Q3 2022 Repligen Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the Rutledge Incorporation's third quarter of 2022 earnings Conference call. My name is Chris and I will be your coordinator today.
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I would now like to turn the call over to our host for today Sondra Newman head of Investor Relations for replicating. It. Please go ahead.
Yeah.
Thank you, Chris and welcome everyone to our third quarter before.
On this call ill cover business.
For the three and nine month periods ended September 30th 2022.
Well also provide updates to our financial guidance for the full year.
But Jim <unk>, President and CEO , Tony Hunt and our CFO , John Snodgrass will deliver a report and then we will open up the call for Q&A.
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 form 8-K, which were filing today and other filings that we make with the Securities and Exchange Commission.
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 <unk> website and on SEC Gov.
non-GAAP figures in today's report include the following revenue growth at constant currency gross profit and gross margin operating 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 Rutledge and its current results against historical performance and the performance appears well evaluating investment opportunities.
Go ahead, Tony Okay. Thank you Sandra and good morning.
Everyone and welcome to our Q3 earnings call.
But as you saw in our press release this morning delivered very productive.
First nine months of the company.
Additionally, we have two strategic collaborations.
Analytics approaching franchises, which I'll speak to later.
Quarterly revenue came in at 201 million. Despite an 11 next $11 million of FX headwinds and slowing COVID-19 related revenue.
Revenues for the first nine months came in at 615 billion up 28% organically, which takes into account a 9% decline in cobalt revenue during this period and five points of FX headwinds.
Our base business continues to perform well, finishing up 29% for the quarter.
35% through the first nine months of the year.
Our filtration and chromatography businesses were again, the major drivers of growth in the quarter the.
The growth in these two franchises more than offset the decline in cobalt revenues, which were down by $19 million or 40% year on year.
We continue to see strengths in gene therapy accounts, where revenue growth exceeded 50% through the first nine months of the year.
Importantly, we now have over 20 accounts with revenues in excess of a million dollars per year up more than 70% from a year ago.
We remain on track to finish the year above 40% growth targets are over $105 million in gene therapy revenue.
As mentioned earlier, we again saw predict a drop off in COVID-19 revenues in the quarter.
We now expect Covid revenues came in at $35 million to $140 million for the year.
The adjustment of $7 5 million from the midpoint of our previous guidance and up 28% versus our 2021 finish.
Looking ahead, we expect Covid revenues for 2023 to be in the range of $30 million to $40 million.
On the orders front, we had a lighter quarter in Q3, reflecting the minimal contribution from Covid accounts, approximately 7% of the order book on a return to more normal ordering patterns by our customers based on shorter lead times for our products.
Our base business orders were up slightly year on year book to Bill on total orders through the first nine months was nine base business had a book to Bill one pointed out.
Looking to our full year 2020 to finish we're tightening our reported revenue to a range of 795 to 805 billion, representing total revenue growth of 19% to 20% and 24% to 25% at constant currency.
We're also introducing guidance for our base business growth of 33% to 34%.
Up one five points at the midpoint from our previous guidance.
Dissipate organic revenue growth in the range of 21% to 22%.
Returning now to our strategic collaborations during the quarter, we executed on two agreements.
And then expand our process analytics and proteins franchises.
In September we signed a 15 year strategic licensing collaboration agreement with Drs daylight solutions, who are experts in mid infrared technology.
As part of the agreement drops general focus on the commercialization of Daylights Copay old technology.
Daylight and represents R&D team jointly focused on next generation product development.
<unk> is an advanced in line technology that complements our flow be PX offering from C technologies.
What's really important about this deal is that we now have two highly differentiated process analytics technologies in the marketplace that will be integrated into our systems portfolio.
In October we signed an expanded agreement with Sterlite and Ecolab company to extend our exclusive NGL protein a agreement until 2032.
In addition, we broadened the agreement now includes ligands developed by appetite for mob and purification.
The first of these like C. H one was launched at the recent VPI Boston show in September .
Since signing the original NGL agreements with <unk> of 2018, the combination of our NGL ligands with pure light Sagar Janet B technology has resulted in rapid adoption by bioprocess end users. We are very confident about the long term success of this strategic partnership and the growing revenue contribution to our proteins business.
So moving now to our quarterly performance.
Story of the quarter was continued strength in our filtration and chromatography businesses.
In filtration, our business was up 15% organically driven by the Hcl and hollow fiber portfolios.
