All right. Whoa, hot mic. Good morning, everybody. Welcome to the Stephens Investment Conference. I'm Jacob Johnson, the life science tools and pharma services analyst here at Stephens. Thanks to all of you for joining, and really, as always, excited to have the team from Repligen here. The guy to my left probably needs no introduction, but he's CEO Tony Hunt. And the guy to his left is Jason Garland, the relatively new CFO. So Jason, glad to have you here with us, and then Sondra Newman's out there in the audience. So this will be a fireside chat, Q&A. I, I've got plenty of questions. I'm sure some of you do as well, so I'll try to pause along the way in case anybody has any questions.
So with that preamble, Tony, maybe I'll turn it over to you for any opening comments you'd like to make. And maybe, Jason, along those same lines, since you're relatively new, maybe it'd be helpful for you to introduce yourself and tell us why you joined Repligen.
Great. I'll start. So Jacob, good to be here. I think my... Just a few comments on the- on our industry. I think it's been quite the challenging year, as everybody knows, in bioprocessing. I do think that as we've gone through the year, at least at Repligen, we've seen some, you know, early signs of recovery in Q3, which I think has given us some optimism, but we're cautiously optimistic as we, you know, finish off the year. We had strong orders in Q3. I think the big challenge in our industry right now is that we've been kind of hit with multiple events in the course of 12 months.
So everything from the destocking activities at CDMOs and at pharma, to the macro environment in China, to the conservative spending that pharma started to go through in late Q1 and going into Q2. We've tried to stay the course through all of this. You know, our strategy has always been best technology wins, and so we've continued to execute on our overall business strategy. We've done two deals this year, a bio company, FlexBiosys, back in Q1, and then in September, early October, we acquired a company in Sweden called Metenova. All of these play into our fluid management strategy, which continues to build, and I think it's going to be an important part of what we do as we go forward.
I think the other developments, I think, that are important for the company in 2023, has really been the continued evolution of our systems portfolio and the integration of advanced analytics into those systems. We think that that will be one of the biggest competitive advantages we'll have as we go forward because we can tie our systems with our consumables, and we can tie our consumables with our fluid management strategy. So I think while it's been a challenging year, and I'm sure Jason will talk about the things we've done to rightsize the company to try and get our margins back to where they need to be, I think we've still managed to do some of the important activities and the M&A acquisitions that will set us up for the future.
As we look forward, our view is that 2024 becomes a recovery year for the industry, and then from, you know, 2025 on, it should be back to absolute normal growth for bioprocessing. Okay, Jason?
Yeah, good morning, Jason Garland. So I checked again this morning. I'm on week eight, so still getting up to speed, but everything that I had expected in terms of the talent of the team and this culture of innovation, or as Tony just said, this, "The best technology wins," was what I expected to see, and I've seen it in even more than I thought. It's really ingrained in the culture. You know, I spent about 28 years in manufacturing, first 20 in GE across several different industries, and the last five I was in on the MedTech side of healthcare in a public company, doing MedTech device outsourcing. So, you know, I'm excited to help the team, really, to Tony's point, bring a little...
reintroduce some cost discipline, right? When you're growing at the rate that the company has, and when your focus is building capacity and getting product out the door for customers and patients, cost discipline isn't first on your list, right? And so I think in an environment we're at now, you know, really understanding, are we right-sized? What can we do to continue to drive that efficiency? Has really become a priority and something again that Tony's asked me to help lead and lean on my experience. So, really thrilled to be here. It's a fantastic team.
Thanks for those opening comments, and I think you guys both mentioned some things that I wanna unpack over these questions, and we'll get to the cost savings. But first, Tony, just on 2023, I think this was always going to be a bit of a unique year. I think it's proven to be a little more unique than we expected. You know, what did we all get wrong this year, and what surprised you the most as the year played out?
Yeah, I think it's almost what I said at the-
Yeah
... in my initial comments. I, I don't think we got anything wrong 12 months ago. I think we were in a market where it was pretty clear that the CDMO sector of the market was sitting on an excess amount of inventory. I think the piece we probably didn't calculate correctly, and I mean this everyone, one is that, the inventory destocking didn't really start to happen until probably early Q1. And the reason is that, while orders from CDMOs started to drop in July of last year, the bioprocessing industry was continuing to ship product to those same CDMOs because there was a backlog of orders, and that backlog of orders didn't really get pushed through the system until probably midway through Q1. So that's kind of the first one.
