Repligen Corp Q4 FY2021 Earnings Call

Good day ladies and gentlemen and welcome to Repligen Corporation’s fourth quarter of 2021 earnings conference call. My name is Chad and I will be your coordinator. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing 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 do so by pressing star then one on your telephone keypad. In order to accommodate all individuals who wish to ask questions, there will be a limit to two questions at a time. Please also note today’s 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 Chad and welcome to everyone listening in today. On this call, we’ll cover business highlights and financial performance for the three and 12-month periods ended December 31, 2021. We’ll also provide financial guidance for the current year 2022. Repligen’s President and CEO, Tony and our CFO, Jon Snodgres 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 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, which we filed today, and other filings that we make with the SEC. Today’s comments reflect management’s current views, which could change as a result of new information, future events or otherwise. The company does not obligate or commit itself to update forward-looking statements except as required by law. During this call, we 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, 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.

Great, thanks Sondra. Good morning everybody and welcome to our 2021 year-end update. We are delighted with the way we finished off the year with 69% organic growth in the fourth quarter, 71% organic growth for the full year, and overall 2021 growth for the company coming in at 83%. Our base business continues to deliver above-market growth with 42% growth in the quarter and 38% for the year, reflecting accelerated demand for our products on top of COVID tailwinds. Overall, 2021 was an outstanding year for the company as we continued to execute on our core business strategy of enabling our bioprocess customers with highly differentiated technologies. Let’s cover some of the key highlights. On the M&A front, we strengthened our market position in filtration with the Polymem deal, in proteins with the Avitide acquisition, and in fluid management with the BioFlex Solutions deal. We are well positioned as we enter 2022 to take additional market share with strong brand recognition, a reputation in our industry as the innovation leader in bioprocessing, and a growing portfolio of new products, many targeting gene therapy. Operationally, we increased our capacity between three and nine-fold across all our major product lines. This allowed us to support in a very meaningful way the ongoing fight against the pandemic with the company delivering approximately $190 million in product to the leading COVID vaccine manufacturers. The increased capacity also supported our base business growth, which was exceptional with adoption by gene therapy customers being a key driver of this growth. Our total addressable market increased significantly from $3.7 billion in 2020 to over $8 billion in 2021, driven by COVID market expansion, base business acceleration, and M&A that has allowed us to expand our markets. Finally, 2021 was all about increased commitment in the area of safety, sustainability and DEI. We published our first sustainability report in Q4. Some highlights in the report include a reduction in carbon emissions of 12% versus our baseline year in 2019, the conversion to 100% renewable energy at four key sites, and the launch of our diversity and inclusion initiative. In 2022, we will focus our efforts on DEI initiatives, moving to 100% renewable energy at additional sites, packaging, and single-use recycling programs. Before jumping into our business highlights for Q4 and full year, I want to spend a few minutes on the strategic initiatives that we have highlighted at the beginning of the year. Number one was around building out our capacity to support our business unit growth. Number two was around increasing our market traction in gene therapy. Three was around launching disruptive technologies from our R&D pipeline, and four was around integrating EMT, NMS and ARTeSYN into Repligen. Let’s start with our progress on capacity. Our goal, like many of our peers, was to rapidly expand capacity across our product lines. The progress we made was significant, especially in the area of filtration where the combination of the Polymem acquisition and the expansion programs at our Rancho site increased our hollow fiber capacity over nine-fold. We also brought our European OPUS manufacturing facility online and by the end of 2021, 90% of our European customers had qualified in Breda for production of prepacked columns. Much of what we accomplished last year came from a combination of increased efficiency and expansion of our workforce. In 2022, we expect to spend an additional $60 million to $70 million to complete the majority of our site and capacity expansion plans. This includes adding more filtration space in Rancho and Marlborough and opening up our first assembly center for fluid management in Hopkington, Massachusetts. In cell and gene therapy, we increased our market presence with overall growth close to 40% for the year, driven by our filtration and process analytics portfolios and increased traction in Asia. We successfully focused our efforts on acquiring new customers, adding about 50 new accounts during the year. We finished 2021 with approximately 100 significant accounts, up from 70 in 2020. With our gene therapy application center up and running and a focus in the industry on scale-up, we expect growth to be north of 30% here in 2022. New products continue to be a core pillar in our overall strategy. In 2021, our R&D team delivered on three key programs. The first was around launching the FlowVPX platform, which is a GMP-compliant inline analytics system which has been quickly adopted by our customer base on the manufacturing floor. Second was working with Navigo and Purolite Life Sciences to launch the industry’s first protein A resin to effectively purify pH-sensitive monoclonal antibodies, overcoming aggregation challenges, and the third was around optimizing our ARTeSYN custom systems to deliver on a portfolio of standardized chromatography systems. We expect 2022 to be another strong year for R&D as we focus on launching a family of AAV resins, which we announced earlier this week, and expanding our ARTeSYN family of filtration systems, reinforcing our position in bioprocessing