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

Drew Jones - Stephens Paul Knight - Janney Montgomery Scott.

Welcome to the Repligen Corporation’s Second Quarter 2015 Earnings Conference Call. My name is Karen and I will be your coordinator today. [Operator Instructions]. I would now like to turn the call over to your host for today’s call, Sondra Newman, Senior Director of Investor Relations for Repligen..

Thank you and good morning. The purpose of today’s call is to discuss our second quarter of 2015 results to review our financial guidance for the year and to discuss recent business highlights. Joining me today are Tony Hunt, 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 that 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 filed this morning and other filings that we make with the SEC.

The forward-looking statements in this discussion reflect management’s current views and 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 review..

Thank you, Sondra. Good morning. Today we reported our financial results for the second quarter of 2015, product revenue 21.5 million, an increase of 38% compared to the quarter of 2014, despite a headwind of 11% from foreign currency fluctuations.

Year-to-date we reported product revenue of 42.3 million, an increase of 41% from the same period in 2014. As a reminder all revenues for the first six months of 2015 were derived from bioprocessing product to sales.

During 2014 year-to-date period we received an additional 2 million of non-product revenue from BioMarin under the terms of our therapeutic outlicensing agreement. For the second quarter of 2015 product gross profit was 12.9 million compared with 8.9 million for the second quarter of 2014.

Year-to-date we reported 25.6 million of product gross profit compared to 16.9 million in 2014. Our product gross margin for the second quarter of 2015 was 60% of revenue compared to 57.1% for the second quarter of 2014. Year-to-date our product gross margin was 68.6% compared to 56.5% for the first half of 2014.

The higher margins achieved in 2015 are the results of higher overall sales resulting in strong volume leverage in our factories as well as favorable product mix.

Research and development expenses of 1.3 million for the second quarter of 2015 were 12% lower than the second quarter of 2014 and for year-to-date 2015 R&D expense totaled 2.8 million an increase of approximately 200,000 over the first half of 2014.

SG&A expenses of 6.2 million during the second quarter of 2015 were 1.9 million higher than the same period in 2014 reflecting investments in staffing, systems and facilities to support our current and future growth. For the first half of 2015 SG&A expense was 12.3 million an increase of 4.6 million compared to the first half of 2014.

Operating expenses for the second quarter of 2015 included 800,000 of contingent consideration expense related to continued strength in sales of ATF Systems which we acquired from Refine Technology LLC in June of 2014.

Year-to-date we have recorded 1.9 million of ATF related contingent consideration expense which did not exists in the first half of 2014. We recorded these expenses due to a high probability that we will achieve the 2015 revenue milestones set forth in our asset purchase agreement with Refine.

Operating income for the second quarter of 2015 increased to 4.6 million compared to 3.1 million from the same period in 2014. For the first half of 2015 operating income increased to 8.6 million compared to 8.4 million for the first half of 2014.

We recall that year-to-date in 2015 operating income was impacted by the 1.9 million contingent consideration expense while the first half of 2014 benefited from 2 million of out licensing income from BioMarin.

These factors also affect our net income which was 3.6 million for the second quarter of 2015 compared to 2.8 million in the second quarter of 2014. The year-to-date net income was 6.1 million compared to 7.1 million for the first half of 2014.

Lastly EBITDA for the second quarter of 2015 increased to 5.5 million compared to 4.1 million in the prior year. For the first half of 2015 EBITDA increased to 10.8 million compared to 10.3 million for the first half of 2014.

Please note that EBITDA is a non-GAAP financial measure and should not be viewed as an alternative GAAP measures of performance. We’re providing EBITDA based on our belief that this measure better enables investors to benchmark the company's results versus historical performance and the performance of peers.

Today we’re revising our financial guidance for the year 2015, we’re raising our total revenue guidance to 78 million to 82 million, an increase from our previous guidance of 75 million to 78 million. Our revenue projection for 2015 is comprised exclusively of bio processing product sales and now reflects 29% to 36% sales growth.

We expect organic product sales growth in the same range of 29% to 36%. This includes an expected foreign exchange headwind of 80% that we expect will be offset by 12 months of ATF sales in 2015 versus seven months of sales in 2014.

Our guidance for product gross margin remains unchanged at 56% to 58% and we continue to expect gross profit to be largely hedged from foreign exchange exposure as we have a significant percentage of our manufacturing costs denominated in Swedish Krona.

Operating expenses for 2015 are expected to be 65 million to 67 million, an increase of 3 million from prior guidance. This includes our expectations for SG&A expenses of 22 million to 24 million. R&D expenses of 6 million to 7 million, and contingent consideration of approximately 1.9 million which we have fully recorded as of the second quarter.

We’ve retained our operating income guidance of 14 million to 16 million and our net income guidance of 10 million to 12 million for the year 2015.

Our 2015 guidance could be impacted by fluctuations in foreign exchange rates beyond the expected FX headwind of 8%, and does not include the impact of potential milestone payments from BioMarin or potential acquisitions. I will now turn the call over to Tony to comment on business highlights for the second quarter..

