Bio-Techne Corp

Good morning and welcome to Biotechnics Earnings Conference Call for the third 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 the 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, Biotechnics Vice President in Western Relations. Please go ahead.

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 Biotech. 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 BiotechNY Corporation website at -techny.com. Separately, in the coming weeks, we will be participating in the B of A securities, RBC capital markets, Benchmark, William Blair, Jeffries, and Goldman Sachs healthcare 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 BiotechNY's third quarter conference call. I'm pleased to report that we delivered yet another strong quarter with 6% organic revenue growth while operating in a relatively uncertain microenvironment. Our differentiated performance was evident across our product portfolio, namely within our core reagents, our automated analytical solutions, and in our cell and gene therapy offerings. This result was once again delivered with an emphasis on profitability as the operational efficiencies we continue to put in place led to an adjusted operating margin of 34.9%. The team continues to do an excellent job balancing investments to position the organization for future growth with initiatives to drive efficiencies. And by doing so, we are maintaining our industry-leading profitability. Our performance by end market in Q3 was led by low double-digit growth in pharma, which we expected to return to historical growth rates in calendar 2025, following the alignment of the R&D pipelines during much of 2024. We saw early signs of this improvement in our fiscal second quarter, with that positive momentum continuing into our third quarter. Going into calendar 2025, we did not anticipate the major U.S. policy shifts impacting the academic and markets. This started on February 7th with the NIH issuing guidance of a flat indirect cost reimbursement rate of 15% across all NIH grants. With the incoming NIH director announcing that he will be evaluating the impact of the proposed 15% cap, along with the federal judge implementing a permanent injunction on this policy, it remains to be seen how this will play out. In the meantime, however, our U.F. academic customers are facing uncertainty around the future funding of their research project. This can impact purchase decisions, particularly around capsule equipment. Another policy shift that has been announced by the new secretary of the Department of Health and Human Services is getting a much higher priority around combating chronic diseases like cancer, diabetes, and neurological disorders. Once the dust settles around the overall level of the NIH funding, Biotechnics stands to benefit from the NIH grants geared towards these diseases, as our product portfolio is perfectly aligned with those research areas. Now let's discuss our growth drivers in the protein sciences segment, where strong execution drove demand for a market-leading catalog of research reagents, protein analysis tools, and cell therapy workflow solutions, which resulted in 7% organic revenue growth. Starting with our core portfolio of research use-only proteomic reagents, I want to highlight that over the last 49 years, we have amassed a catalog of over 6,000 proteins and 400,000 antibody types. This biological content is relied upon by our global customers to gain novel insights into biological pathways, to develop and manufacture advanced therapeutics, and to enable precision diagnostics. In addition, we license and supply our content to other life science tools companies for usage in their assays and consumables. Looking ahead, we are encouraged by the FDA's recent announcement to advance public health by replacing animal testing in the development of monoclonal antibodies and other drugs with more effective, human-relevant methods. The FDA's emphasis on reducing animal testing opens an opportunity for Biotechnics organoid solutions for both making and analyzing organoids. Organoids, which better mimic human physiology than traditional cell cultures or animal models, offer an ethical, cost-effective, and faster alternative for assessing drug efficacy, toxicity, and mechanisms of action. Annually, we sell over 50 million of our core reagents, including proteins, small molecules, and media, for organoid solutions in the market that has been growing north of 20%. With this recent announcement by the FDA, we expect that the growth of organoid solutions will accelerate and that this will also be a tailwind for our GMP reagents once these solutions advance into the clinic. Staying with our GMP reagents, here we saw growth in the high single digits