Q3 2023 Bio-Techne Corporation Earnings Call
Speaker 1: The to that we.
Speaker 1: I.
Speaker 2: Good day and welcome to the Biotechnicorp third quarter fiscal 2023 earnings call. All participants will be in a listen only mode. Should you need assistance...
Speaker 2: please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask your question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded.
Speaker 2: I would now like to turn the conference over to David Claire. Please go ahead.
Speaker 3: Good morning and thank you for joining us. I'm the call with me this morning our Chuck Comet Chief Executive Officer and Jim Hippel Chief Financial Officer of Biotechney. Before we begin, let me briefly cover our safe harbor statement.
Speaker 3: Some of the comments made during this conference call may be 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 10K for fiscal year 2022.
Speaker 3: events or developments.
Speaker 3: The 10-K as well as the company's other SEC filings are available on the company's website within its investor relations section.
Speaker 3: During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.
Speaker 3: Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Bio Technic Corporation website at www.bio-technic.com. Separately, we will be participating in the B of A RBC Capital Markets.
Speaker 3: Benchmark, Craig Hallum, and Jeffrey's healthcare conferences in May and June . We look forward to connecting with many of you at these upcoming conferences. I will now turn the call over to Chuck.
Speaker 3: Thank you for joining us for our third quarter conference call.
Speaker 3: As we expected, message in last quarter's call, our Q3 top line year-on-year revenue growth was similar to the growth we reported in Q2.
Speaker 3: While a year in your growth rate and tough comps from last year were similar in both quarters, the underlying performance of the business improved quarter and quarter when considering the large exotrude kidney milestone payment received from Thermo Fisher last year in 2003.
Speaker 3: The team did a great job this quarter furthering several of our key growth drivers as physician uptake and utilization of our exo-dx prostate test accelerated, demand for our cell therapy workflow solutions including GMP proteins remain strong, and our spatial biology business returned to double digit growth.
Speaker 3: These growth drivers are partially offset by the continued challenges of COVID in China, lower biotech funding, and OEM de-stocking from supply chain disruption concerns last year.
Speaker 3: Encouragingly, as we look ahead to finishing this fiscal year and kicking off fiscal year 24, we see China coming back strong, with COVID now in the rearview mirror, de-stocking by our OEM customers eventually with unwinding, and moving beyond the tough prior year comps from our smaller biotech customers.
Speaker 3: Before I get into the specifics of the quarter, I'd like to take this opportunity to welcome Peter Schuster as the new leader of our European organization in business.
Speaker 3: Peter has over 20 years of experience leading commercial organizations, including very relevant experience successfully growing businesses and leading European-based teams in a large centralized science tools companies.
Speaker 3: Under Peter's leadership, we are looking forward to continuing to grow our European presence and delivering the tools the region relies on to enable scientific discoveries.
Speaker 3: Now, an overview of our performance by geography and end market.
Speaker 3: Starting with Europe , where the team delivered high single digit growth
Speaker 3: order growth in the quarter, then the macro environment continued to stabilize and overall research activity increased sequentially within our core bowel pharma and academic end markets.
Speaker 3: Our new Dublin warehouse to support mainland Europe is now fully functional and fulfilling customer orders.
Speaker 3: With a new leader in place, a new distribution center, and an improved ERP system, we are positioned to serve our customers even better in the region.
Speaker 3: digits in the quarter. Here, the impact of a lower biotech spend is the greatest, and the year in your comp is the toughest, with over 25% growth involved from last year.
Speaker 3: from COVID and its citizens were directed by the government to essentially stay home until after the New Year holiday. Up until this point in the quarter, sales were practically nonexistent in China.
Speaker 3: But after everyone was well and came back from holiday, sales accelerated dramatically and our China team was able to finish the quarter with revenue growth in low single digits.
Speaker 3: This was on top of a comp for Trana Gruver 30% last year.
Speaker 3: Just a remarkable effort by our team in China.
Speaker 3: With COVID now in the rearview mirror for China we hope for good, we see China's growth continuing to accelerate from here perhaps to more than 40% growth next quarter.
Speaker 3: 5% for the quarter on top of a strong comp from last year, when the segment grew 16%.
Speaker 3: During the quarter, we continue to make progress with our portfolio of cell therapy workflow solutions, including our GMP reagents, specialty cell culture media, along with cell culture matrices and BME, which collectively grew over 20% in our Q3.
Speaker 3: Our GMP proteins are made in high demand across the cell therapy spectrum. As biopharmacusum is developing products for the regenerative medicine and immune cell therapy markets, continue to rely on our portfolio of over 40 GMP grade cytokines and growth factors, including several that are only available from biotechme.
Speaker 3: to effectively scale their therapies. Our GMP protein business had its second consecutive record-breeding quarter, and given our industry leading menu of highly bioactive, lot to lot consistent, and peer GMP proteins, we are positioned to remain a leader in this rapidly growing market.
Speaker 3: facility, we are also experiencing significant yield improvements as we scale production at this facility.
Speaker 3: Recall, we originally estimated GMP protein capacity at the facility was $140 million annually, which we increased to over $200 million as we manufactured initial protein batches from this new facility.
Speaker 3: As the team continues to launch additional GMP proteins, we have been able to achieve product yields as much as 50 times higher compared to legacy methods used to manufacture smaller batches in our headquarters.
Speaker 3: In fact, these productivity and yield gains have been so significant that we now estimate the capacity of this facility is at least $500 million and potentially higher than $1 million depending on the mix of GMP proteins ultimately manufactured from this facility.
Speaker 3: We also reached a significant milestone in our cell therapy strategy in Q3 with our initial investment into Wilson-Wolfe. As a reminder, Wilson-Wolfe is a manufacturer of the proprietary line of cell production bioractors called GRECs, which provide an ideal amount of oxygen and nutrients to effectively scale immune cell therapies. Wilson-Wolfe and Fresenius Kabi.
