Bio-Techne Corp

Good morning, and welcome to the Biotechny Earnings Conference Call for the first quarter of fiscal year 2025. 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, Biotechny's Vice President, Investor Relations.

Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechnique. 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 10-K for fiscal year 2024 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 Investor Relations section of our Biotechni Corporation website at www.bio-techni.com. Separately, in the coming weeks, we will be participating in the UBS, DFL, Stevens, and Jefferies conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Thanks, Dave, and good morning, everyone.

Thank you for joining us for our first quarter conference call. I'm pleased to report that the start to our fiscal year 2025 was largely consistent with our initial expectation. Continued stabilization of our biopharma end markets, combined with excellent execution by the biotechnology team, led to 4% year-over-year organic revenue growth. Our growth pillars, including our molecular diagnostics, our spatial biology platforms, as well as our proteomic analysis franchise, continue to outperform in constrained end markets. It's also encouraging to see early indications of improvements in our biotech end markets which is validated by the strength we experienced in our cell and gene therapy business during this last quarter. I'll give additional details about the momentum in our growth pillars later in the call, but first I want to applaud the Biotechni team for delivering this top-line performance with a continued focus on profitability. Jim will discuss this in more detail, but the cost containment and productivity initiatives we have put in place in recent quarters positioned the company to maintain its peer-leading operating margin profile. These efficiencies will also allow for continued strategic investments while expanding margins as the life science markets return to their historical growth rates. Before we get to the specifics of the quarter, I'd like to highlight the significant progress we made advancing our environmental, social, and governance, or ESG, initiatives. During the quarter, Biotechnie issued the fourth iteration of its Corporate Sustainability Report, or CSR. In this latest CSR, we highlight the significant progress we made on this front, including the recent submission of a letter of commitment to reduce the scope one, two, and three greenhouse gas emissions. These reduction targets will be evaluated by the Science-Based Targets Initiative in 2026. I'm proud of the team's commitment and continued progress, which positions Biotechni for a sustainable future. Now let's discuss our Q1 results, starting with an overview of our performance by end market and by geography. Overall, biopharma increased mid-single digits with strength in our cell and gene therapy workflow solutions. We also saw continued sequential stabilization from large pharma customers and improving ordering trends from our biotech customers. Academia increased low single digits in the quarter with tough year-over-year comparables in both the U.S. and in Europe. Now for our regions. In the Americas, we grew low single digits, excluding the diagnostics and market. This was driven by strong growth in our cell and gene therapy vertical. Europe increased mid-single digits overall, which was bolstered by strong performance in academia. This overall performance in Europe is even more impressive, considering the mid-teens growth comparable from the prior year quarter. In China, a challenging funding environment remains a hurdle to grow. However, we did see pockets of strength, including in our cell and gene therapy solutions, as well as in our spatial biology franchise. Our instrument business continues to see stimulus-related tender activity, which we expect to translate into orders in the third quarter of our fiscal year. Overall, China declined low double digits during the first quarter, but we anticipate that the Chinese government will continue to prioritize to improve healthcare through investments in scientific research. Our portfolio of proteomic and spatial biology tools play an important role in these efforts. Now let's discuss the growth pillars within our protein sciences segment, starting with our cell and gene therapy business. Here, we see that the value proposition of our broad portfolio of GMP reagents continues to resonate with the customers that are developing these life-changing therapies. Additionally, our cell therapy customers continue to transition from using RUO proteins for preclinical work to GMP-certified reagents as they begin their clinical trials. This dynamic is providing an increasing tailwind for our business. For the quarter, our GMP reagent product lines increased over 60%, including robust growth from both our large customers as well as in the smaller biotechs. As a reminder, order timing among our larger customers can create quarter-to-quarter lumpiness, so on a trailing 12-month basis, our GMP reagents business grew in the upper teens. We are particularly pleased with this performance, considering the market constraints over this same period. Next, I'd like to give an update on our scale-ready joint venture partner, WilsonWolf. As many of you are aware, WilsonWolf is a developer of the market-leading G-Rex bioreactor. G-REX is used as an efficient and cost-effective bioreactor for scaling cell therapies and is currently used in around 45% of the clinical trials taking place in Europe and in the U.S. We currently own 20% of Wilson Gold and will purchase the remainder of the business by the end of calendar 2027 or potentially earlier, depending on the achievement of various milestones. In front of the imminent Wilson-Wolf acquisition, the biotechnology team continues to drive synergies between the