Bio-Techne Corp at Evercore ISI Healthcare Conference Transcript

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

Question: Daniel Markowitz - Evercore Inc - Analyst : So starting off sort of high level on the 1Q overview, you posted an organic decline of 1% -- can you just give us a quick overview of the quarter and I guess, the macro environment as you see it today? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah, let me start with what I see as our highlights for the quarter, from an end-market perspective. Large pharma continues to perform very well for us. As a reminder, large pharma is about 30% of our revenue. We had, like, the third quarter in a row of double-digit growth in large pharma. So we can talk more about what our concerns were there, but we were obviously very pleased to see that the strength there has continued. From a regional perspective, I think the highlight was China. We had our second consecutive growth each quarter of organic growth in China. We're expecting a third here this coming quarter. And we do believe there that the -- that market has turned the corner to -- back to a growth scenario, and we think gradually progressing growth. If you look at our portfolio highlights, again, we're our approaching simple franchise as it has been throughout the softness has occurred in our industry in the past couple of years now. We had yet another quarter of double-digit growth in our consumables that the instruments -- cartridges that the instruments used to run, which continues to confirm our thesis that our instruments are widely used and needed for productivity and tough budget constraints, and our customers are using them like crazy. 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: Daniel Markowitz - Evercore Inc - Analyst : Great. Very helpful. So I guess, first, starting on -- you mentioned Spatial. It sounds like bookings are strong. It sounds like it's turned a bit. And you mentioned most exposed in biotech. I guess just focusing on that biotech end market, what's your exposure there? And how would you describe sort of the current environment versus the last few quarters, and how you'd expect that broader market to unfold in the next 6 to 12 months? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah, so smaller biotech represents roughly 20% of our revenue base. And if you back up a quarter to the end of our fourth quarter, which was the end of the June quarter, we were still able to show relatively flattish, even low single-digit growth in our biotech end market despite funding as of June year to date being down 30% year over year. And we expressed some concerns coming out of Q4 around how long can that gap really persist. We know there's a gap between funding and spending. And even though we believe we're taking share overall in the biotech end market, that was a pretty wide gap. We figured that there's a chance that still to hit us. And in fact, it did. In our most recent Q1, biotech was down high single digits for the quarter, which was like the worst quarter we've I think ever had in biotech, small biotech. But yet, we actually feel better about the end market now than we did a quarter ago, largely because -- well, two reasons. One is if you look at why is biotech funding down, it's more risky investment dollars, and they tend to be more volatile with regards to what's going on in pharma and what's perceived to happen with pharma, maybe with MFN pricing, for example, which was a concern a quarter ago. And that's a lot of these investors exit. So that can cause them to hold back. And even the stabilized academic environment funding can cause hesitation at biotech because that's the source of their innovation for the future often as that's the case. So we saw those things happening, not to mention and then in real dollars, the 30% being down. So now you move a quarter ahead, what's changed? Well, there's definitely more visibility now into pharma as well as even academic. Large pharma, our biggest concern a quarter ago was that the double-digit growth rates couldn't continue in an environment where the administration was going after MFN pricing, 100% tariff threats for not onshoring enough, et cetera, et cetera. 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: Daniel Markowitz - Evercore Inc - Analyst : Got it. That's super helpful. And then same question for academic and government. I guess, sizing your exposure there, how would you describe the current environment versus the last few quarters and how that market should unfold over the next 6 to 12 months with the NIH budget and these different moving pieces? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance So as a reminder to everyone, academic and government is roughly 20% of our global revenues. Roughly half of that is in Europe and roughly half of that or so is in the US What it's worth the academic market in Europe has been very stable, very steady, nice -- relatively mid-single-digit growth. I haven't talked about it much because everyone is concerned on the US side, but Europe has held up very, very well, and we expect that to continue. With regards to the US, so again, similar to biotech a quarter ago, it was very, very blurry with regards to what the outcome with NIH funding is going to be and what the impact that will have on our academic customers. There were still 40%, 20% plus type of reductions being thrown around. What's changed in the past three, four months is that the appropriations committees from both houses of Congress have signaled that like flat budgets makes more sense, which is a huge relief considering where we started from it, potentially minus 40%. So I think a lot of the anxiety that our academic customers have faced for the better part of calendar 2025 is starting to subside a bit. And we've seen that gradually appear in our results as well. We had high single-digit declines in the -- basically the back half of our fiscal year '25, which is the first half of calendar '25 and in our most recent Q1 that narrowed down to low single-digit declines. So the anxiety level definitely appears to have alleviated a bit and that they're kind of preparing themselves more for perhaps a flat budget going forward as opposed to a very severe negative budget. But we're not out of the woods yet, right? I mean. we still have to have Congress pass something, and then we have to see how the Trump administration actually administers that budget. But at least there's some clarity on which direction it's going. And to summarize it, I guess, I'd say a quarter -- four months ago, let's say, it wasn't clear at that point when -- especially all three of our major end markets, which direction it was going to go from there, flat, up or down. Whereas right now, we feel like the risk of it getting any worse has definitely neutralized. And now it's more about if there's clarity concerns, it's more about when and how does the recovery start and at what kind of ramp does it happen. So it's kind of where we were 1.5 years ago 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: Daniel Markowitz - Evercore Inc - Analyst : Great. And then the last one on the 1Q. On the call, you guys spoke about some promotional activities in both academic and government and biotech. Can you talk a little bit about those activities, I guess, where in your portfolio, they were focused and the thought process behind these actions? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance And we brought it up only because it was a bit of a margin headwind to us, in the sense that we didn't have the amount of pricing throughout the company that we typically do. We typically get 2% to 3% pricing. Obviously, during the high inflationary period, we're getting considerably more. But in a normalized state, that's what we usually kind of aim for and what we achieve. And this quarter, it wasn't like our pricing was negative, but it was relatively flat for the quarter. So we still -- there is still obviously a level of inflation. So therefore, we had a little bit of margin pressure as a result of that. But it wasn't a broad-based discount program and we're highly advertised. This is a very targeted approach. I mean, at the end of the day, we know especially our academic customers and some of our biotech customers are struggling right now or at least have a lot of anxiety around concerns. And so what you want to do is be partners with them and show them that you're there with them in good times and bad and allows for sticky customers so that when budgets do come back or stabilize, then they're happy to pay a higher price down the road. But it wasn't even wide scale among academic customers. I mean, we sell to hundreds of thousands of academic or at least tens of thousands of academic customers, and they're not all short on funds or concerned. So it's those that you know that are most impacted by this and then you try to help them out. And that's really what that messaging was about.