The second one is that the burn rate that we all assumed that everybody was gonna run through at the CDMOs was all based on where everybody was in July of last year. And if you think about it, biotech funding dried up. A lot of the smaller companies that would probably end up in the, you know, at the CDMOs, especially the Tier 2 CDMOs, probably didn't do that, didn't go there. So I think the length of time it would take to burn off the inventory increased.
Yeah.
So I think those two things have led to a longer than anticipated bounce back at the CDMOs. We think the CDMOs will start to recover as we finish off the year and we move into next year. And I think there's some little bits of green shoots coming out. I mean, you, you hear some positive things from Samsung about Building Five. You know, Catalent had reasonably good results yesterday, talking about especially in the gene therapy space, where they were going. So I, I think we just need a broader CDMO rebound. Now, on top of all of that, you had... The industry could deal with this, with 30% of the market being depressed.
Yeah.
But then we get China goes down, right? No one was anticipating China to just go from where it was last year to almost no activity in 2023, or a limited amount of activity in 2023. And then pharma, you know, which held up remarkably well in the second half of last year. We actually had more orders from pharma in the second half of the year than we did in the first half of the year, but then we went into Q1, pharma slowed down a little bit, but probably not unexpectedly. But then Q2 was a real drop-off in pharma demand, and we could see it. I mean, there was projects getting delayed, there was conservative in spend, there was a longer time to get POs approved.
And, you know, I think we were pleasantly surprised that our pharma business, from an orders perspective, jumped +50% in Q3. So that's not like a 10% rebound; 50% rebound is pretty significant, and you can't tie that to any one order that came through. That's just there was a broad sort of bounce back in pharma. What's going to be interesting is, do we maintain that in Q4? Does it hold? Does it fall back a little bit? And, you know, I think the last point I'd make, I would say that any inventory overhang on pharma is probably a little different than the inventory overhang in CDMOs. In CDMOs, you're relying on customers to come in, give you business, and use up your inventory. In the pharma world, it's projects, right?
I think, I think burning off inventory in pharma, if it's three months, should be like three months of burn-off, right?
Yeah.
It shouldn't, it shouldn't take nine months to do that.
Got it.
Anyway.
No, that's a good synopsis of the year. Maybe just on visibility and forecasting, I feel like that's something... Those are words we've been asking, we've been using a lot this year. Has anything about the way you forecast changed throughout the year, and has visibility changed on these on your customer demand throughout the year?
Yeah, I think the visibility is less than-
Yeah
... what you would normally, you would normally see and expect. I think it's just what makes it hard is the projects are there, the speed of the projects moving through to consumption is taking longer. So it's getting harder to forecast it because what you expect will happen in a quarter doesn't always necessarily happen in the quarter. And I think you just look at everybody, every player in the bioprocessing industry, while we all might have different, you know, anecdotal commentary on what's going on, we're essentially saying the same thing, right? It's, it's slow. The challenge we're all faced with is way more than just inventory destocking. It's a combination of, you know, conservatism in capital spend, you know, projects getting delayed, and on top of that, destocking. So yeah, it makes it harder.
Got it. But with all of that said, I think, you know, last quarter, the key standout was the book-to-bill above 1. But you're pointed to muted kind of revenue growth sequentially in Q4. So it seems demand trends are improving, but maybe slower than you previously expected?
Yeah, I think that's a fair, fair comment. If you go back to where we were at the beginning of the year, I think everybody felt, "Hey, if we can get through the inventory burn-off by mid-year, second half of the year should be better." And it's turned out that it's kind of gone the other way, right?
Yeah.
So yeah.
Can you talk about order trends? I think, you know, it was a strong three Q. I think September was good. I think maybe October is okay too. If you want to talk about November to date, that'd be great as well, but you probably won't.
No, I won't. I actually, someone asked me that question yesterday, and I said, "Next thing will be down to asking on daily updates on how order trends are looking." So-
I'll call you tomorrow.
Yeah, yeah. No, I think, what was encouraging about our, about our Q3 was that, you know, August was actually a decent month for orders, and you wouldn't expect August to be a good month, given that Europe shuts down for, for essentially the whole month. It carried through into September. September was an exceptional month on orders. I think Sartorius also spoke to the fact that they had a really strong September. October turned out to be a really good month on orders as well. So if you look at September and October, September was the, you know, best month on orders we've had in a long time. October, best month of orders since March, so kind of second-best month. That's a-- I think they're positives.
