Repligen Corporation

Good day, ladies and gentlemen, and welcome to the Repligen Corporation's third quarter of 2022 earnings conference call. My name is Chris, and I will be your coordinator. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by 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 one on your telephone keypad. To withdraw your question, you may press star then two. In order to accommodate all individuals who wish to ask a question, there will be a limit of two questions at a time. Please note that today's event is being recorded. I would now like to turn the call over to our host for today, Sandra Newman, Head of Investor Relations for Repligen. Please go ahead.

Thank you, Chris, and welcome, everyone, to our third quarter report. On this call, we'll cover business highlights and financial performance for the three- and nine-month periods ended September 30th, 2022. We'll also provide updates to our financial guidance for the full year. Refugee President and CEO Tony Hunt and our CFO, John Snodgrass, will deliver our report, and then we'll open up the call for Q&A. 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 of Form 8-K, which we're filing 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're providing non-GAAP results and guidance. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's website. and on SEC.gov. Non-GAAP figures in today's report include the following, revenue growth at constant currency, gross profit and gross margin, operating expenses, including R&D and SG&A, operating income and operating margin, income tax expense, net income, and earnings per share, as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Reflogen's current results against historical performance and the performance of peers while evaluating investment opportunities. Go ahead, Tony.

Okay. Thank you, Sandra. Good morning, everyone, and welcome to our Q3 earnings call. As you saw in our press release this morning, we delivered a very productive first nine months for the company. In addition, we entered into two strategic collaborations that advance analytics, and approaching franchises, which I'll speak to later. Quarterly revenue came in at $201 million, despite an 11x, $11 million of FX headwinds, and slowing COVID-related revenue. Revenue the first nine months came in at $615 million, up 28% organically, which takes into account a 9% decline in COVID revenue during this period and five points of FX headwinds. Our base business continues to perform well, finishing up 29% for the quarter and 35% through the first nine months of the year. Our filtration and co-entropy businesses were again the major drivers of growth in the quarter. The growth in these two franchises more than offset the decline in COVID revenues, which were down by 19 million, or 40% year-on-year. We continue to see strength in gene therapy accounts, where revenue growth exceeded 50% through the first nine months of the year. More importantly, we now have over 20 accounts with revenues in excess of $1 million per year, up more than 70% from a year ago. We remain on track to finish the year above our 40% growth target, or over $105 million in gene therapy revenue. As mentioned earlier, we again saw a predictive drop-off in COVID revenues in the quarter, and we now expect COVID revenues to come in at $135 to $140 million for the year. an adjustment of 7.5 million from the midpoint of our previous guidance and down 28% versus our 2021 finish. Looking ahead, we expect COVID revenues for 2023 to be in the range of 30 to 40 million. On the order front, we had a lighter quarter in Q3 reflecting the minimal contribution from COVID accounts, approximately 7% of the order book, and a return to more normal ordering patterns by our customers based on shorter lead times for our products. Our base business orders were up slightly year on year. Book-to-bill on total orders through the first nine months was 0.9, while base business had a book-to-bill of 1.0. Looking to our full year 2022 finish, we're tightening our reported revenue to a range of $795 to $805 million, representing total revenue growth of 19% to 20% and 24% to 25% of constant currency. We're also increasing guidance for our base business growth to 33% to 34%, up 1.5 points at midpoint from our previous guidance, and we anticipate organic revenue growth in the range of 21% to 22%. Returning now to our strategic collaborations, during the quarter we executed on two agreements that strengthen and expand our process analytics and proteins franchises. In September, we signed a 15-year strategic licensing and collaboration agreement with DRS Daylight Solutions, who are experts in mid-infrared technology. As part of the agreement, Repligen will focus on the commercialization of Daylight's Copayo technology, while Daylight and Repligen's R&D team will jointly focus on next-generation product development. Copayo is an advanced in-line technology that complements our FlowVPX offering from C Technologies. What's really important about this deal is that we now have two highly differentiated process analytics technologies in the marketplace that will be integrated into our systems portfolios. In October, we signed an expanded agreement with Purolite, an Ecolab company, to extend our exclusive NGL Protein A agreement out until 2032. In addition, we broadened the agreement to now include ligands developed by Abbottide for MAP fragment purification. The first of these ligands, CH1, was launched at the recent BPI Boston show in September. Since signing the original NGL agreement with Purolite in 2018, The combination of our NGL ligands with PureLite's Argos Jetted B technology has resulted in rapid adoption by our process end-users. We are very confident about the long-term success of this strategic partnership and the growing revenue contribution to our proteins business. So moving now to our quarterly performance. The story of the quarter was continued strength in our filtration and chromatography businesses. In filtration, our business was up 15% organically, driven by the ATF and HoloFiber portfolios. Organic growth from these two businesses was north of 20% year-over-year. Base business growth for the same businesses, which exclude COVID-related revenue, and inorganic M&A was up almost 40%. We now expect our filtration business to grow at approximately 25% here in 2022. As highlighted at our investor day in September, we are very excited about our filtration systems business, which we just strengthened with the launch of a dedicated system for gene therapy and mRNA, and an expanded set of artisan systems focused on TFF applications. Systems revenue through the first nine months of 2022 are up greater than 40%, reflecting the differentiated nature of this portfolio. With the build-out of our fluid management business, we expect customers purchasing systems to order more fluid management consumables, potentially generating additional revenue for the company. So moving to chromatography, our Opus prepack column business had an excellent quarter, up greater than 35%. As noted in other quarters, we continued to transition customers to customer-supplied resins in North America and Europe. We saw a welcome improvement in resin supply in Q3, which contributed to the overall performance for our chromatography business, which was up in the quarter. For the year, we now anticipate that the chromatography franchise will grow in the range of 35% to 40%. an increase from the 25% to 30% at our Q2 call. Our proteins business came in flat for the quarter with revenues from growth factors and PureLite offsetting its client and revenues from Cytiva. We continue to make good progress with AEB resin customer evaluations and expect some of these evaluations and opportunities to materialize in 2023 as customers implement and scale with these resins. We continue to expect proteins to be down approximately 10% in 2022. Finally, our process analytics business had a solid quarter with continued adoption of solo and flow VPX, with Europe being a standout. We now anticipate growth of approximately 20% for the year for this business. So overall, we had another strong quarter in Q3 with continued strength in our base business. We're excited about the potential of our new strategic partnerships with DRS Daylight Solutions and PureLight to strengthen our analytics and proteins franchises. We believe we've developed one of the strongest and most innovative bioprocessing portfolios in our industry. We're confident about our finish year in 2022 and continued success in the coming years. With that, I will turn the call over to John for the financial update.

