Good morning and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2019. At this time, all participants have been placed in a listen-only mode and the call will be opened 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. Please go ahead, sir..

Thank you. And 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 identifies 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 measures are available in the Company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. I'll now turn the call over to Chuck..

Thanks Jim. And good morning, everyone. Thank you for joining us for our fourth quarter conference call. The fourth quarter closed out a record fiscal year for Bio-Techne where we achieved an important milestone of double-digit annual organic growth in fiscal '19, 10.5% to be exact.

This represents the first year of double-digit organic growth for Bio-Techne and the kind of growth we strive to continue for many years to come.

In our fiscal Q4, we generated 7% organic growth, which we expected would be lower than our annual average due to the choppy order timing of our Diagnostics OEM business, as well as some tough year-over-year comps we had in the Europe region.

But I am pleased to report that our key growth platforms, the ones that have performed exceptionally well for us all year, continued their strong performance in the fourth quarter. These include antibodies, assays, cell and gene therapy, Simple Western, Simple Plex and ACD, all growing double-digit for the quarter and the full year.

As we look at our performance by geography, let me start with Europe. In Q4, Europe struggled to grow over last year due to a number of headwinds it faced this quarter. None of these headwinds were overly significant on their own, but put together they presented a challenge for Europe to grow in the most recent quarter.

These headwinds included the year-on-year timing of a recurring significant big pharma order, the timing of the Easter holiday this year versus last, a tough Q4 comp where they grew in the low teens last year, and even a record hot weather in the last several weeks of June that kept many people at home to stay cool.

If researchers aren't at the bench, then they are not using or buying our products, especially in our run rate reagent business. Let's not forget, Europe has been a standout for the past three years now with double-digit organic growth for the better part of this time.

And even with a softer Q4, we finished the fiscal year with the European organic growth in the high-single digits. I couldn't be more proud of the way our European team has led the company in finding and creating collaborative synergies between the divisions and providing a superior buying experience for our customers.

We remain confident that our European team will still perform near the top of our industry going forward. With regards to the other major regions, they continue to perform exceedingly well in the quarter as they have all year. North America's organic growth was in the mid-teens for the quarter and the full year.

And China's growth in Q4 was over 20% and over 25% for the full year. There has been a lot of effort dedicated to our go-to-market strategy with our superior website, which allows customers to do complex product searches, and the introduction of over 1,200 new products over the course of the year.

The wave in oncology research as well as solid NIH funding has also allowed 2019 to become a record year. The evidence is strong that the wave will continue across the globe.

Now, let's dive a little deeper into performance of our growth platform, starting with those with the Protein Sciences segment, which organically grew 9% for the quarter and 13% for the full fiscal year.

Antibodies and assays performed extremely well for us in Q4 as they have all year, with both product categories growing in the mid-teens and in the quarter and the full year.

The growth has also been broad across brands and applications whether it be in our traditional R&D systems branded antibodies and ELISAs or in our newer Novus brand antibodies and multiplex assays. Much of this success, we believe, is attributed to our laser focus on digital solutions.

We have an entire team dedicated to leveraging our investments in salesforce.com, our website and our trade shows to ensure a more comprehensive view of activity with our customers, making it easier for our customers to be aware of the product categories that we offer and help them find the specific solution they need.

The Simple Western platform has now reached a critical junction of acceptance in our end markets. We regularly ship over 100 instruments per quarter and we have now installed over 1,500 worldwide. The Simple Plex platform achieved growth rates of nearly 50% this past year and is becoming more and more material to the Company.

Earlier in the year, we signed a very strategic deal with Micropoint of Shenzhen, China which could deliver us revenue between $50 million and $100 million in about three years. They are taking a leading-edge Simple Plex technology and launching a CFDA-approved patient monitoring solution for large hospitals in China.

The patient monitoring system is for cytokines release storm syndrome, which can be an undesirable effect for gene and cell therapies. Speaking of cell and gene therapies, this product line within the Protein Sciences segment also contributed double-digit growth in both the quarter and the year.

While still a relatively small portion of our business today, cell and gene therapy will be a very important growth driver for our company in the years to follow. In the past couple of years, we have moved further into the bioprocessing and cell therapy markets, mainly as a reagents and instrument for a supplier.

With our GMP proteins polymer bead technology, non-viral vectors and instrumentation monitoring, we can now supply a significant portion of the cell and gene therapy workflow. Starting with Quad's QuickGel non-magnetic beads, we can select and activate cells. And now, with B-MoGen's non-viral transposon technology, we can provide gene editing tools.

Next, we can see the gene-edited cells with our world-renowned GMP proteins. And finally, our Ella platform can perform immunoassay testing to check for cytokine production and our RNAscope technology can perform follow-on single cell imaging analysis.

Let me talk a little more about the gene editing piece of the workflow that we recently added via the acquisition of B-MoGen at the end of Q4. B-MoGen's technologies solve the most complex gene-editing problems with the proprietary, cutting-edge gene editing and delivery tools, enabling and accelerating growth in immunotherapy treatments.

This technology holds the promise of being able to deliver personalized therapeutic agents that have greater target effect and less off-target side effects.

B-MoGen's key non-viral vector technology obviate several concerns associated with the use of viral vectors, including simplification of the entire vector manufacturing process, reduced biosafety concerns related to cytotoxicity, mutagenesis or malignant transformation of target cells and greater flexibility in payload size.

With all this great technology and a hot market demand, we feel confident we are on the way to having a healthy cell and gene therapy business.

This business will take a few years to grow to material level for the company, but we see explosive growth in this space and our larger biopharma customers have been asking us to invest further in this direction.

