This is Paul Knight, the analyst at KeyBanc on Repligen and the life science industry. Today we have Jason Garland, the CFO, and Stephen Chehames, IR, and Tony Hunt, CEO. I guess, Tony, we could just—if you want to make any intro comments, otherwise I can just ask you a question right away. I would just jump in, Paul, I think. Okay. Okay, the kickoff question is: Lonza has announced a $1.2 billion acquisition of a Roche facility north of San Francisco and willing to put $500 million of additional CapEx into it. This looks like a huge bioreactor facility. Your thoughts on what Lonza is trying to do and why Roche is out, any perspective you have there? Yeah, no, no, I think Roche made the decision maybe last year around that facility. I think it's very positive for the CDMO industry with Lonza jumping in and doing that acquisition of the facility. Clearly, they see, and I didn't hear Lonza's call this morning, but they clearly see demand out in front of them, and this gives them a U.S.-based facility to serve customers probably in the U.S. and potentially even in Europe. But no, I see it as positive. I mean, there hasn't been a whole lot of positive news on the CDMO side, so this one is a good one. Yeah, yeah. Do you know if this is a—is this a Samsung-type facility with a bunch of 10,000-liter reactors, or is it a lot of everything? I think it's a pretty big facility. I don't have the square footage, but I think Genentech's had that facility for many, many years, made a lot of biological drugs there. So yeah, no, I think it's a sizable facility and obviously a nice extension for Lonza in terms of their capacity. Tony, how does it work with customers? Does a given biotech company, do they have a vendor, or is it more common they have a group of vendors for their product lines? I'd say most. So if the tech transfer process is coming from a large pharma company or a large biotech company into a Lonza, usually the process is defined by the pharma company, and then Lonza implements it in their manufacturing facilities. If it's a smaller or medium-sized biotech company and it's earlier stage, like a phase 1, phase 2, a lot of times the process gets developed by the CDMO. So it depends a little bit on who the client is, how far along it is. If it's a phase 3 or commercial drug that goes in there, that process is defined. So it would be either from a Repligen perspective, we would either be in the process or not in the process with multiple products. A given firm like XYZ Biotech, they don't have a single preferred vendor, or do they? Yeah, I think it's kind of a mixed answer. I do think that companies, if they start a drug manufacturing program, let's say with a Lonza or a Catalent in the US, they stick with them, right, as they go through that manufacturing process. I think it's hard to do a phase one trial and then with one supplier, not supplier, but one CDMO, and then switch to a different one for phase two, phase three. That's why a lot of times customers look at the CDMO space, and they want to be able to see that that CDMO can scale all the way through to commercial because they don't want to have to change midstream. Got it. Okay. And then kind of getting back to more blocking and tackling questions. China, what? Has that shrunk enough to size that impact going forward may not be as large? Yeah, it's definitely shrunk. And of course, we'd much preferred if it hadn't done that. But it's been the same for everybody in our industry. We think in 2024, China will represent somewhere between 5% and 6% of our revenue. We don't see it going much lower than that. And then really, it's really around recovery and how long it takes for the recovery to happen in China. We have a good portfolio of products. We've got a lot of customers over there that like our products. So we expect that as we go through the next two, three years, that we'll see growth in China again for sure. And I definitely expect to see growth in China in 2025. Is your customer profile in China, is it multinationals operating in the country, or is it local domestic firms? It's actually both, right? We definitely have a number of multinational Western-based companies that are based or that are manufacturing in China, and then a significant number of local pharma manufacturers that use our products as well. I would say most of our—I'd say the majority of our sales in China are probably coming out of our filtration portfolio. Okay. By the way, I forgot to mention at the beginning to the audience that you can ask a question through your interface. I think you raised a hand, or you can email me, paul.r.knight@key.com. And Tony, any—I mean, I think you've been saying, well, the stock lasts a little bit into the year and probably gets better toward end of year. Is that kind of the continuing message? Yeah, and I do think that de-stocking is somewhat dependent on where you are in the bioprocessing kind of food chain. So when you look at our customer base, 65% of our customers are using our products in clinical manufacturing, and then 35% are—we're in commercial drugs. So I think most of the stocking-overstocking was probably on commercial drugs, not so much on clinical. So I think for the middle of last year, we were saying that we thought that there were multiple kind of factors slowing down our industry. One was the