Sondra Newman - Director, Investor Relations Walter Herlihy - President and Chief Executive Officer Jon Snodgres - Chief Financial Officer.

Brandon Couillard - Jefferies Bryan Kipp - Janney Capital Markets Drew Jones - Stephens Inc..

Good day, ladies and gentlemen and welcome to Repligen Corporation’s Third Quarter 2014 Earnings Conference Call. My name is Sam and I will be your coordinator. At this time, all participants are in a listen-only mode. (Operator Instructions) Please note that there will be a question-and-answer period following the company’s formal remarks.

In order to accommodate all individuals who wish to ask questions, there will be a limit of three questions at a time. I would now like to turn the call over to your host for today’s call, Sondra Newman, Director of Investor Relations for Repligen..

Thank you, Sam and good morning. The purpose of today’s call is to discuss third quarter 2014 results to update our financial 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 report on Form 8-K which we file 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.

They 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, I will turn the call over to Jon for a financial update..

Thank you, Sondra. Good morning. Today, we have reported our financial results for the third quarter ending September 30, 2014 which were highlighted by strong sales of our key bioprocessing products. We reported product sales of $15.2 million, an increase of approximately 24% compared to Q3 of 2013.

We experienced increased demand for Protein A Affinity Ligands and our OPUS line of Pre-Packed Chromatography Columns during the quarter. In addition, we had solid sales of both growth factor and ATF system products. During the third quarter of 2014, virtually all reported revenue was derived from bioprocessing product sales.

As a reminder in 2013, Repligen received revenue related to our discontinued therapeutic programs and significant royalties from Bristol-Myers Squibb based on their U.S. sales of Orencia under an agreement that expired on December 31, 2013.

For the third quarter of 2014, gross profit from bio-processing product sales was $8.2 million or 54.3% of product revenue compared with $6.5 million or 53.5% for the same period in 2013. The percentage improvement versus 2013 was largely generated through improved leverage of fixed costs from higher product volumes.

Research and development expenses of $1.6 million were $220,000 higher than the third quarter of 2013 primarily as a result of investment in several new product development programs, including R&D associated with three new product launches planned for the first half of 2015.

SG&A expenses increased by $1.6 million to $4.5 million, this was the result of increased spending on compensation and infrastructure as we expand our management team and commercial organization.

SG&A for the quarter also includes $339,000 of legal and accounting expenses associated with the acquisition of the ATF business from refined technology and $193,000 of ongoing amortization of intangible assets acquired in the acquisition. We have reported operating income for the quarter of $2.2 million.

Our third quarter tax rate was 35% of pre-tax income, resulting in net income of $1.5 million for the quarter. Our third quarter tax provision combined with our first half tax rate of $17.8 million or 17.8% aligns our year-to-date provision to 21.4%, which is within the range of our full year expected tax rate of 21% to 23%.

The quarterly fluctuations in tax rates are based on accounting guidelines and are not a true reflection of the operating results of the company in any given quarter. Cash and investments as of September 30, 2014, totaled $64.1 million compared to $73.8 million as of December 31, 2013.

We have generated positive cash flow of $11.5 million in the first three quarters of the year to partially offset the $21.2 million used for the Refine Technology acquisition. Today we are also updating our financial expectations for 2014.

We now expect total revenues of $60 million to $62 million, which includes $58 million to $60 million of product sales reflecting 22% to 26% product sales growth versus 2013. We are affirming our expectations for gross margins for the year of 53% to 55%.

We continue to anticipate R&D expenses of $5 million to $6 million and SG&A expenses of $16 million to $17 million as we continue the process of expanding our management team, commercial organization and infrastructure to support growth.

Our SG&A forecast for the year also includes $816,000 of one-time transaction expenses and $451,000 of ongoing amortization expenses associated with the Refine Technology acquisition. Operating income for 2014 is projected to be between $11 million and $13 million, consistent with our previous expectations.

We now expect that our effective global tax rate for 2014 will be between 21% and 23%, resulting in approximately $2.5 million to $3 million of tax expense. Our tax forecast reflects income from our Swedish subsidiary where we paid 22% and our U.S. entity operating at close to breakeven.

Our net income for 2014 is projected to be $8 million to $10 million, consistent with our prior guidance.

Capital expenditures in 2014 are expected to be approximately $6 million, which includes $4 million to expand our Waltham, Massachusetts facility to accommodate ATF system manufacturing and $2 million to maintain existing facilities and equipment. Based on the aforementioned projections, we are expecting year end cash of $64 million to $68 million.

Our 2014 guidance does not include the impact of future fluctuations in foreign exchange rates, potential milestone payments from BioMarin or Pfizer therapeutic out licensing agreements or possible future acquisitions.

