Bio-Techne Corp (TECH) Q2 2021 Earnings Call Transcript | The Motley Fool

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2021 second quarter earnings call

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Good morning, and welcome to the Bio-Techne earnings conference call for the second quarter of fiscal 2021.

I now want to forward the call to David Clair, Bio-Techne's Senior Director of Investor Relations and Corporate Development.

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Good morning, thank you for joining us. I spoke to me this morning with Chuck Kummeth, CEO; and Jim Hippel, CFO of Bio-Techne. Before we begin, let me briefly introduce the Safe Harbor Statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company’s future performance and the potential impact of the COVID-19 pandemic on our operations and financial performance.

The company’s 10-K for fiscal year 2020 identified certain factors that could cause the company’s actual results to differ materially from the forecasts in the forward-looking statements in this conference call. The company assumes no responsibility for updating any forward-looking statements due to any new information or future events or developments. 10-K and other SEC documents of the company can be found in the "Investor Relations" section of the company's website.

During the conference call, non-GAAP financial metrics can be used to provide information related to continuing business performance. A table that compares these metrics with most comparable GAAP metrics is available on the company’s Bio-Techne Corporation website earlier today Found in the published press release at www. .bio-techne.com.

I will now hand over the call to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining our second quarter conference call. Hope you and your family stay safe as we approach the corner of this terrible pandemic. Building on our strength in the previous quarter, the Bio-Techne team achieved another strong quarter, increasing our organic growth to 19% year-on-year. In fact, our organic growth rate reached 19%, which is the strongest performance since I joined the company in 2013. Since our penetration in the biopharmaceutical field has always been hot, this growth is widespread in our various market segments and regions. Even academia has returned to double-digit growth.

The new normal of social alienation and interlocking changes has become an accelerator for the continued adoption of several of our technologies (Simple Plex and Simple Western). Later, I will detail every detail of these platforms, but they will all attract them to stay in the early stages of penetrating their respective large markets.

As the adjusted operating profit margin increased by 530 basis points year-on-year to 38.7%, we continued to maintain profitability and achieved record organic growth. Some of these improvements reflect the timing of recruitment and investment to drive future growth, but they also show the inherent leverage and profitability of our business model. The COVID pandemic continues to affect the traditional way researchers staff laboratories and conduct experiments, as well as the way we interact with these customers, but I feel that researchers use their innovative solutions to promote scientific development and the innovative strategies of our business teams. Encouragement has been implemented to meet their evolving needs in these challenging times.

The academic community in particular is getting better at managing through COVID-related restrictions, and we are encouraged by the continuous improvements we have experienced in this end market. Although we experienced strong growth in both the biopharmaceutical and academic customers in the second quarter, these two final markets are largely in the situation of externally closed external visitors, which gives our business team Winning customers brings challenges. Our commercial team has once again excellently adapted to this new normal, using the webinar to introduce potential customers to our reagents, cell and gene therapy solutions, tissue biopsy and spatial analysis solutions, and the latest information on instruments.

During the quarter, our team gained more creativity through the use of virtual coffee and happy hour, thereby increasing the communication time with customers. These virtual meetings and webinars will continue to be an important and cost-effective part of our business strategy for the remaining pandemics and other epidemics. Our digital marketing plan is still an important tool for distinguishing Bio-Techne, educating the scientific community on the product portfolio of innovation and productivity support tools, attracting traffic to our website, and ultimately converting traffic into revenue. During the COVID pandemic, these digital efforts have become increasingly effective tools, and we will continue to implement this strategy at a high level in the second quarter.

Researchers usually start looking for reagents and research productivity tools through Internet searches, so ensuring that Bio-Techne is one of the best results of these searches is essential for driving traffic to our website and converting these visits into sales of our products . Utilizing search engine optimization and targeted advertising strategies are still key components of our digital strategy, and both continue to generate high return on investment and have a huge impact on sales in our antibody and protein product portfolio.

Last quarter, we announced the launch of OneWeb, a new website that integrates all Bio-Techne brands into one easy-to-browse website, allowing our customers to order products in our instrument and reagent portfolio on one website , And at the same time use algorithms to drive purchases and locate businesses in our product portfolio to achieve greater revenue synergies. We started OneWeb on a large scale in November, and initial customer feedback and traffic to our website have been very good.

OneWeb, combined with our SEO and targeted advertising efforts, achieved double-digit growth in the number of sessions, page views, new users and repeat customers on the site this quarter. Given the relevance of revenue growth this quarter, our strategy is clearly producing results, and we will continue to pull this growth lever.

Now, let's discuss the performance of our growth platform, starting with the protein science department, which grew organically by 19% this quarter. In our core reagent product portfolio, the growth of RUO protein and antibodies is strong, with low double-digit numbers. In addition to the reopening of academic laboratories and the impact of our digital plan, our reagent business also benefits from custom work for biopharmaceutical customers who require additional protein or antibody capabilities.

Our custom reagent development business grew by more than 60% this quarter, and we are using multiple strategies to capitalize on this outsourcing trend. In the second quarter, we will continue to advance the cell and gene therapy program. GMP protein is one of the key components in our cell and therapeutic business. As these cytokines and growth factors play a key role in the cell and gene therapy workflow, the revenue generated by our GMP protein product portfolio increased again by nearly 100% in the second quarter.

Recall that we recently opened a 61,000-square-foot state-of-the-art GMP reagent production facility to meet the anticipated growth in demand for GMP proteins and reagents due to the growing regulatory approval process for cell and gene therapy drugs. We have made significant progress in qualifying the factory and have begun to produce large quantities of select GMP proteins. We also implemented the second long-term GMP protein supply agreement this quarter. We are still in discussions with several other biotech companies that have pipeline cell and gene therapies to seek long-term GMP protein supply agreements, and are very satisfied with the channels of potential transactions.

