Bio-Techne Corp (TECH) Q3 2019 Earnings Call Transcript — The Motley Fool


Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Bio-Techne Corp  (NASDAQ:TECH)
Q3 2019 Earnings Call
April 30, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter of Fiscal Year 2019. At this time, all participants have been placed in listen-only mode and the call will be open for questions following management’s prepared remarks.

I would now like to turn the call over to Mr. Jim Hippel, Bio-Techne’s Chief Financial Officer.

Jim HippelChief Financial Officer

Good morning, and thank you for joining us. On the call with me this morning is Chuck Kummeth, Chief Executive Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the Company’s future results. The Company’s 10-K for fiscal year 2018 and other SEC filings identify certain factors that could cause the Company’s actual results to differ materially from those projected in the forward-looking statements made during this call. The Company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K as well as the Company’s other SEC filings are available on the Company’s website within its Investor Relations section.

During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP results are available in the Company’s press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com.

With that, I’ll turn the call over to Chuck.

Charles (Chuck) KummethPresident and Chief Executive Officer

Thanks, Jim, and good morning, everyone. Thank you for joining us for our third quarter conference call. Our fiscal Q3 was a record quarter for Bio-Techne and I’m extremely pleased with the execution of our plan so far this year. The Company delivered 14% organic growth in the quarter with both our reporting segments growing double digit. We are performing at levels that we envisioned just a few years ago. Our acquisitions over this time are integrating well and providing extra organic growth to our ever-improving core reagent businesses. Standouts included our ProteinSimple franchise which continues to grow north of 25%, our Genomics division which returned to double-digit growth in a big way, also growing north of 25%, while our core antibody business grew north of 15% in the quarter.

As we look at performance by geography, all major regions continued to perform exceedingly well, with growth at least in the teens for the quarter. China as we’ve come to expect, grew fastest with growth over 20% in Q3. I’m even more pleased with the continued consistency of our growth rates of the Company over the past several quarters, I believe, speaks to the strength of our product portfolio, the scale of markets these products address and the momentum behind the fine execution of our strategic plan.

So now let’s talk a bit more about the performance of our products, starting with the Protein Sciences segment. We experienced double-digit growth in nearly every single product category. Our instrument-based solutions continued to receive great acceptance in the market with our automated Western blot solutions growing over 40% in Q3 and 35% year-to-date. The biologic iCE platform grew nearly 20% in the quarter and our automated ELISA solution, Ella, grew over 50%.

Growth in the Protein Sciences segment also benefited from continued strength in our core reagents, especially antibodies and cell and gene therapy applications. In antibodies, we continue to achieve double-digit growth by focusing on validation and reproducability adding more content to our website in support of our antibodies, constant search engine optimization to derive researches to our website and, of course, continue developing new antibodies that our customers desire.

Also the high quality of our antibodies is being recognized more and more by developers of therapeutics who see a potential of our vast labyrinth of antibodies has toward the development of next generation immunotherapies. For example, we announced last week that Bio-Techne entered into a strategic collaboration for the development of anti-cancer therapeutic with Elpiscience BioPharma. As part of the collaboration, Elpiscience will have access to multiple antibodies from Bio-Techne’s extensive product portfolio for use and development of preclinical, clinical and commercial and biopharmaceutical to address unmet medical needs in oncology.

Bio-Techne solutions for the cell and gene therapy workflow, which grew 30% during the quarter, span across our product portfolio and include GMP cytokines and growth factors, GMP small molecules, GMP media and high-quality antibodies for flow cytometry and immunocytochemical characterization. The use of GMP reagents early in the manufacturing process is highly advantageous as it eases the cell therapy workflow transition from bench to clinic by preventing the need to switch the GMP at a later stage, when the cost and risk of change is higher and the freedom of change is lower.

While cell and gene therapy applications are currently and relatively a small portion of our reagent business today, with over 1,000 cell therapies in clinical trials already, the need for GMP grade reagents in the coming years is going to accelerate dramatically. As the world leader in proteins for over 40 years, Bio-Techne plans to be ready to meet that need. We will be investing nearly $40 million in capital over the next 12 months on our new GMP factory being built here in Minneapolis. This factory will have a capacity to deliver annually over $200 million worth of GMP reagents to cell and gene therapy customers. We expect to be producing at least half of that annual capacity within the next five years.

In addition, Bio-Techne is focused on developing innovative and technological pioneering solutions that optimize and simplifies cell therapy manufacturing with clouds, trademarks, cell activation kits in the SimplePlex immunoassays. These technologies are designed to expedite cell expansion and improve product quality control respectively. We, in Bio-Techne, are excited to lead the way in a production of innovative GMP reagents in highly technical solutions for cell therapy development and manufacturing worldwide.

Moving on to our Diagnostic and Genomics segment, where we had solid double-digit growth in Q3. As I mentioned in my opening comments, the big story here is the return to strong growth for our Genomics division. With the tough run-out comps behind us and the integration of the new leadership and strategies nearly complete, the team is reinvigorated and the results show it.

