Q4 2020 Repligen Corp Earnings Call
Good day, ladies and gentlemen, and welcome to religion Corporation's fourth quarter and 2020 earnings Conference call.
My name is Sarah and I will be your coordinator.
All participants will be in listen only mode.
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This event is being recorded please.
Please note that there will be a question and answer session. Following the company's formal remarks.
In order to accommodate all individuals who wish to ask questions. There will be a limit of two questions out of Tony.
I would now like to turn the call over to your host for todays call Sondra Newman head of Investor Relations day with Legit.
Thank you Sarah Good morning, everyone. We appreciate you joining our call. This morning will cover financial results and business highlights for the three months and full year periods ended December 31st 2020.
We'll also provide financial guidance for the current year 2021.
President and CEO, Tony Hunt will cover business updates and our CFO, John Snod grass will cover our financial results and guidance.
As a reminder, the forward looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ additional.
Information concerning risks related to our business is included in our annual report on form 10-K, our quarterly reports on form 10-Q. The current report on form 8-K, which we filed today and other filings that we make with the SEC.
Today's comments reflect management's current views, which could change as a result of new information future events or otherwise the company does not obligate or commit itself to update forward looking statements, except as required by law.
During this call, we're providing non-GAAP results and guidance reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Replicants website and also on SEC Dot Gov.
Non-GAAP figures in today's report include the following revenue growth at constant currency gross profit and gross margin.
<unk> expenses, including R&D and SG&A operating income and operating margin income tax expense net income and earnings per share as well as EBITDA and adjusted EBITDA.
These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Replicants current results against historical performance and the performance of peers when evaluating investment opportunities.
That's it for me now on call the turn the call to Tony Hunt, Great. Thank you Sandra and good morning, everyone and welcome to our 2020 year end update.
We're really delighted with the way we finished off the year with 47% organic growth in the four Corp, fourth quarter, 25% organic growth for the full year on overall 2020 growth for the company coming in at 36 per cent.
As we all know 2020 was a remarkable challenging here, where we observed accelerated demand for our products to support COVID-19 vaccine and therapeutic development. This came on top of very strong growth in non COVID-19 related revenue, which grew 18% overall for the year.
We were also able to complete a series of strategic acquisitions to advance our system strategy. In addition, we launched innovative new products, we continued to gain traction across our industry, including gene therapy comps.
I'm, especially proud of our team has risen to the challenges of 2020, showing a real drive to make a difference during the pandemic, making tremendous efforts to manufacture and deliver by processing equipment and consumable products to our customers on to scale, our operations to keep pace with accelerating demand.
Throughout the year Covid related orders increased on by Q4 Covid programs accounted for 22% of our overall revenue, which is up sequentially on 15% in Q3.
For the whole year of Covid customers accounted for 13% of our revenue at 17 points over 36% reported growth.
Our order book also accelerated in the fourth quarter and finished the year up approximately 80% with COVID-19 programs contributing approximately half of this growth.
Based on this order trend, we now expect Covid related revenues to double from $46 million in 2020 to a range of 90 to 100 million. This year, an increase from our previous projections of $50 million to $70 million.
Before jumping into our business highlights for Q4, and 2020 I want to spend a few minutes on the five strategic initiatives that we highlighted at the beginning of last year.
Okay.
Number one was around successful integration of C technologies on expansion of their customer and application base second was around launching disruptive technologies from our R&D pipeline on expanding these technologies into new applications. The third one was brown growing our gene therapy business by establishing our core technologies in viral vector manufacturing.
Right.
It was around expanding our manufacturing capacity to support our business unit growth on our longer term vision of attaining a $1 billion in revenue by 2025.
And finally number five was around adding new technologies through M&A with primary focus on building out our systems and fluid management portfolio.
So let's start with C technologies on our cross sell that ex business when.
When we kicked off 2020, we set three goals for ourselves.
We wanted to quickly onboard a team of 10, new sales people to broaden our market presence across the regions, including going direct in Europe.
We wanted to build a pipeline of new accounts on expand applications beyond mobs into gene therapy, and finally, we wanted to focus on flow PPE, we wanted to demonstrate to customers. The power of in line real time process monitoring on brings a nextgen flow technology to market.
It's been an amazing year for our cross sell analytics team, we hired and completed the on boarding of the commercial team in Q1, we focused on building the funnel with new accounts, which resulted in 50% of systems sold in the second half of the year coming from these accounts.
We expanded the applications for our process analytics products into gene therapy with laser focus on viral vector analysis.
Finally, the flow PPE team moved more than 20 customers into clinical evaluations.
The same time, our R&D team delivered on advanced since Nextgen <unk> technology, and we are now accepting orders for this instrument here in Q1.
The business finished the year with pro forma growth of 30% on its on track for another strong year of growth in 2021, and the range of 20 to 25 per cent.
On the R&D front, our innovation engine continued to produce we set a goal at the beginning of the year to launch five products and expand our technology adoption, especially on gene therapy.
Infiltration.
We launched our <unk> see us flat sheet cassettes since gene therapy, we ramped our marketing off other prevention process scale, Tia FTF systems to significantly improve and simplify and harvest our expectation.
