Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2020. At this time, all participants have been placed in a listen-only mode. And the call will be open for questions following management’s prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up.

I would now like to turn the call over to David Blair – David Clair, Bio-Techne’s Senior Director, Investor Relations and Corporate Development..

Good morning and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer; and Jim Hippel, Chief Financial 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 as well as the potential impact of the COVID-19 pandemic on our operations and financial results.

The company’s 10-K for fiscal year 2019 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 will now turn the call over to Chuck..

Thanks, Dave and good morning everyone. Thank you for joining us for our fourth quarter conference call. With the COVID-19 pandemic in full swing, we just finished the most challenging quarter in my tenure at Bio-Techne, and perhaps the most challenging in the history of the company.

Despite the challenges that COVID-19 has brought to all our stakeholders, namely our customers and employees, we persevered through the last quarter of our fiscal 2020 year by outperforming the expectations we set one quarter ago and maintaining a high level of profitability and positive cash flow, all while pivoting a large number of our technical resources toward developing products that will help our customers and society at large eventually defeat this virus.

I’ll cover the highlights of these initiatives in a moment, but first, a high level review of our overall results for the quarter and the fiscal year. In Q4, our organic revenue decreased by 8%, outperforming our initial expectations for a decline of somewhere between 10% and 20%.

We estimate COVID-related products provided a 5% tailwind during the quarter. This tailwind came from products produced by every division in the company, which play a key role in enabling researchers to better understand COVID-19, develop therapies and vaccines to combat the virus as well as screen and diagnose infected patients.

Overall, business trends improved as Q4 progressed with sales declines in the low to mid-teens for the month of April and May, and then improving quite significantly in June to low single-digit declines. However, the swings by end-markets and regions were more pronounced.

For example, academic end markets experienced a much more severe trough early in the quarter and have been slower to come back to normal. Well, from a regional perspective, the year bounced back towards the end of the quarter ahead of the U.S. This makes sense given Europe experienced the worst of the economic shut down before the U.S.

and so far it seems to have more effectively contained the virus spread. As we all know the spread of the virus and the containment techniques that go along with it, is a very fluid situation. So we are not out of the woods yet, but I am encouraged by the improving business trends we experienced exiting the quarter into July.

Given these challenging and uncertain business conditions, we kept our expenses in check, balancing our spending on growth initiatives and our commitment to keeping the Bio-Techne team intact with strict attention to discretionary spending.

This financial discipline enabled us to finish the quarter with an adjusted operating margin of 31.1%, clearly not what we expect long-term, but respectable given the current environment.

We view the virus impact on our business as transitory and remain confident in our ability to return to at least 40% adjusted operating margins as COVID-related headwinds subside and we execute in our long-term strategic plan. Prior to the pandemic, we were on track to deliver another year of double-digit organic growth in fiscal 2020.

But with COVID, we finished the year with 4% organic growth.

However, when our customers all eventually return to their labs and clinics, our growth pillars, namely, Cell and Gene Therapy, Exosome Diagnostics, Genomics RNAscope and our portfolio of ProteinSimple branded instruments position Bio-Techne to return quickly to a double-digit organic growth profile.

And now layering in the potential long-term tailwinds from our new COVID portfolio gives us incremental confidence in our ability to return to our targeted growth trajectory. Before I update you on our key strategic growth and COVID-related activities, I do want to highlight our performance in China.

As you know, COVID impacted China most severely back in February and March, when government mandated lockdowns were in force. You will remember from our last earnings call that our China business still managed to grow in the mid single-digits during that very difficult environment.

While I couldn’t be happier to report that in Q4 organic growth in China was back over 20%. Our China team has done a phenomenal job adopting to the new normal, leveraging webinars and online meeting tools to stay in front of their customers and drive the business forward as the country emerges from the pandemic.

As we start fiscal 2021, we could see growth slow a bit from its Q4 pace as resurgence of the virus has flared up in places like Beijing and Hong Kong. But over the long-term, our China business remains in the early innings of its growth trajectory and there is runway for many more years of 20% annual growth ahead.

Now an update on our growth in COVID-19 initiatives, starting with the Protein Sciences segment and our core reagents. Our team quickly recognized the need to help our customers conduct a research in all aspects of COVID-19 and responded by ramping production of related proteins, antibodies, small molecules and assays already found in our catalog.

They also developed dozens of new products to support research of this novel virus and are continuing to do so.

Within our instruments portfolio, production of our Simple Plex platform was also ramped to meet the soaring demand for Ella instruments and it’s highly sensitive automated immunoassays that are being used to manage patient care associated with the cytokine storm syndrome often found in severely infected patients.

With year-on-year growth approaching 100% for this platform in Q4, our operating teams did an outstanding job keeping up with the demand. Also our biologics platform continued to grow exceedingly well with solid double-digit growth both in Q4 and the full year.

We have high growth expectations for this platform as it continues to expand its application base from traditional biological drug production quality and control into Cell and Gene Therapy applications.

Our Biologics portfolio with its subvisible particle characterization analytical capabilities is also seeing strong interest from vaccine developers enabling them to better understand their manufacturing and product stability processes.

Speaking of Cell and Gene Therapy, we continued to make progress on the construction of our newly dedicated GMP protein factory. Construction of the facility remains on track to provide GMP proteins in large scale to our Cell and Gene Therapy customers by the second half of fiscal 2021.

In the meantime, our GMP protein portfolio continues to expand at a rapid tight pace, nearly 100% in Q4, which now includes a number of immune cytokines typically used to grow cells for clinical trials. During the quarter, we also launched GMP ProDots.

This disruptive product allows still addition of our renowned R&D Systems GMP proteins to culture vessels in Cell and Gene Therapies.

As a reminder, earlier this year, we entered into a commercial consortium with Wilson Wolf and Fresenius Kabi that offers easier access to a complete and simplified Cell and Gene Therapy workflow solution using products from all three parties.

This workflow includes Fresenius Kabi’s logo instrument for leukophoresis, Wilson Wolf GRx bioreactors and Bio-Techne’s cloud cell activation, TcBuster gene-editing and GMP proteins.

