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

Brandon Couillard - Jefferies Paul Knight - Janney Montgomery William March - Janney Montgomery.

Good day, ladies and gentlemen, and welcome to Repligen Corporation’s Third Quarter of 2015 Earnings Conference Call. My name is Brian and I will be your coordinator. [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, Brian. Good morning, everyone. Today the purpose of our call is to discuss our third quarter and year-to-date 2015 financial results to discuss recent business highlights and to review our financial guidance for the year. Joining me today are Tony Hunt, our President and CEO; and Jon Snodgres, our CFO.

Today’s discussion may contain forward-looking statements, which 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 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. And now, I’ll turn the call over to Jon for a financial review..

Thank you, Sondra. Good morning. Today, we are reporting our financial results for the third quarter and first nine months of 2015 highlighted by revenue growth ahead of our expectations across all product offerings.

For the third quarter of 2015, product revenue reached $19.8 million, an increase of 31% on a GAAP basis and 38% at constant currency, compared to the third quarter of 2014. Year-to-date, we reported product revenue of $62.1 million, an increase of 38% on a GAAP basis or 47% at constant currency, compared to the same period in 2014.

As a reminder, all revenues for the first nine months of 2015 were derived from bioprocessing product sales. During the first nine months of 2014, we received non-product revenue of $2.1 million from BioMarin, under the terms of our therapeutic outlicensing agreement.

For the third quarter, product gross profit was $11.4 million compared with $8.2 million for the third quarter of 2014. Year-to-date, we reported $37 million of product gross profit compared to $25.1 million for the same period in 2014.

Our product gross margin for the third quarter was 57.4%, an increase of 310 basis points compared to the third quarter of 2014. Year-to-date, product gross margin was 59.6% compared to 55.7% for the first nine months of 2014.

As indicated in our second quarter call, we are seeing a reduction in gross margin percent in the second half of the year, based on shifts in product mix. Research and development expenses of $1.5 million for the third quarter were 9.7% lower than the third quarter of 2014, based on timing of project spend.

Year-to-date R&D spend of $4.3 million is consistent with 2014 levels. SG&A expenses of $6 million during the third quarter were $1.5 million higher than the same period in 2014. Year-to-date SG&A expenses were $18.2 million, an increase of $6 million compared to the first nine months of 2014.

These increases reflect investments in our commercial organization, management and operating teams, and internal operating systems to support our current and future growth.

Operating expenses for the third quarter of 2015 included $200,000 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 $2.1 million of ATF related contingent consideration expense.

We recorded these expenses due to the high probability that we will achieve 2015 revenue milestones, set forth in our asset purchase agreement with Refine. Operating income for the third quarter increased by 66% to $3.7 million compared to $2.2 million from the same period in 2014.

Our operating margin for the third quarter reached 18.6%, an increase of 410 basis points compared to the same period in 2014. Year-to-date operating income increased to $12.3 million compared to $10.6 million for the comparable period in 2014.

Recall that for year-to-date periods, operating income was negatively impacted by $2.1 million of contingent consideration expense during 2015 and positively impacted by $2.1 million of outlicensing revenue during 2014.

These factors also affect net income, which increased to $2.5 million for the third quarter compared to $1.5 million for the third quarter of 2014. Year-to-date net income was $9.1 million, an increase from $8.6 million for the first nine months of 2014.

Lastly, EBITDA for the third quarter increased to $4.8 million compared to $3.3 million in the prior year. Year-to-date EBITDA increased to $15.6 million compared to $13.6 million for the first nine months of 2014.

Please note that EBITDA and constant currency financial metrics are non-GAAP financial measures and should not be viewed as alternatives to GAAP measures of performance.

We are providing EBITDA and constant currency financial metrics, based on our belief that these measures better enable investors to benchmark the Company’s financial performance and the performance of peers.

I will now move to our financial guidance for the year 2015, which we are adjusting, based on year-to-date results and our projections for the fourth quarter. Today, we are raising total revenue guidance to $81 million to $83 million, an increase from our previous guidance of $78 million to $82 million.

Our revenue projection for 2015 is comprised exclusively of bioprocessing product sales and reflects growth in the range of 34% to 37%, an increase from our previous guidance of 29% to 36%.

We expect the additional five months of ATF System sales in 2015 versus 2014 to offset the impact of foreign currency translation, which we estimate will be a negative 9%. We are increasing our gross margin guidance to 57% to 59% from 56% to 58%.