Adhering to cell and gene therapy, our genome engineering service business (including non-viral vector-based gene transfer technology TcBuster) continues to receive attention from the cell and gene therapy industry. I would also like to point out that we are seeing more and more collaborators in Cloudz (our non-magnetic bead-based human T cells, natural killer cells and human regulatory T cells, T-reg activation and expansion kits Positive feedback on cell-based non-magnetic cell separation technology). We are still in the early days of TcBuster and Cloudz. These two innovative cell and gene therapy workflow technologies are still an important part of our cell and gene therapy workflow solutions.

Our joint venture with Fresenius Kabi and Wilson Wolf was officially launched at the beginning of the 2021 calendar month. Its mission is to provide the industry’s simplest, scalable and most versatile Cell and gene therapy manufacturing platform. As a reminder, the consortium combines Bio Techne's cell and gene therapy workflow solutions (including our Cloudz, cell separation and activation technology, GMP protein and genome engineering services) with Fresenius Kabi's leukocyte separator and Wilson Wolf's biological response Combining with devices to achieve a modular, cost-effective workflow solution. The scalable website is up and running, and the business team started its initial customer development activities, including initial contacts with more than 600 industry participants and nearly 250 gene therapy companies.

Also in the second quarter, Bio-Techne made an initial strategic investment in Changzhou’s Eminence Biotechnology Company, a life science company headquartered in China, with first-class culture media, including CHO cells and other serum-free cultures Development services for base products and customized cell lines and media formulations. Eminence will use the financing proceeds to expand its manufacturing capabilities and improve the service capabilities of its GMP media production facility headquartered in China. The investment in excellence expands Bio Techne's foothold in providing other products and services to support the needs of the fast-growing Chinese biopharmaceutical industry and is well suited to our existing high-growth product portfolio in China. We look forward to working with the Eminence team.

Now, let’s discuss the part of proteomics analysis tools in the field of protein science. The strong momentum we saw in the first quarter continues through our instrument and assay portfolio, enabling research laboratories to increase productivity while complying with social distancing and staggering Work shift agreement. Our Simple Plex multiple ELISA instrument Ella once again achieved very strong growth, and our revenue nearly doubled year-on-year. Encouragingly, as researchers use Ella to investigate inflammation, cancer and neuroscience, and other disease states and biological pathways, the utilization rate of Simple Plex in our customer base continues to diversify. Ella's relatively small footprint, low price point, sub-picker-level sensitivity and repeatability levels are driving the placement of instruments and the passage of consumables.

Our clinical program with Micropoint in China is on the right track, which fully demonstrates the incredible diversity of Ella. Now, we are leading Ella's 510(k) process in the United States, which will unlock new clinical opportunities for this amazing platform. A similar situation happened with our automated Western instrument product portfolio, and we grew by nearly 30% this quarter. Our Jess and Wes automated Western platform turns the labor-intensive, messy, inconsistent, and cumbersome, manual Western blot process into a fully automated copy of the sample, and it takes up to two days to complete the 3-hour process. When the researchers returned to the workbench, this value proposition had resonated incredibly. Moreover, since our solution has a penetration rate of less than 15% in the addressable market, there is enough room for continuous growth.

Our Biologics instrument, which provides protein purity information and is directly used in bioprocessing, also performed well. This is because we have experienced a wide range of biopharmaceutical needs, including a number of COVID-19 vaccines in different stages of development or commercialization. The company, as well as the working company, continues to focus on cell and gene therapy.

Now, I will provide the latest information on the diagnostics and genomics product portfolio, in which organic growth revenue also increased by 19% in the second quarter. Let's start with the renewal of our ACD or Histopathology franchise, in which the natural revenue for the quarter increased by 20%. This growth has been extensively developed in various regions and product lines, including the strong performance of microRNA and BaseScope launched last summer. As single-cell spatial resolution and the high sensitivity provided by this technology continue to drive market adoption, the momentum we experienced in RNAscope last quarter continues.

In the PAS or drug determination service business within the ACD, the demand of biopharmaceutical companies to increase productivity in limited or staggered shifts is still a ride. In this company, the biopharmaceutical company outsources its spatial genome analysis to the business. In the first half of the fiscal year, it achieved a growth of more than 40%. twenty one

Now, starting from our prostate cancer liquid biopsy analysis, ExoDx prostate test, we will discuss our Exosome Diagnostics business. Encouragingly, we believe that most urology practices across the country have reopened, and there has been a series of continuous increases in our prostate test volume. However, because older patients are more likely to be isolated at home until they are vaccinated, the number of patient visits is still lower than last year. We expect that as vaccines enter this group of people, the business volume of urology will continue to increase, which in turn will have a positive impact on our ExoDx prostate testing volume. At the same time, our home switch test is still the safest solution for patients to continue to work with urologists.

Recall that we worked with Cal Ripken Junior, a member of the Baseball Hall of Fame, to jointly promote the ExoDx prostate test after his personal prostate cancer journey, including his use of the ExoDx prostate test, which ultimately affected his possible life-saving The decision was made to perform a biopsy, which led to the discovery of aggressive prostate cancer. Marketing activities continued to be successfully utilized on all social media platforms and channels, and attracted traffic to the "fight like hell" page on the ExoDx website, where page views increased by 1400% compared to the previous quarter. We have also activated the Physician Locator function on the ExoDx website, so that patients who are interested in taking the exam can find a doctor who offers the exam in their respective cities.

Our Exosome Diagnostics platform is not limited to our ExoDx prostate test. There are also a large number of high-value diagnostic tests to be carried out together with our upcoming commercial Exotrue [Phonetic] kidney transplant rejection test. We hope that Exotrue will be easy to collect urine-based samples, so as to increase compliance with the test protocol, and become an important tool in the management of kidney transplant patients. We have completed the verification of the measurement and optimized the workflow. The original Exotrue data has been accepted for publication in reputable medical journals, and we expect to publish it in the next few weeks.

