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spk11: Good morning, and welcome to the Biotechni Earnings Conference Call for the first quarter of fiscal year 2021. 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. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clare, Biotechni's Senior Director, Investor Relations and Corporate Development.
spk00: 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 2020 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 Biotechni Corporation website at www.bio-techni.com. I will now turn the call over to Chuck.
spk10: Thanks, Dave, and good morning, everyone. Thank you for joining us for our first quarter conference call. Despite the lingering effects of the COVID-19 pandemic, the Biotechni team delivered an outstanding start to fiscal 2021. Our organic growth accelerated 10% in the quarter, returning to our pre-pandemic double-digit organic growth trajectory and topping our initial expectations for flat organic growth. Our business benefited as labs continued the reopening process with researchers returning to the bench in greater numbers and restarting projects that were paused during the height of the lockdown. Our Q1 top-line results are even more impressive considering the 13% comp we faced in the quarter from the prior year. We delivered this growth while keeping a focus on cost controls, leading to incredibly strong operational results, with our adjusted operating margin improving over 600 basis points year-over-year to 38.2 percent. I would note this is our best operating margins result since our fourth quarter of fiscal 2018. This sequential and year-over-year improvement was driven by our biopharma end market and a return to growth by our academic customers. As more and more labs reopened throughout the quarter, we saw increases in both the volume of reagent orders as well as reagent order sizes. which may be indicative of some restocking activity as researchers return to work. What we are learning from our customers is that when they return to work, as you might expect, the lab environment is not always the same as it was pre-COVID. For example, researchers are often on staggered shifts, which means not as much physical time may be spent in the lab as before, and or sharing lab instruments may not be conducive to social distancing requirements. Thus, our lab productivity tools, such as automated multiplexing and Western blot, have been the perfect solution for this new environment, allowing researchers to progress on their experiments even while away from the lab. We are also seeing follow-on purchases of these automation tools from existing customers that previously used them in a shared lab but are now buying them for specific departments within their research organizations. This surge in lab productivity tools extends beyond our protein instrument platforms and into our genomic assays as well. We have often marketed our RNA scope assay as a tool to find the gene of interest in a sample before hunting for the expressed protein using antibodies. More than ever, this message is resonating with researchers. In the current environment, they have been telling us that they need to know the answer the first time. Thus, we have been seeing a surge in demand for our RNA scope, just as we have our automated protein platforms. Another impact of the lab environment not being the same after researchers return to work is the method in which we communicate and consult with our customers. As you can imagine, most labs are not allowing visitors on site as they did pre-COVID. Our commercial teams have had to adjust and have done an amazing job adapting to the pandemic environment by leveraging webinars and other digital mediums to stay in close contact with customers and address their research needs. During Q1, we hosted almost 45 webinars across the organization, educating over 6,800 current potential customers on our portfolio of reagents, protein analysis tools, cell and gene therapy workflow technologies, as well as liquid and tissue biopsy solutions. Also, our commercial teams have used time saved by not traveling to customer sites to aid our web support teams in uploading over 30,000 new images to what was already a best-in-class website. It is clear that effective digital outreach to our customers will remain an important component of our sales and marketing process throughout the pandemic and beyond. Supporting our digital sales and marketing efforts, we recently rolled out an enhanced biotechnology website experience we refer to as OneWeb. This new website brings all biotechnics brands together under one easy-to-navigate site, simplifying the process of finding products of interest while driving awareness of our complete product portfolio. The OneWeb strategy also enables a single-card experience for our customers and leverages enhanced algorithms to make product recommendations and drive additional cross-selling opportunities across our portfolio. We concluded a successful OneWeb soft launch in early October and will be launching a full marketing campaign to coincide with the Scaled launch in November. Now let's discuss the performance of our key growth platforms, starting with the protein sciences segment, which we grew organically by 8%. Our portfolio of protein analysis instruments, namely our Simple Western automated Western blot systems, as well as our multiplexing platform, SimplePlex, had an incredibly strong quarter, growing north of 35% and 75%, respectively. As I mentioned before, the walk-away automation enabled by our Simple Western instruments is perfectly designed for researchers in need of ways to increase productivity all partially opened. Also, we continue to expand the capabilities of our simple Western platforms. During the quarter, we launched the ability to analyze the same sample twice in one run on our just automated Western blot system, a capability we call REPLEX. Initial customer response to REPLEX has been very strong. We also launched a multi-antigen COVID assay that enables the quantitative characterization of patient serum or plasma IgG antibodies against five SARS-CoV-2 antigens simultaneously in one three-hour run on both our WES and GES systems. With SimplePlex, ELA remains an important tool for research surrounding cytokine release syndrome in COVID-19. However, the growth was much more broad-based than COVID-19 in the quarter, as we saw significant demand from CROs and biotechnology companies drive continued instrument placements and increased system utilization. Additionally, we are starting to see several companies assess ELA as a tool for researching the NFL biomarker for neurodegenerative diseases. We believe the high sensitivity combined with an attractive price point positions Alla to become an important tool in neurodegenerative research going forward. Moving on to the reagent part of our protein sciences portfolio for Q1, our core research protein and antibody sales performance improved significantly from Q4, but was still relatively flat year over year as strong demand from biopharma customers was not enough to completely offset academic