Thank you, Tony, and good day, everyone. To date, we are reporting our financial results for the third quarter, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. All growth figures provided for the third quarter and nine-month year-to-date periods are year-over-year comparisons to the same periods in 2021. As shared in our earnings press release this morning, we report strong revenue of $200.7 million in the third quarter and $615 million for the first nine months of 2022. This includes significant FX headwinds, which reduced our reported revenue by approximately $11 million in the quarter and $24 million year-to-date. Our base business continues its positive trajectory, growing at 29% for the quarter and at 35% on a year-to-date basis. Our base business represented 83% of total revenue during the third quarter, while COVID-related revenue and inorganic M&A represented 14% and 3% respectively. At the market level, in Cell and Gene Therapy, we are reflecting year-to-date growth of greater than 50%, excluding COVID-related revenue at gene therapy accounts. We continue to see customers with our Appetite AAV Resin's and remain confident in our potential to gain market share in this area. Overall, our cell and gene therapy accounts comprise 14% of year-to-date reported revenue. We continue to be excited about our opportunities in cell and gene therapy and the recent successes in these modalities with three U.S. FDA approvals this year. At the same time, we continue to see steady growth across the MABS market, with six U.S. approvals so far this year, including one by a similar. From a capacity perspective, we met the goals shared on our second quarter call, going fully online here in the third quarter with our Marlboro, Massachusetts, and Rancho California filtration facilities expansions. As we've mentioned, we are prepared to scale up the variable component of our capacity investments, hiring additional employees when needed and when necessary to support our business growth. Turning now to capital expenditures, we've spent $67 million on CapEx here to date, and we continue to focus on scaling up and expanding our fluid management capacity with the build-out of our assembly centers in Hopkinton, Massachusetts, and Waterford, Ireland. We continue to expect to spend a total of $85 million on capital expenditures in 2022, mostly in support of expansion projects to ensure capacity for future growth and to continue to drive down lead times. Now returning to our third quarter revenue commentary. On our top line, we delivered revenue of $200.7 million in the third quarter, representing 19% growth at constant currency, 16% organic. and 13% growth is reported. We absorbed significant FX headwinds of six points in the quarter as international currencies weakened compared to the U.S. dollar. We anticipate a fourth quarter and full year foreign exchange headwind of approximately 5%. Looking ahead to 2023, if rates stay at today's levels, we anticipate FX headwinds in the range of 25 to 30 million. Breaking down our third quarter reported revenue growth of 13%, our base business contributed 21 points of growth, and organic M&A added 3 points of growth, which were partially offset by reduced COVID-related growth of 11 points. We continued to see positive regional revenue growth in the third quarter in Asia and North America. Asia rest of world growth of 78% led the way. Our North America region grew at 10%, and Europe is down 7%, with both of these regions seeing later COVID revenues. Our regional revenue distribution for the third quarter year-to-date period included Asia, rest of the world at 20%, Europe at 38%, and North America at 42%. Now moving down our income state. Adjusted gross profit was $114.4 million in the third quarter of 2022, increasing by 10.6 million, or 10%, compared to the same period in 2021. Adjusted gross margin of 57% for the third quarter compares to 58.3% in the same period in 2021, where we had significant revenue acceleration, pacing ahead of our capacity and personnel expansion activities. We continue to manage through the impact of FX headwinds on our margins, as well as continued inflation challenges, which we have been offsetting with price increases to our customers here in 2022. Now transitioning down to P&L to adjusted operating expenses. Adjusted research and development expenses for the third quarter were again about 5% of total revenue. R&D spend continues to support the development of innovative new products, including our new chromatography