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

So I'm Daniel Markowitz. I cover Life Science Tools, Diagnostics and Med Tech here at Evercore ISI. With us, we have James Hippel, CFO of Bio-Techne; and Dave Clair, Investor Relations. So thank you both for being with us.

Yes, Dan. Thanks for having us. Especially first thing after the turkey hangover.

Great to be here.

So starting off sort of high level on the 1Q overview. You posted an organic decline of 1%. Can you just give us a quick overview of the quarter and I guess, the macro environment as you see it today?

Yes. Let me start with what I see as our highlights for the quarter from an end market perspective. Large pharma continues to perform very well for us. As a reminder, large pharma is about 30% of our revenue. We had like the third quarter in a row of double-digit growth in large pharma. So we can talk more about what our concerns were there, but we were obviously very pleased to see that the strength there has continued. From a regional perspective, I think the highlight was China. We had our second consecutive growth each quarter of organic growth in China. We're expecting a third here this coming quarter. And we do believe there that, that market has turned the corner to -- back to a growth scenario, and we think gradually progressing growth. If you look at our portfolio, highlights, again, we're our approaching simple franchise as it has been throughout the softness has occurred in our industry in the past couple of years now. We had yet another quarter of double-digit growth in our consumables that the instruments -- cartridges that the instruments used to run, which continues to confirm our thesis that our instruments are widely used and needed for productivity and tough budget constraints, and our customers are using them like crazy. Also, Spatial was a highlight, in the sense that our Spatial was probably the most over-indexed to the academic and biotech end market of all of our major product categories. And you may recall in our fourth quarter, we slightly declined in spatial as a result of the end market pressures, but we saw that stabilize and sequentially improved to flat in our most recent quarter. But more importantly, if you dig underneath the surface a bit, our reagents actually flipped from negative to positive growth. And our [indiscernible] instruments, which is the automated version for Spatial for our platform, although declined for the quarter from a revenue perspective, the bookings were actually up double digit year-over-year. So we do believe that it's a very encouraging sign to see Spatial come back, and we're projecting a decent quarter here, it's most current quarter as well. So we feel like that's turned. And then last but not least, it's actually good news, although a temporary intermediate to say, headwind is within our cell therapy space. Our 2 largest customers got fast tracked by the FDA. And as a result, didn't need to buy the same material that they had bought from us last year, and that caused us a headwind, which is what ultimately caused us to be negative 1% as opposed to what would have been positive 1%. And then last but not least, I think, is our margin profile. Despite being relatively flat, even down 1% and these 2 customers being very profitable customers, we were still able to manage 90 basis points of margin expansion on the bottom line.

Great. Very helpful. So I guess, first, starting on, you mentioned Spatial. It sounds like bookings are strong. It sounds like it's turned a bit. And you mentioned most exposed in biotech. I guess just focusing on that biotech end market, what's your exposure there? And how would you describe sort of the current environment versus the last few quarters and how you'd expect that broader market to unfold in the next 6 to 12 months?

Yes. So smaller biotech represents roughly 20% of our revenue base. And if you back up a quarter to the end of our fourth quarter, which was the end of the June quarter, we were still able to show relatively flattish, even low single-digit growth in our biotech end market despite funding as of June year-to-date being down 30% year-over-year. And we expressed some concerns coming out of Q4 around how long can that gap really persist. We know there's a gap between funding and spending. And even though we believe we're taking share overall in the biotech end market, that was a pretty wide gap. We figured that there's a chance that still to hit us. And in fact, it did. In our most recent Q1, biotech was down high single digits for the quarter, which was like the worst quarter we've I think ever had in biotech, small biotech. But yet, we actually feel better about the end market now than we did a quarter ago, largely because -- well, 2 reasons. One is if you look at why is biotech funding down, it's more risky investment dollars, and they tend to be more volatile with regards to what's going on in pharma and what's perceived to happen with pharma, maybe with MFN pricing, for example, which was a concern a quarter ago. And that's a lot of these investors exit. So that can cause them to hold back. And even the stabilized academic environment funding can cause hesitation at biotech because that's the source of their innovation for the future often as that's the case. So we saw those things happening, not to mention and then in real dollars, the 30% being down. So now you move a quarter ahead, what's changed? Well, there's definitely more visibility now into pharma as well as even academic. Large pharma, our biggest concern a quarter ago was that the double-digit growth rates couldn't continue in an environment where the administration was going after MFN pricing, 100% tariff threats for not onshoring enough, et cetera, et cetera. But pharma seems to have stepped up the play pretty quickly on that and responded in a way that was favorable administration, and that noise has largely gone away. I think we all pay attention to that and haven't heard much about that here recently. And our results in pharma showed that at double-digit growth. Not to mention, you're seeing a lot of M&A activity pick up. We all know a lot of larger pharma companies have patent cliffs that are coming and whether they're looking at M&A again to help fill that gap, which often comes from being from biotech and/or licensing activities, which often comes from biotech, whether it's here or abroad, is making, I think, the investment profile for biotech -- that risk profile more reasonable. And by the way, it shows in the numbers, right? So every month for our first quarter and into October for 4 months in a row, there's been increased funding year-over-year into the biotech space. So we see that as an encouragement. We think that will hopefully be enough to at least stabilize the biotech market from here. The question is when does it start to actually improve? Well, it gets back to how long does that -- assuming that funding growth continues, when does it manifest itself in spend? And that could be 6 months, it could be 9 months. If we're fortunate, we'll start to see it maybe in our Q4 of this year, but it definitely sets up well for fiscal year '27, if nothing else.

