Q2 2021 Bio-Techne Corp Earnings Call

Thank you.

[music].

Good morning, and welcome to the biotech earnings conference call for the second quarter of fiscal year 'twenty 'twenty. One at this time, all participants have been placed and listen only mode and the call will be opened for questions. Following managements prepared remarks during our Q&A session. Please limit yourself to one question and a follow up I would now like to turn the call over to.

David Clair biotech senior director Investor Relations and corporate development.

Good morning, and thank you for joining us on the call with me. This morning are Chuck come out and Chief Executive Officer, and Jim Hippel, Chief Financial Officer of 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 and.

<unk> beliefs and expectations about the company's future results as well as the potential impact of the COVID-19 pandemic on our operations and financial results the.

The company's 10-K for fiscal year 2020 identifies certain factors that could cause the company's actual results to differ materially from those projected and our forward looking statements made during this call.

The company does not undertake to update any forward looking statements as a result of any new information or future events or developments.

And 10-K as well as the company's other SEC filings are available on the company's website with and its Investor Relations section.

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

Tables reconciling these measures to most comparable GAAP measures are available and the company's press release issued earlier this morning, and the biotech <unk> Corporation website at Www Dot bio dash technique Dot Com I will now turn the call over to Chuck.

Thanks, Dave and good morning, everyone. Thank you for joining us for our second quarter conference call and hoping you and your families have remained safe as we get closer to turning the corner on this horrible pandemic.

And biotech me team delivered another strong quarter accelerating our organic growth year over year to 19% building on the strength, we experienced last quarter and fact, our 19.

Per cent organic growth represents the strongest performance since I joined the company and 2013.

This growth was broad based crosstown and our segments and geographies as our penetration and Biopharma continues to be Red Hot.

And even academia returned to double digit growth.

The new normal and social distancing and staggered shifts has become an accelerant for the continued adoption of several of our technologies, namely simple plex and simple western.

I will dive into the specifics of each of these platforms later, but they're all gaining traction and remain in the early innings of penetrating their large respective markets. We deliver this record organic growth with a continued focus on profitability as our adjusted operating margin improved 530 basis points year over year to 38, 7%. Some of this improvement reflects the timing of high.

Bring and investments to drive future growth, but shows the leverage and profitability inherent in our business model.

The Covid pandemic continues to impact dish traditional ways researchers are staffing labs and conducting experiments as well as the ways. We are interacting with these customers, but I'm encouraged with the innovative solutions researches have leverage to push science further and the innovative strategies. Our commercial teams have implemented to meet their evolving needs and these challenging times academia and.

<unk> is getting better at managing through the Covid related restrictions and we are encouraged with our sequential improvement we experienced in this end market.

While we experienced robust growth with both Biopharma and academia customers and Q2. Both of these end markets remain largely closed to outside visitors, creating challenges for our commercial team to get in front of customers. Our commercial team. Once again did an excellent job adjusting to this new normal leveraging webinars to educate current and potential customers on our portfolio of <unk>.

Agents sell and geron cell and gene therapy solutions tissue biopsy, and spatial analysis solutions and instruments during the quarter our team got even more creative using virtual coffees and happy hours to get increase face time with our customers. These virtual meetings and Webinars and will remain an important and cost effective part of our commercial strategy for the remainder of the pandemic and beyond.

Our digital marketing initiatives remain an important tool to differentiate and biotech me educate the scientific community on our portfolio of innovative and product productivity, enabling tools drive traffic to our website and ultimately convert this traffic to revenue. These digital efforts have become an increasingly more effective tool during the COVID-19 pandemic and we continued to execute this strategy at a high level.

And Q2 <unk>.

Researchers often begin their quest for reagents and research productivity tools and with an internet search so ensuring biotech thing is one of the top results and these searches is critical to drive traffic to our website convert these visits to sales of our products leveraging search engine optimization and targeted AD strategies remain a key component of our digital strategy and both continued to generate high returns on investment with them.

And outsize impact on sales within our antibody and protein portfolio.

Last quarter, we announced the launch of one web and new website that unites all of biotech. These brands under one easiest and navigate site, enabling our customers to order products across our instrument and reagent portfolio and one website, while leveraging algorithms to drive purchases across our portfolio and position the business to realize realize increased revenue synergies we began a ski.

<unk> launch of one web and November and initial customer feedback as well as traffic to our website has been positive.

One web paired with our SCO and targeted AD efforts drove double digit growth this quarter in and a number of sessions page views newsy and user and.

And repeat users on our web site given the correlation of our revenue growth. This quarter. Our strategy is clearly generating results and we will continue to pull this growth lever going forward.

Now, let's discuss performance of our growth side from a starting with protein Sciences segment, which grew 19% organically for the quarter.

Growth was strong across our core reagent portfolio with both how are you all proteins and antibodies growing low double digits. In addition to the impact of academic labs reopening and our digital initiatives. Our reagent business also experienced a favorable tailwind from custom work from biopharma customers and need of additional protein or antibody capacity, our customer reagent development business and.

Kris over 60% in the quarter and we are leveraging multiple strategies to capitalize on this outsourcing trend going forward.

During Q2, we continued to push our cell and gene therapy initiatives forward one of the key components within our LNG and therapy business is GMP proteins with these cytokines and growth factors, playing a critical role and our cell and gene therapy workflow revenue generated from our portfolio of GMP proteins. Once again increased nearly 100% and Q2.

Call that we recently opened a 61000 square foot state of the art GMP reagent manufacturing facility to address the expected demand for GMP proteins and reagents as a growing pipeline of cell and gene therapeutics progress through the regulatory approval process. We.

We made significant progress qualifying the facility and have begun manufacturing production lots of select GMP proteins.

We also executed our second long term GMP protein supply agreement and the quarter, we remain in various stages of discussion with several other biotech companies with pipeline and cell and gene therapies for future potential long term GMP protein supply agreements and are very pleased with the funnel of potential deal.