Our customers have also expressed their continued excitement for the Advanced Cell Diagnostics brand and its RNAscope platform in the form of the (inaudible), which celebrate the very best supplier and individuals in the research sector worldwide. Bio-Techne’s ACB brand received the Researcher’s Choice award, which recognizes the reagent supplier that researcher’s were most impressed with throughout 2018. Excellent product quality, customer service and innovation for our RNAscope platform were highlighted as reason for receiving the award.

One nomination for ACB stated that, RNAscope is absolutely unparalleled in the industry at the moment for the utilization (ph) of RNA and tissue in cells. Dr. Andrew Chalmers, Founder of CiteAb said, CiteAb had nominations in this category from ACB from all around the world, and each outlines the excellent quality of products and customer service. Many of the nominations highlighted particular members of staff at ACB that had made working with the Company easier for researchers. We at Bio-Techne, already knew that RNAscope is a great product, but it is this comment about our people who support ACB’s customers that makes me more proud.

Another demonstration of our customers’ enthusiasm for ACB’s technology is the recent strategic cooperation agreement we entered with with Lisen Imprinting Diagnostics, a Chinese, Chi-tech company that develops diagnostic assays and sources protected by multiple, domestic international patents. with Lisen Imprinting Diagnostics has independently developed several diagnostic methods for the oncology field that can detect changes in the early stages of tumor progression, more accurately and provide precise personalized cancer diagnosis for patients. We are thrilled to be collaborating with Lisen to advance the use of the RNAscope platform for China’s precision diagnostic initiatives, which will help the two sides accelerate the development of molecular diagnostics in the Chinese market and to jointly promote the benefits of precision medicine as a result of more accurate diagnostics.

The enthusiasm for ACB’s technology goes beyond our customers and is also recognized by other life science tools companies. For example, Bio-Techne is partnering with NanoString Technologies to accelerate the development of new tools for spatial genomics. The combined workflow that unites the RNAscope reagent portfolio from Bio-Techne with NanoString’s GeoMx RNA assays enables researchers to molecularly guide their high-plex spatial analysis with single-cell resolution. The combination will be the basis of an ongoing partnership which has ended further integration of these platforms into one concise work flow, extending spatial genomics applications from basic research to translation on clinical applications. This partnership provides researchers with the most complete and integrated solution available for RNA biomarkers and we are excited to be working the NanoString team on this collaboration.

Finally an update on Exosome Diagnostics. As we discussed during our last call, the National Comprehensive Cancer Network or NCCN decided at the very end of January to include EPI, as a recommended test in their clinical practice guidelines in oncology for prostate cancer early detection. The updated treatment algorithm includes EPI testing prior to a first prostate biopsy or after a negative biopsy to assist patients and neurologists in further defining the probability of high-grade cancer and reaching a joint decision to either proceed with the prostate biopsy or continue monitoring.

The NCCN guidelines are recognized clinical standard for cancer research care by clinicians and peers in United States. The guidelines are developed and advised by a panel of expert physicians from 28 leading US cancer centers. The panel revises recommended practice guidelines according to current clinical evidence and advances in cancer cure.

Since the inclusion of the EPI test into the NCCN guidelines, EPI has continued to gain acceptance among neurologists throughout the country. Over 4,600 patient test were performed in Q3, a 14% increase over Q2 for more than 1,600 ordering physicians. This level of enthusiasm by the Neurology community and now with NCCN guideline inclusion, continues to give us confidence that EPI will be added to the NGS Local Coverage Determination for Medicare reimbursement. The next steps for Medicare coverage, as we understand, it will be an open meeting by the NGS in June, with decisions determined during that meeting implemented by CMS before the end of the September quarter. An agenda for the June meeting should be made probably sometime in May. We expect to be omni-agenda for June.

With regards to non-Medicare payers, the Exosome team continues to make progress for payer coverage. They have contract with 25 regional commercial and PPO network nationwide and have Medicaid rolled out into over 30 states. The next big gating item that will enable us to contract with large nationwide insurance payers, just received New York State certification of our CLIA lab in Massachusetts. New York State requires it own certification before an LCD test can be administered to a patient who resides there. Even the big population in the state, large national carriers will generally not consider reimbursement for a test not certified by the State of New York. Our lab in Walton (ph) is scheduled for a New York State audit in the month of May. We expect to pass the audit, with certification by the State of New York to quickly follow.

EPI is the first diagnostics test of many using both urine and blood-derived Exosomes that we will seek approval for over the coming years. Our Exosome-driven diagnostics platform is unique in in the liquid biopsy field and positioned to become a true standard of care for diagnosing, treating and monitoring cancers, as well as other diseases. Our diagnostic products will enable physicians to take a more targeted and precise approach in their treatment strategies, and thus improve patient outcomes, while lowering overall healthcare costs.

Before turning the call over to Jim, I would like to conclude my prepared remarks for the comment about our adjusted operating margin performance. While we experienced a 280 basis point year-on-year decline to adjusted operating margin in Q3 due to the acquisition of Exosome Diagnostics early this year, I’m very pleased to report that excluding this acquisition, our adjusted operating margin for the quarter grew 190 basis points year-over-year and hit 40% of sales. This is two years earlier than the five-year financial guidance we gave at our very first Investors Day back in September 2016. This achievement demonstrates our commitment to holding our historically strong core margins, while ramping profitably in the businesses we’ve acquired over the past five years. I am absolutely delighted with the results so far this year, which sets us up for the potential for the first full fiscal year of double-digit organic growth at Bio-Techne.

