46th Annual TD Cowen Healthcare Conference. I'm Kyle Boucher, an analyst on the life science and diagnostic tools team here. I'm pleased to be joined by Kim Kelderman and Jim Hippel, CEO and CFO of Bio-Techne. Kim and Jim, welcome to the conference.
Thank you.
Today I'd like to go through a number of questions, you know, including the company's recent performance, the healthier end markets, and then, and then maybe get over to some of your growth pillars. Before we get into that, this year marks Bio-Techne's 50th anniversary. That's a big milestone. I guess, Kim, maybe can you take a moment and just reflect on, you know, Techne's success to date and give a brief overview of your priorities going forward?
Sure. Well, first of all, thanks for having us. Good to see you, Kyle. Yeah, 50 years, 50th year, we're quite excited about that milestone. You know, started in 1976 in Minneapolis, and the team at that time was really focused on creating hematology controls. For that, obviously got very acquainted and worked a lot with blood, and very successful in creating those controls, but at some point, also looking at all the other components you find in there, and obviously there are plenty of proteins. We learned a lot about these proteins over the years and how to characterize them and how to create a fantastic portfolio, which we now have about 6,000 or so on the market, complex molecules.
Those proteins and know-how really helped us to be extremely good at at also creating the antibodies that that fit the proteins. So it gave us a competitive advantage that kept rolling into eventually a broad portfolio of core reagents. That gives us broad market access. We go directly to market with those, with that portfolio. It gives us broad access and therewith good connection with customers, and we continually get the input as to what customers want want to research, and what kind of tools they would need to do so properly. From that, we basically branched into four growth verticals, because we knew where the market was heading, but we also had the tools to to evaluate certain M&A opportunities really well with the know-how we have.
Therefore, we ended up building a very nice franchise around protein characteristics through several acquisitions, and organic efforts. We created a cell therapy business unit, same mixture, spatial biology, also same mixture, some acquisitions and organic work. Last but not least, the molecular diagnostic business, which is probably the smallest of those four verticals. It creates a fantastic setup where you have high margin, core portfolio, basically finding pull-through by our place in those four growth vertical markets, through very differentiated offerings. That's the setup for the whole company.
All right. Got it. Well, maybe moving over to some more nearer-term stuff. You reported fiscal 2Q not too long ago. Total organic growth came in around flat for the overall company, but you had a pretty notable headwind from your GMP reagents business, which we'll get to shortly. Total underlying organic growth was around 3%, so low single digits. Middle of last year, you gave an outlook for fiscal 2026 of, you know, plus low single digits. I think the Street currently reflects somewhere around 1% for the full fiscal year. I think that reflects Techne, you know, exiting the fiscal year around mid-single digit underlying growth, you know, so that would be the June quarter.
I guess relative to your initial outlook back in late summer 2025, I mean, how have your views, your end markets changed or progressed and what's your confidence in Techne being able to exit fiscal 2026 at that sort of mid-single digit organic underlying growth?
Yeah. The confidence is relatively high, because most of the thesis that we had at the beginning of the fiscal year when we don't guide, but we give some soft guidance in that we kinda talk through what we believe the markets and markets will do. That's holding very nicely together. Our base assumptions were that we had a healthy market in large pharma, 30% of our revenues, and fortunately, we've now printed a Q5 consecutively with double-digit growth, so double-digit growth over double-digit growth, which shows important momentum for us because it is our largest market. That was also the base assumption.
Then we had biotech, where the first half of the calendar year last year was really abysmal funding, and it started to stabilize, get a little bit into positive territory in the calendar Q3, and accelerated in the back end of the calendar year, and continued accelerating in January, with the funding being up 90% basically over the last, over those last four months. We do believe we see some green shoots there, if it comes to capitalization of the, that end market. We do believe that eventually will trickle through to life science tools. A good setup and for now stable, with the potential to improve. That was our setup. The third market obviously, is academic.
22% of our revenue is related to that end market. 8% though in Europe and 12% in the U.S. In the U.S., we obviously had a very turbulent year that everybody knows about, and it started more or less in February last year. There's some progress there. We were relatively certain that there would be bipartisan support to of course, continue the very important aspect of education and research. The budget get passed, we did assume and know that there's some sand in the engine if it comes to what gets approved and how does the money get handed out, and there's quite some details underneath.
