Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Repligen Corporation Earnings Conference Call. My name is Tahitia, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to your host for today's call, Mr. Jonathan Lieber, Treasurer and Finance -- Chief Financial Officer for Repligen. Please proceed.

Thank you, and good morning. The purpose of today's call is to discuss our second quarter 2013 results, Q2 business highlights and to update our financial guidance for the year 2013. Joining me today is Walter Herlihy, our President and CEO. At the outset, I would like to state that this discussion may contain forward-looking statements. These statements are subject to risks and uncertainties, which may cause our plans to change or results to vary. In particular, unforeseen events outside of our control may adversely impact future results. Additional information concerning these factors is discussed in our Annual Report on Form 10-K, the current reports on Form 8-K we filed today and other filings we make with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. This morning, we reported results for the quarter ending June 30, 2013. For the quarter, we recorded a bioprocessing product revenue of $13 million, an increase of approximately 12% from the prior year. Bioprocessing revenue growth in the second quarter was driven by strong demand for several products including Protein A affinity ligands and OPUS Pre-Packed Chromatography Columns. Total revenue for the quarter, including royalty and research revenue, was $17.5 million, which represented an increase of approximately 13% over the prior year period. Net income for the quarter was $4.5 million or $0.14 per diluted share, compared to net income of $1.6 million or $0.05 per share for the quarter ended June 30, 2012. Cash and marketable securities totaled $62.8 million, an increase of $12.8 million from December 31, 2012. Our bioprocessing gross margin in the second quarter was approximately 59% versus approximately 42% in the first quarter, or 51% year-to-date. Product…

Thank you, John. As we discussed in May, our R&D efforts include the development of 5 new products for line extensions. Today, we'd like to highlight progress on 3 of these programs including 2 collaborative projects and an expansion of our OPUS product line. First, we completed the scale up and validation of a new Protein A ligand, which has been developed in collaboration with a large life sciences company. As John noted earlier, we recorded a milestone payment in connection with the transfer of this product to our partner who will now complete development of a new Protein A media. Second, we substantially completed the research phase of a second collaboration with a large partner on a new Protein A media, which has been specifically designed for use with our OPUS Pre-Packed Chromatography Columns. This project has now transitioned to the scale up and manufacturing validation phase, which is being carried out jointly. Assuming no delays, we expect both products to be launched by our partner's commercial teams later this year or in early 2014. For both products, we have retained defined long-term manufacturing rights. A third research program is directed towards creating larger scale OPUS purification columns with 2x to 4x greater capacity than our largest column size. This program is in direct response to customer requests based on the increasing size of disposable fermentors, which in turn requires purification columns with greater capacity. I am pleased to say that we made significant progress in solving a key engineering problem that arose as we tried to extend the current technology platform to larger sizes. While there's much work yet to be done, we believe we have our first working prototypes this year, which, if successful, would result in a launch in early 2014. We're excited about the opportunity…

[Operator Instructions] Your first question comes from the line of Drew Jones from Stephens Inc.

I guess, first question, how big was the milestone payment from the Protein A partner, and is there potential for another milestone payment on -- with -- from your media partner?

So, the milestone payment was between $400,000 and $500,000 from the collaborative partner, and that project's now finished. The other partnership is being developed jointly. So it's structured differently in that there are no milestones involved in that arrangement, it's more of a profit-sharing arrangement.

Okay. And then, I guess, looking at the bioprocessing guidance, revenue guidance. I understand there is typically a little bit of 4Q seasonality but if we look at where you maintained it, looked at what you did in the first half of the year, is there anything we should be aware of, or is that just conservatism shining through?

Well, I think you put your finger on it, Drew. In the -- December is often a soft month as many of our large customers shut their facilities down for maintenance and repair. And so that can often have an effect of slowing sales in the fourth quarter then as sometimes is the case you see a rebound in the first quarter. So we're just being cautious about -- as we approach Q4, get better visibility and if 3 months from now, we have that visibility, then we can address that.

Okay. And then, I guess, my last question is growth factor. I know that's been a big focus within the marketing effort since the first of the year, I guess, you're co- promotional rights there. Any update as far as how that's going?

Well, we had a good quarter in growth factor. It was in line with expectations and I think we continue to see that as a real growth opportunity for us through expanding, access and direct marketing activities.

[Operator Instructions] Your next question comes from the line of Michael Wood from LSA.

First of all, Walt, maybe you could talk about in general, what's going on in the monoclonal antibody space given that your business is tied to that secular industry. Any new developments, any trends that we should be aware of that you think you could discuss with us?

Well, I think the -- certainly, and since we last had a conference call, the news that came out of ASCO, the American Society for Clinical Oncology, certainly highlighted a new class of antibody called anti-PD-1. And Bristol and Merck certainly took center stage at that conference with mid-stage data they presented -- particularly, melanoma where there was some very robust responses and low numbers of adverse events in late stage melanoma patients, which was quite impressive. I think most observers of the cancer world certainly see that as a vanguard. And both of those are monoclonal antibody-based programs. So we think that there's significant opportunity for growth in the areas of solid tumors. Those companies are expanding from melanoma to kidney cancer and lung cancer and other large populations. So, I think, that was a pretty exciting opportunity for the antibody world.

Okay, and also, a question for Jonathan on the financials. You talked about a long-term goal of getting to 55% gross margins in the bioprocessing business. If I'm doing my calculation correctly, I think you were at 51% gross margin year-to-date. Can you share with us any details on how you get will get to this target?

Sure. I think there are sort of a few different elements do that. One important element is improved capacity utilization. And that's particularly the case in Sweden. We think that there are opportunities as we grow and we continue the integration of the businesses, most of the which, the initial integration, obviously, is already done but we expect to get some greater purchasing and sourcing efficiencies. And lastly, we think that there are opportunities to improve product yields that will also help gross margins and then, of course, changes to product mix are all examples of things that can drive COGS improvement. So we feel very comfortable with that target and think that, that's going to place us really nicely in the tools -- in the life sciences tools universe in terms of our performance.

Your next question comes from the line of Ron Chez from private -- he's a private investor.

Would you like to comment about the difference you talked about an array of small OPUS columns? What is the average selling -- or do you think the average selling price is and the size of the market versus what you had originally thought?

Well, the new purification schemes that are being developed might replace one very large column with anywhere from 3 to 12 smaller columns, which are continuously recycled, thereby accomplishing the same amount of purification as the single large column. And these columns without any pass-through charge, for me, it's just the actual plastic body of the column and the service of packaging could range from $10,000 to $50,000 per column. And the way these schemes are set up, the columns are used in these, as I said, arrays of 3 to 12 and they might be replaced every month, for example. So you could see, there's quite a proliferation of columns to accomplish what that one large column that cycled less frequently has done. So we think the opportunity here is certainly, potentially several fold larger than in the clinical manufacture realm. At the moment, it's led by few vanguard companies. Not every company's going to do this right off the bat, but we do think this is the future of -- this represents -- as some people refer to it as the factory of the future for biomanufacturing. And so we're very pleased to be sort of getting out at the front of that trend by already working with those vanguard companies who are pioneering the application of this technology.

So this has -- so it has expanded the potential market, right?

Absolutely.

And is any of this going to be pre-packaged media?

Well, these columns will be the ones that we would pack for customers and we would ship the arrays of columns to them as an integrated, maybe 5 columns in a pack and, they would be ready for the customer to simply snap into their pumping stations and tubing sets and they'll be ready to purify. So it's a plug-and-play type of product.

Your next question comes from the line of Larry Smith from Smith On Stocks.

I had additional questions on OPUS. I thought that was a good rundown on the previous question, but much of your comments centered on OPUS and projects that you're doing and the move from clinical to commercial space being a great opportunity. It's very hard for me to put this all in perspective. And I was wondering if you could give us some metrics that we could use to judge your progress and come up with sales projections. And along that line, would you consider breaking out Protein A sales, OPUS sales, growth factor sales so that we could follow these disparate lines of business a little bit more accurately than just by looking at a gross bioprocessing revenue number?

We certainly have given guidance in the past that the Protein A sales or the bulk of the revenue in that sort of 60-some percent range and the remainder of the business is divided between the chromatography products, of which OPUS is one and the fastest-growing one and on thirdly, the growth factors. So that's the current makeup. We do believe that, that mix will shift as time goes by because the growth factor segment and OPUS in particular are growing faster than the Protein A -- the base Protein A business. It's difficult, Larry, to give you exact projections of how that shift will go in 2014 and 2015 and beyond, but we do think that OPUS this year, 2013, is, since it was launched in February of last year, is making a meaningful contribution that will probably come in around 5% of sales. And I think that OPUS will grow potentially, significantly in 2013 particularly as we start to work with these commercial partners and they start ordering large numbers of columns. If a process -- 1 process consumes 100 columns, that would be double that current run rate in the clinical manufacturing area. When that will happen is very difficult to predict because it's regulated by the FDA, of course, and it's at the initiative of the partner company. But we have no doubt that we are in a position now, as these companies are coming to us, that we are in a position to have the leading pre-packed chromatography line in the world, and I think that's an important step for us.

