Repligen Corp Q2 FY2021 Earnings Call

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. Please note, this event is being 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, 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 3- and 6-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, Jon Snodgres, 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 Repligen's current results against historical performance and the performance of peers when evaluating investment opportunities. Now I'll turn the call over to Tony Hunt.

Thank you, Sondra, 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 base 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 ARTeSYN, 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 more than doubled through the first 6 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 million and $645 million, with COVID revenue coming in between $170 million and $180 million. Our base business growth should be north of 30%, reflecting the strong adoption of our core technologies in 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 that have 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 ARTeSYN, and a progress report on our capacity expansion plans. As announced on the 1st of July, we closed on the acquisition of Polymem, 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 2- to 3-fold increase in overall hollow fiber membrane and module capacity; two, an innovator in membrane development with strong synergies in bioprocessing applications; and 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 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 ARTeSYN, 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 our $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 out 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 prepacked columns, hollow fibers, flat sheet cassettes, and systems. To support our long-term growth targets and ensure that we have ample production capacity, we recently signed a lease for a 64,000 square foot facility in Hopkinton, Mass, and we are set to build out a 33,000 square foot lead, silver certified building in Waterford, Ireland, that was developed by the Irish Industrial Development Agency and is very close to our ARTeSYN headquarters. Both the Hopkinton and Waterford sites will become centers of excellence for assembly, which will include ProConnex flow paths for our systems. In addition, the Hopkinton plant will support our expansion plans for the affinity ligand product line 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 for the next 5 years. So moving now to our quarterly performance. The story of the quarter was a 35% non-COVID-based business growth and the continued strength of COVID accounts. Order loads, as noted earlier, was exceptionally strong with our non-COVID accounts contributing greater than 70% of this overall demand. In filtration, our business more than doubled in Q2 and through the first 6 months of 2021. The strength in filtration 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 flat sheet cassette business, our non-COVID account revenue was up over 60%, reflecting best-in-class 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 bench-top 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 prepacked column business had an excellent quarter driven by gene therapy and COVID customers who continue to implement prepacked 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 package 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 SoloVPE of new accounts and FlowVPE into Process Analytics 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 FlowVPX 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. 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 continuing 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 $1 billion 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 Jon for the financial update.

Thank you, Tony, and good morning, everyone. Today, we are reporting our financial results for the second quarter of 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 4 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 ARTeSYN 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 1. We also completed Phase 3 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 5-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 order 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 and Rest of 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% in the quarter, and our North America region also continued to perform well with revenue growth of greater than 70%. As it relates to direct product revenue composition for the second quarter of 2021, North America represented 42%, with Europe and Asia representing 36% and 22%, 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 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 4 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, 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 $0.79 per fully diluted share in the second quarter of 2021 compared to $0.42 in the 2020 period, an increase of $0.37 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 GAAP to non-GAAP reconciliations for our 2021 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2021 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2021 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 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, a GAAP metric, by $57.5 million at midpoint, up to $625 million 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 2 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 million 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 pretax 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 million 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 million to $215 million, with depreciation and intangible amortization expenses expected to be approximately $19 million and $21.3 million, respectively. The 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 1, we expect year-end cash and cash equivalents, a GAAP metric, to be in the range of $740 million 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.

Congrats on the quarter. Jon, I 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 discrete there? And to what extent should we kind of think about a new floor going forward at the gross margin line?

Yes. 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 as a result of the first half performance, we did see very nice volume leverage. We also saw some mix 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 mix perspective in the first half. As we look at this, we raised our overall guidance by about 2 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 58.3% or 58.5% is pretty formidable for the second half compared to historical margins we've had.

Okay. Any thought on next year? I mean, I know we're not there yet, but just given where you went to this quarter, you sort of like level-set where you might come back to for 2022?

Yes. A lot will depend on volumes and what we can anticipate for the revenue forecast. It's still early to determine that. However, Dan, if we finish the year in the range of 58% to 58.5%, that could be a good starting point for the next year. Ideally, we would see some growth throughout the year.

Yes. Okay. 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 advancements, Phase 1 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, you just referenced anyway is just that some of the COVID work that you've done for the government 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?

Yes, I mean when you look at the overall performance in Q2, and honestly, when you look at it for a full year for 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 modules, you look at our systems, the flat sheet cassette business, the ARTeSYN 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 4 or 5 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 5-plus years ATF, we have lots of Phase 1, Phase 2. We've seen a lot more companies bring the technology through to Phase 3 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 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 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.

And Tony, congrats on the strong quarter here. First one on COVID, the $170 million 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 II, Phase III and sort of trials right now. But at this point, we have seen a significant adoption of mRNA-based vaccines. And some of the protein ones 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, is that still from the new vaccines that could emerge here? Or is it just the expansion of the current volumes? And just wondering if you're baking any boosters into that as well.