With that, I’ll turn the call over to Jim.

Jim HippelChief Financial Officer

Thanks Chuck. I’ll provide an overview of our Q3 financial performance for the total Company, as well as provide some color on each of our segments. Starting with the overall third quarter financial performance, adjusted EPS was flat to the prior year at $1.21 with foreign exchange negatively impacting EPS by $0.10 or 8%. GAAP EPS for the quarter was $1.15 compared to $0.52 in the prior year. Q3 reported revenue was $184.9 million, an increase of 13% year-over-year, with organic revenue increasing 14%.

Third quarter reported sales includes a 1% growth contribution from acquisitions and a 2% unfavorable impact from foreign exchange translation. By geography, the US grew in the mid-teens, Europe’s organic growth was in the low-teens, while China grew over 20%. As for the rest of Asia, organic growth was in the low-teens led by South Korea and India, the latter growing nearly 100%. By end market, which excludes Asia and our Diagnostics division, biopharma growth was in the mid-teens, while academic sales growth was in the mid-single digits.

Moving on to the details of the P&L. Total Company adjusted gross margin was down 70 basis points compared to the prior year at 71.3% in Q3 with favorable product mix and operational productivity more than offset by the acquisition of Exosome Diagnostics and foreign currency headwinds. Adjusted SG&A in Q3 was 27.7% of revenue, down 150 basis points from Q2 and 230 basis points higher than the prior year where volume leverage was more than offset by the additional SG&A added as a result of the Exosome Diagnostics acquisition.

R&D expense in Q3 was 8.4% of revenue, relatively flat to the prior year. The resulting adjusted operating margin for Q3 was 35.2%. That’s a 270 basis point increase sequentially over Q2 and a decrease of 208 basis points from the prior-year period.

However, as Chuck already mentioned, excluding the impact from recent acquisitions, core adjusted operating margin expanded 190 basis points year-over-year. This was driven by strong volume leverage, favorable product mix and solid operational productivity, partially offset by foreign exchange headwinds. Looking at our numbers below operating income, net interest expense in Q3 was $4.9 million compared to $2.3 million of net interest expense last year. The higher interest expense is driven by higher debt levels that resulted from our acquisition of Exosome Diagnostics in Q1, as well as multiple LIBOR rate increases in the past year on our outstanding line of credit.

Our bank debt on the balance sheet as of the end of Q3 stood at $522.3 million, down from $545.5 million at the end of Q2. Our adjusted non-operating expense for the quarter was $1.5 million compared to $0.5 million of other income from the prior year, due to unfavorable transactional foreign exchange. For GAAP reporting, other non-operating includes a $12.3 million unrealized gain from our investment in ChemoCentryx, compared to a $16.2 million unrealized loss last year that was due to an impairment charge on our (inaudible) investment in Astute.

The unrealized gain in ChemoCentryx is due to the adoption of Accounting Standard Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments with readily available fair market values to be recorded as an asset on the balance sheet and any changes in fair market value to be recorded on the income statement. The prior standard, and as reported last year, required changes in fair market value to be recorded in the equity section of the balance sheet.

Moving on down the P&L. Our adjusted effective tax rate in Q3 was 19.9% or a 410 basis point improvement from the prior year due to tax reform.

Turning to cash flow and return of capital. $39.7 million of cash was generated from operations in the third quarter and our net investment in capital expenditures was $4.9 million. $12.1 million of dividends were paid out in the quarter and average diluted shares stood at 38.9 million shares outstanding.

Now I’ll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q3 reported sales were $137.9 million, with reported revenue increasing 12%. Organic growth was 15% with foreign exchange unfavorably impacting growth by 3%. As Chuck has already described, the growth in this segment was very broad in almost every product category and geographic region. Operating margin for the Protein Sciences segment was 45.1%, an increase of 140 basis points year-over-year due to strong volume leverage and operational productivity, partially offset by unfavorable foreign exchange. Strong margin expansion was experienced in both our reagent and instrument portfolios.

Turning to the Diagnostics and Genomics segment, Q3 reported sales were $47.1 million, an increase of 15% from the prior year. Organically, revenues grew 13% with a 3% growth contribution from acquisitions and a 1% unfavorable impact from foreign exchange translation. As Chuck previously described, growth in this segment was led by our genomics business. However, our diagnostics OEM business also contributed with growth in the upper single digits, due to favorable order timing this quarter.

With regards to Exosome Diagnostics, and as I’ve stated in prior calls, revenues from EPI tests performed is being recognized on a cash basis. This is the correct accounting treatment given its recent commercial launch in 2018.

For patients insured by private payers, the cycle from test report date to payment can you quite long. This is especially true for patients covered by PPOs. For patients insured by Medicare the payment is depending the decision made by NGS and CMS on reimbursement. With Medicare approval still pending and given that the majority of our private payer contracts are currently with PPOs, very little of the tests performed since the Exosome Diagnostics acquisition date were collected before the end of March. Thus the revenue from EPI recorded in our Q3 results was rather minimal and we will be continuing to focus our dialog on current test trends, private payer contract coverage and public reimbursement decisions knowing that revenue recognition will lag.