I wish we had five months of data or six months of data to say, "Hey, look it, we've now monitored this over six months, and we can honestly say that, you know, it's trending up." So, you know, a trailing 13 weeks doesn't equal a year. So, you know, I just think it's not enough data yet.
Yep.
I think when we get to end of February, when we do our Q4 report out, we'll have, you know, four more months of data almost, and I think we'll be in a better position to say, "Hey, look, what we saw in September and October has carried over," or, "Yeah, we saw a dip, but it's come back." I have no idea how it plays out over the next four months.
Got it. Maybe, Tony, to give you a break, Jason, just going back to the cost side of things, that seems to be an area you're focused on. You know, I think before you joined, Repligen started taking some cost out.
Yep.
But kind of how are you managing cost to near-term demand trends while not, you know, stifling future growth opportunities?
Yeah. So, the way I think about it, we've talked about the fixed cost, you know, structure that's been a headwind, primarily driven by the capacity that we've built up, right? And being able to now have a lot of headroom for growth in the future. I think we've done a really good job of matching the more 100% variable or direct costs that we have, right? Material, a lot of the direct labor. I think the area that we'll continue to focus is what I kind of call in the middle, the semi-variable, with the stuff that doesn't 100% match going down, and it doesn't need to 100% match going up, and that's where you get your squeeze or your leverage, right?
And so that's the place that I'm gonna continue to focus on. I think, again, we've taken a lot of good actions there already, but we'll do more. Been a little bit of the tightening the belt sort of environment as well, with discretionary spending, you know, the things that you can push out a little bit. And then as well, at the OpEx level, you know, again, you've got R&D, you've got selling, and you've got your G&A. Certainly, we're leaning in more on the G&A side, right? We wanna protect the R&D as much as we can and continue our innovation funnel and product introduction. And selling as well, we've got to get, you know, a message out to our customers.
G&A, again, will be a place that we'll continue to push on.
Maybe on two specific examples, I think you guys have called out, one is manufacturing footprint consolidation. Can you kind of give some context of why you're doing that? And then two, I think there's some SKU rationalization, if you could give, you know, some color around, you know, that.
Yeah. Yeah, I'll start with the second, the SKU rationalization. Really, it's really specific to primarily COVID-related products or SKUs that serve that market. As we looked at what we needed now, there were, I'll say, excess. And then the other dynamic, even where you had maybe a material that could be used in a non-COVID environment or non-COVID product, we'd built up inventory, again, just like our customers, in the whole environment of ordering 12 months out, you know, getting it in hand, and then, you know, demand coming down.
That, again, like our customers, we have shelf life on a lot of that material, and so a lot of the biggest driver really is when we looked at what's about to expire or will expire before we can use it, and that's really primarily that makeup for COVID and expiration within the inventory write-off that we did. You know, for the overall site consolidation, look, I think when you do a lot of acquisitions with a lot of facilities, I think you're given the opportunity of how you think most efficiently about that network. You know, what can you lean on? What, where... If we build capacity that maybe isn't gonna be used as immediately, can we use that space for existing product?
You know, and also finding the lowest cost, I'll say, structure as well, whether that's a labor environment or others. And that's really, again, a way that you can address some of that overhead or that semi-variable I was talking about, eliminating rooftops. So we've done two, another one to come before the end of the year, and we'll continue to look at that as we move forward.
Got it. That's helpful. So maybe two last questions on the macro, then maybe try to talk about some more interesting things. Tony, you said 2024 is gonna be a recovery year. Probably should ask if you'd quantify that, but maybe asking it a different way: What's the key, key swing factor for next year? Is it, is it pharma, China? What-
Yeah. I don't think it's China.
Yeah.
I think the swing factor, honestly, for next year is the CDMOs bouncing back. I mean, pharma has to stay the course, right? We can't go back into a you know a drop-off in pharma again. But I think for me, the swing factor is CDMO recovery, because I think if CDMOs recover, then it's a healthy sign on the overall industry. The other one is continued approvals in the gene therapy space, because I think if the approvals continue to happen, I think that's going to help biotech funding on the front end. There's gonna be more confidence about companies being able to take products all the way through to commercialization. I think for me, they're the swing factors. Obviously, stabilizing China off a base, I think China could be down.
