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spk02: 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.
spk01: 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.
spk03: 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.
spk04: Thanks, Chuck. I'll provide an overview of our Q1 fiscal 2022 financial performance for the total company. provide some additional details on the performance of each of our segments, and get some thoughts on the remainder of the fiscal year. Starting with the overall first quarter financial performance, adjusted EPS was $1.83 versus $1.43 one year ago, an increase of 28% over last year. Foreign exchange positively impacted EPS by $0.07. Gap EPS for the quarter was $1.69 compared to $0.83 in the prior year. The biggest driver for the increase in gap EPS, other than from business operations, was unrealized gains in our investment in chemocentrics this year compared to an unrealized chemocentric loss in the prior year period. Q1 revenue was $257.7 million, an increase of 26% year-over-year on a reported basis and 21% on an organic basis. Foreign exchange translation had a favorable 1% year-over-year impact, and acquisitions had a favorable 4% impact to revenue growth. All geographies had strong growth in Q1, led by China growing over 50%, followed by the U.S. and EMEA both growing over 20% for the quarter. The rest of the world grew in the upper teens. By end market, BioPharma remained very strong, growing mid-20%, while Academia increased mid-single digits year over year. Moving on to the details of the P&L, total company adjusted gross margin was 71.2% in the quarter, compared to 71.9% in the prior year. The decrease was primarily driven by unfavorable product mix within the protein sciences segment, partially offset by favorable volume leverage. Adjusted SG&A in Q1 was 25.1% of revenue, a 70 basis point decrease compared to the prior year, while R&D expense in Q4 was 8.3% of revenue, 40 basis points higher than the prior year. While adjusted SG&A and R&D spend both increased sequentially and compared to the prior year, A tight life sciences labor market did not allow us to fill all planned headcount additions to the team at the pace we originally anticipated, especially in the more technical, scientific, and engineering fields. However, our pace of hiring continues to increase, and we plan to make additional progress in our fiscal second quarter. This investment in critical human capital will position the company for growth going forward. The resulting adjusted operating margin for Q1 was 37.8%, a decrease of 40 basis points from the prior year period. However, excluding the impact of the insurgent acquisition made last April, adjusted operating margin increased 40 basis points over the prior year. Looking at our numbers below operating income, net interest expense in Q1 was 3.1 million, decreasing 1.1 million compared to the prior year period. Decrease was due to a continued reduction of our bank debt as well as a lower blended interest rate. Our bank debt in the balance sheet as of the end of Q1 stood at 300.2 million. Other adjusted non-operating income was $1.2 million for the quarter, compared to $1.1 million in expense in the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For gap reporting, other non-operating income includes unrealized gains from our investment in chemocentrics. Moving further down the P&L, our adjusted effective tax rate in Q1 was 21%. As a reminder, during the second quarter of fiscal 2021, 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 $634,000 non-controlling interest line item reflects the loss from a portion of Eminence we do not own. The impact to other lines of the P&L as a result of consulting Eminence was immaterial in Q1. Turning to cash flow and return of capital, $48.4 million of cash was generated from operations in the quarter compared to $66 million in the prior year period. The decrease was primarily driven by the timing of cash payments for payroll, income taxes, and other accounts payable. In Q1, our net investment in capital expenditures was $6.1 million, and during Q1, we returned capital to shareholders by way of $12.5 million in dividends. We finished Q1 with $41.2 million, average diluted shares outstanding. Our balance sheet finished Q1 in a very strong position, with $235.1 million in cash and short-term available for sale investments, and a total leverage ratio well under one times EBITDA. Next, I'll discuss the performance of our reporting segment, starting with the protein sciences segment. Q1 reported sales were $197.2 million, with reported revenue increasing 28% compared to the prior year. Organic growth increased 26%, with foreign exchange having a favorable impact of 2% on revenue growth. Within this segment, the strong growth was very broad-based in nearly all reagent assay and instrument platforms. As Chuck mentioned, cell and gene therapy increased over 60%, including growth over 160% in our GMP protein products. While biologics grew almost 50%, in our simple Western, simple Plex, proteins and antibodies all grew at least 20%. Operating margin for the protein sciences segment was 45.7%, an increase of 10 basis