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Will Clinical Trial Delays Derail Repligen's Growth?

By Maxx Chatsko – May 5, 2020 at 10:19AM

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The bioprocess leader relies on clinical trials for a significant portion of revenue. How disruptive will the coronavirus be?

When Repligen (RGEN 0.91%) reports first-quarter 2020 earnings this week, investors will be expecting a downturn from the coronavirus pandemic. That's because the bioprocess engineering leader generated 65% of full-year 2019 revenue from customers engaged in clinical trials. Many pharmaceutical companies have delayed the start of new drug-candidate studies to ease the burden on the nation's healthcare system and avoid putting vulnerable patient populations at unnecessary risk. 

That creates an interesting dynamic for investors. On the one hand, current events seem likely to derail the business from its impressive growth trajectory, at least temporarily. On the other hand, investors should acknowledge that Repligen began 2020 with profitable operations and a record cash position of $528 million, which suggests the company can endure a prolonged downturn. It's also well positioned to become a valuable partner for companies developing treatments and vaccines for SARS-CoV-2, the virus that causes COVID-19. 

Nonetheless, investors will be closely monitoring the health of Repligen's clinical customers when the company reports first-quarter 2020 operating results on Wednesday. Here's why it matters and what to look for.

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Pressing pause on experimental therapy development

Investors might see a heavy dose of irony in the current situation. Repligen abandoned the risks of drug development years ago. Instead, the business went all-in on providing biopharmaceutical companies with the bioprocess equipment required to develop biologic drugs, which effectively distributed development risk across an entire industry. If one customer's drug candidate fails, then it will be insulated by the development prospects of dozens more. 

It's proved to be a successful niche. Repligen's market opportunity spans over 110 commercialized biologic drugs and over 1,500 biologic drug candidates. The business has profitably scaled revenue from just $83 million in 2015 to $270 million in 2019. Management expects to grow sales to at least $500 million by 2023.  

But the unique conditions of the coronavirus pandemic alter the risk profile of the business. Many pharmaceutical companies have decided to delay the start of new clinical trials in order to ease the burden on healthcare professionals at participating trial sites and protect vulnerable patient populations, such as older individuals or those hindered by metabolic disorders. Put another way, the otherwise distributed risks of operations have been concentrated by the new realities of the global health crisis.

It's all likely to erect obstacles to growth for the business. Repligen generated 65% of total full-year 2019 revenue from clinical trials. The potential silver lining is that the company's product portfolio is likely to be in high demand as global research and development efforts mobilize to find treatments and vaccines for SARS-CoV-2. Roughly 85% of revenue last year was derived from clinical and commercial production of monoclonal antibodies, recombinant proteins, and vaccines. 

Whether the push for a coronavirus vaccine offsets declining revenue from pre-pandemic customer arrangements remains to be seen, but investors can find partial relief in the company's $528 million cash hoard from the end of 2019. Management might have preferred to use that on an acquisition (nearly 40% of revenue generated from 2014 to 2019 can be chalked up to acquisitions) and still might do so, but investors would surely forgive any strategy that preserves the long-term growth potential. 

In fact, investors who adopt a long-term mindset might not see much cause for alarm. Repligen is well positioned to respond to growth in demand for biologic drugs -- including treatments and vaccines for SARS-CoV-2 -- even if a near-term slowdown is inevitable. 

An impact is likely, but the long-term potential remains intact

Repligen has worked hard to distribute risks across the development pipeline of the biopharmaceutical industry. Now that clinical trials have been delayed across the industry, the bioprocess equipment supplier finds 65% of its revenue is suddenly at risk of disruption.

That said, it's reasonable to assume any disruptions will be temporary. The long-term growth potential of biologic drugs might be delayed by the coronavirus pandemic, but the rise of gene therapies and cell therapies (with over 1,000 drug candidates in development today) provides Repligen with the best emerging growth opportunity in its history.

Additionally, investors can't rule out that the company steps up to support clinical trials of SARS-CoV-2 treatments or vaccines. Simply put, this growth stock remains an intriguing investment, especially if shares tumble when first-quarter 2020 results are announced this week.

Maxx Chatsko owns shares of Repligen. The Motley Fool recommends Repligen. The Motley Fool has a disclosure policy.

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