Bio-Techne Corp (TECH) 2018 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter of Fiscal Year 2018. (Operator Instructions) And now it's my pleasure to turn conference over to Mr. Jim Hippel, Bio-Techne's Chief Financial Officer. Please go ahead, sir.

Great, 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 harbors statement. Some of the comments made during this conference call may be considered forward-looking statements, including believes and expectations about the company's future results. The company's 10-K for fiscal year 2017 identify certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K as well as a 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 the most comparable GAAP measures are available in the company's press release issued earlier this morning and 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 third quarter conference call. Following exceptionally high growth quarter in Q2, I'm happy to report that Q3 looking our solid quarter, keeping our year-to-date performance on track with our expectations for fiscal year '18. Company delivered 7% organic growth in the third quarter, with growth continued to be broad-based by product category, region and end market. The one exception was our biologic product line within our Protein Platforms division, which have the toughest comps in the company with over 40% growth in third quarter of last year, and nearly 30% growth in the first half of fiscal '18. Our performance is strong at the bottom line as well, with Q3 adjusted operating margins expanding 80 basis points over last year, and a record adjusted EPS of $1.21 per share. Europe continue to deliver terrific results with Q3 organic growth in the high single digits. Before integration of ACD commercial operations, with our European subsidiary was completed in the quarter, now the single point of reference for order processing in discretionary region. The ACD sales team have also been integrated with the rest of our European sales force which should lead the acceleration of ACD's RNAscope customer allocation in the region. Similar to what we have seen with Protein Platform's product, after their integration with the Biotech sales force a couple of years ago. We now have over 150 employees in Europe, with half of those in commercial. Also in Q3, we expanded our European subsidiary model by acquiring our primary distributor for blood control product in Europe. For our diagnostics division, this will be our new model installed directly into the local EMEA market, using local resources.

In addition to blood control product, we will be looking to sell more of the entire diagnostics division products directly in Europe. Following a similar and successful venture with our Italian distributor [Space] in 2016, this model has been a proven way to accelerate our geographical expansion, by adding skill resources and infrastructure in those markets where we have not directly been present for.

We have been talking about the strength of our subsidiary business model in Europe for many quarters now, and our strong results bear this out. The synergies of cross-selling and commercial collaboration have been apparent here and we expect the model to benefit both ACD and our diagnostics division. As in Europe, our Asia region also broadly delivered great results in Q3. In China, growth of our product was over 20% in Q3, in line with our long-term expectations.

Jim and I visited our China team, customers and business development prospects in March and came away as enthusiastic as ever about the long-term prospects for our industry and more importantly our company in China. We are expanding our offices in both Shanghai and Beijing and building a new demo lab for ACD in Beijing. The rest of Asia also performed very well in the quarter, with Japan growing in a high single digits, and the rest of APAC growing in the low teens. Although a very small portion of our business today, we see India with its emerging and rapidly growing presence in biosimilar with a large opportunity in the future of Bio-Techne.

In Q3, we took steps to strengthen our presence in the region by creating a local Indian subsidiary, with a country manager and sales people to continue to invest in commercial activities, and capture more of that opportunity. In U.S., growth in the quarter was also brought in most of our product categories and end markets. Strength in academic continued from what we experienced in Q2, with growth over 10%. The macro NIH funding environment is -- certainly it's tough right now. But we're also executing well and leveraging investments we have made in online content, marketing and e-commerce capability.

With the variability we have experience with the Protein Platforms biologics product line in the past 2 quarters, we are seeing similar variability in the BioPharma end market, particularly in U.S. In Q3, a U.S. BioPharma end market grew low single digits, however, excluding the biologics product line, growth for a quarter was high single digits. Also when you look at our growth in the U.S. BioPharma market year-to-date, we stand at 10%, thus, we believe the BioPharma end market in the U.S. is still doing very well for us and expect it will continue for some time.

As we have said for many quarters now, the underlying market trends in both our BioPharma and academic end markets remain strong. Now for some more color on our Q3 performance by division. Our Biotech division grew 7% organically in Q3, which brings us organic growth for year-to-date to 9%. Results that haven't seen in a decade. Biotech core products continue to perform very well with collective growth in a mid-single digit. Stands out for the quarter continue to be our protein, cell-culture product, immunoassay and Novus-branded antibodies all growing in a high single digit or higher as in the case of our assay portfolio, which is growing low double digit.

