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June 23, 2017

Repligen Merging with Spectrum Labs in $359M Deal

  • Repligen said today it plans to merge with privately-held Spectrum Laboratories, in an approximately $359 million deal that Repligen said will accelerate the growth of its filtration business and enhance its position as a leading developer of single-use and continuous-manufacturing technologies for bioprocessing.

    Based in Rancho Dominguez, CA, Spectrum specializes in developing bioprocess-filtration technologies; its offerings include hollow fiber (HF) tangential flow filtration (TFF) products and associated systems and consumables.

    The merger with Spectrum is Repligen’s second expansion in less than a year, and its third in 14 months. Repligen reasons that adding Spectrum's HF TFF products and associated R&D expertise directly addresses a gap in Repligen’s XCell™ ATF filtration portfolio—namely consumables—and will provide Repligen with a unique opportunity to develop new products that address customer needs in bioprocessing.

    Repligen said the merger would complement and strengthen its position in the filtration market, where its existing products are used in upstream and downstream monoclonal antibody (mAb) production. Even before the deal, the two companies did business with each other: Spectrum has been Repligen’s main supplier of HF filters purchased for use in its XCell ATF systems through OEM agreements.

    The transaction is also expected to benefit Repligen, it added, by providing access to new customers and greatly expanding its commercial footprint. Repligen said the merged company will broaden it beyond monoclonal antibody production into vaccine, recombinant protein and gene-therapy production, where HF technology is well established, as well as mAb production.

    “We believe that access to broader markets will provide opportunities for Repligen to cross-sell chromatography and filtration products into these areas,” Repligen stated.

    The merger is expected to more than double Repligen’s sales force of 15 direct reps, adding Spectrum's direct reps who have experience in filtration and bioprocessing. Repligen said it expects to accelerate its market penetration in the U.S., Europe, and Asia, where Spectrum has invested significantly in building out its commercial team.

    Spectrum recorded $40.2 million of revenue for 2016, including sales of Spectrum products to Repligen, and has grown its revenue at an annual CAGR of approximately 15% since 2014. 

    Repligen projected that Spectrum will add $17 to $18 million to its revenue this year, based on assumed revenue for 5 months of Repligen ownership, and adjusting for intercompany sales of Spectrum filters to Repligen. For the full year 2018, Spectrum is expected to grow double-digit and contribute $47 to $50 million in incremental revenue (adjusted for intercompany sales), at gross margins that are above Repligen’s corporate average of 55.5% to 56.5% per Repligen’s most recent 2017 guidance.

    Repligen expects the deal will not affect its adjusted EPS in 2017 and will add to both GAAP and adjusted EPS in 2018.

    The merged company, Repligen said, would carry out between $20 to $25 million in cost-cuts or “synergies,” consisting of revenue synergies of $15 to $20 million at gross margins above Repligen’s corporate average, and cost synergies of greater than $5 million.

    Under its merger deal for Spectrum, Repligen plans to pay $120 million in cash plus 6,154,000 shares of its common stock. To fund the transaction, Repligen said it intends to use its cash on hand—approximately $142 million as of March 31—and potentially a committed debt financing of $30 million obtained from JPMorgan Chase Bank.

    Repligen said the merger is expected to be completed during the third quarter, subject to the satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976.

    In December 2016, Repligen acquired TangenX Technology for $39 million from Novasep Holding, a deal that added to the bioprocessing company’s single-use technology offerings and broadened its offerings to include downstream manufacturing processes.

    And in April 2016, Repligen expanded its prepacked column chromatography portfolio into high-throughput process-development screening when it acquired German-based Atoll for up to $23.6 million. Atoll manufactures the MediaScout® prepacked chromatography columns used in process development and clinical manufacturing of biologic drugs.

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