Repligen Corp

NASDAQ:RGEN

Earnings Call Transcript 2020-Q1

[Operator]

Good day, and welcome to the Repligen 2020 First Quarter Conference Call. All participations will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to Sondra Newman. Please proceed.

[Sondra Newman, Senior Director, IR]

Thanks, Eric. Good morning, everyone. Thank you for joining our call today. On this call, we'll be covering financial results and business highlights for Repligen's first fiscal quarter of 2020, and we'll provide an update to our full year guidance. President and CEO; Tony Hunt, will cover business updates and our CFO; Jon Snodgres, will cover our financial results and guidance.

As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ.

Additional information concerning risk factors is included in our annual report on Form 10-K, the current report on Form 8-K, which we filed today and other filings that we make with the SEC. Today's comments reflect our current views, which could change as a result of new information, future events or otherwise. The company does not obligate or commit itself to update forward-looking statements, except as required by law.

During this call, we are providing non-GAAP results and guidance. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to our website and also on sec.gov. Non-GAAP figures in today's report include revenue growth at constant currency, gross profit and gross margin, operating expenses, operating income and operating margin, income tax expense, net income and earnings per share as well as EBITDA and adjusted EBITDA.

These adjusted financial measures should not be viewed as an alternative to GAAP, but are intended to better enable investors to benchmark Repligen's current results against historical performance and the performance of peers, when evaluating investment opportunities.

With that, I'll turn the call over to Tony Hunt.

[Tony Hunt, CEO & President]

Thank you, Sondra. Good morning, everybody, and welcome to our Q1 earnings call. Before jumping into our overall business performance, I want to spend a few minutes, talking about our response to the COVID-19 pandemic.

It’s clearly been a challenging time for the world, our industry, our employees and our customers. There is Repligen, like so many other companies, we have focused our priorities on employee and family health and safety, where we have implemented multiple programs over the last two months. Minimize traffic at our eight manufacturing sites around the world, while working closely with our suppliers and customers to deliver products on time.

The response from the Repligen team has been truly remarkable. We have kept our manufacturing sites open. We've performed critical service and support at customer sites, and we have effectively managed to execute on our commercial activities while working remotely. Our team has also created a rapid response program for customers who are focused on developing COVID-19 drugs, vaccines and diagnostics, with a goal of manufacturing and delivering key products with a significant reduction in lead times.

The end result is that our business has performed well with strong order demand through the first four months of 2020, along with a noticeable increase in activity related to COVID-19 programs in the last four to six weeks.

While there are still some uncertainties around the impact of delayed clinical trials and the duration of the pandemic on the bioprocessing industry, we remain cautiously optimistic about the year and the overall performance of our company. Therefore, we are maintaining our revenue guidance for the year, increasing our guidance on gross and operating margins, while raising adjusted EPS by $0.02.

So moving now to our quarterly performance, our organic growth for the first quarter was up 16% year-over-year with all four franchises posting positive growth numbers. The story of the quarter was to continue to strength the gene therapy accounts and the performance of our filtration and chromatography businesses, as customers continue to adopt these key technologies. Our proteins business also outperformed our expectations with anticipated GE softness being less than expected, due to late quarter orders and robust demand from our other ligand partners.

Finally, our C Tech analytics business got up to solid start in Q1, up approximately 22% pro forma, as our new global sales team started to promote and sell the VPE technology into our end users and quality control and manufacturing settings. Strategically, our team executed on key long-term objectives of the company.

We said in our February call that we expect the 2020 to be a year of new product launches, and we have not changed this view. We successfully launched our gamma radiated TangenX Flat Sheet Cassettes, appealing to vaccine in gene therapy producers. We also saw increased traction for our TFDF technology at early adoption sites in both CHO and more recently in the gene therapy space. We remain on track to launch five new products here in 2020.

Moving to our business performance, infiltration or single use ATF product line had an excellent quarter. With robust orders in the quarter, a growing number of bench scale evaluations and movement into late-stage clinical processes by existing customers, this business is well-positioned for an excellent 2020. Consistent with other product lines in our portfolio, we are encouraged by the increased orders in March and April, as our customers procure product, for not only planned late-stage processes, but also early stage COVID-related clinical programs.

Our hollow fiber business also had an excellent quarter, led by ProConnex Single-Use Flow Path assemblies across flow systems, which continue to show robust demand. Our TangenX CS Flat Sheet TFF cassette business continues its momentum in Q1, led by success in gene therapy accounts, which contributed approximately 25% of overall cassette sales. With the launch of our gamma radiated flat sheet cassettes, we expect to see increased traction at gene therapy accounts as customers transition to this next gen product.

Finally, we continue to receive positive feedback on TFDF technology. The primary application is in CHO-cell clarification with our field application specialists driving evaluations at early adopter accounts. We've also extended applications of TFDF into gene therapy with a focus on viral vector manufacturing. We've seen a peer yield benefit using TFDF and harvest clarification of viral vectors, most notably in lentivirus.

The COVID-19 pandemic has slowed down our TFDF trials, especially in late Q1, and here again in early Q2, but we expect that the activity will increase through the year, as more customers come back to work in the process development departments. We fully expect to hit our revenue targets for this technology in 2020 and we will deliver our first bench top systems to customers here in Q2.

Moving to chromatography, our OPUS prepacked columns business delivered another great quarter up over 25% year-on-year, with robust demand across our core customer base. We also had some nice wins at large pharma accounts as they continue their transition to our prepacked column solution. Equally encouraging are the customers working with OPUS in downstream continuous manufacturing applications. Four earlier process development programs are now scaling into the clinical stage.

Our OEM franchise -- protein franchise also performed well led by our ligands business. As mentioned earlier, GE which is now Cytiva was down less than expected in Q1, due to late quarter increases in orders. In addition, we saw strength at our other ligand accounts throughout the quarter, which was a major contributor to overall proteins business growth.

The momentum on ligand demand has carried over into Q2 with increased orders in March and April, which are directly related to COVID supply concerns. Based on this, we expect to see less of an impact than we anticipated in 2020 from Cytiva bringing ligands in-house, and we are now forecasting closer to 30% reduction in demand for the year. We therefore expect our proteins business to be down approximately 5% to 7% year-on-year versus our prior forecast of 15%.

Finally, our process analytics franchise led by C Technologies had a good quarter up about 22%, with strong demand in Europe and Asia. We're beginning to see the impacts of our expanded commercial team and from a product perspective, the R&D team continues to move forward with next gen FlowVPE, which remains on track for a second-half of the year launch.

So overall, we are off to a strong start in 2020. The ongoing COVID-19 pandemic has definitely been a challenge in Q1, particularly in China and India where product shipments were delayed. But weakness in these countries was offset by strength in North America and Europe. As we move through Q2, we're very encouraged by the sustained order demand in April and the increased activity related to COVID drug manufacturing. We expect to have a strong first-half of 2020, and continue to stay in close communication with our customers to help assess second-half demand.

From a priority perspective, we remain very focused on new product launches, the implementation of SAP Phase 2, expansion of our C Tech process analytics business and capacity expansion programs. We've activated the Rapid Response Program COVID customers and we remain fully committed to providing a safe and healthy working environment for our employees and customers who visit our sites.

In summary, we're really pleased with our business, financial and strategic execution in Q1, staying collaborative and flexible to market needs. I believe we are well-positioned to obtain our long-term growth targets and we are optimistic about the future. I’d especially like to thank all our employees around the world for their dedication, resourcefulness and commitment, as we work together through these challenging times.

With that, I'll turn the call over to Jon to address our first quarter financials and updated 2020 guidance.

[Jon Snodgres, CFO & Secretary]

Thank you, Tony, and good morning, everyone. Today we are reporting our financial results for the first quarter of 2020, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect non-GAAP measures.

As you seen in our press release this morning, we've executed on another strong financial performance in the first quarter of 2020, with both strong revenue and earnings growth. In addition, with the strength of our business through the first few months of the COVID-19 pandemic, we are staying on plan with investments in product development, capacity expansion, and IT systems to support expected long-term growth.

Today, I'll cover our first quarter of 2020 financial results then move to guidance updates for the full year. Starting with the first quarter, on our top line, we delivered record revenue of $76.1 million, representing 25% reported growth and 16% organic growth. Included in our revenue for the quarter were process analytic sales of $6.6 million related to our C Technologies acquisition that closed on May 31, 2019. On a pro forma basis, this represented year-on-year growth of 22% for C Technologies.

With respect to foreign exchange, our revenue growth included nearly one point of foreign currency headwind for the quarter. On a regional basis for the first quarter of 2020 pro forma direct product revenue growth was strongest in Europe at 48%, with North America growing at 30%, and Asia at 10%. While Asia was impacted in the first quarter by COVID related shipping delays, this region still accounted for 15% of direct revenue. North America represented 53% of direct revenue during the quarter and Europe 32%.

Shifting now to the rest of our income statement, adjusted gross profit in the first quarter was $44.5 million, representing an increase of $10.6 million or 31% over the first quarter of 2019. Our adjusted gross margin was 58.5% for the first quarter of 2020, compared to 56% for the same period in 2019. The 250 basis point improvement was driven by productivity programs and favorable product mix, including stronger proteins revenue and stronger OPUS column to resin mix in our chromatography franchise.

Based on our stronger than expected first quarter adjusted gross margin performance, the healthy view of our order book moving into Q2, and the strength of our productivity programs, we're increasing our gross margin guidance for the year from the range of 55% to 56%, up to 56% to 57%.

With respect to operating expenses, adjusted research and development costs were $4.4 million for the first quarter of 2020, compared to $3.6 million for the first quarter of 2019. The key driver of the year-over-year increase was the timing of our C Technologies acquisition.