This year, we intend to build a $50 million GMP proteins factory here in Minnesota, in addition to expanding the workflow offering to our customers. I fully expect this business to be at least a $200 million division in five years.

Moving on to our Diagnostics and Genomics segment where this year we had a confluence of three different stories that may make the overall picture appear a bit murky. I'll attempt to make the picture less murky. The first story is with regards to our legacy diagnostics OEM business.

currently, this makes up the largest portion of the segment and has suffered from the most headwinds this past year. The largest headwind continues to be the glucose controls business where our OEM customers are moving to continuous monitoring.

Business did a good job offsetting most of the volume drop off with price increases as we largely remain the last man standing in this hard-hit business. With glucose controls becoming less material every quarter, the impact of this erosion to the segment is largely behind us.

Another headwind has been some tough comps and order timing from BiosPacific, our diagnostics antibody business. This niche business sources specialized antibodies for large diagnostic customers. The orders come in relatively large batch sizes and, therefore, can be very lumpy in timing. They were especially lumpy this year.

But this small, specialized business produces tremendous margin for the company and they have a strong customer pipeline going forward. Our in vitro OEM diagnostic assay business located in San Marcos has seen some delays in their pipeline of new OEM product launches.

But over the course of the next couple of years, we are very confident this business will grow at least mid-single-digit rates. Meanwhile, our hematology controls business in Minneapolis has seen steady growth this past year as they do most years and we expect that to continue.

The second major story within the Diagnostics and Genomics segment this year has been the reemergence of one of our key growth platforms, ACD, within our Genomics division.

As many of you know, the Genomics division had a rocky start to the fiscal year following a blowout 2018 where ACD overachieved on their earn-out milestone of $45 million in revenue.

We struggled with these tough comps in the first two quarters of the year, but in the second half of the year, our Genomics division posted greater than 20% growth in both Q3 and Q4.

We now have a catalog over 25,000 probes in inventory and continue to add new applications using the ACD technology, including our most recent commercial release of the RNAscope high-plex assay, a multi-plex in situ hybridization assay for tissues.

We see much more growth to come for our Genomics division as pathologists and researchers transition from the antibody-driven IHC world to molecular approach. In the diagnostics end market for ACD, the collaboration with Leica and other large automation partners continue to advance.

The HPV test is selling well and there is a healthy pipeline of new tests in development. Finally, the third story within our Diagnostics and Genomics segment has been Exosome Diagnostics.

With the acquisition of this pre-revenue liquid biopsy company in early fiscal '19, we obtained yet another growth platform that will accelerate the Company's growth rate for years to come.

Our exosome-driven diagnostics platform is unique in the liquid biopsy field and is positioned to become a true standard of care for diagnosing, treating and monitoring cancers as well as other diseases.

Our diagnostics 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.

EPI, a rule-out test for prostate cancer, is the first of many potential diagnostic tests using both urine and blood derived exosomes that we will seek to commercialize over the coming years.

Future tests may include non-invasive diagnostic cancer tests for bladder, lung and breast, as well as diagnosis for kidney transplant rejection and certain neurological diseases.

In its first 18 months of commercialization, EPI has completed a breathtaking number of milestones, including more than 25,000 patients have used the EPI test to help them and their doctors make a more informed decision as to whether to proceed with a prostate tissue biopsy. Nearly 2,000 physicians have prescribed EPI for their patients.

The National Comprehensive Cancer Network, or NCCN, included EPI as a recommended test in their clinical practice guidelines in oncology for prostate cancer early detection.

We received a clinical laboratory permit from the New York State Department of Health to provide EPI tests in New York, a state with a population that supports more than 10% of the addressable market and is key to eventually garnering private payer coverage from large national health insurance providers.

The National Government Services, NGS, has recommended Medicare coverage for EPI in its most recent draft local coverage decision. We expect this decision to become final within the next several months.

The FDA has granted breakthrough device designation for the EPI tests, making it the first exosome-based liquid biopsy test to receive a breakthrough device designation. This designation not only validates the clinical importance of our EPI tests, but also marks a milestone in the advancement of our patented technology platform.

We have contracted with 26 commercial health plans and PPO networks and have enrolled coverage by Medicaid in 34 states. That's an amazing amount of progress to what is essentially a small startup with a new technology platform. This positions us extremely well for fiscal '20 to be a breakout year in terms of revenue from Exosome Diagnostics.

With over 1 million unnecessary prostate biopsies performed every year just in the U.S., we couldn't be more excited about serving what has been until now a very unmet need. And EPI is just the beginning.

A liquid biopsy test for early detection of bladder cancer is on deck and we have already started the process of collecting patient samples for clinical studies on this biomarker signature. We've come a long way from solely being a proteins, antibodies and ELISA kits manufacturer.

With our strong brand and science presence, we have moved closer to the clinic, by diagnosing disease conditions like cancer with our Exosomes Diagnostics acquisition, our automated immunoassay platform Simple Plex and ACD's RNAscope technology platforms.

We are now a company that can provide tools for cancer research, diagnostics and therapeutics, like CAR-T cell workflow. It's an exciting time for our company.

The serendipity of the past 40 years of innovation of cytokines that we pioneered as research tools are now providing their long-term value by becoming key tools for diagnosis and therapies too. I am proud of the team here at Bio-Techne and the accomplishments we have made in 2019.

2020 is another year and we are ready to rise to the challenges ahead of us and executing the strategy we have set. With that, I'll turn the call over to Jim..

Thanks, Chuck. I'll provide an overview of our Q4 financial performance for the total company, as well as provide some color on each of our segments. Starting with the overall fourth quarter financial performance, adjusted EPS was $1.25 versus $1.34 one year ago with foreign exchange negatively impacting EPS by $0.03.

