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

I'm Jacob Johnson, the life science tools and diagnostics analyst here at Stephens. Really pleased to have the team from Bio-Techne here with us in Nashville today, including CEO Chuck Kummeth and Dave Clair from Investor Relations and Corp Dev. Chuck, I'll turn it over to you for any opening comments you want to make, and then we'll go into Q&A.

Sure. Glad to be here. It's my first time ever in Nashville, and I wish we were located here. But Bio-Techne, where I've been here almost 9 years, it's a 40-some year old company at this point. Everyone knows R&D Systems. We, the team and I, have done a fairly good job of acquisitions and building it out over the years, but we're now -- we're still a tools company primarily, but we're expanding into diagnostics areas as well as other areas and higher forms of instrumentation. We've got a big -- I think a big head start on cell and gene therapy workflow. We've been talking about that. I think we're going to see amazing success of that, but it's going to be a few years out yet. And -- but all in all, we've got 5 divisions and 3 regions, about -- we'll be knocking on 3,000 people this year, it was 700, 800 when I joined. And trying to get to a $2 billion goal for the team here. I think we've got that in our sights. We talked about that in New York a few months ago. We see a clear path to get there and still hold our margins at near 40% or better, which is never easy. And we're not really a COVID stock, not a lot of tailwinds, but I would say that we're all benefiting from some kind of a COVID halo in research, right? There's just a lot of business out there, and we seem to be perfectly positioned for that as well as this whole proteomics wave that's kind of going everywhere, which is what we do. So it's all good. So happy to take questions or go in any direction you want to go.

So we'll be predictable and go the direction, I think, everybody goes with you first. Kind of post-COVID, really strong a couple of quarters. Some of that's due to some specific pieces of the portfolio that I want to dive into. But maybe first, just talk kind of high level what you're seeing from various end markets. In particular, maybe talk about the outlook for kind of life science funding in general since you always have a good feel for that.

Well, we've -- our guidance has been around our momentum being pretty much the same as it's been, and we're still seeing that. The NIH funding releases over the last months were 12%. We've all been hearing about the budget is going as high as 20% next year. We're all waiting. We had a little bit softness in academia last quarter, we talked about that. [ The biopharma ] was much better. It's still better, [ a knock on the park ]. And academia is probably about the same, but we are hearing from a lot of our academic accounts that they're starting to be a little cautious because the budgets are being delayed, the decisions aren't being made and they don't know what's going to -- it's going to be -- usually it's by now, and they're thinking January, February. Congress is kind of busy on other things, as we all know. It is a very much of a bipartisan direction, though. There's never been an issue. It's been pretty good funding pre-COVID even. But I do think after $5 trillion of issues, concerning disease, I don't think an extra $4 billion, $5 billion, $10 billion in NIH is going to be a big problem. So I think you're going to see a pretty big lift. And then there's all these pieces of the new bill, whatever ends up being are going to go to all these different areas for handouts, so that they're going to trickle their way down into research, too, I think. Everything -- the government, DOJ, everything else is just -- everyone's going to have their hand out. And there's a lot of research happening and it all kind of ends up somewhere around proteomics, in that general area. So I think it's going to be a great few years. That's here. Europe is fairly strong as well. We've been double-digit growth. Markets seem good. I don't know who's to say now with all these surges and what Germany is going through and stuff, things could change, but right now, we're not seeing any issues. In China, it's almost baffling. We're just still knocking it out of the park. And we had 50% growth last quarter. We've never seen that in my time here. So I mean they skipped one quarter beat and then they never looked back as a market and it's just been on fire. And I think it's going to continue, at least a 25% growth for us. We'll cross $100 million of revenue. And China was $12 million when I joined here, so we're starting to get somewhere. So I like to tell my team, we're spitting out a new Bio-Techne China now every year. So...

A lot of unicorns in the portfolio to talk about, too. But maybe talking about the instrument portfolio first. I mean -- I think that's been probably the big highlight over the last year or so. Just how much of this is labs looking at increased automation post-COVID? How much of this is maybe just about better customer awareness of the instruments you have? And then maybe -- well, we'll start there, and then I've got another follow-up.

I think the biggest ingredient of our success and growth -- and our model to get to $2 billion is like a 15% kind of number, and we're burning around closer to 30%. And I think it will be a while before we drop off to 15%, to be honest. We've reached tipping points of critical mass in these businesses, and they're just getting easier to sell. 2 years ago, to sell a simple western machine, we had to do a demo. They wouldn't believe what you tell them without seeing it. And now 90% of all our sales are done without demos. So because they've got 2 or 3 and they -- "Can you get another one here by Friday? Because we love it." It's more of that. So we're just getting big enough. And we're at 2,400 machines in the field now, so let's get back to that critical mass. Simple Plex is now on [ a terror ] as well because it has many workplaces to be used, including cell and gene therapy being spec-ed in right now and being looked at for preclinicals and clinicals. And biologics, our instrumentation is also more than just protein purity. Online, it's now being looked at. It is also in -- it's being as -- part of the spec for cell and gene therapies. And then all the new pharma out there, the Fates, the Kites and the Junos and such, they don't have the rooms of a -- an ancient HPLCs they've got to use in a line like big pharma does. So there's always that fight between development and manufacturing of these pharma companies. And new pharma, they're all for the new stuff. So we're doing pretty well there. There's been -- some of it's been around productivity. As labs have come back in, they've been better spread out in academia. For one, it has had to become much more biopharma-like, a little more structured, a little more rule-based and they're not standing around, drinking your coffee anymore and yes, they're doing their work at home and their math at home and their papers at home and they come in and do their work and they -- when they were using Sally's machine down the hall, now they can't, they had to get their own. And so there's been some of that as well. I think that's probably winding down. I think we see academia pretty much back at full strength. And in China, I think it's the same thing. It's been a lot of expansion around safety protocols and productivity and then some of the tipping points I mentioned. So...