as the innovation leader. Finally on the integration front, we successfully completed the integration of EMT, NMS and ARTeSYN into Repligen. The combined business performance came in as expected, up approximately 26% on a pro forma basis while contributing in a very meaningful way to the manufacturing of internal Repligen products. The integration of EMT and ARTeSYN was a key focus for us in 2021 with the build-out of both our Clifton Park, New York and Waterford, Ireland sites to address the growing need for single-use flow paths in our industry. With the addition of BioFlex Solutions in late 2021, we now have a broad portfolio of fluid management products and we plan to move these products into a new franchise for the company here in 2022. Moving now to Q4 and full year business performance, as reported today, we had a record quarter with nearly $187 million in sales and overall growth of 72%, with all four franchises delivering exceptional performance in the quarter. Within our base business growth, gene therapy revenues were up 85% in the quarter and approximately 40% for the year, reinforcing our market position and demonstrating accelerated traction for our products, especially in the second half of last year. COVID-related revenues also increased in the quarter driven by increased demand from COVID vaccine customers and increased production output coming from our Polymem facility. COVID demand accounted for 33% of our revenue or 34 points of total revenue growth in the quarter. For the year, COVID revenues increased to $190 million, representing 28% of our overall revenue. We continued to see strong demand from our COVID customer base and expect that COVID accounts will contribute $200 million to $220 million in revenues for the company this year. On the orders front, we finished the year up approximately 80% year-on-year with base business orders growing at 40%. In the quarter, base business orders were up over 20% off a tough comp in Q4 of 2020. Sequentially, COVID orders were down following a stellar Q3 when the majority of COVID orders for 2022 were placed. Our COVID order book for 2022 is now over $180 million and very much in line with our expectations for the year. Moving to franchise-level performance, where as of this report we are placing revenue from Avitide and Affinity resins, which to date have been in chromatography, into our proteins franchise to better align with our Affinity ligands business, our chromatography franchise will now consist of OPUS prepacked columns, ARTeSYN chromatography systems, and ELISA kits. Our chromatography business had a solid quarter and was up 29% for the year excluding the contribution from Avitide and Affinity resins, and up approximately 40% if these products were included. Within chromatography, our OPUS revenues for full year 2021 increased by 22%. In the quarter and throughout the year, we have seen strong demand for our largest OPUS 80 columns as more customers put OPUS into late stage and commercial processes, including COVID vaccines. The main challenge we are dealing with continues to be the extended lead times on resin availability from the top suppliers. We expect that the resin supply issue will improve as we move through 2022, which will accelerate growth for OPUS in the second half of this year. We expect our chromatography franchise to grow in the range of 25% to 30% for 2022. Our proteins franchise had another strong quarter and finished the year up 48% with Avitide and Affinity resins included and approximately 40% excluded. 2021 was a pivotal year for us as we executed strategically on many fronts. First, we signed a new supply agreement with Cytiva; second, we developed a new ligand and launched our NGL high pH resin with Purolite; and third, we acquired Avitide, increasing our Affinity content. In 2022, we expect that demand from Cytiva will decrease and will be mostly offset by Avitide revenue and continued traction in the marketplace for our NGL ligands. Overall, we expect proteins to be down approximately 5% in 2022. Our filtration franchise was the big growth driver for Repligen in 2021, up more than 100% in the quarter and over 130% for the year. The story of the quarter and the year was the continued momentum in the marketplace for our flat sheet cassette, hollow fiber and systems products. Key highlights in the quarter included the launch of our new KrosFlo FS system for flat sheet cassettes, the speccing-in of XCell ATF into multiple next generation commercial drugs, and the acceleration in gene therapy demand. For the year, we saw significant growth in COVID vaccine revenues which comprised about 40% of our overall franchise revenue. With strong momentum in the marketplace, we expect the filtration franchise will grow in the range of 25% to 35% in 2022. Finally, our process analytics franchise had an outstanding quarter and year in 2021. Revenue growth was over 50% for the quarter and 44% for the year. The expanded commercial team has focused on new account development, which represented approximately 60% of Q4 revenues and driving our VP technology into new application areas, especially in cell and gene therapy. We continue to be encouraged by the adoption of FlowVPX and we expect 2022 to be another strong year for analytics with growth of approximately 25%. Overall, we expect the company to grow at 19% to 24% in 2022, including strong base business growth of 20% to 22% and organic growth in the range of 18% to 22%. As we move through the year, our strategic priorities will center on the following. Number one will be around building out our capacity to support accelerating growth in our businesses. Number two will be around successfully integrating Polymem, Avitide and BioFlex Solutions. Number three will be around launching new products, including AAV resins and ARTeSYN TFF systems, and finally number four will be on continued traction in cell and gene therapy accounts. We believe we are well positioned to gain further market share in bioprocessing over the next three to five years, and we are confident about hitting our goal of a billion dollars by 2024. Before concluding, I wish to recognize our 1,800-plus employees around the globe, including our new colleagues at Polymem, Avitide, and BioFlex Solutions for their commitment and leadership last year. I also want to thank our loyal shareholders and customers for their part in Repligen’s success as we look forward to delivering another strong year here in 2022. Now I’d like to turn the call over to Jon for a report on our financial performance.