de-stocking, but we also felt like there was a strong contribution coming from customers that were more conservative on capital spending, slower to release funds for projects and programs, delayed projects, delayed programs. I think that's more the environment than it is excess inventory sitting in the channel. I think for us, what we saw last year was pharma being pretty light in Q2 and then strengthening through Q3 and Q4. We actually, I think, Jason, we ended up the year pharma being either flat or slightly up year-on-year on orders. The CDMO side of the market where you started off, Paul, with your questions, that's the place piece that really hasn't rebounded yet. Now, we saw we had a good Q4 on orders from CDMOs, but we'd like to see a couple of quarters where CDMOs are stronger than the average of the quarters where, say, from Q3 2022 through Q3 of 2023, if we looked at the average there and said, "Are we, as we go through this year, are we better or worse than that average?" Then if things start to improve, then we should start to see that number go up. Jason, could you, a little background on yourself would be super useful. What are you finding unique about the bioprocess business in your role now that you've been in a few months or so, a few quarters? Yeah. Yeah, no, yeah. So I'll be on six months here next week and come with about. I'm not counting early, Jason. What's that? We're not counting. No, not at all, no. It's been a fast 6 months for sure. Time flies when you're having fun. Look, I bring about 20 years of GE background from a lot of different industries. Spent the last 4.5 years on the med tech side in a medical device outsourcing company, Integer. And what's been really exciting for me with Repligen is what Tony's been talking about. It's the unique solutions that Repligen brings to bioprocessing, right, and the differentiated performance that it allows then customers to benefit from. And so being a part of a company that is just, I'll say, innovation and differentiation is in our DNA, right? And to be a part of that's been really exciting. Tony's obviously asked me to bring some of my manufacturing experience and background to help think about where do our margins go, right, and what do we need to do to get those to continue to expand, right? I think for us that we continue to see that volume leverage is really the best path for that, right? We had a business that topped at nearly $800 million, and we built a cost structure and a capacity and a footprint and developed the processes to deliver all that high demand, right, for our customers and patients that needed so much during that time. Now we're taking a step back to say, as we step up again, how do we think, how do we make sure we have the right cost discipline to add prudently, right, add in the right levels so that as volume picks back up, we'll be able to see leverage fall through? That's really where I've been helping the team spend some time. Would it be fair to say you've had, I think, GE was kind of big in Six Sigma, right, or their version of it, right? Is it pretty straightforward to apply that to Repligen? Well, look, Repligen has—we have the Repligen Performance System, RPS, right? So that is, again, many companies have different versions of driving structured process to lean manufacturing and developing a roadmap to drive efficiencies and make things smarter and faster. And so I walked into a great process, a great structure that has that. And where I am is trying to help the team get increased financial visibility, right, to the impact of the things that we're doing and how that actually hits the bottom line. And that's really where I see my team and myself. The number one priority we have is helping the operating and the manufacturings and the commercial team to make smarter, faster decisions. And so it's that increased visibility that we're going to continue to bring to help there. As you look at the business in terms of the consumable flow, etc., how do you think what should that margin be in your mind in five years from now? I mean, we don't want to put a date on it, but could the business operate at a 35% even margin, or what could it be? I don't know that it's 35%. I think that clearly we have a lot of room to grow. Again, back at that 800 mark, I think, is when we'll really start to see the leverage pull through. So that could take, to your point, a few years. I think we're also understanding, right, has business mix changed? What does that look like in terms of the impact on margin? Making sure we've talked a lot about ensuring that we've got the right footprint in our manufacturing network. So again, as we've done acquisitions, that brings in other cost structure and overhead that we're continuing to optimize and maximize the volume around. And so I think all those pieces will come into play. Certainly, we get to the northern end of the 20%, but we'll have to see how long it takes and if we could get up sort of north of 30%. Okay. Okay. Tony, ARTeSYN was bought, acquired a while back. Was that really kind of the move into more upfront bioproduction? And since you've done deals in the pump, mixer, connector kind of area, is this kind of what you're building is kind of the ARTeSYN vertically integrated version of ARTeSYN? Does that in effect what's going on? Yeah. If you think about that