Organic growth from these two businesses was north of 20% year over year.
Base business growth for the same businesses, which exclude COVID-19 related revenue and inorganic M&A was up almost 40%.
And now expect our filtration business grow at approximately 25% here in 2022.
As highlighted at our Investor Day in September we are very excited about our filtration systems business, which we just strengthened with the launch of a dedicated system for gene therapy, and mrna and an expanded set of artisan systems focused on tier applications.
Systems revenue for the first nine months of 2022 are up greater than 40%, reflecting the differentiated nature of this portfolio.
With the build out of our fluid management business, we expect customers purchasing systems to order more fluid management consumables potentially generating additional revenue for the company.
Moving to chromatography, our opus pre packed column business had an excellent quarter greater than 35%.
As noted in other quarters, we continue to transition customers to customer supply dressings.
In North America and Europe .
We saw a welcome improvement in rosin supply in Q3, which contributed to the overall performance for our chromatography business, which was up in the quarter.
For the year, we now anticipate that the chromatography franchise will grow in the range of 35% to 40%.
An increase from the 25% to 30%.
Our Q2 call.
Our proteins business came in flat for the quarter with revenues from growth factor some pure light offsetting a decline in revenues from site Cheever.
We continue to make good progress with a the Russian customer evaluations and I expect some of these valuations of opportunities to materialize in 2023 less customers implemented scale that these russell.
We continue to expect approaches to be down approximately 10% in 2022.
Finally, our process analytics business had a solid quarter with continued adoption of solar Toby PX with Europe being a standalone.
We now anticipate growth of approximately 20% for the year for this business.
So overall, we had another strong quarter.
Quarter in Q3 with continued strength in our base business. We're excited about the potential of our new strategic partnerships with Drs daylight solutions are purely to strengthen our analytics and proteins franchises. We believe we've developed one of the strongest and most innovative bio processing portfolios in our industry, we're confident about our finish in 2022.
<unk> success in the coming years with that I will 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 third quarter as well as updating our financial guidance for the year.
Unless otherwise mentioned all financial measures discussed reflect adjusted non-GAAP measures.
All growth figures provided for the third quarter and nine months year to date periods are year over year comparisons to the same periods in 2021.
As shared in our earnings press release this morning.
Reported strong revenue of $207 million in the third quarter of 615 $15 million.
Five months of 2022.
This includes significant FX headwinds, which reduced our reported revenue by approximately $11 million in quarter.
$24 million year to date.
Our base business continues its positive trajectory growing at 29% for the quarter and at 35% on a year to date basis.
Our base business represented 83% of total revenue for the third quarter, while COVID-19 related revenue and inorganic M&A represented 14% and 3% respectively.
At the market level cell and gene therapy, and cell and gene therapy, we're reflecting year to date growth of greater than 50%, excluding COVID-19 related revenue that gene therapy a couch.
We continue to see customers with our appetite AAV resins and remain confident in our potential to gain market share in this area.
Overall, our solid gene therapy accounts comprised 14% year to date reported revenue.
We continue to be excited about our opportunities in cell and gene therapy.
Successes in these modalities with Korea U S FDA approvals this year.
At the same time, we continued to see steady growth across the mats market with six U S approvals, so far this year, including one biosimilar.
From a capacity perspective, we met the goal shared over second quarter Pall quite good.
Fully online here in the third quarter, with our Marlboro, Massachusetts, and Rancho, California filtration facilities expansions.
As we've mentioned we're prepared to scale up the variable component of our capacity investments hiring additional employees when needed.
And when necessary to support our business growth.
Turning now to capital expenditures.
We spent 67 million on Capex year to date, and we continue to focus on scaling up and expanding our fluid management capacity with the build out of our assembly centers up contend, Massachusetts in Waterford Ireland.
We continue to expect to spend a total of $85 million capital expenditures in 2022, mostly in support of expansion projects to ensure capacity for future growth.
<unk> continued to drive our lead times.
Now returning to our third quarter revenue commentary.
On our topline delivered revenue of $207 million in the third quarter, representing 19% growth at constant currency, 16% organic and 13% growth as reported.
We absorbed significant FX headwinds six points in the quarter as international currencies weakened compared to the U S dollar.
We anticipate the fourth quarter and full year foreign exchange headwind of approximately 5%.
Looking ahead to 2023, if rates stay at today's levels.
