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spk05: Good morning, and welcome to the Biotech Earnings Conference call for the second 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, Biotech'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.
spk01: Thanks, Dave, and good morning, everyone. Thank you for joining us for our second quarter conference call. Hoping you and your families have remained safe as we get closer to turning the corner on this horrible pandemic. The biotechnology team delivered another strong quarter, accelerating our organic growth year over year to 19%, building on the strength we experienced last quarter. In fact, our 19% organic growth rate represents the strongest performance since I joined the company in 2013. This growth was broad-based across our segments and geographies as our penetration in biopharma continued to be red-hot, and even academia returned to double-digit growth. The new normal of social distancing and staggered shifts has become an accelerant for the continued adoption of several of our technologies, namely SimplePlex and SimpleWestern. I will dive into the specifics of each of these platforms later, but they are all gaining traction and remain in the early innings of penetrating their large respective markets. We delivered this record organic growth with a continued focus on profitability as our adjusted operating margin improved 530 basis points year-over-year to 38.7%. Some of this improvement reflects the timing of hiring investments to drive future growth, but shows the leverage and profitability inherent in our business model. The COVID pandemic continues to impact traditional ways researchers are staffing labs and conducting experiments, as well as the ways we are interacting with these customers. But I'm encouraged with the innovative solutions researchers have leveraged to push science further and the innovative strategies our commercial teams have implemented to meet their evolving needs in these challenging times. Academia, in particular, is getting better at managing through the COVID-related restrictions, and we are encouraged with the sequential improvement we experienced in this end market. While we experienced robust growth with both Biopharma and Academia customers in Q2, both of these end markets remain largely closed to outside visitors, creating challenges for our commercial team to get in front of customers. Our commercial team once again did an excellent job adjusting to this new normal, leveraging webinars to educate current and potential customers on our portfolio of reagents, selling gerunds cell and gene therapy solutions, tissue biopsy, and spatial analysis solutions and instruments. During the quarter, our team got even more creative, using virtual coffees and happy hours to get increased face time with our customers. These virtual meetings and webinars will remain an important and cost-effective part of our commercial strategy for the remainder of the pandemic and beyond. Our digital marketing initiatives remain an important tool to differentiate by technique, educate the scientific community on our portfolio of innovative and productivity-enabling tools, drive traffic to our website, and ultimately convert this traffic to revenue. These digital efforts have become an increasingly more effective tool during the COVID pandemic, and we continue to execute this strategy at a high level in Q2. Researchers often begin their quest for reagents and research productivity tools with an Internet search, so ensuring biotechnology is one of the top results of these searches is critical to drive traffic to our website, convert these visits to sales of our products. Leveraging search engine optimization and targeted ad strategies remain a key component of our digital strategy and both continue to generate high returns on investment with an outsized impact on sales within our antibody and protein portfolio. Last quarter, we announced the launch of OneWeb, a new website that unites all of Biotechnics' brands under one easy-to-navigate site, enabling our customers to order products across our instrument and reagent portfolio under one website while leveraging algorithms to drive purchases across our portfolio and position the businesses to realize increased revenue synergies. We began a scaled launch of OneWeb in November, and initial customer feedback, as well as traffic to our websites, has been positive. OneWeb, paired with our SEO and targeted ad efforts, drove double-digit growth this quarter in a number of sessions, page views, new users, and repeat users on our website. Given the correlation of our revenue growth this quarter, our strategy is clearly generating results, and we will continue to pull this growth lever going forward. Now let's discuss performance of our growth platform, starting with protein sciences segment, which grew 19% organically for the quarter. Growth is strong across our core reagent portfolio with both RUO proteins and antibodies growing low double digits. In addition to the impact of academic labs reopening and our digital initiative, our reagent business also experienced a favorable tailwind from custom work for biopharma customers in need of additional protein or antibody capacity. Our custom reagent development business increased over 60%, in the quarter, and we are leveraging multiple strategies to capitalize on this outsourcing trend going forward. During Q2, we continue to push our cell and gene therapy initiatives forward. One of the key components within our cell and gene therapy business is GMP proteins, with these cytokines and growth factors playing a critical role in the cell and gene therapy workflow. Revenue generated from our portfolio of GMP proteins once again increased nearly 100 percent in Q2. Recall that we recently opened a 61,000-square-foot state-of-the-art GMP reagent manufacturing facility to address the expected demand for GMP proteins and reagents as the growing pipeline of cell and gene therapeutics progressed through the regulatory approval process. We made significant progress qualifying the facility and have begun manufacturing production lots of select GMP proteins. We also executed our second long-term GMP protein supply agreement in the quarter. We remain in various stages of discussion with several other biotech companies with pipeline cell and gene therapies for future potential long-term GMP protein supply agreements and are very pleased with the funnel of potential deals. Sticking with cell and gene therapy, our genome engineering services business, which includes our non-viral vector-based gene transfer technology, TC Buster, continues to gain attention from the cell and gene therapy industry. I would also note we are seeing a growing list of collaborators and positive feedback on CLOUDS, our non-magnetic, heat-based cell separation technology for human T-cell, natural killer cells, and human regulatory T-cell, Treg, activation and expansion kits. We are still in the early innings of both TC-Buster and CLOUDS, but both of these innovative cell and gene therapy workflow technologies remain important pieces of our cell and gene therapy workflow solutions. ScaleReady, our JV with Fresenius Kabi and Wilson Wolf, formally launched at the beginning of calendar 2021. with the mission of providing the most simple, scalable, and versatile cell and gene therapy manufacturing platform in the industry. As a reminder, this consortium pairs Biotechnics' portfolio with cell and gene therapy workflow solutions, including our cloud cell separation and activation technology, GMP proteins, and genome engineering services with Fresenius-Cabi's leukapheresis instrument, and Wolff & Wolff Bioreactor to enable a modular, cost-efficient workflow solution. The Scale Ready website is up and running, and the commercial team began its initial customer outreach campaign, including initial contact to over 600 industry participants and almost 250 gene therapy companies. Also during Q2, Biotechni made an initial strategic investment in Changzhou Eminence Biotechnology Company, a China-based life science company with best-in-class media, including Cho cells and other serum-free media products. as well as custom cell line and media formulation development services. Eminence will use the financing proceeds to expand its manufacturing capacity and increase the service capabilities of its China-headquartered GMP media production facility. Investing in Eminence expands