All right, I guess the music's off, and that is our cue. So thank you all for joining us today for our conversation. You know, we'll kick things off, and then you'll do most of the talking to tell this incredible story for us. But for everybody, I'm Jack Castle, Senior Vice President with Nasdaq, and I'm excited for our discussion today with the Chief Executive Officer, Kim Kelderman, and Chief Financial Officer, Jim Hippel, for Bio-Techne. So maybe for the audience, let's level set with just an overview on the business.
Thank you, Jack, first of all, for having us and hosting the conference. We're very excited, and we are 50 years in the making. Bio-Techne itself, 50 years old. However, we say old, the core business that we have created over these 50 years is 7,000 proteins and 400,000 antibodies, basically Lego blocks for any life science tools laboratory that wants to make progress. We're deeply entrenched in everything research, really. But over the last 10 years or so, we've really doubled down on trying to utilize these components into faster growing application areas. We have four application areas that we focused on. One of them is cell therapy, basically everything to do with growing cells, immune cells, or regenerative cells to cure diseases.
And for that, you need all these core components I mentioned earlier, and we also have a Bioreactor to help grow these cell processes. The second area we focused on is proteomics, proteomic analysis. We know that has been a heavily debated area for a decade, but we feel that the market and the capability of generating data is now there to really support proteomics. So it's a business that we build through organic as well as inorganic activity. The third dimension is Spatial Biology, where you can interrogate tissue and see what the cells are doing amongst each other and whether your therapies are working, very important in going forward research, as well as then, last but not least, a molecular diagnostics business, which basically has the capability to interrogate very hard-to-find genes and also hard-to-read genes, where NGS struggles.
And that's what we're really focused on, so we created a nice little niche there. All four of those areas really utilize our core reagents and are in fast-growing markets that are aligned with the mega trends as we see them in life science tools.
Okay. We're going to talk a bit about those trends, so I appreciate that. But you recently announced your Q1 2026 results. Is there anything specific you'd like to highlight in those?
Yeah, a couple of strong dynamics in there. One was that we have built the cell therapy business, which has been rapidly growing. And with that, of course, also relatively lumpy. We had a 60% growth, 90% growth quarters last year. This year, we had the great news that two of our larger customers have obtained Fast Track approval by the FDA. And that means that they can basically get to an approval faster and that they will have to reduce the number, can reduce the number of clinical patients that they run, and they had ordered enough for them to complete their clinical stages. That really gives us an air pocket if it comes to the revenue for several quarters from those customers. However, underneath, we have really nicely added customers to our pipeline and added customers to the level of 700 or so in total right now.
Another couple of real good dynamics underneath, though, which was that large pharma continued to grow double- digits for us, which was the third consecutive quarter. We had China for the second time in positive growth territory, second time meaning two consecutive quarters. Our protein analysis instrument continued to grow very nicely, and the pull-through of the reagents is still in double- digits, 10 out of 12 quarters. And then, last but not least, the Spatial Biology business also continued to accelerate growth, now back into positive growth territory with double-digit bookings. Margins were good, so we had kind of forecast a 20% on the bottom line, ended up being 29.9%, so 90 basis points higher, which is good. We've done quite some good work around efficiencies and around operational footprint and organizational structure. So all that worked out really, really nicely.
That set up the quarter with a couple of positive underlying trends and, of course, a temporal revenue air pocket in the cell therapy customers that got their Fast Track approval.
Okay. Shifting gears a bit, let's just discuss some of the end-markets for Bio-Techne that you serve, starting with the biopharma market. What is your exposure to that end- market, and what are the trends you're seeing with those specific customers?
Biopharma in aggregate is about 50% of our revenue, so it's a large end- market. We split it out between large pharma and biotech. They typically have different trends and drivers. Large pharma is 30% of that 50%, and that has really done nicely for us over the last three quarters. As I mentioned, double-digit growth three times in a row. We were somewhat worried last couple of quarters when there was rhetoric about high tariffs on medication and that that possibly would create a reaction in large pharma. But large pharma has reacted relatively quickly and negotiated a path forward, so continued its strength. Biotech is very much related, sensitive to funding. And overall, the calendar year funding was down mid-teens year- over- year, and that definitely put pressure on that end-market and resulted in high single-digit negative decline, if you will, negative growth.
