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

This is Paul Knight, analyst at KeyBanc on the life science market. We've had a lot of discussions over bioproduction in the life science markets over the last 1.5 days. With us today, we have Bio-Techne. David Clair will be joining us and Will Geist. You are here, you're ready to go. If you could do an intro and some opening comments, that would be great.

Yes. Thanks so much, Paul. So I'm Will Geist. I'm President of the Protein Sciences segment here at Bio-Techne. Started January 3. And kind of my purview is currently in that group, the proteomic research reagents and analytical tools. Those fit into a couple of different divisions, our Reagent Solutions Division and our Analytical Solutions Division. So really looking forward to the discussion today. And let's have at it.

I mean if you just start off with what falls under your product? What are the products that fall under the reagent and the Analytical Solutions side of the business, that would be a great start. Thanks for joining, David.

Yes, absolutely. So on the Reagent Solutions side of the business, that's really our antibodies and our proteins businesses. And we think of the analytical tools, there we think of Simple Western, the Maurice platforms and the Ella platform or the Simple Plex platforms, right? So I think folks may or may not know what those do, but the Simple Plex platform is an immunoassay kind of instrument that leverages kind of our proteins and antibodies. And then on the Maurice and Simple Western side, those are really tools that simplify kind of critical components, whether they're in kind of the quality control and help look at identity, purity, stability and potency, if you're thinking Maurice in kind of the large molecule space, for example. And then the Simple Western portfolio is really what it says it is. It's a simplified kind of workflow driven by a cartridge-based system called the Simple Western platform.

And as I recall, history on the monoclonal antibody and protein catalog business, it became increasingly difficult for a larger company like Bio-Techne to add more and more content. But we went into multiplexing. Can you kind of provide us -- it's no longer one kit at a time like ELISA's, but can you give us what's the state of the world in monoclonals?

Yes. Sure, happy to. So I think what's happening right now -- and many folks have probably had discussions with companies that are offering these tools. But in the proteomics space, we've got this incredible investment and really explosion in tools, particularly for discovery, and companies that you might think of there would be Olink or SomaLogic, right, come to kind of immediate mind is kind of getting traction. And then what we're seeing and those are looking at thousands of targets at any given time. And then there's other platforms that have been on the market like the Luminex platform that would get you into the 10s to 30s to 40s to 50s. And then there's tools like our Simple Plex platform that would get you up to 12 potential targets, right? So you got this kind of broad-based investment in discovery and proteomics that has really been a game changer in terms of discovery. And you have kind of the catch downstream, those discoveries come online, whether they continue on with Olink or SomaLogic's platforms. Most likely they're going to work into a translational space or a diagnostic space. We play that whole field right now, so anybody who's using antibodies as part of that, high throughput kind of proteomics, high multiplexing, almost all of them would be hard not to go for it with an R&D systems antibody as part of that. So we're really playing the field, if you will, there. And then we've developed a really strong immunoassay and kind of catching, if you will, with our Luminex platform. And it's -- I guess, it's the Luminex platform with our assays, driven on it, leveraging our antibody content, then all the way down through Simple Plex where we have a less targets, if you will, in a really simple-to-use device through to ELISA. So I think that's one aspect. I think the other component to consider, Paul, is the convergence of genomics and proteomics. And what we are seeing in that again, called a catch phase is that many companies that have followed this paradigm of a wonderful discovery driven by next-generation sequencing and have then applied that practically for example on LDTs, they are actively looking to expand into either multiomics or to look at proteomic panels that would enable them to give more effective answers to their patients or the patients that would have the diagnostic tests.

So what you're implying is that the size of the catalog has become more important than ever. They're just using -- they're just ordering a lot more SKUs at a time.

Yes, we've got a much broader play, it's exactly right. So we're seeing tremendous growth in the high throughput space. And as I said, that has kind of raised the entire utilization of our portfolio across the board. So we've grown our licensing revenue tremendously over the last several years. We look to that expanding. And most of those agreements don't take them to the next phase of diagnostics. So imagine with our antibodies being leveraged broadly in that discovery phase, the catch is also that we would be licensing and supplying those once they move into, kind of, a practical application in a diagnostic or a laboratory developed test.

And I know annotation used to be an essential part of having an antibody catalog. Where are you with annotation? Is annotation less important, more important? What's the nature of that?