Moving on to operating margin for Diagnostics and Genomics segment. At 7.6% the segment’s operating margin was substantially lower than the prior year. However, excluding the dilution from the Exosome Diagnostics acquisition, operating margin for the segment was 23.9% or 30 basis points better than last year. The organic margin improvement was largely due to volume leverage.

In summary for the quarter, our breadth of growth continues to be solid, both in terms of end markets and product categories. Having three quarters in a row of double-digit organic growth also speaks to the positive momentum in our commercial execution. We feel good about fiscal year ’19, possibly being our first full fiscal year of double-digit organic growth as Bio-Techne. With at least 10% growth in all of our businesses, except diagnostics OEM, which will likely be flat for the year.

On the bottom line, our overall adjusted operating margin performance continued to be in line with what we expected at the beginning of the fiscal year, albeit achieved a bit differently. Obviously, the delay of Medicare reimbursement has increased the impact of Exosome Diagnostics dilution to our earnings from what we anticipated at the beginning of the fiscal year. However, the stellar operational performance in our core business is mitigating most of this additional dilution and we expect this trend to continue as we finish the year.

That concludes my prepared comments. And with that, I’ll turn the call back over to Aaron to open the line for questions.

Questions and Answers:

Puneet SoudaFCB Leerink — Analyst

Thank you, sir. (Operator Instructions) And we’ll go first to Puneet Souda with FCB Leerink.

Yeah, hi, Chuck. Thanks for taking the question. So, maybe first on improvement in ACD and RNAscope business, what’s your expectation here going forward for the rest of the year? And maybe — and now with the business reorganized and operating under new leadership, what’s your expectation maybe into the next couple of quarters?

Charles (Chuck) KummethPresident and Chief Executive Officer

Sure. Well, it’s the same question we got last quarter and we said — we kind of guided that we would probably be hopefully back in the teens for this quarter with our goal to be going into the next fiscal year at 20% or better. It was really nice to be above 25% this quarter and going forward we do see 20% or better. Maybe more, we’ll will know more probably within the coming quarter. We’re still kind of scaling it all back here with Kim’s leadership and a few new people and a few replacements and Europe turning back on with some integration done there. So I mean, all in all it’s going quite well. China is starting to really lift. We’ve added some resource there as well as Japan. So our goal is 30%. We’d be happy with 20%-plus, as we talked about for this — for going forward for a while here where you said a couple of quarters, but I’m hoping for better.

Puneet SoudaFCB Leerink — Analyst

Okay, great, great. And then —

Charles (Chuck) KummethPresident and Chief Executive Officer

The demand has never been better. I mean, the agreement license is a good example. We’re getting lots of requests for collaboration, NanoString is another one. So there is — there has never been better demand. So it’s really kind of for up to us and execution I think to really reachieve 25%-plus.

Puneet SoudaFCB Leerink — Analyst

Okay. Great, thanks. And I had a quite broader question in terms of the GMP proteins and the focus you have and building out the capabilities there around cell therapies and other types of products, potentially. Just — we saw quite a bit of M&A activity here. I mean, GE BioPharma then Brammer and I mean a recent small acquisition of Zephyrus

Protein Analytical Technology (ph) . So maybe just give us your view. Has your view changed at all in terms of how you’re looking at this space in terms of acquisitions and just overall broadly around the workflow that you want to develop for the GMP proteins and the capabilities around that portfolio?

Charles (Chuck) KummethPresident and Chief Executive Officer

Well, we feel very strong about it. We know for sure that this is a chance to maybe possibly even double our protein business over the next five years just with the onslaught of all the need for GMP. So instead of being a mile wide and an inch deep in research, we’re going to be much broader. And with things that are more scalable, a lot fewer SKUs, but bigger scale, so they are in the need for the new factories. So we have to have bigger everything and of course with GMP so it has to be very, very auditable and confined and high integrity and so we can do all that, we do it now, just we do it at a much lower scalable level.

In terms of the industry and what we saw, I mean we started talking about this well over a year ago. And I guess it makes me feel better to see that Brammer has been picked up by the Thermo, it’s another that just kind of vindicates that we’re all on the right path, I think. There’s clearly a lot of potential. When we start reading the fun facts about the 1,000 different therapeutics and clinicals, my God, it’s — I think we may end up being throttled three to five years out by the lack of GMP proteins, reagents and all the things that people may not be taking into consideration that you’ve got to have to get these therapies to market.

So, we are going for it and it’s not a ton of capital for this hard slice (ph) company. We don’t spend a lot of capital anyway, so it’s a very prudent investment and we think the payback will be absolutely huge.

Puneet SoudaFCB Leerink — Analyst

Okay. And last one if I could touch on protein platforms overall. You obviously, have delivered strong growth there. As we look forward, obviously the comps are going to get tougher, maybe just give us a view into how you’re — sort of where the penetration stands currently into the broader, sort of the market for Ella and Wes and the overall technologies that you have. Maybe just give us a sense where you stand currently in that work? Should comps be a challenge here or do you see further growth coming on board if the penetration is still low? Thank you.