in Q3. We serve over 500 customers who rely on our GMP reagents for their cell therapies across all stages of development. As a reminder, customers in late-stage clinical trials can make large, less frequent orders, making a trailing 12-month growth metric more reflective of underlying demand. Our GMP reagents business sits just over 13% growth on a TTM basis. The next growth driver in Protein Sciences for this quarter was our protein analytical instrumentation business, especially in our biologics platform, Maurice. As a reminder, Maurice is packed into bioproduction processes for protein identity, protein charge, and protein purity testing purposes. The Maurice family of instruments is enjoying robust growth from our pharma and CRO partners and is gaining traction as a gene therapy QAQC platform. Biologics grew double digits in the quarter with broad-based strength in both instrument placements and consumer roles pull through. Now we will move to the growth drivers within our diagnostics and spatial biology segment, which delivered 2% organic revenue growth in the quarter. The growth across the divisions in the segment was in general consistent with order timing having a significant impact on our OEM diagnostic reagents business as well as on our assurgeon carrier screening and oncology business. The underlying markets and our performance remained healthy with -to-date growth in the high single digits for the diagnostic reagents and low double digits for the assurgeon portfolio. Assurgeon continues to launch innovative products that leverage its proprietary chemistry to resolve difficult to analyze genes. For example, we launched the AmpliDex Nanopore Carrier Screening Plus Kit, which utilizes Oxford Nanopore's long read sequencing technology to directly capture many complex genomic variants in a single workflow. Also within the segment, we continue to drive ongoing utilization and penetration of our XODX prostate cancer test, which increased over 30% for the fiscal year to date. Spatial biology, which has the highest exposure to US academic end markets within the company, has been most impacted by the NIH uncertainty. However, despite this uncertainty, our COMET instrument was still able to achieve double digit growth in this quarter. The COMET platform provides full automation and multiomic capabilities. These remain key competitive differentiators and enable new scientific discoveries and accelerated drug development. During the quarter, we made excellent progress upgrading the COMET install base with multiomic capabilities, which provides images of RNA and proteins on the same tissue sample. This positions the system for a steady ramp in consumable spull through of RNA scopriations, as well as our portfolio of newly validated spatial antibodies. Before I hand the call over to Jim, I would like to address the most recent dynamic around tariffs, which has impacted the global economy. While the tariff escalation, which began in April, has understandably had an impact on our life science tools industry, it does represent a clear opportunity for biotechnics. We may not be immune to tariff escalations, but by utilizing our global operational footprint, we are extremely well positioned to mitigate most tariff impacts to our bottom line very quickly. Jim will provide more details, but we mobilized a small, specialized and highly effective team within our company to focus on several workstreams. One workstream is around the optimization of our global footprint for regional production, which is of course not subject to cross border tariffs. A second workstream is to focus on utilization of our global supply chain. And we also initiated a workstream to make targeted price and or surcharge adjustments with the intent to minimize impact to our customers. The output from this team has yielded excellent results, which we believe will fully mitigate the cost impact of the tariffs as currently configured by the end of the current quarter, which happens to align with the start of our fiscal 2026. The work done will also position us very well to quickly minimize the impact of future tariff changes. This approach allows the vast majority of our 3000 employees to continue to focus on our strengths, which include providing our customers with the highest quality products, to offer productivity tools to automate our customers workflows, which will help offset some of the tariff related cost pressures they may face, and we will continue to bring meaningful innovation to the market. And last but not least, we provide access to an expert commercial team that enables our customers to quickly choose the right products and the right solutions to enable their success. With that, I will pass the call over to Jim.