Thank you, John. As you can see from our results today we had another record quarter for our bioprocessing business. Revenue grew 38% to 21.5 million on our continued focus on operations resulted in gross margin expansion up 290 basis points for the quarter and 410 basis points for the first half of 2015.

Clearly, we’re very pleased with the way the quarter played out. The momentum we saw in Q1 with strong Protein A cells form both legacy and new ligands carried forward into Q2. Both our affinity ligands and ATF businesses were the major drivers of growth here in the second quarter.

We finished the first half of 2015 well ahead of our expectations and as we look to the second of the year we expect to see continued strength for our products where we have technology and market leadership. So drilling down some more on the performance of our products and the trends we’re seeing in our end markets.

For the last few quarters we have highlighted the momentum we’re seeing in the ATF business has reported in Q1 we continue to see customers adopting the technology and profusion and concentrated fed batch cell culture applications.

In addition, ATF systems are being evaluated in the emerging opportunity around [indiscernible] optimization as part of the efforts to implement process improvements even earlier in upstream manufacturing. The combination of direct sales and regional distributors is working well for us and we are winning new accounts especially in Europe and Asia.

The growth we’re seeing in ATF is coming from a combination of these new customers on multi-side adoption by existing customers with business in Asia accelerating rapidly.

In addition as customers scale up we are seeing more multi-unit orders coming through and we expect the second half of 2015 to be very strong for ATF as we capitalize on these opportunities. Before moving to a downstream portfolio I want to circle back on the self-culture media applications.

We’re seeing increased interest from our customer base on applications of ATF and profusion and fed batch processes and we expect this industry trend will positively impact our growth factor business for our partner Sigma Aldrich has already launched a new subculture media incorporating our growth factors.

In our [indiscernible] products group our OPUS columns continue to gain traction and market share. With the launch of the larger OPUS 45 centimeter and 60 centimeter columns and because of our unique flexibility impacting any resin to any [indiscernible] we have created cure and meaningful differentiation between us and our competitors in this space.

More importantly we’re offering customer real options now to replace their glass comps with prepacked OPUS comps. The contract manufacturing organizations continue to adopt this technology and our commercial organization has done a great job converging over key players in our industry to OPUS.

OPUS 60 is off to a good start with positive feedback and a healthy pipeline of opportunities for us to execute on in the second half of this year.

Similar to my comments about ATF, we are seeing an increase in the number of multi-column orders as customers platform OPUS in their manufacturing processes and we expect a strong second half for OPUS as our expanded commercial organization and closes out new opportunities and our markets expand outside the U.S.

To give a good example of the interest in the market for our products, we recently hosted two seminars in London and in Boston. We had actually over a 170 customers attend the events with 14 customer presentations on trends and upstream and downstream bioprocessing including the implementation of our technologies in manufacturing.

I attended the Boston event and it was really encouraging to hear our customer speak about the importance of our products, service and support as they adopt new technologies in their manufacturing process. So turning now to our new product development programs.

We’re already seeing the impact of OPUS 60 in the marketplace, our Protein A resin has moved through manufacturing scale up and validation lots have been completed. We’re still in beta site testing and we’re waiting feedback from these sties before finalizing our commercial plans.

Our single use ETF program continues to move through the development phase and we will be transitioning into external testing here in the second half of 2015. Finally in the bigger picture of the biologics market that our products served, the demand for monoclonal antibodies continues to expand.

Over the past few months there has been a great deal of momentum in this market. This includes highly anticipated regulatory approvals and monoclonals targeting PSK9 to lower cholesterol and good progress for biosimilar version of the block set monoclonals Remicade, Rituxan and Humira.

In short the expansion of the biologics market also expands the opportunities for our products to deliver important product efficiencies and cost savings to biopharmaceutical manufacturers worldwide.

In conclusion we have executed well in the first half of 2015 and we’re confident about our ability to deliver strong growth in the second half while continuing to invest in opportunities that will drive future growth including our commercial, regional expansion, product and branding strategies.

I will now hand it over to Karen to open up the lines and take some questions..

[Operator Instructions]. Our first question for today comes from the line of Drew Jones from Stephens..

Tony, you mentioned OPUS going platform with felt like multiple customers, when should we start seeing an impact from that?.

I think we’re seeing it as we move into the second half of this year.

When you think about the way OPUS gets adopted in the first year or two of market adoption you typically get into one column stuff, now we’re seeing that we’re getting into multiple column steps and in some cases all three column steps which means that in my mind that we’re moving into a platform..

And looking at gross margins, it seems like you’re being pretty conservative there for the second half of the year.

Is that a result of expected strength in OPUS?.

Yes obviously OPUS is going to be strong in the second half of the year, the mix does change H2 versus H1, and that’s why we’re seeing gross margin difference..

We’re also seeing a little bit of deleverage on our factories it's a typical seasonal issues with holiday periods, shutdown periods over the summer and winter months, early winter months..

And then last one from me on the new Sigma that includes IGF could you maybe expand on that a little bit?.