GAAP EPS for the quarter was $0.42 compared to $1.08 in the prior year. The biggest driver for the decrease in GAAP EPS was the change in fair value of our investment in ChemoCentryx, which impacted the GAAP reported number by $0.91. Q4 reported revenue was $191.7 million, an increase of 6% year-over-year with organic revenue increasing 7%.

Fourth quarter reported sales includes a 1% growth contribution from acquisitions and a 2% unfavorable impact from foreign exchange translation. For the full year, organic growth was 10.5%. By geography, the U.S. grew in the mid-teens, while Europe experienced a low-single-digit decrease and China grew over 20%.

As for the rest of Asia, organic growth was in the mid-single digits. By end market, which excludes Asia and our Diagnostics division, biopharma and academia growth were comparable in the respective regions. For the full year, the U.S. grew in the mid-teens. Europe grew in the high-single digits. China grew north of 25%.

And the rest of Asia grew in the high-single digits. Moving on to the details of the P&L, total company adjusted gross margin was relatively flat compared to the prior year at 71.9% in Q4, with operational productivity and favorable mix, offset by the acquisition of Exosome Diagnostics and foreign currency headwinds.

Adjusted SG&A in Q4 was 28.3% of revenue, 370 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, as well as investments in our core business to support growth.

R&D expense in Q4 was 8.5% of revenue, relatively flat to the prior quarter and 70 basis points higher than the prior year due to the acquisition of Exosome Diagnostics. The resulting adjusted operating margin for Q4 was 35.1%, relatively flat to the prior quarter and a decrease of 440 basis points from the prior-year period.

However, core adjusted operating margin, excluding acquisitions, was relatively flat to last year and would have been 40% were it not for the negative impact of foreign exchange. For the full year, core adjusted operating margin, excluding acquisitions, expanded 150 basis points over the prior year.

Looking at our numbers below operating income, net interest expense in Q4 was $5.2 million compared to $2.9 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.

Our bank debt on the balance sheet as of the end of Q4 stood at $505.1 million, down from $522.3 million at the end of Q3. Other adjusted non-operating income for the quarter was $0.1 million compared to $0.3 million of other expense in the prior-year quarter due to favorable transactional foreign exchange.

For GAAP reporting, other non-operating includes realized and unrealized gains or losses from our investments in ChemoCentryx and B-MoGen. Moving on down the P&L, our adjusted effective tax rate in Q4 and the full year was 21.1% and we expect this rate to hold steady - relatively steady into the fiscal 2020.

Turning to cash flow and return of capital, $55.9 million of cash was generated from operations in the fourth quarter and our net investment in capital expenditures was $11.7 million. The increase in CapEx from prior quarters was driven by project timing and capacity expansion projects.

$12.1 million of dividends were paid out in the quarter and average diluted shares stood at 39.1 million shares outstanding. Next, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q4 reported sales were $143.4 million, with reported revenue increasing 7%.

Organic growth was 9%, with foreign exchange unfavorably impacting growth by 2%. As Chuck already described, the growth in this segment was very broad in almost every major product category and geographic region, with the exception being Europe.

Operating margin for the Protein Sciences segment was 45.4%, an increase of 90 basis points year-over-year due to strong volume leverage and operational productivity, partially offset by unfavorable foreign exchange and the Quad acquisition. Excluding the impact of FX and Quad, operating margins for the segment expanded 200 basis points.

Turning to the Diagnostics and Genomics segment, Q4 reported sales were $48.5 million, an increase of 4% from the prior year. Organically, revenues grew 2%, with a 3% growth contribution from acquisitions and a 1% unfavorable impact from foreign exchange translation.

Partially offsetting the strong growth we saw from our Genomics division was the glucose market headwinds and order timing issues in our OEM Diagnostics division that Chuck previously mentioned.

Excluding the few customer-specific orders that negatively impacted the quarter, the rest of the Diagnostics division experienced overall growth in the mid-single digits for the quarter and the year.

While we can't guarantee that there will be no customer-specific delays next year, we currently don't foresee those issues, and thus would expect mid-single digit growth in this division going forward. 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 be quite long. This is especially true for patients covered by PPOs. For patients insured by Medicare, payment is pending a final decision made by CMS on reimbursement.

With Medicare approval still pending, a very limited amount of cash is being collected on tests currently performed.

Thus, the revenue from EPI recorded in our Q4 results was rather minimal, and we'll 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 the Diagnostics and Genomics segment, at 10.3%, the segment's operating margin was substantially lower than the prior year, but up 270 basis points from the prior quarter. Excluding the dilution from the Exosome Diagnostics acquisition, Q4 operating margin for the segment was 24.8%.

For the full year, both the OEM Diagnostics division and the Genomics division had expanding operating margins year-over-year. In summary, for the quarter, our breadth of growth continues to be solid both in terms of end markets and product categories.

The product categories that are leading our growth now are the same platforms that can scale and lead us to our five-year financial goals. These platforms are antibodies, Simple Western, cell and gene therapy, Simple Plex, ACD and, in fiscal year '20, we can add Exosome Diagnostics to that list.

Thus, we expect that fiscal year '19 will not only be the first, but the first of many years where our company will execute on our strategic plan of double-digit organic growth. But as most of you know, successful execution of our strategic plan doesn't only mean top line double-digit growth, but also a march towards 40% adjusted operating margins.

With our core business expanding its adjusted operating margin by 150 basis points in fiscal year '19, we were already very close to that strategic goal. Now, with the acquisitions of Exosome Diagnostics, Quad Technologies and B-MoGen in fiscal year '19, our margins have been reset.

But the strategic goal of marching back towards 40% margin has not changed. We've proven, after past acquisitions where our margins have been reset, namely ProteinSimple and ACD, that we can execute on our strategic plan on both the top and the bottom line and we intend to do that again. However, the reset is not complete.