Got it. I mean you mentioned at your Investor Day -- I think there's 100-something slides out there if they want to know everything they need to know. But one that I really liked was kind of showing the relative maturity of your instrument portfolio. So you kind of talked about where we've been in the last year or so. But can you just talk about within the instrument portfolio, the greatest areas for growth across those franchises? I think it's Ella, but I'll let you comment on that.

Well, yes, probably the biggest potential, so it's probably Ella because it can hit so many different markets, addressable markets, right? It can be a diagnostics platform, a biomarker research tool, it could do all these things. The other ones are much more defined, but -- like Simple Western's a big pond, right? We're only at maybe 15% market share. There's an awful lot [ of hand Westerns ] to turn people over to using automated tool. Big pharmas come back to doing Westerns now, they walked away from it years ago because they're inconsistent, messy, ugly, hard to do, it takes a couple of days, and so they're using mass specs. So now they can use a $50,000 tool versus a $0.5 million tool. Get the same job done, and it stops smashing hands with hammers. And so that's -- we're getting a lot of expansion coming from that. And that's what they're telling us, they just -- "We love the machine, and we can free up our mass spec by having one of these." So we didn't expect that. So -- and again, all 3 of these machines are finding places to be looked at in the protocols and workflows for cell and gene therapy. That's a whole another market. So I do think Ella's biggest opportunity. I think Simple Western is second. And probably, biologics is third. Remember, in the first 2, we have IP. We're the only game in town like those 2, where the biologics platform, there are others. There are other solutions you can use, ion exchange, HPLC, other things. So...

You mentioned Ella and Simple Western, 1 and 2, so I'll ask a question about #3 biologics. I think you launched some new instruments there earlier this year. Hopefully, I don't mess up the names, but I think it was Abby and Jess. Can you just talk about how that launch is going? And then as we think forward to -- like how much more opportunity is there for like innovation in the instrument platform?

We've got a heck of a pipeline. There's probably no less than 20 programs in those pipelines for the future. So everything from new software protocols like Empower to new plexing variations for the system, which everybody wants to plex more sensitivity always. So there's things we're working on to make them faster, more sensitive and more bandwidth.

Got it. And then can you just remind us kind of mix of instruments versus consumables across that portfolio?

I was going to mention 2. It's a cartridge approach, too. So there's a lot of technology in the cartridge, which makes them so easy to use. So we have to also move the cartridge technology forward as well. And that attach rate is -- it varies. I mean it's a $10,000 per instrument per year on biologics, 12 in Simple Western, and it's like 50% in Ella. So -- and the attach rate in Ella is very high because it's a closed system, but it's probably 80%. The most we will ever get on the other 2 will be 50%, probably. And then -- and we're running about 55% on all 3 right now, so we got more room to grow. We're still scaling really. So we've kind of -- when we have quality issues or issues that deal with -- it's usually around the cartridge. So there's always a lot of technology to deal with in that cartridge for all the platforms. So working with those little, tiny filaments, the glass and like -- there's a lot of technology in those things.

Got it. You've tried to move to cell and gene therapy, so I'll move in that direction since that's what I'm most interested in, and I think probably maybe what you're most excited about. I think you're excited about a lot.

Yes. Well, for sure. Because in 10 years, we'll be a -- probably a cell therapy company and everything else will be [ rounding here ], but [indiscernible].

So on cell and gene therapy, maybe just talk about, I think, the largest near-term opportunity, GMP proteins. I think you just opened the facility, you just started shipping from that, if I'm not mistaken. So maybe just update us on where that stands or remind us kind of the revenue capacity there?

Yes. We used to say it's 140 to 200. It's really 200 plus we've discovered from using other methods that we have in-house, but also the scalability of the size of the lots. We're getting efficiencies we didn't estimate. And we can easily make $200 million of even the easiest, lowest priced protein. So it's somewhere between $200 million and $300 million, probably, depending on the mix. And it will take us 5 years to fill up, but we're going to be in a 100% growth ramp or better for every year for a while and probably higher than that if you look 3 years. So that's exciting to us. That means in 2 to 3 years, it will be bigger than our entire RUO protein business that we spent 35 years building. So...