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 kroner. We are increasing our operating expense guidance by $1 million to a range of $66 million to $68 million.

The increase is primarily related to an increase in cost of goods from higher anticipated product sales and our expectations for SG&A to be at the high-end of our previous range of $22 million to $24 million.

Our R&D run-rate is expected to increase during the fourth quarter as we complete the development and testing of our single-use ATF Systems, in preparation for the commercial launch. We expect R&D expense to be close to the middle of our previous guidance of $6 million to $7 million.

We are tightening our operating income and net income guidance toward the higher end of our previous guidance. We expect operating income in the range of $15 million to $16 million and net income in the range of $11 million to $12 million for the year.

Please keep in mind that our 2015 guidance may be impacted by fluctuations in foreign exchange rates beyond the expected FX headwind of 9% 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 third quarter..

Great, thank you, Jon. As Jon highlighted, Q3 was an excellent quarter for our business and our year-to-date growth has been very strong. We believe this growth has been driven by new drug approvals along with overall growth in the industry and excellent execution by our team to make Repligen a leader in bioprocessing technologies.

As you may recall, we started 2015 with the goal to build out our commercial organization and drive adoption of our direct portfolio of products. I’m pleased to report that the expanded commercial organization is having a significant impact here in Q3 and in the second half of 2015.

As noted in our Q2 call, the adoption of OPUS and ATF products is accelerating, as customers implement these technologies as platform solutions at their sites. OPUS sales were very strong in the third quarter and this momentum is carrying forward into Q4.

We are seeing particular strength in OPUS orders from contract manufacturing organizations, from large pharma customers, and from our key accounts that continue to adopt OPUS at multiple manufacturing sites. Just as important, we are adding new customers, which is a direct result of our expanded commercial organization.

In fact, here in Q3, 30% of our OPUS revenues came from new accounts. Orders for OPUS 60 columns accelerated during the quarter, very much in line with what we observed for OPUS 45-centimeter columns in late 2014, six to eight months after launch. Discussions with our customers are now focused on displacing glass columns with pre-packed columns.

We are seeing an increase in the number of accounts placing multi-column orders and forecasting long-term demand for their manufacturing sites where the availability of larger OPUS columns is a major driver of change.

We continue to create clear differentiation between us and our competitors in the pre-packed column space by offering unrivaled scale, flexibility, and technology leadership.

Turning now to our ATF business, on our Q2 call, we reported that our ATF business was accelerating, with large pharma customers scaling up and procuring multiple units for biologics manufacturing. This momentum continued through Q3 as customers evaluated and implemented the technology in perfusion and fed-batch processes.

Sales for both our benchtop ATF2 and our production scale ATF10 systems were particularly strong in the third quarter and we expect similar strength through the remainder of 2015. We continue to see strong adoption in Asia with key accounts expanding their use of ATF to additional sites in their manufacturing network.

As adoption increases, we plan to add additional technical support staff, to best serve this market. Looking ahead, we also see applications for ATF technology expanding.

One clear opportunity is in the use of ATF in seed train processes that precedes the production bioreactor, where ATF implementation is occurring in both monoclonal-antibody and vaccine production. This broadening of our customer and application base opens up opportunities for both our stainless steel and our single-use ATF products.

With respect to our R&D programs, our single-use ATF program is moving into the external testing phase here in Q4, and we are excited about launching this product into our growing ATF customer base, in 2016. Regarding our Protein A resin program, we have made the strategic decision to not move forward with the scheduled commercial launch.

Seeing the accelerating growth and strong customer acceptance of our ATF and OPUS franchises, we have made the strategic decision to focus our resources on these product lines, which offer greater near-term and long-term returns and value for the Company.

As noted in prior calls, this has been an exceptional year for our business and bioprocessing in general.

We believe that the bioprocessing market strength is due in large part to the increased number of approvals over the last two years, which drives up the volume of biologics being manufactured and this influences demand for bioprocessing products that we develop and sell.

Commercial mAb volume is not only coming from newly approved mAbs but also from the sales of legacy monoclonals. Several of the legacy blockbuster mAbs are reporting double-digit growth this year, more than a decade after being approved due to new indications and new combinations.

