Bio-Techne Corp

Good morning, and welcome to the Biotechni earnings conference call for the first quarter of fiscal year 2020. At this time, all participants have been placed in listen-only mode, and the call will be open for questions following management's prepared remarks. I would now like to turn the call over to Mr. David Clare, Biotechni's Senior Director, Corporate Development. Please go ahead.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Cometh, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechni. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2019 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its investor relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable gap measures are available in the company's press release issued earlier this morning on the Biotechni Corporation website at www.bio-techni.com. I'll now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our first quarter conference call. We started fiscal 2020 on a strong note with our first quarter organic revenue increasing 13% year over year. continuing the double-digit organic growth rate we delivered in fiscal 2019. The double-digit growth was brought across our product segments and geographies with proteins, antibodies, Simple Western, and RNAscope platforms performing exceptionally well. Also rebounding from last quarter, our OEM diagnostics tools business contributed to double-digit growth. As we look at our performance by geography, I will start with Europe. In Q1, organic revenue increased over 10% for the quarter. As expected, the headwinds we faced last quarter normalized and contributed to the strong performance in the quarter. Recall that the timing of a large order from a European customer was one of the headwinds we experienced in this region last quarter. During Q1, we received this order. Excluding this large order, our European growth was in the high single digits, and this is our expectation for the remainder of fiscal 2020. The initiatives the European team have put in place over the past several years continue to positively impact the business, creating synergies across divisions and implementing creative ways to make it easier for our customers to do business with us. We believe these efforts create the foundation for continued European growth ahead of our industry periods and quarters to come. That said, the popular view regarding Europe is fairly bleak about an economic slowdown there, so we will continue to monitor Europe closely for any signs of weakness. With regards to North America, organic growth was also north of 10%, driven by particular strength in biopharma. There's been a lot of effort dedicated to our digital market strategies, including the continual enhancements we make to our website, which allow customers to do complex product searches and find solutions for their research needs. However, our digital marketing efforts go well beyond our website, with our search engine optimization efforts increasing brand visibility and driving traffic to our website. These efforts are translating into double-digit increases in our biotechnology web traffic, which correlate very strongly with the double-digit revenue growth we have been seeing, especially in our antibody and protein portfolios. We view these digital market initiatives as a key component of our forward growth strategy and are very pleased with the continued progress through this important channel. For China, organic growth was nearly 20% for the quarter, with continued strong performance in both our reagent and instant products. The life sciences industry is still a high priority in China's five-year plan, And we continue to be well-positioned in spite of any local competition and still very underpenetrated in our key growth platforms. Now let's dive a little deeper into the performance of our growth platforms, starting with those within the protein sciences segment, which grew 13 percent organically for the quarter. As I've already indicated, antibodies and proteins performed extremely well for us in Q1, with both product categories growing in the mid-teens in the quarter. In addition to our digital marketing efforts, we recently began the process of validating a growing number of our immunohistochemistry antibodies, using the ACD-branded in situ hybridization and gene editing platforms, leveraging a transcriptomics approach to providing high-quality, validated IHC antibodies for researchers. This initiative leverages a cross and organizational synergy between our reagents solutions division, our genomics division, and our recently acquired Bemagen technologies. For background, as the number of antibody suppliers has increased over the years, the process of validating the quality of numerous antibodies from various suppliers has become increasingly more challenging for customers. There are no rules or quality standards that an antibody reseller must abide by before selling an antibody. Customers are increasingly asking for assurance that an antibody has been tested and shown to be specific for cells known to express the protein in question and not bind to cells where the gene editing, excuse me, where the gene encoding a specific protein has been knocked out. We anticipate