Bio-Techne Corp at TD Cowen Healthcare Conference Transcript

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

Question: Kyle Boucher - TD Cowen - Analyst : I guess jumping right in. So welcome to the conference, first of all. It's great to have Bio-Techne join us for a fireside chat. We've got a pretty big question list here. We'd like to go through your business, your key priorities, growth pillars, thoughts on capital deployment, and a few other topics that hopefully, we can get to. To begin, I guess, can you take a minute to give us the one-minute pitch and overview of Bio-Techne's business? What is Bio-Techne? Where do you play within the life science tools market? And in your words, what differentiates Bio-Techne the most and makes it unique from other tools companies?

Question: Kyle Boucher - TD Cowen - Analyst : Got it. All right. So you've been in the CEO seat now for just over a year. You took the helm officially last February. And prior to that, you were the President of the Diagnostics and Genomics segment since 2018. Can you reflect on your first year as CEO, you started leading Bio-Techne in a pretty difficult period for tools. And how did you manage through the environment?

Question: Kyle Boucher - TD Cowen - Analyst : Got it. Okay. And then -- so moving over to sort of your guidance philosophy. Bio-Techne doesn't explicitly provide financial guidance. But over the long term, the company aims to outpace the life science tools market by 500 to 1,000 basis points per year, assuming underlying end market growth of 4% to 6% over the long term. What are Bio-Techne's key drivers that allow you to outpace the market at such a strong rate?

Question: Kyle Boucher - TD Cowen - Analyst : All right. So moving over to your customers and geographies. Pharma makes up around 50% of your overall revenues. And in fiscal Q2, you noted that pharma revenue saw pretty broad-based strength and grew mid-teens. Can you discuss what you're seeing in terms of activity levels between the larger pharma customers and the smaller biotech customers? And what's embedded in your expectations for '25?

Question: Kyle Boucher - TD Cowen - Analyst : And Kim, just on pharma, given your consumables orientation, do you tend to see pharma spend come back first versus instrumentation? I mean, I think the broader diversified tools peers have all talked about pharma recovering, but it has been a choppy ride in the last couple of years. I think there's still some hesitation from investors to believe it until they really see a play out in the numbers. So just maybe talk through kind of the lead lag effect, if you will, about what you're seeing versus maybe a more instrument-oriented play.

Question: Kyle Boucher - TD Cowen - Analyst : And maybe last one and turn it. In terms of being normal, you've heard IRA, pipeline reprioritization, maybe it's the macro interest rates. I don't know like when your salespeople are meeting with pharma customers, like when do we get back to normal? Like what are the factors you think that are still not there even though things are getting better? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Personally, I think it's just a matter of timing. I mean we -- as Kim talked about, we had assumed that large pharma wouldn't really start to come back. We wouldn't see it really until our fourth quarter, the calendar Q2, mainly because our main customer in pharma is the researcher at the bench, right? So by the time the budgets get approved by the Board and get trickled down to where the actual researcher knows how much they can spend, it's often the March, April time frame. So that's why we didn't expect to see it because we -- until then, but the underlying assumption around all of that was that much of the reprioritization and restructuring that pharma was reacting to as a result of IRA was going to be largely behind us in calendar year '24. And that in calendar year '25, the amount of R&D spend wouldn't necessarily be -- the growth wouldn't necessarily be different than '24. It would just be more widespread as opposed to targeted towards less riskier programs if it wasn't '24. So that was the thesis. I think what was nice to see was that thesis started to occur earlier than we expected before the calendar year was even out. And I can't tell you for sure why that's the case, except to say that if I put myself in my -- our customers' CFO shoes, I wouldn't be allowing that spend if I felt like next year was going to be another tough year, right? So to me, it was a positive sign, and it wasn't necessarily very narrow or specific. It was fairly broad-based. And what we were hearing from our sales team towards the back half of the December quarter was that customers were saying they were banging their head against the wall, you're long trying to get something approved. Even though it was in their budget, they couldn't get it approved. And then all of a sudden, the Evil CFO started letting it go through in the calendar Q4. So as an evil CFO myself, I wouldn't allow it to happen unless I thought there was a brighter future ahead in the year ahead. So that's a thesis, but we'll see how that plays out as we continue throughout the back half of our fiscal year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Kyle Boucher - TD Cowen - Analyst : Okay. Moving over to the academic side. Clearly, there's been quite a bit of volatility on the funding side. I'm sure you've had a million questions about that today. But can you discuss your exposure to NIH funding? And what type of impact have you seen from the new administration's actions to restrict funding?

Question: Kyle Boucher - TD Cowen - Analyst : So you've identified four key pillars that make up about 45% of your revenue across the portfolio, including cell and gene therapy, ProteinSimple, spatial biology, molecular diagnostics. We'll get to spatial molecular shortly, but starting with cell and gene therapy, you sized this previously as roughly a $4 billion market growing low teens with Techne having about 2% share and growing over 30% long term. I think you discussed it earlier, but can you remind us how big this business is today and your key offerings within cell and gene therapy? And maybe speak a little bit about the Wilson Wolf investment as well.

Question: Kyle Boucher - TD Cowen - Analyst : Got it. Okay. And another growth pillar here, ProteinSimple. You don't disclose specifically, but we estimate it's somewhere around $275 million between both instruments and consumables. You noted that instruments grew low single digits in FQ2, first returned to growth in about 2 years. And on the instrument-specific consumable side, they grew high teens in FQ2, which I believe you said was 8 out of 9 of the prior quarters where consumables grew double digits. Can you speak a little bit about the ProteinSimple franchise, what your sort of attach rate is for Bio-Techne consumables on the instruments and what your outlook is for instruments from here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Kyle Boucher - TD Cowen - Analyst : Got it. So your other two growth pillars I just mentioned earlier, molecular diagnostics and spatial biology. In your Investor Day deck from 2023, you sized the spatial market at about $5 billion, growing low double digits with your long-term growth rate being over 20%. And you sized the molecular diagnostics market at $9 billion, growing low double digits and again, with Bio-Techne growing over 20%. So I guess starting with spatial. You grew this business about mid-teens in the fiscal second quarter. What's your strategy within the spatial market? Can you discuss any market trends you're seeing, if you're taking share? And if so, from who?

Question: Kyle Boucher - TD Cowen - Analyst : Just on the Lunaphore, you talked about taking share. Just what's been the share gain trend there? Like are you growing above the market? Is it all share gain? Just give us a flavor for what's happening in that business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Kyle Boucher - TD Cowen - Analyst : Got it. Okay. Maybe one more here. We've got about a minute left. M&A is one of the keys to your story. You mentioned earlier the company has acquired around 18 companies over the past 10-plus years. Can you discuss your deal pipeline today? What specific areas you'd like to add to the Technip portfolio? And what's the ideal profile for a business Technip you'd like to add?

Question: Kyle Boucher - TD Cowen - Analyst : Got it. Okay. Maybe one more real quick one. What excites you the most about the Bio-Techne story?

Question: Kyle Boucher - TD Cowen - Analyst : All right. With that, Kim, Jim? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.