Walter C. Herlihy - President and CEO Jon K. Snodgres - CFO Sondra Newman - Director of Investor Relations.

Andrew Jones - Stephens Inc Bryan Kipp - Janney Capital Markets Sachin Kulkarni - Jefferies LLC.

Good day, ladies and gentlemen, and welcome to the Repligen Corporation Second Quarter 2014 Earnings Conference Call. My name is Nichole and I’ll be your coordinator. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference call is being recorded.

Please note that there will be a question-and-answer period following the Company’s formal remarks. In order to accommodate all individuals who ask questions, it will be limited to three questions at a time. I’d now like to turn the call over to your host today, Sondra Newman, Director of Investor Relations for Repligen. You may begin..

Thank you, Nichole. Good morning, everybody. The purpose of today's call is to discuss our second quarter 2014 financial results, to update our guidance for the year 2014 and to discuss recent business highlights. Joining me today are Walter Herlihy, our President and CEO and Jon Snodgres, our CFO.

At the outset, I would like to state that this discussion may contain forward-looking statements. These statements are subject to risks and uncertainties, which may cause our plans to change or results to vary. In particular, unforeseen events outside of our control may adversely impact future results.

Additional information concerning these factors is discussed in our annual report on Form 10-K, the current reports on Form 8-K that we filed today and other filings that we make with the Securities and Exchange Commission.

The forward-looking statements in this discussion reflect management’s current views and may become obsolete as a result of new information, future events or otherwise. We may not update such forward-looking statements, except as required by law. Now, let me turn the call over to Jon for a financial update..

Thank you, Sondra. Good morning. Today, we reported our financial results for the second quarter of 2014, which were highlighted by strong sales of our key bioprocessing products and continued operational strength. We reported record product sales of $15.6 million, an increase of 19.5% compared to the second quarter of 2013.

Product revenue growth was driven by increased demand for Protein A Affinity Ligands from our commercial partners and strong growth for our Chromatography products, including our OPUS Pre-Packed Columns. Second quarter revenue also included approximately $500,000 in sales of ATF products as a result of our acquisition of Refine Technology on June 2.

During the second quarter of 2014, our reported revenue was derived from bioprocessing products sales. As a reminder, in 2013 Repligen received significant royalty revenues from Bristol-Myers Squibb based on their U.S. sales of Orencia.

This royalty agreement which expired on December 31, 2013 accounted for $4.3 million in revenue during the second quarter of 2013. For the quarter, gross profit from bioprocessing product sales was a record $8.9 million or 57.1% of product revenue.

This was a result of high manufacturing volumes, particularly, for our Protein A products along with improved manufacturing efficiencies. R&D expenses of $1.4 million were $900,000 lower than in the second quarter of 2013. This was primarily the result of discontinued investment in to therapeutic development programs.

Selling, general and administrative expenses increased by $1.2 million to $4.3 million. This was a result of increased spending on recruitment and salaries as we expand our management team and commercial operations.

SG&A for the quarter also includes approximately $300,000 of legal and accounting expenses associated with acquisition of Refine Technology. Operating profit for the quarter was $3.1 million or 20% of revenue. Our tax rate was 12.9% of operating income, resulting in net income of $2.8 million for the quarter.

Cash and investments as of June 30, 2014, totaled $61.9 million compared to $73.8 million as of December 31, 2013. This was impacted by the use of $21.2 million for the Refine Technology acquisition, including deal adjustments for acquired working capital. Today, we’re also updating our financial expectations for the full-year of 2014.

We now expect total revenues of $59 million to $62 million, an increase of $1 million from our previous estimate. This includes $57 million to $60 million of product sales reflecting 20% to 26% growth from 2013.

Based on the results in the first half and a much better understanding of Refine’s financials, we now expect gross margins for the year to reach 53% to 55%, an increase from our most recent estimate of 51% to $53%. We continue to anticipate R&D expenses of $5 million to $6 million for the year.

We now estimate SG&A expenses of $16 million to $17 million for the year as we accelerate the hiring of additional commercial personnel. Our SG&A forecast for the year also includes approximately $800,000 of transaction expenses and $500,000 of amortization expenses associated with the Refine Technology acquisition.

Operating income for 2014 is projected to be between $11 million and $13 million, an increase from our prior estimate of $10 million to $12 million. We now expect that our global tax rate for 2014 will be between 23% and 25%.

Our tax forecast reflects higher sales from our Swedish subsidiary where we paid 22% and our U.S operations moving from a modest profit to a modest loss as we accelerate the build out of our commercial organization. In addition, our reported taxes will include a $200,000 non-cash expense associated with the accounting for the Refine acquisition.

Our net income is projected to be between $8 million and $10 million, consistent with our prior guidance. Capital expenditures for the year are expected to be $6 million, which includes $4 million to expand our Waltham, Massachusetts facility and $2 million to maintain existing facilities and equipment.

