I'm Peter Sidoti, CEO of Sidoti & Company. I'd like to thank everyone for coming to the presentation for Harvard Bioscience. The presentation will end with a question session. If you have questions, you'll see a Q&A section at the bottom of your screen. Please feel free to send in questions. I understand it's cold up north there. The session should last about 20 minutes. With us today is Jim Green, the CEO of the company, and Jennifer Cote, the CFO. I do not want to slow the session down. So with that, I'll turn it over to you, Jim.
All right. Thanks. Hi, everybody. I'm Jim Green, CEO of Harvard Bioscience. Thanks for joining us today. Why don't we go ahead and start the presentation? Jennifer's going to start by going through an early introduction, including some of the history of the company and so on, and then we'll pick up. I like to focus, I'm an engineer, as you know, so I like to focus on the technology and the fun part of the business. So I'll turn it over to you, Jennifer.
Great. Thanks. Good morning, afternoon, and evening, everyone. As Jim shared, I'm going to jump into an intro. So if we move forward, just a little housekeeping. This is our disclosure regarding forward-looking statements. This can also be found on our website and in our public filings. So if we move to slide three, our vision at Harvard Bioscience is to be a trusted partner of advanced science tools to leading academic research institutions, contract research organizations, or CROs, and to pharmaceutical and biotech companies. We have two primary product categories: our cellular and molecular products and preclinical systems, which are each approximately half of our business. We have a global sales footprint and have three core manufacturing locations. Our employee base is highly technical. Half are scientists or engineers, and they support a technical and consultative sales cycle.
Our revenue split approximately 50% to academic and research institutions and the other half to industrial customers we define as pharmaceuticals, contract research organizations, and biotechs. And Jim will talk a little bit about our strategy to shift our growth more towards that side of the industrial and pharmaceutical side. Regionally, about half of our revenue comes from the Americas, with the rest split between Europe and APAC, with a good portion of APAC being from Greater China. I'd like to point out today that the revenue splits on the page are from fiscal 2023. We're currently in the middle of our year-end, closing the books and audit process, and we'll be releasing our full-year results in early March. And we expect that the 2024 splits will vary somewhat from this, but they should be directionally consistent with what you see here.
So moving on to slide four, this highlights some of our strengths and some of the key reasons to invest in us. We sell innovative technologies that have high barriers to entry, and our brands are well-known and respected. Our sales channel is supported by elite application scientists and service teams, their PhDs that are very well respected by our strong and diversified customer base. We've been focused on building a strong pipeline of products that position us for growth with our industrial customer base. And our strong focus on building a lean operating platform has driven improvements in our operations. OK, moving on to slide five. We have three primary manufacturing locations. One's near Boston, Massachusetts. One's near Minneapolis. And one is near Stuttgart, Germany. We also have a few sales satellite locations highlighted on this slide.
At the bottom right is a comparison of where the company was at five years ago. We've executed a number of operational improvements over the years that have synthesized the business to fewer sites, fewer product lines, and a lower headcount. These were executed to improve our financials and remove low-value commodity products to allow us to focus on investing in higher value and differentiated product strategy to support our customers. We also completed a consolidation this year of our U.S. ERP system, which covers a high percentage of our business and will allow for ongoing synergies and efficiencies in our operations, also allowing us to better serve our customers. Moving to slide six, you can see the breadth of who we are currently working with across our various customer segments. These are well-known academic institutions and companies who know our brands.
I'm now going to hand this off to Jim, who will take you through our product and growth strategy.
Thank you, Jennifer. In general, what you'll see is, even from that previous slide, about half our business being in academic research. We are strategically moving, and we often in academic research, that's where we're able to develop new applications, new uses of our technology, and strategically moving those technologies then and adapting them for much higher volume use in pharmaceutical companies and CROs, where there's much more recurring revenue, is part of our overall strategy. This slide, I'm going to take you through just really quickly how the drug development cycle works and where we fit in it. It all starts with a new compound creation. So if we click the button, one of our longtime technologies that we've been known very well for is electroporation. And our BTX technology is a well-known product in this space. Very few companies are in this space.