Overall, our assumption, the debt market will be stable and improve over time is also still holding true in our minds. Last but not least, we assumed a relatively stable and positive growth performance in Asia as well as in China. That also became a true aspect of our budget. Long story short, all the ingredients that we typically talk about with the assumptions are so far holding nicely, and therefore, the projections for the coming quarters we're still comfortable with as well.
Got it. I'd like to dig into the end markets a little bit in a second, but maybe before then, you know, you've previously mentioned that in times of weak market conditions that Bio-Techne should outperform peers. As underlying market conditions improve, the gap sort of between Bio-Techne and peers should ultimately widen and lead to even greater outperformance. I think, you know, other large tools companies are calling for a gradual recovery in the underlying end market. Many of the calendar 2026 guides call for somewhere around low single-digit growth. You know, in that context, as that end market recovers, should Techne be able to meaningfully accelerate underlying growth as the market marches back towards those historical levels?
Yeah. Assuming that recovery happens in that pace, we feel very comfortable with the outperformance. Obviously, you know, the setup of having the core, which is 52% of our revenues, being broad-based, applied will make it very dependent on the overall activity level in the end markets. However, our investments and our play in the faster-growing verticals definitely make sure that these nascent, very, very applicable new markets are going to continue the outperformance, like they have shown over the last couple of years. But if anything, the three, four markets that I mentioned are gonna get boosted by all kinds of different aspects.
I think the type of data and the type of processes we address are going to be important for the new modalities. On top of that, we always talk about automation, we talk about reproducible results, high-quality reagents. If you think about an extra drive of generation of data that you could use for, you know, through AI to better design or better, progress your projects through your funnel, that's right up our, up our, up our alley, and that's also what we always propagated. We're very enthusiastic about the tailwinds and the positioning we have in those four growth verticals, and therewith achieve our outperformance if you've come used to. Yeah.
Got it. Got it. Okay. Maybe on the end markets, just moving on a little bit, large pharma. Starting with large pharma, you just mentioned, you know, you had a number of quarters at double-digit growth here, and large pharma makes up around 30% of your sales. It doesn't seem like strength is really waning here. Would you agree with that? I guess the question is, you know, if you think about over the next 12, 18, 24 months, are there any sort of speed bumps that you see? Are there any lingering fears over tariffs, MFN, patent cliffs? I mean, do you foresee anything over that timeframe that anything could change that would get in the way of this, you know, strong growth that large pharma's seen?
Yeah, I think that, of course, being in the double digits five quarters, you'd think that, you know, that's frail. If we look at the overall spirit in that particular end market, you know, budgets has been set in mid-single digits, more or less for R&D. We feel that's very healthy, and we feel that therefore we can grow the double digits. Again, that's just because the four growth verticals we have are very nicely tailored to whatever research as well as, translational work needs to be done in large pharma.
If you layer on top, the drive to generate reproducible data, especially as AI becomes a stronger storyline and a more evident storyline in the development of new drugs, I do believe that, you know, there will be actually extra push to get from manual clunky processes into what we always talked about, simple, automated, reproducible setup. I think even without the AI drive that we belong in the double digits for large pharma. With that, with that additional drive to get more usable data, I am even more certain that we can perform really well in that end market.
Maybe for the pre-commercial smaller biotech, which, I think you've said is just under about 20% of sales now, they've been under pressure for a number of years, but the funding environment, you've called out a number of times getting a lot better. I think there's been, you know, probably three or four months now of positive of funding data out there. I guess, I mean, maybe to start, how long does it really take for that spending to flow through to Bio-Techne? And I guess, how are you guys positioned, you know, as that money sort of flows back?
Yeah. Historically, it takes about three quarters, +/- 1, it's typically different for reagents which, you know, are easier or faster to order. A CapEx is usually a little later in that bell curve. In general, I wouldn't be surprised if we are, you know, if we're going to do a little bit better than that if it comes to the timeframe, that's based on, you know, the fact that historically if there would be a bump in funding, people would have to start building infrastructure, clean rooms, fume hoods, and what have you, to then start ordering their equipment and their reagents.