Speaker 3: have both been key partners of our biotechnies through the scale-ready commercial joint venture since 2020. With the three companies collectively offering tools and technologies for cell culture, cell activation, gene editing, and cell processing, during the quarter, Wilson-Wolfe reached its trailing 12-month EBITDA milestone.
Speaker 3: Terrigen Biotech needs $257 million investment for a 20% ownership stake into Wilson Wolf.
Speaker 3: manufacturing system that integrates G-REX, biotech needs GMP proteins and T-cell culture media into an FDA compliant patient ready off the shelf production process. That will save end users significant time and money as they pursue meaningful clinical data. An eventual commercialization knows these novel cell therapies. Following this initial investment, biotech need has the right to acquire the remainder of both from all for $1 billion upon its achievement.
Speaker 3: therapy products.
Speaker 3: Now, let's discuss our portfolio proteomic research regions, including our R.E. role proteins, antibodies, and small molecules, which collectively grew a single digit, low single digits in the quarter, coming off of a challenging year-over-year comp, or we grew about 20% in Q3 last year.
Speaker 3: I'd like to elaborate on the OEM phenomenon we've experienced in our year-over-year comps for the past couple of quarters. Recall that a year ago, supply chains were constrained and several companies, including Biotechnie, stocked up on certain components that were critical to meeting customer demand. Biotechnie has an industry-leading catalog of over 6,000 proteins and over 425,000 different antibody types.
Speaker 3: that researchers around the globe rely on as a basis for the research, enabling scientific discoveries, enabling new therapeutic and diagnostic discoveries to further healthcare. This same catalog of bioactive reagents also serves as the enabling content for several products from other diagnostic and life science tools companies. Without this content, a number of the rasteries will not work.
Speaker 3: Last fiscal year, a handful of these OEM customers stocked our reagents to ensure their ability to continue to meet demand for their products.
Speaker 3: Best we can tell right now, it will take another quarter or two before this de-stocking to unwind. After that, these headwinds should become tailwinds, as these OEM customers resume their normal ordering patterns of our reagents in fiscal 24.
Speaker 3: Moving on to the performance for a protein-simple brand to portfolio of analytical solutions, we delivered low double digit growth in the quarter, as all three of our primary instrument platforms increased in the quarter. The rapid installed-based growth we experienced over the last two years continues to drive increased consumer utilization across our protein-simple instrument platform, as our simple Western, simple plaques, and Marie's instruments become more ingrained in research workflows.
Speaker 3: TAM expands from $2 to $3 billion to firmly above $3 billion.
Speaker 3: Order funnels remain very strong across these three instrument platforms. All the budget conservatism from a subset of biotech end users has led to an overall lengthening of the order closing cycle.
Speaker 3: Our simple-plex branded multiplexing immunosciplattform Ella led instrument growth increasing over 25% in the quarter. The sub-tikogram sensitivity and cost advantages offered by this fully automated Eliza platform combined with an expanding menu over 250 analytes to support therapeutic areas across neuroscience.
Speaker 3: cell and gene therapy, immunology, and cancer continues to resonate with both biopharma and academic customers. This traction and acceptance in both industry and academia is apparent in the growing number of instruments in the field as Ella crossed an important milestone in the corridor with over 1,000 instruments now in the field. In neuroscience, Ella's high level of sensitivity positions it...
Speaker 3: is an ideal instrument for biomarker detection and discovery, making this a prime area for future menu expansion.
Speaker 3: We also continue to make progress for Peringella to penetrate the clinical diagnostic market, as our ISO 1345 audit of our Juan for Facility continues to progress.
Speaker 3: With a growing installed base, a rapidly expanding menu, and an untapped clinical diagnostic market opportunity, we continue to see incredibly bright future for Ella. Now let's discuss our biologics platform, Maurice, which enables protein purity, charge and identity analysis in five minutes in an easy to use cartridge based instrument.
Speaker 3: Recall that we recently expanded on Maurice's capabilities with the launch of Maurice Flex, which adds image capillary isoelectric focusing fractionization capabilities to the instrument.
Speaker 3: Fractionation is a front-end step in mass spectrometry, and Maurice Flex addresses the labor-intensive and time-consuming challenges of using legacy fractionation to measure its life, including ion exchange chromatography.
Speaker 3: This new application enters Maurice into a new $300 million market. Initial bio-farm interest in Maurice Flex has been strong and we had multiple initial instrument placements in the quarter.
Speaker 3: Our simple Western platform continues to penetrate the Western blot market as its ability to automate the time consuming and cumbersome Western blot process with a sample in an answer out solution resonates within our biopharma and academic research end markets.
Speaker 3: Similar to our other platforms, applications for Simple Western are expanding, including quantitative immunoassays for both cell signaling and rare protein detection in complex lysates and rare tissues.
Speaker 3: Additionally, our biopharmaceutical customers are increasingly relying on simple Westrin in their gene therapy workflows as its ability to detect protein-related impurities, viral titer and identity information, and empty versus full capsid information provide critical QAQC information for these workflows.
Speaker 3: Gene therapy remains a nascent but rapidly growing application for Simple Western and we experienced 30% growth in this area during Q3.
Speaker 3: We also partnered with Cell Signaling Technology or CST to expand the number of simple Western-validant antibodies for various targets and across multiple disciplines. CST is a leader in the development of antibodies in other related Western-blooding regions used to elucidate cell signaling pathways.
Speaker 3: that dictate cellular behavior and impact human health. We are excited about the addition of these new antibodies to the Biotechnic Catalog of Validated Antibodies and are encouraged with the market response following the announcement.
