Next we can get going in the table.
Yeah.
All right. We'll look to get going here. Thanks for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have Jim Hippel from Bio-Techne with us today. So Jim, you know, a bunch of different stuff to cover. Maybe we can just start, you know, high level, as we work our way through the year here for you guys. You know, coming out of fiscal 1Q for you, you guys, you know, kind of reset a little bit in terms of the pacing, how this year is gonna go. Maybe just talk through the expectations, you know, for 2Q and then the ramp in the back half and maybe just some of the things to call out that changed a little bit over the course of the last couple months.
Yeah, sure. Happy to do so. Thanks for having us, by the way.
Yeah, of course.
It's always good to see you. You know, maybe I'll start a little bit with the dynamics of Q1 because then it parlays into how we're thinking about Q2 and the rest of the year. So we ended the, you know, Q1 with - 1% growth. We did have two of our cell therapy customers, very large customers who did not purchase any material from us this quarter and likely will not for the remainder of the year, and we'll, I'm sure we'll have some questions about.
Yes.
In more detail around that. So we gotta take out those two customers to really talk about, you know, the real company, the rest of the business. And if you back out, that's about 200 basis points of headwind. So the -1% really is 1% for the rest of the company in terms of growth. So we'll start there. You know, I'd also say I gotta put some end market context into all this, right? So when we, if we back up another quarter, when we came out of our Q4, which was the June quarter, you know, the go forward view was one of the murkiest I can remember in a very long time.
Sure.
In this industry for 20 years because it wasn't so clear where, you know, especially for academic and Biotech, and at that point, even Pharma, which direction the end markets were going, and our NIH was still in disarray with threats of 20%, 40% cuts, all that, all that stuff. We had Biotech funding that was down 30% year to date at the end of June, and Pharma, which had been doing well for us and had, you know, from our perspective, essentially recovered 'cause we had 2Quarters in a row of double digit growth in Pharma. We were concerned that that growth rate might start to come down because of the rhetoric that was coming out in July around MFN pricing and, and tariff, 100% tariffs, et cetera.
So, you know, coming out of that, coming out of our fiscal year 2025, the near-term outlook is, well, we don't really know if things could get, actually get worse before they even get better, much less when do they start to get better. Fast forward three or four months, a lot of things can change and a lot of things have for the better, thank goodness. The first one, most importantly, being Pharma, which makes up 30% of our revenue, you know, that seemed to have been a low storm cloud, like a monsoon that came through and left in like a Saturday afternoon. Larger Pharma companies stepped up. They put some pricing deals out there on certain drugs. I don't think we're all that painful for them and seemed to appease the administration. And it's been pretty quiet ever since then.
So I think everyone feels pretty confident that that threat has come and went. We saw it in the behavior of our customers too as well, where in July, before we had our earnings call, we saw a slowdown in our Pharma customers. So we kind of saw the correlation from the rhetoric translate into our results. But then again, right after those agreements were made, we saw it bounce right back. And we ended yet again another quarter of double digit growth in Pharma. So, you know, wipe the brow on that one. It looks like we dodged a bullet and Pharma is still in good shape going forward.
If we go to the other extreme and go to academic, what's evolved over the past four months, five months or so is that the appropriations committee for both houses in Congress have, you know, essentially messaged a roughly flat budget for NIH, which is a major improvement from a - 20% to -40% that was being batted around before. And we can see the anxiety of our academic customers start to settle down as a result of that. The worst quarter we had in our academic business, U.S., was in the March quarter when all this anxiety started with NIH and that we were down high single digits. In our Q4 June quarter, it was the upper range of being down low mid-single digits. And now in our most recent September quarter, it was down low single digits.
All moving in the right direction and kind of heading towards that flattish, I think, expectation that's now kind of most people have baked in. So good news 'cause there seems to be at least some floors developing on where that might go. And the floor's a lot higher than where anyone thought it would be initially. But admittedly, we're not out of the woods yet, right? There still has to be a bill passed and who knows when that will happen, hopefully January. And then we gotta see how the Trump and RFK administration actually administers that budget. But at least there's some green shoots coming out of academic there to at least stabilize the market, if nothing else. And then finally, there's Biotech.