Sticking with cell and gene therapy are genome engineering services business, which includes our non viral vector based gene transfer technology T. C. Buster continues to gain attention from our cell and gene therapy industry. I would also note. We are seeing a growing list of collaborators and positive feedback on clouds, our non magnetic bead based self.

Operation Technology for human T cell natural killer cells, and human regulatory T cell T. Reg activation and expansion kits. We're still in the early early innings of both T C Buster and clouds, but both of these innovative cell and gene therapy workflow technologies remain important pieces of our cell and gene therapy work Force solutions.

Scale ready, our JV with Fresenius Kabi, and Wilson Wolf formally launched at the beginning of calendar 2021, with the mission of providing the most simple scalable and versatile cell and gene therapy manufacturing platform in the industry. As a reminder, this consortium pairs biotech and portfolio of cell and gene therapy workflow solutions, including our cloud cell separation and <unk>.

Activation technology, GMP proteins, and genome engineering services, with Fresenius, Kabi, and Leukapheresis instrument, and Wilson and wealth bioreactor to enable a modular cost efficient workflow solution. The scale ready website is up and running and the commercial team began its initial customer outreach campaign, including initial contact to over 600 <unk>.

History participants and almost 250 gene and therapies companies.

Also during Q2 biotech and made an initial strategic investment and change out eminence biotech nature Biotechnology company and China based life Science company with best in class media, including show sales and other serum free media products as well as custom cell line and media formulation development services and then for US the financing pro.

Seeds to expand its manufacturing capacity and increase the service capabilities of its China headquarter GMP media production facility.

Investing and eminence expands biotech things foothold and providing additional products and services to support the needs of the rapidly growing Chinese biopharmaceutical industry and fits extremely well with our existing high growth product portfolio and China, we look forward to working with him and his team.

Now let's discuss.

<unk>, our proteomics analytical tools portion of the protein Sciences segment, where the strong momentum. We saw in Q1 continued with our portfolio of instruments and assays, enabling research labs to increase productivity, while adhering to social distancing and staggered work shift protocols.

And once again, we experienced very strong growth and our simple plex multiplexing, Elias and spent ela or revenue almost doubled year over year encouragingly simple plex utilization within our customer base continued to diversify.

And as researchers leveraged ela to investigate inflammation cancer, and neuroscience and other disease states and biological pathways.

It was relatively small footprint low price point sub picogram level sensitivity and reproducibility is driving both instrument placements and consumable pull through our clinical program with micro point and China is on track, which speaks to the incredible diversity is capable of we are now taking <unk> through a 500 10-K process and the U S.

Which one lakh new clinical opportunities for this amazing platform.

It was a similar story with our automated western instrument portfolio, where we grew almost 30% and the quarter are Jeff and west automated western platforms turn the labor intensive messy inconsistent cumbersome manual western blot process.

Which can take up to two days into a fully automated reproducible sample to answer three hour process.

And this value proposition has been resonating incredibly well with researchers as they returned to the bench.

And with our solutions less and 15% penetrated and the addressable market. There is plenty of room for continued growth.

Our biologics instruments, which provide protein parity information and are used directly and bio processing also had a standout quarter as we experienced broad demand from biopharma, including several companies with COVID-19, vaccines and various stages of development or commercialization as well as continued interest from companies working on cell and gene therapies.

Now I will provide an update on our diagnostics and genomics portfolio where organic growth.

Revenue also increased 19% and Q2.

Let's start with an update on our ACD or tissue pathology franchise, where organic revenue increased in the upper 20% range for the quarter. This growth was broad based across geographies and product lines, including very strong performances from.

Micro RNA scope following its launch this past summer as Rolf baseball and momentum we.

We experienced and RNA scope last quarter continued in Q2 as a single cell spatial resolution and high sensitivity provided by this technology continues to drive market adoption.

Biopharma is need for increased productivity, while working with preliminary or staggered shifts remains a tailwind for pis or pharma assets services business within ACD.

Our biopharma outsourcing there a spatial genomics genomic analysis have drove over 40% growth and this business and the first half of fiscal year 'twenty one.

Now, let's discuss our Exosomes diagnostics business, starting with our prostate cancer liquid biopsy assay, the extra Dx prostate test and.

Encouragingly, we believe most of the urology practices across the country have reopened and we experienced another sequential increase and our prostate test volume.

But patient traffic is still down from last year as older patients are more likely to quarantine at home until they become vaccinated.

We expect urology practice traffic to continue to improve as vaccines make their way into this segment of the population, which in turn should have a positive impact on our extra dx prostate and testing volumes in the meantime, our home could version of the test continues to be the safest solution for patients to continue to work with they write Theyre rheology.

Recall that we partnered with baseball Hall of Famer Cal Ripken junior to per to co promote our exo Dx prostate test following his personal prostate cancer journey, including his use of the extra Dx prostate tests, which ultimately influences potentially lifesaving decision to get into Biopsied and led to discovery of aggressive prostate cancer.

The marketing campaign continues to be successfully leveraged across all social media platforms and channels and is driving traffic to the fight like Hell page on the Exo Dx website, where we saw page visits increase of our <unk> hundred percent sequentially.

We also launched a physician locator function on the Exo Dx website, enabling patients interested and taken a test to find physicians offering the test and their respective cities.

Our Exosomes diagnostics platform is not just limited to our extra Dx prostate tests.

There is a full pipeline of high value diagnostic tests with our XO true kidney transplant rejection assay next in line for commercialization, we expect XO true to become an important tool and the management of kidney transplant patients with its easy to collect ear and based sampling sample, enabling increased adherence to testing protocols.

We completed verification of the assay and have optimized the workflow initial XO true data has been accepted for publication and a well respected medical journal and we anticipate publication and the coming weeks.

Despite generally soft non COVID-19 related diagnostic testing volumes are diagnostic reagents division once again delivered a solid quarter with organic revenue, increasing and the upper single digits. This is actually a six quarter and a role that our diagnostic reagents Division has delivered positive growth is the development pipeline and to a lesser extent COVID-19 related opportunities.