Speaker 3: Now, let's shift to our diagnostics and genomics segment, where organic revenue declined by 2%. Adjusting for the exotube milestone payment from Thermo Fisher, Scientific, that we received in the comparable quarter last year, but did not repeat in the current quarter segment growth with upper single digits. Starting with our molecular diagnostics business.
Speaker 3: where we continue to experience increased physician adoption and utilization of our XODX prostate test, leading to over 70 percent test volume growth for the fifth consecutive quarter, and an associated revenue increase of 85 percent in the quarter. We continue to see positive momentum on the key performance indicators we track for our XODX prostate test.
Speaker 3: including year over year and sequential growth, and the number of physicians ordering the test, record test volume from physicians new to the X prostate, as well as a record number of doctors are ordering more than 25 tests in a quarter.
Speaker 3: We are pairing this volume momentum with continued progress in strengthening our coverage with private payers as our recently bolstered market access group continues to improve access to the large national payers, positioning ExoDx prostate for expanded future coverage.
Speaker 3: This team is doing an excellent job managing a rapid growth in ExoDx prostate test volume, and we continue to experience record volumes in our Q4 to date. During the quarter, an expanded local coverage determination from National Government Services idea gave an extremely powerful contribution to our system and is now celebrating news
Speaker 3: This updated policy not covers the XODX prostate test for men with a prior negative biopsy, but who are thought to be at high risk for prostate cancer and are considering a repeat biopsy.
Speaker 3: Following this update, the LCD now mirrors the National Comprehensive Cancer Network, or NCCN, guidelines and enables reimbursement for XODX prostate as a monitoring tool in populations with and without a prior prostate biopsy.
Speaker 3: effectively increasing the total addressable market opportunity by approximately 50% for the test.
Speaker 3: Our spatial biology business branded ACD increased low double digits in the quarter with adoption in our flagship RNA scope assay remaining strong. This gold standard RNA in situ hybridization assay enables industry leading sensitivity and specificity transcriptome analysis while retaining tissue morphology.
Speaker 3: We further this industry leading capability with the recent introduction of our new exceptionally bright, vivid fluorophores, enabling customers to easily detect and visualize both abundant RNAs as well as RNAs of very low abundance in a tissue sample.
Speaker 3: More recent additions to the ACD portfolio are also getting traction, including base scope and micro and RNA scope, as these novel solutions enable visualization and evaluation of therapeutic biodistribution, safety and efficacy of gene therapy delivery vectors, and oligonucleotide therapies.
Speaker 3: SpaceScope and MicroRNAScope are both relatively small contributors to our spatial biology business today, but are growing rapidly and becoming progressively more accretive to the growth of this business.
Speaker 3: Continuing with spatial biology, we recently announced an important strategic partnership with Luna4 to develop the first fully automated spatial multiomics workflow with same-slide hyperplex detection of protein and RNA biomarkers on Luna4's COMET instrument.
Speaker 3: This solution will enable users to easily visualize both cell types and their activation states in tissue.
Speaker 3: Combining Comet's highly flexible custom antibody panel design with RNAscope's library of 45,000 catalog probes and our in-house custom probe design capabilities will give customers the ultimate flexibility in achieving their study goals. Summary
Speaker 3: Our Q3 performance was in line with our expectations. As China growth snaps back and the temporary headwinds created by reagent de-stocking from a handful of OEM partners subside, we believe we are well positioned to accelerate growth next quarter and beyond. One thing is certain, our portfolio of cell and gene therapy workflow solutions, a best in class liquid biopsy platform, is a great opportunity for us to continue to improve
Speaker 3: novel proteomic analytical tools, spatial biology capabilities, all coupled with an industry-leading catalog of bioactive content, physicians' biotechnics remain a leader in some of the most rapidly growing life science tools markets.
Speaker 3: We look forward to continue to execute our strategic growth plan and deliver on the best opportunity in front of us.
Speaker 3: With that I'll turn it over to Jim. Thanks Chuck. I'll start with recapping the overall third quarter financial performance.
Speaker 3: Adjust the EPS with 53 cents, consistent with the prior year quarter.
Speaker 3: for an exchange netically impacted EPS by a penny or minus 2% in the quarter.
Speaker 3: Gap EPS in Q3 was 43 cents compared to 37 cents in the prior year.
Speaker 3: The biggest driver for the increase in gap EPS with a non-recurring loss are previously held chemocentric investment in the prior year period. Q3 revenue was 294.1 million, an increase of 3% year over year on an organic basis, and 1% on a reported basis.
Speaker 3: For exchange translation, it had an unfable impact of 2%, and acquisitions had an immaterial impact on revenue growth.
Speaker 3: Chuck called out the temporary headwinds we faced in Q3 and I will quantify their impact to overall company growth.
Speaker 3: Chuck called out the temporary headwinds we faced in Q3 and I will quantify their impact to overall company growth. Starting with prior year's XOTREW milestone payment.
Speaker 3: The impact of this one-time revenue recognition last year in Q3 was approximately a 3.5% headwind to our overall growth this year.
Speaker 3: The COVID infections and corresponding shutdowns in China this quarter was an additional headwind to overall company growth of approximately 2.5%.
Speaker 3: The OEMD stocking of REO reagents we estimate to be another 1.5% headwind to our overall company growth rate.
Speaker 3: The accumulation of these specific and temporary headwinds is approximately 7.5%, which, when added back to a reported organic growth, brings us to an adjusted organic growth rate of over 8 song percent.
Speaker 3: The normalization of smaller biotech customer spend following a red hot funding environment the past couple years is more difficult to quantify.
Speaker 3: but it is also a headwind that may take more time to work through.
Speaker 3: The biotech research is not going away. It is often the important, innovative bridge between academic discovery and big pharma therapy commercialization.
