Okay, everybody, welcome back to the 2024 Stifel Healthcare Conference. My name is Dan Arias. I'm the life sciences and diagnostics analyst and we are on the life sciences track here. Happy to have Repligen with us. CEO Olivier Loeillot and CFO Jason Garland. Guys, thanks for agreeing to spend some time with us this afternoon. Good to be here. I think maybe a place to start would be with a pointed question. The stock has been responding well this week. Last Friday was a little bit of a different situation. It felt like it was a function of just some of the things that have been announced with RFK potentially taking control of HHS, which got people thinking about vaccine exposure and just what might Repligen have to do with that market. Maybe, Olivier, we can just start with clarifying how you see the vaccine exposure and then anything you might want to say about the way in which that situation might evolve. Yeah, no, absolutely, Daniel. I've learned about who RFK was last week. Not very familiar until Friday, but then I learned about my best new friends. No, seriously, we obviously have done a bit of homework in the meantime to at least understand a bit better about where we are in terms of vaccine and in terms of mRNA and stuff like that. The good news is our exposure to U.S. vaccines. Vaccines is about 4% in total. The total business, it's only 4%. And then half of it approximately is mRNA, but even that half that is mRNA. I mean, it's not really true vaccines from the point of view. A lot of these new mRNA drugs that are being developed are called, for example, cancer vaccines, but they are real treatment. I mean, a good example of it is the INT products that Moderna is developing right now, which is being given to patients on top of Keytruda. It's a real cancer treatment, even though it's called a vaccine. So we don't think that would be part of any scope because these type of drug are extremely promising right now. So we limited exposure. We also looked at the fact like during the previous term of Trump, basically he increased the HHS budget by about 6% every single year. So it's not like there was a very difficult time for HHS during the previous term. We don't know what's going to be this time, obviously, but at least the previous term was not very negative. In fact, he spent more money than I think Obama did during his tenure as a president. I think that 6% was NIH, just for clarity. NIH, sorry, NIH. Yeah. And then the last piece, really, we looked at exposure to a really pure academia type of business being funded by the U.S. government. And here on that side we're even below 1%. So to cut the story short, I mean we don't see huge exposure according to our current business and I think it's a lot of noise and who knows really what's going to happen? I think time will tell us here. Yeah. And so just for the sake of asking, no knee-jerk reaction that you've heard from customers in terms of, you know, thinking differently or having to act differently? No, really, not at all. And I mean I'll be open here. I mean this happened on Friday, so it's not like I had a chance to talk to a lot of customers, but at least the one I've been talking to, nobody really shared any specific big concern on the topic at all here. Okay, okay. Maybe on to fundamentals and just the way in which the business is trending. Results and commentary on the conference call I thought sounded really good. Maybe you can just sort of take us through the journey that you've been on into this year and then what has transpired in the middle of the year that has you exiting 2024 feeling a certain way. Yeah, no, absolutely. I mean we were very excited obviously by the performance we had in quarter three. And when I say excited it's because knowing where the industry has been coming from now for the last two to three years to finally be able to come with a double-digit top-line growth was really something we're very happy about. But, but what's probably more important than the number itself is we really saw green shoots across the board. I mean we had really incredible performance from CDMOs in particular. And I'll come back to that in a minute because that's definitely important. But I wouldn't like to de-emphasize pharmas because pharmas for us have been an incredible story this year. I mean our order year to date on the pharma side are in high teens right now, which is great because we've not seen that for a long time obviously, and in fact in quarter three, I mean the order intake we got from pharma were at the highest level for the last three years almost, so that's something we're really very happy about, so CDMO, obviously we focus on that in the script because that's what we've been waiting for quite a long period of time, and to have both orders and sales up more than 20% for us was like a fantastic result to see, and the reason why we've been so focused on CDMOs is because we are of the opinion like if CDMO go well it means like the entire ecosystem is really doing very well. And the reason is very simple. I mean, CDMO very often they recover a year after pharma because when pharma have a hard time, the first thing they do is stop outsourcing, outsourcing early phase projects because they have enough capacity in house, but also outsourcing maybe some of the large scale manufacturing product because they have enough capacity, Because demand is low, so really when situation improve with pharma