Q3 2021 Repligen Corp Earnings Call
Revenue growth at constant currency gross profit and gross margin operating expense, including R&D and SG&A operating income and operating margin other income and expense 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, but are intended to better enable investors to benchmark replica <unk> current results against historical performance and the performance of peers when evaluating investment opportunities now I'll turn the call over to Tony Hunt.
Thank you Sondra and good morning, everyone and welcome to our Q3 earnings call.
As you saw in our press release. This morning, we delivered another outstanding quarter of first nine months for the company.
The effort from our global team has been exceptional as we are focused on building out our workforce and manufacturing capacity and an.
Integrating.
Our core acquisitions since Q3 of last year.
In the third quarter revenue from corporate customers increased to $48 million up sequentially from $45 million in Q2.
We also had stellar organic growth for our non corporate base business, which was up 9% organically in the quarter of.
37% year to date as both novel Gene therapy <unk> revenue accelerated.
Strategically during the third quarter, we executed on a number of agreements that strengthen and expand our proteins franchise.
First we signed a new four year protein a ligands supply agreement with Teva, which stands which extends out to 2025.
Next we developed and launched with Navajo on pure life, a new protein a ligands that is unique in the marketplace and falls for aggregation challenges associated with ph sensitive antibodies and.
And finally, we acquired appetite a leading player in affinity ligands discovery and development, which builds off and complements the strategic partnership we have with Navajo and.
In terms of overall revenue, we delivered 89% growth in the quarter, including 77% organic growth to reach $178 million.
Evan.
Quite a strength in the base business for gene therapy growth was a standout and from Covid programs.
Our base business accounted for 67% of revenue and 42 points of our growth with all four franchises delivering exceptional performance in the quarter and through the first nine months of 2021.
As noted above within our base business gene therapy revenues were up over 50% for our filtration franchise continues to see strong adoption of viral vector accounts.
In addition, our gene therapy customer base continues to expand which we see as a positive leading indicator for future growth.
16, new gene therapy accounts, rather than the quarter a more than 50 have been added year to date.
Based on these results, we now expect full year gene therapy revenue growth in the range of 30% to 40%.
Presenting a 11% to 12% of our overall revenue.
Covid programs represented 27% of our overall revenue with 36 points of our total growth in the third quarter.
Cobalt demand has been very consistent in the second half of 2021, and we expect Q4 revenues for COVID-19 to be very much in line with Q3.
Finally acquisitions made in 2020 and in 2021 represented over 7%, both third quarter and year to date revenue.
All are tracking at or above our expectations and we continue to make significant operational investments to increase overall capacity as we head into 2022.
On the orders front, we continued to see strong momentum with orders up approximately 130% through the <unk>.
First nine months of this year.
In the quarter.
Covid orders represented over 40% of the order book as a number of our large corporate customers placed significant orders for next year.
Our cobot order book for 2022 is now over $150 million and we are very much in line with our expectations. The COVID-19 at Thompson will contribute at least $200 million in revenues for the company next year.
Our base business orders were again very robust with strength in ATF artisan systems hollow fibers and Opus Prepacked columns.
Given the strength in orders and overall revenue performance. We now expect 2021 to finish between 655 $665 million with Covid revenue in the range of $175 million to $180 million.
Our base business growth should be in the range of 37% to 39%, reflecting the strong adoption of our core technologies in bioprocess.
Before jumping into our quarterly results I want to provide some commentary on our capacity expansion programs on our most recent acquisition of <unk>, which closed on September the 20-F.
So let's start with capacity.
During Q3, we made significant progress building out additional capacity for the company in France, Palling members now fully online and producing and shipping hollow fiber membranes supporting our bio processing customers with first module shipped in late Q3.
We expect to continue to ramp up capacity, it or to lose sight over the coming months as more customers qualify in the products.
In the Netherlands, our Opus Breda facility came online in Q3, and the first opus columns for delivered to European customers in September again, putting us in a very good position for 2022 for EU customers will be able to drop ship presence to a greater facility for column packing.
Through the end of Q3 over 34 European customers are formally approved and accepted our greater facility for the manufacturing of Prepacked columns.
Finally over the coming two quarters, we expect to add significant capacity in our Rancho Dominguez, California on Marlborough mass sites to support our filtration franchise.
Moving now to the acquisition of appetite and expert in affinity ligands discovery and development.
This is a very important acquisition for us as it won strengthens both our protein a chromatography businesses and strategically moves roughly <unk> affinity restaurant solutions for gene therapy, where we can leverage our commercial organization and two it's built off the excellent partnership we've established with <unk> and expenses.
In discovery and development engine.
Our goal over the coming months is to focus on launching differentiated new products into gene therapy viral vector space and building out our portfolio of affinity residents. So we can compete more effectively in the rapidly emerging applications within bio processing.
So moving now to our quarterly performance the story of the quarter was 49% non Covid base business growth and the continued strength that covered accounts, which were up 247% year over year.
Order load as noted earlier was exceptionally strong with our non covered accounts outpacing outpatient corporate demand.