Yes, it's incredibly important. So as we think of our customers' ability to find -- really research, find design by our antibodies, the annotation is a key driver there, right? There's a highly fragmented market where people are looking for solutions. The history of antibodies is not every antibody is kind of the same or works similarly. So we made significant investments in characterizing our antibodies. And so for example, over the pandemic, we loaded 30,000 images to our website. We continue to add annotations and see that as a significant advantage for our customers. And we'd like to turn that into a strong competitive advantage. We have made investments in kind of modernizing our analytical tools in antibody production as well. So that content will just get richer and richer. So really, everybody wins, right? So we can drive people to antibodies that are more likely to work for their application. We can help our customers get there more quickly. And with a really comprehensive catalog, we're able to do that in a way that positions us really well kind of for future success.

And Will, Bio-Techne has, I know, historically been, you make your own antibodies. Is that still your core source? Are you still typically the production center for it?

Yes, we are, right? So here in Minneapolis is where that work takes place. The majority of the antibodies that we sell are produced by us. It's a core capability that we really have been leading the market with. We also have the Tocris brand, which is a brand really designed to help consolidate a fragmented antibodies marketplace as well. So with that Tocris brand, we do reach out to qualified suppliers. It's both a sensing mechanism for us to understand that there are antibodies that we don't already have in our catalog that others can transact through the Tocris brand. So it enables us to sense. And where there is a demand, we can do an additional development if it's not already in our catalog. So kind of in 2 ways, we generally have an incredibly comprehensive, broad portfolio. But we've got this really nice marketplace in Tocris that enables us to get a broader purview and helps again reduce friction for our customers by consolidating kind of a very fragmented marketplace.

And there's a lot of discussion around spatial biology as well. Would you kind of put that as part of this explosion in tools that you're seeing?

Yes, it really is. And maybe that same paradigm, if we go back to the paradigm of -- in the genomic space, next-generation sequencing, right, 20 years ago, everybody would have said, "Hey, next-generation sequencing, you don't need to do anything else." Yet you saw this tremendous lift in the, what I call the catch technologies to take that analogy further with capillary electrophoresis, Sanger sequencing and the qPCR businesses really have flourished, right? When 20 years ago, folks might have thought that those wouldn't be necessarily continuing on. Part of this is kind of the right tool for the right job. If we think of spatial biology, our investment in ACD has enabled us to be in that real catch phase. So, so much of the work that's happening in the space right now is in that higher order discovery phase, right, with the hundreds or thousands of targets. Where ACD and the R&D scope and the other products in that portfolio fit are really downstream of that, right? So it enables us to get to a much higher sensitivity for biomarker identification and validation. And that would be in the more low mid-plex, right? So think of these broader discovery platforms, then moving into kind of a validation phase before they might be taken on further into a diagnostics or translational space.

And obviously, you've just joined recently, Will. What were your reasons for joining Bio-Techne. I love some color on that.

Yes. For sure. Bio-Techne was -- when I think of it, right, I try to think of culture, mission, strategy, right? So if we come to the kind of mission of Bio-Techne and the potential of making an impact, that was a huge driver for me. If we think of our investment particularly in cell and gene therapy, right, that's a strategic growth factor for us. Also really fits very closely to my own personal mission about being able to do it in my own way and make a difference. So from a mission perspective, we're just incredibly well positioned to advance science and ultimately have an impact on humankind. I think the other aspect is kind of the culture. Chuck has really developed a higher-order operational culture within Bio-Techne, but also done that with an intense focus on kind of a great team, great culture approach, right? And so having known some of the folks here at Bio-Techne and some of the executives, I had a longer-term vision on the culture of the team. I really only engaged with them at the end of last year and quickly was able to turn that around and join it, but I've always kind of looked on it. And then if I look at strategy, the other component is coming into a really healthy business that's interesting in the sense that we participate in these rapidly growing and evolving markets. And we're growing faster than market, but we are by no means and really any of our spaces, are we more than 50%. In fact, we're usually in the high teens or in 20s in the market participation and sometimes lower. So we see that as such a greenfield of opportunity or at least I did. And that really fit for me. I've got a history of working in start-ups and blue-chip companies. This is a nice kind of intermediate because we're really flexible and nimble. So as we look to move forward with mergers and acquisitions, we've gotten -- we're in an environment where that's really part of our core strategy and we can bolt those in into the organization. And the other side of it is, we're getting to scale with the last 12 months being over $1 billion in revenue. So those are the big drivers for me though, Paul. Thanks for asking. And so far, it's just been fantastic.

