Bio-Techne Corp at Jefferies Global Healthcare Conference Transcript

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

Question: Tycho Peterson - Jefferies LLC - Analyst : Maybe kick off with a little -- just a quick look back on the fiscal first quarter, some gives and takes, but you did talk about kind of core growth of 1%, maybe setting aside the cell therapy kind of noise here will impact that in a minute, but just talk a little bit about what you saw in the quarter. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Tyco, thanks for having us. Yeah, the overall growth for the quarter was negative 1%, a little bit -- a result that doesn't really reflect our underlying performance because you already mentioned we were 1% positive if you take two larger companies that receive their Fast Track Designation and therefore, didn't order this year compared to last year, and that really drove a negative 200 basis points on the top line. But underlying, if you think about the end markets as well as our four growth verticals, the end markets did do a little bit better than we had expected was definitely large pharma, 30% of our revenues, and we continue to be in the double digits performance there. And last year, we actually -- or last quarter, we were actually a little worried about the rhetoric with some of the tariffs and most pricing that we were worried that they would tap the brakes, but they didn't. And that was a positive for a quarter. Overall, we saw some stabilization in the academic and the biotech markets as well. And then from a four growth verticals in cell therapy, other than dynamics we just mentioned, we had a very nice number of customers we added to the pipeline. We had a stabilization in China, and we saw some real nice results in our special biology business. And that really was on the positive side for the quarter.

Question: Tycho Peterson - Jefferies LLC - Analyst : Yeah. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. Well, as I said, large pharma was continue to be in double digits, broad strength. We could see even our core consumables, which are usually growing with market were back in mid-single digits. So that indicates a healthy overall activity level across the board. And then as I mentioned, the four growth verticals, very nicely aligned with the projects that are being pushed forward right now in large pharma. And specifically, our proteomic analysis tools, all three of the platforms are taking share and are definitely benefiting from the investment dollars that flow back into the R&D activities for large pharma, and that's certainly a tailwind for us.

Question: Tycho Peterson - Jefferies LLC - Analyst : And biotech funding obviously picked up a lot in October. I think you've made some comments about maybe faster conversion than a typical two to three quarters. What's about kind of behind that? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. Over the last year, the tougher times in biotech, you clearly could see that there was a rotation in the companies, even though, let's say, in the prior years, when there are new companies getting funding, they might have to start with getting buildings, building clean rooms, and building out their facilities. Right now, we've seen over the last year, definitely several of the earlier-stage companies having to close their doors, some of the mid well-funded companies, certainly being careful with their spend to make sure that they don't have to close their doors and some very well-funded larger ones that made nice progress with a recapitalization of the industry. We believe that the ones in the mid that have been kind of worried about spending. Those are the ones that get funded. And therefore, there will not be spent in buildings and clean rooms, but more immediately into accelerating programs and switching on new programs, which then definitely translates to instrument and consumable growth.

Question: Tycho Peterson - Jefferies LLC - Analyst : You mentioned share gains a couple of times. Maybe you could just jump to innovation and talk about some of the drivers behind that? I know you've got the new proximity scope in spatial, the automated cartridge complex, maybe talk on some of the recent developments and then as we think ahead to '26, are there big new product launches? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. I think we certainly always have made sure that we want to drive our growth basically based on innovation and staying ahead of our competition. In our four growth verticals, we have really made a very nice progress as it comes to innovation and we should because 8% of our revenues get reinvested into R&D activities. And if I go vertical by vertical, we have to sell a gene therapy where you know all about the upcoming acquisition of Wilson Wolf. But to make sure that we strengthen our offering, we certainly have looked at offering more and designing more AI-generated proteins that have ultra specificity or are more heat stable than others and they are patentable and they can come on the -- a price premium. So we're very excited about that. In the meantime, in the same business, we've launched the POPEX, which is basically a different packaging for your proteins that you then directly inject into, for example, a bioreactor like the G-Rex and that form factor makes human error less likely. It also decreases the risk of contamination. And that's a value proposition so high that even companies in later-stage clinicals are now considering changing the usage of their GMP proteins based upon that form factor. So we have one real nice case important where a third company in a Phase III clinical swaps to our GMP proteins because of the POPEX form factor. So that's an innovation we're very proud of. If I look at the protein analysis, we have announced or will launch in our second half of the year, the Ella cartridge for ultrasensitivity. That will -- Ella ALA always very preferred for the small form factor, ease-of-use, speed consistency, but the sensitivity had a certain ceiling. And that would make it less likely to be used in neuro diseases as well as in inflammation. With this new cartridge, which will enable it to be 2 to 5 times more sensitive, that is a market we can now go after with the other value propositions that gives it a very interesting future. And that's just the ultra -- the Ella. On the LEO side, the Wilson Wolf side, we launched this instrument LEO, which has 4 times higher capacity than our previous generation but also more precision and more detection abilities, absolutely a throughput machine for larger pharma and lived up to all the expectations, 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: Tycho Peterson - Jefferies LLC - Analyst : And then maybe we could segue to inorganic, too. You did Lunaphore, I think, two and a half years ago. Just talk a little bit about -- you said M&A remains a priority. You obviously mentioned Wilson Wolf Talk a little bit about current backdrop for M&A, how you're thinking about kind of valuations, other target areas? And then what are the gives and takes on whether Wilson Wolf gets done? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. Overall, our highest priority for capital deployment is M&A. We had a year or two in which we did not see high-quality targets coming to market. Right now, that has improved. So there's a better high-quality targets that are available and pricing expectations are elevated but not observed anymore. So they're improving. We are 0.6 times leverage. So we have -- we definitely have appetite and capacity to do to be active in the market. We would love to do so, but we will be of course, disciplined in not doing anything we would regret. We are very good in evaluating targets from a technology point of view and integration capabilities are very, very good. Good process and a good M&A team. So ready if we have the right opportunity. We like strengthening our portfolio in, for example, cell therapy. Organoids is well dimension that's really taking off across Europe and the US. There are some nifty things we could add to that portfolio. And then our protein analysis instrumentation. There's always some room for additional technologies in there, too. Those would really be our focus -- the core other antibody types, protein types. There are some new entrants there, too, new capabilities that we could add to our portfolio very nicely. Special, I think we are really well off right now. We have very good offering, and that's true for our molecular diagnostics business as well. So if there's M&A activity, you should probably think core and the two that I just mentioned.