And filtration our business again more than doubled in Q3 compared to the third quarter of 2020.
The strength in filtration was broad based our ATF business is beginning to make some real inroads into gene therapy accounts, where lentivirus and AAV customers are seeing the benefits of increased yields.
Our cross flow hollow fiber and <unk> businesses more than doubled in the quarter as we continued to see robust demand to support COVID-19 vaccines, along with accelerated adoption for non COVID-19 applications.
We are especially happy with our new customer progress.
For example in our flagship accept business, we added 36 customers with approximately one third is coming from gene therapy pioneer.
Finally, our systems business continues to perform well with strong market demand for a bench top process scale products.
It was an important quarter for us as we launched a series of fully automated single use systems supporting our <unk> flat sheet cassette franchise on a series of new artisan chromatography systems, which we expect to be drivers of growth for us in 2022.
Based on strong Q3 performance, we now expect our filtration business to grow at a 125% here in 2021.
Moving to chromatography, our opus pre packed column business had an excellent quarter, driven by gene therapy and Covid customers.
We saw a nice uptick in demand through the first nine months for our Opus 80 columns as customers continued to implement our technology and late stage processes.
We continue to transition customers to customer supplied resin and now almost 70% of opus revenues are coming from Cogs.
This will improve again in 2022 as our Brita facility is now online and as mentioned earlier customers have qualified and accepted shipments from this facility.
For the year, we anticipate the chromatography franchise will grow in the range of 40% to 45%.
Our proteins business had another outstanding quarter with strength across the board in ligands and growth factors.
We're pleased to have secured the long term contract with Teva on protein a ligands.
And we look forward to the market impact of our protein a resin development with Navajo and new products to be developed and launched by appetite. We now expect proteins to grow 4% to 45%.
Here in 2021.
Finally, our process analytics business continues to accelerate as customers adopt solo BP and <unk> for the quarter.
The business was up approximately 31%.
With new accounts again accounting for almost 50% of the systems sold.
Within our analytics customer base, 60% of the growth is coming from the monoclonal antibody customers with an increasing contribution is coming from new modalities and gene therapy plasmids in Alagoas.
We anticipate growth of approximately 35% for this business in 2021.
So overall, we had another outstanding quarter in Q3 with exceptional strength in our non Covid base business and consistent demand from our corporate account base.
With strong order growth and new products entering the market. We are confident about our finish in 2021 and continued growth in 2022, we look forward to updating you on our progress through the year and with that ill.
I'll turn the call over to John for the financial update.
Thank you Tony and good day, everyone.
To date, we are reporting our financial results for the third quarter 2021, as well as updating our financial guidance for the year.
Unless otherwise mentioned all financial measures discussed reflect adjusted non-GAAP measures.
Excuse me.
As shared in our press release. This morning, we again delivered record revenue and strong earnings growth for the third quarter of 2021. We also continued to see robust order intake supporting our outlook for the remainder of 2021 and into 2022.
As Tony highlighted our base business continues to accelerate up 49% year over year, and contributing 42 points to overall revenue growth of 89%.
The strength of our base business, which excludes COVID-19 related revenue and inorganic acquisition revenue was propelled by excellent performance in each of our four product franchises.
Our Covid program business also continued to perform well, adding 36 points to overall revenue growth in the third quarter.
Finally, inorganic growth from our 2020 acquisitions of Emt, NMS and artisan and our 2021 acquisitions of <unk> and advertise drove 11 points of the 89% growth in the period.
During the third quarter. In addition to completing our acquisitions of calling them in advertising our operational focus continued on capacity expansion and integrating our 2020 acquisitions.
We've also kicked off phase four of our global SAP implementation project encompassing our NMS business, our Korean and Indian sales offices, as well as our new Hopkinton startup facility.
On the hiring front, we've continued to expand our manufacturing R&D commercial and operating infrastructure.
Over the three quarters of 2021, we added approximately 500 individuals to our team of 44% increase from year end 2020.
These investments are critical to supporting the rapid growth across all of our product lines as we focus on supporting our customers and driving down lead times for our products.
Now shifting to our third quarter of 2021 revenue commentary.
On our top line, we generated record revenue of $178 2 million in the third quarter of 2021, representing reported growth of 89% and organic growth of 77%.
As mentioned earlier included in our reported growth figures is 11 points of inorganic revenue from 2020 in 2021 acquisitions plus approximately one point of tailwind from foreign exchange.
Overall, our third quarter reported revenues include our base business, representing 67% of total revenue cobot.
Covid programs representing 27%.
Inorganic acquisition revenue representing about 6%.
In addition to our overall revenue strength in the quarter, we continue to see strong bookings in each of our product franchises with overall order expansion of greater than 130% through the first three quarters of 2021.
As it relates to third quarter of 2021 regional revenue growth for all of our direct products.
Positive traction continues in each of our three global regions.
Revenues from Asia rest of World were up nearly 100%.
Europe expanded at greater than 130%.
Our North American region sustained its strong performance with revenue growth of greater than 60%.
Relating to our regional revenue distribution for our direct products in the third quarter of 2021 Asia represented 18%.
