Good morning, this is Paul Knight, the life science analyst at KeyBanc. It's a pleasure to have with me, Will Geist and David Blair, from Bio-Techne. Will is running the proteins division. David, now a long-timer at the company as investor relations head and vice president. Lots of things to talk about, but I think, Will, it'd be a great time, you know, kind of introduce you and what brought you to Bio-Techne, some of the things you're thinking about as you look at the opportunity.
Yeah. Hey, thanks, thanks so much, Paul. It's really a pleasure to be here. I appreciate you hosting the chat today. Yeah, so Will Geist, president of the Protein Sciences segment. I've been in the role now for a little over two years. You asked, you know, what brought me to Bio-Techne, and, you know, for me, it's pretty simple. It's really kind of the culture, the vision, and the strategy that Bio-Techne offers. You know, culturally, you know, we're a very direct, highly operational and execution-based team. Really strong pull from that.
I think from a vision perspective, the areas that we're playing in and leveraging our core technology in cell and gene therapy, spatial applications, and liquid biopsy resonate with me, certainly from a mission perspective and wanting to make an impact on society and science. And then, from a strategy standpoint, you know, we've got a really proven winning strategy, both with expanding our market through acquisitions, as well as just execution in the spaces that we play in. So those are all draws for me. Over the last two years, we've really worked to refine that strategy.
You know, as kind of winter came into our marketplace and kind of slowed things down, we've recognized that as an opportunity to reset and refocus some areas, whether that's commercially with some transformation efforts here in North America, and you know, bringing on new leadership in areas like Europe, and kind of deciding on how to invest in the future, whether it's our core portfolio or our strategic growth pillars. So, you know, that mission's certainly not completed at all, but we're a little over 2 years into it and looking forward to the next, you know, 5 or 10 years here, as we continue to have a great impact.
Okay. As a long-term participant and observer in the industry, Will, what do you think happened to this reset in budgets? Meaning, is it excluding China, that's a different discussion, I know. What, what do you think is the reset? Is it lack of cash post-COVID, biotech funding? What, what are your thoughts there?
Yeah, you know, certainly I think you know that there was this incredible, unprecedented investment coming into this space, you know, and with the era that we call the post-COVID halo period. You know, I've always been a believer that, you know, science will save the world and kind of advance society, period, and, you know, certainly the way we've invested in that as a society, especially in North America, in the western part of the world, and with the rest of the world coming online now, you know, I think that long-term view remains there. I'm incredibly bullish and positive on our industry.
I think there was a natural step down as capital markets became more restrained and wanted to monitor kind of their bets into this field. I think what we're seeing now, and we've got a couple of months now of increased funding co
ming back into the marketplace. When we look out to the future, we still think that we're probably a couple of quarters away from, you know, that wind coming into the sails of this industry. But we've got some kind of nice early indicators there. You know, I think as we think of this period, what we have seen is that, you know, companies that are delivering, you know, productivity solutions like our ProteinSimple portfolio are uniquely positioned with content in these emerging fields of spatial biology and high-throughput proteomics.
You know, we think, those companies, and we, we are one of those, we're probably the leader in that space, are gonna win kind of out long term.
And then I'd just highlight some of the businesses within the Protein Sciences segment. Why don't you highlight the one you'd like to talk about for starters? Is it spatial biology? Is it ProteinSimple? You know, I'll let you start. I have a couple of questions around this topic.
Sure, of course. They're all super interrelated, you know. Thankfully, from a strategy perspective, that's the case. Why don't we start out with cell and gene therapy, if you'd like?
Yeah, in cell and gene therapy, what are your key products?
Yeah, so in cell and gene therapy, you know, if we think of this space as immuno-oncology and regenerative medicine, and then finally, kind of gene therapy. So we're really uniquely positioned across the cell culture components of immuno-oncology and regenerative medicine. So regenerative medicine would be things like working with pluripotent stem cells. In immuno-oncology, we'd be working to weaponize T cells for those folks who aren't familiar with it. And gene therapy is the insertion of a gene so that the body can to replace, you know, kind of a damaged gene so that the body can produce a protein that would correct whatever, you know, the abnormality or misfunction is. So we manufacture cell culture reagents. We have GMP-grade T-cell media and iPSC media.
