For joining us here this morning. My name is Matt Stanton. I'm an Analyst on the Life Science Tools and Diagnostics team here at Jefferies. Happy to have the team from Repligen back with us at the conference again this year. Some new faces. We have Jason and Olivier joining us. Sondra's here as well, and Stephen. Thanks for joining us today, guys.
Morning.
Morning.
I guess, you know, maybe one for you, Olivier, to kick it off. You know, you joined the company last fall as President and Chief Commercial Officer. Prior experience includes over a decade at Danaher Cytiva, also on the CDMO side at Lonza, both much bigger companies than Repligen. You know, can you talk a little bit about what attracted you to Repligen? You know, maybe what you've been surprised since you've joined, you know, what you've learned now that you're on the inside. I know you've been out on the road a lot, meeting with customers, you know, across the globe, biopharma, pharma, CDMOs. Just love to hear kind of what you're hearing about from customers, you know, as it relates to Repligen.
Yeah, no, good question, Matt. So before I joined Repligen, I knew the company because of its innovation and the breadth of innovation, the number of incredible products that were being launched on the market during the last five to 10 years. When I joined, I realized like that was a real fact and that R&D is a real engine for the company. We are capable to indeed bring those breakthrough innovations, but also at a very fast pace, which is very impressive. What I did find out that I probably didn't foresee before I joined the company is the breadth of the portfolio is really nice. I mean, before I joined, I knew Repligen for its process intensification capabilities, for its pre-packed column capabilities, but in fact, we've got much more than that.
I'm very excited about it, obviously being the Chief Commercial Officer, because we've got such a breadth of portfolio that this is opening us a lot of doors with key accounts and giving us a lot of opportunities for sure. Maybe the last piece I would mention is I like the size of the company. I mean, indeed, as you mentioned very rightly, I work mostly for bigger organizations. I think we are exactly the right size of company to be agile and, more important than anything else, be very customer-centric, meaning like listening to our customer needs and making sure we support them well.
Okay, that's helpful. I guess one on book to bill, I'll be the only one on book to bill, maybe for both of you, is just, you know, simply put, you know, as we think about the evolution of book to bill and the focus there, you know, why was book to bill a good metric, you know, over the last year or two in certain circumstances? And I guess, you know, as we look forward, why might it not be the best metric? And, you know, maybe the reason and rationale to shift to orders or other metrics that we, you know, had looked at, say, going back pre-COVID.
Yeah, man, it's a great question. Look, there's always many lenses to look at a business, and some of them are more important, to your point, at times than others. And so for us, when we look at, if you go back the second half of 2022 and the first half of 2023, that 12-month period, our Book to Bill was 0.85 on average across. When you look at the last nine months, so the second half of 2023, first quarter of 2024, 1.03. So for me, and the way we were looking at it, it helps to signal that change in trajectory, right? And so that we were absolutely, and everybody saw it, right? Even though you didn't see it in the sales yet in the end of second quarter, or sorry, the end of 2022, and then even in the first half of 2023, orders were coming down.
And so now we've turned that corner. We're back to this level. And so now for us, to your point, it's really just about what orders are we getting to sustain the revenue growth? And in a lot of ways, they can grow consistently. And so, you know, the math will be there, right? It'll be orders divided by sales. We can always look to it and talk to it, but it's now less of a leading indicator and a change of trajectory, and now we're just going to execute our growth plan.
Yeah, yeah, that's helpful. I guess in going to the, you know, the long-term growth algorithm, you know, a lot of focus is on the near term, but just taking a step back, you know, Repligen has done a really good job outgrowing the market. You know, I'd love to hear just kind of your thoughts, you know, fundamentally, is there anything that has changed that would, you know, over the medium term that would cause that kind of, you know, growth algorithm to change, kind of, you know, call it low double-digit market growth? And, you know, Repligen adds a few points on top of that through, you know, product innovation, maybe new content and new modalities, you know, any other, you know, items you spike out there, but just kind of high level is that long-term, you know, growth algorithm change there.
