Q1 2022 Bio-Techne Corp Earnings Call
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Whether that's why they are trends good morning, and welcome to be Biotech Me earnings conference call for the first quarter of fiscal year 'twenty 'twenty. Two at this time all participants have been placed in 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 one follow up.
I'd now like to turn the call over to David Clair Bio Tech they are senior director Investor Relations and corporate development.
Good morning, and thank you for joining us on the call with me. This morning are Chuck <unk>, 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.
Including 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 company's 10-K for fiscal year 2021 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.
The company does not undertake to update any forward looking statements because of any new information or future events or developments the 10-K as well as the company's other SEC 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 tables reconciling. These measures to most comparable GAAP measures are available in the company's press release issued earlier this morning, and the biotech knee Corporation website at Www Dot Bio D.
Dash technique dot com.
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. The biotech team kicked off our fiscal 2022 on a very strong note as we continue the momentum we experienced during our last fiscal year or first quarter, 21% organic growth rate reflects broad strength across geographies and ongoing penetration and demand for our protium inquiry.
Read research reagents diagnostic reagents analytical tools and services, especially within our Biopharma end market.
Standouts in the quarter included our instrument portfolio, namely, our biologics simple western and simple plex offerings.
Strength across our research reagents.
And triple digit growth for our burgeoning GMP protein business, not only where the significant growth drivers for the quarter, but these platforms as well as our spatial biology and molecular diagnostics portfolio remain at the forefront of Underpenetrated high growth markets that position the company for future growth I'm very proud of the global teams execution and the company is off to a great.
To start as we March forward.
To the longer term targets, we provided during our recent investor day event.
We delivered a strong Q1 revenue performance with a continued focus on profitability with an adjusted operating margin of 37, 8%.
During the quarter, we made progress hiring to our growth plan, although the tight labor market remained constrained towards building the team at our desired pace.
We anticipate making continued progress with our hiring plans as fiscal 2022 unfolds supplementing the commercial and technical teams that will enable execution of our long term growth plan.
From a geographic perspective, we experienced robust growth across all geographies, China, especially with a stand out where the team delivered record organic growth of over 50% in the quarter.
The government authorities there are strongly encouraging the development of therapies in the areas of stem cells organize regenerative medicine and immunology all areas that have a strong need for our reagents and analytical solutions for the first time this quarter our business in China annualized two at over $100 million in revenue.
While this is an important milestone we believe we remain in the early innings of realizing our potential in this important geography.
Turning to our end market demand for our unique high quality products and solutions continues to be very strong for our biopharma end users with revenue growth increasing approximately 25%.
Performance within our academic end markets also remain solid overall delivering organic growth in the mid single digits.
Now, let's discuss the performance of our growth platforms, starting with the protein Sciences segment, where we delivered organic growth of 26% in the quarter.
We made significant progress with our cell and gene therapy initiatives is growing awareness and demand for our portfolio of workflow solutions led to over 60% organic growth in the quarter.
We are nearing completion of the qualification process for initial lots of GMP grade proteins out of our state of the art GMP protein manufacturing facility in St. Paul Minnesota.
And anticipate commercial orders to be shipped from our facility in the coming weeks.
As a reminder, GMP proteins are critical ingredients for growing both autologous and allogeneic cell therapies, and we anticipate increasing demand going forward is the rich pipeline of therapies and make their way through the regulatory approval process.
Our GMP protein business increased over 160% in the quarter and with our new GMP manufacturing facility opened for business, we are well positioned to meet the anticipated growing demand for these critical reagents.
Continuing in cell and gene therapy, we added to our portfolio, especially cell culture products with the launch of Accelerant PSC expansion medium a new medium for the expansion and maintenance of induced pluripotent stem cells or <unk> for use in both research and translational workflows. The accelerant PSC expansion medium builds on biotech.
<unk> portfolio of products and services and regenerative medicine and fit seamlessly into our offerings for stem cell workflows, including cell isolation reprogramming genome engineering cell expansion differentiation and characterization and.
Importantly, accelerate IPSA expansion medium is manufactured without using components derived from animals or humans, making it ideally suited for use in translational research to produce <unk> cell and gene therapies.
This latest offering builds on our growing portfolio of specialty cell culture products addressing customer needs across natural killer or NK T cell and B cell media.
Momentum in our core research use only protein and antibody businesses also continues to be very strong with growth in the low twenties in the quarter. We believe the continued success in our core is a reflection of our best in class development of a new high quality relevant reagents that address our customers' current research needs, while making them increasingly aware of our capabilities through our strategic.
<unk> digital marketing efforts.
Moving on now to our proteomics analytical tools, where.
Where we continue to see strong demand across our portfolio of cost effective productivity solutions in Q1, our instruments and related consumables pull through grew over 30%.
Reflective of very strong biopharma environment, our biologics instruments led the way growing nearly 50%.
These analytical tools, namely armories instrument enabled a reproducible and quantitative analysis of therapeutic protein identity purity homogeneity with ease of use fast dissolve and reproducibility all qualities that continue to represent a compelling proposition for new and existing Crow C. Demos large pharma accounts and we are now also seeing adoption.