Got it. That's super helpful. And then same question for academic and government. I guess, sizing your exposure there, how would you describe the current environment versus the last few quarters and how that market should unfold over the next 6 to 12 months with the NIH budget and these different moving pieces?

So as a reminder to everyone, academic and government is roughly 20% of our global revenues. Roughly half of that is in Europe and roughly half of that or so is in the U.S. What it's worth the academic market in Europe has been very stable, very steady, nice -- relatively mid-single-digit growth. I haven't talked about it much because everyone is concerned on the U.S. side, but Europe has held up very, very well, and we expect that to continue. With regards to the U.S., so again, similar to biotech a quarter ago, it was very, very blurry with regards to what the outcome with NIH funding is going to be and what the impact that will have on our academic customers. There were still 40%, 20% plus type of reductions being thrown around. What's changed in the past 3, 4 months is that the appropriations committees from both houses of Congress have signaled that like flat budgets makes more sense, which is a huge relief considering where we started from it, potentially minus 40%. So I think a lot of the anxiety that our academic customers have faced for the better part of calendar 2025 is starting to subside a bit. And we've seen that gradually appear in our results as well. We had high single-digit declines in the -- basically the back half of our fiscal year '25, which is the first half of calendar '25 and in our most recent Q1 that narrowed down to low single-digit declines. So the anxiety level definitely appears to have alleviated a bit and that they're kind of preparing themselves more for perhaps a flat budget going forward as opposed to a very severe negative budget. But we're not out of the woods yet, right? I mean we still have to have Congress pass something, and then we have to see how the Trump administration actually administers that budget. But at least there's some clarity on which direction it's going. And to summarize it, I guess, I'd say a quarter -- 4 months ago, let's say, it wasn't clear at that point when -- especially all 3 of our major end markets, which direction it was going to go from there, flat, up or down. Whereas right now, we feel like the risk of it getting any worse has definitely neutralized. And now it's more about if there's clarity concerns, it's more about when and how does the recovery start and at what kind of ramp does it happen. So it's kind of where we were 1.5 years ago or so coming off of the IRA that impacted big pharma. So -- but again, I think it sets us -- we've got a couple of quarters here to figure that out, but I think it does set up for a much improved fiscal year '27.

Great. And then the last one on the 1Q. On the call, you guys spoke about some promotional activities in both academic and government and biotech. Can you talk a little bit about those activities, I guess, where in your portfolio, they were focused and the thought process behind these actions?

And we brought it up only because it was a bit of a margin headwind to us, in the sense that we didn't have the amount of pricing throughout the company that we typically do. We typically get 2% to 3% pricing. Obviously, during the high inflationary period, we're getting considerably more. But in a normalized state, that's what we usually kind of aim for and what we achieve. And this quarter, it wasn't like our pricing was negative, but it was relatively flat for the quarter. So we still -- there is still obviously a level of inflation. So therefore, we had a little bit of margin pressure as a result of that. But it wasn't a broad-based discount program and we're highly advertised. This is a very targeted approach. I mean, at the end of the day, we know especially our academic customers and some of our biotech customers are struggling right now or at least have a lot of anxiety around concerns. And so what you want to do is be partners with them and show them that you're there with them in good times and bad and allows for sticky customers so that when budgets do come back or stabilize, then they're happy to pay a higher price down the road. But it wasn't even wide scale among academic customers. I mean, we sell to hundreds of thousands of academic or at least tens of thousands of academic customers, and they're not all short on funds or concerned. So it's those that you know that are most impacted by this and then you try to help them out. And that's really what that messaging was about.

