By
Smith On Stocks
:
Investment Opinion
Repligen (
RGEN
) has gone through a metamorphosis that has dramatically changed
its business model and investment outlook. For years, it was
focused on drug development but it was also building a high quality
bioprocessing business that provides consumable products used in
the manufacturing of biological products. The acquisition of a
major competitor, Novozymes (now Repligen Sweden), in 2011 provided
the critical mass for a standalone business in bioprocessing;
management and the board decided to exit the drug development
business to focus on bioprocessing.
The bioprocessing business has outstanding investment
characteristics:
- The major macroeconomic force driving Repligen's business is
the clinical development and commercialization of biological
products, especially drugs based on monoclonal antibodies.
Monoclonal antibodies are a $57 billion global market growing at
9% or more per year; there are about 50 approved products and 300
new products in development.
- Repligen's most important business area is manufacturing
protein A which is used to purify monoclonal antibodies during
the manufacturing process. Repligen supplies over 95% of the
world market.
- Long term, multi-year contracts to supply protein A give
great stability and predictability to sales and earnings.
- The organic sales growth of the existing line of businesses
is on the order of 10% to 15%.
- Weighed down by the costs of the now exited drug development
business, pretax operating income (before royalties) in 2012 is
projected as a loss of 9.1 million. I project that by 2016, the
pretax operating income of the bioprocessing business will be
$11.8 million.
- The company has a strong cash position and will produce an
estimated $10+ million of annual free cash flow beyond 2013.
- By the end of 2013, Repligen could have $70 million or $2.20
of cash per share.
- Repligen has the opportunity to use its cash and attractive
stock valuation to make accretive acquisitions that could
significantly increase the growth rate over and above that for
organic growth.
I view Repligen as an ETF for investing in monoclonal antibody
drug development without the binary risks presented by
commercialization uncertainties, clinical trial outcomes and
regulatory rulings associated with an investment tied to a single
product. The company reminds me of a documentary that showed how
people who supplied picks, shovels and Levi jeans to miners in the
California gold rush made fortunes without having to take on the
risk of finding gold.
With its exit from drug delivery, Repligen's stock price will be
driven by earnings. In the period 2012 to 2014, there are a number
of issues that must be assessed in order to understand the true
earnings power of the company. R&D expenditures will be cut in
half in 2013 and there are operating efficiencies arising from the
Novozymes acquisition that will also reduce costs. I project that
bioprocessing revenues of existing businesses will grow at 10% to
15% and the improving cost structure can lead to significantly
faster operating earnings growth. Net operating loss carry-forwards
and tax credits of $60 million will be used to offset taxes until
2017, by my estimates.
Investors must be aware of and understand the reason for a sharp
drop in projected EPS from $0.54 in 2013 to $0.27 in 2014. Through
its drug development efforts Repligen holds a patent that
Bristol-Myers Squibb (
BMY
) licensed for the development of its large selling
anti-inflammatory drug Orencia, which has current sales of over $1
billion. This licensing arrangement expires at the end of 2013 with
the result that Orencia royalties will drop from $14 million or
$0.43 per share in 2013 to zero in 2014. Beyond 2014, the company
will derive all revenues and profits from bioprocessing.
Price Target and Stock Opinion
In setting a price target for Repligen in 2013, I would suggest
that investors focus on 2014 EPS. It is misleading to value the
company on 2013 EPS, which contain such a huge component from
Orencia royalties which disappear in 2014. The question is what
multiple should be placed on 2014 EPS of $0.27 which is the basic
earnings power of the bioprocessing business. In addition to
valuing the base business, investors must also look at the cash on
the balance sheet. Because Repligen can fund operations out of
operating cash flow, it does not need to depend on its cash to fund
a burn rate as do drug development companies.
One way of estimating the value of the cash is calculate its
effect on EPS if the $70 million is used to buy back stock.
Assuming a share repurchase price of $6.30, the company could
repurchase 11.1 million shares and decrease shares outstanding from
31.7 million to 20.6 million. This factor alone would increase EPS
from $0.27 in 2013 to $0.41. Applying a price earnings ratio of 20
to 30 would results in a price target of $8.10 to $12.30.
I think that there is almost no chance that Repligen will use
its cash to buy back stock. I just wanted to illustrate that the
cash should be seen as providing substantial value over and above
the enterprise value. In actuality, I think that the cash will be
used to acquire assets or entire companies. If management is shrewd
and I believe that they are, this should produce more value for
shareholders than a stock buyback program.