and flat sheet filtration systems from our artisan business, along with the development by Avitide of novel chromatography ligands and resins. Third quarter 2022 adjusted SG&A expenses were approximately 23% of total revenue, a nut tick from 21% in the same period in 2021. Year-over-year dollar increases in spend continue to be related to the timing and integration of our 2021 acquisitions and our continuing investments in personnel, facility, and systems expansions to support our growth. Now moving to adjusted earnings and EPS. Third quarter adjusted operating income was $58.2 million, an increase of $1.2 million compared to the same 2021 period. Our adjusted operating margin was 29% in the third quarter of 2022 compared to 32% in the prior year period, where a rapid revenue acceleration outpaced our investments to scale up the business at that time. Moving to adjusted net income. In the third quarter of 2022, our adjusted net income was $44.4 million, a slight reduction of $0.3 million compared to the same 2021 period. Adjusted EPS was $0.77 per fully-diluted share of the third quarter of 2022, a minor reduction of $0.01 compared to $0.78 in the 2021 quarter. And finally, our cash and cash equivalents, which are GAAP metrics, totaled $573.4 million on September 30, 2022, net of upfront payments made for a licensing agreement with Daylight Solutions. we'll now transition to our 2022 full-year guidance. Our GAAP and non-GAAP reconciliations for our 2022 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2022 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2022 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 5% headwind on full-year sales and does not include the potential impact of any future acquisitions the company may pursue. Overall, we are tightening our 2022 full-year revenue guidance, a GAAP metric, to $795 to $805 million, which continues to reflect increased projected demand for our base business, offset by significant foreign exchange headwinds and lower projected COVID-related revenue. We now expect overall revenue growth in the range of 19 to 20% as reported and 24 to 25% constant currency. We anticipate organic growth in the range of 21 to 22% and we are increasing our expectations for base business growth to a range of 33 to 34%. We are increasing our guidance for base business reported revenue to reflect an increase of $7.5 million at midpoint to $640 to $645 million. We now expect $135 to $140 million in COVID-related revenue, a reduction of $7.5 million at midpoint, and we continue to expect about $20 million from inorganic acquisition revenue. We are maintaining our 2022 adjusted gross margin guidance at 57.5 to 58.5%. We are slightly lowering our adjusted operating income guidance to a range of 231 to 235 million, and we are reducing our adjusted operating margin guidance by 50 basis points to the range of 28.5 to 29.5% of revenue for the year. Adjusted other income and expense is expected to be $8 million of expense for the year, an increase of $2 million of expense from our previous guidance of $6 million due to significant transactional foreign exchange impacts. We are improving our 2022 adjusted income tax guidance by 200 basis points to approximately 19% of adjusted pre-tax income for the year. we are increasing the lower end of our adjusted net income guidance to the range of 181 to 184 million and our adjusted EPS guidance to $3.15 to $3.20 per fully diluted share. Our adjusted EPS guidance continues to reflect an estimated 57.5 million weighted average fully diluted shares outstanding at year end 2022. Adjusted EBITDA is now expected to be in the range of $244 to $248 million, compared to our August guidance of $256 to $262 million, with depreciation and intangible amortization expenses now expected to be approximately $24 million and $27 million, respectively. We expect year-end cash and cash equivalents, the GAAP metric, to be in the range of $590 to $610 million. with our 85 million of CapEx investments being fully funded by cash generation from our operations. This completes our financial report and guidance update, and I will now turn the call back to the operator to open the lines for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then two. As a reminder, in order to accommodate all individuals who wish to ask a question, there will be a limit of two questions at a time. At this time, we will pause momentarily to assemble our. Today's first question comes from Punit Salda with SVB Securities. Please go ahead.