It's probably gonna be down for us next year, just simply because we had a lot of orders coming into-
Yeah
...into Q1 of this year that were booked a year ago. So just getting to the same number will be a challenge. So I think it's really a transition year in China, and then it's a new rebase set.
Yep.
Yep.
Yep. And then, I think the last question on the macro, you know, I think this, the weakness we've seen in the bioprocessing space, which I think has long been kind of the belle of the ball in life science tools, has led people to kind of wonder if this industry has structurally slowed. I'm just curious, Tony, you know, how do you compare the kind of medium, long-term outlook for bioprocessing and Repligen today versus, you know, five years ago when you joined, you know, whatever?
Yeah. So, you know, if I go back to 2014, you know, obviously, the industry was a very different industry back, back even 10 years ago. Much prefer to be, even in 2023, with all the things we're looking at, I'd much prefer to have this environment where, you know, mAbs continue to move through the pipeline. You continue to see mAb approvals. Hey, Biosimilars are... You know, there's still a lot of products coming off patent over the next four or five years. I think Repligen's better positioned now than, than five, seven years ago to be able to get our share in the, in the biosimilar space. Cell and gene therapy is here to stay. We're gonna see more approvals that, it'll take off, mRNA will take off. You know, I just think there's a lot of...
You know, vaccines, because of what happened with COVID, a lot more interest in developing new vaccines. So I think it's a very positive environment. I'm nothing but bullish about our industry. You know, how many industries can you look at and say, in 23 years, there's only been thre down years, right? Every other year has been a positive growth year. So yeah, it's a tough year in 2023. Next year will be a recovery year. It won't be your normal double-digit growth year for bioprocessing, at least based on where we're all sitting today. Maybe there's a you know some you know positive signs that happen in the next you know three, four months that gives everybody a little bit stronger read on 2024.
But I think most people see 2024 as a recovery year, and we should be, you know, in good shape for the next four or five years after that with really good growth.
Yeah. I'll pause there to see if there are any questions. All right, gene therapy, to your point-
I do.
Oh, sorry. Yeah, yeah.
Just touching back on China, I mean, that's just sort of the big unknown, right? It's just things are really tightening up there in, in many different ways.
Yeah.
Based upon just kind of your tone, it seems like it's kind of a big unknown.
Just-
Yeah
... just to repeat the question for the webcast, this kind of China, it seems like a big unknown in the next year. But your commentary at least, you know, the first half comp's difficult, so that makes-
Yeah
... next year difficult.
I think the first half comp is difficult. I think what we see in China, and I don't think it's anything different with the rest of the bioprocessing industry, is that the CDMO part of the market is pretty depressed right now. Pharma is also down. The macro environment is not great. Do I expect China to rebound? Absolutely. I just don't see that staying kind of in the where it is right now. It will get better. I just don't think it's going to happen very, very quickly over there. And you know, for me, it's you know, the macro piece, which is biotech funding in China, dried up. Small biotech funding dried up. Tier two CDMOs don't have enough work right now. Those are the things that have to turn around.
And on top of that, everybody in our industry is dealing with local competition. It while it doesn't, you know, make up 50% of the market, but it's probably 10%-20% of the market is now gonna get captured through local competition. So there's a sort of a squeeze from the inside, and then you've got this microenvironment on top of it. You know, our revenue in China, base business revenue is gonna probably be, like, 6%-7% this year. So while it's an important percent, it's not... There's a lot of other things that we can focus on that we can actually have direct control over, whereas in China, we just have to wait for the economy to bounce back, and then I think we still have the right products to do well in China.
Just one follow-on. I mean, if China's 6%-7% this year, declining next year, and it's a recovery year for the rest of the business, that means it's gonna be even smaller piece next year?
Yeah, I think you're right.
Yeah.
Yeah.
Okay. All right, gene therapy, that's been a bright spot. Recently, solid revenue and order growth. I guess, just first at a high level on those therapies, how do you compare and contrast the kind of revenue, utilization, maybe product types from those customers versus traditional mAbs? And, you know, given the lower yields on viral vectors, do these tend to be more intensive processes versus mAbs?
Yeah. So maybe to peel back some of the layers of the onion here, I think that, overall... So when we talk about cell and gene therapy, I'll just sort of say where we play. We play in the AAV space, so the viral vector space. AAV, which is gene, lentivirus, which is cell, plasmids, which is both, and we also bundle mRNA into this. So we'll probably start to call this new modalities as opposed to cell and gene, but it's all-encompassing. The overall market's been poor, right, this year, and we've done reasonably well. We're-- I think we're flat year-on-year in terms of, where we see two, three quarters in terms of performance of this market for us on both the revenue and orders side.... where's the kind of goodness coming from?