Thank you Tony, and good day everyone. Today we are reporting our financial results for the fourth quarter of 2021, as well as providing our financial guidance for the year 2022. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As emphasized in our press release this morning, we have again delivered record revenue of $186.5 million in the quarter and $670.5 million for the full year, as well as reporting strong earnings growth. Our base business strength was a highlight, up 42% in the quarter and 38% for the year. We also continued to support COVID vaccine and therapeutic programs with our technologies with COVID programs accounting for 33% of our total revenue in the quarter and 28% of the total revenue for the year. In addition to delivering outstanding revenue growth of 83% year-over-year, it has been an incredibly fulfilling year at Repligen as we’ve executed on our numerous capacity expansion initiatives. In 2021, we spent approximately $71 million in capex, of which about 80% was investment in capacity. We also brought several new innovative products to the market through our internal product development initiatives. We continued to spend approximately 5% of our growing revenue base on R&D and 25% of our revenue in 2021 came from major product launches over the last seven years. In addition, we continued to expand our relationships with gene and cell therapy customers who in 2021 represented 11% of our total revenue. Finally, we have continued with our significant progress in acquiring and integrating new businesses and technologies. We are also pleased to have closed on our acquisition of BioFlex Solutions on December 16, expanding our portfolio of fluid management products and bringing a previous supplier in-house. The BioFlex acquisition adds to an already impressive year in M&A with our strategic acquisitions of hollow fiber specialist, Polymem and Affinity ligand developer, Avitide, deals which were completed earlier in the year. In addition, here in 2022 we’ve completed our Phase 4 SAP implementation, going live with our Korea and India selling offices and our Auburn and Hopkington, Massachusetts locations in early February. Now transitioning to our fourth quarter and full year 2021 revenue commentary. For the fourth quarter, we had revenue of $186.5 million, representing 72% reported and 69% organic growth, with inorganic acquisition revenue accounting for five points of growth and foreign exchange driving a two-point headwind. To add further context to our fourth quarter growth, our base business contributed 33 points and COVID programs contributed 34 points. In 2021, our full year revenue of $670.5 million represents reported growth of 83% and organic growth of 71%, with 10 points of inorganic acquisition revenue and approximately two points of foreign exchange tailwind. Looking deeper into the components of our full year reported growth, our base business accounted for 34 points and COVID revenues contributed 39 points. From a product franchise viewpoint, effective in this report and in our 10-K expected to be filed this week, we are shifting our Affinity resin products into our proteins franchise from their historical positioning in chromatography. This shift will better align our franchise reporting streams with total available market reporting streams that we reference. With this change in effect, we are reporting full year 2021 franchise revenue growth for filtration at 131%, chromatography at 29%, process analytics at 44%, and 48% for our proteins business. As it relates to full year 2021 regional revenue growth for our total business, we continue to see positive traction in each of our three global regions. Revenues from Asia-rest of world increased 136%, Europe grew 94%, and North America grew at 58%. Concerning our total business regional revenue distribution for the full year of 2021, Asia represented 19%, Europe represented 40%, and North America represented 41% of our global business. Now moving down our income statement, adjusted gross profit in the fourth quarter of 2021 grew to $105.2 million, an increase of $44.1 million or 72% compared to the same period in 2020. Adjusted gross margin of 56.4% for the fourth quarter was in line with the 56.3% level from the same period in 2020. Adjusted gross profit for full year 2021 finished at $394.9 million, an increase of $183.8 million or 87% compared to 2020. Adjusted gross margin for full year 2021 was 58.9%, a 120 basis point improvement year-over-year. The improvement in gross margin was driven by strong volume leverage in our facilities which outpaced capacity investments, most significantly in the first half of 2021. Now transitioning down the P&L to adjusted operating expenses, adjusted research and development expenses for the fourth quarter and full year 2021 were 4.7% and 4.9% of total revenue respectively. Our dollar level increases in R&D spend were critical to the launch of several innovative new products, including our XCell ATF lab skill controllers, FlowVPX, high pH Affinity ligand, KrosFlo flat sheet filtration systems, and configurable ARTeSYN chromatography systems. Adjusted SG&A expenses for both the fourth quarter and full year 2021 were approximately 22% of total revenue compared to 25% to 26% in the same 2020 periods. The year-over-year dollar increases were related to the timing of our 2020 and 2021 acquisitions and continuing investments in personnel, facilities and equipment expansion supporting our long-term growth expectations. Now moving to adjusted earnings and EPS, adjusted operating income for the fourth quarter 2021 was $55.9 million, an increase of $28.6 million or 105% compared to fourth quarter 2020. Adjusted operating margin for the fourth quarter 2021 was 30%, an improvement of 490 basis points compared to 25.1% in the fourth quarter of 2020. Adjusted operating income for the full year of 2021 was $215.2 million, an increase of $117.1 million or 119% compared to 2020. Adjusted operating margin for full year 2021 finished at 32.1%, an increase of 530 basis points compared to 26.8% for 2020. Adjusted operating profit and margin increases are indicative of the impact of strong volume leverage on our overall business more than offsetting expansion investments. Adjusted net income for the fourth quarter of 2021 was $46.9 million, an increase of $18.3 million or 64% compared to the 2020 quarter. Adjusted net income for the full year 2021 was $175.3 million, an increase of $86.2 million or 97% compared to 2020. Adjusted EPS for the fourth quarter 2021 increased to $0.81 per fully diluted share, an increase of $0.29 or 56% compared to $0.52 in the 2020 period. Adjusted fully diluted EPS for the full year 2021 finished at $3.06, an increase of $1.41 or 85% compared to $1.65 in the 2020 full year period. Our cash and cash equivalents, which are GAAP metrics, totaled $603.8 million at December 31, 2021, including the impact on cash from our fourth quarter BioFlex Solutions acquisition and related deal expenses.