We manufacture GMP proteins, so we got the broadest range of GMP proteins available. That's really critical in the regenerative medicine space, where we've got a nice market-leading position in a very nascent market.
Yeah.
I think immuno-oncology, we make kind of the three or four critical GMP proteins that would be leveraged there to grow cells. We've also got a portfolio of small molecules that are leveraged, particularly in the regenerative medicine side, and they're complementary to our media and our proteins, in that space, in that they help kind of keep cells in a certain state. Those things are like ROCK inhibitors, Activin A, things that we kind of are uniquely positioned in the market that we're investing in. And then finally, if we think of just the cell culture manufacturing component, we've invested in Wilson Wolf, so we've got a 20% stake. We'll own that entire company by the end of 2027. And think about that for immuno-oncology.
They've got a tremendous position with greater than 700 customers in that space. Four of the last five approved drugs in cell and gene therapy are manufactured in that G-Rex format, and think of the G-Rex as the application store where our proteins, antibodies, and cell culture agents will be deployed. And we're working with Wilson Wolf to deliver an aseptic cell culture system. So as our customers start early on, before clinical trials, doing research, they can leverage kind of the open, open format, and they'll derive more and more value as they take it into the clinic. So we're uniquely positioned there. And then I'll finally finish off with, as I mentioned, everything's so complementary, so we think of our instruments portfolio as a growth factor as well.
Our instruments are really leveraged across cell and gene therapy in three ways. Maurice platform is for, you know, adenovirus characterization, empty/full capsid release. It's leveraged across both cell, or sorry, immuno-oncology, regenerative, and gene therapies. Ella is leveraged for targeted potency assays and other applications. Our Simple Western platform is also leveraged, and is currently leveraged in an FDA-approved gene therapy drug. And then finally, our spatial biology portfolio is leveraged to characterize you know, where these therapies and proteins, or excuse me, the therapies are being directed within the body.
So in a sense, while we're, you know, very anchored in the cell culture manufacturing component of the space, we've got the characterization side that comes online, and tools that are used in both the development and the actual quality control for the products.
I'll start with the broadest question first, and that is, there's been mention at many meetings over the last several years, how really non-standard it is to be in the cell therapy production business or an innovator, how non-standard gene therapy really is. Are we getting there, and do you think you're kind of one of the leaders to get us there?
Yeah, you know, certainly. I think what you're pointing out essentially is it's a nascent industry, right? So all of the standards kind of being built up around this are unique. These are by definition early in process, so kind of, you know, how do you standardize and automate and make these, you know, accessible therapies? I think, you know, one of the great debates happening in society is the cost of medicine, and certainly for these applications, they're, you know, oftentimes one-time life-saving events, but they may cost $hundreds of thousands. And so as you think of not just kind of standardizing and automating that and the efficiencies that would bring and reducing costs, you know, we're really focused on that.
When we think of our mission, it's not, not about just getting to the drug, it's making it accessible to, to the masses. And so as we've invested in the G-Rex and into the ScaleReady joint venture that we've got, the whole idea is there, there is to offer superior solutions that can be automated, that ultimately, drive down the cost of manufacturing, but also the research and development phase. You know, as funding has dried up to, to this marketplace, we're seeing tremendous adoption of kind of the tools that we use for early research and development of the G-Rex platform and, and our, our proteins and antibodies in the space. And, the, the good news is, if you get your drug, it's actually super scalable in these formats.
We look at some of the other industry standards, like the Miltenyi platform, that doesn't scale at all and will only, you know, continue to expand in the cost of access to these drugs. So we think we're incredibly well-positioned. We've got a really nice value proposition in this space, and if you think of immuno-oncology, for example, the G-Rex is already utilized in almost half of all the clinical trials, right? And so, our idea is just we want to have a very big footprint in the pre-IND workflow so we can kind of keep carrying the portfolio and that App Store with, of course, our applications in it into the broader clinical marketplace.