We completed the R&D work on our next Gen ATF controllers.
And proteins, we developed a ligand on resin for spike protein in under 10 months working with Navajo Gmbh's on pure life Life Sciences. Finally, as mentioned earlier and process analytics, we launched our nextgen flow PPE technology in the first quarter. This year, which will be used for highly accurate in line protein concentration measurement.
And gene therapy. The challenge in 2020 was really around gaining customer access on conducting evaluations during COVID-19.
Our commercial and field applications teams were incredibly resourceful on by the end of the year, we have firmly established opus prepacked columns T. F. D. A flat sheet cassettes ATF on BPA technology and viral vector manufacturing applications.
Our products match up well with the needs of this customer base, which has resulted in robust demand.
We added on average 10 to 15, new gene therapy customers per quarter in 2020, and we now have approximately 75 significant accounts adopting and implementing our technology.
Even with some gene therapy customers shifting focus to COVID-19 programs, which we exclude from our gene therapy revenues, we achieved approximately 30% growth from our $41 million base in 2019.
In 2019, and 2020, we talked about the importance of capacity expansion on the work done over the last two years has really helped us as we were in the middle of a surge in demand.
Having spent just over $26 million in 2020, we accelerated our capital investments.
We will accelerate our capital investments in 2021, and expect to deploy $55 million to $60 million as we build out our capacity our major focus on our filtration on single use products.
By mid 2021, we expect to have our European central for Prepacked columns up and running on.
To have significant capacity in our hollow fiber business. Finally, we plan to complete on build out an incremental 64000 square feet on the manufacturing space on Marlboro to support on TFS systems ATF on flat sheet cassette businesses.
On the M&A front, we recognized back at the beginning of the year that our systems portfolio was gaining traction in the marketplace, especially for hollow fiber applications.
We also realized that we were missing opportunities, especially in downstream apps, where we did not have the breadth and our systems offerings to address customer needs.
The acquisitions of artisan MTN on a mass directly address these gaps with gold standard systems and consumables.
Truly extend our system offering to chromatography on downstream filtration.
We now have a complete portfolio of systems and fluid management consumables on our goal now is to invest in and expand our customer base as we roll these products out towards global commercial or.
As we move into 2021, we will continue to be opportunistic on M&A and we will focus on expanding our franchise footprint with differentiated technologies.
So moving now to the fourth quarter on our business performance.
As reported today, we had a record quarter with $108 million plus on sales each of our proteins analytics filtration and chromatography franchises performed well on together delivered almost 47% organic growth on the quarter with our filtration business, leading the way with approximately 60% organic growth.
Our chromatography business was up over 20% per quarter and finished the year up 14% within chromatography, our opus revenues for the full year of 2020 were up approximately 20% on column sales increased by 30%.
With the investments we've made in 2019, our capacity increase significantly and we now have best in class lead times per prepacked columns in the industry.
We continue to migrate customers to drop ship presence, which has improved our overall margins and we're very excited to bring additional capacity online in Europe in mid 2021, we believe this will position us well for the next three to five years not only on the capacity front, but with respect to market opportunities.
Finally, we're excited about the work we're doing with navigate on the ligand development side. As this has resulted in new opportunities for us to deliver resins in our prepacked column format, adding to the growth potential for our chromatography business.
We expect chromatography will grow on the range of 30% to 40% in 2021.
Yeah.
Our proteins franchise had a very strong quarter.
In Q4 and finished the year up 24%.
This is the second year in a row, where we've had 20% growth for this business.
We started the year expecting to franchise to be down 15% given the transition to in house manufacturing of protein a ligands on site Tivo.
With the onset of Covid demand increased and we saw across the board strength from our three main proteins customers, including increased demand from <unk> Millipore and continued market traction for our NGL impact a ligand through the sales of pure light jet a day 50 rosin.
We expect 2021 to be another strong year for this franchise with growth in the range of 10% to 20%.
Our filtration franchise was the big growth driver for replicate in 2020 upgrader than 60% on the quarter on.
Up 46% per year.
We benefited from continued traction at gene therapy accounts on Covid, where 60% of our total COVID-19 revenues for the year came from our filtration portfolio.
We are a key technology provider and many of the late stage and commercial vaccines and expect 2021 to be an exceptional year for filtration given the strong order load on the overall global demand for our products. We expect our filtration franchise will grow in the range of 55% to 60% this year.
Overall, we expect the company to grow at 37% to 43% in 2021 with organic growth in the range of 26% to 33%. We expect the first half to be very strong as many of our customers ramp up COVID-19 manufacturing as.
As we move through the year, our strategic priorities will center on the following.
Number one we want to support ongoing demand per customers, while continuing to prioritize the health and safety of our employees.
Two we want to build out capacity to support accelerating growth in our business.
Three we want to integrate artisan Emt and NMS.
<unk> is around new product launches, including our spike protein resin next generation flow PPE on Nextgen TFS systems and finally, we wanted to focus on continued traction in gene therapy.