deal, right, it really was. We got to back to where we good. You're on mute, Tony. What? I'm not hearing. Yep. Try again, Tony. Yeah, can you hear me now? Yep. Okay. Great. Yeah, I would say that deal was really good at us getting custom systems. So while that was great, we really need to convert it over into more of a standard format that's more configurable. So we've been able to do that over the last few years. The idea has always been that Repligen's been very much a consumable-driven company up till 2020. And now by adding in the system side, we could service upstream, downstream, Paul, and then start to have our own consumables associated with it. So therefore, the follow-on deals in fluid management are all around how we build around that framework that we have in systems. So we've made some really good progress with ARTeSYN. We'll make a lot more over the next few years. I think the combination of our systems portfolio with our fluid management portfolio will be probably one of the biggest drivers of growth for us as we go through the next 4 or 5 years. When you say system, I guess you refer to the ARTeSYN product as a skid, right, is a kind of a smaller it's not a bioreactor, but where does a skid fit into the bioproduction kind of chain? Yeah, for us anyway, with that portfolio, it's mainly downstream. So chromatography, so running, say, chromatography columns like OPUS columns on a skid. We have a chromatography skid that's an ARTeSYN-based product. And then filtration. And so the big application in filtration is around concentration and diafiltration, so changing the buffer out on your final drug. And the idea that we have and the strategy that we're implementing is that we have the systems. Now we have all the consumables and flow paths that go with those systems from our fluid management portfolio. And over the last year, we've been integrating our analytics FlowVPX technology from C Technologies into those skids so that we actually, we're going to be one of the first maybe we will be the first company to have true PAT capabilities on our systems. And customers want that. They need that. We think that's going to be a great driver of growth for us. Couple of questions here. Any product launches we should be watching for in 2024? In terms of the market or Repligen product? Repligen product launches. Yeah, I'd say that for us, if I were to split it into first half of the year versus second half of the year, first half of the year, we will be focusing on systems. So we will have a launch of an ARTeSYN system in Q2 that's very much focused on new modalities with very low holdup volumes. And then as we go through the year, you'll see the further integration of flow technology into our ARTeSYN product line. So that kind of gives you an idea of what we're doing there. And then I would say in the second half of the year, you'll see a number of products coming out of our fluid management portfolio very much focused on what we've done with the two acquisitions last year in terms of the FlexBiosys and the Metenova technology. So kind of bringing all that together and putting our own mixing-type solutions into the marketplace. So there are probably good examples of what to expect as we go through the year, Paul. Then the seasonality, do orders peak in Q4 and then go a little lower in Q1? What's the pattern as the year rolls on? Yeah, I wish there was kind of a magic chart we could all look at. But if I take my experience in bioprocessing over the last, say, 20 years, Q2 and Q4 tend to be the strongest quarters in bioprocessing in general. And Q1 and Q3 tend to be the lighter ones for different reasons, right? Q1, sometimes the industry comes off a strong Q4, and capital equipment spend is probably typically a little lighter in Q1 versus what you'd see in other quarters. And then Q3 can be a bit of a wild card because Europe shuts down. U.S. shuts down for summer holidays. So that tends to be a little lighter. So the bigger quarters for bioprocessing tend to be Q2 and Q4. Yep. And then the FlowVPE business, could you talk about it a little bit, Tony? Yeah. So this is probably one of the main reasons that we did the acquisition on C Technologies back in 2019 was around VPE Technology. You're getting the background, guys. I think it's on Paul's side. You think it's on Paul's side? Yeah. Okay. So part of the reason for doing that was the Flow technology. We're really big believers in PAT and the impact of PAT on the industry. So Flow's been doing very well. We did the next-generation version of Flow about a year and a half ago called FlowVPX. Then last year, we started to integrate that technology into the benchtop filtration systems. And then this year, we're putting it into the larger-scale ARTeSYN systems. So yeah, it's doing really well. We think it's the early innings of us being very successful with PAT solutions. So yeah, very bullish on that technology. Tony, could you talk about the cell and gene therapy market? I mean, I think it, what, is 19% or so of revenue? How's the momentum there? We're just seeing a lot of approvals, a lot of label expansions. Yeah. For us, so we've kind of renamed the cell and gene therapy market into new modality markets for Repligen because we combine it with mRNA and anything that's done on the exosome side. In general, I would say that