Biotechnics' foothold in providing additional products and services to support the needs of the rapidly growing Chinese biopharmaceutical industry and fits extremely well with our existing high-growth product portfolio in China. We look forward to working with the Eminence team. Now let's discuss our proteomic analytical tools portion of the protein sciences segment, where the strong momentum we saw in Q1 continued with our portfolio of instruments and assays, enabling research labs to increase productivity while adhering to social distancing and staggered work shift protocols. Once again, we experienced very strong growth in our simpleplex-multiplexing alliance instrument, ELA, where revenue almost doubled year over year. Encouragingly, simpleplex utilization within our customer base continued to diversify, as researchers leveraged Ella to investigate inflammation, cancer, neuroscience, and other disease states and biological pathways. Ella's relatively small footprint, low price point, sub-picogram level sensitivity, and reproducibility is driving both instrument placements and consumable pull-through. Our clinical program with MicroPoint in China is on track, which speaks to the incredible diversity Ella is capable of. We are now taking Ella through a 510K process in the U.S. which will unlock new clinical opportunities for this amazing platform. It was a similar story with our automated Western instrument portfolio, where we grew almost 30% in the quarter. Our Jess and Wes automated Western platforms turn the labor-intensive, messy, inconsistent, cumbersome, manual Western blot process, which can take up to two days, into a fully automated, reproducible, sample-to-answer, three-hour process. This value proposition has been resonating incredibly well with researchers as they return to the bench. And with our solutions less than 15% penetrated into the addressable market, there's plenty of room for continued growth. Our biologic instruments, which provide protein purity information and are used directly in bioprocessing, also had a standout quarter as we experienced broad demand from biopharma, including several companies with COVID-19 vaccines in various stages of development or commercialization, as well as continued interest from companies working on saline gene therapies. Now I'll provide an update on our diagnostics and genomics portfolio, where organic growth revenue also increased 19 percent in Q2. Let's start with an update on our ACD or tissue pathology franchise, where organic revenue increased in the upper 20 percent range for the quarter. This growth was broad-based across geographies and product lines, including very strong performances from microRNA scope following its launch this past summer, as well as base scope. Momentum we experienced in RNA scope last quarter continued in Q2, as a single-cell spatial resolution and high sensitivity provided by this technology continues to drive market adoption. Biopharma's need for increased productivity while working with limited or staggered shifts remains a tailwind for our PAS, or Pharma Assay Services, business within ACD, where Biopharma outsourcing their spatial genomic analysis has drove over 40% growth in this business in the first half of fiscal year 21. Now let's discuss our exosome diagnostics business, starting with our prostate cancer Liquid biopsy assay, the XODX prostate test. Encouragingly, we believe most of the urology practices across the country have reopened, and we experienced another sequential increase in our prostate test volume. But patient traffic is still down from last year, as older patients are more likely to quarantine at home until they become vaccinated. We expect urology practice traffic to continue to improve as vaccines make their way into the segment of the population, which in turn should have a positive impact on our XODX prostate testing volumes. In the meantime, our home kid version of the test continues to be the safest solution for patients to continue to work with their rheologist. Recall that we partnered with baseball Hall of Famer Cal Ripken Jr. to co-promote our XODX prostate test following his personal prostate cancer journey, including his use of the XODX prostate test, which ultimately influenced his potentially life-saving decision to get the biopsy that led to the discovery of his aggressive prostate cancer. The marketing campaign continues to be successfully leveraged across all social media platforms and channels and is driving traffic to the Fight Like Cal page on the XODX website, where we saw page visits increase over 1,400% sequentially. We also launched a physician locator function on the XODX website, enabling patients interested in taking the test to find physicians offering the test in their respective city. Our exosome diagnostic platform is not just limited to our XODX prostate test. There is a full pipeline of high-value diagnostic tests, with our ExoTrue kidney transplant rejection assay next in line for commercialization. We expect ExoTrue to become an important tool in the management of kidney transplant patients, with its easy-to-collect urine-based sample enabling increased adherence to testing protocols. We completed verification of the assay and have optimized the workflow. Initial ExoTrue data has been accepted for publication in a well-respected medical journal, and we anticipate publication in the coming weeks. Despite generally soft non-COVID-related diagnostic testing volumes, our Diagnostic Reagents Division once again delivered a solid quarter, with organic revenue increasing in the upper single digits. This is actually the sixth quarter in a row that our Diagnostic Reagents Division has delivered positive growth as the development pipeline and, to a lesser extent, COVID-related opportunities continue to bear fruit and smooth out the impact of what can sometimes be a lumpy bulk reagent orders. I'd like to now give an update on our COVID-19 initiatives. The products we sell are directly related to COVID research. For example, reagents and instruments with specific viral research applications, ACD probes to detect the virus in tissue, and sales of bulk diagnostic reagents used in COVID testing applications was an estimated 3% tailwind to our business in Q2. We expect that research in COVID will be around for many years, thus making this tailwind a sustaining new layer of our product portfolio going forward. We continue to make progress with the commercialization of the COVID-19 serology assay that we co-developed with Cantero Biosciences based on Mount Sinai's technology. The Cantero serology assay is a truly differentiated test, providing not only information on the presence of COVID-19 antibodies, but also the level of titer of those antibodies. In November, the Cantero COVID seroclear assay received EUA approval as a semi-quantitative assay, and we have submitted additional data to the FDA supporting a full quantitative claim as we received in Europe with a CE mark. We have commercial agreements now set up in many countries and are in discussions with many U.S.-based lab systems. To date, most of the demand for COVID-19 testing has been PCR-based, geared towards answering the question, am I infected with COVID-19? Now that vaccines are becoming available while the virus continues to mutate, We believe demand for serology testing will increase as patients look to answer the question, am I immune? Ultimately, following a full FDA quantitative claim, we believe the Contero assay will be able to answer this important question, allowing us to return to the pre-COVID lifestyle we are all looking forward to. RQ2 is evidence of the growth we are starting to unlock with our portfolio of proteomic analytical instruments, tissue pathology, and spatial genomics products. cell and gene therapy workflow solutions, and liquid biopsy diagnostics. These large, high-growth end markets remain underpenetrated, and we're in the early innings of realizing the full potential of these growth technologies and platforms. Layer onto these, the content and cross-divisional synergies inherent in our core reagent portfolio, and I'm increasingly confident in our ability to deliver our long-term revenue and profitability targets. I'm extremely proud of the execution the biotechnic team delivered during the first half of our fiscal 2021, and we're looking forward to building on this success in the second half of 2021 and beyond. With that, I'll turn it over to Jim. Thanks, Chuck.
