Thanks everyone for joining us this afternoon. I'm Vijay Kumar, the life science tools, diagnostics, and medtech analyst. A pleasure to have with us Bio-Techne. Representing the company, we have CEO Chuck Kummeth, and I guess the incoming as well Kim Kelderman. Gentlemen, thank you for spending the time with us.
Sure.
Welcome.
So, before we get started, you know, this tools has been pretty noisy this year. And one would have thought a business like Bio-Techne with, you know, reagent exposure to be relatively protected. Obviously, you've had your own, sort of, macro issues to face with. Any opening comments you want to make out on how third quarter progressed for Bio-Techne, and how the macro environment played out?
It'd be our first quarter. We're fiscal, but about as predicted, I guess, is the best thing we can say, and probably more to come this quarter. You know, we're a little bit protected, but you know, we're pretty diversified, and we have, you know, 10% of our company's in China, so that's, you know, that's a full two points of headwind against us at this point, like everybody else. But you know, we did show growth last quarter, and not many of our peers did. And going forward, I think we'll show modest growth, and when things recover, we'll get back to the expectations everybody has for us, which is, you know, double-digit to hopefully back to mid-teen growth.
We have a lot of growth platforms that are actually still growing through this melee we're in, but they're still too small in the mix to carry the company yet. But within a you know couple more quarters, they're gonna start being more material. That's gonna help as well.
Just, sorry, China was 200 basis points headwind in your fiscal-
It is right now.
Okay.
Down 15% and -15% to -20% this quarter. But I mean, last quarter, -13%. Quarter before that, we were actually 17% growth, while everybody else was already negative. So maybe we'll be first in, first out, I don't know, but we'll see. But it's... The funding is shut down in China, as we know, as we all know.
What is, you know, from different companies, we've heard a variety of reasons on what's happening in China. But when you look at your business, is that a particular customer class? Is that like diagnostics, is that pharma? Between pharma, is it like large pharma, is that like CROs? Any, any color on what's happening in China?
We're mainly RUO focused in China, and we focus on you know, the 180 institutions in Beijing, another 180 in Shanghai, and that drives most of our business. We are certainly participating in the pharma side of China, which is really almost all biosimilar driven. There's not a lot of large molecule development or discovery there. They're you know, sidestepping all that and going after cell and gene therapy pretty hard as well, and so we're building a factory for that. We're half done, and for proteins. And, you know, I think we're probably in the midst of all of them together. I don't think there's any one area outdoing the other or significant salvation anywhere, until we have government funding, you know, coming back into the realm.
They don't lay off people like we do here in the U.S., right? So they're, they're paying salaries, and they're being funded. There's just not new funding. There's not new money for new programming. It'd be like the NIH saying, "There's no grants this year." You know, that's kind of, kind of the situation we're in there. And there's expectation points of when that'll begin. Government's not known for giving a lot of data beforehand. It'll happen when it happens. And, and, right now, the best guess is probably after Chinese New Year, so February, March timeframe, maybe. But, you know, nobody knows. And, everyone's kind of throwing their hands up right now and tearing the band-aid off and said, "No guidance in China. We don't know." So-
Mm-hmm.
We're a bit in the same boat, I guess, but, but you know, we're not that big, and we're well established with our brands there. And, being we are, we are very front-end RUO focused, and you don't get anything done unless you have reagents to start your work, and so we're pretty optimistic. The webinar and the, call it, the team exposition series is kind of growing strength again. There's a lot of that always happens in China. There's a lot of small shows, and, you know, a lot of technical presentations, and they're building up steam. Maybe that's a good data point. So there's definitely interest.
We probably had some destocking in China as well through this, and I think, like everywhere else, it's turning the corner, but people are running out of stuff if they haven't already, right? So, I'm maybe more bullish than most, but probably by the second half of 2024, we'll probably see things are turning, and I do think a recovery in China will be a faster recovery than we are seeing here in North America, so.
In that recovery in China, I know for some of your peers as well, China usually it's always been like a V-shaped recovery.
Mm-hmm.
Was that always tied to a stimulus, or do you expect these kinds of recoveries without a stimulus?
They're not known for stimulus. I think they'll probably just get back to normal funding, and, that'll be stimulus-like all by itself. So-
And, and-
If they, if they decide to stimulate too, then I think, we'll probably see a pretty big surge, but...