Question: Daniel Markowitz - Evercore Inc - Analyst : Got it. Super helpful. And we're definitely going to touch more on those cell and gene customers. I'll come back to that. But I guess just on the macro uncertainties, I think when you laid out the initial framework, you spoke about this low single-digit framework, but that was until uncertainties lifted. I guess what would you say are the primary uncertainties that are weighing on Bio-Techne today? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. I think the main one is the academic outcome and more that it is only 10% of our business on a US perspective, but it does cause ancillary hangovers in our biotech space. I think that to me is the biggest question that still needs to be answered with regard to how that ultimately gets resolved and where that stands and how it gets administered. I think not if, but when that does, to me, that's the last remaining concern a biotech investor would have with regard to invest in this market going forward, so I would expect that to continue as well. So to me, that's the biggest item out there.

Question: Daniel Markowitz - Evercore Inc - Analyst : Great. And then the other uncertainty that I remember at least at the time, and we touched on this, was within pharma. It seems like a lot of the uncertainty is already sort of seemed to have lifted, and I think you already touched on it with tariffs, MFN. I guess, is that potential upside versus what that initial framework laid out? Because I think the main uncertainties were both on the pharma side and academic. So academic still holds, but pharma seems to have lifted. I guess what's the impact there? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. I mean, I think we -- again, we had double-digit growth in biotech and pharma yet again this most recent quarter. So I'm not -- in our forward view of guidance, we're not necessarily considering pharma to accelerate from there. It's already, for us, kind of back to normal. We expect to grow double digit in pharma in a normal environment. So for us, the upside is really more around the academic and biotech space. And right now, we don't assume much, if any, real true market recovery, at least not in the back half of our fiscal year yet. We are expecting it to stabilize. So if it actually starts to inflect and recover, that could be upside. But we're thinking that being more of a back half of calendar 2026 event.