And cell and gene therapy quality control applications.
Demand for our simple western instruments also continues to be strong with over 20% growth compared to the prior year Encouragingly. We are seeing significant lead generation for Abbvie and sold several of these systems during its first full quarter on the market.
As a reminder, abbvie has a lower cost fully automated chemiluminescence western platform that we introduced in April to further penetrate simple western technology into our academic customer base.
Separately, we saw really robust adoption.
Our simple western within cell and gene therapy market.
And view this as a significant and largely untapped opportunity for this technology going forward.
Our simple plex multiplexing immunoassay system Ellas also had a strong quarter growing over 20%. This result is especially impressive given the challenging year over year comparison were simple plex increased more than 75% in the prior year period.
We are experiencing a significant uptick in ela accounts using or evaluating the platform for neuro degenerative applications, specifically for neuro filament light chain ordinary NFL and neuro filament heavy chain, our NFL detection in serum and plasma.
<unk> continues to be the platform of choice for customers, requiring excellent sensitivity and assay speed.
Now, let's discuss our diagnostics and genomics segment, where organic revenue increased 6% in the quarter.
Our spatial biology business branded ACD increased mid single digits in the quarter as continued demand from our biopharma customers, especially crows was partially offset by lower reorder rates from our academic customers.
Note, our ACD business, and especially in the academic market face a challenging comp in the prior year when the business increased over 30%.
Within Biopharma, the emergence of gene therapy, and RNA interface or RNA Therapeutics was created has created a shift toward an animal model based projects driving larger order sizes, and increasing customer probe design projects, making for a little more lumpiness in our spatial biology business.
Our menu approach is now approaching 50000 targets over many species and publications across over 4500, demonstrating the continued academic interest in the platform.
Next our diagnostics reagents business delivered its ninth consecutive quarter of growth with organic revenue increasing in the upper single digits encouragingly the pandemic related headwinds that impacted this business in recent quarters are starting to diminish and we're experiencing a reacceleration in the chemistry glucose in hematology controls product lines the diminishing.
Combined with new product launches.
And additional penetration within existing OEM customers. We believe are just at the beginning of accelerated growth in this business.
During our Investor day, we highlighted some organizational changes within our diagnostics and genomics segment designed to fully realize across developmental opportunities and synergies within our liquid biopsy and molecular products businesses. The new molecular diagnostics division is a combination of our <unk> diagnostics business and the recent <unk> acquisition and is being led by Matt.
Mcmanus the former CEO of the legacy a surge in business.
This new division structure includes an <unk> center of excellence as the exome based liquid biopsy innovation engine.
Developing lab developed tests companion diagnostics as well as <unk> based diagnostic products, we will leverage the establish a surge in channel as well as our two CLIA labs to commercialize these products.
Our exo Dx prostate cancer test continues to make progress despite ongoing challenges with the urology market. During COVID-19 patients were not leaving their homes to do annual checkups youre seeing their garages. This dramatically reduced the volume of PSA test the primary tool used by urologists to identify the appropriate patients for our <unk> Dx test for prostate cancer risk analysis and.
<unk> biopsy.
With patients beginning to return to their doctors for routine checkups or follow ups. The diagnostic market is continuing to recover and encouragingly. Our Q1 Exo Dx volume was the highest since the onset of the pandemic and continues to show improvement early in Q2.
I would also note that our sales reps are increasingly getting in person meetings and hosting educational and awareness events with the physician community, which we expect to be a strong impetus to test volume going forward.
We also made progress on the Exo Dx reimbursement front during the quarter, we had account.
<unk> added the contracts with multiple regional Payors expanding both the network of private payers reimbursing for exit Dx in men with covered access to the test we are very excited about the opportunity to present at.
An overview of the science and publications supporting exit the extra 600 medical directors and policy decision makers. This week during <unk> 2021 life fall managed care Forum.
The confirmed audience includes.
Representatives from the largest national and regional payers.
Events like this are an excellent opportunity to drive awareness and acceptance and eventually reimbursement of this important test among the private payer community.
Our recent publication of a pooled analysis of over 200 patients in the journal of prostate cancer and prosthetic diseases demonstrated <unk> ability to discriminate between high grade low grade and benign prostate cancer.
Using exo Dx is validated 15, six cutoff score would have avoided 23% of all prostate biopsies and 30% of unnecessary biopsies with a negative predictive value of 90%.
We have a pipeline of additional studies and anticipate a steady cadence of publications to drive reimbursement and adoption going forward.
In addition to the Exo Dx prostate test, we continue to advance our pipeline of innovative <unk> based diagnostic tests, including our noninvasive kidney transplant rejection assay XO true kidney.
As a reminder.
Initial execute kidney data was published earlier this year in the journal of the American Society of Nephrology, showing a negative predictive value of 93, 3% and a positive predictive value of 86, 2%, which we view as best in class performance versus the competition.