Yeah, hi guys. Thanks for taking the question. First one, obviously, a topical one for the bioprocessing industry, if I may, the destocking question. So, obviously, a number of your larger peers are seeing destocking from COVID accounts. Could you maybe just elaborate on what you're seeing, Tony, and to what extent of destocking is this? When do you think we can see a trough in the inventory here? and recovery again, and how does this differ from, you know, sort of the 2017, 2018 timeframe? Could you elaborate what you're seeing on your end? Thank you.

Thanks, Vineet. Yeah, look, the, you know, obviously our peers have come out and chatted a little bit about the de-stocking. I would say our view of the world is not very different, but I would say that we see the industry as going through a transition. as the industry moves away from COVID. We're clearly seeing a change in order patterns, and I'll speak a little bit to kind of what we're seeing. We definitely see pockets of inventory related to COVID. We're seeing these at the COVID vaccine accounts, and we're also seeing it at CDMOs, and probably a little bit in the integrator side, which are companies like bioprocessing companies that are buying components that go into the manufacturing of products of products. And that's all in an environment where our customers are highly active. And I would say as we've gone through the summer, our funnel, and I'll speak to it in a second, has strengthened. So maybe I'll take each one of those, Puneet, and kind of walk you through it, and then I'll speak to part B and C of your question. So on the order pattern, So if we went back a year ago, our customers were, in general, ordering products and getting it delivered within six months, but 80% of the product would be delivered within six and 100% in 10 to 12 months. As we've sort of gone through the middle of this year and into kind of the fall, 80% of our customers are now ordering and getting product delivered within three to four months and 90% within six months. So there's definitely a real shift happening in terms of order pattern and people just ordering out three months, four months in advance. On the inventory side, I think where we see the pockets of inventory, we definitely see it at any of the vaccine accounts that we've been working with. We've seen it at some of the CDMOs that have been involved on the vaccine side, and as I said a few minutes ago, Also with the integrators, so the other bioprocessing players that have stocked up on various components that are used in the manufacturing of their particular products. And then the final part is the opportunity. We see the funnel strengthening. If we look at the beginning of the year, middle of the year, and where we are right now, so we started the year off fairly strong, actually strong with a really good funnel of opportunities. The summer was light, definitely dipped. But the last few months, the policy really starts to strengthen. And so when I look at the future, it's around closing out opportunities. And the next four months is probably going to determine a lot around, you know, where 2023 is going to end up. But I think we've probably got another quarter or two of managing through this transition before we're kind of back in sort of smoother air versus what everybody's experiencing right now. And then part B of your question, which was 2017, I think it's hard to compare. I think this is a post-COVID transition that we're going through, whereas 2017 was pure inventory burn-off across the whole industry, and we're seeing more pockets than broad burn-off of inventory. So that's kind of the comparison with 2017.

Got it. That's super helpful, Tony. I really appreciate that. And just a quick one maybe on the guidance. And I know I appreciate the guidance for this year, but just looking into sort of 2023, you were lowering your COVID revenues for 23. But thinking about the base business, you said 33 to 34% this year. How should we sort of think about the base business's strength going into the next year? And is that a, you know, you've historically talked about a 20% number for the core. Is that something we should have in mind or something higher? Could you maybe walk us through that as much as you could? We appreciate it. Thank you. Yeah.

