Bio-Techne Corporation (TECH) Earnings Call Transcript & Summary

Welcome to the Wells Fargo Healthcare Conference. Before we start, please note that Wells Fargo's Securities events are by invitation only. [Operator Instructions] Also, please be advised that today's conference is being recorded. Thank you.

Well, hello, everybody. Sorry about the late start. Thanks for joining us for the fireside chat today with Bio-Techne. Joining us from the company are Chuck Kummeth, CEO; Jim Hippel, CFO; and David Clair from Investor Relations. I'm Dan Leonard, the life science tools, services and diagnostics analyst with Wells Fargo. The format is fireside chat. If you have a question for management, please raise your hand in Zoom or shoot me an e-mail, and we'll try to address it. I'll lead off with the Q&A. And with that, welcome, team Bio-Techne. Thanks for being here.

Great. Thanks, Dan.

So I wanted to start off. COVID is a topic du jour. It's been the topic du jour for the past 6 months. Perhaps you could elaborate on your COVID-related opportunities across the portfolio.

Sure. Well, we have a fair number. Not all are very scalable, but we're primarily a research company, but we have had a nice -- we had a 5% lift last quarter due to a combination of different products adding up to that, starting off with Ella, our Simple Plex platform, to multiplex amino assay, which has been used in identifying COVID and used in Italy and different things, and it's being relied on for more and more research now. We have a very nice little hit going with RNAscope. We have a set of probes design with RNAscope to detect the virus in tissue, which, of course, is a lot of interest, to not only study it in lung tissue, but is it actually showing up in other organs of the body. So there's a lot of interest there as well. Of course, we have reagents, antibodies, proteins that are being bought by many larger OEMs. Even some of the diagnostic kits and products you see in the market are using our reagents in them. And then last and the biggest possible opportunity we have is our own serological tests, which we've been working on for some time, and we have submitted everything we need with Mount Sinai to the FDA about 3 weeks ago. And we're trying to be patient awaiting the outcome of an EUA. We do know that it's forthcoming, and it's a matter of weeks, not months. We've been told that we've addressed all their questions and concerns. The data is quite extensive with this dossier we submitted because we are going after claims for a fully quantitative application. And so it's a full, tighter -- a tighter level of immunity you have, and it totally eliminates all false positives, so which is it's a 2-step test. And we are currently in testing with over 50 potential customers. So we are -- we have sampled pretty widely right now, and there's a lot of interest.

And Chuck, how should investors think about framing the economic impact of being in testing with 50 customers? Is it something that they've -- have they messaged to you what they expect the demand funnel to look like, how they planned the market, the unique aspects of that test? Or anything you could share that we might be able to -- were going to be helpful as we think about...

To be honest, the big ones that you really want to allow for this channel, we're able to do probably more than 5 million tests a week in capacity. But there's a big difference from doing that and doing 5 million blood draws a week. So you've got to get into the channel. And there's more than one company you need to actually address that kind of demand. And then there's the whole unknowns around serology in general. As you know, serology has kind of stubbed its toe to begin with here, nowhere near the size of demand that the PCR is coming in. So we're all kind of waiting. We do, though, expect with -- and as of yesterday, with the AstraZeneca scare, end of the year, there's going to be a half a dozen vaccines. And they're probably going to be triaging how they -- who they go out with first. And then if you want to cure an elderly person that wants to see their grandkids again, you're going to want to know if you're immune yet or not. So there's going to be, we think, a fair amount of demand over the next 6 months to a year for serology to understand the level of immunity that you have. In terms of them telling us specifics around that level of demand that they each might garner for market share, until we get the EUA, until they know our claims, they're really kind of staying kind of cautious about it though. But soon, it should be very soon.

Makes sense. So moving on from COVID or somewhat related, but can you give us an update on, mark us to market, what you're seeing in the various customer end markets and regions where you participate?

Yes. So first and foremost, how is academia doing in the U.S.? It's coming back slowly, slower than we all want. We're nowhere near back at full strength. We think we'll outdo last quarter, but this quarter, still nothing like a year ago. And we had a really strong comp a year ago here too, and it was a great quarter 1 year ago. But it's marching along, and the labs are reopening. So that's kind of there. Europe is in pretty good shape. U.K. is the only area that's a little bit behind. Everything else is kind of really back doing well. China was doing gangbusters and then softened a little bit when Beijing had their hotspot. And that's kind of coming back as well. There is a lot of quarantining going on in China. So they may be reopening the labs, but then when you get there and get on-campus and you're having a quarantine, you can't get to your lab. So there's some of that happening, too. But we think China is still a double-digit forward-looking for us. No problems there. Japan and Korea, everything coming back okay. Southeast Asia, not -- is pretty slow, and India is a virtual disaster. So there's nothing going in India right now. So that kind of covers most of it. So we're putting the most emphasis on trying to really get after new ways to get back to customers in the U.S. It's still all pretty virtual. And so we're trying a lot of different -- a lot more webinars, a lot more online, a lot more SEO support, data analytics, et cetera. So...

