Bio-Techne Corp at Citi Global Healthcare Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : <_ALACRA_META_ABSTRACT>So Jim, a bunch of different stuff to cover. Maybe we can just high level as we work our way through the year here for you guys coming out of fiscal 1Q for you, you guys kind of reset a little bit in terms of the pacing, how this year is going to go. Maybe just talk through the expectations for 2Q and then the ramp in the back half and maybe just some of the some of the things to call out that changed a little bit over the course of the last couple of months? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes, sure. Have you -- thanks for having us, by the way is good to see you. I'll start a little bit with the dynamics of Q1 because they been parlays into how we're thinking about Q2 and the rest of the year. So we ended the Q1 with negative 1% growth. We did have two of our cell therapy customers, very large customers who have been not purchasing material from us this quarter. and likely will not for the remainder of the year, and I'm sure we'll have some questions in more detail around that. So we got to take out those two customers to really talk about the real company, the rest of the business. And if you back out that is about 200 basis points of headwind. So the negative 1% really is 1% for the rest of the company in terms of growth. So we'll start there. I'd also say you got to put some end market context and all this, right? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : No, that was very helpful. Definitely, I want to dive into all that. Why don't we cover the two customers first, and then we can dive in. So maybe just give a little bit of context. So you have these two large iPSC customers, stem cell customers. What does the concentration look like in terms of how large they are on a relative basis? How long will this impact linger? Maybe we can start there. And obviously, I have a few more questions about it. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Sure. So these two customers are definitely outliers and outliers in a very positive way. And we've had all kinds of questions why you have these two outliers. And why are they outliers? The two simple reasons I can give for this is number one, the disease states that they're going after are very large, very large populations. So that means a lot more that's needed to support trials. And it means when they knock on wood, they go commercial, there'll be huge commercial customers as well. The other reason is because of the type, you mentioned IPSC -- so as a reminder, in our cell therapy franchise, just generalize and say it's cell therapy or even overgeneralizing 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 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 site clients. And 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 Madden, 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 -- I far become the number one player in that space, which is why if you're a regen therapy customer, you're more than likely to be buying our proteins, and that's how we have to customers. and they use a lot more proteins in the growing up of the cells. So there's higher content per dose, so to speak. So that's why these are such outliers. Within our 700 comers. These two do make up recently have made up as much as 35% of our G&P revenue. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Okay. And I guess in terms of how this played out, right, that big of a customer, presumably you have a very close relationship, you have some visibility into what they want to order and then apparently do not want to order. I guess what happened in terms of them, this air pocket forming seemingly quite quickly. And then when does -- to your point, when it flips commercial, it should be super interesting for you guys. What is the visibility to that happen? Maybe we start with what happened coming in and then what could ramp? . James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance So first of all, start off because I'm showing on a microphone here. No offense to our customers, of course, with our customers. We love these two customers very much. But -- and we respect the fact that by their very nature and what they're trying to do, they're very secretive and about everything. And we get that. We respect that. And we try to manage around that as best we can. And we knew before -- we knew by the end of our last fiscal year that these two had gotten Fast Track designation. What we didn't know is what that actually meant in terms of its application and more specifically what it meant for us. There's no -- that way, we need to understand that there's no boiler point for our Fast Track, that means XYZ. It just means you're going to get some special attention from the FDA to do whatever it takes to get your either trials faster and/or through the approval process faster. And that could take on all different kinds of forms. So we didn't know. And these customers were reluctant to tell us much about what they would mean. And given they didn't tell us much, we didn't necessarily think it was going to 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 could be as simple as that. Well, it wasn't until we got on whatever it was halfway through the first-quarter were like, there was no orders coming in. And so we basically like you need it, this is important -- this is material to our company. We need to know at least are you going to buy stuff or not? And if you're not, why not? So at the end of the day, 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 that. But in that sense, they were able to skip a phase of their trial. And the material they bought from us in fiscal year '25 was going to be used for the Phase II trial, which was going to be ongoing now and the material that we're going to buy from us in fiscal year '26 was going to 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 going to hit this -- and we will with all -- as many customers. I hope we hit this with all of our customers, that means they're being successful in terms of 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 3 years from the time the Phase III results are published and there's actual approval and commercialization. Not only is the paperwork and they're all that for the pure approval, but then you have to get the manufacturing processes documented, those approve all that fun stuff. So anyways, but going back to this most current year, we said, okay, so that -- I mean you're not going to 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 do not buy anything that the rest of the year. So that's our base case. So they're not buying anything from for the rest of the year. We've been told definitely well, LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Yes, absolutely. So to your point, it sounded like at the peak, they were combined 40% of. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance At one point, one given quarter they were.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Okay. Understood. Okay. That all makes sense. So maybe moving on from the two customers. It does sound like again, on the end market side, you are feeling better about most of the pieces. Maybe we can start with biotech. To your point, the funding has picked up. It's certainly looking better, whether it's the indexes, the secondaries maybe some IPOs at some point. Yes, 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 downer and probably hit you guys a little bit last quarter. How quickly -- could this 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? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Well, I'm not going to be able to give you an answer that's as precise as anyone wants to hear including myself because -- the reality is its customer-specific in terms of how fast this money translates into spend. It really is. And we've seen some customers where it just instantly shoots through them. And we've seen other customers were like, you ever going to spend the money, it goes on forever. And -- we've tried to come up with some averages. And I guess if we have to -- at some point, we have to come off our own base case. So our base case is somewhere between two and three quarters is the lag. But we've seen examples where it's happening much faster, and we've seen examples where it's taking a quarter or two longer than that. which is why we're careful and kind of saying not even picking a specific quarter, but to say, hey, fiscal year -- sometime in fiscal year '27, we feel like as long as it does go backwards from here, there should be a lot of tailwind from funding to support a biotech recovery.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Yes. yes. And then the other end market, obviously, academic government, you touched a little bit on as well. Pretty roller coast to 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 was a budget in January, there was a shutdown. Did the shutdown track as you expected in terms of the guide? And then yes, when do you see those dollars start to loosen up a little bit? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I'll start with the shutdown. There's like shutdown like every other year, it seems like it's not -- it's a 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 was so much as 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 run rate perspective after it was over. So it's very temporary. At the end of the day, we talked about academic. And government, but it's really academic. And the only reason why government is even thrown in there is because a portion of the funding does come from NIH. Of course, we owe that. And yes, the government was shut down. So 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 experiment. So that's why I don't think you see -- and 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. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Sure. Okay. We'd 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 businesses out of a little bit of challenges here? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. I mean, so we've had not had a declining quarter in our protein simple franchise, as I mentioned before, throughout this entire downturn. But it's not because our instrument sales haven't suffered. They have like anything -- any instrument maker, but it has relied on a 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 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 they -- 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 -- they're starting to hit a capacity problem with any 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 easy to make room for those and it might be for some other very high-end instruments. We're going to be on one more space with this. So yes, consumables. Yes, I had a going to say about that.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Yes. And on the pull-through side, I mean, are you guys seeing any utilization trends? Any numbers you're willing to throw. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. So that's what the reason we're excited about this instrument because of the pull-through opportunity. So already today, on a run rate basis, we're gaining 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 protein simple. What hasn't even really started yet is the pull-through of our reagents, both our reagents on the RNA scope side for RNA detection, but also for the antibodies for the protein indexation. It is an open system. So it couldn't use anyone's antibodies, but we are feverishly developing panels of antibodies for all different types of applications, of course, picking the most popular lens 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've got a panel that's been proven to work and thereby ours, that's just getting started. And we think that will double the pull-through to up to $90,000 a year. But more importantly, the margins on that stuff is some of them are more profitable products in our portfolio. So it's exactly why we bought this comment on for this common instrument because we love the whole blender in juice model, and this is at the pinnacle of that.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Sure. Okay. That's helpful. And then maybe the G&P 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 what the right way to think about the let's call it, normalized growth is for this business. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Like GMP proteins as these two customers? SP-2 Yes, I guess so. Well, okay. We 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 because we also sell small molecules, we sell media and things of that sort. What it does that worth 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 going to say numbers that we can't measure 100%. But our RNA scope business in spatial as well as our protein simple franchise, specifically more both maurices 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 going to say it out loud, but it's material. And the reason why we can't measure it precisely is because they don't know often tell us what they're using the instruments for us. So we try to gauge it by the type of cartridges they're buying, and we look to see what kind of things they're working on that we know that they publish and it'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 GCQ. But that gives you a sense of the size and materiality for our business. In terms of -- with these two customers being on a chasm here for a while, it's going to 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 customers go commercial, and 20% becomes by far the floor and it can only go up from there. And why do we feel so good about the cell therapy? I mean I get a sense of talking to investors and stuff I read in the press and so forth, there's a downer right now in cell therapy, at least at least more than I've seen before. And I'm not exactly sure why, but I think part of it is because it's all relative. There was such a euphoria around cell therapy, especially during the COVID days when there was everyone was flush a cash and you're throwing money at every good idea. And cell therapy was a very exciting space. I mean there was a lot of good ideas and people are just throwing money at it. And so maybe the rate of new clinical trials growth is still growing at 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 when everyone's flushed with cash, anyone with half a brain and half an idea I can get funding. And now you -- in tough line environment, you got to 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 then we have 700 customers. In middle a large and one of the reasons for that is because we've gone through a program share with Wilson Wolf to offer it very, very -- just very strong discounted pricing, grants. We call them 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 to summit 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 cost us very, very little because this is a very high-margin product. We lock them in on our early-stage development if they have success in the early stage and they need their next batch of proteins, that now they're going to pay for it, but it's sticky, they're going LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Yes. So is it fair to think of the GMP piece is once you annualize these two large customers, which I guess, it would be fiscal 1Q next year, it gets back to growing at 25%. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance That's our expectation.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Sounds good, Jim. Thank you so much. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Thank you. Appreciate it. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.