But as you look at it internally, and as Jonathan makes up his budgets, what are the metrics that you're looking at in OPUS? Is it a projection of number of columns along with the mix of columns in accordance with size? How do you do it internally? How do you come up with your OPUS projections?

Well, we consider all of those factors. We consider whether the columns will be -- we'll buy the media or our customers will supply the media. We think ultimately, they'll be sort of 50-50 mix of that, which is that pass-through cost. And we have very aggressive projections that we're making. But this is a brand-new product. This is disruptive technology. So it's difficult for us to -- we have a budget, we're going to meet or exceed our budget. We think it will contribute 5% of sales this year. It's too early to say whether it will contribute 7% or 9% of sales in 2014. These new applications are just coming onto the radar screen and we're identifying new customers every week.

It sounds like it's a pretty explosive business and it's going to be a very key driver of the stock. So, I mean, I think, all of us are looking for a way to model it as accurately as possible.

I certainly understand that. We do believe it's a key driver of the business in 2014 and beyond. And we're putting our money where our mouth is and investing in the facilities I alluded to in my talk because we're quite sure that this business will mature into a significant driver. And there's no reason why OPUS can't be as big as Protein A or larger at sometime in the future. When we'll get there is hard to say.

Your next question comes from the line of James Gowen from Kalmar Investments.

I wonder if you could just go back on the growth factor opportunity and just talk a little bit about how to think about that in out years as far as your customers maybe going through an evaluation phase and then adopting that into their processes and how we should think about that relative to the overall bioprocess growth.

Well, I think there's 2 drivers for the growth factor business. One is we do have existing customers who are using growth factor in their commercial products. And so, as those commercial products grow or as those customers bring other products through the pipeline, into Phase II and Phase III trials, there's a driver for increased demand there. And then secondly, layered on top of that, there's the opportunity to begin to sell the growth factor to new customers who have not previously used it in their process, they may have used insulin, for example, in their prior processes. That will be a somewhat slower uptake because you have to go through Phase I, Phase II processes. But it just adds to the very robust growth were seeing from the existing customer base right now. Another opportunity that we're looking at is the potential to substitute our growth factor for insulin in the stem cell markets. It's a smaller market to be sure but we have a product that can be directly substituted, we believe, for insulin, and we're developing the technical data to support that claim throughout the second half of this year. So for the growth factor, I think I've given guidance before that if the overall company guidance is 10% to 15%, we think the growth factor can exceed the 15% mark and therefore, be a driver of the overall business.

Great. And you all provided a summary balance sheet. Any comments as far as royalty receivables? And then inventory, particularly, I think you had some inventory carryover from first quarter? If that's pretty much through?

So, sure. The -- so the royalty receivables is just -- I would call it natural timings of when quarters begin and end and when we get payments from Bristol-Myers, primarily, on Orencia, of course. With respect to inventory piece that I think you're referring to, you're going back to the older inventory that provided a headwind for us against gross margin in the first quarter. We thought we'd got about I'd say $400,000 to $500,000 of that inventory left on our books and we will sort of, if you want to say, bleed that off over the balance of the second half of the year, that would be one way to certainly think about it. So most of that is certainly behind us.

Okay. And any comment on just capacity utilization across the 2 facilities where you are right now?

The capacity utilization here in Waltham is high, approaching 100% in Sweden. This quarter, because of the uptick in demand for affinity ligands, the Swedish facility ran it close to its 5-day capacity. We do not have a 7-day work week there. And we think over the year, the capacity utilization in Sweden will probably be in a sort of 70% to 80% range.

Ladies and gentlemen, we have no more questions in the queue. I would now like to turn the conference back over to Mr. Walter Herlihy for any closing remarks.

I want to thank everyone for participating in today's call. And as always, if you have any additional follow-up questions, please feel free to contact us directly through Investor Relations. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.