Taking all of these factors into account, I am setting a one
year price target of $9.00 for the stock. I also think that the
business model can lead to sustained, predictable above average
growth for perhaps a decade beyond 2013. This is the basis of my
buy recommendation.
Repligen's Business Model
Repligen has a unique and highly attractive business model that
is directly tied to the rapidly growing global market for biologic
drugs, especially monoclonal antibodies. The core of its current
business is the manufacture of bulk protein A that could account
for $29million or roughly 69% of the $42 million of bioprocessing
sales that I am projecting for 2012. The remainder of product sales
comes from other chromatography products that are projected to
reach $7 million in 2012 and growth factors with projected sales of
$6 million in 2012.
Protein A is used in the manufacturing of virtually all
monoclonal antibodies and Repligen has over 95% of the current
world market. For reasons that I will touch on shortly, I believe
that Repligen's commanding position is virtually unassailable. For
perspective, there are about 50 commercially approved monoclonal
antibodies and some 300 in clinical trials. While the majority of
these 300 products may fail, if 10% reach the market, it could have
a substantial impact on the demand for protein A.
Monoclonal antibodies are generally produced in living cells
that are grown in fermentation tanks. These cells have been
genetically engineered to incorporate a gene that expresses a
desired monoclonal antibody. This protein must then be separated
from the cellular debris and other unwanted molecules in the
fermentation broth. Separation starts with centrifuging and
straining the contents of the tank to remove solid contents. The
remaining liquid solution contains the monoclonal antibody as well
as unwanted proteins. It is next pumped through a chromatography
column that contains porous beads which allow the liquid to pass
through. Attached to the chromatography beads is protein A which
has an unusually high affinity for monoclonal antibodies. The
monoclonal antibody binds to the protein A while other molecules in
solution pass on through. The column is then chemically treated to
release the monoclonal antibody from the protein A.
Once a drug company incorporates protein A manufactured by
Repligen in its manufacturing process, it is nearly impossible to
switch to another product. In living cell manufacturing, even the
slightest change in the manufacturing process can lead to a change
in the end product. If a manufacturer were to change to another
supplier of protein A, regulatory agencies might require studies,
possibly even new human clinical trials, to demonstrate that the
product characteristics have not changed. This would involve high
risk for the manufacturer with little potential for cost savings.
Hence, drug products that use protein A made by Repligen in their
manufacturing process effectively incorporate it for the commercial
life of the product.
Repligen has developed significant internal technical expertise
and a strong brand in bioprocessing. It has a reputation for
quality and service that has enabled it to emerge as a technology
partner of choice to whom market leaders turn for collaboration on
the development, scale-up, and manufacturing of new protein A
related products. Its principal customers are the leading
manufacturers of chromatography beads, GE/ Amersham, EMD Millipore
and Life Technologies; each uses Repligen to manufacture protein A
for their chromatography bead products under long term contracts
exceeding five years.
Chromatography beads from one of these three manufacturers are
used in almost all monoclonal antibodies in clinical trials and
then in commercialization if the products are approved. Hence,
protein A manufactured by Repligen will be used in almost all
monoclonal antibodies that go into clinical testing and will of
course be used if the products are ultimately commercialized. It is
this nearly impregnable market position of Repligen in the protein
A market that is the bedrock of its business model.
For over two decades, Repligen was also involved in the
development of biotechnology drugs. However, it announced in August
2012 that it had decided to exit the drug development business and
focus all of its resources on consumable products for
bioprocessing. The catalyst for this decision was the December 2011
acquisition of the Novozymes subsidiary of the Swedish company
Lund. Novozymes (now known as Repligen Sweden) was the only
effective competitor to Repligen in the protein A market. This
acquisition moved Repligen from supplying about half of the market
to something over 95%. Very importantly, Repligen now has two
different plants that can supply protein A as well as a third
contract manufacturer. It is critical to customers to have two or
more distinct sources of supply in the event that an issue arises
that affect production at one plant. This multi-plant capability
removes an important incentive for its customers to look for a
backup supplier.