What portion do you think, the Techne is exposed to cell and gene therapy?
Could you rephrase the question? I'm sorry.
Of the total—maybe David, this is for you.
Yeah.
Of the total revenue, what portion is related to the cell and gene therapy marketplace?
Yeah, so the cell and gene therapy, you know, the GMP proteins, the kind of the reagent side of the business is about 7% of our, our portfolio at this point, 7% of the total company. Although, like Will was just talking, you know, it really... It's, it's a little challenging to, to quantify because it touches so many different areas of the, the portfolio, you know, instrumentation, Spatial Biology. So it's, it's a little challenging to give you a number beyond that, Paul.
Right. Got it. The GMP production business, Will, that's new. It's been online now, I guess, what, a year? How's business at the GMP site in St. Paul?
Yeah, so, you know, we've been manufacturing GMP proteins for much longer than that. GM-
Forever.
St. Paul came online over a couple of years ago, and so, as I said, you know, we're seeing, you know, strong adoption of our GMP proteins really across the board. Out of St. Paul, we're primarily manufacturing for immuno-oncology applications, and so we've seen really nice adoption and uptake of our GMP portfolio there. And then our Minneapolis location, where we manufacture, you know, a much broader range of GMP proteins, those are leveraged, you know, really across the regenerative medicine and immuno-oncology space. So, we're really well-positioned in both cases. As I mentioned, and our strategy is to, you know, place lots of bets on the table for our customers.
In the regenerative medicine space, we have more GMP proteins available than anybody, but we also have, you know, kind of this track record of delivering kind of highly active proteins into that space, kind of uniquely so. And we're finding there particularly that there's a nice, you know, value proposition. In addition to that, on the regenerative side, we leverage our Tocris small molecules business. So that marketplace uses several products, including a ROCK inhibitor, Activin A, and others, and we've expanded and are investing in our GMP small molecule-
- manufacturing as well. So, we see a very nice upside in complementarity between the proteins and the small molecules piece, in addition to the cell culture side of that equation.
Okay. I know that, you know, I think a while back you had mentioned about a quarter of your customers were really early stage. That was kind of the right data point, was it not, David? And-
Yeah. So Paul, about 50% of our business is biopharma at this point. Of that 50, less than 20% are what I would classify as smaller biopharma. So yeah, you're in the ballpark.
Yeah. How's that market looking now? Still, well, we're seeing IPOs, right?
Yeah, I mean, I think, you know, after a very challenging Q4, calendar Q4 for the biotech funding environment, I think the reports that we read were, you know, we were at the lowest funding level since 2016. What we've seen is January and February have recovered pretty nicely. I'm sure you've been reading the same reports that we have been. You know, so that's an encouraging signal. We'd probably expect, you know, over the next one to two quarters, that will start to flow down to us and impact our business.
Yeah. I hear there's a lot of pipes in the world today as well.
Yeah, that's good.
Yeah, that's good. And, Will, I mean, what's your experience? I mean, as I look back, look, you know, there was obviously a COVID dividend with all of that cash from COVID funding non-COVID R&D, I would assume. Do you think that's going to be a potential with GLP-1s as well, if we have a handful of pharmaceutical firms with a lot of extra cash? Do you see that filtering into research budgets in general?
Yeah, we really do. You know, I think, again, I'll reflect back on the first part of your statement, which was thinking through, you know, what came from COVID, right? So what came from COVID was this tremendous focus on proteomics, right? And, you know, and immunology. So we saw this incredible stand-up of kind of capacity and capabilities across the marketplace. And so, you know, our view is that eventually translates into kind of these early development programs that will kind of filter through. So yeah, the answer is, hey, with that capital that's on hand, you know, how is it going to be deployed and invested? And we think that, you know, we've planted many seeds, you know, kind of from that COVID halo.