Sure, I'll start with the last question. Looking ahead to next year regarding COVID, we have observed a significant influx of orders in the past 4 to 8 weeks for 2022. This has resulted in over $100 million in booked orders for next year primarily from commercial vaccines, which constitute the majority of our revenue, although we are also involved in therapeutics. Companies still in Phase II and Phase III have their orders extending to the end of this year, but we have made forecasts based on expected trends for next year. We are confident about achieving the $200 million target and anticipate that by mid-year, we will have surpassed 50% of our anticipated COVID order book for 2022. We believe this aligns well with our expectations for the COVID market. For this year, projecting between $170 million and $180 million, a portion of the revenue in the second half will stem from Phase II, III, and possibly commercial drugs or vaccines, with most of our major customers having already placed orders for this year, making that a solid estimate.

Got it. Okay. That's very helpful. On the capacity side, you're indicating higher demand and a strong market acceleration, which drives capacity expansion. Could you share your thoughts on the current sentiment? We've observed industry-wide expansion, and Repligen has increased its capacity as well. Your CapEx commitment remains unchanged. Additionally, a competitor announced a significant capacity expansion this morning. Could you provide your perspective on ongoing capacity expansion as we move into 2022? We have seen sustained demand growth in this market—are we nearing peak levels now? I'm trying to get a better understanding of this.

Yes, I don't believe Repligen is behaving any differently from our competitors. Everyone is expanding their capacity and making investments. You saw the announcement this morning from some of our peers regarding their actions. We have observed this trend over the past four to five months. We are investing approximately $100 million in capacity expansion programs. If you look at our plans for capacity, we have taken a lease on the Hopkinton facility and another lease on the Waterford building just in the last month and a half. This positions us well for an increase in capacity in 2022. Additionally, we have the Marlborough building, and we shouldn't overlook that Polymem is also an immediate capacity boost for us in hollow fiber, as we have acquired part of the company. We are very impressed with their technology and manufacturing capabilities, which will provide us with an immediate increase in capacity. Our outlook is that having good lead times is crucial, and everyone in our industry is striving to achieve that. I don’t believe there is an overcapacity issue at this point, and I’m not sure anyone can accurately predict if we are at our peak capacity. However, our order books are looking strong, and I have noticed that other companies in the industry are also reporting solid order books. Therefore, I am quite confident that the growth we are all experiencing will continue well into 2022.

Tony, could you elaborate on your comment about lead times? If you think back to a couple of years ago in a more typical market environment, how did the competitive lead times compare to what they are now? Also, regarding Polymem, you mentioned gaining a competitive edge in the hollow fiber area. Could you discuss what your lead times were before that deal?

Yes. So on the lead times, if you went back a few years ago, I think if it was a consumable, obviously, you have some consumables that are off the shelf, but I would say 6- to 12-week lead times were pretty common in our industry. And then on capital equipment, it could be anywhere from 9 weeks to 15, 16 weeks. I would say 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 as short as possible. Sometimes that works, right? Sometimes we're challenged even on the supply side. A great example is our prepacked 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, 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 lead times that we had 3, 4 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. There 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.

Great. And then maybe just a follow-up for Jon. 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?

I believe the most significant supply chain issue we face is related to the resin situation for OPUS that Tony mentioned. Like everyone else, we are hiring many people, leading to an imbalance with too many job openings and not enough candidates. However, we are managing this situation similarly to our competitors and have mostly overcome any major challenges. There is definitely an excess of demand compared to supply. Additionally, we are experiencing some inflation, but that’s consistent with our peers. Overall, there are no major obstacles.

Congrats on the quarter. I want to take a step back and look at maybe more lasting impact of the pandemic. Obviously, the entire industry has 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? Basically trying to understand what this could mean in terms of creating incremental opportunities for Repligen.

Yes, the line was a little hard, but you are asking a question about increased dual sourcing.

Dual sourcing.

Okay. So I would say that right now, if a customer has a supply issue, they are 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 a 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.

Great. And then in relation to recent kind of headlines, can you talk about Repligen's exposure to Alzheimer's therapeutics and how big the opportunity can be for Repligen?

To? I'm sorry...

Alzheimer's.

Yes. I would say it's still early in the Alzheimer's sector. When we evaluate accounts, our focus is on how we can establish a foundational presence rather than concentrating on individual drugs. As the class of Alzheimer's drugs advances, we expect to see several companies progress towards Phase III commercial approvals. This will typically involve the contract development and manufacturing organizations, which is standard procedure for large blockbuster drugs. I believe Repligen will secure a reasonable share of this market. However, our top priority remains penetrating accounts and establishing ourselves as a foundational technology, whether through ATF technology, OPUS prepacked columns, or our systems. That's always been our strategy; we don't examine it drug by drug. In fact, most of our clients don't specify which drugs they use; they focus on what's needed for their projects, whether they are in Phase I or Phase II, or how our technology can be used across various drugs.

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 it trending, Tony? And maybe what opportunity does it present for you? It seems like ATF is benefiting here.