Repligen's business strategy is to build a best in class life
sciences company focused on the development, manufacture and sale
of high value added consumables for the growing bioprocessing
market. Protein A is currently its critical product but the company
has other promising products such as growth factors that are used
in a wide range of recombinant therapeutic proteins, monoclonal
antibodies and vaccines; other tests and products used in
chromatography and pre-packed chromatography columns. Repligen can
identify additional opportunities to grow the bioprocessing
franchise through a combination of continued sales growth for
existing products; co-development of new products with existing
partners; product innovation, including additional disposable
technologies for biomanufacturing; and selective acquisitions of
products or companies to expand its product portfolio.
Prior to the acquisition of Novozymes, Repligen had already
begun to diversify its product offering. In 2010, it acquired a
company that out-sources the development of chromatography columns
for clinical trials. This allows drug developer to use Repligen's
expertise to develop chromatography columns instead of trying to
build this expertise internally. This reduces costs and reduces the
burden on the customer's quality assurance group.
Repligen also develops products in collaboration with other
companies. For example, it collaborated with GE/Amersham (
GE
) to develop a ligand comparable to protein A, called protein L,
that is used in the separation of new products based on antibody
fragments; these antibody fragments may offer advantages over
conventional monoclonal antibodies.
I refer to products used in chromatography other than protein A
as "other chromatography products". This segment is projected to
have sales of about $6.9 million or 17% of total sales in 2012. The
final segment of Repligen's business is its "growth factors"
business that is used to manage the growth of living cells in
fermentation tanks. This is upstream of the chromatography
purification products. This business could have sales of $5.9
million in 2012 or 14% of total product sales.
The decision to focus on bioprocessing provides a clear
investment thesis and a unique vehicle for investors to invest in
the rapidly growing biologics business, especially in the global
market for monoclonal antibodies, without the binary risk inherent
in drug development. Repligen is not dependent on clinical trial
outcomes or regulatory decisions on a single product. Another
critical investment feature is that the strong market position and
long term supply contracts promise highly predictable and sustained
growth of protein A sales.
.
The December 2011 acquisition and successful integration of
Novozymes provided a critical mass of bioprocessing products. From
this base, Repligen can identify additional opportunities to grow
the bioprocessing franchise through a combination of continued
sales growth for existing products; co-development of new products
with existing partners; product innovation, including additional
disposable technologies for biomanufacturing; and selective
acquisitions of products or companies to expand the product
portfolio.
Purification of Biological Drugs
Drugs based on monoclonal antibodies such as the blockbuster
cancer drugs Rituxan (sales of $6.6 billion) and Avastin (sales of
$5.6 billion) are manufactured through cell fermentation. The cells
are genetically engineered to produce the particular proteins which
are the basis of these drugs, specifically the proteins rituximab
and bevacizumab. The cells are bathed in a liquid medium that
contains molecules that promote cell growth and expression of the
proteins such as growth factors, hormones, and transferrins
The desired monoclonal antibody which is expressed or produced
is dissolved in the fermentation broth and must be separated. The
first step in the purification process is to remove all solids such
as cells, cellular debris, lipids and clotted material by
centrifugation followed by filtration. This leaves a liquid
solution containing the monoclonal antibody and impurities. This
liquid is then pumped through a glass or metal column that is
packed with a chromatography media made of agarose. This is a
porous gel like substance that allows liquid to pass directly
through.
Protein A is chemically bound to the chromatography media. It
has a highly specific affinity for monoclonal antibodies so that
most of the monoclonal antibody molecules bind to the protein A
while other molecules pass through. Then a change in conditions
caused by washing the column with a low Ph solution results in the
release of the monoclonal antibody from Protein A, yielding a
solution that contains about 97% of the bound monoclonal antibody.
Further chromatography processes are then used to still further
purify the monoclonal antibody.
Protein A
Over the last ten years, Repligen has established itself as the
pre-eminent manufacturer of protein A. It sells protein A to
manufacturers of chromatography media such as GE/ Amersham, EMD
Millipore and Life Technologies (
LIFE
) who incorporate it in their proprietary products. Repligen now
manufactures the native form of protein A and four other
recombinantly produced versions of protein A that are genetically
engineered to achieve certain performance characteristics. With the
2011 acquisition of Novozymes, which was the second leading
producer of protein A, Repligen accounts for over 95%% of worldwide
sales of protein A.