Speaker 3: In the meantime, Biotechnica will continue to serve all these customers in the life science change that ultimately brings quality of life to patients with innovative products that improve their likelihood of success.
Speaker 3: In the meantime, Biotechnica will continue to serve all these customers in the life science change that ultimately brings quality of life to patients with innovative products that improve their likelihood of success in the most productive way possible.
Speaker 3: The double digit growth we see in our key growth platforms.
Speaker 3: cell and gene therapy, exosome diagnostics, spatial biology, and protein simple-branded automated assays demonstrate this is already the case.
Speaker 3: Moving on to our organic growth by region and end market in 2.3, North America grew mid-single digits. Europe demand increased upper single digits.
Speaker 3: China grew low single digits while APEC declined low single digits due to prior year government stimulus in Japan, not repeating this year.
Speaker 3: By end market, biopharma grew high single digits while academia grew mid single digits.
Speaker 3: Both were partially offset by the impact of destocking by a handful of OEM customers.
Speaker 3: Further down the P&L, total company adjusted gross margin was 72.6% in the quarter compared to 73.2% in the prior year.
Speaker 3: The decrease was primarily driven by unfavorable foreign exchange and product mix.
Speaker 3: Adjusted SG&A in Q3 was 27.9% of revenue compared to 26.1% in the prior year, while R&D expense in Q3 was 7.7% of revenue compared to 7.5% in the prior year.
Speaker 3: The increased NSTNA and RID was driven by strategic growth investments made in Q4 of fiscal year 22 and the acquisition of NAMOSO.
Speaker 3: The business has implemented strategic price increases during the first half of fiscal year 23 to offset the dollar impact of inflation to operating income.
Speaker 3: With pricing largely offsetting the inflation impact on our operating margin as well in Q3. Adjusted operating margin for Q3 was 37%. A decrease of 260 basis points from the prior year, but 150 basis point improvements sequentially.
Speaker 3: The impact of the non-recurring X-RTU milestone payment in the prior year period decreased pretty smart by 130 basis points.
Speaker 3: For an exchange decrease, suggesting an operating margin by another 50 basis points.
Speaker 3: while the acquisition of NAMSL and other strategic growth investments drove the remainder of the margin dilution for the quarter. As our top-line headwinds start to subside, we will continue to make strategic investments in our key growth platforms to ensure their long-term momentum.
Speaker 3: By doing so, we expect operating margins in Q4 to be comparable to Q3.
Speaker 3: Looking at our numbers below operating income, net interest expense in Q3 was 0.2 million, decreasing 2 million compared to the prior year period due to lower debt levels and higher interest income earned on cash deposits. Our bank debt of a balance sheet as of the end of Q2 stood at 370 million.
Speaker 3: an increase of $170 million compared to last quarter, with the increase reflecting our investment in Wilson Wolf, which was funded partially with debt and cash on hand.
Speaker 3: I would note, given the timing of the Wilson-Wolf investment which took place at the very end of our fiscal Q3, we anticipate our net interest expense to increase sequentially to approximately 2.7 million in Q4.
Speaker 3: Other adjusted non-operating income was $0.1 million in the quarter, an increase of $1.2 million compared to the prior year, primarily reflecting the foreign exchange impact related to our cash pulling arrangement.
Speaker 3: Moving further down the P&L, our adjusted effective tax rate in Q3 was 21%.
Speaker 3: Turning to cash flow and return of capital, 50.5 million of cash was generated from operations in a quarter and our net investment in capital expenditures was $11.7 million.
Speaker 3: Also during Q3, we returned capital to shareholders by way of 12.6 million dividends.
Speaker 3: We finished the quarter with 161.6 million average deluge shares outstanding.
Speaker 3: Our balance sheet finished 2-3 in a strong position with $157.2 million in cash and short-term available for sale investments.
Speaker 3: And our total leverage ratio remains below one turn.
Speaker 3: And going forward M&A remains a top priority for capital allocation.
Speaker 3: Next, I'll discuss the performance of our reporting segments starting with the protein sciences segment. Two to three reported sales were $218.9 million, with reported revenue increasing 3% compared to the same period last year. Organic growth list segment was 5%. This 12 year-old is Hume in the unanimous in the
Speaker 3: with foreign exchange having an unfable impact of 2%. Fight the temporary headwinds in the tough eerie of your comps. I'll highlight that the longer term five-year cager for this segment is approximately 12.
Speaker 3: Operating margin for the protein science assignment was 45.1%. A decrease of 30 basis points a year with operational productivity more than offset by foreign exchange and the impact of the nanosel acquisition.
Speaker 3: Turning to the Diagnostics and Genomics segment, Q3 reported sales were $75.7 million with reported revenue decreasing 3%.
Speaker 3: Organic revenue decreased 2% with foreign exchange having an unfavorable 1% impact.
Speaker 3: As Chuck mentioned earlier, adjusting for the extra two milestone payment we received in Q3 of last year, which did not repeat again this year, organic growth was upper single digit for the segment. Our exosome diagnostic business remained incredibly strong in the quarter, at our fortified marketing message, strengthened commercial team, and the recently updated Medicare LCD drove record test volume and revenue growth.
Speaker 3: Our spatial biology business returned to double digit growth in the quarter, the strong performances in our RNA scope, base scope, and microRNA product lines.
Speaker 3: partially offset by relative softness from a few biotech customers. Moving on to diagnostics and genomics segment operating margin, at 15.2%, the segment's operating margin decreased 980 basis points compared to the prior year.
Speaker 3: The segment's operating margin was unfavorably impacted primarily by prior year revenue related to the exo-true milestone payment and to a lesser extent net inflation and strategic growth investments.
Speaker 3: For much of the first half of our fiscal year, how customers were going to behave in a post-COVID pandemic world was rather murky. This included behaviors such as customers taking pent-up vacations last summer and fall, a more risk-off mentality for smaller biotech investing, and a more risk-off mentality for smaller biotech investing.