To bear fruit and smooth out the impact of what can sometimes be a lumpy bulk reagents order.

I'd like to now give an update on our COVID-19 initiatives.

The products, we sell are directly related to Covid research for example, reagents and instruments with specific from viral research applications, ACD probes and deductive detect the virus and tissue and sales of bulk diagnostic reagents used and Covid testing applications was an estimated 3% tailwind to our business from Q2, we expect that research and Covid will be.

Around for many years with us, making this tailwind of sustaining new layer of our product portfolio going forward.

We continued to make progress with the commercialization of the COVID-19, serology assay that we co developed with <unk> Biosciences based on Mount Sinai and technology that can taro serology assay is a truly differentiated tests, providing not only information on the presence of COVID-19 antibodies, but also the level of titer of those antibodies.

In November the Kentaro Covid Cyril clear assay received EUA approval as a semi quantitative assay and we have submitted additional data to the FDA supporting a full quantitative claim as we receive and Europe with a CE mark.

We have commercial agreements and all set up and many countries and are in discussions with many U S. Based lab systems to date most of the demand for COVID-19 testing has been PCR base geared towards answering the question and my infected with COVID-19.

Now the vaccines are becoming available with while the virus continues to mutate, we believe demand for serology testing will increase as patient slipped to answer the question and my immune.

Ultimately following a full FDA quantitative claim we believe the cantero assay will be able to answer. This important question August to return to the pre COVID-19 lifestyle. We're all looking forward to.

Yeah.

Our Q2 is evidence of the growth we are starting to unlock with our portfolio of proteomics analytical instruments tissue pathology and spatial genomics products cell and gene therapy workflow solutions and liquid biopsy diagnostics. These large high growth end markets remain underpenetrated and we're in the early innings evenings and realizing the full potential of these growth.

Technologies and platforms layer onto these.

The content and cross divisional synergies inherent in our core reagent portfolio and I'm increasingly confident and our ability to deliver our long term revenue and profitability targets I'm extremely proud of the execution via the biotech team delivered during the first half of our fiscal 'twenty and 'twenty, one and we're looking forward to building on this success and the second half of 2021 and beyond with that I'll turn it over.

Jim.

Thanks, Chuck and I will provide an overview of our Q2 fiscal 'twenty, one and financial performance for the total company provide some additional color on the performance of each of our segments and give some thoughts and the remainder of our fiscal 2021.

Starting with the overall second quarter financial performance adjusted EPS was $1 62 versus $1 eight one year ago and increase of 50% over last year.

Representing a new company record.

Foreign exchange positively impacted EPS by <unk> <unk>.

GAAP EPS for the quarter was $1 15, compared to 302 and the prior year, representing a 62% decrease our GAAP EPS results from the second quarter of last year benefited from a favorable realized and unrealized gain on our investment and chemo centrex.

Q2 revenue was $224 3 million and increase of 21% year over year on a reported basis and 19% on an organic basis Foreign exchange translation had a favorable two per cent impact on our revenue.

Our strong growth in Q2 was fairly consistent across the globe ranging from a high teens and the U S 25% organic growth in China.

By end market Biopharma growth was very strong and over 20% and it was nice to see academia continued to improve growing the low teens during the second quarter.

Moving on to the details of the P&L total company adjusted gross margin was 71, 5% and the quarter compared to 76.

6% and the prior year the.

The increase was primarily driven by favorable volume leverage.

Adjusted SG&A in Q2 was 25, 2% of revenue of 310 basis point decrease compared to the prior year and R&D expense in Q2 was seven 5% of revenue 140 basis points lower than the prior year.

While our adjusted SG&A and R&D spend both increased sequentially and compared to the prior year.

Tight labor market and the life science space did not allow us to fill all head count additions to the team at the pace, we'd originally anticipated.

And the continued improvement we are seeing and our end markets. We still plan to fill these positions and continue with investments and position the company for growth going forward.

The resulting adjusted operating margin for Q2 was 38, 7% and increase of 530 basis points from the prior year period, and a 50 basis point sequential improvement from Q1.

Looking at our numbers below operating income net interest expense in Q2 was $3 4 million decreasing $1 1 million compared to the prior year.

The decrease was due to a continued reduction of our bank debt during fiscal 'twenty, one as well as lower floating interest rates.

Our bank debt on the balance sheet as of the end of Q2 stood at $231 5 million.

Other adjusted net operating expense was $1 3 million for the quarter compared to $2 5 million expense from the prior year.

Primarily reflecting the foreign exchange impact related to a cash pooling arrangements.

For GAAP reporting other non operating income includes unrealized gains from our investment and chemo centrex.

Moving further down the P&L, our adjusted effective tax rate in Q2 was 26% a 120 basis point improvement over the prior year with the improvement primarily driven by geographic mix.

We expect our effective tax rate going forward to be consistent with Q2, barring no changes and corporate tax law.

As Chuck mentioned during Q2, we made a strategic equity investment and China based eminence, a company focused on providing media as well as custom cell line development and media formulation services to the Chinese biopharmaceutical market.

The $130000 Noncontrolling interest line item reflects one month loss from a portion of the eminence, we didn't we did not own.

The impact the impact to other lines of the P&L as.

As a result of consolidating imminence was immaterial in Q2.

Turning to cash flow and return of capital a record $89 3 million of cash was generated from operations and the quarter and Q2, our net investment and capital expenditures was $11 4 million, primarily driven by the completion of our new GMP protein factory.

And during Q2, we returned capital to shareholders with $12 4 million of dividends.

We finished the quarter with $40 3 million average diluted shares outstanding.

Our balance sheet remains very strong with 283 million and cash and short term available for sale investments and a total leverage ratio of well under one times EBITDA.

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

Q2 reported sales were $172 2 million with reported revenue increasing 22%.

Organic growth increased 19% with foreign exchange, having a favorable impact of 3% on revenue growth.

Within this segment the strong growth was very broad based with double digit growth and nearly all reagent assay and instrument platforms.