Got it. Great. Super helpful. And then on the '26, I wouldn't call it guidance, but a soft guidance. I guess back in August, you provided a framework for the Street for about low single-digit growth in fiscal '26. I'm just confirming, does that framework still hold today?

Yes, we still think it's in the cards. And while we say I can kind of lay out how we're thinking about the very near term and then the back half of the year, we also kind of soft guided that we thought our Q2 will be very similar to our Q1 in terms of absolute results on the top line as it pertains to organic growth. And -- but the underlying strength of the business is continuing to improve. And that's because this headwind that I'm sure we'll speak more of with these 2 cell therapy customers caused us about a 200 basis point headwind overall for the company in our first quarter. And based on what they bought from us last year, assuming they don't buy anything more from us this year, that's about a 400 basis point improvement. As a reminder, we grew 90% in GMP proteins in Q2 last year, and that was -- a lot of that was driven by these 2 customers. So bottom line is if our headwinds increase by 200 basis points and our absolute target for organic growth for the company is the same, that means that adjusting for that, the underlying markets are actually getting better from barely positive to now decent low single-digit growth positive. So what's behind that? Well, we talked about the market stabilizing. We have an amazing portfolio of both core reagents, but also these growth vectors we talk about, our ProteinSimple franchise, instrumentation franchise, talked about our Spatial franchise, of course, our cell therapy overall franchise and even our molecular diagnostics franchise. So they're all above-market growers by far. And in stabilized markets, they tend to outperform even more than in very tough markets, call it, declining markets. And in growing markets, that spread even widens further. And given that right now, we feel like there's more stabilization in our end markets, we think we'll see further strength in our ProteinSimple franchise and our Spatial, those 2, especially as well as the fact that we continue to have a ton of innovation going on across our businesses with new product launches that even in a stable market will allow our organic growth to accelerate from here, albeit slightly, but accelerate from here when you back up the cell therapy impact. Now as we -- that's for Q2. Now as we get into the back half of the year, I'm not about yet to call a turning point in terms of academic and biotech going from stable to growth. But what I will say is the comps get easier, right? We start to lap the academic comps right away in our Q3 as well as biotech tough comps or easy comps, I should say -- easier comps. And we also have some easier comps in our diagnostics and genomics -- Diagnostics segment, I call it our OEM Diagnostics business as well as our Lab business. Those tend to be very lumpy in nature in terms of the ordering patterns from more concentrated customers. And last year, they happened to buy a lot more in the first half of the year than they did in the second half of the year. There still was very solid mid- to high single-digit growth for the year. That was kind of the pattern, whereas this year, it's looking like it's going to be more of a consistent pattern throughout the quarter. So we had much tougher headwinds in that segment. We didn't talk about it much, but it was actually a pretty tough headwind we had in the first half of the year with a less of a headwind in the second half. So bottom line, I guess, Daniel, the second half is not about calling any kind of inflection in the markets. It's really more about the position of our portfolio, be able to take more share in a stabilized market and lapping easier comps.

Got it. Super helpful. And we're definitely going to touch more on those cell and gene customers. I'll come back to that. But I guess just on the macro uncertainties, I think when you laid out the initial framework, you spoke about this low single-digit framework, but that was until uncertainties lifted. I guess what would you say are the primary uncertainties that are weighing on Bio-Techne today?

Yes. I think the main one is the academic outcome and more that it is only 10% of our business on a U.S. perspective, but it does cause ancillary hangovers in our biotech space. I think that to me is the biggest question that still needs to be answered with regard to how that ultimately gets resolved and where that stands and how it gets administered. I think not if, but when that does, to me, that's the last remaining concern a biotech investor would have with regard to invest in this market going forward. So I would expect that to continue as well. So to me, that's the biggest item out there.

