How Will the Top Line Change for Repligen in 2014?

The first full week of investing in 2014 is almost in the books. However, not all companies will face the same amount of uncertainty over the next 12 months. Bioprocessing products company Repligen (NASDAQ: RGEN  ) , which supplies consumable products to pharmaceutical companies manufacturing monoclonal antibodies, will surely keep shareholders on the edge of their seats. What's contributing to the ambiguity for the growing life sciences company? A generous royalty stream on U.S. sales of the rheumatoid arthritis drug Orencia from Bristol-Myers Squibb's (NYSE: BMY  ) ended -- as initially agreed upon -- on the last day of 2013.

Despite the loss of Orencia royalties, management is still guiding for 10%-15% product revenue growth, gross product margin of 55%, and operating margin north of 15% this year. Nonetheless, the royalties made a substantial contribution to total revenue in 2013 -- an estimated 25%! That means investors will need to use caution when comparing financial metrics and numbers achieved this year to those from prior year periods. Rather than panic with the release of each quarterly update, let's use the latest guidance from management and some simple arithmetic to analyze how the top and bottom lines will likely look for Repligen in 2014. Today, we'll start with the top line.

Estimating 2014 revenue

The first step in understanding how revenue will change in a post-Orencia and Bristol-Myers Squibb world is visualizing how the royalty stream compared to product revenue and the percent of total revenue it represented.

 

2013(e)

2012

2011

Orencia Royalties

$17.87 million

$14.75 million

$10.25 million

Product Revenue

$48 million

$41.8 million

$16.4 million

Total Revenue

$67 million

$62.3 million

$27.3 million

Orencia % of Total Revenue

27%

24%

38%

Source: SEC filings, Piper Jaffray Conference Presentation, Author's calculations

Management has guided for $19-$21 million in total royalties and other revenue in 2013. Therefore, by subtracting the $1.124 million received from Pfizer in upfront and milestone payments for a spinal muscular atrophy licensing agreement and using the low end of guidance, we can assume that the remainder will be generated from Orencia royalties. The estimated royalty revenue in the table above would require Orencia to notch U.S. sales of roughly $943 million in 2013, or a growth rate of roughly 18% compared to the prior year.

Considering that (1) U.S. sales of Orencia through the first nine months of 2013 stood at $698 million, or about 20% higher than the same period in 2012, and (2) the tiered structure of the royalty agreement between the two companies, the royalty estimate is pretty solid barring any unforeseen developments. Better yet, Bristol-Myers Squibb has a history of reporting its full year results one full month ahead of Repligen (February vs. March), so investors will be able to accurately gauge the royalty stream for 2013 before management formally discusses results. When the investing world offers up life hacks, you have to take them.

Now we can turn our attention to 2014. How can investors expect the top line to look when it is completely dependent on product revenue?

 

2014(e)

2013(e)

% Change

Orencia Royalties

$0

$17.87 million

(100%)

Product Revenue

$51-$54 million

$48 million

10%-15%

Total Revenue

$51-$54 million

$67 million

(19%-24%)

Source: Piper Jaffray Conference Presentation, Author's calculations

The table above highlights which categories are changing for Repligen in 2014. While product revenue will grow at a 10%-15% clip, the gains won't be obvious by observing the drop in total revenue -- derived completely from the loss of Orencia royalties. It's important to note that we cannot -- and should not -- factor in potential additional milestone payments from the Pfizer license agreement or a potential acquisition of a new product. If either occurs, consider it gravy. If they don't, hey, it's not a big deal.

We've made a reliable revenue estimate for 2014 based on the most current guidance from management and sales data from Bristol-Myers Squibb. That's all we can do with the top line for now, but we'll evaluate the bottom line (and cash) in the next article.

Foolish bottom line

Perspective is always a good thing in investing. For Repligen shareholders, it will be important to digest financial progress in terms of bioprocessing product sales growth and operational efficiency improvements (more in our next article). Yes, income and total revenue will deflate without Orencia royalties from Bristol-Myers Squibb, but that isn't going to affect the company's long term opportunities or the industry trends powering growth. Remember to check back later for a thorough analysis of Repligen's income and cash for 2014.

Is uncertainty keeping you away from Repligen?

Despite a solid analysis and estimate, you may not feel so great about putting your hard-earned money into a stock facing so much uncertainty in 2014. Luckily, while opportunities to get wealthy from a single investment don't come around often, they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 09, 2014, at 12:43 PM, coachtom4 wrote:

    Any analysis on how it will affect the bottom line? I think that hit is going to be very large per my comment on the last article you wrote on this subject.

  • Report this Comment On January 09, 2014, at 3:19 PM, TMFBlacknGold wrote:

    @coachtom4

    Thanks for your comment. I've completed the article evaluating the bottom line and it will publish within the next few days. There will be a big hit, but operating margin will actually improve mightily compared to 2013. Check back for the full analysis.

    Maxxwell

  • Report this Comment On January 13, 2014, at 2:48 PM, TMFBlacknGold wrote:

    The article analyzing the bottom line for Repligen in 2014:

    http://www.fool.com/investing/general/2014/01/11/how-will-th...

    Maxxwell

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2789221, ~/Articles/ArticleHandler.aspx, 10/22/2014 7:16:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement