Shares of Repligen (NASDAQ:RGEN) jumped more than 16% Thursday morning after the company reported third-quarter operating results. The company, which develops and sells equipment needed to manufacture and purify biologic drugs, delivered record quarterly revenue of $49.5 million and year-over-year growth of 35%. That prompted management to raise full-year 2018 revenue guidance to a midpoint of $192.5 million.
The business also reported gross margin of 55.7% and operating margin of 12.7% for the first nine months of 2018. That’s up from just 51.8% and 10.8%, respectively, in the year-ago period. Considering the business is showing no signs of slowing and is becoming more profitable as it grows, it’s easy to see why investors are excited about the company’s future.
As of 12:00 p.m. EDT, the stock had settled to a 15.9% gain.
The biomanufacturing leader’s impressive performance in 2018 has been built on the successful integration of recent acquisitions. That shouldn’t be much of a surprise to investors considering the company’s entire product portfolio has come from acquisitions made in the last decade or so.
Going forward, there’s a new growth opportunity emerging for Repligen in generic biologic drugs called biosimilars. That’s because the first major biologic drugs to gain marketing approval are beginning to lose market exclusivity in various treatment indications. Companies are racing to prove to regulators that they can manufacture versions that, although not 100% identical, are close enough to deliver the same safety and effectiveness.
The first biosimilars have recently gained marketing approval in the United States and Europe. That creates an entirely new customer base for Repligen to sell products to — all at a time when the business is firing on all cylinders and delivering comfortably profitable growth.
Repligen stock may not be on the radar of most investors, but it has delivered returns of nearly 1,500% in the last 10 years thanks to successfully executing within its niche. While there’s no reason to think the company’s growth opportunities will wither anytime soon, investors should acknowledge that the stock trades at a hefty premium. For instance, shares are valued at a whopping 73 times future earnings, more than 15 times sales, and 4.5 times book value. It appears capable of growing into those metrics over time, but stocks with that much of a premium baked in can see significant declines on the first signs of trouble. Just something to keep in mind.
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