But what happened is we had this tremendous drive in immunology in the space. Again, think of that as, you know, advanced, or as, as, you know, fueling a proteomics kind of revolution. So as the discovery is happening with these high-throughput platforms that leverage our, our content, you know, everything kind of comes to, to, comes back to, you know, how can we leverage that capacity and capability? So we do think that that carries through, and so we get it from two ways. We get it from, or we, we will benefit from the leveraging of our content, but actually, the systems that we've got that are really pointed at that pharma biotech segment for protein characterization and content deployment, those are- that's the win all day long for us, and it's already been...
You know, it's demonstrated growth over a long period of time, and we expect that to, you know, continue to grow as, you know, capital and some of the cautiousness comes out of the marketplace.
How do you feel about your positioning in spatial biology?
I'm sorry? How do we-
How do you, your position in spatial biology?
Oh, sure. Yeah, it's one of those, I think, really unique and beautiful stories of content, unique technology in the ACD Double Z probe technology, the proteomics content that we bring in from the antibodies phase, along with the Lunaphore investment to automate RNAscope, which, you know, leverages our ACD portfolio and the Double Z probe technology. But that platform deploys both antibodies and the ACD RNAscope technology. So now you go from a world where you had a kind of a multi-day, very low-throughput application space, to one that is, you know, automated and simple. And so in the fourth quarter of this year, of our fiscal year, we'll be launching kind of the first, you know, fully automated, multi-omics platform.
And so kind of zoom back, well, we started developing content here 40 years ago, and who would have imagined in the future how valuable that content would be deployed on that system? So we have a history of deploying content on both our systems and other systems, but you now kind of got this cutting-edge component of spatial biology, we'll be doing that same thing. So imagine we've got this another vector coming in, where discovery is gonna be happening, and we're gonna be pulling through, you know, as the discoveries happen, excuse me, and start getting translated, that'll pull through again back to that strategy of licensing our portfolio and optimizing our content for specific applications, along and partnering with our customers.
... It's hard for investors to size and put spatial biology into a frame of reference. How would you help the community understand it well? Would you say, "Hey, it's a business that's growing 20%?" Is it, you know, 10% of the scientific community utilizes that spatial biology? How big is it for us at Bio-Techne now? I mean, how would you frame that up for us in your own thinking?
Yeah, I'll start off, and maybe I'll ask David to kind of comment a little bit more on the general marketplace. So, you know, we think of ourselves as we're the largest spatial biology company in the marketplace. So with just the revenue alone, excluding Lunaphore, we already were, right? So we add Lunaphore in, we consider that to be an accelerator for us in the space. So we've got a leading position in the market. As I think about the broader market, I know that it's growing in a high teens, maybe low twenties. David, you can probably comment on that more explicitly than I can.
And, you know, we've got a tremendous position in the market, and I think a unique position with our content and how we're deploying it kind of going forward. So, you know, again, we're very bullish on it. But I think relative participation, David, do you want to maybe add and comment on that?
Yeah, I mean, the spatial, spatial biology market is growing north of 20% at this point, and we think with ACD and Lunaphore combined, we're going to be growing, well north of market. I think the, the rate that we provided during our Investor Day was 30-ish%, or north of 30% was kind of our expected growth rate, over the intermediate term. ACD is annualizing north of $110 million at this point. You know, you combine Lunaphore with that, and we're, you know, we're on our way to, to potentially north of $130 million, so.
Okay. Question from outside is your operating margin was compressed in the second quarter from mix shift linked to Lunaphore, China, weaker funding. What's your normalized op margin, David?
Yeah, I mean, the way that we look at it, Paul, is that, you know, the first half of any fiscal year tends to be a little bit lower from an operating margin perspective. You have, you know, obviously, our first quarter is over the summer months, where activity is a little bit lower-
Yeah
... and then you have the holidays in the second quarter. So, you know, obviously a little bit depressed there as well. And then the second half of the year is when we typically see a nice lift in volume, and that translates into our operating margin. You know, we did mention that, we're expecting to finish the year in the mid-30s% from an operating margin perspective. So, you know, 34%-36% is the range to think about. Probably a little bit more comfortable at this point at the lower end of that range, but that's the range. And we're expecting it to be a fairly linear progression. So, you know, our third quarter will have an uplift, and then our fourth quarter, again, we finish the year in the mid-30s%.