We are preparing additional studies for publication on extra true assay performance and remain on track to launch its noninvasive urine based assay later in our fiscal year.
With regards to the product from the legacy assurance business, we continue to gain market traction with our leading portfolio of genetic and oncology molecular diagnostic products, including our kits for FLIR one in BC are able.
This business is largely U S centric today, and we see significant potential for these products outside of the U S and have taken initial steps to position the business to penetrate the European market.
In addition to the geographic expansion of this business has a fully a very full pipeline.
Including the expected launches of our cystic fibrosis or see FTR kit as well as a hard to do panel, which combines carrier screening assays for FLIR, one SMA, one or two and see FTR and one user friendly kit.
To conclude my opening comments, our fiscal 'twenty two is off to a great start or end markets remained strong and our portfolio of differentiated proteomics tools and reagents Ami electric diagnostic products are meeting the needs of our customers and growing and Underpenetrated markets, our cell and gene therapy initiatives continue to gain acceptance from biopharma customers and the.
<unk> relationships with these end users are driving adoption of our proteins media assays instrumentation antibodies and other offerings in our portfolio.
During our recent Investor Day in New York City, My leadership team and I laid out the vision and strategy to bring biotech me from 1 billion revenue company. It is today to a target.
$2 billion over the next five years.
Our first quarter and we are off to a great start in this journey and I am excited to share our progress as we realize this vision over the many quarters to come with that I'll hand, the call over to Jim.
Thanks, Chuck I'll provide an overview of our Q1 fiscal 2022 financial performance for the total company provide some additional details on the performance of each of our segments and give some thoughts on the remainder of the fiscal year.
Starting with the overall first quarter financial performance adjusted EPS was $1 83 versus $1 43, one year ago, an increase of 28% over last year.
Foreign exchange positively impacted EPS by <unk> <unk>.
GAAP EPS for the quarter was $1 69 compared to 83 in the prior year the.
The biggest driver for the increase in GAAP EPS other than from business operations was unrealized gains in our investment in chemo centric this year compared to an unrealized cumulus centric loss in the prior year period.
Q1 revenue was $257 7 million, an increase of 26% year over year on a reported basis and 21% on an organic basis.
Foreign exchange translation had a favorable 1% year over year impact and acquisitions had a favorable 4% impact to revenue growth.
All geographies had strong growth in Q1 led by China growing over 50% followed by the U S and EMEA, both growing over 20% for the quarter.
Rest of the World grew in the upper teens.
By end market Biopharma remained very strong growing mid 20%, while academia increased mid single digits year over year.
Moving onto the details of the P&L total company adjusted gross margin was 71, 2% in the quarter compared to 71, 9% in the prior year.
The decrease was primarily driven by unfavorable product mix within the protein Sciences segment, partially offset by favorable volume leverage.
Adjusted SG&A in Q1 was 25, 1% of revenue a 70 basis point decrease compared to the prior year, while R&D expense in Q4 was eight 3% of revenue 40 basis points higher than the prior year.
While adjusted SG&A, and R&D spend both increased sequentially and compared to the prior year, a tight life Sciences labor market did not allow us to fill all planned headcount additions to the team at the pace, we originally anticipated, especially in the more technical scientific and engineering fields.
However, our pace of hiring continues to increase and we plan to make additional progress in our fiscal second quarter.
This investment in critical human capital will position the company for growth going forward.
The resulting adjusted operating margin for Q1 was 37, 8% a decrease of 40 basis points from the prior year period. However, excluding the impact of the a surgeon acquisition made last April adjusted operating margin increased 40 basis points over the prior year.
Looking at numbers below operating income net interest expense in Q1 was $3 1 million decreasing $1 1 million compared to the prior year period.
Decrease was due to a continued reduction of our bank debt as well as a lower blended interest rate of.
Our bank debt in the balance sheet as of the end of Q1 stood at $300 2 million.
Other adjusted Nonoperating income was $1 2 million for the quarter compared to $1 1 million in expense in the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements for.
For GAAP reporting other nonoperating income includes unrealized gains from our investment in chemo centric.
Moving further down the P&L, our adjusted effective tax rate in Q1 was 21%.
As a reminder, during the second quarter of fiscal 2021, we made a strategic equity investment in 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.
$634000 Noncontrolling interest line item reflects the loss from a portion of the <unk>, we did not own.
The impact of other lines of the P&L as a result of consulting <unk> was immaterial in Q1.
Yeah.
Turning to cash flow and return of capital $48 4 million of cash was generated from operations in the quarter compared to $66 million in the prior year period the.
The decrease was primarily driven by the timing of cash payments for payroll income taxes and other accounts payable.
In Q1, our net investment in capital expenditures was $6 1 million and during Q1, we returned capital to shareholders by way of $12 5 million in dividends.
We finished Q1 with $41 2 million average diluted shares outstanding.
Our balance sheet finished Q1, a very strong position with $235 1 million in cash and short term available for sale investments and a total leverage ratio well under one times EBITDA.
Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Q1 reported sales were $197 2 million with reported revenue, increasing 28% compared to the prior year organic.
Organic growth increased 26% with foreign exchange, having a favorable impact of 2% on revenue growth.
Within this segment the strong growth was very broad based and nearly all reagent assay and instrument platforms as Chuck mentioned cell and gene therapy increased over 60%, including growth over 160% and our GMP protein products, while box biologics grew almost 50% and our simple western simple plex proteins and antibodies all grew at least two.
Percent.
Operating margin for the protein Sciences segment was 45, 7% an increase of 10 basis points year over year, due primarily to favorable volume leverage largely offset by strategic investments to support future growth.
Turning to the diagnostics and genomics segment Q1 reported sales were $61 million with reported revenue increasing 22%.
Organic growth for the segment was 6% with acquisitions contributing 15% and foreign exchange translation, having a stable 1% impact on revenue.
The diagnostics reagents business increased upper single digits, and the AC ACD branded spatial biology portfolio increased mid single digits.
Although spatial biology had a challenging year over year comparable this quarter. We view we view this business unit has been in a high growth area within the life science tools and are extremely well positioned to capitalize on this growth with our multi omics product portfolio.
For Exosomes diagnostics revenue was lower year over year, but this was mostly due to cash to accrual revenue recognition accounting change in the prior year for Medicare patients.
Timing of companion diagnostics projects with Biopharma customers also negatively impacted growth for the quarter.
<unk> diagnostic prostate cancer test volume continues to improve with more patients now going back to see their physicians.
Test counts increased 20% year over year in Q1 and are continuing to ramp as we enter Q2.
Moving onto the diagnostics and genomics segment operating margin at 12, 2% the segment's operating margin decreased 510 basis points compared to the prior year.
The decrease reflects the impact of strategic investments to support future growth as well as the <unk> acquisition.
In summary, our research oriented end markets remained strong and as our Q1 performance indicated we are executing extremely well in serving these markets.
The diagnostics end market is also improving and we believe will continue to be a tailwind going forward.
Our end markets had been on a upward March since the depths of the Covid crisis in the fourth quarter of our fiscal 2020.
This means our comps become increasingly more challenging in our growth rates will likely be tempered proportionately in the near term.
However, given our strong performance out of the gate in Q1, we have increasing confidence that we can achieve a growth rate in fiscal year 2022 that is greater than our two year CAGR at the end of fiscal year 2021.
This is Chuck and I mentioned in our prior commentary despite progress executing to our hiring plan. There is more to do in order to support our long term growth plans.
Anticipate continued progress in our hiring objectives to put downward pressure on our adjusted operating margin sequentially in the near term before returning to prior year levels by the end of our fiscal Q4.
That concludes my prepared comments and with that I'll turn the call back to the operator open the line for questions.
Sure.
Thank you.
We will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question Hugh.
Starting with you as I listen to your questions on the queue.
And frankly, using speaker equipment and may be necessary to pick up your handset before pressing the stackable.
I'd like to remind you that we ask that you limit yourself to one question and one follow up per person.
One moment, please while we poll for questions.
Okay.
Our first question is from Nishu Sood of SBB.
SBB Leerink. Please proceed with your question.
Hi, Chuck Jim.
Thanks for the questions here. So first one on GMP proteins clearly strong just wondering if you could parse that out was that due to qualifications of.
New orders or additional orders sort of shipping out in the quarter, 160% is really strong and obviously I mean, it seems like it's coming off of a small comparisons of last year.
But just trying to understand the sustainability of the GMT growth and how should we think about an annualized.
Growth rates there for GMP proteins in 2022.
Yeah, we've been pretty clear in the past that our growth rate for next couple of years is probably a 100% level. So we're ahead of that but we're still you know as of today were actually open for business. The factory has.
Has inventory of our lot qualified qualified material products and we have been gaining more and more I guess customers you.
You saw the slides in the investor deck talked about the <unk>.
Potential domain of customers, where we know we've got a couple of dozen already and we're getting a lot of help from our scale already partners to dramatically increase that so we're getting more scale for existing customers and we're getting more customers. So therefore, the lift we're well over $20 million run rate, which is really just the beginning right puneet. So.
So kind of we're on track, we're ready to start transitioning as much as we can of our orders into the new factory.
As you know we have the largest catalog out there for GMP proteins, but we know we're only set up for you know a handful right now in a new factory and in the majority of business is really an under 10 type of <unk>.
Type of product.
Product count versus the 50 or so we have in our catalog.
We still have a lot of capacity back at headquarters, it's just and you know small lots. So we are ready to go on the bigger lots for a few of the more important products that are that.
That are being asked for being put into the clinical et cetera.
I see the growth rates to be largely consistent with our guidance and I think it will continue.
Okay, great. Thanks for that detailed shirt so on.
D.
I'm wondering if there is something we need to keep in mind or sort of second quarter. It seems the comments you made around lumpiness.
But this is the first time, we're seeing sort of mid single digit growth here. After the leadership change to happen in that business and so I'm just trying to understand is this.