Although the volume of diagnostic tests not related to COVID is generally weak, our diagnostic reagents division once again achieved a stable quarter, with organic revenue growing in high single digits. In fact, this is the sixth consecutive quarter of positive growth for our diagnostic reagents department. This is because of its development process and, to a lesser extent, COVID-related opportunities continue to yield results and eliminate the sometimes clumpy impact reagents order.

I now want to update our COVID-19 plan. The products we sell are directly related to COVID research. For example, the sales of reagents and instruments with specific virus research applications, the ACD method for detecting viruses in tissues, and the large number of diagnostic reagents used for COVID testing applications are estimated to be 3% of us Shunfeng's business in the second quarter. We hope that research on COVID will continue for many years, so that this tailwind will become a new level of continuous development in our product portfolio. The commercialization of the COVID-19 serological testing method jointly developed with Kantaro Biosciences based on Mount Sinai's technology continues to make progress.

The Kantaro serological test is a truly differentiated test that not only provides information about the presence of COVID-19 antibodies, but also provides the titer level of those antibodies. In November, the Kantaro COVID serum analysis method was approved by the EUA as a semi-quantitative method. We have submitted other data to the FDA to support all the quantitative claims we obtained with the CE mark in Europe. We have now established commercial agreements in many countries/regions and are in discussions with many U.S. laboratory systems. Today, most of the demand for COVID-19 testing is PCR-based, designed to answer the question, am I infected with COVID-19?

Since the vaccine is already available while the virus continues to mutate, we believe that as patients hope to answer this question, whether I will be immunized, the demand for serological testing will increase. In the end, after obtaining all the quantitative statements from the FDA, we believe that the Kantaro analysis method will be able to answer this important question, thus allowing us to return to the pre-COVID lifestyle that we are all looking forward to.

Our second quarter proved that we started to grow through proteomics analysis instruments, histopathology and spatial genomics products, cell and gene therapy workflow solutions, and liquid biopsy diagnostics solutions. These huge high-growth end markets are still in penetration, and we are in the early stages of realizing the full potential of these growth technologies and platforms. On top of these, the inherent content and cross-departmental synergy of our core reagent product portfolio, I am more and more confident in the ability to achieve long-term revenue and profit targets. I am very proud of the execution of the Bio-Techne team in the first half of fiscal 2021, and look forward to building on the success of the second half of 2021 and beyond.

In this way, I will turn to Jim.

Thanks, Chuck. I will outline the financial performance of the entire company in the second quarter of fiscal year 21, provide some other colors for the performance of each department, and think about the rest of the 2021 fiscal year, starting from the overall financial performance of the second quarter, and adjust Earnings per share after that was $1.62, compared with $1.81 in the same period last year, an increase of 50% over the same period last year, setting a new record for the company. Foreign exchange had a positive impact on earnings per share, at $0.08.

According to generally accepted accounting principles (GAAP), earnings per share for the quarter were US$1.15, compared with US$3.02 in the same period last year, a decrease of 62%. GAAP earnings per share in the second quarter of last year benefited from our investment in ChemoCentryx to achieve favorable and unrealized earnings. Revenue in the second quarter was $224.3 million, a 21% year-on-year increase on a reported basis, and a 19% year-on-year increase on a natural basis. Foreign exchange conversion has a favorable effect of 2% on our income. Our strong growth in the second quarter was fairly stable globally, from the US teens to China's natural growth rate of 25%. In the end market, the growth of biopharmaceuticals is very strong, reaching more than 20%. It is great to see that the academic world continues to improve, and the number of young people in the second quarter is still growing.

Continuing to discuss the details of the income statement, the company’s adjusted gross margin for the quarter was 71.5%, compared with 70.6% in the same period last year. The main reason for the growth is favorable trading volume leverage. In the second quarter, adjusted marketing, general and administrative management (SG&A) accounted for 25.2% of revenue, a decrease of 310 basis points from the previous year. Research and development expenses in the second quarter accounted for 7.5% of revenue, a decrease of 140 basis points from the previous year. Although our adjusted SG&A and R&D expenditures have increased over the same period last year, the tight labor market in the life sciences field prevents us from filling all the team members at the initial expected speed.

In view of the continuous improvement we see in the end market, we still plan to fill these positions and continue to invest to position the company's growth prospects. The adjusted operating profit margin for the second quarter was 38.7%, an increase of 530 basis points from the same period last year and an increase of 50 basis points from the first quarter.

From the data below operating income, the net interest expense in the second quarter was US$3.4 million, a decrease of US$1.1 million compared with the same period last year. The reason for the decrease was the continued reduction of our bank debt in FY21 and the reduction of floating interest rates. As of the end of the second quarter, our bank debt on the balance sheet was $231.5 million. Other adjusted non-operating expenses this quarter were US$1.3 million, compared to US$2.5 million in the same period last year, which mainly reflected the foreign exchange impact related to our cash pool arrangement. For the GAAP report, other non-operating income includes unrealized gains from our investment in ChemoCentryx.

To further reduce profit and loss, our adjusted effective tax rate in the second quarter was 20.6%, an increase of 120 basis points from the same period last year, mainly due to the promotion of the geographical structure. We hope that our effective tax rate will be consistent with the second quarter, unless the corporate tax law remains unchanged. As Chuck said, in the second quarter, we made a strategic equity investment in China's Eminence, which focuses on providing culture media for the Chinese biopharmaceutical market and customized cell line development and media preparation services. The $130,000 non-controlling interest item reflects a month of loss of part of Eminence that we do not own. In the second quarter, the impact on other aspects of the income statement due to the combined visibility is not significant.