We still have some carryover headwinds from acquisitions we made in fiscal year '19 that will pressure margins by up to 60 basis points for next fiscal year. Also, with recent strength in U.S. dollar, it is possible that foreign exchange will continue to be a year-over-year headwind on margins by up to 40 basis points.

In addition to the impact from acquisitions, we are making a major investment in our cell and gene therapy platform by building a new factory dedicated to the production of GMP grade reagents. These reagents will be needed by our biopharma customers in large scale quantities as their cell and gene therapies get FDA approved and move to production.

We expect the investment will be approximately $50 million over the course of the next 12 to 18 months. This cost will include viral testing of our existing products to be manufactured in the new facility.

It will also include upfront sales and marketing campaigns to make our customers more aware of our new strategic cell and gene therapy workflow offering, ultimately seeding our products in more clinical and preclinical trials. This is a big investment, but with huge potential returns. We call this our internal acquisition.

We see the possibility of our cell and gene therapy offering generating more than $200 million of annual revenue five years from now. While most of this investment will initially be in the form of capital expenditures, there will be a portion of it that will be expensed through the P&L.

In fiscal year '20, we expect the P&L impact will be a headwind of approximately 50 basis points. Despite the headwinds mentioned, therefore, prior-year acquisitions, foreign exchange and cell and gene therapy investment, we continue to march down our strategic plan and execute on the margin expansion that was part of that plan.

If successful, we expect to cover most, if not all, of these headwinds and hold overall fiscal year adjusted operating margins relatively flat to fiscal year '19.

The timing of these investments as well as the carryover impact of our Exosome Diagnostics acquisition will put the most pressure on our margins in the first quarter of fiscal year '20, followed by steady sequential improvement throughout the rest of the year. That concludes my prepared comments.

And with that, I'll turn the call back over to Dorrie to open the line for questions..

[Operator Instructions] And we will take our first question today from Puneet Souda with SVB Leerink. Please go ahead, sir..

So, first one on your comments on Europe, I just wanted to understand your longer-term expectations and outlook here for Europe and how should we be thinking about Europe in fiscal '20? And could you elaborate if this was largely weakness in specific product segments of the Protein segment or was this just broadly across the entire Protein Sciences segment?.

Sure, Puneet. Well, I think the first thing to stay with us, there is probably a bit of lumpiness compared to last quarter. We had a blow-out quarter last quarter. There's probably some impact there, a little. But, overall - we're already seeing a good bounce back this quarter. Europe is looking very good.

It is a little bit more of a - stronger with the reagent side of the business versus the instruments but instruments is still early in the cycle for the quarter we know where they will end up. It's a very much a back-ended model. But we see high-single digit going forward. It's probably isn't the triple digits we saw for three years almost.

But, remember, we saw that because of the integrations of distributors we did and creating new subsidiaries and then really doing that co-synergy cross-selling model. We're really taking share and just scooping up all that business that should have been ours. So, now we're there. It's kind of in our run rate. And we've got to grow with everybody else.

So, high-single digit is kind of where we're at. And I think it's looking pretty good. And again, so far this quarter, Europe is looking a lot better.

And on Diagnostics, specifically, with the glucose products, given that continuous glucose monitoring is a new technology that continues to gain adoption in the market.

what's your expectation here for the glucose segment? Is mid-single digits still something that you expect longer term or how do you view the glucose products as being strategic to your core high-growth business in the Protein businesses?.

Well, they're not that strategic. They come with the business, When I started here, it was over $20 million business. It's less than half of that now going forward. So, we've mitigated a lot of that erosion with price controls. We are the last man standing. After us, you have to go to China for these things.

So, there is no way these large diagnostic companies are going to re-qualify with a Chinese entrant, especially in today's environment. So, we're kind of safe. It's under a $10 million kind of business now for us. It's largely behind us. And not strategic. I think there won't be a lot of growth.

It is going to be kind of a hold-your-own for a while and steady down and we're offsetting that with other growth platforms in that segment, mainly around San Marcos, working with those same providers, those same customers on whole new ideas.

The San Marcos acquisition from many years ago was a small player, but, remember, it had over 180 different 510(k)s. So, it's very strong in the pipeline with these large diagnostic companies with spec-ed in solutions and we're building on that with the credibility of Bio-Techne behind them. We've come a long way.

I have been talking a couple of years about the strength of this pipeline. The trouble is, these guys move slow. They are glacier pace here. They are the largest diagnostics companies and pharma companies in the world. And they take a large order, anyway we've talked about in the past.

Again, we had a quarter where some flipped out into this next quarter and we probably had some pull-ahead from last quarter, as I mentioned. But we're on track for a decent quarter this quarter already. It's the same lumpiness. And that pipeline is getting better and better.

And it will be, ultimately, a mid to high-single digit overall segment without Genomics. And we're on track for that actually. And this blip this quarter, we've seen it at least three or four quarters in the past of this level and it's bouncing back already. That's just the lumpiness of this situation.

What is new is that we had some really big order and order comparisons that were pushed out for the BiosPacific area. And these are nearly $2 million kind of levels of orders. So, it would have a big impact on our overall growth rate. And they're already shipping this quarter. So, that's a little bit new, but it's part of that same segment.

So, it kind of exasperates the look of this division. But, really, things aren't already any worse, they never been with the normal lumpiness this division. So, it's just kind of the way it is. Mid-single to high-single digit growth ahead in the year to two to come but we've got to land and get these deals kind of moving. And they're going to happen.

They're spec-ing in. They're just large companies, don't moving very fast when they're qualifying new solutions in a regulated world..