During Q4, the JV made additional progress establishing a unified sales structure, a customer-facing website and point-of-sale and creating more impactful marketing collateral, featuring all three parents offerings. We believe the JV is well positioned to take share in this emerging therapeutic market.

Moving on to our Diagnostics and Genomics segment, where I’m happy to report that we managed not to decline in revenue this past quarter, despite the COVID shutdown headwinds. I’m even more pleased to report that this segment actually expanded operating margins over last year by more than 200 basis points and increased operating profit by 20%.

While our Genomics product for severely impacted by the closure of academic labs, our team was able to partially mitigate this shortfall by producing and selling hundreds of RNAscope probes for COVID-19 virus detection and tissue, allowing researchers to confirm the organs that are susceptible to this virus.

Our Diagnostics Research division was able to deliver solid mid single-digit growth in the quarter despite customer delays in ordering controls and calibrators used for routine diagnostic test used by clinicians.

Our team was able to more than offset this shortfall by supplying specialty diagnostic antibodies and other raw material to COVID-19 testing manufacturers. And in Exosome Diagnostics, we validated and launched COVID-19 real-time qPCR test in our labs, both in Waltham, Massachusetts and Munich, Germany.

Following the implementation of processes and instruments to automate the test, we will be able – we will be capable of scaling testing capacity several hundred samples per day. This lab developed test will provide rapid and reliable detection of patients with active COVID-19 infections especially in the Boston area.

However, Exosome Diagnostics also experienced headwinds related to COVID-19 as ExoDx prostate test volume was severely impacted by the near complete shutdown of urologist offices.

As we announced last quarter, the team responded by launching an at-home collection kit in Q4 for ExoDx prostate test, enabling men unable to visit their urologist office to have access to the test and the knowledge of whether a biopsy should be prioritized.

The at-home collection kit was launched with the patient targeted marketing strategy including search engine optimization, a Facebook campaign and webinars to drive awareness that patients do not need to go into urologist office to have access to this valuable test.

We believe the flexibility of providing a urine sample at the convenience of the patient will be yet another key differentiator of the ExoDx prostate test from the competition. The response to our at-home collection kit has been very positive with both patients and urologists and already consists of more than 10% of our current test volumes.

The impact of the at-home test collection kit, our push-pull cart marking strategy and the gradual reopening of urologist offices has had a net positive impact in our EPI test volume since it bottomed in April, with June daily test counts approximately 75% but pre-COVID test monthly run rate and continued to show improvement in July.

Before I turn the call over to Jim for a financial review, I want to provide an update on what could be our biggest COVID-19-related initiative to date, our co-branded R&D system, Mount Sinai COVID serology assay test.

During the quarter, we announced a collaboration with Kantaro Biosciences, a Mount Sinai led joint venture to manufacture and commercialize the serology assay based on Mount Sinai’s test. This was a tremendous effort by both the Bio-Techne and Mount Sinai teams, convincing the typical 18-month ELISA kit development timeframe to just six weeks.

This two-step serology test is a truly differentiated offering going beyond the qualitative information provided by other COVID serology assays in the market, with the second step providing a tighter or measurement of the antibodies present to neutralize the virus.

The second step completely eliminates false positives with Mount Sinai’s assay having a 100% Positive Predictive Value or PPV and 99.6% Negative Predictive Value or NPV. To date, diagnostic activity is focused on PCR or antigen-based test to detect active COVID-19 infections.

We believe serology test volumes will increase as a second wave of testing emerges focusing on the surveillance activities necessary to reopen an economy and to help better manage vaccination program for once available.

Yesterday, Kantaro Biosciences submitted a request to the FDA for an Emergency Use Authorization or EUA for quantitative use of our serological assay. We anticipate the EUA process to be complete in mid- to late-August.

Kantaro and Bio-Techne have joined forces to develop marketing materials, a branding and go-to-market strategy for the assay, highlighting the unique quantitative information provided as well as the best-in-class performance of the assay.

We are ready to launch this assay upon receipt of the EUA, and have the capacity to produce millions of tests per month as needed. Also yesterday, we announced the launch of a COVID-SeroIndex, a Research Use Only or RUO version of the two-step serology assay.

This assay is designed to meet the current vaccine developer needs for object – for an objective measurement of immune response to a vaccine, making the test ideal for identifying the most potent vaccine candidates, determining optimal dosing, identifying the appropriate vaccine schedule and when boosters may be needed.

In summary, I’m extremely proud of the way the team responded to a challenging business environment in the fourth quarter. Our end market showed steady improvement as the quarter progressed and has continued to improve in July with our academic and biopharma end market reopening and our COVID-related products seeing continued traction.

We are in the cusp of launching the first commercial quantitative IgG COVID-19 serology assay, which has potential to answer many of the important questions necessary to reopen our economies further and push the best vaccines forward.

We are entering fiscal 2021 in a positive – sorry, in a position of financial strength, with a portfolio of best-in-class products targeting high growth and under penetrated market opportunities. We are ready to continue to execute in our long-term strategic plan. With that, I will turn the call over to Jim..

Thanks, Chuck. I’ll provide an overview of our Q4 fiscal 2020 financial performance for the total company, provide some additional color on the performance of each of our segments and give some initial thoughts on the pace of business recovery from the pandemic in the near-term.

Starting with the overall fourth quarter financial performance; adjusted EPS was $1 versus $1.25 one year ago, with foreign exchange notably impacting EPS by $0.01. GAAP EPS for the quarter was $1.48 compared to $0.42 in the prior year.

The biggest driver for the increase in GAAP EPS was unrealized gains on our investment in ChemoCentryx this year compared to unrealized ChemoCentryx losses in the prior year. Q4 revenue was $175.8 million, a decrease of 8% year-over-year on a reported and organic basis.

Foreign exchange translation and acquisitions had an immaterial impact on our revenue. For the full year fiscal 2020 revenue was $738.7 million, an increase of 4% on a reported and organic basis. By geography in Q4, the U.S. declined approximately 20%, while Europe declined approximately 4%, as European customer shutdown their labs earlier in the U.S.

and then reopened them faster later in the quarter. As Chuck mentioned, China had a remarkable quarter with organic growth increasing 24%. As for the rest of Asia, organic growth declined mid-single digits with almost all countries in some way being negatively impacted by the pandemic.