And, uh-
Kim, Kim will be there next week, so-
Yep. And I think, Chuck, you mentioned perhaps post Chinese New Year, a stimulus. Is that a resumption of funding or, sorry, is that like a new stimulus program?
A resumption of funding.
A resumption of funding.
Yeah.
Okay.
That's our guess, our guess. We don't know any more than anyone else does, but-
Gotcha.
They're unlikely to do that during Chinese New Year or before it, probably, but.
When we say resumption of funding, what is the baseline we're looking at? Because I feel like the last two years—there's a lot of funds being shown in, you know, because of the pandemic in China. Is that the baseline we're looking at, or is this the pre-pandemic baseline that we're looking at? Like, what's the right framework to think about resumption of funding?
It's hard to say. I mean, we've got roughly a $100 million business there, and it's shrinking right now modestly. If it gets back to normal, you know, that's a 20% annual grower for us, so that's 30, 33, 35 points away from where we are now. So that's quite a bit of revenue for us coming off where we're at. So if that's for everybody, that's a pretty significant rise in funding, probably. But they, you know, they've probably got to balance that and match it against any money they want to also have for testing. They do a lot of testing there, as you know, and now there's a new scare on the horizon, evidently-
Mm
W e're hearing about, right? So, that might affect their thinking, too. I don't know. But, they don't really publish funding like the NIH does.
Yeah.
It's just documented as a number one strategy in their five-year plan. It's their highest priority, and there have been numbers out there floating, but there's not a lot of public data on just what's going where, you know? But everybody gets something. We do know that, so.
We've mainly focused, too, on, like, what would be other things the government could go fund and take our money away, and that just looks really good. At the end of the day, Chinese people expected to have cleaner air, and the country invested heavily in EV. Everybody drives an EV by now. And they have high expectations on healthcare and being healthy. And especially over the last couple of years with the pandemic, you know, people just are hyper-focused on getting the care they need from the government, and therefore, we do not believe that there's any competing other funding areas, and that healthcare will stay on the highest spot of the list, if the funds become available. So we're not worried about it going somewhere else.
It's only the when that's the question.
Maybe related China question, I think some of your life science tools peers, I think the way they've characterized China over the medium term, whenever the market's normalized-
Mm-hmm
... perhaps, perhaps the normalized growth level, may not be as robust as what it was over the past decade, right? And I think-
It might not be. If they decided to cleave off some for testing or, you know, for risk there, maybe that would be affected. But they've been on a healthy increase every year for the 11 years I've been in this job, so... And they're a long way to go. I mean, you leave the big cities, there's not much healthcare. You know, they got a long way yet to go. And they're not, you know, they're not overly innovative. You know, a lot of industries are much farther along in having local suppliers than the, than life sciences is, right? So.
Gotcha. Is there... And sticking on to this China topic, has there been any shift for China, for China or any local competition that's sort of come up?
I've been waiting for it for a decade, so not really. I mean, there's a lot of small, small mom and pops there, you know, but not a big threat to us for a lot of reasons. But I think mainly just the breadth of the size of business you have to have to be like we are. I mean, you could have somebody creating 20 antibodies and making some pretty good antibodies, but, you know, to be in business, you need 100,000. You need a catalogue, you know, so it's they only can do so much, and it's never materialized. We bought a protein company there 10 years ago for this reason, this, for this risk, and it there really wasn't a risk. And-
Gotcha
... you know, our local China for China protein business has been modest growth, but even the Chinese don't like Chinese products, so.
Gotcha.
We do have it hedged, and we're building a GMP facility-
Yeah
... there right now.
Yeah.
In case more activity takes place, we do have a China for China program.
We don't manufacture there, we don't make instruments there, we don't make anything for export there, so.
Gotcha. Are you importing mostly into China or?
Excuse me?
When you sell, when you sell products in China, is it mostly manufactured outside China and importing into China?
Yes.
Okay. Maybe the last one on China here. Is 2023 the bottom, or are there—what kind of signs are you looking for, you know, when you think about the macro headwinds in China?
I think the best sign has been all our peers ripping off the Band-Aid this earnings season says, "No more talk on China. We don't know anything." So everyone's been real negative in giving no guidance, so that's probably the capitulation we're starting to look for, more than likely. But I think China will. It's always surprised me, and like, it'll continue to surprise. I bet, I bet it, it'll come back when it comes back, and it'll probably come back faster than we expect once it starts, so.
Gotcha.