spk08: I will provide an overview of our Q2 fiscal 21 financial performance for the total company, provide some additional color on the performance of each of our segments, and give some thoughts on the remainder of our fiscal 2021. Starting with the overall second quarter financial performance, adjusted EPS was $1.62 versus $1.08 one year ago, an increase of 50% over last year, representing a new company record. Foreign exchange positively impacted EPS by $0.08. Gap EPS for the quarter was $1.15 compared to $3.02 in the prior year, representing a 62% decrease. Our gap EPS results in the second quarter of last year benefited from a favorable realized and unrealized gain on our investment in chemocentrics. Q2 revenue was $224.3 million, an increase of 21% year-over-year on a reported basis and 19% on an organic basis. Foreign exchange translation had a favorable 2% impact on our revenue. Our strong growth in Q2 was fairly consistent across the globe, ranging from the high teens in the U.S. to 25% organic growth in China. By end market, biopharma growth was very strong at over 20%, and it was nice to see academia continue to improve, growing the low teens during the second quarter. Moving on to the details of the P&L, total company adjusted gross margin was 71.5% in the quarter compared to 70.6% in the prior year. The increase was primarily driven by favorable volume leverage. Adjusted SG&A and Q2 was 25.2% of revenue, a 310 basis point decrease compared to the prior year, and R&D expense in Q2 was 7.5% of revenue, 140 basis points lower than the prior year. While our adjusted SG&A and R&D spend both increased sequentially and compared to the prior year, a tight later market in the life science space did not allow us to fill all headcount additions to the team at the pace we'd originally anticipated. Given the continued improvement we are seeing in our end markets, we still plan to fill these positions and continue with investments that position the company for growth going forward. The resulting adjusted operating margin for Q2 was 38.7%, an increase of 530 basis points from the prior year period and a 50 basis point sequential improvement from Q1. Looking at our numbers below operating income, net interest expense in Q2 was $3.4 million, decreasing $1.1 million compared to the prior year. The decrease was due to a continued reduction of our bank debt during fiscal 21, as well as lower floating interest rates. Our bank debt on the balance sheet as of the end of Q2 stood at $231.5 million. Other adjusted non-operating expense was $1.3 million for the quarter, compared to $2.5 million in expense in the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arraignments. For gap reporting, other non-operating income includes unrealized gains for our investment in chemocentrics. Moving further down the P&L, our adjusted effective tax rate in Q2 was 20.6%, 120 basis point improvement over the prior year, with the improvement primarily driven by geographic mix. We expect our effective tax rate going forward to be consistent with Q2, barring no changes in corporate tax law. As Chuck mentioned, during Q2, we made a strategic equity investment in China-based Eminence, a company focused on providing media as well as custom cell line development and media formulation services to the Chinese biopharmaceutical market. The $130,000 non-controlling interest line item reflects one month loss from a portion of Eminence we do not own. The impact to other lines of the P&L as a result of consolidating Eminence was immaterial in Q2. Turning to cash flow and return of capital, a record $89.3 million of cash was generated from operations in the quarter. In Q2, our net investment in capital expenditures was $11.4 million, primarily driven by the completion of our new GMP protein factory. And during Q2, we returned capital to shareholders with $12.4 million of dividends. We finished the quarter with $40.3 million, average diluted shares outstanding. Our balance sheet remains very strong with $283 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. Q2 reported sales were $172.2 million, with reported revenue increasing 22%. Organic growth increased 19%, with foreign exchange having a favorable impact of 3% on revenue growth. Within a segment, the strong growth was very broad-based, with double-digit growth in nearly all reagent, assay, and instrument platforms. As Chuck described in his remarks, platforms of notable mention include SimplePlex, SimpleWestern, Biologics, and Cell and Gene Therapy, especially pertaining to GMP proteins. Operating margin for the Protein Sciences segment was 46.6%, an increase of 360 basis points year-over-year, due primarily to favorable volume leverage and cost management. Returning to the diagnostics and genomics segment, Q2 reported sales were $52.5 million, with reported revenue increasing 20 percent. Organic growth of the segment was 19 percent, with foreign exchange translation having a favorable 1 percent impact on revenue. Similar to Q1, our genomics division led the segment in the quarter. We experienced strength across the entire ACD-branded portfolio, with microRNA scope, base scope, and our diagnostics partnership with Leica being honorable mention. Also a driver of growth for diagnostics and genomics, exosome diagnostics Q2 revenue increased over 100% from last year, with higher collections from Medicare, private payers, and patient cash collection driving the year-over-year increase. As Chuck mentioned, our diagnostic reagents division continued its growth streak by executing on COVID-related opportunities to offset the headwinds many of its traditional OEM diagnostic customers are facing with patients foregoing routine visits to the doctor. Moving on to the diagnostics and genomic segment operating margin, at 15.5%, the segment operating margin improved from 2.2% reported in the prior year. The increase reflects favorable volume leverage in our genomics division, less dilution from exosome diagnostics, as well as strong cost management. In summary, our fiscal 2021 is off to a great start. With 15% organic revenue growth during the first half of the fiscal year, our results thus far have demonstrated that our portfolio products and solution offerings are more relevant than ever to our customers who are on the front lines of diagnosing and developing cures for disease. We believe that the current pandemic has only strengthened the resolve of our customers to accelerate their great work, and we will continue to do everything in our power to provide them the tools to help them succeed. Thus, we see the current momentum of our business continuing in the back half of our fiscal year. However, to support our customers' needs beyond the remainder of this fiscal year, we need to catch up on our investments in our product pipelines and post-sales service and support, while continuing to invest in customer engagement activities, especially those of a digital nature. We started to make progress with these additional investments in Q2, but intend to accelerate back to our plan in the back half of the year. If successful, these investments may slightly lower our operating margin from its level in the first half of the fiscal year but will position us well for a long-term strategic plan of continued double-digit growth for years to come. That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the line for questions.