By end market, biopharma declined mid-single digits, while academic sales decreased by nearly 30%. Moving on to the details of the P&L; total company adjusted gross margin was 69.5% in the quarter compared with 71.9% in the prior year. The decrease was due to unfavorable volume leverage and mix.

Adjusted SG&A in Q4 was 28.9% of revenue, a 60 basis point increase compared to the prior year due to unfavorable volume leverage.

I do want to point out that our adjusted SG&A spend was down nearly $3.5 million from the prior year, highlighting our disciplined on discretionary spend while keeping our teams intact with no furloughs or reductions in force.

For GAAP reporting, SG&A expense in the current period also reflects an approximately $7 million gain on settlement of the escrow balance associated with the Exosome acquisition. This is accounted for as a reduction in SG&A in Q4 of fiscal year 2020.

R&D expense in Q4 was 9.5% of revenue, 100 basis points higher than the prior year, due to unfavorable volume leverage and investments in COVID-19-related product development. Here our adjusted spend was about $0.5 million higher than the prior year, emphasizing our conviction to continue to invest in the business for the long-term.

The resulting adjusted operating margin for Q4 was 31.1%, a decrease of 400 basis points from the prior year period. Looking at our numbers below operating income, net interest expense in Q4 was $4.4 million, decreasing $0.8 million compared to the prior year period. The decrease was due to a substantial reduction of our bank debt during fiscal 2020.

Our bank debt on the balance sheet as of the end of Q4 stood at $357 million. Other adjusted non-operating income was $0.5 million for the quarter compared to $0.1 million from Q4 last year, primarily reflecting the foreign exchange impact related to our cash pulling arrangements.

For GAAP reporting, other non-operating income includes unrealized gains from our investment in ChemoCentryx. Moving further down the P&L, our adjusted effective tax rate in Q4 was 21.4%, similar to the prior year in what we expect for the foreseeable future.

Turning to cash flow and return of capital, $44.8 million of cash was generated from operations in the quarter, down 20% over Q4 of last year and consistent with our adjusted earnings.

In Q4, our net investment in capital expenditures was $17.3 million, primarily driven by construction of our new GMP protein factory, which remains on schedule for completion by the end of the calendar year. During Q4, we returned capital to shareholders with $12.3 million of dividends.

We finished the fiscal year with 39.7 million average diluted shares outstanding. For the full fiscal year, cash flow from operations was $205.2 million, up 13% from our fiscal 2019 result.

Our net investment in capital expenditures was $51.7 million, consisting of $24.1 million in baseline CapEx and a $27.6 million investment in our GMP protein facility. Our balance sheet remains very strong with $270.9 million in cash in short-term available-for-sale investments and our total leverage ratio of well under one time EBITDA.

Our total leverage is at the lowest level since before the 2014 acquisition of ProteinSimple. Next I’ll discuss the performance of our reporting segments, starting with Protein Sciences. Q4 reported sales were $127.3 million, with reported revenue decreasing 11%.

Organic growth also decreased 11% with foreign exchange and acquisitions having a negligible impact on revenue growth. Within this segment, product lines with higher academic exposure, namely our reagent solutions portfolio, experienced significant headwinds.

As Chuck mentioned, we had an exceptional quarter in both the Biologics and Simple Plex instrument platforms, which partially offset the impact of lab closures due to the pandemic.

Operating margin for the Protein Sciences segment was 38.9%, a decrease of 650 basis points year-over-year due primarily to the unfavorable volume leverage and to a lesser extent, unfavorable product mix. Turning to the Diagnostics and Genomics segment. Q4 reported sales $48.7 million, relatively flat with the prior year results.

Organically, revenues grew 1%, with foreign exchange translation having an unfavorable 1% impact on revenue. Within this segment, our Diagnostic Reagent division increased mid single-digits with strong COVID-19 related raw material tailwinds benefiting the business.

Meanwhile, our Genomics division, which like our Research Solutions Division and Protein Sciences has a large exposure to the academic market and took the biggest COVID-related hit in this segment with a double-digit percentage decline in sales in Q4.

However, as labs gradually started to open throughout the quarter and into July, we’ve also seen Genomics performance dramatically improve. Additionally, we anticipate the launch of micro RNAscope, increased penetration of high-plex and continue adoption of RNAscope for COVID-19 applications to positively contribute to growth going forward.

Finally, Exosome Diagnostics Q4 revenue increased over 80% from last year, with higher collections from Medicare, private payers and patients as well as progress with biopharma partnerships driving the year-over-year increase.

Keep in mind that Exosome is still on a cash basis for revenue recognition, so collections from pre-pandemic test help recorded sales in the quarter. Moving on to operating margin for the Diagnostics and Genomics segment, at 12.4%, the segment’s operating margin improved from 10.3% reported in the prior year.

The increase reflects stable volume leverage in our Diagnostics Reagents division less dilution from Exosome Diagnostics as well as strong cost management. Before we turn the call over to Q&A, I will share our current perspective of our view ahead.

First, and most importantly our strategic financial goals for the next three to five years remain unchanged.

Our novel automated protein analytical capabilities, our cutting-edge tissue and liquid biopsy technologies, our tool kit of cell and gene therapy manufacturing solutions, together with our core world-class protein reagents, are as well positioned as ever to help our customers advance the study of life sciences.

And we believe in a post-COVID world, the need to advance the study of life sciences will be greater than ever before. This does – this gives us even greater confidence in achieving our long-term financial goals. But first, our customers, namely life science researchers and diagnostic practitioners need to all get back to work.

This is starting to happen as our monthly pacing of sales recovery within Q4 made clear. However, there are still too many unknowns about what the impact of the pandemic and any potential vaccines will have in our lives this fall and winter.

This uncertainty prevents us from giving a view on our full fiscal year 2021 financial performance with any sort of confidence intervals. So we are managing our outlook month-by-month, quarter-by-quarter, staying nimble to deploy resources for the needs of our customers as they arise.