Jim? Thanks, Kim. I'll start with some additional details on our Q3 financial performance and then give some thoughts on the financial outlook for the remainder of the fiscal year. Starting with the overall third quarter financial results, adjusted EPS was $0.56 compared to $0.48 in the prior year, with foreign exchange having an immaterial impact. Gap EPS for the quarter was $0.14 compared to $0.31 in the prior year. Q3 revenue was $316.2 million, an increase of 6% -over-year on an organic basis, and 4% reported. Foreign exchange was unfavorable to revenue growth by 1%, and divestitures also had a 1% impact to revenue. By geography, North America increased low single digits -over-year, driven primarily by our pharma customers. Europe increased mid-single digits -over-year, led by strength from academic customers. And China decreased mid-single digits as the economic situation there is still challenging. Encouragingly, the rest of Asia increased mid-teens, with our team executing very well on improving market conditions. By end market in Q3, BioPharma increased mid-single digits, while Academia was flat in the quarter. Below revenue on the P&L, total company adjusted gross margin was .6% in the quarter, compared to .9% last year, down slightly due to unfavorable foreign exchange. Adjusted SG&A in Q3 was 29% of revenue, compared to .3% in the prior year, while R&D expense in Q3 was .8% of revenue, compared to .5% in the prior year. The decrease in SG&A and R&D was driven primarily by the benefit of structural streamlining and diligent expense control, which was partially offset by ongoing strategic growth initiatives. Adjusted operating margin for Q3 was 34.9%, up 190 basis points compared to the prior year due to the impact of favorable volume leverage, productivity gains, and cost control, partially offset by the impact of foreign exchange. We continue to execute cost containment measures and prioritize our growth initiatives to drive efficiencies throughout the organization, with the goal of maximizing operating leverage while we are in this dynamic macro environment. Looking at our numbers below operating income, net interest expense in Q3 was 0.8 million, decreasing 2.3 million compared to the prior year due to lower net debt levels. Our bank debt in the balance sheet as of the end of Q3 stood at 330 million. Other adjusted non-operating income was 3 million and a quarter, an increase of 1.4 million compared to the prior year. The increase was driven by the foreign exchange impact related to our overseas cash pooling arrangements. Moving further down the P&L, our adjusted effective tax rate in Q3 was 21.5%, down 50 points compared to the prior year due to geographic mix. Turning to cash flow and return of capital, 41.1 million of cash was generated from operations in the quarter and our net investment in capital expenditures was 10.1 million. Also during Q3, we returned capital to shareholders by way of 12.6 million in dividends and $100 million through stock buybacks. Also, our board of directors has recently approved a new share repurchase program, authorizing the repurchase of up to $500 million of common stock. We finished the quarter with 158.9 million average diluted shares outstanding. Our balance sheet finished Q3 in a strong position with 140.7 million in cash and our total leverage ratio remains well below 1 times EBITDA. Going forward, M&A remains a top priority for capital allocation. Next, I'll discuss the performance of our reporting segments, starting with the protein sciences segment. Q3 reported sales were 227.7 million, with reported revenue increasing 6% compared to the prior year. Organic revenue growth was 7% for the quarter, with foreign currency exchange having an unfavorable impact of 1%. The segment's organic growth was driven by large pharma customers across the portfolio. Operating margin for the protein sciences segment was 45.6%, an increase of 140 basis points compared to prior year, primarily due to the impact of favorable volume leverage, cost management, and structural alignment initiatives. Turning to the diagnostics and spatial biology segment, Q3 sales were 89.2 million, with both reported and organic growth increasing 2% compared to the same quarter last year. Segment growth was consistent across the businesses, with stronger performance in our automated spatial instrument, COMET, as well as continued strong growth in our XODX prostate cancer test. Moving on, the diagnostics and spatial biology segment operating margin at 9.4%. The segment's operating margin was relatively consistent with the prior year's 9.3%. We anticipate improvement in the diagnostics and spatial biology operating margin as the COMET platform continues to scale. In summary, Q3 was a solid quarter overall, and our teams executed extremely well, especially considering the turbulent market conditions induced by NIH funding and tariff uncertainties. Up to this point in the year, our overall top line results have been in line with our expectations at the beginning of the fiscal year, while our bottom line has exceeded our guidance. However, as we approach the finish of our fiscal year, there was no way to predict last July that our market would be facing the uncertainties of future NIH funding and tariffs that we are now experiencing. These uncertainties have only increased in April with the escalation of tariffs that began on April 2nd, followed by the recent Trump administration's proposed fiscal year 26 budget, which includes a 40% cut to NIH funding. Let me frame up how we think about our exposure to these two major uncertainties and explain why we are so well positioned to turn these lemons into lemonade. First, on the uncertainty of NIH funding. As a reminder, approximately 12% of our annual revenue is from U.S. academic customers, and we estimate that roughly half of that is sourced from NIH grants. Also, during Trump's first administration, he proposed NIH cuts ranging up to 20% every year. However, in each of those four years, Congress actually passed increases to the NIH budget with bipartisan support. So we view the potential for severe cuts to NIH funding over the next four years as rather unlikely. However, even in the most severe scenarios, the decrease in funding would have an immaterial impact to our overall long-term double-digit growth rate expectations. And that's before you consider our lemonade, which is that biotechnique stands to benefit from a potential shift in NIH's emphasis on areas of research where our products are the most impactful. Next, I'll address the uncertainty swirling around the ongoing tariff war. As it stands today, if we were to take no action to absorb all tariffs, the recent increases in global tariffs would amount to approximately $20 million annual impact to our adjusted operating income. Most of this exposure is coming from Chinese tariffs on our proteomic analytical instrument platforms imported into China from the U.S. As Kim stated in his remarks, we have focused teams who are driving work streams to negate the tariff impact to biotechnique and our customers, with the highest priority on leveraging our global footprint to regionally diversify our instrument manufacturing. Our lemonade, with respect to tariffs, is the speed by which we can negate the impact of these tariffs to our bottom line and position the company even better to mitigate any further tariffs should they escalate from here. This speed will allow us to not be distracted internally, but rather double down our focus on our customers, especially as they are facing the same uncertainties. As we close out the remainder of fiscal year 25, the additional macro uncertainties around tariffs and potential budget cuts that arose this past month are likely to cause further distraction for our customers. Thus, we expect our growth momentum will temporarily slow to the low single digits in Q4. With respect to the bottom line, there will likely be a temporary headwind due to tariffs, resulting in adjusted operating margins being 100 to 150 basis points lower than Q4 of last year. However, we are confident that the bottom line impact of current tariffs will be fully mitigated by the time we start our fiscal year 26, positioning us extremely well to continue our differentiated financial performance. That concludes my prepared comments, and with that I'll turn the call back over to the operator to open the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 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. Ladies and gentlemen, we will wait for a moment while we