Regarding cash flow and return on capital, operations during the quarter generated a record $89.3 million in cash. In the second quarter, our net investment in capital expenditures was US$11.4 million, which was mainly driven by the completion of the new GMP protein factory. In the second quarter, we returned capital to shareholders with a dividend of $12.4 million. As of the end of the quarter, our average diluted shares outstanding was 40.3 million shares. Our balance sheet is still very strong, with $283 million in cash and short-term investments available for sale, and total leverage is well below 1 times EBITDA.

Next, I will discuss the performance of the reporting department. Starting from the protein science field, the second quarter reported sales of 172.2 million U.S. dollars and reported a revenue increase of 22%. Internal growth increased by 19%, of which foreign exchange had a 3% favorable impact on income growth. In this segment of the market, the strong growth is very extensive, almost all reagents, assays and instrument platforms have achieved double-digit growth. As Chuck described in his speech, Gao Shang mentioned platforms including Simple Plex, Simple Western, biologics and cell and gene therapy, especially platforms related to GMP proteins. The protein science division’s operating profit margin was 46.6%, a year-on-year increase of 360 basis points, mainly due to good sales leverage and cost management.

As for the field of diagnostics and genomics, reported sales in the second quarter were $52.5 million, and reported revenue increased by 20%. The organic growth in this sector was 19%, of which foreign exchange conversion had a 1% favorable impact on revenue. Similar to the first quarter, our genomics department led this market segment during the quarter. With micro RNAscope, BaseScope and a diagnostic partnership with Leica, we have a strong presence in the entire ACD brand product portfolio.

It is also the driving force for the growth of diagnostics and genomics. Exosome Diagnostics Q2 revenue has increased by more than 100% over last year. The increase in revenue from Medicare, private payers and patient cash collection has promoted the year-on-year growth. As Chuck mentioned, our diagnostic reagents department continues to adjust for growth by implementing COVID-related opportunities, thereby offsetting the disadvantages faced by many traditional OEM diagnostic customers in their routine visits.

The operating profit margin of the diagnostics and genomics department was 15.5%, and the operating profit margin of this department increased from 2.2% in the same period last year. The growth reflects the favorable sales volume leverage effect of our genomics department, reduced dilution from Exosome Diagnostics, and strong cost management.

All in all, our 2021 fiscal year is a good start. As of the first half of the fiscal year, organic revenue has increased by 15%, and our results indicate that our product and solution portfolio is more suitable than ever for customers who are on the front line of diagnosis and development of disease treatments. We believe that the current epidemic will only increase the determination of our customers to speed up their work, and we will continue to do our best to provide our customers with tools to help them succeed. Therefore, we believe that the current business momentum will continue in the second half of the fiscal year.

However, in order to meet customer needs for the remainder of the fiscal year, we need to catch up with our investment in product pipeline and after-sales service and support, while continuing to invest in customer engagement activities, especially digital activities. We started to make progress through these additional investments in the second quarter, but intend to accelerate back to our plan in the second half of the year. If successful, these investments may make our operating profit margin slightly lower than the level in the first half of this fiscal year, which will prepare us for a long-term strategic plan for sustained double-digit growth in the coming years. This concludes the comment I prepared.

In this way, I will forward the call back to the operator to open the problem line.

[Operator Instructions] Our first question comes from Puneet Souda of SVB Leerink. Please continue with your question.

great. Thank you. Chuck congratulates the field of protein science and the entire field for its strong performance and impressive growth. First of all, can you provide us with the contribution we have seen from GMP protein and cell and gene therapy, and given the momentum you have seen so far, how should we think throughout the year?

of course can. Well, we will not give too much real information on the weed details, we have been talking about 100% growth. In the past, we had said that we would become a $30 million type investment portfolio, but now most of them are in a serum state. Our operation on them [Phonetic] has almost reached a protein operating speed of 10 million dollars, we provide you with The growth rate there.

We have the ability to increase capacity-I think we can increase capacity by 4 times at the headquarters if needed. Therefore, we are happy to take the time to review the new site and it is going very well. Again, we have talked in the past that this $10 million GMP protein will grow to $20 next year, then double it, and hope that once we start to get therapeutic production from the therapy, it will really start to increase. Back to the clinic.

It’s hard to say that for the rest of the product portfolio, for Cloudz and TcBuster, we have a big quarter in terms of acceptance. We talked about that we have gained a lot of new revenue to understand these technologies and new preclinical research. Therefore, we are very excited, the team is very excited, this is the best quarter we have spent for TcBuster. In fact, we are working hard to expand the website or expand. So it's a bit surprising to be so fast. Therefore, it is difficult for me to tell you that next year is coming, but I think it may double this year, and then double again next year.

As we said in the five-year outlook for the US$1.5 billion goal, we are seeing a US$300 million business. Therefore, it will be composed of at least 150 million US dollars in the GMP protein, and the rest will be between Cloudz, TcBuster instrument, ACD, used for spatial cell analysis technology, Ella test, QC test and in all workflows , All these fragmentary parts totaled 300 million US dollars. It may take us another year to provide more real information-making real detailed guesses and what the rest of the guesses look like. In my opinion, the safest one is GMP protein tablets.

understood. This is very helpful. I think this is a very strong quarter on Ella. You pointed out that in the past two quarters, it is clear that the product line has gained a lot of appeal here. Can you tell us the direction of this business, I mean, after all, this is a highly competitive ELISA market. So where is this possible and what other key initiatives do you have, including the 510(k) approval you want to submit. In the same context, if you can help us understand, what I mean is that the field of proteomics currently has considerable development momentum. Obviously Bio-Techne is the core of proteomics, and you are a leader in the field of antibodies and proteins. One, cytokines and extensive proteomics. So maybe it just helps us understand where-the business may be the whole of the protein science business, and the proteomics business may be the whole, with a longer period and a 5-year time frame?