New product innovation has been the key to the long-term success for our protein cell-culture portfolio, as an example of this innovation, we found with our -- with a new product line we released in Q3 called MimEX GI. The MimEX GI platform is an innovative human tissue model system that utilizes the unique characteristics of adult ground space stem cells to generate 3D gastrointestinal epithelial tissue on a 2D surface. 3D cell culture an organized model of the gastrointestinal epithelium are quickly being adopted for a variety of therapeutic research uses. Researchers using current 3D models, such as gastrointestinal organized often experience difficulties with model variability, tissue viability and experimental accessibility. Overcoming these obstacles is paramount for the logistical incorporation of 3D tissues into high throughput toxicity and disease modeling workflows. Thus the MimEX GI platform makes in vivo-like 3D gastrointestinal tissue broadly accessible to both academic and industrial laboratories.

Having better tools to study cell behavior in physiologically relevant -- in physiologically relevant environment and high-quality reagents increases researchers' confidence in the experimental findings. The new innovative platforms like MimEX GI, and our recent acquisitions of both Atlanta Biologic and Trevigen and its BME, basement membrane extract product line, are excellent examples of how we are expanding our franchise into cell culture, and together serving our customers more completely by leveraging Bio-Techne's sales channel.

With regard to assays, our recent success has in part been attributed to our commercial cross platform immunoassay workflow campaign. Whether it's (inaudible) that are used in basic research, our gold standard Single Analyte ELISA kits that are used as a performance benchmark for all other assays. High quality multiplex assay needs for automated high sensitivity and reproducibility assay needs in the following SimplePlex, that is important to our protein platform in growing year-to-date nearly 100%. Bio-Techne has a broadest and highest quality assay platform to give our customers choice in selecting the solution they need and we are (inaudible) .

In antibodies, Bio-Techne was honored with prestigious 2018 Cite antibody award for researchers choice. The Cite Antibody Awards aim to celebrate the very best suppliers and individuals in the research region factor worldwide, and truly reflects that researchers think about the companies they use for their research. It was more the Bio-Techne brand, including R&D Systems and Novus Biologicals, stood out to judges in this category. We're seeing numerous nominations the researchers around the world, all outlining the excellent quality of products and standards of service they've experienced. And finally, there is ACD. They continued their streak of rapid market adoption in Q3 with nearly 30% organic growth. The growth is terrific concerning the big push that occurred in Q2, when they hit their $45 million annual earnout milestone. ACD continue to expand its addressable market and its popular RNAscope in situ hybridization, ISH technology, with the launch of several new and improved assays with automation capabilities in Q3. The development increased both access to and use of RNAscope, along with improving overall robustness and ease of use. We now fill over 15,000 different probes. The continuous investment in automation builds on successful agreements with equipment provider and are driven by our desire to facilitate, drug discovery and development via rapid, easy and extra gene expression detection and localization.

Moving on to Protein Platform. The overall result in Q3 with 4% organic growth was not what we would like, but healthier than it may appear on the surface. With the exceptional biologic, all the divisions major product categories, included Simple Western, SimplePlex and Single-Cell Western experienced solid double-digit growth in the third quarter. However, as I stated in my opening comments, biologics has been leading a division double-digit growth the past 2 years and faced a very tough comp in Q3. Perhaps a breather was in order. Year-to-date, the biologics platform and a Protein Platforms division overall has performed very well, racking up 20% organic growth over last year. The sales funnel for all protein platform divisions is robust, and we still expect to see at least 15% growth for division in fiscal '18 and 4 years beyond. As we've said many times before, the market for protein platform solutions are collecting re-approaching $2 billion and we still have less than a 5% share. Thus there is plenty of runway for continued double-digit growth well into the future.

Next, our diagnostics division rebounded in Q3 with timing of order, this time considering 7% organic growth in a quarter. Looking at 12 months trailing revenue growth for division which smoothes out the choppiness of large OEM orders, quarters to date revenue growth has been 6%, in line with the same growth rate of our hematology controls product in Q3, which gives us better insight into the current end-user demand, given these products short shelf life. Finally, I would like to comment on our strong operational income and EPS performance in Q3. We performed -- we outperformed our expectations for adjusted operating margin due to solid productivity from our teams in a more favorable mix of robust high-margin biotech product sales.

Adjusted EPS reflects a strong operational performance but also includes nice sales with some tax reform and foreign exchange. We are very happy to remain on track with a strategic pieces towards 40% operating margins by 2021.

In our GAAP reported earnings, we recognized before tax $69 impairment charge against our investment in Astute medical. You'll recall about 16 months ago, we made a $40 million equity investment in this early stage diagnostic company focused on hospital-acquired acute conditions that require rapid diagnosis and risk assessments.

