Bio-Techne Corp

Good morning, and welcome to the Biotechni earnings conference call for the fourth quarter of fiscal year 2020. At this time, all participants have been placed in a listen-only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clare, Biotechni's Senior Director, Investor Relations and Corporate Development.

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, as well as the potential impact of the COVID-19 pandemic on our operations and financial 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 GAAP measures are available in the company's press release issued earlier this morning on the Biotechnique Corporation website at www.bio-technique.com. I will now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. With the COVID-19 pandemic in full swing, we just finished the most challenging quarter in my tenure at Biotechni and perhaps the most challenging in the history of the company. Despite the challenges that COVID-19 has brought to all our stakeholders, namely our customers and employees, we persevered through the last quarter of our fiscal 2020 year by outperforming the expectations we set one quarter ago and maintaining a high level of profitability and positive cash flow. all while pivoting a large number of our technical resources toward developing products that will help our customers and society at large eventually defeat this virus. I'll cover the highlights of these initiatives in a moment, but first a high-level review of our overall results for the quarter and the fiscal year. In Q4, our organic revenue decreased by 8%, outperforming our initial expectations for a decline of somewhere between 10% and 20%. We estimate COVID-related products provided a 5% tailwind during the quarter, This tailwind came from products produced by every division in the company, which play a key role in enabling researchers to better understand COVID-19, develop therapies and vaccines to combat the virus, as well as screen and diagnose infected patients. Overall, business trends improved as Q4 progressed, with sales declines in the low to mid-teens for the month of April and May, and then improving quite significantly in June to low single-digit declines. However, the swings by end markets and regions were more pronounced. For example, academic end markets experienced a much more severe trough early in the quarter and have been slower to come back to normal. While from a regional perspective, Europe bounced back towards the end of the quarter ahead of the U.S., this makes sense given that Europe experienced the worst of the economic shutdown before the U.S. and so far seems to have more effectively contained the virus spread. As we all know, the spread of the virus and the containment tactics that go along with it is a very fluid situation. So we are not out of the woods yet. But I'm encouraged by the improving business trends we experienced exiting the quarter and into July. Given these challenging and uncertain business conditions, we kept our expenses in check, balancing our spending on growth initiatives and our commitment to keeping the biotechnology team intact with strict attention to discretionary spending. This financial discipline enabled us to finish the quarter with an adjusted operating margin of 31.1%, clearly not what we expect long-term, but respectable given the current environment. We view the virus impact on our business as transitory and remain confident in our ability to return to at least 40% adjusted operating margins as COVID-related headwinds subside and we execute in our long-term strategic plan. Prior to the pandemic, we were on track to deliver another year of double-digit organic growth in fiscal 2020. But with COVID, we finished the year with 4% organic growth. However, when our customers all eventually return to their labs and clinics, our growth pillars, namely cell and gene therapy, exosome diagnostics, genomics, RNA scope, and our portfolio of protein-simple branded instruments position Biotechni to return quickly to a double-digit organic growth profile. And now layering in the potentially long-term tailwinds from our new COVID portfolio gives us incremental confidence in our ability to return to our targeted growth trajectory. Before we update you on our key strategic growth and COVID-related activities, I do want to highlight our performance in China, As you know, COVID impacted China most severely back in February and March when government-mandated lockdowns were enforced. You will remember from our last earnings call that our China business still managed to grow in the mid-single digits during that very difficult environment. Well, I couldn't be happier to report that in Q4, organic growth in China was back over 20%. Our China team has done a phenomenal job adopting to the new normal, leveraging webinars and online meeting tools to stay in front of their customers and drive the business forward as the country emerges from the pandemic. As we start fiscal 21, we could see growth slow a bit from its Q4 pace, as resurgence of the virus has flared up in places like Beijing and Hong Kong. But over the long term, our China business remains in the early innings of its growth trajectory, and there is runway for many more years of 20% annual growth ahead. Now an update on our growth in COVID-19 initiatives, starting with the protein sciences segment and our core reagents. Our team quickly recognized the need to help our customers conduct their research in all aspects of COVID-19 and responded by ramping production of related proteins, antibodies, small molecules, and assays already found in our catalog. They also developed dozens of new products to support research of this novel virus and are continuing to do so. Within our instrument portfolio, production of our SimplePlex platform was also ramped to meet the soaring demand for other instruments, and its highly sensitive automated immunoassays that are being used to manage patient care associated with the cytokine storm syndrome often found in severely infected patients. With year-on-year growth approaching 100% for this platform in Q4, our operating teams did an outstanding job keeping up with the demand. Also, our biologics platform continued to grow exceedingly well with solid double-digit growth both in Q4 and the full year. We have high growth expectations for this platform as it continues to expand its application base from traditional biological drug production quality and control into cell and gene therapy applications. Our biologics portfolio with its sub-visible particle characterization analytical capabilities is also seeing strong interest from vaccine developers, enabling them to better understand their manufacturing and product stability processes. Speaking of cell and gene therapy, we continue to make progress on the construction of our newly dedicated GMP protein factory Construction of the facility remains on track to provide GMP proteins in large scale to our cell and gene therapy customers by the second half of fiscal 2021. In the meantime, our GMP protein portfolio continues to expand at