Bio-Techne Corp

Good morning, and welcome to the Biotechnology Earnings Conference Call for the first quarter of fiscal year 2023. 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the call over to David Clare, Biotechni's Vice President, Investor Relations. Please go ahead, sir.

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 2022 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 Pages 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. Separately, we will be presenting at the Credit Suisse, Stiefel, Stevens, and Evercore ISI healthcare conferences in November. We look forward to connecting with many of you at these upcoming conferences. 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. I am pleased to report that we started our fiscal 23 with a respectable 7% organic revenue growth on top of what was our most challenging year in your comp of over 21% organic growth in Q1 of last year. We achieved this growth despite a slower summer for our business in Europe and continued, although improving, COVID-related shutdowns in China. With the tough comps and, we believe, temporary regional challenges that our protein sciences segment faced, this was the quarter for our diagnostics and genomics segment to shine, and China did with 17% organic growth. In our first quarter, we accelerated our spatial biology business to upper teen growth. We continued to drive incredible uptake in doctor and patient usage of our XODX prostate test, and we delivered double-digit growth in our genetic DX and diagnostic reagents businesses. I will dig into the traction and encouraging trends we are seeing across this segment in our broader portfolio later in the call. But first, I'd like to highlight the State and Corporate Sustainability Report we recently issued, which details the significant progress we continue to make advancing our environmental, social, and governance initiatives. The 64-page report provides insights into biotechnics' commitment to growing the organization in a responsible manner while we deliver the products necessary to advance science and ultimately improve healthcare. Our advancements on the ESG front also led to biotechnics inclusion in the 2022 Forbes list of best in state employers, with this latest achievement representing the third recognition from Forbes so far in calendar 2022. I'd also like to briefly touch on how we are navigating the current global inflationary environment. The team has done an extraordinary job strategically implementing price increases across portfolio to offset the impact of inflation. We will continue to leverage our pricing power to offset rising costs, particularly labor, going forward. It should also be noted that our operations team has delivered consistently with no supply chain issues this quarter or any in the past eight. Now let's discuss the specifics of our quarter, starting with an overview of our performance by geography and end market. In North America, consistent execution across the portfolio drove low double-digit revenue growth for the quarter, driven by a continued strong biopharma end market. In Europe, our revenue decreased mid-single digits year over year. Here we experienced an exceptionally slower seasonal summer dip in our consumable run rate business. It seemed like everyone was on vacation in July and August, perhaps making up for the prior two COVID years when travel was more restricted. In any case, our run rates in Europe picked up considerably in September as researchers seemingly returned to the labs. However, the strong double-digit growth in September, which, by the way, is continuing in October, wasn't enough to overcome the tough Q1 growth Comp Europe had last year when they grew a record 20%. While there are potential macro challenges in the current European environment, our portfolio of proteomic research reagents, analytical tools, and spatial biology solutions remain core components to the scientific discovery process and position us to effectively navigate any near-term regional instability. Moving on to China, despite the lingering impact of ongoing COVID-related lockdowns and academic institutions not returning to the labs, we delivered mid-single-digit organic growth. On top of the COVID challenges, I'd also note that China faced a particularly challenging year-over-year comparison, where we grew revenue by over 50% in the region last year. We see China rapidly returning to its historical growth rates as prior year comps normalize. Customers continue to better navigate the sporadic COVID-related government restrictions, and the Chinese government continues to emphasize investing in healthcare. Our biopharma end market remains healthy, growing upper single digits globally for the quarter, and especially stronger in North America with growth in the mid-teens. Sales to our academic end markets increased low single digits year over year, but again, we're stronger in North America. Now let's discuss our growth platform, starting with our protein sciences segment, where organic revenue increased 3% for the quarter on a very strong comp from last year, when the segment grew over 26%. Let's begin with