To summarize, we had a very strong third quarter, highlighted by increased bioprocessing product revenue and improving gross margins and cash generation in our core business. I will now turn the call over to Walt for a business update..

Thank you, John. Before turning to other topics I want to make an additional comment on our financial forecast. As many of you know the fourth quarter of the year has historically had the lowest level of product sales as some customers reduced purchases based on lower activity in December and to reduce year end inventory levels.

By contrast, sales of ATF systems have historically been strongest in the fourth quarter as customers expand their capital equipment budgets and we are seeing a similar pattern this year.

At the $59 million midpoint of our products sales guidance for 2014, we would record Q4 sales of $14 million, a drop from Q3 of only 4% compared to a 14% drop in Q4 2013.

While there were – continue to be variations in sequential quarter revenue, the increasing diversity of our product portfolio may reduce the magnitude of these year end fluctuations. One of the product highlights for the third quarter was the performance of our 45 centimeter diameter OPUS pre-packed columns.

The OPUS 45 product was launched in March of this year as the largest available pre-packed column on the market. In the third quarter we saw a surgeon demand for 45 centimeter columns that continues into the fourth quarter.

Demand is based in part on increasing size of single use bioreactors, which are now operating at 1000 liter scale in many facilities, which in turn requires a column with the capacity of our 45 centimeter product.

At this point the launch, we will clearly exceed our internal projections and we expect the 45 centimeter product to contribute between $1 million and $2 million of revenue in 2014.

Based on continued customer feedback, we believe there is also initial demand for a 60 centimeter diameter column, which will be suitable for use with a 2,000 liter bioreactor. We have now successfully built engineering prototypes of the OPUS 60 centimeter columns and we expect to launch the product in March of 2015.

We are also 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 that are well matched to the needs of our OPUS customers working at clinical or niche commercial scale.

And finally, work is progressing on a single use version of the ATF system. Based on customer feedback, we are prioritizing work on the larger size ATF units, which are needed to work with 1,000 liter bioreactors.

While the outcome and timing of R&D is always uncertain, our goal is to launch these three important product line extensions in the first half of 2015. As previously discussed, we are expanding our commercial group this year with new hires in sales, customer service and product management.

By the end of 2014, we plan to have doubled our commercial footprint to enable us to drive increased sales of our proprietary products, the ATF system, our OPUS columns and our growth factor products. Importantly, this larger commercial force will support the launch of the three product line extensions that I mentioned.

Finally, we have made significant progress on the integration of the operations of Refine. We expect to substantially complete the expansion of our Waltham, Massachusetts manufacturing facility by the end of the year and to begin assembling ATF products in our facility in early 2015.

Let me conclude by saying that we remain very bullish on the continued growth of biologic drugs, particularly monoclonal antibodies and the growth opportunities they provide for Repligen. Our more diversified product portfolio and our increased direct sales presence will support continued growth of our proprietary product revenues.

We are also making steady progress toward our stated goal to achieve product gross margins of 55% or better and we expect incremental improvement in our operating margin in 2015 and beyond. I look forward to updating you on our continued progress. I would now like to turn the call over to the operator for a question-and-answer period..

Thank you. (Operator Instructions) Our first question comes from Brandon Couillard with Jefferies. Your line is now open..

Thanks. Good morning..

Good morning, Brandon..

Walt, could you elaborate on the OPUS business for us in terms of any metrics you can give in terms of the number of customers or applications, just anything you can help us with in terms of getting a better sense of how the user base is developing for that product?.

Sure. I can give you a few early examples, Brandon. I think this quarter we sold first columns for use in a vaccine manufacturing process. It’s an area we haven’t really detailed as much as the people who are making monoclonals at clinical scale. We continue on a quarter-by-quarter business to incrementally add new customers.

I think we have made great headway in the early going with the early adopters, but we are seeing some more mainstream customers coming into the fold. I can think of one contract manufacturing organization, for example, we have been detailing for a couple of years who bought a couple of columns this quarter.

And finally, I would say, we are seeing a small number, but nonetheless, I think it bodes well for the future of customers who are buying an OPUS column with our CaptivA Protein A media inside it.

This is a very early stage older media that we developed some years ago, which will ultimately be supplanted by the product under development, but I think it shows that there really is a demand out there for these more moderate performance resins as we see this initial uptake.

And then finally, one of the most gratifying things about the OPUS 45 program was before we had the launch, we had POs in hand and we do have our first PO in hand for a 60 centimeter column.

So, while it’s very early or too early to really plot what the trajectory of the 60 centimeter is going to be, we are certainly encouraged by the early feedback from customers..

Thanks.

And then Jon, could you give us the Refine revenue contribution in the third quarter and has there been any update to the full year view of – I think it was $3.5 million to $4 million? And then secondly, if you have the currency impact on revenue growth in the period, that would be helpful too?.