Okay, thanks for all the details. And if I could squeeze a last one on Exosome.

We saw the draft LCD and given your conversations with NGS and the expectations for final LCD, do you think the one EPI test per patient requirement, this is likely to potentially change maybe by the time it's finalized or maybe even longer term? Sort of, how are you thinking about the overall market opportunity given that limitation is in place for the EPI test?.

Yes, Puneet. I know you have a little consternation over this, but this has always been the plan. This has always been the model. It's still 1.1 million biopsies and we tend to get a big chunk of those. Looking forward, the December dates, the outside date, the open period is over and we're waiting for confirmation of that. Everything is wrong.

We could be a month or two ahead of December. We don't know. But December should be the outside date. For the short term, the single-use will have no impact. We're talking a year or two out before there's any impact, and by then we're going to have the additional studies and FDA requirements in for having hopefully multiple reimbursement.

So, that has been the plan, always has been the plan and we're more than on track for all that. So, we don't see any issue with that whatsoever, to be honest. And also, the fast - the breakthrough status designation we get with the FDA is going to - that's - they are already reaching out to us, offering to help. That's what you get with the status.

They want to help this platform on multi-facets of bladder next and other areas. This is going to be a platform. So, this isn't just EPI.

So, we're going to - this has been a - we're told a record kind of a move with this platform with EPI, usually a three to five year kind of process and we're under two years and it's going to be the same rate the new stuff coming.

So, five years from now looking back, it's going to be something to watch, I think, as a new novel platform that has just a ton of promise. And that's why we're getting the recognition we're getting. That's why we got the breakthrough status. That's why we got the LCD we did in the record timing.

That's why we got NCCN guidelines and we are definitely kind of ahead of the pack in that guidelines and discussion as well as the statistics. We have the two studies. The data is all there for us to submit for FDA. That's in progress. That too has some impact on that multiple designation reimbursement, but steady as she goes here..

Our next question comes from Catherine Schulte with Baird. Please go ahead, ma'am..

Just first on China, you had another strong quarter there.

Anything in particular to call out? And then, what's your outlook for China in fiscal '20?.

Look, it's the same. Definitely north of 20%. Maybe 25% or better. We'll see. A lot of it will come down to whether we can really get ACD really lit up there, the Genomics segment. Little bit of an issue there with Chinese citizens working outside countries on tissue.

But we're working through that, but the basic RNAscope business is exploding there and we're building into that. That's on top of the core business which is 20-plus-percent. Our instrument business has been very strong this past year.

Some of that may have been a bit of a pull-ahead, I'd say, three quarters ago, starting - and kind of went away last quarter in terms of tariff perceptions, which really aren't an issue for us. By the way, they don't continue to be even with this new round of tariffs as well. So, we see no impact. Our teams are telling us, steady as she goes.

We have strong government support for our company and our products. We are very alone with a lot of what we do and they know that. Do they want these in their pipeline for solutions for their citizens? So, looking good for next year as well. We don't see any impact..

And then, on Exosome, how many volumes were run in the quarter for EPI? And are you seeing any increased interest following the draft Medicare LCD? And then, as you look into fiscal ' 20, what are your current assumptions for EPI revenue and any updated thoughts on a potential look back from Medicare?.

We're careful how much guidance we give on that. We do have a lot of competitive pressures as well. The last two quarters, ever since we've put in the guidelines, have notched up the competition against us in terms of promotions, even giving things away. And that's had some impact on our growth rate here, but it's been pretty solid.

Again, over 25,000 tests that we're not even reimbursed yet is a pretty solid indication. We're not sure we're going to see a major step up with the reimbursement decision here in the coming month or two or it will be a steady and increased growth. We hear all kinds of opinions. I think we're going to see steady growth.

We are investing now into the infrastructure, the sales team and everything else because we - this is going to happen. We're going to be reimbursed. The payers are moving great. Our collections there have moved up 300% in the last quarter, in fact. So, it's all going the right direction. So, we're starting to invest.

We're watching our dilution, but we're going to go after this.

And I think our goal from a year ago - and the way you've got to look at this, we kind of lost a year from a year ago, right, the way we came out and not understanding revenue recognition like we should have, et cetera, but we're on track at this point this year, and we're going after those same kinds of goals.

So, the numbers we gave you a year ago are kind of the annual numbers we should see end of the year again. So, we just aren't going to talk about it much or the number of our sales people or these other competitive issues..

Just not give a heads up to the other companies chasing this lucrative area..

Okay, that makes sense. And then lastly, I just wanted to spend a few minutes on cell and gene therapy. This is becoming a bigger focus area for you. And you've done a number of acquisitions in this space.

Are there any other technologies you'd be interested in adding to that portfolio? And how much of a growth driver do you think this could be over the next several years?.

Well, as Jim made in his comments, we see it between a $200 million to $300 million division probably five years or so from now. It could be a lot bigger. The potential is massive. It's just a matter of how fast can we execute and become real.

As we go along that that new curve, there's going to be some OpEx because we have to be more visible in the game as well, but we are being pushed. We've been being pushed for a couple of years by all the big players in this industry about, we need your proteins, can you please - can you please give us large batches of GMP which we're not known for.

So, we are exploding in our growth right now of GMP proteins, but they're still small batch until we get this new factory up. The building is purchased. We're moving forward as we speak here on that. And 18 months from now, we should be fully qualified and in production.

And it will be a handful of proteins, not tens of thousands, but they all are large batch and all GMP. And also antibody. There is a nice set of antibodies that are also being requested. And, of course, we're very good at that. What else can I say about - there are other areas. We have four or five major steps in that workflow.

