After an eventful first half of the year, Repligen (RGEN 1.43%) 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.
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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.