labs made progress reopening but have not returned fully to pre-COVID operating levels. During the quarter, we made significant strides to position Biotechni as a leader in the nascent cell and gene therapy industry with the opening of our state-of-the-art GMP protein manufacturing facility in St. Paul, Minnesota. As a reminder, this facility has the capacity to produce at least $140 million in GMP proteins and reagents annually. We remain on track to complete the qualification of the facility in early calendar 2021 immediately followed by the start of the production process for commercial proteins. Over 30 years ago, we created the category of research proteins, and the R&D Systems brand is now synonymous with the highest level of bioactivity, quality, and lot-to-lot consistency. We look forward to replicating this position in the emerging category of GMP proteins. Our JV with Fresenius Kabi and Wilson Wolf remains a key pillar in our cell and gene therapy strategy. The JV has been branded as scale-ready, and efforts are actively underway to educate the cell and gene therapy ecosystem on the complete workflow solution offered by our collective portfolio. We believe the modular workflow, which includes Biotech's non-magnetic bead-based cell separation and activation technology, non-viral vector-based gene editing technology, GMP proteins and other products paired with Fresenius-Cobby's lobo-leukophoresis instrument, and Wilson-Wolf's G-REX bioreactor, creates a compelling cost-effective solution necessary to accelerate broad availability and adoption of cell and gene therapies as they make their way through the FDA approval process in coming years. Now I'll provide some highlights from our diagnostics and genomics segment, where growth across its divisions led to an impressive 17 percent organic increase in revenue over the prior year. Our genomics division had a Strong start to the fiscal year, with Q1 revenue increasing over 30%, led by its RNA scope and related pharma assays services. The growth was broad-based across geographies and in markets, as interest in spatial genomics paired with a single-cell resolution and productivity provided by our genomic solutions versus traditional IHC drove demand across the portfolio. During the pandemic, the ACD team made a concerted effort to educate our biopharma customer base on the pharma assay services offered by the genomics business, which enables researchers to outsource their spatial genomics analysis to us. These efforts paid off in Q1 as our PAS business grew almost 60% and allowed customers to stay on track with their research despite more limited and staggered shifts. Moving on to exosome diagnostics, we continue to rebound from the COVID-related shutdowns that occurred in the spring. Urology practices have largely reopened across the country. although we estimate practice capacity remains at approximately half of pre-COVID patient volumes. This reopening had a positive impact on XODX prostate test volumes in our quarter one, and we saw improvement as the quarter progressed. Overall, XODX test volumes increased over 50% sequentially and are approaching pre-COVID volumes. Our at-home test collection kit continues to have a positive impact on volumes as doctors leverage telehealth strategies to keep their patients engaged during the pandemic. We have used the COVID-19 pandemic as an opportunity to fortify our XODX sales team and marketing efforts, strategically adding or replacing reps in high-potential or underrepresented geographies. The impact of these moves is starting to gain traction in certain territories. For example, we are seeing positive momentum in the Northeast region, especially New York City, where volumes have surpassed pre-COVID levels. In Q1, we also announced a very high-profile national marketing campaign with baseball legend and Hall of Famer Cal Ripken Jr., To build education and awareness of the XODX prostate test, we kicked off this partnership with a webinar to discuss his personal prostate cancer journey, including how the XODX prostate test impacted his biopsy decision and ultimately the treatment of his condition. We are currently rolling out additional direct-to-consumer advertising with Mr. Ripken, including a sports radio advertising campaign and WebMD patient advertising. We are extremely excited to have Mr. Ripken as our spokesman and share his experience with our tests. But more importantly, we are thankful that he decided to take the XODS prostate test that led him and his doctor to the potential life-saving decision to get a biopsy and catch his cancer early. Next, I'll provide a brief update on our COVID-19 initiatives. We continued to build our COVID-19 product portfolio during Q1, expanding our portfolio with multiple new reagents and assay products to help our customers improve their understanding of the disease, develop therapies and vaccines to combat the virus, as well as screen and diagnose infected patients. We estimate COVID-related research products provided a 3% uplift to growth in the quarters. Also, we received some good news last week on the COVID Seroclear Quantitative COVID-19 IgG Antibody Serology Test Kit. The assay receives CE marking and is currently available for use by any authorized testing laboratory in the European Union. As a reminder, this novel quantitative serology assay utilizes two virus antigens, correlated with antibody neutralization to provide important information regarding a patient's past infection with COVID-19 and immunity to the virus. Dialogue continues with the FDA on the issuance of an Emergency Use Authorization, or EUA, approval for the COVID seroclear assay kit. We expect COVID-19 research to remain a life science focus for the foreseeable future, benefiting our existing COVID-19 portfolio. And we stand ready with a quantitative antibody serology offering that we believe will help people and society at large better understand their susceptibility to contracting the virus, allowing them to make the decisions that will help keep them safe while returning to a way of life we once all enjoyed not too long ago. Before I pass the call over to Jim, I want to give some perspective on the outcome of the recent election and how I see this impact in life science tools broadly, and more specifically, our company. Regardless of who is president, this pandemic has shown the world The preparation for pandemics is incredibly important layer onto this the ongoing importance of research and oncology. neurodegenerative diseases and now reinvigorated focus on infectious diseases, we believe the overall global life science research funding environment should continue to have broad support for the foreseeable future. For the US life science research funding has been one of the few areas where it was bipartisan support and we would expect us to continue under the new or legacy administration. Our company is well positioned to benefit from these continued trends as our portfolio of life science tools and diagnostic solutions remain key inputs to enable discoveries that push science forward. With that, I'll turn the call over to Jim.
