Q1 2020 Earnings Call

Good day, ladies and gentlemen, you're currently standing by for the Bio Techne <unk> earnings Conference call for me first quarter fiscal year 2020.

This time, we're assembling our audience I'm trying to be underway. Shortly we appreciate your patience. Please remain on the line.

[noise] good morning, and welcome to the Biotech Me earnings conference call for the first quarter fiscal year 2020.

This time, all participants have been placed in listen only mode and the coal will be open for questions. Following management's prepared remarks, I would now like to turn the call over to Mr., David Claire biotech knees senior director corporate development. Please go ahead.

Good morning, and thank you for joining us on the call me. This morning are Chuck Kummeth, Chief Executive Officer, and Jim Hipple, Chief Financial Officer Biotech me.

Before we begin let me briefly cover our safe Harbor statement. Some of the comments made during this conference call maybe considered forward looking statements, including beliefs and expectations about the company's future results.

The company's 10-K for fiscal year 2019 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward looking statements made during this call. The company does not undertake to update any forward looking statements as result of any new information or future events or developments.

10-K as was the company's other FCC filings are available on the company's website within its Investor Relations section.

During the call non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.

Most reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier. This morning on the biotech Me Corporation website at Www Dot bio Dash Techni Dotcom I'll now turn the call over to Chuck.

Thanks, Dave and good morning, everyone. Thank you for joining us for our first quarter conference call.

We started to fiscal 2020 on a strong note with our first quarter organic revenue, increasing 13% year over year, continuing a double digit organic growth rate. We delivered in fiscal 2019 double digit growth was broad across our product segments and geographies with proteins antibodies simple western NRT scope platforms performing exceptionally well.

Also rebounding from last quarter, our OEM diagnostic tools business contributed to double digit growth.

They look at our performance by geography, I will start with Europe in Q1 organic revenue increased over 10% for the quarter as expected the headwinds we faced last quarter normalizing contributed to the strong performance in the quarter recall that the timing of a large order from a European customer was one of the headwinds we experienced this region last quarter. During Q1, we received this order excluding this.

Large order our European growth within the high single digits and this is our expectation for the remainder of fiscal 2020.

The initiatives the European team and put in place over the past several years continue to possibly impacted business, creating synergies across divisions and implementing creative ways to make it easier for customers to do business with us.

We believe these efforts create the foundation for continued European growth ahead of our industry peers and quarter to calm that said the popular view regarding Europe is fairly bleak about and I ever good economic slowdown there. So we will continue them onto your closely for any signs of weakness.

[noise] with regards to North America organic growth was also north of 10% driven by particular strength and bio pharma.

There's been a lot of effort dedicated to our digital market strategies, including the continued enhancements, we make to our web site, which allow customers to do complex products searches and find solutions or their research needs.

However, our digital marketing efforts go well beyond our web site with our search engine optimization efforts, increasing brand visibility and driving traffic to our website. These efforts are translating at a double digit increases in our biotech me web traffic, which correlate very strongly with a double digit revenue growth, we have been seeing especially in our antibody in protein portfolios.

We view these digital marketing initiatives as a key component of our forward growth strategy and are very pleased with the continued progress through this important channel.

For China organic growth of nearly 20% for the quarter with continued strong performance in both our reagent and instant products. The life Sciences industry is still a high priority and try to its five year plan and we continue to be well positioned in spite of any local competition and still very underpinned penetrated in our key growth platform.

Now, let's dive a little deeper into performance of our growth platform, starting with Phil was within the protein Sciences segment, which grew 13% organically for the quarter.

As I've already indicated antibodies and proteins perform extremely well for from Q1 with both product categories growing in the mid teens in the quarter. In addition to our digital marketing efforts. We recently began the process of validating a growing number of our immunohistochemistry antibodies using E. C D branded in situ hybridization and gene editing platform leveraging.

Transcript.

The only six approach to providing high quality validated IC antibodies for researchers.

This initiative Leverages, a cross and organizational stringent synergy between our reagent solutions Division, our genomics Division and our recently acquired acquired imaging technologies.

For background as a number of antibodies supplier has increased over the years the process of validating the quality of numerous antibodies from various suppliers has become increasingly more challenging for customers. There are no rules were quality standards at an antibody reseller must abide by before selling an antibody.

