Sondra Newman - Senior Director, IR Walter Herlihy - President & CEO Jon Snodgres - CFO Tony Hunt - COO.

Drew Jones - Stephens Inc Bryan Kipp - Janney Capital Markets.

Welcome to the Repligen Corporation's Fourth Quarter And Year 2014 Earnings Conference Call. My name is Nicole and I will be your coordinator today. [Operator Instructions]. I would now like to turn the call over to your host today, Sondra Newman, Senior Director of Investor Relations for Repligen..

Thank you, Nicole. Good morning, everybody. The purpose of today's call is to review our 2014 financial results and business highlights and provide financial guidance for the year 2015. Joining me today are Walter Herlihy, our President and CEO; Jon Snodgres, our CFO; and Tony Hunt, our COO.

The discussion today may contain forward-looking statements that are subject to risks and uncertainties and 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 to be filed on or before March 17, the current report on form 8-K, which 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 I will turn the call over to Walter Herlihy for an overview of 2014..

Thank you, Sondra and good morning. 2014 was an excellent year for Repligen. As reported today, we had record sales of our bioprocessing products of $60.4 million, an increase of 27% over 2013.

Our results derived from strong organic growth of approximately 13% in addition to $6.8 million in sales of the ATF product line which we acquired from Refine Technology in June.

We also expanded our gross margin to 53.6%, an improvement of approximately 98 basis points despite a $400,000 or 68 basis point headwind due to ATF inventory re-evaluation and nonrecurring ATF manufacturing transition costs.

Our R&D group completed designs or prototypes for three new products scheduled for launch this year and they developed yield improvements for several high-volume processes to support continued improvements of gross margins.

We bolstered our management team with the hiring of Tony Hunt as our Chief Operating Officer and Jon Snodgres as our Chief Financial Officer to effectively manage our expanding business. I am pleased that Tony will be our next CEO and I'm confident that his commercial experience in the bioprocessing market will serve Repligen well.

To prepare for this next phase of growth, we also significantly expanded our sales force and commercial infrastructure to enable us to more effectively sell our OPUS and ATF product lines directly to end-users worldwide and to support the launch of new products in 2015.

With the opening of our new ATF manufacturing facility in January of this year and additional office space last quarter, we have completed our capital investment program to support our expansion for the next three years. And we ended the year with a strong balance sheet including $62 million in cash and no debt.

In summary, we believe we have in place the product portfolio, the management expertise, the facilities and the financial resources to support sustained growth and increase profitability in the growing market for biologic drugs.

Our business strategy is based in part on our belief that the market for monoclonal antibodies will continue to expand driven by the introduction of new antibodies which address significant unmet medical needs and a growing contribution from Asia.

In 2014, there were a record eight new antibody products approved including two exciting new products for cancer from Merck and Bristol-Myers respectively. We also saw the filing of marketing applications for two monoclonals developed by both Amgen and Sanofi which address the significant need to reduce elevated levels of cholesterol.

And there are many other exciting products in the pipeline. We believe that the monoclonal market will expand at 8% to 10% for the next five years driving the growth of both our Protein A business and the opportunity for our proprietary products. Now I will turn the call over to Jon for a review of our 2014 results and our expectations for 2015..

Thank you, Walt. Good morning. Today we reported our financial results for the fourth quarter of 2014 which were highlighted by strong sales of our key bioprocessing products. We reported product sales of $15.4 million, an increase of approximately 49% compared to Q4 of 2013 despite a 6% headwind from foreign currency fluctuations in the quarter.

We experienced increased demand for Protein A affinity ligands in our OPUS line of pre-packed chromatography columns during the order. In addition, we had record sales of ATF products with strength in both benchtop and production scale units.

As a reminder in the fourth quarter of 2013, Repligen received $5 million of royalty revenue from Bristol-Myers Squibb based on their U.S. sales of Orencia under an agreement that expired on December 31, 2013.

For the fourth quarter of 2014, gross profit from bioprocessing product sales was $7.3 million or 47.5% of product revenue compared with $5.7 million or 55.3% for the same period in 2013. The lower margin percent versus 2013 was the result of expected Refine integration costs and reduced capacity utilization in our Swedish factory.