It's just that's the way history has been. We'll see.
Mm-hmm. But so far, the environment has been relatively in line with your expectations. Is that how you would characterize your current trends?
You want to take that?
Well, I think overall, the coming to a standstill was a little worse than we expected. We do believe that it will normalize. You already, Chuck already talked about when and how we think it will rebound. Let's assume that for a while, it's going to be constrained. I think that our portfolio is nicely aligned with constrained funding. We have, you know, a set of instrumentation products that are really helpful in automating things and making, you know, manual steps easier to do. So automation has been a driver, a megatrend for a while, and it's been in China, and it will continue to be. If you look at the programs that one would be running if you have limited funding. You want high-quality ingredients; our core is good for that.
You want automation, we have Protein Simple for that. And you want to validate all the work you've done, and that's why we have a real nice Spatial Biology business. So, so all of those would, you know, our growth vectors would actually be doing relatively, and I say relatively well towards peers if constraints will continue.
Gotcha.
I would say, too, you know, things like spatial, just turning the corner and being, I would say, critical mass, but an inflection. So I mean, our size of that business in China is like 1/4 the size of Europe. It should be bigger than that. So it's starting to hit some critical— So that's gonna start accelerating and becoming more material. So there are some data points like that, that should help our numbers or help mitigate some of the continual softness, whatever, so.
Gotcha.
Instruments have always been very strong. Our mix of instruments in China is the highest of anywhere. It's almost 50/50 with reagents versus 20% everywhere else. So for the reasons Kim said, it's, you know, the Chinese like productivity, they like, they like getting good value for their dollar. They have a pretty fast capital cycle. Our instruments aren't that expensive, and they, you get a lot done with them, so they've been always very, very, you know, in demand there. And we're just like here, we're very low on overall share. I mean, we're a fraction of the way of converting Westerns to, you know, to automation. Automated Westerns, as an example, so.
Gotcha. And I guess, pivoting away from China, pharma has been the other, you know, major topic within life science tools. I think almost half your revenues are from pharma end markets. When you think about pharma ex China, right, c an you talk about recent trends? How has pharma as an end market been for you guys?
Very strong in Europe. No, no issues there. We're double-digit growth. North America has gotten soft the last couple quarters. It was pretty, pretty much okay before that. IRA is some component of that. I think there's an overall conservatism coming out of COVID as well that's affecting things. There was certainly a destocking element as well with them, like everybody during the supply chain crisis as we were all in a year ago. I see that, you know, probably continuing for a while. You know, I don't think that's any V recovery, to be that honest. I think biotech will be more like a V recovery.
I think as funding returns here, hopefully, you know, into 2024, we've always been kind of a go-to company for small biotech because of, you know, the different products that we have. There's always a, you know, a juice or something that makes a new novel biotech company's new idea work, and so we get a lot of share in small biotech, and that's largely in the sidelines right now, right? But that'll probably come back a little more quickly, right?
Gotcha. You know, when you look at your fiscal 2024, are you expecting pharma overall to, like, grow, you know, be flat or how are you thinking about pharma as an end market?
Well, our fiscal 2024 ends this June, so it's probably more of the same till then, to be honest.
Yeah.
I think after that, we're all hoping for a modest recovery as well, but I don't think, like I said, I don't think it'll be any V recovery. I think, I think pharma's working through some things, so.
So for fiscal 2024, we're looking at pharma-
I think our best shot is really new pharma, cell and gene therapy. So I think that'll keep accelerating. We've got great growth right now, and I think that'll just get back to, you know, COVID level growth rates, which were like 100%, once things start recovering. I think that's what we're focused on. It's not the preservation of old pharma. It's all about new pharma.
Gotcha. And so overall pharma, is that like a flattish given your fiscal end in June, or are we still expecting-
Probably for-
To be down.
... fiscal, it's probably flattish, yeah.
Flattish, with the first half being down and back half, maybe?
Yeah.
You mentioned that-
We've talked about that. I mean, you know, we showed growth last quarter, and we're gonna show similar this quarter. But, you know, within this year, if we stay in this funk we're in at these levels, but our growth platform stay at the level they're at, within a year, we're at high single-digit growth just by the mix. So, you know, there's... We've kind of a built-in recovery even in things staying the same because we've got growth, things that are still working, you know, so.
