If shares of a company doubled over a 12-month period you would probably say the company had a pretty good year. I guess that means bioprocessing product manufacturer Repligen (NASDAQ: RGEN ) had a pretty good year. While the rise in shares can be explained by progress made in 2013, investors may be wondering if stagnant returns -- or even losses -- await in the future. After all, you can't expect your investments to double year after year. Can the company overcome the loss of an important royalty stream from Bristol-Myers Squibb (NYSE: BMY ) and continue to power ahead in 2014? Let's review three things you can expect from Repligen next year.
1. Expiration of Orencia royalties
Poof! Gone! That's what will happen to royalties from domestic sales of rheumatoid arthritis drug Orencia when the ball drops on New Year's. It should be no surprise to investors at this point: Management has been preparing analysts and investors for this event for most of the year. It's important to note that the loss of the royalty stream won't make Repligen unprofitable or cash-flow negative.
Nonetheless, losing Orencia royalties, which will amount to nearly one-quarter of total revenue in 2013, will affect metrics such as P/E and P/S. But you could take a glass-half-full-approach and appreciate that Orencia grew the company's cash pile. Additionally, bioprocessing product revenue is expected to grow 10%-15% annually for the foreseeable future while gross product margin will reach 55% in 2014. I don't think you should sell solely because of the expiration of the royalties, but you should be aware of it.
2. A successful launch of newest OPUS chromatography columns
Repligen completed a 9,000 square foot expansion of its manufacturing facility in Massachusetts in November, which will begin to pay dividends in the first quarter of 2014. Not a bad turnaround. The most transparent effect of the expansion will come from sales of its newest, largest OPUS Series chromatography column, or the vessel in which monoclonal antibodies are purified after production. In fact, the 45 centimeter diameter column currently being finalized will be the largest plug-and-play column in the industry and offer more than twice the capacity of the next largest. An even larger 60 centimeter column -- which will almost double capacity again -- is also in development.
That's great, but it doesn't guarantee a successful launch. Why should you be optimistic? Repligen's sales team has already begun fielding inquiries for the new product from drug manufacturers looking to implement it immediately. It may not sound like much, but that's a rarity for new manufacturing products in the biotech industry, which typically experience months of lag time as companies perform tests and quality checks before gaining traction. The ability to purify larger volumes in a single pass will be a crucial advance for manufacturers -- and they're leaping at the new capability with OPUS.
3. The (potential) acquisition of a new product
Look around Repligen's product portfolio and you'll see a common trend: Many products were injected through acquisitions. Some of the technology implemented in the OPUS product line came from the 2010 acquisition of BioFlash Partners. All four growth factor products offered by the company can be traced to the 2011 acquisition of Novozymes Biopharma Sweeden. Ditto for the company's manufacturing capacity in Sweden (duh) for producing growth factors and Protein A ligands, the most popular product. Will management be inclined to pull the trigger on another acquisition in 2014 if the opportunity presents itself?
Added pressure to do so may come from the expiration of Orencia royalties, which will result in lower total revenue in 2014. While management is guiding for healthy growth in product revenue, it may use its relatively large cash position to strike a deal and bring in a new complimentary bioprocess product or technology. On the other hand, perhaps money is better spent on internal research and development capabilities, which have led to significant advances for its product portfolio in the past two years.
If an acquisition is made, investors should hope that the deal makes financial sense for Repligen and wasn't the result of a trigger happy management team. There are worse things than having $70 million in the bank.
Foolish bottom line
Repligen had a great 2013, but 2014 will pose a new set of challenges and opportunities. The company will lose royalties from Bristol-Myer Squibb's anti-inflammatory drug, although it will combat the lost revenue with healthy growth in product sales -- likely fueled by a great launch for the newest and largest OPUS Series chromatography columns. Management could even use its $70 million in cash to make a strategic acquisition to inject additional products into the company's lineup. While you shouldn't expect shares to double again in 2014, I think there is plenty of growth to look forward to in the long term.
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