For the first six months of calendar 2025, our back half of our fiscal 2025, we had been at, you know, flatish to low single digit growth in Biotech despite the funding being down 30%. We know there's a lag between funding and spending and no one knows for sure how long or short that lag is, but we know there's one. We did have concerns that we would start to see some catch-up there with regards to spending following the funding trends. And sure enough, that did happen in our Q1. We had one of the, unfortunately, one of the worst results in our small Biotech that I've seen in 12 years in this company where we were down high single digits in small Biotech.
Yet I feel better about small Biotech now than I did four months ago because what has also transpired is the funding levels for Biotech has increased each month, every single month since July, August, September, all the way through November, the last two months being very high, where that year to date, funding has gone from - 30 % now to - 13%.
Mm-hmm.
And in some ways, it shouldn't be a surprise. It's just, it's a high beta, high risk tolerance kind of investing environment. And, you know, you're all in when things look good and you get skittish when things look bad. And those investors look at Pharma because that's their eventual exit. And now that looks better. And not only that, but Pharma's picking up some of their M&A. They're doing a lot of licensing activity. So it all helps Biotech. And the stabilization in academic, I think, also helps Biotech because that's their future innovation. So it's not necessarily surprising that, you know, for Biotech to stabilize and improve and the funding to start to come back in the market, you need to see the cloud start to dissipate in those two end markets.
So it all goes hand in hand.
Mm-hmm.
So we think it's enough at least to stabilize the Biotech market for now and not have it get any worse from here. But in terms of it improving from here, back to that lag, we're only four or five months in of funding improvement. We need to see more of that. But assuming that continues, the likelihood of us seeing that in our numbers may not be until the start of our first quarter of fiscal year 2027, which is the back half of calendar 2026.
Mm-hmm.
It could have happened sooner, yes. But our base case is we don't really see it until then. So that's kind of how the end markets shape up in, you know, as the year has progressed, the calendar year has progressed. So now to your next question, which is, what does that mean for the future?
Mm-hmm.
And as I said before, we did on an adjusted basis, adjusting those two customers out, we did + 1% this quarter. Those headwinds from those two customers double next quarter from 200 basis points to 400 basis points. But right now we're predicting roughly the same overall growth rate. So call it minus one. But what that really means is if you add back the 400 basis points, the ex those two customers, we're improving from one to three. So what's driving that, that forecasted improvement? Not the end markets because we're, our base case is that Pharma is, is already at normal, stays normal, and that Biotech and Pharma kind of stay where they're at, but don't, but don't materially improve until we get to the back half of 2026. But what does improve is our relative performance led by our ProteinSimple franchise and our Spatial franchise.
We have a long history now, over a decade history with ProteinSimple, to know that ProteinSimple often leads us into a recovery. They help keep us as a company in the black throughout the entire downturn of the last three years. But we've never had a down quarter in ProteinSimple. And we also have data that demonstrates that during normal markets, they far outperform, they far outgrow the market, which we kind of internally compare to our core reagents. During a down market, that spread, they still outperform that, but that spread narrows quite a bit. And during a stabilized market, it's somewhere in between in terms of that spread. We believe we're at the turning point of a declining market into a stabilizing market.
Therefore, we expect ProteinSimple and our Spatial Biology to perform better, relative to the market, more in a stabilized market than they would in a declining market. Now, we have some current data to support that. This isn't all just kind of history and algorithms because we've seen steady progression in ProteinSimple throughout the quarter and Q1 into October. With regards to Spatial, it was notable because we had our only down quarter in Spatial in Q4. It was down low single digits and it was flat in Q1. But more importantly, in Q1, when you peel the onion back a layer, our reagents flipped from being negative to positive. And our instrument component, although the revenue was still down, the bookings increased double-digit. And we've seen that momentum continue into October.
