Hi, everybody. My name is Valerie Dixon. I'm a Managing Director at Morgan Stanley, and I lead the firm's coverage efforts in life sciences, tools, and diagnostics. We're happy to have, today, Bio-Techne in our fireside chat, and the CEO, Chuck Kummeth, to tell us a little bit about the story and, you know, why we're excited about Bio-Techne today. We just had actually an interesting and very well-attended analyst day for you all last Friday in New York. So we're gonna try to uncover some new gems and why you should get into the story now.
For those who did not make that event and wanna learn a little bit more about Bio-Techne, why don't you just kick us off, Chuck, with a few minutes on Bio-Techne?
Sure. Well, we describe ourselves as a truly a life science tools and diagnostics company. We're a—It's a portfolio of diversified platforms, roughly a dozen. The company is actually 47 years old, has a pretty good stock ticker symbol, TECH, and started out as a controlled company and still has that. But also got into antibodies and proteins very early, more or less created the category of proteins for research. And, you know, the last 5 or 7 years, we've been kind of flowing into this, you know, omics, proteomics world, and we've kind of—we just—we're just in a great sweet spot for driving that. But given as that was great business, it's still only so scalable, so we diversified into instrumentation that uses these reagents. And then...
We've always been a big player in assays. In fact, we're the creator of the ELISA assay, inventor, and we're still the world leader in ELISA. We're good at assays, and we have a few FDA versions of them, but not enough to be dangerous. But, you know, we look at diagnostics and thought, you know, they're nothing more than regulated application-specific assays, and so we bought assays in those areas, too, just so we could leverage. So all three areas kind of roll together. We've gotten into things also that are related to antibodies, so like spatial cell interrogation, which, you know, anything that's gonna jeopardize antibody rights, we want to be part of, so we got into that.
And then, and then next-generation proteins, next-generation everything is cell and gene therapy, which we've invested heavily into the last five years. So all in all, about five legs in the stool, five divisions, about 10-12 different platforms, you know, equaling about $1.1 billion, growing very nicely. I think we have maybe the highest margins in the industry. And, a strong M&A track record as well. And, I'd say we're decent globally now. We weren't so much 10 years ago, but we're getting there, and pretty much the normal splits, you know-
Mm-hmm
... 55, 25, 15 kind of thing. And, and that's kind of where we're headed. So we can talk about any area you want. I'm sure, I'm sure-
Sure
... there might be a question on China, I'm guessing.
There might be. But that's, that's an incredible track record and scale and diversification you've built over the last 10 years, and best-in-class story, however way you look at it, from shots on goal and market exposure, new technology growth vectors, you know, as well as, you know, the financial profile itself, being best in class. Now, we're also nearing the end of third quarter, and on second quarter earnings, there were a lot of these dynamics that you just started alluding to: China, the biopharma funding environment, some customer destocking in certain other businesses of your peers, and, you know, some, you know, other funding weakness that might be coming from certain geographies.
Let's pick those apart, if you can, and talk about, you know, some of the end market and geographic dynamics. First, on the U.S. academia side, what are you hearing from customers, now that we're ending third quarter, on their willingness to spend this year versus maybe, you know, next year?
Well, we've been remarkably resilient in academia. In Europe, we're double-digit growth a couple quarters ago, high, still high singles. In U.S., it's mid- to high single. It's been kind of the way it's been.
Mm-hmm.
Not too bad there. What we're hearing is that there is just an overall hangover coming out of COVID everywhere. And even academia, you know, we had an amazing instrument business through COVID and growth rates of 50% + in some categories because everybody had to expand their labs and get more separated, and that takes a while to level out, right? So even in academia, I'd say we're stronger in reagents than we are in instrumentation from that issue. In China and Asia, we had also remarkable growth for the same reasons. And then through this whole last year, there was so much in the news about supply chain issues, chips, everything else, that kind of everybody got into, "We better stockpile," you know, including us.