The FX headwinds in the range of $25 million to $30 million.
Breaking down our third quarter reported revenue growth of 13% our base business contributed 21 points of growth inorganic M&A as three points of growth.
Which were partially offset by reduced COVID-19 related growth of 11 points.
We continued to see positive regional revenue growth in the third quarter in Asia and North America.
Asia rest of world growth of 78% led the way.
Our North American region grew at 10% and Europe is down 7% with both of these regions seeing lighter revenues.
Our regional revenue distribution for the third quarter year to date period included Asia rest of the World, 20% Europe , 38% in North America at 42%.
Now moving down our income statement.
Adjusted gross profit was $114 4 million third quarter 2022, increasing by $10 6 million or 10% compared to the same period in 2021.
Adjusted gross margin of 57% for the third quarter compares to 58, 3% in the same period in 2021, where we had significant revenue acceleration pacing ahead of our capacity and personnel expansion activities.
We continue to manage through the impact of FX headwinds on our margins.
As well as continued inflation challenges, which we have been offsetting with price increases to our customers here in 2022.
Now transitioning down the P&L to adjusted operating expenses.
Adjusted research and development.
Expenses for the third quarter, we're at about 5% of total revenue.
R&D spend continues to support the development of innovative new products, including our new chromatography flat sheet filtration systems from artisan business, along with the development by advertising novel chromatography ligands and resins.
Third quarter 2022, adjusted SG&A expenses were approximately 23% of total revenue.
An uptick from 21% in the same period in 2021.
Year over year dollar increases in spend continue to be related to the timing and the integration of our 2021 acquisitions.
<unk> investments in personnel facilities and systems expansions to support our growth.
Now moving to adjusted earnings and EPS.
Yeah.
Third quarter adjusted operating income was $58 2 million, an increase of $1 2 million compared to the same 2021 period.
Our adjusted operating margin was 29% in the third quarter 2022, compared to 32% in the prior year period, where our rapid revenue acceleration outpaced our investments to scale up the business at that time.
Moving to adjusted net income.
In the third quarter of 2022, our adjusted net income was $44 4 million a slight reduction of zero point $3 million compared to the same 2021 period.
Adjusted EPS was <unk> 77 cents per fully diluted share in the third quarter 2022, a minor reduction of one cent compared to 78 in the 2021 quarter.
And finally, our cash and cash equivalents, which are GAAP metrics totaled $573 4 million at September 32022.
Net of upfront payments made for a licensing agreement with daylight solutions.
We will now transition to our 2022 full year guidance.
Our GAAP to non-GAAP reconciliations for our 2022 financial guidance are included in the reconciliation tables in today's earnings press release.
As previously mentioned unless otherwise noted all 2022 financial guidance discussed will be non-GAAP .
Please also keep in mind that our 2022 guidance may be impacted by fluctuations in foreign exchange rates.
Projection of a 5% headwind on full year sales.
And does not include the potential impact of any future acquisitions the company say so.
Overall, we are tightening our 2022 full year revenue guidance, a GAAP metric to $795 million to $805 million.
Which continues to reflect increased projected demand for our base business offset by significant foreign exchange headwinds and lower projected COVID-19 related revenue.
We now expect overall revenue growth in the range of 19% to 20% as reported and 24% to 25% constant currency.
We anticipate organic growth in the range of 21% to 22%.
We are increasing our expectations for base business growth to a range of 33% to 34%.
We are increasing our guidance for base business reported revenue to reflect an increase of $7 5 million at midpoint $640 million to $645 million.
We now expect $135 million to $140 million and Covid related revenue a reduction of $7 5 million at midpoint.
And we continue to expect about 20 million inorganic acquisition revenue.
We are maintaining our 2022 adjusted gross margin guidance of 57.5 to 58, 5%.
We are slightly lowering our adjusted operating income guidance to a range of 231.
The $235 million and we are reducing our adjusted operating margin guidance by 50 basis points to the range of 28 quite wide to 29, 5% of revenue for the year.
Adjusted other income and expense is expected to be $8 million of expense for the year, an increase of $2 million of expense from our previous guidance of 6 million due to significant transactional foreign exchange impacts.
We are improving our 2022 adjusted income tax guidance by 200 basis points to approximately 19% of adjusted pretax income for the year.
We are increasing the lower end of our adjusted net income guidance to the range of $181 million to $184 million.