As part of the investment, Bio-Techne received certain manufacturing rights for future products and (inaudible) fees on diagnostic test that contain Bio-Techne agent. During Q3, Astute's board decided to sell the company, with investment bankers leading the process. While we still believe to use underlying technology and need for a acute kidney injury prevention in hospitals, it was our assessment that the investment acquired going forward to successfully bring this diagnostic to market did not meet our return on capital requirement. Thus, we ultimately passed on further participating in a sales process and Astute was eventually sold to another party. We still maintain our manufacturing and royalty rights received as part of our original investment, which we intend to capitalize on, and we hope for a bright future for Astute's under its new ownership as well as for the thousands of potential patients that their NephroCheck has helped prevent acute kidney injury while in our hospital for medical care. As Jim will point out when he covers the details of our Q3 financial performance, we have other investments that are performing exceptionally well, even if not reflected directly in our earnings. Jim?

That's right, Chuck, thanks. But first, I'll provide an overview of our Q3 financial performance for the total company, then provide some color on each of our 3 segments. Starting with the overall third quarter financial performance, adjusted EPS increased 25% to $1.21, while GAAP EPS for the quarter was $0.52 compared to $0.59 in the prior year. The decrease in GAAP EPS is driven by the impairment charge on our investment in Astute as Chuck mentioned, which had an impact of approximately $0.32. Q3 reported revenue was $164 million, an increase of 14% year-over-year, with organic revenue increasing 7%.

Third quarter reported sales included 3% growth contribution from acquisitions and a 4% contribution from favorable foreign-exchange translation. Organic growth year-to-date for the fiscal year is nearly 10%, by far the best since this management team has come to Bio-Techne. By geography, U.S. grew in the mid-single digit, as BioPharma growth in the low single digits and academic growing over 10%. As Chuck noted, excluding Protein Platforms biologics product line, growth in the BioPharma and the U.S. region overall was in the high single digits for the quarter. Year of organic growth continue to be strong at high single digit growth overall, with a BioPharma end markets growing in the mid-single digits and academic growing over 10%, as it did in U.S. In Asia, China's organic growth was over 20% in the third quarter, while Japan grew in the high single digits and the rest of Asia PAC grew in low teen. Note that all references made growth rates by region and end market, exclude our OEM sales, which mostly occurred in our diagnostics segment and to a lesser extent our biotech segment.

Moving on to the details, the P&L, total company adjusted gross margin was 72% in Q3, up approximately 120 basis points from the prior year to volume leverage, operational productivity and stable FX, partially offset by lower margin acquisition. Adjusted SG&A in Q3 was 25.5% of revenue, 160 basis points higher than last year, but down 70 basis points sequentially from last quarter. The SG&A increased, but driven by the timing of investment made in the core business to support growth, and from the additional SG&A of our recent acquisition. R&D expense in Q3 was 8.5% of revenue, down 110 basis points from prior year due to volume leverage. The resulting adjusted operating margin for Q3 was 38.1%, an increase of approximately 80 basis points in the prior year period. Looking at our numbers below operating income. Net interest expense in Q3 was $2.3 million compared to $2 million of net interest expense last year. The higher interest expense is driven by multiple rate increases in the past year on our outstanding line of credit. Other nonoperating income for the quarter was $0.5 million compared to $0.3 million net spent in the prior year quarter. The year-over-year change is due to transactional FX gains this year, which did not occur in the prior year quarter. Also included in other nonoperating for GAAP purposes is the $16.2 million impairment charge on our investment Institute. As Chuck mentioned, an agreement to sell the company was signed in Q3, trimming the timing of the impairment charge. The transaction closed the 1st week of April and we have since received $22.5 million of net proceeds. There remains another $1.3 million held in escrow made on the loss reserve. Our adjusted effective tax rate in Q3 was approximately 24%, over a 5 percentage point improvement from the prior year, due to tax reform. For the remainder fiscal year '18, we still expect our adjusted effective tax rate to be around 25% plus or minus 100 basis points. In terms of returning capital, we continue to pay our dividend and paid out $12 million in the quarter. Average dividend shares increase less than 2% over the year-ago period, at $38.1 million shares outstanding.