Overall, R&D expenses finished the quarter at 5.8% of revenue. However, we expect to see an increase in R&D spending over the coming quarters, as we continue to work through key product launches. And we are raising our internal expectation of R&D spend for the year by $1 million to a range of 6% to 7% of revenue.

Adjusted SG&A for the first quarter of 2020 was $21.8 million, compared to $14.8 million for the first quarter of 2019. The year-over-year increase in adjusted SG&A was almost entirely related to investments made in 2019 to build our process analytics, filtration, and chromatography customer facing teams, investments in capacity and operating infrastructure, and to the inclusion of expenses from C Technologies, which we acquired on May 31, 2019.

Now moving to adjusted earnings and EPS, in the first quarter, our adjusted operating income was $18.3 million, an 18% increase compared to $15.6 million reported in the first quarter of 2019. Our adjusted operating margin was 24.1% compared to a very tough comp of 25.7% for the first quarter of 2019, and was better than we initially guided back in February, due to our strong operational execution and product mix in the quarter, and timing shifts in some of our R&D projects.

Adjusted net income for the first quarter of 2020 was $16.8 million, an increase of 37% compared to $12.2 million in the same period in 2019. Benefiting from items mentioned earlier and a lower than normal adjusted tax rate for the quarter of 15.3% of adjusted pre-tax income, which was driven by benefits from RSU [ph] vesting activity and exercises of stock options in the first quarter. Adjusted EPS for the first quarter of 2020 increased to $0.32 per fully diluted share, an increase of 20% compared to $0.26 for the first quarter of 2019.

Our cash and cash equivalents, which are GAAP metrics, totaled $529.5 million at March 31, 2020 compared to $528.4 million at yearend 2019. For the first quarter of 2020, we generated free cash flow of $4.5 million, inclusive of $9.5 million of operating cash flow, plus $5 million of capital expenditures, primarily related to our facility and capacity expansion projects and IT systems investments.

Now moving to 2020 full year guidance, our GAAP to non-GAAP reconciliations for our 2020 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2020 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2020 guidance may be impacted by fluctuations in foreign exchange rates, beyond our current projection of net zero impact on full year sales, and does not include the potential impact of any new acquisitions that the company may pursue.

Today we're reconfirming our 2020 full year revenue guidance, a GAAP metric at $309 million to $319 million, reflecting growth in the range of 14% to 18% as reported and 10% to 14% on an organic basis. We are increasing our adjusted gross margin guidance for 2020 to 56% to 57%, up from our previous guidance of 55% to 56% reflecting our strong first quarter product mix and execution on our key productivity programs.

We are also raising our adjusted operating income to a range $72 million to $76 million from our prior range of $70 million to $74 million, with adjusted operating margins increasing to the range of 23% to 24% of revenue for the year, up from our prior guidance of 22% to 23%.

While we have not previously provided details on our adjusted other income and expense line, we are now highlighting this in our 2020 guidance, due to the meaningful decline we are seeing in interest rates and the impact this is having on returns from our cash investments.

Our current guidance for adjusted other income and expense is $1 million of income, which has been reduced by $3 million from our previous expectation of $4 million of income. We are also reducing our 2020 income tax expense guidance to 20% of adjusted pre-tax income, from our previous guidance of 23%, based on increased benefits from RSU vesting and stock option exercises.

Based on the aforementioned changes, we are raising our full year 2020 adjusted net income guidance to a range of $58 million to $61 million for the year, an increase from our previous guidance of $57 million to $60 million. Accompanying this raise and adjusted net income, we’re also increasing our adjusted EPS guidance to a range of $1.09 to $1.14 per fully diluted share, up $0.02 from our prior guidance of a $1.07 to a $1.12. Our guidance continues to reflect an estimated $53.4 million fully diluted shares outstanding for the full year.

We are also raising our adjusted EBITDA guidance range to $82 million to $86 million for full year 2020, up from our previous range of $80 million to $84 million, with depreciation and intangible amortization expenses expected to be approximately $10.5 million and $15.3 million, respectively.

The company continues to expect to invest an estimated $20 million to $22 million in 2020 for capital expenditures. As we continue with our plans to build out our OPUS manufacturing capabilities in Breda, increase capacity in our Massachusetts and California facilities and to move forward with our global SAP implementation project.

We continue to expect 2020 yearend cash and cash equivalents, a GAAP metric to be in the range of $580 million to $590 million, with our CapEx investments being fully funded by cash generation from our operations.

This completes our financial report and guidance update. And I will now turn the call back to the operator to open the lines for questions.

[Operator]

[Operator Instructions] And our first question today will come from Tycho Peterson with JPMorgan [ph]. Please proceed with your question.

[Tycho Peterson, JPMorgan]

Hey, good morning. Tony, how are you thinking about the timing of delayed clinical trial impact, given you’re about two-thirds clinical, a third commercial? Do you expect a back-half slowdown given we've seen the delay in some of the trials?