And Chuck, on India, you don't do any meaningful degree of business in India, do you?

No. We had added and we created a team. We've got a subsidiary, that already went from 4 to 8 people in the last year and just before COVID kind of hit. We are roughly $4 million, $5 million in sales, and then we were hoping to nearly double that this year, but that won't happen now. But we see India being a 30%-plus grower in the next 5 years annually, for sure.

Okay. And maybe that's a good segue, thinking about 5-year increments. You offered up 2023 targets a couple of years ago. Can you give us an update on whether you think, given COVID, all the disruption and offset by some of your opportunities there, whether you think those targets are still feasible, the 11% to 15% revenue CAGR, the 40% EBIT margins?

Yes. It stands to reason there's at least a 6-month delay in all that, probably. It could be longer. We'll see how it goes. But the 2023 template we gave you, to $1.2 billion and 40% op margins, totally admitted any cell and gene therapy and certainly nothing to do on serology. So we're still kind of bullish that we got a good shot at that. And we really wanted to get out to New York and have an update session this fall, which is probably [ a have to know ]. But we have a model that takes us to $1.5 billion when you include cell and gene therapies and other new products coming. So -- and we -- we still feel more bullish than ever. We're already getting to 40% op margins. Previous to Exo and COVID hitting here, we were at 40%, if you subtracted Exo, Exosome from our sales. So we're doing fine there. But certainly, some delays in the whole thing shifting. I think everyone's telling you there's a bit of sideways now, but it's probably unknown just how -- what extent that will be, unless we can make up that and then more than that, with potential COVID-related products, which is, we think, more than plausible. So...

Okay. So maybe we should shift then to some of your specific business and product discussions. So to start with, your core Reagent Solutions business, can you offer an update on what is the outlook for that business from a product standpoint and maybe some of the growth trends?

Yes. Well, as you know, we took that from flat years ago to mid-single digit, and it's been high single digit, even low double digit, in the last couple of years, especially antibodies. Very strong. I think our SEO, our data analytics, have provided a nice template to really take share and grow our antibody business. Proteins have been hot and hotter. I think oncology has been a really strong momentum in the last few years, and so that's driven that. And we have just executed better and better and better. Now I was a bit concerned this year when we pivoted, 150 people went after serology in a big way, which is all about developing antibodies and proteins. And we cracked a very unique high-affinity antibody, a secondary antibody, that it makes our serology test what it is. But we did all that. Actually, I'd tell you, the team did an outstanding job, worked a lot of overtime, a lot of nights and weekends. And we finished the fiscal year with the same level of new product launches that we had the previous year, which is over 1,500. So there was no loss of new product launches. So I was actually kind of astounded, to be honest. Our custom business in both designing antibodies and proteins for key customers and OEMs was strong as it's been, and that continues to be very strong. We keep being approached about developing unique reagents for COVID that unfortunately, they're some of the things we're using ourselves, so we're not sharing as much as we may have in the past. But the demand is there. The word is out that Bio-Techne definitely understands this area and has a great level of quality and bio activity, so it's a good source for your reagents if you're looking for new diagnostics or whatever. So I think we're sitting in a pretty good place for the core RSD business. Now the other half of Protein Sciences is ASD, of course, with the instruments and the assays, and the assays right now are focused on serology. But our immunoassay platforms, our multiplexing platforms, in general, Luminex included, are -- have been doing very well this year, and so they continue to do so. I think it's a lot of handle effect off of COVID, probably. Instrumentation is doing gangbusters right now. We're doing fantastic. And biologics has been used in a lot of different areas and now is being looked at for cell and gene therapies. So we're getting a lift there. So it's nice to see that coming back into strong growth. Simple Western is definitely not back. And that's primarily an overhang from academia since about half of its market is academia. With academia still being off, Simple Western is not really on. It's doing okay, but not growing at the 20% of what it was, for sure. And Simple Plex is a 100% grower, still screaming. So -- and there's just a lot of uses, a lot more uses. This has kind of put -- this -- COVID has kind of put Simple Plex kind of on the map as a potential platform, all the way to point of care. And so a lot more interest around Simple Flex and our Ella platform.