We believe we are well positioned to gain further market share in bio processing relying on our strategy of growth through acquisition continuous innovation and expansion of our customer base we.
We believe that the M&A and highly differentiated new products developed and launched over the last 18 months will propel rutledge into above industry average organic growth over the next three to five years and we have set our sights on achieving $1 billion in revenue by 2025.
Before concluding.
I wish to recognize our 1100 plus employees around the globe, including our new colleagues at artisan Emt and NMS for their commitment and leadership in 2020 I also want to thank our loyal shareholders on customers for their parts on represents success as we look forward to delivering another strong year here in 2021.
Now I'd like to turn the call over to John for reported on the financial performance.
Thank you Tony and good morning, everyone. Today, we are reporting our financial results for the fourth quarter and full year 2020, as well as providing our financial guidance for the year 2021.
Unless otherwise mentioned all financial measures discussed reflect adjusted non-GAAP measures.
As you've seen in our press release. This morning, we delivered record revenue and strong earnings growth for both the fourth quarter and full year 2020 supported by strong overall biologics markets and the significant influence we are seeing from COVID-19 vaccine and therapeutic programs.
We've also continued to execute on our vision of driving technology leadership in bio processing during 2020 through new product launches that drive efficiencies for our customers through the completion of three acquisitions that support our system strategy.
And through new applications for our products as we expand their use into a broader set of drug modalities.
We also continued to deliver on our plans to.
Expand our manufacturing footprint and capacity and to build out our it systems to drive down lead times to enable delivery of increased volumes of our critical consumables equipment and systems to help our customers support growth. We are seeing in the biologic drug development and manufacturing around the world.
Now moving to our fourth quarter and full year of 2020 revenue commentary.
On our top line, we realized record revenue of $108 6 million in the fourth quarter of 2020, representing 56% reported and 47% organic growth.
Within these figures reported growth includes a 3% tailwind from foreign exchange and a six point tailwind from our 2020 acquisitions.
For full year 2020, we reported revenue of $366 3 million with 36% reported growth and 29% organic growth.
On the reported revenue results include a 1% foreign exchange tailwind.
On a 6% contribution from acquisitions.
Incremental revenue from acquisitions is comprised of partial year revenue from each of our 2020 acquisitions artisan Emt and NMS.
<unk> C technologies revenue for the first five months of 2020.
In the fourth quarter, we achieved a consensus beat of $14 7 million or 13, 5% on revenue with approximately 75 per cent of the beat driven by Covid related projects.
Approximately 25% related to the strength of our base business.
Overall, COVID-19 programs represented 22% and 13% respectively of fourth quarter and full year of 2020 revenues.
These same COVID-19 programs represented 17 points up on a reported 36% growth for the year.
As Tony highlighted we continued to see strong full year orders growth across each of our four product franchises with overall order growth at approximately 80% in 2020.
With about 40 points or half of this growth coming from Covid related projects.
On a regional basis for the fourth quarter Asia continues to be the lead with direct revenue growth of greater than 100% led by the strength of filtration and chromatography product lines in China.
Europe and North America also delivered strong performances with direct revenue growth of approximately 70% and 40% respectively.
On a full year basis Asia was again, our top performer with direct revenue growth of approximately 60% on.
On the same full year basis, Europe, and North America achieved direct revenue growth of greater than 50% and 25% respectively.
For full year 2020, North America represented 52% of the Companys direct product revenue with Europe, and Asia accounting for 30% and 18% respectively.
Now moving down on our income statement.
Fourth quarter 2020, adjusted gross profit increased to $61 1 million, a ramp of $21 4 million or 54% compared to the same 2019 period.
Adjusted gross margin for the fourth quarter was 56, 3% versus 57, 2% reported in the fourth quarter of 2019.
Our fourth quarter performance included the impact of planned depreciation from equipment and systems coming online.
While this increased human resource expenses as we continue to focus on capacity expansion to support current and long term growth.
Full year 2020, adjusted gross profit was $211 million, an increase of $57 million on 37% compared to the full year 2019.
Full year adjusted gross margin was 57, 6%, reflecting a 60 basis point expansion versus full year 2019.
Next we'll shift to adjusted operating expenses.
Adjusted Research and development expenses increased to $6 7 million in the fourth quarter of 2020 compared to $4 9 million for the 2019 period.
Adjusted R&D expenses finished the full year period at $19 7 million five 4% of revenue compared to $18 8 million spent in the full year 2019, with 2020 spend levels coming in lower than originally planned as we had limited R&D staff on site in Q2 and Q3.
Adjusted SG&A expenses for the fourth quarter were $27 2 million compared to $22 2 million for the 2019 period.
Adjusted SG&A for the year was $93 4 million compared to $71 8 million for full year 2019, an increase of $21 6 million.
The full year spend increase reflects the timing impacts of our 2019 and 2020 acquisitions investments in personnel to support capacity expansion and commercial activities.
And systems on occupancy cost all in support of realized and expected growth.
Now moving to adjusted earnings and EPS.
Adjusted operating income for the fourth quarter was $27 3 million, an increase of $14 6 million or 115% compared to $12 7 million reported in the fourth quarter of 2019.