And our adjusted EPS guidance to $3.15 to $3.20 per fully diluted share.
Our adjusted EPS guidance continues to reflect an estimated 57 5 million weighted average fully diluted shares outstanding at year end 2022.
Adjusted EBITDA is now expected to be in the range of $244 million to $248 million compared to our August guidance of $256 million to $262 million.
With depreciation and intangible amortization expenses now expected to be approximately $24 million and $27 million respectively.
We expect year end cash cash equivalents GAAP metric to be in the range of $590 million to $610 million.
With our $85 million of 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 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 as a reminder, in order to accommodate all individuals who wish to ask a question. It will be a limit of two questions at a time.
At this time, we will pause momentarily to assemble our.
Today's first question comes from Puneet <unk> with <unk> Securities. Please go ahead.
Yeah, Hi, guys. Thanks for taking the question so.
Topical one for the bio processing industry, if I made the Destocking question. So.
Obviously, a number of your larger peers are seeing destocking from Covid accounts could.
Could you maybe just elaborate on what you're seeing.
And Tony and to what extent of Destocking is this when do you think we can see in a.
Trough and then in the inventory here and recovery again, and how does this differ from you know sort of the 2017 2018 timeframe.
Could you elaborate what youre seeing on your end. Thank you.
Thanks Puneet.
Yeah look the.
Obviously, your peers have come out and chat a little bit about the Destocking I would say our view of the world is is not very different but I would say that we see the industry is going through a transition.
As the industry moves away from Covid.
Our journey seeing a change in order patterns and I'll speak a little bit to kind of what we're seeing definitely see pockets of inventory related to COVID-19 machine needs at the Covid vaccine account. Some we're also seeing that C D moes and probably a little bit of the integrator side where charge companies.
Bioprocess and companies that are buying components that go into the manufacturing jobs.
Some of.
Products.
And that's all in an environment where.
Our customers are highly active and I would say as we've gone through the summer our funnel and I'll speak to in a second has strengthened.
So.
I'll take each one of those two need and kind of walk you through it and then I'll speak to <unk>.
P&C of your of your question so on the order pattern.
If we went back a year ago, our customers were in general.
During products getting it delivered within six months, but 80% of the products will be delivered within sex on 100% intense 12 months.
As we've sort of gone through the middle of this year and into the kind of all 80% of our customers are now ordering and getting product delivered within three to four months and 90% within six months, So theres definitely a real shift happening in terms of.
Order pattern and people just ordering out three months four months.
In advance.
On the inventory side, I think where we've seen the pockets of inventory, we definitely see it.
At any of the vaccine accounts that we've been working with we've seen that some of the C. D malls have been involved on the vaccine side as I said, a few minutes ago also a theme with the integrators. So the other bio processing plants that have stocked up on various components that are used in the manufacturing of their particular products.
And then the final part is the opportunity we see.
Yeah.
You know the funnel strengthening if we'd look at the beginning of the year middle of the year and where we are right. Now. So we started the year off fairly strong actually strong with it with a really good funnel of opportunities the summer was light definitely depth.
Last few months the Pall has really starts to strengthen and so when I looked at a.
The future it's around closing out opportunities and the next four months is probably going to determine a lot around.
Where 2023 is going to end up but I think we're probably got another quarter or two of managing through this transition.
Before we're kind of back in and sort of smoother Arab versus what everybody's experiencing right now.
And then Europe part B of your question, which was 2017 I think it's hard to compare I think this is a post COVID-19.
You know.
Transition that we're going through whereas 2017 was pure inventory burn off across the whole industry and we're seeing more pockets than broad burn off of inventory. So that's the that's kind of the comparison with 2017.
Got it that's super helpful. Tony I really appreciate it.
Just a quick one maybe on.
On the on the guidance and I know I appreciate the guidance for this year, but just looking into sort of 2023, you're lowering your COVID-19 red.
Our revenues for 'twenty, three but thinking about the base business, you said, 33% to 34%. This year, how should we sort of think about the base business of strength.
Now going into the next year and is that abated.
<unk> talked about a 20% number for the full for the core is that something we should have in mind or something higher could you just maybe walk us through that as much as you could appreciate it. Thank you.
So COVID-19 has come down and that's based on the Parkhouse, we're getting now from from our vaccine customers. So that's just directly related to the information that we've been able to obtain over the last three months, that's pretty clear and I don't think it's two different Don where are most of the analysts are right now in terms of looking at.