Based on the aforementioned projections, we’re expecting year-end cash of $64 million and $68 million. Our 2014 guidance does not include the impact of potential milestone payments from Pfizer or BioMarin, possible future bioprocessing acquisitions or fluctuations in foreign exchange rates.

To summarize, we’ve had a very strong quarter, highlighted by record bioprocessing product revenue and gross profits, along with strong operating cash flow. This despite the investments associated with the Refine acquisition and the expansion of our leadership team and commercial operations. I’ll now turn the call over to Walt for business updates..

the integration of the business of Refine Technology; the expansion of our commercial group, and progress in new product development. Since June 2nd, the integration of the operations of Refine has progressed rapidly on several fronts.

We’ve initiated the expansion of our Waltham, Massachusetts manufacturing site, which will include space dedicated to assembling the ATF products acquired from Refine. We’ve also taken steps improve the ATF supply chain to ensure timely delivery to customers and we’ve begun the process of bringing ATF manufacturing under our ISO 9000 quality system.

We expect to have substantially completed the integration by the end of the year. As part of the integration process, four Refine’s customer facing employees have agreed to join our commercial organization, which will provide continuity and sales and customer support and will immediately increase our ex-U.S presence.

We expect to further expand our commercial group this year with several additional sales representatives and several hires and customer service and product management. By the end of 2014 we plan to have more than doubled our commercial footprint compared to prior year.

We believe this investment will enable us to drive increased sales of ATF products and also help sustain the momentum for OPUS Pre-Packed Columns and our growth factor products. In addition, we will be better able to support the anticipated launch of three new products that are currently in development.

Last March we launched 45-centimeter version of our OPUS Pre-Packed Chromatography Columns, which has been very well received by customers. This product is the largest commercially available Pre-Packed Column and is sized to be able to purify biologic products produced in 1,000 liter bioreactors, which are used in many pilot scale facilities.

We expect the 45-centimeter Columns to contribute more than $1 million to our 2014 revenue. Some customers are beginning to adopt 2,000 liter bioreactors, the largest size available in a single-use format which in turn will require higher capacity Columns.

Thus we’re now developing a 60-centimeter diameter OPUS Column, which will have nearly twice the capacity of a 45-centimeter Column and be suitable for use with these larger bioreactors. In addition to used in production of products for clinical trials, the 60-centimeter Columns will also be applicable to small scale commercial production.

Second, we’re developing a single-use version of the ATF System. This project is based on requests from customers who have adopted the ATF technology in the current stainless steel format and now want to migrate it to a facility based on disposable technologies.

We expect to develop both a bench top version for laboratory use as well as several larger sizes which can be used with bioreactors as large as 1,000 liters. Third, we’re continuing to advance the next generation of the Protein A media that we sell under the CaptivA brand.

This media is expected to have mid range performance characteristics which are suitable for our OPUS customers working at clinical or niche commercial scale. While the outcome of R&D is always uncertain, our goal is to launch these three important products in the first half of 2015.

Let me conclude by reiterating that we’re very bullish on the opportunity in our industry and the growth potential of our product lines. Half way through the year, we had a successful launch for the OPUS 45 Columns, and made a strategic acquisition which is expected to support 2014 revenue growth of more than 20%.

Our six-month product gross margin of 56.5% is ahead of plan as we begin to recognize the return on prior investments in improving manufacturing efficiency. We’ve also advanced three new products to prototype stage and we’ve added critical sales and management expertise to support our future growth.

I look forward to updating you on our continued progress throughout 2014. And I’d now like to turn the call over to the operator for our question-and-answer period..

Thank you. (Operator Instructions) Our first question comes from Drew Jones of Stephens Inc. Your line is now open..

Good morning, guys..

Good morning, Drew..

Walt, Amgen made some pretty interesting commentary on their call a couple of weeks ago about new production technology.

Can you comment on that relationship and kind of where they’re in the process and how that stacks up to some of your other partners?.

Walter C. Herlihy:.

:.

You guys gave a little color on OPUS and Protein A in the quarter.

Can you give us a little color on IGF; was there anything out of the ordinary there?.

The IGF sales were right in line with expectations. So they were neither ahead nor below where we thought they’re going to be. They remain strong and we certainly remained convinced that while there maybe some lumpiness that IGF should grow over the next five years of the top end of our organic growth guidance of 10% to 15%..

And then last one, I know it’s early, so it might not be fair to ask this yet, but certainly you are coming in, I know a lot of these connections were in Asia, can you give us an update on headway being made in those markets?.

Your call -- your question was breaking up a little bit. I believe you’re asking about progress in product adoption in Asia. So I can tell you that we have now a sales representative in Singapore who is part of the Refine commercial organization.

And he will be managing the relationship with Amgen in Singapore, but also distributors in China, South Korea, India, Taiwan, and Japan.

