Bio-Techne Corp

Good morning and welcome to the Biotechna earnings conference call for the fourth quarter of fiscal year 2021. At this time all participants have been placed in listen-only mode and the call will be opened 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 Claire Biotechnics Senior Director, Investor Relations and Corporate Development. Please go ahead, sir.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Cummins, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechnics. 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 Biotechnique Corporation website. at www.bio-techni.com. I will now turn the call over to Dan.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. With 39% organic growth in the quarter, the fourth quarter closed out a record year for Biotechni, where we achieved 22% organic growth for the full 2021 fiscal year. What a difference a year makes. We ended fiscal 2020 on a much different note. as lockdowns and disruptions to our academic and biopharma customers took hold and changed the way research was being conducted. In the quarters following the initial COVID pandemic spread, there has been a record level of interest in biotechnics' portfolio of reagents, analytical tools, and services that enable researchers to make discoveries and push science forward. With robust research demand from biopharma and markets and expectations for a favorable government research funding environment, we believe a multi-year research tsunami is upon us. Biotechni is incredibly well positioned to ride this wave. For the second quarter in a row, the Q4 growth rate was the best organic growth the company has delivered in over 25 years, both on a year-over-year and over a two-year CAGR basis. The accelerated Q4 growth was broad-based across our end markets and geographies, although most of our customers experienced the worst of the pandemic-induced lockdowns during our fiscal Q4 last year. The growth within our product category was also broad-based and continued to be led by our analytical, instrument platforms, cell and gene therapy solutions, and genomics tissue spatial analysis tools. EMEA had a strong finish to a record year with 25% organic growth for the full fiscal year. Given that our main distribution hub for Europe is in the UK, Brexit was quite a distraction. With multiple supply chain and logistics surprises to conquer between the UK and mainland Europe, the team did an excellent job navigating through this and ensuring the strong demand for European customers was delivered. China is a similar story. As you may recall, China was the first to lock down due to COVID and the first to come out. Thus, China for us is essentially back to business by our fiscal Q4 of last year. So the year-over-year costs for China were tough this year compared to the U.S. and EMEA. Yet, China delivered 30% growth for the quarter and the full fiscal year. We are very close to seeing a $100 million value of revenue in China. If not this coming fiscal year, most certainly the year after. Across the company, we delivered this record quarter with a continued focus on profitability as our operating margin expanded by over 740 basis points year over year. During the quarter, we made progress investing in the human capital necessary to position the company for its next leg of growth, although demand for talent in the life science industry remains very high. Encouragingly, some of the business practices we took for granted in the pre-pandemic world, including business travel, are slowly returning but remain below normal levels. Consistent with our results throughout fiscal 2021, the deferral of these investments accelerated our profitability ramp. Now let's discuss the performance of our growth platform, starting with the protein sciences segment, where organic growth accelerated to 46% in the quarter and 24% for the full fiscal year. During the year, we made great progress with our cell and gene therapy initiative. We opened our GMP protein facility and signed several large customers. Going forward, we'll continue to broaden our GMP portfolio with the planned introduction of GMP-grade recombinant antibodies, cell and expansion media, and other critical reagents. The demand for GMP proteins is likely to expand beyond T-cell-based therapies to include gene-edited natural killer cells and progenitor cells that fill the regenerative medicine therapies workflow. All of these areas are gaining momentum and increasingly relying on our products. As evidence of this growing interest, Catamaran Bio and Biotechnia recently broadened the scope of their collaboration to include the development of novel cell expansion technologies for use in the manufacture of CAR-NK cell therapy products. Additionally, Catamaran secured a broad worldwide license for TC Buster, our gene editing platform, and has integrated the technology into its tailwind platform for CAR-NK cell therapies. Importantly, our cell and gene therapy relationships, such as this example, are having a broader impact throughout the company, driving adoption of our media, assays, instrumentation, antibodies, and other offerings in our portfolio. We are leveraging our digital marketing capabilities to build awareness and the customer funnel for our expanding portfolio of cell and gene therapy workflow solutions. During the quarter, we made enhancements to our website, including promotional videos and additional images to more effectively showcase our complete offering. I would encourage all of you to visit the Cell and Gene Therapy section of Biotechnology's website to view a video providing a virtual tour of our state-of-the-art GMP protein facility. Now, let's discuss the analytical instruments we sell within the Protein Sciences segment. If you would have asked me in the past if we could grow our