Yes. 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 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 the space. 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, especially as cell and gene therapy customers look to develop close manufacturing processes. Is that a piece of it? Or maybe it's broader than that? Yes. Our focus is on our system strategy. In 2017, we executed the Spectrum deal, which provided us with hollow fiber systems for all stages from bench-top to production. Last year, we acquired ARTeSYN, adding high-pressure quad fuel pump systems for downstream chromatography with low hold-up volumes, along with systems for media preparation and viral filtration. When considering consumables related to systems, many customers utilize what we refer to as fluid management flow paths. ProConnex is a prime example of a hollow fiber module that incorporates all the fluid management components. We aim to integrate fluid management with our systems rather than selling flow paths separately. While we do offer that option, our main objective is for the flow path to be included with our systems, allowing customers to access both the necessary system for operational tasks, whether upstream or downstream, and the accompanying fluid management components.

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 can 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?

Yes, starting with the spike protein resin, we have indeed received orders during the first half of the year, and we anticipate more orders in the second half. While I don't expect significant revenue from that product in 2021, we will see how things progress in 2022. Regarding FlowVPX, similar to the excitement surrounding TFDF, we are equally enthusiastic about FlowVPX. We believe that PAT technologies are gaining traction, and our customers are keen on obtaining real-time process monitoring data, which is what FlowVPX offers. We have observed strong adoption of the new product in the first half of the year and expect this momentum to grow further throughout 2021 and 2022. We believe we are just at the beginning of seeing PAT technologies integrated into bioprocessing, creating a substantial future opportunity for products like FlowVPX over the coming years.

Tony, on the capacity expansion you mentioned earlier, is it the Waterford, is it the existing prebuilt IDB facility there? And then on the French acquisition, it sounds like you're ramping very quickly; what's enabling that?

Yes, let's start with the French acquisition. The Polymem facility was already equipped for manufacturing bioprocessing fibers and modules, which aligns perfectly with our needs. Since we've collaborated with them for most of the year, the first half has focused on ramping up their manufacturing and qualifying it, while also working with our customers to bring in a second supplier for membranes and modules. We've made progress and are beginning to ship modules to our customers in Q3. Regarding the Waterford site, it's a brand-new IDA building located just a few kilometers from the ARTeSYN headquarters. Our objective over the next 12 months is to establish it as a European assembly center. It will produce flow paths for ARTeSYN skids as well as for our ProConnex product line. This development is crucial for us as we believe it's necessary to have dual manufacturing for our European and North American customers, and it will create a European center of excellence for our flow paths and fluid management products, expected to be operational in 2022.

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?

I believe that everyone in bioprocessing has strong products that are likely growing at similar rates to ours. However, we are a smaller company with a highly focused and differentiated technology, which keeps us away from the commodity side of bioprocessing. This focus is what sets us apart. Our products are not only leaders in technology but also market leaders in our segments, enabling us to boost our growth rate. Furthermore, our pipeline indicates that while we may not have as many products or customers utilizing our products in commercial processes, we do have a significant customer base using our products in early development stages. We certainly have had commercial successes, and the associated consumables at the commercial level can further drive our growth. This is a key reason why we are growing faster than the market growth rate.

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 therapeutics 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 highlight is that COVID-19 is on its way to becoming endemic.

Yes. I cannot specifically comment on which therapeutics will be the main growth drivers. Our perspective is that most companies developing therapeutics and vaccines are collaborating with us and utilizing our products. Over the past 1.5 years, we have seen more benefit from the vaccine side due to high volumes, and our technology has been timely for these customers. I believe there will be further opportunities for us in the therapeutic area beyond our current efforts. Regarding boosters, it seems premature to make a decision on their approval, which is expected to happen later this year. Different regions have varying views on this; for instance, Europe seems supportive of including boosters. However, boosters have not yet been factored into long-term volume and revenue planning. If they do get approved, I see this as a potential increase in overall market demand as we progress through 2022 and 2023.

Tony, you kind of snuck in a comment there about pulling forward your $1 billion revenue target into '24. Just want to confirm if that's all organic? And just your comment on the amount of COVID revenue that might be still included in that number as you kind of look out a few years.

Yes. It's definitely an organic number that gets us to the $1 billion in 2024. When we look at where we're going to be next year with a couple of hundred million dollars in COVID revenue, you can see that getting to $1 billion by 2024, given the sort of portfolio of products that we have, the growth trajectory that we're on, we feel pretty confident that that's something that we can accomplish and achieve. Now will we do deals between now and then? Yes, I'm sure we will. And that will kind of add to the overall number. And the second part, Brandon, again, I'm sorry, could you repeat it?

Yes. I guess just if you care to comment, I think, on kind of the magnitude of the COVID revs. And what that might be in terms of that 2024 build?

Yes. Yes. Yes. As we go through the next few years, I think 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 the effectiveness of the vaccine, how long the antibodies last or 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.

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

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.

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