there is typically a lapse of time of about a year until you see CDMO picking up, so we are very happy about that for that reason. The other piece that I think is important, now it's 3/4 out of 4 where the performance of CDMO was really good, so it's almost now becoming a pattern where it's not only punctual on one quarter, so we feel pretty comfortable. Finally on CDMO it was both positive on the large scale CDMO as well, on the smaller scale CDMO side as well, large scale. Many of you have seen the announcement that came out. I mean these big guys have at least the two biggest ones, Samsung and Lonza have announced various very big contracts they've signed. In fact Lonza signed the biggest contracts they've ever signed in their entire life and so on. Samsung to a certain extent, you know, in Asia at least see similar story. Even the tail end of CDMO really behaved very well for us in quarter three. Here obviously we're trying to understand because what's still a little bit of a difficult child for us are emerging biotechs. You would think like if emerging biotech do not get well, maybe small CDMO should be suffering. There are two reasons why we think small CDMOs are doing better right now. One is some of them are benefiting from the BIOSECURE Act. We know, we've heard that from a couple of small CDMOs in the U.S. that they're starting to get some of these projects coming into their plant. But the other reason is back to the large CDMOs doing better is large CDMOs. They don't like too much early phase projects, whether it's coming from a top pharma, whether it's coming from a small pharma, they don't like those projects, they don't want to book their resources or on too many of these early phase projects because they know like probably only 10% of these projects will make it to the commercial phase. So I suspect there is a bit of a reason now that big CDMOs are doing better. They probably are a little bit more picky in terms of what early phase projects they want to pick up. And then probably this is one of the other reason why small CDMOs are also benefiting from it. So really great performance on that side. I just end up seeing new modalities were also fantastic. I mean and this has been a traction we found now for several quarters. But to see like year to date both our order and our sales are up minimum mid-teens up to high-teens for new modality is also very encouraging for sure. Okay, helpful commentary. A lot to ask about there. Maybe just to touch on the BIOSECURE Act commentary. Do you feel like your exposure on non-China CDMOs is it outweighs what you do on the Chinese side such that you can think about this as being something other than a zero-sum game. If we're gaining it in the U.S. and Europe and we're losing it in China, maybe that doesn't necessarily feel as good as it would if you weren't. Like that's a great, great point. So I think it's definitely positive for us. There is definitely a little bit of loss on one side, gain on the other side, but I would say overall it's positive for us. And especially knowing the huge headwind we've had in China now for the last two years, I mean to grab some of this business back with us, CDMOs is definitely a very good news for us. Yeah. Okay. One of the things that we talked about recently is the idea that CDMOs are improving. A lot of that has to do with tier 2 activity. Those are the CDMOs that I think about as taking a bunch of the small biotech. You kind of alluded to this with your prior answer here, but can you help me just square away the commentary that you made on a call which is that small biotech, emerging biotech is sort of the one area where you have yet to really kind of see the uplift, but yet tier 2 CDMO seem to be doing better? Yeah, no, no, absolutely. I mean that was the only real disappointment for us in quarter three because China, we knew it would be a difficult situation. Emerging biotech was probably the only real disappointment for us because we had a good situation in quarter two. I mean in fact we had a nice rebound of small biotech order in quarter two. So we were hoping that the pattern would keep on going in quarter three and this did not happen. So we've tried to re-understand a bit more why is that? So like anybody else, we're looking at all the data that exist and what you can potentially directly link to small biotech. One side is biotech funding obviously and then the other topic is clinical trial starts. So on biotech funding, I mean year to date the funding is still up significantly, I think it's about 43% up versus last year. What we like a little bit less and what I could imagine a small biotech feels like even less than we do is that the trend is down. I mean I think the funding was about $18 billion in quarter one, went down to $15 billion in quarter two and then down to $12 billion in quarter three. So I mean if I would be a small biotech CEO and I would look at that, I would say wow, what's going on? And do I need to be a bit careful again and then start to be a bit more sure that I'm going to be able to still pay the salaries of my employees in the next three to four quarters. So that's one of the components. The other one which is a bit more difficult to read is really clinical trial starts because we have two sets of data. I mean one suggests that the number of clinical trials start this year is kind of on par with the number of clinical trials start last