poll for questions. The first question comes from Puneet Soda with Learing Partners.

Please go ahead.

Hi guys, thanks for taking my questions here. Maybe the first one on the guide, could you provide more context into that, Jim, in terms of the impact you're expecting on academic? It's a meaningful reduction versus what you had before and what you're seeing in the quarter. It does beg the question, was there a pull forward that you saw on the pharma side? As a result, you're seeing more impact in the fourth quarter. Also, on the pharma side, if you could clarify, I think you said low double digit at first, but then mid single digit for biopharma. Could you just clarify what was the growth in large pharma?

I don't recall saying anything about biopharma, but to clarify, large pharma was double digit growth for the quarter. With respect to, if we think about Q3 versus Q4, Kim mentioned in his comments that our quality reagents are also sold to other life science tools companies, our partners, as we call it, ingredients into some of their products. We had some nice orders come from those customers who were largely serving pharma customers as well this most recent quarter. Some of those orders we don't expect to repeat, again, necessarily in Q4, so that's maybe part of the reason for the step down in organic growth. If it pertains to academia, we started our Q3 in academia very strong in January. Then, of course, in February with all these announcements, there was a great slowdown in academia, and then it stabilized again in March. We expect that stabilization to occur or continue throughout Q4, but thus be lower than where we were in Q3. I think the biggest question, and I think we're being somewhat conservative, but I think prudent to be conservative is on the pharma side, to expect double digit growth in pharma in Q4 given the tariff environment that had been announced as of April 2nd, which didn't really impact Q3 as much as it could Q4, is really, I think, one of the biggest differences in the guide is in Q3. And then with regards to where our expectations were at the very beginning of the year, clearly, even though our performance year to date has more or less been in line with those expectations, how we got there is quite different, meaning large pharma has outperformed what we expected to be up to this point in time. Clearly, we didn't expect the situation with the academic in the US policies. And then, you know, since you asked about smaller biotech or pharma, we talked about that being gradually gaining momentum in our first half of the year, but that momentum somewhat stalled. It didn't go backwards, but it somewhat stalled in Q3. And I think that's just a nature of the overall global economic uncertainties where our biotech customers are a little susceptible to that in terms of where their next dollar might come from down the road. I think there's highly more highly sensitive to the more macro environment, and that's what we're seeing from them. Hopefully that helps.

Puneet, this is Kim. Good morning. Thank you for your question. And you mentioned pull forward, right? In Q2, we posted 9% organic growth, but had mentioned that three of that were probably because of early demand by our customers. So we are very transparent in that. And this quarter, though, we do not see that. So we do not have a carve out related to pull forwards. We do think this was really based upon momentum in the end market of large pharma.

Got it. That's helpful. And then since we're at fiscal year 26 is around the corner, wondering what you can provide there. Just given a lot of appreciate the uncertainty, but with China and NIH and with tariffs, I appreciate you quantifying at least the gross impact. But how should we think about 26? And this may be a specific question on China. I believe it's 50-50 instrumentation and consumables for you there. How should we think about the China growth rate in 26?

Thank you. Yeah, Puneet. Yeah, 2026. We usually do a soft guide at the beginning of a fiscal year, which is about three months from now. And one thing that we feel relatively certain about is that we expect that there will be more clarity from the different headwinds in our end markets over those three months. It seems to be that, of course, a lot of turbulence has been installed upon NIH as well as on the tariff situations. But we think that more clarity will come in the coming months, coming quarters. And that will definitely help us quantifying the impact for biotechnology in the coming year. Your question around China. I think tariffs, as I mentioned in my prepared remarks, fortunately are very negatable for biotechnology. I'm very positively positive about how we can offset the tariff impacts and negate them. And we'll just have to see how the Chinese economy holds up and how their internal funding works. We definitely saw a little bit of a step back from our initial guide. So we had mentioned that China was stabilizing earlier in the fiscal year. We had mentioned that it would crawl back to the black. And it was definitely on that trajectory. But this last quarter, with all the turbulence, you could certainly see a step step back into mid single digits negative. And that's very much driven by the tariffs and by the local economical activities.

Thank you. Our next question comes from Dan Leonard with UBS. Please go ahead.

Thank you. My first question is on tariffs. I would love to understand your exposure a bit better. I mean, China is nine percent of your revenue. And I think you quantify the analytical instrument exposure into China. But as Puneet mentioned, you sell more than analytical instruments into China. And I would assume that most of that is manufactured outside of China. So any kind of color commentary, Kim, you can provide on why that tariff headwind is not larger.