[Tony Hunt, CEO & President]

Yes, it's a great question Tycho. When you look at our industry via processing, there's a lag phase between when manufacturing is completed, and when a clinical trial starts. So that's anywhere between sort of five and nine months. So we're really keeping an eye on second-half of the year to see if any of the clinical trials that might be scheduled for, say, late Q3 into Q4 get pushed out into Q1 and Q2.

Now the feedback we have right now from our customers is really -- the majority of the programs that they are manufacturing are staying intact. We've seen a little bit of push out, right. So we might see, projects that were supposed to happen in Q2 get pushed a little bit into Q3. We haven't really seen any cancellations that have at least that I've been made aware of.

[Tycho Peterson, JPMorgan]

And then we've heard from some of your peers about inventory stocking. Are you able to comment on whether there was a stocking component in the first quarter and any comments on whether GE stock pretends?

[Tony Hunt, CEO & President]

Yes. So in the first quarter, we don't actually see any of the activities that happened in the first quarter related to stocking. And really the only part of our portfolio, when you think about it our proteins business obviously has a majority of what we sell into in our proteins businesses going into commercial drugs. Most of our other product lines as you pointed out earlier it’s about 70% clinical 30% commercial.

So on the on the protein side, we didn't see really any stockpiling in Q1. It was some additional orders that came in, in early March that we shipped out. But in terms of Q2, we definitely think that the additional orders that came in in March and April are related to COVID supply concerns at the GE Cytiva [ph] customer level. And that has obviously reflected in what we think proteins will do in 2020 versus what we thought back at the end of February. So beyond that, we haven't really seen any stockpiling.

[Tycho Peterson, JPMorgan]

And then lastly, can you help us just think about the numbers around any COVID tailwinds in particular around vaccine production? Are you able to talk about number of programs upstream, downstream demand? Can you maybe just help characterize how you think about the COVID tailwinds overall?

[Tony Hunt, CEO & President]

Yes, it's early days. It's really been the last four to six weeks in terms of activity from customers that are moving forward. But we are definitely involved in projects and programs probably just the same as almost every other bioprocessing company. It does come down a little bit too whether you're a platform technology at these accounts because speed is almost critical. People are trying to get into these June through end of summer clinical trials. So where we're strong at accounts, I think we've picked up some nice business.

That said there's always -- when you look at our portfolio as well, it's not like every product line has been immune to COVID. So some of our smaller product lines, we've seen some weakness in over the last couple of months, but any of that weakness has really been offset by strength in our core product lines, whether it's ATF or OPUS or filtration businesses.

[Tycho Peterson, JPMorgan]

Thank you.

[Operator]

Our next question will come from John Kreger with William Blair. Please proceed with your question.

[John Kreger, William Blair]

Hi, thanks very much. Tony, I'm curious how have your commercialization plans changed at all? You mentioned the five new launches still on track. Do you have to kind of alter the plans since I'm assuming your reps can't really get into client facilities like they could before?

[Tony Hunt, CEO & President]

Yes, probably two parts of that question. One is, I'll just talk about the commercial team and their activity. So, you're absolutely right. The number of salespeople that are actually on site at accounts in April, March definitely was some activity probably through the first-half. But really late March, all of April, almost all activity for us, and everybody else in the bioprocessing industry, from a sales point of view has been remote. So lots of web access, lots of zoom calls.

But, the response from our customers has been fantastic. I mean, we're having all the right conversations we're working with our customers on programs that need to get executed in Q2 and Q3. Large orders we were expecting to come in John have come in. So it's worked quite well as we've gone through the last, say, six weeks or so.

But you're right, when it comes to new products and launching new products, I think the majority of our products that we were launching this year, we've been working on for quite a while. So we've done a lot of the alpha testing and beta testing. So COVID hasn't really impacted that. But I think I highlighted in my prepared remarks that, technology like TFDF where customers are really interested in doing evaluations have slowed down, just simply because the folks that would do those evaluations are not on site.

So like every other bioprocessing group, you're kind of dealing with existing products for now. And I think as we get into May and into June, you'll see a little bit more opening up with the process development labs for a lot of the evaluations would happen.

[John Kreger, William Blair]

Great. Thanks. And just one quick follow-up, can you talk about order flow out of China and how that sort of changed over the last couple of months as they start to reopen?

[Tony Hunt, CEO & President]

Yes. I think, if you look at the three countries, four countries that majority of the orders come from, so China, Korea, India and Japan. On the China side, we definitely saw an uptick in orders once China started to reopen. I mean, it was really light through the month of February and into early March, but second-half of March and all of April there was a significant pickup. We saw the same thing in Korea, as well. So it was very similar to China.

And then in terms of countries like India, India is really shut down right now, and you probably heard that on some other earnings calls. But we definitely had some impact to us in terms of just getting product delivered in the last week 10 days of the quarter, as they shut down their airports, even to freight. That's opened up again a little bit over the last few weeks. But in general, I think India is probably quiet right now. Japan is probably status quo and we've seen a pickup in China and in Korea in the last four to six weeks.