Gotcha. And I don't want to come back to cell and gene therapy, but before we get there, you brought destocking. Is destocking... I think, you know, when I look at consumables, some of your peers say, like, "We're past destocking," you know, "We've bottomed out.
I think after this quarter, we're largely past destocking. We're gonna get help there from that effect, but we're also gonna get help on comps too, so.
What gives us the visibility or confidence that we're past-
Main thing is OEMs calling and wanting more stuff, so.
You're getting those inbounds now, OEMs calling now?
We're getting more inbounds now. More, there's more interest. So there are in some cases, they, they buy twice a year or even annual large supplies, and a lot of times they call ahead. They, they, they get you ready that you're gonna have stuff when they need it built, right? So.
Gotcha.
We're starting to get some of those inquiries, so.
So that certainly helps the back half in a pharma step up, I think-
I think it's the back half, exactly.
Good. On this IRA, I think some of your peers have brought up on, you know, cautiousness, because of IRA.
Yeah.
Is that-
They're just so tired of being wrong every quarter, everyone's just kind of throwing their hands up, right? So it's-
What happened? Like, what, why did all of pharma... You know, when I just look at the calendar, third quarter, it just feels like everyone is citing IRA. Did something happen? You know, all these pharmas just woke up and citing IRA as is a reason to-
Well, we've been talking about for two years, so—we've been warning it's coming. So it's a 2028 issue, but it affects pipelines today. It affects what they're doing their R&D for, and they've been holed up for a couple of years ever since the law changed, came into effect, over what they're gonna cut back on, because they're not gonna make the kind of money they thought they were gonna make, right? And, you know, now the strong opinion is that these will be overturned in court, and they won't hold up. But by the time all that happens, the damage will be done, you know, so the pullbacks have happened. And how long that conservatism stays and how deep, I think is company by company in their own pipelines.
You know, if you're Lilly, you're not too worried.
Yeah. And just sort of, you know, putting all of these together, so between pharma, China, the sense I'm getting is things are stable, like it's not getting incrementally worse from some of your peers. And, you know, I was just looking at street numbers. I think the street's looking at almost a flattish growth year-over-year.
Yeah.
Comps to get easy. Is that just a street modeling issue, or is there any reason why, you know, your, your fiscal second quarter can't look similar to fiscal Q1?
I think us and everybody is just trying to be cautious and conservative and not overpromise.
Gotcha.
That's the biggest issue. I think there's more upside than there ever has been, just because we're just all pretty beaten up at this point.
Gotcha. Another theme that's come up, Chuck, has been this concept of LRP issuances during the pandemic boom years, and perhaps companies were a little exuberant. You know, when I look at your targets, you know, this is, you know, endlessly last year, right?
Right.
It's still looking at mid-teens, organic. Is, is that, is that perhaps, like, robust, or is that still intact and, and-
Well, you know, we just came out with our predictions a couple of months ago, and not enough time has gone by for us to change any of those directions. We laid out a 5-year direction and a 10-year, and I think we're still within the guide rails of that because we have enough hedge built into that, so...
Gotcha. And you've brought up cell and gene therapy as one of the drivers of that LRP thesis.
Mm-hmm.
See, my understanding was, cell and gene therapy, this is a proxy for early-stage biotech, you know, pre-commercial revenues, and that environment is challenged, yet you guys are growing pretty strongly.
Yeah.
Why is biotech growing so strongly in cell and gene therapy?
Well, we have a very good workflow for cell and gene therapy. We, you know, we're, we're gonna own Wilson Wolf. We have a very strong position in GMP proteins. We have avenues of media now. We have the instrumentation that's used for, you know, for QC-type applications. We have our spatial technologies for really interrogating the health of the cell line. So we've got a lot of positions, and that's—it's just a growing space, even in these tough times. They're growing at half the rates they were, but they're—in today's world, they're good numbers, right? So...
Yes, indeed.
But they're all preclinical to, you know, phase one clinical. It's, we're—there aren't, there's hardly any products in the market yet, and we won't need too many to actually start making a lot of money. It's, it's, it's just, it's a waiting game for this market to really begin. I think the... We were just talking about it earlier today, I mean, the, the FDA coming out and then, and slamming CAR-T as having maybe a malignancy issue, a side effect issue, that's probably a good thing. They should be, they should have been more engaged the whole way here the last few years of CAR-T. I mean, eight drugs on the market and 2,000 clinicals going on is ridiculous. You know, they're slow, they're too late. They, they promised better stuff, but more activity.
