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

[Audio Gap] Is intended to be more of a fireside chat, so I'll stop along the way and poll for any questions. So feel free to chime in as needed. And with that, I'll turn it over to you all for any opening comments that you want to make, and we'll launch into Q&A.

Yes, sure. Thank you, Mac. It's always a pleasure to be here. Stephens is always one of our favorite conferences to attend. Just real quickly, I can maybe start off with just some of the highlights for the quarter for us that we just finished in Q1. If we look, first of all, our pharma end market continue to perform very well for us. We had double-digit growth in pharma for the third quarter in a row. That represents roughly 30% of our revenue for those keeping score. We saw continued strength in our -- or I should say, we saw some rebound and strength in our key core pillars, growth pillars, that being our ProteinSimple franchise, third or fourth straight quarter of double-digit consumable growth. And we saw momentum pick up on the instruments in the back half of the quarter into October, very encouraging to see. Our spatial biology franchise also appears to be turning the corner. As a reminder, our spatial franchise is probably the most heavily indexed of our product portfolio to academic and small biotechs, which have been the most -- end markets under the most pressure. And as a reminder, in our Q4, we had low single-digit declines in that business for us, which we were actually pleased with considering the overall market. But we saw that flatten out in our Q1. And more importantly, we peel the onion back one level [indiscernible] consumables actually increased low single digits and our instrument [indiscernible] actually improved double digit. So we see the spatial turning a corner and returning to growth as well, which is encouraging. We saw continued growth in China, now the second quarter in a row of growth in China. We're forecasting growth yet again in the third quarter. So it looks as though that market has finally bottomed and is starting to progress forward. And I think most exciting, although from a quantitative perspective, that's not exciting right away, is with 2 of our largest cell therapy customers receiving FDA Fast Track Designation. And that -- these are very large customers for us, very large designations from a disease perspective and really increased the NPV, call it, of these 2 customers to accelerate the approval process. That's the very good news from an intermediate and long-term perspective. From a more short-term perspective, it does create a headwind because they essentially have to skip a clinical trial and don't need any more material for that. So that was a big news, a big swing item for us in the quarter from a growth perspective, but overall, a very positive story for that part of our business. And then finally, on operating margins, we see that as a highlight as well. We expanded operating margins by 90 basis points in the quarter despite the tough conditions on the top line. Did that through a combination of portfolio management. As you know, we exited our exosome business in early Q1. And we did a lot of productivity initiatives around factory consolidations. And so together, those 2 items were basically enable us to not only hold our margins, but expand our margins in a tough operating environment. And it also sets us up well for future margin expansion as the markets turn.

Well, quite a bit to unpack there. I think you kind of front ran about half of my question.

I'm setting you up for some fingers.

Anyways, on your 1Q '25 call, you mentioned a little bit of a pickup in biotech demand as you just highlighted. How would you characterize the current trends across your core end markets, say, large pharma, biotech, academia? And how do these compare to what you saw exiting FY '25?