As a reminder, our first quarter of fiscal year 2020 was very strong and will likely be the toughest comparable for the upcoming year. Thus holding flat year-over-year in Q1 on both the top and bottom lines, we see as the right trajectory to keep us on track to our long-term plan.

The downside risk to this trajectory would be a pause or reversal in our customers going back to work due to a worsening of the pandemic. An upside of this trajectory would be regulatory approval of our quantitative COVID serology assay test coupled with an early successful commercial launch. That concludes my prepared comments.

And with that I’ll turn the call back over the operator to open the line for questions..

[Operator Instructions] Our first question comes from Puneet Souda with SVB Leerink. Please proceed with your question..

Thanks. Thanks, Chuck. So first question is on guide, if you can just elaborate a little bit on the first quarter scenario here that you’re presenting flat. Just trying to get a better understanding of what sort of trends are you seeing in July that give you this view? Or is there – one would have expected the academic labs to continue to improve.

And if we do so – slightly better than flat, is that not something that is doable despite the tough comps here. This is my first question and I have a few follow-ups..

Sure. Well, first and foremost, we finished this last quarter still down 8% and it could have been worse than that. We did have a tailwind. The tailwind’s improving. We’re seeing a resurgence in July, not – towards this summer we saw with China coming back on. So July numbers are a very good start, as Jim alluded to.

But there’s two months to go, and we have a 13% comp from last year to cover. So that’s the big one. So coming back from negative coming this quarter in a tough comp, we think flat, we could give a range. We were 9% or 10% minus 20% last quarter. We talked about saying something from zero to 10% or something or a minus 5% to plus 5%.

But I think the best thing is to keep this tight as we can. We think flat’s the right trajectory for us. And if there are upsides – now if we stay with what we see in July, continue into the whole quarter, I think there’ll be upside. I agree we did see it in China. We saw things level off, and expect to see things level out here, too.

I mean, we’re seeing a really strong start in the quarter. And it’s just probably not plausible. Not to mention there are hotspots and resurgence going on, and they’re just very unpredictable what’s going to happen. I know that I looked at the numbers this morning and looks very encouraging in the U.S. for the numbers this week but who is to say it.

So I think on top of the comp, I think flat is right. Europe continues to progress to be a little bit ahead of us. UK is the only real out liar here, and we’ll have to watch and see what happens there. And in China, it’s actually a little bit going the wrong direction right now, right? So if that gets worse, we’ll see.

India and others are not as bad as I would have thought, given their population and their ability to actually deal with this, but that’s a good thing.

And then on top of all this, there’s upside on our COVID, right? So if we get our EUA in two to four weeks, and we get a solid month of coming out with this product, that’s really not in our numbers, in this forecast. So there’s upside. We have other COVID products as well.

Simple Plex, we talked about had just an amazing quarter, and it’s looking like it’s going to continue maybe not quite at 100% growth, but darn good growth I guarantee you.

So we need academia to come back, we need urologists to come back, and the progression has started, but it’s not – they’re not all the way back even at the end of this quarter, we don’t think so. We’re going to stay cautious. We don’t officially give guidance.

This is the closest we’ve ever come, and we’re talking about staying flat against a strong comp, that’s all. That gives you something, Puneet..

Yes. Thanks. I appreciate the details there. And my next question is serology. I think this is a question that we’ve been getting from investors as well.

What is your expectation here for contribution from serology in fiscal year 2021? And I’m asking that because COVID serology market has lagged significantly behind the PCR market given that PCRs more has essentially more diagnostic capabilities. Obviously, serology is only giving you a snapshot in time.

So – and some of the peer companies have also lowered their expectations in serology significantly going into the next quarter.

So I’m wondering what are you baking in for serology? And what gives you confidence that you can grow sort of above the market here in serology?.

Sure. Well, I want to give you some comments here, and they’re really meant for everybody, not just you. So I’m not going to cover the same ground here, and then questions later and that we will get this out kind of to all of you at once just to be really careful. We’ve invested a lot in our test.

We have submitted a one hell of a dossier to the FDA, let me tell you. And it is an incredible data package. We have gone far and beyond, really what the FDA requires for something like this. As you know, it’s a two-step.

When we decided to go fully quantitative a couple of months ago and take a step back and take some extra time, the FDA, first of all, was starting to get clogged up with an awful lot of request. Two, being we’re talking about asking for a fully quantitative EUA and nobody else has done that that.

And they really, really asked for an awful lot of extra stuff, extra data, extra testing. We have complete sensitivity data done. We did crossed reactivity test against 14 major diseases. We have stats on all this that are phenomenal. We know of nothing out there that compares, but we don’t maybe know everything that’s coming out either.

So we’re only talking what’s out there now. We do also know and the FDA, regrettably so, knows that they’ve issued a lot of preliminary EUAs that they probably regret and a lot of these initial qualitative tests have become a tarnish to the whole serology potential. And we have to overcome that.

But we’re very sure and we’re very clear on the fact there’s a need for a quantitative serology test that really can identify the level of immunity in a patient. And this is going to be important. More and more important as these vaccines come in the market, and patients who want to know, are they having a response or not.

And so we see a surveillance side of this, it’s going to only grow, and it’s not going away in a year. So will it match the – are you sick now testing environment to PCR, maybe not. But it’s going to be a very large market, and we’re not a very big company, and we’re going to have the best test, at least for a while.

So we’re very confident that we’re going to be treated very fairly by the FDA, and we’ll be out there before this quarter end, hopefully. But there’s no guarantee. This is the FDA, and there are hundreds of tests out there, trying to get in, in all different forms. We know of nothing else out there that can match us.

We had incredible partners with Kantaro and then Mount Sinai. They are managing most of the bureaucracy here being – we’re not that experienced at it. And we’ve got great consultants on the staff through Kantaro as well who’ve really taken control of our dossier and our package, our data, everything.

Our team here at Bio-Techne has worked around the clock for months now and has really fulfilled their mission, we feel. And we’re ready to go. And we’re not kidding, we’re ready to go at millions per month, if not millions per week. So – but you’re right. Right now, it’s kind of a 10% kind of market demand compared to PCR, but we think it’ll improve.