The first or native form of protein A was found on the surface
of Staphylococcus aureus. About 40 years ago, it was discovered
that it binds readily to human antibodies and was easy to collect
and purify. Amersham (now owned by GE) developed a way of attaching
it to an agarose bead and marketed it as a laboratory reagent to
isolate human antibodies. With the advent of monoclonal antibodies,
the pharmaceutical industry saw this as a very effective way to
purify monoclonal antibodies.
The first supplier of native protein A was the Swedish company
Lund. Repligen recently acquired its manufacturing facilities for
protein A with the Novozymes acquisition. Repligen first began to
look at protein A as a potential cancer drug in the early 1980s.
This project didn't work out, but in the process they developed a
next generation recombinant form of protein A that they began
selling for purification of monoclonal antibodies. In 1999, the
company stuck a formative deal to begin supplying GE/ Amersham with
protein A.
There are now four recombinant versions of protein A and the
original natural form. Repligen has developed two recombinant DNA
products and the major chromatography suppliers have developed two
others. Repligen manufactures all four of these recombinant
versions; they each have features which distinguish them from one
another and the natural form. For example, one may provide better
binding or greater resistance to degradation from the clearing
agent used to separate the monoclonal from protein A in the
chromatography columns. The natural form is no longer used with new
products, but for reasons previously detailed continues to be used
with older products such as Rituxan.
GE/Amersham, Millipore and Life Technologies are focused on the
production of chromatography beads. Agarose was the first bead
used, but there are now many different types, which have different
characteristics such as flow rate and capacity. These manufacturers
are primarily interested in creating higher value added
chromatography media. They have elected to use Repligen as their
supplier of protein A. When Repligen was bidding for Novozymes
(then the second largest supplier of protein A), none of these
companies appear to have been competitors. By affording Repligen a
second manufacturing plant, it made Repligen a more dependable and
valuable supplier. In fact, following the Novozymes acquisition, GE
extended the supply agreement for protein A from 2015 to 2021. All
of the protein A used by GE is manufactured by Repligen.
Repligen is able to maintain its dominant market share because
protein A sales are very sticky. Once a company begins development
and commercialization of a monoclonal antibody, it is very
reluctant to change any aspect of its manufacturing process as this
can lead to a change in the characteristics of the product.
Regulatory agencies usually require validation to show that there
is no change and may demand in vitro or human clinical trials to
demonstrate this. Manufacturers are reluctant to change even the
smallest component of their process. This leads to long term supply
contracts with suppliers of chromatography media and the subsequent
long term contracts of chromatography media companies with Repligen
for protein A.
Perspective on the Markets for Repligen's
Products
Repligen sells consumable products that are used in the
manufacture and purification of biological products produced
through cell culture, which is a $150 billion global market. The
major factor determining demand for Repligen's product line are
those drug products based on monoclonal antibodies. This market
segment is about $57 billion and is growing in high single digits.
By 2014, six of the ten largest selling drug products in the world
are expected to be based on monoclonal antibodies.
There are about 50 approved monoclonal antibody products, but
the sector continues to be a major focus of research spending as
there are currently another 300 products in clinical trials. If
even a small fraction of these become significant products, the
market for monoclonal antibodies will expand significantly and
drive future growth for protein A products. The most important
current monoclonal antibody products are used in oncology and
inflammation. However, focus is now shifting to other major
therapeutic areas.
Recently, promising data has been reported on the anti-PCSK9
monoclonal antibodies which appear to be dramatically more
effective than the statins in lowering cholesterol. There has also
been a lot of attention on two monoclonals for Alzheimer's disease,
solanezumab and bevicizumab that target beta amyloid. While these
products produced equivocal clinical results, it highlights the
potential for pharmaceutical companies to use monoclonal antibodies
against disease targets in most therapeutic categories.
Importantly, research continues in oncology as monoclonal
antibodies against PD-1 and PD-L1 are in the opinion of many key
opinion leaders, the most exciting new drugs in oncology.
Repligen sells consumable products which are used in the
manufacturing of monoclonal antibiotics and other biologics; it
calls this the bioprocessing market. It does not compete in the
capital spending parts of the market. Bioprocessing consumables are
estimated to be a $3 billion business that expands steadily in line
with biologics market growth. Repligen is most intertwined with
monoclonal antibody purification which is a $500 million to $750
million global market, much of which comes from the sale of
chromatography media.