Right now there is obviously, over the last couple of years, tremendous capacity built in the market that I believe the funding will not be used as much to first build infrastructure, but can maybe find on average faster into new projects and to acceleration of projects and therefore come quicker to the life science tools. We're not counting on it, but we're because our assumption is the historical three-quarters, I wouldn't be surprised if it's going to be a little bit better than that.
Got it. Okay. Maybe moving on to your growth pillars then, starting with cell and gene therapy, you know, a big area of focus for you guys. You've talked about this business being roughly $80 million. I believe from your disclosure that's around $60 million to your GMP reagents business and around 20 from the ProteinSimple business, which I think is mostly Maurice. Is that right?
No. It's, the breakout is a little bit different.
Okay. Yeah.
It is $80 million run rate last year. $60 million of that was GMP proteins, but the other $20 million is in small molecules and in media, so other reagents you put in there. Yes, you do use Maurice and other instrument platforms to analyze and support cell and gene therapy, but we do not count that in that business unit. We count that back in the protein analytics business unit. That's the difference in breakout.
Got it. Okay. That GMP reagents business then, maybe to talk about that for a moment. You you've been a victim of your own success here, creating some really difficult comps back in fiscal 2025. I guess can you walk through sort of the comp dynamic that you've discussed, from these two major customers? I've got a second question on them.
Yeah. You're right. We've always been driving to add customers to the funnel, and we now have over 700 customers in the funnel to use our GMP proteins. At the end of the day, we have two large customers that have big projects, addressing real broad indications. Those customers have dominated, I should say, or from a dollar point of view, you know, the ramp in GMP revenues.
Last year, Q2, we grew at 9%, but on the call we said, "Listen, underlying at 6%," because there's a couple of big orders in there, you know, we might not see repeat on the short term because once these customers are still in clinical trials, their orders are very lumpy, right? Fortunately, and for good reasons, two of those large companies, customers have received Fast Track designation. That means that the FDA will work together with them to optimize the time to market, and that's great news. That does mean that we have a year of tough comparables and that will influence the overall company's organic growth.
The headwind was 200 basis points in Q1, accelerating to 400 basis points this last quarter, and then it winds off to 300 and 150 basis points for the upcoming two quarters. From there it will be out of our comparables. Great news that they received this Fast Track designation. It creates a little bit of a lull. They will start reordering the moment they get confidence that they have to start validating manufacturing and processes, and they will start using our ingredients again. We've not built our assumptions around that. We are just very supportive of them getting their approvals, and if so, these companies will ramp in a much more steady way, and I wouldn't say steady as in slow growing, steady as in a more predictable way.
We do feel that these customers could be $40 million-$50 million or so each at four or five years in rolling out their therapies and double that a couple of years later at their peak revenue. We're very excited that there is this future. Underlaying, though, and that's most important, you take those two customers and that dynamic out of the equation for a minute, you can see that we still grew 30% or so, and that's, for me, very important because you don't wanna have a business that only is healthy if those two customers do well. We do have a healthy business underneath as well.
Right. Okay. Then maybe another piece of the future cell and gene therapy portfolio, the Wilson Wolf, you know, which you'll be acquiring by the end of calendar 2027, I guess can you maybe just speak for a second on Wilson Wolf's recent performance? I think they had sort of a tough quarter last quarter, you know, similar to you guys. I guess ultimately how does that technology really fit into your portfolio, and I guess what are the attractive pieces there you see?
Wilson Wolf mainly built around a product called the G-Rex. The G-Rex is basically a small bioreactor. Typical size is one liter. The real nifty part of it is that you put the cells you wanna grow, typically CAR- T, but you can put other cells in there, in this bioreactor. The nifty part is that oxygen can get relatively quickly to the cells because there's a permeable bottom on this G-Rex. You can basically add all the necessary reagents to make these cells happy and make them grow in the right speed.
