the boosters, I think it's a little early. I think that decision on if and when boosters get approved will happen later this year. You can see that there's different parts of the world that have different opinions on it. I think Europe is very much in favor of putting boosters into the equation. I don't think boosters have become part of the long-term planning in terms of volume and revenue. And so if boosts get approved, I would see it as an upside to overall market demand as we move through 2022 and 2023.
spk12: Great, thanks, and congratulations on the quarter.
spk04: Yeah, thanks, Rob. Our next question will come from Brandon Coleyard with Jefferies. Please go ahead.
spk13: Hey, thanks. Good morning. Tony, you kind of snuck in a comment there about pulling forward your billion-dollar revenue target in 2024. I just want to confirm that that's all organic, and I just wanted to comment on the amount of COVID revenue that might be still included in that number as you kind of look out a few years from now.
spk10: Yeah, it's definitely an organic number that gets us to the billion dollars in 2024. When we look at where we're going to be next year, with a couple hundred million dollars in COVID revenue, you can see that getting to a billion by 2024, given the sort of portfolio products that we have, the growth trajectory that we're on, where there's a You know, we feel pretty confident that that's something that we can accomplish and achieve. Now, will we do deals between now and then? Yeah, I'm sure we will. And that will kind of add to the overall number. And the second part, Brandon, again, I'm sorry, would you repeat it?
spk13: Yeah, I guess just if you care to comment, I think on kind of the magnitude of COVID revs and, you know, what that might be in terms of that 2024 build.
spk10: Oh, yeah, yeah, yeah. As we go through the next few years, I think it's a little... It's a little unclear. I think we're trying hard to give people a view of 2022 right now. And I think the 2023, 2024 demand will definitely depend on, you know, what's the effectiveness of the vaccine, how long the antibodies last, are boosters going to be required. I think all of those play a big role in 2023 and 2024. But I definitely think COVID is around for the foreseeable future.
spk04: This concludes our question and answer session. I would like to turn the conference back over to Tony Hunt for any closing remarks.
spk10: Just like to thank everybody for joining us this morning. Appreciate all the questions. Look forward to catching up with everybody at the end of the year. And thank you again.
spk04: Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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