Jim HippelChief Financial Officer

Well, starting probably two years ago, we were always guiding that this is going to be an asset that adds five (ph) of the 15% or so kind of organic growth, which is really fantastic, especially for us back then with mid-single digit growth everywhere else. We have probably concluded nine out of 12, 10 (ph) some of that last quarter of 20% plus and we are still right up there. It’s been really a delight to see the Wes and Jess platform, the — Western blot platform exceed 40% organic growth. We’ve been hoping for 20% and we keep exceeding it. It’s been 30 (ph) full quarters in a row here. So, getting to 40% and yet another 100 system quarter for Wes and Jess is another nice feat for us. So we are definitely starting to hit the mainstream, and yet, we still think we’re probably 10% or less in terms of market share. So we’ve got a long way to go there.

iCE has recovered nicely, iCE is never going to be probably a 40% grower, but if we can keep it in that mid-teens to 20% growth, it’s very solid, very good for us, it’s is still a big business. It’s been lapped now by the Western blot business of that portfolio, but it’s still sizable. And then don’t count out Ella. I mean this is now a very, very important business for us. It’s — it matters and it’s been growing at 50% plus that shows that the great demand for it. It’s a good grade technology. We keep hearing about new applications and new opportunities every week for it. So we are expecting big things from it for a long time yet to come from. So going forward, ASD is the new division name. We do see this and this is with assays. So all in, we do see this as a 20% — way more than 20% grower for the foreseeable future.

Puneet SoudaFCB Leerink — Analyst

Great. Congrats guys. Thanks.

Jim HippelChief Financial Officer

On the ProteinSimple part of it, assays has been so strong lately, it’s hard to know where we’re going to end up. But we had our — and we had an excellent quarter in assays. And all-in assays with the multiplexing, with Luminex, we’re a 14% grower there as well. So this is just exactly what we wanted. This includes all our ELISA you know. We are worried about ELISA going away, but that whole portfolio growing double-digit quarter-after-quarter is exactly what our strategy was. So that does bring down the total ASD a little bit. It’s still going to be an awful nice double-digit number.

Puneet SoudaFCB Leerink — Analyst

Great. Thank you.

Operator

We’ll go next to Catherine Schulte with Baird.

Catherine SchulteRobert W. Baird & Co. Inc. — Analyst

Hey, guys. Thanks for the questions. Just curious if you can talk about the path forward for additional tests on Exosomes platform? Any update on when we could see clinical trials for bladder, kidney rejection?

Charles (Chuck) KummethPresident and Chief Executive Officer

We’re — I’d say, imminent. In fact, here we’re — I believe we’re actually working and getting patients going with different partners and the samples and such. So we do expect, call it about two years from today, we should be in the same spot we are today with EPI hopefully, and we’re going to follow the same kind of (inaudible) strategy. That said, we can’t do everything in parallel here. We are probably more open for business than the previous administration of that company in terms of partnering. So we have a lot of interest and certainly on the kidney rejection, as well as the blood versions of the technology platform, most likely the first indications for lung and for breast. And we keep pounding forward on our clinical diagnostics part of the business as well, and most (inaudible) analysis is around that.

So we have many, many big pharma paying us money with — for access in doing validation network right now. So we’re really expecting this to be a big platform. It’s going to be three to five to 10-year kind of future here, especially for the clinical diagnostics piece of it, which will all pay off eventually. First thing is bladder, it’s happening now.

Catherine SchulteRobert W. Baird & Co. Inc. — Analyst

Great, thank you. And then on the Elpiscience BioPharma agreement, how should we think about economics on this type of collaboration and should we expect to see more of these therapeutic partnerships going forward?

Charles (Chuck) KummethPresident and Chief Executive Officer

I’d classify this one as really — it’s a shot on goal. It’s not as important a material to us probably potentially as the Micropoint deal with Ella. But if they hit with these and they have access to some very important antibodies of ours and if the work pays off for them, you know they’ll be doing therapeutics with these in China, which are going to be big scale of businesses. We will receive different (inaudible) royalties and things from that. It will take some time for it to get to that, but that’s why it’s nothing imminent there for a payback, but there are access revenue pieces, there’s milestones and such, but the big payout is later when things hit, and it could be tens of millions of dollars if they hit. So we’re a couple of years away from knowing where those end up. I’d like 10 more of these. These are short angle kind of opportunities. They don’t really cost us a lot, there’s not a lot of resources needed. It’s just really providing our great products to them for their research.

Catherine SchulteRobert W. Baird & Co. Inc. — Analyst

Great. And then last one from me. It’s strong results once again, you’re out better than what we’ve seen from some of your peers. So just curious what you’re seeing there in any stocking ahead of a potential backfit?