So COVID's come down, and that's based on the forecasts we're getting now from our vaccine customers. So that's just directly related to the information that we've been able to obtain over the last three months. That's pretty clear, and I don't think it's too different than where most of the analysts are right now in terms of looking at what the range for next year could look like. It's early, guys, to talk a little bit about growth in base business growth in 2023, but I'll throw a few numbers out there. So when you look at the replicant situation, we're going to be dealing with a $100 million headwind in COVID. As John pointed out, we've got probably a $25 to $30 million FX. headwind. So they're the headwinds. I think what's positive is I think we've got a great product portfolio. I think we're really well positioned. I think we're highly differentiated. And we've got a funnel that's strengthening as we finish off the year. So that's really positive. If you look at the last five years, Repligen's delivered 26% base business kind of organic growth over the last five years, 26%, 27% on average. And, you know, when we did our analyst day in September, we said, hey, look, we think we're going to grow, you know, in that 15 to 20, 16 to 20% range. I think next year is going to be more modest growth than what you've seen over the last five years and probably more in line with the range that we pointed out in September.

Got it. Okay. Super helpful, Tony. Thank you.

The next question comes from Dan Arias with Stifel.

Thanks for the questions. Tony, one of the questions that we've gotten a bunch in the last couple of weeks is just where and what portion of your portfolio might be fungible when it comes to non-COVID and COVID work. Is there anything that you can share with us there that sort of helps us conceptualize what a transition might look like when we think about the product offerings over the next couple of quarters?

Yeah, I don't think, John, it's any of the product lines per se. I just think it's what I said earlier. I think it's just the pockets of inventory, Bill. So if you think about customers that we've had that have been on the vaccine side, they clearly have excess inventory. We know that some of the CDMOs are working through that same challenge. So it's not like 2017 where it was broad. It's more pockets. What I'm most encouraged by is the fact that our funnel of opportunities is strengthening. So there's a lot of execution that has to happen, and I do think that our customers, while they were placing orders very quickly in 2020, 2021, and really through the first half of 2022, I think they're looking at their dollars and their spend and spending it on the most important projects, that are going on at that particular facility, that particular site. So I think it's really that that we have to work through. And I think the next four months between now and when we sit down and talk to you guys about 2023 guidance at the end of February, I think the next four months in terms of order strength will really determine a lot around what the growth rate is going to be like in 2023. Yeah, okay.

And then maybe on the chromatography side, how do you think the resin availability situation looks as you enter 23, just given where things are trending? I don't know if you've given a number for this year, but I do remember you saying that 21 revs would have been 2x what they were if availability wasn't an issue. So can you just sort of catch us up on where you are?

I'm really glad that you remember all my comments. But yeah, so there's no doubt that the resin availability has improved over the last quarter. And we know from talking to our peers that capacity is coming online. And that whole capacity piece is what's also driving the changing order patterns that I spoke about a few minutes ago. So I think on the resin supply side, it's easing. It's not 100% perfect yet. I would say it continues to improve. Um, and I would say second half of next year, you know, based on everything we know, I think capacity will be kind of fully online and you're, and you're looking at a kind of, um, you know, a free highway of, you know, no restrictions in terms of ability to supply. And, of course, that's all outside our control. But what's encouraging is, you know, that, you know, we finally can say that, you know, OPA's business, instead of growing at around, you know, 20% is up, growing north of 35%. So that's really the positive take-home here.

Okay. Very helpful. Thank you.

The next question comes from Julia Chin with JP Morgan.

Hi, good morning. Thanks for taking the question and congrats on the quarter. So just to follow up on the destocking point, I was wondering if there's any way for us to quantify the magnitude of headwind that you've already seen so far. And I know you previously mentioned there's probably one or two more quarters remaining to go through before ordering patterns normalize. Is there a way to think about, you know, what the magnitude of the headwind is remaining compared to what we've already seen so far?