But the range for next year could look like.
It's early.
Nice to talk a little bit about growth thing.
Base business growth in 2023.
Throat two numbers out there. So when you look at Rutledge in situations, we're gonna be dealing with the 100 million dollar headwind in Covid as John pointed out we've got probably $25 million to $30 million FX headwind. So there are the headwinds I think what's positive is I think we've got a great.
<unk> portfolio I think we're really well positioned I think we're highly differentiated and we've got a funnel that is strengthening as we finish off the year. So that's really positive.
You look at the last five years represents delivered 26% base business.
Organic growth over the last five years 26 months on average.
<unk>.
And when we did our analyst day in September We said, Hey look we think we're going to grow in that 615th 2000, Sixteen's, 20% range.
Think next year, it's going to be more modest growth.
Then what you've seen over the last five years and probably more in line with the range that we pointed out in September .
Got it Okay Super helpful. Tony Thank you.
The next question comes from Dan areas with Stifel.
Thanks for the questions Tony one of the questions that we've gotten a bunch in the last couple of weeks. It's just.
Where and what portion of your portfolio might be fungible, when it comes to non Covid and Covid work.
Was there anything that you can share with us there that sort of.
Helps us conceptualize, what the transition might look like when we think about the product offerings over the next couple of quarters.
Yeah.
Yes, I don't think it's it's any of the product lines per se I just think it's the what I said earlier I think it's just the pockets of inventory belt. So if you think about.
Customers that we've had that's been on the vaccine side they thoroughly.
Excess inventory, we know that some of the CDM OS are working through that same challenge. So it's not like 2017, where it was broad it's more pockets.
I'm most encouraged by is the fact that our.
Funnel of opportunities is strengthening so there's a lot of execution that has to happen and I do think that our customers.
While they were placing orders.
Quickly in.
In 2020, 2021 and really through the first half of 2022.
It's they're looking at their dollars and they're spans of spending and on the most important projects that are going on at that particular facility that particular site. So I think it's really.
But we have to work through and I think the next four months between now and when we sit down and talk to you guys about 2023 guidance at the end of February I think the next four months in terms of order strength will really determine a lot around what the growth rate is going to be like <unk> and.
In 2023.
Yeah, Okay, and then maybe on the chromatography side, how do you think the resin availability situation looks good you entered 23, just given where things are trending.
I don't know if you've given a number for this year, but I do remember you, saying that 21 reps would've been two X what they were.
Availability was an issue so can you just sort of.
Catch us up on them.
Our senior offering.
I'm really glad that you remember all my comments, but yeah. So.
No doubt that the Reds.
Resin availability has improved over the last over the last quarter.
And we know from talking to our peers that capacity.
Capacity is coming online and that whole capacity piece is what's also driving the changing.
Order patterns that I spoke about a few minutes ago. So I think on the resin supply side.
It's easing, it's not 100% perfect yet I would say it continues to improve.
And I would say second half of next year based on everything we know I think capacity will be kind of fully online and you're in your <unk>.
At a kind of.
Our pre highway of.
No restrictions in terms of the ability to supply and of course, that's all outside our control, but what's encouraging is that we finally can say that.
Opus business instead of growing at around 20% is up growing north of 35%. So that's that's that's really the positive take hold here.
Okay very helpful. Thank you.
The next question comes from Juliet, Sean with J P. Morgan.
Hi, good morning, Thanks for taking the question and congrats on a quarter. So just a follow up on the Destocking point I was wondering if there's any way for us to.
And to find the magnitude of headwind that you've already seen so far and I know you previously mentioned, there's probably wanted to walk quarters remaining to go sale before ordering patterns normalize is there a way to think about you know what the magnitude of the headwind is remaining compared to what we've already seen so far.
I don't think there is Julia it's it's just that clearly.
Summer was lighter I think if you looked at our book to Bill through nine months on our base business, It's one point out right and I.
I think in <unk>.
Go back over the last prior to Covid I think book to Bill tends to be at one point or one point between one point on 1.1 kind of worked in that range. So we're not too far off where we were in the past what we have to see is is coming out of the summer is strengthening in the on the order side and execution on closing the opportunities that are.
Out there so I think when we get to the end of February we're going to be in it in a better position to speak to.
You know, where 2023 years and how long.