So at least so far, that thesis is alive and working. And so we think it's those two businesses, outperforming even more in a stabilized market, will give us that extra couple points of growth in Q2. Now, as we get into the back half of the year, I'm not suggesting that we're gonna take any more share. I'm not suggesting at this point that the markets are gonna improve until the back half of 2026. It's really a math equation where our comps become easier. We start to lap the academic comps that hit us hard starting in February.
We haven't talked about this much, but our diagnostics business, which is a combination now of our legacy diagnostic controls and calibrators combined with our growth vector of a surge in laboratory kits powered by the exosome technology, that diagnostics business for us has been performing very well throughout all of this, and in fact, in Q1, we grew mid-single digits on top of a mid-teen comp last year, and for the year last year, they were high single digit growth combined, but they were teens growth in the front half and minimal growth in the back half, so very lumpy business. These customers buy twice a year and it's never in the same quarter every year. Last year, it was very front loaded. This year, our customers are telling us it's gonna be much more even throughout the year.
So that becomes easy comp, easier comp for us as well in the back. So it's what I'm saying is that the incremental improvement that we expect to see throughout the remainder of the year, partially driven by our own relative performance as a, you know, portfolio driven, but also the math of easier comps, which means that any earlier improvement in end markets is actually upside.
Okay.
A long-winded answer, but probably answered 4Questions.
Just that out.
And then that one answer.
Oh, no, that was very helpful. We definitely wanna dive into all that. Why don't we cover the two customers first and then we can dive in?
Yeah.
So maybe just give a little bit of context. You have these two large iPSC customers, stem cell customers. You know, what does the concentration look like in terms of how large they are on a relative basis? You know, how long will this impact linger? Maybe we can start there and obviously have a few more questions about it.
Sure. So these two customers are definitely outliers, and outliers in a very positive way. And, you know, we've had all kinds of questions why, you know, why do you have these two outliers and why are they outliers? The two simple reasons I can give for this is that number one, the disease states that they're going after are very large populations. So that means a lot more product that's needed to support trials. And it means when they, knock on wood, they go commercial, it'd be, there'll be huge commercial customers as well. The other reason is because of the type you mentioned, iPSC. So as a reminder, we are our cell therapy franchise. A lot of times we just generalize and say it's cell therapy or even overgeneralize and say cell and gene, but it's really a cell therapy franchise.
And there's two major components to it. There's the immunotherapy CAR T side of things, which is largely used for fighting cancers. But there's also the iPSC or stem cell, or another word for it is regenerative medicine, therapies that essentially grow up stem cells. But they all involve the growing up of cells and they all require cytokines to do that, our cytokines. And, you know, we're a top three player in the immunotherapy CAR T space, but we are by far the number one player in the regen space. And part of the reasons for that is because the, both the quantity in terms of the number of types of proteins that are used to grow up cells in regen med are a lot more, a lot higher than they are in, immunotherapy. And the complexity of those particular proteins are also way more complex.
In fact, in some cases, we think we're the only ones that know how to make them. So that's why we've by far become the number one player in that space, which is why if you're a regen therapy customer, you're more than likely gonna be buying our proteins. And that's how we have these two customers. And they use a lot more proteins in the growing up of their cells. So there's the higher content per dose, so to speak. So that's what, that's why these are such outliers. Within our 700 customers, these two do make up, recently have made up as much as, you know, 35%-40% of our GMP revenue.
Okay. And I guess in terms of how this played out, right? You know, that big of a customer. Presumably you have a very close relationship. You have some visibility into what they wanna order and then apparently do not wanna order. I guess what happened in terms of them, this air pocket forming seemingly, you know, quite quickly? And then when does, to your point, when it flips commercial, should be super interesting for you guys. What is the visibility to that happen? Maybe we start with what happened coming in and then, you know, what could ramp?
I'll first of all start off because we're on a microphone here. No offense to our customers. Of course, we love our customers and we love these two customers very much. We respect the fact that they're, by their very nature and what they're trying to do, very secretive about everything. We get that and we respect that. We try to manage around that as best we can. We knew, you know, by the end of our last fiscal year that these two had gotten Fast Track designation. What we didn't know was what that actually meant in terms of its application and more specifically what it meant for us. There's no spoiler that way we understand it.
