It may not be as sexy as biopharmaceutical companies developing gene therapies or tailoring the next big cellular medicines, but Repligen (NASDAQ:RGEN) has certainly rewarded investors through its leadership position in bioprocess engineering. The stock has delivered a 10-year return of 1,420%, compared to "only" 238% for the S&P 500 when dividends are included.
To be fair, Repligen has earned those epic returns by positioning itself as an indispensable partner for biopharma companies. It develops products and tools that help companies manufacture biological products more safely and efficiently, but it isn't directly linked to the binary risk-reward profile inherent to clinical trials.
While the bioprocessing stock has gained 44% since the beginning of 2019 -- including a recent decline -- Repligen has much to look forward to. Here are three things investors will be watching heading into the third-quarter 2019 earnings conference call. (The company hasn't announced the date of the release.)
1. How can Repligen build on its latest acquisition?
In May, Repligen closed the acquisition of bioprocess analytics company C Technologies, which has developed novel ways to measure protein concentration in biopharmaceutical manufacturing processes in real time without destroying the samples. The technology platform is a great addition, but the price was relatively steep.
Repligen paid $240 million for an estimated $33 million in full-year 2020 revenue, albeit at a gross margin greater than 57%. Then again, the long-term potential is the most intriguing part of the acquisition.
C Technologies adds a fourth business segment (process analytics) to Repligen's lineup (in addition to proteins, chromatography, and filtration), but it represents more than that. The spectroscopy-based platform could be integrated into next-generation products across Repligen's portfolio, specifically in the filtration and chromatography segments, and could strongly influence future acquisitions. Will management provide more details on its vision?
2. Does Repligen have plans for its war chest?
Repligen may have just completed the largest acquisition in its history, but the business should also end the third quarter of 2019 with the most cash in its history. It's just a little difficult to pin down the exact amount right now. The company realized $599 million in combined net proceeds through public offerings of stock and debt in the second and third quarters, paid $194 million in cash to close the C Technologies acquisition (the remainder was paid in stock), and redeemed approximately $115 million in debt through cash and stock.
Investors will have to wait for third-quarter 2019 earnings results to know exactly how much cash was on the balance sheet at the end of September, but the number could be between $400 million and $500 million when the dust settles -- more than double its previous all-time high to end a quarter. Does Repligen have plans for its war chest?
Aside from integrating C Technologies and growing its existing product portfolio, Repligen -- built from numerous acquisitions over the years -- might make another acquisition. The field of bioprocessing remains wide open for consolidation, and with gene therapy manufacturing expertise in high demand, an acquisition related to cellular medicines could make sense (if the valuation isn't exorbitant). A move into mini bioreactors used in biological research and development, which are in short supply right now, could also make sense for Repligen to expand its upstream presence.
3. Can Repligen keep its premium valuation?
Shares of Repligen have traded at a premium valuation for years. The business has grown its way to higher valuations over time and has certainly earned the benefit of the doubt from investors. After all, shares have gained 253% in the last five years, compared to a return of "only" 69% for the S&P 500 when dividends are included.
But the stock currently trades at 14.8 times expected full-year 2019 revenue. That's close to a 15-year high for the metric and still accounts for a significant recent decline in the share price. While the business is newly profitable -- which could help to justify premium valuations given the rate of growth -- investors have to be aware that Repligen could be a prime target if Mr. Market decides to punish growth stocks. He appears to have done just that since the beginning of September.
That said, bioprocessing leadership could be a valuable wealth-building opportunity for investors with a long-term mindset. Therefore, if Repligen shares get whacked in the near future due to their premium valuation -- the five-year average price-to-sales ratio would put the market cap at $3.2 billion, or about 18% lower than the current stock price -- then it could signal a buying opportunity for investors.