Speaker 3: government-induced shutdowns in our highest-growth region, China, and a realization of the stocking that took place during the COVID-induced supply chain crunch that is now unwinding.
Speaker 3: These behavioral outcomes became clearer as we exited Q2 and gave us more visibility going forward. Through it all, and as Q3 demonstrated, our growth platforms are still winning with double digit growth.
Speaker 3: but some are likely to remain, namely the only MD stocking and smaller biotech rationalized spending. Looking further ahead in the fiscal year 24, these remaining headwood should further diminish. At double digit revenue increases we see in our strategic growth platforms who once again be reflected in our headline numbers.
Speaker 3: In the meantime, we expect Q4 overall momentum to continue to improve from Q2 and Q3 with an overall growth rate likely similar to how we started the fiscal year in Q1.
Speaker 3: That concludes my prepared comments and with that I'll turn the call back over to the operator to open the line for questions.
Speaker 2: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys.
Speaker 2: If your question has been answered and you wish to withdraw your question, please press star then 2. We will pause for one moment to assemble our roster.
Speaker 2: And our first question today comes from Paneet Souda of SVB Securities. Please proceed with your question. You may proceed with your Districtiding
Speaker 4: Hi Chuck, thanks for the question. First one on biotech funding, obviously there has been quite a bit of noise out there from bioprocessing. You highlighted a number of things and trends that you are seeing as well as the headwinds. Next up we have a followed China to see that U.S. going to reach the table in a good order of
Speaker 4: But, you know, if the headwinds were to prolong, where do you think the business is more defensible and where you think where the pressures could be felt more? And then I think what Jim was implying is the first quarter is about 7% growth.
Speaker 4: that you delivered. So I assume that's what you're expecting for the fourth quarter. What does this mean for, you know, could you get back to sort of the mid-teens levels as we head into the sort of the first and the second quarter of 2024? Would really appreciate sort of a color on that because I think that's sort of the key question given these biotech.
Speaker 4: questions in emerging biotech headwinds.
Speaker 3: Well, I think first and foremost, I think we're kind of talking about Come back a little more quickly than others are talking about it We we bridge for you to just docking components and a lot of the stock And we know the customers and we know what they're at and they've been very clear with us So we know when they're coming back for more
Speaker 3: and it really is acute one. So there'll still be funding pressures for sure. I mean, the public information out there on the amount of biotech funding reductions are double digit and beyond. So it's impactful. But we're kind of circumventing a lot of that with surgical work here within our own OEM sector, which is really coming back.
Speaker 3: And let's not forget that we were mid-teens in our run rate business supporting BioPharm and our academic last quarter. This quarter we were low-teens still in our run rate business for our consumables. So that all speaks very positively to the current department going forward.
Speaker 3: we just think it starts getting better. We do that you point out. We got one more tough quarter, really tough Q4 comp. We had a blowout last couple of weeks last year at Q4. I kind of wish that would have been in Q1 now. And you're right, it's in that seven-high single digit number is kind of our range. China is a big factor too. I mean, we've got to see China roaring back. We were just over there first.
Speaker 5: And Jim.
Speaker 4: You know in terms of recovery back to sort of you know mid teens I just want to clarify you meant fourth quarter should be in line with first quarter or for the full year In line with the first quarter.
Speaker 4: Okay, and then just if I could you know ask a little bit on the closed-loop system that you highlighted you know what's the timeline on that what's the sort of investment needed there and sort of how it differentiates from the rest of the platforms to the market cocoon and other ones.
Speaker 4: And do you have enough pieces already in terms of the consumables, products to fulfill the entire closed loop system there? Michael Yeah, so we actually made great progress there. And you know we've got a factory that we are putting new programs into every month.
Speaker 3: We have the G-Rex platform which is already in the fact that it's standard out there. The last real misconforming of the integration of media, we have a couple different formulations of media that we're going out with. We've been in media forever but in more regenerative medicine type approaches. So this is a little more different. So we're looking at kind of the make versus buy, how to, it's all about time and scale. So we think within a year here we're out with a cool system.
Speaker 3: So roughly about a year and it's probably a little mushy right now. It could be sooner, it could be later, depends on how much we want to go at ourselves with our own capital and assets versus partnering.
Speaker 3: We have IP and we have solutions for how to actually integrate within DRAM and G-REX already. Some real novel solutions that some of them John Wilson himself has been involved in.
Speaker 4: Got it. OK, all right. Thank you.
Speaker 4: Thank you.
Speaker 6: Our next question comes from Jacob Johnson from Stevens. Please proceed with your question. Hey, thanks good morning. Chuck, maybe following up on that last question, just now that you own 20% of Wilson Wolf, does this change anything about that relationship that does it allow for kind of more collaboration between the two of you? Does it create additional opportunities? Just curious if anything.
Speaker 3: changes from that standpoint. Well, it's a great question. We have a great relationship. We talk every week. The teams have been told that they got it as a point out when one of the keys to deal was the fact that you want us to take over and do moral operations as these exploding in growth because he kind of is more of a KOL out there with all the doc and paracutics and institutions. That's where he wants to more or less live.
Speaker 3: As you know, he just put out a big press release last week here of CellReady. So he's building a new company, a CDMO type model, working with assets from Marker to try and build all that more quickly, get to customers real quickly, save a lot of time, a lot of money with startups, with professors with their cell ideas, etc.
Speaker 3: And guess what the work flow is that's going to drive that whole mechanism. It's our scale ready JV work flow. That means our proteins, T-Rex, it will of course use the Arsenius hardware as well and of course we'll use all our instruments for QC. We'll have our media, we'll have a whole work flow will come in.