I don't think there is, Julia. It's just that, you know, clearly, you know, summer was lighter. I think if you look at our book to build through nine months on our base business, it's 1.0, right? And I think in, you know, if you go back over the last, Prior to COVID, I think book-to-bill tends to be at 1.0, between 1.0 and 1.1, kind of worked in that range. So we're not too far off where we were in the past. What we have to see is coming out of the summer is strengthening on the order side and execution on closing the opportunities that are out there. So I think when we get to the end of February, we're going to be in a better position to speak to where 2023 is and how long The headwinds are. I know everybody's jumping on destocking, but the destocking's in pockets. What we're seeing is just a total change in order pattern. I gave out some pretty important numbers there. We've gone from six to 12 months, people taking their material to now three to four months for 80%. So that's got to work its way through the system as well. And it just depends on, you know, how long that takes. That's going to determine a little bit around growth next year. So I pay attention to the fact that we've got, you know, $100 million drop off in COVID. We've got to deal with we got to deal with FX. Everybody in the industry is dealing with FX. And then we've got to take the portfolio that we have that we think is highly differentiated. and drive growth in that portfolio so you can make up for the headwinds that we're dealing with. That's the way I would view it.

Got it. Appreciate all the additional color. And then regarding the book to build, I appreciate you gave the year-to-date metric. Is there any way you can share with us how the book to build trended specifically in 3Q for both the base business and the overall?

Yeah, well, the overall is probably one of those comparisons where we had the highest orders for COVID in 2021. So I think on book-to-bill for Q3 2021 specifically. Yeah, that's right, Q3 2021. And then I think on the base business, the book-to-bill in the quarter was about 0.9. Got it.

Thank you.

Our next question comes from Jacob Johnson with Stevens.

Hey, good morning, Tony. I'll apologize in advance because I'll jump on the stocking question as well. But just, you know, you and your peers are talking about a lot of the stocking that you're seeing is largely COVID customers and you're guiding to a COVID number in 2023. So, you know, to Julia's question around quantifying this, is it fair to say there's a component of this destocking that is contemplated in your COVID expectations for next year and we'll see kind of what happens with lead times on the base business?

Yeah, I think maybe I would look at it a little differently, Jacob. I would say the forecasts we put out there for 2023 on COVID is essentially based on forecasts we're getting from the companies that we're working with. I think what sometimes people forget about is companies that have been working on COVID have products from bioprocessing suppliers but they can use it elsewhere in their manufacturing. It's not like they're so dedicated they can only be used in COVID. So that's kind of what the way I think about it is, is that they can use it, but they'll use it probably in other processes.

Okay, got it. And then just, Tony, on your comment about next year, you know, your growth's been north of 20% the last five years on a business perspective. You've got this 16% to 20% range. You said next year is going to be more modest. Just so we're clear, you know, next year being more in line with that 16% to 20% range, is that an overall organic growth comment, or is that kind of specific to the base business?

That's specific to the base business.

Okay.

Thank you, Tony.

The next question comes from Paul Knight with KeyBank.

Hey, Tony, there's a lot of biotech skepticism about the cell and gene therapy market. Your comments are pretty upbeat, obviously. Could you talk about the product lines related to cell and gene therapy, and, you know, are we in eating one or two, or where are we in this development?

Yeah, thanks, Paul. Again, the cell and gene therapy market, I mean, it's been a great market for us over the last few years. We're up north of 50% again this year. I think the key, and I've said this a few times over the last year or so, which is the key is really the approval rate, right? And it's encouraging that there are more approvals this year than last year. But I think as that approval rate increases, that's a positive for everybody in bioprocessing. And I think when you look at our journey, The fact is that we have now 20 gene therapy accounts that are generating over the billion dollars per year in revenue for us, up 70% versus a year ago. That should give people some encouragement that we're in processes where people are scaling, but what we can't control. is whether those processes, A, continue to scale and they move through the clinical trial approval process. That's really the key. So, you know, I think as more approvals happen, I think it gives people confidence. And I think, you know, overall, long-term gene therapy, cell and gene therapy is absolutely here to stay. It's a cornerstone. It's going to be a cornerstone of our industry for the next 10 plus years.

and the key products that you're providing for that market or what, Cody?

I would say that it's mainly our filtration portfolio. Clearly, the gene therapy industry, they like prepack columns, but it's not like we have 20 products in our chromatography portfolio. We've just really got a couple, and so it's our systems. We just launched And we announced that at BPI Boston, a dedicated, you know, system for gene therapy and mRNA. I think that's a positive for us. We have lots of consumables. And I think over the next few years, we expect to see more traction with, you know, our appetite portfolio as we drive affinity resins into that part of the market. So the future will be a broader portfolio that The current state is really a combination of filtration with prepack comps. Okay, thanks, Tony.