Then we can't have a conversation right now without talking a little bit about China. I mean, I don't think this guidance for through June of this year, through fiscal 2024, really assumes much of a rally. Is that kind of a fair assumption?
Yeah, I mean, I think, really, you know, I'd just reiterate what we said, Paul, is that we're really... we're encouraged with the stabilization that we're seeing in China. So, you know, we saw after a couple of challenging months, where it was, you know, down month-over-month, we did see December stabilize. That stabilization continued into January, and then, you know, it's encouraging. So yeah, you're right. The guidance that we provided is more for that stabilization to continue.
Yeah, okay. I mean, one of my favorite technologies has always been ProteinSimple and the automation of Western Blotting. Where are you in share of market there? It seems like, you know, why wouldn't I go from traditional slab gel to ProteinSimple? But if you could talk to that.
Yeah, hey, thanks for that. It's always nice to point out something, you know, we've got a really strong position in there and really revolutionized that application. Maybe a couple of comments on that. So we think, you know, in the pharma biotech space, you know, if you're doing Westerns, you're doing it on the Simple Western platform, right? And if you're not, you're going to be doing it on the Simple Western platform. We get tremendous demand from pharma and biotech there to continue to advance that. And so we see a future where that platform goes beyond its current kind of application space as we kind of refine all of the parameters around it, around consistency, et cetera.
As we refine that, you know, we could see that almost coming online as another immunoassay type of portfolio platform that gets leveraged across similar applications for any immunoassay, depending on the tool. So we're investing in that. You know, we would expect to be able to deliver those things to the market here over the next, you know, 24 months or so. As we think of the platform being adopted in the academic space, you know, certainly, you know, the cost of labor and needs for efficiency are different in that space. So I think if you asked an academic researcher if they wanted to leverage Simple Western, the answer would 100% of the time be yes.
But, you know, we've got a situation where essentially the labor is free in that market. So time and labor, while you'd think they, well, I would like to think that they matter more right now, that they don't. So that is a little bit of a drag there, but we see continued adoption, right? We've got more than 3,000 instruments placed. That's going to continue to ramp. We're deploying our content and other content on the platform. So, you know, we see no end in sight for the platform to continue to ramp and take share.
You know, it's one of those breakthroughs that the ProteinSimple team brought forward in the marketplace, and we're investing heavily to continue to expand, you know, the applications on the instrument.
... Not naming names, there's a lot of technologies in spatial biology that are doing massive analysis of the proteome, so to speak. Yeah, and I match that with your leadership in monoclonal antibodies. Are you not going to usually be involved in some of these panels that are being developed by these huge throughput products in spatial? I mean, how can they not avoid getting involved with some of your mAbs?
Yeah, again, I'll kind of come back to a piece I shared at our Investor Day, and I, you know, consistently share. We have a unique position in content that nobody else has. If you're doing high-throughput applications and spatial applications, you are leveraging our antibodies, right? So the de facto standard right now in high-throughput proteomics, that company leverages our content. We are able to participate in that revenue through licensing commercial supply agreements. As you can imagine, as that gets translated into a diagnostic or other application, we carry forward our rights. So it makes sense that folks who make a discovery with an antibody, given the complexity of proteins, that they'd want to carry that through.
They may want to refine it, and they'll want to deploy it on whatever instrument, you know, helps them get the best answer. We have a couple of instruments that would enable them to do that with our partnership with Luminex. And we've announced, you know, a couple of quarters ago that the multiple infection applications that we're a preferred partner there because, you know, essentially everybody on that platform leverages our content anyway. So they chose us as a partner. And we want to provide a path for people to leverage and deploy our content. And again, we're casting a very broad net with the tremendous uptake of high-throughput proteomics. And I mentioned earlier this convergence, excuse me, into spatial. If you're doing spatial applications and you're leveraging antibodies, you're leveraging our antibodies, most likely.