For that, you would have to inject small molecules, GMP proteins and cytokines and what have you, which are all ingredients that we are very good at, we have a large portfolio of, and they're extremely high margins. The G-Rex being scalable and affordable, and therefore has a 45% of all clinicals in the world position, with us being able to connect towards this G-Rex if it comes to adding our reagents at very high margins, is almost a dream scenario. It will come true. We own 20% right now. We will own the balance of the company, December 2027, which is a little less than eight quarters from now. Yeah, we feel that that is a fantastic combo.
Very similar to, you know, all our other verticals where instruments pull through our reagents. In this case, it's a disposable that will pull through our reagents. A fantastic setup, and it truly enables the cell and gene therapy customers to scale and to make the treatment affordable, which has been, you know, some of the higher hurdles for companies to cross. We enable it. The growth is very interesting. We do see the parallels between our GMP portfolio, which is mainly looking at Regen Med and the Wilson Wolf portfolio, which is more in the CAR- T space. Nonetheless, they both have very similar growth rates. They kind of read on the same markets, so we see a good validation of our numbers. Last quarter, they grew 20%. 12 months trailing, which is something we look rather at because of the lumpiness of larger orders, and that's been mid-teens in very depressed, suppressed markets, I should say. That's actually what we've seen too underlaying on in cell therapy.
Got it. Maybe another pillar of yours, you know, the proteomic analytical tools, the ProteinSimple franchise, I think more broadly, your analytical tools franchise, including reagents, the consumables portion are just over 20% of sales, from our math, I guess. ProteinSimple specifically has grown, I think at least high single digits for a number of quarters, with consumables growing well into the double digits for many quarters. I guess can you discuss some of the drivers behind the strength that that business has seen, you know, sustained for so long?
Yeah. Obviously a fantastic platform, proteomic analytics. We knew it was always, you know, coming and going to be important. It certainly feels over the last years that that moment has arrived. In total, that business is more than $300 million for us, so it's 25% or so of the company, so it's increased a little bit. You're right, that's because the instrumentation also in tougher end markets has continued to be able to perform nicely and increased install base. The pull-through of our reagent/cartridges or consumables really has done extremely well in under those market conditions as well. 10 out of the 13 last quarters has been in double digits, and that speaks to the utilization.
That means that these technologies are actually very relevant and being used. It doesn't surprise me because if you think about some fundamental processes like ELISAs or western blots and biologic analysis, all of those are very essential in the upcoming waves of projects. In the meantime, we always pushed forward our automation because, A, it's simple, but it also creates reproducible results, and it's actually the actual data. Having actual data which we label so that, you know, AI models can make use of it, compared to manual. We have mainly competed with manual solutions, right? In the past, there were some drivers like, you know, fewer people in the lab because of pandemic or, hey, are people getting more expensive?
We should go to automation or, more so in pharma, our data needs to be of higher quality and reproducible. Those were already drivers. Now with the, with the drive to being able to utilize your data for bigger, large language models, it's actually we feel even more a value proposition we can benefit from. All three platforms are really well positioned. They're very unique, and they have still plenty of market share to grow into because they're all sub 20% or so market share in these end markets and have plenty of head space. We feel that we're well positioned to see continuing that product line do as well, if not better in the coming years.
Got it. Actually, I got a question for Jim. Maybe moving on to margins a little bit.
I thought just I can.
I know. He's sitting up there, yeah. I guess on the, on the margins, Jim, you know, Techne's got a pretty big opportunity to materially expand margins over the next few years, as the end market recovers, as M&A scales. This was pretty evident by the 250 basis points of margin improvement before reinvestment, you know, that you've seen post the divestiture of ExoDx, I guess. I guess maybe what are the building blocks that, you know, could materially raise, you know, Techne's adjusted EBIT margins over the next couple of years? I guess, you know, on that, how does your core reagents business play into this improvement as the market improves?
Well, before I talk about the expanding margins going forward, talk a little bit about what we've been doing here and now in the past seven to eight quarters has been a lot of internal productivity and product line rationalization, like you talk about Exosome, for example, to really, you know, position the company to weather the end market situation that we've been in for the past two years, keeping our margins at a way above peer average, and so that we're, you know, very well positioned for the next leg of growth in terms of future margin expansion. I think we've done a really good job of doing all of that to preserve our margins north of 30% in this environment.