Charles (Chuck) KummethPresident and Chief Executive Officer

No, not at all. We are all biting our nails here this quarter with Europe in Vios posting a doom and gloom over there. But once again, we kind of came through with some pretty good numbers and pretty good results. I don’t think their at the — they are not quite as high as they’ve been, but they’re just under and they are very solid for us and we see it continuing more or less. I think the collaboration, us selling full solutions, expanding our our commercial field across all of Europe, leveraging the small distributor acquisitions we made, we’re still in the mid-innings on all that leverage I would say. So it’s going quite well. And Brexit, we just don’t see any impact. We didn’t see an impact when there was going to be a Brexit alone now when there’s probably not going to be a Brexit.

Catherine SchulteRobert W. Baird & Co. Inc. — Analyst

Great. Thank you.

Operator

We’ll take our next question from Michael Sarcone with Deutsche Bank.

Michael SarconeDeutsche Bank — Analyst

Hey, good morning guys. This is Mike Sarcone on for Dan Leonard. The first one, just on ACD, can you speak to how you guys are thinking about where you stand today in terms of research market penetration, and then maybe how you’re thinking about clinical market penetration and the timing there?

Charles (Chuck) KummethPresident and Chief Executive Officer

Yeah. Well, it’s kind of hard for us to guess the clinical market, which is not really our thing. So we’re fairly open for business in partnering and working with a lot of different outfits like this lisen, who hopefully will have great success. The research side, I think we’re moderately penetrated. I mean, the very first innings of this technology were for the researchers who want to do work and didn’t have an antibody, right. So you needed to go molecular without an antibody in mind. That said, this has always been a tool and we bought this assay really for the migration of iCE and for pathologists into the molecular space. And we’re working with automation providers and different tool providers to try and do that, and provide better tools for standard everyday pathology, along with the therapeutic potential, which there is a lot of potential. So we think this is a big platform. We’re nowhere near where we think this is going to end up being in terms of maturity or saturation. Like I said in my earlier comments, we just — we expect this to be a 30% grower, we’re not back to that yet, but we have plans to hopefully get there, but certainly 20% or better, and we will keep making changes here until we get that because the potential is amazing.

We really have a demand, we have more demand than we have team that work on ideas. The request coming in from customers and research institutions and KOLs and therapeutics is more than we can handle, it’s a matter of prioritizing this and then getting back in the game to get the growth going.

We really have a demand. We have more demand than we have team that work on ideas. The idea — the request coming in from customers and research institutions and send KOLs and therapeutics, it’s more than we can handle. So it’s a matter of prioritizing this and then getting back in the game to get the growth going from.

Michael SarconeDeutsche Bank — Analyst

Got it. And can you maybe then speak to how do you think the NanoString partnership impacts that growth trajectory? You know maybe any way to frame the revenue opportunity from the NanoString partnership?

Charles (Chuck) KummethPresident and Chief Executive Officer

Well, I (inaudible) Brad in that team and us. I mean they really — Brad and I got together on this really a couple of years ago, and initially our teams are a little bit hesitant and — but when we got them together, they started seeing the light. There really is a natural link-up. We — our technology kind of comes after the spatial front-end of the research they do with their solution. And I — we think there’s a lot of upside here. NanoString has potential and we will ride with that and vice versa. So right now it’s kind of early to say. And it’s just — again, it’s another highly prioritized project that we’re doing within the genomics business unit, probably more than we can handle, but it’s right up there in priority. We think the world of that team and I think — we think it’s great science, the instrument is wonderful and we know it works. So we’re trying to make it all work together.

Michael SarconeDeutsche Bank — Analyst

Got it. That’s helpful. Thank you. And last one for me. Can you maybe just elaborate a little more on what you’re seeing in the academic and government end market maybe in the major geographies? Thanks.

Charles (Chuck) KummethPresident and Chief Executive Officer

Yeah. We’re pretty even with biopharma in Europe. It is a little softer academia here in US, but I think it’s more about timing. I think we’ve got a little bit of some lumpiness and we watch the NIH funding every month. We get the reports and that’s been a little bit up and down. In general, I would say going forward we see mid single-digit levels or better with academia and we will stay around the high single-digit to low double-digit in biopharma is what we kind of see.

Michael SarconeDeutsche Bank — Analyst

Great, thank you.

Operator

We’ll take our next question from Patrick Donnelly with Goldman Sachs.

Charles SteinmanGoldman Sachs — Analyst

Hey, good morning guys. This is Charlie on for Patrick. One on Exosome. I think you mentioned the test volumes being up 14% quarter-over-quarter which I think is a decel relative to last quarter, which is I think a little surprising to us seeing as you did get NCCN coming online in January. So can you just talk to how that trended against your model and the puts and takes that you are seeing on the commercial side?

Charles (Chuck) KummethPresident and Chief Executive Officer

Yeah, we noted the number of 4,600 tests. We actually shipped over 5,000. This quarter, we see between 6,000 and 7,000. It’s kind of up and down a little bit and we have, as you know, a new team — new team leader. We’ve made a lot of changes and there has been some impact, but there’s a lot of timing involved in some of this really.

And with that also there is some seasonality with regards to — also to the business with — end of the year, or I should say at the beginning of the calendar year is when most high deductible plans kick back in. And so you get — what you get much more activity toward the end of the year is, before people have started using the deductible again. So seasonality wise the March quarter is typically the lowest quarters of the year. That being said, our March growth rate versus our — our March growth over our January growth was almost — closer to 30%.