Well, its growth has exceeded our expectations. Obviously, we are in a very advantageous position in the field of proteomics, and with the advent of the research wave, and with the continuous development of this golden age, funding from these stimulus plans Removed from China for more pandemic relief and pandemic research. Therefore, it will never happen again. We will be a huge beneficiary. We are seeing-we are really seeing progress in business development in each region. It's really surprising. I think I have never seen such a green dashboard, so in my career.

It is difficult to determine what COVID is and what is research. Now, we have thoroughly studied the development trends of our customers, and there must be bigger biopharmaceutical companies that are investing more, they are cashing out, and vaccine manufacturers are clearly doing more. Those companies that are not performing well on COVID are using this cash and doing more R&D, whether it's more R&D or more research, we will all benefit from it. I have always said that Simple Plex is a sleeper, yes, we have been there for several years. If it continues to grow close to 100%, it will soon become very large.

Therefore, we have so far-we have now placed more than 500 instruments around the world, which is a lot. This is an amazing machine, it does a lot of things-to make money, this is just an amazing technology from an amazing team, before we acquired the company, the team had Conducted many years of research. I think Micropoint has seen this as early as in China. We are conducting clinical trials as planned. If they achieve the goal, this transaction alone can bring in $100 million in revenue in three to four years. This is the person who is Mindray. Therefore, he has a lot of credibility. He is different for establishing a very standardized patient monitoring platform in China's large hospital system, and there are many of them.

We are considering the 510(k) process in the US, so we can try to listen to more such as Micropoint's interest in China. Micropoint will do all CFDA work by themselves. They are experts and are doing it-the group discussion has been completed. They are doing everything. Here, I don’t know, we may not expect ourselves to do everything. We will do 510(k), and we will use a well-known standard analyzer to do it. So, when we entered the system, we were talking with potential interested parties. But this matter is important. It is also important in the field of neuroscience. It is also important in the field of oncology. It is wherever proteomics is needed to test biomarkers. This is the machine.

As you know, competition takes many forms. Starting from Luminex, we are also their partners. But we did not have crosstalk with our platform, and now we are adding channels. Therefore, we are now eight years old and may be higher, but so far this is a good point. It has eight channels, and there is no crosstalk with the pseudo-noise type of this machine. Answered in a sample of only one hour, this is unheard of. Of course, there are other Meso Scales.

I think we need to crack some work, otherwise Meso Scale will really be hit, because they have a complete software workflow and have actually been integrated into their customer's workflow, and we may have more independent packaging boxes . We must do better in this area, and we are working hard, and then, of course, in the entire clinical aspect. This thing may really be the point of the nursing machine. We are working on 4×8 cartridges, you can run it without queuing for a lot of testing.

Anyway, I just-I see a bright future, and he asked what it will become. I think this is a $200-300 million business in five years, and to be honest, even more. It may be larger, depending on the degree of acceptance and how well we keep diversifying to adapt to new applications. However, automated ELISA, based on multiple proteomics, biomarker research, just like what you just said, is now very popular, and its development is still accelerating. Therefore, we see a bright future on this platform.

Even though this product is already a big platform, we are not surprised by the 100% growth. It is as big as everything we do-we now have it in the original ProteinSimple market segment (including Simple Western), and it has arrived there, has been growing, and will soon become the largest market.

Chuck, this was very helpful, thanks for all the details. If I can squeeze the last one for Jim. Jim, I am very grateful for the investment in Eminence and the GMP facility, which is now growing, and when you see inorganic growth in mergers and acquisitions, we-haven't seen much in this area recently. It is largely a function of the more challenging and attractive valuations in this field or any other field or some specific field. Just complete your hypothesis here, because it is obvious that this is an important work done by Bio-Techne in the past.

Yes it is. What I want to say in terms of valuation is that valuation has been a challenge for many years. It's really nothing new. This is actually the ebb and flow of the transaction process, as well as the upcoming content. And I think that for most of 2020, the epidemic is a good reason, indicating that the epidemic is not as strong as in previous years. But in the past few months, we have begun to see this kind of turnaround, seeing more transaction flows, and more interesting goals. Therefore, it is difficult to predict because there are many stars that need to be aligned, but I can predict that in the remainder of the 21 calendar year, we will have more activities in this area compared to the previous year.

Okay, great. Ok. thank you all. Congratulations.

Thanks, pune

Our next question is that of Catherine Schulte and Baird. Please continue with your question.

Hello everyone. Congratulations on the quarterly stability, and thank you for your questions. I think, first of all, just like our outlook for fiscal year 21, the full-year range you talked about last quarter may be between 10% and 15%. So if you are curious to have updated ideas for the final result in this range, or given the strong performance you have seen this quarter, should we consider any range?

of course. I'm not sure who noticed it, this morning I was talking about erasing more than 15% of years. We stay away from that. We are certainly optimistic about ending in double digits again. We commented on the continued growth momentum, and the half-year growth momentum is 15%. Similarly, for the remainder of this fiscal year, we face the simplest competition. Therefore, you can perform mathematical calculations from it. But yes, to be honest, we are quite optimistic that we continue to stay at an even higher level now.

Ok. You have talked about some research laboratories. Considering the distance from the society and establishing auxiliary laboratories, you may need to buy the second edition. How much of the rebound do you think is related to some of your inventory or growth drivers?

There is a little stock. After the last quarter, and then the following results, there is not much COVID in our numbers. Hope that serology can continue to provide us with COVID. We really conducted a large-scale in-depth study on a global scale, what happened and why we did it so well. Therefore, we did it. We did segment by account, by customer, by business method and reason. There is really no panacea. For obvious reasons, we keep in touch with vaccine manufacturers. For many reasons, we keep in touch with biopharmaceutical companies, but there is also a lot of OEM work. They all had a good year, so they outsourced more things. Therefore, we have more-give us more customs.