There's no boilerplate point for, oh, you're fast tracked, that means X, Y, Z. It just means you're gonna get some special attention from the FDA to do whatever it takes to get your either through trials faster and/or through the approval process faster. And that can take on all different kinds of forms. So we didn't know. And you know, these customers were reluctant to tell us much about what it would mean. And given they didn't tell us much, we didn't necessarily think it was gonna impact us that much because it can mean that once they get past their phase III, then they'll speed up the approval process. They you know, they could be as simple as that.
It wasn't until we got written on whatever it was, halfway through the first quarter, we're like, there was no orders coming in. And so we basically like, you know, you need it. This is important to our, this is material to our company. We need to know at least, are you gonna buy stuff or not? And if you're not, why not? You know? So at the end of the day, they did, you know, they did give us the information, which we've now shared publicly, which is that they were fast tracked, which we already knew. But for them, what that meant is that they, in essence, I'm oversimplifying it, but in essence, they were able to skip a phase of their trial.
The material they bought from us in fiscal year 2025 was gonna be used for their phase II trial, which was gonna be ongoing now. The material they were gonna buy from us in fiscal year 2026 was gonna be for their phase III trial next year. Well, now they no longer need to do, call it that phase II. So the material they bought for phase II can now be used for phase III. So skipped a year. Now we were gonna hit this, and we will with all, you know, as many customers. I hope we hit this with all of our customers. That means we're being successful in terms of this, this chasm. Once they get their phase III approval, there is a natural chasm.
We see it in biologic drugs where it could be 18 months to three years from the time phase III results are published and there's actual approval and commercialization. Not only is there paperwork and all that for the peer approval, but then you have to get the manufacturing processes documented, those approved, all that fun stuff. Anyways, but going back to this most current year, you know, we said, okay, so that means you're not gonna buy anything from us next quarter either. That's correct. What about after that? We can't say for sure. Well, if that is the reason they're not buying from us, then we say they're not buying anything the rest of the year. That's our base case is they're not buying anything from us for the rest of the year.
We've been told, we've been told definitively. Well, obviously now it's history, but Q1, no, and Q2, no. So that's what's baked into our forward view with regards to the rest of this fiscal year. Now, with regards to commercialization and all that, we're in uncharted territory here. I mean, let's face it, there's only a handful of actual cell therapies that are actually commercialized. So not enough to have any statistical relevance really. And there's been zero IMC. These will be the first two that we know that we've got. We've Google checked it, AI checked it. We're pretty sure these are the first two. So you kind of gotta go back to the biologics, take a look at what's kind of normal if that's, if this is gonna follow that path.
What's normal is 18 months to three years from the time phase III results are published to commercial launch. Now, given this is fast tracked, I would expect this to be much closer to the 18 months than the three years. Could it be faster? Sure, it could be. We've heard that there are instances where the FDA will actually work in parallel with you during phase III, before the phase III results are even known, start to work the paperwork trail for approval. So it could be faster, but our base case is from not knowing or having information from anyone else is that it'll be 18 months, which would put us somewhere in the fiscal year 2028 time period for us to start to see the commercial launch.
Now, the next question is, well, then how fast is the launch and how big does it get? And given the disease, we know what disease states they are, so we know what the population sets are. We can run that math. And when we run that math on a per dose basis, there's kind of two points we look at. There's what we call full mature maturation, which can take 10, 15 years. It's different for every drug. And then there's kind of midpoint, which is more in the horizon of a long, you know, LRP five year kind of model. You know, depending on whether it's this uptake is linear or J curve or upside down J curve, bottom line is in a mature state, these could be $80 million-$100 million customers each.
A halfway point, which is probably closer to most investors' time horizon here, if you're thinking five years out, could be as much as $40 million-$50 million. Very, very sizable revenues from just two customers.
Yeah, absolutely. So, you know, to your point, it sounded like at the peak they were combined 40% of GMP. Is that?
At one point, in one given quarter they were, yes.