Yeah, no, sure. I mean, I really don't see any reason why we shouldn't be able to grow faster than competition here. And I think you picked up already a couple of reasons why. I mean, innovation is absolutely critical. I mean, this is like the DNA of Repligen, and I can guarantee you this will stay the DNA of Repligen. We are going to bring like real true innovation that are going to enable our customers to be better. So that's really number one. I would say number two is we are still pretty small compared to at least the four big guys. And the beauty of being smaller is like, yeah, we've got a lot of chances to gain market share across the board. And you heard me saying earlier, we've got a very, very broad portfolio of product right now.
Well, one of the initiatives we've taken and that we are just pushing right now quite a lot is to really get much more of these key account managers on the field. We just added three more. Now we're covering like 21 big accounts for our companies. And I mean, this is going to give us now the chance to just sell much more than only one or two bits and pieces. We're now starting to have access to the C-suite level key decision maker and being able to sell a third, a fourth, a fifth product. So that's also going to help us a lot generating that extra growth for sure.
That's helpful. Maybe just picking up on one item we talked about there, you know, on the commercial side, the key account strategy, right, which I think has been a big focus for you. You know, can you just give us an update on, you know, how that strategy has been going? You know, historically, maybe Repligen has been a bit under-indexed to those relative to the other guys. And just kind of any tangible points you can, you know, call out in terms of progress, both at the larger biopharmas, but maybe also the larger CDMOs as well.
Sure. So in our business, you want to try to escape to procurement as much as possible. And I mean, like many other businesses, probably the same, but in our business in particular, you need to get access to those key decision makers, which are people in process development, people in manufacturing, to a certain extent, people in quality automation, and so on and so on. When you are small, sometimes it's not very easy because the first entry point is always procurement. When you manage to become bigger, you start to slowly but surely get those entry points that I was just talking about on the different function side. Having that key account management team in place and we are hiring like very experienced people in the field is just opening those doors at the highest level on all of these functions.
This is just enabling us to accelerate our growth like very, very, in a very tangible manner. You mentioned both CDMOs and pharma because that's a really great point. The first wave we were mostly focusing on pharmas. Now the second wave, the three people we just added, half of the accounts we're going to focus on are going to be CDMOs because we realized that's an area where we need indeed to get access more to these key decision makers. This is very successful. I mean, I won't give any specific numbers, but the traction we have on those big accounts is absolutely excellent.
That's really helpful. Maybe shifting gears over to cell and gene therapy. You know, you've talked about kind of these 20, 25 customers that are over $1 million each that are really scaling up later stage clinical and also, you know, to commercial. How should we think about the durability of this to Repligen? I guess what I'm getting at is, you know, maybe not all are successful, but as those move, you know, through the later stage clinic into commercial, you know, it should be pretty durable multi-year growth. Just how do we think about the kind of, you know, multi-year opportunity there as those programs, you know, continue to scale up, go commercial, and, you know, hopefully ramp to, you know, successful commercial drugs?
Sure. So I like to say we are ahead of competition in terms of serving the cell and gene therapy market. And this is kind of reflected in the amount of sales we do with those businesses, which is very close to 20% of our overall business, which is significantly higher than most of our competitors here. And the reason is because Tony and the Repligen team have been like very visionary, like back probably already five to 10 years ago, that there would be specific needs for those new modalities. And when I say specific needs, it's really across the board. I mean, you don't need the same equipment to manufacture a cell and gene therapy drug as you need to manufacture a few hundred kilogram type of monoclonal antibody product. But you also don't need the same consumable.
You don't need the same resin because you need to have very specific features for the product that are being used for those modalities. So not only we've been like visionary, like probably five, 10 years ago, which is why we've got that level of sales, but on top of it, also now more recently, we are launching products that are just focused on those new modalities. The best example being that RS10 piece of equipment we just launched a month, month and a half ago, which is not replacing anything existing. It's a brand new offering that didn't exist to enable people really to do that TFF step for anything like cell and gene therapy and RNA because that is the right scale. So we are going to keep on really investing into new products to meet demand that didn't really have a solution so far.