two businesses. For example, we recently announced the launch of our ProPak GMP cytokines, which are optimized for use of the Wilson-Wolf G-REX bioreactor. The use of ProPaks provides the precise quantity of GMP proteins needed to enable a highly simplified yet closed system for the expansion of cell therapies. Additionally, SCALE Ready launched the G-REX grant program, an initiative that is actively seeding academic and biopharma customers with G-REX bioreactors and Biotechnis GMP reagents. These customers get to experience the power of the combined product offering during the preclinical development process, which nicely positions both Wilson-Wolfe and Biotechnis to win in this nascent high-growth industry. Secondly, let's discuss the performance of our other growth pillar within Protein Sciences, the Proteomic Analytical Instrumentation Division, marketed under the Protein Simple brand. Here, the team delivered mid-single-digit growth, as the challenging capital equipment environment was once again more than upset by strong consumables and service revenue growth. Looking specifically at the performance of our proteomic analytical instrument, it's worth noting that after several quarters of decline, our portfolio returned to low single-digit growth in the Americas. Continuing with Protein Simple, I'd like to give an update on the latest addition to our Simple Western franchise called Leo. This next-generation instrument is a high-throughput automated Western blood system enabling the simultaneous analysis of up to 100 samples in a single three-hour run. We have experienced significant customer interest in LEO following the public announcement at the end of July, and the team is building a promising funnel for the upcoming launch in the second half of our fiscal year 2025. Temple Western remains the only fully automated Western blood system on the market. With a penetration rate of less than 20%, we see a long runway for future growth in this portfolio. Before we wrap up our discussion on protein sciences, I'd like to give you an update on how Biotechni is leveraging artificial intelligence tools to further our already strong proteomics position. As a reminder, Biotechni was the first company to broadly commercialize research-use-only proteins in 1985. We are pairing the data generated over the last 39 years by our internal R&D team with generative AI tools to create new designer proteins. These patentable proteins are engineered to exhibit hyperactive properties, enhanced heat stability, and other novel features. These attributes are relevant for many applications, including, of course, cell therapies. We recently launched our first two designer proteins, and these will be followed by many AI-engineered cytokines, growth factors, and antibodies, which is nicely aligned with our roadmap. Overall, the team delivered 1% organic growth in the protein science segment. While this performance is in no way indicative of the latent growth potential in this segment, It is a distinct improvement over the low single-digit declines we've experienced over the last three quarters. Remember that our protein sciences segment is where we have the most exposure to both China and biopharma and market headwinds, and this segment is positioned to see the most improvement as these markets continue to normalize. Now we will move on to the growth pillars in our recently renamed diagnostics and spatial biology segment. This segment has been previously referred to as the diagnostics and genomics segment. However, given the segment's increasing leadership in the emerging spatial biology field, we felt that the new segment name is more indicative of our focus. Within spatial biology, demand remains strong for a fully automated, high-throughput, hyperplex spatial biology platform called COMET. I'm pleased to report that following a successful cross-company initiative, we have increased Comet's manufacturing capacity to meet the growing demand for the instrument. We also launched the RNA scope assays on Comet this last quarter, which enables the platform's multiomic capability. This means that it can now detect and visualize up to 24 proteins and 12 RNA targets simultaneously. These enhanced capabilities are in the hands of the top key opinion leaders in spatial biology who are currently generating multiomic data to support a broader rollout, which will take place in this current quarter. Additionally, we continue to launch biotechniques R&D system branded antibodies validated for use on the comet. The RNA scope capabilities, paired with a growing portfolio of validated antibodies, will support a consumable stream that is expected to be the highest pull-through of any instrument under the biotechnology umbrella. Our other growth pillar within diagnostics and spatial is a molecular diagnostics business, which continues to perform at a very high level with nearly 40% growth in both our XODX prostate test and our estrogen kit business. We are in the initial stages of realizing the tremendous synergies that exist between the XODX and the Asuragin businesses, illustrated by the upcoming launch of the kitted exosome-based test for breast cancer-related ESR1 mutation, which we will commercialize through our Asuragin laboratory channel. In summary, the team delivered another quarter of differentiated performance in what has proven to be a prolonged period of challenges facing the industry. Despite these challenges, fiscal year 2025 is off to a start that is aligned with our initial expectation. Our unique portfolio of innovative tools and bioactive reagents is positioned to continue to generate differentiated growth going forward. We remain focused on delivering the solutions our customers rely on to catalyze advances in science and in medicine. We have the team and the portfolio to accomplish this while creating value for all our stakeholders.