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Repligen Exits Third Quarter Armed With a $500 Million War Chest

By Maxx Chatsko - Oct 31, 2019 at 3:45PM

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The company, which has been built on opportunistic acquisitions, entered the final stretch of 2019 with a record level of cash to deploy.

After an eventful first half of the year, Repligen (RGEN -1.09%) turned in a relatively ho-hum performance in the third quarter. To be fair, revenue grew 40% year over year and the company raised full-year 2019 revenue guidance, but investors have come to expect that from the bioprocessing leader. It has been one of the best growth stocks on the market in recent years, after all.

Not much else stood out for the business, but that shouldn't be confused with a lack of progress. Repligen made progress integrating its largest acquisition ever, C Technologies, and still managed to end September with a record $513 million in cash. Considering that the company has been built on acquisitions, shareholders can't discount the possibility that another could be on the way. Here's what investors need to know about Repligen's latest operating results.

A woman checking her phone and pumping her fist in excitement as cash falls around her.

Image source: Getty Images.

Steady growth, steady progress

Repligen reported $69.4 million in revenue during the third quarter of 2019, marking a 40% increase from the year-ago period. While that growth was accomplished with a 54.7% gross margin, the company reported a 54% rise in research and development (R&D) and selling, general, and administration expenses. Shareholders shouldn't be alarmed.

Management had previously prepared investors to expect a surge in second-half operating expenses as the company integrated C Technologies. Repligen recorded $2.9 million in acquisition-related costs in the third quarter of 2019, although building out the subsidiary's commercial team increased administrative costs, too.

The important thing for investors to remember is that the dip in operating margin should be temporary. If the acquisition lives up to its potential, then it should generate considerable long-term value for Repligen and keep the company humming along its growth trajectory. 

Metric

First Nine Months 2019

First Nine Months 2018

Change (YOY)

Revenue

$200.7 million

$142.0 million

41%

Gross profit

$111.8 million

$79.1 million

41%

Operating expenses

$170.6 million

$123.9 million

38%

Operating income

$30.2 million

$18.1 million

67%

Net income

$4.0 million

$3.6 million

11%

Data source: Press release. YOY = year over Year.

Investors may not want to get used to a lack of exciting developments. Repligen is preparing to launch two new products before the end of 2019, including one that will mitigate the effects of an expiring patent related to its alternating tangential flow (ATF) products that help to remove cellular waste from biologic drug manufacturing processes. 

And, of course, Repligen held over $500 million in cash at the end of September. Investors wouldn't be wrong to expect another accretive acquisition or two in the next couple of years. After all, the company has been built on acquiring technology platforms that address specific pain points for its customers. 

Repligen bolstered its growth factor offerings by acquiring assets from Novozymes in 2011. Growth factors stimulate mammalian cell cultures used to produce biologic drugs. The company made acquisitions in 2010 (BioFlash Partners), 2016 (Atoll), and 2017 (Spectrum) to build and grow its chromatography portfolio. Chromatography columns help to purify biologic drugs after production. Repligen added ATF capabilities in 2014, and the acquisition of C Technologies this year provides a platform for making optical measurements of protein concentrations, which could be integrated into several products sold by the company.

Put another way, Repligen has never shied away from gobbling up technologies to expand its bioprocessing capabilities. And the field is still highly fragmented. The only thing that has changed is the size of the company's war chest.

An all-around solid quarter

The strong third-quarter showing and a healthy level of orders gave management the confidence to raise full-year 2019 revenue guidance to at least $267 million, up from the previous guidance of $266 million. The minuscule increase and lack of major announcements likely explains why Repligen shares didn't budge much in either direction (perhaps a good thing given recent volatility). More important than day-to-day stock movements, the company proved it remains on a solid long-term trajectory.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool recommends Repligen. The Motley Fool has a disclosure policy.

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Repligen Corporation Stock Quote
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