Europe represented 37% and North America represented 45%.
Now moving down our income statement.
Third quarter of 2021, adjusted gross profit ramp to $103 8 million.
An increase of $49 2 million or 90% compared to the third quarter of 2020.
Adjusted gross margin finished the third quarter of 58, 3% compared to 58% from the same period in 2022.
The 30 basis point improvement reflects benefits from positive volume leverage the majority of which was offset by investments in facilities.
Depreciation and head count tied to our capacity and infrastructure expansion initiatives.
Next we'll transition down the P&L to adjusted operating expenses.
Adjusted Research and development expenses increased to $8 8 million in the third quarter of 2021 compared to $4 4 million in the third quarter of 2020.
So far this year, we have launched several innovative new products, most notably our <unk> ATF lab scale controller.
Full EPS technology.
That sheet filtration systems through spectrum.
Chromatography systems through artisan and our high ph affinity ligands.
Our SG&A expenses for the third quarter of 2021 increased to $38 1 million or 21, 4% of revenue.
Compared to $23 3 million or 24, 8% of revenue for the 2023rd quarter.
The increased SG&A spend on a dollar basis was related to the timing of our 2020 and 2021 acquisitions plus continuing investments in personnel and facility expansion to support the significant growth we are seeing in our business.
Now shifting to adjusted earnings and EPS.
Adjusted operating income was $57 million in the third quarter of 2021 versus $26 9 million reported in the prior year third quarter.
An increase of $30 1 million or 112%.
Third quarter adjusted operating margin was 32% an improvement of 340 basis points compared to 28, 6% in the 2023rd quarter.
Adjusted operating margin expansion in the third quarter of 2021 reflects the impact of strong volume leverage on our overall business.
Third quarter 2021, adjusted net income was $44 7 million, an increase of $23 $5 million or 111% compared to $21 2 million in the 2020 quarter.
Adjusted EPS increased to 78 cents per fully diluted share in the third quarter of 2021 compared to <unk> 40 in the 2020 period, an increase of 38 or 97%.
Our cash and cash equivalents, which are GAAP metrics totaled $621 million at September 32021, and reflects the impacts on cash from our third quarter polymer and appetite acquisitions and related expenses.
We will now move 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.
2021 financial guidance 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 2% tailwind on full year sales.
And does not include the potential impact of any future acquisitions that the company may pursue.
Based on the continuation of strength in our robust bio processing market and the strong operational execution in our business.
And inclusive of the impacts of our poly mem and appetite acquisitions.
We are increasing our 2021 full year revenue guidance, a GAAP metric by $25 million at midpoint up to $655 million to $665 million.
This represents reported growth in the range of 79% to 82% and organic growth of 65% to 68%.
We are maintaining our 2021 adjusted gross margin guidance of 59% to 60% consistent with our previous guidance.
We are raising our adjusted operating income guidance by $11 5 million at midpoint to a range of $204 million to $208 million.
Increasing the lower end and increasing the lower end of our adjusted operating margin range by 100 basis points to the range of 30% to 31% of revenue for the year.
With respect to adjusted other income and expense, we are increasing expense to $3 million from our prior guidance of 2 million, mostly related to transactional foreign exchange exposure realized in the first three quarters of 2021.
We continue to expect full year 2021, adjusted income tax expense to be approximately 19% of adjusted pre tax income.
This guidance assumes an adjusted tax rate of 22% for the fourth quarter of 2021 and does not consider the potential impact of additional employee stock transactions, which we expect to be modest for the remainder of the year.
We are raising our adjusted net income expectations for full year 2021 by $8 5 million at midpoint to a range of $163 million to $166 million.
And we are boosting our adjusted EPS expectation by <unk> 14 at midpoint to $2 86 to $2 91 per fully diluted share.
Our adjusted EPS expense continues to reflect an estimated 57 million weighted average fully diluted shares outstanding for the year.
Our full year 2021, adjusted EBITDA range is being increased by $10 5 million at midpoint to the range of $221 million to $225 million with depreciation and intangible amortization expenses expected to be approximately $18 million and $22 2 million respectively.
Lee.
The company expects to invest $60 million into capital expenditures in 2021, consistent with our previous guidance.
This includes key capacity expansion initiatives and continued information system investments.
Inclusive of the impacts of compensation paid for our third quarter Poly Amendment appetite acquisitions, we expect year end cash cash equivalents, a GAAP metric to be in the range of $620 million to $630 million with our capex investments being fully funded by cash generation from our operations.
This completes our financial report and guidance update and I will now turn the call back to the operator to open the lines for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Dan areas with Stifel. You May go ahead.
Good morning, guys. Thanks for the questions Tony on gene therapy.
50% growth is pretty substantial acceleration it sounds like new customers are a big part of the equation there, but can you just expand a little bit on the drivers there.
And then obviously that space is working its way through safety questions that are sort of ongoing do you think that will be a meaningful part at all for demand are for spending patterns in the next couple of quarters or just in general.
Yes, I think gene therapy.