Dan, thank you very much for your question. Yes, China has nine percent of revenues. That's a good point. Usually, right over the last couple of years, it was 50-50 if it comes to the mix between consumables and instruments. Over the last year, that has actually shifted a little bit. So that's not the real ratio anymore. But nonetheless, we let's say it's 50 percent of the instruments. We have a very clear and fast pathway to be able to move some of the instrumentation manufacturing that we right now have in the U.S. to another location. And that's the benefit of having a global footprint. Another biotechnical location that would be exempt from import fees into China. And that is really the largest part of the tariffs. Our consumable part is vastly different if it comes to the tariffs. And we've actually, over the last couple of weeks, noticed that we do not pay any tariffs on importing those. And that really negated most, those two activities really negated most of the tariff exposure going into China.

If I could just add also, not all the instruments and all the cartridges for the instruments are produced in the U.S. today. So it's not a -for-one exposure. And it also allows for an easier transition of the instruments that are currently made in the U.S. for China to allow those to be moved to the facility where there are instruments being made for China.

Understood. Thank you for that clarification. And then just a follow-up. Does the current tariff situation impact at all your thinking on having more of a local manufacturing footprint in China?

Dan, I think it doesn't. The tariffs have not changed our position there. We always had a mindset of China for China. And, yeah, actually, last year we talked about Biotech. We haven't opened a new facility in the Shanghai area to serve the Chinese market. And we're actually quite glad that we have this footprint because it might actually be a very, very, will come in handy in the coming quarters as well, if necessary. But we are really happy with the layout as we have it because the local manufacturing in the different regions and there with minimizing cross-border tariffs is definitely a tailwind

right now. Thank you. Our next question comes from Matt Leroux with William Blair. Please go ahead. I think I'll just circle

back on the first question, actually. As you'd originally built the guide for this year, which I think you've called fairly well, it was exiting in the high single digits and the streets were used as a proxy for fiscal 26. As you alluded to, much has changed. But to the point, Jim, on sort of lemons and lemonade, it feels like maybe the lemons are accumulating near-term and the lemonade maybe takes a little longer to squeeze out. So, you know, .5% street organic growth for next year. It may be the way you're guiding us for fiscal 25, at least more reasonable starting point than the Maple Road Street that today.

Yeah, I mean, what I would say, Matt, is that what we're experiencing right now is very abrupt, but we also, I think everyone hopes will be somewhat temporary, right? So, our momentum going into Q3 was very strong. We were basically on our projections for smaller biotech. We were on our projections and trajectory for China. And academic was holding up very, very well, as it had been consistently up until this last couple months. And then pharma was actually ahead of our expectations. So, it's really this temporary, I call it temporary jolt of uncertainty caused by proposed changes in policies and tariffs. And I think once that uncertainty is resolved and becomes more certain, almost regardless of what the outcome is, we will be extremely well positioned to basically resume the trajectory that we were on. Whether, you know, now is that a quarter out or six months out or a year out, hopefully we'll have more clarity in three months. But, you know, at some point the uncertainty becomes more certain.

Okay. And then, you know, obviously the margins were very strong, the strongest in a couple years here. And, you know, year over year that was mostly driven from spending leverage. I think, you know, OPEC's up something like 5% year to date as the cop line has recovered. You mentioned in the comments, but can you just speak to sort of that tension between ongoing cost containment and investment and where you're seeing additional opportunities to drive leverage?

I mean the teams have been doing a great job, you know, actually for a couple years now with regards to managing that balance between investments and cost containment and alignment of our structure according to the various profiles of our business. And that, you know, it has just basically continued. And we've been especially been diligent on the, you know, kind of called discretionary cost side. The past three months or so, especially with the increased uncertainty that we've been seeing in our end markets, you know, the time of uncertainty is the last time that you want to shift gears with regards to accelerating investment or any kind of discretionary spend. So, you know, I think the outperformance we saw in our margin was a combination of the revenues coming in as we had expected, but, you know, really holding back on the cost, seeing the kind of uncertainty build throughout the quarter that we did just to make sure that we're extremely well prepared for fiscal year 26 in particular when these uncertainties, you know, start to become more certain.

And I think it's the tension between, it's not even tension really. We always said that we didn't want to get ahead of our skis if it comes to, you know, our cost positions. So we've been very prudent like Jim mentioned, the discretionary spend. But we also have been really focused on, you know, efficiencies, right? So we have management processes in your company that we've definitely looked at and streamlined. We have integrated further some of our acquisitions to increase efficiencies. The digital side, we have looked at ERPs and the different software packages for efficiency gains. And then last but not least, our operational processes and the margin boost from operations is also fantastic. So those have definitely been driving our results. And in the meantime, on the R&D side, we have a very, very detailed process. We call it prioritization to really rank and stack all the investments in all the different R&D projects and make sure that we fund the ones that are of strategic importance and that have good returns of investment. And we have a fantastic clarity on where to invest and therewith we manage the balance between the two very, very well.

Thank you. Our next question comes from Daniel Markowitz with Evercore ISI. Please go ahead.

