Bio-Techne Corp

Good morning, and welcome to the Biotechni Earnings Conference call for the first quarter of fiscal year 2024. At this time, all participants have been placed in a listen-only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clare, Biotechni's Vice President and Vesta Relations.

Good morning and thank you for joining us. On the call with me this morning are Chuck Cometh, Biotechnics Chief Executive Officer, Jim Hippel, Chief Financial Officer, and Kim Kelderman, Chief Operating Officer. 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. The company's 10K for fiscal year 2023 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 GAAP measures are available in the company's press release issued earlier this morning on the Biotechnique Corporation website at www.bio-technique.com. Separately, we'll be participating in the Stiefel, Stevens, Evercore, and JPMorgan healthcare conferences in the coming months. We look forward to connecting with many of you at these upcoming events. 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 continues to execute in a challenging environment as we deliver 2% organic growth for the first quarter of fiscal 2024 despite several headwinds that are impacting the broader industry, as well as biotechnology. The sources of these headwinds have remained relatively consistent during recent quarters, including a soft biotech funding environment, inventory destocking from a handful of our OEM customers, as well as broad economic challenges in one of our historically highest-growing geographies, China. While the primary culprits remain the same, the impact of the biopharma funding challenges in the U.S., as well as the evolving macroeconomic environment in China, were higher than our original expectations for the quarter, albeit not as onerous as we saw with many of our peers. Despite these transitory challenges, our growth pillars remain intact and continue to perform well. Specifically, our GMP Proteins business, XODX Prostate, and our Protein Simple franchise all delivered impressive growth in the quarter. Our portfolio remains incredibly well positioned in several high-growth and under-penetrated end markets, and our team will continue to leverage our strategic playbook and strong financial position to gain share, enter adjacent markets, introduce innovative products and solutions, and capitalize on the tremendous opportunity in front of the company. Before we dig deeper into the performance of the quarter, I'd like to personally congratulate Kim Kelderman on his recent appointment as Biotechnology's incoming Chief Executive Officer, effective February 1st, 2024. In the meantime, I will continue to lead Biotechnology as CEO, and work closely with Kim in his new role as Chief Operating Officer until Kim takes the reins as Biotechnics CEO in February. I will continue to support Kim in a senior advisory capacity prior to my retirement from the company and the board on July 1, 2024. Kim has successfully led the diagnostics and genomics segment since joining the company in 2018. During Kim's leadership of the segment, the team gained significant market acceptance and traction with the X or the X prostate test. The revenue of our ACD business the segment portfolio was strengthened through the Asurgen and Lunafor acquisitions and multiple new product introductions and partnerships positioned the business for future growth. Prior to joining Biotechni, Kim ran multiple large businesses at Thermo Fisher Scientific, including most recently leading its genetic analysis business unit. Kim will be taking over an incredibly strong and talented team, as well as a novel portfolio with leadership positions in some of the fastest growing life science tools and diagnostic markets. Jim has been working with me since 2009, so I can assure everyone that I know he is more than ready for this tremendous opportunity, and he is the right person to take biotechnology on our 10-year forward journey to $5-plus billion revenue as a target, as outlined recently at our Investor Day in New York. I'd like to also thank both Will Geist and Jim Hippel, who created an incredibly difficult decision for the board. Jim, an extra thanks, as he too has been with me since 2009 and is the best financial partner I've ever worked with. Separately, I'd like to highlight Biotechni's latest corporate sustainability report, which showcases the continued progress the company is making on its environmental, social, and governance, or ESG, initiatives. The report is available in the corporate and social responsibility section of Biotechni's website. As you will see in the report, Biotechni remains committed to our employees and the communities where we live and work. We are proud of the innovative culture we have built, as well as our commitment to corporate governance and operational integrity. Driving durable, sustainable, and responsive growth remains the cornerstone of our forward strategy. Now let's get into the details of the quarter, starting with an overview of our performance by geography and end market. Europe had a very strong quarter, as the region grew mid-teens overall, including particularly strong performance from our biopharma end market. As a reminder, Europe was the region that was first to experience the effects of the post-COVID slowdown, which continued to a high single-digit decline in the comparable quarter of our last fiscal year. That said, the European biopharm and academic end markets remain stable, and the new leadership team has