Pretty good. Can you just remind us the breadth of the offering, too, kind of where you are?

We have 3 right now. And you have to do [ a lot to lot, consistent -- you have to have 3 qualified lots ] to be in production to say you're selling GMP product, and that we have 3 products. We have a catalog of 50. It's the largest out there. But I doubt we'll ever get to 50. By the time we do though, there will probably be a new 50. But the ability is there. We're not saying which because we'll have these guys chasing us if they know which one we're going after. So...

It starts with an IL and ends with a couple of numbers?

Yes, there's 1 that's not IL, but 2 more ILs, something like that, so they can guess which one.

You've talked about the business, I think, doubling the next couple of years is the goal.

It will double every year. Double last year. This year -- it will double this year. And it will double the year after that. And then it will probably more than triple because we should be hitting the J Curve because we should be getting some of these clinicals going into production. So...

So on that J Curve, maybe just talk about kind of high level the customers you're working with there today, where are they kind of in the clinical trial process?

Let me put it in scope for you just how big this could be. And I don't think we're going to be -- we may be sitting on something just so amazing, we might be throttling the entire industry. That's what they're most worried about, these big customers, is that will there be enough cytokines out there to actually create this industry? Because nobody's -- they're not doing it. They're relying on us and little Miltenyi and little CellGenix and maybe some other mom-and-pops trying. And that's all there is. So we think it's ours to lose. We spent 5 years here putting this in place, this workflow. We have -- you've seen our diagrams in our investor deck, and you've probably seen in the bull's eye chart. We -- with our ScaleReady JV partners, who've been at this longer than us, Fresenius Kabi and Wilson Wolf for the bioreactor, there are 650 customers purchasing these things today. We're only a dozen, so that we're early into this. And our ultimate goal is to actually ship proteins already embedded -- already has a closed system within the bioreactor with Wilson Wolf into the systems. Right now, it is a nightmare trying to actually create and work media and proteins into the sterile environment of a cell media line. And so there's a lot of manufacturing innovation happening. So the way it's done today will not be the way it's done in 3 to 5 years. So we hope to make a new standard. And we have -- the ones that have come to us to say, "If you're serious, we'll do this as -- we want to make sure you're serious and you're going to actually be in manufacturing and not just RUO anymore," because we show them, "Well, here's our $50 million factory we're doing. We're going to be serious." And they show us their needs. They've given us contracts. We asked for 95% of their needs, and we -- as we've gotten a contract. And they won't give a forecast yet. But they predict of all the dozen we're working with right now, the lowest one is $10 million in a single protein and some will go higher than $50 million per protein. And there's 650 customers out there. They're not all going to win, but 50 will. And in 5, 10 years, it's going to be amazing. And this JV will be -- hopefully become more than a JV by then. We'll integrate some things, hopefully. And hopefully, yes, not only the best workflow for today's system, which is viral, but also tomorrow's system, which will be nonviral, transpose unrelated. So -- and we're the only game in town for that. And we already have preclinicals going. So there's a lot of interest in it because it really works. So...

Got it. Just I guess following up on that, I guess, the path to the $10 million to maybe $50 million, that's commercial demand, right? So this...

This $10 million and $50 million are different accounts.

Yes, yes, yes. But that would be a commercial?

That's commercial, yes.

That would be part of a blockbuster drug probably, right?

So I can't imagine how big a drug has to be if you need $50 million of protein in the manufacturing process. It would have to be pretty big. But that's what they're telling us. So...

But in -- where these customers are today, they're somewhere in clinicals? We're not -- and do you have anything kind of late stage?

No, no. There are -- I think we might have one in Phase II, but they're mostly preclinical or Phase I.

Okay. Got you.

But now on -- Wilson Wolf and Fresenius have much more. And I don't think -- and they are also in process of record that have come out a couple, but they're where they're at. So...

Maybe just on the ScaleReady partnership, can you just -- I think you alluded to the size of the relationships there. But can you just remind us kind of how big those are in terms of quantity across it, like 500 something?

The accounts?

Yes, yes. That...

Over 600.

Over 600.

Yes, they're over 600. And we're in a dozen for real. And we're -- they're working on getting us integrated to many, many more. So we have a protein product we call ProDots. So we're able to lyophilize protein and have it come out in a -- almost like a pellet form. And so it's much easier to deal with and reconstitute. So we're trying to go that. I think we have IP around that. So it's actually very hard to do. It's hard to get -- it's hard to work at that modality and get the reconstitution to come back with [ the right ] bioactivity. And so freeze drying and bringing it back is not as easy as it sounds. So people tend to do it in liquid form and do it that way. It's -- but that's a messy or harder process where you're thinking about scaling a drug line in media line, right? So -- and I should mention, too, we probably can't really win this long term if we don't also deal with media. So we have media now. We bought a media company. And so we're going to be probably scaling up more and more media around this as a part of the solution going forward, too. Maybe buy somebody, I don't know, but we have the wherewithal to actually do media and build our own media. So we'll probably be in that game. And we'll talk about that more probably in the year when we have it a little more figured out. But a lot of pressure for us to get into that as part of the solution. And it kind of makes sense.