So maybe more, you know, more visibility, even if it's bad visibility, potentially. I think the more they get engaged, the more they're gonna see the light. It isn't like it's not the future. It's already predetermined. Pharma has already said to the world, "This is the future. We're all coming here," so, you know, you can't ignore it.
You know, so-
It's the future of oncology, right?
Yes. Yes, indeed. If there is a cure, yes, and if we can afford it, yes. But I think you brought up spatial a couple of times. Just explain, like, what do you have within spatial that's... You know, a lot of players, you know, touch that spatial market. What is differentiated about your offering?
Kim, Kim runs it, so he's best to answer this.
Well, differentiated, think about the journey a science project makes. Usually, you start off with a hypothesis and look for many, many markers, like, I'm talking thousands of markers. You would highly likely use a 10x platform to kind of cast your net really wide, figure out which markers are of interest. The moment you go into your translational space, this is where you need to run more samples, and you look at fewer markers because you know, you know about the ones you want to hone in on. That's the translational space. That's where you would like to look at few, several samples, a few markers, and our RNAscope, ACD reagents, which, by the way, are the, you know, the market leaders, are best positioned. They're really made for that space.
We actually acquired Lunaphore, which is an automation platform, right? The COMET, which launched a couple of quarters ago, that automates that whole workflow. And we're the only ones that you can do RNA, you can look at proteins, so it's multi-omic, it's totally hands-off, fully automated, highly precise, very repeatable solution, right? And you can see your whole slide. You don't have to change the tissue to another slide or another carrier. It's just a very natural, fantastic fit. Researchers can use the antibodies they have been using, so they don't have to really, you know, refigure out what other antibodies to use, because you can pick any antibody you want for the system.
You can pick any of the 45,000 RNA targets that we have in our library. So, you know, we're really well set to occupy that space fully. And at the back end, you'll have the diagnostic applications, and we have worked on our quality systems. We have a couple of assays that serve that market, specifically the HPV Assay. And we're, you know, we're now at the level where 10% or a little bit more of our revenues is coming out of the clinical space. So we're really blocking up the clinical space, and we're, you know, we are the market leaders in the translational space as well. Very symbiotic with 10x solutions, so we're quite happy where we are, and that market will continue to grow in all areas, including China.
Just, Kim, could you elaborate, like, when you say you're symbiotic with the 10x, how sort of you fit in in that workflow?
Yeah. And like I just mentioned, so a researcher finds out, you know, looks at thousands of markers using the 10x technologies, and then we'll start further interrogating the, the few markers of interest, and that's where we, we, we fit in really nicely, and, and that's when, when the Lunaphore platform, the COMET, as well as the ACD reagents, the, the RNAscope specifically, are, are going to be the best solution. Now, some of our assays are newer. You can look at, you know, siRNAs and, and all kinds of shorter RNAs, which none of the other technologies can do, and that, again, is super relevant in, in, cell and gene therapy, so that's a win-win right there, too.
How big is spatial for Bio-Techne?
Yeah, it's run rate is north of $100 million.
What's it been growing at? I think the markets are growing, like, 20%-30%.
Yeah. So historically, the CAGR historically is high double digits. I would say in the current environment, the last couple of quarters, we've been hovering around double digits.
Gotcha. And I think, Chuck, you didn't mention Wilson Wolf. I know you closed a round and met a milestone, but just give us an update on the transaction on what does Wilson Wolf bring to Bio-Techne?
Sure.
It was a pretty unusual transaction, how it was structured.
Well, we knew we wanted to get, you know, big into cell and gene therapy via GMP proteins. We're the world leader in proteins for research. Stands to reason, if the world's gonna, you know, move into GMP proteins, this is a way for us to actually attack and get into production-level proteins, which we've never been able to do because big pharma, large molecule, make their own proteins. It is a protein. So this is a way to really scale. Many companies came to us wanting to give us a heads-up that they're gonna need $ millions of a single protein, and they don't wanna do that themselves. And it's manufacturing steps, they, they were okay with outsourcing that.
So we got into it, you know, five, six years ago, probably five years too late, because at that point, Miltenyi had already established a position and kind of became the de facto standard, right? For the CAR-T side. The only other de facto standard in the industry is the bioreactor, and that's Wilson Wolf's G-Rex. They have 800 customers. They're in most all the clinicals right now. So they're local. I first tried to buy John Wilson out when I was at Thermo Fisher 14 years ago. So we've had a long relationship. We're 15 minutes apart, our companies. We've stayed engaged. There's probably no company in the life science that's been approached to be acquired more than John Wilson, by everybody multiple times. It took us years to get it done.