Customers are increasingly asking for sure incident antibody has been tested and shown to be specific for cells known to express the protein in question and not buying to cells, where the gene editing.

Excuse me, where the gene and coating a specific protein has been knocked out we anticipate this multiomics approach to antibody validation to sing wish the quality of R&D systems and noticed biological Brennan advice from our competitors provide superior service to our customers and ultimately benefit our antibody sales.

We also continue to position ourselves of the tools provider for the coming a wave of cell and gene therapies, while still a relatively small portion of our business today cell and gene therapy will be very important growth driver for our company in the years to come.

Our GMP proteins polymer bead technology, non viral vectors and instrumentation to automate processes and fraud monitoring we can now supply a significant portion of the cell and gene therapy workflows.

This potential is already evident in our GMP proteins business, where we experienced growth over 100% in Q1.

We broke ground in our new GMP dedicated protein factory in the quarter, and we will be ready to provide GMP proteins and larger scale to our cell and gene therapy customers by the second half of fiscal 2021.

Moving onto our investments portfolio within protein Sciences, where the simple western platform continues to be the star the show.

With an installed base of over 1600 worldwide and growing double digits. We saw consumable growth from these instruments that was over 40% higher than last year. Further evidence that these investments are quickly achieving a market acceptance. They are not just getting installed they're getting used.

As I mentioned in my opening comments our girls in Q1 was balanced between both of our operating segments with the diagnostics and genomics segment also growing double digit a corridor with 16% organic growth.

Here, the OEM diagnostics tool business returned to double digit increases in nearly all of us major product categories, including clinical controls and specialized reagents as expected. The OEM order timing was more positive in Q1 than it was.

In the last quarter Q4.

Also our glucose controls business stabilized in the first quarter of our fiscal year with sales relatively flat year over year going forward. We expect this division to be at least in a mid single digit grower for all of fiscal 2020, with possibly higher growth in future years, there's new diagnostic instant platforms and assays and by our OEM customers come online.

Also within the diagnostics and genomics segment Arnie scope continued with its growth recovery with sales increasing over 20% in Q1.

During the quarter, we released the earnings scope high Plex assay, which enables researchers to gain greater insights into southern mechanisms and functions by combining a simple workflow with a capability simultaneously detecting up to 12 Arnie targets. The high Plex assay is particularly well suited for spatial genomics studies with the assay requiring minimal sample pepper.

Question, while delivering high performance and preserving the morphology of precious tissue samples.

It is still early in the irony scope high Plex assay launched but we believe this will be another growth driver for our genomics portfolio.

Now, let's discuss our liquid biopsy business Exosome diagnostics of course, the Big news here in Q1 is it ngs, our Medicare administrative contractor issued a final local coverage decision or LCD covering FP for men, who are being considered for an initial prostate biopsy. This major reimburse milestone as effective for happy test administered.

For Medicare beneficiaries on or after December Onest 2019.

Importantly, with his final absolutely LCD more than 60 million Medicare beneficiaries will now be covered for the ft tests.

During the quarter. We also made progress with private payer coverage of FP. We currently having to be 30 commercial plans contractor for happy as well as 38 states covered under Medicaid We expect a recent Medicare coverage decision to drive increased awareness of FP within the private payer community and look forward to updating everyone an additional contract wins going forward.

Following these reimbursement a regulatory milestones we are positioned for acceleration and happy volume.

Test counts in the most recent quarters were 34% higher than last year, we use the seasonally slower summer months to revitalize.

Our marketing message and strengthen our sales leadership, so that we are well positioned to garner dr. patient acceptance of the test as a viable alternative to potentially unnecessary prostate biopsies.

With over a million unnecessary prostate biopsies for from every year just in the U.S., we couldn't be more excited about serving what does that until now very unmet needs.

In summary, we were off to a great start in our fiscal 2020, the second fiscal year of what we intend to be many years of double digit growth. Our core reagent portfolio is performing at its best in over a decade, while our adjacent proteomics and genomics analytical tools are still ramping in very underpenetrated markets. Meanwhile, our liquid biopsy and selling.