And there we see definitely some improvement. First of all, some M&A deals, lower interest rates is always good for that end-market, and we feel that there's some momentum in the funding as well. The last three months, funding was definitely significantly positive year- over- year, and those are good indicators that it is stabilizing and hopefully in the balance of the year accelerating again. So those are the two trends in the biopharma market.
Okay. Sticking with those, the markets you serve are, I guess, the end-markets. Another large one, it seems, is academic research. So maybe you can help the audience with how large is that end-market? What is that geographical split? And what are some of the trends you're seeing there?
Yeah. Academic research is important, not only because it's for us 20% of our revenues, but also because where, as a scientist, you learn your methods and the instruments, software, as well as the ingredients that you use. It's important to be there because they will branch off into biotech and into large pharma and then, of course, bring some of that experience with them. So it's an important market for us. 12% of our revenues comes out of U.S. academic in the balance. The 8% comes out of Europe academics. Europe academics has been mid-single-digit grower. That's where we expect it to be, and it's been relatively stable. U.S., however, since February, really, it has been very turbulent. There was talk about budget cuts and certainly a shift in which type of projects get funded by the NIH.
And that created some uncertainty in the market, so people definitely started reacting to it and reduced their spend. We do feel overall that there's still things to be negotiated, and there's not a final budget yet. We do feel that overall, there's typically a drive to have a good budget for academics, bipartisan support to kind of make sure that academics are in good shape in the country, in the U.S. But it's not there yet, so we'll have to see how that evolves. Two certainties we have. One is that we can see which programs are getting funded, and that has definitely shifted away from infectious diseases and from immunization towards traditional diseases such as neurology as well as oncology and weight management. So those areas definitely more aligned with our product portfolio. So that's a good thing.
The other certainty we have is that as of February, our comparables will look a lot better and something that also will help our overall growth numbers again. Yeah, that's the dynamic around academics.
Okay. Previously, you had mentioned China. Maybe we'll stay there for a second on kind of the trends you're seeing in that market as well as your outlook for that market going forward.
Yeah. China, obviously, historically over the last 10 years, very important growth driver for us. At the peak, they were 10% of our revenues. Right now, around 8% of the revenues. They, of course, saw big outflows of international business activity in the country. Definitely not all green yet. They have definitely some other problems to chew through if you think about real estate market, et cetera. However, after the COVID debacle, where there was really not a good response from China for the Chinese people, there was increased sensitivity around life sciences and improved funding levels and definitely a doubling down in novel modalities, and if you think about, of course, they're not going to catch up on 50 years of small molecule research that we've done in Europe and the U.S. However, the new modalities in cell and gene therapies are very interesting to leapfrog some of it.
China is technically taking that bull by the horns and has pushed it forward relatively quickly. If you now see that there are quite some M&A deals where large pharma has in-licensed some of these technologies, and that creates an environment where there's heightened activity. There's foreign currency flowing into China again, and there's an exit strategy. These projects are definitely picking up again, and the CRO market as well as biotech activity is increasing. That's why we were not surprised to see a back-to-positive growth Q4, fiscal Q4 for us, even though we were worried that there was maybe some pre-buying because there was a relatively large tariff deadline looming. We were worried that that was a symptom of that. Our Q1, which was after this tariff deadline expiring, was in the black just as well.
I think that's a testament to overall activity level improving. We think it will continue to accelerate. It might not be the activity level as it was five, 10 years ago, but we do believe that it will be north of our average growth as a company and that it will be a leading region if it comes to growth. We think mid-teens, mid-high teens would be a good indicator, expectation for us in China.
Okay. Now, Bio-Techne has had several product launches over the last year or so. Are there any specific that you'd like to highlight?
Yeah. It's a very good question. We basically spend a little over 8% of our revenues back into R&D. We feel that innovation, organic innovation, is important to long-term be able to compete. It's obviously an industry on the move, so we've got places to go. And we have basically innovated in the core as well as in all four growth verticals. In the core, you can see that we've pushed forward the protein design through utilization of AI to make them hypersensitive or to make them more heat stable. And that's nice because now researchers have these high-powered hyperactivity proteins, but they're also patentable because they're not available in nature. So that's a very interesting look. In cell therapy, we have created a form factor of, we call it ProPak. That's basically little bags of proteins or cytokines in certain quantities and in certain dilutions.