Of course, the academic community has always been a repetitive problem, and there have been some surges. Perhaps budget write-offs have been carried out in many aspects. To be honest, we have found some that I think are not substantive. It’s not like half or a third or a quarter of our growth, but there is still a little bit there. This is actually the sum of the parts we need to consider, there is no panacea. Not all COVID, not all things, but it is indeed a rising trend. This is just a study that we have done well in all aspects.

We have always been-as Puneet said before, in perfect position. I mean, in proteomics, this is where we are now. And, whether you are buying antibodies for COVID testing, or you need it-you need overflow help because your ability to work is related to your ability to develop vaccines, or your academic institution is incredible, so you are building a new laboratory And you have to buy more equipment, it is best to have the same level of equipment, which is as inclined as our productivity, not that expensive. This is the source of all reagents and the basis of our reagents, even including ELISA. I mean, one thing, we can always look back at our good old ELISA kits, just 35-year-old cute kits, they fluctuate with the development of the project, and the health of the biopharmaceutical project The same is true for the best years. year. Therefore, I'm just talking about broad-based growth. Moreover, we are not the only company talking about this. Yes, everyone in this wave is right now, and our arrival is higher than other companies, which is very good for us.

Ok. The last one comes from my Exo kidney transplant test, you talked about the release in the next few weeks. What is the way forward for this test and how should we consider the potential launch time there?

Yes, I do hope we can talk about the publication now. This is indeed imminent, it should be days instead of weeks, but who knows. The data looks great. If it has been released, we can talk about the data, it is very good data. This is the first peer-reviewed article, and we need the second one. We need to test the results. Before adopting the LDT method or using the MAC or starting to use it, some work needs to be done. However, we are taking this path, and we believe that the time to be the first to sell this item is one year less than it is now. It's probably a good year from the crosswalk or anywhere else, but we will see it. We are also looking for partnerships. Moreover, we are still studying other MACs, and we did not use the same MAC during prostate surgery.

Therefore, we have done a lot of work here. It's all going great. This platform is shocking. good results. It's amazing. As you know, Exosomes are the best in liquid biopsy, and when you start to see this data in certain places, the data will prove it here-it's a big market. There are no obstacles like a prostate neurologist. There are not many organ centers, so in terms of commercial attacks, they are not difficult to trace, which is a big demand. What I mean is that you have to replace the kidney and then lose it, or damage it through a biopsy or test for fear of rejection. This is a terrible thing.

Half of all these were rejected within 10 years. Therefore, this is a tool that is really needed. And it is pee sprinkled in the cup, which can be sent in without touching the blood draw person or other things. Therefore, we think there is a lot of room for price increases-first, cost, and secondly price, which is really good compared to the current price.

Ok. great. thank you.

Our next question is Alex Nowak from Craig-Hallum. Please continue with your question.

Ok. Good morning everyone. Therefore, vaccination is now or will be started soon. It seems that immunity to specific variants may actually last for a long time, but then we discovered that new variants appeared, with lower overall efficacy. So, I think, my question is, how does the introduction of vaccines and the emergence of these new variants change your thinking about this-quantitative COVID antibody testing? Then, in your prepared speech, you mentioned that you will cooperate with vaccine companies to carry out this test, and then cooperate with diagnostic laboratories separately?

Yes it is. Well, as you know, Alex, since the end of last spring, we are ready for this kind of test. I guess that the FDA and many bad EUAs have caused a lot of confusion and confusion as early as in the non-qualitative serological examination, and there is still a long way to be recognized here. Unless there are enough vaccines to meet this demand, there will be no real demand. They are calling the doctor to find out the situation. How can I know if I am immune? Can I see my grandson?

People want to go back to the concert, take the plane, take the train, and then enter the shopping mall again. Before they know they feel safe, no one will feel really good, and there is no variation. There is no variation. As you know, we are tied to the back of Sinai, and they got the longest immunity test here, our running time is about seven or eight months, and they haven’t Seeing that the immunity of antibodies has decreased. But the power of existence makes you feel that it will follow the Corona family, and it will vary from person to person, but it may be exempted for one to two years, but not forever.

If it does not mutate, it means strengthening immunity. If it mutates, then we are watching flu every year, which is correct. So, then we try to reach the moving goal like the flu, which is difficult. All of these illustrate the necessity of serology. People will always wonder if they are immune? Don't be surprised if you carry a tax-free passport on your app, on your mobile phone and how you use COVID within a year or two. Therefore, you can perform any operation, and you can also perform any operation.

All of these technologies are constantly emerging, and they are not flushed at once, which is a problem. Everything is slower than we want. Vaccination progress is slow. In summer, we may not be immune to the herd. We will not be vaccinated at the point where enough people are vaccinated, we will feel safe. The demand for serology will increase, and we hope that the quantitative claim will be given only by the FDA soon. All the data has been submitted. We actually obtained it from the WHO. The samples we have will provide us with a method to actually quantify its standard curve. Therefore, the FDA may seek backward international standards.

Therefore, our idea is correct, and we have a good partnership with Mount Sinai. So, I do hope that we will succeed. In the past year, we may not be the only one, but we will be a very one-we will be the first and we will be a very good one. But I think that serology will rise. I think that neither people nor PCR will disappear. This will be a tail much slower than people think. You may have heard it on other conference calls this week. Unfortunately, we are changing the curve, but returning to normal will be a long tail. Then, we might get part of it, but in some cases it doesn't make any sense-some companies are answering this question, am I sick? But we are a research company first. All this is futile for us. We hope it will help, and we will have a lot of scientific knowledge to help.

Thanks, Chuck. Now, this is very helpful. It may be possible to expand the more macro life science funding you see here. Therefore, now Washington is developing a COVID stimulus plan. What did you hear specifically about funding in this plan? The funding can be used for life science research funding, and how long can this benefit last? Then I guessed the same question, but more of their plans are in China. What is their next five-year plan? Did you hear anything special there?

