Repligen Corporation

Good day, ladies and gentlemen, and welcome to Replugin Corporation's first quarter of 2022 earnings conference call. My name is Vaishnavi and I will be your operator. 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. 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. Please note that this event is recorded. I would now like to turn the call over to your host for today's call, Sondra Newman, Head of Investor Relations for Repligen. Please go ahead.

Thank you, Vaishnavi, and welcome everyone to our Q1 call. This morning, we'll be covering business highlights and financial performance, for the three-month period ended March 31st, 2022. We'll also provide updated financial guidance for the current year, and we have with us Repligen's president and CEO Tony Hunt and our CFO John Snodgrass, who will deliver our report and then address questions. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for 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 and our 8-K for the first quarter, which we filed today, as well as 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 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. We expect to be filing the 10-Q for the quarter later on today. 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, contingent consideration, income tax expense, net income, and earnings per share, as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Repligen's current results against historical performance and the performance of peers when evaluating investment opportunities. Now I'll turn the call over to Tony Hunt.

Hey, thank you, Sandra, and good morning, everyone, and welcome to our Q1 earnings call. As you saw in our press release this morning, we delivered an outstanding first quarter for the company, with revenues topping $200 million for the first time, along with excellent gross margins and operating margins. The story in the quarter was the continued strength in our base business, which was up 37% year over year, and up 20% sequentially versus the fourth quarter of 2021. We saw robust growth in our core monoclonal antibody markets and increasing contribution from gene therapy accounts. Gene therapy growth was up over 100%, and each of our franchises delivered over 30% year-over-year revenue growth, except for proteins, which came in flat as expected. As demand continues to increase for our products, we have stayed focused on building out our manufacturing capacity with the best in industry lead time. Our capacity expansion programs have enabled us to decrease lead times for the vast majority of our products to under 10 weeks. This has allowed us to take share in the bioprocessing market, especially infiltration, and we expect lead times to continue to be a competitive advantage for us. Finally, we're off to a good start to the year with new product introductions, a highlight being the three AEB resins launched through Abbottide to serve gene therapy customers, which I'll discuss later. On a related note, we're also pleased with the early performance of our new products launched through our R&D team, as well as the contributions of M&A completed in 2021. New product and inorganic M&A contribution combined accounted for 6% of our revenue in the quarter. From an orders perspective, we finished the quarter with a book-to-bill ratio of 1, which is encouraging given the COVID orders contributed only 15% of our overall order book. This highlights the real strength of our base business. where first quarter orders increased 20% year over year and over 17% sequentially versus the fourth quarter of last year. COVID revenues for the quarter were slightly north of 50 million, representing 26% of our first quarter total revenue. We are now seeing signs that COVID demand has been impacted by the slowdown in vaccination rate. Many of our COVID vaccine customers have either reduced their demand for the remainder of this year or shifted their demand into 2023. Within the quarter, we saw approximately 15% of our $180 million COVID order book at the beginning of 2022 push out into 2023. The impact of new COVID orders in the quarter essentially offset the impact of cancelled orders. We also saw that a majority of cancelled orders came from vaccines that are less effective against the various Omicron strains. In addition, the majority of orders that have been pushed out into 2023 came from our largest COVID vaccine manufacturers. We now expect COVID revenues for full year 2022 to decline by about 20% versus last year and come in around 150 million. For the full year, we anticipate that COVID will represent approximately 19% of our overall revenues versus 28% of our total revenue last year. We finished the first quarter with a very strong order book for our base business. and our outlook for 2022 remains very positive. Our updated guidance reflects an even greater confidence in our base business, which we are now projecting to grow at 24 to 31%, significantly up from our initial guidance of 20 to 22% at the beginning of the year. This increase in base business offsets approximately half of our expected COVID decrease, with overall revenues for the company now projected to be $770 to $800 million. a less than 4% adjustment for our initial guidance in February. Before jumping into the quarter, I wanted to spend a few minutes to review our key priority areas for 2022. Back in February, we outlined four areas of focus for the company. Number one was building out additional capacity and decreasing lead times. Two was around supporting and successfully integrating our 2021 acquisitions. Three was around developing and seeding new products, And four was continuing to win and penetrate cell and gene therapy accounts. So