And it will improve with the test getting better with vaccines coming on the market and the economy is opening up, and people want to go back to work, and knowing they’re safe to go back to work. So we’re ready. We’ve been waiting for this, and we’re ready..

Thanks. That’s very helpful. And my last one is on Cell and Gene Therapy. This is obviously an important growth driver in new market opening for you here for the next few years.

So when is the earliest we can see the revenue in that? And maybe if you can provide some details or anything we should be modeling? And how should we be looking for that in 2021? And if you could also provide any updated thoughts on the level of interest you’re seeing and early commitments to – for the capacity that you are building out in the first year? If you could provide some color there, that would be helpful.

Thank you..

Well, as you know, we’re selling GMP proteins now. We’re just not selling in larger batches. So our GMP protein business is growing and growing near 100%. So we’ll be moving all of that over to the facility once we are able to. So we’re on schedule, on budget.

We’ll be opening the facility in late September, qualifying for the rest of this calendar year and be open for business for scaled out production revenue, probably in January or something. We have a one completed, signed up large customer, and we are in negotiations with half a dozen others.

And behind that are a lot more others on preclinicals and testing and people getting ready to check us out. So it’s hard to guess right now what that first year revenue will be coming out of the factory, but it’s certainly going to be significant. We will not show our capacity for first year. We’ve never said we would be.

Probably say, it could take as long as five years to a full $140 million. We don’t think it will take that long, but it could. Our models don’t go beyond that. So it’ll only be upside. So we’re ready to expand it to a $200 million model. And it takes about a six-month to one year window to do that. So we think we have ample time.

We’ve got ample room in the building. We’ve got ample green space. So no issues there. Equipment is all here. The site looks phenomenal. We’re going to have a fantastic viewing quarter for the processes.

Our local Minnesota Science Museum, who is the world or the country leader in exhibition design, they say this is for sale, they’re going to help us design how to exhibit and how to show the processes. So it will be a great venue for customers to come in and see what they can expect. And it’s going to be fun. So everything is on track.

The numbers don’t – haven’t changed since we’ve told you before really, so..

Puneet, the other thing I’ll add with regards to the GMP factory itself in terms of the revenue generated from it.

Aside from just the growth in our normal clinical business, as Chuck mentioned, where it’s growing at 100% for GMP proteins, these large customer deals that we either signed or are in negotiations with right now, they’re all in various phases of clinicals right now. They are not commercializing themselves yet.

So the reality is until they get through their Phase 3 and commercialize, we really won’t have a good view of the timing of when we’ll see that major step-up in revenue from those customers..

And these are ones that aren’t really out there out or coming out. As you know, there’s an awful lot of viral vector based cell therapies coming out the next year or two. And we’re not really – we’re not in those clinicals.

But being we’re not part of the drug, it would take just equivalency testing to actually move over our protein if it’s deemed to be a better value, better quality, et cetera. So we expect, as we open, we’ll get more and more interest from dozens and dozens of cell therapies that will be coming over the next two to three years.

That’s our angle anyway..

That’s great. Thanks for the detail..

Thank you. Our next question comes from Catherine Schulte with Baird. Please proceed with your question..

Thanks for the question. I guess, first, just on China, great to see that strong return to growth in the quarter. You talked about seeing that reverse to some extent.

I guess what’s implied for China and the flat overall guide for the first quarter?.

We don’t see anything below double-digit forever in China, to be honest. So we’ve almost got to that the last quarter. So we were at 24% this quarter. The resurgence is a big part of that. I think we’d probably be north of 20% if we didn’t see the new shutdowns in Beijing and other things. But with that in case, it’s kind of unknown.

But I think we still see a strong 15-ish kind of number at least. We’re hoping for better. You never know with China, it’s not going to be below double digit, but it could still be over 20% as well..

Okay. That’s helpful.

And with everything you have going on the Diagnostics side and also in vaccine and therapeutic development, is it possible to quantify what kind of COVID related tailwinds you saw in the quarter and how you expect those to trend going forward?.

Yes. Well, we had 5% this last quarter, right? And that’s going to improve modestly with the current products like Ella and our RNAscope continues to see some traction. We’re selling reagents, we’re even selling antibodies to other test manufacturers, antibodies that we’re not using in our test, of course.

So we’re a full-service build supplier to everybody, right? That’s what we do. I think the big upset, of course, is the serology traction. If we get the EUA, these aren’t going to be small orders. If we get this, there’ll be all the large orders and we’re talking with a lot of large institutions.

I will make a comment now to – I mean, the commercial channel and as I mentioned before, it’s one thing to be able to make five to 10 million tests a week. It’s another to get in the engine of doing five to 10 million blood draws a week, and that’s the mission here.

So, we’ve got to be working with governments, with large reference labs, the vaccine makers, the hospital management systems out there that are really managing all these labs and working all these blood draws for all these automated testing that goes on every day in the hospitals and clinics around the world.

So that’s where we’re really working on now have been for a couple of months already, we are definitely beyond term sheets with some and there is a lot of interest as you can imagine. So, but that’s what’s going to drive the speed of traction and the level of traction, not only this quarter but come Q2 and beyond..

Great. And then maybe just one model cleanup question for Jim, recognizing on the specific guidance, but how should we think about sequential OpEx changes in the coming quarter.

And how quickly you’re planning on bringing back some of that SG&A spend?.

Yes, I’d say from a sequential perspective, it will be perhaps a little bit of uplift, if nothing else, because we – the first quarter is when our annual merit increases, for example, it kick in, but it’s going to be fairly minimal.

We’re obviously still in a mode of being very tight on our discretionary spend, really not investing in any – much in the way, any new hires at this point. So, we’re still being very, very careful with regards to our investment. So, I would just say nominal sequential spend from Q4 to Q1.

We’re really on a kind of flat – kind of keeping any things of that growth. As you remember, Catherine, we spent a lot of time and we’re in Minneapolis so, finding top talent from the Bay Area or Boston to come here for biotech, research and work it’s difficult.