Should we just continue to expect Lumpiness in the business and or is there any competitive dynamics that we need to be aware of I'm just trying to think about the full year number that's traditionally been more than 10% here.
Barclays for ACD.
We're as bullish as ever on this platform you've got to remember the comp was amazing that we're coming off of and then we had the.
The Lumpiness is primarily in the service area of it you know we do a lot of custom work and that part was just balances. It's just kind of ebbs and flows so that combined with.
As you know we're a couple of hundred people light in our hiring plan just like the rest of the World. I mean, we added 275 people last quarter and we lost 240, where net 35 ahead, which is even better than average out there.
It's been really crazy, especially in the Bay area, and guess, where you know ACD survive.
The Bay area. So we are we are shorter than most other business units.
We are also the largest spatial business out there. So we are a target as well, especially for our reps and we are definitely short handed in our reps. We've put additional focus on it now and we're correcting that but that's those are the kind of the one two and three issues of wireless was mid single digit growth and why it wasn't 15 to 20. It's there is no issue.
It's all there, it's actually looks better than ever DNA scope is coming on.
Have ex flex coming on we are working.
Forward with other partnership ideas with them with automation.
We're stronger than ever with Leica, we're getting going with antenna.
The leadership changes, we've made year year, and a half ago have done pretty well and it's more an issue of comps Lumpiness specialty services and probably a handful of sales reps short in some key areas that we needed that we need to act and we need to get refilled, but we will do we'll do that.
That's kind of nature of the Beast to an SDN SPD, it's it's a hot area of spatial and Theres a lot of movement right now so.
We'll win don't worry.
Got it and last one quickly on China, if I could $100 million really.
Great to see that number but just in terms of what can you do in China now.
Scale versus you couldn't do before and how should we think about.
The sustainability of growth there in China, you, obviously highlighted strong long term, but just how should we think about this year. Thank you.
We're not saying it over and boats so inventory so that's a good thing.
Air ship it in a weakened we can sell as much there as they can.
We can ship as much as they need to sell.
The growth rate.
Forever, we've talked about.
My goal of getting this growth rate in China over 25% and being told consistently it's just impossible to grow more than that in China is hard.
And we've been roughly about 25% over the year here and and today is just to remind you is my is my 35th earnings call for this company.
So we're just ecstatic that we just started just knocking out of the park on all cylinders. There in our instrumentation is just flying big part of it but it's also in our reagents. So on all cylinders, we are increasing our inventory levels were.
We are looking at shipments schedules, we're giving them all the help they need we he didn't have any supply issues last quarter and we're trying to.
Work on that going forward everyone's talking about supply chain problems. We haven't had any to date knock on wood, we won't have in the future, but we're trying to use careful as we can.
I would I would just say it's broad based and this is one year, we had great growth for SPD by the way it was a strong growth there.
It's just small but.
But it's a it's a good sign in the future I would love to see us be safely at 25% or better in China, which we've always said 2025 and.
For this year 25 or better looks pretty good now when you start out at 50 over 50 so.
Great Super helpful.
I don't think I've seen any peer so far having numbers with great. That's good in China. So we're definitely in the right areas and we're taking share in antibodies, which is great to see.
Great Congrats on the growth there. Thanks.
Our next question is from Dan Arias.
Please proceed with your question.
Good morning, guys. Thanks for the questions Chuck on simple Plex can you just talk about how system utilization there looks like it tracked in the quarter relative to the first half of the calendar year.
And then when you look at the instrument portfolio.
Sort of curious where if anywhere you think we should think about growth in consumables pull through per instrument. This year.
It feels like it's easier to envision that for simple western and biologics more than simple plex, but I'd love to hear how youre right Youre right Dan.
And by and by the way Congrats I think.
Your predictions for our quarter or like within 1%. So we should be using you more often our staff, maybe but I couldnt agree more.
[laughter] Yeah as you know a simple plex is the lumpiness of the bunch now we have $12000 of pull through per instrument on simple western we have roughly 15 in biologics, it's 50 and simple plex. It's huge. This this is a closed system. We made the cartridges for the customer and less it's an open car.
<unk>, which some customers she was especially to start to figure out their assays, so that that makes it lumpy by definition.
We actually had over 50% growth in instruments. This quarter. So we were we are well on track to instrument deployment and with that kind of pull through it's all about getting boxes out there. So we're very bullish.
Coming off a huge comp from last year is one thing so.
We study all that we're sitting pretty good I think.
And a lot of a lot of the use of their large studies and so some of the instruments from the cartridge orders get very large in there then that's what makes it somewhat lumpy.
We could have we could have a complete turnaround cartridges next quarter and then all of a sudden we're you're now back to 50, 60% growth.
It Didnt relief.
Help us much in instrument front, because as you know we were and we've been right against the rail trying to trying to.
Finish out our orders every quarter and this quarter wasn't much different because the instrument growth was still 50%, we're having to build a whole new factory just down the road from <unk> will be done in a year with that so that's off and running.