spk05: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. The participants using speaker equipment It may be necessary to pick up your handset before pressing the star keys. And just as a reminder, we ask everyone asking a question to only ask one question and one follow-up question. One moment, please, while we poll for questions. And our first question is from Puneet Subha with SVB Zermich. Please proceed with your question.
spk04: Great, thanks. And, Chuck, congrats on this strong quarter. Impressive growth here in Protein Sciences and across the board. First of all, could you provide sort of the contribution that we're seeing from GMP proteins and cell and gene therapy? And sort of how should we think about that for the full year here, given the momentum that you're seeing so far?
spk01: Yeah, sure. Well, we're not going to give too much real, you know, in the weeds detail on it. We've been talking about growing 100%. We've talked in the past of being a $30 million type portfolio, with most of it being serum right now. And we're running pretty much a run rate on proteins at 10 million. And we gave you the growth rates in there. We have the ability to increase capacity, to increase I guess what we make here at the headquarters by a factor of four if we need to. So we're good while we take the time to qualify the new site, which is going along really well. Again, we've talked in the past about this 10 million MgMP proteins growing to maybe 20 next year and doubling in after that, and then hopefully it really starts ramping once we start getting the production side of the therapeutics as they come out of the back end of clinicals. The rest of the portfolio, it's kind of hard to say. We had a great quarter for both acceptance for both clouds and for TC Buster. We talked about we're getting an awful lot of new – to get a look at these technologies and do preclinicals with. So we're pretty excited. The team's pretty excited. It's the best quarter we've already had for TC Buster. We're actually working on expanding the site already, or we're making it. So it's a bit of a surprise so fast. So it's kind of hard, Puneet, to tell you what it's going to be next year, but I think probably double what it is this year and probably double again next year after that. And as we've said in our five-year outlook here, in our $1.5 billion goal, you know, we see a $300 million business is what we see. So it'll be consisting of a bunch of components, you know, 150 or so at least in GMP proteins, but the rest is sort of between clouds, you know, TC Buster, instrumentation, you know, ACD for, you know, technologies for spatial cell analysis, ELA testing for QC testing in the workflow, you know, all these bits and pieces, you know, roll up to 300. And, you know, we're probably a year away from getting any more real, you know, doing a real, detailed guesses and just what the recipes look like. I think the safest one is a GMP protein piece right now. Got it.
spk04: That's very helpful. On Ella, this was a really strong quarter again. I think you pointed that out in the past couple of quarters too. Obviously, that product line is gaining significant traction here. Can you give us a sense of where this business could be? I mean, this is a competitive ELISA market after all. So where could it be and what are the other key initiatives that you have in, including the 510 approval that you're submitting for? And in that same context, if you could just help us understand, I mean, there's quite a bit of momentum right now in proteomics, obviously. Biotechni is core to proteomics. You are one of the leaders across the board in antibodies, proteins, cytokines, and broadly across proteomics. So maybe just help us understand where this business could be, the protein sciences business overall, and the proteomics business could be overall and sort of longer term in five-year time frame.