Fourth quarter adjusted operating margin was 25, 1% an expansion of 680 basis points compared to 18, 3% in the fourth quarter of 2019.
Adjusted operating income for the full year of 2020 period was $98 1 million, an increase of $34 5 million or 54% compared to the same 2019 period.
Adjusted operating margin for the full year period was 26, 8%, representing a 330 basis point improvement over the 23, 5% reported in the same period for 2019.
Full year adjusted operating margin improvements versus the prior year were driven by strong volume growth favorable product mix operating expense leverage and strong overall operational execution by the business.
Fourth quarter adjusted net income was $28 7 million, representing an increase of $17 8 million compared to the fourth quarter of 2019.
Full year adjusted net income was $89 1 million compared to $52 5 million for the 2019 period, representing an increase of $36 6 billion or 70%.
In addition to our strong revenue growth on operational performance. Adjusted net income also benefited from a low adjusted income tax rate of eight 6% per the year related to the combined impact of incentive stock transactions and one time benefits from U S tax reform changes related to our U S owned foreign operations.
<unk>.
Adjusted EPS increased to 52 cents per fully diluted share on the fourth quarter of 2020 compared to 20 cents on the fourth quarter of 2019, an increase of 32.
For full year 2020, adjusted EPS was $1 65 per fully diluted share an increase of 55% compared to $1 seven for the 2019 full year.
Our cash and cash equivalents, which are GAAP metrics totaled $717 million at December 31, 2020, an increase of $189 million compared to year end 2019.
Our yearend cash position includes the effects of closing our three second half 2020 acquisitions and an increase of nearly a $298 million from our follow on equity raised closed on December 10th 2020.
For full year 2020, we generated free cash flow of $36 3 million inclusive of $62 6 million of operating cash flow was $26 3 million of capital expenditures, most significantly related to our facility and capacity expansion projects and it systems investments.
Now I will transition to our 2021 full year guidance.
Our GAAP to non-GAAP reconciliations for our.
2021 financial guidance are included in the reconciliation tables in today's earnings press release as previously mentioned unless otherwise noted all 21 2021 guidance excuse me discussed will be non-GAAP.
Please also keep in mind that our 2021 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a nominal impact on full year sales and does not include the potential impact of any future acquisitions that the company may pursue.
In recognition of the continued strength of the overall bioprocess market, including estimates of revenue is from Covid vaccines and therapeutics that are in development and commercialization.
We are setting our 2021 full year.
Revenue guidance, a GAAP metric at $500 million to $525 million, reflecting growth in the range of 37% to 43% as reported and 26% to 33% on an organic basis.
Our adjusted gross margin guidance for 2021 is 57% to 58%.
We expect adjusted operating income to be in the range of $134 million to $140 million with adjusted operating margins in the range of 26% to 27% of revenue for the year.
Sure.
Adjusted other income and expense is expected to be $1 million of expense relating to cash interest expense from our convertible notes.
We're expecting our 2021 adjusted income tax expense to be approximately 20% of adjusted pre tax income.
We are expecting full year 2021, adjusted net income to be in the range of $106 million to $111 million.
And adjusted EPS to be in the range of $1 86 to $1 94 per fully diluted share.
Our adjusted EPS guidance reflects an estimated $57 1 million fully diluted shares outstanding for the full year, an increase of approximately $3 2 million shares.
Adjusted EBITDA is expected to be in the range of $153 million to $159 million for 2021, with depreciation and intangible amortization expenses expected to be approximately $19 3 million and $24 million respectively.
The company expects to invest $55 million to $60 million into capital expenditures in 2021 inclusive of key capacity expansion initiatives for our filtration chromatography and proteins portfolios as well as continued SAP system implementation investments.
We expect year end cash and cash equivalents, a GAAP metric to be in the range of $740 to $760 million with our capex investments being fully funded by cash generation from our operations.
This completes our financial report on our guidance update and I will now turn the call back to the operator to open the lines for questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Please limit yourself to two questions.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Dan area with Stifel. Please go ahead.
Hey, good morning, guys. Thanks for the questions Tony I wanted to start with the guide for the year.
If I back out $95 million or so from Covid related revenues from the outlook.
It looks like you are more or less guiding to non COVID-19 growth. That's on par with what you saw on 2020, and maybe a point higher but same ballpark.
That seems like a pretty reasonable way to start things off. So can you just maybe talk to the puts and the takes that go into that view versus what you saw last year.
Other market or product areas, where you think you'd see something a little bit different than in 2020, whereas the idea that you know you probably see a continuation of the trends and the things that drove the non COVID-19 growth last year.
Yeah. So if you I think really it's almost like down looking at it over the last couple of years I think we've traditionally been in that 10% to 15% organic growth range. This is even before COVID-19.
But we're clearly getting increased traction for our products in the marketplace. We've done a nice job on the gene therapy side.
I think we're moving into that kind of the 15% to 20% organic growth for the company and for the foreseeable future just based on what we see right now and then you layer on Covid on top of that and on purely.
I think having the right portfolio of products on the right.
Relationships with with many of the.