You may be leveraging others as well, but we've got more shots on goal typically than any other provider does. We're not, you know, slowing down. We're keeping the accelerator down in terms of how we innovate and leverage things like AI for advanced development. We've got partnerships that leverage our kind of broad library of clones, of sister clones for our launch products. Content is a, is a really strong play long term for Bio-Techne and frankly, for this industry and for society. So we're really excited to be taking a really strong and responsible leadership role in that regard.
Destocking, was it an issue for Techne in the business?
Yeah, there was some impact from destocking. So, we've talked about it in the past, particularly on our license and commercial supply business, so think of that as our kind of OEM and supply out. So, you know, as the industry was hit, as kind of winter came post-Halo, we saw that there was a significant ramp-up in stocking. I think we've spoken explicitly about that in the past, and what we're seeing is that that is now we think in the rear-view mirror as we go forward.
Maybe there's a couple of little crumbs still left around from that, but just generally speaking, destocking is something that did impact us and, you know, as we look to the future, will not have much of an impact on us.
David, what's your current long-term growth rate guide?
Yeah, so in our Investor Day, we laid out a, a mid-teens, growth rate, Paul. But, you know, I think the way to think about it is, you know, over the, the period, call it the, the COVID hangover that we've been going through, we've pretty consistently outperformed, our competitors in the market by, you know, 500, 600, 700, 800 basis points. And as the market recovers, we would expect that spread, that to continue. So, you know, I think you take the market growth, and then you, you add that, that premium growth that we've been delivering ahead of the market. That's what we'd expect.
Right.
Yeah.
And then, it's kind of an unknown. You know, some people are talking 1% market growth right now, but that's all subject to each company's opinion.
Yep.
And then, Will, I guess as we wrap it up, sorry, question here is, the... I guess, you know, your long-term view on this China market, is it, you know, is R&D going to be a priority in the future in that marketplace or no? I myself, I've seen the hospitals, vendors, you know, kind of recover, but R&D not. You know, what's your read on the political makeup there?
... Sure. I'll answer a couple of these. I will address the hospital side. So, you know, clinicians in China have to publish as part of what they do. So there's-
Okay
an inherent link in that marketplace to research. So, and much of that, of course, happens in the hospitals themselves or kind of associated universities. As we think of China, I think longer term, you know, the view is that, you know, they've got a tremendous investment that they've already made into this space. They're certainly kind of due for a reboot. I can't imagine they're gonna walk away from, you know, the most critical investments. I think they also are thinking about the healthcare kind of economics aspects of things. And they know that for them to be successful in deploying these technologies in their society, they're gonna have to continue to invest.
We did hear last week that we would expect some investment coming back in terms of stimulus. In the instrument space, we're still waiting to understand how that gets characterized, but it looks like it'll be deployed in those areas where we are uniquely positioned. Meaning, you know, advanced therapies, that type of work as it relates to cell and gene therapy and maybe biologics. But we'll, we will see. Our long-term view there is that they're committed to this space. You know, does a J curve or are we at the bottom of a cup that eventually kind of grows back up? We feel very, very good about it. We're well-positioned. We are still making investments in China.
So we're, you know, building a new GMP manufacturing facility there to serve the Chinese market. We still sell a lot of our GMP proteins from the Minneapolis and St. Paul sites into that marketplace. But we also feel that longer term, there may be a China for China, particularly on things like the reagents part, hence that investment. So, you know, we're placing a bet that is bullish on China. In terms of our instrument portfolio, you know, our instruments are so unique. They're not things that ever would be easily replaced in that marketplace, so there isn't any view of a China for China approach with our instruments portfolio.
They're not easily copied and, you know, they're critical in all aspects of research development and manufacturing processes. So, again, I think we feel very strongly that long term, China does recover. But you know, it's hard to call the ball on the exact kind of ramp and what that curve looks like.
Yeah. Thank you. Well, with that, you know, we're at 10:20 and our stop time, but I really appreciate your time, Will and David. Thank you.
Yeah.
Thanks.
Thank you. Thanks, everybody, who joined.