Hey, thanks for taking the question. The first one I had is based on the guidance, it seems like 4Q margins are expected in like the %-ish type range. And that's before tariff mitigation flows through. Is it fair to assume that fiscal 26 margins at that 4Q exit rate of about 32% makes sense? Or should we be more prudent given the macro could imply that 26 organic needs to come down a few percent?

Yeah, we're not going to comment on guiding for fiscal year 26 at this point in time, again, given all the uncertainties we're still dealing with. And so similar to the top line, hopefully those uncertainties become more certain or less uncertain. Three months from now we can provide some more direction then. And all I can share with you today is that I think this quarter demonstrated that we are positioning the company extremely well for whatever fiscal year 26 brings from an end market perspective.

Great. And then just one follow up. On A and G specifically, just using peer comments, it implies that the U.S. academic and government end market could see like 10 to 15% incremental headwinds in calendar 25. Is there any reason to believe this wouldn't be an appropriate way to think about it? Is your exposure a little bit different? And then just what are the kind of cost offsets and a reasonable decremental margin profile on these U.S. academic and government revenues?

Yeah, I mean, I can't comment specifically on the 10 to 15% except to say that our thoughts are this, is that first of all, the money that's largely being spent now by academic is probably four quarters to come from grants that have already been approved and released. So we're really talking about the impact of probably calendar 26 and beyond with regards to whatever gets decided upon with regards to NIH budgets. And as a reminder, and I think everyone understands this history, but I'll repeat it. This has happened before in a prior Trump administration where there were severe cuts proposed and a bipartisan Congress actually increased budgets every single year. So again, I think it's a bit overblown with regards to what the impact of budgets will be. But in the meantime, it's understandable that and we have several members of our board who come from academia and there's, you know, of course they've shared with us that there's, you know, natural concern around this all this uncertainty and it causes distraction for them to as they think about where their next funds might come from for future grants. So that's why I think certainty as to where the budgets are at will be the most important thing to calm down the academic market. That all being said, much of the double digit increases that have occurred in NIH funding over the past four or five years since COVID has been directed more towards infectious disease, vaccine development, things around COVID and such. And that is not our sweet spot where our portfolio plays. And so and we've heard the administration say they want to defocus those areas. And so if that's where the cuts happen, that will likely ultimately be much less, if any impact to us and could actually be a tailwind, which is the lemonade I spoke of with regards to funds being redirected more towards traditional chronic diseases such as cancer, diabetes and neurology. And that's again where our portfolio strengths are. So that's how we think about it.

Yeah. And Daniel, thanks for the question. Let me add to that. Fortunately, Europe academics were really, really strong, right? So it's interesting to see that dynamic, which we might continue to see. But in the meantime, you think about the, you know, our portfolio and how it also maps towards the academic market. Arguably, you would think that instrumentation is probably more impacted than our consumables. And we've seen that in our numbers. Our consumables were relatively flat in the US academic markets. 80% of our revenues come from consumables, 10% from services. And that's obviously a very favorable mix. If you then look at the other 10%, that's instrument related. Now these instruments are actually on a relatively high level. So they're actually low price point around 50k, which then also you would expect is a little bit different decision making process. So lower capex. But then in the meantime, they are positioned to automate very clunky yet fundamental processes in your laboratories and basically take cost out and increase your efficiencies, which might be something that you really would like during times of constraints. So the positioning of those are just really, really, really good. And then last but not least, we're just really happy that we also have fantastic commercial excellence, right? So we have consultative selling from our team that, you know, a team of experts that can help you pick the right reagents really quickly, make sure that your experiments are repeatable and give you the right results. And in the meantime, for convenience, we have a very, very much a valued partnership with Thermo Fisher Scientific, where we utilize the Fisher channels for ease of ordering. And, and with that, you know, that the mark academic market, we feel that we are from all angles, as well positioned as you could be.

Thank you. Our next question comes from Dan Arias with TIFL. Please go ahead.

Hey, good morning, guys. Thanks, Jim. I'm sorry, but I think I need to go back to the academic stuff here. You're calling out the headwinds there, which makes total sense. And then you're guiding organic down next quarter, partially with that in mind. But I think your comment was that even under the most severe scenarios, funding would have an immaterial impact to getting to double digit growth long term. So, you know, if the budget over the next couple of years is down 20, 30, 40 percent, which is in line with the proposals for 26, is the idea that you can still get back to double digits once the smoke clears on the other macro elements? I think I just need a little help with how you're framing that over the 26, 27 period.