As Chuck described in his remarks platforms of Noble mentioned includes simple plex, simple western and biologics and cell and gene therapy, especially pertaining to GMP proteins.

Operating margin for the protein Sciences segment was 46, 6% and increase of 360 basis points year over year, due primarily to favorable volume leverage and cost management.

Turning to the diagnostics and genomics segment Q2 reported sales were $52 5 million with reported.

Revenue increasing 20%.

Organic growth for the segment was 19% with foreign exchange translation, having a stable 1% impact on revenue.

Similar to Q1, our genomics division led the segment and the quarter.

We experienced strength across the entire ACD branded portfolio with micro RNA scope based scope and our diagnostics partnership with Leica being honorable mention.

Also a driver of growth for diagnostics and genomics and <unk> diagnostics Q2 revenue increased over 100% from last year with higher collections from Medicare and private payers and patient cash collections driving the year over year increase.

And as Chuck mentioned, our diagnostic reagents division continued its growth streak by executing on COVID-19 related opportunities to offset the headwinds many of the traditional OEM diagnostic customers are facing with patients foregoing routine visits to the doctor.

Okay.

Moving onto the diagnostics and genomics segment operating margin at 15, 5%. This segment's operating margin improved from 200 and from two 2% reported and the prior year.

The increase reflects favorable volume leverage and our genomics division less dilution from Exosomes diagnostics as well as strong cost management.

In summary, our fiscal 2021 is off to a great start with 15% organic revenue growth during the first half of the fiscal year. Our results. Thus far have demonstrated that our portfolio of products and solution offerings are more relevant than ever to our customers who are on the front lines of diagnosing and developing cures for disease.

We believe that the current pandemic has only strengthened the resolve of our customers to accelerate their great work and we will continue to do everything and are powered to provide and the tools to help them succeed.

Thus, we see the current momentum of our business continuing and the back half of our fiscal year.

However to support our customer's needs beyond the remainder of this fiscal year, we need to catch up on our investments and our product pipelines and post sales service and support while continuing to invest and customer engagement activities, especially those of a digital nature.

We started to make progress with these additional investments and Q2.

But intend to accelerate back to our plan and the back half of the year.

If successful these investments may slightly lower operating margin from its level and the first half of the fiscal year, but will position us well for our long term strategic plan of continued double digit growth for years to come.

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

At this time and will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue.

You May press star two if he would like to remove your question from the queue from participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys and just as a reminder, we ask everyone asking a question to only ask one question and one follow up question.

One moment, please while we poll for questions.

And our first question is from two.

So and each Subaru with SBB Leerink. Please proceed with your question.

Great Thanks and.

Congrats on this and strong quarter.

<unk> of growth here and protein sciences and across the board.

First of all could you provide sort of the contribution that we're seeing it from GMP proteins, and and cell and gene therapy and sort of how should we think about that for the full year here given the momentum that youre seeing so far.

Yeah, sure well, we're not going to give too much and drill in the weeds detail on it and we've been talking about just growing 100% we've talked in the past of being a 30 million dollar type portfolio with most of that being CRM right now and we were running and pretty much a run rate on proteins at $10 million and we gave you. We gave you the growth rates in there.

We have the ability to increase capacity and to increase and I guess, we make here at the headquarters by a factor of four if we need to so were good while we take the time to qualify the new the new site, which is going along really well.

Again, we've talked in the past about this $10 million and GMP proteins growing to maybe 20 next year and and doubling and after that and then hopefully it really starts ramping once you start getting the production side of the of the.

And the therapeutics as they come out of the back into clinical.

The rest of the portfolio, it's kind of hard to say, we had a great quarter for both acceptance for both clouds and for TC Buster and we talked about we're getting and awful lot of.

And new.

Revenue to get a look at these technologies and do preclinical with us. So we're pretty excited on the teams create sites the best quarter, we've already had for TC Buster, we're actually working on expanding the site already and we're making it so it's a bit of a surprise. So fast so it's kind of hard puneet I tell you it's going to be next year, but I think probably double what it was this year and prop.

Double again next year after that and and we as we've said and our five year outlook here in our and our $1 5 billion goal, we see a $300 million business is what we see so it'll be consisting of a bunch of components and 150 or so at least and GMP proteins, but the rest are sort of between clouds.

Buster instrumentation.

And for technologies for spatial cell analysis.

Ella testing for QC testing and the workflow and all of these bits and pieces roll up to 300, and you know, we're probably a year away from giving any more real and doing a real detailed guesses and just what the rest of these look like I think the safest one as a GMP protein piece right now.

Got it that's very helpful.

On.

This was a really strong quarter again, I think you pointed that out and past couple of quarters too obviously.

And that product line is gaining significant traction here.

Can you give us a sense of where this business could be I mean, this is a competitive a license market. After all so where it could be and and what are the other key initiatives that you have and including the 505 10-K approval that you are submitting for and in that same context. If you could just help us understand.

And I mean, there's quite a bit of momentum right now and toward the all makes obviously biotech knee is.

Core to proteomics and you are one of the leaders across the board.

And antibodies proteins cytokines and book.

And broadly across proteomics, so maybe just help us understand where that could.

Where this business could be the protein sciences business overall, and the proteomics business could be overall and sort of longer term and your timeframe.

Well, it's it's growing beyond our expectations and clearly.

Super well positioned and proteomics and as the as the wave of research and hits and this is golden era keeps growing and.

And the and money is siphoned off and stimulus plans for more you know pandemic relief and and pandemic research and so it never happens again, we're going to be a big beneficiary.

We're seeing we're really seeing a lift and every part of our business and every geography. It was just astounding and I don't think I've ever seen and more green dashboard and so in my career. It is hard to pin down what's COVID-19 and what's just research now we've dug into you know into what's going on with our customers and they are certainly bigger biopharma are investing more there.

And the cash there and the ones that a vaccine makers are obviously doing more.

Companies that are that are doing well off COVID-19 are taking that cash and in and doing more R&D and and whether it's more R&D and more research we're benefiting.