when we look at revenues in 2023 versus 2022, it's pretty much flat year-over-year. But actually, that was a good result given how challenging the market conditions were. But most of our growth is coming from, say, 2025 accounts that have scaled with our technology over the last few years. So last year, we all know that the cell and gene therapy new modality market was really challenged. It was a lot of smaller companies that went out of business. There was less funding. And so the growth or the progress we're making in this space is really coming from these 2025 accounts. Now, as early biotech funding improves, that should have a positive impact over the next, say, 12 months or so on those small, medium-sized biotech companies that are in the new modality space where they'll start to go into phase one, phase two clinical trials and start to use the CDMOs. That'll be a nice tailwind for everybody. What's your key products in cell therapy? In cell therapy? Yeah, I think the way we look at it is almost we're a little agnostic. We look at it from a viral vector perspective and plasmid perspective. So in both cell therapy and gene therapy, you need viral vectors. And typically, in gene therapy, it's AAV. And in cell therapy, it's lentivirus. Everybody uses plasmids. So while we're not doing what some of the other players are doing in the space, which is more at the patient level, we're really focused on the viral vector plasmid side. And so our filtration portfolio is used quite extensively. And also our systems portfolio, we're making good traction both in gene therapy. A question from our side, from the Purolite relationship, how's that partnership developing? Yeah, I think it's been a great relationship. And honestly, since Purolite became part of Ecolab, I think it's even strengthened further. Back in 2018, 2019, we made the strategic decision as it was fairly clear that Cytiva was probably eventually going to move away from Repligen, that we needed to go away from being a CDMO for Cytiva and Millipore making ligands for them, of which the vast majority of those ligands were owned by those companies, not by us. And so we made a conscious decision to work on developing our own Protein A ligands, which we did in conjunction with Navigo. And then we partnered up with Purolite in 2018, 2019. And it's gone from strength to strength. So look, we love the portfolio of products that we have. We just launched a new CH1 resin with them, which I think is going to work quite nicely for bispecifics. We launched a Protein A resin with them last year, which was very focused on increased pH for antibodies that are prone to aggregation. We're going to have a new P rotein A product launched with them again, probably mid-year this year, that I think will probably be the bellwether in the industry for Protein A going forward. So yeah, look, we like the partnership. We like what we're doing. And yeah, it's a little bit of the industry itself is a little down. And so I think as the markets turn, I think it'll be very positive for Ecolab, Purolite, and us and the partnership. What's your thought on industry growth, right? I know this year's still a noisy year, but is it a 10 or is it a 15? What's the number on growth in your opinion, Tony? Yeah. We're going through these cycles, right? If I look back to my Life Tech days, I think market growth tended to be, Paul, around 8%-12%, with some years where it was up in that 12%-15% range. And then obviously, since 2018, 2019, it's been much higher than 15%-20%, obviously, with COVID being a driver of that. I think obviously, coming off two years where last year was negative growth, this year is probably for the industry, is going to probably be, I don't know, flat to down 5%. I think that market growth in a more normal environment is probably going to be in that 8%-12%. And it could be in the it could be around 10%. It could be on the higher end of that range. I don't see it being much higher than in that 8%-12% range. And then we should be able to grow like 5 points higher than market, which kind of gives you a sense of we expect low- to mid-teen type growth when the markets turn and are in a positive direction and then obviously tick off from there. We all are pretty familiar with the five companies that are public, whether it's Merck KGaA, Thermo, Danaher, you, Sartorius. Are there significant private entities in the marketplace? No, there's definitely a bunch of smaller companies, medium-sized companies out there, usually family-run. There's definitely some PE firms that have amassed a portfolio of products and have entered the bioprocessing space. But in terms of standalone individual companies that are generating significant revenue, there's just really a handful of those. Most of them are family-run, family-owned, and probably will stay private. Yeah. Yeah. What do you hear about any of the aftereffects of GLP-1s? I don't think you really make filters for GLP-1s, do you? But are you hearing that there's a lot of increased cash to spend in the market, or what are you hearing? Yeah, no, clearly, GLP-1s became really important over the last, say, 18 months or so. The manufacturing process is not ideal for the types of products that we have, but there are areas where we can play. I think a lot of our kind of mixing solutions, mixing technology, fluid