spk01: Well, it's It's growing beyond our expectations and clearly we're super well positioned in proteomics and as the wave of research hits and this golden era keeps growing and money is siphoned off these stimulus plans for more pandemic relief and pandemic research so it never happens again, we're going to be a big beneficiary. We're really seeing a lift in every part of our business and every geography. It was just astounding. I don't think I've ever seen a more green dashboard in my career. It's hard to pin down what's COVID and what's just research. We've dug into what's going on with our customers, and certainly bigger biopharma are investing more. They're taking the cash. The ones that are vaccine makers are obviously doing more. companies that are doing well off COVID are taking that cash and doing more R&D. And whether it's more R&D and more research, we're benefiting. I've always said that SimpleFlex was a sleeper, right, and it had for a few years now. And, you know, if it keeps growing at near 100%, it's going to be really big really soon. So we're now well over 500 instruments placed worldwide, which is a lot. This is an amazing machine, and it just does a lot, you know, for the money. It's just an amazing piece of technology from an amazing team that has worked on it for many years before we acquired the company. I think that was seen by MicroPoint early on in China, and we're on track with their clinical. And this could be – that deal alone could be $100 million of revenue in three, four years if they hit their target. This is a guy that did mine ray, so he has a lot of credibility. He is very interested in making a very standardized patient monitoring platform for large hospital systems in China, and there's a lot of them. We are taking it through the 510K process here in the U.S. so we can try to, you know, elicit more interest like MicroPoint in China. MicroPoint is going to do all the CFDA themselves. They're experts. They've done the panels. They're doing everything. Here, you know, I don't know. We're probably not going to be able to do all that ourselves. We'll do the 510K. We're going to do it off a standard – a standard analyte, something well-known, so when we get to the system, and we are talking to potential interested parties, but this thing has got legs. And it's got legs in neuroscience, it's got legs in oncology, it's anywhere that there's proteomic needs, you know, needed to be testing biomarkers, you know, this is the machine. As you know, the competition is out there in a multiplex format, starting with Luminex, you know, we're partners with them as well. But we don't have crosstalk with our platform, and now we're increasing the channels. So we're at eight, and we maybe could go higher. But at eight, that's kind of the sweet point. And to have eight channels with no crosstalk with the type of pseudo-noise we have with this machine, and in only one hour sample to answer, it's kind of unheard of. Of course, there's others, MESA scale. I think we got some work to do to crack where MESA scale really, really hit, because they've got a full workflow with... with software, and it really is integrated into the workflows of their customers, and we've probably got more of a standalone box. We've got to get better at that piece of it, and we're working on that. And then, of course, there's the whole clinical side. This thing really could be a point-of-care machine. We're working on a 4x8 cartridge, something that you don't have to queue up a lot of tests in order to run it. Anyway, I see a strong future. You asked what it could become. I think this is a $200 to $300 million business in five years, to be honest, or more. It could be much bigger. It depends on the acceptance and how well we keep diversifying into new applications. But automated ELISA, multiplex-based proteomics, biomarker research, as you just said, it's all the rage right now. It's accelerating, not leveling out. So we see a strong future in this platform. We're not surprised by the 100% growth, even though this thing is already a big platform. It's as big as anything else we had in the original Protein Simple segment, including Simple Western now. It's getting there. It keeps growing where it is. It'll be the biggest very soon.
spk04: That's super helpful, Chuck, and thanks for all the details. And if I could squeeze the last one in for Jim. Jim, I appreciate the investments into Eminence and obviously the GMP facility, which is delivering growth now. When you look at on the acquisitions front in organic growth, we have not seen much on that end lately. Is it largely a function of the valuations in the space or anything else or certain specific areas that are more challenging versus attractive? Just walk us through your assumptions there because obviously that's an important part of what biotechnology has done in the past.
spk08: Yeah, what I'd say on the valuation front is that, you know, the valuations have been a challenge for many years. That's really nothing new. It's really the ebbs and flows of the deal flow and what's coming and available. And I think for a lot of 2020, probably the pandemic being a good reason why the flow wasn't as strong as it had been in prior years. But in the last several months, we're starting to see that turn around and seeing a lot more deal flow, a lot more interesting targets. So, you know, it's hard to predict because there's a lot of a lot of stars that need to align, but I would predict that we will see more activity by us on that front in the remainder of calendar year 21 than we saw last year.
spk04: Okay, great. Okay, thanks, guys. Congrats.
spk01: Thanks, Vinny.
spk05: And our next question is from Catherine Schultz with Baird. Please proceed with your questions.
spk10: Hey, guys. Congrats on a strong quarter, and thanks for the questions. I guess first, just as you think about the outlook for fiscal 21, you know, last quarter you talked about, you know, maybe a 10 to 15% range for the year. So just curious if you had an updated thought on where you should end up in that range or if we should be thinking about a new range given the strong performance you saw this quarter.
spk01: Sure. I'm not sure who's note it was this morning talking about clearing 15 plus percent for the year. We've stayed away from that. We certainly were bullish on, you know, ending up double digit again. We left our comments at continual momentum, and the momentum is 15% half year. And we have, you know, the easiest comp ahead of us this fiscal year. So you can do the math from that. But, yeah, we're pretty bullish that continuing at the levels we're at are even better, to be honest, at this point.
spk10: Okay. And you've talked about some research labs, you know, perhaps needing to buy a second version of things given social distancing and building out secondary labs. How much of the rebound that you've seen do you think is related to perhaps some of that stocking or build-out dynamic?
spk01: There's a little bit of stocking. You know, after last quarter and then these blowout results, and we don't have much COVID in our numbers yet. COVID is all still coming for us, hopefully, with serology. We did a big deep dive really globally into what the hell is going on and why are we doing so well. And so we really did an account-by-account, customer-by-customer breakdown by segment of how we're doing and why. And there's really no silver bullet. We're up with vaccine makers for obvious reasons. We're up with biopharma for a lot of reasons we talked about, but there's been more OEM work as well. They're all having a pretty good year, so they're outsourcing more. So we've had more custom work given to us. Academia has been certainly the duplicity issue, and some surge come back and maybe some budget flushing on multiple fronts, to be honest. We discovered some, I think. Not material. It's not like it's half our growth or a third or a fourth, but there's a little there. And it's really some of the parts is what it comes down to for us. No silver bullet. It's not all COVID. It's not all anything. But it is a rising tide, you know, really. It's just research is doing really well on all fronts for us. You know, we're perfectly positioned, as Tanit said earlier, I mean, in proteomics, it's just we are in the right spot right now. And whether you're buying antibodies to make COVID tests or you need overflow help because, you know, you're stacked with work and capacity to develop vaccines or your academic institutions that are staggering, you're building out new labs and you've got to buy more equipment, preferably equipment that has this productivity, you know, inclinated like ours, not so expensive. You know, that's kind of where it's all coming from. And in our reagents, too, it's broad-based. Even ELISA. I mean, one thing we can always go back to and just look at our good old ELISA kits, you know, just cute kits, 35 years old, and they kind of ebb and flow with projects and kind of the health of projects in biopharma with this best year in years. So it just kind of speaks to the broad-based growth. And we're not the only company, you know, talking about it, right? Everyone's riding this wave right now, and We just happen to be riding a little higher than most, which is great for us.