I've always said that simple plex is a sleeper right and the dead for a few years now and if it keeps growing at or near 100%, it's going to be really big really soon so.

We've now we're now well over 500 instruments placed worldwide, which is a lot. This is an amazing machine and it just does a lot for what for the money. It just it's just an amazing piece of technology from an amazing team that was worked on it for many years before we acquired the company.

I think that was seen by micro point early on and China, and where we're on track with their or their clinical and.

This could be that deal alone could be $100 million and revenue and $3 four years, if they hit their targets. This is a guy that did mine right. So he has a lot of credibility.

He is very interested and making a and <unk> a very standardized patient monitoring platform for for large hospital systems in China, and there's a lot of them were taken and three to 500 10-K process here and the U S, where we can try to listen more interest like micro point in China and micro point is going to do all the FDA themselves and their X.

They are doing the dhamma panels, they're doing everything here you know I don't know if we were probably not something to do all that ourselves and we'll do the 500 10-K, we're going to do it off of standard.

Our standard analytes, something well known and we get through the system and then and we are talking to potential interested parties, but this thing has got legs, and it's got legs and neuroscience, it's got legs and in oncology and <unk>.

Anywhere that there's just proteomics needs.

<unk> to be testing Biomarkers and all this is that this is the machine.

As you know the competition is out there and our multiplex format I, starting with Illumina X, we're partners with them as well, but we don't have cross talk with our platform and now we're increasing the the channel. So we're at eight and we maybe could go higher but at eight that's kind of sweet part three point and to have eight channels with no cross talk with a type of pseudo noise, we have with this machine.

And then only one hour sample to answer it's kind of unheard of.

And of course, Theres, others Meso scale I think.

We got from work due to crack where meso scale really really hit because they've got a full workflow with.

And with software and as Rudy is integrated into the workflows of their customers and we've probably got more of a standalone box you've got to get better at that piece of it and we're working on that and.

And of course, there is the whole clinical side does this thing really could be a point of care and machine. We're working on a four by eight.

Cartridge sourcing that you won't have to queue up a lot of test and in order to run it and.

And I, just I see a strong strong future and he asks what it could become I think this is a $2 million to $300 million business and five years to be honest or more it could be much bigger it depends on the.

And the acceptance and how well, we keep diversifying into the into new applications, but.

Automated Elisa.

Multiplex based proteomics biomarker and biomarker research. It's as you just said it's all the range right now it's night and it's accelerating not not not leveling out so we see a strong future and this platform, we're not surprised by the 100% growth even though this thing it's already a big platform.

Is there anything we also we had in the original protein simple segment, including simple western and now it's getting there keeps growing where it is it will be the biggest very soon.

That's super helpful. Chuck and thanks for all the details and and if I could squeeze last one and.

For Jim Jim I appreciate the investments into evidence and obviously, the GMP facility, which is.

Delivering growth now and when you look at.

On the acquisitions front and organic growth. We just we have not seen much on that and lately is that largely a function of the valuations and the space or anything else or a certain specific areas that are sort.

More and more challenging versus versus attractive just walk us through your assumptions there because obviously, that's an important part of what biotech and he has done and passed.

Yeah, what I'd say on the valuation from what is that you know the valuation that there had been a challenge for many years, if that's really nothing new.

It's really the ebbs and flows of the deal flow and what's what's coming out of available and I think for a lot of 2020, probably the pandemic being a good reason why the flow wasn't as strong as it had been and prior years, but and the last several months, we're starting to see that turnaround and seen a lot more a lot more deal flow a lot more interesting targets. So you know.

Hard to predict because there's a lot of.

The stars that need to align but I would predict that we will see more activity by us on that front and the remainder of calendar 'twenty, one and we saw last year.

Okay, great. Okay. Thanks, guys, congrats and thanks.

Thanks Denis.

Yeah.

And our next question is from Catherine Schulte with Baird. Please proceed with your question.

Hey, guys congrats on the strong quarter and thanks for the questions. I guess first just as you think about the outlook for fiscal 'twenty, one and you know last quarter, you talked about and maybe it.

At 10% to 15% range for the year. So just curious if you had and updated thought on and where you should end up in that range or if we should be thinking about any range given the strong performance you saw this quarter.

Sure.

I'm not sure who was noted was this morning and talking about clearing 15 plus percent for the year. We stayed away from that we certainly we're bullish on.

Ending up double digit again, we left our comments at the continue the momentum and the momentum is 15% to half year and we have the easiest comps ahead of us this fiscal year. So and you can do the math from that but yeah, we're pretty bullish at continuing at the levels, we're at or even better to be honest. So at this point.

Okay, and you've talked about some research labs, and perhaps need to buy a second version of things given social distancing and building out and secondary labs and how much of the rebound that Ian do you think is related to perhaps some of that stocking are built out dynamic.

There's a little bit of stocking.

After last quarter and and these these blow out results and and we don't have much.

Covid and.

Our numbers, yet Covid is all still coming for us hopefully with serology.

You did a big deep dive really globally and know what the health going on and why are we doing so well and so we did it and we really didn't account by account customer by customer breakdown by segment of how we're doing and why and there's really no silver bullet.

We're up a vaccine makers for obvious reasons.

We're up a biopharma for a lot of reasons, we talked about but there's been more OEM work as well.

They're they're all having a pretty good year for their outsourcing more so we've had more and more custom work given to us academia.

Academia has been certainly the duplicity issue and some surge come back and maybe some some budget flushing and on a multiple fronts to be honest, we discovered some I think non material I mean, it's not like it's half our growth or a third or fourth but theres a little there and its really as some other parts is what it comes down to for US no silver bullet.

Not all Covid, if not all anything but it is a rising tide.

Really thats just research is doing really well on all fronts for us.

And now we've been we're perfectly positioned as Puneet said earlier, I mean, and proteomics, it's just where we're and the right spot right now and whether you are buying antibodies to make COVID-19 tests or you.

Your need overflow help because all your gear.

