Great. Thanks for joining us for our next session. My name is Mike Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team, and we're thrilled to host Bio-Techne. We're joined by Kim Kelderman, Chief Executive Officer. Kim, thanks so much.
No, thank you. Thank you for having us, Mike.
Great to have you. Just to kick things off, you know, we'll start with sort of the default starting question of, you know, you reported earnings a little over a week ago, maybe two weeks ago. Maybe we can start with a quick summary of the fiscal 3Q results.
Yeah, I think that, obviously that was the best 2% growth I ever had in my career. Overall, we were pleased with the results. During our earnings call for Q2, we had mentioned that we saw and we're navigating three headwinds, and one was the funding environment in biotech. The other one was the environment in China, and that we prognosed a much better destocking environment for our fiscal year Q3. And, you know, those assumptions really came true, and that's how the quarter played out, and that resulted in the 2% growth. That was broken out into our two segments, 10% growth, organic growth in Diagnostics and Genomics, 16%, inorganic growth. And then, the Protein Sciences segment was still declining a little bit, but with -1%, and that resulted in the 2% growth.
We really focused on making sure that we serve our markets right and get the full potential out of the company while also optimizing our bottom line and making sure that we run the company very efficiently. And that resulted in a 290 basis point improvement on the bottom line sequentially, and that, in total, landed us at a 33% EBITDA.
Great. We'll, we'll take it from there. I want to follow up on there. So you talked about some of the headwinds that you're able to overcome, you know, funding, China, destocking. So just, consistent with what we've heard from a lot of others in this space, it's been something that's been plaguing the industry for, you know, 6-12 months now. There's a broad expectation that things are going to start to normalize and improve. So what's sort of your assessment of, of how fiscal 3Q played out? Is it just a little bit of a lumpy timing, false start, or is this really an indication that, you know, you're working through these headwinds and emerging the other side?
Yeah, thanks for the question. I think fundamentally, we, we had the assumption that, some of these headwinds were in the process of bottoming out, right? And, in the meantime, we know that we indicated some green shoots, and, that was mainly based on a couple of months of very good funding in, in the biotech, biopharma space. A couple of months doesn't make it a trend, but it is a green shoot, and, and we are, we are well positioned to, to see some of those funds come our direction in the coming quarters. And then the same for, for China. We, we were not indicating that this is all turning around and going to be a V-shape, recovery, but, there were some announcements around, broader funding plans, to, to modernize, equipment in various, industries.
We will be also there very well positioned to capture that tailwind. In the meantime, the company has performed well against a peer group, under the same environment, under a constrained funding environment. I think that was based on the performance of our four growth verticals. We always talk about, you know, 45-54% of our portfolio is related to our core consumables, and we always outperform the market a little bit there. But what we're really banking on right now and what we really see the differentiator is the four growth verticals that we have in our company, and those have really driven tremendous growth. For example, our bet in cell and gene therapy has resulted in 30% growth.
We feel that is a long-term, growth market and that we're really positioned well there. Our spatial biology business has continued to launch an instrument, called COMET from the Lunaphore acquisition, which is really going well. And then we have our protein analysis instrumentation, even though CapEx budgets are constrained and the number of instruments we sell is not the same as last year. However, the pull-through and utilization in consumables is continuing to grow at double digits. And, yeah, last but not least, our liquid biopsy business, the molecular diagnostics, our prostate cancer tests continue to grow at 25%, and our laboratory product channel, our kitted tests in this business have also been growing at 30%.
So it is truly those growth verticals that are growing and pushing the company into the positive territory, and that created the differentiation with the peer group. And we continue to see that continuing in the future.
All right. I want to touch on pretty much all of those growth verticals later on, but first, let me just wrap up a little bit on the end market trends. You know, you talked about biotech, good trends in the first quarter, good indications of funding. You know, we've all seen the numbers in terms of money raised quarter to date and how that's compared to the last couple of years. But just, you know, money raised doesn't necessarily translate to money spent. So sort of what's the lag time there? What are you anticipating? And, you know, how many quarters do you need to see of consistently better biotech funding to, to feel, you know, much more confident in, in biotech as an end market?