year, which is not great, but which is not catastrophic. The other one which is a bit more concerning is we've seen that in the U.S. apparently there is about a 17% drop of clinical trial start year to date versus last year, and again those two data are not corresponding to each other perfectly well, but that's something that would potentially suggest indeed like those small biotech have been suffering to launch clinical trials this year. Yeah, okay, maybe just to sort of put the point on the tier 2 and not large CDMO piece, there was a point mid year where revenues and orders from the large CDMOs were sort of flattish. Can you give a sense for what orders might be in the not top 10 category right now? I don't know whether that was a number that you provided on the call. If not, is there sort of, is it up? I'm not sure. Okay, yeah, I'm not sure then. Okay, it's up, but I don't recall the exact number. Yeah, that's fair. Maybe on the large pharma side. Jason, let's fact check Olivier there. He said up high teens year to date. I think it's up mid teens. Is that right on orders year to date? I don't want to put him on the spot here. I just want to make sure I get the number correctly. Mid teens. You're right, mid teens, yeah, it's somewhere. In between, in fact. Orders are tracking ahead of revenues, if I remember the correct commentary there. Assuming that 4Q kind of plays out the way that you're thinking or the way that it seems like it should, is there a flaw in the logic to think that as a category large pharma, as a customer category, large pharma revenues could sort of be up in that ballpark? What would be the thing that sort of makes that untrue? You mean for quarter four? No, for 2025. If we're just looking at a mid teens order rate accelerating faster than revenues, you know, we're all just trying to put together the growth algorithm for next year. I mean, as mentioned earlier, I personally think like pharma, always a bit more or less a year ahead of CDMO. So the question now is growth on CDMOs next year are going to be overcoming growth on pharma? I think there is a fair possibility that's going to be the case. But whether one is going to be low double digit, the other one is going to be mid teens or whether it's going to be the other way around or one slightly. This we don't know for the time being. But considering we had really nice growth on pharma this year and a bit less because year to date we are still down in terms of sales on the CDMO side, it's probably fair to assume like growth will be coming mostly from CDMOs next year, I would imagine. Anything to be said on order size, because to me that sort of speaks a little bit to the confidence that maybe, I guess, maybe inventory levels and finally feeling comfortable with the point that those have been normalized? It's not a giant debate at this point. I feel like that's largely been accounted for, but larger order sizes, were they to actually materialize, would also feel good. Just in terms of thinking about the bolus of work that you might have and then also thinking about whether or not there are episodic projects that come in and out, and so therefore you would get caught with an inventory situation that maybe you didn't see. I don't know whether that makes sense or not, but just order sizes, have those increased as well? Yes. So I'm not sure if I get your question. Are you thinking about whether we've got a lumpy lumpiness factor right now or not? Or, There is part of that. I was going to ask about some of the 3Q lumpiness, but I guess the question was just, when you look at order activity, are you seeing the size of the orders increase in a way that says something about the amount of work that they think they might be about to do? So there is a bit of that for sure. I mean I'm going to pick up ATF because we did mention it during the call. I mean our sales on ATF went up more than 50, 50% in quarter three. And these are typically pretty big orders because as you know, we got design-in into plenty late phase projects towards the second half of last year, first half of this year as well. And typically this process intensification is going into large scale processes. So typically when an order comes on consumable, it's very significant in size. So that's definitely one part of the answer. The other one which is probably going the other way around, which is that. And I love the fact our business is extremely spread across the board. I mean if you look at our top 20 accounts today, they represent only 50% of our sales, which is not something I've experienced in the past. I mean you very often see this 80/20 rule, we don't have that at Repligen, which I love personally a lot because it means two things. It means like you, you are not depending too much on one customer or the other first of all. But it means also you probably have the potential to grow a lot with a very broad range of customers. Which is why we've been focusing so much on the key account management side. Because if you've got indeed 20 accounts that are only representing 50% of your business, you know, you can probably grow these top 20 accounts like by a factor two again so something like that. So that's what we like. We're very well spread right across the board here. Okay, okay, let me sort of take a different tack here and just ask about specifically some of the things that you talked about in terms of late stage design ins at large