Gene therapy platforms are still in the pregame show of what we believe will be a long nine inning for many home runs that's the strategy, we're marching to and I'm very proud of the biotech new team in their accomplishments to date, but that I will turn the call over to Jim.

Thanks, Chuck I will provide an overview of our Q1 financial performance for the total company as well as provide some color on each of our segments.

Starting with the overall first quarter financial performance adjusted EPS was one dollar rose six versus 98 cents, one year ago with foreign exchange negatively impacted EPS by two cents.

GAAP EPS for the quarter was 37 cents compared to 45 cents in the prior year.

The biggest driver for the decrease in GAAP EPS was the change in fair value or investment in Chemocentryx, which negatively impacted the GAAP reported number by 26 cents.

Q1 reported revenue was 183.2 billion, an increase of 12% year over year with organic revenue increasing 13%.

First quarter reported sales include a less than 1% growth contribution from acquisitions, and a 1% unfavorable impact from foreign exchange translation.

By geography, the U.S. and Europe , both grew north of 10%, while China grew nearly 20%.

As for the rest of Asia organic growth was in the mid teens.

By end market, which excludes Asia, and our diagnostics Division Biopharma increased in the low teens, while academia increased in the mid single digits.

Moving on the details the PML total company adjusted gross margin was 69.5% in the quarter compared to 72% in the prior year.

The decrease was due to unfavorable product mix. Some news on factory absorption timing and to a lesser extent the impact of recent acquisitions and foreign currency headwinds going.

Going forward, we expect adjusted gross margins to be comparable to fiscal 19.

Adjusted EPS DNA in Q1 was 29% of revenue relatively flat compared the prior year or volume leverage was offset by additional SGT expense from acquisitions as well as investments in our core business to support growth.

R&D expense in Q1 was 8.8% of revenue 30 basis points lower than the prior year, primarily due to volume leverage.

Recall that the Exosome diagnostics acquisition close at the beginning of August 2019.

So our Q1 2019 included only two months of related exit film diagnostic expenses, whereas Q1 2020 includes three months other expenses.

The resulting adjusted operating margin for Q1 was 31.8% a decrease of 210 basis points from the prior year period.

However, excluding the extra month axes on was included in our results this year as well as a negative impact of foreign exchange adjusted operating margin was flat to last year.

Looking at our numbers below operating income net interest expense in Q1 was 5 million.

Relatively flat with the prior year period.

Our bank debt on the balance sheet as of the into Q1 stood at 486.1 million down from 505.2 million at the end of Q4 2019.

Other adjusted non operating income was essentially zero for the quarter compared to <unk> point 8 million of other expense from the prior year quarter, primarily due to differences in transactional foreign exchange.

For GAAP reporting other non operating includes unrealized losses from our investment in Chemocentryx.

Moving on down the PNM all our adjusted effective tax rate in Q O Q1 was 21.9% and we expect the adjusted effective tax rates remain in the range between 21 and 22% for the remainder of the year.

Turning to cash flow and return of capital 40.5 million of cash was generated from operations in the first quarter and our net investment and capital expenditures was 10.5 million.

12.2 million of dividends were paid out in the quarter, an average diluted shares to 39.3 million shares outstanding.

Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.

Q1 reported sales were 141 million with reported revenue increasing 12%.

Organic growth was also 12% with foreign exchange, having unfavorable impact of 1% on revenue growth and acquisitions contributed 1% to revenue growth.

As Chuck previously described the growth in this segment was very broad across almost every major product category and geographic region.

Operating margin for the protein Sciences segment was 42.2% a decrease of 100 basis points year over year due to unfavorable mix in fact, the absorption and to a lesser extent unfavorable foreign exchange and the recent people to do an acquisition.

Turning to the diagnostics and genomics settlement Q1 reported sales were 42.6 million an increase of 16% from the prior year.

Organically revenues also grew 16% with a one 1% growth contribution from the extra month, we owned X's on diagnostics this year offset by a 1% unfavorable impact from foreign exchange translation.

As Chuck mentioned the contribution to growth in the segment was fairly balanced in the quarter with OEM diagnostic orders swimming quite favorably compared to last quarter are more one rig hematology controls business growing double digits and our genomics division continuing on track back to consistent double digit growth.