The other good example is we acquired a company called Avitide about two years ago or so, which is partly focused on that new modality area as well. I mean, the traction we're getting on that side is also very, very significant right now.
That's helpful. I guess, you know, like you said, a lot of products have got traction. You've got a pretty healthy pipeline. Are there any areas of the Repligen portfolio you think, you know, that are underrepresented in cell and gene therapy and maybe have, you know, more opportunity to drive adoption there?
Yeah, sure. So we merge all new modalities together. So it's not only cell gene therapy for us. We also have mRNA under the same bucket. And today, if you look at those 18%-20% of our sales in the new modality, today the majority is in the AAV arena. Then second biggest is mRNA. Then third one is cell therapy. I think if there is one area where we should probably focus a bit more on the cell therapy side, that's probably not our sweet spot in terms of having the right product offering at this stage. Cell therapy on its own is challenging because there are a lot of subsegments on the cell therapy side between autologous, allogeneic, and you call it iPSCs that seems to have a lot of traction lately.
It's a market segment that has got so many subsegments that it makes it even more complex than some of the other ones. That's definitely something we need to look at probably a little bit closer. I would say both from an equipment and on the consumable point of view as well.
Okay. Maybe one on equipment, a smaller piece of your portfolio, but, you know, for you and kind of the broader industries, maybe been a bit of a choppier market than kind of the des tock we've seen on the consumable side. You know, Olivier, maybe for you just kind of talk about the pace and slope of the recovery on the equipment side and maybe what, you know, what gets the equipment side, you know, back to kind of normal. Is it just new capacity builds? Is it maybe something else out there? And then, you know, maybe second part for you, Jason, is just talk a little bit about for Repligen, you know, your equipment book, how, you know, kind of the duration of that, you know, from orders to revenue is kind of how short or long is that process across the portfolio?
Yeah. So again, I'm going to use the word segment, subsegment, because when you look at the hardware business, you've got quite a lot of different segments. And just to simplify it, I like to call it lab equipment, lab hardware, and then more of the manufacturing equipment just to try to simplify it. On the lab equipment side, I don't think we're facing any particular slowdown. There is always some type of seasonality, which is like quarter one is always very low because typically when you're running a lab, whether in academia or whether you're in a pharma company, you get a certain budget for the year. Once November comes, I mean, you just want to make sure you spent your budget because otherwise you're never going to get the same budget the year after.
So it's always like quarter four is very strong for lab equipment and that quarter one is always very low. And so on that side, I would say there is no real pattern that we've seen that could be concerning. Where there is indeed like a bit more of a challenging situation, and that's what we quoted during our Q1 earnings call, is on the hardware that is used in manufacturing. So what you would typically call the large scale hardware, whether chromatography system, whether TFF system, and so on, where we've seen indeed some type of slowdown or disappointment, particularly in quarter one. Here again, you have to look at different type of customers. I would say pharma have been like having more or less a normal pattern in terms of buying equipment. We've not seen so many project delays in quarter one.
We've seen many more on the CDMO side, and we've seen a very weak hardware demand on the small biotech side. And then reason being like even though some of the money is finally reaching those people, there is probably going to be about a year of lapse before they really start to use that money to spend on CapEx, we think.
Yeah, and the follow-up too, and then the timing. So again, it's a similar story, different. It can depend on the equipment. So there could be some of that lab scale that could be a six-week cycle, right? So again, that's the type of order you can turn around within the same quarter. We might have some of our larger scale systems that could take three to six months. But again, you know, for us, we're not going to be building a, you know, this incredibly long, big backlog on equipment. We'll be able to turn through that pretty quickly as well and execute it to sales.
Okay, great. On Metenova, it sounds like progress there has been pretty positive since you closed the deal last fall.