It had to be a very creative deal, so we had to start out with a call option, which led to a 20% first share position off a milestone, which we met last year. We paid that for $225 million or whatever. When it gets to a second threshold, which is $225 million revenue or $135 million or so in EBITDA, there's a dual trigger, then we'll pay $1 billion. They have until December 31, 2027 to achieve that. But wherever they're at on December 31, 2027, we pay at the 4.4x revenue multiple. So it's an amazing deal by the numbers, but we're earning it because this is a guy who's a KOL, and he doesn't wanna make bottles. He doesn't wanna manufacture.
He wants to be out there with clinicians and doing what he does, and his manufacturing is getting bigger. It's becoming a sizable operation. We're helping more and more on the operation side. So, we're earning our keep there and helping him do what he does, which is amazing stuff in the industry, driving this whole new market forward, so. So we expect it to probably play out to the end. I don't expect them to be early. There was a good chance a couple of years ago, but they've, you know, like everything else, with pharma being down, they're not shrinking, they're flat, so they're doing okay. We're actually holding up pretty well, given the new clinical climate, which is really contracting right now, right?
So we're just waiting for, you know, more of these, you know, tuna-sized programs to become whales, right? So we need more than a couple of drugs to come out a year. It needs to be more like the FDA promised a few years ago, more like 25-50 per year. And, as that starts happening in a couple of years, we're gonna see a major inflection-
Mm
... in our demand. So, and then we'll totally own Wilson Wolf at that point, and as our five and 10-year model says, I mean, in 10 years, we think we're a $2 billion business just in cell and gene therapy, and probably roughly half of that will be G-Rex, so.
And these drugs that could be approved by the FDA, do we have a line of sight on where we are in the clinical trials? When-
Well, we have a line of sight what we're involved in. And we have a line of sight because what Wilson Wolf's involved in, which, you know, are hundreds. And, you know, there's a lot out there at phase II, phase III. It's just a matter of getting through the FDA and getting things done, and it's just been moving slow, so.
Gotcha. What's been the macro impact on Wilson Wolf right now?
What's what?
is the impact of the macro environment for Wilson Wolf?
I think the same thing we're at, this conservatism in pharma and IRA is causing a consolidation of clinical. So the way John explains it, you know, they'd be working with one customer who was planning 10 clinicals this next year, now they're only gonna do five. You know, so they're pulling back because they don't know if they're gonna have the funding that they need because of they've got to prepare for price caps, you know? So.
Gotcha. Sorry, Chuck, are they growing right now, or-
They're slightly growing. They're flattish, but-
Okay.
About like we are, but,
Okay.
Most everyone in that space is shrinking, so they're holding their own pretty well, actually, so.
Okay.
But, you know, they were growing 75% a year to two years ago, so yeah.
And, remind me, like, this business has really high margins, correct, Wilson Wolf?
They're running about 75% op margin right now. Yeah, so it's pretty good.
75% op margins?
Yes. It won't be that when we get hold of it, so, you know, there's, there's more investments that should be made.
Okay.
But, it, it's—I mean, it's an aliquoting bottle on steroids. It's $1,000 a piece. I mean, so it's a one-time use object, right? So it's an incredible business, and it has superior IP. John Wilson's a mechanical engineer; he understands how to write a patent, so it's really good spot.
Sure. You know, when you look at your revenue mix, 75% of your revenues are protein sciences. That, that's your biggest-
Right
... bucket. I think you classify it into different buckets, right? Like, there's instruments, there is reagents, there's GMP, small GMP, cell and gene therapy. Is there like a-
There are a lot of platforms for our size company. We did that by design, so
Is there a way to, like, cut that pie, what that GMP is, you know, by these different buckets?
It's all laid out in our investor-
Yes. Okay
... deck that we gave a couple months ago.
Okay.
But we can go through it quickly. I mean, its instruments are roughly 10% hardware, another 10% for the cartridges. Consumables as a company are 80%, right? But when you break it down across the new segments, right, it's different. We have the old R&D Systems, call it, we call it proteins, antibodies, and kits. It's roughly 40%-45% of the company now, in that range. So we've done a pretty good job acquiring other things to build on. The instrument business, which was originally the Protein Simple business, right, was a $30 million business when we bought them, and roughly $250 million now just on its own, so. And you know, 30%+ op margins.