So, we’ve done acquisitions in these better locations and we really worked hard to building a world-class team over the last six, seven years. We don’t see this pandemic as more than a one year to two year bubble of the real pain and the last thing we wanted to do was to ruin our team.

So, we decided to [indiscernible] it up and not do any furloughing. We didn’t do any restructuring. So, we could have delivered more to the bottom line. You saw our tremendous results. So, I mean, that speaks to the tight processes we have here as an operating team. We run a very, very good template of processes, both weekly, monthly and quarterly.

We know we’re spending and why. We prioritize continually. We were able to pivot a large percentage of the company towards our pandemic related – COVID related activities, and yet we still had almost near typical year-on-year NPI for products. So, we’ve done a great job there.

And the lot of it came from taking the pressure off our team, them not worrying about going on furloughs or being restructured, so it’s steady as she goes here.

That said, they are all watching what we spent and if we do have any attrition where we replace if needed then we certainly aren’t doing expansion in areas, other than these mission critical areas. We are, of course, adding in operations for expected ramp-up for our serology test is one example.

We are certainly ramping up around Ella with 100% growth in Simple Plex, but we’re going to have resources. We’ve told China, you’re back to 24% growth. You know what you can hire. But to hire you have to grow, and we were not growing, we’re not hiring..

Great. Thank you..

Thank you. Our next question comes from Dan Arias with Stifel. Please proceed with your question..

Good morning, guys. Thanks. Want to ask a couple of reimbursement questions if I could. First Chuck on to serology, you had talked mid quarter about the potential for a reimbursement rate that involved I think secondary pricing was the way that you phrased which might have sort of a greater level of an incentivization that’s attached to it for the lab.

Is that something that you still think is in the picture? And then on Exosome, specific to the commercial side of that business, I’m curious whether a, the clinical utility study is helping negotiations there? And then if I go back to some of the things that you were talking about this time last year.

It sounded like that you guys were having some good success in just keeping the private payer rates from being too far – not too far from the CMS rate.

Is that what you expect going forward? Do you think there is some discounting that comes into the picture in order to sort of bag some of those bigger payers?.

Well, let’s work in reverse order. So the payer situation is still improving at the acceptable levels. The utility study is being acknowledged and being well received and it’s helping us line up bigger payers. The Medicare is still coming back and growing.

I think we’re on track and then NGS, of course, is very excited about getting back to us on reconsideration. They actually love the utility study. And we’re going to be following up with some other data here soon, but I think, of course, they don’t meet every month.

So, we’ve got plenty of time till it is fall and to get the package really in good place for a reconsideration. That said the TRF process it’s really helped us get around that being a potential shortfall with the limited definition to the LCD, but we’re okay, I think for now. So it’s kind of steady as she goes.

We had great growth and we continue to see it in the at-home test, I think is really a sleeper. I mean that thing is going to allow free take off. And then, stay tuned; we’ve got some new coming advertising campaigns that are also going to be I think well received. So, we’re moving well along there. What was your question before that? That was....

Serology..

In serology and the way in which reimbursement might work there and whether or not labs have a more of a incentive to use it?.

Yes. So we did submit to CMS for a CPT-code a special and we got it. We have a new code, but we don’t have pricing at and we can get the pricing until the EUA is out. And so it all works together.

Clearly what we will do a crosswalk at some point with CMS when it’s appropriate and that may follow the EUA, but I don’t think there’s any issue, any worries about that. And it is significantly higher than the $42 charge for a one-step test out there currently. I think when people see the extra difficulty – the technical hurdles are here.

The more information, the better results where Kantaro, Mount Sinai for sure are very confident that we’re going to be dealt fairly. Anyhow we need all this because, for the channel to accept this and drive it and prioritize it, there has to be a little more, because it costs more..

Okay, that’s helpful. Thanks, Chuck. And then just maybe on the Ella business. It sounds like you had a strong quarter that you were expecting there.

Can you kind of just talk about demand by customer class? I’m curious about pharma usage and then maybe on the clinical side, how likely are you thinking that it is that becomes sort of go to platform for day-to-day patient testing and management as it comes to running the ELISA assays if that time does come?.

Well, I’ve often spoke about it being the big sleeper in our stable. And the micropoint opportunity in China is just one indication that’s a $100 million obtained all by itself. So love to have some of those over here. We’re having a lot more interest. This will be event that that platform really has been waiting for.

We had a lot – we basically sold all we can make this last quarter and I don’t know if that will continue, because we’re ramping our production now. But we certainly saw insurgence for hospital use and for testing use and I think there is interest now there for people to take that application and take it through different clinical regulatory needs.

And we’ll see, but it’s good for regulatory. It’s good, it’s good, it’s good for clinicians, it’s good in research. It’s a high-speed multiplex immunoassay one hour sample data, it’s wonderful. And we keep building the panel library for it and we’re able to make panels that will for anybody.

We have an open cartridge panel for people, who do their own work and this is important for Biopharma, because they want to work a little more secretive. So, they’ve taken it and they’re working on their own products without us pretty being involved and later they’ll come back and tell us what to make for them and it really buttoned out.

So, we see a big strong future for Ella in the Simple Plex platform in general, and there’s more culture coming. We have a variety that’s coming out and going smaller and smaller too. So, it could be a point of care as well. 4/8 is an example..

Yes. Okay. And then just maybe, one more if I could stick one in here on Europe, You’re – you usually have some pretty good views on just high-level funding. I’m curious what you think about the European funding situation with the rise in Europe. The budget seems like it’s coming in a little bit lower than maybe, they were hoping for.

Is that something that you think is impactful going forward or is it really about the portfolio over there and just being position right?.

I think it’s more about positioning and we’re not that big a player. So, we really haven’t seen any impact. It could be Simple Plex Ella is a good example. That was just off the charts over there for us. They need, especially in places like Italy. Right now, no concerns on funding for our products or budgets in Europe.

It’s more about getting UK back online in full. The rest of the country is really coming on just fine..

Yes. Okay..

If anything, to start – if anything, we just need to get back to where we were before COVID and that was the reorganization, the restructuring, the new commercial designs that we had for Europe in general. We made most of those changes and we’re kind of waiting for Europe to come back to normal, so we can actually measure how we did.