So in our Q4 call, we talked about having 20 accounts, 20+ accounts that are $1 million and above in terms of revenue for Repligen. They make up the vast majority of the business for us in the cell and gene therapy space. Almost all the kind of the goodness that we're seeing on the orders side and what we're seeing on revenue is coming from probably 25 different accounts. Now, some of them are very big accounts, some of them are, you know, $1 million, but some of them are $10 million+. So when you add that all up, we're getting it from people who are scaling and who have commercially approved drugs, but we're not seeing growth coming from the broad market, which has been definitely down this year versus prior years.
Got it. And then when you refer to these gene therapy customers, are these just the developers themselves, or does it include CDMOs? Because the CDMOs are doing some, you know, some of this AAV manufacturing.
Yeah. So, on just a... from a reporting point of view-
When we talk about Cell and Gene Therapy, we include the CDMOs in it.
Okay.
When we talk about CDMO growth or lack of growth, the cell and gene therapy component of CDMOs is also included in the CDMO piece. So we try and keep CDMOs with CDMOs, but the cell and gene therapy, half our business comes from developers, and half come from the CDMO space.
Got it. So, you mentioned kind of the, what's driving the growth are these large accounts there. But it is interesting, I think you, more so than some of your peers, have talked about Cell and Gene Therapy as a growth opportunity and a growth driver. Why are you seeing kind of more strength relative to peers from the end market?
I think we've benefited from late-stage and commercial wins. I think if we didn't have those, we wouldn't be talking about growth, or we wouldn't be talking about having a good year. I just think that, you know, we placed some bets in cell and gene therapy back in 2017, 2018. We're also a smaller company, and I think it's- if you're a big player that's, you know, $3 billion, $4 billion, $5 billion, $7 billion in size, then it's harder to show growth in a market where-
Yep
... maybe there's 20 accounts, 30 accounts that are really scaling, right? And we're a smaller company, and therefore, you know, $5 million, $10 million worth of revenue in cell and gene therapy is actually meaningful to Repligen. It's meaningful to everybody, but it-
Yeah
... it moves the needle.
Yeah. I mean, maybe think about it a different way, too. Your commercial mix is lower than peers, and some of that's because it's a relatively new product portfolio.
Yeah.
Is cell and gene therapy a good example? And maybe you could make the case this is true for COVID as well. Is it a good example of, hey, you have a portfolio of products that happen to be well suited towards emerging mRNA or emerging new modalities-
New modalities
... is what we're calling this, new modalities.
Yeah, I would say that, you know, we... I don't know if we could honestly say we deliberately designed the portfolio the way we did, but I think the products that have turned out to be the most innovative and disruptive technologies for us in mAbs also have a real home in the new modality space. And it's just an easier sell to go into a cell and gene therapy company and convince customers to move with you, where you're not dealing typically with an incumbent. So if you go into a large pharma or you go into a real big mAb company, there's always somebody who's the incumbent that you're trying to displace. So there's less displacement that's going on in cell and gene, and I think that's a little bit like why we were able to gain some significant share in the COVID days.
I think it's a similar reason why we've done well in this space over the last few years. But like everything else, you know, if we don't see approvals or things change on the approval front, it does impact you.
Yeah.
Yeah. The N is still small.
Yeah. But I guess it's kind of a proxy of kind of your win rate and that proof point of, like, you've talked about driving that commercial mix higher over time, and that-
Yeah
... helping to drive growth. This is maybe an example of that opportunity.
Absolutely.
Okay. And I guess last question on cell and gene therapy. You know, in theory, these are curative therapies. Does that make this an inherently lumpier business versus mAbs? And maybe, like, over time, you start stacking these things up, and it's less so. But, like, right now, given limited approvals, does it make it a lumpier business?
It definitely makes it lumpier right now because of exactly what you said-
Yeah
... limited approvals. I think as you go out five years, you'll have more approvals, so the lumpiness becomes less of an issue.
Yeah. Maybe I'll pause again and see if any questions. All right, we'll keep going. Destocking COVID roll-off have been headwinds in filtration this year, and that's, after years of pretty fabulous growth. I guess, could you just talk about how some of, like, the differentiated technologies like ATF and TFF are going? Kind of if we're thinking of kind of like ex, some of these, you know, inventory management, ex COVID, you know, what does utilization look like?