Yes. And that media is not -- that's separate from the 200 million proteins? So that's another opportunity?

It's all separate. It would probably go along that same factory there. And it would be another multiple, probably a new revenue.

Okay. That's not nothing. Just on the ScaleReady partnership, can you just talk -- I mean, is that something that was impacted by COVID and now that those people are getting -- I mean, I've seen them -- had a meeting on the [ Mesos ]. Is it helpful for them getting in front of people face-to-face again? Or...

I suppose. I mean I know the Wilson Wolf side better than the Fresenius side. Fresenius has a new platform they've been late in getting out. That can really do one up on Miltenyi. I think that's coming now. It's there finally. And I don't think there's been a real lack of interaction there or interest. I think progress has been steady. I know that John Wilson pushes us pretty hard. So...

And then in terms of kind of cell types, cell and gene therapy is a big world. Can you just talk about the -- maybe the key areas you're focused on in terms of the types of cell and gene therapies?

It's T cell and NK.

Yes. Got it.

There will be varieties, right, but that's the type they are. So maybe some B cell, too, I don't know, but there's -- we've got all we can handle now just working with T cell and NK, to be honest.

Yes. So -- I mean you've got proteins launching, but the others -- maybe media down the road, the other 2 you have today, nonmagnetic feeds and then you mentioned nonviral, can you maybe just comment or update us on where those stand in terms of adoption?

Well, TcBuster, our B-MoGen technology, it's transposed on related gene editing, which depends on electric curation. And we use -- we're ubiquitous there. We probably primarily use MAC site, but we can use anybody and people are chasing that. And we probably should have one of those in our JV or something or purchased in our workflow. We're looking at that as well. But it's hard to figure out who's the winner right now. But that's working pretty well. We're actually using that same technology to improve our efficiencies in our antibody development and our manufacturing internally. It's really an interesting technology. The [ CAR goes ] more -- it's more efficient. It's faster. It's cheaper. It's just -- it's way more predictable than viral. No one wants [ for the virus ] anyway, but -- so -- I mean, it's just a 20-year standard, so it's going to be hard to slowly unseat it, right? So -- and then the bead technology, it's been a little disappointing, to me, to be honest, because we bought that earlier. And it's been more difficult, we thought, to get these polymeric beads to be consistent. They have to be -- in an application, they have to be [ printed uniform in size. And then we impregnate them or whatever we're going to do ], but they've been hard to make small enough in the same size. We've -- we're cracking that now, finally. And they're pretty cool because you can do your aggregation and all this stuffing you do with beads and feed them with antibodies, whatever. And then when you want to get rid of them, no magnets required, just dissolve them and they go away with an enzyme. So it's pretty cool. And then we're actually going to have a morphed version of this, part [ that ] and part magnetic, too, because some of the early people wanted to still use their magnetic equipment, so they want what they want. So we're playing around in all the varieties of it.

So that would be another new offering, magnetic?

Yes, a new offering. And -- but I don't -- we don't see that as a big area. It's -- if we were at capacity, if we were $300 million, $400 million as a division, then maybe that would be $40 million, $50 million [ a week, something ] in that range. TcBuster could be a little bigger than that, I think. And then in the QC side for instrumentation could be...

Yes, I wanted to do that.

It's hard for us to quantify how big that applied market would be for us. We just know there's a lot of interest. The last 2 quarters in a row, we're at a $50 million of run rate on Simple Plex, but we've had $3 million of revenue just for testing, buying and for spec-ing and for cell and gene therapy applications. So it's being looked at. And if that -- if [ Abby grabs that, too, around everything ] else it is, it's going to be a big platform.

And you're seeing it elsewhere, too. In the -- and some Simple Western?

All 3 platforms are being used in cell and gene therapy. That's one reason we're at 30% growth again in biologics. Everyone was confused why we get so good all of a sudden. We had that softness for a while. And once we got Empower out, that helped. And then, I think, there was a lot more purchases because vaccine makers were ramping up. And so they bought more, but there is a lot of the stuff going into cell and gene therapy as well. So we've been running at 30% plus, and I don't think that will last. Our models for our $2 billion bogey is $15 million. So we don't need $30 million, but we'll take it as long as we can get there. So...

Doesn't mean you're not going to try to outpace $15 million.

Doesn't mean I'm not going to try to outpace. My team knows me pretty well. We live by the adage, you work much harder on whipping the ponies that are winning to go faster than worry about bringing up the ones who are behind. So...

And then something else on the cell and gene therapy side. You've alluded to media and, I guess, magnetic beads. But in terms of building out that portfolio further, if you're going to become a cell and gene therapy company in 10 years, can you just talk about how you think about organic versus inorganic efforts to get into cell and gene therapy?