You see us in academic labs. You see us in the development, the research departments of pharmaceutical companies, and the use of electroporation is one of the key ways to transfect or modify a mammalian cell. That's how many of the new generation drugs are being created, things like mRNA vaccines, cell and gene therapy technologies, and electroporation is one of the key technologies that allows you to do that. Now, once a drug has been created, the next step is to go through cellular testing, and here's where many companies, pharmaceutical companies, research groups, and academic researchers will then test using on human cells. They'll test to see, using our patch clamp technology, how the compound reacts at the cellular level, on a particular one cell. If that goes well, then they'll go to a group of cells, and they'll use our microelectrode array systems, which is there.
Again, we're the leader in academic research use of microelectrode arrays using electrophysiological measurements of how the groups of cells now perform when they're exposed to this compound. So that's the first set of testing to see if it's going to be non-toxic to the cell, if the cell performs like you would expect to under when it's been given this new drug that you're testing. If that works, then they'll go over to the next phase. And this is a new area that we've just introduced. We've adapted our advanced electrophysiological systems to be able to work with organoids. So now, instead of just working with a single-dimensional group of cells sitting on our electronic tissue chips, we actually grow an organoid, and they'll have our Mesh MEA inside the organoid.
Now, what that means is now, instead of having a group of cells that maybe only live a few days and testing how the cells operate, we can now see that organoids, if they're bathed in a liquid that allows it to get infused with oxygen and nutrients, these organoids, which are essentially a proxy for an organ, they can live up to a year, so we've started selling this. We've started introducing this, starting with neuro, so brain organoids, and cardiac. Those are the two primary areas that we're focusing on, and this new system, the Mesh MEA organoid system, this allows you to, again, do longitudinal-type tests to see how the organ works over a long period of time when it's exposed to various new drugs. Historically, once you did the initial cell testing, you really needed to go to large populations of small animals.
We see this Mesh MEA organoid platform as an in vitro opportunity or option to actually test the compounds before going to large populations of small animals. Because once you get to the large population, now you're starting to spend a lot of money to test the drug, and the overall yield of new drugs entering preclinical testing is about 10%. That means that 90% of new drug starts fail before they get through the large population testing, so the idea here is this technology, we believe, can be used as a filter to prefilter which compounds should go into the animal testing, which starts to become very costly, so assuming the drug gets through this level of testing, including large populations, it'll move on to small model animal and then large animals, so mouse, rat, and then large nonhuman primate testing.
And that's where we are the leader in implantable telemetry that's used for the small animals up through the nonhuman primate animals for testing to make sure that the animals are safe, that their blood pressure, their heart rate, their EKG, the things you're looking at is all working properly during the course of all those final tests. And that's part of what has to be put together in the reports to prove to the FDA that this new drug is safe and effective and then can be used and move on to human clinical testing. So in addition to our implanted telemetry, we've introduced a new technology called VivaMARS for the neurobehavioral testing that has to take place in addition to the implant testing that really gives you the overall proof that this drug is safe and effective and can now be used on humans.
The last one I would identify is if somebody uses our electroporation technology, our BTX, for creating a new compound. We are now offering the ability for them to use it in bioproduction. It's a very fast, simple way to go from development of a drug to being able to produce it in a bioproduction GMP location that can then be shown that it can now be used in whether it's going to go to animals and then into humans. It has to be done in a safe environment that's been validated by the FDA. That gives you a feel for where we work. In each of these areas, these are key technologies that enable the movement of the drug from development through testing and on into testing and then on for use on humans.
So if we go to the next page, I'm not going to dwell on this slide, but basically, the way I look at our business is the products that make up our base business. And the base business, it's about 85% of our business today, tends to grow with the market. If the market's growing at 5%, we would expect that to grow at about the market. If the market's going negative, we've had over this past year, we've seen some real issues with sales reductions into China and Asia-Pacific. There's been, as we know, some questions about the policies coming in with the new administration and how that's going to affect research funding. But overall, again, I look at the base business as operating and performing at about where the market's performing.