Your stacked with.

With work and capacity to develop vaccines or your academic institutions that are staggering and you're building out new labs, and you've got to buy more equipment and preferably equivalents that's productivity Inc.

<unk> like ours and Knoxville expenses.

And that's that's kind of where it's all coming from and and our reagents to Ari its broad based even alive and one thing and we can always go back to and just look at our our good old Elisa kits and I'll just.

Q kits 35 years old and they kind of ebb and flow of projects and kind of the health of our projects and Biopharma.

This best best year in years. So it just kind of speaks to the broad based growth and were not the only company talking about it right everyone's everyone's riding this wave right now and we're just happy riding a little higher than most which is great for us.

Okay and last one from me and just on the XL kidney transplant test you talked about publication and the next few weeks and what's the path forward for that cash and how should we think about potential launch timing there yeah.

Yeah, I really was hoping that we'd be talking about that publication by now it's a really is imminent, it's who should be days not weeks, but who knows.

The data looks fantastic if we David had been published we could talk about the data. It's it's very good data. It is the first peer review article we need to get a second we need to do and outcomes test and there's work to be done before we start going after.

<unk> approach or working with a Mac or get started but we're on the path and we think were at a year or less here of getting into early access selling and this thing probably a good year away from a crosswalk or anything but we will see we're also looking at partnerships as well.

And and we're also looking at the other Macs and using the same when we did prostate through so we've got a lot going on here. It is.

Just a bit and going very well that platform is astounding. It works so well it's amazing as you know Exosomes. We feel is the best in class for liquid biopsy and.

The data is going to prove it here when you start seeing some of it and other it's a big market.

There arent the same kind of barriers liking it and we have with prostate and urologists.

Oh.

Oregon centers and.

And theyre not from any of them. So theyre not so hard to go after and in terms of the commercial attack.

And.

It's a big need I mean, it's a horrible thing to have to be given the you know and new kidney and then and lose it or to damage it through biopsies or other testing that as you work because you're worried about rejection and you don't have all of these of all these are rejected and within 10 years. So this is a tool that really has been needed and you know it's <unk>.

And a cup and it can be sent in and doesn't have to be done with the.

And with a non contact flow phlebotomist or something so we see a lot of upside and the the price the cost first and the price second is going to be I think and really good compared to what's out there now.

Alright, great. Thank you.

And our next question is from Alex Nowak with Craig Hallum. Please proceed with your question.

Great Good morning, everyone.

Vaccines are being administered now mark from and so and it looks like immunity to a particular variant actually it might last pretty long, but then we're seeing new variants that come out the lower the overall efficacy. So I guess my question is how is the vaccine rollout and the emergence of this new <unk> change your thinking around the scope.

Quantitative Covid antibody test and then you mentioned and in the prepared remarks, but where do you stand with partner and this test with the vaccine companies and then just separately the diagnostic labs.

Yeah, well as you know Alex we've had this test kind of ready to go and sell.

Late last spring.

And there's been a I guess, a lot of flutter and cluttered with the FDA and the and a lot of.

<unk> that came out early on non qualitative versions of serology, and and and Theres a bit of a hill to climb here for.

If we're getting accepted.

And there won't be real demand until there's enough vaccine out there enough people vaccine to create that demand, where they're calling their doctor to find out how do I find out if I and immune or not can I see my grandkids are not.

People want to go back to concerts and get on planes and get on trains and B and you know being malls again and.

And it's going to feel really good until they know they feel safe and this is without a variant and this is the auto mutation.

And all were tied at the hip with Mount Sinai and they've got the longest range testing known here on an annuity and now we're running at like seven or eight months and they don't see a reduction and immunity with antibodies yet.

But.

The powers to be there do feel that it will follow the corona family and it'll be variable of individual but between probably one and two years of immunity, but not forever. If it doesn't mutate that means a booster. It mutates then we're kind of Denmark kind of looking at a flu every year kind of thing right. So and yet and then we're trying to hit a moving target like flu does which is harder.

All of that speaks to the more of a need to serology people are going to want to know consistently are they are they immune and do not be surprised if and a year or two on your app on your phone, you're carrying and and immunity passport and how youre doing with Covid. So you can be lead onto whatever led into whatever all of that technology is coming in and and it's not coming.

And one one full flush which is a problem and everything slower than we want.

And vaccinations are going slow by summer, we're not going to be probably at herd immunity, yet we're not going to be at a point where enough people to vaccinate wearable and feel safe theres going to be a growing and growing demand for serology and we're hoping to get our our quantitative claim to be the only one given by the FDA very soon.

All the data is submitted we have actually from the <unk>. We have a we have the sample that'll give us the means to actually quantitate or our standard curve to there. So there can be and international standard that the FDA is looking for to get behind.

Alright, and the thick of it and we've got great partners with non Sinai. So I do expect we'll get through it and.

And you know over a year, we are probably the only one but we will be a very will be the first one would be a very good one, but I think serology will be on the rise.

I think I think people and PCR I think it's not going away either it's going to be a much slower tailed and people think you probably heard that and other calls this week.

Unfortunately, we're turning the curve, but its going to be a long tail on getting back to normality and.

And then we're going to get a piece of this is probably nothing to the extent of some of these some of the.

Companies are they are answering the question and <unk>, but but you know we're a research company <unk>. This is all gravy for US we expect to be helping and we know we're going to have a great <unk>.

Great piece of science to you know to help with.

Thanks Chuck.

That's very helpful and maybe to expand on the more macro lifestyle and life science funding flush that youre seeing here. So right now Washington is hashing out the Covid stimulus plan.

And what specifically are you hearing in that plan that could be fund that could be deployed for life Science research funding and per.

And how lumpy that benefit last and then I guess the same question, but directed more towards China. Other claims with the next five year plan are you hearing anything in particular there.

Well I will start reverse.

China and that really good at and laying out what theyre going to do.

But.