Question: Daniel Markowitz - Evercore Inc - Analyst : Got it. And is it just random that two different programs happen to be getting Fast Track at the same time and having the same impact? Or were they connected in any way? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes, they're not connected. And I guess, it's very fortunate in terms of how we were positioned. These two customers, they happen to be, I already mentioned by far, our largest customers. Even though we have 700 customers, these 2 make up a very significant part of that revenue. And they just happen to be very, very large disease states and very promising. So this is all about the shot on goal, right? This is why we have 700 customers and continue to build that base and even give grants of free product out to academics on occasion who are starting new therapy ideas because if you get in early, it's very sticky. And statistically, what we don't know exactly if it follows the same realm as biologics, roughly 5% make it all through. But when they do, it's big. And we were very fortunate to be linked up with these two very early on and have them both hit Fast Track status, but they're not linked in any way.

Question: Daniel Markowitz - Evercore Inc - Analyst : And are you able to say -- is there a formal list that gets published by the FDA where you saw the customer on the list or is it some sort of new source that mentioned it? I guess like where can investors look to see which programs got Fast Tracks? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I don't know if you have the answer to that one, Dave, but --

Question: Daniel Markowitz - Evercore Inc - Analyst : Got it. Okay. So the main sort of takeaway on why an air pocket, basically lesser patients need to get dosed in clinicals versus what had been expected prior to the FDA Fast Track. Is that the right way -- James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Or yes, whether it's less or not, technically, yes, that's the answer, but it's basically a whole phase of trials that is no longer needed because they basically condense the two into one. So at the end of the day, that means less patients, yes.

Question: Daniel Markowitz - Evercore Inc - Analyst : That NPV going up, is that just because of the timeline or is it also this Fast Track indicates to you that there's a higher likelihood of -- James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance From our perspective, we're saying it's because of the timeline coming in closer. I don't think any of us are going to try to guess whether this -- I mean, statistically increases the odds or not. I can sit here and tell you high level that it makes sense that it does, but I could also counter that and tell you many reasons why it doesn't. I'm not an expert in here. We're not experts in FDA approval process. So I'm not going to tread that water, but all I can say is that it's a net positive, no question about it. And we would have been having the same conversation, knock on wood, a year or so from now, had they gone through the normal phasing. And we learned this from Wilson Wolf. Wilson Wolf is earlier into this, they got 5 or 6 that are already in commercial very recently. And so they've been through this before, and they kind of saw this coming and realized, hey, this J-curve of exponential buying of proteins and/or bioreactors for clinical trials is true, but there is a bit of a cliff that occurs between final Phase 3 approval or final Phase 3 results and actual FDA approval and commercial launch. 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: Daniel Markowitz - Evercore Inc - Analyst : Right. So obviously, you already touched on a lot of investors are trying to figure out which therapies these could be. Is there anything you're able to share on the population size, the seeds of interest? Just sort of anything to help investors sort of frame -- James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance What I will say is in terms of what we think it means to us based on these disease states and the potential that, call it, the midpoint of the ramp of the potential commercial ramp is somewhere between $40 million to $50 million of revenue to us for each one of these customers. I say mid because it's hard to say exactly if it ever gets full. But if you look at a long-term 10-year kind of commercialization ramp, we believe that halfway point there would be $40 million to $50 million of revenue for us. Not necessarily in time, but in terms of potential patients to be served on an annual basis.

Question: Daniel Markowitz - Evercore Inc - Analyst : Right. So that's about 5,000 of GMP proteins that are sold per therapy. So it's like -- James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I don't have the exact numbers on this one, but when we put out those numbers, they're usually as they relate to the CAR T cell therapy, which is in line with where the GRx participates. I don't know if we've given out figures on the regen side. These are -- that's the other thing I'll point out is that these are actually -- these aren't CAR T therapies. I'll give you that much. They're actually kind of regen medicines, so iPSC type therapies, stem cell. And they do involve a lot more protein just by the very nature of having to grow up a lot more cells for these type of therapies. So it is a higher -- it's very likely a higher content per dose for us, which is another reason why the numbers have been so big even during clinical trials.

Question: Daniel Markowitz - Evercore Inc - Analyst : Okay. And in terms of your level of visibility that you actually have within these programs today, do regular communication in terms of what stage they're in, how much inventory they're holding, I guess what is communication with these different customers? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance They generally don't hold inventory. So they'll buy as they need, but they will often buy enough for whether it's a whole trial or a large of a population set that they feel comfortable doing simply for consistency purposes, even though we have amazing lot of consistency that they want to take out any possible -- possibility for variables as much as they can. So that's why they tend to buy in very large quantities and it tend to be very lumpy. But is it one -- I think some customers buy enough for one whole run or one whole trial, some because the trials are so large, they can't necessarily do that and they'll buy in stages. But they generally don't hold inventory.