Thanks, Paul.

The next question is from Madeline Mullen with William Blair.

Hi, thanks so much for taking my question. This is Madeline Mullen on for Matt LaRue from William Blair. I was just wondering, I know in the Investor Day you talked a lot about your systems, and your integrated systems, and I was wondering long-term, how many of your customers do you see converting over to platformed accounts? And do you see those as converting existing customers over to platformed accounts, or is that mainly going to be new client ads that will be joining as accounts that are interested in the systems?

Yeah, so I would say it's a bit of both, Madeline. I think that... Our systems portfolio is clearly new. When you look at the last, say, three, four, five years, we really put a big investment into it, probably starting in 2018, 2019. The addition of Artisan into our portfolio at the end of 2020 was a key kind of jigsaw piece for us. complementing what we were doing with the spectrum systems that we got in 2017. So we've been putting a fair amount of money in R&D to build out that portfolio. We've always had the consumables going into accounts. So when I think about accounts adopting systems, there's definitely an opportunity to sell into existing accounts that have been buying or filtration or chromatography products to be now buy systems and eventually buy flow paths, right, that we're producing through our fluid management business. But it's definitely new accounts as well. So when you think about a market like MRNA, right, there's an opportunity there to get in with a whole solution that would be systems, consumables, fluid management components, and flow paths all in one.

Great. Thank you so much.

The next question comes from Lisa Garcia with UBS.

Morning, guys. Thanks so much for taking the question. I just wanted to maybe touch on the pricing environment. I wanted to kind of understand kind of what you're seeing in terms of pricing and how you're feeling about kind of your ability kind of to take price given the inflationary environment at the moment. and how you're feeling about that outlook. There have been questions around kind of pricing given just the destocking environment.

Yeah, maybe I'll start and I'll hand it to John. I think in general what we've been trying to do on pricing is address any inflation that's happening in our industry and really work with our customers. to kind of match up what we're seeing on inflation. I think that's our long-term strategy, medium-long-term strategy, but John can add some more detail.

Yeah, sure. Happy to do that. If you remember last, you know, for the 22 period, we did implement a 7% price increase on list prices December 1st of 2021 to carry us into this year. And we came back in July and implemented another 4% increase. And again, we really focused on areas where we were seeing cost inflation coming in from our suppliers as well. Historically, we've been able to see about 1.5%, 2% price increase. This year, we're expecting to top 5% and maybe be slightly higher than 5% overall net achievable price. So that's kind of where we're at, and it's really a good offset to the cost inflation side of the business.

Great. Super helpful. And then, you know, Asia seems to really be a source of strength for you guys. I'd love to kind of just dive a little bit deeper into kind of what you're seeing in terms of trends in the region there and kind of how you think about the sustainability of kind of the growth levels that you're seeing there and how to think about that.

Yeah, no, no. It's been a stellar year for us in Asia. I mean, there's a lot of... kind of bumps that are going on, especially when you look at China in terms of being shut down for a big part of Q2. I think the team over there has done a remarkable job as we've kind of managed through that. I think we're... Again, it kind of goes back, leads up to the portfolio we have. I think we've got a great portfolio of products. I think we're well-positioned. I think we've got a really good commercial organization. And Given the differentiation we have, that's really going to be really important for us over the next 12 months as we all manage through the current market piece.

Great. Thanks so much, guys.

The next question comes from Matt Hewitt with Craig Hellam Capital Group.

Good morning. Thanks for taking the questions. Maybe I'll ask one about the PureLight agreement. Ten years seems a little bit longer than I'm typically used to seeing. So what prompted maybe the longer terms and, I guess, more importantly, is this expansion into the MAB fragments. So maybe what's driving that expansion? Thank you.