Has really benefited from the fact that our commercial organization. The field applications teams have been really out out in the out with our customers for the last six to nine months. So we're doing a lot more trials.
We're able to get in and.
Demonstrate the technologies that we have I think we have a really good portfolio of products.
I think it's all just adding up I think second half of last year and first quarter. Two of this year was probably a little lighter than we would have liked but we can see the progress that we're making and that's really resulted in.
A really nice Q3, I think a strong finish to the year and overall gene therapy.
Probably a little bit ahead of where we thought we would be at the beginning of the year.
Okay, and then second I'd just ask you to just I'm sorry, just just the issues that are ongoing in the industry and you know you've got I'm sure a pretty unique view on.
Maybe not unique but certainly.
And cycle deal I assume on just what's going on there how you see that.
Acting spending if at all over the next year or so.
Yes, I think we're I think the whole by processing industries and the same the same spot you can see I think each share, we're making more progress or the the gene therapy industry is making more progress.
There are a lot of clinical trials going on out there. The fact that we are adding 36 customers in.
You're right, we're tracking towards getting up to that $200 million marked by by the end of by the end of this year. There was a significant amount of orders placed by some of our biggest customers in Q3. So when you look at the percent of our order book that came from Covid. It was probably higher than other quarters and that really reflects.
Some of these big players coming in and placing orders for four quarters, others have placed orders for the first half of the year and into Q3. So we expect that honesty by the time, we hit the end of the year most of the big peers will have placed at least nine months, if not 12 months of their orders.
So in terms of capacity.
Sure.
We are working as hard as we can I mean, it's a huge effort by the operations team we've done a phenomenal job.
Building out capacity over the last 12 months, we have another year of capacity build out to go you can see it in our Capex spend.
But I think where we're staying ahead of the demand curve, we're really working to drive down lead times, even further as we get into 2022 and into 2023 and I'm going to refrain from making any comments on 2023 until which finished 2021 and we talk about 2022 guidance, but we'll see what happens.
Okay.
Our next question comes from Julie Quinn with Jpmorgan you May go ahead.
Hi, Good morning, Congrats on Macquarie I wanted to touch on the Aventine acquisition.
Is it the timing of that a the RASM commercial launch I think in our press release is just that 'twenty 'twenty. One 'twenty. Two so wondering if you can be more specific regarding the timing and is that benefit of the new launch included in that $10 million revenue guidance that you issued for 'twenty two and then as we think about the revenue synergy from that.
<unk> rather than <unk>.
Content like what does that what kind of synergy should we be thinking about in the form of incremental opus column sales going forward.
Okay. Thanks Julia.
I think in terms of appetite on the on the launch of the products they've already the majority of the work done on a number of those.
Products in RASM, So we expect that.
Really first quarter of next year the products will get launched.
So thats really the timing we might be able to get early access for customers here in Q4, but I think in terms of launching products that will be Q1, it's definitely in the $10 million revenue guidance for next year and our plan of course would be too.
Really package the AA.
<unk> AAV residents into different format opus columns.
Again, that's it's not a huge revenue synergy I think its more a convenience for customers. It makes it easier for customers to evaluate it makes it easier for customers to implement and we think we're just really leveraging the tools that we have.
To simplify the manufacturing process for customers, but not it's not a massive amount of revenue that will come from the opus columns, but I think the convenience factor is actually significant.
Got it that's helpful and then as we think about the broader the chromatography content ownership strategy.
Think about how does that kind of expand your share of the chromatography, Tam, which you've previously pending $485 million I mean off the total value of chromatography that could you give us a sense of like how much. It's column burgers RASM content that you can now capture with this acquisition and is there like a long term content attach rate that you're.
And you know we should be thinking about.
Yes, so our Tam for the most part in chromatography is really around the Prepacked columns piece, we have a very very small.
<unk> business and we have not.
Gone out and said hey in the multibillion dollar chromatography resin market that that's where we play today, but when we start to launch products over the next say one to two years, whether it's into gene therapy or its into other application areas, we're definitely going to tap into that multibillion dollar chromatography mass.
So that's that's our intent if you if you think about our proteins business, which is the ligands business.
Obviously growth factor as well, but the ligands part of the proteins business.
On the chromatography, they're very related so our protein a strategy is really a ligands strategy and we have three players right that we work very closely with <unk>.
<unk> millipore, and pure light and a lot of the content that we're generating right now thats highly differentiated content is coming through the collaboration and partnership we have with enough ago, we expect that appetite is going to become.
Not only a content provider for us, but as we launch new products like resins, we will sell those present through our commercial organization, but they will be in non protein based affinity applications. So that's the strategy.
Yes, I think we will be.
Opening up.
A bigger market for Rutledge and therefore, the Tam in chromatography will increase.
Got it and just to confirm on your last point it sounds like there is really no overlap.
With your existing relationship with.
Thank you.
Right.
RASM partners right.
No I mean look R. R.
Interaction relationships with the military.
Millipore and obviously the relationship we have with Purolator's, an exclusive relationship around protein a.
With respect to the ligands that we would generate and make.