I’ll now transition to our 2022 full year guidance. Our GAAP to 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 2% headwind on full year sales and does not include the potential impact of any future acquisitions that the company may pursue. Based on the strength we are seeing in the bioprocessing market and the expanded capacity that we’ve created in our business, and inclusive of the impact of Polymem, Avitide and BioFlex Solutions acquisitions that we closed in 2021, we are setting our 2022 full year revenue guidance, a GAAP metric, at $800 million to $830 million, representing reported growth in the range of 19% to 24% and organic growth of 18% to 22%. This revenue guidance includes base business revenue of $578 million to $587 million, growing at 20% to 22%, COVID revenue of $200 million to $220 million growing at 5% to 16%, and 2021 non-organic acquisition related revenue of $22 million to $23 million. We are setting our 2022 adjusted gross margin guidance at 57% to 58%. We expect adjusted operating income to be in the range of $234 million to $240 million with adjusted operating margins in the range of 28.5% to 29.5% of revenue for the year. Adjusted other income and expense is expected to be zero for the year. We expect 2022 adjusted income tax expense to be approximately 21% of adjusted pre-tax income for the year. We are setting adjusted net income guidance in the range of $185 million to $190 million, and adjusted EPS guidance in the range of $3.21 to $3.30 per fully diluted share. Our adjusted EPS guidance reflects an estimated 57.6 million weighted average fully diluted shares outstanding at year end 2022. Adjusted EBITDA is expected in the range of $265 million to $271 million with depreciation and intangible amortization expenses expected to be approximately $30.3 million and $26.3 million respectively. The company expects to invest $60 million to $70 million into capital expenditures in 2022. We expect year-end cash and cash equivalents, a GAAP metric, to be in the range of $660 million to $680 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.