We did take cartridge manufacturing up last year and then we've got a couple of hundred a week and in this last quarter of forgiveness of which will hopefully fill back up but it's still very strong year on year.
So.
I think all things aside it's still full steam ahead.
$50 million, plus run rate or better now and probably over more than half the size of quanta, Ericsson, where we're gaining traction on them and others out there so.
Okay, Alright Thats helpful. Thank you and then Jim if I'm hearing your comments on the outlook correctly it.
It sounds like you are calling out the comps that are obviously getting harder, but the confidence in getting above the historical average is higher than that average that youre thinking about is the 13% number that you alluded to last call and I believe you talked about at the Investor day is that right.
That is correct.
Okay. Thanks, so much.
Thanks, Dan.
Our next question is from Jacob Johnson of Stephens. Please proceed with your question.
Hey, good morning.
Chuck on the cell and gene therapy side.
I think you've been clear that.
On end markets, an opportunity for you and a lot of initiatives there.
It seems like yourself and maybe some others saw some pickup in activity from that end market. This quarter is there something that's changed in the end market.
The kind of performance you put up this quarter, just just a function of kind of your internal efforts in GNP Guy I mean, I think so yes, I can answer that.
It's <unk>.
Plain old fashioned critical mass.
So this this this is getting bigger and bigger our scale ready partners are doing better and better out there and they are providing additional visibility.
Two our reagents to be embedded within their you know their solutions in clinical and we're just getting more and more traction.
More and more reorder the orders are going up in size.
But it's just you know we arent even to the pregame warmup shirt for a size of this market. This is all preclinical and clinical evidence already getting sizable munis.
I've mentioned the word tsunami in the past this is going to be a ball wave I think is just going to be hard to.
Stay on top of in the next couple of 2345 years or so.
In our in our we've talked in the past about this division of the future being in five years $300 million or so.
It might be dramatically larger than that we don't see a lot of people catching up to us or doing what we're doing with total workflow and we've got like 10 stops on the <unk>.
On the on the flywheel here for a cell and gene therapy workflow I think we're going to be nearly unstoppable and the lead position of course is GMP proteins and being in protein leader in the world. We expect to fully capitalize on that first and then follow with everything else we have.
To our customers who are.
Amazed at all the things, we're able off already so it's a one stop shop now as a portfolio. We had our first customer a I wouldn't call. It a full audit, but a great tour and partial audit of our new factory and they were blown away. So.
Got it that makes sense I guess, maybe check that the natural follow up to that I guess, you've got the capabilities you have today, but it seems to me you probably like to add to that at some point can you just talk about.
Your thoughts on adding cell and gene therapy capabilities, the potential to do that organically and maybe thoughts on inorganic efforts there as well.
I think.
There is the antibody side, we're going to continue to build out we just talked about the launch of the medium.
We're definitely are looking beyond T cell into NK. So theres a lot of expansion just from the therapeutic side I think instrumentation wise, we are in great shape, It's amazing we'd had over $2 million of revenue this quarter in simple plex being designed into call. It QC type of applications for cell and gene therapy. So.
And Maurice is going to be used in parity as expected.
We've got a lot going there.
There, we don't have everything I mean, there are.
The the non viral future that we're trying to be part of we'll use.
You know, we'll use the electrification, we do not have an electric creation.
Partner at this point, we're using we're kind of ubiquitous some we have our favorites, but theres more than one out there that would be an area. I think there is always room for more spatial interrogation I think we have RNA scope.
That'll be used but I think with the right automation, we can probably get into the production side of that QC side.
So theres a few spots we're looking at.
But but we've got a lot of it covered.
And with Great partners like Wilson Wolf of Bioreactors, who have hundreds of customers.
And the new the new <unk> platform from Fresenius, which we think are does the competition on all fronts I think it's going to be an amazing future and hopefully we will be look talking about billions in revenue and a few years not just hundreds of millions.
Alright ill leave it at that point thanks Chuck.
Our next question is from Alex Nowak of Craig Hallum. Please proceed with your question.
Great. Good morning, everyone. Chuck as we reached the end of the calendar year. What are you hearing beyond the U S. About life science budgets next year, specifically thinking Europe, and China any reason to suspect. This slowdown are these budgets are strong as ever.
We're not hearing anything negative yet I mean European SAR numbers over 20% growth seems to be really good country by country.
We're kind of through all the Brexit stuff, we're opening up an entirely new warehouse facility in Dublin.
Going to be probably had seen some tax savings and other mainland Europe type of change.
Changes going forward it'll help us.
Asia looks good in all fronts, except India, India, even as dramatically good for al with troubled Theres still in Japan is stable Korea has grown well southeast Asia is really back on track better than it's been in a while in China and we've talked about the numbers are kind of off the charts. We're in the China's second year now going into their five year plan, which is usually a big spend year. So for the next call.
For years, it should be big spending in China.
And you know we'll.
We'll see.
That's good and now now that Mac Mcmanus has been.