So, places like Germany, there should be a lot more upside. So, we’re looking at investing and expanding in places like Germany, where we should have more business, to be honest..

I am 100% on board is getting back to where we were before COVID. So, good luck to all of us on that..

Thank you. Our next question comes from Patrick Donnelly with Citi. Please proceed with your question..

Thanks. Chuck, maybe, just on the academic market, just kind of wondering how that trended throughout the quarter, I know you’ve given in the past, the metrics like percentage of labs that were open versus closed in areas like the U.S.

Anything you can kind of help us think about exit rate and then as we kind of trend through this quarter what you think about the flattish guidance, what your expectations are for that market?.

Yes. Well, we’ve read all the public stuff, just like you guys have or writing and I think roughly 50%, 60% are partially open and a roughly a quarter open and the rest are kind of in the middle and unknown, but we are hoping for better than that, we all were, right. So, I think it’s just a slow slog forward.

I think there are two camps for academic labs. There’s ones that are well funded through grants and there is ones that are funded to the universities, and where students not coming back or international students not coming back, I think you’re going to see some constrained budget in some university labs probably.

I think the grant related labs are probably going to be fine and probably, it will be a great season next year, because we see nothing but improvements in funding to that end. So, we just have to kind of go work with it. By definition, labs are kind of socially distant.

They aren’t really in top line out there and I think labs will come on back on board before really students are back at full strength. And I’ve read that in more than one place, so – but it varies by institution. So, they’re just not all the same.

And if you’re going to – if you’re asking for an answer of what’s the mean of all this, they’re coming back. But they are coming back slower than we’d like. And I expect that the budget situation going forward, it may be a wash as I think you’re going to see some things better than usual and some things less, netting out to be, it’s my guess.

But I don’t know any more than you do on that. So, we have – we may be better off in a lot of companies. We have a lot of products that are really kind of unique and only ones in the world and you got to get it from us. And so they’re coming back fast. We’ve had, as I mentioned, a very strong start to the quarter. I don’t think we’re alone there.

And I think it’s somewhat similar to what we saw in China. People have come back to labs.

They remember what they did and turn the lights off two, three months ago and they are reordering quickly to get their stuff back going again and that will level off probably after the first month or two we think, just like it did in China and – but research isn’t going away.

And we’ll just have to work with them as best as they are coming back online. But for academic labs to be healthy, we need students and we need all kinds of students including international students and that’s a big question mark right now..

Yes. I appreciate that. And then maybe, on the serology tests, I know one of the angles you guys had that makes your test all unique is, you can kind of play in the vaccine development, see if vaccines are effective with the antibodies were generated.

I guess how do you see that opportunity playing out again, whether it’s over the next year? Are you already in conversations with whether it’s pharma companies or whoever the end user could be there? Can you just talk through that opportunity? Obviously, it seems like it would be pretty significant as the vaccine.....

Yes. Serology in high volumes for the math is different than serology for the vaccine manufacturer. They would be probably a few million dollars at least per account to be really in their clinicals per se, any part of it. but a lot of those ships have left their docks, right. they are in Phase IIs and Phase IIIs, a lot of them done their own test.

Now, they’re not scaling up something for the world. So, they’re probably not as focused on a monoclonal like we were. They can use other ways that means that they’ve got something to test, so that something they can’t really release to the world.

So, we’re in the middle of all those kinds of discussions and I think as we get out there with the data and the accuracy of our test, I think we’re going to get more and more support, and the interest from the vaccine makers. And yes, we are working with some already, but not all of them and we’d ask pretty much all of them.

And then that’s the answer we’d gotten that they would like to take a look, but they are in the middle of stop obviously, and they’ve got big deadlines to hit with their Phase II or Phase III, in some cases, and it’s now is not the time to be changing how they’re testing. So, there is some of that.

But it was mentioned in the – in our response – in our transcript here that surveillance going forward is going to become more and more important and we see a lot of that going well beyond just vaccine manufacturers, so....

Sure..

But we got to get around – first of all, the port tests that came out in the last six months, right..

Absolutely. And Jim, maybe just a quick one on the capital allocation side.

Obviously, uncertain times here, how conservative you guys want to be, or is this a time to be a little more opportunistic on areas like M&A just wondering your view here?.

Yes. I think we definitely took a more conservative approach last quarter – last quarter and a half as the pandemic started to become more of a reality to understand how deep it was and we took actions to build up cash, pay down debt.

So, we are extremely well positioned right now from the balance sheet perspective and a cash flow perspective going forward. And as we’ve mentioned in past calls, we’re always involved in M&A discussions and looking at targets and fielding targets and we are currently as well, and just a matter of the right target, the right price, the right time.

So it’s not a matter of financial wherewithal or conservatism that’s holding us back..

Great. thanks, guys..

Thank you. Our next question comes from Jacob Johnson with Stephens. Please proceed with your question..

Hey, thanks. Chuck, you touched on it, but maybe, expanding on this.

Just on the GMP proteins, was the initial demand here be for relatively early stage therapies or can GMP proteins to be implemented in later stage trials or even a commercially approved therapy? And then how does the demand for these proteins ramp as these therapies move their clinical trials and maybe, what would a commercial approval mean for you in terms of proteins – GMP protein revenues?.

Well, we have one large signed customer now, where I mentioned we’re in negotiation half dozen others and that one would be millions and millions of dollars of proteins, just that one.

We have had inquiries for orders as large as annually of $10 million or more expected while there was some so much more pressure on us to get in the game and get going on large capacity available proteins the GMP, because they were scared to death, where they were going to get them and it’s going to probably drive be one of the big drivers of just how fast the cell and gene therapy market in general growth is going to be the safety of these reagents.

So we plan to be not only in the game, but the leader. To the first part of your question, we’re in what kind. It will be all the above. So yes, we have our all complete workflow non-viral vector related and we’re in pre-clinicals with a lot of companies working direction.

We think five, 10 years out here, the world will probably be non-viral vector, but there are, a thousand clinicals right now that are viral vector related and summer coming out at the other end here very soon in a couple have already and for them to use our proteins, they have to do [indiscernible] test of which they’ll be doing. I’m sure.