The first question will come from Dan Arias with Stifel. Please go ahead.

Good morning guys, thanks for the questions. Tony, on filtration, obviously that franchise is doing quite well. Can you just sort of put some color to your outlook for 25% to 30%, just thinking about the fact that obviously the comp is very difficult but the market dynamics that got you to 100% growth are still looking pretty in place, so maybe just touch on some of the things that you think are the lynchpins that determine where that business lands in terms of growth, and then is filtration one of the areas where you think you might be able to take some share? You made a comment about potential gains there.

Yes, so the projected growth for filtration, Dan, is 25% to 35% here in 2022. Outside the COVID component, when you look at the base filtration business, I think we’re seeing real traction with our flat sheet cassette business, we’re seeing real traction with ATF. As maybe noted, we go into a number of commercial wins in the last three, four months of the year, which is a very positive indication, so I think when you think about our filtration franchise, we’ve had, I would say over the last three or four years, a lot of clinical success, and now it’s beginning to move into the commercial side. So yes, we think 25% to 35% is a good number. As we move through the year, we’ll probably be able to see if we revise that up in any way, shape or form, but I think to maybe reiterate, it’s our ATF portfolio, it’s our flat sheet cassette, and it’s our systems. We’re really happy with the way our systems business has filled out. We talked a little bit down about the R&D element of last year. We launched 11 products last year, many of them into the filtration portfolio, so I think that just gives us a lot of additional fuel as we go through 2022.

Okay, that probably leads into this question regarding cell and gene therapy. The growth you’re experiencing is clearly coming from both new customers and existing accounts. While it might be a difficult question to tackle, could you provide some insights into these two areas? Specifically, consider how the existing body of work scales from earlier stages to later stages, and what you might anticipate in terms of acquiring new customers in 2022, as it seems like your momentum is quite strong there.

Yes, let's begin with the new customers. We expect to continue adding them at a similar rate in 2022 as we did in 2021. Our product portfolio has grown, so there's no reason we can't maintain that pace. There are two significant developments in the industry that we observe. First, there's a notable increase in scaling up, which is encouraging. However, we also need to see more late-stage opportunities reach final approval. I believe that more approvals will generate additional momentum in the clinical pipeline. When we compare the first half of last year to the second half, we noticed a significant increase in our cell and gene therapy business during the latter half of the year.

Just to finish the thought, Tony, are there any insights regarding the larger trends in the cell and gene markets, especially related to companies addressing safety and efficacy challenges? Have any of these factors impacted your business in terms of your order book, or is everything running smoothly at a high level, despite one company facing issues while the industry overall remains strong?

Yes, I think overall the industry is in good shape. I think the earlier comment about seeing more approvals is actually really important. We look at our order book - really robust coming into 2022, we have seen no slowdown on the cell and gene therapy side.

Thank you, and the next question will come from Jacob Johnson with Stephens. Please go ahead.