maintained the positive momentum we experienced in the region over the last three quarters. In North America, we delivered, as expected, mid-single-digit growth, with the performance in the region mirroring the growth rate we experienced in the region last quarter and last fiscal year. It's worth noting that this is the region where we are noticing the most impact from the soft biotech funding environment, as a subset of these customers continue to exhibit a disciplined approach to managing their businesses in the current environment. Now let's discuss the geography that remains at the top of everyone's mind, China. This region declined low teams during the quarter and underperformed our original expectations, with the business climate deteriorating as the quarter progressed. The funding challenges we highlighted in the last earnings call persisted in the quarter, as Chinese government funding for life sciences R&D at hospitals and academic institutions is significantly lower than last year. Given the challenging macroeconomic conditions in China, it remains very difficult to ascertain when R&D funding will stabilize and step back up again. Additionally, private equity and VC funding activity has slowed in the geography, which is creating more cautious near-term spending patterns for cash-dependent biopharma companies in the region. We view the temporary pause in China's growth trajectory as transitory, as the government remains focused on modernizing healthcare in both large metropolitan areas and rural communities. Our portfolio remains extremely well positioned in this geography, as our proteomic research reagents and analytical tools, and increasingly our spatial biology solutions, are the tools researchers rely on to advance scientific discoveries and improve health care. We are as bullish as we have ever been on our long-term opportunities in China, but acknowledge that these headwinds will likely linger in the near term before improving. Now, I'll highlight the growth pillars that will propel our future, starting with those within the protein sciences segment, where organic growth is 2% in the current quarter. During the quarter, we continue to advance our portfolio of cell and gene therapy initiatives, As our portfolio of proteomic reagents and workflow solutions continue to enable our customers to further their therapeutic development work and make continued progress towards the commercialization of these next-generation therapies, collectively our portfolio of cell and gene therapy products and services increased over 25% in the quarter. GMP proteins remain the cornerstone of our cell therapy offering, and Biotechnique continues to benefit from having the broadest menu available, including several proteins that are unique to Biotechnique. This broad offering is a critical selling point for customers working across the cell therapy spectrum, especially in regenerative medicine cell therapies, as these tend to require not only several different proteins in their workflow, but also require complex proteins that are very difficult to manufacture, playing right into one of biotechnology's strong suits. Overall, our portfolio of GMP proteins grew nearly 40% in the quarter. We also continue to gain traction with our portfolio of GMP small molecules, Recall that these small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to regenerative medicine workflows. This business grew almost 20% in the quarter and is on its way to becoming a significant contributor to our overall cell and gene therapy business. We are in the process of expanding our GMP portfolio to include additional media formulations, gene engineering capabilities, and antibodies, positioning biotechnology to remain a leader in this rapidly growing industry. Additionally, work continues to finalize our aseptic immune cell therapy manufacturing solution, which pairs our GMP proteins, GMP media, and Wilson-Wolf G-Rex in a closed sterile manufacturing solution. Moving on to our protein simple branded portfolio of proteomic analytical tools, here the team delivered 9% organic growth. It's worth noting that excluding China, the portfolio grew an even more impressive 18%, including over 35% growth in Europe. Consumable pull-through from our growing installed base remains very strong and continues to grow on a per-instrument basis, reflecting the high value and productivity gains that these instruments deliver to our biopharma and academic customers. The ProteinSimple performance was led by our SimpliPlex automated multiplexing ELISA instrument, branded as ELA, whose expanding menu of validated assays, including seven launches in Q1, and a growing installed base is driving consumable pull-through on the platform. We recently received ISO 1345 certification of our Wallingford, Connecticut facility quality management system, demonstrating our commitment to producing products for clinical applications. With this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on ELA, opening up a large potential on market for this fast, highly sensitive, and easy to use multiplexing amino acid instrument. Momentum continued in our biologics business as we experienced continued uptake of our Maurice Flex instrument in strong demand for consumables. As a reminder, Maurice Flex's protein charge variant fractionation capabilities position this next-gen instrument as an easy-to-use replacement for legacy mass spectrometry fractionation methods, including ion exchange chromatography. This new application enters Maurice