Yes. Maybe this is a question for David and/or you and that Techne has undoubtedly with Chuck who have been -- you follow what Techne does, that seems to be the next era of innovation or sector of innovation. How do you foster that kind of strategy and culture?

Yes. And I have to apologize, Paul, I just missed the beginning of your question.

You've always been a little -- you've always been at kind of the edge of innovation and seeing the next trend in the industry. How do you manage or keep that culture?

Yes. I think very -- I answered that question. Others have asked it very intentionally. So we're incredibly focused on understanding kind of our technology road map as it kind of links us into success in the target markets that we got, right? So we've got a significant presence in pharma biotech, for example. As we think of our technology road maps, most of those things we'll probably build on our own, but we're also very active, as you know. I think -- since Chuck has been here, there's been 17 different acquisitions that kind of slide into that strategy. So our opportunity to kind of expand the TAM, given kind of the fundamental kind of blocking-and-tackling that we do, driving a really profitable business, it gives us lots of opportunities there. We're really committed to innovation in the core as well, so we've made significant investments for example, in some of the analytical tools that will enable us to maintain a lead in proteins and a lead in protein and protein development as well as the lead in antibody -- in antibodies. So we see that as kind of fundamental. That's what helps us feed our strategic growth vectors. And moving there, if we think through innovation, we're heavily invested on the cell and gene therapy side. We've seen tremendous growth, I think roughly 180% in the proteins, maybe 80% last quarter from the earnings call. So you see traction kind of an early evolving nascent market, but really with a couple of thousand plus clinical trials kind of in play, we're innovating around our ability to kind of service that market in a way where we help early developers get to their first patients quickly. And we've done that by leveraging scale-ready partnership. And as you know, we've got this long-term view of acquiring Wilson Wolf and have kind of an agreement in place to do so. And what that has done is it's enabled us to do some innovation in terms of cytokine delivery and the approach that we might take there and also to improve kind of the cell culture system itself.

What are some of the other products on the cell and gene therapy side, Will?

Yes. So it's really broad. So you can kind of categorize it. So cell and gene therapy, of course, isn't just cell therapies. So I think of what I just talked about with Wilson Wolf, that's mostly the cell therapy side. But there's a regenerative medicine and gene therapy components as well. So if you think of -- and I'll just categorize the proteins a bit and then maybe talk more broadly about how our portfolio fits. But within cell therapy, really, you've got 4 or 5 cytokines that are the big players there. But if you step back and look at regenerative medicine, you'd look at an additional 10 or 20 kind of GMP proteins are utilized in that space, too. And that's also a rapidly growing component. So when we refer to cell and gene therapy and I think of Bio-Techne, I think of us as having a fantastic leadership position in both those places. There's going to be a tremendous demand for GMP proteins kind of in the future, and we've made a really significant investment in our GMP facilities in St. Paul to support that by the way going forward. Other products. So if we think about cell and gene therapy specifically, it's not just a story of proteins and cell activation and cell-culture system. It's really a story around what else fits in the workflow. So if we think of identity, purity, stability, potency, so we have tools for those. So -- if we think of our, kind of, Maurice platform, right, that answers questions to the right virus in the product as you're thinking it through. If we think of purity and -- sorry, if we think of purity and we take that further with Maurice, we think of protein contaminants in your product, is a capsid empty or full, for example, you think of potency and viral titer, you can do that a few ways. You can do that with our Ella Simple Plex platform. You can do it with our just Simple Western -- or just Simple Western product portfolio, right? Then we also have product like stability. So that fits in that analytical tools component, right? So we're really vectoring in on this with not just components of a reagent or consumables, but also thinking through and really deliberately addressing this market. So a lot of the growth that we see in those portfolio are the analytical solutions portfolio, which grew over 20% last quarter, I think 30% for Maurice. For that platform, we just see that taking off right now in terms of penetrating the market.

And then the GMP facility, can you provide an update? That obviously opened in the autumn -- products -- how that rollout is going?