Yeah, it's interesting, right? You know, beyond our analytics business, there really wasn't a business that was immune to the destocking/slowdown, right? Even the analytics business, I think we benefit from having a mature product line that has systems revenue, consumable revenue, and service revenue. So it kind of all blends together to give you, you know, a growth business, even in tough times. But none of our businesses really was immune to the destocking/slowdown. So I think, you know, when you're looking for internally, what are the green shoots we're looking for? We're looking for our kind of biggest businesses to show order strength.
Yeah.
Right? And so that's what was encouraging in Q3, is some of those big businesses started to really show some order strength.
Okay.
In filtration. That's. Filtration ended up with a book-to-bill of 1.15. So that's, that's, that's not an insignificant number to have that.
Got it. And then you mentioned process analytics. You know, that's just... I was just saying to your friends at 908 yesterday, when you go to bioprocessing conferences, you hear about continuous manufacturing. They have entire tracks dedicated to process analytics. And so, feels like there's a lot of interest in moving that direction, and a real long-term opportunity, but it's also a segment where you tempered expectations, a week or two ago. So can you kind of square that near-term demand versus the long-term opportunity there?
Yeah. I think the tempering of expectations had more to do with, you know, the conservative spending and the slowdown, and there's just no way for us to bridge the gap. And it's, we're not talking about $ tens of millions we're off by.
Yeah.
We're talking about $2 million that we're off by on a business in a bad year. So I do think that the industry needs... So I'm careful with my words here. I think the industry needs inline analytics. I'm not sure that everyone truly gets yet what we've brought to the table, so there's definitely an education piece. I think what we did a year ago, where we made the decision to put to integrate our flow technology into our benchtop instruments, especially in filtration, that has had a positive impact for us, and we will have the flow technology integrated into our ARTeSYN skids as we go through 2024. Again, I think that will have a positive impact for us.
And I think when customers see what, you know, when you say to somebody, "Hey, we can integrate X into Y," everybody goes, "Yeah, that sounds good." But when you see it, and you see the output, and you get to play with it, it's a different experience. So we've got to get more customers in front of the platform and show them exactly what we've done.
Got it. And then just, I guess it was a year ago at your Investor Day, the Daylight Partnership got announced.
That's right.
There's been a number of other things we've talked about in the subsequent 12 months, but maybe can you just remind us what that is and, and where that stands, and when does that become kind of a product offering for Repligen?
Yeah. So Daylight is... We're about a year into the licensing deal with Daylight. I think we went into it with the belief that mid-IR technology can be similar to flow coming from C-Tech, can be a disruptive inline analytical tool, especially for a couple of applications. One is aggregation, which is a big problem in our industry, and the second one is formulation final formulation, fill- finish. Step one was to prove that the applications work, and we've been able to successfully show that the technology works for these applications. What we're trying to do now is that the box that, you know, we have working with Daylight, it's, you know, it's not robust enough.
So we've been working on that actually this year to make it, a lot more robust so that customers can use it, in these type of applications. So we expect next year that we will pick up some sales, but we probably will revamp the box completely, in 2024 and just come out with a better box, so that, that then becomes the foundational piece for, analytics. So we really, really believe that we have a great channel now into, into bioprocessing through analytics. And the Daylight solution is absolutely a need, and we're sitting on what we think is really, great technology. We just need to push it across the finish line. So some sales next year, but I think, you know, revamp the box and, ready for 2025.
Got it. That's, that's helpful. And then, on just going back to system strategy, you know, things you can control, that's something you can control right now. So can you talk about ARTeSYN and Process Analytics and, and where they fit in the system strategy?
Yeah. So the, you know, our system strategy has really evolved. I mean, we had Spectrum back in 2017, and that was really a benchtop all the way to production scale system portfolio, very focused on hollow fiber processing. And that's worked really well for us. And then the ARTeSYN deal gave us chromatography, gave us high-pressure filtration, like flat sheet cassette. So we were actually able to bring our whole TangenX portfolio into the fold by having the ARTeSYN portfolio of products. The challenge with ARTeSYN was that they were a custom shop. So they made great custom systems, but no two systems looked alike unless they were selling it to the same customer.