You know, I told my teams: "Listen, I don't wanna not ship instruments because we're waiting for a $0. 20 sensor," you know? So, you know, so we did it as well. And so we're just kind of coming to the end of that, I think, soon. We know because a lot of them are OEM-type arrangements, either content-driven, where we get royalties, so we know the sales, or ingredients that go into different testing kits or such, you know, a lot of that as well. And we don't have hundreds. I mean, it's really just a couple dozen large customers that deal like that, and so we know them, and they're starting to come back online.
Their requests are coming in now: "Can we get our next order finally?" And so this quarter will start, and I think it'll get better. All that means is we're starting to see, you know, a little bit of a light in the tunnel on some of this. I think China threw us all for a loop here. I think it's an extra quarter or two of some pain, but that, too, I think will come and go, is my opinion.
One end market you haven't touched on yet is biopharma. How much of that funding weakness has impacted your visibility into next-
Yeah
-fiscal year?
Sure. Pharma's been kind of steady, Eddie, although I think there's a slowdown just because of the conservatism, because of, you know, risk of, you know, economic conditions, you know, worsening and stuff, and rates being high, so there's an extra signature or two needed, so things have just gotten slower. But they're really okay. We call it biopharma, but, you know, the bio part's biotech, and biotech is, you know, from here to here, right?
Yeah.
There's little, tiny biotech, there's middle, there's large, and there's the Amgens of the world, you know, and they're, they're all very different. Funding has gotten very tight for the middle guys.
Right.
If you've got a great idea and getting angel funding, you can get it. If you're, you know, two years in and you're $10 million in and you need the next $20 million for Series B, you're kind of in trouble. There isn't a lot of funding, so... And because we've become this kind of go-to player for finding, you know, leading-edge, you know, research reagents and tools, you know, a lot of startups, a lot of small biotechs have gravitated towards us. And we've, you know, we have found out the hard way that, wow, a large percentage of our biopharma really is biotech.
Yes.
-and small biotech. And so, while we work through a lot of those funding issues, you know, and, you know, the 25 public companies that shouldn't be public, you know, there, there's a bit of a softness to get through. But,
It's not helpful that we had, you know, pretty closed IPO markets and fund-
Right
You know, capital markets for the last several quarters.
Good for the M&A pipeline-
Yeah
because they're calling us now, but yeah. But, you know, but it, one thing I'll say, too, it is biotech. That means in two years, there's another 25 new ones you never heard of today. So, you know, it's... I worked in a lot of industries because I'm an ex-3M-er, and I, there's nothing like this industry for innovation, right? It's just-
Yeah
Companies spawn by the week.
Switching gears for a little bit, because it's timely news, and, you know, a little plug for Morgan Stanley, we just sold Abcam to Danaher, and just wanna understand, because for better or for worse, there was a read-through, you know, between Abcam and Bio-Techne, for some time. How would you now characterize the competitive landscape here within antibodies and, you know, how do you expect that to change?
When I answered this question two years ago around PeproTech with Thermo, I got a nasty call from Marc. So I need to be careful because I like—my friendship with Rainer is pretty good, actually. But, there hasn't been much change in the PeproTech front. I mean, my answer then is largely the same for Abcam and Danaher now. Danaher doesn't have much of a position in reagents like this, and certainly nothing in antibodies, so they don't offer a lot of domain knowledge to or content to the story. Clearly, offer a lot of capital, and given all the press around Abcam last year and activism, et cetera, I guess I'd classify as activism-
Yeah
... I'm sure Danaher thinks they might be able to clean up operations a little bit with DBS and do the Danaher, you know, usual model, right? And create some value. I'm sure that's mission one, and being they're a pretty good antibody supplier, and they've got a lot of diagnostics, and I'm sure there's some synergies they can work on. Some, I guess, but it won't be overnight for sure, but...
Yeah.
But, you know, we're competitors with both. We're partners with both. You know, it's, you know... We even actually have business with Abcam, so it just, you know, it's a very close-knit world.