Going forward, we anticipate less volatility from our OEM diagnostics business and anticipate mid single digit growth from this division for both next quarter and the full fiscal year.

With regards to X's on diagnostics and as I've stated in prior calls revenue from Epee test performed as being recognized on a cash basis.

This is the cracked accounting treatment given its recent commercial launch and relatively low penetration of contracted payers.

For patients insured by non contracted private payers. The appeals process for payment by is the ensure or the patient can be quite long. That's the revenue from at be recorded in our Q1 results was rather minimal.

As Chuck mentioned, we received the final favorable local coverage decision from Exosome diagnostics Medicare administrative contractor Ngs.

After December 1st we anticipate submitting claims to Medicare for test on couple of patients.

We do expect there will be a 30 day lag between our submission of claims and the receipt of Medicare cash payment.

Implying a minimal Medicare contribution to our fiscal second quarter Epee revenue.

Despite the favorable final LCD, we will continue to recognize Medicare revenue on a cash collection basis until we have a sufficient history of claims paid.

We currently expect to switch from cash to accrual revenue recognition for Medicare claims to occur sometime in early fiscal year 21.

Moving on operating margin for diagnostics and genomics segment at 2.1%. The segment operating margin was down from 6.9% recorded reported in the prior year.

The decrease reflects the extra month of Exosome diagnostics expenses compared to the previous year, partially mitigated by strong volume leverage in the rest of the segment.

Excluding the dilution from the extra month of Exosome diagnostics Q1 operating margin for the segment was 9%.

In summary, Q1 is played out consistent to the full year guidance. We gave at the end of last fiscal year. As a reminder, we discussed on last quarter's call, but our plan was to grow organically. This year in the 10% to 12% range and hold adjusted operating margins relatively flat, while investing in our cell and gene therapy strategies.

We also explained the impacted the extra one month ownership indexes on was likely to have when our year over year margin in Q1, followed by sequentially improving margin in the quarters to follow.

And finally, we pointed out the unfavorable impact of foreign exchange was likely to have on the year it rates.

We're very pleased with a strong start we had to the fiscal year. However, we were helped some of the timing help I saw the timing of a large annual European order that Chuck talked about and our protein science segment as well as a favorable OEM order timing in our diagnostics tools business.

That's even though we started the year with 13% organic growth, we're still anticipating the full year, 10% to 12% range.

We also still expect or adjusted operating margins for fiscal year 20 to be relatively flat to fiscal year 90.

Going forward from Q1, the input impact as exit some diagnostic expenses not being included in our baseline is behind us.

At current exchange rates, we expect the unfavorable impact from FX that we realized in Q1 to continue for the remainder of the fiscal year.

And even though much of our planned cell and gene therapy investment is still ahead of US we expect to sequentially improve adjusted adjusted operating margins the remainder of the year.

That concludes my prepared comments and with that I'll turn the call back over Nicole to open the lines for questions.

Thank you, ladies and gentlemen, if he'd like to ask a question at this time. Please press star and then one on your Touchtone phone.

If you are using a speaker phone today it may be necessary to pick up your handset or do you press your mute function.

Making your selection again that is star and then one.

Your first question from.

SPP Leerink.

Thank you Hi, Chuck Jim.

Strong quarter here just wanted to get a view from you and what are you hearing from your Biopharma customers overall as we head into the end of the calendar year, just give us a sense of.

You know what the demand flow is looking like and overall, what's the expectation here you know you commented a little bit about Europe , I would love to get.

More of a longer term trajectory, how you're thinking about Europe .

Overall, the business in North America, and then I have a few follow ups.

Sure.

I'll start with the worst of the packs, probably Europe and as kind of a wait and see so even though we started seeing some softness last quarter, we had a really really good quarter with Europe , but it was where a couple anomalies as we pointed out.

I think high single digits for the full year, it's probably still the expectation and we could do a little better we'll see.

Instrument the instant side of the plot of our platforms. There is the is the biggest suspect I think are very strong in the region aside.

And overall looking good Asia is looking really strong for instruments and I think it's probably a part of the buying cycles, there as well, but we see really no.

No shift or any anything coming down off, especially in China things are looking really good.