Got it. And I guess how do you feel about the state of that today? I know you mentioned budgets potentially flat, and we need to wait to see a final outcome, but would budgets flat mean the business is flat? Or I guess, how would that impact growth?

Yes. I mean that's another interesting -- it's a good question. And for us, what we're saying is I believe we have been overall outperforming in academic U.S. despite the declines. Like I talked about high single-digit decline, mid-single-digit decline, low single-digit declines, we know that our customers are behaving much more severe than that. We've had customers tell us they're cutting budgets 15%, 20% in anticipation of what may come down the pipe. We've been monitoring some of what our peers say based on that. We feel like we are doing better than most in academic. And so even in a -- as that market stabilizes, we feel like we can outperform. Now as far as returning to growth, I think we can grow even in a flattish U.S. academic market and it gets back to how the money is being spent. And you may have heard me say this before, Daniel, I know many in this room probably heard me say this in some one-on-ones, but what's always been told to me by our top scientists and our company and many who worked to come out of academic is that, yes, NIH levels when they go up and go down, the water level goes up and down, all boats rise. And that's generally a good thing. And when all boats go down, generally not a good thing. But what really moves the needle is where the current and the river is. And you could be in a high NIH funding environment, be stuck in the back water and not doing a whole lot or you can be in a lower funding environment and be right in the middle of the current and yet be outgrowing what you did in a better NIH. And as an example, during the COVID years when NIH budgets were being increased by double digit year after year after year, our academic growth was basically mid-single digit. Why? Because so much of that extra money was being earmarked towards infectious disease research and vaccine development, et cetera. And that's not the wheelhouse that our reagents and instruments play in. So we did okay, but didn't see the massive upswing, at least not in our U.S. academic market. If this administration puts their money where their mouth is, they're very vocal about, that's not their priority. Those areas of research are not their priority. But what is a priority is immunotherapy type diseases, cancer, diabetes, neurological diseases. And guess what, that's exactly the wheelhouse where the majority of our tools play in research. So that's why I believe that if even a flattish market, as long as that existing money is being redirected towards areas of research that our tools are perfectly fitted for, then we could actually grow in that environment.

Great. And then the other uncertainty that I remember at least at the time, and we touched on this, was within pharma. It seems like a lot of the uncertainty is already sort of seemed to have lifted, and I think you already touched on it with tariffs, MFN. I guess, is that potential upside versus what that initial framework laid out? Because I think the main uncertainties were both on the pharma side and academic. So academic still holds, but pharma seems to have lifted. I guess what's the impact there?

Yes. I mean, I think we -- again, we had double-digit growth in biotech and pharma yet again this most recent quarter. So I'm not -- in our forward view of guidance, we're not necessarily considering pharma to accelerate from there. It's already, for us, kind of back to normal. We expect to grow double digit in pharma in a normal environment. So for us, the upside is really more around the academic and biotech space. And right now, we don't assume much, if any, real true market recovery, at least not in the back half of our fiscal year yet. We are expecting it to stabilize. So if it actually starts to inflect and recover, that could be upside. But we're thinking that being more of a back half of calendar 2026 event.

Got it. Okay. Great. And so now going over to cell and gene therapy to talk about the Fast Track and those sort of dynamics. So on the call, you pointed to Fast Track as causing some temporary headwinds in the business. Can you explain this dynamic? I guess why does Fast track lead to a headwind in the first place in basic background?

It's a good question. And we're learning this as we go, too, both us as well as through our relationship with Wilson Wolf who has seen it earlier. So first thing is Fast Track designation doesn't mean anything specific. It's very kind of -- it's kind of customer-specific in terms of how it's implemented. But in theory, it's the same in that it basically says that you have a -- you're looking at a disease state that can impact a lot of people and shows a lot of promise. And therefore, the FDA gives you this designation to get your process through your trials and ultimately through your FDA approval and commercialization ramp Fast Track from any kind of bureaucracy and paperwork, et cetera. So that's the spirit of what it is. How it gets implemented, though, it could be different from company to company. And we really did not know until this most recent quarter what this was going to mean for these 2 specific customers that we knew going into the fiscal year had recently got Fast Track designation, but didn't really understand what that would really meant from an impact perspective, especially for us and nor were they -- they're very secretive by nature, and they weren't willing to necessarily come forward and say, here's what's going to happen. And so it really wasn't until we got halfway through the quarter and saw that the orders weren't repeating like they had been all last year and kind of pressure them to help us out to help understand what's going on. And essentially, what they told us was that for them, this Fast Track designation allowed them to essentially skip a phase. So where they were buying material from us to kick off their Phase II trial, they got accelerated to basically combine their Phase II, Phase III in the same trial. And therefore, they don't need to buy material for us this year for Phase III because they already have it. And so made it very clear to us say we're going to buy anything from us at that point in Q1 and probably not in Q2. And beyond that, they don't say anything. But we've assumed that basically it's going to hold for the rest of the year until they get through these clinical trials and then go through the process of formal approval with the FDA.