points year over year, due primarily to favorable volume leverage, largely offset by strategic investments to support future growth. Turning to the diagnostics and genomics segment, Q1 reported sales were $61 million, with reported revenue increasing 22%. Organic growth for the segment was 6%, with acquisitions contributing 15%, and foreign exchange translation having a favorable 1% impact on revenue. The diagnostics reagents business increased upper single digits, and the ACD-branded spatial biology portfolio increased mid-single digits. Although spatial biology had a challenging year-over-year comparable this quarter, we view this business unit as being in a high-growth area within life science tools and are extremely well-positioned to capitalize on this growth with our multi-omic product portfolio. For exosomes diagnostics, revenue was lower year-over-year, but this was mostly due to cash-to-accrual revenue recognition accounting change in the prior year for Medicare patients. Timing of companion diagnostics projects with biopharma customers also negatively impacted growth for the quarter. Exosome diagnostic prostate cancer test volume continues to improve, with more patients now going back to see their physicians. Test counts increased 20% year-over-year in Q1 and are continuing to ramp as we enter Q2. Moving on to diagnostics and genomic segment operating margin, at 12.2%, the segment's operating margin decreased 510 basis points compared to the prior year. The decrease reflects the impact of strategic investments to support future growth, as well as the surge in acquisition. In summary, our research-oriented end markets remain strong, and as our Q1 performance indicated, we are executing extremely well in serving these markets. The diagnostics end market is also improving, and we believe will continue to be a tailwind going forward. Our end markets have been on an upward march since the depths of the COVID crisis in the fourth quarter of our fiscal 2020. This means our comps become increasingly more challenging and our growth rates will likely be tempered proportionally in the near term. However, given our strong performance out of the gate in Q1, we have increasing confidence that we can achieve a growth rate in fiscal year 2022 that is greater than our two-year CAGR at the end of fiscal year 2021. As Chuck and I mentioned in our prior commentary, despite progress executing to our hiring plan, there is more to do in order to support our long-term growth plans. We anticipate continued progress in our hiring objectives to put downward pressure on our adjusted operating margins sequentially in the near term, before returning to prior year levels by the end of our fiscal Q4. That concludes my prepared comments, and with that, I'll turn the call back to the operator to open the line for questions.
spk02: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Your 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We would also like to remind you that we ask that you limit yourselves to one question and one follow-up per person. One moment, please, while we poll for questions. Our first question is from Puneet Sudha of SVB Learing. Please proceed with your question.
spk07: Hi, thanks, Chuck, Jim. Thanks for the questions here. So first one on GMP proteins, clearly strong. Just wondering if you could parse that out. Was that due to qualifications of new orders or additional orders sort of shipping out in the quarter? 160% is really strong, and obviously, I mean, it seems like it's coming off of small comparisons of last year. but just trying to understand the sustainability of the GMP growth and how should we think about an annualized growth rate here for GMP proteins in 2022?
spk03: Yeah, we've been pretty clear in the past that our growth rate for the next couple of years is probably at 100% level. So we're ahead of that, but, you know, we're still, you know, as of today, we're actually open for business. The factory has inventory of a lot of qualitative data qualified material products, and we have been gaining more and more, I guess, customers. You saw the slides in the investor deck talk about the potential domain of customers. We're at a couple dozen already, and we're getting a lot of help from our scale-ready partners to dramatically increase that. So we're getting more scale from existing customers, and we're getting more customers, so therefore the lift. We're well over a $20 million run rate, which is really just the beginning, right, So kind of we're on track. We're ready to start transitioning as much as we can of our orders into the new factory. As you know, we have the largest catalog out there for GMP proteins, but we're only set up for a handful right now in the new factory. And the majority of business is really an under 10 type of product count versus the 50 or so we have in our catalog. We still have a lot of capacity back at headquarters. It's just in small lots. So we are ready to go on the bigger lot for a few of the more important products that are being asked for, being put into clinicals, et cetera. And I see the growth rates to be largely consistent with our guidance, and I think it'll continue.