this mulctomic approach to antibody validation to distinguish the quality of R&D systems and Novus Biological brand antibodies from our competitors provide superior service to our customers and ultimately benefit our antibody sales. We also continue to position ourselves as a tool provider for the coming wave of cell and gene therapies. While still a relatively small portion of our business today, cell and gene therapy will be a very important growth driver for our company in the years to come. With our GMP proteins, polymer B technology, non-viral vectors, and instrumentation to automate process and product monitoring, we can now supply a significant portion of the cell and gene therapy workflow. This potential is already evident in our GMP proteins business, where we experience growth over 100% in Q1. We broke ground in our new GMP-dedicated protein factory in a quarter, and we will be ready to provide GMP proteins in larger scale to our cell and gene therapy customers by the second half of fiscal 2021. Moving on to our instruments portfolio within Protein Sciences, where the Simple Western platform continues to be the star of the show. With an installed base of over 1,600 worldwide and growing double-digit, we saw consumable growth from these instruments that was over 40% higher than last year. Further evidence that these instruments are quickly achieving market acceptance. They are not just getting installed, they are getting used. As I mentioned in my opening comments, our growth in Q1 was balanced between both of our operating segments, with the diagnostics and genomics segment also growing double-digit in the quarter with 16 percent organic growth. Here, the OEM diagnostics tool business returned to double-digit increases in nearly all of its major product categories, including clinical controls and specialized reagents. As expected, the OEM order timing was more positive in Q1 than it was in the last quarter, Q4. Also, our glucose controls business stabilized in the first quarter of our fiscal year with sales relatively flat year over year. Going forward, we expect this division to be at least a mid-single-digit grower for all of fiscal 2020, with possibly higher growth in future years as new diagnostic instrument platforms and assays by our OEM customers come online. Also, within the diagnostics and genomics segment, RNAscope continued with its growth recovery, with sales increasing over 20 percent in Q1. During the quarter, we released the RNAscope HyPlex assay, which enabled researchers to gain greater insights into cellular mechanisms and functions by combining a simple workflow with the capability of simultaneously detecting up to 12 RNA targets. The HyPlex assay is particularly well-suited for spatial genomic studies, with the assay requiring minimal sample preparation while delivering high performance and preserving the morphology of precious tissue samples. It is still early in the RNA scope HyPLEX assay launch, but we believe this will be another growth driver for our genomics portfolio. Now, let's discuss our liquid biopsy business, exosome diagnostics. Of course, the big news here in Q1 is that NGS, our Medicare administrative contractor, issued a final local coverage decision, or LCD, covering epi for men who are being considered for an initial prostate biopsy. This major reimbursement milestone is effective for epi tests administered for Medicare beneficiaries on or after December 1, 2019. Importantly, with this final SLD-LCD, more than 60 million Medicare beneficiaries will now be covered for the EPPI test. During the quarter, we also made progress with private payer coverage of EPPI. We currently have nearly 30 commercial plans contracted for EPPI as well as 38 states covered under Medicaid. We expect a recent Medicare coverage decision to drive increased awareness of EPPI within the private payer community and look forward to updating everyone on additional contract wins going forward. Following these reimbursement and regulatory milestones, we are positioned for an acceleration in epi volume. While test counts in the most recent quarters were 34% higher than last year, we used the seasonally slower summer months to revitalize our marketing message and strengthen our sales leadership so that we are well-positioned to garner doctor-patient acceptance of the epi test as a viable alternative to potentially unnecessary prostate biopsies. With over a million unnecessary prostate biopsies performed every year just in the U.S., we couldn't be more excited about serving what has been until now a very unmet need. In summary, we are off to a great start in our fiscal 2020, the second fiscal year of what we intend to be many years of double-digit growth. Our core reagent portfolio is performing at its best in over a decade, while our adjacent proteomic and genomic analytical tools are still ramping in very under-penetrated markets. Meanwhile, our liquid biopsy and cell and gene therapy platforms are still in the pregame show of what we believe will be a long nine innings with many home runs. That's the strategy we are marching to, and I'm very proud of the biotechnology team and their accomplishments to date. With that, I will turn the call over to Jim.