Covid vaccine.
Developers.
<unk> put us in a good position in.
In 2020, and that's kind of carried over here into 2021, So I think you're right. We're right in that 15% to 20% Sweet spot I do think that there is a bit of a trade off that goes on that I'm sure. Every other byproducts company will tell you is that there is a huge.
Demand for our capacity at the CMO level, so CDM OS that are doing.
Covid related work there is always going to be a tradeoff right to other projects and programs will will get delayed slightly so.
For US right now we think we're in that 15% to 20% organic growth for non Covid and then COVID-19 revenue.
And that $90 million to $100 million range.
And obviously, obviously, that's an incremental $55 million.
Versus last year.
Yes, okay.
And then just maybe on new products because you do have a bunch of those that are that are in the mix here do you have a view on the contribution to organic growth that.
The stuff that's been internally developed over the last.
So call it nine to 12 months <unk> ATF controller flow.
B P. What are you kind of penciling in for this year. If you have a number and then specifically for <unk>. How is the launch of that product going now.
Now that we're a couple of quarters and how are you feeling about taking share within.
The depth filtration market and then if I could just also ask.
What is the outlook there for cell and gene therapy, I remember that Oxford biomedical paper.
Last year kind of making it seem like that can prime the pump for that for that product in that area. Thanks a bunch.
Yes, so I'll start with <unk>.
Obviously this will be the second full year that we've got we've put T. FTF on the market. We started off with the with the Cho strategy that continues to be probably the primary driver of growth right now so we've got many.
<unk> that have gone on.
Very successful.
Like all products, though and I think we said this a year ago. We expect it's a business that we expect will double every year for the next few years and we had set a target of a couple of million dollars for Tia FTF last year, we beat that we're in that $2 million to $3 million in revenue, we expect it will double this year.
Adding in the gene therapy piece on the Oxford paper that you reference yes. It has resulted in additional evaluations going on and we expect that that's going to be another catalyst in another application area for Tia FTF technology. So I think all of that is very positive I think if you start to look at it purely from.
What are we factoring in to our organic growth this year coming from.
New products is coming on.
Dan it's how much on that.
Hello.
Our next question comes from Hydro Peterson with Jpmorgan. Please go ahead.
Hi, Good morning. This is Julia on for Tycho, Thanks for taking the question.
So starting with the vaccine tailwind that you've guided to obviously.
From a previous range of 50 to Sally I'm, just wondering if you could elaborate on what kind of factors are driving the change is it just scale up with your existing customers.
Perhaps a new well.
Maryann speeding up development of next generation vaccines are or is that like incremental contribution from the new logo on northern Nextgen.
Yeah.
Yes, it's essentially just increased demand for those.
Vaccines and therapeutics that we're involved in and as we went through.
John pointed out when you look at our Q4 performance.
75% of the beat came from Covid that came from <unk>.
Kris demand from.
The vaccine developers from the therapeutic.
Companies that we're working with and that's what's really driving the increase again here in.
In 2021, we have more visibility Julian now to.
What's required in 2021 versus three months ago, or six months ago and be able to see as we go through the year, how that plays out but I can say, there's very little of that is around next generation.
Vaccines are therapeutics, its really the processes and product on.
Sure.
And opportunities that we're in today.
Got it.
And then regarding your product level guidance for 'twenty and 'twenty one.
Just curious because obviously the filtration guidance is cigna.
Significantly stronger.
On a product segment. So just wondering what really is allowing also.
So accretion to it too.
Benefit that day.
Sure.
More significantly from from.
From Covid vaccine.
I think European ex and then separately for the protein outlet.
We'll see.
A strong outlook for 2021, but I also remember that.
Hi, Eric.
Patients for this IP that contract was by the end of this year. So has that been extended out or how should we think about that.
Good day.
Sure on the filtration front.
Okay.
So if you think through some other comments we made already this morning, you know 60% of our.
Covid revenue in 2020 came from filtration so if.
If you also look at what we have on our filtration portfolio. It's the biggest portfolio of products that we have if you look at chromatography as a as a sort of on an example, the main driver in chromatography as our Prepacked columns.
If you look at filtration, we have hollow fiber technology, we apply cheap technology. We have we have systems, we have the fluid management pro Connex product line, we've got new products coming in from artisan and Emt NMS. So it's just a bigger portfolio Julia and.
As I said, we've benefited on the Covid front from our filtration portfolio, we are obviously selling.
Our opus prepacked columns into into those applications as well and we're selling our solo on blood flow VP technology into those applications, but there's a lot more shots at goal because of the depth and breadth of our filtration portfolio and Thats really.
The reason why.
It's growing faster than the other product lines.
On.
On your proteins question Noah.
We've said that our goal is by.
At the end of this year or two to work with <unk> to extend our contracts were continuing to have those discussions and we'll update you guys as we move through the year.
Got it thank you.
Our next question comes from Paul <unk> with Keybanc. Please go ahead.
Hi, Tony on the Hollow fiber filtration technology is that on an alternative.
Two.
Two protein a or is the technology there yet.
Yes on the on the hollow fiber side call it's really.