Got it. And is it just random that 2 different programs happen to be getting Fast Track at the same time and having the same impact? Or were they connected in any way?

Yes, they're not connected. And I guess, it's very fortunate in terms of how we were positioned. These 2 customers, they happen to be, I already mentioned by far, our largest customers. Even though we have 700 customers, these 2 make up a very significant part of that revenue. And they just happen to be very, very large disease states and very promising. So this is all about the shot on goal, right? This is why we have 700 customers and continue to build that base and even give grants of free product out to academics on occasion who are starting new therapy ideas because if you get in early, it's very sticky. And statistically, what we don't know exactly if it follows the same realm as biologics, roughly 5% make it all through. But when they do, it's big. And we were very fortunate to be linked up with these 2 very early on and have them both hit Fast Track status, but they're not linked in any way.

Got it. Okay. And can you just give us some more color on how you learned about the Fast Track designation? I guess what was your communication with the customers? Is it that they reached out and told you, hey, just so you know this is happening, this is going to impact the way we purchase? Or is it more hey, we noticed you haven't placed an order in a while. What's going on? Oh, we got this Fast Track thing.

Yes. I'm not going to say when we knew because I know everyone is trying to figure out which 2 of these are and our customers are getting extremely secretive. So we definitely don't want to be the ones that leak anything. And so I can't give you that information because you can probably narrow down which this might be. But no, I mean, we read about it and try to reach out to them and say, what does this mean? What does this mean? And I don't -- I was saying I think they were still trying to figure out what it meant for them, quite frankly, until we got into this fiscal year. So yes, it -- and why is that? In this stage of clinical trials, and this is true with all of our customers, not just these 2, I call it a bit of being a victim of our own success, right? So because one of our selling points aside from what we believe is having the highest quality GMP proteins is the availability of those proteins that we can -- we've invested $60 million in what we believe is the world's largest GMP protein factory and basically supply that is -- I'd say, basically infinite and [indiscernible] for what this market probably ever need. But we did that purposely to put our customers at ease that says, no matter where you get in your clinical trials or your commercialization, you don't have to worry about the availability of product. We have it, and we have it at a moment's notice. And so -- and that's the way it's worked. They're very secret by nature. And so they don't need to give us advanced orders. They can put an order on a Tuesday for millions of dollars of product and have it delivered on Thursday. Obviously, knock on wood, some of these get into commercialization, that's when you'll -- and by the way, they're going to want to start to have formal supply agreements at that point because now you're in commercialization, that supply is going to be locked in, and I think there'll be a lot better visibility at that point.

And are you able to say -- is there a formal list that gets published by the FDA where you saw the customer on the list? Or is it some sort of new source that mentioned it? I guess like where can investors look to see which programs got Fast Tracks?

I don't know if you have the answer to that one, Dave, but...

Yes, I don't have the answer to that.

It's probably a combination of both. I'm guessing there is public -- it is publicly posted, but there's also often press releases done by companies as well once they've get in that designation. So -- but do they press release it right when they know, maybe not, maybe they do. So it's kind of a combination of both company-specific notifications, but also looking at government websites and seeing what's going on.

Got it. Okay. So the main sort of takeaway on why an air pocket, basically lesser patients need to get dosed in clinicals versus what had been expected prior to the FDA Fast Track. Is that the right way...

Or yes, whether it's less or not, technically, yes, that's the answer, but it's basically a whole phase of trials that is no longer needed because they basically condense the 2 into 1. So at the end of the day, that means less patients, yes.