Turning to cash flow and the balance sheet, $21.6 million of cash was generated from operations in the third quarter, and our investment in capital expenditures was $3.5 million. We also made approximately $56 million in the new M&A investment during the quarter, associated with the acquisition of Atlanta Biologics and years or so. As Chuck reminded us in his commentary, ACD achieved their revenue milestone at the end of Q2, and the resulting $50 million earn out was paid in Q3. For GAAP purposes on the statement cash flows, a portion of the earn out is charge to cash flow from operations, while the remainder is recorded a financing activity. Management views the earn out or the purchase price paid for the acquisition of ACD, thus management views the cash outflow as an investment rather than an operational or financial -- financing cash activity. Excluding the acquisition earn out payment for ACD, our adjusted cash flow from operations for the quarter was $47.8 million, up 42% over the same quarter last year. Year-to-date our adjusted cash flow from operations stands at $131.7 million, which is 30% higher than at this point in time last year. Both the Q3 and year-to-date adjusted operating cash flow demonstrate the strong quality of our earning. On our balance sheet, we ended the quarter with $176.4 million of cash in short-term available-for-sale investment. Included in that figure is our investment in ChemoCentryx, which had a market value of over $86 million at the end of Q3, representing a nearly $55 million before tax built in gain.

Currently, GAAP requires changes in valuation investment and Publicly trade security to be reflected in the equity section of balance sheet until the investment (inaudible) . Our long-term debt obligations at the end Q3 stood at $392.5 million, up $30 million from the end of Q2, as we drew down our line of credit to partially fund the ACD earn out paid during the quarter. Our debt-to-EBITDA ratio is defined by our bank debt covenants stand at approximately 1.4x EBITDA. Going forward our capital deployment priorities remain opportunistic M&A, our dividend and debt pay down. Now I'll discuss the performance of our 3 business segments, starting with the Biotechnology segment. Q3 reported sales were $110 million, which reported revenue increasing 16%.

Acquisitions contributed 4% to revenue growth, foreign exchange contributed 5%, and organic growth was 7%, with solid growth across all major product categories. Year-to-date organic growth for the segment stands at 9%. Operating margin for the biotech segment was 48.2%, an increase of 20 basis points year-over-year. Core biotech operating margin increased 60 basis points over last year, while operating margin contribution from ACDs products was in the mid-Teens, compared to a slight operating loss in the prior year. Strong volume leverage, partially offset by portfolio mix, strategic investments that support growth, and the impact from recent acquisition drove the margin expansion.

Turning to Protein Platforms segment. Net sales in Q3 were $25.5 million, a total increase of 8% from the prior year period. Organic growth for the segment was 4% with currency translation having a favorable impact of 4%. Double-digit growth was experienced in all major product categories with the exception of biologics, which had a very difficult comp this quarter considering it grew 40% in the same quarter last year. Year-to-date organic growth for the segment stands at 20%. Operating margins for the Protein Platforms segment was 9.6%, down from 13.8% reported last year. The lower adjusted operating margin was driven by the timing of additional investments in global commercial resources and administrative infrastructure which have supported the segments year-to-date 20% organic revenue growth. The operating margin for the segment year-to-date is 14.6%, 640 basis points better than at this same point last year, and we expect it will continue to improve from here.

Moving on to our diagnostic segment. Reported revenue in Q3 was $28.5 million, with reported growth over 9%. Organic growth increased 7% from the prior year, while acquisitions contributed 2%. As Chuck explained in his comments, the timing of OEM shipment was more favorable this quarter, and the segments more run rate base hematology controls product category experienced similar growth in the mid-single digit. At 28% the diagnostic segments operating margin improved dramatically from prior quarter and compared to prior year was up over 500 basis points. The margin improvement was due to volume leverage in favorable OEM product mix. We expect similar -- these margins to be similar in Q4 for the segment as they close out the fiscal year.

In summary for the quarter, our aggressive growth continues to be solid, both in terms of end market and product category. We've talked about Protein Platforms biologics products has been an exception, but given the extremely tough comp this product category faced in Q3, we are not deterred by its continued growth potential. The double-digit growth rates we've come to expect from Protein Platform we believe are far from over. Our operational profitably was in line with our expectation, even slightly ahead due the favorable mix of Biotech segment revenue growth this quarter. And our very strong cash flow performance demonstrated the quality of our earning. On the bottom line, tax reform continues to be a real positive for Bio-Techne and it will bolster our future cash flows and enhance our strategy of investing for growth, both internally and externally, as the opportunity arises. Our view for the remainder of the fiscal year and the rest of calendar year '18 remains upbeat. Our end markets are healthy on a global basis, and our teams are executing very well. Thus, we expect overall company organic growth rates to remain in a high single digit range. With regard to profitably, as we close out fiscal year '18, our view hasn't changed in the past several quarters. Total company adjusted operating margin should sequentially rise in Q3, as it did -- I'm sorry, in Q4, as it did in Q3, and be on par if not slightly ahead of last year's margin performance. That concludes my prepared comments. And with that, I'll turn the call back over to Chuck, before we open the line for questions.