And the U.S. is kind of steady as she goes so we've we've been pretty pretty stable in the U.S. and you know with the good news from NIH funding. The piece came out last week I expected next year should be okay as well.

On the academic side, helping out the biopharma side, but a pretty steady I think we try to put some commentary and around around our search engines and our web and I think.

We just came off of it very very strong neuroscience show. We had we had more leads the first day than we had the entire show last year. So our booth is.

Really come along the way we've got all our platforms our brands all showing up together now, it's creating an awful lot of interest and the web web keeps providing more if I think out is that is helping fuel the wafer or for a continued strengthening us which has been double digits here for a while so.

Well, that's kind of the the way the through each region shake out for buying offer for for the instant side of things and as walls of everything else. So pretty good I think.

And Jim as rate on I think 10 to 12 is where we kind of pegged the year.

If we get a really good ekso launch here you know, we'll see it could be better but you know that's probably the range, we're looking at to be safe.

Okay, great on the facility build out it's great to see that.

Kicking off.

But what's the expectation here for gene and cell therapy.

<unk> products two to three years from now and and wanted to get a view from you on what are some of the pieces that you would still like to add into this gene and cell therapy work flow to enhance the product offerings of customers.

Sure.

So as you know, we're looking forward with our with our our cell and gene therapy workflow to be the non viral methodology, the what spectra and now to almost everything and Clinicals is a viral method will be supplying GMP proteins for that method. So we'll be getting business radar shoot as we are today and we had 100% growth in Q1 with our proteins.

So we're looking good there.

The factory by itself for GMP proteins as you know, we're building out to $140 million plus in five years of productivity. It probably has expansion capability is very easy to 200 million dollar.

Proteins, we probably will take more than five years give that level just proteins. So from that respect we kind of looked like a mini CDMO, but theres the rest of the workflow with with the beads, you know and with the.

The image and technology, you know for gene editing.

We have more than one you know instrumentation platform for for analysis, both in cell imaging with the technology as well as our simple plex amino assay for called QC testing. If you will so all told it's a pretty strong workflow. We still are looking for more areas to fill it out I think we don't have a.

Oh look apheresis instrument to tie it all together we have.

Certainly a relationship so we're working on to try and that collaborate to get that parks.

Hold into the workflow that's probably most critical piece I think the you know the box so to speak the sterile box it ties it all together.

The buyer reactors of course are important we have a very strong relationship locally without and we have more than one and we have a bit of a secret weapon for that for that whole part of the workflow. We have a product we've had for four or five years called pro dots, we're able to actually lyophilized, our proteins into small dry components and they can be shipped.

Within the bio reactor or positioned with that workflow for reconstitution sterile environment with no loss of bio activity. So this is really unique to us. We we have IP in this area as well and we are getting we're getting eyes wide open when when our customers in preclinical as we've seen this approach and and they want it.

So we think we have a lot of things to offer that nobody also have for the whole workflow I think like you kind of implied is going to take two or three years to get to that point. We're in a bunch of preclinical is now which will then lead to Clinicals and you know it'll grow from there but at this is a this is a five to 10 year kind of strategy and it's going to take a while to get to that level, but.

Hey, whoever thought we're going to bail more than double our protein business and we've been 30 years that it so I don't mind it taking five years to doublet song.

That's great. Thanks, and if I could just squeeze one more and I wasn't sure. If you already provided of what's the revenue expectation around taxes on for the fiscal year and now that you have Medicare and you could you talk about the plans for F.D.A. or next steps now that you have breakthrough designation.

<unk>.

Yeah, we've done the first submission and they've come back with a long laundry list of questions as expected. So we're not even really able to give a date when that will be finalized for FDA, but you know under a year for sure, but it's it's going to be a few months at least for that so but we are in process and the F. The FDA breakthrough status gets us that help from the.

Directly that they promise so they are helping so we'll see what happens with that.

In terms of revenue.

There were right now are trying to figure out where to reach back to for our first submissions for test previously done.

We're trying to figure what that date will be it'll be at all it will be in months and no longer than a year worth. So we're not prepared to give a number in that but it'll be be millions of dollars' worth of potential, but there's no guarantee.