A little bit, so earlier this year Sigma launched a self-culture media that uses growth factors basically our IGF1 clearly as our partner they see the traction in the marketplace and the first media that they have developed launched the new media they have developed and launched say for fed batch processes..

And our next question comes from the line of Brandon Couillard from Jefferies..

This is Sachin [ph] for Brandon.

Tony, could you elaborate on the breadth of the OPUS customers today, how many of the top 25 biopharmas are active users and how may the OPUS 60 is new versus the prior existing OPUS buyers are scaling up?.

Okay. I will take that question in segments a little bit but in terms of the top 25 pharma customers I would say that our focus on OPUS has been initially on getting the contract manufacturers aligned in use of the technology and that -- with respect to the large pharma we’re [Technical Difficulty].

But with respect to the large pharmas we’re also making progress there. I don’t have an exact number as such in terms of how many of the Top 25 but the numbers are definitely accelerating and we are very confident about the second half of the year.

Your question about OPUS 60 we have taken additional orders in Q2 and here in Q3 and we have a really healthy pipeline of OPUS 60 opportunities and I think the real advantage that we have now in the marketplace and I said this in my earlier comments is that the combination of OPUS 45 and OPUS 60 really now allows us to start to convert customers who are using glass columns at this scale and converting them over to prefab columns and that’s really our focus..

And John between your four product segments, could you rank the relative contributions to the 2Q revenue growth, in terms of incremental dollar contributions or just relative percentage growth?.

Yes I can and I think we have published we had a very strong quarter in affinity ligands, also [indiscernible] products and then thirdly our OPUS lines and then fourthly for the quarter would be the growth factor line..

And while it maybe too soon but just curious on the sustainability of the Protein A growth in 2016 from an above average trends that you experienced this year so far?.

Clearly we’re having a very strong year for the affinity ligands and second half of the year, not as strong as first half but still it's going to be a good year for us for affinity. It's a little too soon to comment on next year and will know more I think as we get closer to the Q3 earnings call..

And our next question comes from the line of Paul Knight from Janney Montgomery Scott..

The OPUS business can I ask if it was up sequentially from the first quarter?.

Yes I would say that yes OPUS business in general, we’re targeting about, I'm projecting about 50% growth for the year, so I would say we were a little less in that in the first half but we will be stronger in the second so overall we will hit our target of 50%..

50% or slightly less in the first half?.

It was less than that in the first half but it will be stronger than that in the second half but for the year it will grow 50%. And Paul, just to add maybe a little bit more color on that.

As you might recall we really ramped up our commercial organization towards the end of last year and into sort of through Q1 and I think what we’re seeing now in the second half of this year is the impact of the larger commercial organization..

And then I notice within the financials what was the tax rate we should be thinking that about, what did you have in 2Q tax rate?.

Sure. Well we typically give guidance for the full year so our tax rate for the full year is in that kind of range between 27% to 29%, we had a lower tax rate in Q2 based on mix of where our income was coming from between our Swedish entity and our U.S. entity. And a you know we pay a 22% tax rate in Sweden and in the U.S.

largely we’re not paying a tax at all [indiscernible] paying forward..

And then the $768,000 fair value adjustment that is your tax adjustment on that or is that a full $0.022 impact in the quarter?.

Could you repeat the question?.

The 768,000 fair value adjustment in the quarter?.

You’re talking about contingent consideration, Paul, yes we didn’t catch that.

Sure, so every quarter we reevaluate what our current forecast outlook is for the ATF product and depending on probabilities of beating certain milestones that are kind of outlined in our purchase agreement with Refine LLC, we basically have to trued up the accrual so right now we have our accrual trued up we have booked 1.9 million for the first half of the year, 800,000 for the second quarter and we’re fully trued up to what we believe the full year forecast is and sales forecast for ATF.

So we’re not expecting any additional accrual for ATF through the second half of the year but however if we exceed our current sales projection there is another potential of 200,000 that we could book to meet the variable component of the contingent consideration milestone..

But that’s the max?.

Yes that’s the max this year, there is another element of 2016, right now we think we’re well below the 2016 milestones and we will not have to pay contingent consideration based on 2016 results so right now at zero accrual for that..

Thank you and our next question is a follow-up from the line of Drew Jones from Stephens..

Tony, one more you talked about the strength of ATF in Asia, have you been in successful yet in pushing any other products through those distribution pipelines?.

Clearly ATFs being a real nice win for us since we acquired the business a year ago and as you might recall we started to use the distributor network that was selling ATF about a year ago and we also added in commercial lead over in Asia and that actually has really benefited us and we’re seeing now some pull through on OPUS and we’re getting some important accounts now adopting OPUS in Asia..

Thank you. And that concludes our question and answer session for today. I would like to turn the conference back to Sondra Newman for any closing comments..

Thank you, Karen and thanks to everyone who joined us for today's call. Feel free to contact me with any follow-up questions and have a great day..

Thank you. Ladies and gentlemen thank you for participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day..