Based on the simple facts that Repligen (RGEN +0.33%) generated 65% of full-year 2019 revenue from customers engaged in clinical trials and many clinical trials have been delayed due to the coronavirus pandemic, I told investors the business could face a temporary slowdown this year. So much for that caution.
The bioprocess equipment leader not only delivered record quarterly revenue in the first three months of 2020, but also decided to increase full-year 2020 earnings guidance while keeping revenue expectations intact. That's a striking departure from the industry trend of withdrawing full-year 2020 guidance in response to the uncertainty created by the global coronavirus crisis.
If it holds true, then the reliable growth stock deserves a closer look. Here's what investors need to know about Repligen's first-quarter 2020 operating results.
Image source: Getty Images.
By the numbers
Repligen's growth engine remains red hot. The business grew first-quarter 2020 revenue 25% from the year-ago period to a record $76 million. It did so while expanding gross margin to 58%, up from less than 56% in Q1 2019.
The performance was bolstered by a handful of surprises. When Repligen issued initial full-year 2020 guidance, investors were disappointed by its relative weakness. It now appears management was a little too conservative with initial expectations.
For example, the company was surprised by the overnight rise of gene therapy customers in 2019 and figured the growth would fade somewhat this year, but gene therapy demand remained strong in Q1 2020. Similarly, the company's chromatography and filtration franchises (containing products used to purify biologic molecules) maintained momentum into this year.
The biggest surprise was Repligen's protein business (proteins are packed into chromatography columns and other purification products), which was responsible for 24% of total revenue last year. Initially expected to weigh on overall growth in 2020, the segment performed above expectations. It all helped to drive a solid first-quarter performance.
|
Metric |
Q1 2020 |
Q1 2019 |
Change |
|---|---|---|---|
|
Revenue |
$76.1 million |
$60.6 million |
25% |
|
Gross margin |
58% |
55.7% |
230 basis points |
|
Operating income |
$11.9 million |
$11.2 million |
6% |
|
Net income |
$9.8 million |
$8.0 million |
22% |
|
Earnings per share (EPS) |
$0.19 |
$0.18 |
5% |
Data source: Press release.
Although Repligen acknowledged the uncertainty relating to the coronavirus pandemic, it doesn't expect the global health crisis to have severe negative consequences. The company decided to maintain full-year 2020 revenue guidance and increase expectations across a range of profitability metrics.
Gross margin is now expected to be at least 56%, up from prior expectations of at least 55%. New projections for operating income and net income represent increases of 4% and 3%, respectively, compared to initial full-year 2020 guidance. The new expectations also compare favorably to Repligen's performance last year.
|
Metric |
Full-Year 2020 Guidance |
Full-Year 2019 Actual |
Change |
|---|---|---|---|
|
Revenue |
$309 million to $319 million |
$270 million |
14% to 18% |
|
Gross margin |
56% to 57% |
56% |
Flat to 100 basis points |
|
Operating income |
$52 million to $56 million |
$36 million |
44% to 55% |
|
Net income |
$34.5 million to $37.5 million |
$21.4 million |
61% to 75% |
|
EPS |
$0.65 to $0.70 |
$0.44 |
48% to 59% |
Data sources: Press release and SEC filing.
Considering clinical trial activities were responsible for 65% of total revenue in 2019, the fact Repligen expects no slowdown in light of delayed clinical trials across the industry is somewhat surprising.
On the one hand, the company's bioprocess equipment is in high demand right now to support the development of dozens of treatment candidates for COVID-19 and vaccine candidates for the SARS-CoV-2 virus.
On the other hand, any surges in orders related to the coronavirus pandemic could be temporary. Most drug candidates being studied to respond to the coronavirus pandemic are unlikely to be commercialized, as is the case for most drug candidates. But perhaps Repligen's unique position in the drug development and drug manufacturing processes can continue to provide momentum.
After all, there will be tremendous pressure to manufacture millions -- or billions -- of doses of successful treatments and vaccines in a very short time frame. Integrating the company's products into the production processes of even one or two commercialized products addressing the global health crisis could provide significant tailwinds.
Well positioned for long-term success
Repligen reported strength from existing customers and perhaps a handful of temporary new ones racing to respond to the coronavirus pandemic in the first quarter of 2020. Those trends are allowing management to remain optimistic about a solid year of operations. Given the value provided by the company's bioprocess products, which are required to manufacture biologic drugs for clinical trials and commercial production runs, investors should expect momentum to continue for the foreseeable future.