Got it. So I mean you can sort of frame this as a short-term pain for long-term gain if these programs get approved since I think the approval would come sooner. So I guess how should we handicap the likelihood that either of these gets approved? I know that's a very general question. And obviously, you're hoping that they both get approved because that would be great for patients, great for you, for everyone. But should I think about this as like a completed Phase II? Or like what's the right way to think about it?

I mean I couldn't give you an odds or what this does in terms of probability of success. I think it's less -- I mean, it's obviously good news because the data was strong enough to accelerate. But I don't think it necessarily means that it's chances of now surviving Phase III is greater than it otherwise would have been going into Phase III. Obviously, skipping a Phase II helps a lot. But in terms of comparing it to other Phase III, is it statistically any better or not, I'm so sure I've ever read anything that says that. What it does, though indicate is just how important these therapies are to society in general because of the very large indications they are and the importance that the administration puts on these 2 therapies as well. So bottom line is the NPV, as we call it, of these 2 customers has gone up dramatically because -- not only because of time value in terms of holding it in, but not only even if -- once it, let's say, does get approved, the time it will take to get through that approval process should also be lessened. So it's more about the NPV going up because how do you want to risk adjust it, it comes in considerably sooner than what otherwise would have.

That NPV going up, is that just because of the time line? Or is it also this Fast Track indicates to you that there's a higher likelihood of...

From our perspective, we're saying it's because of the time line coming in closer. I don't think any of us are going to try to guess whether this -- I mean, statistically increases the odds or not. I can sit here and tell you high level that it makes sense that it does, but I could also counter that and tell you many reasons why it doesn't. I'm not an expert in here. We're not experts in FDA approval process. So I'm not going to tread that water, but all I can say is that it's a net positive, no question about it. And we would have been having the same conversation, knock on wood, a year or so from now, had they gone through the normal phasing. And we learned this from Wilson Wolf. Wilson Wolf is earlier into this, they got 5 or 6 that are already in commercial very recently. And so they've been through this before, and they kind of saw this coming and realized, hey, this J-curve of exponential buying of proteins and/or bioreactors for clinical trials is true, but there is a bit of a cliff that occurs between final Phase III approval or final Phase III results and actual FDA approval and commercial launch. And that gap can be 18 months to 3 years. It doesn't mean it goes to 0, but it definitely diminishes to 0 because you're basically selling product just for production runs and testing and so forth. But there is a bit of a chasm there that occurs naturally. And we've been talking about that chasm as it pertains to these 2 customers likely a year, 1.5 years from now, but it got pulled in. Now we're talking about it now.

Right. So obviously, you already touched on a lot of investors are trying to figure out which therapies these could be. Is there anything you're able to share on the population size, the [indiscernible] of interest? Just sort of anything to help investors sort of frame...

What I will say is in terms of what we think it means to us based on these disease states and the potential that, call it, the midpoint of the ramp of the potential commercial ramp is somewhere between $40 million to $50 million of revenue to us for each one of these customers. I say mid because it's hard to say exactly if it ever gets full. But if you look at a long-term 10-year kind of commercialization ramp, we believe that halfway point there would be $40 million to $50 million of revenue for us. Not necessarily in time, but in terms of potential patients to be served on an annual basis.

Okay. And if I run through the unit economics, is that on just the reagents business, which I think, correct me if I'm wrong here, is about 5,000?

This is just on the GMP protein part of our business.

Right. So that's about 5,000 of GMP proteins that are sold per therapy. So it's like...

I don't have the exact numbers on this one, but when we put out those numbers, they're usually as they relate to the CAR T cell therapy, which is in line with where the GRx participates. I don't know if we've given out figures on the regen side. These are -- that's the other thing I'll point out is that these are actually -- these aren't CAR T therapies. I'll give you that much. They're actually kind of regen medicines, so iPSC type therapies, stem cell. And they do involve a lot more protein just by the very nature of having to grow up a lot more cells for these type of therapies. So it is a higher -- it's very likely a higher content per dose for us, which is another reason why the numbers have been so big even during clinical trials.

That is super helpful. I know it's hard to give a lot of visibility. That's really helpful data point. And so when would you expect to see the commercial ramp if one were to get approved? Would that be a fiscal '27 event, fiscal '28?

You can tell it different. I mean, our base case is fiscal year '28 to start to see that launch. That still assumes they get through Phase [III] trials this year and then there's an 18-month or so gap to get to a formal approval, which is a lot shorter still than 3 years. Could that be sooner? Potentially, but that's our best -- that's our base case right now, it's fiscal year '28 to start the commercial ramp, yes.