So our specific example, it’s a little early to comment, but I think some of the push for the 60-centimeter Column came from potential Asian customers who are looking to manufacture biosimilar monoclonal antibodies for use in a specific country.

And so therefore the volumes are lower and therefore the ability to use a 60-centimeter Column is adequate to support that local market. So those conversations are very active at this time..

Thank you, guys..

Thank you..

Thank you. Our next question comes from the line of Paul Knight of Janney Capital Markets. Your line is now open..

Hi, guys. This is actually Bryan Kipp on behalf of Paul. Thanks for taking the question..

Hi, Bryan..

Hi. Just a quick one to start.

What was the FX impact from the quarter, just kind of thinking teasing out organic revenues here because I know the pound was pretty strong and you guys do have some exposure there?.

Yes, it’s not material. It’s in a few hundreds of thousands of dollars. The pound gets translated into Swedish kroner, the Swedish kroner then gets back translated into U.S dollars. The Swedish kroner has been weaker against both currencies in the first half of the year. But its -- that effect is muted by that double translation..

Okay. And then on OPUS, you guys highlighted OPUS as an additional strength in 2Q. Last quarter you teased out and said it was north of 10% of sales or around 10% of sales.

Can you give additional color there?.

It was not quite 10% of sales, but in line with our expectations. I think the big picture for us that is two-fold. We expect OPUS sales to grow at a rate of more than 100%, which we put it north of $5 million for the year 2014 in total.

And we’re very pleased having just launched the 45s in March to already have multiple customers and have reorder customers. So that’s an encouraging sign, since typically bioprocessing customers are slow in the uptake of new products. So tracking ahead of our expectation..

Okay. And in addition to that, I guess, I’ll follow up on the OPUS side; I think you’ve a long-term goal of 15 to 20 over the next several years. With the announcement on the 60, you alluded to $1 million plus on the 45 this year.

Do you confident enough to iterate on these new products or just kind of your thoughts around getting to that long-term goal of that middle teens -- mid teen million dollar revenue target?.

I think the number one driver will be increased adoption. We are just at the earliest stages of customers adopting OPUS. I think there are many more accounts where we could get multi site adoption, multiple process adoption of OPUS. So we’re just scratching the surface there. I think that’s going to be probably a primary driver.

Secondary driver will be these product line extension such as the 60 or other format that we have in development. But really as the world converts to this more modular manufacturing, I think we will see a long-term increase in demand driven mostly by that..

I appreciate it..

Thank you. Our next question comes from Brandon Couillard of Jefferies. Your line is now open..

Hi. Good morning..

Good morning, Brandon..

This is Sachin in for Brandon. With respect to your product gross margins, your guidance would suggest a sequential decline for the next two periods.

Is that an abundance of conservatism or are there some discrete mix tailwinds in the first half?.

Sure. This is Jon Snodgres. There are some -- we will have some headwinds in the second half mostly associated with volumes of Protein A products in our factories and absorption thereof.

In addition, we do see shutdown periods in the second half of the year for the summer periods as well as for the holiday periods that cause a degradation in the overall absorption and gross margin..

Got it.

And also following up on that, were there any inventory step-up charges in the quarter?.

Yes, there were. There were 6,000 -- excuse me, $68,000 of inventory step-up charges in the second quarter for the Refine acquisition..

And how do you expect that to -- for the cadence of that for the rest of the year?.

Sure. We expect about another $52,000 of charges for the remainder of the year for step-up..

All right. Got it. Thanks..

Thank you. (Operator Instructions) And our next question comes from the line of Paul Knight of Janney Capital Markets. Your line is now open..

Hi. It’s Bryan again. Just another quick follow-up. I think you said $16 million to $17 million in SG&A expenses with $800,000 to $900,000 in addition to that ATF acquisition for additional expense.

What is your thought on outer year, the kind of ramp there, you’re going to continue to invest in ’15 and in ’16, similar or in excess of top line? I think you said that top line with the ATF acquisition can grow in excess of 20% next year or can be bolstered by ATF can grow in that range? So just color around that as well would be helpful..

So I think that our guidance there is that we expect to commercial operations to add an additional four, five individuals this year and then growth in 2015 would be more modest, maybe one or two additional people. So I think that we should look at the current run rate of SG&A as being reflective of what we might expect in 2015.

We won’t have the -- of course, unless do another acquisition, we won’t have the Refine acquisition expenses, but we will have full-year run rate for additional personnel who are bringing on in the second half of the year..

Thanks..

Thank you. And I’m showing no further questions at this time. I'd like to turn the call back to Mr. Walter Herlihy for any closing remarks..

Okay. Well, thanks everyone for joining us this morning. And as always if you have additional questions, please feel free to contact us at Investor Relations..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s presentation. You may all disconnect. Have a great day everyone..