So that way, there's a lesser chance of mistake, operator mistake, as well as a smaller chance of contamination. That's an important form factor for cell therapy. So that way, we can actually attach more of our reagents into the processes related to cell therapy. Protein analysis, the next business unit there, we have launched Leo, which is a very high volume, 100 capillaries, three-hour run rates with 24 targets per capillary. So a big machine for large pharma, and it's really finding some good traction and obviously has very high pull-through on the reagents. So that was a very nice innovation that definitely beat our expectations.
In Spatial Biology, we have rolled out a multi-omics method that you can use on our instrument, COMET, from Lunaphore, which is an acquisition out of Switzerland we did a couple of years ago and pulls through high-quality reagents on the RNA as well as on the protein side. And this last quarter, we launched protein-protein interaction. So then you can actually see what the interactions are between proteins. And that's a real novel modality that none of our competitors really offers in the spatial setup as we have. And then last but not least, in the molecular diagnostics, there we have launched ESR1, a breast cancer test for breast cancer treatment resistance.
With that test, if you do it on the right time and you swap the patient to a new treatment, if you do that on the right time using this diagnostic, you can double the life expectancy of a patient. So definitely a significant impact. We have launched a collaboration with Oxford Nanopore out of the U.K. here, and they have long-read sequencing methods, which really enables a nice panel of inherited diseases. So they're also a product that we distribute. These are all the innovations. It's very active.
A lot. A lot. I love that. You mentioned earlier in reference to the earnings call that two of your cell therapy patients had received the Fast Track designation. You had also mentioned that you expected this to be a near-term headwind, but realistically, an intermediate-term positive. Can you explain that?
Yes. As I mentioned, the Fast Track is obviously a designation that you receive if you have a therapy that's going to have a significant impact on health, and that's true for U.S. and Europe. It also is an indication of interest and that there is going to be interest in marketing such cell therapies. In the past, some of the cell therapies were really novel and mind-boggling as to what the impact could be, but they're not always scalable and certainly not always affordable, and I think these two Fast Tracks are definitely related to something that can be broadly applicable, and that is important for us because that will drive volume longer term, and we think that these customers would be five years in, they could be $40 million-$50 million GMP protein customers each.
Peak revenue 10-15 years in, you could think of doubling that over time. Those could be substantial customers and obviously very important to us that there's a recognition of these cell therapies and that there's also a commercialization example and that we can support these customers, making a significant impact on the health of the different countries.
Okay. Sticking with cell therapy, you own 20% of Wilson Wolf and plan to acquire the remaining business by the end of, I believe, calendar 2027. Can you share a bit of how that fits with the portfolio?
Yes. So Wilson Wolf is a company that owns a product called a G-Rex. It comes in different sizes, but basically, it's a container, a small disposable container in which you can add all the reagents that a certain cell population would need to multiply. And the nifty part of it is that the bottom of it has a permeable for oxygen permeable floor. That means the cells usually sit at the bottom. All the food and the ingredients, the small molecules, everything they need in the broth sits on top of them. And then from underneath, they can get this oxygen supply. And therewith, this nifty device can really be scalable. So you put 11 of those in a, let's say, mini bar size incubator. It's cheap, affordable, so therefore more applicable in many countries.
And what you do there is you utilize this G-Rex to do your clinicals and eventually commercialize the therapy. And as a reagent manufacturer and having our core, we are very interested in having that in our portfolio because we can attach all our high-margin reagents into this incubator, which is a true innovation. So that's how the synergy works, and that's why we're excited about this acquisition.
Okay. Let's move on to the protein analytical instrumental business. It's a mouthful, I will say. What are the offerings here and where are you in terms of market penetration?
I think overall, the protein analytics for us, the markets we address, is about a $3 billion market. Right now, we are on average with the three platforms, around 10% market penetration. So there's still plenty of headspace. I really like that we are having real good market share gains, and you can see that from our growth numbers. And we're not kept out at any time soon. So that's going to be a long-term, mid-teens growing business with very nice pull-through on the reagents. There are three platforms in there, and I won't go through each different one, but basically, they address very traditional manual processes such as Western Blot or ELISA that are entrenched in laboratories but are hard, if it comes to doing them manually. But they're also not very consistent, and they don't have actual data coming off of them because they're not quantitative.