So very good IP, very good gross margins with the platforms. And we talked about spatial. Spatial is $100+ million, and, you know, it I think, is on track to be a low, you know, low-teen growth engine for quite some time to come, I think. I think the thing to remember is we're in these segments, roughly six or seven segments, and we're in a low share position in all of them. And our instruments don't really compete head-to-head with much else, they're more about a new way to do things. So our Simple Western platform is a way to automate a Western Blot. We're the only one in the world that has it. We have very strong IP.
So it's not about competing with some other mousetrap, it's about converting people from doing them by hand to using automation, which is much more reliable, much more repeatable, better data, et cetera, et cetera, faster. So... And it's, you know, we're sitting at a 15%-20% share position right now. So even, you know, last quarter, we were roughly, you know, in the 9% overall, but roughly in the teens growth still with that platform, even in these times, so. And, you know, COVID, that was a 50% grower through COVID, so, as an example, so. But all those are laid out in our investor deck. If you don't have it, just-
Yeah
... you can get it online, so.
Within GMP proteins, I think, that's another bucket. I think you called out, like, 40% growth in, in-
Right
... GMP proteins.
Right.
How big is it, and why is it growing 40%?
Well, it was growing 100 before we hit rough times here, so as an industry. So it—we expect it'll pop back. It's, it's growing that way because there's all that interest. There's, you know, 1,000 clinicals in the U.S., there's 350 in China, another 500 or so or so in Europe, and they're in all stages of preclinical to phase I and II, and we have 400 customers right now. G-Rex has 800. You know, so Miltenyi is still in more of the later-stage clinicals, but we'll be the one going out with G-Rex, hopefully in a closed system soon, and using that leverage to try and get people to convert to ours, so. And that's on the T cell side. On the regenerative medicine side, we're the leader, we're the world leader for sure there, so.
And that's, you know, largely mammalian based, so proteins.
Gotcha. You also announced MauriceFlex a new instrument. I think the size is $300 million. What is this instrument, and what assumptions are-
The capacity?
Maurice Flex.
Oh, Maurice. Yeah, yeah. So, it's... You wanna do a filtering, and you've gotta filter your samples and get them to a mass spec eventually. So usually, that's done with LC or GC. So this, what we've done is put a front end on the Maurice that actually can eliminate the need for LC. So you can go right directly from that sampling to mass spec.
... So that, that actually doubles the TAM of the market, so it's a big space to be able to replace mass, you know, HPLC in, in that, in that form. So that's a big driver. We are also now automated with Empower, which is kind of the standard out there for LIMS and, you know, connectivity within the factories. And so it's come a long, all these platforms we bought for one reason, but their applications are expanding. So every one of them, we've more than doubled the TAM since we've made the acquisition to new applications. So we see a really big future for our instrumentation, so.
Gotcha. And I think that the real cool addition that MauriceFlex brings, right? So it does all the normal protein characterization. Chuck already mentioned fractionation, so you can go directly into a mass spec, but it can also play into the ion exchange market now-
Yeah
... with that application, right? And the ion exchange market is a nice, nice market just by itself. And there's been, you know, there's been a couple of players in there, but that's a total new market for us.
Kim should know because he ran that business for Thermo Fisher once, so Dionex.
Gotcha.
Good memory.
Just a couple of maybe, I guess, one product question and then some big, big picture questions. On the product side, you know, ExoDx is. You cited some reimbursement challenges, but yet I think the most recent quarter volumes were up, I think 50%-60%.
We're close to inflecting with exosome. It's moving right up. The growth rate's been 50%+, even in these times, and it's going to get better, I think, more quickly. And then we're not even attacking primary care yet. We're still really only in the urology channel, and we've only really touched 20% of urologists out there. And even within that 20%, they vary all over the map from buying very little to some buying an awful lot, you know. But now we have the new NGS rule change for us to be used as a surveillance tool, so it can be reimbursed every year, if possible.
We can go back after the 130,000 tests sold in the last three years to those patients and talk to them again if they need another one. So this is all about avoiding unnecessary biopsies, of which there are still 1 million done a year, 1 million. So it's a big space, and there's a big need.
That inflection is now because of this move to surveillance?
It's just about critical mass.