spk07: Okay, great. Thanks for that detail, Chuck. ACD, wondering if there is something we need to keep in mind for sort of second quarter. It seems the comments you made were around lumpiness, but this is the first time we're seeing sort of mid-single-digit growth here after the leadership change happened in that business. So just trying to understand, should we just continue to expect lumpiness in the business, or is there any competitive dynamics that we need to be aware of Just trying to think about the full year number that's traditionally been more than 10% here historically for ACD.
spk03: We're as bullish as ever on this platform. You've got to remember the comp was amazing that we're coming off of. And then we had the lumpiness is primarily in the service area of it. We do a lot of custom work, and that part was just down. It's just kind of ebbs and flows. So that combined with You know, as you know, we're a couple hundred people light in our hiring plan, just like the rest of the world. I mean, we added 275 people last quarter, and we lost 240. We're net 35 ahead, which is even better than average out there. So it's been really crazy, especially in the Bay Area. And guess where, you know, ACD lives is the Bay Area. So we are shorter there than most other business units. We are also the largest spatial business out there. So we're a target as well, especially for our reps, and we're definitely shorthanded in our reps. We've put additional focus on it now, and we're correcting that, but those are kind of the one, two, and three issues of why this was mid-single-digit growth and why it wasn't 15 to 20. There's no issue. It's all there. It actually looks better than ever. DNA scope is coming on. We have X-Flex coming on. We are working... forward with other partnership ideas with automation. You know, we're stronger than ever with Leica. We're getting going with Antenna. It's, you know, the leadership changes we made a year, year and a half ago have done pretty well, and it's more an issue of comps, lumpiness, especially in services, and probably a handful of sales reps short in some key areas that we need to get refilled. But, you know, we'll do that. That's That's kind of nature of the beast, too, in SPD. It's a hot area spatial, and there's a lot of movement right now. So we'll win. Don't worry.
spk07: Got it. And last one quickly on China, if I could, 100 million, really great to see that number. But just in terms of what can you do in China now at the current scale versus you couldn't do before? And how should we think about the sustainability of growth there in China? You obviously highlighted strong long term, but just how should we think about this year? Thank you. Yeah.
spk03: We're not sending it over in boats, inventory, so that's a good thing. We airship it in. We can sell as much there as they can. We can ship as much in as they need to sell. The growth rate, forever we've talked about my goal of getting this growth rate in China over 25%, and being told consistently it's just impossible to grow more than that in China. It's hard. And we've been roughly about 25% over the years here. And today, just to remind you, is my 35th earnings call for this company. So we're just ecstatic that we just started just knocking out of the park in all cylinders there now. Instrumentation is just flying. A big part of it, but it's also in our reagents. So we're on all cylinders. We are increasing our inventory levels. We are looking at shipment schedules. We're giving them all the help they need. We didn't have any supply issues last quarter, and we're trying to work on that going forward. Everyone's talking about supply chain problems. We haven't had any to date. Knock on wood, we won't have in the future, but we're trying to be as careful as we can. I would just say it's broad-based. And this is one year we had great growth for SPD, by the way. It was a strong growth there. It's just small. But it's a good sign in the future. I would love to see us be safely at 25% or better in China, which we've always said 20% to 25%. And for this year, 25% or better looks pretty good now when you start out at 50%, over 50%.
spk07: Great. Super helpful, Chuck.
spk03: Thanks. I don't think I've seen any peer so far having numbers this good in China. So we're definitely in the right areas. And we're taking share in antibodies, which is great to see.
spk07: Great. Congrats on the growth there. Thanks.
spk02: Our next question is from Dan Arias of Stiesel. Please proceed with your question.
spk08: Morning, guys. Thanks for the questions. Chuck on SimplePlex, can you just talk about how system utilization there looks like a track in the quarter relative to the first half of the calendar year? And then when you look at the instrument portfolio, I'm sort of curious where, if anywhere, you think we should think about growth in consumables pull through per instrument this year. It feels like it's easier to envision that for simple Western and biologics more than simple Plex, but I'd love to hear.
spk03: No, you're right. You're right, Dan. And by the way, congrats. I think your predictions for our quarter are like within 1%, so we should be using you more often, our staff maybe.
spk08: I couldn't agree more, Chuck.