And in clinical development, we’re seeing positive Phase 3 reports for biosimilars and positive Phase 3 outcomes for originator molecules. So, we really believe the biologics market will continue to grow, and we expect technologies like ours that enable more convenient, productive and cost-effective manufacturing to be in high demand.

Before handing over to the operator for Q&A, let me conclude with a few key comments.

First, we executed well to deliver another strong quarter of growth in Q3; adoption of our ATF and OPUS products are accelerating; and our commercial and marketing teams are having a significant impact as we establish, both technology and market leadership positions in our end markets.

We are well ahead of our goals for 2015, and we look forward to a strong finish to what has been an excellent year for the Company. We’ll now open the lines for a Q&A period..

[Operator Instructions] Our first question comes from the line of Brandon Couillard with Jefferies. Your line is now open. Please go ahead..

Tony, you spoke to this I guess a little bit in your prepared remarks but as far as OPUS 45 and 60 are concerned, can you speak to the breadth of the customer base; any round numbers you can give us in terms of current users; and where you see the opportunity for new contacts going into next year or so?.

Yes, I mean we saw throughout Q3 and as we look at our Q4 order loads, clearly our contract manufacturers; large pharmas, they’re definitely moving forward with OPUS implementation. So, instead of having, say one column in a process, we’re now getting two and three.

I think the fact that our commercial organization is now up to speed and the second half of the year, we’re seeing an increase in the number of new accounts, I think it’s significant that 30% of our revenues came from new accounts.

And when we look across the board, there is a really good percent of 45s and 60 columns that make up these new customers. I will say that we are also seeing strength in our 20 and 30-centimeter diameter columns as well. So, it’s really across the board. We see good momentum and we see the momentum also heading into 2016..

Any chance you could give us the book-to-bill for ATF in the period or -- I know you had pretty strong orders in the first half of the year that are likely shipping here in the second half, curious if you could speak to the order growth..

No, we’re really pleased with the way the ATF business has panned out this year. We are typically taking orders towards the last month of every quarter for the following quarter, so we have strong order load for Q4. And as I said earlier, we expect Q4 to be another strong quarter for ATF.

As we go into 2016, we’ll see what the order load is like, as we head into Q1. But you should remember of course that this is capital expenditure and so Q4, if you go back to a year ago, we had a very strong Q4 for ATF in 2014. And we don’t expect that to be anything different this year, with yearend spend..

Tony, as you look out to next year, I realize it may be a little bit early, but to what degree do you believe the current trajectory ahead of your longer term 10% to 15% organic growth target is really sustainable, into next year? How much visibility do you have into 2016, at this point?.

Yes, it’s a little early Brandon. You can see what’s going on with OPUS and ATF; it’s strong. We’ve been pretty clear with everyone that longer term organic growth for the Company is in that 10% to 15% range. You know that we have two very large customers that will give us forecasts into 2016, but we haven’t got those yet.

So, as we get towards the end of the year, we’ll have a little better handle on how all our businesses are going to perform, or at least some trajectory on that. And when we get back to you at our Q4 call, we’ll be able to give you a little bit more guidance on how we are going to perform in 2016.

But, we’re very happy with our end markets and the strength that we’re seeing in our end markets..

Our next question comes from the line of Paul Knight with Janney Montgomery. Your line is now open. Please go ahead..

Hi, Tony; you mentioned the benchtop ATF System.

Should we read that early stage projects are accelerating; any read-through on what that benchtop comment meant?.

So, we use the benchtop units as a real -- we try and understand where the scale-up is going to come from. So, if our benchtop units -- these are the ATF2s that people are adopting, then that means the process development labs are implementing and evaluating ATF Systems.

So growth there is a leading indicator that there is strength in our customer base. And what you’d expect over the next one to two years is, those customer scaling up from ATF2s to ATF4s to ATF10s..

And then, on the OPUS business, would it be fair to say that OPUS sales were higher than they were in the second quarter?.

Yes. I mean when you look at H1 this year versus H2, we had a good growth in OPUS in the first half of the year.

But if you might recall, we were really ramping up in our commercial organization; we got everybody in place by really the end of Q1, early Q2; and we’re seeing the benefit of a broader commercial organization and more feet on the street, as we head into the second half. And that’s why Q3 was higher.

And we have also -- we can see Q4 is going to be a good quarter for OPUS as well..