Critical.
It's just more. People have heard about it now, so. And there's data out there, and then, and we're now at a five-year outcome study dataset. So there's, you know, that's helping the private payers get on board and, you know, so it's all, it's all happening. It's just diagnostics. It takes years. That's just the way it is, so.
We now figured out how it works, but, you know, so we're picking our battles. There's a very strong pipeline just as well in exosomes, where the new wave of assays will come out through our laboratory channel, selling directly into laboratories with some real cool markers. And, again, like Chuck said, for ExoDx prostate test, you know, we had to get the NCCN guidelines aligned with the reimbursement, aligned with new data. The 2.5-year study, 5-year study show that it's clearly better than standard of care. That data helps us again with coverage with private payers. So it's kind of like, you know, coming all together, and it was a longer route than we expected or hoped for, but now we're the experts in taking the hurdle.
Gotcha.
And it's a platform, you know, many more tests on the way, so.
Given I have both of you here, obviously, company announced a management transition. Chuck, for you, timing, why now? And Kim, I know it's tough to answer, but what are you going to do that's, that'll be different, versus your predecessor or predecessor-
I hope he changes a lot. Well, I've been in the chair 11 years when I leave, and that's, I think, long enough for any CEO. I think it's time for new eyes. I'm a builder, a kind of a turnaround person. There's nothing broke here anymore. I mean, it's been really a couple of years of delegating and spending more time on things that, you know, just not as necessary for me, I guess. And I'm thrilled that the board, which did an extensive search. I did a 2-year pre-announcing. Who does that, right? We did that because there were certain individuals that are under non-competes out there that maybe wanted to become CEO externally and would have to wait that out.
The board fleshed through all those, and at the end of the day, decided that the three people I personally groomed for the last decade or longer as internal candidates, they picked one of them. They decided there wasn't anything better to take a risk on externally versus internally. And, you know, Kim's well-deserving, and he's got much more technical domain than I do, which I think is also a need. You know, I've learned a lot in the 15 years I've been in life sciences, but, you know, I'm not a biologist. You know, I'm a, I'm an old programmer and chip designer, to be honest.
So it's time for, I think, someone that has more of that background, but someone who also knows our culture and knows our rhythms, our prioritization process, and our M&A process, which is pretty extensive and still a very, very big strategy going forward. And, you know, he's the right guy, and I was giving him a hard time last night. I hope he turns over a lot more rocks than I did and changes a bunch of stuff. So let's get this stock back to $120, you know, so.
It's not a high expectation, fortunately. No, it's a true honor, and Chuck has been great in not only grooming me, but also in helping out the transition and these coming months that we are working through the transition. It's been a long time coming. You know, I started my career many decades ago with Medtronic and went through small-sized, mid-sized companies, made my way to the U.S. after moving through five countries or so. Real global mind. Worked for the startup GeneOhm Sciences, sold to Becton Dickinson, stayed with Becton Dickinson for a number of years, and then Chuck hired me into Thermo.
So that's how we got to meet, and at Thermo Fisher Scientific, I kind of managed three different businesses of larger scale and complexity. The last four and a half years, the genetic analysis business, where the qPCR platforms are by now world-famous, was part of the portfolio, CE platforms, and, you know, Affymetrix became part of that business. Real comfortable with larger scaling organization, keeping speed, keeping things nimble. M&A has been my forte for five and a half years now with Bio-Techne. I really enjoyed it, building the diagnostics and genomics field. But that is not per definition my background. I love all the children in the family equally.
We have a beautiful core that is really strong and kind of feeds all our other businesses, and we have three or four growth verticals, of which two I've already managed, and two of them, the CGT, is new, newer to me, but looking forward to rolling that out and total believer in the potential of the cell and gene therapy market. For the last couple of years, we've been building together the strategic plan. We presented it in New York a couple of months ago. We committed to it. We think it's a very solid plan with upside.
Last but not least, what, you know, your question as to what I would change, I think it's not so much what, you know, what I would change with Chuck. I think it's more the economic environment has changed a little bit. Therefore, you know, you gotta look at how efficient you are. You gotta look at your footprint, you gotta look at, you know, growth opportunities, where we continue to be very, very keen on adding capabilities inorganically, but also make sure that you accelerate your organic growth and protect your core.
Fantastic. I think with that, we're almost out of time. Gentlemen, thanks for your time this afternoon.
Thank you.
Thank you.