It really isn't a whole lot of overlap.
So this play on appetite is not about approaching <unk> it's about.
Other affinity opportunities that we see in the marketplace and we would like to be one of the players.
That's great. Thank you.
Our next question comes from Puneet <unk> with SBB Leerink.
Leerink you May now go ahead.
Yeah, Hi, Tony Thanks for the question so first.
First one is just a clarification on the <unk>.
The Covid guide at least 200 million for next year, just wanted to understand in terms of the commercial.
Vaccines vaccine component of that versus vaccines that were potentially in phase two and three.
Versus therapeutics as a sort of component of that do you expect it to be largely commercial vaccines at this point.
Yes, we do it is the majority of it would be commercial vaccines, obviously, we have.
Some sense of where.
Other players who are either late stage or on the therapeutic side, what they are forecasting but.
I think the majority would be coming from commercial.
Got it Okay and then a question on the.
The lead times and supply chain is obviously we are hearing.
Supply chains.
<unk> across the obviously more in the electronics components and things like that some and reagents as well.
And there have been questions obviously around inflation.
Across multiple sectors. So I just wanted to get a sense from you. What are you seeing in terms of first of all.
Lead times from suppliers to you as well as <unk>.
Your current lead times, how the how they have improved I know you commented in Covid, obviously that impacted quite a bit but it has been improving since then and then overall if you could just give us a view of.
Supply chain overall for.
Sort of product manufacturing and any cost increases that you can potentially pass on.
To the customers.
Yes, so let's start on the lead times so poorly.
Our strategy is no different than the strategy of any other bio processing player. We're all investing.
Major investments in Capex major.
A major investment in people, we're all adding equipment, where we're bringing in putting new buildings online are in line. So everybody is doing the same thing everybody is at different phases and stages of that Buildout.
We're in a good position in terms of what we said we were going to do at the beginning of the year. We're executing on that I think the polygon acquisition has really helped us in terms of really accelerating where we wanted to be with our hollow fiber portfolio that was very important to us.
The other capital projects that we're working on that's being driven by our operations team is right on track pick one Fracs next year is to bring on the Marlborough facility, which is 67000 square feet. Also obviously, we're building out again in Rancho. So those two are really important you saw what we've done with opus.
Again that will help our European customers in terms of lead times, because we don't have to do the cross the ocean shipment of resins. So again, I think where we're making steady progress good progress and I expect 2022, our lead times will continue to come down across our whole portfolio.
In terms of lead times from suppliers I don't think we're doing anything different than anyone else. We're all trying to get the right amount of Ah.
Raw materials on hand, so we can make our products and ship to customers on time.
There is always spot.
Spots in the supply chain, where you have challenges on a on a monthly quarterly basis, but it's no different in Q3 or Q4 than it was in Q1 and Q2. So we're working through that in terms of inflation, we definitely see.
In terms of pricing, but expect to see that raw materials have gone up we know wage increases have gone up as well. So there is definitely a little bit of that going on and then we'll look to see when we get into next year, what our pricing strategy is going to be for our products, but we haven't made final decisions on that yet.
And we do have some protection from certain suppliers that we have under three and five year contracts. So we do have pricing protection on those but a lot of the supply houses probably the resin providers will be we'll be pushing up pricing. So that's as Tony said, we will be looking at that here over the next couple of months to see how we how we <unk>.
Spawn to that.
Okay Super helpful. And then Tony last one more broad question on <unk>.
When we look at sea Tac at how it's performing and with <unk> in the market overall.
What are you seeing in terms of the recognition of costs among the customers.
As to the significance of these technologies that either we're all in.
Appreciation in sort of the penetration where do we stand with.
Overall with the <unk> type of technologies.
Broadly speaking and where do you think we could be in the next few years.
Yes, I would say.
For the more complex.
Readouts that customers are looking for is really in the early innings I think there's a lot of companies are doing offline at line. There's very few that are really implemented in line.
Thank the the.
The real advantage of a product like flow VP axes that you can monitor your drug concentration in line I think I said at the last earnings call that.
At the end of 2020, I think we had one.
Customer, who was really pushing forward with clinical.
Implementation I think.
Over a quarter ago first half of last of this year I think we had $19 20 customers that were thinking through and working on implementing in a clinical setting. So I think thats sort of gives you an idea of the of the ramp I do think that last year with the <unk>.
The restrictions on getting people into sites to do evaluations slowed us down a little bit that's ramped up here in 2021.
We're very bullish on the technology.
We think is highly differentiating and it's a real value driver for our customers and I think in general.
The industry for quite a while.
2000 was the Europe was.
The big push didn't really happen. So 21 years later I think we're finally seeing getting implemented and it's.
And it's really needed in.
In the industry and I think youre going to see plenty of implementations and other products that will come through that customers want to implement to do in line monitoring.
Okay, that's great very interesting alright, thank you.
Yeah.
Our next question comes from Jacob Johnson with Stephens.
You May now go ahead.
Hey, good morning, everybody, maybe Tony just some proteins.