You know, Gautam, who runs the business for us, he went ahead and revamped that, and we've gone with a kind of a base model with options. And that's really, we launched some of the products in 2021, and then the rest of them in 2022. They're doing, you know, now that we've seen a little improvement in the second half of the year in capital spend, it's better than the first half. So we've definitely picked up some nice system wins over the last three, four months. Adding in now analytics into it just will give us further differentiation. And so for me, you know, selling the most differentiated product becomes kind of important. And we've trying to model our systems so that they are designed for the mAb world, and they're designed for the new modality world.
So there are differences between how those systems are set up and how we design them, and I think that's kind of the direction we're going in.
Got it. And then kind of also a piece of that, something that you kind of built out since the beginning of COVID has been the fluid management business, which seems complementary with, with the system strategy. So what is the strategy around, fluid management? And, and given the macro, I think it's difficult to, to assess how that's going.
Yeah. So I would say there's two sides to the fluid management portfolio. There's the component side, which were all the individual companies that we acquired. They're all suffering from the same problem that-
Yep
... everybody else in component fluid management is suffering from, which is excess inventory out in the marketplace. So that's been a challenge. The overall strategy was always integrate the components into assemblies and into line sets and into flow paths that are solutions for our systems and for our customers. That part of the business is doing well, right? And I think the businesses we've picked up this year, the bag business from FlexBiosys and Metenova on the mixing side, just puts us in a much stronger position to bring all components together. We're probably one of the few companies that have vertically integrated.
Yeah.
So, on paper, that should give us a little bit more flexibility on price, and this is a pretty price-competitive market, right? Everybody has a similar type solution. So how do you win? That's going to be the interesting part, and I think we've made good strides in 12 months since we moved into the flow paths assemblies side of it, and that's going to be where the growth is gonna come from.
Got it. And then chromatography, I think that's a business where the column volumes held up relatively well, but the revenues may be a bit different. Can you just talk about the revenue impact from customers purchasing resins themselves? Kind of where do you stand in that effort of having them order? And then maybe, once you're done, Tony, to give you a break, Jason, can you just talk about the margin off on that piece?
Yeah, what's interesting about the OPUS business is for the last five years internally, and we've talked about it externally as well, is we've been trying to get away from Repligen procuring resin for customers because we end up getting, you know, single-digit margin on any resin we procure. You pass it on to the customer, you get a couple of percent, 2%, 3%, 4%, whatever it is, margin on those types of transactions. And when you think about, you know, let's say OPUS, let's say 45 cm column, I think that might be what? Normally, I don't have the exact number, but let's say it's around $60,000 for the column, and I could be off on that. So, not trying to say I'm an expert on the pricing here, but just assume $60,000.
But you might have $300,000 worth of resin in that column. So if you have reasonable margins on the column and you have 3% margin on the $300,000 of resin, it doesn't take a genius to figure out that you're gonna have a crappy business on margins after, once that business, you know, starts to really grow. So we have deliberately, in North America, pushed back on customers and said, "You know, you need to drop ship the resin to us or have it drop shipped to us." So I would say 90% of the customers in North America drop ship resin to us, 10% we procure resin on behalf of. That is versus five years ago, 50% drop ship, 50% was column revenue, 50% was us procuring resins for customers.
So that's, that's where we were. Now, in Europe, we opened up two years ago with a new facility.
Yeah.
I would say overall, we're probably 65-35, 70-30 column to resin revenue right now. So that's come a long way overall.
Yep.
I expect that Europe, over the next couple of years, will move towards 90/10.
Yep.
And then the only place where we'll be kind of in a 50/50 situation would probably be Asia.
Gotcha. On pricing, but not of this column related, but pricing in general, inflation's led to above average pricing this year. As we head into next year, anything we need to be thinking about on the pricing side of things?
Yeah, we see pricing flat. You know, we'll probably still raise some of our prices 1%-2%, but on a net landed basis, you know, it'll likely be flat, you know, versus 2023, that's probably somewhere between 4%-5%, and more of a historical view of 1%-2%, right? And so, you know, certainly as we move past in 2024, you know, we expect we can get back to that 1%-2%, but next year, we'll really see more of the flat level. Once again, we're going after a finite amount of share, right? And so that, that's gonna be, but like Tony said earlier, you don't wanna give up big deals for a couple points of price here and there, so.
That's all I had, and we ran through a lot. So Tony, Jason, thank you guys so much for being here. Always great to have you.
Thanks, Jacob.
Thanks. Thanks a lot.
Thanks, guys.