Jim HippelChief Financial Officer

Yeah, we did almost 2,000 tests in March. So, we’re expecting 6,500 or better here for this quarter. So that on top of 4,600 is a pretty big increase.

Charles SteinmanGoldman Sachs — Analyst

Got it.

Jim HippelChief Financial Officer

Again it doesn’t step up though until Medicare, right. So having that kind of growth without Medicare, we think is still wonderful.

Charles SteinmanGoldman Sachs — Analyst

Noted. Thanks. So just want to pivot to the cell and gene therapy side again. Can you give us an update on the Quad Tech acquisition? Admittedly you get less air (ph) time than Exosome, but obviously it sits in a market that’s really gaining a lot of momentum right now. So can you give us your updated thoughts on where you see Quad fitting in within your portfolio and within the broader market, both now and kind of in the future and any updates you’ve got on any potential synergy there?

Charles (Chuck) KummethPresident and Chief Executive Officer

Well, we talked quite a bit about the whole cell and gene therapy initiative here we’re doing and we’re putting in to spend some money. We are trying to — we’re trying to build out this whole workflow and that includes the selection activation component, which is a quad B technology along with the GMP proteins along with immunoassay technology of Ella and we’re working on some bioreactor as well as other components, gene editing components for the workflow. So we’ll be hopefully announcing more things soon. That going — that said, we’re trying to get as much of this going into different clinicals as we can. So Quad is involved in quite a few clinicals. All our revenue right now with them is really clinical revenue. So it’s going to take a little while. This is — if you look at — we’ve got our core paying the bills today, we’ve got ACD ramping, we’ve got — we’ve got our ASD technology platforms also paying the bills and ramping nicely. Exosome is really kind of this year and next year starts ramping, but two to three years out, that’s when you are going to see the cell and therapy portfolio start hitting in. And that’s the part I would say that’s not really baked in anyone’s models or numbers. This could be a very, very sizable business for our Company. And as I’ve mentioned, just the GMP proteins alone could double the size of our core protein business. Remember, we’re the world leader in proteins for research. That gives you an idea of just that component. Quad is a big part of that. So if we can get qualified in a few of these clinicals and that goes into production, we’re going to sell a lot of beads. We’re not really talking about what those numbers would be. If you look at the markets, you’ve looked at other beads that are out there, we’re going to hope we will be replacing a lot of them that are in the market today, because we think ours are superior. The customers are saying so. They’re lining up. A lot of them are replacing ours for others in different clinicals currently and we’ll have to see. This would be a big year to see how Quad comes through. We didn’t — we bought it pretty early. We didn’t pay a lot for it. It’s a fantastic team, fantastic technology, fantastic set of IP and hopefully next year we can start talking about it more in line with the complete workflow and we will start bragging about that once we hopefully complete a few more steps in this whole thing. We’re not quite there yet, but it’s coming together pretty well.

Charles SteinmanGoldman Sachs — Analyst

Got it, thanks. And then just quick last one for me. I think you guys on the last call were still talking about maybe high single-digit growth for the year inching into double digits. Obviously three quarters into fiscal year where we’re well ahead of that rate, seem to indicate that maybe double-digit growth is now more reasonable with, I think, year-to-date you’re at around 12%. So with that in mind, is there anything that gives you pause or leads you to believe that growth would decel into 4Q such that you wouldn’t expect at least 12% to be the bar for the full year?

Charles (Chuck) KummethPresident and Chief Executive Officer

Well, we don’t give guidance. We do give annual and we said all year our goal is to be 10% or better. As you point out, the number at 12%, we would have to do pretty — pretty horribly this quarter to not reach 10% or better for the year. So we are still pretty set on that. In terms of quarter there is timing issue, there is OEM order issue, there is a diagnostics component issue. We had a very strong quarter at diagnostics, you can almost what that means probably for next quarter because that’s kind of where we have been, very lumpy. So we’re going to be in that 8% to 12% range and for the year we will be well over 10%. I’m hoping we can get to 11% for the year. I mean, our goal has been to — has been to become a perennial double-digit grower. This hopefully will be our first year to do that. And we’ll see how this quarter goes. It’s also a pretty good comp from last year. And as you point out going forward now, they’re all going to be good comps and we have to continue to do things.

Now one thing I’ll point out, I mean next year if we get Medicare this year for the — almost the whole fiscal year, almost all that revenue coming will be organic for Exosome. So it’s going to be a nice padding. So we’re really hoping to get that. We will get it, but whenever we do get it, it’s going to be like a step-up in terms of revenue recognition for the organic calculation from Exosome alone. That with the reinvigoration from ACD which has some poor comps going forward, so that’s going to help our growth numbers organically. So, all in, we’re looking toward the next fiscal year being a very good year. I don’t think we’re promising 12% for the year, but we are hoping to be a perennial double-digit grower for hereon in. And we have to keep doing things in portfolio to do that because there are going to be misfires, there are going to be things up and down. There is going to be a timing issues, there is going to be funding issues. Europe my finally slump for us like it has in most others, but we will see. China has been great, Japan is decent for us. India is growing 100% for us. And that rate, in two or three years, India is going to be material. So we’ve got other — we’ve got other arrows in the quiver here to help us continually make that 10% or better because that’s why you have a portfolio, right, because never — nothing ever really hits all at once. When they do, you get a quarter like this one, 14%.