spk01: Thanks, Chuck. I will provide an overview of our Q1 fiscal 21 financial performance for the total company, provide some additional color in the performance of each of our segments, and give some thoughts on the remainder of our fiscal year 2021. Starting with the overall first quarter financial performance, Adjusted EPS was $1.43 versus $1.06 one year ago, an increase of 35% over last year, with foreign exchange positively impacting EPS by a penny. Gap EPS for the quarter was 83 cents compared to 37 cents in the prior year, representing a 124% increase over the prior year. Q1 revenue was $204.2 million, an increase of 11% year-over-year on a reported basis and 10% on an organic basis. Foreign exchange translation had a favorable 1% impact on our revenue. By geography in Q1, overall growth was very similar in the U.S. and Europe, with revenues increasing approximately 10%. Biopharma demand in both regions was very strong, with growth in the high teens, while the steady reopening of university labs during the quarter allowed academia to rebound from the prior quarter and grow mid-single digits year over year. In Europe, the pace of the academic recovery differed by country, with Germany, France, and Italy all further along in the reopening process compared to the UK. However, as is the case with everything COVID-19, the situation continues to be very dynamic. Just in the past week, we have heard that these same countries are reinstating lockdowns to try to slow the fall resurgence of the virus. So far, though, there is an important difference in the lockdowns that were implemented last spring, as the current restrictions do not apply to schools. It was our academic end market that suffered the most from past COVID-related shutdowns. So as long as the academic labs stay open, we believe our business in Europe will continue to ramp. In China, we grew in the upper teens organically, even though there was a resurgence of the virus earlier in the quarter, in select areas like Beijing and Hong Kong, which negatively impacted revenue for a time while labs were closed. As for the rest of Asia, organic growth increased upper single digits, with most countries rebounding to growth in the quarter, although pandemic-related shutdowns in India and Australia unfavorably impacted growth in these countries. Moving on to the details of the P&L, total company adjusted gross margin was 71.9% in the quarter compared to 69.5% in the prior year. The increase was primarily driven by favorable volume leverage. Adjusted SG&A in Q1 was 25.8% of revenue, a 310 basis point decrease compared to the prior year, and R&D expense in Q1 was 7.9% of revenue, 90 basis points lower than the prior year. I do want to point out that our adjusted SG&A and R&D spend were approximately flat compared to the prior year, reflecting continued discipline on discretionary spend during the timing uncertainty of a recovery from the pandemic. This discipline includes some delayed headcount backfills and additions. Given the overall improvement we are seeing in our end markets, we plan to fill these positions and continue with investments to position the company for growth going forward. The resulting adjusted operating margin for Q1 was 38.2%, an increase of 640 basis points from the prior year period. Looking at our numbers below operating income, net interest expense in Q1 was 4.2 million, decreasing 0.8 million compared to the prior year period. The decrease was due to a reduction of our bank debt during fiscal 2020, as well as lower floating rates. Our bank debt on the balance sheet as of the end of Q1 stood at 323.6 million. Other adjusted non-operating expense was $1.1 million for the quarter, compared to approximately zero expense in the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For GAAP reporting, other non-operating income includes unrealized losses from our investment in chemocentrics. Moving down to P&L, our adjusted effective tax rate in Q1 was 21.5 percent, a 40 basis point improvement over the prior year, and what we expect for the foreseeable future, barring no changes in corporate tax law. Turning to cash flow and return of capital, $66 million of cash was generated from operations in the quarter, up 63% over Q1 of last year, and outpacing our adjusted earnings growth. In Q1, our net investment in capital expenditures was $10.9 million, primarily driven by the construction of our new GMP protein factory. And during Q1, we returned capital to shareholders with $12.3 million of dividends. and we finished Q1 with 40 million average diluted shares outstanding. Our balance sheet remains very strong with $287.4 million in cash and short-term available-for-sale investments and a total leverage ratio of well under one times EBITDA. Next, I'll discuss the performance of our reporting segment, starting with the protein sciences segment. Q1 reported sales were $154.4 million, with reported revenue increasing 10%. Organic growth increased 8 percent, with foreign exchange having a favorable impact of 2 percent on revenue growth. Within this segment, we experienced a broad sequential recovery within our protein sciences portfolio, although product lines with higher academic exposure, namely our reagent solutions portfolio, lagged the performance of our instrument platforms. As Chuck mentioned, we had an exceptional quarter in both our SimpleWestern and SimpleFlex instrument platforms, with both product lines gaining significant traction during the pandemic. Operating margin for the protein sciences segment was 45.6 percent, an increase of 340 basis points year-over-year, due primarily to the favorable volume leverage and cost control. Turning to the diagnostics and genomics segment, Q1 reported sales were 50.1 million, with reported revenue increasing 18 percent. Organic growth for the segment was 17 percent, with foreign exchange translation having a favorable 1 percent impact on revenue. As Chuck mentioned, our genomics division led the segment in the quarter, As our portfolio of spatial genomics products combined with the enhanced productivity offered by our tissue biopsy solutions drove increased adoption in the current environment. We experienced strength across the entire ACD portfolio with RNA scope gaining momentum, increased interest in HyPlex, initial traction with mRNA scope, and a strong performance in our pharma assay services business during the quarter. Also a driver of growth for diagnostics and genomics, Exosome diagnostics Q1 revenue increased over 125% from last year, with higher collections from Medicare, private payers, and patients driving the year-over-year increase. As Chuck mentioned in his comments, test counts are approaching pre-COVID numbers, even with fewer patient visits to the urologist in the current pandemic environment. We are excited about the traction we are gaining in our direct-to-patient marketing, coupled with our differentiating capability that enables patients to take our prostate tests in the comfort and safety of their own homes. Moving on to operating margin for the diagnostics and genomics segment, at 17.3 percent, the segment's operating margin improved from 2.1 percent in the prior year. The increase reflects favorable volume leverage in our genomics division, less dilution from exosome diagnostics, as well as overall strong cost management. Before we turn the call over to Q&A, I will share our current perspective of the view ahead. As Chuck described in his remarks, the current pandemic environment has not only placed a greater emphasis on products like ours that enable scientific discoveries, but has created increased demand for solutions that increase productivity within the lab. Biotechnology's portfolio of protein analysis instruments, innovative tissue and liquid biopsy solutions, cell and gene therapy workflow solutions, and core reagents fit perfectly with the direction scientific discovery is trending, and we are positioned to ride the wave of research and discoveries going forward. As our Q1 results show, Life science researchers are clearly coming back to work, although the initial pace of activity remains much stronger in the biopharma sector compared to the academic setting. We are clearly off to a strong start to our fiscal 2021, but unknowns remain. A new wave of COVID-19 outbreaks is materializing across the U.S. and Europe, representing a risk to the pace of increased research lab activity, or worse, a potential of lab reclosures if lockdowns are reinstated. That said, based on our Q1 performance, as well as the initial trends we are experiencing in our second quarter, we do believe that we have largely turned the corner and see a path to resuming double-digit organic growth for the full fiscal year 2021 and beyond. To support our strategic growth plan beyond fiscal year 21, further investment in our commercial execution and product develop pipeline needs to be made. After over nine months of a pause on new investment, we intend to start making those investments once again. What that means for the remainder of the fiscal year is a likely lower adjusted operating margin than what we reported in Q1. However, we plan to finish the year with profitability that is not only higher than last year but also higher than fiscal year 19 as we get back on track to our long-term goal of over 40% adjusted operating margin. That concludes my prepared comments, and with that I'll turn the call back over to Satya to open the line for questions.