The two areas of new growth for us are the expansion into the use of electroporation for bioproduction and the creation of these new drugs, and also the use of our new amino acid analyzer systems in the testing of the materials and compounds that go into those drugs, and then also, the other new area for us, which I think is most exciting, is now expanding the use of organoids for testing for research in brain, research in cardiac, and then also in vitro testing for sampling which compounds should go on to the very expensive testing that takes place once you get into the drug testing phase, so these two areas of bioproduction and then in vitro, we see those as the fastest growing areas, those are the areas where we're putting significant investment into expanding our offering into this, into new customers.
If we go to the next slide, here I'll give you just a quick update on our progress. We introduced new systems in the base product. So again, we introduced our new generation telemetry systems, starting off with temperature and activity. That introduced in 2024. This year in 2025, we'll be expanding those to the rest of our endpoints, including looking at cardiac measurements, implantable cardiac, implantable neuro, the rest of the things that you have to test during the preclinical phases prior to going to human use. The VivaMARS system, we introduced that. Initially, the first production unit or the first adopted unit came out in late 2023. Since then, we've now had a number of publications and started the sale process in 2024.
Our first purchase, which came by Labcorp, a large CRO of ours, we expect starting in 2025 now, they'll start to adopt more of our systems into more of their sites. We see a second large CRO also starting to adopt it into, starting to move into some of their sites, so again, these two areas I see as augmenting our base business, and then the new growth, incremental growth areas are going to be the electroporation and bridge to bioproduction. There in 2024, we had our first very large customer using the BTX, and we saw in 2024 that one drug with one customer reached about $1 million of consumable consumption of our reaction chambers, so this is, again, moving to bioproduction as we start to penetrate this market.
This is going to dramatically drive growth of our consumable revenues and return our recurring revenues as opposed to just being so limited to initial equipment. Also, electroporation, we expect in 2025, the first customer, first large customer, we expect them to now adopt this in a separate, in a different drug, in a different production site. So we're starting to see adoption of this technology into higher volume use for new generation drug development. The amino acid analyzer system, which we historically had built and designed for clinical utilization, we've adapted that now for CGMP applications for QC testing of compounds in the bioproduction phase. So we started selling this in 2024. We're expecting to see that now launch in more and more adoption of our AAA technology into bioproduction applications. And you'll see this happening as we go into 2025.
Also, later in 2025, we will be expanding and offering a new generation of our BTX platform, one that's designed for ease of use for customers in the creation of new generation drugs and also an easier bridge for it to go into bioproduction, and then the bottom section here, looking at our Mesh MEA organoid systems, this is the most exciting area that I've seen in years. It's a brand new area where a technology that we've developed using called electrophysiology in our MEA systems. It's an area where we've been a leader. We've been in this business for about 30 years. But what we've done now is we've adapted it to not just work with groups of cells, but to be able to work with organoids. I had said last year that we had expected to have five active beta sites early in the year.
So in the first half, we had beta site testing at University of Texas, Michigan, our first advanced CRO working with this system for neurosafety and toxicology applications. This, again, starts to prove the use of an in vitro version of organoids to be able to do advanced testing and filtering on which compounds should go into the more expensive into that full phase testing where you're into animal testing and in vivo testing, and you start to ramp up spend. So this was proving this technology is a potential filter for selection of which drugs should proceed. I also said last year that in the second half, I expected to place about another 10 systems into early adopter sites. Now, I think in Q4, we placed more than 10 systems, and that includes sites like the Mayo Clinic and Stanford.
And then, starting for this year, this year, we expect to see adoption of this technology into leading academic sites in addition to government labs in the U.S., in the U.K., and in Europe, including labs like the National Institutes of Health and NIH. We have a healthy pipeline of new customer proof sources and publications that are coming out now. And our goal this year is to start to penetrate the larger opportunities in biopharma, large pharma applications for use of being able to do long-term testing of organoids. I'll mention quickly in the end of the back of the presentation; I've added four slides that'll give you kind of a detailed view if you want to understand each of these areas, the technology behind it, the application, what it's used for.
And also on the slide that shows how the organoid system works, there is a link if you want to see kind of a video of how it works and what it really means. I think it'll give you an understanding of what we mean by the use of organoids versus simply groups of cells for cellular testing. This is basically my last slide just to give you a feel. Our long-term goal hasn't changed. It's really to drive top-line growth and to really drive it through introduction of new products, new key technologies in areas where we have a great position. We already have customers. We have the right technology, and we're adapting it to drive growth and to drive growth in recurring revenues. So adapting technologies toward customers who buy in volume and customers who are in more the industrial side of the drug development world.