Speaker 3: makes us tighter even yet because he wants to make sure that we're integrating for the future too as he builds out these new ideas. Because he's already kind of, you know, understanding that we're at 20 percent, this deal's going to happen. So he's starting to, you know, really focus on what else can go and wrap around, you know, the Wilson Wolf franchise to make it even bigger and better, which is all good for us together long term.
Speaker 3: If anything, we're talking more and we have more ideas for the future to gather to build the next multi-billion dollar.
Speaker 3: more ideas for the future together to build the next multi-billion dollar adventure.
Speaker 6: Thanks for the check. Maybe just stick on the cell and gene therapy front. I think there's been bearing commentary about that end market, but it sounded like you had a pretty good quarter there on the GMP protein side. Can you just talk about how much of that is new customer wins, any of these customers scaling up? And maybe if you could kind of remind us where…
Speaker 3: It's still growing, it's becoming close to material by next year for sure. I think overall we just keep accelerating. I think we're roughly around 200 customers now.
Speaker 3: The large ones, about the same, got a couple more I'd say larger. They're all kind of scaling a little more. We're trying to keep filling the funnel and it's about turning these minnows into tuna and then into whales, right? So in a couple years we hope to have a couple dozen whales and it won't take many to really get this factory humming.
Speaker 3: about the same, got a couple more at Teilhard. They're all kind of scaling a little more. We're trying to keep filling the funnel, and it's about turning these minnows into tuna and then into whales, right? So in a couple years, we hope to have a couple dozen whales. And it won't take many to really get this factory humming. They're coming.
Perfect. I'll leave it there. Thanks, Chuck.
Good morning guys, thanks for the questions. Chuck, maybe on ACD, what's the growth outlook there and how is that evolving as we digest the biotech spending environments? And then in spatial overall, you've now got these two partnerships here with Aqoya. I'm going to pull her.
What, if anything, does the incremental revenue contribution potential look like for you guys on those? Yeah. Well, we're thrilled that it's come back to double digits. It should stay there. We'll see. There's a lot of opportunity. And you realize also this is not a category that's like only biotech or only pharma. There's a lot of academia.
with that franchise. And our academia has been kind of mid-single digit area, so it's one of the hurdles to get over is to keep raising activity. We also have a service component with that business, and that's been up and down, and it was better this quarter. We gotta make sure we keep pounding away on that service. That service element is how we find a lot of new customers. And we'll start with a service contract, and then we blow them away with the data, and then they come on board.
RNA only. So they're a little bit different. We've been pretty clear about being ubiquitous from the high level, you know, of the antenna like all the way down to the lower automation with these guys. And we even play with, you know, with NanoSpring and others in the middle trying to support them. The more they do in discovery, the more rolls our way in translational later. So it's all good.
I just came from the ALDA conference and the theme was spatial. It was a record turnout by about 40% more people. Spatial is hot. There's more coming. There's a lot more innovation. There's more companies coming. There's more ideas. And we're working with all...
Okay, do you have a view on just long-term growth there, and what you might end up looking like as we head towards the longer-term targets? Because that is one of the businesses that I think is sort of kind of like a wild card in terms of whether or not $2 billion or something below that is a reasonable target going forward.
Yeah, as you know, it's a little hundred million dollar kind of run-right business right now. We've always talked about it being a three hundred million dollar plus business, but that's with discovery, but also with pathology. Having Loonaphor and having these other relationships allows us to really give pathologists more if they're looking for it. So they're not working on a single slide under a scope, you know, with a, you know,
With these new players helping us automation-wise, getting into pathology, you know, five to ten years out, this is well beyond 300 million. This is a double-digit growth rate. Needs to be, got to be. When it isn't, we make changes here. It's been as high as 30 plus percent on some quarters and...
We hope to be in double digits going forward. There's academics, there's funding issues this year, it's been a little bit lumpy. We're double digits this quarter. I think it looks pretty solid. We're excited about the relationship. I think we're quite a few months away from actually having revenue on a platform like that, but it's all coming.
Just a follow-up for me if I could Chuck I have to admit as I was listening you welcome Peter in Europe it occurs to me that as we're pushing towards June here we're unfortunately coming up on you being a year away from moving on to the next endeavor. The speculation on the street is that you're starting a band I don't know if you want to comment on that but
If not, can you just maybe update us on what, if anything, the conversation at the board level sounds like in terms of just an executive search, internal versus external candidates, timing on announcement, that sort of thing. Anything for us to think about there?
Yeah, I'm still 14 months away, so you're stuck with me for three or four more quarters. I will not be joining a band. You've not heard me sing.
Obviously, I've done my job with grooming, I think, three excellent internal candidates. All could carry the water here for quite a while, I think. The board is looking outside as well. They have a fiduciary responsibility. The fundamental reason of taking the time and looking broad is that under my watch for ten years, I've now EE established an accountable license for SB 9
I guess we've increased the sales here four or five hundred percent, something like that. In the next ten years we want another four or five hundred percent. We're up six, seven, eight X in valuation in ten years, and in another ten years we want to be up another five, six, seven, eight times in valuation. That puts us at needing somebody to run a $60 billion market cap company at five, six billion dollars in revenue. That's the goal, that's the plan, and that's what we're operating towards. And I will remain on the board hopefully, you know, board willing. I'm not totally missing it.
Our next question comes from Dan Leonard from Credit Suisse. Please proceed with your question. Good morning. Thank you for the time. Chuck, can you elaborate further on the visibility you have into the OEM desocking dynamic? I think it's a pretty good job, Virgin. It's about one and a half percent.
and then we're really building the funnel with new ones. The beautiful thing about biotech is every year there's a whole new, you know, a slate of new people's ideas that want to buy new juice from leaders like us to try things out. So it's building, it's coming back, it's identifiable. And I guess if there's more numbers, I'll let Jim comment, but I think one-half percent is pretty clear.