Research and development expenses of $1.3 million were approximately equal to the fourth quarter of 2013 as we continued to invest in three key product development programs scheduled to launch in 2015.

SG&A expenses increased from $3.4 million to $5 million as a result of expected investments in our management and commercial teams and costs associated with the build-out of infrastructure and personnel to support our future growth.

The acceleration of ATF sales in 2014 resulted in an achievement of the 2014 Refine contingent consideration sales milestone. This coupled with an increased probability of achieving the 2015 sales milestone required an additional $2 million of contingent consideration expense to be recorded in the fourth quarter.

The fourth quarter of 2014, we reported an income of $61,000 and realized a net loss of $399,000 largely driven by the impact of the $2 million Refine contingent consideration expense and timing of income tax recognition. Now turning to the full-year 2014, we reported product sales of $60.4 million, an increase of 27% over 2013.

We had a modest negative impact of 0.5% on full-year product sales from foreign exchange fluctuations. Product gross profit was $32.4 million or 53.6% of product revenue compared with $25 million or 52.7% for 2013.

The higher margin percentage in 2014 was the result of higher production volumes and benefits from yield improvement programs in our factories. Full-year research and development expenses of $5.6 million were $1.7 million lower than 2013 due to discontinuation of the Company's drug development programs.

SG&A expenses increased from $12.7 million to $17.2 million as a result of expected investments in our management team and commercial organization as well as costs associated with the build-out of infrastructure and personnel to support our future growth.

Full-year operating income of $10.7 million is below the $22.9 million in 2013 due to lower royalty income of $15.2 million and the aforementioned Refine consideration expense. Net income for the full-year 2014 is $8.2 million versus $16.1 million in 2013.

Cash and investments as of December 31, 2014, totaled $62 million compared to $73.8 million as of December 31, 2013. The reduction was driven by the Refine acquisition and CapEx related to the expansion and build-out of our Waltham facility, partially asset by cash generated from business operations.

Today we're also issuing full-year guidance for 2015 which is based on current foreign exchange rates. We're projecting total revenue in 2015 of $72 million to $75 million comprised exclusively of product sales and reflecting 19% to 24% total sales growth.

This is comprised of organic growth of 18% to 23% less a foreign exchange headwind of 7% plus an 8% gain from the full-year effect of ATF product sales. Product gross margin is expected to be 55% to 57% as we continue to increase capacity utilization and implement process improvements.

We expect gross profit to be largely hedged from foreign exchange exposure as we have a significant percentage of both our sales and manufacturing costs denominated in Swedish krona. Operating expenses for the year of 2015 are expected to be $60 million to $62 million including SG&A expenses of $21 million to $23 million.

The expense increases are driven by higher product volumes and investments in selling and infrastructure to support our growth. We expect R&D expense of $5 million to $6 million as we complete the development of three new products in 2015.

Total income from operations is expected to be $12 million to $14 million including a $1.5 million Refine contingent consideration expense that will be required if we achieve the 2015 revenue milestone. Net income is expected to be $8 million to $10 million including estimated taxes of approximately $4 million.

Our forecast for the year also includes $4.5 million to $5 million of depreciation and amortization expense compared to $4 million in 2014. Key drivers include amortization from the refined technology acquisition and depreciation from our Waltham facility expansion.

Capital expenditures are expected to be approximately $2 million to $3 million to maintain existing facilities and equipment and to complete the Waltham renovations in the first quarter of 2015. Based on the aforementioned projections, we're expecting year-end cash of $73 million to $75 million.

Our guidance for 2015 does not include the impact of future fluctuations in foreign exchange rates, potential milestone payments from BioMarin or possible future acquisitions. I will now turn the call over to Tony for his view of 2015..

Thank you, Jon. We're clearly very pleased with the performance of our business in 2014 and we have strong momentum and customer demand as we move into 2015. To reiterate, we expect very strong organic growth in 2015 with all four product groups and all regions contributing to our growth.

We expect 8% to 10% growth in our affinity ligands business and more than 40% growth for our direct product portfolio. The year is off to a strong start and we expect record sales here in Q1 well above our prior best quarter. 2015 is a year in which we expect to progress on multiple fronts from operations to R&D and commercial.