Operator

(Operator Instructions) We’ll take our next question from Alex Nowak with Craig-Hallum Capital Group.

Alex NowakCraig-Hallum Capital Group — Analyst

Great. Good morning, everyone. So just staying on the topic of EPI here, you provided some color on the timeline here for reimbursement with NGS. So you mentioned a meeting in June. Do you anticipate NGS to issue a draft LCD in September, which would then go final at a later date here or are you expecting the final LCD to come out in September? Just want to clarify that.

Charles (Chuck) KummethPresident and Chief Executive Officer

Well, the way we understand the open meeting is in June, OK. We’ll know in May whether we will be in any agenda. We have to be in the agenda to be able to hit that. If we hit that there is a 45-day whatever time frame that’s in the process. So that’s why we’re talking about August still. And I think it’s from that August to September is when it will be finalized and complete and be activated. If we miss the June meeting, well then that’s probably another quarter. So we don’t know. They’re not — we don’t talk to them. They don’t tell us anything. So we know we’ve done everything we’re supposed to do. There is no homework for us to do. There is no data to provide. There is nothing left for us that we’re in the guidelines. We know discussion will come out in the guidelines very soon and we are hoping to be at the top tier in that discussion as the best solution in that and that’s also going to help. So we’ve got — all the wind is in our sail that we can, I think, expect to try and get this completed. And even so, I’d like to point out and as my team points out, these things usually take three years to five years, and that you personally pointed this out to us before a couple of quarters ago. And we are still on a record clip for the milestones we are hitting with NCCN guidelines and if we get our Medicare reimbursement in August, it will be like a record in terms of timing. So this is a platform that really works. The data is really good. There are patients really using it and benefiting, and we know we need to get more of it. So hopefully, these institutions will bless it and let us move on. So we’ll see.

Alex NowakCraig-Hallum Capital Group — Analyst

Yeah understood. Thanks for the color there. And outside of partnering here, you have been quiet on the M&A front recently. So when do we expect to see Bio-Techne go back down into the market and make a new acquisition?

Jim HippelChief Financial Officer

Yeah, we just went under 2 times leverage, and so we certainly have a little bit of dry powder. I would say, I think our shareholders and our constituents would like to see us really get the integration completed with Exosome. We just got ACD kind of through integration kind of back on track. So those are two big legs on a stool that we paid a lot of money for. So I think starting now, we’re — we’ve got a good pipeline, we’ve got over 100 things worth looking at. And I mentioned earlier, we’re still hunting especially for deals in this cell and gene therapy workflow. So we’ve got quite a few things that we’re looking at there, so expect some — hopefully, some announcements in that area. We’ll see.

We’re not looking for another leg in a stool in terms of a new, a new ACV or new Exosome right now, but you know you never know. We are open for business and we want to create a very healthy portfolio company of life science tools and diagnostics, and we’ll just have to see what becomes available. As you know, we’re not a big participant in the public auction process. They’re more private for us and we’re always hunting and building relationships and seeing what we can get for our deal that will be beneficial to us, as well as whoever owns it. And we don’t usually buy things we can’t get to a 10% ROIC in five years. So it takes a lot of due diligence, a lot of hard work in relation (inaudible) to define that and get both sides to agree to a price that allows both sides to find value.

Alex NowakCraig-Hallum Capital Group — Analyst

Okay. And we’re (multiple speakers)…

Charles (Chuck) KummethPresident and Chief Executive Officer

So don’t count out.

Alex NowakCraig-Hallum Capital Group — Analyst

No, understood. And just a follow-up to a previous question. I might have missed this. When do you expect to complete the GMP facility buildout here in Minneapolis?

Charles (Chuck) KummethPresident and Chief Executive Officer

About a year.

Alex NowakCraig-Hallum Capital Group — Analyst

Okay, got it. Thank you.

Operator

And ladies and gentlemen, at this time, I will turn it back to Chuck Kummeth for any additional or closing remarks.

Charles (Chuck) KummethPresident and Chief Executive Officer

Well, again, I think we had a — by the calling count, about a — another record this quarter. So thank you for your interest. It was a great quarter for us. We have an outstanding team here at Bio-Techne. People are committed, never happier, never worked harder, and we’re all benefiting from it. So, appreciate your interest and we’ll talk to you in next quarter. Thank you.

Operator

Ladies, gentlemen this does conclude today’s conference. We thank you for your participation, you may now disconnect.

Duration: 48 minutes

Call participants:

Jim HippelChief Financial Officer

Charles (Chuck) KummethPresident and Chief Executive Officer

Puneet SoudaFCB Leerink — Analyst

Catherine SchulteRobert W. Baird & Co. Inc. — Analyst

Michael SarconeDeutsche Bank — Analyst

Charles SteinmanGoldman Sachs — Analyst

Alex NowakCraig-Hallum Capital Group — Analyst

More TECH analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.





Source link

?
WP Twitter Auto Publish Powered By : XYZScripts.com