Yeah. Great. For folks that missed the Analyst Day last week, there were two areas that I wanted to highlight that I thought were, you know, great platform focus, focuses of yours. One is in Cell and Gene Therapy, and the other was Liquid Biopsy. I'd like to take them in turn because, you know, these are massive market opportunities and I think might be underappreciated in your story. Can you talk a little bit about why you're so bullish on Cell and Gene Therapy and how you're positioned to win in that market, and then do the same, you know, maybe for Liquid Biopsy?
Sure. Well, you know, we had our Investor Day last week, and we came in with an update of our last five-year model from two years ago, and we've delivered a new five-year model. But we also gave an outlook, a vision for 10 years. And we did that largely because the three big hot areas we're investing in, which all did really well last year, by the way, in spite of all this slowness in the, in the core areas, our spatial platform, our liquid biopsy platform, and our cell and gene therapy platform all grew between 20% and 90%-
Mm-hmm
... and are just, like, still like a rocket. That's where our spend is. We've been at it for a long time. But they take time to form in the real market. There's a great paper put out by this company, you know, on what's gonna happen with cell and gene therapy, and it was analyzed against immunotherapeutics.
Mm-hmm.
That took 40 years for that to get there, and it's $40 billion, and expectation is this will take 30 years and be $80 billion. I firmly believe you guys got it right. I think it'll take a decade to really get off the ground big, and then it only get bigger, and it will be the future of oncology, you know, but it's gonna take a while.... It's a big J curve for us, and we've been laying track for 5 years, and we have, I think, the most extensive workflow for cell therapy that you can get right now. But we have to wait for just, you know, more than 8 drugs out of 4,000 clinicals to hit the market, right? And it's gonna take some time, but when it does, it's gonna scale and scale big.
We'll be in it as a leader in proteins, we'll be in as a leader in media, we'll be in a leader for the instrumentation, of course, the bioreactor, Wilson Wolf. So we're gonna have this thing, you know, and our instrumentation for QC, we're gonna have this thing fully, you know, circled, and it should be, as we pointed out last week, you know, billions of dollars, so.
Well, I mean, there are 8 approved drugs, but there's, you know, well over 1,000 at various stages of development. How do you play in, you know, the lead-up and the ramp-up, for those programs that are in development? When can investors start to see, you know, that inflection point where you're starting to really, you know, generate,
Well, we've been out there publicly. We're running roughly $45 million or so run rate just, just on proteins alone, and it's just clinicals. We only have, we only have a, a handful in Phase III.
Mm-hmm.
But we're in hundreds.
Yeah.
We have 400 customers at G-Rex, you know, at Wilson Wolf and 800 different systems. We need them to get to production. They need to come out the other end, right? And we do have a bit of a preview of what to expect because these customers came to us five, six years ago, you know, explained what they needed. They didn't wanna. A lot of them are coming from large molecule drug models, which the protein is the drug, so they had to do it themselves. But this is different. This is a reagent that enables the production, the creation of cells, the cell line to grow. Not necessarily food, but it's a, you know, it's a stabilizer and everything else. And it's not even under FDA.
It's something, it's a manufacturing component, so it's easier to deal with. So they feel okay with outsourcing that, right?
Mm-hmm.
And so they came with, you know, desires of, "If this goes to market, we need about, you know, anywhere from $10-$50 million a year of this one protein." You know, and we kind of laughed and said, "Okay, we could do that, but no one's ever done that before." And then more came and more came, and we have talked to over a dozen companies that have needs of, in excess of $10 million a year off of one GMP protein. So, you know, we built a factory that can do over $1 billion of proteins, and it won't take 800 customers to fill it. You know, more like, you know, 80.
Yeah.
I think it's gonna be, you know, another 8 this year, and then it'll be 25 new drugs. You know, the FDA has said they're gonna try and increase their ramp, right?
Mm-hmm.
But, you know, otherwise, it's gonna be many years before we see, you know, hundreds, but-
Yeah.
But that's gonna happen, I think, eventually. And it's, we're too far down the road. It's, it's gonna happen. We're, we're far ahead of everybody, so.
Yeah. Exciting. I'd love for you to do the same for liquid biopsy, you know, as a platform focus area and, you know, how is Bio-Techne in a position to win there as well?