into a new $300 million market, approximately doubling the addressable market opportunity for the instrument. The capabilities of our legacy MARIS instrument as well as the NextGen MARIS-FLEX were recently highlighted by scientists from top pharmaceutical companies at the recent CE Pharm Conference, including a presentation from Pfizer scientists on MARIS-FLEX's capabilities for peak identification of AAV capsid proteins through fractionation. I would note that there are several other MARIS-FLEX collaborations in progress with additional top tier life science companies. Our fully automated Western blot solution, branded as Simple Western, also continued to increase its market share this quarter. The platform's ability to reduce the two-day-long manual and messy Western blotting process into a three-hour push-button, highly reproducible solution continues to drive demand within our biopharma and academic customer bases. We are also seeing robust adoption of Simple Western in cell and gene therapy applications. With the system increasingly being utilized to measure protein expression potency, empty versus full capsid ratio, and for process impurity detection. Revenue from cell and gene therapy applications in Simple Western increased over 25% in the quarter, and now account for almost a quarter of the associated product revenue. Next, I'll highlight the growth pillars within our diagnostics and genomics segment, where organic revenue growth was flat in the current quarter compared to a prior year. mostly due to the timing of large OM orders within our diagnostic reagents business, as well as large lab orders for genetic tests within our molecular diagnostic business. I'll start with our XODX prostate test, where we once again drove significant growth in test volume as the valuable information on whether a man with an indeterminate PSA score should proceed with an invasive and potentially dangerous prostate biopsy continues to resonate with both patients and physicians. XODX prostate volume increased nearly 50% compared to prior quarter, year quarter, while revenue increased in the upper teens. Adjusting for a prior year cash to accrual adjustment, year-over-year revenue growth is approximately in line with our test volume growth. As we highlighted during our recent investor day, applications for our exosome-based diagnostic platform are much broader than our current XODX prostate test. Our pipeline includes single gene mutation tests for monitoring several different cancers, a saliva-based test for the diagnosis of Sjogren's syndrome, a next-generation prostate cancer rule-in test, as well as a colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous polyps. We look forward to sharing additional data on this exciting pipeline in coming quarters. Now let's discuss our spatial biology business, which includes our ACD-branded catalog of over 47,000 unique probes, as well as the Lunafor-branded spatial biology instrument assay and software portfolio. Our spatial biology business increased upper single digits organically for the quarter as our broad portfolio of multi-omic assays continue to play an important role in advancing gene therapy, neuroscience, and cancer research. Within the portfolio, we are experiencing continued momentum in BaseScope, which enables the detection of target sequences down to one nucleotide differences, and MicroRNAscope for the visualization of microRNA and other nucleic acid targets. Base scope and microRNA scope increased almost 20% and 50% respectively, and are experiencing increasing acceptance and traction in gene therapy applications. Integration efforts of our latest acquisition, Lunafor, are off to a great start, and the team is embracing their new home under the biotechnology umbrella. As a reminder, Lunafor is currently commercializing its common instrument, a fully automated, high-throughput, hyperflex platform that does not require the use of conjugated primary antibodies. Comet's high value proposition is resonating with the translational research community, which is driving significant interest in rapid growth in its install base. We continue to make progress developing the first fully automated spatial multi-omic workflow that will leverage Lunafor's common instrument, Inspire antibody panels, as well as ACD's RNA scope high-flex technology to enable protein and RNA detection and visualization on a single slide. In summary, the biotechnology team continues to execute our strategic growth plan in this challenging environment. As you look at our relative performance to many of the life science companies that have reported so far this quarter, I'm especially proud of our team's execution and have even more confidence in the perseverance of our growth platforms. As we highlighted during our recent investor day, our portfolio of proteomic research reagents, cell and gene therapy workflow solutions, analytical tools, Spatial biology products and liquid biopsy diagnostics are aimed squarely at a $27 billion addressable market with amazing long-term growth prospects. Initiatives to cure cancer, neurodegenerative, and other diseases, along with understanding how these diseases develop and evolve, will remain a social priority for the foreseeable future, and biotechnics portfolio will continue to play a critical role in these efforts. I am looking forward to when the transitory headwinds facing our industry subside. allowing the growth of our high-value tools to once again shine through. With that, I'll turn it over to Jim.