spk03: Yeah, as you know, SimplePlex is the lumpiest of the bunch. Now, we have $12,000 of pull-through per instrument on Simple Western. We have roughly 15 on Biologics. It's 50 on SimplePlex. It's huge. This is a closed system. We make the cartridges for the customer unless it's an open cartridge, which some customers use, especially to start to figure out their assays. So that makes it lumpier by definition. We actually had over 50% growth in instruments this quarter. So we are well on track for instrument deployment. And with that kind of pull-through, it's all about getting boxes out there. So we're very bullish. It's just coming off a huge comp from last year is one thing. So we studied all that. We're sitting pretty good. I think in a lot of the use, there are large studies. And so some of the cartridge orders get very large, and that's what makes it somewhat lumpy. So we could have We could have a complete turnaround cartridges next quarter, and then all of a sudden we're back to 50%, 60% growth. It didn't really help us much on the instrument front because, as you know, we've been right against the rail trying to finish out our orders every quarter, and this quarter wasn't much different because the instrument growth was still 50%. We're having to build a whole new factory just down the road from where we're at. We'll be done in a year with that, so that's off and running. We did take cartridge manufacturing up last year, and then we've got a couple hundred a week, I think this last quarter, of forgiveness, which we'll hopefully fill back up. But it's still very strong year on year. So I think all things aside, it's still full steam ahead. It's a $50 million plus run rate or better now, and probably over more than half the size of Quantarix, and we're gaining traction on them and others out there, so.
spk08: Okay. All right. That's helpful. Thank you. And then, Jim, if I'm hearing your comments on the outlook correctly, it sounds like you're calling out the comps that are obviously getting harder, but the confidence in getting above the historical average is higher, and that average that you're thinking about is the 13% number that you alluded to last call, and I believe you talked about it at the investor day. Is that right?
spk09: That is correct.
spk08: Okay. Thanks a bunch.
spk01: Thanks, Dan.
spk02: Our next question is from Jacob Johnson of Stevens. Please proceed with your question.
spk00: Hey, good morning. Maybe check on the cell and gene therapy side. You know, I think you've been clear that that end market's an opportunity for you and a lot of initiatives there. But it seems like yourself and maybe some others saw some pickup in activity from that end market this quarter. Is there something that's changed in the end market, or was the kind of performance you put up this quarter just a function of kind of your internal efforts and GMP?
spk03: Yeah, I think so. Yeah, I can answer that. It's plain old-fashioned critical mass. So this is getting bigger and bigger. Our scale-ready partners are doing better and better out there, and they're providing additional visibility there. to our reagents to be embedded within their solutions in clinicals, and we're just getting more and more traction, more and more reorders. The orders are going up in size, but it's just, you know, we aren't even to the pregame warm-ups yet for the size of this market. This is all preclinicals and clinicals, and it's already getting sizable. I mean, I've mentioned the word tsunami in the past. This is going to be a bow wave that I think is just going to be hard to, you know, stay on top of in the next couple, two, three, four, five years, so... You know, we've talked in the past about this division of the future being in five years $300 million or so. It might be dramatically larger than that. We don't see a lot of people catching up to us or doing what we're doing with total workflow. And we've got like 10 stops on the flywheel here for cell and gene therapy workflow. I think we're going to be nearly unstoppable. And, you know, the lead... Position, of course, is GMP proteins, and being the protein leader in the world, we expect to fully capitalize on that first and then follow with everything else we have to our customers who are amazed at all the things we're able to offer already. So it's a one-stop shop now as a portfolio. We had our first customer, I wouldn't call it a full audit, but a great tour and partial audit of our new factory, and they were blown away. Got it.
spk00: That makes sense. I guess maybe check the natural. Follow-up to that, I guess, you've got the capabilities you have today, but it seems to me you'd probably like to add to that at some point. Can you just talk about your thoughts on adding cell and gene therapy capabilities, the potential to do that organically, and maybe thoughts on inorganic efforts there as well?