spk10: Okay, and last one for me. Just on the exo-pidney transplant test, you talked about publication in the next few weeks. What's the path forward for that test, and how should we think about potential launch timing there?
spk01: Yeah, I really was hoping that we'd be talking about that publication by now. It really is imminent. It should be days, not weeks, but, you know, who knows. The data looks fantastic. If it had been published, we could talk about the data. It's very good data. It's the first peer-reviewed article. We need to get a second. We need to do an outcomes test. You know, there's work to be done before we start going after, you know, an LDT approach or, you know, working with a Mac or get started. But, you know, we're on the path, and we think we're at a year or less here of, you know, getting into early access selling this thing. Probably a good year away from a crosswalk or anything, but, you know, we'll see. We're also looking at partnerships as well. And we're also looking at other MACs, not using the same one we did prostate through. So we've got a lot going on here. It's just been going very well. That platform is astounding. It works so well. It's amazing. As you know, exosomes we feel is the best in class for liquid biopsy. And the data is going to prove it here when you start seeing some of it. And it's a big market. There aren't the same kind of barriers like we have with prostate neurologists. organ centers, and there are not so many of them, so they're not so hard to go after in terms of a commercial attack. And, you know, it's a big need. I mean, it's a horrible thing to have to be given a new kidney and lose it or to damage it through biopsies or testing as you're worried about rejection. And half of all these are rejected within 10 years. So this is a tool that really has been needed. And, you know, it's pee in a cup and it can be sent in. It doesn't have to be done with a, you know, with an on-contact lobotomist or something. So, you know, we see a lot of upside. And the price, the cost first and the price second is going to be, I think, really good compared to what's out there now.
spk10: All right, great. Thank you.
spk05: And our next question is from Alex Nowak with Craig Howell. Please proceed with your question. Great good morning everyone.
spk03: So the vaccines are being ministered now more coming soon. It looks like immunity to a particular variant actually might last pretty long, but then we're seeing new variants that come out that lower the overall efficacy. So I guess my question is, how is the vaccine rollout and the emergence of these new variants? Change your thinking around this code that the quantitative COVID antibody test and then you mentioned it in the prepared remarks. So where do you stand with partnering this test with the vaccine companies just separate the diagnostic labs.
spk01: Yeah. Well, as you know, Alex, we've had this test kind of ready to go since late last spring. And there's been, I guess, a lot of flutter and clutter with the FDA and a lot of poor EUAs that came out early on qualitative versions of serology. And there's a bit of a hill to climb here for getting accepted. There won't be real demand until there's enough vaccine out there, enough people vaccinated to create that demand where they're calling their doctors to find out, how do I find out if I'm immune or not? Can I see my grandkids or not? People want to go back to concerts and get on planes and get on trains and be in malls again. And no one's going to feel really good until they know they feel safe. And this is without a variant. This is without a mutation. As you know, we're tied at the hip of Mount Sinai, and they've got the longest range testing known here on immunity, and we're running at like seven or eight months, and they don't see a reduction in immunity with antibodies yet. But the powers to be there do feel that it will follow the corona family, and it will be variable of individual, but between probably one and two years of immunity, but not forever. If it doesn't mutate, that means a booster. If it mutates, then we're kind of looking at a flu every year kind of thing, right? And then we're trying to hit a moving target like flu does, which is harder. All that speaks to the more of a need to serology. People are going to want to know consistently, are they immune? Do not be surprised if in a year or two, on your app, on your phone, you're carrying an immunity passport and how you're doing with COVID, so you can be let onto whatever or let into whatever. All that technology is coming, and it's not coming in one full flush, which is a problem. Everything's slower than we want. Vaccinations are going slow. By summer, we're not going to be probably at herd immunity yet. We're not going to be at a point where enough people are vaccinated where everyone feels safe. There's going to be a growing and growing demand for serology. And, you know, we're hoping to get our quantitative claim be the only one given by the FDA, you know, very soon. All the data is submitted. We have actually from the WHO, we have a, We have the sample that will give us the means to actually quantitate our standard curve to there, so there can be an international standard that the FDA is looking for to get behind. So we're right in the thick of it, and we've got great partners with Mount Sinai, so I do expect we'll get through it. And over a year, we probably won't be the only one, but we'll be the first one. We'll be a very good one. But I think serology will be on the rise. You know, I think people in PCR, I think it's not going away either. It's going to be a much slower tail than people think. You've probably heard that in other calls this week. Unfortunately, you know, we're turning the curve, but it's going to be a long tail on getting back to normality. And, you know, we're going to get a piece of this probably. Nothing to the extent of some of the companies are that are answering the question, am I sick? But, you know, we're a research company first. This is all gravy for us. We expect to be helping and we're going to have a great a great piece of science to help with.
spk03: Thanks, Chuck. That's very helpful. Maybe to expand on the more macro life science funding flush that you're seeing here. So right now, Washington is hashing out the COVID stimulus plan. What specifically are you hearing in that plan that could be deployed for life science research funding, and for how long can that benefit last? And then I guess the same question, but directed more towards China, their plans for their next five-year plan. Are you hearing anything in particular there?