The headwinds are that it's I know everybody's jumping on on Destocking, but it's it's the destocking. Some pockets what we're seeing is just a total change in order patterns I mean, I gave out some pretty important numbers that have been we've gone from six to 12 months, you know people taking their material to now.
Each four months for 80%. So that's got to work its way through the system as well and it just depends on how long that takes that's going to determine a little bit around growth next year. So I pay attention to the fact that we've got you know.
$100 million drop off in Covid, we've got a deal with you have to deal with FX everybody in the industry is dealing with FX and then we've got a take the portfolio that we have that we think is highly differentiated and drive growth in that portfolio. So you can make up for the headwinds that we're dealing with that soy I would do it.
Got it appreciate all the additional color.
And then regarding the book to Bill and I. Appreciate you gave the year to date and I've tried.
Is there any way you can share with US you know how that book to Bill <unk>.
Specifically in thank you for both the base business and the overall.
Yes, well. The overall is is probably one of those comparisons where we had the highest.
Orders for Covid in in two.
2021, So I think on book to Bill for Q3, 2021, specifically, yeah, I'm, sorry, Q3, 2021 and then I think on the base business. The book to Bill in the quarter was about a point in time.
Got it thank you.
Our next question comes from Jacob Johnson with Stephens.
Hey, good morning, Tony I'll apologize in advance if I'll jump on Destocking question as well, but.
You and your peers are talking about a lot of destocking that you're seeing is largely COVID-19 customers and youre guiding to a code that number in 2023.
To Julians question around quantifying that is it fair to say that there is a component of this destocking that is contemplated in your COVID-19 expectations for next year, and we'll see kind of what happens with lead times on the base business.
Yeah, I think maybe.
Maybe I would look at it a little differently Jacob I would say the.
Forecast, we put out there for 2023 October it is is essentially the based on forecast we're getting from the companies that we're working with.
But sometimes people forget about is companies that have.
That had been working on Covid.
Products from bio processing suppliers, but they can use it elsewhere in their manufacturing it's not like there are so dedicated that can only be used in COVID-19. So that's kind of what the way I think about it is is that they they can use it but they'll use it probably another processes.
Okay got it and then Tony on your comment about.
Next year.
It's been north of 20% the last five years on a base business perspective, we've got the 16% to 20% range.
Next year, it's going to be more modest just so we're clear.
Next year being more in line with that 16% to 20% range is that a overall organic growth comment or is that kind of specific to that specific to the base business.
Specific to the base business.
Okay. Thank you Tony.
The next question comes from Paul Knight with Keybanc.
Yeah.
Hey, Tony there's a lot of.
Biotech skepticism about the cell and gene therapy market. Your comments are pretty upbeat, obviously could you talk about the product lines related to cell and gene therapy.
You know are we in eating one or two or where are we in this development.
Yes.
Paul and Jeff the cell and gene therapy market I mean, it's been a great market for us over the last few years were up north of 50% again this year.
I think the key and I've said this a few times over the last year or so which is the key is really the approval rate right and it's encouraging that there are more approvals this year than last year, but I think as that approval rate increases.
That's a positive for everybody in bioprocess, and and I think when.
When you look at our journey right. The fact is that we have now 20 gene therapy accounts that are generating over $1 billion.
Per year in revenue for us up 70% versus a year ago that should give people. Some encouragement that we're in processes, where people are scaling, but what we can't control is whether those processes.
A continued scale and they move through the clinical trial approval process, that's really the key so.
No I think that's more approvals happen I think it gives people confidence and I think.
We're all long term gene therapy cell and gene therapy is absolutely here to stay.
It's a corner stones can be a cornerstone of our industry for the next 10 plus years.
And the key products that you're providing for that market or what Tony.
I would say that.
It's it's mainly our filtration portfolio.
Clearly.
The gene therapy industry.
Industry, they like Prepacked columns, but you know it's not like we have 20 products in our chromatography portfolio. We just really got a couple and so it starts it's our systems, we just launched.
And we announced that.
Our PPI Boston dedicated CIS.
System for gene therapy, and mrna I think that's a positive for us we have lots of consumables and I think over the next few years, we expect to see more traction with our appetite portfolio as we drive affinity resins into that part of the market. So the future will be a broader poor.
Folio of at the current stage is really a combination of filtration with Cox.
Okay. Thanks, Tony.
Thanks, Paul.
The next question is from Madeline Marlin with William Blair.