You will need this idea of the agreement you've got the navigator <unk> partnership and now you're on advertising how should we think about that the long term growth rate for the protein franchise going forward is it maybe more in line with the kind of 15% to 20% growth target overall.
Yeah.
It's a great question Jacob I think the challenge in terms of giving you a long term growth on this really depends a little bit on.
Whereas <unk> goes in the next few years, obviously, the new contract is.
As we have mentioned before was driven by minimums not by percent of of total <unk>.
Total market so as a site if it gives us their forecast for 2022 and then.
Someone could stop typing it would be really good so.
In 2022.
Where that goes in 2023, and 2024, we'll get a little bit more insight into it to balance that off we're really happy with the way our growth factor business is growing so it's a double digit growth driver for us, we're really happy with the progress we've made with NGL.
<unk> and the commercialization and the work that Purolator's tons. So that's been a real good driver for us where we really like the new RASM are liking that we've launched that pure lights put on onto their base feed which is the high ph I think is very unique in the marketplace and then advertise starts to come in next year with new products.
It's really around where.
We are at the end of 2022 with new products in the and the success of those new products that will drive.
Growth for proteins in 2023 and 2024.
Got it thanks for that Tony sorry about the typing the Airpods are adapting well to get and then.
Yeah in the house, yet I deserved.
There's been a lot of talk from investors I think you all recently about kind of your clinical commercial mix and the opportunity. There I guess just one question about that is how does that that mix vary across your segments and as we look out. The next couple of years, what segments or product lines, maybe you could see that the largest shift towards commercial mix looks.
<unk> ahead.
Yeah. We were we've had this conversation I think with the within a number of investors over the last say three to six months, we really need to go back and rerun our <unk>.
Clinical commercial split at the end of this year obviously.
Covid changes that split in a big way.
So we will probably run it for non Covid and Covid.
I would say that almost every product that we have in our portfolio. When you look at our filtration products. They all started off.
In the in the early clinical phases. If you look at the acquisitions that we did.
A few of them had commercial.
<unk>.
Implementations for drugs, one of the acquisitions for them. So what they had nice pipelines and so we've been building the pipeline up.
So we're definitely more.
Those businesses are more dominated by kind of call, but we have seen over the last two plus years.
A lot more commercial successes, so we'll run the numbers at the end of this year, we're probably when we get into that February timeframe, we'll be able to add a little bit more color on.
The split is and how fast we think the ramp goes.
From <unk>.
Clinical to commercial.
Got it thanks for taking the question Tony.
No problem. Thanks Jacob.
Our next question comes from Paul Knight with Keybanc.
You May now go ahead.
Hey, Tony.
With IC some.
Competitors offer like Super fast turnaround times and hollow fiber.
Are you meeting that turnaround time and the other question is.
You meet our customers' demand because there may be a shortage in the product are you specced into that customer chain.
Let's call it a long time so.
And this supply short market are there share gain possibilities with you or with some of these others like <unk> are promising.
Quick turnaround time.
Yeah look I think it's all relative Paul I think if you compare.
A site or a term or sartorius to us obviously were smaller so the volumes we have to make a smaller than some of our competitors.
I think everybody has.
Products in their portfolio, where they have great lead times and they have other products, where they would prefer to have shorter lead times, but everybody is working to reduce the lead time piece there definitely are opportunities for share gain.
I think everybody is focused on that as well, so where you have.
Best in class lead times, you can definitely push and.
Get customers to switch across to our rutledge in product or if you're sartorius to sartorius product or a figure <unk> say tivo product, but you know for us.
We're very focused on driving our lead times down we definitely have picked up some share gain this.
This year and some of them with some of our product lines.
And that would be our goal as we as we go through 2022 as well.
Are you now at the point with your product lineup, where you are with offering a comprehensive set of products are you able to get.
Gain more customers with what is now a broader line of offerings.
Yes, I think we are I mean look it like everything else. It as I said to the last question. It is somewhat relative if you remember when.
We were all chatting back in 2015, when when I took over as CEO. We had two products. So we could talk three products. We've talked about we would talk about opus talking about ATF, when we talking about protein a ligands and growth factors that we have clearly have a much broader deeper portfolio. Now you can start to connect the dots between unit operations, which makes.
It.
Really good for us we've been able to attract a lot.
More talent into the company because we have this broader portfolio and I think the outcome of Covid kind of validate that the technologies that we've invested in either through our own R&D or through M&A has resulted in our ability to to jump onto.
Waves of.
Opportunities have come through and I would say gene therapy, which I think has been a nice win for rutledge and with the products that we have and definitely Covid I mean, we've picked up 27% of our revenues coming from Covid. So I think it shows that.
People value, what we do we have differentiated technology and therefore, we can jump onto new opportunities in the market and win and win our fair share.
Thank you.
Okay.
Our next question comes from Kristine <unk> with William Blair You May now go ahead.
Hi, good morning, and congrats again on the great quarter.
My first question is really centered around poly man I know you've previously mentioned that there's a lot of interesting innovation there and just hoping you can expand on this opportunity and maybe give some color on timing.