Yeah, sure. Okay. And I guess the next logical question is, are there more of these that you know, could pop up? You know, do you have any other customers you know, this large in terms of concentration? Are there others in a similar you know, whether it's phase III, whatever it may be? I guess how do you approach that?
So as much as, you know, these cause this kind of short- and intermediate-term heartache and headaches, I wish we had a whole bunch more like these that were on docket. These truly are some outliers just given the disease states they're going after. You know, we do have 698 other customers. We have 85 of those that are in clinical trials. We have roughly two dozen of those that are in phase II, phase III. But they follow the more normal trend of what we'd expect to see, which is, you know, when they're in full commercialization at full potential between $5 million-$15 million a year each. And when they're, you know, maxed out in their clinical trials, you know, they're sub-$1 million, but still very large relative to your typical RUO customer.
So in another way, there's enough of them out there. We don't anticipate any of them, whether they fall off because for some reason or they hit this chasm because they're successful, it being that material to have us be talking about it at a conference like this. But I hope, kind of hope I'm wrong and I hope there is, but as of right now, we don't see it.
Okay. Understood. Okay. That all makes sense. So yeah, maybe moving on from the two customers, it does sound like, you know, again, on the end market side, you are feeling better about most of the pieces. Maybe we can start with Biotech. You know, to your point, the funding has picked up. It's certainly looking better, you know, whether it's the indexes, the secondaries, you know, maybe some IPOs at some point. Yeah, maybe dive in a little bit. You touched on it a little bit earlier, but just in terms of what lag you typically see, obviously again, the downturn probably hit you guys a little bit last quarter. How quickly could this, you know, pick things up on the Biotech side for you? Are you having more constructive conversations? What are the expectations for that market for you guys?
I'm not gonna be able to give you an answer that's as precise as anyone wants to hear, including myself. 'Cause the reality is it's customer specific in terms of how fast this money translates into spend. It really is. We've seen some customers where it just instantly shoots through them. We've seen other customers where you're like, are you ever gonna spend the money? It goes on forever. You know, we've tried to come up with some averages. I guess if I were, if we had to, at some point, we had to come up with our own base case. Our base case is somewhere between two and 3Quarters is the lag.
But we've seen examples where it's happened much faster, and we've seen examples where it's taken a quarter or two longer than that, which is why, you know, we're careful in kind of saying, you know, not even picking a specific quarter, but to say, hey, fiscal year 2025, sometime in fiscal year 2027, we feel like as long as the momentum, as long as it doesn't go backwards from here, there should be a lot of tailwind from funding to support a Biotech recovery.
Okay. And then Pharma, you know, similarly, it sounds like the conversations there are a little more constructive. That regulatory overhang seems to be removed. You know, what do those discussions look like with customers and how's the sentiment around that end market for you?
Yeah, it's the, you know, the conversations are fine. I mean, you got, you gotta remember, relative to, say, a Thermo or a Danaher, we're still a relatively small company and we kind of like it that way 'cause we kind of play under the radar a little bit too, right? We don't talk to big purchasing agents and so forth. Our customer at Pharma is usually the researcher on the bench.
Yep.
It's almost a consumer model more than a B2C. I share it with you only because I don't have a lot of additional insight to say what, you know, the executives at Pharma companies are thinking about their business. I rely a lot on what they're saying publicly, what we're hearing from our peer companies who do have some of those conversations. Then I try to triangulate that with what we're seeing from a behavior perspective, because at least the one insight we do have is being in an 80%-90% consumables business. We see their activity every day. We can kind of correlate that with what we're hearing externally.
What I'd say is that what we're hearing is seen is very consistent with what I think you're hearing both from them, those customers, but also from our peer companies that do business with them also. That is, you know, I mean, they're all doing very well. I mean, even during the IRA year 2024, for the most part, Pharma increased their R&D spend mid-single-digit. It was just how they were, where they were increasing it is what caused a dislocation in the tools space that supports R&D, 'cause most of that was going towards very, you know, late stage high de-risk as they were reprioritizing, you know, allocating their more discovery based programs.
