Bio-Techne Corp

Good morning, and welcome to the Biotechni Earnings Conference Call for the first quarter of fiscal year 2022. 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 one follow-up. I would now like to turn the call over to David Clare, Biotechni's Senior Director, Investor Relations and Corporate Development.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Cometh, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechni. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results, as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10K for fiscal year 2021 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 because 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 gap 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 first quarter conference call. The biotechnology team kicked off our fiscal 2022 on a very strong note as we continue the momentum we experienced during our last fiscal year. Our first quarter 21% organic growth rate reflects broad strength across geographies and ongoing penetration and demand for our proteomic research reagents, diagnostic reagents, analytical tools, and services, especially within our biopharma end market. The standouts in the quarter included our instrument portfolio, namely our biologics, Simple Western and SimplePlex offerings, broad strength across our research agents, and triple-digit growth for our burgeoning GMP protein business. Not only were these significant growth drivers for the quarter, but these platforms, as well as our spatial, biology, and molecular diagnostics portfolio, remain at the forefront of underpenetrated high-growth markets that position the company for future growth. I am very proud of the global team's execution, and the company is off to a great start as we march forward to the longer-term targets we provided during our recent investor day. We delivered this strong Q1 revenue performance with a continued focus on profitability, with an adjusted operating margin of 37.8%. During the quarter, we made progress hiring to our growth plan, although the tight labor market remained a constraint to us building the team at our desired pace. We anticipate making continued progress with our hiring plans as fiscal 2022 unfolds, supplementing the commercial and technical teams that will enable execution of our long-term growth plan. From a geographic perspective, we experienced robust growth across all geographies. China especially was a standout where the team delivered record organic growth of over 50% in the quarter. The government authorities there are strongly encouraging the development of therapies in the areas of stem cells, organoids, regenerative medicine, and immunology, all areas that have a strong need for our reagents and analytical solutions. For the first time this quarter, our business in China annualized at over $100 million in revenue. While this is an important milestone, we believe we remain in the early innings of realizing our potential in this important geography. Turning to our end markets, demand for our unique high-quality products and solutions continues to be very strong for our biopharma end users, with revenue growth increasing approximately 25%. Performance within our academic end markets also remains solid overall, delivering organic growth in the mid-single digits. Now let's discuss the performance of our growth platform, starting with the protein sciences segment, where we delivered organic growth of 26% in the quarter. We made significant progress with our cell and gene therapy initiatives as growing awareness and demand for our portfolio of workflow solutions led to over 60% organic growth in the quarter. We are nearing completion of the qualification process for initial lots of GMP-grade proteins out of our state-of-the-art GMP protein manufacturing facility in St. Paul, Minnesota, and anticipate commercial orders to be shipped from the facility in the coming weeks. As a reminder, GMP proteins are critical ingredients for growing both autologous and allogeneic cell therapies, and we anticipate increasing demand going forward as the rich pipeline of therapies make their way through the regulatory approval process. Our GMP protein business increased over 160% in the quarter, and with our new GMP manufacturing facility open for business, we are well positioned to meet the anticipated growing demand for these critical reagents. Continuing in cell and gene therapy, We added to our portfolio especially cell culture products with the launch of Accelerate iPSC Expansion Medium, a new medium for the expansion and maintenance of induced pluripotent stem cells, or iPSCs, for use in both research and translational workflows. The Accelerate iPSC Expansion Medium builds on Biotechnics' portfolio of products and services in regenerative medicine and fits seamlessly into our offerings for stem cell workflows, including cell isolation, reprogramming, genome engineering, cell expansion, differentiation, and characterization. Importantly, Accelerate iPSC Expansion Medium is manufactured without using components derived from animals or humans, making it ideally suited for use in translational research to produce iPSC-based cell and gene therapies. This latest offering builds on our growing portfolio of specialty cell culture products addressing customer needs across natural killer, or NNK, T-cell and B-cell media. The momentum in our core research use only protein and antibody businesses also continues to be very strong, with growth in the low 20s in the quarter. We believe the continued success in our core is a reflection of our best-in-class development of new, high-quality, relevant reagents that address our customers' current research needs, while making them increasingly aware of our capabilities through our strategic digital marketing efforts. Moving on now to our proteomic analytical tools, where we continue to see strong demand across our portfolio of cost-effective productivity solutions. In Q1, our instruments and related consumable pull-through grew over 30%. Reflective of a very strong biopharma environment, our biologic instruments led the way, growing nearly 50%. These analytical tools, namely our MARISA instrument, enable the reproducible and quantitative analysis of therapeutic protein identity, purity, homogeneity, with ease of use, fast results, and reproducibility, all qualities that continue to represent a compelling proposition for new and existing CRO, CDMOs, large pharma accounts, and we are now also seeing adoption in cell and gene therapy quality control applications. Demand for our simple Western instruments also continues to be strong, with over 20% growth compared to the prior year. Encouragingly, we are seeing significant lead generation for ABBYY and sold several of these systems during its first full quarter on the market. As a reminder, ABBYY is the lower cost, fully automated, chemical luminescence Western platform that we introduced in April to further penetrate simple Western technology into our academic customer base. Separately, we saw robust adoption of simple Western within cell and gene therapy market and view this as a significant and largely untapped opportunity for this technology going forward. Our simpleplex