Repligen's key products are native and recombinant forms of
protein A which are attached to chromatography media and used in
the purification of almost all marketed monoclonal antibiotics and
also those in clinical trials. Repligen accounts for over 95% of
the world global market with sales of $29 million. Repligen offers
commercial bioprocessing products in two other categories: growth
factors, and chromatography products.
Other Chromatography Products
Repligen sells other products for chromatography. It has an
ELISA diagnostic test that is used to determine if protein A has
leached from columns during the process that separates monoclonal
from Protein A; this test is required by FDA. It also provides
tests to manufacturers to determine if the column is performing in
line with specifications and if the manufactured product remains
free of microbes and endotoxins.
Co-development efforts funded by its strategic partners are an
increasingly important business. As an example, the company was
funded by GE to develop a new affinity ligand (protein L), which is
being used to purify antibody fragments. This product was recently
launched by GE/ Amersham. It is comparable to protein A, but more
specific for antibody fragments, which offer advantages over larger
monoclonal antibodies such as improved tissue penetration.
Repligen receives revenues from R&D contracts performed for
life sciences companies. There has been an uptick in interest in
doing such projects. In January of 2010, Repligen entered a new
segment of chromatography through the acquisition of patented
technology from BioFlash Partners. It allows drug developers to use
Repligen pre-packed disposable chromatography columns called OPUS;
it is intended to be used in clinical trials and small scale niche
commercial products such as orphan drugs in which only small
amounts of drug are being produced.
The OPUS columns can be plugged into the manufacturing process
and allow manufacturers to focus more on drug development and less
on manufacturing issues. Repligen can pack specially designed
columns with any media, not necessarily protein A media, from a
variety of vendors. The OPUS columns are designed to offer
customers a flexible, pre-packed chromatography solution that
enables customers to choose the media, column size and column bed
height. These columns are made in a controlled environment and
shipped by UPS to the manufacturer.
OPUS is not targeted for use with commercial blockbusters. It
aims at the market for clinical trials and possibly for the
manufacture of small scale commercial products such as orphan drugs
which produce small quantities of drug. The overall market for sale
of all chromatography resins for both commercial and clinical use
is estimated to be $500 to $750 million. The market for pre-packed
media for clinical trials is estimated by Repligen to be $100
million. Repligen is in discussions with number of orphan drug
developers which might result in strategic collaborations on
development of columns that could be used in clinical trials and
then in commercial manufacturing. One orphan drug manufacturer is
already using OPUS in its GMP manufacturing process.
There is a significant increase in value added as Repligen
expands its OPUS offering. For a given application, every $1.00 of
sales produced from protein A is accompanied by $5.00 or more by
attaching the protein A to the chromatography beads and to $6.50 if
the bead with protein A is pre-packed in a column. Repligen is now
in a position to capture some part of $6.50 commanded by the packed
column instead of just $1.00 from protein A.
The question arises as to whether Repligen is now competing with
its large protein A customers and if this could strain their
relationship. GE and Life Technologies do sell products which
compete with OPUS. However, I do not see this as a problem. The
primary interest of GE is to sell chromatography media. In its OPUS
products, Repligen is buying the media with protein A attached from
GE and other manufacturers and packing it into their specially
designed columns. I think that these companies view Repligen as a
re-seller that can expand demand for their chromatography media
product lines.
Growth Factors
Through the Novozymes acquisition, Repligen acquired
fermentation growth factor products that are essential for
proliferation and maintenance of cell lines used in the
manufacturing of cell based therapies such as stem cells,
monoclonal antibodies and recombinant DNA products. Growth factors,
like chromatography products, are a fast growing component of
bioprocessing. It is estimated by Repligen that the current market
size is $50 million to $100 million. This gives Repligen a foothold
which it plans to expand through internal development and
acquisition.
The most important product is LONG R3 IGF-I which is ten times
as potent as recombinant insulin and native IGF, which are
currently the most widely used growth promotants. It is sold under
a distribution agreement with Sigma-Aldridge which extends to 2021
and is now used in nine commercial biopharmaceutical products. Key
customers include Amgen , Roche, and Chugai The other growth
promotant products acquired were long epidermal growth factor (LONG
EGF), transforming growth factor alpha (LONG TGF-a), recombinant
transferrin (rTransferrin) which is as an iron supplement for cell
culture and supplements for serum-free or low serum cultures.