And when we're looking at I think the 14th version of our five year plan. What typically happens is year, one is little bit soft and year two it kicks into high gear year, five is a bit softer too and we had a bit we had a bit and we'll call. It budget flush over there too because they are also changing some.

Some tax consequences. There. So I think everybody that had strong instrument results and China, probably we're seeing a little bit pull forward from that havent seen them much mentioned, but we certainly saw it and we will admit to it.

But I think.

I think it's going to be it's going to be really good and the next plan for China, I think health care is still way behind where they are and other parts of their economy and their industry and it's a lagging industry and you know and now more than ever with Covid and they certainly don't want to see a pandemic hit there that people want health care and life Sciences is on the rise still and that's why we continue.

And to see 25% or better growth and we will for a long time I think.

I think as far as our government is concerned whether it ends up being $600 million more or 1 billion more or $1 9 billion. There is going to definitely be portions of this that are that are giving us grants and been done for pandemic.

Research and and which really is infectious diseases, which there really hasnt been a whole lot of them. Most of the NIH. As you know is really focus more on oncology neuroscience and different areas like that I mean, and as I've mentioned, often Neal and when's. The last time, you paid more than a dollar for an antibiotic.

And we're behind and a lot of areas around infections, and I think there'll be a lot of overflow and a halo effect from stimulus I think that's one reason that's the official NIH budget for this year and now looks at looking at 3% I think they are all holding off until they see what's going to really drift out around these stimulus packages into the science community, which I think there'll be some it's hard to quantify.

And I think there'll be some and if theres not.

You'll see you'll see more.

More pressure from the NIH.

Get more I think.

Okay, great. Thanks, guys I appreciate it.

And our next question is from Dan Arias with Stifel. Please proceed with your question.

Good morning, guys. Thanks, Chuck on the GMP proteins business, you've talked about pharma customers looking for a provider that can handle some pretty large orders there multimillion dollars lots do you have some of these and the pipeline, whereas you know semi firm commitments at this point.

And then when we think about what you are prepared to do in terms of <unk>.

Supply and here and initial days with the new facility. What is the plan for scaling up that portfolio. It sounds like the idea is to kind of start off with a couple of key molecules.

And then work from there so I'm just curious what the portfolio expansion ramp looks like and whether Thats, what you really need in order to sort of drive the acceleration that you've talked about recently.

Sure, while we landed our second and these contracts are they started years ago with these guys coming to us and asking and now we.

And buying proteins from you forever and we buy them and you know small lots and you know, we're probably a large customer for you at maybe a half million dollars a year, if we get into cell and gene therapies, and we need proteins as part of the workflow, we need something like probably 10 or more million dollars a year could you do that and back then we all we can say.

It was no we couldnt.

So now fast forward here. This is we're building a factory even there we've improved our current site at headquarters.

We can we can do probably upwards of about $40 million or so annually of GMP proteins here.

And so we've done a lot good job, there and and that's going to fill the gap, while we qualified as factory and wait for the large orders because we're not going to have a large a large venue and large catalog here, we're going to have you're making.

Far less than 50 different proteins. There we are qualifying on the major runners and you can guess what they are you know they start with and IL.

And.

And we'll go from there. Both these first two customers have needs of over $10 million a year and.

And we are in negotiation with at least a half a dozen other and I wont tell you, who but one of them has a need for $50 million a year.

And what we've done with these customers because it's hard for them to get to give us a forecast.

We've talked a weighted contractors that we're demanding 95% of their volume.

But whatever they end up needing its really an unknown right now how these things take off when they when they come out what the forecast is going to be what's the ramp how do we plan for it and they know what to they know it's frustrating for us because how do you prepare.

<unk> always done and has turned to our contracting towards you know we want to see a range of true need will be there. We don't know when but we expect 95% of your volume that's contracted.

So that's kind of the gist of how we're doing business.

And these call them eight customers with swamp us out for years, if they hit their forecast just fees and there is another there is another 50 to 100 after that so we're not concerned about filling this factory eventually.

Yes, okay.

Okay, and then maybe on the IP side.

So my other comments, you've made thus far leaving aside the doctor visit dynamic and just the challenges related to the pandemic.

And what do you think the things are that the urology community needs to see this year in order to really feel like this is a test that sort of a.

And must use option and rather than a nice to have option.

These and additional data and publications that are being seen by a sales rep now that you've kind of solidify the use case, a little bit I'm curious about what you think at this point, given where we are really kind of fulfills the dream here.

I know your latter comment I think the the utilities the outcome studies, that's what the large payers are looking more for and we're probably halfway there and we are very close to landing one of the majors can't stay that way that is either but we're hopefully it's imminent.

And when we get one we will get more but that's what they're looking for is the outcomes how does it really save money for the industry right and.

And save more lives urologists.

You know we've.

We've sold through roughly 2500 of them and there's about 20000 and so we've got a lot of work to do and all of that 2500, 77% of Reorders. So once theyre in it. They believe it I think iridium is more of a commercial issue of getting in front of them and get them selling.

And I think the home kit fill and part of the GAAP and certainly Kal is helping a lot.

We have some great kols, we're going to get back and front of NGF here in February for reconsideration, and that's going to help quite a bit I think that'll be a positive story.

But I think it's a grind.

I think these urologists like a lot of different specialty doctors, they're hard to convert.

I am certain a large portion of them enjoy their 500 dollar a piece biopsies and know that they're mostly negative and don't care.

It's just the state of the business, we have to grind through and we have to we have to almost shame them into moving into this methodology, because it's better for the patient ease.

Even though it's less revenue for them and.

And the better I'll, just get it and they are onboard and where we're converting them, but I'm not and it's not going to be a one year event here. So.

Okay.

Yep, Okay very good thanks Chuck.

And our next question is from Jacob Johnson with Stephens. Please proceed with your other question.

Hey, Thanks, and I'll add my congrats on a really nice quarter just Chuck one question on the outlook for this year and I want to make sure I'm clear on your comment earlier Youre lapping a I think a similar organic growth quarter.