multiplexing immunoassay system, ELA, also had a strong quarter growing over 20%. This result is especially impressive given the challenging year-over-year comparison where SimplePlex increased more than 75% in the prior year period. We are experiencing a significant uptick in ELA accounts using or evaluating the platform for neurodegenerative applications, specifically for neurofilament light chain, or neuroNFL, and neurofilament heavy chain, or NFL, detection in serum and plasma. ELA continues to be the platform of choice for customers requiring excellent sensitivity and assay speed. Now let's discuss our diagnostics and genomic segment, where organic revenue increased 6% in the quarter. Our spatial biology business, branded ACD, increased mid-single digits in the quarter. Its continued demand from our biopharma customers, especially CROs, was partially offset by lower reorder rates from our academic customers. I would note our ACD business, and especially in the academia market, faced a challenging comp in the prior year when the business increased over 30%. Within BioPharma, the emergence of gene therapy and RNA interface, or RNAi, therapeutics has created a shift toward animal model-based projects, driving larger order sizes and increasing custom probe design projects, making for a little more lumpiness in our spatial biology business. Our menu of probes is now approaching 50,000 targets over many species, and publications have crossed over 4,500, demonstrating the continued academic interest in the platform. Next, our diagnostics reagents business delivered its ninth consecutive quarter of growth, with organic revenue increasing in the upper single digits. Encouragingly, the pandemic-related headwinds that impacted this business in recent quarters are starting to diminish, and we are experiencing a reacceleration in the chemistry, glucose, and hematology controls product lines. The diminishing headwinds, combined with new product launches and additional penetration within existing OEM customers, we believe are just at the beginning of accelerated growth in this business. During our investor day, we highlighted some organizational changes within our diagnostics and genomics segment designed to fully realize across developmental opportunities and synergies within our liquid biopsy and molecular products businesses. The new molecular diagnostics division is a combination of our exosome diagnostics business and the recent Asurgen acquisition and is being led by Matt McManus, the former CEO of the legacy Asurgen business. This new division structure includes an exosome center of excellence as the exosome-based liquid biopsy innovation engine, developing lab-developed tests, companion diagnostics, as well as kitted exosome-based diagnostic products. We will leverage the established detergent channel as well as our two CLIA labs to commercialize these products. Our XODX prostate cancer test continues to make progress despite ongoing challenges with the urology market. During COVID, patients were not leaving their homes to do annual checkups or see a neurologist. This dramatically reduced the volume of PSA tests, the primary tool used by urologists to identify the appropriate patients for our XODX test for prostate cancer risk analysis and potential biopsy. With patients beginning to return to their doctor for routine checkups or follow-ups, the diagnostic market is continuing to recover, and encouragingly, our Q1 XODX volume was the highest since the onset of the pandemic and continues to show improvement early in Q2. I would also note that our sales reps are increasingly getting in-person meetings and hosting educational and awareness events with the physician community, which we expect to be a strong impetus to test following going forward. We also made progress on the XODX reimbursement front during the quarter. We added contracts with multiple regional payers, expanding both the network of private payers reimbursing for XODX and men with covered access to the test. We are very excited about the opportunity to present at and overview of the science and publications supporting ExoDx to 600 medical directors and policy decision makers this week during NAMCP's 2021 live fall managed care forum. The confirmed audience includes representatives from the largest national and regional payers. Events like this are an excellent opportunity to drive awareness and acceptance and eventually reimbursement of this important test among the private payer community. Our recent publication of a pooled analysis of over 1,200 patients in the Journal of Prostate Cancer and Prostatic Diseases demonstrated XODX's ability to discriminate between high-grade, low-grade, and benign prostate cancer. Using XODX's validated 15.6 cutoff score would have avoided 23% of all prostate biopsies and 30% of unnecessary biopsies with a negative predictive value of 90%. We have a pipeline of additional studies and anticipate a steady cadence of publications to drive reimbursement and adoption going forward. In addition to the exoDx prostate test, we continue to advance our pipeline of innovative exosome-based diagnostic tests, including our noninvasive kidney transplant rejection assay, ExoTrue Kidney. As a reminder, initial ExoTrue Kidney data was published earlier this year in the Journal of the American Society of Nephrology, 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 are preparing additional studies for publication on ExoTrue assay performance and remain on track to launch its noninvasive urine-based assay later in our fiscal year. With regards to the products from the Legacy Assurance and Business, we continue to gain market traction with our leading portfolio of genetic and oncology molecular diagnostic products, including our kits for FMR1 and BCR-ABL. This business is largely U.S.-centric today, and we see significant potential for these products outside the U.S. and have taken initial steps to position the business to penetrate the European markets. In addition to the geographic expansion, this business has a very full pipeline, including the expected launches of a cystic fibrosis or CFTR kit, as well as a hard-to-do panel, which combines carrier screening assays for FMR1, SMA1 and 2, and CFTR in one user-friendly kit. To conclude my opening comments, our fiscal 22 is off to a great start. Our end markets remain strong, and our portfolio of differentiated proteomic tools and reagents and electrodiagnostic products are meeting the needs of our customers in growing and under-penetrated markets. Our cell and gene therapy initiatives continue to gain acceptance from biopharma customers, and the deepening relationships with these end users are driving adoption of our proteins, media, assays, instrumentation, antibodies, and other offerings in our portfolio. During our recent investor day in New York City, my leadership team and I laid out the vision and strategy to bring Biotechni from $1 billion revenue company is today to a target of $2 billion over the next five years. Our first quarter in, we are off to a great start in this journey, and I'm excited to share our progress as we realize this vision over the many quarters to come. With that, I'll hand the call over to Jim.