Similar story. We got into Exosome Diagnostics because we wanted to be in a diagnostic platform that was scalable, and we just we looked at liquid biopsy because we were around it with other things, you know, using antibodies and such. And we just saw there must be something we're missing because this platform just beats the hell out of cell-free DNA and circulating tumor cells, but on a number of fronts. And we negotiated for really a year and a half before buying them. And it's been, you know... We definitely hit roadblocks with our MAC NGS, and then COVID was not good to us because urologists stopped seeing patients, and you guys have all seen the Wall Street Journal article this week on-
Yeah
prostate cancer is exploding, partly because people stopped seeing their urologists during COVID. But it's a $1 billion+ market just there, and this is not a one-trick pony. This is a, you know, it's a genetic, you know, signature-
Mm-hmm
within an enclosed exosome that's fully intact. And, you know, there's hundreds more copies of RNA than DNA, so it's just, it's just better on all fronts, from signal to accessibility to integrity, everything. And they're shed by cells all stages of life, including young cells, not dead cells-
Mm-hmm
You know, like cell-free DNA is. So it's, if you want a, if you want an early screening diagnostic for cancer, which is everybody wants, this is the platform. We, as you know, we've licensed the second product to Thermo and for kidney rejection, which is a huge problem and a more than a billion-dollar market. And we have, we have a better version of a prostate in the works. We have a colorectal nearly ready for trials. We have Sjögren's ready to go. There's virtually we have a breast and a lung signature ready. It's in plasma. Because any, any, any body fluid has exosomes, so we've got stuff for saliva, plasma, urine, and...
You know, Johan and the team have been doing it for almost 20 years, so they've got quite an arsenal of content and 250 patents, by the way.
Mm-hmm.
So, we kind of own this. So... And I do think it'll be a mult- you know, a billion-dollar plus platform. We don't even have $1 billion in our plan, so in that vision we put out there, so it's- we think it's hedged, but we're being careful. But it has- it's very exciting. It has a lot of potential, and I could talk all day about this one, but-
Great. Just from a strategy perspective, you know, a lot of your core, where Bio-Techne originated from, was in the reagents and, and quality controls and content. You obviously have instrumentation with ProteinSimple, and other platforms. What is the thinking in terms of, you know, eventually starting to own the platforms themselves in some of the areas, you know, where you're venturing into? You know, spatial is one, owning a proteomics platform, owning a genomics platform. Are there other analytical technologies that might make sense for you as you, you know, continue to expand?
I think we're still thinking more tools and things to complete the loop for, like, cell and gene therapy. We don't have—we're doing our own media. I would love to buy a media operation and save some time there for sure. Cryopreservation, we don't have. We have—we have—we think it's the next generation, you know, of T cell-based therapies, which will be non-viral with our TcBuster. So we have a, we have a, you know, a gene, a gene-editing-
Mm-hmm
platform that could also be very large, but will take years to really get going. We've got more than 50 customers playing with it right now, and-
Are you thinking-- are you, alluding to CRISPR? Or-
No, TcBuster.
Okay.
The B-MoGen technology.
Got it.
to take on CRISPR. But,
Understood.
It'll take a while, but it works. It really does work, and it's been proven. It's just a matter of, you know, unseating some pretty, pretty, you know, strong standards right now. It takes time.
Yeah.
But looking for another leg in the stool, we wanna be in another platform equally as, you know, cool as maybe liquid biopsy. I don't really see the need right now. We've got all these platforms to drive for growth, and we're not that big a company.
Mm-hmm.
And Casper always used to tell me, "You know, you guys do—you do hit above your—you punch above your weight.
Punch above your weight.
You know, 'cause we, we've got a lot of stuff for our size company, so I don't think adding more complexity is the answer. We gotta figure out ways to scale more what we have, I think. But that said, if you know, we bought Namocell, which is, in a way, kind of a next-generation flow cytometry, and, you know, I think I can see us being more into that, the deeper. I don't see us, like, looking at mass spec or HPLC
Mm-hmm
or NMR, things like that. It seems, you know, hard to protect. All, all of our instrumentation that we're in, we've got six different platforms where 70% are better, you know, growth margins because there's IP protecting them.