Yes. So as a reminder, we exited FY '25 our Q4, overall, we had 3% organic growth that quarter. We had over 4% organic growth in our Protein Sciences segment. And we exited Q1 with a minus 1%, although adjusting for these 2 customers, it was plus 1%. But yet, hopefully, it comes across. We sound much more upbeat about the future despite that 3 or 4 months later than we did 3 or 4 months ago. And why was that? And you may recall, for those who listened to our call at the end of Q4, it was one of the most cloudiest times that I can remember in my 20 years in this space with regards to the immediate future because there was still really not much resolution around what was going to happen with NIH funding. Biotech funding as of the end of June was down 30% year-over-year. And then the newest headwind was literally a week before our earnings call, the administration put out new threats on large pharma around MFM pricing and around 100% tariffs if they don't reshore things of that sort. And pharma had been leading the recovery had been leading the growth. And so we were concerned about potentially that softening up a bit going forward. So that was, I won't say bleak, but short-term, very cloudy forward view that we had 3, 4 months ago. What's encouraging now when I look at those end markets is that, first of all, I'll start with pharma. Those potential headwinds in clouds luckily appear to be short-lived. Pharma stepped up pretty quick and pretty bold and put some pricing mechanisms in place, both for GLP-1 most recently, but also for Medicaid, seems to have appeased the administration are also committed -- many of them committed to do more onshoring activities in the U.S., which also appears to appease the administration. So we're not hearing much, if anything, any more about it. MFN [indiscernible] or tariffs. So as a result, we had another double-digit growth in pharma. And if anything, the future looks more clear as opposed to less clear with regards to that important end market. When we look at academic on the other side of the spectrum, as a reminder, U.S. academic is roughly 12% of our revenues. And what's changed in the last 3 or 4 months is both -- the appropriation committees of both houses have essentially recommended a flattish NIH budget, which is actually great news considering the 20% to 40% cuts that were desired by the executive branch administration. Now we're not completely out of the woods here yet, obviously, because we still don't have a bill that's passed and how the Trump administration will actually administer that budget remains to be seen, but it's a major headwind that's -- at least there's more clarity around what the absolute budget size will be, and it's a step in the right direction. And we saw our behavior of our academic customers also calmed down, I would say, the anxiety level came down. And we've seen a nice steady trend where if you go back to February, March when the hammer first came down on NIH, we had high single-digit declines in academic U.S., level off a little bit in our Q4, June quarter with mid-single-digit declines. And the most recent quarter here in Q1 was low single-digit declines. So it appears as though our customers are getting more and more comfortable with the fact that it's going to be a flattish budget as opposed to a deep, deep cut. And then last but not least, biotech. So biotech has been hanging in there very well for us. For all fiscal year '25, we had flattish to low single-digit growth in biotech despite the 30% year-over-year funding cuts, and -- or yes, less funding, I should say. And we kind of forewarned in the last quarter that, that spread, although we do believe we're taking market share in biotech, that spread was probably not sustainable. And we know there's a lag between funding and spending anywhere between 6 months to a year. So we were concerned that those headwinds were still yet to hit us. And in fact, they did in Q1. We had probably the worst quarter in small biotech that we've had in a very, very long time at high single-digit declines in small biotech. But we actually feel better about biotech going forward than we did 3 or 4 months ago because for 4 months in a row now, I'm sure you all see the stats, biotech funding has actually increased and increased steadily higher and higher each and every month, where October, I think, was 80% growth year-over-year, something like that. So I don't personally think that's a coincidence. Biotech is the most -- it's got the highest beta in terms of investors, it's a higher risk profile. So they're kind of all in when they see the clouds are clear in pharma and academic, which is their exit and their innovation pipeline. And they also are quick to refrain from investing and perhaps going elsewhere like AI when there's -- when it's cloudy in pharma or cloudy in academic. So to us, it's not a coincidence, and that's kind of what we expect to see. We probably won't see that recovery in biotech for another 2 to 3 quarters down the road. That sets us up well for sure for fiscal year '27 as long as that continues. And it should allow at least our biotech end market to stabilize and not continue to accelerate declines.

Got it. And then maybe stepping back just from your end markets, China has obviously been part of the conversation, too. How is China today shaping Bio-Techne's growth trajectory over, call it, the next 12 to 24 months from both a regulatory and competitive standpoint and where do things stand today?