our cell and gene therapy business, where our portfolio reagents, instruments, media, and technologies streamline workflows, increase efficiencies, and ultimately expand access to the these next-generation therapies at lower cost to the healthcare system. We haven't discussed TC Buster for a while, so I will update you on the significant progress we are experiencing with our non-viral gene editing technology. TC Buster has several advantages over legacy gene editing methods, including its ability to deliver larger gene editing cargo, as well as a more predictable gene insertion location, all at a lower cost compared to viral-based gene insertion methods. We continue to educate the market on the advantages of TC Buster, and it's worth noting that we have signed a handful of commercial licenses to support a growing pipeline of cell therapies, primarily for T-cell and NK cell therapies. In addition, to customers testing TC Buster for therapeutic candidates, we also see growing interest in Discover Research to take advantage of the technology's lower cost and increased speed, enabling the acceleration of a candidate's selection. TC Buster is currently being trialed in dozens of unique therapies, and we believe the future is very bright for this technology. We continue to penetrate the burgeoning cell therapy opportunity with our portfolio of GMP proteins and are seeing continued momentum in the regenerative medicine or RegenMed market. As a reminder, RegenMed is a form of cell therapy that leverages stem cells or their derivatives to promote the repair response of diseased, dysfunctional, or injured tissues. Our GMP capabilities expand beyond proteins and include a portfolio of GMP small molecules. These small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to RegenMed workflows. While our GMP small molecules business is relatively small today, it is growing rapidly, including over 100% for our first quarter, and has potentially become a significant contributor to our overall cell and gene therapy business. Now let's talk about our core portfolio of proteomic research reagents, including the RUO proteins, antibodies, and small molecules that are key components to enabling biopharma and academic scientific discoveries. Collectively, our RUO reagents grew nearly 30% in Q1 last year, again highlighting how difficult this quarter's comp was. Despite the high hurdle, our RUO reagents were able to grow mid-single digit in Q1 for this year, driven by our digital marketing capabilities. Moving on to the performance of our proteomic analytical tools, where we also face a challenging year-over-year comparison, as the business grew over 25% in the same quarter last fiscal year. Overall, the team delivered double-digit growth in North America and China, which was partially offset by much lower performance in Europe, leading to low single-digit growth for the quarter. Once again, our biologics platform, REIS, led the growth. We continued to see demand from protein therapeutics, gene therapy, and CRO CDMO customers, particularly in North America and China, where combined growth was over 20%. Innovation remains a key factor in growth for our biologics business. For example, we recently unveiled data demonstrating ICIEF fractionalization On the soon-to-be-launched MARIS-FLEX instrument, fractionalization is a front-end step in mass spectrometry where the sample to be analyzed is separated into mixture components based on differences in their size, charge, or other characteristics. The data showed how MARIS-FLEX addresses the labor-intensive and time-consuming challenges of using legacy methods, including ion exchange chromatography for fractionalization. MARIS-FLEX is scheduled for release in early 2023. In addition to the expanding Maurice capabilities and applications, the platform is also gaining recognition for its environmentally friendly attributes. A recent study in the Green Analytical Chemistry Journal highlighted Maurice as an environmentally friendly method for evaluating the identity and stability of adeno-associated virus, or AAV, samples for gene therapy development. The study highlights Maurice's low sample and reagent volume requirements in built-in waste reservoir as environmentally friendly attributes to the system. We continue to expand the capabilities of our protein simple line of instruments in cell and gene therapy applications. During the quarter, we added three new viral titer assays for the expanding menu of our automated multiplexing ELISA instrument, ELA, for intact AAV capsid quantification and gene therapy research and development. ELA's wide dynamic range and high precision ensures users get the high-quality data required to meet regulatory standards for AAV titration throughout bioproduction workflows. Now let's shift to the diagnostics and genomics segment where we grew revenue by 17% organically in the quarter. Our spatial biology business, branded ACD, accelerated to upper teens growth in the quarter as strong commercial execution and enhanced marketing strategy generated well-balanced growth in both our biopharma and academic end markets. In addition to a strong performance