Going forward, you know, it's 40% to 50% of the tests and you kind of had that that number in that ramps you kind of like kind of guesstimate of what we're going to be submitting.

And although it was once we get in there everything grief tier with CMS, which I'm promise, we'll be December one you know that's a 30 days to pay kind of kind of future and then we'll go to accrual next summer probably that so after that amount of timeframe right.

Revenue you know you've seen the numbers I mean, we need we need a off we need a full year.

To get to a $30 million totaling a run rate to about 50 million and at that point, we're probably a breakeven thats going to be at 12 to 18 month kind of.

Timeframe, we think but you know it's early for new we don't really know yet you know we got to see how this does ramp we got to see how we execute we've taken a long time here in the last few months to upgrade our marketing and our sales groups and we're still hiring it takes six to nine months with a new people to get in the group. We just hired out New York. So we won't be getting a whole lot attraction, New York for probably not.

Three to six months you not all takes longer than you want but.

But you know were were nearly the only game in town. It works the best of anything out there.

You know we got this thing from start to finish through Ngs in two years, or so which they tell us as a record [laughter] felt like a long time for us, but but you know, we'll see how it how it ramps but.

I think getting to a level revenue that we've talked about is certainly more than just plausible. So we're excited to try and feed this beast as we go forward from December 1st.

Okay. Thanks.

And we'll take our next question from Catherine Sheltie with Baird.

Hey, guys. Thanks for the question congrats on the quarter first on on that at the Medicare look back topic have you ever discussions with Ngs dine in and when do you think you'll find out if you will get those retrospective payments or not.

You just don't know there's no present as you know there's no rule ruler law around it. It's it really is up to them what they feel is appropriate unfair and we have to do we have to decide also what date to go back to and we can we can make it.

More problematic for us to get anything by the farther back we reach so we're trying to pick a fair position, where there's like noticed no dispute no doubt and you've got remember when you start out this kind of thing you're starting out with salespeople with unclear practices and processes and end to end and data and we don't want anything nebulous about what we're asking for so were.

Going to pick a safe date, where we have come a point, where our processes are really clean and perfect do me a great data.

And great outcomes and so there's no dispute so.

We are trying to figure that out, but it's going to be in all we think at least six months worth and that should be you know that should be a few thousand tests. So we'll see.

And I hope there generous [laughter].

Okay, and then for for the upcoming quarter, you have a pretty tough stacked comp in protein Sciences is what's your view on that segment next quarter and what are you assuming in terms of the calendar year end budget flush there.

Yeah, we're not hearing much right now a budget flush I mean, the news that just came out for looking forward with NIH funding is kind of a record it looks really good. So we're excited about this coming year coming forward for academia I as I mentioned in my previous answer I think things are pretty steady as she goes with the rest of the business.

We'll see how all our processes drive execution.

But.

It's I'd like you said, it's a tough quarter. This as long as it were coming into a quarter with a really going for us last year and.

We don't think we're going to let anyone down horribly here, but but you know, it's it's going to be tough quarter, we've got to execute and.

The way this businesses right when you're when you're staying says you want to be a sustainable and b.

Double digit every quarter going forward, there never easy anymore. So.

And then last one from me can you just give us an update on the general environment that you're seeing in China, and what are you expecting for growth there for the full year.

Yeah, I'm north of 20% for sure and I'm, we're trying to we're trying to figure out ways to really be at 25. So.

I think will be between 2025 things look pretty good the fifth year is kind of concluding there there will be a bit of a budget flush there I think.

All the pull forwards and all the trauma drama around tariffs I think is behind us even though we don't have a lot of tariff impact anyway.

And then I think it's steady as she goes we still aren't that big in China. So it's just we're very underpenetrated and it's led by.

By institutions hundreds of them that are more or less led by U.S. Chinese citizens that know our brands and went to school here and grew up with R&D systems in the lab. So we're all over it and it's been just very stable very solid since the day I got here over six years ago really.

We're up to now a 150 people plus in China. It was a dozen when I joined so you know were.

We are becoming a you know.

The real company there I made a comment.

To some groups last week, when I joined our RMD and our head of HR, we're the only ones at spoke English too.