So from a regulatory perspective, not an issue because almost most of our products, if not all, are sold in the RUO space. So there's no regulatory issues with our company with regards to China. We -- the good news is that we already talked about this is 2 quarters in a row of growth in China. We're expecting a third one this coming quarter. So we believe China in the next 12 to 24 months will now be a net contributor to growth as opposed to a detraction from growth like it's been for the past 2 years. It's encouraging that the decline in the investment in life sciences in China over the past 2 years has not been because of a lack of change in priorities by any means of the government. It's been more about the overall economic situation. So it does appear that it's starting to stabilize. And it doesn't surprise us that the places where money will go first is in life sciences. And that's what we're starting to see is that funding return back from the government, but also seeing a resurgence in smaller biotech activity and CRO activity, as we've probably heard about the out-licensing and so forth and things like that, that are also taking place and accelerating. So we think the China market recovery this time is for real. But it won't be a V-shape like we saw in the old days. It's going to be a slope out, but we're still fairly confident that -- and I think we're the only ones that say this in our space that China -- if you look 5 years down the road, China will be the fastest-growing region in life science tools, and it will be for us.

Maybe I'll just add one thing. I think one of the big trends is the advanced therapies innovation that's happening in China. And so you kind of had the bellwether with Legend and CARVYKTI, the partnership with Janssen. But those deals have kind of ramped and the local companies want to work with a multinational like Bio-Techne who's already well penetrated into the space as well. So I think we'll get really preferential usage in China itself, too. So I think all of the underlying elements that Jim kind of outlined, we're really well positioned for the advanced therapies innovation that's happening in China as well.

And I didn't address the comment or question around competition there, local competition. And 12 years I've been at this company, we've always been hypersensitive and concerned about local competition in China because that's how China is -- they are very quick to adapt and innovate and sometimes copy, and they're very good at all of that. So we're always very kind of hyper paranoid about that. But the strength of our brand and let me just summarize it this way. We visit China at least once or twice a year. We visit many customers of all sorts. And the question I'd like to always leave the customer with before the meeting is over is, can you help us understand what your top 3 or 4 or 5 buying criteria are. And almost hands down, every customer says almost an exact same order, quality, consistency, availability, then price, then is it made in China or not made in China. And what that tells me is that regardless of where you are located in the world, a scientist is a scientist, and they want their stuff to work. And at the end of the day, the reagents are -- especially the reagents, but even our instrumentation are some of the lowest cost parts of their experiments, and they don't want it to fail because of that. And so that's what always gives us encouragement that we're still very well positioned in China. And yes, there's some formal competition there, but there always has been. But there's also not enough of it in terms of the actual needs and demand of what the future of life sciences is in China. So there will always be a place for multinationals like ourselves. And as long as we continue to live by our quality and live by our brand mission, our competitive strength will be the same in China as everywhere else in the world.

Got it. I appreciate the color there. Maybe diving into the individual segments themselves. As you highlighted, Protein Sciences was down modestly year-over-year in 1Q largely tied to the cell therapy customer dynamic. Ultimately, customers receiving accelerated approval would seem to be a positive for tech. Could you just elaborate on why this causes the unexpected headwind in the near term?

Well, I'll talk about the headwind quantitatively that we'll talk about it qualitatively. From a headwind perspective, we talked about it last year. We were very -- we didn't call out too specific, but we did say in our -- especially in our Q2, that the 9% growth we posted last year in Q2 was more like mid-single-digit growth. And we said, hey, we had 60% growth in cell therapy in Q1. We had 90% growth in cell therapy in Q2. It was driven by our larger customers progressing through clinical trials and don't expect this kind of growth rate going forward. It's still kind of a 20% growth business. This is -- we're in this lumpy stage, right? So we were as transparent as we could be about it, we were. And it's really these same 2 customers that gave us that upside that we talked about 60%, 90% last year relative to 20% in cell therapy is what's now a headwind this year because they're essentially not buying from us. So it equates to roughly a 200 basis point headwind in the first quarter that we just had, which is why the minus 1% is really a 1% growth when you look at everything up the entire company. And then for the upcoming quarter, we estimate it's roughly a 400 basis point headwind because it was a much larger purchasing quarter for them last year. In the second half of the year, there are still headwinds with regard to the 2 customers, but they are less than they are in the first half. And Will, some qualitative as to what's going on with these 2 customers and why they paused buying?