Mm-hmm.
We have the only automated Western blot system in the world, and we'll always be the only one, I think. But, you know, going head-to-head with a Danaher or somebody on a mainstream platform, may not be smart. So-
Yeah.
But, you know, we'll see what happens in terms of other, you know, other new areas that come out of, you know, the tools area or just life sciences in general. Something that's novel, like an exosome. Who knows what's inventing? You know, the biome's coming, right? You know?
Mm-hmm.
It's a whole 'nother-
Yeah
sea of stuff, right? So like-
Again, gut.
Yeah.
You can go in any direction.
It'll be whatever it is, it'll be different in five years, right? We know that, so-
Yeah.
We've worked hard at creating a culture that's all about innovation and embracing change, and I think the team's ready for, you know, anything. As long as it's heavy duty science, they'll be all in, so.
Great. Since we started talking about M&A, I'm gonna pull on this thread a little bit more. You know, historically, you've done, you know, at least two or three deals a year. I think the last one you did was Lunaphore, and other than that, we really haven't seen much this year. So, give a little bit about, you know, what areas you're focused on. Is there an element to this as, you know, channel capabilities-
Mm
...geographic capabilities, in addition to just kind of feeding the engine around-
Yeah
-your existing core?
No, good question. You know, we did a media deal in China, and we had to write it off, and then we were able to sell it to get all our money back. But, you know, I'd like to do more in China. We bought one company there, it's been great, PrimeGene. You know, there's over a hundred antibody companies-
Yeah
... and it's beyond me why, how they're all staying alive and well on their own. I think this is a good M&A year. Next year, like we talked, it might be even better.
Mm-hmm.
I think it'll be the, finally a time there can be some consolidation in some of these small reagents companies, probably. So our team's looking at that very deeply. Because there's not only a scalability theme of that, but also a regionality theme, right?
Right.
I would love to pick up a few more assets, you know, in Europe, just for more critical mass. We have now subsidiaries established in all the 5 major country regions, you know, the Big Four, plus Scandinavia. You know, Germany is still one of the smaller ones. Love to buy a company in Germany and make it the headquarters for Germany. You know, it'd be, it would be one thing that we'd love to do. And I guess just always in the core, I mean, we're. I'm interested in always, you know, things that make sense, that we can just get scale from. A lot of them are competitors and-
Mm-hmm
... and, you know, it's sometimes they come actionable, sometimes they don't. Sometimes you wait a long time, but we just, you know, be patient. Wilson Wolf is a good example. You know, I first tried buying Wilson Wolf 14 years ago when I was at Thermo, so took a while.
Yeah, just thinking about the overall valuation environment, are you seeing now that maybe multiples are in a place today where you didn't think it was in reach before, and now, you know, but it might be more actionable, just given the contraction that we've seen in this sector?
Yeah. I do miss our 50+ multiple from 18 months ago, but, yeah, we've all come down and we're well—I'm told we're still relatively high compared to the field, still. And, we're hovering 25-30, I think. I think if we hit our growth numbers and we scale the company like we say we're doing, and, and which is, you know, $2+ billion in 2028, and $4-$5 billion in 10 years, I, I think we'll have multiple expansion a little bit at that point.... Even, even at a 30, that's, that's over nearly a $50 billion market cap. So I, you know, hitting 40% op margins, I think, is a given we will do that.
Yeah.
To some degree, we're at because we invest at a level to be where we're at. We could always, you know, focus more on cost, too, if we want to. We focused on growth over, you know, finding every nickel, you know, so there's ways to get there. I do think we'll be rewarded heavily if we could get this kind of growth to that kind of size, that kind of complexity for portfolio, things that are safe all in their own right, but then also have those world-leading op margins, too. You know, there are so many companies in our space that are losing a lot of money and still have a lot of market value for some reason, right?
Yeah.
So, I don't think we've been well rewarded for the operational prowess that we have, you know, to be honest, so. But we're patient. We've been around 47 years, and we'll be around, so.
