Bio-Techne Corp

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.

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.

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.