three main platforms, Simple Western, Jess, Simple Plex, Ella, and Biologics, Maurice, by 30% to 80% all year long, I would have said impossible. So what happened this past year? A number of things. First, these instruments are great tools for productivity. If labs redesigned themselves around working partially from home, it became more important to increase output while in the lab. Our tools are perfect for this and at a great value. Second, proteomics-based applications are on fire. Research in this area is strong, and our tools are not only the best in class, but in some cases, the only type of tool you can purchase that conducts this specific analysis. For example, Simple Western is the only fully automated Western blot solution on the market. The productivity enabled by our Simple Western instrument combined with our growing install base has led to a significant increase in market awareness for this product. In fact, we believe this awareness has reached a critical tipping point as almost 90% of the Simple Western instruments sold in a quarter did not require a demo. SimplePlex continued to streak amazing results in Q4. with our automated multiplexing platform, Ella, delivering over 65% growth in the quarter as demand for neurology, immunotherapy, and cell and gene therapy research applications grow instruments, placements, and utilization within the install base. This result is even more impressive considering the particularly challenging year-over-year comp LSAs when high demand for the system for COVID-related applications drove an almost 100% increase in the same quarter last year. We took several steps to meet ongoing demand for this platform, including additional shifts and are in the initial stages of adding incremental manufacturing capacity to meet forecasted demand. During this quarter, we announced a collaboration with India-based Alzheimer's healthcare provider Narayana at Nathrala for the evaluation of ELA as a diagnostic tool for analyzed LASIK vision correction patients for post-surgery complications. This is another example of the untapped potential of ELA as a clinical diagnostic platform. We also recently announced a collaboration with Progen for the launch of a simpleplex adeno-associated virus, or AAV2, viral titer assay on our ELA platform. AAV2 is commonly used in gene transduction due to its ability to infect a variety of cell types. During the viral vector production process, a series of robust analytical measurements are required to determine the viral titer. Combining the efficiency and the reproducibility of the established AAV2 from the Progen with the convenient workflow and robust performance of the ELLA platform creates an assay with broad dynamic range along with hands-free automation to accelerate cell and gene therapy quality control process. Our biologics portfolio also had a very strong showing with growth over 30% for the quarter and the year. We are excited about the recently announced collaboration with 908 Devices, where our Maurice Biologics platform provides reproducible quantitative analysis of identity, purity, and heterogeneity profiles for therapeutic proteins will be paired with the 908 Devices Zip Chip. For the collaboration, Maurice will enable the measurement of molecules that have a similar charge or isoforms and collect fractions of these isoforms for purification and the preparation on the Zip Chip prior to being introduced to a mass spectrometer, creating a seamless sample prep workflow. Finally, our core portfolio proteomic researcher agents increased over 50% for the quarter and nearly 20% for the fiscal year. During the fiscal year, we expanded our market-leading portfolio of research reagents, including the addition of over 300 new research proteins to our expanding catalog of over 6,000 proteins. For antibodies, BioPharm is increasingly recognizing our capabilities in immuno-oncology targets and immune cell labeling. Now, let's discuss our genomics and diagnostics segment, where the team delivered 22% organic growth in the quarter and 18% for the full fiscal year. Our spatial genomics and tissue pathology business, branded ACD, remained extremely strong, with the team delivering over 60% growth in the quarter. Growth was broad-based within the portfolio and across geographies, with RNAscope remaining strong. Any emerging HyPlex, BaseScope, and microRNA products all gaining traction as new marketing campaigns and deeper account penetration benefited the business. We fortified our RNAscope offering with the introduction of the latest version of our Multiplexing Spatial Genomic Technology, HyPlex V2. This latest iteration of HyPlex adds the ability to visualize up to 12 targets simultaneously in a formalin-fixed paraffin-embedded, or SFPE, samples and continues to offer the plexing of up to 48 targets in fresh or freshly frozen tissue samples available in the legacy version of the assay. SFPE is an important sample type for human samples, especially for studying diseases. And we anticipate demand for HyPlex V2 as a tool for cancer and neuroscience applications, as well as immune oncology studies. Next, our diagnostic reagents business faced large headwinds this past year, with the pandemic dramatically reducing doctor visits, and in turn, diagnostic controls to OEM customers. However, this business successfully overcame these headwinds by supplying COVID-related antibodies to COVID-related test and vaccine manufacturers, realizing eight consecutive quarters of positive growth. With people returning to see their doctor again in a post-vaccinated world, the future is bright for our diagnostic reagents business with a strong product and OEM pipeline. Our exosome diagnostics business unit continues to make progress despite a very soft urology market. During COVID, patients were not leaving