The main application is downstream it would be after the protein protein a step so it's more it's more like a diet filtration ultrafiltration type application, so they're connected but theyre not theyre not replacements for each other.
And then the.
What are you worried about this year are you getting enough raw materials supply polymers et cetera.
Yeah, I would say if you speak to the bio processing industry everybody is you know.
Hiring as process, we can we're all trying to build out the excess extra capacity.
Everybody's got pretty strong order books.
Early around execution.
Right and then lastly.
Do you think customers are building for the equivalent amount of.
A vaccine production in 2022 were can you even tail.
Based on what we see right now I would say that what they are building is is is what's required.
Free company is trying to produce more and I think that's part of the.
The increase we saw on Q4 and on obviously I think it's a big part of the guidance that we're putting out today is but I don't think it's 2022 I think it's all 2021 right. Okay. Thanks.
Thanks, Paul.
Our next question comes from Jacob Johnson with Stephens. Please go ahead.
Hey, thanks.
Terms of the Covid orders, you're receiving right now how much visibility do you have today for full year 2021 demand. It sounds like guidance assumes these revenues are maybe heavier in the first half of the year, if we see customers continuing to manufacture in the second half of the year would that be additive to your outlook and I guess, how should we think of.
The cadence of Covid related revenues in 2021.
Yes, it's definitely.
Some accounts, we have visibility for.
For the full year, but orders placed for the first the first half of the year others, we have visibility to the first half of the year.
Our guidance is based on on where we see 2021, playing out, especially on the Covid side, but we don't have full visibility Jacob too.
What's going to be required.
By various companies that we're working with we have a good sense, we have definitely got orders from some other companies that go out through Q4, others. We have orders that are in the first and second quarter.
Got it that's helpful and then it looks like the defense production Act worked.
To secure a variety of inputs for vaccines that actually included tangential flow filtration products can you just talk about demand for those products relative to your capacity right now and if you are having to prioritize these products for vaccine customers.
Yeah look I don't think we're any different than anyone else on the industry. We're all trying to prioritize COVID-19 vaccines and therapeutics on at the same time trying to balance getting product to all the other customers that we have so that's really the the.
The challenge that everybody is facing in the industry. So it's a it's a balancing act the demand for Covid is <unk>.
Based on vaccines and therapeutics and other it's TFS for its.
Chromatography resins, our Ids prepacked columns on whatever the product line is there is there is a real strong demand right now and everybody is trying to prioritize the COVID-19.
Customers as high as we can but at the same time still trying to provide to all the other customers that we have it on and are in our portfolio on the company.
Got it thanks for taking the question Tony.
Our next question comes from Matt Hewitt.
<unk> Hallum Capital Group. Please go ahead.
Good morning, Congratulations on a fantastic year, just a couple from me first off once you've finished integrating the artisan system, we should start to see some pull through for chromatography and some of the other products on the portfolio has that been baked into guidance or would that represent upside.
Yeah, if you look at our yeah the pull through.
Not baked into any of the guidance, but when we look at our we just like every deal we've done over the last six seven years.
Year, one which is really this year is all around building out the day.
The infrastructure, so we need to build out the commercial team for our systems. The good news is that because we sell hollow fiber systems. We do have a very strong team of folks that are out in the field that are specialists on system. So we just need to expand.
To expand that group and build it out at the end of the day, where we set some targets for ourselves the revenue synergies pulled through really won't start to kick in until 2022. So this year is around getting all the foundational pieces right, making sure we have the right funnel up opportunities make sure everybody.
He's trained make sure the customers that artisan I spent many years nurturing and developing that they're taken care of and we just expand that overall customer base. So thats the goal and I.
I think it'll be 2022, before we start to see kind of pull through opportunities.
Okay, Great and then regarding flow V. P. I think you mentioned in your prepared remarks, you are up to 20 clinical evaluations now.
Maybe walk through the ramp there what did that look like maybe in Q3, and then what does that.
I don't know if its not necessary order book, but how are the discussions ramping up I mean are you, adding 10 to 20.
Quarter, or just maybe help us directionally think about that business. Thank you.
Yeah, so flow PPE is something that.
On the huge fan of and I just think that.
And this goes back to even my my my own role in the 19 nineties at companies like perceptive Biosystems Theres, a real need for in line.
Process monitoring and flow VP solves a major problem that's out in the marketplace, which is can you measure antibodies proteins nucleic acid at very high concentrations without having to do any dilutions and thats what flow brings to the table and you get those results in seconds.
So I think as.
We've increased our team right in terms of commercial and applications people, we've got a dedicated team focused on flow.
They continue to have technical discussions with.
Big players on our industry about implementing a technology like this and I think where we were 12 months ago versus where we are today is night and day right. I think there was a lot more customers, who absolutely see the value they'll go through evaluations at the process development level on eventually they start to move into the into the clinical.
Sort of manufacturing arena. So we expect that the business will ramp this year, but I would say 2022, 2023, 2024 is where we're going to start to see.
A lot more.
<unk> VP, especially the Nextgen version of the technology.
Being put into the manufacturing and going all the way through to commercial manufacturing.