Okay. And in terms of your level of visibility that you actually have within these programs today, do regular communication in terms of what stage they're in, how much inventory they're holding, I guess what is communication with these different customers?

They generally don't hold inventory. So they'll buy as they need, but they will often buy enough for whether it's a whole trial or a large of a population set that they feel comfortable doing simply for consistency purposes, even though we have amazing lot of consistency that they want to take out any possible -- possibility for variables as much as they can. So that's why they tend to buy in very large quantities and it tend to be very lumpy. But is it one -- I think some customers buy enough for one whole run or one whole trial, some because the trials are so large, they can't necessarily do that and they'll buy in stages. But they generally don't hold inventory.

And I guess how do you deal with the lumpy business? You just add more lumps. I'm sure you...

That's the idea you need. Well, I always joke that even our RUO reagent business that we often refer to as our run rate business, if you look at it on a -- we have 500,000 SKUs, right? If you look at it on a SKU by SKU level, it's actually a very lumpy business.

It actually is a 10,000...

But there's just so many of them that it evens out and someday, that's what we think our cell therapy business will be like.

Right, right. Great. And so in terms of sizing, it's also really helpful, the $40 million to $50 million each therapy could be when commercial. And I guess that's versus if you just size the headwinds that you quantified for us here in fiscal '26, and it gets you to, I think it was about $26 million from these 2 programs i fiscal '25. So I just want to make sure I had those numbers right.

You're in the right ballpark.

Got it. And they're pretty evenly split, so call it $13 million-ish per program? Or is [indiscernible] than the other?

We've not given that information out now. But yes, I mean, they're both. Relative to the other 800 programs we have, they're both significantly large. I think one is a little bit bigger than the other one, but it's -- we haven't necessarily given the magnitude on either one.

Got it. Yes. I guess I was initially surprised when I heard that 2 were essentially Phase II projects were such a large portion of the cell and gene therapy business because I know there's also a huge ramp as you go from Phase I to Phase II, II to III. But I just wanted to touch on customer concentration a bit. So based on that $26 million, it seems like these 2 programs are about 40% to 45% of total GMP reagents for Bio-Techne. I guess how do you get customer concentration so high within Phase II programs? And I guess what does that say for the future...

Well, Yes. I mean, admittedly, we were a bit surprised by this, not necessarily surprised this quarter, but over the last 6 quarters, we've been surprised just how much these 2 customers have seriously ramped. And actually, I'm surprised just because it's -- as we learn more about what these customers were working on, it became more obvious as to why that was the case. But yes, it just gets back to that these 2 are -- they're essentially outliers. I mean, we've always said our typical cell therapy customer, we think is somewhere between -- on average between $5 million to $10 million of revenue on a commercialized basis. And these 2 customers were basically there in a Phase II -- Phase I, Phase II basis. So it does give you a sense of the uniqueness of these 2. But it also tells you the scale potential, especially for our -- we don't -- we talk about cell therapy a lot like it's one thing, and we talk a lot about the CAR T side of cell therapy, immunotherapy because of the linkage with our GRx. But we actually are the world leader in GMP proteins for the iPSC regen medicine space. And the applications for that actually argue dwarf the applications for CAR T. There are a lot earlier stage work being done right now, but the applications are larger. So arguably, the eventual addressable market is much larger. And I got back -- I mentioned this earlier, because of the complexity of the proteins and the number of proteins that are involved in developing therapies from iPSC cells, it requires a lot more of our proteins on a per dosage basis. So could another one of these pop out to work a few years from now that we didn't see coming? Sure. That's always a potential because we don't -- for the most part, we don't know exactly what our customers are working on because they don't tell anybody. But I would necessarily model it that way. We've been -- we've modeled it that, hey, roughly just using -- because this is still -- cell therapy is a new area. So will it be statistically the same as biologics? Who knows, but that's the best we have to go off of. So looking at the stats of biologics, roughly 5% kind of make it through and you take 5%, you make it through it and you kind of take an average of $5 million to $10 million per customer on a commercialized basis, and that's how you build up our revenue base to several hundred million over the course of 10 years or so. These 2 are definitely outliers to that model.