[John Kreger, William Blair]

Great, thank you.

[Operator]

Our next question will come from Dan Arias of Stifel. Please proceed with your question.

[Dan Arias, Stifel]

Good morning, guys. Thank you. Tony, just to follow-up on the vaccine side, I'm sure you don't want to go into things at the account level, but just so that we understand where your capabilities lie. Is there any fundamental reason why you wouldn't be able to serve all of the molecule classes that are being worked on mRNA and otherwise?

And then if you just look at the totality of what it takes for a customer to develop a vaccine. Is that at all a higher or lower margin activity for you relative to mAbs and proteins? If we just think about the mix of upstream and downstream products that are needed there.

[Tony Hunt, CEO & President]

Yes. So maybe start with the last part of your question. I don't think that has an impact vaccine versus mAb versus protein on margin profile. I think the technologies that we have go across all molecule types. I think the comment I made a few moments ago around where you're strong at accounts is probably where you're going to see the most activity around the COVID programs. I think it's going to be harder, if you haven't been in an account to jump in and quickly get established in what really is a very short timeframe of say six to eight weeks before people really want to start getting a clinical trial up and running or not clinical trial but making the clinical material.

So, I think we're strong. We've had good activity. And it does cover we're involved in the vaccine side, we're involved in the mAb side, we're involved on the diagnostic side. So you're right. Our technologies do go across the sort of breadth of molecules.

[Dan Arias, Stifel]

Okay. And then maybe on proteins and just thinking about GE Danaher insourcing, it does seem like a tricky time to be pulling off the transition now that they were planning on, especially if you don't really have to. So I guess, I know the way you saw on the protein side was due to better than expected product demand just related to COVID. But do you have a view on whether they might scale back their ambitions for at least this year when it comes to internal production there?

[Tony Hunt, CEO & President]

No, I really don't have any further insight. I do think that the increased orders are absolutely related to increased orders on the GE Cytiva side. And that's just flowed right back into Repligen. Our expectation is that we hit the second-half of the year, I mean, their forecast for the second-half of the year haven't really changed. So, we still expect that instead of being down 50%, I think we're going to be more like in that 25% to 30% down.

[Dan Arias, Stifel]

Okay. Maybe just one more if I could, Jon, my wife started her online work already as you were talking about the margin outlook, so I might've missed something. But does the change in Op margin expectations for the year have anything to do with commercial investment that you were planning prior but not planning now?

[Jon Snodgres, CFO & Secretary]

Yes. No relationship at all to commercial investment, so the plans we have in place there will continue. It's really a result of better than really strong productivity actually as we started the year, as well as some benefits that we've seen in overall mix.

[Tony Hunt, CEO & President]

Then maybe one additional comment on that, there's no doubt that as John and myself have looked at the expense line in March, really mid-March, we did slow down some of the hiring that will flow through the P&L. But it was more out of an abundance of caution to make sure that we could see what was going on from an order load. So we've started to release some of those headcounts as we move into Q2.

[Jon Snodgres, CFO & Secretary]

Now, let’s say most of those are in operations and capacity, obviously.

[Dan Arias, Stifel]

Yes. Okay. That's perfect. Thank you.

[Operator]

Our next question will come from Puneet Souda of SVB Leerink. Please proceed with your question.

[Puneet Souda, SVB Leerink]

Hey, great. Tony, thanks and congrats on the quarter. So, first one, if I could ask on C Tech, what's your expectation for growth here through the rest of the year, given that this is a new product it takes efforts and sometimes in person meetings and things like that, there are travel restrictions in place and other things? So what's your expectation of that? Is that the same as before in timeline? Or is that going to potentially get pushed out a little bit? Or maybe, are you able to manage these things virtually?

[Tony Hunt, CEO & President]

Yes. So C Tech is a perfect example of one of the businesses that -- it’s definitely a little bit more challenge because of COVID. A few reasons, one is on the service side, there's a significant amount of what we do on service. And with customer sites shut down, we've had to like every other company get creative in terms of being able to do service remotely and actually assist customers remotely on how to do service of instruments. So that's clearly been a challenge.

The other piece that's being challenged -- being a challenge on the C Tech business, especially as we move into Q2, a lot of what we do requires a demo. And so there's definitely been a slowdown and being able to get demos done. That said, we still expect to have a good year. It probably is going to be closer to the 20% growth than 25% growth for us in C Tech. That's probably one of the offsets that we're seeing right now.

But, interest in the technology, the activity of the 10 person sales team has been tremendous. So, we think as the countries open up in June, July, that second-half of the year should pick up again for C Tech.