Yes. It's going really well. Customer audits are going well, which is a really critical component for us. We've got kind of 3 of the 4 key, key proteins have come out of there. I think we're waiting on IL-2, which will come in the next month or 2 out of that facility. So that's ramping. That's really -- the first push there was to get the cell therapy proteins through the system or the cytokines through. And then we're rapidly expanding. So we're converting over, I think, around 30 is our target for GMP proteins to move over to the facility over a period of time. As you know, we already make GMP proteins. We don't make all of them in St. Paul. I think the beauty of that facility, it's 60,000 square feet now, wholly dedicated. It's got tremendous build-out potential. I think right now we have capacity to generate around $200 million of revenue. We anticipate expanding the site itself as well as driving GMP antibody production and GMP media production on the same site. So it's a big bet. We see the wave coming, and we certainly want to be kind of ahead of it.

And what will be the customer arrangement there? Will they -- eventually, they'll contract for a portion of production? Is that kind of what ultimately happens there?

Yes. I think the model is evolving. I think as we kind of look at -- our view is that there still isn't enough capacity online when the wave hits. And I think -- I wish I knew exactly when the wave was going to hit because that would be nice to know. But we think that, that would be one of the approaches that we would use. Certainly, we will be ensuring supply to all of our customers and we'll not kind of overshoot in any sense in that way, if there is a capacity constraint. That said, Chuck and the Board have really supported everything we've done to step ahead of capacity. So as we see that coming we can start bringing on capacity in a relatively short order as well. So I think, again, as we see the wave coming, we'll just enter into kind of supply agreements to support it. In terms of contracting component of it that I think have more as if there truly is globally limited supply capacity to produce. From our perspective, we have no intent of getting -- not having capacity to take on the map. We're going to build ahead of it.

Yes. And then what the first couple of years, it will be -- application will be what? Early-stage trials?

It's really the full spectrum. I mean we would expect it to be mostly early-stage trials. If you look at the distribution, for example of the G-Rex from Wilson Wolf, right, the majority of the work is happening in preclinical or in clinical trials. And they're stepping into points along that. And so as we do more development, one of the advantages of the Wilson Wolf system along with our cytokines is to ultimately get a much healthier active cell at the end of the process. We've got a much higher activity rate than some of our competitors with our cytokines as well. So that -- the marriage of that system, we think that, that will become kind of the de facto reagent solution in this space. And we think the format scales incredibly well. So early on, we're helping -- we hope the approach is going to help people get more quickly to the clinic and get early success there. But long term, if you think of the approach to building out capacity by patient, all the other approaches right now are incredibly limited, right? They take an instrument offline with a patient for extended period of time, scaling that to hundreds or thousands of patients, it is a real challenge. And the approach that we're taking, we believe -- we want to address that front-end part so people can manage their burn rate and get to the clinic as soon as possible their first patient is through. And then ultimately, when they are successful, we want them to be able to have a really scaled process for generating cells for patients. And we don't want it to be limiting, we see the other approaches as limiting in the long term.

It sounds like we're in the early days of cell and gene therapy, doesn't it?

Without a doubt. And we, in a sense, can't wait. We can't get there soon enough. We all have friends and family who are impacted by cancer. Again, it fits with my mission as well. So the focus is relentless. The sooner we get more products in the market, more patients impacted, the better. This is kind of one part of that process. We appreciate it, but we're going to be relentlessly focused on delivering.

Yes. And there's the talk about allogeneic therapies and the hope for those. What's your impression from success in the clinic and success in labs with allogeneic therapies?

Yes. So I certainly can't be an expert. I probably know as much as most folks here other than maybe some specific interactions with customers. So of course, we see customers building autologous and allogeneic work now. We can only -- my view is that it's not a matter of, if it's going to happen, it's just really a when. It's certainly kind of behind in terms of that adoption. This is really a new paradigm in medicine. So I think once the first drug kind of hit the market, others follow quickly thinking the autologous approach. But I think the longer-term investment in allogeneic will eventually pay off. I'm not sure what the time line is.

Yes, absolutely. One, some investor concerns have been around biotechnology funding. One question I have around there, do you think biotechs are -- do they fund for a 3-year horizon? Do you have a thought on what their horizon was when they did funding in the past?