Yes. Got it. And then just on the timing for potentially, I guess, your base case being fiscal '28. I think I mentioned on a call I had with you guys, fiscal '28 could be setting up to be a really, really attractive year, bringing on Wilson Wolf, potentially having one of these therapies, which is going to be at a very depressed level, ramping all the way to commercial. I guess can you just speak to -- I know it's super early, but is this the right way to think about it? Could it be a really strong year for...

I mean I hate to get all giddy about 2 years on the road when we're struggling in the current quarter. But yes, absolutely, that's why we're still so excited about our opportunity for sure. And even since you mentioned Wilson Wolf, so at the latest, we will own that at the end of calendar year '27, hence fiscal year '28. And there's always a potential to strike a deal a bit earlier there, who knows, but -- or even for him to his target -- for [indiscernible] to hit his targets, which he still thinks he can at this point, we'll see. But what we're -- what I'm getting at, I guess, is that the customers, he's already got 5 or 6 in commercial. He's in half of the clinical trials in T cell trials already. So there's definitely potential for more between now and the 2 years that we ultimately own it. And I guess what I'm getting at is the real inflection point in that business is more likely -- it's most likely to occur post our ownership. So as fast as it's growing now, and it's predicted to be 20% plus growth here in the near term and then continue to accelerate as these commercial programs ramp, the real heavy steep part of that ramp, we think will likely occur after we own 100% of it.

Yes. Great. And the customer concentration piece that we were just talking to, is it mostly because they're working on stem cell therapy, you said the economics are higher there? Or is this just a much bigger patient population than some of the, I guess, the average within your...

Perhaps are you referring to the Wilson Wolf?

Go back to those 2 customers?

Okay. I'm sorry, say the question again.

So the reason that within Phase II, there's such high customer concentration, even though it's only Phase II, not one of your Phase III programs. Is it because of stem cell therapy and then not CAR T because you said that...

It's not -- it's one of the reasons, but it's not by far the only reason. I mean, is our average stem cell customer a little higher content than our T cell? Yes. But that's not the main reason is, we believe, it's because of the population size potential for these 2 disease states.

Got it. And then I guess just zooming out on the broader cell and gene business. What percent of the businesses or I guess, what percent of programs are stem cell versus CAR T versus any other bucket that you put it into?

I don't know if we -- I don't think we've split it out that way. If I had a guess, though, I would say that on a pure program basis, there's probably more of a -- we call immunotherapy, which includes CAR T and killer cells, all that stuff. I do want to bet that the number of customers are probably bent more towards that side just because it's further along in its development. But our actual revenue is more bent towards the regen side just because it's much heavier content per research.

Got it. Great. And then the last one, can you just remind us how many programs you have total in the cell and gene therapy business? How many in clinical trials, Phase I, II, III?

Yes. So again, we've reached 700 customers, which is up from like 550 a year ago. So continue to add a lot of customers. But only about 85 of those or so, Dave, I think 85 of those are known to be in clinical trials and roughly, call it, a couple of dozen are in Phase II, Phase III.

Got it. Okay. Great. I think we hit everything. I can open up to investor questions in the last minute or I can give it back. Great. Any message you want to leave us with?

Well, I love some of your other comments and observations around what -- which is one of the reasons why it's so excited to be about our company and not 5 or 10 years from now, but maybe next year or the year after that. And we haven't even -- that's just in the cell therapy piece. Our ProteinSimple franchise, we continue to innovate. I mean we spend pretty consistently 8% of our revenue on R&D, and we've got new product launches across our entire portfolio. We have a talk about, but we can't know today around our AI -- new AI-developed proteins, which have attributes that aren't found in nature and can therefore be patented, and we're taking the lead in that. That impacts our core. We have these GMP ProPaks which automates the process of putting the precise amount of GMP proteins into the Wilson Wolf container. That's enabling us for the first time ever to actually convert a Phase III customer to our proteins. We've got new product launches like Leo and ProteinSimple, and we got higher sensitivity cartridges that are going to address our neuro market for SimplePlex, proximity protein-to-protein identification for our Spatial. I can go on and on, but all of our major product categories have these new product launches that have either just launched or are going to launch in the next quarter or 2, which is just going to enable us to continue to take share and expand our market.

Great. Lots to look forward to. With that, thank you so much for the time.

Thank you.

Thank you.