Question: Daniel Markowitz - Evercore Inc - Analyst : Right, right. Great. And so in terms of sizing, it's also really helpful, the $40 million to $50 million each therapy could be when commercial. And I guess that's versus if you just size the headwinds that you quantified for us here in fiscal '26, and it gets you to, I think it was about $26 million from these 2 programs i fiscal '25. So I just want to make sure I had those numbers right. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance You're in the right ballpark. 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: Daniel Markowitz - Evercore Inc - Analyst : Got it. And they're pretty evenly split, so call it $13 million-ish per program? Or is this one (multiple speakers) the other? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance We've not given that information out now. But yeah, I mean, they're both. Relative to the other 800 programs we have, they're both significantly large. I think one is a little bit bigger than the other one, but it's -- we haven't necessarily given the magnitude on either one.

Question: Daniel Markowitz - Evercore Inc - Analyst : Yes. Got it. And then just on the timing for potentially, I guess, your base case being fiscal '28. I think I mentioned on a call I had with you guys, fiscal '28 could be setting up to be a really, really attractive year, bringing on Wilson Wolf, potentially having one of these therapies, which is going to be at a very depressed level, ramping all the way to commercial. I guess can you just speak to -- I know it's super early, but is this the right way to think about it? Could it be a really strong year for -- James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I mean, I hate to get all giddy about two years on the road when we're struggling in the current quarter. But yes, absolutely, that's why we're still so excited about our opportunity for sure. And even since you mentioned Wilson Wolf, so at the latest, we will own that at the end of calendar year '27, hence fiscal year '28. And there's always a potential to strike a deal a bit earlier there, who knows, but -- or even for him to hit his target, for (inaudible) to hit his targets, which he still thinks he can at this point, we'll see. But what we're -- what I'm getting at, I guess, is that the customers, he's already got five or six in commercial. He's in half of the clinical trials in T cell trials already. So there's definitely potential for more between now and the two years that we ultimately own it. And I guess what I'm getting at is the real inflection point in that business is more likely -- it's most likely to occur post our ownership. So as fast as it's growing now, and it's predicted to be 20% plus growth here in the near term and then continue to accelerate as these commercial programs ramp, the real heavy steep part of that ramp, we think will likely occur after we own 100% of it.

Question: Daniel Markowitz - Evercore Inc - Analyst : Go back to those two customers? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Okay. I'm sorry, say the question again.

Question: Daniel Markowitz - Evercore Inc - Analyst : Got it. And then I guess just zooming out on the broader cell and gene business. What percent of the businesses or I guess, what percent of programs are stem cell versus CAR T versus any other bucket that you put it into? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I don't know if we -- I don't think we've split it out that way. If I had a guess, though, I would say that on a pure program basis, there's probably more of a -- we call immunotherapy, which includes CAR T and killer cells, all that stuff. I do want to bet that the number of customers are probably bent more towards that side just because it's further along in its development. But our actual revenue is more bent towards the regen side just because it's much heavier content per research.

Question: Daniel Markowitz - Evercore Inc - Analyst : Got it. Okay. Great. I think we hit everything. I can open up to investor questions in the last minute or I can give it back. Great. Any message you want to leave us with? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Well, I love some of your other comments and observations around what -- which is one of the reasons why it's so excited to be about our company and not 5 or 10 years from now, but maybe next year or the year after that. And we haven't even -- that's just in the cell therapy piece. Our ProteinSimple franchise, we continue to innovate. I mean, we spend pretty consistently 8% of our revenue on R&D, and we've got new product launches across our entire portfolio. We have a talk about, but we can't know today around our AI -- new AI-developed proteins, which have attributes that aren't found in nature and can therefore be patented, and we're taking the lead in that. That impacts our core. We have these GMP ProPaks which automates the process of putting the precise amount of GMP proteins into the Wilson Wolf container. That's enabling us for the first time ever to actually convert a Phase 3 customer to our proteins. We've got new product launches like Leo and ProteinSimple, and we got higher sensitivity cartridges that are going to address our neuro market for SimplePlex, proximity protein-to-protein identification for our Spatial. I can go on and on, but all of our major product categories have these new product launches 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: Daniel Markowitz - Evercore Inc - Analyst : Great. Lots to look forward to. With that, thank you so much for the time. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Thank you.