Our customers, as you've seen, are large, loyal customer base, and really throughout the drug research and discovery, safety and regulatory, and now bioproduction so we're in a great space with natural tailwinds, drugs that are being developed for the aging population, the new advancements that are happening in cell and gene therapy. We are really well positioned for that and on a business basis, our focus is to deliver double-digit top-line growth. That's our goal, 60% gross margins and to reach 20% adjusted EBITDA margins. We've seen in even reasonable years that we're close to that 60% gross margin line as we start to show growth in the business, the combination of the market hopefully now starting to stabilize and maybe start to move to plus but then the new products really drive our top-line growth.
And with our gross margins and our operating leverage, the dropdown from new growth to EBITDA is substantial. So that's going to change the way our customers see us, the way our investors see us. And again, I would just say it's been a tough market this year. We all know what's happened in Asia-Pacific and China. There was a lot of unknown with the new administration coming in about what their policies might mean for the research funding, that kind of thing. So certainly when that happens, there's some questions and delays. But as we look at, as I look at the fundamental order profile of the business, about six months ago or so, we saw the business inflection from what had been dropping to now moving to a positive inflection. So a positive growth, that to me is fundamental to the business.
And as you see sequential growth in the business, over a short amount of time, you start to see year-over-year growth. So anyway, I think we're in a great position. Again, I want to thank all of you. So I think we got a few minutes for questions. Peter?
Sure. Jim, we have a couple of questions here dealing with just recent history. You faced some pretty severe headwinds over the last two years. You touched on it a little bit at the end, but can you just describe the headwinds you faced and have you bottomed out?
Yeah, great question. And calling a bottom is always difficult. I feel like we've got to, I feel like we hit the bottom, at least on the fundamental views on the demand side, about six months ago. And that's where we saw the inflection moving back to positive.
Much of it was driven by China and Asia-Pacific reducing their spend. We know that there was a lot of purchasing in 2022 and early 2023, especially in China, products that were associated with COVID and just overall products that were associated with life science tools. So there was a lot of heavy buying then. We've all seen, and you'll hear it in other CEO conversations, what they call destocking. That's when Asia-Pacific and China, they bought a lot in 2022, 2023, and then they really slowed down their purchases. We saw that being the primary reason we saw a reduction overall in our revenue stream. The war in Europe probably didn't help, but we actually think that Europe is recovering. We see that moving back positive. The U.S., the biggest question mark there has been with the election, are the policies.
How to interpret the policies of how spending is going to be, how spending is going to happen in academic research, NIH funding, how fast will people get back to work and really continue the process of funding the research grants. Again, research and development and new drug development, that's half our business, so we need that to get back on track. Our assumption is that that's going to all settle out here over the next few months, and we'll all see a nice return. The U.S. should start to come back to being more of a positive, but again, the biggest headwind for us has been Asia-Pacific and China, and much of it really is that destocking. I'm not expecting Asia-Pacific and China to move back to big growth. I think that would be the visibility there is poor, but it does look like it's at least stable.
And if it's stable, I'm happy with that because with the new introduction of new products that we have, that's the primary driver for new growth for us. And the rest of the market, I think we think it's just going to start to improve here. I look at what we're hearing from the other large CEOs of our large companies. Nobody's projecting 2025 is going to be a blowout year, but there is an expectation it's going to improve and we'll start to see things, especially by the second half, start going to a much better position.
Jim, you mentioned the new products. Do you want to talk about the new organoid product? I mean, how significant is it? I mean, give me a sense.
Yeah
Is it going to be 10% of your business?
Yeah, great question. Sorry to interrupt, but yeah, no, I'm so excited about this.
I mean, this is something nobody else really has this, the ability to have an in vitro version for testing on organs, how they affect drugs, and to then play best ball with what you're actually going to send off to a CRO or somebody for going into the full testing. If you can select, again, if the yield is 10% and you can select out instead of 10 drugs, maybe you say, "These four are probably likely to fail. So let's put the other drugs into the phase." That is a real improvement. It lowers costs for the pharma companies and improves the cycle time, which should mean more volume, more testing. So again, I'd encourage you to look at the last slide on the deck where we go through and show the technology. Again, I had said we expected to see early adopters picking up.