let's start with our progress on capacity and lead times. Our focus over the next one to two quarters is to bring our Marlboro, Mass and Rancho California expansions online. This will increase our capacity for hollow fibers, flat sheet cassettes, ATF and cross flow systems. We will also open up our first assembly center in Hopkington, Mass to support our fluid management business. As mentioned previously, the impact of the capacity expansion programs in 2021 and here again in 2022 is on our lead times. We are reducing lead times quite dramatically in the first half of this year to less than 10 weeks. During the second half, we expect our lead times will reduce even further as we bring on additional capacity. On the M&A integration, the focus has been on finalizing the integration of PolyMEM, which is essentially complete and moving forward on the integration of Avatide and BioFlex solutions. We have made real progress with the focus at Avatide on new product development and at BioFlex with increasing overall production output. Expanding on BioFlex, we're seeing demand for our fluid management products gain momentum as we integrate the company and diversify this portfolio to now include BioFlex solutions, EMT, NMS, and Artisan components. With a dedicated commercial team and a newly formed management team under the direction of our COO, Jim Byland, we expect this business to generate revenues close to $50 million here in 2022. These revenues will be accounted for in our filtration and chromatography franchises. As mentioned earlier on the new product front, in February, we announced the launch of our first AAV resins, delivering on our commitment to bring differentiated affinity chromatography products to the market through our acquisition of ABITIDE. We expect 2022 to be a year of evaluations for these residents. We are encouraged by early feedback where customers are seeing the benefits of increased caustic stability and efficiency gains as key differentiators versus other AEB residents in the gene therapy marketplace. With ABITIDE R&D fully focused on developing new ligands this year, we expect to introduce additional products in the second half of the year. This is just one example of many underway in R&D, as we continue to focus on innovation and technology leadership as drivers of our success. The majority of our current R&D efforts are focused on further expanding on our family of high-value configurable systems to support a wide range of our customers' filtration and chromatography needs. Finally, we're making good progress in cell and gene therapy, where we saw a record quarterly revenue that accounted for 14% of our total revenue in the first quarter. This exceptional performance led by our filtration business represented growth of more than 100% year on year. Within gene therapy, approximately half of our revenue came from AAV accounts and the other half from CAR T, mRNA and other modalities. Cell and gene therapy order growth for the quarter was greater than 30% with our team adding in 27 new accounts. We continue to be very encouraged by the traction in gene therapy and we now expect gene therapy to be up greater than 40% here in 2022. So moving now to our quarterly performance, as mentioned earlier, the story of the quarter was the 37% base business growth and the continued strength at MAB and gene therapy accounts. Infiltration, our business was up greater than 50% compared to the first quarter of 2021. The strength infiltration was again broad-based. Our ATF business continues to make inroads in MABs, bisimilars, and gene therapy, where single-use ATF was up approximately 40%. Within the franchise, our cross-flow holofiber systems and consumables business more than doubled, and our Tangenex flat cheek set business had a strong quarter, driven by COVID vaccine commercial demand. The expected reduction in COVID demand, especially in the second half of this year, will mainly impact our filtration franchise, which we now expect will grow in the range of 19% to 24%. Moving to chromatography, our Opus prepack column business had an excellent quarter for orders and revenues. We saw some improvement in Q1 in terms of residence supply and continue to expect our chromatography franchise will grow in the range of 25% to 30%. Our proteins business had a solid quarter, essentially flat year-on-year. A key driver of overall proteins performance is the Cytiva demand for 2022, which through the first quarter is in line with our expectations. We expect, or we believe, we will be able to partially offset this headwind through the continued traction in the marketplace of NGL ligands sold through Purolite and the anticipated market demand for Abitide resins as we move through 2022. We expect proteins to be down in the range of 5% to 10% for the year. Finally, our process analytics business had an excellent quarter, upgraded than 35%, with robust demand for both our solo and flow products. Highlights for the quarter included 100% growth in Europe, with 50% of our systems business coming from new accounts. We continue to anticipate growth of approximately 25% for the year. So overall, we're off to an excellent start here in 2022. While COVID demand will be down versus original guidance, We still expect meaningful COVID-related revenues for the foreseeable future. Balancing all of this is our base business performance, which has been exceptional over the last couple of years, driven by a combination of highly differentiated products, new product introductions, and M&A. Overall, we expect our non-COVID business to grow between 20% and 25% annually on a go-forward basis, and we remain on track to achieving our goal of 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.