from the core RNA scope product line, we are seeing increased traction from our BaseScope and MicroRNAscope offerings in cell and gene therapy applications, which grew almost 50% and over 70% respectively. BaseScope and MicroRNAscope are rapidly becoming material contributors to our spatial biology franchise. We recently expanded our RNAscope portfolio with the launch of new automated co-detection assays specifically designed for the Roche Discovery Ultra platform, enabling simultaneous detection of RNA and protein on the same tissue section. These new automated multi-omic assays utilize both RNA scope and base scope signal application to deliver best-in-class RNA sensitivity and specificity. When combined with protein detection on Roche's automated platform, researchers will be uniquely enabled to power translational and clinical research studies. We are also unlocking the cross-segment synergies inherent in the broad biotechnic product portfolio. As an example, we recently launched the TSA vivid fluorophores for highly sensitive fluorescent detection of RNAs and proteins in cells and tissues. Pairing these key fluorescent dye reagents from our small molecules business with ACD's RNAscope sets a new standard for illuminating RNA biomarkers with industry-leading sensitivity and clarity. Rounding out spatial biology, we also recently filed a patent infringement lawsuit in the United Kingdom to halt the infringement of our patented RNAscope ISH technology by Molecular Instruments Incorporated. We've made significant investments over the years to build our catalog of over 40,000 RNA-scope ISH probes available in over 400 species and remain committed to protecting these investments and defending our intellectual property rights in our spatial biology business and more broadly throughout the portfolio. Now let's discuss our molecular diagnostics business, starting with the significant progress in our exosome diagnostics business. Test volume in our exoDX prostate, or epi, test increased over 70%. while associated revenue grew over 100% in the quarter. Importantly, a favorable doctor retention trends and steady increases in the ordering physician base sets, the stage for continued robust exoDx prostate growth going forward. I am extremely pleased with the traction. We are seeing an exoDx prostate and believe our fiscal 2023 will be the breakout year for this test. Exosome Diagnostics also announced initial data on a novel non-invasive saliva-based profiling assay leveraging exosomes to diagnose and monitor individuals with Sjogren's syndrome. Sjogren's syndrome is an autoimmunity disease that is often undiagnosed and misdiagnosed with an estimated 4 million Americans currently living with the condition, but 2.5 million undiagnosed. Symptoms of Sjogren's syndrome can mimic other autoimmune diseases, allergies, drug side effects, and menopause, making diagnosis particularly challenging, leading to an average diagnosis time of three years, and creating a need for a non-invasive accurate molecular test. We are looking forward to providing future updates for this exciting pipeline assay. A recent proof-of-concept study for a novel exosome-based platform capable of monitoring spaceflight-associated neuroocular syndrome, or SANS, in astronauts was published in NPGA Microgravity or Nature publication. In addition to potentially providing a needed tool to assist fans and astronauts that are going on longer missions, as well as commercial space passengers, the study showcases the potential power of exosomes for the diagnosis of neurological conditions. Continuing with molecular diagnostics, the surgeon had another great quarter. Its demand for its portfolio of genetic carrier screening kits and expansion in Europe drove growth of almost 25% for the quarter. In addition to the ongoing geographic expansion, the surgeon has a rich product pipeline positioning the business for continued growth going forward. Finally, our diagnostic reagents business continued its streak of consistent growth quarters. The return of patients to the doctor's office is driving demand for hematology, coagulation, and clinical chemistry tests, which is driving demand for our clinical controls and reagents. These improving underlying diagnostic trends combined with market share gains and increased wall share at existing customers led to a low double-digit growth in the quarter and sets the stage for a sustainable growth in our diagnostic reagents business going forward. In summary, we continue to execute our growth strategy and remain on track to deliver our long-term financial targets. Our portfolio of proteomic research reagents and analytical tools are critical components of scientific research, our key to unlocking the full promise of the proteomic revolution currently underway, and our position to enable the oncoming bio-waves of cell and gene therapies. Later on to this, a portfolio of diagnostics and genomic solutions that include our leading platforms in spatial biology and liquid biopsy, and I believe we are just getting started in locking the full potential value of this business. With that, I'll turn it over to Jim.