Yes. I can kind of give you some just general information from acquisitions and other things that I've worked on in the past. I mean, very typically, right, when you do a capital raise of any sort, you're kind of mapping out that 2- to 5-year range, with really explicit plans on the next 2 or 3 years, turn the right to kind of get more capital to move on if you're not fortunate enough to get profitable on that time line. So when we think of -- I think it was [ Atlas ] kind of recently released some information that this was going to be the largest funding quarter coming forward, or maybe it was last quarter. And so that kind of contradicts. We had heard from, I think, one of the CDMOs had said that they thought there was some slowdown. We certainly don't see it. And we also see that most of the groups out there are hunting, and they've got their money and they want to just drive to the next milestones that they've got. So I don't see a cliff at all in there, in fact. And if anything is going to happen, I think more will come in. Given the -- this is the renaissance of proteomics, genomics, spatial biology all converging, right? I think the promise in that space and our ability, particularly the plan to it, we got a great position. But I think from an overall funding, from my perspective at least, is that it hasn't slowed down. And I think people will have -- or companies will have capital to deploy, certainly over the next 3 to 5 years.

Yes. And I should check on questions out in the field, sorry. Yes, academic funding has been light in the industry over the last year. I look at the NIH funding that certainly was low on the FY '21 budget. It calls for a mid-teens increase if we ever get FY '22 passed. What's your read on this academic market, Will?

Yes. Part of it is, it's, of course, disappointing that those funds haven't been released. We certainly see that. We're in a very unique position, right? We've got this tremendous performance in biopharma. We've also got a much higher exposure than we do to academics. Academics represent maybe 23% of our exposure. What we're starting to see is that academics are ramping in a favorable direction. I think they're going to remain soft until the psychology around that release of funds kind of comes out. It's kind of show me the money time in that perspective. But when we've seen those, we haven't seen any significant declines or changes in that regard. And I think probably not different than what other folks would remark in the market itself. What we're really excited about it is we've treaded water fairly well. As this capital flushes in, all of the macros for certainly proteomics and for spatial biology, those line up incredibly well with the grant applications and the funding environment. So it will be fantastic, but it will be a nice tailwind coming in. But our exposure is lower on that side of the equation.

Yes. What's the hardest part of your new job? Recruiting? Paying for people, or finding them?

There's some real benefits to that great part of the thing I mentioned earlier on, why I joined. There's some great benefits to the great team, great culture that has been cultivated here at Bio-Techne. So I think in a sense, we're sticky in that regard. We're not necessarily seeing -- while we are having some impact, we're not necessarily overexposed to people kind of flushing out of the organization, kind of chasing the next deal. Some of the things that Chuck and the Board have supported along with the management team, broadly is expanding the base of folks with ownership in the company through stock options. Our broader teams had that. So what you had is a really nice intentional approach, a great team, a great culture that was in play, kind of before the great resignation and some of these other challenges that we're seeing in the space. And so to say we're not impacted by it, that wouldn't be fair, but I think the impact on us has been really minimal relative to others. We're super focused on retention. We're very focused on driving job fairs. We're growing like crazy. So if anybody out there needs a job, give me a call after this, we'll talk.

Yes. That's a very exciting future that you're talking about for sure.

Yes, indeed.

Would you agree with the former FDA commissioner, this was a long time ago, when he was hoping for 25 cell and gene therapy approvals a year in 2025?

Do I agree? I do agree. I think that we're at a moment of inflection and breakthrough there. I wish I could call the exact date and which companies, of course, would be that. But I think with the amount of investment coming in here and just complete change in paradigm the ability to really cure people and have sustained cures, my view is that, that is very possible. I kind of look at the overall number of clinical trials in play and kind of do the math on kind of the time horizon. And I think it's reasonable to expect that we could get there. And I'm an optimist by nature and the part that we can do in it, we're going to drive as hard as we can to support it.

Yes, great. We are at our 60-second countdown. So if you have any closing comments, great.

Yes. Well, first of all, thanks so much. Thanks for folks who've joined us today. I think the space that we're in, we're in this scientific renaissance where spatial genomics and proteomics are coming together. We've got a fantastic play there kind of in our core. And certainly, the strategic growth factors around cell and gene therapy. And so as I said, we're going to remain relentlessly focused on those areas. And just to appreciate your attention and look forward to seeing you on the next fireside chat.

Thanks. Thanks very much, Dave.

Thanks, Paul. Appreciate it.

Yes. Thank you so much, Paul.