[Puneet Souda, SVB Leerink]

Okay, that's helpful. And then, I just wanted to clarify in terms of the proteins guide that you are now implying. Does that mean that the filtration and the chromatography is down for the full year, in order to reach the full year revenue guide? Just tell us how should we think about that. Or what are the offsets or positive offsets to the proteins business, that is actually doing better here?

[Tony Hunt, CEO & President]

Yes. So it's not an exact science, but I would say, the C Tech, there's definitely going to be a small drop off there. The smaller businesses that we have in our portfolio, so you take spectrum has legacy businesses in lab dialysis, clearly that's being challenged, simply because that's all research and into the process development labs. We have a hospital business that also has been a little challenged. Again, these are smaller businesses but they add up. So those are our offsets against the goodness in proteins.

I do think that in general, I'd say chromatography is about the same as where we were. Filtration is probably down 3% or 4% versus where we thought we were at the end of February. Again, it's not related to the core businesses like ATF or TangenX or the main hollow fiber business. It's probably some of the other smaller product lines that get loaded into that total number.

But in general, maybe a small little drop off in filtration from the same proteins better than we were expecting, a small drop off on C Tech. That's kind of the way I look at it.

[Puneet Souda, SVB Leerink]

Great. And on gene therapy, I don't know, if you've provided this already. But what's the mix in terms of the revenue for coming from gene therapy? Obviously, you have a strong quarter here. How should we think about the expectation for the rest of the year just sort of given this strength that you're seeing right now?

[Tony Hunt, CEO & President]

Yes. So gene therapy, obviously Q1 -- I don't think our gene therapy accounts were really impacted by COVID in Q1, because by the time really, restrictions were put in place in Europe and the U.S. You're really dealing with the last couple of weeks of the quarter.

We didn't give out any numbers in terms of how gene therapy did in Q1, but we're tracking very much in line with where we were last year. It's obviously a significant percentage of our overall business. We're excited about being able to take our TFDF technology and bring TFDF into the gene therapy space. We just had a paper published by Oxford Biomedical in the UK, with some folks on our team around the impact of using TFDF technology and lentiviral harvest clarifications that's really positive. And we just expect that, TFDF technology as a technology we will see more applications and more traction on gene therapy space.

So, what we think in gene therapy is going to be a really important customer base for us for the foreseeable future. So we're excited about it.

[Puneet Souda, SVB Leerink]

All right. Great. Thanks, and congrats again.

[Tony Hunt, CEO & President]

Great, thank you.

[Operator]

Our next question will come from Jacob Johnson with Stephens. Please proceed with your question.

[Jacob Johnson, Stephens Inc.]

Hey, thanks. Just kind of big picture, Tony, I think going into the year, you faced some tough comps in the first-half and kind of had expected this to be more back-half year, obviously, after stronger than the first-half, somewhat benefiting from proteins being better than expected. I mean, outside of that dynamic, do you think you pulled forward any demand into the first-half? Or are you just trying to be conservative around back-half expectations until you get some more visibility?

[Tony Hunt, CEO & President]

Yes. So I think first-half second-half clearly at the end of February, we felt that the second-half of the year will be stronger than the first. And the majority of that was -- the thought process on that was really around our proteins business, because we know that the ligand demand is first-half heavy and second-half light. And so we knew and expected that that's where the biggest impact was going to be. Now that that's not quite played out that way, mainly driven by COVID, we think that, we're going to be closer to being kind of similar in the first-half versus second-half. But we don't have enough visibility right now.

So, we've gone through for months. Tycho asked the question about clinical trial impact in the second-half of the year, I think that's still an unanswered question as we go through the next say, two, three months. So we're keeping an eye on order run-rate. We haven't seen a slowdown in orders through the end of April. But it doesn't mean that May, June or July that if we start to see any weakness there.

And so we feel like when we get to the August earnings call, Jacob, will have a much better sense of how Q2 played out, what our Q3 order run rate looks like, what customers are saying to us about second-half of the year, whether there is any impact coming from clinical trial delays in late 2020. And so that's kind of why we're keeping guidance where it is. And we'll have a probably a much better idea when we get to the August timeframe what second-half is going to look like.

[Jacob Johnson, Stephens Inc.]

Got it. And then on gene therapy, we're seeing a lot of viral vector capacity addition announcements. If your products are going to be used that workflow, just how much visibility or lead times do you have into the sales? I guess maybe that's the bigger question being, do you have more visibility into the gene therapy customer base than your traditional biologics customers?

[Tony Hunt, CEO & President]

I don't think we have more insight. I think, a lot of those companies are smaller. So they have a one or two products so you kind of know where they're going and the timeframe of what they want to get something accomplished. But I think our sales team our BSS team, which is our sales specialists do a really good job of understanding what's happening as an account, what projects are coming through. And it's a real partnership with the customer in terms getting them the product delivered in the timeframe that they want. So, yes, I don't see any increased visibility in gene therapy versus say a mAb customer.

[Jacob Johnson, Stephens Inc.]

Got it. I'll leave it there. Thanks for taking the questions, Tony.