You bet. So, for the quarter we saw $2.2 million, almost $2.2 million of revenue from ATF products. Our current outlook for the year is expected to be between $5 million and $6 million for this year. And in terms of our currency impact on revenue we have seen – actually we have a neutralizing effect here.

We have seen currency exposure to the Swedish kroner. But we have had an offsetting upside coming from the Great British pound where we have seen favorability. So if two of those washout for us this quarter and year-to-date and effectively leave the total impact to be negligible on sales..

Thank you..

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

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

Hi Bryan..

Hi. Jon in light of your commentary that the Refine Technology’s business contributed $2.2 million, I think that was a little bit ahead of where we had it which would suggest a sequential deceleration in organic growth here.

What were the underlying dynamics there was it growth factors might have been a little bit weaker, was it pull-through on OPUS, you might have had contracts in hand but the conversion comes in 4Q, can you just give us some insight into kind of how the pacing went in the quarter and your views on organic growth?.

Sure. We do have the ability to work with our customers to adjust where we see fit to achieve numbers. So we did see a bit of a lift on ATF above where we had projected. We did see a little bit of a reduction in the growth factor line that partially offset that or basically offset that..

Okay.

Is it something that’s kind of a one-time or is it – what are the evolving dynamics that you saw softness was it seasonality, etcetera?.

Bryan I will jump in and just say historically we see a fair amount of quarter-to-quarter variation based on customer demand and variations in inventory levels, so that’s one of the reason we don’t report quarterly for every product line, because it creates – there is some up and down.

For the year certainly the organic growth rate is looking to come out of the range of 12% to 14% as that’s ex-ATF products as we sort of narrow that range from our goal of 10% to 15%.

And we certainly think that the growth factor sales were solid this year, it’s just that by comparison in the third quarter last year we had the highest quarter I believe on record for growth factor sales. So you get a little bit of fluctuation in that regard..

Appreciate it. I just have last one, try to do a double here real quick. On the sales force doubling that you guys are expected to do, how much was pulled through in the quarter, how many people and what’s your ramp expectations in 4Q.

And then the other side comment to that was 45 strength, did you see any cannibalization on your 30s and lower models because of the 45 strength? Thank you..

Let me take your second question first.

It’s an interesting question because there may be some cannibalization of the 30 because some customers may have been recycling 30 columns many, many times and are upgrading to a 45, so they don’t have a cycle it as many times to harvest a given fermenter, hard to really nail that down, but that’s certainly possible.

We have to get a little more experience under our belt to know how that’s going to work out. In terms of hierarchy, we sell more 30s than we do with any other size. So I would suggest that maybe some of those customers are upgrading.

In terms of – we have added – we did a couple of headcount this quarter and we are going to add a couple of more in – excuse me couple of headcount in the third quarter. We are going to add a couple of more in the fourth quarter and the year with about 2X on all the sales and marketing.

The pull-through in terms of costs was about $100,000 on the sales and marketing line and will probably be the same on the fourth quarter as well..

Thanks again guys..

Thank you. Our next question comes from Drew Jones with Stephens Inc. Your line is open..

Thanks.

Jon could you walk us through the ATF gross margins and how that would look once we start mixing in some disposables next year?.

Sure. The margins for the ATF products are variable. The one thing we do not actually manufacture the filters for that product. So, depending on the mix of capital product versus filters, we can see fluctuations in the margins. So, in general, we came in directionally in line with our 55% target..

And then Walt, as far as growth factor and the Sigma relationship, how does that acquisition change any dynamics for you and does it create any additional opportunities as far as the growth factor is concerned?.

Well, at the most basic level, Drew, the contract that we have with Sigma-Aldrich Fine Chemicals is assignable. And so as part of the acquisition, it will be assigned intact to Millipore, so all the rights and obligations will persist after the merger is complete, acquisition is completed.

It’s possible that as we have seen with Millipore under the umbrella of EMD that we will see a more rigorous marketing and development effort, a more disciplined sales and marketing effort.

Too early – early days yet to really know how that’s going to go, but certainly we are pleased with the way the Millipore business has developed over the last couple of years..

And last one was there any reason for a little bit softer – can you point to a reason for a little bit softer IGF revenue in 3Q?.

It’s simply, because there was a very high comp from Q3 of 2013. So, Q3 of 2013 was it may have been the highest quarter ever for IGF revenue, but a very solid quarter for IGF revenue in line with our expectations..

Thanks..

Thank you. (Operator Instructions) And I am showing no further questions at this time. I would like to turn the call back over to Sondra Newman for further remarks..

Thank you, everyone for joining the call today. Please feel to contact me with any follow-up questions you might have and we look forward to providing additional updates in the near future. Have a good day..

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect..