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

All right. I think we could look to get started. Thanks for being here. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have the Techne team with us down here.

Maybe we can dive in, Kim, just in terms of -- we were just chatting a little bit about things like China and some of the election topical, it feels like things have cooled down a little bit, but maybe on the academic NIH side, the whole RFK appointment or potential appointment kind of weighed on the group and you guys included, I guess, it's the right way to frame some of the changes on the election, the appointments that you've seen. Maybe we can start with U.S. academic and then we can kind of shift our out.

Patrick, well, first of all, thanks for having us. And yes, excited to be here. We had a very, very encouraging Q1, 4% growth as we have continued our outperformance against our overall market. We were, yes, very, very encouraged coming into the quarter. As you know, we have had our thesis as to how our fiscal year will develop. We already called earlier this calendar year that destocking would be over and that came through, then we were mentioning that an improvement in biotech funding would create a tailwind followed by China in Q3 and then pharma spend in Q4, right? The elections, of course, happened in the meantime. We're glad that some of the -- who knows what's going to happen is past us. We now have a president-elect. Overall, we feel that that's going to bring with it a pro-business environment. So positive tailwind possibly for M&A environment as well as possibly corporate taxes. So all that feels pretty good. To your question, some of the nominations, of course, those are nominations. They are not really done, done and set yet. There's the FDA, the NIH directors, HHS. It brings some volatility with it and speculation. But overall, after all the puts and takes that we get out of all the analysis and thinking through the propositions in the future, we feel that it is neutral to slightly positive for us because the negative definitely is that the use of proceeds would shift a little bit from more pandemic-related investments, vaccine-related investments to the chronic diseases. And our portfolio -- our product portfolio has intentionally been very aligned with exactly those end markets, neurology, immunology as well as oncology. And that's definitely for us an encouraging sign. Academic, as you asked, 12% of our revenues related to academic, less than 10% related to NIH funding. Overall NIH funding of course, is important. But we have always said, not only after this election, but in general, we've always said that the use of proceeds of the NIH is more important for us than the absolute number. Now in the previous time that President Trump was in this position, the NIH funding went up 6% and 8%, respectively, in 2017 and '18. So they had a positive effect. But nonetheless, the use of proceeds into the chronic diseases versus a pandemic-focused funding for us is a positive side.

Yes. What ended up happening versus proposals were a little bit different last time, for sure. And, yes, I guess when you think about China, another part topic that comes up a lot with you guys and then again, post-election, probably even more so, 9%, 10% of revenues for you. How do you think about that setup? You have been somewhat confident in terms of some level of recovery, the stimulus certainly matters to you guys. Maybe just give us a little bit of state of the union on China, and if anything has changed there?

Yes, you're right. 9% of our revenue comes from China. It's been -- it's always been a very healthy mix for us there if it comes to instrumentation and consumables. We've talked about 1 year, 1.5 years of stripping the bottom there and resetting the business. Obviously, a lot of international activity in China has left the country. We've seen heavy utilization of our instruments installed base. So we've seen double-digit growth, 7 out of the 8 quarters in China if it comes to consumables that run through our installed base. So very encouraging signs. Our sales team has worked with customers that are applying for grant. So we know relatively precisely who is ordering what. And it's been encouraging. It's not going to be a huge revenue wave that will come through a company as has happened in the past. But we certainly think that it is the differentiator from being a detractor and a negative revenue growth to a back in the black, China for us. And that will, therefore, mean less headwind from the China region lesion for us.

Yes. And in terms of the stimulus, some of the instrument layers have called out there, there was activity and everyone was waiting on the orders. And apparently, a few of them have seen some orders come through. What's your view of just the cadence on the stimulus front, how impactful could it be for you guys? And what are you seeing on that front?

Yes. I think we -- our team has always been very, very solely in touch with the funding and the local government. And we have to be safe, called that it would be our Q3. So in the calendar Q1 that we see the benefit from that. Yes, there is some opportunity that orders would translate earlier. But we have budgeted and so far operated with the assumptions that this would come through in Q3 and all signs are still on green that, that would happen. And if it comes to quantifying it, I just did a little bit in that mentioned that it would bring our negative growth back into the black, and there would be more in line with the growth of the overall company.

Yes. And then just to close the loop on some of the changes, the tariffs, maybe just refresh us on what you guys saw the first time around and if you're expecting any real impacts on that front?