Yes. I think a couple of things happened. Of course, them getting Fast Track status. They had a massive amount of work that kind of went into that, and they ramped up their inventory. And as they got Fast Track Designation, they were able to apply that kind of going forward into this last phase of their clinical trials. I think overall, it's great news. I mean the clinical results from these customers are fantastic, be beneficial, of course, to all the society if both of these ultimately are approved. And very good for us kind of long term as well. We think about our overall exposure into the space, it's kind of a unique space. So we've ramped from about 550 customers a year, 1.5 years ago to 700 customers. We have 85 of our customers in clinical trials, 6 of those are in Phase III clinical trials. So in terms of us kind of penetrating and getting shots on goal, we feel fantastic about the position that's growing, notwithstanding our forthcoming acquisition of Wilson Wolf, which will help us actually participate even further in clinical trials. So we've got some I think welcome exposure coming on that front. So I think on the whole, net-net, as challenged as the space has been, we've really ramped, I think, our kind of long-term potential in the space. And as I said, if these -- if both of these therapies go through, if we look at 18, 36 months down the road, we should see a pretty substantial amount of return from the work that they're doing and the work we've invested to support them.

Yes. Maybe a few things to unpack there is this mostly pertains to GMP proteins, I think that's typically seen to be a 20% plus longer-term growth construct. Do you think the environment has changed and this is less reasonable now? Or do you think you can return to that eventually and this is just more of a lump.

I absolutely think so, for sure. I think this is -- in a sense, it's a fairly lumpy piece. A big part of our efforts this last year to drive kind of further into the pre-IND and then expand our basis in the clinical space, I think without a doubt will return. There's a couple of modalities too for us. So there's one kind of getting in early and getting in pre-IND. The other one is really twofold as customers really look to industrialize growing cells, whether it's immune cell or regenerative medicine applications. We bought kind of a form function to this party for the later-stage groups and our ProPaks. We've already converted a late-stage customer onto the ProPaks, which is a way of directly integrating our GMP proteins into the workflow, and we displaced somebody else. So kind of proving the point that you can get a later-stage adoption. The other thing that we've done is we've invested quite heavily in AI-generated proteins. So we've launched growth factors, for example, that are more soluble, more heat stable, et cetera, that would be very enabling as folks get through to wanting to scale and industrialize production of these therapies. So we're getting kind of in early pre-IND just by really broadly seeding the market and engaging customers. And then we're coming in later as well with kind of form factors that would fit into the workflow process. So our view is incredibly positive kind of going forward. And I think without a doubt, we have the market-leading position in that regard.

And I'll just add to throw some numbers at that to support what Will just said. If you actually -- because it can be lumpy, if you look at our TTM growth in cell therapy, it is a low double-digit growth despite the fact that -- the vast majority of our customers in cell therapy are going to be in that biotech, small biotech and academic space, which has been the most under pressure in the past year or more. So that gives you a sense of the underlying strength there. As Will said, we've increased our customer base from 550 to 700 in a time period that's also been under a lot of stress. The external -- some of the reports, some of the analysts do externally do surveys and so forth should say that actual cell therapies, we take the gene therapies out, the cell therapies continue to increase in terms of the number of the ones that are in clinical trials. It's over 2,000, I believe now that are in clinical trials. And this is a more maybe qualitative thing to say, but we believe that to this kind of digestion period post-COVID, the quality of those that are in clinical trials and the quality of those that are in pre-IND and just getting -- are much better. And if you think about cell therapy, the excitement around it really kind of got hyped up and exploded during COVID. And then there was a ton of money floating around with all the COVID-derived revenues being reinvested. And every ID in cell therapy was being funded, whether it was good or bad. And now under more constrained environment, it's got to be a pretty good indication for it to get any funding at all. So the quality of what's going in the pipeline, we believe, is also better, even if the absolute number isn't dramatically up from where it was, which means the shots on goal just have a higher percentage hit rate.

Okay. And then you mentioned this headwind. I think it equates to, call it, roughly $20 million CGT-related headwind in FY '26. Could you framed up your early and late-stage exposure, but could you just give us a sense qualitatively what a commercial approval might look like in terms of revenue versus like a Phase III or late phase project?

Yes. I mean you can add -- I'll jump in and you can add if you want to. Typically, what we expect in a commercialized therapy versus one that's in a clinical trial is it could be 5 to 10x the revenue depending on what the indication is. And that's true with these 2 that have been Fast Track. What's different about these 2 dramatically different, frankly, than the other 85 we have in clinical trials today is the diseases that they're going after in terms of the population set, very, very large. And therefore, even as a late Phase I, early Phase II trial, the amount of proteins they were buying to support these trials was equivalent to what we'd expect from a commercialized typical T cell therapy. So hence, why we had all this lumpiness the past 6 quarters as these 2 customers were progressing through. But you can only imagine the same 5 to 10x applies to these 2 as it does to the smaller ones. So I'll pause put it out there now. I mean, we see these customers combined being $100 million of revenue once the commercialization fully ramps up. And that's probably a starting point.

It obviously takes several years to get to that.

Yes, yes.

And then moving on to maybe the last piece of cell and gene therapy, Wilson Wolf, you own 20% of it. I think a lot of people would love to understand how this asset really benefits Bio-Techne, whether it's through integrated workflows, GMP protein pull-through or access to new customers? And then secondly, do you expect any additional benefit once you fully own Wilson Wolf? Or is this largely integrated already?

Yes, sure. Think about the value creation thesis there. You have kind of the preeminent bioreactor for the immune cells, so growing T cells in that space, kind of paired with both our medias, which are already used in clinical trials as well as our growth factors in cytokines. Just on the surface, those combined, right? One is kind of the app store, and we have all the apps that go kind of into it being the bioreactor itself. So as you also may know, we've got a joint venture called ScaleReady that is already kind of actively in the market and has driven a lot of penetration. So on the immune cell side of the equation. Wilson Wolf has also over 700 customers, and they're more skewed to later-stage clinical trials because they were in very early in the process.,, and they participate in over half of the immune cell therapy trials, and they're in the last 4 release. So they've got a fantastic position. So just if you just looked at the math on it, which is great, it's accretive top and bottom line for us. But then we start thinking about the more along the lines of value creation. So I mentioned earlier our ProPak for cytokine delivery. So that can be directly integrated into -- just as an example, into the Wilson Wolf GRx bioreactor setup. So you can imagine that as you're scaling and industrializing a process that we become kind of the perfect marriage in that sense. And so are we all the way there in terms of tying off all elements of that workflow? We're pretty close. It will only get better as we bring Wilson Wolf in. I think the other area is where we come at this, and we didn't kind of mention it earlier is that our instruments are also used for potency and quality release testing in immune cell therapies. So every drug that's on the market right now, save one utilizes our platform, our Ella platform. And very broadly, it has become the standard, much like Maurice's is for large molecule production QC release testing, the Ella platform has become the de facto standard there. So we start bringing a very different kind of workflow solution from both the development aspect all the way through to QC. So yes, we think it's going to drive a lot of areas. I think also as we convert and look to convert later-stage folks who want to industrialize the process or improve it, so it becomes more affordable and accessible that we're kind of uniquely positioned to offer that.

And then, of course, from a financial perspective, I couldn't be more excited about it because I believe they have 5 customers who just got approved for commercialization. They probably have some more on deck we can't talk about. But I believe by the time we consummate this purchase, they'll be right at the inflection point where these commercial ones are ramping because as you said, it takes 3 to 5 years for -- even once you launch commercial for it to kind of fully start to ramp. So I think it will be a majorly accretive to our growth even post purchase. And then, of course, majorly accretive to the bottom line where they have 60% to 70% EBITDA margins already today.

Maybe just following up on that. I think in the past, you've said it's roughly 70%. But under your umbrella, it'd probably be closer to 60%. Is that correct?

Yes. Yes, just simply because they're still a private company, there's some investments we need to make to kind of make it public company worthy, I'd say.

But still highly accretive.

Yes, absolutely.

Maybe I'll stop here before moving on to see if the audience has any questions. Great. Awesome. Maybe touching on the ProteinSimple side or the instrument side. Just given the funding environment remains constrained, how has instrument demand trended so far this year?

It's trending in the right direction. It's what I call a little bit choppy in the last several quarters. We had a couple of quarters in a row of consecutive instrument growth. And in last quarter, it dipped a bit largely because of the biotech decline I talked about. But it's like everything else, I think you get a little bit of choppiness is a sign of a bottoming perhaps of the market and stabilization. And given how Q1 played out and we saw the instruments start to come back in the back half as well as continue in October, we do believe Q1 was probably more of an anomaly in that trend and we started to see a few quarters ago with instrument placements increasing year-over-year, that trend continuing going forward. So -- and maybe you can talk a little bit, Will, as to what's driving that and why our instruments are doing so do well and will continue to do well.

Sure. I think as we've shared consistently, right, we've had very high levels of growth or consistent growth in the consumables component kind of pulling through as well as the services. So we know the systems are kind of being utilized across the page. If we think of our relative position in different markets, so in the biologics space, right, we are the standard for QC release assays in that large molecule process. So as you think of that market and bioproduction just in general, growing, we're really benefiting from that. There's a couple of other elements that really make us uniquely positioned. So with the work being done in kind of that ramp in ADCs, the Maurice platform is really uniquely suited for those very more complex analytics required to do the release testing in both the development side there. We're seeing kind of a ramp-up back in China in that space. And then we also know with the onshoring that we expect that there'd be a positive driver in the Maurice. So the biologics platform is incredibly well positioned. It's very durable in the space. And as we kind of expand the applications there, we're seeing utilization of the new applications as well as benefiting from the market. If we think of the Ella platform, it's really playing across an entire continuum of high-throughput discovery, which is happening out there in the university, you think of the Olink platforms. Those platforms and any other doing high-throughput proteomics detection, they're generally using our content, so our antibodies. I won't specifically talk about anyone that utilizes those because we can't. But in general, imagine the vast majority of discovery work that's happening is happening with our content. As that translates through into translational space, there are certain applications where they might use different platform than Olink or our platform, which is the Ella platform. So we've got this, again, nice broadly playing in the discovery market, and we're kind of catching it in the translational space. We're seeing that with Novomol-Dx and other diagnostic companies that want to adopt that for -- whether it's for a laboratory developed test or otherwise. And we've taken that through some regulatory hurdles recently here in North America and in Europe. And then the Simple Western platform is the only fully automated Western platform on the market. We've seen tremendous adoption but have a marginal penetration, about 18% or so of that market. We've recently launched a platform called Leo within that Simple Western platform. And that has just had better-than-expected adoption. It's a higher throughput format, and we're seeing folks use that for really different kind of expanding the application and usage space there given its level of quantitation, the ability to have standard curves, et cetera. So you start kind of blending this in that we're able to deploy content on a couple of different platforms in Ella and Simple Western in that translational space. So if you think about that long-term trend of high-throughput proteomics translating we have an incredible position there. And so I think what we're seeing is, as Jim alluded to, the trends are improving, and we're seeing utilization of the consumables or the cartridges ramp accordingly.

I'll look in that real quickly by -- and thanks for mentioning the consumables and utilization because even though we had a blip in the actual placements in terms of growth this most recent quarter, the consumables growth was still 20% plus. So -- and we've had, I don't know, 4 or 5 quarters now in a row of double-digit increases in our consumables, which are the cartridges used in the instruments. To me, that's the ultimate as a nonscientist, are they using the instrument or not? And they're using at that kind of level even in tough budgetary environment. It tells you, first of all, these instruments are -- hence the name ProteinSimple the brand. It's around simplification, it's around productivity and highly being used in a tough budget environment. It kind of fits our thesis exactly how we thought the intent of these adding value for our customers, these products were supposed to do. And then, of course, after many -- not only quarters, but years of double-digit now growth in our consumables in these instruments, it tells you that they're starting to use up their capacity, too. So when the money comes back, the first place they're going to go is want to buy some more instruments. And that's what we started to see. We started to see it in the last several quarters and here more recently as well, which is why we're very encouraged.

That's great to hear. Maybe just trying to keep us on track, moving over to the spatial business. This business has weighed on performance a little bit more recently, and it's more heavily exposed to biotech and academic end markets. So -- could you just talk about what you're seeing in terms of demand here among that end market? And -- but also outside of that, what do you think -- what do you think it will take to drive an improvement in demand here? And what gives you the confidence long term?

Well, I mean, I think -- and Will can jump on this after I'm done bubbling here because he's got more science back -- way more science background than I do. But everyone you talk to customers, spatial is still a very hot area. It's a very exciting area for science. Call it next-generation IHC is the way I think about it in terms of maybe replace all of IHC at some point in time in the future. And we have the best solution for that, especially as it pertains to the translational space that Will was talking about. And we make that clear, some people ask us, how do you compete with 10x and so forth? And the answer is we don't. They're much more upstream in discovery. And if they do well, that's great because the output of customers using their instruments becomes the input for us. We absolutely believe we have the best solution for the translational space with our COMET instrument combined with our world class-leading RNAscope reagents and assays for the RNA. And now with the COMET, we be the only instrument in the market that can do look at both RNA and proteins on the same slide, the same time, fastest instrument. I mean basically, every box you'd want speed, simplicity, overall cost per sample, be able to look at multiomics in the same run, preserve the sample. There's no other instrument in the market that can do what this instrument does. And of course, no other company has the capability of our RNAscope reagents. So very, very excited about that space. And the fact that the worst quarter we've had was low single-digit decline a couple of quarters ago, in a very tough end market, as you alluded to, with both a high academic and biotech exposure tells you not only the strength, I think, of the overall spatial market in terms of priority where money is going to be spent, but also our positioning in it.

Okay. And then I think you talked about the potential for spatial instruments to be the highest pull-through instruments in your portfolio. So can you just talk about what you're seeing in terms of pull-through opportunity, both in the near term and long term?

Yes. I mean we -- already, we're on a full run rate basis, we're getting roughly $40,000, $45,000 per instrument pull-through. And admittedly, most of that is just off the chips that are used to think of it as the cartridge component of these instruments that you need chips to run the instrument on. What's still yet to come is all the pull-through from our RNAscope, which is all our instruments have just recently been upgraded for that capability as well as the antibodies. And it is an open system so that you can use anyone's antibodies. But us, of course, us being a world leader in antibodies, we are rapidly producing panels for specific applications so that customers don't have to finagle with their own antibodies to figure it out. They can just check a box and say I'm going to use the application, pick that panel. And that is still all yet to come. And we're rapidly developing these panels, starting to sell them. But when those start to ramp, both on the RNAscope and the antibodies, that could double the consumable pull-through that we currently get at very, very high margin.

Okay. And then just trying to wrap up here over the next couple of minutes, but you reiterated expectations for this low single-digit organic growth in FY '26 despite the near-term headwinds associated with the cell and gene therapy. What gives you confidence in achieving that? And what are the key levers supporting that sequential...

Let's talk about the sequential improvement from Q1 to Q2 first because it actually is improvement even though the headline number was relatively the same, i.e., call it, minus 1%, if you want to say what we like to say low single digit, minus whatever, minus 1%. But we already talked about there being a known quantitative 4-point headwind with these 2 customers. So that actually could translate to a 3% coming off of a 1% adjusted for those 2 customers. And really, what that -- what that relates to is what I call stabilization. First of all, our pharma market remaining strong at double-digit growth and then continued stabilization of our academic market and future stabilization of our biotech as opposed to sequential declines in biotech because of the funding improvement. That's kind of the assumptions around the underlying market. And we have a track record of showing that our growth verticals, namely our ProteinSimple franchise, our spatial franchise and our cell therapy, although right now, those are being impacted by these 2 headwinds, the spatial and ProteinSimple in particular, in just stable markets, they tend to take more market share than they do in declining markets. And then in normal markets, we. Expect very solid double-digit growth from those two. So the fact that we've seen those two growth verticals turn the corner in the case of spatial, in the case of ProteinSimple start to really ramp, that's what we'd expect to see in a stabilizing market, and we think they will lead the growth, and it's really company specific, but lead the growth for next quarter relative to Q1. With regards to the back half of the year, it's too early to predict any further improvement in markets at this point. But even if the markets kind of stay the same as they are in Q2, we have easier comps. We'll start to lap the academic headwinds that began in February. And of course, the tough biotech market that kind of hit right away in the early part of the year when funding started to drop. So a second half story is more -- right now, is more about easier comps. The Q1 to Q2 story is about our growth verticals starting to show that spread, that acceleration in a more stabilized market. And as far as beyond that, we don't give any guidance beyond our fiscal year at this point. But I will say this, there are other companies that have calendar year ends that are starting to talk about calendar 2026 and even calendar 2027. And we absolutely fully agree with their assessment that the markets will continue to improve. And my personal belief, and I understand why, because everyone is a bit shy after being stubbing their toes more than once with regards to these end markets, but I think they're being a bit conservative. History shows that in life science tools, when the recovery starts, it usually happens rather rapidly. So we're very encouraged right now in terms of the setup for our fiscal year '27.

That's great to hear. Just as a follow-up on that, you're probably not going to answer, but what is the growth potential of this business in a normal environment? [indiscernible] really fast-growing business because it seems like there's some puts and takes on the end markets. We've been doing really for 3, 4 years now. In a normal environment with a couple of things going your way with the cell therapy becoming [indiscernible], et cetera. Is this -- should this be a double-digit growth business? Is that something that...

Absolutely. I mean, absolutely, that's what we've designed the company to be. That's -- to us, that's a definition of a growth company is double digit. We were set up beautifully for that. We've shown historically that we can do that. And in fact, even pre-COVID, we were on the path to double-digit growth, and we didn't even have the portfolio we have today. The other thing I'd mention that why it gives us confidence about returning back to double-digit growth in normalized markets is our core reagents. That's our core antibodies, proteins, the most -- not only most competitive, but the most highest penetration we have. We never say that those have to be double-digit growth for the company to be double digit. They just grow at market or even a point -- well, of course, we always aim to be better than market. Let's just say they grow at market, call it, mid-single digit because that's a normal market for life science tools. Where the accelerated growth comes in is from these growth pillars, cell therapy, spatial, ProteinSimple, in particular, those 3. Those 3 businesses pre-COVID, 5, 6 years ago, made up 30% of our portfolio. Today, they make up 45% of our portfolio. And it's not because the core has shrunk. The core has held its own. It's not even grown from there. So -- and there's still -- all 3 of those are majorly underpenetrated. And in the case of ProteinSimple, part of the reason why they're underpenetrated despite they've grown so much is because they continue to expand the applications. All 3 platforms continue to expand their market potential. So what you got to kind of snowball effect. Our 3 growth vectors now are a larger percentage of the company when markets return to normal, they will exceed market growth by at least 500 basis points or more and be a larger component to the double-digit growth of the overall company, if that makes sense. So it's kind of a flywheel. And this is all before the commercialization of cell therapy kicks in. We believe we're in double digit. When commercialization of cell therapies really kick in, say, 5 years from now, it could actually accelerate from that. That's an important question because, I mean, our whole LRP is based off of a double-digit growth.

Great. Well, I think we're running up on the time limit here, but I think that's a great place to end it.

I like it, too. That's a good place.

Thank you.