spk01: Well, we'll start reverse. You know, China's not really good at laying out what they're going to do. But to be looking, I think the 14th version of a five-year plan, what typically happens is year one is a little bit soft and year two, it kicks into high gear. Year five is a bit softer too. And we had a bit, we had a bit of what we call a budget flush over there too, because they are also changing some, uh, some tax consequences there. So I think everybody that had strong instrument results in China probably were seeing a little bit of pull forward from that. I haven't seen it much mentioned, but we certainly saw it, and we'll admit to it. But, you know, I think it's going to be really good, the next plan for China. I think healthcare is still way behind where they are in other parts of their economy and their industry, and it's a lagging industry, and, you know, And now more than ever with COVID, and they certainly don't want to see a pandemic hit there. People want health care there, and life sciences is on the rise still. That's why we continue to see 25% or better growth, and we will for a long time, I think. I think as far as our government is concerned, whether there ends up being 600 million more or a billion more or 1.9 billion, there's going to definitely be portions of this that are given as grants and been done for pandemic purposes. research, which really is infectious diseases, which there really hasn't been a whole lot of. Most of the NIH, as you know, is really focused more on oncology, neuroscience, and different areas like that. I mean, as I've mentioned often, when's the last time you paid more than a dollar for an antibiotic? I mean, we're behind in a lot of areas around infections. And I think there will be a lot of overflow and a halo effect from stimulus. I think that's one reason that the official NIH budget for this year now is looking at 3%. I think they're all holding off until they see what's going to really drift out around these stimulus packages into the science community, which I think there'll be some. It's hard to quantify. I think there'll be some. And if there's not, you'll see more pressure for the NIH to get more, I think.
spk03: Okay, great. Thanks, Chuck. Appreciate it.
spk05: And our next question is from Dan Arias with Stifel. Please proceed with your question.
spk07: Good morning, guys. Thanks. Chuck, on the GMP proteins business, you've talked about pharma customers looking for a provider that can handle some pretty large orders there, multimillion-dollar lots. Do you have some of these in the pipeline or as, you know, semi-firm commitments at this point? And then when we think about what you're prepared to do in terms of supplying here in initial days with a new facility, What is the plan for scaling up that portfolio? It sounds like the idea is to kind of start off with a couple of key molecules and then work from there. So I'm just curious what the portfolio expansion ramp looks like and whether that's what you really need in order to sort of drive the acceleration that you've talked about recently.
spk01: Sure. Well, we landed our second. And these contracts are, you know, they started years ago with these guys coming to us and asking, you know, we've been buying proteins from you forever and we buy them in, you know, small lots and, you know, we're probably a large customer for you at maybe a half million dollars a year. If we get into cell and gene therapies and we need proteins as part of the workflow, we need something like probably 10 or more million a year. Could you do that? And, you know, back then all we could say was no, we couldn't. So now fast forward to here, this is where we're building this factory. Even there we've improved our current site and headquarters that we can – We can do probably upwards of about $40 million or so annually of GMP proteins here. So we've done a good job there, and that's going to fill the gap while we qualify this factory and wait for the large orders, because we're not going to have a large venue, a large catalog here. We're going to be making far less than 50 different proteins there. We are qualifying on the major runners, and you can guess what they are. They start with an IL. And, you know, we'll go from there. Both these first two customers have needs of over $10 million a year. And we are in negotiation with at least a half a dozen others. And I won't tell you who, but one of them has a need for $50 million a year. What we've done with these customers, because it's hard for them to give us a forecast, what we've talked, we have these contractors that we're demanding 95% of their volumes. Whatever they end up needing. It's really unknown right now how these things take off, when they come out, what the forecast is going to be, what's the ramp, how do we plan for it. And they know it too. They know it's frustrating for us because how do you prepare? So what we've done is turned our contracting towards, you know, we want to see a range that you need. We'll be there. We don't know when, but we expect 95% of your volume. That's contracted. So that's kind of the gist of how we're doing business. And these call them eight customers. would swamp us out for years if they hit their forecast, just these. And there's another 50 to 100 after that. So we're not concerned about filling this factory eventually. Yeah, okay.
spk07: Okay, and then maybe on the epi side, I appreciate some of the comments that you made thus far. Leaving aside the doc visit dynamic and just the challenges related to the pandemic, what do you think the things are that the urology community needs to see this year in order to really feel like this is a test that's sort of a a must-use option rather than a nice-to-have option? Is it additional data and publications? Is it being seen by a sales rep now that you've kind of solidified the use case a little bit? I'm curious about what you think at this point, given where we are, really kind of fulfills the dream here.
spk01: On your latter comment, I think the utility, the outcome studies, that's what the large payers are looking more for. And we're probably halfway there, and we are very close to landing one of the majors. Can't say who that is either, but hopefully it's imminent. And when we get one, we'll get more. But that's what they're looking for is the outcomes. How does it really save money for the industry and save more lives? The urologists, we've sold through roughly 2,500 of them, and there's about 20,000. So we've got a lot of work to do. And of that 2,500, 77% are reordered. So once they're in it, they believe it. I think it really is more of a commercial issue, getting in front of them again and selling. And I think the HomeKit's still in part of the gap, and certainly Cal is helping a lot. We have some great KOLs. We're going to get back in front of NGF here in February for reconsideration. That's going to help quite a bit. I think that'll be a positive story. But I think it's a grind. I think these urologists, like a lot of different specialty doctors, they're hard to convert. I'm certain a large portion of them enjoy their $1,500-a-piece biopsies and know that they're mostly negative and don't care. So it's just the state of the business. We have to grind through them. We have to almost shame them into moving into this methodology because it's better for the patient, even though it's less revenue for them. And the better you all just get it and they're on board and we're converting them, but it's not going to be a one-year event here.
spk07: Yep, I got you. Okay, very good.
spk05: Thanks, Chuck. And our next question is from Jacob Johnson with Stevens. Please proceed with your question.
spk09: Hey, thanks, and I'll add my congrats on a really nice quarter. Just, Chuck, one question on the outlook for this year, and I want to make sure I'm clear on your comment earlier. You're lapping, I think, a similar organic growth quarter, organic growth number next quarter, and then obviously a much easier comp in the fourth quarter. Is there any reason organic growth shouldn't be at this 19% level like this quarter or potentially higher at the next couple of quarters?
spk01: I'm going to let my esteemed CFO answer that one for you. Yeah, hi, Jacob.