[Tony Hunt, CEO & President]

Great. Thanks, Jacob.

[Operator]

Our next question will come from a Paul Knight with Janney, Montgomery and Scott. Please proceed with your question.

[Paul Knight, Janney, Montgomery, Scott]

Good morning, Tony. And could I call out the gene and cell therapy market, are you oriented toward academic customers? And I know there's a lot of academic lab shut downs. Could you talk to what you're seeing from academia? And are they a big piece of those 50 or so projects you had last year?

[Tony Hunt, CEO & President]

Yes. So the academics, academia, I would say it's a small part, Paul, of what we do. We currently work with some of the bigger players that are at the forefront of what's going on in cell and gene therapy. But I think the majority of what we do is really with the gene therapy innovators and the CDMOs that are focused in the gene therapy space. So, I would say, the vast majority of what we're doing there is related to those two. And so the impact in academia is probably small.

[Paul Knight, Janney, Montgomery, Scott]

Yes. Okay. And then on the ligand market, would you say the initiatives or the changes you've seen in terms of whether it's new vendors ex-GE or your own projects internally. Is it both driving that better than expected color or one in particular that you could highlight?

[Tony Hunt, CEO & President]

Yes. So I would say on the ligand side, if you look at Q1, clearly there we had some like quarter orders that came in and product that was shipped for GE, so that helped. But we also saw for our other two partners [indiscernible] a stronger quarter. And so that's related to the activities that they have. We continue to be very pleased with the way our NGL impact a technology has taken off. And, we've talked about that a lot over the last couple of years. But, it continues to have good traction in the marketplace. And that's really the reason why we developed our own portfolio of ligands back to three years ago, and expect that that's something you'll hear more about as we go through the year, about additional products that we'll be launching.

[Paul Knight, Janney, Montgomery, Scott]

Okay, thank you.

[Operator]

Our next question will come from Brandon Couillard of Jefferies. Please proceed with your question.

[Brandon Couillard, Jefferies]

Thanks. Good morning. Just couple housekeeping questions for John. Can you share what percentage of revenues accounted for the direct product in the first quarter? And any color on the relative growth rates of the sub segments kind of between filtration, chromatography, proteins, in terms of which performed above or below kind of the 16% core growth overall?

[Jon Snodgres, CFO & Secretary]

Yes. Brandon, I think on the overall percentage it's in line with our desires to get up to that 80-20 direct to OEM ratio. So between 75% and 80% for the quarter is where we're at. I would say in terms of the overall businesses, as we guided at the beginning of the year, you can see that all of our direct businesses performed well, and as well as the OEM business for us. So, not a lot of other color that we're providing today on that.

[Tony Hunt, CEO & President]

Yes. And maybe Brandon on the protein side, clearly, we have positive growth and that was probably the big win for us in the first quarter. And it was high-single digit growth for proteins.

[Brandon Couillard, Jefferies]

And then Tony, any change to your capacity expansion plans for the year, particularly plans with the OPUS manufacturing into Europe later this year?

[Tony Hunt, CEO & President]

Yes. I mean the capacity expansion plan, that's clearly -- we're tracking to the plan that we put in place back at the beginning of the year. But, I would not be surprised at all, if we see a couple of months, two, three month delays in any of these programs. And it's simply because, you take the European work that we're doing in on OPUS, that's happening in Holland.

And so, people aren't able to go out and work right at the moment. So we're in an engineering phase and the design phase. So a lot of the work that we need to get done is actually paperwork, it’s not building. But, I think we're pushing hard to stay to the plan, but I wouldn't be surprised if we're off by a couple of months.

[Brandon Couillard, Jefferies]

Very good. Thank you.

[Operator]

Our next question will come from Matt Hewitt of Craig Hallum Capital Group. Please proceed with your question.

[Matt Hewitt, Craig-Hallum]

Good morning, and thank you for taking the questions. Maybe just a couple from me. What percentage of your business maybe exiting last year was attributable to vaccines? Where does that sit maybe now? And do you believe that this increase is durable?

[Tony Hunt, CEO & President]

Yes. On the vaccine side, I don't have the exact percent Matt, but I would have -- my guess is it's probably in that 5% to 10% range, somewhere in that range. And so anything that we would pick up, let's say from COVID on the vaccine side in 2020 is going to be relatively small, just because a lot of those trials are Phase 1 trials. But if any of those continue to move through into Phase 2 and Phase 3, then obviously it'll be a meaningful pickup for us.

[Matt Hewitt, Craig-Hallum]

Okay, great. And then maybe just to tag onto the last question a minute ago. With some of your expansion plans in Holland and whatnot, if the travel restrictions stay in place, are you considered an essential business that maybe you would still be allowed to visit some of these international markets? Or do those travel restrictions even prevent someone like you from being able to get out and either meet with customers or visit your own sites? Thank you.