Well, I think -- like I mentioned, I think, we probably should look at the electroporation. We should try to build out our whole workflow. Nobody seems to be chasing us. There's lots of people out there with a one stop, one thing in the workflow and getting into cell and gene therapy, but that's not the way to win. That's why we did the JV is so we could actually have a better selling thesis to big -- to biopharma and you really get their attention, which is working. So we're not too far from having a totally closed loop, really, but I could see us do more in cell sorting, spatial analysis. You're going to have -- our -- one thing also in our workflow is using our RNAscope for ACD technology and that single-cell analysis. And it's a great tool for testing the cells in a cell line. Are they healthy or not? So it's being used for that. But more of that. There's all kinds of players out there doing a massive protein screening, multiplexing, right? But you -- in the end, you got to still come down that funnel and interrogate a single cell somewhere in much less plex and we're really good at that. We're still -- as far as I know, the RNAscope is the best tool out there for sensitivity at that level. So...

Yes. I guess one bigger picture kind of follow-up there. Chuck, since you joined Techne, you've done a variety of deals that have given you a lot of capabilities. Do you think about kind of now versus a couple of years ago, you got a number of [ unicorns, which we'll get the exons on here ] in a second, in the portfolio, but you also have added a lot of talent, so is it easier for you to kind of make organic investments that add capabilities today than having to buy? Or has anything just have shifted there?

If you look at the ROIC on this GMP factory, you know it...

Yes, you're pretty good.

You'd look how -- long and hard to find any acquisition that could match that, right? So we always try to -- organic is always better if you can do it, but you trade off organic with inorganic because of time and money, right, and bandwidth, right? So you gap fill when you have to gap fill. And you do it for speed, right? So we'll do a mix. 7, 8 years ago, our growth strategy was 2/3 inorganic, 1/3 organic and really trying to build out the operations of a company to be a real company. We check the box there, and now we're probably the reverse. We're probably 2/3 focused organic growing these platforms that we have and getting under them, more exosome, more partnerships, cell and gene therapy, things just talked about, et cetera. But that's not to mean we're not still hunting. To also go along with cell and gene therapy, our mRNA and plasmas. We took a big swing at Aldevron. I used to work with EQT. I was in the Board of BSN Medical. They know me well. They said, "You're the one company we'll let in this process and we'll take stock because we know what will happen the day you announce to get this deal, your stock will go $150, and we like that." I said, "Well, I agree, and we'll do what we can," and we came out with the best number we could and you add on the number it would be if we got a pop in the market, and we thought we were in pretty good shape and of course -- but it wasn't as good as $9.6 billion in cash. So we took a big swing. But mRNA -- and we have our own program. It may have been a godsend because the day after that deal happened, of course, you saw Mike Shafer, my good friend at Thermo Fisher, announce his new plasmid program. So they went to the market. So Thermo's going to be in plasmids, and they play to win. I know them well. And Mike worked for me, so -- but mRNA is another one. You got the cap technology IP to get around. And Maravai has really got a good thing there. But we have our own programs as well. Actually, the leader of our -- the GM of our protein business is an mRNA expert. That's what he grew up in. So we'll get in this stuff, too, but it would be probably organically. I just -- if anybody has any kind of asset, mRNA or plasmids, yes, they're going to make it a public process. It's going to go big, right? So it's going to be a terrible multiple. So -- and we probably wouldn't win. So we like -- we've got a big enough track record now of doing private deals with bolt-on strategies where we keep the teams, want the team, let them grow in the divisions, do their own thing, et cetera, and it's worked out well for them. And that attracts a lot of people to come to us saying, "We're interested in joining Bio-Techne, and we're okay with not going into the process because we know as soon as it goes through a process, Danaher arrives. So...

And they have cash.

Yes, yes. So we're not done, but I think there will be less of it. We'll just be more picky, and they just will wait. I -- we did some discussions today with some people, maybe some of this room even. But I do think we're looking at a future in a couple of years of probably back to a 3%, 4% LIBOR, probably back to 4%, 5% kind of rates. People are justifying these deals. They're going to their CEOs and their investment team's been going, "You know our WACC is only 4.5%. So -- and I run these models, look what it's worth." Those days are going to go away. And I think when that happens, we're going to be sitting with a lot of cash. We're only at 1.5 turn in debt. In a couple of quarters, we'll be out of debt. If we don't do a deal in a couple of years, we'll have $1 billion in cash that we're going to have to do something with. So if this market does turn over and things get more expensive and rates go up, asset prices are going to go down and things are going to thin out and we're going to be winning -- sitting in a better position to be a better acquirer, I think, than many of our competitors are going. But we're going to have to be patient.

Yes, if I'm not mistaken, I think, Jim had a picture of piles of bags of cash at your Investor Day. So certainly have it.

Something we're good at.

Many things. Maybe on Exosome, just starting on EPI. I know COVID was a headwind here on the volume side. But can you just give us an update on how volumes are trending there recently?