pharma companies. I believe that's not typically something that I think about as happening frequently just because it feels like later in the process it's pretty hard To see a switch out or pretty unlikely to see a switch out. Was there something unique about that supply situation? Can you just sort of take us through that and then ultimately the question would be how reproducible might that experience be? Yeah, absolutely. So before I'm more specific on ATF, I want maybe to take a bit of a step back about probably five, six years ago or so. FDA dictated a new guideline called ICH Q12 that for the first time was really guiding pharma company how they can potentially change their processes and change their processes, meaning what would they need to know to do to get approval from the FDA to make those process changes. And that was a huge challenge because before that guideline came out, nobody knew how to do that, which is why people were always like, let's not even try it, because we would have to go through a full refiling. So where it's becoming interesting is pharma companies are all different. Some jumped on it immediately and say, well, according to that, now we should immediately start working on a generation two, generation three and so on. So some companies right now for commercial drugs are already at generation four of a process and some others are still using generation one even though the patent cliff has already happened and they never changed anything. So what's important to realize is every pharma company is very different. Some are extremely traditional, careful and so on. Some are like jumping on the opponent to take risk and so on. So now if I look at ATF specifically, ATF is not considered to be a huge process change. I mean, it's not like if you were changing your single-use supplier, extractables, leachables profile, or your cell culture media or your resin. You're just adding a loop into your upstream process, which is considered to be kind of a very, very little change to your process. So again, depending on the different company we've been working with, some have kind of just put an addendum to their filing and some others are going more through the very detailed route of refiling. We've got the two examples. Some are probably capable to change their filing in a year or so. Some others probably have been working on it for five years already and are still not there. So it really depends. One of the things that Tony used to talk about, not quantitatively, I always used to ask him if he could put some numbers around it and he would find a way to not do that, but he would talk about platform accounts and just the number of those that you have that are more than just a single point provider. It feels like that number, whatever it is, is going up. Do you think that that helps you do what you're saying, which is find an open door on a process change? If Repligen is a known supplier in some other part of the process, and now it can just be about getting ATF into that version three, three or version four. For sure. Absolutely. I mean, the main reason why we've put that key account management program in place, and it started before I joined, probably a year before I joined, was really to make sure like first of all we had a team of people capable to present the full offering of Repligen because people knew us for two things. People knew us for ATF, people knew us for Opus. They had no clue about the fact we had systems, they had no clue about the fact we had the CTech analytical offerings. They didn't know about FlowVPE. They didn't know about the Fluid Management offering. So we realized we have to start being able to pitch the entire portfolio to customers. And then the second reason, which I personally think is even more important than that, is you need to get access to the C-suite level people and particularly when you are a very innovative company like we are, because people on the pharma side, they're always very careful and the only way you're going to be able to convince people to try a new technology is if, say, a global head of manufacturing. The global head of process development R &D are like saying, wow guys, we have no other choice. We absolutely need to implement ATF because that's a game changer for us or we absolutely need to use pre-packed column and so on. So that's why we've implemented that. We've got great successes. And you're absolutely right. Once you have one business established with a customer and they learn you've got some more to do with them, they are just willing to do more with you because they realize they really like you for the innovation you're bringing to the table here. Yeah. Okay, so ATF being up 50% in the quarter is obviously a reflection of that win. We should not extrapolate that to prior quarters. It's probably going to reflect some of the lumpiness that would take place in a project like that. Is that fair? Yeah, I mean we're not going to grow 50% every quarter. That's a very fair answer to give. I think we're going to have quite, quite a lot of tailwind on ATF for the reason we mentioned like we got designing in a lot of late phase projects in the script. We added that we just got designing into one of the top blockbuster monoclonal antibody because that's something that's going to generate another good tailwind in the next few years. Because you want to for process intensification, you really want to focus