management solutions can be used in manufacturing there. So there are some places for us to play. We're obviously doing a little bit of work to see if there's areas we can expand into. But it's not like the regular mAbs or the gene therapy new modality markets where we have a lot more products that are aligned with the manufacturing process. Yeah. Okay. A question on gross margin. That's dropped lower. Why is the gross margin falling off? is a question from the participants. Yeah, it's really back to what we were talking about earlier in that as we had a business that was north of $800 million. As we've come down, there is a deleveraging effect that has taken place. In that same time, as business got that high, we also added a great deal of capacity and footprint. And that brought higher, call it, occupancy and depreciation costs that came with that as well. And so when you kind of look at those pieces, the scaling up, being ready to deliver more volumes coming down, we've been pinched from a deleveraging perspective. And so we'll be flat in gross margin in 2024 versus 2023. And again, as we're able to increase our volume and get to, let's call it, back to the 800 levels, we'll be able to see absolute leverage up, right, as we manage our costs and be really prudent about what we add back while we go there. Yeah. And then I think a question that's been brought up too is orders. Do orders really need to go well above 1.0 on book-to-bill for you, Tony, to achieve guidance? Yeah. It all depends on revenue, right? So yeah, we need orders as we go through Q2, Q3 to be able to hit the full guidance for the year. That's kind of the way we look at it. We had a nice finish last year, so that sets us up nicely for the first half of this year. But for us to execute on the second half of the year, we need order growth in Q2 and Q3. Yeah. And then the last question I have is centered around R&D. You've mentioned at the beginning of this session by Jason, and that is what percentage of revenue is coming from new product? And what's the engine? Obviously, you have R&D, but what's your secret on what's been a very innovative pipeline? What's the magic to get that vitality, Tony? Yeah. For me, it's around all our products in our we have four franchises, and we do know the areas we need to innovate. It's probably more about focus and less about doing everything that's on everybody's list. So I think what we're doing now on systems and integrating PAT is going to have a massive payoff for the company over the next 5-10 years. I think what we're doing with Purolite is going to be fantastic for us and give us another channel for driving growth for the company. And then there's other stuff that we're doing that we don't talk about. But yeah, we try to focus on where is innovation needed? Where can we be disruptive? I really like to see us as we see ourselves as the innovator in bioprocessing, but I'd like us to kind of pivot to being the disruptive innovator where we're eliminating unit operations. We're shortening the manufacturing process. We're improving yields. Those are the things that I think we need to focus on over the next five years. If we do, I think we'll continue to be really successful. You also seem to find it and buy it too, no? Yeah. No, I mean, obviously, we do know what we like, right? And if those assets become available, we try really hard to see if we can price them loose. Yeah, we've been obviously, we've had a good strategy. We've been fortunate enough over the last 10 years that we've been able to buy some great companies. And my expectation is over the next 10 years, we'll see another list of really great companies that we can look at and hopefully acquire and roll into what makes Repligen really successful. Do you think a lot of that innovation could come in cell and gene therapy? Yeah. I mean, I would probably expect to say new modality innovation because I do think that there's a lot going on. There's a lot going on in cell and gene. There's a lot going on in mRNA. And you'll see CRISPR technology coming through. Eventually, exosomes will be more important. Yeah, I do. I see innovation there. But I also think there's a lot of innovation to still happen in the mAb world. Paul, you're on mute. Yeah, sorry. Last question was, in the protein ligand business, are you losing share, gaining share? Where do you think you are? In the protein ligands business? Yeah. If I look at if I split it into kind of growth factors representing one side of the business and ligands representing the other side, clearly, Cytiva moving away, well, that volume's gone. So they're bringing it in-house. But I do think what we're doing, as I said earlier with Purolite, is going to be the we have a brilliant foundation, and we just need to build off that foundation. So I fully expect from 2025, starting in 2025, we're back in growth mode on proteins. We just have to kind of get through this year because of multiple factors that kind of hit at the same time. Once we get through that, it's kind of one-time events that we're dealing with. But I fully expect next year and beyond to have some really nice growth. So yeah, we should be in take share mode, Paul, as we move forward. Great. Well, we appreciate your time. Thanks, Steven. Thanks, Jason. Thanks, Tony. Hey, thanks, Paul. Appreciate it. Thanks, Paul.