Had the <unk> Dx and then the assurance business now under him through this new molecular diagnostics unit has him on the team recommended any changes to the activism Dx sales strategy with either <unk> or the upcoming tests around actually true.
Pushed the kit those tests or really any changes to the pipeline focus.
Not really no I mean, they provide incredible help for us on the regulatory side as well as kidding of which you saw US mentioned that you saw us mentioned to CLIA labs, not one because they have one too.
You saw US mentioned the center of excellence. So that is really is implying partners. So we're gonna be able to focus on a lot more call them indications different tests. Because this is a platform not a one trick pony and we're going to be doing some ourselves and we're going to be going in parallel with other partners. Other channels. So those negotiations those.
Relationships are well underway in forming and new wins happen Theres a lot of interest in all of these things we're talking about and.
I think it's going to be amazing future and that's the right Guy.
Got it and I understand youre not shipping stuff via both to your customers, but I guess at the customer level on the supply chain is there anything thats getting short basic materials, and obviously labor that would cause maybe your customers to see a slowdown in us pushing a slowdown up to you.
Well I think from a growth we've been seeing the last few quarters. Our biggest issue has been labor for sure it's hiring and the time and we've made some we've made improvements for catching up but.
We keep seeing 20 plus percent growth, which you'd love to see you know we've got to stay in the game here on that first.
In terms of supplies.
We put the word out early early on and we're not making cars here right. So.
It's the supply chain issues aren't aren't that complicated our instrumentation I think we've looked into or are we going to see a chip shortage or something like that well again.
We're making hundreds of a certain instruments per year, it's not thousands so it's not not too big a deal and and these are not.
Million dollar instruments, either these are great productivity tools that are roughly $150000 in that range. So.
So it's doable not to say, we won't see a problem next quarter or whenever I mean, if things don't start getting better.
Mundane things like labels and paint and chassis and everything else that you know, but we're staying on it all we can say is we had no issue last quarter end.
We don't foresee a problem this quarter, but you know you can promise everything will see Chuck if I could add from our customers' perspective.
Things, we keep an eye on is our daily sales of our reagents and we talked about our core reagents proteins antibodies were up 20% year over year. So that's a good indication of the activity that's going on in our customers' labs. So it doesn't appear as though any supply chain issues or slowing them down.
That's great. Thank you I appreciate it.
Okay.
Okay.
Our next question is from Catherine Schulte of Baird.
Proceed with your question.
Hey, guys congrats on the quarter and thanks for the question is first on XO true have you made a decision on what they will commercialize the test on your own versus finding a partner there and then I believe your previous target had been to launch it in calendar year 'twenty. One so is that still the plan.
What's driving the delay there.
Yes, it's going to be close to calendar year, I think it's possible I mean, it all comes down to.
The <unk> and what I mean is there isn't anything regulatory wise, we have to really commit to now its just working with Ngls. So it's anyone's guess, so we're kind of ready to go there is a we are the second study being written all the data has all been collected so we're off and running on more data than we need to launch on the partnership front theres been a lot of intra.
So we're kind of to be honest, we're kind of waiting through the interest here in.
And seeing what makes sense for us strategically as well as business wise, but.
Good good chance it could happen, but you know.
Stay tuned.
Yeah.
And then you talked a bit about government funding for life Science research, but if we think about the pharma and biotech side of the business. We've seen robust funding over the last couple of years, but some volatility in biotech financing over the last few months. So what's your outlook for that end market and how much of that is driven by <unk>.
On the biotech financing side.
It was a tremendous quarter and thats been followed up by previous tremendous quarters I think.
Everything from vaccine makers to two to two biotechs in general if there has been a big demand.
We had roughly flat on COVID-19, but theres a lot of Halo is still coming off of all of that it's creating more investment opportunities by all of biotech Biopharma and we're participating all of that because we work on all levels of the food chain in those in those businesses. So it's been good for us.
<unk>. Further then you have 20% growth in proteins and antibodies doesn't get more fundamental them added to just prove that they have the funding is strong.
Okay, great. Thank you.
I should make a comment to that.
Our digital.
Strategies are also continue to work and work really well we had.
Just in our antibody channels alone.
We had in our.
Novus brand over 50% year on year traffic increases in our R&D systems brand, our premiere products, 75% year over year traffic increases on our web site.
That's pretty amazing that's why we're taking share.
Our next question is from Patrick Donnelly of Citi. Please proceed with your question.
Hey, guys. Thanks for taking my questions. Chuck you touched a little bit on kind of some of the inflationary pressures labor et cetera, Jim I was wondering if you could just talk through kind of the moving pieces on the margin side as we work through the rest of the year between against some of the rising costs XO and then obviously you again, you guys pushing some of that price over to the customers.
Just wanted to make sure when you talk to that.
Yes on the on the inflationary aspects of it we're trying to manage that through a combination of productivity as well as selected price increases. So we're not necessarily forecasting the margin pressure as a result of that.
You may recall last quarter, when I talked about the margin view for fiscal 'twenty. Two we said initially that we expected.