on the very big babies because these are the guys that are going to generate obviously the highest amount of consumable sales. But just for clarity, Dan, that big win was in the orders. It wasn't flowing through sales yet. I see. Yeah. So that's coming next year. Yeah. That'll be a 2025 payoff there. That's right. Okay. Maybe on chromatography, you know, just thinking about the things that have taken place in that market. There was a resin shortage in 2023 that seemed resolved by the beginning of 2024, but the business was only slightly up from 4Q to 1Q, and I'm just curious, how much do you think the chromatography franchise will sort of be lapping suboptimal demand in the beginning of the year? Or is the answer that no? Like, it's probably a pretty even comparison for 1Q of 25 versus 1Q of 24. Yeah. So if I look at the entire business portfolio we have this year, chromatography has got a very unique pattern for starters. We've been indeed a bit pressured on the top line this year, but we've got an incredible story on the order intake on the other side. So we're indeed. And then the top line pressure this year is very simple to explain. Where the number of columns has increased, we are selling much less resin than we were last year. Last year we had a typical ratio 70, 30. 70% of the revenue were columns, 30% were resin. This year we are down to 80%-85%, 15%-20%. So there is much less resin component this year, which we have kind of pushed for because we said this is not our business to just buy the resin from a supplier and resell it to the customer with just a very small handling fee. So we've been kind of pushing for that. This being said, I mean, among a lot of areas of focus for us, we are really trying to focus on pharmas because where CDMOs have been adopting pre-packed columns very largely, we still have some homework to do to convince pharma companies as well. Yeah, Jason, that'll probably give me an opportunity to ask some gross margin questions. Can you just talk about the balance between pre-pack versus drop-ship and how striking that balance allows you to be profitable at the right level, but also drive the revenue line the way that you want to? Yeah, Olivier shared kind of where we were, 70, 30, now 80, 20. I think that as we look at this going forward, it's not that it, oh, now goes 90, 10 next year. Right. There's finding the right balance between that profitability impact and then also just making sure that we have availability of resin for our customers, so there may be times where we can get it faster. There's certain customers that just say, look, I want to buy it all. I don't want to deal with this. And so that's where we probably land again, plus or minus where we're at now. And that'll strike the right balance. Okay. And then just maybe more broadly on gross margins, I think the idea is for you guys to be up one to 200 basis points, hopefully fairly steadily. If I look at 2024, you'll be up 100 basis points this year on a down revenue number. So it feels at a high level, like there's room there. But I always know that there are concerns, considerations that maybe aren't as obvious as the highest level math. So can you just sort of talk a little bit to whether you think there are upside drivers and if not, what the reasons for that might be? The framework we're thinking about now for 2025 is that we're likely probably up 100-200, so a little bit better than what we saw this year. I think that as we look at all the pieces of the profitability growth, I mean, volumes, some of that, but most of your volume leverage ends up at the operating margin level, in my view, less of it at the gross margin. We have some, I'll say excess capacity from our building footprint, but that doesn't change dramatically from 2024 to 2025. Right. Because we've talked about this before that we could probably more than double the size of the business and fit mostly within our footprint. So again, we're taking a step forward, but it doesn't dramatically change that. So you still kind of have that, I'll say deleveraging at the gross margin level, but I think the team's doing a great job generating productivity in our factories, driving sourcing savings, looking at. Really we have a Repligen Performance System that kind of drives the rigor around this project. So getting a lot of good muscle there. But at the end of the day, that usually ends up offsetting your inflation that you have on materials and supplies. And then of course, you've got salary increases that happen each year. And then it's a little bit of the volume leverage and then also the price benefit that you can get. Those are the two things that flow through. Right. And we see for 2024, we walked into the year where we'd assume we'd be about flat for pricing. But we found that and we knew that even though we were flat, we were going to be raising prices. We just didn't know how much of that would stick given the market. But so we are going to land somewhere at that 1%-2% range and see that that likely carries forward in the next year. And 1%-2% is what we've traditionally seen, say historically outside of some blip years with inflation post pandemic. So I think that's all the equation that will kind of be continuing the push. And it's one that, to your point, it helps next year, it helps year after that. Right. And we can build some momentum there. But I do think though, the gross margin. We'll have to