Yeah, that's a good question. It's also very different. So how long it takes for the funding to trickle through is different for each vertical market. There's different spaces, as well as whether it is a consumable or equipment, right? CapEx usually takes a little bit longer if it comes to, you know, approvals, etc. And spending on consumables is a little easier. And, of course, you if you already have an installed base, you can start running your consumables relatively quickly. So, taking all that differentiation into consideration, on average, we expect, you know, a lag of 2, 2 ±1 quarter if you after a company gets funded or a program gets funded. For us, the most important question is, are you sitting in a space where the funding will flow to?
I think that, specifically in Cell and Gene Therapy, we have, you know, several of our businesses aligned with that end market. I think that everybody agrees that Cell and Gene Therapy is a fantastic opportunity to cure diseases we've not been able to really treat so far. Yeah, we have our protein analysis portfolio that really helps looking at quantification and QC, QA of these workflows. We have our GMP portfolio of proteins and GMP cytokines, chemokines, all the different ingredients, including small molecules that you would need to, you know, to fulfill the workflow. Then, we also have our Spatial Biology portfolio that helps you to see while you're working on these therapies, helps you to see what happens where on molecular level.
You know, all these product lines are basically feeding into that end market, and we believe that end market across the world, so including China, and in the Western world, will be an end market that will see a majority share of the funding.
Okay. So maybe we'll pivot from there to cell and gene therapy just because you've touched on it a couple of times. It's been a very promising end market for a number of years, but it's still pretty early, pretty nascent. What do you need to see in that end market to feel like it's really hitting its stride? I mean, is it just a matter of time? Is it just a number of programs advancing later through pipelines? You know, it just feels like it's been sort of in that future promise stage for a while. So when does it become more real? When does it get to, you know, where monoclonal antibodies are today, right?
Yeah, and I think, of course, several aspects to that. Of course, there need to be viable treatments, right? And then there need to be, they need to be able to clear regulatory hurdles that, you know, that's, that's, of course, always a big hurdle for companies and bringing their products to market. And then, there needs to be scalable as well as affordable solutions, right? And I think that is the trick. Fortunately, our company has innovation that really helps further on all three fronts. So, we have, as I already said, the GMP portfolio, right, which basically means those are ingredients that are already having a certain regulatory scrutiny that go into that workflow. The scalable and the affordable part, there we are very excited about the progress we made with Wilson Wolf, right?
That's a company that we now own 20% of, and we will eventually own the whole thing. And they bring the G-Rex, which is basically a container with a very nifty way to get oxygen in this container to the cells that you try to multiply. And, yeah, that container allows us to put in all the reagents, the GMP cytokines, chemokines, proteins that will help these cells to divide. And, more importantly, it will help you scale the number of patients, right, because it's important that it's cost-efficient and that you can scale it in your facilities. And, you know, in the case of a G-Rex, you know, the common size is one-liter size, and over 10 of those fit in an incubator, and many incubators fit in a laboratory or in a certain space.
So, it's scalable. So if you now think about all these hurdles, they, you know, we're absolutely helping out on the regulatory front, on the scalable front, and the cost position. So we are very, very positive on that end market and specifically because we are enabling that end market to become what it will become.
I mean, some of the points you touched on there, sort of the, the ability to scale, you know, the regulatory hurdle, the, the consistency dose to dose, patient to patient, seems to be a lot of focus there from you and from others in the space. Are there any capabilities you need to, to add on, you know, on top of, of the work you've done with Wilson Wolf, you know, to broaden the portfolio, or do you feel like you kind of, you know, have everything covered there?
I think we have a real broad offering, so we're definitely ready to benefit from the progress that market will make. Are there still gaps in, or opportunities to add to that workflow? I think it's high on our inorganic list. So if you think about our inorganic plays, there are several companies we follow and are very interested in that we build out our cell and gene therapy play. We also have other targets that are related to any of the three other verticals I talked about. And, of course, bolstering our core is never a bad idea. So I think that's more or less how we round that space. And we've got most of the ingredients in place, no big gaps to operate.