Detailed Projection of Sales and Earnings
This section explains how I come up with my sales, earnings and
cash flow projections for Repligen as shown in the following table.
I have broken its business into three components: bulk protein A
manufacturing, other chromatography products and growth factors. I
think that the base Protein A business can grow at a consistent
rate of around 9% or possibly more. The other chromatography
products can probably grow faster due to their small size base,
strong product development potential and opportunities for
acquisition. This is also true of the growth factors segment. I see
them both growing at 20% and 12% per year over the next few
years.
Based on these assumptions, I project a five year sales growth
rate of 13%. However, I believe that Repligen will very likely make
more strategic acquisitions like Novozymes that will bolster the
growth rate. Obviously this is not possible to model and I do not
include any estimate of sales from acquisitions in my projections;
I think that this may provide meaningful upside to my model.
There are other aspects of Repligen that complicate P&L
projections. Dating from its biotechnology drug development days,
it has patents which are critical to the manufacturing of Orencia.
This is Bristol-Myers Squibb's drug for inflammatory disease which
I project to have sales of over $1 billion in 2012. Repligen
receives a royalty of 1.8% of sales of which 15% is then passed on
to the University of Michigan. I estimate that this will contribute
$14.5 million of royalties to Repligen in 2012 and $15.8 million in
2013. This one item could account for over 95% of pretax profits in
2013. The royalty rights expire after 2013 and this will
significantly affect profit comparisons in 2014 relative to 2013.
Another important factor to be aware of is that Repligen has
operating loss carry-forwards and tax credits of about $60 million
so that it is not likely to pay meaningful taxes until sometime in
2017.
Repligen has issued guidance that it expects 2012 bioprocessing
revenues of $41 to $43 million. Adding in Orencia royalties, total
revenues are expected to reach $55 to $57 million. This should
result in GAAP net income of $5 to $7 million. Non-cash operating
expenses are expected to be $4 million indicating that the company
will generate $9 to $11 million of cash from operations. Recent
guidance is unchanged from the second quarter conference call
(August 2012), However, it is higher than the guidance given during
the first quarter conference call (May 2012) which projected
bioprocessing revenue of between $39 million and $41 million, total
revenue of approximately $52 million to $55 million and GAAP net
income of $4 million to $6 million.
The company expects an organic growth rate for the bioprocessing
businesses of between 15% and 20% in 2012. This is faster than
market growth as measured by sales of monoclonal antibody based
products, which is increasing in the high single digits, Repligen
is benefitting from demand arising from the tremendous increase in
the number of clinical trials that are being done for monoclonal
antibodies. That is driving the protein A sales at a faster rate
than the end market commercial sales.
The company has recently provided guidance that it can achieve
$16 to $18 million of pretax income in 2013, if bioprocessing sales
grow at 10%. This is slower than the 15% to 20% expected for 2012,
which was aided by the Novozymes acquisition. Management has
indicated that it expects organic growth of the bioprocessing
business to be on the order of 10% to 15%.
Repligen expects to take a restructuring charge of $350,000 in
4Q, 2012 associated with a reduction in R& D headcount that was
working in drug development. This could reduce R&D expenditures
by 50% from the $10 million that is expected to be spent in 2012.
Management has indicated that it expects R&D expenditures to
grow in line with or slightly faster than sales growth. It notes,
however, that some part of R&D is associated with revenue
creating contracts resulting from collaborations in addition to
that for new product development. In these cases, the R&D
expenses give rise to roughly offsetting revenues. This has the
effect of increasing sales, reducing gross margins and having no
effect on operating income. To the extent, they have a number of
such contracts; R&D might trend faster than sales.
Improved manufacturing efficiencies and increased revenues are
expected to expand gross margins in 2013. The gross margin could
reach 50% in 2013 and could eventually rise to 55%. It also expects
that S, G & A growth will be somewhat slower than sales growth
going forward. At the end of 2013, the Orencia royalty will expire.
This will eliminate roughly $16 million of pretax income. By my
projections, this will cause pretax income to drop from $17 million
in 2013 to $6 million in 2014.
