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Why Is No One Talking About Repligen Stock?

Maxx Chatsko, The Motley Fool

Discussions of investment opportunities in the biopharmaceutical industry tend to be driven by trends. Years ago, monoclonal antibodies and biosimilars were popular investing ideas. Today, experimental therapies relying on gene therapy and CRISPR gene editing have taken center stage. The problem with trends is that they may not be great indicators of where the field is ultimately headed. The rise of biosimilars turned out to be a bit overblown, while there's strong reason to think CRISPR won't be the gene editing tool of choice.

Investors interested in the power of living technologies in medicine might want to adapt their strategy. One area that's absolutely crushed the S&P 500 without facing the risks of drug development: bioprocess developers. Repligen (NASDAQ: RGEN) stock has enjoyed a 30% year-to-date gain so far this year and a 260% gain in the last five years. The business expects revenue growth of at least 22% this year. And yet no one seems to be talking about it. Here's why you shouldn't ignore the stock.

A technician checking a bioreactor.

Image source: Getty Images.

The business by the numbers

Repligen is a $3.1 billion bioprocessing company that develops and sells products to help drug developers manufacture biologic drugs ranging from monoclonal antibodies to gene therapies. The company's products are used to make both clinical and commercial volumes of drug products for customers across the biopharmaceutical industry, which insulates the business from the risk of clinical trial failures. Of course, customers that earn marketing approval for new drugs require larger volumes of product, so clinical outcomes are still important, but they aren't the usual binary events that healthcare investors expect from the industry.

What's more important is the total number of approved biologic drugs. Good news: A record 13 monoclonal antibody drugs were approved by the U.S. Food and Drug Administration in 2018, and 40% of all monoclonal antibodies ever approved have launched since 2016. More than 400 are in clinical development today. Repligen has positioned itself to capture an increasing share of the expanding market over the years through acquisitions and in-house research and development, demonstrated by operating results in Q1. 

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$60.6 million

$44.8 million

35%

Gross profit

$33.8 million

$25.1 million

35%

Gross margin

55.8%

56%

(20 basis points)

Operating income

$11.1 million

$5.9 million

87%

Operating margin

18.4%

13.3%

510 basis points

Net income

$8.0 million

$3.5 million

128%

Data source: Press release.

The strong performance in the first quarter prompted management to raise full-year 2019 guidance across the board:

Full-Year 2019 Metric

New Guidance

Initial Guidance

Revenue

$235 million to $241 million

$218 million to $255 million

Operating income

$39 million to $42 million

$36 million to $39 million

Net income

$24.5 million to $27.5 million

$23 million to $25 million

Diluted GAAP earnings per share (EPS)

$0.50 to $0.56

$0.48 to $0.53

Adjusted EPS

$0.84 to $0.90

$0.81 to $0.86

Data source: Press release.

Repligen noted that expectations for the year ahead don't include the financial impact, positive or negative, from its most recent acquisition or potential additional acquisitions. That's important to note considering management has made several major acquisitions in recent years.

The pending $240 million acquisition of bioprocess analytics company C Technologies is expected to add about $16 million in revenue (equivalent to the recent guidance increase) and be accretive to adjusted EPS for the seven months of anticipated ownership post-closing. The technology will provide enhanced ability to measure concentrations of biologic drugs during production, which is an obvious fit for Repligen and could play an integral role in next-generation products in development today.

While the business raised $190 million in net proceeds from a stock offering to pay for the cash portion of the acquisition, it exited March with $196 million in cash and cash equivalents and cash flow positive operations. Therefore, additional acquisitions in the fast-moving space aren't off the table, and management has expressed interest in bolstering its process offerings for gene therapy customers.

Don't overlook this bioprocess leader

Repligen isn't a household name, but it continues to create tremendous value for the biopharmaceutical industry. Due to its track record of double-digit growth and comfortably profitable operations, shares are a bit expensive by traditional benchmarks. The stock sits at 64 times future earnings and trades at 15 times sales. That said, investors with a long-term mindset might find that to be a relative bargain compared to where the business could be in five years.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.