Our prediction back in at the end of 2024, which I think some people thought we were a bit crazy for saying this, but was that this is gonna be mostly behind them. It wasn't that they didn't spend any money. They did. It's not like they're not making any money. They are. And when this reallocation of the portfolio is complete post COVID, they'll now take their increases and spend that more pro-ratably. And I think that's exactly what we've seen all through calendar 2025. And I don't see anything slowing that down. And if you wanna, you know, get even more kind of more theoretical about it and long term about it, I mean, it's no secret that there are some significant patent cliffs coming for many large Pharma companies.
So, you know, they're gonna have to bolster their discovery pipeline to fill that gap down the road. And whether that's internally or whether that's, investing more and buying more Biotech companies, I'm not so sure we care because it's all good for the industry one way or the other.
Yep. Yep. And then, you know, the other end market, obviously academic government, you touched a little bit on as well, you know, pretty rollercoaster ride, let's call it this year in terms of how big the cuts were and how tight those budgets got. Where are we now? Again, to your point, hopefully there's a budget in January. There was the shutdown. Did the shutdown track as you expected in terms of the guide? And then, yeah, when do you see those dollars start to loosen up a little bit?
I'll start with the shutdown. You know, there's like shutdown like every other year. It seems like it's not when there was or not a shutdown. I've never paid attention to a shutdown in the 12 years I've been at this company until this one, just because there were so much angst around NIH in general. And I wasted a lot of time paying attention to it because nothing changed. I mean, it's not. It didn't get any better or worse when the shutdown was announced and it didn't get any better or worse from a runway perspective after it was over. So it's very temporary. At the end of the day, we talk about academic and government, but it's really academic. And the only reason why government's even thrown in there is because a portion of the funding does come from NIH.
Of course, we all know that. And yeah, the government was shut down. So to a little bit of business we might do with the government went to zero, but it was a nit. If you're in an academic institution, you still got the same budget you had before the shutdown. You're still doing your experiments. That's why I don't think you see, in 30, even in 30 days, even though it was the longest or whatever it was, the longest in history, it's not long enough to cause a stop in research at the academic institutions.
Sure. Okay. I would love to dive into a few different product verticals. I mean, you mentioned ProteinSimple as maybe the leading indicator. Seems like that's picking up a little bit. What are you guys seeing in that business and what's the right way to think about that to your point as maybe leading the business out of a little bit of challenges here?
Yeah, I mean, so we've not had a declining quarter in our ProteinSimple franchise, as I mentioned before, throughout this entire downturn. But it's not because our instrument sales haven't suffered. They have like all, you know, any instrument maker, but it has to rely on CapEx. But it's the consumables, it's the cartridges that have kept that business in the black. We've had most quarters in the past two years have been double-digit growth. We've even had some as high as 20% growth in a very, very tough end market environment. And what it does is just further convince us of our thesis that these instruments are doing what we said they would do, which is provide productivity to our customers. They are using them like crazy when their budgets are tight. They've been using them so much for so long.
We believe there's probably a capacity problem with needing more instruments. So we do believe when the CapEx budgets start to flow back, and we think that already is starting, that our instruments will have a high priority and they're not a very high-cost instrument either. So it's easier to make room for those than it might be for some other very high-end instruments. We're looking at, I was gonna go one more space with this. So yeah, consumables, damn, I had something else I was gonna say about that.
That's all right. We can come back to it. So that's helpful. And then I guess the other part, you mentioned COMET with the spatial side. It seems like those placements are going well. What are you seeing there? And then, you know, what's the right way to think about the utilization? I mean, I think we hover around 40,000-45,000 pull through per instrument, but what are you guys seeing there on the box side and then as well on the pull through?
Okay. I was gonna say before that comment. So I was gonna say what substantiates what I'm saying also about the pent-up demand is our funnel for interest in instruments is the highest it's ever been. And the customers are just saying we just need money and then we're ready.
Okay.