And then a follow-up question for Jim. I want to make sure I understood your summary comments appropriately. Did you say that Biotechny would return to double-digit growth in fiscal 24? Well, we're in the process of building our plan right now for next year, right?
are also all growing well in the double digits. And so it suggests that we get past these headwinds during fiscal year 24. This underlying double digit growth we're seeing not only in our core, but definitely in our growth programs, growth platforms will start to once again resonate.
and you'll see it in the overall company results. And that's our goal. Let me put a little ribbon on that. So I mentioned our run rate. We watch our run rate and how we're doing digitally with our catalogs. We're funded first and foremost to catalog business for life sciences across the board, biopharma down through academia. And that remaining in teams.
tells us that things are okay. Then you look for the other holes and we bridge it for you. This OEM thing is gonna come and go. You pull that back, we're back to normality. And on top of that, you have these growth programs. Our three top growth areas all have spectacular quarters. Spatial had double digits, 45% gene P-procrines, 20 plus percent in cell and gene therapy overall, and exosome at 87%.
They're not material enough right now to carry the average, but by next year, they're going to be a lot more material and they're going to carry the average. So with all this stuff fundamental coming back on top of these growth programs, we don't give guidance, but we won't be very happy here if we're not a double digit growth.
Our next question comes from Patrick Donnelly with Citi. Please proceed with your question. Hey guys, thanks for taking the questions. Chuck, maybe dive a little deeper on China. It's encouraging to hear that 40% number thrown around for this quarter. Can you just talk a little bit about the trends you saw maybe in March and then into April ?
where it should be a nice stretch in China. Yeah, we were just there and that was absolutely one of the questions, almost per word, what we asked the team in our reviews there. I don't think we're seeing the extreme kickback that came off that COVID quarter roughly three years ago now. It's just coming back strong and hard. Now, again, this is an easy comp from last year for China, but, you know, up to our
So now they're all back and they want more and they're hungry and they're trying to catch up. So some level of that we saw a few years ago will happen. But I think it's more steady. It's more steady too because the instrument component of that, it's also coming back and resurging well. We see really good strong growth going forward. One reason we did have some growth is a lot of it is...
instrument side of things there. And that's obviously a longer sell cycle. But you know, that's one of our business regions where we have stronger percentage of the portfolio is in instruments, and we see that continuing. So you know, going forward, we're 200 plus people strong there. The leader, Lee Nguyen, worked with us, worked with me and Thermo Fisher. He's solid.
He's got many years left to go. He's well respected in the industry. He's built businesses in his past that are five, ten times bigger than this is still right now. So we've got a long way to go. The sales people are great. Our leader in instruments is still the original leader that came with protein simple way back when.
and is more energetic and engaged than ever. We love this guy. He knows the market, he knows every customer. The relationships are fantastic. He's been able to build a big team under him from when he was in a much smaller company. So it's all looking pretty good. We also had a very large reception. We got to really meet and talk to like literally most of the people.
find surprises. We didn't find any surprises. The morale of this team has been fantastic. The engagement's been good. A lot of new people, but only about 25% in the last couple of years are new there. I always ask that. I ask for a show of hands and who's in the last year and who's before that. So attrition's been very good. And we're just holding the fork down. And any day, it's a $100 million business. Ten percent or a little more, a little less of our company. Like and subscribe to see more YogiBack videos.
Back to growing 20 plus percent next year we think is a no brainer. We won't stay at 40 plus, this quarter is an anomaly, but next year we're going to probably work with them on a plan that's 20 plus percent for sure. That's the only reason why not.
And maybe more. We'll get back to you as we get a plan. Okay. That sounds good. And then, Jim, maybe on the margin, I think you kind of framed up 4Q looking similar to 3Q. As we work our way into 24, is that exit rate kind of the right number to think about building off of? And can you just remind us of any moving pieces as we work our way into next year, obviously some of the headwind?
hit margin as well as we work our way hopefully back to that double digit growth number Chuck talked about. Should be some nice leverage in the model. But yeah, maybe just frame up the margin piece exiting out of 4Q here. Yeah. Again, I'll be able to provide more clarity on our margin and margin profile for next year as we get through our plan and our next earnings call. But I guess at a high level I would say I would expect is.
If you look at our margin profile historically, it tends to dip in Q1 and then gradually increase throughout the rest of the year just due to seasonality. Q1 is typically a lower revenue quarter for us and the cost base is usually higher coming off our Q4 fiscal year, the prior year. In terms of that 37 increasing sequentially into Q1.
I would say probably not, but if you look at the full year of where we finished fiscal year 23 looking ahead to fiscal year 24, at this point in time I don't see any material headwinds to margins to why we wouldn't at least expect something incremental margin improvement year over the year.
or margin profile for that business.
As you know, we've taken a, I wouldn't say a conservative, but a careful approach to their expansion and growth. We've had a dilution level that we've been able to live with the last four or five years, whatever it's been now. So, it's a relief that it's been an model of our new era with fewer and $3 billion in
I would say that dilution level is down by 30-40% when it was because we're investing. We're at full strength. We're near to it. We've almost doubled that sales force. We've added a new team for really an experienced team to really go after the larger private payers. We had to get big enough to attract the right players.
people in town to do this. I would say the size of the businesses up headcount wise, roughly 30%, 40% maybe even a little more from a year or two ago. We talk about where is the break even point. We talked and passed to finding record sales and calls it. We bought a second to be 30 million in revenue and then found out that we can talk to you about what would be no more like 60 or 70 million in revenue to be a break even point.