spk11: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Puneet Sudha of SVB Lyric. Please go ahead.
spk07: Yeah. Hi, Chuck. Congrats on the quarter. Really strong here. In terms of number of trends that you're seeing, from what I'm seeing, there's protein westerns, multiplex that's doing really well. You have ACDs and antibodies contributing strongly to the spatial. market and Exosome is delivering it strongly too. So if you could, given where we stand today, I think the key question is, you know, what are some of those trends that will continue to be, you know, really strong in the fourth quarter and into 2021, essentially around the sustainability of those trends. So if you could maybe talk to that and just give us a sense of as the labs are opening up, and despite the near-term shutdowns that we're seeing in Europe, what are some of the segments where you worry a little and ones where you're more confident of continued growth?
spk10: Sure. Thanks, Vineet. I think overall we're seeing a great recovery, even though we had very low single-digit growth in our reagent business, maybe due to still a softness in academia. Overall, it was just such a big beat because we're just seeing a lift almost everywhere. The productivity requirements have just been increased so much because of shifting and because of the way labs, just the way they're operating is different than it was a year ago. And it just speaks to our sweet spot. We're all about productivity. So we're getting that lift to that on instruments as well as reagents. Biopharma is no different than academia. Their productivity is improving because they're shifting, and they're having to do things differently. And they have money, so where they were sharing this before, they're buying extras now so other labs can have it or different shifts or whatever. And the reagents are just, the orders have been magnificent. Now, we've also really tuned our commercial force to much more inside sales and much more remote access to customers. No travel time, so no loss there, so that's probably an improvement. And overall, we're seeing the benefit. I'm just really happy because even with you'd expect a mix issue because of a lower protein amount and stuff this quarter, because of academia, we're still seeing everything just being wonderful overall, net-net, because of the average growth across every segment. And this is still with academia, not all the way back. So, as Jim said, I think we dug in hard into what's really going on. How much is the halo effect of COVID-19? How much is this? How much is that? And we really do think we've seen a corner crossed. Unless there's another whole wave of complete lockdowns. But as you've already known and seen in Europe, lockdowns are different this time around. They're not shutting schools. They're not shutting institutions. They can't take the hit to their GDP like they did the first time. And should that happen here in the U.S., I think it'd be similar. So, As long as schools don't shut down and academia continues to progress back, we'll be fine. And biopharma is just rocking and rolling right now, that's all I can say.
spk07: That's great. And then on the cell and gene therapy and protein production facility, I think the big question here on investors' mind is the ramp and the cadence that you expect from the revenue from this facility. Maybe could you give us a sense of where you stand right now in terms of the backlog, the overall order book, and what's your expectation in terms of the ramp as we go into 2021? Because obviously this is a major expansion for biotechnology in proteins, and it's well recognized that you are the leaders when it comes to proteins. Yes.
spk10: Well, we're not the only game in town. A lot of people are chasing us, right? And we're a little bit late to the game on terms of GMP, as you know. So we've been very, I'd say, out there, really out front talking about a lot of our details to try and really show the industry that we're serious about this and that we have the credibility to get big in this as soon as we can. That said, we've got to be careful because our competitors are also building sites. They're also going after this, and they're reading what we're putting out there, and they're reacting to it. So we're going to start backing off on a lot of details at this point going forward. I will tell you that we are on schedule, our factory. That number is out there, the capacity. That capacity number really is anywhere from 140 to over 200. It all depends on the mix of the products we make. And we don't know what the mix will be until we start really getting in the big contracts and they start ramping. We have signed one big deal, and that was before this quarter. And we're close to signing many more. And we're in the final stretch of negotiating with many. And these are all multi, multimillion dollar contract needs. These are the guys that came to us early, said that if you guys get serious in this with your background, your quality, your bioactivity, your reputation, we're all over it. We're buying from you. So we're doing that. But as we've always said, it's a bit of a J curve. We're roughly a $10 million business going into this quarter. We've talked about that. We're not going to talk about it going forward, but we are solid high double-digit growth in GMP proteins even now. And we'll be migrating some of that production to the new facility as we ramp and build the new production into it as these contracts come. But they're finalizing their phase three clinicals. I mean, it's not going to happen overnight. So we've got to qualify, and then we've got to build lots And we'll be building inventory for them ahead of their purchases. So all that's going to take, you know, a year or two. So, you know, you can guess as much as we can. I think we'll be kind of a doubling every year as we grow this site and maybe more so three or four years out. But the first year or two are going to be, it's really a setup. And we've got a lot of customers. We're migrating a lot of business. We're going to have more than a half a dozen large customers and possibly many, many more than that, and it's pretty unknown. You get the data as well as I do on the number of clinicals going out there. It's exploding, right? So the need is great. I really think it's almost going to be an everybody wins environment for five years in this space, and, you know, we want our share, and our share is a majority share because we're the world leader in proteins.
spk07: Got it. That's great. Thanks, Chuck. Congrats again.
spk11: The next question is from Dan Arias of Seedful. Please go ahead.
spk08: Good morning, guys. Thank you. Chuck, just following up on some of the things that you mentioned there, pretty substantial step up for protein sciences. Can you just hone in on Simple Western a little bit and talk about the outlook that you have for instrument placements at this point there, particularly if we try to separate out pharma, where it sounds like it's pretty, you know, rocking and rolling, to use your words, versus academia? And then, you know, along those lines, is it fair to say that going forward or for this year anyways, growth should be over 20% this year, just given that you were above that level in several quarters pre-COVID and obviously against the fiscal 20 comp, you have a pretty favorable year-over-year there?
