Bio-Techne Corp

Good morning and welcome to Biotechne's earnings conference call for the fourth quarter in fiscal year 2025. 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 one follow-up. I would now like to turn the call over to David Clare, Biotechne'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 Biotechne. 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 Biotechne Corporation website at -techne.com. Separately, in the coming weeks, we will be participating in the UBS, Wells Fargo, Baird, Morgan Stanley, and Deutsche Bank healthcare conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim.

Thank you, Dave, and good morning, everyone. Welcome to Biotechne's fiscal fourth quarter 2025 earnings call. I'm pleased to report that we delivered a solid quarter that was in line with our expectations. The team's continued execution drove 3% organic revenue growth in a dynamic operating environment. Our performance was once again fueled by strength in the biopharma and markets, particularly among large pharma customers, which fueled robust demand for our automated proteomic analytical instrumentation and cell therapy solutions. Our fourth quarter kept off a fiscal year in which we delivered 5% organic revenue growth. We reinforced our leadership across key markets through a series of innovative product launches, and we positioned the company for sustained future growth. As a reminder, approximately 80% of Biotechne's revenue is derived from consumables, including those used for our proprietary instrumentation, and this provides a strong foundation for durable growth. This resilient revenue mix, combined with the critical value our customers place in our portfolio of tools for research, manufacturing, and precision diagnostics was reflected in our differentiated financial performance despite uncertainties many of our customers faced throughout 2025. This performance was once again achieved with a strong emphasis on profitability. The operational efficiencies we continue to implement contributed to an adjusted operating margin of 32% for the quarter. Our team remains focused on striking the right balance between investing for future growth and driving productivity across the organization. This disciplined approach enables us to maintain our industry-leading profitability while positioning Biotechne for long-term success. Before we delve into the quarterly performance, I want to highlight a strategic portfolio action that reflects our long-term financial and operational priorities. Last night, we announced the divestiture of our exosome diagnostics business, including the ExoDx prostate test and our CLIA-certified clinical laboratory to MDX Health, a recognized leader in urology and specifically prostate cancer diagnostics. Following a thorough strategic assessment, we concluded that a single high-performing CLIA test does not provide us the operational leverage needed to support our broader growth ambitions. We expect the transaction to close in the first quarters of fiscal 2026. Importantly, Biotechne will retain access to the proprietary exosome-based technology used in a recently launched ESR1 mutation kit for breast cancer as the occurrence. We remain committed to leveraging this platform to expand our portfolio of exosome-based gene mutation kits, further strengthening our position in precision diagnostics. Over the past five decades, Biotechne has built a market-leading portfolio of high-quality, high-margin reagents, instruments, and tools serving both the life sciences and the clinical diagnostic markets. The divestiture of exosome diagnostics represents the strategic repositioning of our portfolio, and this enables us to redirect investments towards strengthening our core foundation and our growth verticals. This transaction also delivers an immediate uplift to our already sector-leading operating margin profile. We will provide additional detail on the financial implications of this deal later in the call. Let's now turn to our end markets, beginning with biopharma. Throughout fiscal 2025, we saw steady momentum in this segment, particularly among large pharmaceutical customers. However, recent commentary from the US administration regarding potential pharmaceutical tariffs and the proposed implementation of the most favorite nation drug pricing model has introduced a degree of uncertainty across the pharma landscape. Despite those evolving dynamics, including shifting timelines, changing tariff structures, and dynamic messaging regarding policy intent, demand for Biotechne's broad portfolio remains strong. Large pharmaceutical companies continue to rely on our high-quality reagents and productivity-enhancing tools to advance their pipeline initiatives, underscoring the essential role our solutions play in their research, development, and manufacturing workflows. The growth driven by a large pharmaceutical customer base continued to be a key driver in the quarter. However, this momentum was partially offset by more subdued performance from smaller biotech firms. These companies remain cautious with their spending amid a constrained funding environment. This trend is consistent with broader industry data, which indicates that biotech funding has declined more than 40% -to-date compared to the 2024 levels. Despite these headwinds, our overall biopharma end market delivered high single-digit growth for both the fourth quarter and the full fiscal year. Turning to academia, a segment that continues to attract heightened attention across the science tools industry. Revenue from our academic customers represents approximately 21% of our total business, with the U.S. institutions contributing roughly 12%. Given the ongoing uncertainty surrounding the upcoming NIH budget, we conducted a comprehensive assessment to better understand our exposure to NIH-funded research. Based on this evaluation, our new estimate is that less than one-third of our U.S. academic revenue is directly tied to NIH grants. In other words, our total company exposure to NIH-funded research is likely in the low single-digit range, and that is notably below our prior estimate of 5% to 6%. In light of recent reports of NIH grant cancellations, we also examined publicly available databases to identify which research areas are most affected. Encouragingly, our analysis revealed that funding for programs that are aligned with Biotechnics' core portfolio remains largely intact. Areas such as proteomics, immunohistochemistry and spatial biology, cell culture, cell therapy, and immunology have experienced relatively limited disruption. This reinforces the durability of our academic exposure, which is concentrated in fields of ongoing scientific and clinical importance. As a result, our academic end markets declined low single digits in the fourth quarter and increased low single digits for the full fiscal year. From a geographic standpoint, performance was broadly