You recently introduced a new bag there, I think some other technology to the single-use market ahead of the launch of the mixer in the back half of the year here. Can you just talk a bit more about the launch, you know, how significant this could be? I think this is the first product out of Metenova that you'll plug into the, you know, Repligen channel more broadly, which has been, you know, successful in the past for M&A deals. And then, you know, I think the portfolio there has been more stainless steel. Is it a different customer you're selling to? Same customers? Talk about, you know, kind of commercial approach there as well.
Sure. So the reason why we bought Metenova was not so much for the existing business, but more for the technology we acquired, sorry, for the technology we acquired, which is this magnetic mixing system that is very, very unique in the industry. So we need to look at the performance of the business from two angles. One is really like the business we acquired because obviously we want to make sure that the growth is happening on that side. And so far, the performance has been like absolutely according to our expectations, which, as you mentioned, is all stainless steel mixing equipment for the time being. And this is going via distribution, but via distribution to the same customers we have for the rest of the portfolio.
But the main reason why we acquired Metenova was to develop a single-use version of those mixers, which is being like right now, as we talk, worked on in our R&D labs and so on. And we're still aiming for launching those single-use mixers by the end of this year. And that we think is going to be like a fantastic add-on to our overall fluid management portfolio. But we always try to have another vision, which is a step later. And the next step, once we've launched our own mixers with our own bags, will be to launch what we call universal bags, which will enable our customers to basically buy their mixing bag from us instead of being fully bound with the supplier they had for mixers. I mean, one thing we figured out in the industry is people like got fooled a little bit by suppliers.
Like, once they bought their equipment, they were like bound with these guys forever. We think like one of the ways to do business differently is going to be to open the platform to competition so that people realize like they're just not bound to one single supplier forever. That's the role we want to play. I can tell you we get fantastic feedback from the market on that. For the time being now, it's just about executing and making sure we've got that offering probably sometime second half of 2025.
Okay, that's helpful. You touched on it a little bit here, but maybe spend a bit more time on just, you know, CDMOs. It's been a bit of an area that's been a little more up and down, maybe a bit of that, you know, just more lumpiness of that business. You know, would love to just hear kind of your most updated views or thoughts on the CDMO market, maybe how it varies by large versus small, you know, U.S. versus ex-U.S. And I guess, you know, there's some bigger headlines out there in that market, Novo, Catalent, Biosecure, you know, maybe to the extent, you know, those are impacting demand today or kind of how those could shake out over the next few years.
Sure. So it's a really broad topic, so I'll try to be really concise here. First of all, if you look at the very large scale CDMOs, and I'll quote Samsung here, I mean, they're in pretty good shape. I mean, and why are they in good shape? They're in good shape because they are focused on commercial drugs. 90%+ of their sales are on commercial drugs. And as we mentioned several times, that pharma market has kind of recovered more or less completely. So big, large scale CDMOs are definitely enjoying a better situation today. So ones that are struggling more are the ones that are more on the other hand, which is like very early phase type of projects, because unfortunately, the number of projects coming out of small biotech is still pretty low.
But even from some of the pharma companies who have been like acquiring a lot of funnel from these small scale biotech and so on, they also have probably a little bit of a gap on that side. So CDMOs that are more towards the early phase type of project are still having a bit more of a hard time. Then comes the geographical split that you were alluding to, Matt. So China is obviously like very difficult right now, not only for CDMO, by the way. It's across the board also for pharma companies. The Biosecure Act, I mean, that we're all following very closely.
You've seen the latest development that apparently now instruction is being given to U.S. companies using a Chinese CDMO to get out latest by the end of 2031, which is far away, but close enough that it's generating already quite a lot of noise and so on. But obviously, China is a very difficult market right now. And then on the Catalent topic, obviously, some of the other CDMOs could potentially benefit from that recent acquisition. We are not sure, but it could be that if for whatever reason Catalent decide to only focus on their own product, some of the Catalent CDMO product could move somewhere else. But nobody knows about that. There are a lot of moving pieces. What is common to all of it is the market has not recovered fully yet. And we're still hoping to see some real improvement over the next few quarters.