spk08: You know, the way we're thinking about the forecast is more about the current momentum we have in the business and the sequential momentum going forward. as opposed to year-over-year growth rates because it gets wonky, especially in Q4 for us with what happened in Q4 last year. So the way we're thinking about it is that the momentum from the absolute revenue perspective continuing. If history is any guide, usually our Q3 and Q4, our fiscal Q3 and Q4 are slightly higher than our second quarter, and it's nothing else because there's less holidays within those quarters as there are in the November and December time frame. So that's kind of how we're thinking about it. We think the momentum that we saw, the step-up in momentum that we saw in absolute terms in Q2 is with us, at least for the rest of this fiscal year. And so that's kind of how we're thinking about the forecast going forward.
spk09: Got it. Thanks for that, Jim. And then, Chuck, you made some interesting comments on T-Buster earlier. It sounds like business development efforts are going well there. Can you give us any more details on where that offering stands, maybe how many customers you're working with, any color around that? And then you mentioned the potential to maybe add some capacity. Would that suggest the opportunity here could be greater than, I think, the kind of 50 million revenue aspiration you previously outlined?
spk01: I think it's more about the ramp and the acceleration to that 50 million. I don't think we know enough yet. The gene editing portion of the workflow is not the most expensive, not the most valuable part of the workflow. It's a critical part, obviously, and we'll see. The domain of customers is a little over 100, as you know, and we are certainly working with a couple dozen, and we are certainly sold to more than a half a dozen, quite a few. And they're coming in bigger chunks. So they get access and do it to a trial. It's hundreds of thousands of dollars. So we're in the millions now for revenue with TC Buster. So it's starting to get there. This thing's going to happen. Unfortunately, it's a critical part of a brand new workflow for a cell and gene therapy that's radically different than using viral approaches. So it's kind of next generation. So we've got to kind of grind through getting a half a dozen, dozen, two dozen of these guys lined up and get them into their clinicals and then, you know, get going on it. I think this one really is a J curve for five years from now to the 50, 60 or whatever it ends up being. But, you know, it's also going to probably be growth rates of 50 to 100% starting now for the next two to three years until it grows even faster as it really ramps as these things go into production.
spk09: Got it. Thanks for taking the question.
spk05: And our next question is from Patrick Donnelly with Citi. Please proceed with your question.
spk06: Hey, guys. Thanks for taking the questions. Chuck, maybe just on the ACD side, it was nice to see that back to growth pre-pandemic and even beyond that. Can you just talk a little more color on what you're seeing in that market and expectations going forward? Again, it certainly feels like it's found its footing here. What can we expect over the next few quarters there?
spk01: Yeah, I think – Well, given the likes of other companies in the domain like NanoString and 10X and others, spatial, and they're all helping. They're helping create an industry, right? So we're all working on creating a spatial analysis. And there's a big need for spatial analysis in the workflow for all research in proteomics, for one, as well as other areas. So it really comes down to that. If you need to do down to single-cell analysis and you really care about the morphology of your tissue sample, which is precious, This is a great technology. Also, other technologies that use antibodies, you know, sometimes you can't find the antibodies or they aren't working well or they're not producible. You know, looking for a gene is much more, you know, it's much more on or off. It's there or not. And so this technology with the zebra, you know, trees that could detect and get the signal, it's foolproof. So that's why we're seeing the list. I think a lot of our softness a couple years ago, we had to reorganize Europe. Europe is just on fire now. The plans really are definitely working in Europe. Europe is doing great. We had over 20% growth in Europe this quarter. So, you know, it's a nice thing to see. And our genomics division had a big part of it. We're also seeing good growth across the board in Asia as well, although smaller, starting to catch on. And, you know, we've mentioned mRNA Scope and Base Scope. They're also growing nicely, and our HyPlex, you know, our multiplex version is starting to grow. We'll get an FFP version of the HyPlex out here soon that will really be needed, I think, and compete well with what's out there. And then, of course, DNA Scope is coming at the end of this fiscal year, we hope, and that's another platform. So it's a great pipeline. It's got a lot of legs. Again, we see... to $300 million division here with this technology in our five-year plan. And it keeps growing at the near 30% growth it's back to. It won't take that long.
spk06: Yep, that's helpful. And then one for Jim, just on the margin side, can you just talk through kind of how we should think about that going forward? including, you know, the XO impact. I know that Medicare shifted over to accrual-based accounting this year. So maybe just the impact of XO on the margins and expectations kind of as we approach kind of that 40% you've talked about for a little while here.
spk08: Yeah, Alan, I think we've shared this last quarter, and it's a similar story this quarter. If you exclude XO from our results, the total company would have been in the low 40s with regards to our adjusted operating margins. So that will give you some insight as to the dilution impact of XO currently. With regards to the margin profile, you know, second half versus first half, I mean, you know, the margin performance has far exceeded our expectations, but mainly because we are behind our investment plan, as I've mentioned, even last quarter, right? So it is absolutely important that we continue to invest in our R&D pipelines and in our customer-facing and customer service, post-sale service, in order to maintain this momentum. So we do expect to get caught up in those investments, and if we are successful in doing so, our margin profile we think will be slightly less in the back half than it is in the front half, but still very, very strong compared to last year and ahead of plan of where we thought we'd be at this point in time on our track to a total company performance of north of 40% in the next couple years.
spk06: Understood. Thanks, guys.
spk08: Yep.
spk05: And we have reached the end of the question and answer session, and I'll now turn the call over to management for any closing remarks.
spk01: Well, thank you, everyone. It was a record quarter. We enjoyed it. We enjoyed this call. We know they're not all like this. We hope we don't have one of those other kind very soon. And we look forward to seeing you next quarter, and it should be a great second half this year, we think. So we'll tune in again next quarter. Thank you.
spk05: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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