Bio-Techne Corp at Citi Global Healthcare Conference Transcript

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

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : 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? So when we back up another quarter when we came out of our Q4, which was the June quarter, The go-forward view as one of the murkiest I can remember in a very long time in this history for 20 years because it wasn't so clear where -- especially for academic and biotech, and at that point, even pharma, which direction the end markets were going and NIH was still in disarray with threats of 20%, 40% cuts, all that stuff. We had biotech funding that was down 30% year-to-date at the end of June and pharma, which had been doing well for us and had from our perspective, essentially, we covered because we had two quarters in a row of double-digit growth in pharma. We were concerned that that growth rate might start to come down because of the rhetoric that was coming out in July around MFM pricing and tariff -- 100% tariffs, et cetera. So coming out of our fiscal year '25, the near-term outlook is, well, we don't really know if things could get -- actually get worse before they even get better, much less when do they start to get better? Fast forward three or four months, a lot of things could change and a lot of things have for the better, I think goodness. The first one, most importantly, being pharma, which makes up 30% of our revenue that seemed to have been a storm cloud like a monsoon that came through 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. 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. 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. 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. Yes, sure. Okay. And I guess the next logical question is -- are there more of these that could pop up? Do you have any other customers this large in terms of concentration? Are there others in similar, whether it's Phase III, whatever it may be, I guess how do you approach that? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance So as much as these causes kind of shortened intermediate term hard ace and headaches, I wish we had a whole bunch of more like even on docket. These truly are some outliers just given the estates they're going after. We do have 698 other customers. We have 85 of those that are in clinical trials. We have roughly two dozen of those that are in Phase II, Phase III. And -- but they filed a more normal trend of what we'd expect to see, which is when they're full commercialization at full potential between $5 million to $15 million a year each -- and when they're maxed out in their clinical trials, they're sub million, but still very large relative to your typical RUO customer. So another way, there's enough of them out there. We don't anticipate any of them whether they fall off for some reason or they hit this chasm because they're successful. It being that material to have us be talking about it at a conference like this. But I hope I kind of hope I'm wrong and I hope there is, but as of right now, we don't see it.

Question: Patrick Donnelly - Citibank Cameroon SA (Douala Branch) - Analyst : Okay. And then pharma, similarly, it sounds like the conversations there are a little more constructive that regulatory overhang to be removed -- and what do those discussions look like with customers? And how is the sentiment around that end market for you? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes, it's -- the conversations are fine. I mean you got to remember relative to, say, a Thermo or a Danaher we're still a relatively small company, and we kind of like it that way because we kind of play in on the radar a little bit, too, right? We don't get -- we don't talk to big purchasing agents and so forth. Our customer at Pharma is the is usually the research are on the bench. So it's almost a consumer model more than a BC. So I should one because I don't have a lot of additional insight to say what the executives of pharma companies are thinking about their business. . So I rely a lot on what they're saying publicly, what we're hearing from our peer companies who do have some of those conversations. And then I try to triangulate that with what we're seeing from a behavior perspective because at least the one site we do have is being not in 80%, 90% consumables business we see their activity every day. And so we can kind of correlate that with what we're hearing externally. And what I'd say is that what we're hearing is it's seen is very consistent with -- I think you're hearing both from them, those customers but also from our peer companies that do business with them also. And that is -- I mean, they're all doing very well. I mean, even during the IRA year 2024, for the most part, for increased their R&D spend mid-single digit, it was just how they were -- where they were increasing it is what caused a dislocation in the tool space that supports R&D because most of that was going towards very late stage, high derisk as they were allocating their more discovery-based programs. And our prediction back at the end of 2024, which I think some people thought we were a bit crazy for saying this, but this is going to be mostly behind it. It wasn't that they didn't spend any money they did. It's not like they're not making any money, they are. And when this allocation of the portfolio is complete post COVID, they'll now take their increases and spend that more pro ratably. And I think that's exactly what we've seen all through calendar 2025, and I don't see anything slowing that down. And -- if you want to get even more comment more theoretical about it and long term about it, I mean it's no secret that there some significant patent clips coming for many large pharma companies. So they're going to have to bolster their discovery pipeline to fill that gap down the road. And whether that's internally or whether that's investing more and buying more biotech companies, I'm not so sure we care because it's all good for the industry one way or the other.

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. 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.