Yeah, sure, Dan. Thanks for the question. So, yeah, I mean, at the end of the day, when you look around our strategic plan, you know, the key academic has never, you know, it's even it's an important part of our business because it feeds in the biotech and pharma, et cetera. It has never been the key growth driver for our for our growth plans and our and our and our projections never assumed academic being a double digit grower and more like a mid single digit or which historically has been. And so quite simply, I took the details of our strategic plan and assumed the worst absolute worst case scenario, which was a 40 percent cut in our academic revenue across the board. And then from there, a gradual increase to historical growth rates of three to five percent, and we were still overall at a double digit growth rate over the over a five year period. So, so, yes, I've taken that most severe situation into account in stating that it would still be a double digit growth trajectory given our strategic plan.

Okay, okay. Thanks for that. And then just maybe on selling gene apologies if you did give it, but I didn't catch it. Is there a growth rate for the quarter? And just given what we're talking about about some of the fluctuations in pharma ordering patterns, can you just sort of orientate us around what a good growth rate for GMP reagent selling gene would be for this year? This is pretty important to the model. Thanks so much.

Yeah, then the the selling gene therapy product line, we talk about the trailing 12 months, right? And that was 30 little over 30 percent for the 12th 12 month period. And as you know, we had quarters where it was 90 percent, 60 percent, 10 percent, and the swings in between. And that's just because the customers further along in the clinical process. So in phase three, they order less frequently and larger, larger orders. And that makes it lumpy. So so that's why we always look at our 12 12 month trailing. And and that's

it's not a 30. Thank you.

Our next question comes from the line of Thomas diversity with Nefron Research. Please go ahead.

Hi, guys. Thanks for taking the question. The question is just that I did not get over organic growth. I know you have more difficult cops in the second half of the year, but what do they expect? I guess a surrogate overall to kind of be more, I guess, unaffected by changes. And so just curious whether there's, you know, I guess just high big issues related to some of the diagnostic genomic portfolio.

Thank you, Paul, for the question. I think that we overall we might prepare remarks. I mentioned that, of course, we looked we looked very, very stringently at what what is going on and in detail understand why the growth rate was lower than we usually have. But, you know, it is the diagnostic reagents division as well as a surgeon with the larger accounters, you know, like I mentioned earlier, there's just a larger orders where timing becomes very important. So we we definitely look by on account to account basis. Are we losing shares? The market slowing down and and there's there's a clear no and no. So it was definitely a timing related related dip for those two businesses, which is not uncommon. And that's why I look back at the at the year to date numbers for those two businesses, which are in both cases healthy high single and low double for for those two divisions are diagnostic tests from the point of view, the prostate test has been growing very nicely in line with the other quarters around 30 percentage for the year. And then last but not least, we have our special biology division, which which has been seeing some headwinds from the NIH funding issues. That's you know, that's the division that's mostly or most severely exposed to NIH markets and certainly did not have the growth numbers that we have seen over the last couple of quarters last couple of years. And there we just look back at, do we have a fantastic offering? Are we competitive with our instrumentation? Do we win the deals that we compete in? And and they're also everything is very, very healthy. It is the purely and market driven headwind in that division. So that that gives you basically the flavors of the four divisions in the segment.

Great. Thank you. Thank you.

Our next question comes from Patrick Dunnelly with City. Please go ahead.

Hey guys, thanks for taking the questions. Maybe one on the biopharma piece thing you talked about mid single digit growth this quarter. Can you break that down a little bit? I just wanted to talk about the biotech piece in particular, I talked a little bit about GMPs. But can you talk about what you're seeing from the biotech customer base? Certainly been a concern across the industry just given the volatility of the funding backdrop. So curious what you're hearing from from the customers there and expectations on that front.

Yeah, thank you, Patrick. We certainly know that large pharma continues to be ahead of biotech in the recovery, right? Biotech is 30% of our revenues and large pharma 30. And biotech was flatish in Q3.

And we

believe that, you know, biotech funding is obviously very sensitive to capital markets. And those are very sensitive to economic uncertainty. And that typically leads to more frugal spending. And that's what we saw this quarter and that we

expect next quarter.

Okay,

that's helpful.

And then if you don't mind just a quick update on what's happening with with Wilson Wolf, what the trends were this quarter. Keep an eye on that as we go as well. Thanks.

Yeah, Patrick, this is Jim. Thanks for the question. So yeah, Wilson Wolf continues to perform very, very well. They had growth very solidly into the into the double digit growth rates this most recent quarter. So they were projecting to have a very, very strong year in our in what will be calendar, calendar year 25 for them going into calendar year 26. And so far, they're right on track for that.

Thank you. The

next question comes from Sanjeev Nam with Squashia Bank. Please go ahead.