a rapid pace, nearly 100% in Q4, which now includes a number of immune cytokines typically used to grow cells for clinical trials. During the quarter, we also launched GMP ProDots. This disruptive product allows sterile addition of our renowned R&D Systems GMP proteins to culture vessels in cell and gene therapies. As a reminder, earlier this year we entered into a commercial consortium with Wilson-Wolf and Fresenius-Kabi that offers easier access to a complete and simplified cell and gene therapy workflow solution using products from all three parties. This workflow includes Fresenius-Kabi's LOGO instrument for leukophoresis, Wilson-Wolf's G-REX bioreactor, and Biotechnics Cloud cell activation. TC-Buster gene editing, and GMP proteins. During Q4, the JV made additional progress establishing a unified sales structure, a customer-facing website and point of sale, and creating impactful marketing collateral featuring all three parents' offerings. We believe the JV is well-positioned to take share in this emerging therapeutic market. Moving on to our diagnostics and genomics segment, where I'm happy to report that we managed not to decline in revenue this past quarter, despite the COVID shutdown headwinds. I'm even more pleased to report that this segment actually expanded operating margins over last year by more than 200 basis points and increased operating profit by 20%. While our genomics products were severely impacted by the closure of academic labs, our team was able to partially mitigate this shortfall by producing and selling hundreds of RNA-scope probes for COVID-19 virus detection in tissue, allowing researchers to confirm the organs that are susceptible to this virus. Our diagnostics research division was able to deliver solid mid-single-digit growth in the quarter despite customer delays in urban controls and calibrators used for routine diagnostic tests used by clinicians. Our team was able to more than offset this shortfall by supplying specialty diagnostic antibodies and other raw materials to COVID-19 testing manufacturers. And in exosome diagnostics, we validated and launched a COVID-19 real-time qPCR test in our labs, both in Waltham, Massachusetts, and Munich, Germany. Following the implementation of processes and instruments to automate the test, we will be capable of scaling testing capacity to several hundred samples per day. This lab-developed test will provide rapid and reliable detection of patients with active COVID-19 infections, especially in the Boston area. However, exosome diagnostics also experienced headwinds related to COVID-19, as XODX prostate test volume was severely impacted by the near-complete shutdown of urologist offices. As we announced last quarter, the team responded by launching an at-home collection kit in Q4 for our XODX prostate test, enabling men unable to visit their urologist office to have access to the test and the knowledge of whether a biopsy should be prioritized. The at-home collection kit was launched with a patient-targeted marketing strategy, including search engine optimization, a Facebook campaign, and webinars to drive awareness that patients do not need to go into the urologist office to have access to this valuable test. We believe the flexibility of providing a urine sample at the convenience of the patient will be yet another key differentiator of the XODX prostate test from the competition. The response to our at-home collection kit has been very positive with both patients and urologists and already consists of more than 10% of our current test volume. The impact of the at-home test collection kit, our push-pull marketing strategy, and the gradual reopening of urologist offices has had a positive impact on our epi test volume since it bottomed in April. with June daily test counts approximately 75% of pre-COVID test monthly run rate and continue to show improvement in July. Before I turn the call over to Jim for his financial review, I want to provide an update on what could be our biggest COVID-19-related initiative to date, our co-branded R&D Systems Mount Sinai COVID Serology Assay Test. During the quarter, we announced a collaboration with Cantero Biosciences, a Mount Sinai-led joint venture, to manufacture and commercialize a serology assay based on Mount Sinai's test. This was a tremendous effort by both the biotechnology and Mount Sinai teams, condensing the typical 18-month ELISA kit development timeframe to just six weeks. This two-step serology test is a truly differentiated offering, going beyond the qualitative information provided by other COVID serology assays on the market, with the second step providing a tighter or measurement of the antibodies present to neutralize the virus. This second step completely eliminates false positives, with Mount Sinai's assay having a 100% positive predictive value, or PPV, and 99.6% negative predictive value, or NPV. To date, diagnostic activity is focused on PCR or antigen-based tests to detect active COVID-19 infections. We believe serology test volumes will increase as the second wave of testing emerges, focusing on the surveillance activities necessary to reopen the economy and to help better manage vaccination programs once available. Yesterday, Cantero Biosciences submitted a request to the FDA for an Emergency Use Authorization, or EUA, for quantitative use of our serological assay. We anticipate the EUA process to be complete in mid to late August. Cantero and Biotechni have joined forces to develop marketing materials, a branding and go-to-market strategy for the assay, highlighting the unique quantitative information provided, as well as the best-in-class performance of the assay. We are ready to launch this assay upon receipt of the EUA and have the capacity to produce millions of tests per month as needed. Also yesterday, we announced the launch of a COVID seroindex, a research use only or RUO version of the two-step serology assay. This assay is designed to meet the current vaccine developer needs for an objective measurement of immune response to a vaccine, making the test ideal for identifying the most potent vaccine candidates, determining optimal dosing, identifying the appropriate vaccine schedule, and when boosters may be needed. In summary, I'm extremely proud of the way the team responded to a challenging business environment in the fourth quarter. Our end market showed steady improvement as the quarter progressed and has continued to improve in July, with our academic and biopharma end markets reopening and our COVID-related products seeing continued traction. We are on the cusp of launching the first commercial quantitative IgG COVID-19 serology assay which has potential to answer many of the important questions necessary to reopen our economies further and push the best vaccines forward. We are entering fiscal 2021 in a position of financial strength with a portfolio of best-in-class products targeting high growth and underpenetrated market opportunities. We are ready to continue to execute in our long-term strategic plan. With that, I will turn the call over to Jim.