Yes.
When you look at Christina when you look at Poly Ma'am I think they bring a number of.
Advantages too to replicate and obviously the first one we've been working with them for well over a year and so our ability to scale expand our hollow fiber business they've done a phenomenal job of working with us and as I said in my prepared remarks.
We're shipping product from polymer since Q3, so that's going to ramp up that's great. There are also a company that had been around for over 20 years and they have developed a lot of technology that we think.
Have applications in and buy a processing so I'm not going to go through the details of those but expect that the core competency of polymer and hollow fiber membranes on modules is an asset to replicate them.
And we will be able to make better products faster, because we own polymer versus going it alone.
Great that's really helpful and then.
The second question I have is more of a big picture question.
So just your latest thoughts on longer term bio processing industry.
Yeah.
Yeah, So look I've been in Bioprocess Singh for over 20 years and.
Yeah.
It's an industry in a market that has consistently delivered.
I would say prior to Covid somewhere between Asia, 15% growth on an annual basis.
I don't expect that that will change right I think we're going to.
As we all work through Covid.
Whether COVID-19 is two years three years four years whatever it is.
We're still going to see core growth in the non COVID-19 part of the marketplace and you can see from all the players over the last over the last week or so they're all exciting really great non COVID-19 base business growth.
I still expect.
For a replica of <unk>.
15% to 20% type growth for.
For the non Covid part of our portfolio and in some years as Thats, 25%, 30% other years, it's going to be at the low end of that range, but.
Definitely believe that bio processing is a healthy healthy market for for us to be in.
We don't see.
Anything to suggest that that market will slow down in a post COVID-19 world.
For the non covered part of the market.
Great. Thanks for the color there.
Our next question comes from Matt Hewitt with Craig Hallum Capital Group You May now go ahead.
Thank you for taking the questions and as others have said.
Congratulations on the strong quarter.
Maybe just a couple for me first off originally the guidance did not include any revenue synergies related to the artisan acquisition now that we're getting closer to the end of the year are you starting to see some pull through from that or is that something you expect next year.
Yeah on artisan.
Obviously, there is so much that is interwoven with the with the businesses that we have right now. So if you think about the acquisition we did at BMT last.
Last year that is a critical part of making the single use flow paths that drive the success of artisan systems I think also.
I think most of the synergies matter it really going to be next year, because we are right now beginning to develop and launch the <unk>.
The chromatography skids and the filtration skids prior.
Prior to replicating replica and acquiring artisan artisan was more of a custom.
Skid shop, right and now we have made it into more of a standard format. That's configurable.
<unk> gives customers.
A lot of flexibility, but kind of builds off a base model. So those products are starting to come through as I talked about in my prepared remarks in chromatography will be doing the same thing on the TFS filtration side next year and Thats, where most of the synergies will be coming from because they ended up not just up really nicely with our flagship set matches up with our opus.
Arms, It will match up with our appetite residence in Opus comps all of those things begin to play a role in terms of synergies, but we're right on track this year to what we said we would do with artisan for revenue in 2021.
That's very helpful. Thank you and then maybe one last one and you touched on this a little bit earlier in your prepared remarks, but I think you said you've added approximately 500 employees. This year, obviously some of those coming through acquisitions, but.
You're clearly having success.
Finding talent and I'm curious.
As you look at the current situation I I've had a number of companies are already talking about some of the challenges that they're having either finding qualified or quality candidates or they're seeing turnover. So it's more back filling some losses. If you could talk a little bit about the hiring environment, and where you sit and maybe your.
<unk> as we look out to next year. Thank you.
Yes, I think its all relative I mean, if you look at what we're trying to hire versus some of the bigger players in our industry, obviously, where we're a percent not 8%, but percentages of what other people are doing so.
We're all in the same boat everybody is trying to hire talent. There is nothing magic about what we're doing versus what any of the other players are doing we're all trying to get the right talent into the company.
A lot of what we're looking for honesty and those 500.
Switch.
Obviously as you said include M&A.
But a lot of it is the hourly workforce. So just just really building out our factories with the right. The right number of people the right shift schedule.
That's a big part of what we've been doing.
Understood great. Thank you.
Our next question comes from ROM solo large U.
With H C Wainwright.
You May now go ahead.
Thanks, So much can you hear me.
Yes, we can hi, Ron.
And congrats of course on a very impressive quarter. So firstly with respect to gene therapy. Following on from I think some of your earlier discussion I was wondering if you could elaborate on whether you see a particular category of gene therapy medicines contributing.
In an outsize or significant manner relative to the other classes of gene therapies as you look at potential growth in this business growth opportunities for replicate going forward.
Yes, I would say the ramp from when we look at gene therapy.
I think you'd look at the broad.
Base of customers that we're dealing with we are working with every CMO, we're working with all the.
Gene gene therapy companies that are doing their own manufacturing our focus has really been on the viral vector side. So AEP plenty obviously plasmids.
Obviously the industry is maturing.
Slowly but.
So.
To call out a medicine right now and say that we think this is the best bet, we're not in a position to do that were really around serving that.