spk03: Well, I think there is the antibody side we're going to continue to build out. We just talked about the launch of the medium. We definitely are looking beyond T-cell into NK, so there's a lot of expansion just in the therapeutic side. I think instrumentation-wise, we're in great shape. It's amazing. We've had over $2 million of revenue this quarter in Sibilplex being designed into, call it, QC type of applications for cell and gene therapy. And Maurice is going to be used in purity, as expected. So we've got a lot going there. We don't have everything. I mean, the non-viral future that we're trying to be part of, we'll use electroporation. We do not have an electroporation partner at this point. We're kind of ubiquitous. We have our favorites, but there's more than one out there. That would be an area. I think there's always room for more spatial interrogation. I think we have RNA scopes. And that'll be used. But I think with the right automation, we can probably get into the production side of that and QC side. So there's a few spots we're looking at. But we've got a lot of it covered. And with great partners like Wilson Wolf for bioreactors, who have hundreds of customers, and the new Q platform from Fresenius, which we think outdoes the competition on all fronts, I think it's going to be an amazing future. Hopefully, we'll be talking about billions in revenue in a few years, not just hundreds of millions.
spk00: All right. I'll leave it on that point. Thanks, Chuck.
spk02: Our next question is from Alex Nowak of Craig Hallam. Please proceed with your question.
spk06: Great. Good morning, everyone. Chuck, as we reach the end of the calendar here, what are you hearing beyond the U.S. about lifetime budgets next year, specifically thinking Europe and China? Any reason to suspect a slowdown or are these budgets as strong as ever?
spk03: We're not hearing anything negative yet. I mean, Europe, you saw our numbers over 20 percent growth seems to be really good country by country. We're kind of through all the Brexit stuff. We're opening up an entirely new warehouse facility in Dublin. We're going to be probably seeing some tax savings and other mainland Europe type of changes going forward that will help us. Asia really looks good on all fronts except India. India even is dramatically good for what trouble they're still in. Japan is stable. Korea has grown well. Southeast Asia is really back on track, better than it's been in a while. And China, we talked about the numbers, they're kind of off the charts. We're in China's second year now, going into their five-year plan, which is usually a big spend year. So for the next couple of years, it should be big spending in China. And, you know, we'll see.
spk06: I thought that's good. And now that Magnus has been, he's had the exosome DX and then the assuring business now under him through this new molecular diagnostics unit. Has him or the team recommended any changes to the Exosome DX sales strategy with either EPI or the upcoming tests here on ExoTrue? Any push to kit those tests or really any changes to the pipeline focus?
spk03: Not really, no. I mean, they provide incredible help for us on the regulatory side as well as kitting, of which you saw us mention that. You saw us mention two CLIA labs, not one because they have one too. You saw us mention the Center of Excellence, so that That really is implying partners. So we're going to be able to focus on a lot more, call them indications, different tests, because this is a platform, not a one-trick pony. And we're going to be doing some ourselves, and we're going to be going in parallel with other partners and other channels. So those negotiations, those relationships are well underway and forming, and new ones happen. There's a lot of interest in all these things we're talking about, and I think it's going to be an amazing future. And Matt's the right guy.
spk06: I understand you're not shipping stuff via both to your customers, but I guess at the customer level on the supply chain, is there anything that's getting short basic materials and obviously labor that would cause maybe your customers to see a slowdown and thus push the slowdown up to you?
spk03: Well, with the incredible growth we've been seeing the last few quarters, our biggest issue has been labor, for sure. It's hiring. We've made improvements. We're catching up, but You know, we keep seeing 20-plus percent growth, which you'd love to see. You know, we've got to stay in the game here on that first. In terms of supplies, you know, we put the word out early on, and, you know, we're not making cars here, right? So the supply chain issues aren't that complicated. Our instrumentation, I think we've looked into, are we going to see a chip shortage or something like that? Well, again, you know, We're making hundreds of a certain instrument per year. It's not thousands, so it's not too big a deal. And these are not million-dollar instruments either. These are great productivity tools that are roughly $100,000 to $50,000 in that range. So it's doable. Not to say we won't see a problem next quarter or whenever. I mean, if things don't start getting better, there's mundane things like labels and paint and chassis and everything else, but we're staying on it. All we can say is we had no issue last quarter, and we don't foresee a problem this quarter. But, you know, you can't promise everything. We'll see.