But yeah, there was always other things that we would like to add to the portfolio.
Okay. All right. So moving on to some of those other growth verticals you talked about, you talked about, you know, GMP protein, protein analysis. What's the competitive landscape there currently? How does, you know, how does Bio-Techne differentiate itself from some of the other players?
Yeah, I, I think we differentiate ourselves. First of all, we have we have 6,000 proteins in our RUO catalog, right? And, and we can exactly see which proteins are of high value for certain workflows, including the cell and gene therapy workflow. Then we have this mechanism to port them over to our, to a facility, separate facility that has this GMP, protein, capabilities. We have over 40 GMP proteins now in that facility, and some are mainstream, but some are very unique, complex proteins that nobody else offers. At the end of the day, your menu is going to matter. So we are we are basically porting over, the most important, proteins into the GMP facility. On top of that, we believe that the GMP certification is important for other ingredients. So we will launch this quarter, pro GMP antibodies.
We already have GMP media and GMP cytokines and chemokines. And in Europe, we have invested in a GMP facility for small molecules. And, you know, therewith, you can see that not only do we believe that the menu as well as the GMP capabilities are important, and not only for cell and gene therapy, but for basically anybody that wants to go downstream from research into clinicals and into the clinical market. So we want to make sure as a company that we can support these customers along the line.
Okay. And in that market, there's been a decent amount of M&A among some of the other players in the last couple of years. You know, Revvity buying BioLegend, Danaher buying Abcam. So a lot of assets have changed hands, now sort of in the hands of some of the bigger players and tools. Have you noticed any change in the competitive landscape in the market?
I think companies have, of course, a desire to grow and become relevant in their space, whether they're large or small. We have tremendous respect for the Thermos and Danahers of the world. But it doesn't take away that we also have competed in these different end markets for a long time, and whether it is in China or in the rest of the world. So we feel comfortable that we have a very good strategy. We have a great menu, great offering, and then that we are really efficient as a company. Innovation is important to us, and we have really focused on increasing the efficiency of our sales force as well. So I feel that we are really well positioned to compete on just the core reagents, as you mentioned.
Mm-hmm.
And then even more so on these vertical markets that I mentioned earlier, the growth drivers of the company. Yeah.
Okay. Okay. Talking about spatial biology, you know, that's a very competitive landscape. There's been a lot of new entrants in this space. Also still a really early market where we're still trying to gauge sort of what the longer-term opportunity is. Just what's your long-term outlook for that market? Where do you think that can grow?
Yeah, I think let's first agree that that is a real, real interesting market, right? So, being able to see what happens where in a tissue is just very relevant. It has been for immuno-oncology. It is for neurology, and it is also, and it will be even more so important for cell and gene therapy. You know, think about the building blocks we put together. Also, that vertical, we have invested more or less $500 million inorganically and, of course, focused organically on building that vertical out. We have a fantastic asset in the ACD acquisition from seven years ago where we have the RNA reagents to interrogate RNA. And, you know, over the years, we built a library of about 50,000 probes, and we can make any custom probe you would want.
In the meantime, over the last year, we have acquired Lunaphore, which is this automation instrument, which is basically the only one in the market that is fully automated, right, from sample, putting your sample in all the way to an image. It's high throughput, right? Much more throughput, or more slides you can run in a week than the competitors. And then last but not least, very repeatable results, which will pull through not only our ACD reagents but also antibodies. And the antibodies you need to look at proteins. So people want to see whether these RNAs eventually become proteins. And we can show these results on one slide and there with true multiomic and also the only true multiomic company in place.
So we are certain that we will be and continue to be a very relevant, if not dominant, player in the spatial industry. And, yeah, we're very hopeful and keen to see how it unfolds.