Hi, Thanks, so much. Thank you my question is modeling moment on for Matt Larew from William Blair.
I was just wondering I know in your Investor Day, you talked a lot about your systems and.
And your integrated system and I was wondering long term how many of your customers do you see converting over to platform to count and each of those and converting existing customers over to platform to accounts or is that mainly going to be new client adds that will be joining as accounts, they're interested in their systems.
Yes, so I would say it's been a multi.
Pivot both modeling I think Todd.
Our our systems portfolio it is thoroughly.
New and when you look at.
The last say three four or five years, we've really put a big investment into it probably starting in 2018 2019.
The addition of artisan.
Into our portfolio at the end of 2020 was that was a key.
Conduct.
Salt piece for us.
<unk>, what we're doing with the spectrum systems that we are caught in 2017, so we've been putting a fair amount of money in R&D to build out that portfolio. We've always had the consumables going into accounts. So when I think about accounts adopting systems, there's definitely an opportunity to sell into existing.
Accounts that have been buying our filtration and chromatography products to now by systems and eventually buy blow past right that we're producing through our fluid management business, but its definitely new accounts as well. So when you think about at a market like mrna right that there's an opportunity there to get in with the whole solution that would be.
<unk> systems consumables fluid management components.
<unk> all in one.
Great. Thank you so much.
The next question comes from Liza Garcia with UBS.
Good morning, guys. Thanks, so much for taking the question.
I just wanted to.
Maybe touch on the pricing environment.
I wanted to kind of understand kind of what youre seeing in terms of pricing.
How are you feeling about kind of your ability to take price given the inflationary environment at the moment.
And how you're feeling about that outlook.
Second question is around kind of.
Pricing and given.
Just the Destocking environment.
Yeah, maybe I'll start and I'll have John I think in general what we've been trying to do on pricing as the address any inflation that's happening in our industry and really worked with our customers.
To kind of match up with what we're seeing on inflation I think that's our long term strategy medium long term strategy pillar, John can add some more detail.
Yeah sure happy to do that.
If you remember last for the 'twenty two period, we did implement a 7% price increase on list list prices December one of 2021 to two carats into this year and we came back in July and implemented another 4% increase and again, we really focused on the areas, where we're seeing cost inflation coming in.
From from our suppliers as well.
Historically we've.
Been able to see about 152% price increase this year, we're expecting to top 5% and maybe be slightly higher than 5% overall net achievable price. So.
That's kind of where we're at in it. So it's really a good a good offset the cost inflation side of the business.
Great Super helpful.
And then Asia seems to really be a source of strength for you guys I'd love to kind of just dive a little bit deeper into kind of what youre seeing in terms of trends in the region, there and kind of how you think about the sustainability of kind of.
Growth levels that youre seeing there and how to think about that.
Yeah, I don't know, it's been a stellar year for us in Asia, I mean, there's a lot of.
Kind of bumps that are going on especially when you look at China in terms of being shut down for a big part of Q2 I think the team over there has done a more profitable job as we kind of manage through that.
Thank you know where.
Again, it kind of goes back.
Lisa to the portfolio, we have I think we've got a great portfolio of products I think we're well positioned I think we've got a really good commercial organization.
Yes.
As we.
Given the differentiation, we have that's really going to be really important for us over the next 12 months as we all manage through.
The current market piece.
Great. Thanks, so much guys.
The next question comes from Matt Hewitt with Craig Hallum Capital Group.
Good morning, Thanks for taking the questions maybe I'll ask one about the pure light agreement 10 years seems a little bit longer than typically used to seeing so what prompted maybe the longer terms and more I guess more importantly is this expansion due to the M. M fragments, so maybe what's driving that.
That expansion. Thank you.
Yes, Thanks, Matt.
When you when you think about the strategy with pure light it really goes all the way back to 2018.
I think the most common question in 2018 was what's happening with with G E M, which youre approaching a business with GE.
So we put this strategy in place back then to develop best in class.
<unk> worked with navigator and then partnered up with purely that.
<unk>.
Those collaborations partnerships have gone really well.
We have an agreement with pure liked it goes out to 2026.
Pure life becomes part of Ecolab, Ben and chatting with the.
Folks at Ecolab, we really felt like the partnership's going really well.
Growing very rapidly.
And both companies felt like.
Extending it from 2026 to 2032 was a smart move for both companies were exclusive supplier of protein a ligands into.