Hey, good morning everybody. Tony, maybe just to follow up on something you mentioned during your prepared comments, in your new investor deck your TAMs went from $3.7 billion to $8 billion-plus now, so more than double. Can you just expand on your comments on what drove that increase and maybe flush out how much of that is COVID base business, maybe things like cell and gene therapy?

Yes, so on the TAM, clearly the impact of COVID has increased the TAM for our whole industry, probably 80%, I would say. It didn’t quite double our TAM but probably added about $3 billion onto the TAM. Everything else came from the businesses we’ve jumped into, the acquisitions that we’ve done, the expanded markets that we have now. When you keep adding new products at the rate we’ve added them in, again I’ll just reiterate 11 products launched last year, that just opens up additional parts of filtration or chromatography, and just this week launching now Affinity resins into cell and gene therapy, that opens up again more of a market for us. I would say $3 billion is probably COVID, everything else is M&A expanded markets.

Got it, that’s super helpful. Then maybe as a follow-up, kind of sticking with a higher level question, I appreciate the $1 billion 2024 revenue target and how you guys think about the long term growth profile of the business, but something I’ve been asked recently is just on the margin side, how should investors think about the long term margin opportunity at Repligen? If you get to a billion of revenues, what should your margin profile look like at that level?

Jacob, this is Jon here. As we analyze our margins this year, we find a similar narrative to what many in our industry are experiencing. As we concluded the year, our investments began to align with our revenue levels, reflecting a consistent trend across the sector. We are very happy with our progress in enhancing our gross and operating margins; specifically, our operating margins increased by 530 basis points this year and approximately 1,180 basis points over the last three years, marking a significant growth trajectory. For 2022, we have slightly adjusted our guidance as we continue to invest in the business to ensure we are strategically positioned for long-term market opportunities. Looking at a billion-dollar revenue level, we aim to maintain our current targets, striving for over 60% gross margin, which we believe is a reasonable goal. Regarding operating margins, we also intend to stay above 30%. We see a strong opportunity to achieve these goals; however, we are currently focused on investment and capacity expansion, as well as strengthening our R&D, commercial teams, and administrative infrastructure to support a business generating over a billion dollars in the future.

Perfect, thanks for that, Jon.

The next question will come from Julia Qin with JP Morgan. Please go ahead.

Hi, good morning. I’ll begin with a broad question. Many investors are worried about the biotech landscape due to recent market fluctuations, and some CRO companies have reported a significant slowdown in orders earlier this week. I was curious if you have noticed any effects on your pipeline. We realize that Repligen operates more downstream, so the influence is likely more on early-stage research than on development stage, but if you could share insights on your recent customer quoting activities and the order funnel, that would be appreciated.

Yes, I would agree with you, Julia, that the impact is more on the research side than it is on the bioprocessing side. If we looked at our orders in last year, if you take COVID aside and look at base business orders, they were sequentially up every quarter. We look at our orders as we’ve gone through the initial first half of this quarter again being very solid, so we’re not seeing as of today any impact from that, but obviously we’ll go through the year and see what happens. Our guidance is based on everything we see today, and I think there’s definitely some confidence around our $800 million to $830 million.

And the pipelines look exceptional, right, the clinical pipelines and new product development pipelines across gene therapy, across MABs, most areas of our business.

That’s great, and then in terms of inventory levels in the channel, your peer called out about five percentage tailwind from customer inventory building in each of the past two years and they expect that to reverse this year. I’m just curious if this is in line with what you’ve seen, and is that what you’ve contemplated in your guidance as well?

Yes, I think everyone in bioprocessing is witnessing similar trends, so it seems reasonable to expect a certain amount of inventory build. We'll see what customers do regarding their inventory throughout the year. Last year, there was an increase in inventory due to concerns about product availability, which I believe still exists. Therefore, I don’t expect a slowdown in inventory build until the second half of this year.

Thank you, and the next question will come from Paul Knight with Keybanc. Please go ahead.

Tony, I think you mentioned the overall product line and new capacity expansions of 3 to 9x. What’s the overall capacity for the entire firm - is it in between that, like 4x, or could you comment on that? Then second question is on cell and gene therapy, is flat sheet your biggest driver and differentiator?