And it’s very possible and then it’s going to come down to how well our product works and what’s the price et cetera. So we’re going to get pieces of all of these markets. And I think the biggest first big upside would be equivalency.

So if we can land some of these accounts that are coming out and going into production through [indiscernible] test that would be the biggest short-term upside.

Otherwise, we really get to wait for our stuff to kind of get through their clinicals with our partners in the other end which is going to be in two to three years, which we’ve talked about at length, but we see a J-curve with this, factory in terms of revenue ramp and I’m sure we’ll have significant revenue next year, but it’s hard to say.

It will certainly be probably more north of $10 million, but it will be north of $50 million. It’s hard to say for year one. But….

Got it. That’s helpful and maybe just one other question on Cell and Gene therapy. You’ve talked about a lot of the opportunities here. But can you talk about the application of the ACD technology for cell and gene therapy.

It seems like this technology can be used in the viral vector and CAR T workflow?.

Yes. It’s in the workflow, I mean it’s spatial imaging, right. So we have a single cell analysis. So at some point you do that we’ll look at the sales and see how things are working and RNAscope is fantastic for that. So we’re going to have Plex versions of this as well. We have our high-plex out now.

So we see a big future for RNAscope platform being used in cell and gene therapy as an analysis tool..

Got it. Thanks for taking the questions..

Thank you. Our next question comes from Alex Nowak with Craig-Hallum Capital Group. Please proceed with your question..

Hey, good morning, everyone. A lot has been asked on the serology test, but I just want to ask a couple of clarifications. Who is going to be marketing and actually selling that serology testing for the clinical side of the market. Are you going to be using traditional diagnostic distributor for this.

And can you just give us any sort of the economics of the test back to Bio-Techne after paying out for Mount Sinai and the distributors and such..

Well, lots going to depend on what kind of to real demand will happen. So as an example, we have to convince this channel the LabCorp class all these different [indiscernible] lab into use test. Now we are in the middle of using high automated systems right now from other manufacturers, but on, not a less desirable test.

The reimbursement on that 42 on a single step test will be asking for more and to get more is going to help prioritize of them. So, we’re in discussions with all the entire channel there everyone, you mentioned and more.

So there are companies that manage the hospital labs, there is LabCorp and Quest, of course, there is a second-tier level of LabCorp and Quest out there is the mail. And then there is a vaccine manufacturers in general to there’s biotech in as well as a channel for a lot of stuff, so we’re talking to all of them.

There are governments that are talking to us mean there are, there are governments that are talking to us about that are more or less social medicine type of model that want to buy big and they want to get in on this. So we’re discussing that with some as well. So, we’re getting help non-China is very influential.

The Kantaro Group as got people on board that have a lot of experience working in these areas and these channels and dealing with the FDA, but it will be commercialized by us that’s what we are going to do with this.

The branding, on the product will have R&D – powered by R&D systems, branded on the product and what we get out of it, I’ve mentioned before that we’re going to be certainly be in the $5 to $10 range, we think, in us and Mount Sinai.

But you know the test prices will go, much higher than that and they are already – they are now, even in a single step. So we’ll get more than that. That should create strong interest from the I’ll call it the channel, so to speak. The people who are managing, all those blood draws that won’t be form.

And again, Alex, we’re not trying to take out Roche here, we’re not very big. So I mean any – the traction we expect here should be very material to us..

No, I understood. I appreciate the commentary there.

Just any update on more thing Exosome Diagnostics more of picks and shovels business as you’ve mentioned in the past or partnerships and just where do you stand on the pipeline with the bladder cancer tests in the kidney transplant test?.

We’re pretty far along there on the kidney rejection test. We have the first paper review and data is there and we’re working toward that through that process. I mean I think another year. So we’ll probably be into the guidelines and work in the same kind of process we did with the EPI test. Bladder is probably following that.

It’s just a matter of bandwidth. Our partnership ideas for that one as well, and there we’re pretty far along in partnerships discussions both with EPI as well as the blood based versions of this test of which need clinicals done et cetera. And there is a global perspective too.

There are different other partners that want to really help in Europe and also want to help in Asia for us. So I would say some things have slowed down due to the pandemic, for sure.

We definitely have taken a hit but recovering faster than expected with our own urology office in the U.S., and I think at-home is going to be very instrumental and coming back and coming back strong this year and then continue the trajectory that we expect. So this is a big platform. It’s got a lot of aspects to it.

It’s going to take years to really get it to mainstream, but there is nothing that can beat it. We don’t think so. We’re on our way..

Okay. Got it. And then just a follow-up question to the GMP side and the whole focus on non-viral vector. What do you need to do to win over pharma that the non-viral vector growth is the right way that they should do this. I mean essentially, you said five, 10 years, everyone is going to be going your way.

Is it you convincing pharma or is it pharma essentially doing trial and error finding out that you’re method is the most optimal.

What really can do that pharma to switch over?.

It’s data, cost, productivity. There is no doubt in anyone’s mind it’s tested with our platform that some more efficient. It’s less costly, it’s much more predictable and reproducible. Viral vectors are hard to work with that should become a standard over the last decade, because that’s how it was.

But like everything lot of things in the world, the first isn’t always the best. The world comes around and frames up something better, but it’s going to really have to get there with data. The pre-clinicals and the work we’re doing have been very successful. We’re selling a fair amount of stuff already to be honest. And we see a bright future.

But this is – as you are well aware, this is not an overnight kind of market capacity to be methodical approach toward clinicals. And I think it’s doing just fine, it will get there..

All right. Understood. Thank you. Appreciate it..

Thank you. There are no further questions at this time. I’d like to turn the floor back over to the management for any closing remarks..

Well, again, it was a tough quarter by – for us and for everyone else in the industry. We – I think we came out better than expected and we’re very happy with what we see so far. And going forward, we see nothing but a bright future. So, we’ll look forward telling you more next quarter. Thank you..

Ladies and gentlemen, this concludes today’s web conference. You may now disconnect your lines at this time. Thank you for your participation, and have a great day..