So that's also what gives us added confidence there with regards to spatial and COMET. So, you know, COMET is our most expensive instrument, a higher dollar instrument. So it's even arguably more sensitive to CapEx budgets. Also, spatial in general of our entire portfolio of spatial has got by far the highest exposure to academic and smaller Biotech 'cause it's a newer technology and that tends to get adopted earlier first there and then move up to Pharma. So, you know, our spatial overall franchise and anyone involved in spatial has been probably hit the hardest by these downturns in academic and Biotech. And I think we've done relatively very well considering, with regards to the instrument specifically though, yes, the revenue was down this most recent quarter, but as I mentioned earlier, the bookings were up double digit.
The excitement around the instrument is still kind of; it's off the charts. There really is no other instrument on the market that can, whether it's, for, you know, whether it's multi-omics capabilities, the plexing, the speed, the pure automation, hands-off automation that's truly automated from end to end without any manual steps in between. There's just nothing on the market that can beat it. And again, the pipeline for that continues to grow large as well. So again, it's a matter of the money coming back. And I think the bookings improving the way they did in Q1 is a very strong sign of that, and it's what, you know, a big reason why we think spatial will lead together with ProteinSimple will lead us into a recovery.
Yep. And on the pull through side, I mean, are you guys seeing any utilization trends, any numbers you're willing to throw?
Yeah. Yeah. So, so that's what another reason we're excited about this instrument because of the pull through opportunity. So, already today on a run rate basis, we're getting about $45,000 a year pull through on just the chips that are needed to run the instrument, consumable chips, kind of similar to our cartridges and ProteinSimple. What hasn't even really started yet is the pull through of our reagents, both our reagents on the RNAscope side, for RNA detection, but also for the antibodies for the protein detection.
It is an open system, so it can use anyone's antibodies, but we are feverishly developing panels of antibodies for all different types of applications, of course, picking the most popular ones first so that customers don't have to monkey around and try to figure out which antibodies will work or not work when we can demonstrate we got a panel that's been proven to work and they buy ours. That's just getting started, and we think that will be double the pull through to up to $90,000 a year. More importantly, the margins on that stuff is, you know, some of our more profitable products in our portfolio. It's exactly why we bought this COMET, you know, this Lunaphore, this COMET instrument because we love the whole razor and blade model.
This is at the pinnacle of that.
Yeah. And to your point on the margins, I mean, initially, obviously this was pretty dilutive. I guess where are we on the margin ramp overall to your point? Obviously the consumables, that's where the margins really jump. But where are we on the margin trajectory of this business so far?
It's, you know, not a margin trajectory right now. It's still a, you know, loss trajectory. And how does that loss become first break even? Then we can talk about margin. But, you know, we're probably still 18 months to a year, perhaps, away from break even. But again, to put that all in context, you know, we bought ProteinSimple 12 years ago. It was a $50 million business and it was just under break even at $50 million in revenue. And now it's a 30%+ operating margin business. Our ACD company that we bought, which is our RNAscope business for RNA detection, was roughly a $25 million business, was also not profitable when we bought it at $25 million. And that is between 25% and 30% operating margin today and growing.
So what I can tell you, I won't get to tell you the exact size, but right now when we bought Lunaphore, COMET, which is just launched, so it's still smaller than both of those companies.
Yeah.
So it's still, and it's very infant stages. And so, that's why we're not concerned about the lack of profitability at this point. And you know, the opportunity for profitability arguably is higher, even higher than those two platforms, if nothing else, because of the pull through of those very high reagents.
Sure. Okay. That's helpful, and then maybe the GMP business, obviously we talked a little bit about it earlier, but the GMP side, I guess how do you think about the growth trajectory here? Clearly some noise near term, but maybe remind us how large that business is and, and what the right way to think about the, let's call it normalized growth is, for, for this business.
I mean, like GMP proteins X, these two customers.
Yeah, I guess so.
Yeah. Well, okay. Well, we've talked about including these two customers. We've talked about it that it's roughly a $60 million run-rate business, which is part of a larger $80 million cell therapy business. 'Cause we also sell small molecules. We sell media and things of that sort. What that $80 million does not include, and probably just because it is hard to measure and therefore we don't, we think we know, but we're not gonna say numbers that we can't measure 100%. But both our RNAscope business and spatial, as well as our ProteinSimple franchise, specifically both Maurice and Ella, Simple Plex and Simple Western are also heavily used in both cell and gene therapy for QC/QA monitoring.