spk04: Chuck, if I could add from our customers' perspective, you know, one of the things we keep an eye on is our daily sales of our reagents. And we talked about our core reagents, proteins, antibodies. We're up 20% year over year. So that's a good indication of the activity that's going on in our customers' labs. So it doesn't appear as though any supply chain issues are slowing them down.
spk06: That's great. Thank you. Appreciate it.
spk02: Our next question is from Catherine Schulte of Baird. Please proceed with your question.
spk10: Hey, guys. Congrats on the quarter, and thanks for the question. It's first on ExoTrue. Have you made a decision on whether you'll commercialize the test on your own versus finding a partner there? And then I believe your previous target had been to launch it in calendar year 21. So is that still the plan? And if not, you know, what's driving the delay there?
spk03: Yeah, it's going to be close to calendar year. I think it's possible. I mean, it all comes down to, you know, the LDT. And there isn't anything regulatory-wise we have to really commit to now. It's just working with NGS. So it's anyone's guess. So we're kind of ready to go. We have the second study being written now. The data's all been collected. So we're off and running on more data than we need to launch. On the partnership front, there's been a lot of interest. So we're kind of, to be honest, we're kind of wading through the interest here and seeing what makes sense from us strategically as well as business-wise. But good chance it could happen, but, you know, stay tuned.
spk10: And then you talked a bit about government funding for life science research, but if we think about the pharma and biotech side of the business, you know, we've seen robust funding over the last couple of years, but some volatility in biotech financing over the last few months. So, you know, what's your outlook for that end market and how much of that is driven by, you know, what we see on the biotech financing side?
spk03: It was a tremendous quarter, and it's been followed up by previous tremendous quarters. I think everything from vaccine makers to biotechs in general, there's been big demand We had roughly flat on COVID, but, you know, there's a lot of halo still coming off of all that that's creating more investment opportunities by all of biotech, biopharma, and we're participating in all that because we work in all levels of the food chain and those businesses. So it's been good for us. I mean, you don't have to look any further than you have 20% growth in proteins and antibodies. It doesn't get more fundamental than that. It's just proof that the funding is strong.
spk10: Great. Thank you.
spk03: I should make a comment, too, that our digital strategies also continue to work and work really well. Just in our antibody channels alone, we had, in our Novus brand, over 50% year-on-year traffic increases. In our R&D Systems brand, our premier products, 75% year-over-year traffic increases on our websites. That's pretty amazing. That's why we're taking share.
spk02: Our next question is from Patrick Donnelly of Citi. Please proceed with your question.
spk09: Hey, guys. Thanks for taking the questions. Chuck, you touched a little bit on kind of some of the inflationary pressures, labor, et cetera. Jim, I was wondering if you could just talk through kind of the moving pieces on the margin side as we work through the rest of the year between, again, some of the rising costs, XO, and then obviously, again, you guys pushing some of that price over to the customers. Just want to make sure we talk through that.
spk04: Yes. On the inflationary aspect of it, we're trying to manage that through a combination of productivity as well as selective price increases, so we're not necessarily forecasting the margin pressure as a result of that. You may recall last quarter when I talked about the margin view for this fiscal 22, we said initially that we expected a sequential hit to our margin this I think I messaged roughly a percentage point due to the acquisition of a surgeon and roughly a percentage point due to getting caught up in our hiring for strategic growth. That was going to impact us in the first half of the year. Given that we did make some successes around hiring, we didn't hire as much as we had planned, and therefore actually our margin was better than we internally thought it would be for Q1, and we think we will catch up in Q2. I think the message that I left you with at the end of last quarter is the same, in that by the time we get to the end of the first half of this fiscal year, we're expecting our year-over-year margin to be down roughly two percentage points, one point as a result of a surge and another point as a result of strategic growth investments, but then that to start to rapidly recover in the second half of the year, so that by the time we get to the end of Q4, we think we'll be year-over-year pretty comparable.
spk09: Okay, that's helpful. And then, Chuck, just on the exercise, encouraging to hear about the volume recovery there. Sales seems like the reps are able to get into the dots. Where do you think we are there in terms of the recovery? What are you hearing from customers? Again, as the pandemic hopefully lifts, I just want to talk through expectations on that front.