Our solutions are, per definition, addressing these broader processes. They do it in a very simple way, repeatable way. Basically, that created a business where there's good data, very reproducible data coming off these instruments because we utilize very nifty cartridges that have all the capillaries and all the intricacies in there so that the customer doesn't have to deal with these intricacies. It makes it simple and quantifiable.
Okay. For the sake of time, just shifting gears a bit to your outlook for fiscal 2026. Are you still anticipating single-digit growth for the year, and what are the primary assumptions behind that?
I'll jump on this one here. So before I get to the fiscal year, as a reminder, we have a June fiscal year. So they think of it as a mid-calendar year when we talk about our end of year. But to kind of level set our expectations on more of a long-term perspective, life science, for those who may not be familiar with life science tools, 30+ years, it's been overall a mid-single-digit kind of market grower. And with the growth verticals that Kim spoke to, we anticipate our entitlement is a double-digit growth company in a normalized end-market environment. And our history has shown that to be true in more normalized markets as well.
So that to us is our entitlement as we think about where we get back to "normal." But for that to happen, we have to get all of our end-markets back to normal. And as Kim talked about, one of the three is in large pharma, which is important, but the other two need to follow biotech and academic. And they've been pressured because of the administrative change and following COVID. They called it the COVID hangover and so forth. And it looks like right now, the good news is that there's some green shoots ahead that those things are behind us. And now it's not so much about how much worse can it get, but when does the recovery start and how does it start?
As Kim talked about, we're starting to see some green shoots in biotech with the funding coming back the last four or five months, year -over- year. We see hopefully some resolution to the U.S. academic and NIH budgets where both Houses of Congress have now narrowed it down to more of a flat budget as opposed to 20% or 40% cuts, which was being threatened back in February. But it'll probably take another four or five months, at least three or four months for it to kind of get, I mean, approved by Congress and then ultimately see how it's implemented by the administration. So that by the time we get to mid-year calendar 2026 or the end of our fiscal year, we're hopeful that the academic markets will start to return back to a more normalized buying pattern.
As long as the biotech funding continues to increase, there's usually a two- three quarter lag between funding and spending. That also lines up well with the start of our fiscal year 2027 or call it back half of calendar 2026 to have these headwinds behind us and the markets return back to normal. Between now and then, though, the markets are stabilizing, well, pharma is already there in terms of growth, and we believe that biotech and academic won't get any worse from here and will start to stabilize, and we've proven time and time again that our growth vectors, they outperform the market in down markets, but as the markets stabilize, they outperform even more, and when markets are stronger or healthy, they outperform even more yet.
So with those markets stabilizing, we believe our growth vectors led by our protein sample franchise that Kim just spoke of, our Spatial Biology franchise, will continue to take more market share and will get us from the, call it, flattish growth that we've, if you take out the two customers, the flattish growth that we've had the most recent quarter and that we're expecting this next quarter to turn into, call it, low single-digit growth or so in the back half of the year. In addition to the fact we got easier comps, we're going to be lapping the tough academic environment that started in February. Our diagnostics business has actually performed very well for us, around 10% or 15% of our business. It's been a mid- to high-single-digit grower even in this most recent quarter on very tough comparables as well. More of a lumpy business.
Our diagnostics sell to large OEM instrument makers and laboratories, and they buy very lumpy once or twice a year. They happened to front load their purchases last year, and we still grew on top of that. This year, those purchases appear to be more level loaded. So that is an easier comp as well in the second half. So a long way of saying we will incrementally take share in a stabilizing market as the markets improve. We will have easier comps in the back half, which should allow us to be in the black as opposed to flattish or slightly in the red. And then hopefully, as we get into the back half of calendar 2026, the markets actually, all three end-markets start to improve, not just stabilize. It gets us back to a double-digit type entitlement.
Right. A lot of upside. Appreciate it. Well, we are at time here, so apologies for not getting to Q&A, but thank you so much for sharing the story, Kim and Jim. Great job.
Thank you.