We don't have the leukapheresis box, but we are working closely with a partner to move forward to that. We have nothing to pronounce yet. We don't have a standard around a bio-reactor, but we have a great relationship with one of the world leaders in this space.

But we are going to largely be a compartmental, a modularized solution, so that we can have a cost advantage over the no penny solution out there. It ties everything to one system to a patient in an ICU for three weeks and ends up being very, very expensive. We're going to have a better approach.

And we are, I think, farther along than anybody else in the world. So, it's coming. And we're very close to having a full workflow. We have well over half of it now and they're all generating revenue. The B-MoGen piece is going to be important. We have eight preclinicals done. We have 12 interested parties.

We have many indications that are going to go to clinical sometime this year, we expect. So, that will be a big portion, maybe as much as a third of that $200 million to $300 million divisional amount. And, of course, the Quad polymer beads are also part of that workflow. They are very similar.

And they've succeeded in more than a half a dozen pre-clinicals and are being mapped in, as we speak. So, future is bright for this whole segment. And we're still hunting for a few more acquisitions to solve these remaining holes for a complete workflow. Either that or collaborations, but we're well on our way.

And even if we get none of that, we still have a very good model to generate an awful lot of revenue. So, a lot of credibility in this space. So....

All right, great. Thank you..

Just GMP proteins alone will be $140 million plus five years from now. Just the protein component..

And our next question comes from Dan Leonard with Deutsche Bank. Please go ahead, sir..

So, first question for Jim. Jim, I just want to make sure I understand all your forward-looking comments in the context of 2020.

Did I hear that you expect double-digit organic revenue growth in 2020? And as I think about the more cautious commentary you were making on margins, does that roll up into a flat operating margin in 2020 compared to 2019?.

Yes, correct on all accounts. So, essentially, we do expect to be - have double-digit growth in fiscal year 2020. I mentioned - I called out three specific headwinds, foreign exchange, carryover of acquisition, and investment in our cell and gene therapy business that will produce about 150 basis points of headwind to our margins next year.

But we - as we did in fiscal year '19, we expect our core businesses to continue their march on productivity and gain approximately 150 basis points of margin to offset that. So, essentially, flat year-over-year on margin..

And then another....

You remember organic....

Sorry..

You remember, a couple of years ago, we talked ranges a lot. Last year was the first year we kind of gave an annual kind of guidance of an expectation of 10% or better, which we did, and we did that resoundingly well even given this quarter is a flat quarter.

We're seeing it again, but we would also say that the new range has moved from 8% to 12% to more like a 10% to 12% or better. A lot is going to depend on Exosome revenue. Exosome revenue comes in where we think, it could be 12% plus.

But 10% should be - like Jim said, should be in the cards, even in our core and everything going as steady as she goes at this point. So, it's a great time to be here. After six long years, we have finally made it to being, we think, a double-digit grower. So, unless some new factors hit, competitive or whatever.

But right now, that's where we see things..

And Chuck, just another clarification.

So, when thinking about the OEM timing impact on the quarter in Diagnostics, was that about 100 basis point headwind to the total company organic revenue growth in the quarter? Did I hear that correctly?.

It's in the range, yeah. Yes, it's in the range. And if you combine that with probably some pull-aheads that we probably weren't really - really knew they were last quarter, maybe even a little more. We had 14-plus-percent growth last quarter. And it probably should have been 11% or 12%, like you guys were expecting them.

All this stuff, we're still not big a company. It's hard to smooth everything out perfectly every quarter. So, you're in the ballpark..

And then my final question on EPI. So, could you talk about your thinking around submitting that product to the FDA? As I understand it, that wasn't part of the initial plan.

And then, secondly, how are you thinking about operationalizing the Medicare decision? Is there any sort of plumbing you need to put in place to get revenue or does it happen pretty seamlessly once that LCD is finalized? Thank you..

Well, there's a lot in that. Let's unpack it a little bit. One is, we're still outsourcing all our collections. It's a really complicated process and we've actually talked to peer companies, like Exact Sciences and others, about what do they do in the beginning.

And it's a big deal going from cash to accrual, especially with private payers, and we're still outsourcing that. We'll probably do that for some time. At some point, we will bring it in, but not for a while yet until we get this under control. We are growing our collections in our private side very quickly.

And so, it won't be more than a year or two out, probably. In terms of the infrastructure, there was a lot of infrastructure when we bought this thing, right? So, they were definitely ahead of their skis and we toned that back, as you know, while we are waiting this extra year for reimbursement.

We're starting to pull some triggers on some mission-critical things, especially in the support of New York. That's a huge decision. As well as regulatory, we need more help on regulatory. And there's a few open territories. And there is - this is a good economy overall, right? And there is - there is attrition.

There is some movement, not very big, but not outside what's normal, but there is a handful of positions that are moving to us. So, we're upgrading those positions as well. All in all, we feel pretty good about the trajectory and where we're at. The new leadership there running the business unit has been fabulous and watching things well.

We have a great team there. The management is largely new, but they're six months to a year in now, starting to get their feet steady and it's going okay. I think I addressed most of it.

Did I miss any of it?.

Well, your thinking on the FDA?.

Yes, on the FDA, yes, it is a bit - we were surprised to really get this FDA designation status. We're trying to actually talk to them more about what does that really mean, how are you really going to help us? Does it mean now or does it mean about bladder or the blood stuff? And they say yes on all fronts. They want to help. That's what it means.

So, they don't make any promises, though, and it's kind of what you give them, they'll speed things up and grease things and help you and make sure things are correct from a data package or whatever. That's what we're told. But it doesn't just freely give you something.

It's just - it's more of a momentum designation, I guess, that you'd need help on if you're going to speed up and move things into the market. We will submit sometime this year. We're not giving real dates around that. We have all the data we need. Our two studies provide everything we need to do all this, which is what we've been told.