It will, I think, parlay into kind of our thesis in general, which is that, you know, over a longer term period, whether it's three years, five years, what have you know, our margin expansion plans aren't centered around, you know, a productivity system or something like that. It's really centered around growth. What allows for that is we have such great margin pull-through on such a large vast of our portfolio that we just get and then just drop through the bottom line. You know, how we think about it's more starting point every planning season is, you know, it's sub 5% growth. We want to still invest for growth, while maintaining our margins. Don't expect a lot of margin improvement in that environment.
We've done years like this past year, we've been able to expand margin despite that. That's a starting point. You get to growth that's in the, you know, 5%-10% range. You know, we believe because of the drop through, we can still invest for growth and have at least 50 basis points of margin expansion as a, as a starting point. We get back to double-digit growth across our, you know, across all of our end markets, which is our aspiration and we believe our entitlement. You're talking about 100 basis points of margin expansion while still investing for growth. It allows for a path to get back well into the, you know, mid-30s, if not higher, in relatively short order when with markets returning back to normal.
Got it. Maybe going back to Wilson Wolf a little bit. You know, you've called out a number of times the margin profile of that business. I guess maybe can you discuss that a little bit and, you know, how it would be accretive to the overall portfolio?
It's one of those magical once in a career type opportunities where an acquisition, at least for us, is both accretive on the top line growth as well as the margin profile. Their EBITDA margins right now are running around 70%. It is a very, very lean organization, very entrepreneur in how they go about running their business, which we don't want to get in the way with that, but we also are realistic in when that, you know, business becomes part of our portfolio, there'll be investments we'll need to make from a systems perspective, even from a leadership and people perspective to, if nothing else, make a public company caliber for SOX and things of that sort.
Also just from pure sustainability and it prepared for its next leg of growth beyond that. We've modeled in, we've basically taken a 10% haircut on that margin, assuming that we'll operate at a closer to 60% EBITDA margin. You know, still not too shabby and still definitely accretive to our, to our, you know, 30%+.
Got it. Maybe moving over a little bit to just M&A and capital deployment. You know, clearly M&A has been paramount to the Bio-Techne story for the last 15+ years, 50 years of Bio-Techne, right? I guess with that, you know, with that being said, you've got Wilson Wolf on the horizon here, but how important is M&A to the strategy going forward? You know, are there areas of the portfolio that you'd like to add to? You know, I guess the last question would be, you know, would you seek to do something ahead of Wilson Wolf, or is that something that's sort of pending in the background you'd sort of wait to see once that's integrated into the business?
No, I like to set up on the chessboard. You're right. 50 years of Bio-Techne, and the last 10, actually, we did these 18 acquisitions or so. It obviously makes a ton of sense that if you have this broad exposure to market and you know where the markets are heading, where the pain points are, that you would, you know, build out growth verticals where you can differentiate and where you can pull through your reagents and where you can be a meaningful differentiator with your customer base. That setup we really like. In the meantime, we have the right abilities to evaluate certain targets, and we know how to integrate. We always have this setup of, you know, you go play in the market, you try... You will win in the market with your handpicked solutions. As long as it pulls through reagents, the margins will follow as well.
Therefore, you, as a company, we will always be able to drive top-line growth faster than anybody else, also maintain a margin profile that people have come to love. That's a fantastic setup. Yes, we have Wilson Wolf on the docket for sure, that's a good thing. In the meantime, that will even increase our buying power. In the meantime, we're ready to do another deal or two. We want to be disciplined. We won't do anything that we will regret. We have, you know, certain areas that we really like.
Fortunately, we're not in the position where we have to move because in spatial a couple of years ago, I really needed and wanted an instrument, that was a kind of have to move situation. We're not having that currently. We are interested in building out further cell therapy workflows. Our proteomic analytics-based instrument setup is really, really good. As I might have mentioned, cell therapy workflows, then combine that with building out a core portfolio with other nifty antibodies or protein companies. Those are the two verticals as well as the core that we will always continue to maintain.
All right. Great. Well, with that, we're out of time. Kim and Jim, thank you very much for being here and, thank you.
Thank you, Kyle.