discern where does it go, where does it ultimately, does it get back to kind of pre-COVID days or not? We do have a different business mix, very different than what we had in 2019, but still see a lot of room for growth over the next few years for sure. Okay. And then on the operating margin line, I mean, just some of the things that you mentioned play into this as well. Just the need to pay good people. Olivier has mentioned innovation quite a bit. So it sounds like you guys have some things in the hopper when it comes to new product development. Can you kind of walk without going too specifically into what the math would be, the considerations on percentage of revenue for OpEx or just how to think about margin expansion? Yeah, so, you know, I think we've been going through, as you know, a restatement that pushed out some or pushed in some revenue in the 2024 and that's highly 100% margin all the way down to the bottom line. And so when you look at where we will land in 2024, we're almost a full point higher at the operating margin level than we would have expected. And you know, we reflected that in our guide. But so now after that, off of that baseline, you know, we, I would have said it would probably been more than the 200 basis points, you know, the high end of that 100-200 basis points on gross margin. I think it's probably more in line with that 100-200 basis points. 200 basis points now with a little bit of maybe leverage in there. And that'll allow us to modestly grow OpEx. To your point, it's likely a heavier mix towards R and D, and then even within SG&A, it really becomes the S piece where we're continuing investing commercial resources, and like we were talking a little bit last night, it may not always be a lot more people, but higher caliber, higher talent, that often you pay a little bit more for it, so that's the balance we're striking with, getting that leverage, but also making sure that we invest for the future growth. In core tools land, it feels like 5% organic growth is sort of a threshold level where once you cross it, it becomes easy to see this volume leverage equation start working for you. As you've taken a look at the business with a fresh set of eyes. Is there any level of revenue growth that for you kind of sticks out as the model starts to click in a way that it doesn't necessarily before? I don't know that it's 5. I think it's higher than 5% for us just with our scale. I was thinking like mid-teens for you, just because it's a different type of business. Well, and maybe I'm misunderstanding the question and you're saying I was addressing it from how much growth do you need before that starts to fall through? Yeah, I think that's essentially it. But I realized that for a company like Thermo Fisher or Danaher is a different equation than it's the scale. Right. I mean those guys have one CEO, one CFO. Right. You know, so it's the how do you, you know, as we get bigger and that it's how do we have the right scale to support that growth and, and that's where we're still going to be. There is a level of investment on that as well to make sure we have the right processes to be as we call fit for growth and be able to scale in that way. Yep. Okay, one or two minutes left. I have to hit on M& A. That's been something that's been discussed pretty heavily with investors over the last couple of weeks. Olivier, your appetite for bigger deals, your appetite for things that maybe are longer term plays but are less certain in the near term. How do you think about things? Yeah, what I've started reconveying over the last few days is we don't absolutely have to buy something tomorrow. I mean we've got so many great product lines right now that have just been launched in the last two years and so on that we've got more than enough within the company right now to be able to generate the growth we need to generate, which doesn't mean we're not looking around and like we have to figure out if there is anything that could be of huge interest for us. As you know very well, I mean for us it all starts with the technology itself. I mean, we are always looking for something that is new, that is very unique, that will enable us to keep on being a differentiating bioprocessing provider. I mean, we are never going to come and acquire a business that will put us as number five supplier on an area where we don't have anything that's nothing we're interested in. So we're looking at technologies, ideally technologies that enable us to bridge one of the potential gap we have in our offering. And then obviously the financials have to make total sense, and then in terms of size, I mean, yeah, the only thing we try to convey is like we're indeed a different company today than we were five years ago. If I have the choice between one deal where I'm bringing $50 million of sales and then three deals that are each bringing me $15 million of sales, I mean, I'd rather do the only one deal instead of having to do three and doing three integrations, because an integration takes a lot of time. So indeed, if we find a good target that is ticking all of the boxes I mentioned earlier, and if it's a little bit bigger in a way, considering we're a bigger company today, it would make a lot of sense for us as well, for sure. Okay, gentlemen, I'm going to leave it there. Appreciate the time. Good to see you again. Thank you, Dan. Thanks. I'll talk to you. Thank you guys. Thanks everyone.