Drugs.
Got it alright, thank you very much.
Our next question comes from Puneet <unk> with SBB Leerink. Please go ahead.
Thanks, Tony.
My first question is on and I don't know if this was covered before but.
In terms of gene therapy, what are you seeing obviously strong growth there and wondering what you are baking in for the full year here on the guide.
Yes, so probably a similar year again, I think theres a little when we look at the gene therapy.
Customer base for us in 2020.
There was a significant number of companies that are actually working on Covid based.
Viral vector.
Drugs, so we excluded those and in terms of our calculations. So we're around that 30% Mark we expect will be in that 25% to 30% growth.
Again, there'll be some trade offs, but we really really like the portfolio of products that we have our customers really.
See the value and we're going to continue to focus on this in this area.
Many players in bioprocess, saying, we see this as one of the growth drivers for for the foreseeable future. So yes that'll be in that 25% to 30% range as our guest right now.
Okay, that's great and then if I could ask on capital deployment.
They have been.
Very active here or just on DMT other.
Other acquisitions that you've made as you look at the current.
And landscape Tony.
Valuations wise and overall the demand in the market.
What are you seeing out there.
Just help us understand if anything has changed in your strategy in terms of.
Acquisitions, and inorganic growth as well as if you could talk about capital deployment broadly that'd be great too.
Yeah. So on the M&A front, nothing has really changed in the sense that the strategy.
Deployed over the last four or five years is the strategy, we're going to deploy over the next four or five years.
Highly competitive as you know.
Everybody is looking for technology assets so.
It's maybe a little different than 345 years ago, when you might be competing with.
One other company when you look at potential targets, but theres a lot of banker activity out there there are a lot of.
Technologies that are available.
We will continue to.
Select the targets that we think makes the most sense for applicants. So I don't think the pace is going to be any different puneet I don't think.
I think we've got a good strategy, we have a strategy for each of our divisions and so each of those divisional strategies have.
I have on M&A element to it on as we see Targa.
<unk> targets are opportunities to execute we'll go ahead and execute and obviously being able to do.
Capital raise back in in December puts us in a pretty good position from a cash perspective.
Non Jack can talk to capital deployment.
We finished the year with about $717 million in cash.
It puts us on a really nice position, obviously, we're going to continue to look at M&A opportunities and Opportunistically continue to work on those things.
The other things that we're doing this year with capital, obviously, where we're reinvesting quite a bit in the business to build out capacity and across all of our filtration franchises.
Systems.
Even in proteins, we're looking at opportunities to expand capacity.
Both from a from a from a footprint and equipment perspective, but also from a head count perspective, and we're adding head count pretty quickly and then I think the third thing.
But we're putting an emphasis on is obviously, we want to make sure. Our are part of the supply chain is not not being disruptive to our customers. So we are making investments on working capital and areas like that like inventory as well. So you should continue to see that those strategies be active throughout 2021, and obviously we'll continue.
You'd have to re look at things as we get into 2000 and through the year 2021 on into 2022 about what we need.
For the future just to support obviously.
The current growth, we're seeing but also the future growth expected.
That's very helpful. And then last one if I could its Tony.
Yes on the NAV go proteins.
On the affinity RASM that was launched recently whats the expectation there. Obviously these vaccines productions have already started so could you just COVID-19 sense of how they get plugged into the current predictions and what's your expectation for that product this year.
Yes, so we have not built a lot of revenue in for the Spike Ras on and it's not like we're not excited about being able to develop and bring that to market, but you're right I mean anyone who's in a commercial process, it's going to be challenging for them to go ahead and swap out. So I think it's really going to be around next generation vaccines.
Just for everybody on the on the on the call.
This particular resin does not work with mrna based vaccines are viral vector based vaccines salt based on protein protein based vaccine such as spike protein. So.
It binds the spike protein so that's the target.
So the subset of vaccine manufacturers is smaller than the total set that's out there.
Okay, that's great and great to see what you've been doing here for that I appreciate it.
Thanks, Tony.
Our next question comes from Brandon Couillard with Jefferies. Please go ahead.
Good morning.
Tony in terms of.
<unk> therapy customer base in the recent in the expected growth.
Other markets I'm curious, if you're able to characterize the contribution growth.
On <unk> as opposed to existing customers.
When you're selling it.
More products into and maybe taking a greater with pristine the wallet share.
It really.
70 <unk>.
Plus some routes if we look at maybe like the top 10 to 15.
A fraction of the portfolio.
Line sort of a suite.
Thanks.
Yeah, Great question, I would say that.
Yeah.
It's definitely a subset of the portfolio. So we've I would say that our.
ATF technology Prepacked columns hollow fiber technology system. So it's probably at least half of our portfolio is definitely selling into these accounts on especially the bigger accounts that they're buying and utilizing multiple products in our portfolio I don't have the exact breakdown on.
On new account contribution but.
Hi.
Recollection is youre going to have every year accounts that were let's say in that top 75 significant accounts in let's say 2021, probably some of those will move out and B.
