At a time when many businesses have been impacted by the financial consequences of the coronavirus pandemic, Repligen (RGEN 3.68%) continues to hum along. The bioprocess engineering leader reported record quarterly revenue and profitability in the Q2 2020, and management raised full-year 2020 financial guidance to boot.
Repligen's success isn't too surprising. After investors learned the company's significant dependence on clinical trial activities wasn't expected to weigh down the business during the global health crisis, it was safe to assume Repligen's products would continue to find traction in the market. As it turns out, the business became more important to customers, especially in Asia.
Here's what investors need to know.
Image source: Getty Images.
By the numbers
Repligen develops products such as filters, chromatography columns, and sensors used to manufacture biologic drugs. In 2019, the business generated 85% of revenue from customers producing monoclonal antibodies, recombinant proteins, and vaccines. The remaining 15% was generated from gene therapy manufacturing, although revenue derived from genetic medicines has grown from $6 million in 2017 to $40 million in 2019.
A similar market breakdown wasn't immediately available for the second quarter of 2020, but the key takeaway is that Repligen hasn't struggled to grow in a pandemic-constrained world. In fact, the global health crisis appears to have had no discernible effect on the business. Revenue and profits hit new records in the second quarter and first half of the year. Operating cash flow took a small hit in the year-over-year comparison, although it can be explained by a recent (and wise) buildup in inventories and a change in accrued expenses (mostly explained by growing inventories).
|
Metric |
First Half 2020 |
First Half 2019 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$163.5 million |
$131.3 million |
24% |
|
Gross profit |
$94.6 million |
$73.7 million |
28% |
|
Operating income |
$31.4 million |
$22.2 million |
41% |
|
Net income |
$25.7 million |
$20.1 million |
59% |
|
Operating cash flow |
$26.3 million |
$27.6 million |
(5%) |
Data source: SEC filing. YOY = year over year.
Customers based in Asia were one of the largest drivers of revenue growth in the second quarter of 2020. The region was responsible for 16% of quarterly revenue, compared to 11% (of a much smaller number) in the year-ago period. That makes sense considering the frantic investment in vaccine and therapy development and the fact developed nations in the Asia-Pacific region were the first to experience the coronavirus pandemic and recovery, however fragile or authentic (China is likely downplaying its numbers).
Looking ahead
Repligen ended June with $560 million in cash, marking an increase of $32 million from the end of March. In June, the business acquired Engineered Molding Technology, which manufactures silicon-based products for single-use bioprocesses. Single-use products are valuable in biologic drug manufacturing because they can be packaged in sterile conditions, discarded after use, and significantly lessen the burden of cleaning and risk of contamination.
The acquisition also allows Repligen to pounce on a relatively overlooked trend in drug development: contract and development manufacturing organizations (CDMOs). CMDO customers were responsible for $27 million of revenue in 2018 and $51 million in 2019. Investors can expect that number to grow significantly in 2020.
Due in part to the acquisition of Engineered Molding Technology and preexisting growth trends, Repligen increased full-year 2020 guidance.
|
Metric |
Previous Full-Year 2020 Guidance |
New Full-Year 2020 Guidance |
|---|---|---|
|
Revenue |
$309 million to $319 million |
$332 million to $340 million |
|
Gross margin |
56% to 57% |
56.5% to 57% |
|
Operating income |
$52 million to $56 million |
$59 million to $62 million |
|
Net income |
$34.5 million to $37.5 million |
$41 million to $44 million |
Data source: Press release.
An undisputed leader in bioprocess engineering
After second-quarter 2020 operating results were announced, shares of Repligen shot up to a valuation of 27 times sales and a market cap of $7.8 billion. That's a relatively expensive valuation. Then again, there aren't many opportunities to own profitable growth of the same magnitude or in such an important, future-oriented market.
Investors could argue Repligen is enjoying a pandemic bump that won't prove sustainable in the long run, but management is targeting at least $500 million in annual revenue by 2023. That puts shares at about 16 times 2023 revenue. Given the company's cash position and history of acquisitions, that could prove to be a conservative estimate. Therefore, investors seeking profitable growth won't do much better than Repligen, although don't be surprised if shares pull back in a broader market correction.