And trying to trying to hire people for you know a company that's a dozen people and tenish million dollars, it's hard to the multinational grab all to the great local talent is that our bilingual [laughter] and we're now passed that we cross that hurdle work you know most of our people who were hiring these days are rock stars and Theyre not only speak English they're coming.

For the multinational flavor, they've grown up and they've been trained by somebody else.

And our wanted to come onboard because of our you know because of our under penetration our growth are great platforms. The synergies they see anda and the culture. We're trying to instill in every every subsidiary we have around the world. So.

Great. Thank you.

Well take our next question from Alex Nowak with Craig Hallum capital.

Great Good morning, Chuck and Jim Thanks for taking my questions. A this is actually will on for Alex today, Chuck biotech. He's built a huge catalog of products and resources for life Science, researchers who as you move into the GMP grade protein production. How can you leverage these existing products and resources to meet you successful emerging cell and gene.

Therapy area, you know what asked the question another way, it's just another leg to the stool that needs to be added or can you leverage pieces of the existing businesses is two girls area. Thanks.

Well, we don't need a very big catalog because there were talking to probably about 10 product. So you know as you know.

Our problem right now, even though were experienced a 100% growth in our GMP protein business. We're set up here of a research where the research leader in the World. We have we're thousands and thousands of products and thousands of just proteins and so we were spread a mile wide and into deep and that's the fundamental issue we have amazing.

Quality and with amazing processes here, but it's not really GMP qualify because we can't make big enough batches to boot to booty operate tour for our production type environment for a CDMO alright, so they've all been through they love us They love what they see but you got to be able make more of it is what we here and so we bought this factory we're building it out and what.

Are you, making me know what what the world's looking for for the next generation GMP proteins, which are which is the food that these cell therapy, there are eating rights basically and using for for it to improve their yields.

You know you look backwards. The spec is kind of aisle to look and everybody can make aisle to eat it's not a difficult protein to make cuts and it's one of the first one's discovered and discovered by this company.

Looking forward, we're looking at much more complicated proteins is a science gets stronger and we're looking at I'll 710, 15, and I and others that we think will position us as the the supplier of choice as you start moving towards more complicated proteins.

We are the ones that are going to be all make the best and make the highest quality with the best shield for the highest by activity. So we think the future kind of kind of comes straight at us, it's kind of ours to lose as the number one protein.

Science manufacturer in the world and Thats, where build the statutory it won't be a large catalog because.

It really that's not the way GMP proteins workforce for cell therapy that it's a more of a select set to screen more much more about what flavor of an aisle 10 do you provide what kind of quality, what kind of why activity, what kind of yield or your customers get with a cell therapies with your protein. That's that's the name of the game.

Got it. Thanks appreciate the color there that's interesting.

Then you would just what's what's the update on the east partnerships with like a and if you could just talk on the next D.C.D. tests and the pipeline and timing for some launches there. Thanks.

Yes, so we used talk more about the pipeline and they've kind of guide us against that so they they have a good half a dozen things are working on Theres a lot of things a lot of them are smaller orphan like they're very very big unmet needs.

The current businesses and HPV test is going quite well I mean, its strong double digit growth, we're very happy with.

With how they are really.

Prioritizing it so I think our new management team led by Kim Kelder meant I think has helped a lot you know he comes from running genomics for Thermo Fisher has strong relationships industry. So he's helped a lot with moving up the food chain so to speak into the in the Danner organization to try and get get more priority on us and that's worked very well.

So I think we're looking forward to be hopefully working with them on a number of things.

They are not the only game in town Ventana, you know roche's also more and more instead of working and things with US and we're you know we're we're ubiquitous platform. It's it's a kid technology that can work on on multiple instant interpretation platform. So we're we're all working all the all the issues Airseal and it's so far so good it's.

It's still largely an irony you know scope or are you will based business right now and the diagnostic side is still less than 10% of it but you know you give us five years it'll be it will be much more than that so.

Okay, great. Thanks, and then congrats on the final LCD Forever I just have one more question I'm sure if any updated plans to kit this product as well as roll out you know other x's mdx based tests in either either elaborate kit format. Thanks.

While we will get the FDA breakthrough status and that'll help us.