We hit 11,000 tests last quarter, which is pretty remarkable. As you know, we've got the full answer to the guidelines now into our reimbursement equation. That means we can go back after patients that have had their first test done or had a biopsy and can have it again and use it for surveillance. The entire period before last quarter, I think we had 15 tests done that were a repeat.
In the last quarter we had over 204. So we're going back after these surveillance patients, which is an added, which really is an added town, right? So that's one thing that you're seeing I think the growth even accelerate. And I don't even think we did a tipping point yet. I tell the team, I'm looking for, you know, something north of 100 percent growth. And I think that day will come. So. Apply now.
All right, great. And then can you quantify what you expect the OAMD stocking headwind to be in the fourth quarter? I guess if adjusted third quarter growth was 10% and then you have in fourth quarter, you know, China's turning into a tail end, then why shouldn't organic growth be a little bit better than that 7% number you talked about?
even if you see similar levels of de-stocking. So I would say this, Jim, I'd say the OEM headwinds is almost exactly the same for Q4 as it is for Q3, at least that's what we're predicting as of right now. As are the general biotech softness headwinds still are with us until we get past.
the last year very tough comps. As Chuck pointed out, the comps for protein sciences was the same in Q4 as it was in Q3 last year. They're both equally difficult comps.
And, yeah, and so, yeah, China will be better. You won't have the extra true, but at the end of the day, you know, I think the overall headwind spacing protein sciences segment are the same in Q4 as they were in Q3, and with the exception of China. But in the end, and.
We expect Dynoptics and Xomics to be better because they don't have the ExoTrue in it next year, but again that's only in total about 25% of our business. So the incremental China and the lack of ExoTrue is what gets the overall company growth rate and we call 3% hopefully north of 7.
Our next question comes from Justin Boers with Deutsche Bank. Please proceed with your question. Hey, good morning. Just want to follow up on some of the last couple of questions. One, on the OEM, is that headwind that you're talking about in the back half? Is that...
Is that sort of like the full year headwind as well? And then just taking a step back, if we go to pre-COVID, is the business
and the sales cycle to that similar to the runway business or is there some seasonality and lumpiness to that business.
In which area? Sorry, for the OEM channel. For the OEM. Well, I think COVID has had an effect on everything in OEM. I think it's affecting the environment, it's affecting funding, and it's affecting conservatism and all the above. So people have been stocking and have been careful through the supply chain risk.
environment we were in last year. You call the back half would be the front half of our next fiscal year. We see it improving for us starting in Q1. Others have been online here recently saying it's an all year event. I don't know their business as well as I know ours. So I think we've got some large OEMs that are running out of stuff. And they're not insolvent. They were conservative and they've stocked up.
We have a few that are that are new and coming and growing and we have a few that are Shrinking and going away and being bought or whatever. So I think the net net of it all we see an improving OEM You know First half of our fiscal year from from what we know right now We're just being transparent what we see right now next quarter, and maybe it'll all change I don't know. Maybe something else will happen. That's what we see right now, and we're pushing on these customers to start buying again
I mean obviously at some point they start to run out of inventory, so we're trying to model as best we can when we think that will happen. And we do think at some point in the first half of fiscal 24, as long as their sales continue, as long as they continue to have sales, they're going to need to restock on some more inventory.
Got it. And then just... Don't forget that. We're not happy with a handful of large customers. We've got hundreds of customers. We want all hundreds of the large stuff.
Our next question comes from Alex Novak with Craig Hallam. Please proceed with your question. Okay, great. Good morning, everyone. I was just curious if there's any product lines out there that are just not working in the portfolio because to a prior question and in the preferred remarks you talked about cell gene therapy, G.P. proteins, pro-synthesized facial, eczema, all these being very massively in the quarter but just not enough to drive the average. So I'm just trying to understand is there a product line that is just struggling from competition and changing pure demand?
stimulus in Korea and Japan. So those things kind of weigh into that. When you add all that back in, I think things are fine. There's no real issue there. I would say in product categories, what I'm most worried about is kind of what I'm always most worried about. It's a horizon. It's assets. So that's why we bought SimplePlex. We're big in Luminex. We've got an asset portfolio that is together. It's high single digit growth and…
Hopefully back to double digit here soon when it all comes, but Eliza's up and down Low, mid, high, single digits. That's kind of where it lives and it's still a big part of our business, you know So, you know, it's kind of that Okay, make sense and then the path to 2 billion sales from the analyst day I mean looks like we're going to need about 22% annualized growth to get us there It sounds like maybe teens for next year. So that really weighs on Wilson wolf GMP protein spatial
to be massive accelerators in fiscal 2025, 2026. Is that right or is the full 2 billion number need to be updated? We're not ready to update that yet because we were ahead of the game here less than a year ago from the accelerated growth that we had. We are more or less ahead of everybody expected. Yes, this year we've given some back and yes, we've still got a few years to go. We need the cell and gene therapy to light it up. We need the patient to keep going in double digits.
A facial needs to be, you know, needs to be solid double digit as well. I'd say we're a little behind, we need to be there. But we have new things coming as well. So, you know, it's too soon to say it's going to be 1.9 or 1.95. It could easily right now still be 2.1. And in Wilson-Wolf, that whole area is a big kicker and icing on the cake, right? And a lot of stuff takes ten years. You know, we've…
We're just in a lot of things that are going to take a while to develop, but they really hit their stride three, four years out.
Well great, thanks everyone for attending. I'm glad that we kind of set the expectations set last quarter and a little better on the bottom line and I can say we're in great shape looking forward to this quarter. The team's in great shape. We're wearing a go and the energy's high and we'll talk to you then. Once again, thank you.
Great, thanks everyone for attending. I'm glad that we kind of set the expectation set last quarter and a little better on the bottom line. I can say we're in great shape looking forward to this quarter. The team's in great shape. We're wearing a go and the energy's high and we'll talk to you then. Thank you.
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