They may be slower in our let's say last year 2020, and 2021 day may slow down some of them might slow down, but you'll see others coming in I think whats really encouraging Brandon is the fact that we were adding.
That 10 to 15, new accounts per quarter last year. The contribution from those accounts is going to be pretty small in terms of revenue in 2020, but they will start to pick up here in 2021 those accounts on some of those will definitely move into our top 75 of our top 100 as we go through the year and I think to me.
It's a little bit like just build the funnel because I think if we build the funnel then we have more shots on goal and we'll continue to see the growth.
In this part of the market for Rutledge. It so really encouraged I think a year ago, we had probably 50 significant accounts now we have 75.
So I think we're heading in the right direction.
Okay. That's very helpful. And then just one more on the Covid side.
In terms of the revenue contribution.
Are you talking.
Talk about the breakdown between Kobe vaccines as opposed to map based therapeutics.
If that makes any difference between last year and 21.
No I think it's about I don't think there's any real difference in 2021 versus 2020 on a percentage basis. The vast majority of our Covid revenue is coming from vaccines.
Got you. Thank you.
Again, if you'd like to ask a question. Please press Star then one.
Our next question comes from Ram <unk> with.
Net.
H C. Wainwright. Please go ahead.
Thanks, very much for taking my questions and really impressed with all of the solid performance over the course of 2020 during a really challenging on disruptive time, most people, which doesn't seem to have broken your stride at all.
Wanted to ask two things firstly regarding the vaccines.
Can you give us a sense of which types of vaccines in particular.
You are most likely to have your technology would be applicable to if you can may be site specific products that would be very helpful. But I understand if you are not in a position to do that and if you can also talk through a little bit about the sustainability of these revenue is given all the discussion around how COVID-19 is going to be on a day.
Nick problem. The emergence of these new Corona virus variants, which appear to indicate that vaccines for COVID-19 are going to be part of the landscape for a very very long time, and then I had a follow up on the gene therapy side of the business.
Yes on the Covid front.
Yes, we haven't come out and said Oh, we're in.
Vaccine X and Y, but I think when you.
Go back and look at what I, what I said in my prepared remarks, we're in the majority of the late stage and commercial processes. So we are definitely working with.
Viral vectors on mrna and protein based vaccine manufacturers.
On our all of our products.
Think about it.
One who is working on viral vectors all of the work we've done in the gene therapy space. Those technologies work just as well if it's a viral vector thats in gene therapy or a viral vector that's going into a vaccine on mrna we've been working on the M&A mrna front for a number of years again.
Majority of what we're doing there is probably filtration based and Prepacked columns and then on the protein side.
We're working on with companies on that as well on Mechanicals across the board in terms of products, whether it's our products on our filtration portfolio and our prepacked columns on.
On the road hopefully the spiked horizon will be something that'll be used for next generation vaccines in terms of.
Where.
The frequency of vaccination.
It feels like a bit of a roller coaster over the last nine months I think six to nine months ago, everybody was like going on maybe it's a shot every two to three years. Some people were thinking every five years now everybody is thinking it's every year I just don't think we know and.
What we're doing right now is just focused on 2021 on the execution that needs to happen to support the customers that have asked us to work with them who have.
Basically adopted our technologies at the same time trying to also too.
Get the products out to all our other customers and are in are on our list. So that's really our focus where it plays out Ram on the.
On the frequency of vaccinations.
And if other we'll have additional vaccines for variance on whether that'll be an annual charter every two years I just don't know right now I don't think anyone really knows and we will see how that plays out as we go through 2021.
I'd just add on that on the on the capacity side, we're taking a longer term view of that.
But.
Certainly on we don't know how that's going to evolve in terms of.
The recurrence of vaccines coming through.
Okay, and then just very quickly on the gene therapy side of the business I was wondering if you could give us a little bit more color on your sales and marketing process as you reach out to potential new gene therapy customers and what is the principal truck.
Sales arguments for it potential gene therapy entrants gene therapy companies to utilize replicating systems replicate suite of applicable products. Thanks.
Yeah, and the World has changed in the last 12 months. So a lot of what we're doing now is virtual right. So a lot of the marketing is digital marketing. So we're focused on technology seminars to get initial interest.
In place and then that's followed up a lot with the applications based work by our field applications team on once all that's done then that results in a decision at the customer level of weather.
Technology that replica and has outperformed the technology that comes from one of the other bio processing players or are we solve a problem that hasn't been addressed before I think for us we're.
<unk> focus on improving the overall efficiency of our process and improving overall yield so if we can.
If we stay focused on those those two things then it allows us to have.
Good conversations with customers, but.
90% of what goes on in our industry comes up it comes down to a bake off in other words at technical evaluation on a decision based on data. So that's really.
How we play that is how we win.
We're happy with the portfolio of products that we have.
Thank you so much.
This concludes our question and answer session I would like to turn the conference back over to Tony Hunt for any closing remarks.
I just want to thank everybody for joining US today. Obviously 2020 was was an outstanding year for the company clearly we have set some high expectations for ourselves for 2021 and look forward to jumping back on our call in May and bringing you guys up to speed on where we're at so thanks for thanks for joining.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.