Into pure light ecolab.
And.
We're also the exclusive manufacturers right. So it's a really good partnership we felt from a channel point of view that as we've done a lot of work with avid side.
It made more sense to put the map bragman part of our portfolio through the Ecolab light channel and we would focus on the new mortality side of the of the equation. So we're focusing on gene therapy mrna, we're working with the using the.
Sure light based speed in our manufacturing so it's kind of a real win win we're providing.
Fast access to new ligands that drive pure light success and map fragments, we work with pure life with their base speed, we use that as part of our strategy going forward in the non lab not fragments and so having.
Ty tying our hands and I think thats something we both feel is the right decision for US up to 2032 is I think a strong endorsement of how well.
The partnership has gone.
Got it alright, thank you.
Our next question comes from Brandon Couillard with Jefferies.
Hey, Thanks, good morning.
Tommy just remind us how COVID-19 and FX kind of flow through the P&L and given those two headwinds next year is it reasonable to expect the margins may be flat to down in 'twenty three.
Yeah, we've talked about this a little bit Brandon.
In the past and so.
We're seeing some some margin declines as we go through this year.
Projected right and one of the things that we expected was cost inflation coming into the year.
Other piece was capacity expansion costs and added headcount and whatnot to support that so those things were definitely seeing I think one of the things thats kind of come into the year that we didn't.
We didn't plan on those additional FX headwinds that are also putting pressure on the margins. So.
And we're going to wind up seeing what what kind of comes out here in Q4, obviously you can see our Q3 numbers now.
And that's really going to serve as kind of the starting point for next year. So yes, we do expect a little bit of compression as we absorb all the capacity that we've added.
And we'll continue to obviously work towards our long term debt to bring that back up in that.
We're still clinging onto that goal of trying to get the get margins long term above 60%. So.
We've had good success over the last few years of expanding margins just happens to be that kind of reinvestment period, we're going to absorb some additional costs and that will continue to grow out of that with volume and expand margins longer term.
Thank you.
The next question comes from ran Graham <unk> with H C. Wainwright.
Thanks, very much for taking my questions just very quickly could you comment on what you expect the dynamics to look like going forward in terms of your relationships with both pure light and <unk> in the affinity ligands space and also as a corollary to that.
You mentioned earlier about how you were thinking about the Mab fragment segment.
But if you could maybe just give us a flavor for what you expect to drive growth in that specific area within the context of the extended agreement with pure light that would be very helpful. Thank you.
Yeah, So I would say and thanks, Rob I would say that.
Sure.
Obviously relationship with <unk> and Ecolab is very good.
I think the relationship with <unk> is absolutely fine we've got.
A long term agreement, we've been working with sites Eva GE for 30 years.
We kind of know where the projected volumes are going it's been very consistent with what they forecasted at the beginning of the year and expect that it will begin to drop off.
In 2023.
And reach some steady state that.
Or will be supplying is a certain percentage of their business, but there'll be a small percent I don't expect it to be anything significant I think.
That on.
Pure light and appetite right is that.
We have a partner in purely who of course focusing on the map not fragment. That's why we added about fragment piece because they have the channel and it didn't make sense for us for us to jump in and start competing with them and from a channel point of view so.
It made more sense when we looked at the portfolio that we would focus our sales team on the on the new modality side on gene therapy and.
And then provide the.
New highly differentiated.
Ligands and that's the key is we're not providing me too type ligands into purely we believe that we pivoted from being an OEM ligands supplier for 30 years to now being the premier developer hubs.
Hi, Cindy.
<unk>.
I'll, let affinity ligands with that are highly differentiated versus the competition. That's what our whole goal has been for the last four or five years I think we've made massive progress.
In accomplishing that and fully expect that if I look out over the next four or five years, we bring proteins back into a growth mode for rutledge in and somewhere in the.
In the high single digit type growth.
Thank you.
At this time there are no further questioners in the queue and this concludes our question and answer session.
I would now like to turn the conference back over to Tony Hunt for any closing remarks.
Just want to thank everybody for joining us today.
Obviously, it's been a.
A very busy year and delighted with the performance of the company and look forward to catching up with everybody in February and talking about how we're going to finish the year end, but our.
As for 2023, so thanks again for everybody for joining us today.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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Okay.
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Yeah.
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Yeah.
Okay.
Yeah.
Yeah.