spk10: Yeah, to put some context, let's back up a year. I mean, two years ago, you know, we started seeing a major ramp as this platform really kind of crossed the chasm and started reaching critical mass. And we were on pace, you know, delivering over 100 systems a quarter. And then COVID hit and everything locked down. And, you know, Biopharma changed the way they operate. So they had to get their new processes in place, how they're going to shift and everything else. So things got slow there. And then academia was shut down. So nothing. So we had a pretty bad quarter, you know, a couple quarters ago with Simple Western. And everyone understood why, especially academia. being shut down. This is a platform heavily used in academia. And now, so now what's happened? Now with growth, you know, well north of 30%, things exploding back out of the blocks. And academia is not even all the way back yet. So how can it be that good? So I think it comes from two things. We dug in hard on this because we need to understand because we knew you were going to ask. And the productivity changes, the process changes in biofarming, in the labs in general, it's changed. There is more of a focus on productivity because of shifting, because of cutbacks in staff. And so more supervisors are having to go back to the bench and help out. And because of that awareness of the platform being a great productivity tool, it's accelerated because more and more decision makers are really at the bench and driving that productivity. And with extra shifting and then the distance requirements, it's requiring more machines. more stuff everywhere. I think it's driving us, not only us, but everybody's showing good numbers. I don't think anyone's had as good organic numbers as we have when you subtract with COVID. But there's a portion of this for everybody. And that's what we see. Now, as academia improves, we're going to do even better. So we're north of 30 this well north, mid-30s this quarter. Can we say we'll be on 20% going forward where we were before COVID? I think that's a pretty safe bet. I think I'd like to see north of 20, but 20 should be in the cards. Remember, we're still only at max 15% share with this platform. It is the only automated Western blot solution in the world. It's highly protected by IP. There doesn't seem to be any other decent, cheap way to do this in an automated fashion. And we want to get 40, 50%. If we get that, it's hundreds of millions of dollars of growth. So... Western blotters are one of the singular most done processes in any biochemistry lab, and we're the only tool. So it's going to continue to grow. It works great. The word of mouth is there now. I mean, it's, you know, the demos, I mean, we suspect there might be a question of how are you guys doing demos when you can't go visit? We've gotten really creative how we ship the instruments in because they're not very big. They're not complicated. You unbox them, plug them in, run the setup, And we can do demos remotely with webcasts and webinars, and it's working great. So, yeah, to answer your question just short in the end, we do see continued strong growth from here on in with Simple Western, no doubt about it.
spk08: Yep. Okay. I can feel your enthusiasm there. Okay. And then maybe just on XODX, it sounds like you're getting on the right foot there with the epi test. So I guess with that in mind, are you able to sort of put some numbers on volume growth that you expect this year, this fiscal year? That's obviously been something that's tough to track for lots of different reasons. So just some guidance on volumes would help. And then what should we think about in terms of being able to switch over to accrual counting on the tests that you do perform during a quarter? Thanks a bunch.
spk10: Yeah. It's probably early to start giving a lot of detail on that. We do have competition here as well that we're wary of. But we have surpassed most of them in test counts. We're at a 2,400 urologist level of purchases, and that's out of 20,000 or so. So we're still on the early side of this. We do have a 91%. rebuy rate with the purchasing neurologist, which is incredible. So it's ramping even harder. All right. So the at-home is working. So we are seeing numbers going up. And then we did go to accrual on a portion of our business. I'm going to let Jim comment further on the cash to accrual process.
spk01: Yeah. So actually, we have enough history now with our Medicare payments that we were able to move to an accrual-based accounting revenue recognition process for our Medicare-based payments in Q1. So going forward that will remain on a recruit basis. All of our non-Medicare payments are still on a cash basis and will be for the foreseeable future.
spk10: So we've also focused a lot on the direct marketing campaigns to support the at-home. We're the only one that can do an at-home because we're non-invasive. And it's growing well. You stack on top of that the promotion with Cal Ripken Jr. and the response is amazing. Just to give you some facts here, we had almost 8 million impressions on Google Ads and Facebook in the previous quarter due to the launch. We've done 90,000 video views. We've had over 100 radio commercials on the platform via the campaign with Cal Ripken. He's had almost a dozen interviews personally, so he's ramped up and going forward. This guy thinks we saved his life. he's pretty bullish and he's pretty supportive and it's been pretty amazing. We've all got signed baseballs, by the way. So, you know, I don't think we've crossed the corner yet on critical mass. I think we're a year away. I've had a lot of friends in diagnostics out there in the industry who have told me that it takes five years, Chuck, and there's just no cutting any corners and And you guys aren't gonna get it done in two years, and they're right. It's not gonna be done here in two years, and we're crossing the two-year point here soon. But it won't take five. We're ahead of schedule in some areas. We're in a strong position for reconsideration, which really hasn't hurt us anyway, because of the TRF process with our docs anyway. So we're getting a really, really good Medicare reimbursement rate, even regardless. With the multi-use consideration, you know, for the L3D expansion, we hope to get here with our Mac here soon. You know, that'll even improve. But we have next generation stuff coming, you know. We've got, we're kind of halfway there, maybe a year out on the kidney rejection platform. And that market's double the size of the prostate cancer market. So, you know, it's even more exciting. So, as I've said before, this is a platform, you know, not a one-trick pony. And we've got four or five things pipelined over the next five to ten years that are going to create explosive growth for this new young division.
spk08: Okay. I'm still on MySpace, guys, so I'm going to have to take your word for it on the Facebook promotion, but I appreciate the call, Chuck. Okay.
spk11: The next question is from Catherine Schultz of Baird. Please go ahead.
spk02: Hey, guys. Congrats on the quarter, and thanks for the questions. Chuck, did I hear you right that COVID-related research products contributed three points in the quarter? I believe you're expecting slightly higher than the five that you saw last quarter, so curious what the puts and takes there were, and is there an additional clinical-related tailwind, and how do you expect those to trend in the fiscal second quarter?