In our operations group, we continue to focus on gross margin expansion through capacity utilization and yield-based strategies and we're currently implementing process improvements identified in 2014 by our R&D team for several of our large volume products. Our R&D team is also focused on developing and launching three new products this year.

We're on track to launch a 60 centimeter diameter OPUS column by the end of Q1 which will have nearly twice the capacity of a 45 centimeter diameter column and will be suitable for use with large 2000 liter bioreactors. We're excited by the early interest in the product including new orders for delivery in 2015.

We're the only company offering such a broad range of pre-packed columns and with this lunch we're well-positioned to establish OPUS as the clear leader in the pre-packed column market segment. Our next-generation Protein A media is also tracking towards an anticipated launch in mid-2015.

We're currently in the scale up and validation phase and we see strong synergies and interest for this product with our OPUS customers working at clinical and niche commercial scale where the high performance of the current market leaders is not required. Finally, we have made significant progress with the single use version of ATF.

We anticipate that this product will launch in Q3. In late 2014, we spent time with our ATF customer base reviewing designs and getting feedback on key features and benefits.

We're now moving quickly through the design and test phase of this program and our focus in 2015 will be on the development of single use systems targeting the larger 500 liter to 1000 liter bioreactors. Turning now to our commercial team, as you know, we've invested in and expanded our commercial organization in 2014.

We continue to see strong demand in U.S. and Europe and we're also seeing acceleration in Asia where we're using a combination of direct sales and select distributors.

An outcome of the Refine acquisition is that we now have a strong network of distributors in Asia and we're leveraging this network to drive sales of not only ATF but also OPUS and other Repligen bioprocess products. We intend to manage our business in Asia from our new office in Singapore.

Let me conclude by reiterating that we're confident in our ability to continue delivering growth across all product lines in 2015, while we execute on a well-defined commercial strategy that includes greater participation in emerging markets, deeper penetration of our key customer base and continued building of the Repligen brand.

The key for us is to execute on the opportunity. I look forward to updating you on our continued progress throughout 2015 and I would like to turn the call over to the operator for our question-and-answer period..

[Operator Instructions]. Our first question comes from Drew Jones of Stephens Inc. Your line is now open. .

Tony, you touched on this a little bit but looking at capacity now that you guys have finished the Waltham facility, can you may be walk through where we're capacity wise on each of the major product lines?.

Sure. Overall, capacity is around 70% across our facilities. I would say for the newer products like OPUS and especially OPUS, it is less than 50% capacity utilization and ATF would be significantly less than that as well. And our goal is obviously over the next in 2015, 2016 is to continue to drive volume to the plants..

You talked about the sales force expansion.

Where are you guys putting people to push the OPUS in the ATF product opportunity?.

So in the U.S. we have added in sales reps in the Midwest, Northeast, West Coast so we have a pretty good coverage now across North America. In Europe, we have a number of reps as well covering central. We just brought on a Central Europe rep at the beginning of the year. And in Asia obviously, we have a person there since mid-last year.

So we think actually the areas of growth are purely central in Europe and also in Asia and we think there's expanded opportunities in North America..

And just an update on the filing of the 10-K?.

We expect to file on or before the 17th..

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

The first one for me, can you tease out the bridge for 2015? I am just thinking in context, I think prior you had mentioned $1 million to $2 million of incremental revenue from new products. On the delta here from prior guidance to new guidance is that all ATF? Just any color on that would be helpful..

Sure. We have actually, from prior guidance, seen growth in generally of our product lines, Bryan. So it spans from affinity ligands all the way through ATF and OPUS as well as growth factor, so we're [Technical Difficulty] demand up by everywhere..

Still $1 million to $2 million from new products, or has that jumped up a little?.

I think that's reasonable but those numbers are folded into of course the estimates for OPUS being up 50% for example. That includes the new product contribution there.

I think for us the story and the revision of the guidance, as Jon said, was just a ground swell across all product lines growing with affinity 8% to 10% and the other lines much more robustly. And typically we've seen in past periods some product lights advancing more robustly than others.

What we're seeing this year is all product lines advancing together leading to a much higher organic growth projection for the year..

And then I guess now that Refine is basically fully consolidated into Waltham, do you have any updated view on the incremental opportunity on margins whether it is in line with OPUS or growth factors or Protein A.