Yes, so on the capacity, we probably haven’t calculated exactly what the average capacity increase was last year because every product line was a little different, but I think your guesstimate is probably accurate, it’s probably around 4x. For us, though, there were some key product lines that we really needed to build up capacity given the COVID demand. I think clearly hollow fibers was the one that we highlighted with the nine-fold increase. What was interesting about last year was a lot of our capacity increases came from addition of people and being more efficient and some physical capacity space being added. This year, it’s more about adding in that physical capacity space, which I think will set us up for the next three to five years and really drive our lead times down significantly versus what you might have seen in the past. I think that’s really a positive sign for us, and it’s no different than what our peers are doing as well. Everybody is on the same journey. On the cell and gene therapy side, I don’t think I would call flat sheet out as the primary driver for us, or differentiator. I would say when you look at our portfolio of products, obviously filtration, there’s a large number of highly differentiated products in our filtration portfolio, so I would say that the major driver of growth in cell and gene therapy is our combined filtration portfolio, not any one individual product. What’s nice about the rest of the portfolio is we’ve got some really nice traction with our OPUS prepacked columns and we’ve got some really nice traction with our Flow and Solo VPE technologies in cell and gene therapy, so those franchises, because they just don’t have the same number of products as filtration will always naturally have a lower percent impact on gene therapy than what you might get with filtration.

Thank you, and the next question will come from Matt Hewitt with Craig Hallum Capital Group. Please go ahead.

Good morning and thank you for taking the questions. I realize it’s very early days, but the recently launched new resin products for AAV manufacturing, what has been the initial response that you’ve heard from customers, and how quickly do you think you could start to see some of those hitting the order book?

There’s no simple solution when it comes to chromatography resins. Anyone in the industry understands that launching products in this area is a process. This year, 2022 is focused on establishing a presence. The positive news is that we’ve received a lot of interest from customers eager to evaluate the resins. Our products are distinct from the current market options, and we have concentrated on enhancing caustic stability. This improvement enables customers to run the resins for more cycles and maintain capacity in the chromatography column for longer periods. I anticipate that this year will primarily be about establishing our brand, and next year, we may begin to see opportunities advancing into various program phases. It is crucial for us to start strong. As the leader of Repligen, I find it incredibly encouraging that just five months after our acquisition of Avitide, we have successfully launched three products. We committed to this timeline, and we delivered. I want to emphasize that our R&D teams are performing exceptionally well; we are launching products on schedule, which will support our goal of reaching a billion in revenue in the coming years.

That’s great, and then maybe separately or in a different line, cell and gene therapy, you’ve mentioned it a number of times, it’s obviously going to be a key growth driver for you going forward. Where would you characterize those products today, the ones where you are actively involved? Are those still early clinical stage opportunities or are you starting to see those shift into the commercial realm, and what will that mean from an increase in revenues for you as those do become more commercial based? Thank you.

Yes, I would say that most of our current opportunities are in the clinical stage. The customers we have been collaborating with over the past four years have progressed some of their projects into later-stage clinical trials. As I mentioned in our earlier discussion, we need to see more commercial successes. This is important not just for us, but for the industry as well; the more approvals we witness, the more momentum will build in the clinical pipeline. What we should all be focused on is the rise in the number of approvals, as this will boost volume and support many ongoing clinical programs. It’s difficult to quantify, but being in a commercial phase results in stable revenue, while in clinical phases, revenue may occur this year for one application, but it could be 18 months before further revenue is realized.

The next question will be from Brandon Couillard from Jefferies. Please go ahead.

Hey, thanks. Good morning. Tony, if my math is right, it looks like your Asia Pac business more than doubled last year, and I would assume that most of the COVID vaccine contribution was mostly concentrated in the U.S. and Europe. Is that the right assumption, first of all, and could you just elaborate on the drivers of that and maybe the size of your commercial team in Asia?