spk10: Yeah, that's a great, great question. We probably have over a couple dozen now of different products you know, tools out there for research related to COVID-19, and they're all ramping nicely. You know, the RNAscope tool is just phenomenal. It'll be the biggest seller we have in the portfolio for the division. But it's not like a PCR test or serology test, right? Those are things that can really scale, and we all know what's happened in the world with companies who have PCR, right? We have some of that as well with our lab doing epi tests. It's the same equipment, so we're set up. We have an EUA, and we are growing that business as well, but it's just starting to ramp now. The serology, you know, we just got to see Mark a couple weeks ago, and we're closing deals, and we're starting to launch, and we're ramping. I was obviously hoping to have more serology this past quarter, and we're hoping to have it in a UA and a US, and we just haven't been able to secure that UA yet. The FDA is just, the only way to describe it is just in turmoil. They're just behind, behind, behind, and they're really struggling. We have been promised that they're all over us. We have submitted everything we can submit, and we're just waiting for the answer, and we expect we'll get it. But that's probably the biggest reason we didn't have more COVID-19 revenue this quarter because we haven't been able to get things started here in the U.S. because we haven't got our EUA yet. So going forward, there will be more. It won't be PCR-related revenues, but we are at a capacity level because this is just ELISA. The whole world has ELISA automation. We can produce very easily 10 million tests a month, and we hope it grows. We do think that we're still early enough, as we think the big need is going to be this bow wave of when the vaccines hit, everybody's going to want to know, are they immune? Can they see their kids again? Can they see their grandkids again? There's going to be a lot of interest. There's going to be a lot of immune response differences with these vaccines. It's not like getting a flu shot and getting maybe a headache. You can get a pretty big response. And so people are going to be wanting to know where they're at. And I don't know if it'll last 10 years. It's going to be a while. And there will be a big need for serology. And we'll have the only fully quantitative test out there. There is only one out there that's semi-quantitative, and that's the CNIS test. And we were given full quantitative neutralization claims with a C mark in Europe. We're the only one in the world. So we'll see how the world treats it, starting in Europe. And we'll go from there, and hopefully we'll get the right, the opportunity to give this best-in-class, world test to the to the to the american public as well here with an eua but we're waiting on the fda to do that for us and uh that's the primary reason everything else grew kind of okay for the quarter and it was three percent yes of the ten i should point out too though we're able to really differentiate what is covered and what isn't because these are these are our tests that are really devoted to covid a lot of companies out there it's kind of hard to know how many more beakers, flasks, whatever you're buying that are still already being used for COVID that aren't being put in the COVID numbers they're putting in their core. So it's kind of hard to know what's apples to apples. So we really think that our 10% organic growth really is kind of organic compared to a lot of companies out there. But if you're going to separate by SKU where the SKU has something that says COVID-19 on it, it's 3%. And that'd be a good question to give all our peers out there as well, because I don't think you'll get the same kind of answers.
spk02: Okay, great. That was very helpful. And then great to hear academic return to growth. Can you just give some commentary on how that trended throughout the quarter and where activity levels stood in October?
spk10: Slow and steady. Very slow and steady. I mean, almost on a drip all the way through the quarter. And it just keeps getting better and better. And, you know, we've been terrified the last two weeks here with Europe. It might turn around, but so far our data suggests and our you know, our interaction suggests that it's not going to have an impact on labs and schools in Europe, even with this lockdown. So we'll see. U.S. has just been a slow, steady return. And we're not there yet, but it's been amazing to see the revenue and the lift we're getting because our growth is surpassing the actual level of their comeback. So we've got to know why. Why are we doing better than the roughly 60% that are really open partially? It's because of these productivity changes. And the shifting changes, the duplicity needs, all these things are having an impact on our growth. And there's been probably a little bit of restocking, turning things on. Kind of like we saw China when China turned down with a surge. They had to rebuy everything and get things going. The difference in China was 100% day one. And here it's going to be a slow turn on. But there's still a restocking, you know, resurgence piece. So a bit of a wave as things come back online, I think. And, you know, we're We're a tool supplier, and we supply reagents, we supply supplies, consumables, so these are the things that you're going to see the initial first wave of new revenue with.
spk11: Great, thank you. The next question is from Patrick Donnelly from Citigroup. Please go ahead.
spk09: Thanks, guys. Chuck, maybe just a follow-up on the serology commentary there is helpful. Can you just kind of detail the path forward here? I know you've obviously talked a little bit about CMS paying more for your test, you know, where we stand on that front in terms of pricing, and then, you know, what's built in in terms of the double-digit organic growth Jim talked about? How much do we expect serology is going to contribute once it gets rolling, both Europe and U.S.?
spk10: We have zero in those comments. So it's all gravy. It's all coming upside, so... Whatever we get in serology, you can tack on top of what we've given for any guidance. So our cores is just smoking, that's all I can tell you. So serology is just going to be on top of all that. So what's happening? Well, we can't get CMS to give us a new price until we have an EUA. And we can't get the channel to open up and close deals for us in the U.S. until we have an EUA, until they know what the claims are. We know enough to know that what we sell ELISA kits at in general, and we're not trying to gouge anyone. We haven't done anything different. So we know we're going to be in the $5 to $10 test range. But whether the channel is going to get $80 or $120 reimbursement, it's all unknown. It'll be way above the $10. We know there'll be strong interest to sell our kits once things get going because it's such a good test. But it's a double antigen test, right? It's a two-step test. So, you know, it's going to need to go beyond the $42 of the current reimbursement level out there. So, and even there, you're seeing that, you know, the pricing that's happening on these tests, even PCR is going well beyond what the reimbursement levels are. The demand is staggering, right? So, you know, so I would not underestimate the big guys in the channel that drive these tests and trying to getting over $100 a test these later. there's plenty of proof out there right now that that'll carry probably, you know, because the current PCR testing is at that level or beyond. So, but it won't be us getting it, but we're going to get our fair share and it's going to be great. So, we know how to make ELISA kits. We've been doing it for 35 years. So.
spk09: Yeah. And then on the antibody side, I know you've talked about in the past, you know, some potential for it to be used to your point there on The vaccine, have you had any conversations with kind of the vaccine makers about the test being used as part of the vaccine development? Yeah, we've talked to all of them.