So, it's just a matter of filling out forms and packaging and submitting, but we're not providing any more of that for competitive reasons, but it is imminent..

And our next question comes from Patrick Donnelly with Goldman Sachs. Please go ahead..

Chuck, maybe for you, just on ACD, continued a nice recovery in the quarter. Can you just talk through the strength there and then expectations going forward for that segment again? Knew it had the tough comps in the first half.

How should we think about it going forward?.

It's back up to a year ago. After this blow-out earn-out, we realized we had to dig in and find out just how much pull-forward in the things they did that really beat their earn-outs. So, I was a little scared that next quarter or two and things kind of flattened out and there wasn't a lot of growth.

And wondering, Jesus, are we doing something wrong or is this not as big an addressable market as we thought or what. And, boy, the more we dug in and more we got in the field and we personally got in the field and we went out there and dug in. It really was nothing like that.

This is still a $1 billion plus market just for the IHC movement to molecular pathology. Then there is the whole drug discovery side of things. Then there is the whole Diagnostics side. We're just still scratching the surface. We had record performance this last quarter with Leica, our partner. They are building a whole new set of indications with us.

We're in renegotiations. They want a longer-term, deeper relationship. This now extends to Danaher, the parent, which we know quite well and we all have friends there. We're all a small industry, of course. And it's all going pretty well that way. We're really happy to see almost mid 20s percent growth here, both these last two quarters.

We see it continuing. And that's really not fully understanding what is the potential now with China as we staff up, which we're now doing. We're staffing up heavily for China. And we'll see. Europe, as you know, a couple of quarters ago too was a kind of a redo. There was definitely a lot of - as we mentioned, an overhaul there three quarters ago.

And that's firmly now on the ground again. The growth has been fantastic. As I told you, we expect probably 20 plus percent growth. And if we don't get it, we'll make changes because it's - the market is there, the product is real. This high-plex product we just launched will do over $1 million its first year in the market.

We have a relaunch of BaseScope. DNAscope, which we've been waiting on for a couple of years, has made some great progress. We expect to commercialize that near the end of this fiscal year. That gives us a whole another host of applications and partners that have been begging for this. So, this is another platform. It's going to be big. So....

Okay. I know you touched on the M&A -.

Tissue certainly gold standard, right? You can't get away from tissue. Liquid biopsy is all coming and we're all chasing with different platforms, but tissue is still king. And this is a solution that's best out there for tissue analysis..

And then, I know you touched on M&A briefly on the cell and gene therapy side, but maybe just more broadly, can you just talk through the M&A pipeline you're seeing out there, how active you expect to be given the leverage ratio?.

Well, we were pretty active this last year and we're still hunting. As I mentioned, there is some cell imaging, the leukapheresis component and the bioreactor component. Those are three - there may be another one or two, but we're getting close to not needing much else. But if we can buy them, we'll buy them. Everything else is kind of new.

If they are not very big, you're going to pay a big multiple. But they're not materially big. More than likely, they won't sell the best ones. And we're lining up - we've got collaborations of which we're in the middle of some right now. So, trying to get them done.

But as I mentioned, even without them, even selling just GMP proteins, it will be a great business. you see us start tacking on the polymer beads, the Quad, the B-MoGen transposon - and by the way, the gene editing component is a very lucrative component.

And as we get transposon built into the minds of these researchers, away from viral vectors, it's going to be - it's largely unknown how big that could get right now. But we'll see. But we're hunting. That's exactly what we're hunting. We're not looking for another leg in this dual platform, like a ProteinSimple or ACD right now.

We're looking for really building out this cell and gene therapy as the next major growth platform for the company on top of ACD, on top of Exosome and on top of our core reagent, which are all growing..

And our next question comes from Alex Nowak with Craig-Hallum Capital Group. Please go ahead, sir..

Chuck, do you have any competitive entrants within instruments to disrupt that continued strength in your automated Western blot or the automated ELISA systems?.

No. We're still alone. We're doing great. Simple Western is just killing it. So, we're trying not to be too bullish about it. But over 1,500 instruments already. So, it's there. And we still think that we're under 15% penetrated. I don't think we'll ever get over 50%. I think there are just a lot of small labs that still are going to do the hand Westerns.

But in 10 years, this is going to all go the way of the calculator. This is the way students are going to be trained and no one is going to be doing these stupid things by hand anymore, wasting two days of time. So, it's all great there. Simple Plex, it's the sleeper in our company.

This Micropoint deal all by itself is $50 million plus, maybe $100 million. There is a lot of immunotherapy going on in China. They are seeing a lot of cytokine storm. They want monitoring systems. This is a real company built by the guy who built Mindray. He's investing heavily, going into clinicals. It's a great robot. It uses our systems.

He has done the panel for us - all for us. They've got great labs. They've qualified everything. They're dealing directly with the China government which they should. They're Chinese; we're not. And I'm really surprised, quite frankly, we haven't seen a whole lineup here in the U.S. to do the same thing.

I think there are other solutions out there that are similar with this, Quanterix being one, but it's the size of a battleship. But we've got next generations of this technology with increased sensitivity and we think we're going to win there too.

But it's really kind of a two-horse race in sensitivity, us and Quanterix, and there is just so much opportunity for these automated immunoassay type of solutions. So, the new cartridge, the 32x8, is a Meso Scale killer, we think. The ink is still wet on these things.

We've just launched it, but there is going to be an awful lot of interest in that solution being a Complex 8. And remember, this plex, there is no crosstalk. It's zero crosstalk. Four orders of magnitude of signal to noise. It's one hour from sample to answer. It's the real deal and it's not that expensive. It's benchtop. So, it could be the sleeper.