The tariffs, last time around our products were excluded from tariffs. And we assume that, that would be the similar, again, and mainly because China is obviously very keen on making scientific progress in cell and gene therapy. Our instrumentation as well as our consumables would enable such breakthroughs and progress. So would choose itself in the foot by making it more expensive to have this instrumentation and access to technology. The other way around, we -- our purchases in China are extremely minimal. So, I wouldn't know of products or raw materials that we buy ourselves in the region. So I think we're relatively immune from that possible tariff issues.

And I guess China broadly, right? I mean, it's been a challenging region for the whole group for stretch here. Before that, it was the phenomenal growth opportunity. You guys are probably leading the charge in terms of the growth numbers you put up there. What's the right way to think about just that region as you look the next 5-plus years, is it more in line with the whole company? Is it still growth accretive? What's your view on that?

So my view would be that we obviously came from a reset period where funding stimulus as well as the overall activity in the country has been very much subdued. The international activity level, as I mentioned, has gone almost to zero. And that was a tough 6 quarters or so of reset. Now you take that out of the base and you look forward, there is still over 1 billion people, obviously, in China, but a government that is definitely interested in, in making progress in treating diseases and showing its prowess, and cell and gene therapy is an opportunity to kind of quantum leap decades of small molecule, large pharma progress and research. So it's a fantastic opportunity. Yes, it's reset its base. But our assumptions are that the -- that with that reset, the growth opportunity is very similar to how it has been in the past. So in line just on a different base.

Yes. And it seems like there's pockets over there that you guys you touched on cell gene therapy spatial. I mean are there certain verticals where maybe it's a little more in its infancy over there and you guys have the opportunity to still see some pretty healthy growth.

Yes. Exactly. Spatial has been very healthy, growing even through this couple of years reset. And then, yes, there's over 2,000 cell and gene therapy clinical studies going on. We have, obviously, a participation to the G-Rex, an acquisition -- future acquisition of Wilson Wolf but also with our GMP reagents, which are very differentiated and definitely a key building block for all the programs going on in cell and gene therapy. So our product portfolio is nicely aligned with our GMP proteins, the GMP small molecules as well as GMP media. So in addition to that, our portfolio of protein analytics, also essential for cell and gene therapy is nicely aligned combine that with the spatial effort. Overall, we see that those businesses would be setting the pace for growth in China.

Okay. And then maybe kind of step back, looking at the whole business, you touched on GMPs a few times there. I think it was 60-plus percent growth last quarter. I mean, certainly jumped off the page. Can you talk about what drove that growth? Obviously, I assume 60% isn't the right number, just pencil in on the go forward. Jim would be a little worried if we did that. But how do you think about just that business, what you saw in the quarter? And what's the sustainability of just overall strength there?

Yes. So Patrick, one of our principles that we have as a megatrend for the company, we always figure that research and that these RUO reagents are very important. But eventually, companies would progress through clinicals and eventually then have either a diagnostic or a treatment. And we wanted to make sure that as an RUO company originally over the last half a decade that we enable the customers to stay with the products they know so well and there with offer up GMP validated and certified core reagents. And that really nicely aligns, of course, with the different stages the company goes through in order to get to a therapeutic. The funding has been coming back. And we know relatively healthy funding compared to 2019 and 2023. If it comes to pharma, biopharma. But there's a little bit of a focus of the use of proceeds there too in that it is not really aligned or it's not really going into the research efforts, but more pointed towards later-stage clinical efforts, lower risk and closer to revenue. And our GMP portfolio, of course, is very nicely aligned with that. We did see the 6% growth. We are proud of, really great. That's really why we did all these investments in GMP capabilities. Don't always pencil it in. We do have a healthy pipeline. But since it can be lumpy, we've talked this last quarter, and we will continue to talk in the future about the 12-month trailing. 12 months trailing over the subdued last year has been very high teens in 19% and that we would give as a kind of a guardrail, a lower guardrail and then 60% is just not going to be every quarter the case, you know I would like that. But that's kind of the upper guardrail there. The nice thing is that we had a couple of larger orders that came in, and that's always a good sign because that means people are making progress. But then, we also saw a healthy progress in adding customers to our funnel, but also to over average order size of the current 400 customers we have, 56 of those customers are in clinical stages of which a handful are in stage 2. The others are all in stage 1 if it comes to clinical trials.

Okay. And maybe on that kind of earlier stage stuff, I mean, biotech, I think you guys talked about this quarter, funding continuing to improve, just the activity levels there are getting a little better. What are you seeing from that customer base? What's the right way to kind of build those expectations?

Yes, we had to call that Q1 would still be relatively subdued even though there was a good activity level. I mentioned in larger orders, but also in the run rate business. We identify run rate business as orders under $10,000. So we kind of look at activity level as to how healthy is the activity level in the markets. We saw that in the last month of Q1, definitely picking up. And that's why -- I think that's one of the reasons why we ended up with a 4% growth versus kind of what we expected was like lower single digits. And through our earnings call, we saw the activity level continuing to be healthy, and that's very encouraging. For us, it's a sign that overall activity level and funding is trickling through and having its effect.

Yes. And I guess when you think about -- maybe we can touch on kind of that pharma end market a little bit. I guess the IRA piece has come up a little bit with you guys. What's the right way to think about that potential impact how large pharma is going to behave in terms of spending? Is that headwind going to linger? And is that the last one to turn? What's your view just in terms of how that plays out?

I'll start back a little bit longer ago. So during the back end of 2023, calendar '23, obviously, larger pharma was making their budgets. They had several, several risk factors in there. One was the IRA and what the impact would be, high inflation, also high interest rates. So a tough environment to crank up spending. And we immediately noticed it in our Q3, calendar Q1, because it was subdued, it's been in flattish I mean, don't mean from growth, but scrapping along. It's stable, it's stabilized since. And we, of course, have connections into these corporations, but also we know how the budgeting cycle works. Right now, budgets are in the making or being finalized for the upcoming calendar year. Our assumptions have been that there's more -- more know-how around what the IRA impact will be, more know-how as to where interest rates are heading and inflation. And we think, therefore, that budgets are going to be in a better shape than they were during calendar 2024. And since that's not going to impact the 1st of January, we have mentioned and kind of guided that for us, we think that would be a Q4, fiscal Q4, calendar Q2 type of impact. And also there, we are not assuming a full turnaround, full spend, everything back to normal, we expect an improvement in general of activity level in pharma.

And I guess you touched a little bit on kind of the year-end there. I know your guidance did not assume much of a budget flush. And again, you guys don't have the biggest equipment exposure. But what's -- has it been kind of as you expected on that front? Any reason to believe there's going to be a material budget flush? Or are things still relatively quiet on the equipment side?

You're correct that 80% of our revenues is related to consumables. Consumables, you would use like on a daily basis. So there's relatively little stocking. There's relatively little effect from budget flush. So I hope for our peers that have more exposure to larger equipment purchases that there will be a budget flush. But for us, it's typically not a deciding factor.

Okay. And then, Jim, maybe just on the margins. Those always in focus with you guys kind of guided first half, second half very differently, right? I mean 200, 300 bps contraction in the first half and then that flips to the 100, 200 bps expansion in the second. Maybe just talk through the moving pieces on those and just the visibility into that back half ramp and what leads to that?

Yes. So as a reminder, the contraction largely in the first half of the year was driven by a reinstatement of our incentive compensation accruals throughout the company on a cash basis. So that was the biggest driver of the year-over-year contraction for the first half of the year because we took those accruals down mostly in the first half of last year and hope to reinstate those in the first half of this year. As we get into the second half, whether you look at it from a year-over-year perspective or even from a sequential perspective, let's talk about sequentially first because there's a significant sequential step-up expecting the margins in order to get to that 100 basis points or more improvement year-over-year. And the first being just kind of the natural flow of our business. So if you go out and look back at history, our second half revenues are markedly higher than our first half, and it really has to do with vacation schedules. We had a September quarter, December quarter, much more heavy with vacations versus the back versus the March quarter and June quarter. That's really the -- gets back to the daily run rate nature of our business. So that natural lift in revenue, you just get more leverage and you get an uplift in margins there. As we talked about our expectations and our modeling for the call it the slow road recovery, throughout the year and the steps we get there as that growth recovery incrementally we think it's begun to happen now in biotech. We hope to see it happen in our third quarter with China and followed by our fourth quarter with pharma. That additional growth, additional volume leverage allows for yet again, a better margin and more importantly, better mix. Because what we've experienced most recently has been just kind of a triple whammy on mix. Our core reagents are our most established products, most competitive products are going to be most impacted by the market, but they're also our highest gross margin pull-through. And so they've been down where, say, our diagnostics and genomics have been doing very, very well, but it's a lower margin pull-through at least today it is. And even within our, let's call it, our Protein Sciences segment, when you look at our instrument business, ProteinSimple, that's done better than our core reagents, but still great margins, but yet a lower margin pull-through. And I can dissect that even further and talk about the mix within ProteinSimple, which is 50%, cartridges, 50% instruments, and we actually get higher margin on the instruments than we do the cartridges. And yet the cartridges have been growing double digits, but the interest has been down. So that's been kind of massive mix issue that we've been facing in the first half of the year. As the markets recover, we should start to see that normalize and the higher margin pull-through. And then last but not least, Patrick, we obviously haven't been sitting on our hands in the past 1.5 years at the mercy of the markets. We've been, especially since Kim's taking control here last year, really looking at our cost base, making sure we have the right resource alignment with the relative revenue. We've been looking at various sites and redundancy there for centers of excellence, and we've done some closures. And then last but not least, we had also been looking through our entire portfolio for those, those nuance product lines that came with acquisitions that were never strategically important, but you didn't have the time to do anything with them strategically and they're not necessarily accretive to our normal margins and so pruning some of those as well. So I think we're -- I would argue, the best position we've ever have been from a cost perspective right now to get additional leverage when that revenue growth returns. And that's really what's largely behind the 100 basis point plus improvement we expect in the back half of the year.

Yes. I guess to kind of dig a little deeper into that, I mean, there was certainly a period where you guys were -- you're heading the 40% on the margins without slowing down and then there's some dilutive deals and then to your point, mix and then incentive comp. I mean there's been understandable headwinds and I guess where are we now as you look forward. And again, obviously, we just started fiscal '25 for you guys. But just in terms of that trajectory on the margins what are the levers there to keep it going? And again, is that realistic to think that you guys can get back on track and see real expansion towards the high 30s?

Yes. The largest lever is our contribution margin. I mean we have extremely high margin pull-through almost in all of our product lines. And so getting a return to mid and then high single-digit growth and eventually double-digit growth will be by far the biggest levers that we have to leverage our cost base. And I think just looking very simply at our first half revenues versus our second half revenues and seeing how much of a margin impact just that is give you a sense for what kind of impact the top line growth drops through the bottom line. So our long-term models still today get us back to the high end of the 30s, even low to 40s somewhere in 5 to 7 years from now organically. But you'll hear Kim and I say that our long-term expectation is to be in the mid-30s, and that's because of the M&A that we still intend to probably do over the next decade.

Yes. Now hard to find deals that are margin accretive to you guys, obviously.

Yes, yes. Wilson Wolf.

That's one. Maybe that's a good segue into just the M&A landscape. Can you touched on the beginning, maybe this new election cycles a little more friendly on the antitrust and M&A side. What is your guys' appetite to your point, Wilson Wolf was an attractive one and ongoing and which we'll dive into that a little bit. But just on the M&A side, what's the pipeline look like? Are valuations a little more reasonable and your guys' appetite?

Yes. The last year, the valuations of good assets have still been relatively high. And we've -- of course, we have a full portfolio. We have appetite for private as well as public deals, large as well as small but we are very disciplined in the requirements, right? So we're relatively good, we're very good, I should say, but I want to be polite. We're relatively good in scoping out and assessing technologies and winning technologies that we want to invest in. We are very precise in knowing what we want and what would fit our strategy and are set up with the core as well as the four growth verticals that we've talked about. So we are integrators. So all that is in great shape. We've also added capabilities on -- within the company if it comes to our strategic thinking and our execution on the M&A side. But we wanted to -- our targets to have the ability to be, of course, growth as well as bottom line accretive and over time. And we want -- we would like to see a ROIC that is over 10% after 5 years. So we do have these requirements, and we'll continue to be disciplined. But we do feel that the upcoming year that we are going to have a larger shot -- at -- not a larger shot, a better shot at getting more deals done just because we, as a team, as a company, are more ready. We have worked really hard on integrating and getting the Lunaphore acquisition on the rails. It's going really, really well. So we're proud of that. And I think we can now even more so look forward to being more active.

And the Wilson Wolf piece, you touched a little bit on, I mean can you just talk through the synergies on that front? And then probably, Jim, just structurally how that plays out. Obviously, a unique acquisition and the way you guys structured it in terms of the closing. But yes, maybe we can start with the synergies and then just the progression of it.

Yes, I'll take the first part of the question. Synergies, obviously, like we have this 37 years in the making core business, right, where all the proteins, antibodies and GMP small molecules, et cetera, that we've pulled through into different areas. For example, in proteomics, we did the ProteinSimple acquisition to eventually pull through antibodies and those reagents, and it's a win-win, right? So we have differentiated equipment that then looks really good because it pulls through high-quality reagents. And for us, it's great because these high quality agents come to very high margins and find their way to the market that way next to go direct with those agents. This setup was very similar. So it's not an instrument, but it is a disposable. It's a container that has kind of a bioreactor that you use to grow cells. It has a very nifty patented air permeable floor or bottom, which is very good for growing sales. It's more efficient than other modalities, but it's also scalable because it's it has a relatively small size, and you can put many of them into incubators and they're with run several patients, tens of patients really in parallel. So it's a very nifty patented differentiator and it pulls through all the ingredients you would need to grow these cells, and that's exactly what our core businesses have been working on. So we have these 40-plus GMP proteins that you could pull through, and we have the GMP small molecules as well as media that you would have to answer it. To link more of our reagents towards the G-Rex, which is the name of this consumable disposable. We've just launched ProPaks which are basically sealed bags with the right dilution of proteins and with right quantity to make it less operator error prone and then also to make it a closed, closed system so that contamination is less of an issue. In that way, we provide value to the customer and we pull through our reagents this number. 45% of all clinical trials globally in cell and gene therapy are utilizing the G-Rex. So it's tremendous adoption. And they are processing through the clinical trials. We have 800 customers. And we have 5 drugs that are now on the market. So absolutely a fantastic, fantastic setup for us to pull through more of our consumables. And the deal?

Yes, the contract of the deal as a reminder, we own currently 20% of the company, and there's an agreement -- mutual agreement in place that we will purchase the remaining portion of the company, no later than December 31, 2027, on a 4.4x trailing month revenues. However, we can't execute that sooner by way of earnout. They hit TTM revenues of $226 million or adjusted EBITDA, TTM of $136 million. Do that math, you say, well, that's a pretty high pull-through. Well, believe it or not, their EBITDA margins today are actually north of 70%. Now we're not saying it will be that high under our ownership. There's things you got to do for a private company to make it public worthy. We model more like a 60% under our ownership in the future. But there is a -- and it's a deal where neither one can -- you know what to pull out the deal. The only way to do would not happen is we mutually agreed not to consummate it, which obviously, we're not in -- toning to do that, and I won't be John Wilson is either. And again, that buyout for the next 80% of $1 billion purchase. Our base case is still will be the end of 2027 at roughly 4.4x revenue. John Wilson, the owner Wilson Wolf, I believe it could be as much as a year earlier. And the reason he has that view is understandable because as Kim mentioned, there's 10 cell therapies that are currently approved and Wilson Wolf and five of them. And those five alone have just given the forecast for their first year of commercialization and the growth is pretty outstanding. So there is a potential, definitely a potential for us to acquire that sooner by hitting those numbers. And it will likely be even a number that gets hit before the revenue if, in fact, we do an earnout.

Okay. That's interesting. And then I wanted to circle back. You mentioned core reagents just on the margin front, obviously being higher margin. Can you just talk about the core reagents backdrop? What you guys are seeing there? I mean it's certainly a question we get a good amount is what that recovery could look like? What are the key metrics you're looking at on the core reagent side. But curious just what the trends are on that front?

Yes. So we typically look at our, we call it, run rate business. A run rate business, I mentioned earlier, is basically all orders under $10,000. So that's the high-frequency orders of our quarterly core reagents. In our core, we have the proteins, the antibodies as well as diagnostic reagents in general. And we've seen the run rate business tick up. So the number of orders have continued to grow as well as the average order size. So we're very encouraged about the initial traction that we saw at the back end of Q1 and in line with our expectations, in line with our prognosis that the funding would be trickling through and activity level increasing. So that's very encouraging.

Okay. And then I wanted to talk a little bit about COMET. The demand there has been strong. Can you just talk a little bit about the adoption curve there the consumable pull-through will come. But maybe we can start just on the adoption and then that opportunity as you look out to where the pull-through could make it really attractive.

Yes. COMET is the name of the instrument that we acquired through the acquisition of Lunaphore. This is an automated instrument for spatial biology. We already had a larger asset in ACD, which are RNA related probes, reagents to interrogate tissue and RNA. And we sold these reagents for manual usage, but also for high throughput on Leica and Ventana. But we always wanted to have an instrument in the translational aspects of this spatial biology business. And we really are happy with the adoption and the capabilities of this COMET instrument. It's fully automated. So from the moment you have your tissue on a slide all the way through an image on your computer is fully automated, no hand time required. It runs overnight. We can run four slides at the same time. So a much higher throughput than any other competitive instrument. And it is differentiated, and that is multiomics. So multiomic, in this case, means you can look at that we have 50,000 RNA probes. So you can look at -- we can make any custom probe you would like. So you can look at everything that's going on an RNA level and this usually translate into proteomic -- proteome being present or absent. And for that, you would need an antibody, and we happen to have lots of antibodies hundreds of thousands really that then would give you the proteomic aspects. So multiomic instrument pull-through is right now with the microfluidic -- device around $45,000 per instrument per end customer. But we feel that the pull-through of RNA scope and the pull through of antibodies that we ought to be able doubling that to $90,000-plus per instrument. And that would then showcase the capabilities of the instrument, which is really differentiated, but then also the multiomic aspects. And of course, aligned with our core reagents as well as our RNA scope portfolio, it would be a fantastic solution for the customer. And of course, for us, a real nice, high-margin pull-through of our reagents.

Yes. And what would the time line be? And what are the keys to unlocking going from 45 to kind of doubling that on the pull-through side? I mean what do you see as realistic in terms of that?

Yes. I think we are currently -- we had -- we have offered this multiomic capability to some VIP key accounts where you want to kind of learn how the robustness is and how the experiences are because you don't want to have any customer have a negative experience. And so far, we've learned a lot and we see tremendous capabilities and robustness in the processes and in this setup. And we are about to start rolling that out to the broader installed base and every future instrument will have these multiomic capabilities. So we feel that it's going to be gradual, but it's definitely an opportunity for customers to jump into because it's only solution really that has this multiomic capabilities would be able to look at 12 RNA targets and 24 proteomic targets all in one slide in parallel.

Okay. And maybe in the last couple of minutes, I mean, Exo, it's been a little quiet on the Exo front. But I mean the execution seems to be going well. You obviously continue to put up pretty good numbers there. Maybe just talk about what that platform looks like now? What are the opportunities to continue to grow. And again, obviously, always a focus on kind of that inflection on the profitability in that piece.

So in the Molecular Diagnostics Division, we have the ExosomeDx acquisition from about 8 years ago, 7 years ago, and that was really an acquisition around ability to interrogate Exosomes, right, a small little verticals that pop out of cells with high-quality RNA and proteomic information. And then we've done an acquisition 3 years ago with Asuragen, which is a team that has a portfolio of genetic testing, kitted solutions that you sell into laboratories. Now we think that the combination of those two is the true go-to-market for us to prove out the Exosome capabilities, we went to market with a prostate test, Exo Prostate Test. And we had a tremendous learning curve and, of course, proven out that exosomes do give you a higher sensitivity. And really, like it's not quiet. We've talked about how 2023 was a real breakthrough year. Obviously during the pandemic, fewer men went to the doctor. So that's a couple of years that we have to take out of the equation. But 2023 was a breakthrough year. And right now, we've talked continuously about 40% growth quarter every quarter, more or less. And so adoption is fantastic. And it's proven out our Exo promise, Exosome promise. From there, we had a couple of opportunities that we did not want to chase ourselves and one has been the kidney transplant rejection test. We've partnered with Thermo Fisher Scientific, the one lambda entity that has fantastic capabilities of donor matching testing as well as now this future test for kidney transplant rejection. That's going really well. And the other of these outside of our core opportunities we would also partner for. However, we will now launch a kitted test on the Asuragen kind of platform, which is qPCR-based and typically in a kitted form, which does interrogate Exosome. So there's Exosome extraction part of that kit. And that goes through our productized laboratory channel, and that's really where we want to build our menu, where there is clinically proven opportunity. In this case, we will -- our first test will be around ESR1, which is a breast cancer treatment resistance marker and we will continue to roll out menu that benefits -- that takes the benefit from the Exosome interrogation and then takes the benefit of having a laboratory channel and sell kits, product kits to laboratories to then have a win-win, and it's for us more global and more aligned with our setup as a company.

Yes. And then, Jim, maybe quickly, that has been dilutive. I know as it gets reimbursed it has potential on the profitability. But I guess where are we on the Exo profitability trajectory there?

Well, we actually look at Exo and Asuragen together now as a single business unit because they're coming to products and development and so forth. And as a group together, we see probably 1 year to maybe 1.5 years breakeven and then trajecting from there with a very high nice gross margins that it has.

Okay. I think we're up on time. So Kim and Jim, thank you so much. It's great.

Thank you, Patrick.

Thank you.