That's really helpful. Maybe, you know, shifting gears over to China, obviously still very challenged, like you said, I think, you know, kind of best way to describe it for you and kind of the broader tools group is maybe bouncing along the bottom here. You know, are there any things you can point to in terms of customer conversation, funding, maybe even stimulus on the horizon that would make you start to think that, you know, 2025 could return to growth, also understanding, you know, there's very easy comps over there, you know, after what we've seen over the last 12+ months?
Yeah, so I like to tell you we're optimistic, but unfortunately, I don't think we are that much yet, to be honest with you. And unfortunately, there are so many factors that are going against the China market right now. And I just mentioned three or four of them, I mean, and maybe some that are a bit newer to you. So the first one is obviously the economic situation of China. So everybody is aware about that, the real estate challenge and so on. The overall economy in China is under a lot of pressure right now. But the second one, which I think maybe is a bit newer for all of us here, is like pharma companies themselves in China are suffering a lot because the reimbursement price of drug is like 10% of the reimbursement price of drug here in the U.S.
So you take products like PD-1 drugs and so on. I mean, the reimbursement price is like so low, like most of the big pharma companies in China, the local one, like the Innovent of this world, they are really suffering right now because they just can't generate profit at this stage. So obviously, this is adding some more pressure into the system because those companies themselves are struggling to be profitable. And then obviously, the next piece is like if the more pressure you have when you're a pharma company to be profitable, the more you have to source locally to avoid spending too much money on your equipment, on your consumables.
So the share of local companies has probably more than doubled before COVID until now, which is why it's even more challenging for some companies like the U.S. and European companies to get their market share back here.
Yeah, that's helpful. Okay, in the last few minutes, Jason, I'd like to maybe touch on margins a bit. On the gross margin side, I think this is an area you've been very focused on. You know, clearly, Repligen added a lot of capacity over the last few years. We think of kind of pre-COVID margins in the mid-50s%. You've guided to 49%-50%, I think, for this year. You know, as we think about a bridge back to that pre-COVID level, you know, outside of simply the volume leverage, is there anything else to kind of stick out there in terms of opportunities to drive those gross margins back to pre-COVID levels?
Yeah, so you're right. Volume leverage is going to be a piece of it, but I'd still break that up. There's the leverage you just get on your fixed cost structure, right? Where that stays the same and you're getting more sales out. And then I think the other thing that we'll find is that for the resources that we have, we're going to be able to get more out of that without adding more, right? So I'm going to get some of that efficiency back from a volume piece. The other thing is certainly as proteins grows, returns to growth again, that's going to help from a mix perspective. You know, proteins is a, you know, higher than our company average, and that's down, you know, 30%-35% this year. You know, we've talked about this is a flat price year.
You know, we do expect that we'll be able to get back to, you know, some level of price growth, 1%-2%. So that certainly will fall through to the bottom line and help profitability. And then the rest will be good old-fashioned productivity execution in our manufacturing sites. We'll continue to ensure that we've got the right footprint. And then also just, again, driving, we have a program called our Repligen Performance System that, again, just drives, you know, productivity at a project level across all of our sites to continue to get more out of what we've got.
That's helpful. Then just one quick one on the pricing. So the flat pricing for 2024, is that kind of a, the way I think about it is net pricing. So maybe you're still taking a little bit of pricing because there's still kind of an inflationary impact this year.
Yeah, absolutely.
More normal inflation and you're taking, you know, one or two net where this year is, yeah.
Yeah. And even if you look under the hood, there's going to be some products that are up, some that might be down. We're going to, we have issued price increases, but again, recognizing there'll be, you know, our big customers have taken a lot of inflation over the last few years. We know this isn't the right time to keep pushing that maybe as aggressively. We have our key account strategy, which frankly will always be a pressure to price as well. But we do expect to get back to kind of normal levels next year.
All right. With that, we're out of time. Thanks for joining us today. Appreciate it.
Thank you. Thanks everyone.