The company has a net operating loss carry-forward and other tax
credits of over $60 million which suggests that it will not be
paying US taxes until sometime in 2016 by my projections. The tax
liability for 2012 is expected to be $300,000 due to profits earned
in the new Swedish subsidiary for which the US tax credits cannot
be. I am estimating that the tax rate will be minimal through 2016
and that the tax credits run out in about mid-year 2017. My tax
rate estimate for 2016 is about 23% and 35% in subsequent
years.
| Sales and Earnings
Projections for Repligen: 2012 to 2016 |
|
|
|
|
|
|
|
|
|
FY 2012 |
FY 2013 |
FY 2014 |
FY 2015 |
FY 2016 |
| Bulk Protein A |
28,790,000 |
31,093,200 |
33,891,588 |
36,941,831 |
40,266,596 |
| Other chromatography |
6,888,500 |
8,266,200 |
9,919,440 |
11,903,328 |
14,283,994 |
| Growth factors |
5,900,083 |
6,608,093 |
7,401,064 |
8,289,192 |
9,283,895 |
| Bioprocessing Revenue: |
41,578,583 |
45,967,493 |
51,212,092 |
57,134,351 |
63,834,484 |
|
|
|
|
|
|
|
| Royalty and other revenue |
14,807,612 |
16,140,297 |
200,000 |
300,000 |
400,000 |
| Total revenue |
56,386,195 |
62,107,790 |
51,412,092 |
57,434,351 |
64,234,484 |
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
| Cost of product revenue |
24,425,261 |
25,799,612 |
25,093,925 |
27,424,488 |
30,002,208 |
| Cost of royalty and other
revenue |
2,113,037 |
2,409,884 |
0 |
0 |
0 |
| Research and development |
10,347,164 |
5,167,573 |
5,530,906 |
6,056,241 |
6,766,455 |
| Selling, general and
administrative |
13,373,013 |
12,000,000 |
12,803,023 |
13,712,244 |
15,320,276 |
| Total operating expenses |
50,638,163 |
45,377,069 |
43,427,854 |
47,192,974 |
52,088,939 |
|
|
|
|
|
|
|
| Product operating income |
(6,946,543) |
3,000,308 |
7,784,238 |
9,941,377 |
11,745,545 |
| Royalties |
12,694,575 |
13,730,413 |
200,000 |
300,000 |
400,000 |
| Income (loss) from operations |
5,748,032 |
16,730,721 |
7,984,238 |
10,241,377 |
12,145,545 |
|
|
|
|
|
|
|
| Non-operating income |
|
|
|
|
|
| Investment income |
271,747 |
575,000 |
1,000,000 |
1,200,000 |
1,500,000 |
| Interest expense |
(35,331) |
28,820 |
28,820 |
28,820 |
28,820 |
| Other income |
67,145 |
0 |
0 |
0 |
0 |
| Total non-operating income |
303,561 |
603,820 |
1,028,820 |
1,228,820 |
1,528,820 |
|
|
|
|
|
|
|
| Pretax income |
6,051,593 |
17,334,541 |
9,013,058 |
11,470,197 |
13,674,365 |
|
|
|
|
|
|
|
| Income tax provision |
300,324 |
360,000 |
420,000 |
500,000 |
600,000 |
|
|
|
|
|
|
|
| Net income (loss) |
5,751,269 |
16,974,541 |
8,593,058 |
10,970,197 |
13,074,365 |
|
|
|
|
|
|
|
| Earnings (loss) per share: |
|
|
|
|
|
| Basic |
$0.19 |
$0.54 |
$0.27 |
$0.34 |
$0.41 |
| Diluted |
$0.18 |
$0.54 |
$0.27 |
$0.34 |
$0.40 |
|
|
|
|
|
|
|
| Average shares |
|
|
|
|
|
| Basic |
30,919,811 |
31,274,412 |
31,587,157 |
31,903,028 |
32,222,058 |
| Diluted |
31,226,272 |
31,586,173 |
31,902,034 |
32,221,055 |
32,543,265 |
|
|
|
|
|
|
|
| Gross Margin |
41.3% |
50.0% |
51.0% |
52.0% |
53.0% |
| R&D |
24.9% |
11.2% |
10.8% |
10.6% |
10.6% |
| S,G&A |
32.2% |
26.1% |
24.0% |
23.0% |
22.0% |
| Tax Rate |
5.0% |
2.1% |
4.7% |
4.4% |
4.4% |
Disclosure:
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
See also
Sirius XM: Short Interest Could Trigger Another
Super Squeeze
on seekingalpha.com