They've been going up. We said they were starting going up last quarter, not enough to affect results too much but they've been going up steady. We're back to -- definitely back to pre-COVID rates. We have overturned -- we've kind of turned over the sales team. I'd say we're still not done. And as I mentioned to everybody, we've made a new division called molecular diagnostics. We've really kind of put the surgeon team in charge because they understand kitting, they're 20-year veterans in diagnostics, regulatory experience and real adult supervision for this group, okay? So it's been really good so far. Matt McManus is leading as the Senior Vice President. This guy's awesome. I mean I -- beyond my expectations awesome. And many people know him, and it was the right decision. And we got molecular controls to come with it as well and other things. And we all -- there, we've also bottomed as they're coming up in inflection with their multiyear work on SMA and CF, right? So that's all good. We don't mind having that in our portfolio. But it's mainly about getting Exosome regulatory figured out, kitting figured out and the selling thesis that are figured out. So -- [ on end partnering ]. So we have Lynne driving partnerships, and she's world renowned as well in this area. We've got a lot of interest in partnerships. And some we're going to do ourselves, but I'm -- we're open for business. I've -- we want to take EPI or any of our stuff into primary care. The last thing I want to do is figure out a way to build 500 reps, again, like Kevin had to do in Exact. So it would be better to partner with these guys or somebody and use that army. So we won't need that for ExoTRU because it's kidney rejection and there's only -- it's a small set of call points. But everything after that, we have an arsenal of stuff, from screening assays to oncology and they'll require all new channels, right? So I'd rather partner and be the Intel Inside, if possible. So...

Yes. A couple of things to follow up on that. But first, just on the sales strategy, you mentioned some changes there. Can you elaborate on that?

We're right back about the number of sales reps we had when we launched the program. We probably went down during COVID about half that number. They -- urologists weren't seeing their patients, so there just wasn't anything for them to do too much. It's too new and novel to be -- would you sell this over the phone? You really got to be there. And so we took that time to try to upgrade talent there and work. And we're kind of where we need to be. I don't know if you guys know Tom Copa, [ 610 experts ]. He was Head of Commercial for Luminex. And he is currently Head of Commercial for Asuragen. And we put him in charge now for this whole division, including Exosome. So he'll be fantastic because he's just a very, very good commercial leader.

Got you. And then just on kind of the reimbursement side on EPI, can you talk about where that stands? And has that helped in the sales a lot?

Oh, yes, for sure, because we had our first round of reconsideration. And we really got everything we asked for, except for one thing, which is the can you pay for the test twice. So we're working on it next. They're coming around. They're just a slow group to move. And they are very interested in helping us on kidney rejection. They want that. They see what the other jurisdiction did with CareDx, and they're behind the eighth ball, right? So they're going to be nicer to us, I think, on that one. But it's never easy getting through their gauntlet of reimbursement. The payers are coming along. They just -- I think we added 10 million new lives last quarter, something like that. We got to -- we get like a couple of new blues every quarter, so still can't get Minnesota, my home state, I just can't figure that out. But...

Or the other large insurer there?

Yes, yes. That would be a good one, too. But in time.

Yes. So you talked -- you mentioned kidney rejection, which is ExoTRU. Can you just update us where you stand on commercializing that test? What still likely to be had?

Well, that paper's out and it's ready to be an LDT. It's just a matter of working it through whatever jurisdiction, MAC you want to do it. Either we do it ourselves with NGS or we partner with somebody in a jurisdiction. Like if we were where Palmetto is and it's a rubber stamp almost, right? So especially with the numbers we have, it didn't -- it's way better than CareDx's solution and way less invasive. So [ there is ] interest for partnering, so stay tuned. Hopefully, we're going to have something we can talk about soon. So...

Okay. Yes. So in partnering, you haven't made a decision yet?

Yes, I'd rather partner with that, with somebody big in the space with real brand and the commitment and the science, and -- but if we have to go with that one, the real only obstacle is NGS of time to get through because it's an easy channel to build, but it's a key [ content ] channel, so that's not tough. It's more the time lost to getting through NGS. Unless you want to go -- we have a media site in the -- near Atlanta. It's a good jurisdiction. We'd have to build out that CLIA lab, right, and get it qualified. So you're looking at 6 months to a year anyway. So either way, it's going to be a year.

And then something you also alluded to, but I just want to make sure we kind of -- we'd talk about, kind of the longer-term vision for Exosome and with Asuragen and the idea about maybe selling more kitted Exosome tests in the future. What does that business look like? And maybe why are you interested in that model?

