Repligen sliding after biggest customer launches new resin

Shares of Repligen (RGEN) are sliding after GE Healthcare (GE), its largest customer, announced plans to launch a new Protein A resin that will not use the former as the manufacturer of the associated Protein A ligand. Commenting on the news, Jefferies analyst Brandon Couillard said while the near-term impact may be "negligible" to Repligen, the longer-term implications are negative. Meanwhile, his peer at Stephens told investors that he sees GE Healthcare's resin as a niche product and he remains positive on Repligen. NEW PROTEIN A RESIN: GE Healthcare has introduced a new Protein A chromatography resin, MabSelect PrismA, which the company says will help biopharmaceutical manufacturers improve their monoclonal antibody purification capacity by up to 40%. The resin is significantly more alkaline-stable, meaning that MabSelect PrismA can be cleaned with a higher concentration of sodium hydroxide to better control cross-contamination and bioburden risks, GE stated in its announcement yesterday. MabSelect PrismA addresses a number of key challenges, including the increased upstream titers, the company said, adding that the new resin is highly efficient due to its excellent binding capacity. MabSelect PrismA has been developed at the GE Healthcare Life Sciences site in Uppsala, Sweden, where the resin is also manufactured. Between 2017-2022 GE Healthcare is annually investing up to $70M in the production facility to significantly increase the factory's capacity. GE LAUNCH TO WEIGH ON VALUATION: Jefferies' Couillard told investors that GE Healthcare will not utilize Repligen as the manufacturer of the associated protein A ligand for the new Protein A chromatography resin. While the near-term financial impact appears negligible to Repligen given its long-term contracts and new Protein A resins' typical long adoption cycle, the long-term implications are negative, as GE Healthcare's move to in-source Protein A ligands diminishes the value of Repligen's near-monopoly position and could weigh on its premium multiple. GE Healthcare's sizable planned investment outlay suggests it may eventually look to bring production of other protein A ligands in-house as part of a broader continuity plan once its long-term contracts expire in 2019/2021, the analyst added. Moreover, Couillard pointed out that the move also brings into question whether Millipore-Sigma may pursue a similar in-sourcing strategy down the road. The analyst reiterated a Hold rating and a $40 price target on Repligen shares. GE RESIN A NICHE: In a research note of his own, Stephens analyst Drew Jones told investors that he is "not distracted" from his positive long-term outlook on Repligen after GE Healthcare's plans. The analyst believes this will be a niche resin that will not drive "meaningful" revenue for at least five to seven years. Further, Jones noted that Repligen's revenue from GE Healthcare will not be impacted due to long-term contracts. The analyst reiterated an Overweight rating and $50 price target on Repligen shares. PRICE ACTION: In morning trading, shares of Repligen have dropped almost 13% to $37.69.