More freedom to a lot of things plus create a lot more credibility with the private payers and such but we don't see any real need to kitted out at this point it couldn't be could be that someday, but there is there's there's plenty of uncharted territory for us right now and not worry about that and you got to remember we're also working now on taking in patients things starting to studies around the bladder indication and Uh huh.

Got kidney rejection ready to go and we have validated test are ready to go to Clinicals with somebody wants to work with us on the blood side for long and for breast. So we've got a strong pipeline, but this platform that we don't have to.

We'll go after any any by addressing capable version of it right now is just theres enough to do.

Great. Thank you.

And we'll take our next question from Paul Knight.

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Hey, Chuck pull night.

Hey, Paul I doing.

Good could you talk about your Ah GMP production facility expansion, specifically a timing, but also will this be a footprint where you can add additional capacity around at once the initial investment is made.

Yeah, as I mentioned earlier some of that answer but.

To expand on it it's it's a 50000 square foot facility.

We bought a building so we could save a year from from doing a greenfield somewhere else that was the main recently ball and we bought it.

In in Saint Paul proper. It was a is an absolute awesome facility for the awaits laid out for us. So we really just kind of fill it with our stuff, which is most of the most of the money [laughter] as you know this stuff expensive to put in there with the large reactors all the sterile piping.

The the in and out rooms, a clean rooms.

It's it looks like a small pharma factory right, it's a bioprocessing factories, what it is.

It is our ready to go on phase one to two roughly $140 million of the capacity at today's kind of pricing goals and with expansion easily the 200 million. If we need to there's plenty of room still in that 50000 that with not utilized we'll be able even do other things there too there's possibly you know other other other real.

Agents, we can work on there are some antibodies profitably their stuff or looking at but Theres also some some room on the site land why is that we can we can build out if we need to so.

This this thing could be really big for us and we don't have to worry about buying another one for quite sometime soon.

And then though regarding a protein simple all your 1600, a placements or is your pulled through.

Growing up could you talk about you know, where you think youre and market penetration as well.

Well were 10% or less than penetration, we feel we seem to no matter whats going on with instruments or whatever being simple western has just been knocking on the part quarter after quarter at I. I think it's because we have more than cross that CASM and is still very underpenetrated.

We are bringing back into the fold in all a lot of big pharma customers that have walked away from a western blot as a process and ending going back to us again, because this work so well, it's so fast if silver liable. So we're actually expanding the market again I think.

1600 is a good number but you know it's roughly if you look at as a compared to what images are out there it's less than turned 10% of installed images in the world. So we think there's a long way to go.

We still a good split between biopharm in Academia I think we're not done until we really see you know.

People, leaving college with this is how they learn how to western blot. When this is the methodology that taught in schools and becomes a standard will know that our job is done and we're a few years off from that so.

Okay. Thank you.

We have no competition with this fall is the only automated western blot platform out there and we see nothing on the horizon.

Do you have to keep adding to the library or with your antibody probes.

You mean in terms of of Western So you are reagent kit.

Yeah. So we're always adding right. So we add roughly 1500, new products a year is split up between antibodies assays and proteins each and every year. So.

We are the company people look to for the newest hardest to make hardest to make bioactive proteins. We've always been utilized that leader and we still crank out new alliances every year.

We are pushing the envelope another ashley, especially multiplexing. So we're trying to extend that category as its multiplicity becomes more and more of a standard.

And antibodies, we we supply a lot through Novus, we have in our catalog over 300000, we we make over 20000 ourselves, but as you know antibodies coming all different applications and.

You know from Westerners to flow to whatever and you know were.

We're the largest catalog we are in the world, we're not the largest provider, but we're in the top five anda.

We've seen double digit growth for quite a few quarters now and we're enjoying it and we think it's going to continue.

Thank you.

We have no further questions at this time I would like to turn the conference back over to check comments for any concluding remarks.

Well.

As as our analysts move around a different companies, we're expecting a few more analysts coming back online and then in the next quarter to so that'll be good but we've enjoyed all your questions and where we're here today and rest of day in America for other calls and one on ones and the reach out to David Clariphy have other other questions you have but other than that will well checking with all.

Have you again next quarter. Thank you.

And once again, ladies and gentlemen that does conclude today's conference. We appreciate your participation today.

Oh.