Well, I -- we're in the assay business because the diagnostic -- because we're in the assay business. And we're very good at assays. And we're very good at assay science. And we can build really any kind of assay you want. And we know -- we're the Luminex leader. We're behind everybody in Luminex. We're the Intel Inside. We get royalties from everybody. So we know how to do this, but we're -- we don't have the experience in regulatory and all the other stuff to make it truly win in diagnostics. And therefore, [indiscernible] acquisitions and such. I see Exosome as this play on liquid biopsy. It's by far the best solution technically, scientifically. We've been convinced of that. It's a platform. There's literally 10 things in the hopper. Half of them already validated, we know work. We just had enough bandwidth and enough help to get out the market through partnerships or our own regulatory. We have one famous scientist who's the inventor, Johan Skog, but there's only one of him, so -- and his team, so we really got to -- it's another reason we got to get partners because I want to use his team more as a way to license more things and do more things in parallel without him -- us having to worry about supporting a commercial engine for everything we're doing because there just won't be enough -- it will just go slower. I've spent 25 years at 3M, and I can't tell you home many times this company lost because they always wanted to [ hog ] versus share it. And it's great. [ Post-notes ] are great, but those come around very rarely. [ It's life long, like that. ] It's -- I'd much rather have a much smaller piece of a much faster, rapidly increasing pie. And when you have a great piece of science and something with a lot of IP you can protect, it's something that [ no one can rebrand ], you can do something with it. So that's our play. That's what I want to do. So I'd rather get it out there and make it a standard even if we don't get to own it all. So...

Got it. Now, let's see, does anybody have any questions since I'm hogging the questions? No. Okay. ACD, really strong growth there in recent years. I think it...

All up until last quarter.

I wasn't going to say. So maybe just talk about what happened last quarter and the outlook there.

Yes, 3 things. One, a 34% comp. It's hard. And with this whole -- you hear about all this attrition going on, it's The Great Resignation. We -- this is -- it's a business that's centered in the Bay Area, and we've had a lot of attrition. And we lost 5 key...

You have also hired a lot of people, too.

Yes, it's well. But in this business, we're 5 heads short in key sales positions. And you can't grow in -- grow out when you're missing 20% of your needed sales force. So we've filled half of that at least now, and we're going to more creative methodologies now for our sales force. Nobody was doing their president circles and stuff last year, right? Nobody traveled. You take your winning commercial people on a trip with their spouses and have a party, et cetera, none of that happened. So we gave out blocks of options to these winners. Everywhere else, we had tons of attrition. Of those 15 or so people, we didn't lose a single person. So you know what, maybe equity in Bio-Techne is a good thing. So we're going to go to a -- we're just launching this week. And we've always been known as a company that shares pretty deeply in the organization for equity and options and such. And in general management -- managers and up, we had very low attrition. But the younger people, the lower levels and stuff, it's been terrible. And then it's been terrible for everybody, right? So for our commercial organization, we're going to go to a -- kind of a multitier equity piece where the bonus scheme and the accelerators are paid out on levels of options that can -- so we can have this people growing a bank and make it more difficult for them to walk away from it. So we know it's going to be -- we've tested it, and it's going to be high -- very well received. So it's -- we're going to share more of the company with the people, it's the bottom line. And I think it's one way to try and differentiate in this highly competitive area. There's no turning back. We should have more in my team, my Board and everybody. Once you start giving the stock, you're not going to take it away. So if I -- it means we -- the pressure's on, we got to grow. And -- but that's what we do, right? So we'll have to -- we'll figure it out.

One follow-up on ACD. I think something maybe I underappreciated or maybe I didn't, but from your Investor Day, it was kind of like the longer-term vision for what ACD could look like, kind of moving into like, I think, translational research and diagnostics. Could you just give lay person idea of what that...

Well, yes, I can, I'm not a biologist. But to make it real simple, I -- we got into that technology, went after that because we're a major antibody provider. And one of the major applications using antibodies is IHC, right? So you stain tissue samples and you impreg them with the antibodies that are looking for a protein that will identify whether this is cancer or not, right? And actually, 25% of the time in all IHC, there isn't a known antibody. So IHC doesn't work. It's really scary when you think about it. That's how they used to identify cancer. Now 20% of the time, they don't have anything. Lo and behold, you can go into the cell and look for the gene that -- on behalf of that cancer, which is what RNAscope is, and with single cell precision. [ And in extreme amplification, the Z scope technology that Uman ] came up with just works fantastic. Because in situ [ high resolution ] has been on forever, but it's always been low signal. And this is below [ of ] a signal. So I thought this would be -- we're very good in this because this is going to be the next generation of people walking away from IHC, and it's a better way to go do pathology. And it hasn't happened yet. We almost have no sales in pathology, so it's literally all still translational and then -- and discovery research and biomarker validation and everything else to go with it. And -- but now it's being also looked at all this proteomic screening and cell therapy as well. So that's getting out of -- that's why we've been in the 30% growth rate but it's been a little more lumpy. But I think long term, to your question, I think there's a big pathology play, too. We've been leaning on Leica and Ventana with their machines to do -- we could [ sell it to a kid ]. It works on anything. It'll work on your scope, on your bench, it's just fantastic. But to play in the normal pathologist world is something under a major system with a big Leica machine. You've got to have probably a benchtop stainer or automation [indiscernible]. So we're probably going to have to figure that out to actually make a dent in the pathologist. So that's -- we're after that next. Either we'll do it ourselves or we'll buy it from some of our OEM. And in general though, we're doing great with Leica. I bet about 25% of our sales are related to Leica, probably, in that range, either ourselves or helping draw Leica. Leica has been a fantastic partner. And that's beyond -- me and [ Ryan ] are going way back as friends in mass spec and stuff, but that's gone well. Ventana used to be very arrogant to us, and they've become very interested in working with us now, too. Agilent really doesn't have a system that works that well with our platform, but that would be the next. But we've got always companion diagnostics and programs working with these guys. And we have HPV with Leica, but they've got a -- I don't know, 7, 8, 10 things in the pipeline. They're all kind of orphans, but -- and they're careful, too. They don't want to give us -- put us in kind of in play with their major scale areas because we might take it away from them. So they -- we're kind of the entity they keep close in a way, but they're -- but they've been a good partner in growing with us, and they're kind of coming around more and more. So that's the diagnostics side. And I think it's -- I don't think it's a long-term vision, but it's this healthy component of that business going forward.