Manufacturing arm and making sure that our products can give those customers increased yield for example, that's one of the biggest things that we do especially in the viral vector space. So thats kind of where we're at we don't really care.
Comment nor do I.
By an expert to comment on which medicines do we think will be drivers of future growth. So I'll leave it at that.
Do you think that in addition to the viral vector segment that there is potential opportunity for rutledge and in the context of gene therapy that may be you know being developed with respect to sort of things like ex vivo cell therapy. So.
Kind of like the interface between cell and gene.
Yes, we honestly happens focused a lot of our time in that area. So we would have to see exactly what those customers are trying to do and if they need filtration products are need chromatography products. I think obviously, we can play in that space, but I think our focus honestly has been parallel vectors in plasma for.
The most part.
Okay, and then just secondly, with respect to COVID-19, I was wondering if you could comment on what the market dynamics implications of this significantly lower vaccination rate level in emerging countries might have four replica <unk> expectations.
Forward not just with respect to 2022, but beyond because it looks like given the significant degree to which some of these emerging regions has been lagging developed countries with respect to vaccination rates, there's still significant volume growth left to come.
With respect to commercial vaccine sales. So I was just wondering if you could comment on that what implications that may have for Raptor widgets Colgate business. Thanks, Yeah, I would say around.
Everybody, we all read the same press, we all see the same reports.
The way we view.
Covid vaccine demand is we're here to manufacture the volumes that our customers want us to do so we're working with a handful of people who are making commercial vaccines, they're worried about.
How are they going to increase the penetration rate and some of the <unk>.
Emerging countries that have high on vaccinated.
Right.
So look we react more to the the volume and the need.
And if that increases it well that's great that's great for uplift and that's great for our industry.
But I think it is.
We are already as I said earlier, we're already seeing orders placed out nine months to 12 months into next year you got to believe that those companies are targeting exactly what you just spoke about and probably included.
In there and their demand profile and of course that can change you could have a new variant that comes through when you could have.
The booster shots coming through but I would say that we react to the conversations we're having with our customers and hitting the demand profiles that they are asking us to hit.
Thank you very much.
Problem.
Again, if you have a question. Please press Star then one our next question comes from Hugo solve it with Exane Bnb Paribas you May now go ahead.
Alright, thanks for taking the question and congrats on the print.
On my side.
Maybe one on the BD cor agreements for growth's sake.
Can you maybe discuss or give us a bit of indications are you preparing to take over commercialization here and the potential upside.
For you guys as.
As you will potentially be able to go into new clients and two quick follow up on the margins.
Your margin has historically been lower in Q4, but.
Full year 'twenty, one guide that true that you updated you placed.
The significant step downs for the margins in Q4 of about 500 basis points. So just wondering.
Are there specific drivers that we should have in mind.
Given the margin strength.
<unk> seen since the beginning of the year and just taking a chance on 'twenty to 'twenty two question.
Some competitors are expecting the margins to keep it but you mean dose level to 2021 give us given the strength acceleration of underlying market growth.
Increased capacity and leverage so.
Or are you guys thinking about the margin.
Adding into the next year. Thank you.
Yes, Thanks Hugo.
On the military side, some millipore Sigma really.
The relationship we really started with Sigma.
Which dates back to 2010.
So we did make the decision last year that we were going to transition to bringing the growth factor business in house and Thats happened.
We've worked very closely with millipore Sigma to transition customers across by the middle of this year are pretty much all the customers have transitioned over to.
Getting growth factor supplied through <unk>.
So nothing beyond that obviously, we can.
We know the customers, we interact with them on multiple fronts.
It's just a little bit more of controlling our own destiny on a product line like growth factor. So I think that's a positive for us I'll, let John talk through the margins in Q4, but I would say for 2022.
We'll talk about where we think margins are going to be in 2022, when we hit the February timeframe, but I'll hand, it over to John to talk through the Q4 <unk>.
Yeah. So we can start with the gross margin levels. We came in in the quarter to around 58, 3% and we had guided the second half of the year to be right in that range. So I think we're pretty close to what we expected.
On the operating margin perspective, we came in a little bit hotter than we had originally planned to and that's simply because we our pace of hiring and filling roles and various commercial R&D and other infrastructure areas was a bit slower than.
Then we had put in our forecast so.
As we roll into Q4, we're expecting to fill a number of those jobs. We have a number of those positions filled and yet to start people have made commitments to us and that's really driving the the guidance reduction in the overall operating margin for the fourth quarter and if you look at that and.
In relation to 2022, obviously that puts us at a lower starting point for 2022, then what youre going to see for full year 2021.
We will be factoring that into our guidance when we talked to you guys in February coming up, but I'd say, the probably a theme that we'd want to want to put out there right. Now is that we really don't expect.
To see operating margin or even gross margin expansion in the 2022 period. So.
I would expect that to be.
Not an increase as you guys start to model 2022.
Thank you very much.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Tony Hunt for any closing remarks.
Just like to thank everybody for joining us today, we look forward to catching up with everybody in February and thanks again.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.