I’ll start with the commercial team. We’ve significantly expanded our commercial organization over the past few years. We ended last year with nearly 200 people across sales, field applications, and field service. By the end of Q1, we expect to be around 225 to 230. While I don’t have the exact number for sales staff in Asia, I do know there are about 40 team members in China. The momentum in Asia has been outstanding in recent years. Regarding the drivers of growth in Asia, our filtration portfolio is the main contributor. We have several large accounts using our prepacked columns, but in countries where labor is less costly than in the U.S., many prefer to pack their own columns. However, well-known large companies are increasingly moving towards prepacked columns. Last year, filtration was the primary driver, and we also saw significant contributions from COVID. We have various accounts in China, Korea, and India that have utilized our technology in the production of COVID vaccines. It’s important to note that while some major companies were involved in COVID vaccine manufacturing, many CDMOs also participated, so our influence comes from both customers in Asia making their own vaccines and CDMOs.

That’s helpful. Then just one for Jon, any color or direction you’d give us in terms of the phasing of margins and EPS in ’22, and should we expect the vaccine revenues to be ratable at kind of $50 million to $55 million a quarter?

Yes, I’ll start with the first one in terms of the margin view and how that’s going to phase, and I’ll hand off to Tony for the other question. Margins as we come out of this year, we’re on an H2 run rate of about 57.3% on the gross margin level, and again this is because obviously our investments are now catching up to the revenue levels. That’s a really good starting point coming into the year. Interestingly, though, that’s really right within the range of our full year, so I’d say we expect to be fairly consistent throughout the year in that 57% to 58% level. Then on operating margins, similar story - we finished the year at 30%. We’ve guided down a little bit because I’d say we got a faster jump in terms of capacity adds as opposed to maybe infrastructure and commercial adds with the catch-up on volumes and such. I would say 30% end of the year, we’re expecting to come in at 28.5% to 29.5% on operating margin, so I would say you’re going to start in at a fairly consistent level and then you’ll finish, so it should be reasonably consistent throughout the year.

Yes, regarding the COVID vaccine revenues, we anticipate that the fourth quarter was over $60 million. We expect the first half of the year to also exceed $60 million on a quarterly basis, while the second half may be slightly lower, suggesting a split of around 55% for the first half and 45% for the second half is a reasonable expectation.

Once again, if you have a question, please press star then one. The next question will come from Ram Selvaraju with HC Wainwright. Please go ahead.

Thanks very much for taking my questions. Firstly, I wanted to ask if your $1 billion-plus revenue guidance for 2024, achieving that threshold by 2024 does take into account the possibility of reduced vaccine demand, reduced vaccine production as the COVID-19 pandemic might shift to endemic status by that point. If you could just maybe comment the extent to which that number is essentially battle-proof, so to speak.

Yes, that's a great question, Ram. Regarding our billion-dollar target, we discussed this with several analysts back in November. Our model anticipates a roughly 25% reduction in 2023 and 2024. Despite this anticipated decrease, we remain confident that we can achieve a billion dollars in revenue by 2024. We believe there will be ongoing effects from COVID, which influenced our modeling decisions. Nonetheless, we are still very confident that we can surpass a billion dollars.

It’s 25% in ’23 and another 25% in 2024, just to be clear.

Great, and then on the gene therapy side, I was wondering if in a more capital constrained environment - this is kind of building on questions that were asked earlier, do you think that, for example with the reusable resins, you would actually be able to take market share from your competitors from a bioprocessing perspective within gene therapy, and do you expect the bulk of the gene therapy demand to be driven by AAV products, particularly in the context of how your new resin products can be used?

Yes, we recently launched three resins for AAV that target the more dominant AAV types currently in the market. We do not have any market share at this point, but we hope to gain some over the next couple of years. It was essential for us to ensure that our products are differentiated from the competition, and they clearly are. However, it will take time to establish ourselves in the market. Our expectation is that we will gradually take market share, and building our portfolio will take a couple of years. At present, AAV is the leading gene therapy vector, and while there are other vectors, we will continue to evaluate and decide on additional Affinity resins to bring to market in the next one to two years. Expect to see more Affinity resins coming from Repligen soon.

Thank you, and ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Tony Hunt for any closing remarks.

I’d just like to thank everybody for joining us this morning and look forward to catching up with everybody again in May, which is not too far away, so thanks again and we’ll chat later.

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