Hi, thanks for taking the questions. Maybe if I could go back to pharma, biopharma, you know, the sectoral tariffs that are under discussion. Just curious, you know, we'd love to hear your thoughts in terms of, you know, in an environment where there might be significant cap expending going towards US expanding US manufacturing, reshoring, etc. But potential pressure on the early stage or early discovery development. Work. Just curious how biotechnology is positioned in that environment or if you have different thoughts in terms of how the tariffs could play out.

Thanks. I'll start off. This is Jim. Thanks for the question. You know, I think part of the, you know, the looming discussions we're hearing out of the administration around terrorists for pharmaceuticals is again, part of the reason for the guide that we did for Q4. I think there's going to be perhaps a lot of other level. There is right now another level of uncertainty as it pertains to our pharma customer base. And so we've seen how uncertainty impacts other parts of our end markets. So we kind of expect this thing for pharma at least temporarily. You know, I don't know. It's probably anyone's guess as to how it ultimately plays out. It's hard to play. It's hard to. It's hard to put out different scenarios when we don't even know what the what the proposal is going to be with regards to terrorists. So on our pharma base, but I would say this, you know, pharma spent a good part of last year already realigning their their pipelines for what was the IRA Act. And, you know, that's not something they do. You know, it take lightly and it's a pretty great large endeavor. And for the most part, what we're hearing from our customers is that behind them. So, you know, I think there'll be clearly going to be some changes with regards to capex spending and so forth. But at the end of the day, the pharma companies overall are flush with cash. They're overall doing very, very well. And just because they need to perhaps spend some more on capex, if that's what they need to do to lose some manufacturing landline, doesn't necessarily mean that they'll, they'll cut that out of their, take that out of their piece of the puzzle.

And so, you know, I think that's a good way to look at it. And I think that's a good way to look at it. And I think that's a good way to look at it. And I think that's a good way to look at it. And I think that's a good way to look at it. And so, we have now our products way more distributed along the different stages. And you can see that in some of our presentations where we definitely play in discovery all the way through manufacturing. And of course, also have a portion of our company aligned with the diagnostics and the treatments of diseases. So, our portfolio is much more distributed than it has been a long time ago. So, that means that even though there might be some shifts in where the pharma spending is, we feel that we're nicely distributed and therefore will benefit from the overall spend level.

Got it. That's helpful. And then just quickly on the spatial biology side, thanks for the color there and the exposure to the academic market. I was wondering about academic market outside the US, whether spatial could be growing faster. And then also the recent launch of the spatial protein proximity detection capability. I was curious if that could be utilized within pharma and kind of if you could talk about the competitive dynamics there for that particular application. Just not familiar with it. Thank you.

Well, thanks for noticing it. And yeah, so I do believe, you know, especially from the instrumentation point of view where we still booked, you know, double digit growth. As I mentioned, we certainly look at our win loss rates and we're really happy where those sit. So, we know that we're not losing share. And if anything, we're really, we're doing really well with our placements and a very competitive offering. As you as you notice, we've we have an instrument that is fully automated and it can run through multiomics. It will pull through antibodies as well as our RNA scope for the RNA detection. And then the the the on the consumable side, we now have the capability of not only show your proteins as well as your RNA, but then also protein proximity, meaning protein protein interactions, which can be extremely important in in in a development and the treatment of a disease. So you can see that we've been building out a multiomics where there's truly no competitor already looking at just RNA and proteins. And now we're adding RNA proteins and protein protein interactions. So that's truly unique if it comes to the offering and very high value to our customers. So we're very pleased with our competitive positioning there.

Thank you. That was the last question for the day. I would now like to hand the conference over to Kim Kelderman for closing remarks.

Yeah, thank you very much for your insightful questions. And before we conclude the call, I'd like to formally welcome Dr. Amy Heard to the Board of Directors of Biotechnology. Dr. Heard is currently a Chancellor's Professor of Bioengineering at the University of California, Berkeley, and she also serves as the vice president of the Chan Zuckerberg Biohub Network. Dr. Heard's appointment completes a two year process to identify and appoint successors to retiring director Randy Steyer, who retired in 2024, and Dr. Roland Nusset, who will be retiring later in 2025. Dr. Heard's deep biological and engineering experience are an ideal fit for our Board of Directors and the strategic direction of the company. Welcome, Dr. Heard. And to conclude the call, I want to say that I'm extremely proud of the team's continued execution in what has proven to be a prolonged period of uncertainty in our end markets. Our differentiated financial performance is a testament to the value our customers place on a uniquely positioned portfolio of research reagents, proteomic analysis tools, cell therapy workflow solutions, and diagnostics and spatial biology products. This portfolio unlocks cutting edge discoveries and significant efficiencies for our customers. It also provides a strong foundation to sustainable value creation within biotechnics while we pursue our mission to improve the quality of life by catalyzing advances in science and medicine. Thank you very much for attending our call and have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.