We sold 10 systems just in Q4. And these systems sell for arguably somewhere in the neighborhood of $70,000-$80,000, maybe $100,000. But the consumable is where we see this really taking off. And applying this to academic researchers, that helps us perfect the technology. But the real growth I see is then as I adapt that to the biopharma companies who are going to pull through, should be pulling through, I would expect to pull through a lot of volume of these tissue chips. So we're the one, we have a leading position here. We really don't have any competition in this space. I expect we will have. I think that's going to be a good thing when we start to see more mass adoption of this. But for 2025, I'm expecting this to be a major, probably the largest component of growth in our business starting in 2025.
I think overall, I've said it's maybe 5%-6% of our business in the past. This should be growing dramatically. And it will be, I think, the largest component of new incremental growth for us in a position that we are very well positioned to do well in.
Jennifer, it's easy to run a company when it's growing to be the CFO. When it's shrinking, it's always a little bit of an uphill battle. Yeah. I know that you're back onto the growth track in terms of where you are. And you've been profitable all along. What's your need for capital in the next 12 months to 18 months? Do you see a need for outside equity at all?
Yeah. At this point, we've been working very hard to keep ourselves running the business in a cash flow positive way. And we've continued to do that.
But with some of these really exciting areas, we are looking to reestablish what our capital needs are in the new year. And we'll leave it at that. I think as we close out the year, we'll be reporting earnings in March. And as I said, we've got an exciting year ahead of us to turn the tides. So any capital raise will be the fun growth at this point in time in terms of working capital and things? Yeah. The working capital at this point, we've had a success track record of managing the business and managing our cost structure to help enable our ability to do that in a self-funding way. If we look to doing something different, it would really be to grow these areas.
Okay. Jim, you mentioned the ERP program or the new ERP system. Are you seeing benefits and what type of benefits are you seeing?
Yeah, great question. When you take a company that's built through a number of acquisitions, at some point, you really have to turn it into a platform. And that means finish the consolidation, not just sites, but moving on to your main tool system. So we moved to a new advanced, actually, it was an ERP system that we worked very well with in our Minneapolis operation. So we've now adapted that for all of our U.S. operations. So we're already seeing that give us improvement in being able to spend less for raw material to be able to ship the products that sell. So it helps us be more efficient. It helps us show that we can drive down inventories. Our inventories have been high since COVID.
I see that as an opportunity as we continue to drive that down. I expect you'll see that here coming up now. Going forward, that's an opportunity to improve cash flow a natural way. That, in addition, just helps us better run the business. We did just move over to the new system. When you do that, you always find a few problems. You have to go through and look at all your inventories and so on. There'll be the typical thing where you look at valuations of the inventories and all that. That's always something you deal with, especially when you go to a new ERP system. The key thing is with the ERP system now, we have one process for all majority of our revenue, which is coming from the U.S.
And it lets us be much more efficient at turning cash-to-cash cycle. That's the ability to produce, to ship, to record revenue, to install. This tool is very important for us to have gotten onto that. And now you'll see improvements in the operation going forward just because of that tool.
Okay, great. We're down to about a minute left, a little less than a minute. And I'll get in trouble if we run over. But if anyone has any other, we have more questions that need to be answered. Please feel free to contact me directly or contact Sidoti & Company. They'll put you in touch with Jim or Jennifer or contact the company directly if you have questions you want to follow up on. I'd like to thank you, Jim. Any closing remarks?
No, again, I want to thank all of you for your time.
Again, I would say we all know it's been a tough market in life science tools, but we've managed. We have a history of managing our system, managing our business, keeping our costs lean, and at the same time, continuing to introduce these new products that are going to build our growth for the future. So we're excited to get into 2025. Seeing things starting to move upward is really important for us. So no, we're excited about the future. And I think these new products, it's going to be fun watching how we see adoption and growth in this business.
Well, I'm amazed at how you've maintained profitability during the tough time. So it should be a lot of fun from here. So please, I wish you the best of luck. Thank you. Thank you very much.
Thanks, everybody.