Question: Tycho Peterson - Jefferies LLC - Analyst : Maybe we can just touch on GMP proteins. You've had some headwinds tied to a small number of customers there. Just talk about the size of that G&P business today. What headwinds are kind of baked in for the year? And how is the business growing outside of those few customers? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. So last year, we talked about the overall cell therapy business for us being $80 million run rate. The GMP protein section of that is $60 million. Q1, Q2 last year, we grew 60% and 90% in cell therapy, and that was pretty much driven by large orders for, obviously, companies in clinical studies that have larger indications, so large populations for their clinical studies. Not by coincidence, those companies have received Fast Track Designation. That means typically that, of course, the FDA will prioritize your review and you can submit your documents while you're progressing through your program rather than at the end of it. And in the meantime, you typically get -- you get allowed to have a little bit higher risk by reducing the number of clinical studies or the number of clinical patients you do because there's such a health benefit at the end of it. So therefore, very much aligned with the large indications, also aligned with the rhetoric in trying to make Americans healthy in big indications. So this is really good news for these companies. For us, we will, therefore, have a little hiatus during a period where these companies will not order proteins because they have enough to finalize the clinical studies. And that will give us headwinds where we had 200 basis points headwinds in Q1 and 400 basis points in Q2. The second half of our year, we will still have some tailwinds will -- they will be abating quarter by quarter, and they will be fully out of our comparables after our Q4.

Question: Tycho Peterson - Jefferies LLC - Analyst : Maybe can you just dive into that a little bit, how AI is helping on the protein design front? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. Of course, we have -- after 49 years being in this space, vast databases on a different characteristics of the proteins that we have designed and produced. And we always -- we're proud of being able to characterize them and make sure that there is a lot, a lots of consistency and that we know how to make and design more complex proteins. And with those databases, combine that with public databases, you can start looking at what are -- how do you design certain characteristics of proteins in there. And we all know that stability and heat stability is a very important aspect. Specificity is always an important aspect. And utilizing AI, you can increase your specificity. You can also design in more heat-stable characteristics. And therefore, you get higher performance proteins that actually do not exist in nature, and therefore, they are patentable. So having the database and the know-how, having the ability to design them, but also to know how to produce them really gives us a competitive advantage that we then can translate into better performance for the customers and therefore, also been able to command a price premium.

Question: Tycho Peterson - Jefferies LLC - Analyst : And is that mostly for biotech or academic or both? 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: Tycho Peterson - Jefferies LLC - Analyst : And maybe just on that, just touch on the academic backdrop. I mean, grants have been flowing despite the shutdown more consumables than instruments, obviously. But just talk a little bit about what you're seeing in the current environment and how you're thinking about the calendar year ahead? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance The shutdown, government shutdown. --

Question: Tycho Peterson - Jefferies LLC - Analyst : And does the push toward more multiyear grants make things better? I mean, you talked about better funded research and maybe better projects getting funded. So if labs have visibility for a couple of years now? Fewer grants, but maybe better visibility? 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: Tycho Peterson - Jefferies LLC - Analyst : And we got just over a month left in the year. Any thoughts on kind of budget flush in the biopharma side in the year-end? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. Well, it's likely it could be -- it could definitely happen. We don't talk a lot about it because at the end of the day, only 10% of our revenue is related to instrumentation, 80% is consumables, 10% of service. So the service and the consumables, so 90% of the company are not influenced by budget flush. So there for, it's not a big theme for us. DISCLAIMER LSEG reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES LSEG OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.