Okay. I mean, same thing. A lot of moves there recently with Bruker acquiring NanoString. You've had a lot of noise coming out of 10x, and again, there are a number of private players there. Has any of that changed your view of the market opportunity or sort of your positioning?
No, not really, because if you think about it, the NanoString as well as the 10x products really help researchers understand, you know, the thousands of markers and where they should be looking and which ones are of relevance, clinical relevance. And then if you really want to go deeper and run more samples and have very high sensitivity, single molecule, single cell, then you come into our area where our ACD reagents are very unique. Our Lunaphore platform is very unique, but we also have already a play into the clinical space where the ACD reagents sit on, you know, the Ventana. And it's Roche, obviously. So, Ventana Roche platform. And, you know, these, these, these are clinical plays, and we basically block that whole market.
We have great relationships with the 10x's and the NanoStrings because basically then they enable the researchers to come into our realm, and it's a great symbiosis.
You touched on it right there in part of that answer, but I want to expand on it. Where are you seeing some of the best demand from, from spatial biology markets today? Is it, you know, you touched on clinical, but I imagine there's still a lot of, you know, hardcore academic. What about just broader expansion into pharma and some translational work?
Yeah, I think pharma overtook academic a little while ago, a year and a half or so ago. And we basically see both these markets doing really well, right, in academic research. Spatial is very, very important, and so it is for pharma, biopharma. We're really encouraged to see that pharma, biopharma has really adopted the Comet box, the Lunaphore instrument, really well, and that certain customers are already on their second and some even on their third order of a Comet. And that gives us even more confidence, right, because the first box you have to sell, the second box has to sell itself because of the first box, right? So seeing customers having several instruments gives us confidence that they are really performing well, and that's also why we acquired the asset.
Okay. Any questions from the audience? If anyone wants to jump in? All right. We'll keep going. You touched earlier on, on China as one of those uncertain markets. You know, we've gotten, and yes, you know, there's the there's the stimulus, and that sort of, helps provide some comfort, but China in general remains a little bit of a black box for much of the industry. Just do you have any updated views on what that could look like for you longer term, you know, once we're through the, the near-term dynamics?
No, I think China, obviously, you know, they got a large population. Healthcare is high on the priority list for the government. And, you know, the independence from the Western world is a driver. So, I think, you know, they will set up their own cell and gene therapy funding, and we are really well positioned with the growth verticals. And I won't repeat them again, but to really feed that China market. And then for the more price-sensitive customers, we do have a China for China business, which we actually invested in. And that facility will, you know, a newer facility, bigger facility will come online at the end of the calendar year, and it will start producing GMP proteins at the back end of the next calendar year.
So, from all angles, we feel confident that we can support the Chinese market.
Okay. You know, you mentioned you touched on earlier sort of the relationship you have with some of the other vendors and tools. One I wanted to touch on was, you know, you recently announced a strategic agreement with Thermo. Can you provide some color and impact and just sort of, you know, what's the rationale behind that?
Yeah, yeah. I already mentioned Thermo Fisher Scientific, obviously a fantastic company. On top of that, the Fisher Channel itself has, you know, proven itself in the U.S. for a long, long time. And we have an agreement and a collaboration in the U.S. for the last 10 years already and know exactly how it works in Europe. You know, the channel's gotten better and better, and our organization is more mature. Right now, it was the right time to extend that very similar agreement to the European area. And it's a win-win for us. The Fisher Channel brings reach and convenience of ordering and a great website. And for Thermo, it obviously brings volume and growth in their Fisher Channel, which is their strategic priority too.
We tend to think of the Fisher Channel as being stronger in the U.S., as you said, than in Europe. Has that changed in recent years? Have they built out their capabilities around the rest of the world?
Yes, I think so. I'm obviously not an insider anymore, but I think that from if you look at the capabilities and listen to the European customers, Fisher has made significant progress in Europe. And you used to be, you know, VWR used to be the big bully on the block, but I think that's changed over time, and that's also why you see us placing our bets in the right corners.