Sequential hit to our margins.
I think.
A message roughly one percentage point due to the acquisition of the surgeon in roughly a percentage point due to.
Getting caught up on our hiring for strategic growth.
And that was going to impact us in the first half of the year and given that we did make some successes around hiring we didn't go.
We didn't hire as much as we had planned and therefore actually our margin was was there than we internally we thought it would be for Q1.
We think we will catch up on in Q2 so.
I think the message that I left you with at the end of last quarter is the same in that.
At the time, we get to the end of the first half of this fiscal year, we're expecting our year over year margin to be down roughly two percentage points. One as one point as a result of a surge in another point as a result of.
Strategic growth investments than that to start to.
Rapid we recover in the second half of the year. So by the time, we get to the end of Q4, we think will be year over year pretty comparable.
Okay. That's helpful and then Chuck just on the exercise encouraging to hear about the volume recovery. There sales seems like it's getting the reps, particularly get into the docs. What do you think we are there in terms of the recovery what are you hearing from.
Some customers again, it depend on or hopefully lifts.
Talk to your expectations on that front.
Well, it's coming back fast, especially this quarter.
We had 700 docs order last year with about two thirds on the reorder rate.
And already.
Already this year this fiscal year to date, one quarter and were over 1100. So it is really picking up steam.
And we see that really from just more customer touch the reps are being like that back in.
The reps arent seeing you know.
The docs, it's hard to get orders, it's just that simple and the patients have got to be seeing them and getting PSA test. So there's something to talk about.
So it's all coming back pretty quickly so I still think we.
We're really early innings here, it's just getting started.
Any other it's like 15 20 different docs out there so we've really addressing a 20% so.
Just a matter of getting it going in.
And managing dilution, which we're doing a really good job of and Matt and team are going to be helping a lot as well and there is leverage there. So that's also probably part of the improvement already in our quarter is just buy it then mcmanus team.
Taken over.
But stay tuned.
We're really excited.
Got you now.
One out there ramping the <unk> to come and we are in discussions on a bunch more that we are doing and can do.
It's an amazing technology, and it's way more predictive than cell for DNA way more upstream.
Great. Thanks Chuck.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker equipment, it may be necessary to pick up your handset before pressing the star Q.
One moment, please Holly Paul for additional question.
Our next question is from Paul Knight of Keybanc Capital markets. Please proceed with your question.
Chuck when you see <unk>.
Customers gain let's call it maturity at your GMP protein production facility, what do you think the average size will be.
For our customer.
Per.
Well I can tell you right now it's hard for them to forecast and so we've done our contracting in terms of percentages. So the deals we've put in place which are quite a few at this point.
As they get beyond clinical and go into production, we are contracted to receive 95% of the volume they need.
This is such a critical area. They are always going to have backups, and we're going to get backups for some probably as well, but thats. Good most of them come in with with the requirements before they get start with us and they range from between $10 million a year annualized per protein all the way to a couple over $50 million.
Of course, this was for them getting through their clinical and surviving and meeting their sales forecast of course, but.
This is orders of magnitude beyond.
Proteins for are you all right. So I don't think Youll see anything in production.
Of a therapeutic for probably less than $1 million for protein to be honest.
Customers with work starting out preclinical chalk.
Most of these are preclinical southern preclinical at this point, but were at a couple of dozen in.
We're being looked at by our scale already partners as an example, Wilson Wolf Bioreactors, becoming a de facto standard it's in well over.
A couple 100 different accounts out there and clinical's and they are out there putting pressure in talking to their customers about you know if you just use the proteins from biotech me, we can actually deliver them already already encapsulated ready to be reconstituted in the bioreactor. So it takes a bunch of risk and a bunch of cost off the table for you.
And their eyes are lighting up so we're getting we're getting that process going it'll take a year or two but that's the kind of opportunity we have by being part of scale ready.
Okay and then.
Whats your read on the MLR on a market number of candidates customer interest whatever metric you see or feel.
Since we've had obviously the COVID-19 vaccine success.
Well it.
If you've landed maduro there'd be 20 different.
Drugs are working on that are going to use mrna right. So yes.
From Euro VI, they've landed a great they've been in the right place right time and have a great product and they've got they've got cap technology IP to get around so mrna is probably tougher for the rest of us out there than plasma per se, but.
We're working on all of these I think in a couple of years will be in all of this stuff at some level. It is.
It's not rocket science is right down our alley. So it's just a matter of investment and going now if we were to get.
Large an mrna to the same kind of vision that we're talking about with proteins that we would need another factory to size. We have now so it would take some investment.
First things first let's make sure we have the science right, we get around the IP and we are working product and nimble.
And we will do we need to do.
Okay. Thanks.
We have reached the end of the question and answer session I will now turn the call back over to Chuck <unk> for closing remarks.
Well, thanks, everyone, who is a great start to our year.
Love seeing over 20% organic growth as always I'm sure you do as well and we look forward to next quarter and hope we can keep it all going thanks again bye.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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