We have a sense. I'm not gonna say it out loud, but it's material. And the reason why we can't measure it precisely is because they don't often tell us what they're using the instruments for. So we try to gauge it by the type of cartridges they're buying. And we, you know, look to see what kind of things they're working on that we know of that they publish. And that's how we kind of triangulate this. But we know there's a lot of usage of these instruments for which is exciting too, because that means it will be used once they go commercial as well for QC/QA. But that gives you a sense of the size and the materiality for our business.
You know, in terms of, you know, with these two customers being on pause has been here for a while, it's gonna reduce the size of the business temporarily for sure. But we still expect the business to grow 20%, off a new baseline admittedly, but off a new baseline. And then once these two, two customers go commercial, then 20% becomes by far the floor and it can only go up from there.
Sure.
You know, why do we feel so good about the cell therapy? I mean, I get a sense talking to investors and stuff I read in the press and so forth. There's a bit of a downer right now in cell therapy, at least more than I've seen before. I'm not exactly sure why, but you know, I think part of it's because it's all relative. There was such a euphoria around cell therapy, especially during the COVID days when everyone was flushed of cash and you were throwing money at every good idea. Cell therapy was a very exciting space and there was a lot of good ideas and people just throwing money at it.
And so maybe the rate of new clinical trials growth is. It's still growing, but maybe it's slowing and that's causing some people some pause. But what we see is that the quality of what is coming into those funnels is much greater than it's ever been. So you know, when there's, everyone's flushed with cash, anyone with half a brain and half an idea can get funding. And now you in tough funding environments, you gotta have a pretty high hurdle of scientific relevance and it's still growing despite that. And another example of that is our customer base. So it was just a year ago, we had 550 customers and now we have 700 customers.
Admittedly, a large part of that, one of the reasons for that is because we've, you know, we've gone through a program shared with Wilson Wolf to offer it very, very just very strong discounted pricing, grants. We call 'em grants, to academic and even some small Biotech, kind of going off of the whole NIH play that it's tough to get money from the government, but maybe you can get money from us for your cell therapy program. And they actually have to submit a grant to us. And our scientific, we have a lot of good scientists. They look at it and they say, hey, this is viable, we'll do it. It costs us very, very little 'cause this is a very high margin product. We lock them in on their early stage development.
If they have success in their early stage, when they need their next batch of proteins, now they're gonna pay for it, but it's sticky. They're gonna buy it from us. But why I even mention this is because the fact that we had a set number of grants that we were gonna give out and we were oversubscribed by 2x. So that tells me that the interest for cell therapy among the scientific community is still extremely high. It's just about the funding, and when the funding starts to work its way back, that's one of the first places it's gonna go.
Yep. So is it fair to think of the GMP piece as once you annualize these two large customers, which I guess would be fiscal 1Q next year, it gets back to growing that 20%?
Absolutely. That's our expectation.
Yep. And then maybe a quick one, I know we're right at time. Just on the margin side, what's the right way to think about the margin progression this year to your point? You know, 2Q is maybe with these customers declining a little bit and then, you know, presumably ramping to some level of growth in the second half. What is the margin cadence and how are you guys thinking about the expense side?
Yeah, I think we, I think we kind of, we more or less message that we think the margin expansion will be very similar next quarter to this quarter. There's some ups pluses, minuses, and ups and downs, but it's not, you know, at the end of the day, we're saying our top line overall is gonna be about the same anyway. So it kind of makes sense that the margin expansion would be roughly the same. And then that margin expansion should, should increase enough to get us to an overall at least a hundred basis point improvement for the year. So that means a higher than a hundred basis point in the back half of the year. But we talked about, I gave you some rationales to why we think the second half revenue will be stronger organic growth wise than the first half.
Naturally with that higher organic growth comes a very strong pull through that allows for those margins to continue to expand.
Okay. Sounds good, Jim. Thank you so much.
Hey, thank you. Appreciate it.