I will start to reverse. China is not very good at planning what they will do. However, I think what usually happens in the 14th edition of the five-year plan is that the first year is a bit soft, the second year grows very fast, and the fifth year is also a bit soft. We also call the budget there as zero. Because they are also changing the tax consequences there. Therefore, I think that everyone who has achieved good instrument performance in China may understand this. There is not much mention, but we do think that we will admit it.

But I think it will be very good. I think that the next plan for China is still far behind their position in other sectors of the economy and industry, and this is a backward industry, and they-now more than ever have COVID, they certainly don't want to watch There is a pandemic there. Their people want healthcare there. Then, life sciences are still on the rise. I think this is why we continue to see growth rates of 25% or higher, and we will maintain this growth for a long time.

I think that as far as our government is concerned, whether it ultimately increases by 600 million US dollars, or 1 billion US dollars, or 1.9 billion US dollars, there will definitely be a part of grants that are used for pandemic disease research. Actually In fact, there are not many infectious diseases. Most people in NIH are indeed concentrated in oncology, neuroscience and other fields. I mean, as I often mentioned, when was the last time you paid more than $1 for antibiotics. I mean, we are lagging behind infection in many areas. And I think the stimulus will produce a lot of spillover and halo effects. I think this is one of the reasons why the official budget of the National Institutes of Health reached 3% this year. I think they have been waiting until they see what these stimulus plans will actually cause drift into the scientific world, I think there will be some. It is difficult to quantify. I think there will be some, and if not, you will find that NIH needs more pressure to get more.

Okay, great. Thanks, Chuck. Appreciate it.

Our next question comes from Dan Arias with Stifel. Please continue with your question.

Good morning guys. Thank you. Chuck, in the GMP protein business, you talked about pharmaceutical customers looking for suppliers who can handle some sizable, multi-million dollar suppliers there. Are you currently preparing some of these plans or as semi-firm commitments? Then, when we consider that you are going to serve the new facility here in the first few days, what are the plans to expand that portfolio? It sounds like it started with a few key elements and then started working from there. Therefore, I am curious, what the growth slope of the portfolio looks like, is this really what you need to drive the acceleration you talked about recently?

of course. When we got the second contract, these contracts were-these contracts started a few years ago, these guys came to us and asked that we have been buying protein, we buy them in small batches, we might be your big customers, maybe It is half a million dollars. One year. If we enter cell and gene therapy and require protein as part of the workflow, then we may need about ten million or more than one million dollars a year. Can you do it? At that time we can only say, no, we can't.

So, fast forward to here now, which is why we are building this factory. Even there, we have improved our current production base and headquarters, so that our annual income of GMP protein here may reach about 40 million US dollars per year. Therefore, we did a good job there, which will fill the gap where we fill the factory qualified and wait for big orders, because we will not have a big venue-there is a huge catalog here. We will produce far fewer than 50 kinds of protein there.

We are eligible for the qualifications of major runners, you can guess who they are, and they start with IL. And we will start from there. Both of these first two customers have more than $10 million in annual demand. We are negotiating with at least six other people, I won’t tell you who, but one of them needs $50 million a year. What we do to these customers because it is difficult for them to make predictions for us. What we talked to the contractor was that we asked them to provide 95% of their quantity. What we need in the end and how these things will develop is really unknown now.

When they came out, what the prediction would be, how much of the increase, and how we planned it, they also knew this. They know this is very frustrating for us because of how you prepare. Therefore, what we do is convert the contract into a contract, and we hope to see the scope you need and we will be there. We don't know when, but we want your transaction volume to reach 95% of the contract. Therefore, this is the essence of our business. These people called them eight customers, and as long as they met their expectations, these customers exchanged us for many years. After that there are 50 to 100 [voices]. Therefore, we don’t have to worry about whether to fill the factory eventually.

Yes it is. Ok. Ok. Then, maybe on the EPI side, thank you for some of the comments you have made so far. In addition to dynamic document access and the challenges related to the pandemic, what do you think the urology community needs to look at this year in order to really feel that this is a good choice for testing that must be used instead of testing? Now that you have solidified the use case a bit, will the sales representative see other data and publications? Considering that we have indeed achieved our dream here, I am curious about your thoughts on this point.

I think you know the latter's comment, namely, utility, result research, which is what large payers expect. And we may be halfway there, and we are about to approach one of the majors, we cannot say that we are not in one of them, but we hope it will come soon. When we get one, we get more, but this is what they are looking for. How does it really save money for the industry, yes, and save more lives. We have sold approximately 2500 urologists, approximately 20,000. Therefore, we have a lot of work to do. Of these 2,500, 77% have been reordered.

Therefore, once they join it, they will believe it. In my opinion, this is indeed a business issue, which needs to be put before them and sold. And I think home kits are still filling this gap, and of course KOL can help a lot. We have some great KOLs. We will return to the front of the NGF in February to reconsider, which will help you. I think this will be a positive story. However, I think these urologists are like many different specialists, it is difficult to accept. I'm sure that a large part of them enjoy a $1,500 biopsy each time, and know that most of them are negative and don't care.

Therefore, this is just a business situation and we have to conduct in-depth research and almost ashamed that they adopt this method, because it is better for patients, although it is less profitable for them. Moreover, better urologists can do the same, they have joined us, and we are transforming them. But this will not be a year's event here.

Yes it is. Ok. very good. Thanks, Chuck.

Our next question comes from Jacob Johnson and Stephens. Please continue with your question.

Hey, thanks. I will congratulate you and wish you a happy season. Chuck, Chuck, have a question about the prospects for this year, and I want to make sure that I am clear about your comments soon. I think you will find similar organic growth quarters-organic growth numbers for the next quarter, and then obviously it's much easier in the fourth quarter. Is there any reason why organic growth should not be maintained at the 19% level this quarter or possibly higher in the next few quarters?