Organic growth number next quarter, and then obviously a much easier comp and the fourth quarter is there any reason and organic growth shouldn't be at this 19% level like this quarter or potentially higher and the next couple of quarters.

And I'll, let my esteemed CFO answer that one for you Yeah, Hi, Jacob.

And the way, we're thinking of the way we're thinking about the forecast is more about from the current momentum we have and the business and the sequential that momentum going forward.

And as opposed to year over year growth rates, because it gets wonky, especially in Q4 for us with the with what happened in Q4 last year.

The way, we're thinking about it is that the momentum from an absolute revenue perspective, continuing if history is any guide usually our Q3 and Q4, our fiscal Q3, and Q4 are slightly higher than our second quarter, and if nothing else because theres less holidays within those quarters as there are in the and the.

November and December timeframe, so that's kind of how we're thinking about it we think the momentum that we saw that the step up and momentum that we saw in absolute terms in Q2.

With us.

He is with us at least with the rest of this fiscal year and.

And so that's kind of how we're thinking about the forecast going forward.

Got it thanks for that Jim and then Chuck you made some interesting comments on GC Buster earlier, it sounds like business development efforts are going well there can you give us any more details on where that operating stands and maybe how many customers you're working with or any color around that and then you mentioned the potential to maybe add some capacity would that suggest the opportunity here.

It could be greater than I think that kind of $50 million revenue aspiration, you've previously outlined.

I think it's more about the ramp and acceleration to that $50 million and I don't think we know enough yet.

The gene editing portion of the workflow is not the most expensive and not the most value part of the workflow. It gets critical part obviously and.

And we'll see.

Yes.

The domain of customers is a little over 100 as you know.

And we are certainly working with a couple of dozen and we're certainly was sold to more than more than a half a dozen at quite a few and they come and they're coming and bigger chunk. So they get access and to do it to a trial at hundreds of thousands of dollars. So you know we're in and we're in the millions now for revenue with TC Buster. So it's it's starting to get there and if this thing is going to happen and unfortunately.

<unk>.

It's a critical part of our brand new workflow for cell and gene therapy, that's radically different and then using viral approaches. So it's kind of next generation. So we've got to kind of grind through getting a half a dozen dozen two dozen and these guys lined up and get them into their clinical and then you know get get going on it.

This one really is a J curve for five years from now to the 50 60 or whatever it ends up being but.

But it's going to it's also been a probably the growth rates of 50% to 100% starting now for the next two to three years until it grows even faster is it really ramps as these things go into production. So.

Got it thanks for taking the questions.

And our next question is from Patrick Donnelly with Citi. Please proceed with your question.

Hey, guys. Thanks for taking my questions Chuck.

Chuck maybe just from the ACD side nice to see that back to growth pre pandemic and even beyond that can you just talk a little a little more color on what youre seeing and that market and then expectations going forward again, so and it feels like it's found its footing here and what can we expect over the next few quarters there.

Yeah I think.

Well, you know and go given the likes of other companies and the domain the domain like nano string and 10 X and other spatial and they're all helping their helping create and industry right. So we're all working on creating a spatial analysis and there's a big need for spatial analysis.

And in the workflow for all research and proteomics for one and as well as other areas. So it really comes down to that if you need to do down to single cell analysis, and you really care about the morphology of your tissue sample, which is precious this is a great technology.

Also other technologies that use antibodies you know, sometimes you and you can't find the antibodies are they aren't working well or are there and they're not producible.

And looking looking for a gene is much more of you know.

It's much more and honor.

On or off it's there and I and so this technology with Z probe.

Trees that and that could detect and get the signal at its full proof. So that's why we're seeing the lift.

I think a lot of our softness couple of years ago, We had to reorganize Europe Europe is just on fire and other plans really are definitely working and Europe Europe is doing great. We had over 20% growth in Europe this quarter.

So, it's a nice thing to see and and all and.

And our genomics Division had a big part of it. We're also seeing a good growth across the board and the Asia as well, although smaller starting to starting to catch on.

And you know, we've mentioned them and our RNA scope and basically they are also growing nicely and our high Plex. Our multiplex version is starting to grow we'll get and and FP FSP version of the high flex out here soon that will really be really needed I think and compete well with what's out there and then of course DNA scope is coming at the end of this fiscal.

And year, we hope and that's another platform. So it's a great pipeline, it's got a lot of legs.

Again, we see a.

And $2 million to $300 million Division here with this technology and and the funding of our five year plan and.

And it keeps growing at the near 30% growth it's back to.

And we'll take that long.

Yes, that's helpful.

And then one for Jim and just let the margin side can you just talk through kind of how we should think about that going forward, including XO impacting other Medicare shifting over to accrual based accounting. This year. So maybe just the impact of XO and the margins and expectations kind of as we approach kind of that 40% and you've talked about from a while here.

Yeah, I think we've shared this last quarter and so similar story this quarter. If you exclude <unk> zone from our results. The total company would have been and the low <unk> with regards to our adjusted operating margin. So that will give you some insight as to the dilution impact of XO currently.

With regards to the margin profile second half versus first half I mean.

The margin performance has far exceeded our expectations, but.

And mainly because we are behind our investment plan as I've mentioned and even last quarter right. So.

It is an absolutely important that we continue to invest and our R&D pipelines and and our customer facing and in customer service and post post sales service and in order to maintain this momentum. So we do expect to get caught up and those investments and if we are successful in doing so our margin profile, we think will be slightly less and the back half and it is and the front half, but still <unk>.

Very strong compared to last year, and and ahead of plan and where we thought we'd be at this point and time and our track to our total company performance of North of 40% and the next couple of years.

Understood. Thanks, guys.

Yes.

And we have reached the end of the question and answer session and I will now turn the call over to management for any closing remarks.

Well. Thank you everyone. It was a record quarter, we enjoyed it and we enjoyed this call we know they're they're not all like this and we hope we don't have one and with other kind very soon and we look forward to seeing and next quarter and should be a great second half. This year, we think so let's we'll tune and again next quarter. Thank you.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.