spk10: And the last thing a vaccine maker can do when they're in a phase three clinical is change their control. So it's really kind of odd because, you know, we're waiting on the FDA for our EUA for this test, and yet you can tell them, well, what are you doing? How are you treating the vaccine makers? They have to have a test. The vaccine has to be based on something. Because they're all doing their own homebrew because nothing existed early enough for them to go buy anything. And they can't change until things get out there. We do expect a lot of interest in our tests by the big vaccine makers as they get things launched and as we go into the second, third, fourth generation of these vaccines. For one, we're doing it in a scalable fashion with the monoclonal. They are not. They're doing homebrew. They're not intending to scale. They're not intending to sell tests. So they can use a poly. You can't do this test for the world on a poly. There aren't enough ghosts. So we're doing it in a scalable fashion with highly proprietary processes and antibodies that we have discovered that make us the best in the world. Working with our partner, Mount Sinai, Cantero, which obviously you need a lot of patient samples to get this done. That's a big problem, by the way, for anyone moving this area. If you don't have thousands of patient samples to do the work with, you really can't get anywhere. And it's a very big issue. So we're the perfect, you know, partnership, and it's gone very well. You know, we've been ready for two months. We've just got to get this through our regulatory processes here, and they're bogged down. They're bogged down, and they've got tarnish around serologies because the initial EUAs they gave didn't work, and they're out there single-step qualitative tests that simply don't work in some cases, and so we've got to cross that hurdle, but we can promise you ours works, and they all know it, and... They've been very engaged with us and interactive weekly, the team at the FDA. And we've been talking to higher levels of management in the FDA. And they've assured us that this is a high priority and they understand. And they understand the significance of world-renowned authorities like Dr. Kramer at Mount Sinai. So it's coming. But they're not really good at telling you when. We just hope it's coming soon. We do have the CE mark. We're there in Europe, and we're launching, and we're going after it. So first data we'll see on how it will affect revenues and volumes, and in real demand, we'll be out of Europe first. We have deals signed up for Germany and UK completely at this point, and we're working with Spain, Portugal, Italy at this very moment, and the channels are being set.
spk01: I'll just add to it. It's probably fair to say that In terms of end-user demand, that likely will not occur until there actually are vaccines approved and in the market.
spk10: I think there's time. I think our initial thinking about people wanting to know, were they sick before and are they okay? I just don't think there's that big of a need. It'll be the big, though, when vaccines come out. Then the vaccine makers are all very supportive of our work, and they wish they could, a lot of them wish they could use and change, but they really can't without taking, you know, a redo on their clinicals, and there's no way they're doing that. So they have to move forward with what they have for now until they launch.
spk09: Okay. That makes a lot of sense. And maybe just staying on Europe real quick, just on the funding backdrop, you know, there's obviously been some lockdown measures there. It seems like COVID overhang is persisting a bit longer than expected. Maybe just your latest thoughts on that region. You usually have a pretty good handle on the Europe funding side and what you're kind of baking in as you go forward.
spk10: Yeah, as you know, we were having some softness in Europe before COVID, and so we are kind of redesigning our commercial organization and our go-to-market strategies, and we had just kind of put that in place as COVID hit, so we weren't able to really measure how it's working. It's kind of starting to work, so our numbers are pretty good in Europe, and even that's in light of COVID softness. So we have changed a lot of management. We've changed out a lot of people. We've done a lot more inside sales to coincide with the new way to go to market. In Europe, you can't visit, so you've got to have a lot more inside sales. And that takes technical people, and we have a lot of them. So it's working pretty well. I think we see funding stable. And I don't think it's any different than here. I don't think there's any change to the status quo of the future for funding for life sciences. I think the needs will be big. I think people are angry. I think people want more assurance that there's safety out there for the next pandemic, and there's just going to be a lot of research dollars and probably more than ever in infectious diseases again. So we'll be playing harder there than we have in the past.
spk09: Okay, great. Thanks, John.
spk11: The next question is from Alex Nowak of Craig Hallam Capital. Please go ahead.
spk06: Great. Good morning, everyone. Now, Chuck, how do you intend to take the transplant test forward into the market? And then just a follow-up question to that, what sort of work has exosome diagnostics done on early cancer screening? Because exosomes might be a unique way to do something similar to or better to what Grail and others have done with cell-free DNA. So just any thoughts there would be helpful.
spk10: Yeah, we have some work going on on all those fronts. We're focused constantly. clearly the most focus is on ramping, you know, our prostate test. In parallel, we have the, you know, we have the dilution capability, the investment capability to keep working on kidney rejection X, and we're probably halfway there. We're probably a year away from being at where we were a year ago with epi, all right? So we'll get, we have our first peer-reviewed paper being worked on right now, being, you know, it's accepted, it's out there. Working on the second, we'll try to get in the guidelines, we'll get an LDT and then we'll start working with our MAC on getting going for Medicare lately, probably in a year or so. The market's double. The need is huge. I don't think it will be as hard getting acceptance and getting a ramp on this test because there's just such a big need. It is just so bad. I didn't realize this, but half of all kidney transplants fail in 10 years. And in the first year, a big percentage fail. And they have to start testing immediately for rejection. And they do this via biopsy. They start cutting chunks out of you. It's just not good. So one competitor does it with a blood test. And it's a real competitor. It really works. Their numbers are pretty good. We're going to be able to do it with pee in a cup. And it's going to work even better. And so we're on our way. There's a lot of excitement around it. primary care oncologists as well as urologists are excited and we'll be there. Now the companion diagnostic side, the cancer screening initiatives, we have over a dozen initiatives we're working with and some are starting to scale and there are some that are close to becoming a companion diagnostic with a therapeutic. So we're getting there. These are longer fuse initiatives. We have the ability of doing as much as 170 a gene screen. It's no 500 like Grail, but it's 170. We're ready to go now if somebody wants to take it through, you know, clinicals. We validated it. You know, we have, as you pointed out, the platform of exosomes has a high utility. Amazing results around using exosomes for neurodisease and areas of dealing with what's going on in the brain and brain cancer. Getting through that blood-brain barrier is a big problem, and exosomes solves it. So there's a lot of work with us right now on that. So the future is bright for oncology, you know, and blood-based oncology-related tests for exosome, but not here today, and we just don't have the resources to fund and do all these in parallel. So we're kind of staggering them and doing partnerships and talking to more companies, but the interest is growing, and the platforms are real. Exosomes, you know, are here to stay.
spk06: Very interesting, very helpful. And then In the press release and prepared remarks, you called out these long term budget increases across potentially across the world due to the pandemic. Can you just give any specifics what you're hearing from other countries such as China and the emerging ones like such as India? What are you hearing as far as their budgets going up as a result of the pandemic?