the home to do annual checkups or seeing their urologist. This dramatically reduced their level of PSA tests, the tool used by urologists to identify a need to prescribe an exoDx test. for prostate cancer risk analysis and possible biopsy. The market is now recovering. We have staffed up our commercial sales force, and our growth is accelerating. We also made progress on the epi-reimbursement front during the quarter, following our request for reconsideration, our Medicare administrative contractor, National Government Services, or NGS, issued an updated XODX Prostate Local Coverage Decision, or LCD. This updated LCD removed many of the XODX prostate restrictions included in the original LCD, including limitations for test utilization among certain ethnicities, excluding patients with first-degree relatives with prostate cancer, as well as removing the restrictions for patients with a persistently elevated PSA score. The reconsidered LCD became effective on August 1st. Following the removal of these epi usage restrictions, the LCD better reflects the NCCN guidelines and positions the test for improved utilization among the Medicare population. In addition to the XODX prostate test, we continue to advance our pipeline of innovative exosome-based diagnostic tests, including our non-invasive kidney transplant rejection assay, ExoTrue. As a reminder, initial ExoTrue data was published earlier this year in the Journal of the American Society of Neurology, showing a negative predictive value of 93.3%, and a positive predictive value of 86.2%, which we view as best-in-class performance versus the competition. We remain on track to launch this noninvasive urine-based assay later in calendar 2021 and have held preliminary discussions with our MAC on the pathway for Medicare reimbursement. Finally, I'd like to highlight the acquisition of a surgeon we made this past quarter, a 15-year-old diagnostics company with strong competencies, great leadership, and domain knowledge in diagnostic regulations. They also bring kidney expertise and electro-oncology diagnostic kits, as well as a strong portfolio of carrier screening diagnostics, like Fragile X, the world's best-in-class test for identifying prenatal intellectual disabilities. During the quarter, a surgeon published the results of a multi-site evaluation study on his AmpliDex PCR SMA Plus kit in the Journal of Molecular Diagnostics, validating his performance in delivering accurate, reliable information to support carrier identification for the diagnosis of spinal muscular atrophy, or SMA. The surgeon's kit simplifies existing methods for identifying relevant variants in the SMN1 and SMN2 genes by identifying all variants in a single reaction. I want to be clear on our direction for diagnostics. It is not our goal to be simply a CLIA lab service model. We prefer to sell kitted products primarily in the oncology, neuroscience, and prenatal markets. These markets have strong growth due to strong needs, as well as good margins and better-than-average reimbursement levels. Since closing the acquisition on April 6th, we have made significant progress with the integration efforts of Asurgen and are in the initial stages of building out the commercial team to increase penetration in the largely untapped EMEA market. We have also begun a coordinated R&D and marketing strategy to identify synergistic projects across the company, especially with exosome diagnostics, as we position our entire diagnostic offering to penetrate high-value markets with kitted and LDT assays. Lastly, I'd like to give an update on the impact of our COVID-19 initiatives. Since the start of the pandemic, biotechnics reagents and instruments have facilitated studies that have allowed a better understanding of the virus, including ACD probes to detect the virus in tissue, sales of bulk diagnostic reagent used in COVID testing applications, as well as pathogen-specific antibodies and proteins to known variants of the COVID virus. COVID was an estimated 3% tailwind to our business in Q4 and approximately 4% tailwind for the year. including revenue from sales of the Cantero IgG antibody serology kit. Encouragingly, there is growing interest in niche markets forming around our COVID serology assay offering, specifically as a tool to identify immunocompromised individuals that may not have the antibody response following vaccination to neutralize the virus. We expect the COVID research and diagnostics will be around for many years, particularly as new viral strains continue to emerge making this tailwind a sustainable new layer of our product portfolio going forward. Wrapping up, we have reached the tipping point in several of our high-growth businesses, including the ACD spatial genomic business and our Protein Simple branded portfolio of proteomic analytical tools, and remain in the early innings of penetrating the nascent cell and gene therapy and liquid biopsy markets that are in front of the company. Layer onto this a strong funding environment for our market-leading catalog of research proteins and antibodies, and the scientific know-how that has been built around them for over the last 40 years, and I believe we are incredibly well positioned to remain one of the most innovative, high-growth, highly profitable life science tools and diagnostic companies going forward. We are closing in on an important milestone, crossing $1 billion in annual revenue, and with our existing portfolio, see a pathway to double that in years to come. On that note, I want to remind everyone that Biotechnique will be hosting an Investor Day event on September 10th in New York City. At the meeting, we plan to dive deeper into all our growth drivers and provide an update on our long-term aspirations. We hope to see everyone there. For that, I'll hand it over to Jim.