Opportunity, for sure. Maybe just last question for me. Just the digital efforts, I think you're probably paying Google a bunch of money on ad importance. Can you just talk about the progress you made here? And then -- and what the kind of future opportunity on the digital side looks like?

Well, one thing we did in the last year when all these reps couldn't visit their customers and they're all technical professionals, so if you want to have a good website -- so I get you back up. 10, 15 years ago, the -- by far, the leader out there in antibodies was Abcam. And what made Abcam so great, they had a great website with lots of images, lots of content. And we spent literally the last 5 years catching up to them. And we think we've actually passed them now. But we did have a lot of our working at home and available talent loading images. We loaded over 30,000 images in the last year to our website around antibodies and tissue, which has had a big effect on more growth. But that all layers on top of us buying more AdWords and just doing more for search and also integrating our websites. We have a one basket now. I mean a year ago, if you wanted to buy an instrument in proteins and antibodies and some RNAscope, you had to go to 3 different websites and do 3 different purchase orders, which is kind of [ inelegant ]. So now we have a single-basket approach. And when you get down here in your basket and before you're checking out, guess what, we let them know that other researchers who have bought your things also bought this, this, this and this, and you might want to consider and it all helps. We also have a lot of data analytics and AI around our algorithms. So what's the word again? Attribution?

Oh, yes, yes, yes.

So we really have these -- it looks like walking into a sci-fi area. We will have a map of the U.S. and lights going off all over, and it's all the orders happening. And we literally could like be at a customer site within an hour or 2 and be like, "We saw you ordering, we're here to help." I mean it sounds less freaky, but we can identify who's out there, where they are, what they're ordering. It's in very, very fast. It's -- there's a lot going on there. And our -- the fun fact in the last quarter, our traffic increased for protein searching alone was up 50% traffic. I mean we've had double-digit traffic increases every quarter since we launched almost 3 years ago. So that is one big reason why we're 15%, 20-some percent growth in antibodies and proteins in markets that are growing a fraction of that because we're taking share because search is much better.

Yes. It's probably hard to quantify it precisely, but that's probably the best way.

Yes. And all I know is that they keep coming for more money to spend more money in AdWords to make sure that the searches come out with us being in the top 3. And we're at thousands now. But we're still -- we can measure what we get because we can -- we know who's -- we know exactly how long they're on the websites. We know how many clicks they go deep. We know what they buy, when they buy, if they buy. We can measure all of that, and so we can actually tie that back to the AdWords in the search they did. We can quantify how effective these AdWords are. We know that right now -- when they first came in, he said, "Our analysis shows that for every dollar we spend on AdWord, we're getting $30 of sales. We'd like more money." I said, "How much?" So we doubled their budget. And then they came back 2 quarters, and we doubled it again. And we're at 8x the spend we were 2 years ago, and we're still at $7 to 1. We haven't found the [indiscernible] yet, so we're going to give more money. So I figure it should go to the term probably at least [ 4 to 1, probably, for you ] to get to a point of being a real percentage to be up there with COGS and everything else, right? But there's a room. So it works. It's been working. So when we were talking about it so much, we know if -- you can also identify how you're being searched. And we had competitors paying Google for the AdWord Bio-Techne. So when you searched on Bio-Techne, you came to their website. So we stopped that, and figured out a way to get that cut off. So we know we're doing something right. So...

So to [indiscernible], so [indiscernible] search and I'm going to look for a protein to [indiscernible], I literally go on Google and I just type that in as opposed to going to my local...

Well, you can go to your [ punchout ]. Here at Western University, you can search there, too, and stuff, but they're -- you're at the ability of their search engine at that [ punchout ] at that site. If you start -- if you got a research paper and you're trying to figure out where to pick up where they left off and you see the citations for our stuff and you're going to go, "I got to get that to get started." And so you used Google, IL-10, whatever, right? And boom, we'll be up there, first page. So -- or whatever antibody, and there's thousands and thousands, right? So but if you know what you're kind of looking for from a citation, you can start with search and then you'll get to us. And then -- and from there, there will be a link to our websites to get into it. But you got to pay Google for that.

[indiscernible] go to Google. [indiscernible].

They almost all do now all researches. Like we all do. We all start with Google on everything every day, don't we?

All right, Chuck. I think we've hit our time. Thanks very much for joining us here at Nashville, and thank you all for joining us.