spk10: Well, all I can comment on is what we as we put. out these questions with our sales force and our relationships in the field with our customers, and this is what they're telling us. I'm not on the speed dial to any country leaders, but this is what we know so far. And in places like China, China's going to be weird this year because it's the fifth year of their five-year plan, so it's not going to be the 25% to 30% automatic, but I think 20% is in the cards. And then come next year, I think we'll come out of the gate super strong because I think funding for life sciences and health care is going to be off the charts there this time around. U.S., you know, I don't think it's going to matter who's president. I think it's a bipartisan agreement area. And I just think there's a lot of the population would like to see a lot more than the $40 billion spent, which is a rounding error compared to what COVID has cost us in NIH funding. So I think it's going to be a big future. Europe's going to be obviously country by country, but again, places like the UK, it's going to go up. It's got to. And so that trickles down to us because we sell broad-based tools across all life sciences research. And we've talked about this in the past. Every 8% to 10% increase in budget, we usually see about a 1% lift in total organic growth. And that's kind of what's been the past. And if we see a 20% increase, let's say, next year in funding, you should see a good 2% lift from that alone just in our core. And then that's on top of everything else we're doing. So, you know, I think the future is bright. I think the tailwind is, it's a tailwind currently and not a headwind looking forward, at least the next couple of years.
spk06: Yep. Understood. Thank you. Appreciate it.
spk11: The next question is from Dan Leonard from Wells Fargo. Please go ahead.
spk05: Thank you. Chuck, Jim, you mentioned in your remarks that you thought there was some signal of restocking in the quarter. You know, how meaningful do you think that was?
spk10: I think when you do that, you have to do it by account. So we've done really big analysis into order and order sizes. If you've got an average order size of $1,000 for a university and all of a sudden in a quarter it's $1,200, you start asking why, right? And some of that's restocking. Is it significant? Is it something like where without that we would have been 4% or 5% versus over 10%? No way. I mean, it's marginal, I think. But there is some restocking.
spk05: Okay.
spk01: And then on the outlook... Our consumables are very long period of time, so you're not going to have a big volume of restocking. We generally use our reagents within days of purchase. We're run rate, mostly, so... Okay.
spk05: And then on the outlook, you know, your comp gets a lot easier in the December quarter. Is it fair to assume that your growth rate could accelerate, you know, pretty meaningfully in Q2 absent, you know, reestablishment of lockdown, just given the easier comp and the momentum in the business?
spk10: Yeah, you know, one, I just want to reiterate, we're just ecstatic over this quarter. This is the quarter we were afraid of. It's a 13% comp and we just kind of blew it away. This quarter coming up was not a great quarter for us last year, and so it should go well. I can just tell you the start of the quarter is really good. But December might be really weird. A lot of universities are going to shut down from Thanksgiving all the way into January so they don't have multiple coming and going for the students. So we don't expect a strong December, but we've had a great start to the quarter, so we'll see how it ends up. But I don't think December is going to be off the charts for anybody, to be honest. You know, but that said, every country is different, and, you know, we're seeing good strength in China. We're seeing really good everywhere, everywhere but India. India is, you know, pretty much a disaster right now, but not very big for us yet. And going into next year, our Q3 and Q4, obviously the comps get super easy, so, you know, Q4 for sure. And so we're, you know, as we talked about a double-digit year, we see a double-digit year in the cards here for us, so. Okay, thank you. The points we put on the board this quarter were the biggest thing we needed to do when we did it.
spk11: The next question is from Jacob Johnson from Stevens, Inc. Please go ahead.
spk04: Hey, guys. This is Mason on for Jacob. Just a couple quick ones from me. First, could you update us on quad technologies and Beamogen, and then outside of those and GMP proteins, are there any cell and gene therapy capabilities that would – that interest you guys, whether you're adding them organically or via M&A?
spk10: Yeah. We're still hunting that space. I'd like to buy 10 little companies in this space if I could find them all and get them, but they come at high prices. We have most of the workflow kind of closed, so we don't need a lot, but we would certainly add on for scale. You know, we've launched our quad technologies, and it's being sold. It's being used. We're certainly in preclinicals, and I think we're close to being in real-life clinicals. And, you know, and we've just closed some deals recently here in some real strong interest around the beamogen. You know, this is a little longer-range idea, right, to go away from viral vectors and go, non-viral vector for gene editing. That's a big change after 20 years of viral vectors out there. So we are seeing amazing response and supportiveness for this technology. And we are pretty much on plan with the revenue. It's ramping. These deals are getting larger. The team is in great shape. We have a complete team from the acquisition, including its leader, who's still working for us on this. The future is bright here. As part of the JV, you know, with strong leadership from guys like John Wilson, Wilson Wolf, who pretty much is the bioreactor standard of record in spectin everywhere out there. And we're leveraging him to be looking at our proteins, even on viral vector approaches. We're trying to, you know, we've got a technology we call ProDots that you can actually manufacture and ship within the bag the single-use bioreactors or the G-REX, and you don't have to mess around with any sterility risk issues as you re-concentrate. And shipping protein un-reconstituted is the way to go. So we'll be the world leader in that, and we'll have the best lot-to-lot consistency. And every time you lyophilize, you typically can lose some bioactivity, and we've cracked the recipe for how to do this right. And we have a lot of trade secret around it. So it's growing. It's ramping. It kind of goes back to my earlier decision. It kind of goes in line with the ramp of the GMP proteins in the factory. It's a J curve for the next five years. And we stand behind our, we think it'll be a $250, $300 million business unit, you know, five years out, probably less than five years at this point. And it's ramping nicely.
spk04: Got it. I'll leave it there. Thanks, guys.
spk11: This concludes the question and answer session. I would like to turn the conference back over to Chuck Cummins for any closing remarks.
spk10: Well, I'll just conclude with thanks for being online. It's been great to talk with you all. We had a wonderful quarter, but, you know, the next quarter will be the most important quarter in the company's history, and we're on to that now. So we'll talk to you then. Thank you.
spk11: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a Thank you. Thank you.
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