Just trying to think in context now that you guys have fully housed that and what the opportunities are going forward?.

That is all encompassed within our projections of 55% to 57% margins. So that would represent expansion over 2014..

Okay, so most of the delta is going to be probably ATF net consolidation?.

Also the fact that as we increase the projection for the affinity ligands, we get incremental better capacity utilization both in the Lund factory and the plan here in Waltham as well. It's a combination of both of those effects..

Okay. And would you guys be willing to give any color or commentary around backlog? I know you said it is strength in ATF and you continue to see uptick in demand as well as maybe some orders on the 60 centimeter side, stronger backlog going into 2015 versus 2014 and just any indications of pace [indiscernible] would be helpful..

We clearly had a great Q4 and we saw strength in both the benchtop units and in the production units and we had good order demand coming in here in Q1. So we have a good Q1. We have visibility really into the first half of the year; first half of the year looks pretty healthy. Clearly it's a little early to talk about second half of the year.

But I think when we get to the Q1 conference call, we will be able to give you a bit more color on how the second half of the year is shaping up. But we're very pleased with the way ATF has performed in the first seven months and we're looking forward to a good 2015 as well..

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

This is Sachin [ph] in for Brandon.

Will you give us an update on how the OPUS user base is developing in terms of number of customer applications?.

Yes, I think when you look at the way OPUS has developed over the last year, we clearly -- we doubled the business in 2014 and we're definitely anticipating and expecting as we go through this year that we will see somewhere in the north of 50% growth may be as high as 75% growth for the year.

What we have seen in terms of development is as we have expanded our commercial organization, we're getting more opportunities and we're also seeing -- which I think I have referred to in the past -- is we're seeing multisite adoption going on.

The CMO organizations really like the benefits of OPUS and when you look at our base of accounts, it continues to increase. We're seeing more multisite adoption and we're seeing broader adoption at CMO..

And would you quantify the expected contribution of the 60 centimeter column that you have in your 2015 guidance?.

It is rolled -- 60 centimeter is part of our guidance. It is rolled in but the way I would look at it is really the combination of 45 centimeter and 60 centimeter diameter columns. Last year 45 was a big success for us. We estimated $1.5 million to $2 million in sales. When we look at 60 centimeter, we see it as an -- it's kind of like a brother sister.

The two columns are really going to help in terms of doing 1000 liter, 2000 liter bioreactor processing. So the customers will select a 60 centimeter based on the scale they want to go to but if they pick 45 centimeter because they are working at 1000 liter scale, that is fine too.

So we see this as the big differentiator between us and the competitors..

[Operator Instructions]. Our next question comes from the line of Bryan Kipp of Janney Capital Markets. Your line is now open..

Tony, just in context to your comment and prior guidance of that $2 million to $2.5 million in incremental from 45 centimeter in 2014, are you guys willing to give us a little bit harder number on how that actually performed within the range?.

For 45 centimeter, it was $1.5 million to $2 million is what I said, Bryan..

Okay.

Any more granularity, or do you want to keep it to that range?.

No, that's about as granular as we can get. We expect 45 is going to continue to be a strong performer for us and I think when you add 45 centimeter and 60 centimeter together we have a very nice differentiator in the marketplace especially for the 1000 liter to 2000 liter bioreactors..

How much of that $1.5 million to $2 million was passed through? I am just thinking in context to media.

Did you guys fill some of those columns into your 10% bump up on sealing that media and is that just core product I guess is what I'm getting at, that $1.5 million to $2 million, or is there some media in there as well?.

There is always media involved but what we do see as the columns get larger and the media acquisition costs get larger, we see customers actually supplying the media, consigning it to us, so with the 45 centimeter it was closer to the 50-50 ratio of columns versus media as compared to a higher ratio of media in some of the really small columns where we always buy the media.

So I expect at the end of the day as we look forward with the 45 centimeter and 60 centimeter, it will be 50-50 columns of media as more and more customers take advantage of large volume discounts they get from the media suppliers themselves..

Thank you. I'm showing no further questions at this time. I would like to hand the call back over to management for any closing remarks..

Thanks, everyone for joining our call today. Feel free to contact investor relations with any follow-up questions and we look forward to updating you on our Q1 call..

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