Well, best-in-class adjusted operating margins, generating a lot of cash flow, $5 billion of dry powder, excluding Wilson Wolf. What are you gonna do with all that cash?
More deals. We've never had a bigger pipeline. We've never been so close, and we're coming second as this year, to be honest. So, everyone's hunting pretty hard this year. Everyone's got, you know, comps and growth targets to hit, and if they can't hit them organically, they're gonna hit them another way, right?
Yeah.
So we also have quite a few companies in our space that have pretty good war chests of COVID cash, right? So-
Yeah, sure.
So it's so, you know, for that reason, some of these assets are going for higher prices than they probably should. They're deemed as strategic, and, you know, they can get away with it. But, you know, I think that'll trend away from that this year to smaller companies, I think. And there'll be more for sale because more of them are gonna need help. So-
Mm-hmm.
My opinion.
So, Chuck, we know that you'll be retiring and stepping down from the CEO role. As the board continues to think about succession, as you keep saying, you've laid the tracks. Whoever takes over is gonna be in an awesome position to take this company for the next 10 years of growth. What's the board looking for in the next CEO here?
Yeah, the spec is written, of course, and I think there's an M&A component for sure, M&A experience, strong operational experience, preferably running, you know, if not part of this company, something that was as big or bigger.
Mm-hmm.
Because it really isn't about—we have three strong internal candidates that I've worked hard in grooming, and they're all ready today, and they all have their pros and cons, but they're all ready, and they all could do the job. It's more about in 5, 10 years, and this company's so much bigger, do they have the runway? That's the assessment the board has to do and compare that against some external people that have—are running much bigger operations right now and that are interested because, you're right, this company does have a pretty, pretty big future.
Yeah.
Is gonna make a lot of money, and they stand to make a lot of money, probably. So it's generating interest for sure. But I think, you know, they're doing all the right things. There's plenty of interest. I think the goal is to have somebody named before end of the year, I think, and it'd be nice to—It'd be nice if I could work with somebody my last six months, maybe in a COO role or something. That'd be my preference, but yeah.
Yeah.
But, you know, next summer it'll be 11 years for me. That's pretty long in a CEO cycle, and it's time for some new blood and, I think, new ideas and shake it up a bit, you know?
Yeah. So the goal is to name your successor by your fiscal year-end, which is June thirtieth, next-
No, I think we'd like-
Or calendar?
To do it for calendar year, I think.
Calendar year.
That's the goal.
Okay.
I can't speak for the board, but that's what's been discussed. But if they're ready, they're ready.
Yeah.
They're in it deep right now. Interviews are happening. We're not in... We're not. You know, we did a two-year pre-start, right?
Right.
So there's plenty of time to get ready, but we're definitely in it now. So, you know, I think they're, they're all good scenarios. They're all good outcomes, I think, so.
Great. Just to wrap up, we only have a minute left. Any final thoughts from you on, you know, why, why is this, you know, a good entry point for somebody new to the story or, you know, to continue to double down on their investment to come into the Bio-Techne story today?
Yeah. We were at a peak of $130-some a share, and we're sitting here in the low 70s, almost at a three-year low, thanks to this China flu we're all experiencing this last two weeks. I think with the roadmap we have with our strong track record, and we're really just waiting for macro conditions to change and interest rates to stop going up. And I think the money is all circling the hoop, waiting for the pivot, right?
Yeah.
And I, I do think if you're waiting for a bottom, we gotta almost be there. I think everyone's almost there, and the reaction is gonna be quick. I mean, when, when the pivot happens, the money's gonna flow quickly to the quality companies with quality earnings. And, you know, I could see us snapping very fast. So I, I think getting in now, and it's pretty much, I think, near a bottom, and I think it's only gonna be a couple short years, really, to see wonderful returns. I just believe it, and we've been here before, and we've, we've proven it over and over again, so.
Great. Well, thank you so much for being here. It's bittersweet because I think it'll be your last Morgan Stanley Healthcare Conference, but appreciate you joining us this week for the fireside chat.
I appreciate the time. Thank you, all.