Okay. That's helpful. I mean, you talked throughout the conversation, you touched on M&A a number of times, and that's been a big part of Bio-Techne's history. Is that, you know, still a priority going forward, and sort of what kind of assets, what kind of deals are you looking for?
Yeah, it's going to continue to be the highest priority for capital allocation. We've built these four growth verticals out of the many different acquisitions we've done, in a very targeted way so that we can kind of have a real powerful offering, patented offering that is differentiated on itself, but also by definition pulls through our core reagents, right, and our core reagents that we have a portfolio that we worked on for 47 years, which has very high margins and high value. And those consumables also make these instrumentation and/or the G-Rex in some occasions make them look better. We are absolutely interested in building out further the Cell and Gene Therapy. Any of the other growth verticals would also be a possible target.
Then strengthening the core is never a bad idea either. So, as you mentioned that, those would be the target focus for capital allocation and M&A going forward.
Remind us sort of what's your view of target valuations and seller expectations. You know, it's, it's no secret that they've been elevated for a number of years now. Is that starting to come back a little bit?
Yeah, I, I think, you know, what you pay is what you get, almost, right? So some of the assets that got cheaper were also the assets that we did not really wanted. And some of the assets that we are really keen on are still very high in value. So then it goes back to, you know, building, building relationships, making sure that, you know, we, we, we would be the best acquirer, making sure that we hone our integration skills. And we are actually a real good company to join, right? It's, we're, we're still very agile. We have a huge regard for innovation and a great team, non-political. So, so I think keeping those things in shape, making sure we have the dry gunpowder to, to be able to act the moment there is a deal to be had.
But we will stay disciplined because we do have certain aspirations for a target, right? A target should be able to grow higher than mid-single digits over a longer period, and it should be able to meet our EBITDA aspirations, which and if it doesn't, if you see recently, we've divested a couple of smaller product lines, if we can't meet these expectations. And that's a filter we will always apply to our acquisitions.
Okay. And what's the, how much dry powder do you have? Sort of what kind of deal how big could you be?
Yeah, I think it's always a mixture of, like, do you want to go equity as well as cash? We have, I think it's public information that we have more than $1 billion in dry powder. You know, nonetheless, I think the last five or so acquisitions, we were usually sitting anywhere between, you know, $150-$400 million. And, you know, that's not because we target that, because we're willing to public, private, large, small. But, you know, it seems to be a strength for us where, you know, the earlier stage companies where we can really do due diligence on whether the technology works, in the pre-launch or in the early days of launching. And there we can basically get a good price and still create the destiny or the future of the acquired target.
That seems to be a real good symbiotic secret sauce right there.
Okay. All right. We're almost at the end of our hour. I guess we'll end with our customer closing question is, what do you think is most underappreciated about Bio-Techne or most misunderstood? What are the questions you keep getting that you really want to address and correct people on?
Well, I think there's hopefully not really a lot that is misunderstood. But, you know, the secret sauce, as I mentioned earlier, was is that we have this portfolio of core reagents, and there's several dimensions. These, these core reagents, which right now is 54% of our revenues, they took us 47 years to put us together. There's tremendous know-how in there, and, and menu is important. And we want to make sure that we go to market with those products, and that these products have a pathway for regulatory approval so that customers can take them on their journey from research all the way to a clinical assay. And then for us, it is really important that we build our verticals. And these vertical markets are basically a combination of several acquisitions, the capital deployment, on average about $500 million or so per growth vertical.
And these growth verticals address fast-growing, large markets where we believe the mega trends are going into that direction so that these are relevant growth verticals and that there's a symbiotic relationship. So, the companies that we bought get the benefit of using the best reagents and the other way around. These core reagent businesses see pull through into those new verticals that basically revives their you know and strengthens their P&L so that continued investment into those verticals is possible.
Okay. Great. Great. Thanks so much. With that, we're out of time. Thanks, everybody. Thanks for joining.
You're welcome.
Thank you.
Thanks, Mike.
Appreciate it.