[Tony Hunt, CEO & President]

Yes. On the customer visitation piece, the way I look at it is, I think we're going to be regionally based in terms of how we look at customers. We have a really good, strong European commercial organization. So those guys are going to look after basically our European customers. I don't think there's a need for me or others on the leadership team to get on a plane and head over to Europe right now. I think we've found over the last two months that Zoom has been very effective in being able to conduct meetings, whether it's internal meetings or meetings with customers. So that's working. And I can imagine that, you'll see probably a lot more of using that technology as we move forward.

When it comes to building out and doing capacity expansions, we also -- we don't do the expansion plans with just Repligen employees driving it. So we have engineering firms that are based in Holland that are really driving the vast majority of that. So it's really the project oversight, where you may have some individuals going back and forth.

So we're going to pay attention to the lifting of restrictions, when travel between continents is going to be opened up again. And, I think we have enough tools that in terms of the Zoom technology, the Microsoft technology that we can get any customer related meetings done without having to jump on a plane.

[Matt Hewitt, Craig-Hallum]

That's great. Thank you.

[Operator]

Our final question today will come from Ram Selvaraju of H.C. Wainwright. Please proceed with your question.

[Ram Selvaraju, H.C. Wainwright]

Hi, thanks very much for taking my question. I was just wondering if you could enumerate on the 2020 product launches that are still to come, regarding specifically, in what part of the remainder of the year you expect them to occur, please?

[Tony Hunt, CEO & President]

Yes, no problem. So the first product launch was really the flat sheet cassette, gamma radiated technology, which launched in Q1. Here in Q2 expect to see our benched top TFDF system be fully commercially launched. We've been obviously manufacturing and shipping those to early sort of alpha beta sites. But in Q2, that'll happen.

Right on the sort of end of Q2 beginning in Q3, expect the ATF next gen controller. Again, we are working with a bunch of customers on this. So it's not something where we're shipping the first unit, at the end of the quarter bringing in next quarter. I expect then in the second-half of the year with no real sort of timeline on this, right now. But second-half of the year, probably in the fourth quarter, next gen flow and any technology might see from us on the ligand side.

[Ram Selvaraju, H.C. Wainwright]

Also, I wanted to ask if you could elaborate on the specific advantages of the gamma radiated cassette, particularly within the context of gene therapy product manufacturing?

[Tony Hunt, CEO & President]

Yes, it's really straightforward. It's around having a close system that is gamma radiated and sterile versus not. That's really the advantage.

[Ram Selvaraju, H.C. Wainwright]

Okay. And then this is more of a nuanced situation, the TFDF long-term forecasts. Could you maybe talk a little bit about whether you expect those to be meaningfully impacted, if you start to see people switch to non-virally transduced cell therapy manufacturing methodologies?

[Tony Hunt, CEO & President]

Right. And I think, if you look at TFDF, we started the year out, we were at in that $1 million to $2 million range and revenue coming from the technology. We expect that that's exactly where we'll end up. Remember, the majority of what we're doing right now is really in the CHO space. So I think that's really going to be the major driver for us. We've just started to move into the lentiviral viral vector side. So we'll see how that plays out over the next six to 12 months. And, like everybody else, if there's new technology that hits the market, then obviously we'll be able to react and adjust accordingly.

So, for us, we're really focused on the very upfront parts of the workflow. And so far the technology has performed the way we expected. And we're expanding the applications. And our real hope is that it's not about just one application or two applications, we think there'll be a lot more applications for the technology. So, one application area might flatten out, we think there'll be others that’ll pick up the slack. And we expect this would be a really important technology for us going forward.

[Ram Selvaraju, H.C. Wainwright]

And just very quickly, do you think that there's likely maybe qualitatively you could comment on opportunistic situations that are emerging in the wake of the COVID-19 pandemic for you either on the M&A side or potentially on the technology platform and licensing side?

[Tony Hunt, CEO & President]

Yes. I think it's probably a little early on the wake side. But I do think that even just on M&A, we don't think about M&A in 2020 any differently than we thought about M&A in 2019. So, we have our companies that we like. We're obviously all talking to various, a number of companies in a given quarter in a given year. So I don't expect it to change.

But you never know, right? When it comes to, as you said, post-COVID or whatever between Phase 1 and Phase 2 or Wave 1 and Wave 2, there may be some opportunities. And I think Repligen is well-positioned in terms of cash on hand that if we need to go and execute on something we can.

[Ram Selvaraju, H.C. Wainwright]

Great, thanks. And congratulations on a very solid first quarter.

[Tony Hunt, CEO & President]

Great thanks.

[Operator]

Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to Tony Hunt, President and CEO for any closing remarks.

[Tony Hunt, CEO & President]

Yes. I’d just like to thank everybody for joining us today. Obviously, challenging times for a lot of companies, so hopefully when we all get to August it's a brighter future for everyone. But again, thanks for joining. And talk to you guys in a few months.

[Operator]

The conference is now concluded. Thank you very much for attending today's presentation. You may now disconnect.