Yeah, thanks, Matt. You know, when you think about the strategy with PureLight, it really goes all the way back to 2018. as I think the most common question in 2018 was what's happening with GE and with your protein A business with GE. So, you know, we put the strategy in place back then to develop best-in-class ligands, worked with Navigo, and then partnered up with PureLight. Those collaborations, partnerships have gone really well. and we have an agreement with Pure Light that goes out to 2026, Pure Light becomes part of Ecolab, and chatting with the folks at Ecolab, we really felt like the partnership's going really well, growing very rapidly, and both companies felt like extending it from 2026 out to 2032 was a smart move for both companies. We're an exclusive supplier of Protein A ligands into Pure Light Ecolab, and we're also the exclusive manufacturers, right? So it's a really good partnership. We felt from a channel point of view that as we've done a lot of work with Avitide, that it made more sense to put the MAP fragment part of our portfolio through the Ecolab Chevrolet channel. And we would focus on the new mortality side of the equation. So we're focusing on gene therapy, mRNA. We're working with the – using the – pure light base bead in our manufacturing. So it's kind of a real win-win. We're providing, you know, fast access to new lignans that drive pure light success in Mab and Mab fragments. We work with pure light with their base bead. We use that as part of our strategy going forward in the non-Mab Mab fragments. And so having, you know, tying our hands and I think it's something we both feel is the right decision for us out to 2032 is, I think, a strong endorsement of how well the partnership has gone.

Got it. All right. Thank you.

Our next question comes from Brandon Couillard with Jefferies.

Hey, thanks. Good morning. John, will you just remind us, you know, how COVID and FX kind of flowed through the P&L and give those two headwinds next year that Reasonable expected margins may be flat to down in 23.

Yeah, we've talked about this a little bit, Brandon, in the past. And so, you know, we're seeing some margin declines as we go through this year, as projected, right? And one of the things that we expected was cost inflation coming into the year. The other piece was, you know, capacity expansion costs and added headcount and whatnot to support that. So those things we're definitely seeing. I think one of the things that's kind of come into the year that we didn't plan on was additional FX headwinds that are also putting pressure on the margins. So we're going to wind up seeing what kind of comes out here in Q4. Obviously, you can see our Q3 numbers now. And that's really going to serve as kind of the starting point for next year. So, yeah, we do expect a little bit of compression as we absorb all the capacity that we've added. and we'll continue to obviously work towards the long term to bring that back up. And we're still clinging on to that goal of trying to get margins long term above 60%. And so, you know, we've had good success over the last few years of expanding margins. This just happens to be that kind of reinvestment period where we're going to absorb some additional costs, and then we'll continue to grow out of that with volume and expand margins longer term.

The next question comes from Ram Solovaru with HC Wainwright.

Thanks very much for taking my questions. Just very quickly, could you comment on what you expect the dynamics to look like going forward in terms of your relationships with both PureLight and Cytiva? in the affinity ligand space. And also as a corollary to that, you know, I think you mentioned earlier about how you were thinking about the MAB fragment segment. But if you could maybe just give us a flavor for what you expect to drive growth in that specific area within the context of the extended agreement with PureLight, that would be very helpful. Thank you.

Yeah, so I would say, and thanks Ram, I would say that obviously relationship with PureLight and Ecolab is very good. I think the relationship with Cytiva is absolutely fine. We've got, you know, a long-term agreement. We've been working with Cytiva GE for 30 years. We kind of know where the projected volumes are going. It's been very consistent with what they forecast at the beginning of the year. and expect that it will begin to drop off in 2023 and reach some steady state that, you know, where we'll be supplying, you know, a certain percent of their business, but it'll be a small percent. I don't expect it to be anything significant. I think the, you know, the bet on Pure Light and Appetite, right, is that, you know, we have a partner in PureLight, who was focusing on the map fragment, that's why we added the map fragment piece, because they have the channel. And it didn't make sense for us to jump in and start competing with them from a channel point of view. So it made more sense when we looked at the portfolio that we would focus our sales team on the new modality side and gene therapy and then provide the new highly differentiated And that's the key, Ram, is we're not providing me-too type ligands into Purelight. We believe that we have pivoted from being an OEM ligand supplier for 30 years to now being the premier developer of high affinity, you know, of affinity ligands that are highly differentiated versus the competition. That's what our whole goal has been for the last four or five years. I think we've made massive progress in accomplishing that and fully expect that. If I look out over the next four or five years, we bring proteins back into a growth mode for repligen and somewhere in the high single-digit type group.

Thank you.

At this time, there are no further questioners in the queue and this concludes our question and answer session. I would now 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, it's been a very busy year and delighted with the performance of the company. Look forward to catching up with everybody in February and talking about how we're going to finish the year and what our outlook is for 2023. So thanks again for everybody for joining us today.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.