We'll see. The question you didn't ask is around iCE. And iCE, there is definitely competition. And it's come back. It's relatively flattish this last quarter. But, overall, the year, it's pretty modest come back. We have - we're coming out with new generations of that here soon.

We'll have it on the Empower platform here, this next quarter, which is a big deal to be on the Empower system in the manufacturing environment, so these large customers, which has really become a requirement. So, that's finally done. And we'll just have to see. But it's a big space. And I've got to mention too.

What we discovered - and some of this lull is - it has to do a little bit with the migration of these large customers also moving from their classic pharma molecule-driven approaches to cell and gene therapy approaches and biosimilar approaches and bioprocessing approaches.

And as they're staffing up for their own cell and gene therapy, which is driving a big part of this, they are looking at different methods of their testing. And guess what, the iCE platform, it works really well to be involved in the workflow of testing for cell and gene therapy.

So, we're expecting that to become a big evaluation promise this coming year and they've already started. So, I do think we're going to see extra growth from that in the coming years. It is also part of the cell and gene therapy workflow. So....

And then, just following up on Europe, are any of the challenges there more macro based and expected to last into fiscal '20? Or do you view most of the challenges in Europe this quarter as just tougher comps and timing of orders?.

It's mostly that we think. I think the days of 13% to 15% growth are behind us. We were taking a lot of share, building out new subsidiaries. But I think high-single digit growth is still there. The cross-selling, the synergies we have, the portfolio we have, that's the kind of growth we're expecting.

And I think in macro, I think Brexit is the biggest risk. We're certainly going to get a hard Brexit now with Boris in place. Again, it's not a really big issue for us materially, but it might have a leakage effect across all Europe. We'll just have to see what happens. We can affect that. And whatever happens to us, it will happen to everybody else.

But for the last three years, we've been kind of ahead of the pack, ahead of all our peers in terms of our results. And I don't see that changing too much. We're going to be right there..

And just last question for me. Congrats on the draft LCD for EPI. That's a big win.

Jim, if you just took - I know you don't want to get too specific, but if you just took the volume this quarter, take the percent to be covered by the LCD and annualize it, what's a rough range of revenue we should be expecting over fiscal '20?.

I know - all I'd say is this. Our test counts, we've been talking about our test counts the past couple of quarters. They did increase sequentially from Q3 to Q4 by roughly 7%. So, it gives you a sense of where the test count is. We've said before that roughly half of that test count population is Medicare - will be Medicare covered once we get CMS.

So, really, in terms of how much of that revenue we recognize in fiscal year '20 will depend on the timing of the actual final draft and resolution, which right now they've stated publicly they are expecting it in December. And then, it will be a cash recognition lag of up to 30, 45 days beyond that.

So, our models don't show showing significant revenue from EPI until the second half of the year. But as Chuck mentioned, it could be earlier if that final draft approval comes out sooner.

If we're - obviously, we'll appeal for tests that were done prior to that release effective date and the timing and the resolution of those appeals could also impact the year positively. Right now, we haven't assumed any of that actually in our numbers for fiscal year '20.

We're assuming that the appeals process will take longer and would likely be a fiscal year '21 event. Hopefully, that helps..

[Operator Instructions] We'll take our next question from Paul Knight with Janney. Please go ahead, sir..

What will be the capital cost of the St.

Paul facility? When do you think it also will be kind of fully online? Is that like Q4 next year? And then, what's your thought beyond that project?.

Well, it's roughly a $50 million total that's spread out over a couple of years. So, it's majority this year, but it all depends on the timing, how we're doing. We're not breaking ground. It is a building we're purchasing. So, it's about retrofitting this building with the new equipment. There are some long lead items.

There are lyophilizers and larger, high-grade, really, really complex centrifuges, et cetera, that are over a year in lead times. We've already had those orders in. We expect probably somewhere October to December next year we'll be through our initial qualifications and be issuing lots to customers.

It was originally designed to be a September of next year, but we certainly lost a couple of months in the permitting process here in Minnesota, et cetera. But we're still largely in the game. So, think of it over the next two years of roughly $50 million.

What's after that, Paul, is hopefully - we've just got to build another one because there's so much business, we can't handle it all. The site is big enough, by the way, for expansion, the building as well as the land.

So, we could - I wouldn't say double it there, but we can probably get a significant increase to the capacity should we need it two, three years out..

And then, regarding ProteinSimple, I know Simple Western, you said grew, what, 50%.

But I'm trying to - what did all of the ProteinSimple platforms together - what was their combined growth in the quarter?.

Yes, we don't give it out anymore, Paul. But for the segment, we gave you the segment, but you can - the information we've given by these major categories, you can kind of - you can kind of get a guesstimate. It's a good number..

What, you're probably 5% to 10% maybe of the Western blot market now?.

We think we're 10% at least. We are underway - we've made a comment of under 15%. It's hard to know for sure because there is a lot of gray area there in where labs draw the line of needing an instrument or not and just they doing them by hand, but it's a billion-ish kind of market. 1,500 instruments so far.

And you look at other types of platforms in these kinds of labs and we're 10% of that probably. Imagers would be a good example.

You look at all the imagers out there, tens of thousands, right?.

I would guess that everybody who doesn't have one right now wishes they did. That's great. Thank you..

They can still get one..

And it appears there are no further questions in the phone queue at this time. Mr. Kummeth, I would like to turn the conference back to you for any additional or closing remarks..

Well, great. Thanks, Dorrie. We are top of the hour and I appreciate everybody having a long list of questions and participating in this call. We'll be back next quarter. So, thank you..

And this does conclude today's call. Thank you for your participation. You may now disconnect..