consistent with expectations. The Americas delivered low single digits growth. Europe expanded mid-single digits. In APEC, excluding China, grew low single digits as well. Noteworthy is that China delivered a positive surprise, increasing low double digits in quarter as the region returned to growth ahead of anticipated tariff impacts. This momentum was broad-based, spanning our portfolio of research and GMP reagents, analytical instrumentation, and spatial biology solutions. Beyond the tariff-related activity, market signals suggest that China has stabilized and is well positioned for a gradual return to modest growth in the coming quarters. Now let's discuss the growth drivers in our Protean Sciences segment, where strong execution drove demand across our portfolio of proteomic analytical tools and cell therapy workflow solutions. This enabled 4% growth for the segment in the quarter. Fiscal 2025 was marked by several key product launches that further strengthened our position in the market. These launches included the introduction of LEO, our next generation simple Western instrument, the introduction of POPEX, enabling the continued expansion of our GMP reagents portfolio, and the introduction of AI-enabled designer proteins. For full fiscal year 2025, our Protean Sciences segment increased revenues by 5%. The demand for cell therapy workflow solutions remained strong, with over 550 customers relying on biotechniques high quality, consistent, and highly bioactive GMP reagents to advance their preclinical and clinical programs. As mentioned, we introduced our POPEX GMP cytokine product line in fiscal year 2025. POPEX deliver precise cytokine concentrations to cell therapy manufacturers and support closed system CAR-T and TCR-T manufacturing workflows. These innovative cytokine delivery systems carry a value proposition that enables Biotechni to take share in later stage and potentially commercial stage programs. Our GMP reagent portfolio grew 20% in Q4 and exceeded 30% growth for the full fiscal year. Sticking with our cell therapy growth pillar, I also like to take this opportunity to give an update on the manufacturer of the leading G-REX bioreactors, Wilson-Wolfe. Biotechni currently owns 20% of Wilson-Wolfe and is on track to acquire the remaining 80% by the end of calendar 2027 or earlier, contingent upon milestone achievements. Despite the ongoing softness in biotech funding, Wilson-Wolfe grew over 20% for fiscal 2025, while maintaining EBITDA margins north of 70% for the year. Next, I'd like to highlight the continued strength of our proteomic analytical instrument business. The productivity gains these platforms deliver, combined with disciplined execution from our commercial teams, drove high single-digit growth for both the quarter and the full fiscal year. Importantly, we saw mid-team growth in instrument revenue, marking the third consecutive quarter of -over-year growth in instrument placements. Turning to our simple Western portfolio, demand for our next-generation high-throughput instrument called LEO was strong in the quarter. The growing installed base, a robust order funnel, and a higher consumable pull-through compared to the legacy simple Western systems all point to a promising future for this platform. We're also seeing meaningful traction in expanding the use cases for the simple Western technology. A recent example is the role Simple Western plays in supporting the FDA approval of ABIONA Therapeutics cell-based gene therapy. Our platform was used for GMP lot release testing of both the viral vector and the cell therapy, underscoring its growing relevance as a QC tool in therapeutic development and manufacturing. This is a clear signal that our instrumentation is not only driving productivity in research workflows, but it is increasingly being adopted in regulated environments, an important validation of our strategy. I'd also like to highlight the continued strength we're seeing in our biologics business led by the Maurice platform. Maurice continues to gain share driven by its ease of use, reproducibility, and strong data compliance, which are attributes that align closely with the needs of our pharma and bioprocessing customers. As a reminder, Maurice is packed into pharmaceutical manufacturing lines as a QAQC instrument, and demand for bioprocessing instrumentation remains robust. This tailwind, combined with our commercial execution, has translated into consistent growth in both instrument placements and consumables pull through. Wrapping up our protein sciences segment, I'd like to turn to our core reagent and assay portfolio. Our research use only consumables, including our industry leading catalog of 6,000 proteins and 400,000 antibody types, grew low single digits in the quarter. Importantly, despite ongoing concerns around NIH outlays and uncertainties surrounding the fiscal 2026 NIH budget, reagent sales to our US academic customers remained flat compared to the prior year period. Another highlight is that we reinforced our leadership in RUO assays through a strategic distribution partnership with Speer Bio. Under this agreement, Biotech will distribute Speer Bio's ultra-sensitive in-rino assays targeting key Alzheimer's disease biomarkers, including -tau-217, NFL, and others. This collaboration builds on our earlier participation in Speer Bio's $45 million CSA funding round in 2024. Let's now turn to the growth pillars within our diagnostics and spatial biology segment. Organic revenue declined 1% in the fourth quarter, primarily due to order timing across all three businesses. For the full year, however, the segment delivered 6% organic revenue growth, reflecting the strength of our portfolio. Spatial biology remains the area with the highest exposure to academic customers, and as such has been more acutely impacted by the uncertainties surrounding NIH funding and the softer Biotech funding environment. Additionally, order timing for several Lunar 4 Comet systems weighed on our performance, with geopolitical headwinds delaying instrument placements in the Middle East. As a result, spatial biology declined mid-single digits in Q4, but grew mid-single digits for the full fiscal year, including nearly 50% growth for Lunar 4. In summary, I'm incredibly proud of the consistent execution by the biotechnical team throughout fiscal year 2025, especially in the face of persistent macroeconomic challenges and policy-driven uncertainties. This past year showcased our innovation at scale with several high-impact product launches across both segments that position us well for future growth. Our portfolio remains tightly aligned with some of the most attractive and fastest growing markets in life sciences and precision diagnostics. With a focused strategy and a world-class team, we are well equipped to capitalize on these opportunities and drive long-term value creation. Now with that, I'll pass the call over to Jim.