And customer enthusiasm seems high, correct? And then follow-on to that is, is it because -- what are the attributes they are pointing out, they like the most about OPUS?.

We’re really viewed as the one vendor in this area that’s flexible. They like our flexibility because we’ll pack any resin; we’re very flexible when it comes to the column bed heights and diameters. So, we’ve got this breadth of column diameters. And it’s the customization of the product line that makes it easy for customers to use.

I think what’s happened Paul over the last few years is that as people adopt OPUS, and maybe they’ve only put it into one process, let’s say a year ago and now they see the performance and they see the service that we provide, they’re coming back and saying okay, let’s put OPUS into a couple of steps in the process.

And we are benefiting from being in the market now for three years..

And then lastly, can you talk to tax rate going forward and where are we in Q4 in the forward-looking tax rate?.

One, similar to what we had in the first quarter, very, very high percentage, well over 100% of our earnings pretax were generated in Sweden where we’re taxed on a 22% rate; then, we had a loss in the U.S. entity obviously with no tax. So that really drives up the rate per se, to 31% in the quarter.

We expect that to lighten up through the fourth quarter and we expect more profitable situation in the U.S. or less of a loss position and more leveling of our profits between the two locations. So, we expect through the -- by the end of the year to be roughly in that $4 million range of taxes or 25%, 26% range..

Thank you. [Operator Instructions] We have a follow-up question from the line of Brandon Couillard with Jefferies. Your line is now open. Please go ahead..

Tony, the decision to I guess stop pursuing the proprietary Protein A media opportunity, could you elaborate on the rationale for that? I mean was there a change in your view of the market opportunity or was this more perhaps based on let’s say feedback from some of your partners?.

No. So, as I reported back Brandon on our last earnings call, we were in beta site testing. Feedback from our beta sites was favorable; the product performed well. And customers basically said to us that they were going to put it on their resin screening program; so not getting implemented into any particular process.

We know that the adoption cycle is pretty long and the revenues that we were forecasting were going to be modest. So, as part of our strategic review process, we were reviewing all of our products and we were looking at the -- we looked at revenue impact, we looked at adoption cycles, we looked at resource allocation.

And we’re seeing the acceleration that’s happening in OPUS and ATF. And we just made the strategic decision for the Company that we wanted to put our valuable resources into OPUS and ATF and drive and accelerate their growth versus further dilution. So that was really the decision in terms of why we didn’t move forward with product launch..

And then any update you can share with us on the M&A pipeline, any opportunities that you’re seeing out there, and whether some of the volatility in the public markets has let’s say, loosened up valuation expectations at all?.

I think we’ve been pretty consistent in terms of our goals as we go through this year and into next year. As we continue to talk to companies, we have specific targets, we think are good fits for Repligen.

We want to really focus on our growing products that we have in our portfolio and see if there are deals that could bolster and strengthen those portfolios. Nothing right now that we can talk about. But obviously as we finish out the year and go into 2016, we’ll update you [Audio Gap] the valuations have changed dramatically.

I think it’s really -- even though the markets have been volatile over the last month, I don’t know if a month really reflects changes that might be happening in terms of valuation. So, we’ll see as we move forward..

Thank you. Our next question comes from the line of William March with Janney Montgomery. Your line is now open. Please go ahead..

I just wanted to ask about the single-use ATF. If you guys could give us an update about where you are at in that process; and maybe big picture, how you think that fits in the workspace or the workflow..

As I said earlier, the single-use ATF product still in development, but we’re definitely moving into the external testing phase, here in the fourth quarter. We expect that we’ll launch it in -- early in 2016. There’s a strong interest in our customer base. As you might recall, customers are moving towards single-use technology.

So, we see [Audio Gap] products are in a number of commercial processes, late stage processes. We expect the single-use products will get tested and evaluated in early stage opportunities. And as we go through 2016, we’ll see how it all plays out.

But, we’re very positive about the development and look forward to getting it into our installed base where I think it will have a positive impact..

Thank you. I’m showing no further questions. I would now like to turn the call back to Sondra Newman, Senior Director of Investor Relations for Repligen, for closing remarks..

Thank you everyone for joining our Q3 earnings call today. Should you have any follow-up questions for management, please feel free to reach out to me at investors@repligen.com. Thanks. Have a great day..

Ladies and gentlemen, this does conclude today’s program. You may all disconnect. Everybody, have a wonderful day..