I want the respected CFO to answer for you.

Yes it is. Hi Jacob

Hi Jim

The way we think about forecasting is more about the current momentum of the business and the opposite momentum compared with the same period in the previous year. The trend of forward changes has become unstable, especially for the fourth quarter, compared with the situation in the fourth quarter. ,year. Therefore, the way we consider is from an absolute income perspective, this momentum is still continuing. If we take history as a guide, it is usually our third and fourth quarters. Our third and fourth quarter financial conditions are slightly higher than our second quarter, and if there is no other reason, because of the quarter’s There are fewer holidays and the same time frame as November and December. So this is the way we are thinking about it. We believe that, at least for the rest of the fiscal year, the momentum we see is related to the increase in momentum we saw in absolute terms in the second quarter. So this is how we think about future predictions.

understood. Thank you, Jim. Then, Chuck, you made some interesting comments on the key TcBuster before, which sounds like the business development work is going well. Can you provide more detailed information about the positioning of this product, maybe how many customers are you working with and what colors are around it? Then, you mentioned potential and possibly added some capabilities. Does this mean that the opportunities here may be greater than the $50 million revenue expectations you outlined earlier?

In my opinion, this is more about tilting and accelerating towards this $50 million. I don't think we know enough. The gene editing part of the workflow is not the most expensive nor the most valuable part of the workflow. Obviously, it is the key part, as we will see. As you know, the range of customers is slightly more than 100. Of course, we are dealing with dozens of customers, and we must have sold them to many customers over six. And they are coming, and more and more, so they can visit and try it out, which costs hundreds of thousands of dollars.

Therefore, TcBuster's revenue can now reach millions of dollars. So it started to get there. This thing is going to happen. Unfortunately, this is a key part of our new workflow in cell and gene therapy, which is completely different from using viral methods. Therefore, this is the next generation. Therefore, we must make a difference by lining up six, twelve, and twelve of these people and entering their clinical research, and then continuing the research to make a difference.

I think this is indeed a five-year J curve from now to 50, 60 (speech), but you know it will-possibly reach a 50% growth rate from now on, in the next two or three years 100%, until these products are put into production, its growth rate really increases.

understood. Thank you for your question.

Our next question is Patrick Donnelly from Citi. Please continue with your question.

Hello everyone. Thank you for your question. Chuck, perhaps only in terms of ACD, is glad to see that before the pandemic is even back before the pandemic. Can you talk more about what you see in this market and what you expect for the future? Of course, I feel that it has established itself here. In the next few quarters, what can we expect?

Yes, I think, given the existence of other companies in the field (such as NanoString and 10x, etc.), they are all helping in space, so they are helping to create an industry. Therefore, we are all working hard to create spatial analysis, and spatial analysis is very much needed in the workflow for all research and proteomics in one or other fields. Therefore, it can actually be attributed to this point. If you need to perform single-cell analysis and really care about the morphology of the tissue sample, which is valuable, then this is a great technique. There are other technologies that use antibodies, sometimes you can’t find antibodies, or they don’t work properly or cannot be produced. The meaning of finding a gene is much more than that-its opening or closing is much more than that, whether it exists or not. Therefore, this technology with Z-probe tree can detect and obtain signals, which is fully proven.

So this is why we see elevators. I think we were very soft-hearted a few years ago and we had to reorganize Europe. Europe is just adding fuel to the fire. These plans are indeed effective in Europe. Europe is doing well. Our growth in Europe this quarter exceeded 20%. Therefore, it is great to see that our genomics department accounts for a large part. Despite its small scale, we have also seen good growth across the board in Asia.

We have already mentioned RNAscope and BaseScope, they have grown very well, and our high plex and multiplex versions have also started to grow. We will get the FFPE version of the high-plex here soon, I think this is indeed-what is really needed, and it competes well with the products there, and then of course DNAscope will be launched at the end of this fiscal year, and we hope, that’s another platform. Therefore, this is a great pipeline. It has many legs. Similarly, in our five-year plan, we will see here a technology department with 200 million and 300 million US dollars, and the technology will continue to grow at a rate of nearly 30%, and it will take a long time.

Yes it is. Very helpful. Then, for Jim, it's just in terms of margin. Can you talk about how we should consider future developments, including the impact of Exo. I know that Medicare has switched to accrual accounting this year. So maybe the impact of Exo on profit margins and expectations is just-when we get close to the 40% you have already talked about here?

Yes it is. I think we have shared the last quarter, if you exclude Exosome from our results, the situation in this quarter is similar. As far as our adjusted operating profit margin is concerned, the entire company will remain at the low level of the 1940s. Therefore, this will give you some insight into Exo's current dilution impact. As for the margin situation for the second half of the year versus the first half of the year, I mean that the margin performance far exceeded our expectations, but mainly because we lag behind our investment plan, as I mentioned in the last quarter, right. Therefore, it is absolutely important that we continue to invest in R&D pipelines and after-sales service for customers and customer service to maintain this momentum.

Therefore, we do hope to catch up with these investments. If we succeed in doing this, we think the profit margin in the second half will be slightly lower than in the first half, but compared to last year, the plan is still very, very strong compared to the goals we think we have achieved. In the next few years, the company’s overall performance will be increased to more than 40%.

I understand, thank you.

Yes it is.

We have reached the end of the Q&A session. Now, I will hand over all the end-of-speaking calls to the management.

Okay, thank you all. This is a record quarter. We like it. We like this call. We know that they are not all like this, and we hope that we won't have other types of people soon. We look forward to seeing it in the next quarter, so we think it should be a good time for the second half of this year, and we will do it again in the next quarter. thank you.

[Closing speech]

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