spk03: Well, it's coming back fast, especially this quarter. I mean, we had 1,700 docs order last year with about two-thirds on a reorder rate. And already this year, this fiscal year to date, one quarter, and we're over 1,100. So it's really picking up steam. And we see that really from just more customer touch. The reps are being let back in. If the reps aren't seeing the docs, it's hard to get orders. It's just that simple. And the patients have got to be seeing them and getting PSA tests, so there's something to talk about. So it's all coming back pretty quickly. So I still think we're really in early innings here. It's just getting started. And there's like 15,000, 20,000 different docs out there. So we've really addressed only 20%. So it's just a matter of getting it going and managing dilution, which we're doing a really good job of. And Matt and the team are going to be helping a lot as well. And there's leverage there. So that's also probably part of the improvement already in a quarter is just by the McManus team taking over. But, you know, stay tuned. We're really excited. Got, you know, one out there ramping, ExoTrue ready to come, and we're in discussions on a bunch more that we are doing and can do. And it's an amazing technology, and it's way more predictive than cell-free DNA, way more upstream. Great. Thanks, Chuck.
spk02: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for additional questions. Our next question is from Paul Knight of KeyBank Capital Markets. Please proceed with your question.
spk05: Chuck, when you see customers gain, let's call it maturity, at your GMP protein production facility, what do you think the average size will be?
spk03: For a customer? Yeah. Well, I can tell you right now, it's hard for them to forecast. And so we've done our contracting in terms of percentages. So the deals we put in place, which are quite a few at this point, As they get beyond clinicals and go into production, we are contracted to receive 95% of the volume they need. This is such a critical area. They're always going to have backups. And we're going to need backups for some probably as well. But that's good. Most have come in with requirements before they get started with us. And they range from between $10 million a year annualized per protein all the way to a couple over $50 million. Of course, this is for them. getting through their clinicals and surviving and meeting their sales forecast, of course. But, you know, this is orders of magnitude beyond, you know, proteins for RUO, right? So I don't think you'll see anything in production, you know, of a therapeutic for probably less than a million dollars per protein, to be honest. And these customers are what, starting out at preclinical, Chuck? Most of these are preclinical, some have been clinical at this point, but we're at a couple dozen in. We're being looked at by our scale-ready partners. As an example, you know, Wilson-Wolfe bioreactors becoming a de facto standard. It's in well over a couple hundred different accounts out there in clinicals, and they're out there putting pressure and talking to their customers about, you know, if you just use the proteins from biotechny, we can actually deliver them already already encapsulated, ready to be reconstituted in the bioreactor. So it takes a bunch of risk and a bunch of cost off the table for you and their eyes are lighting up. So we're getting, we're getting that process going. It'll take a year or two, but, um, that's the kind of opportunity we have by being part of scale ready.
spk05: Okay. And then, uh, What's your read on the mRNA market, number of candidates, customer interest, whatever metric you see or feel, you know, since we've had obviously the COVID vaccine success?
spk03: Well, if you landed Moderna, there'd be 20 different vaccines. drugs are working on that are going to use mRNA, right? So, you know, good for Miravai. They've landed a great, they've been in the right place at the right time and have a great product. And they've got, you know, CAP technology IP to get around. So mRNA is probably tougher for the rest of us out there than plasmids per se. But we're working on all these. I think in a couple of years we'll be in all this stuff at some level. It's not rocket science. It's right down our alley. So it's just a matter of investment and going. Now, if we were to get large in mRNA to the same kind of vision, you know, that we're talking about with proteins, we would need another factory the size we have now, so it would take some investment. But first things first, let's make sure we have the science right, we can get around the IP, and we have working product, and then we'll do what we need to do. Yeah, okay, thanks.
spk02: We have reached the end of the question and answer session. I will now turn the call back over to Chuck Hummeth for closing remarks.
spk03: Well, thanks, everyone. It was a great start to our year. Love seeing over 20% organic growth, as always. I'm sure you do as well. We look forward to next quarter and hope we can keep it all going. Thanks again. Bye.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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