Thanks, Jim. Before we go to questions, I'd be remiss if I didn't mention the announcement we made last week regarding a new executive who joined the Bio-Techne team on Monday. Kim Kelderman will be our new President for Diagnostics and Genomics and will lead the group, including our Diagnostics business, while also developing our strategic initiatives in genomics and genomics-based diagnostics. As you've heard me say many times before, in addition to our current Diagnostics division, which focuses on providing the tools that help make our diagnostics OEM customers successful, our company has many opportunities to participate on a grander scale in the diagnostic market. We are a global leader in assay development, both in proteomics, but now also in genomics with ACD. Kim will be tasked with developing a strategic road map that will bridge our renowned excellence in assays and reagents for the research and hospital market, into that of the diagnostic market. This could result in future reorganization of some of our business structure and/or heighten acquisition focus on external diagnostic and genomic targets. Kim Kelderman is joining Bio-Techne from Thermo Fisher, where he led 3 different businesses of increasing scale and complexity. Most recently, he managed the platform and content of the genetic science division, which had revenue well over $1 billion. Before joining Thermo Fisher, Kim served as a senior segment leader at Becton Dickinson and worked also for a startup molecular diagnostics company, which Becton Dickinson acquired in 2006. I hired Kim during my time at Thermo Fisher, and I know firsthand the strong global perspective he brings to our leadership team and what a catalyst he is for positive change in people and in business processes. He is an excellent change agent and operating executive. I'm very excited to have Kim on board and he will be a great addition to our executive team. With that, I'll turn the call back to the operator and we'll open the line for questions.

(Operator Instructions) And we'll go first to Dan Arias at Citi.

Chuck, maybe I'll just start on Biologics. Obviously, a pharma-focused business there, tough comp and you saw some good activity in calendar 4Q. Do you think this was sort of a catch-up on that? What are you feeling like the pause in Biologics kind of specifically was all about? And what do you think about the rebound potential for that piece next quarter? Do you have visibility there at all?

We have some, and of course, we've been digging into it. We had some, as you know, it's lumpier, being this is the most expensive instrument platform that we have. And a lot of these sales come at the very end of the quarter. At the very end of the quarter is also the latest budget signature, and there were some falloffs there. We also had, we feel, some pull-in from the previous quarter. We had well over 30% growth last quarter in that category and for the year, we're at 30% growth, so. If it happens 2, 3, 4 quarters in row, yes, we've got more to worry about, but I'm not worried at all. This is nothing like the first year after we acquired Protein Platforms, where everything was kind of off and we had issues Simple Western and really everything across the board. This is the only blip. We think it's short term. We do think we'll end the year strong, double-digit, 15-plus north, and we do think that, as Jim outlined in our market, our share positions are still so small, I think there is no issue. We do -- this is one difference platform that we have, though, compared to like Simple Western, others where we have really kind of unique and fundamental IP. Here we compete, and we're competing against some big guys, and we've been doing so well and taking share the last couple of years, they've woken up a little bit. So we've got to compete a little bit better, we've got to do a little bit harder work in promoting, and that's underway. And we actually have a pretty strong start this quarter, but we'll see. We're not too concerned, to be honest. But I'd be more concerned if Simple Western were off and flat, but that's still heading double-digit. And where we're still seeing the acceleration in that whole platform, and it doesn't get critical mass, to be honest.

Okay, and maybe to that point, one of the things that you talked about is just penetration on the academic and the pharma side of that market. Are you seeing better penetration on the academic side, which I think is a little bit more price-sensitive? And can you just talk about how the sales process is going when you think about customer sensitivity for the Simple products?

Well, to be really frank, we're still kind of stunned at how well we're doing in academic markets, and that's from a lot of reasons: Great execution, great website execution, great e-commerce execution, the collaboration in our channels with our direct sales force is helping a lot there, and then Fisher is helping a lot. So Fisher has kind of been back on track. All told, it's high single-digit, close to 10%-ish, which is -- we just haven't ever been there since this past year. So the blip is, as Jim pointed out, in BioPharma, it was really almost all the Biologics, and we're talking a couple million bucks here. That's really all that fell out and we'll hopefully get that all back here. But if you take that out, we're still high single-digit in BioPharma as well. We've seen a nice recovery there from about a year ago now, when we had timing issues of assays and ELISA, that's all strong again. Our assay category, SimplePlex, SimplePlex has grown 85% year-to-date, and we expect that to be a 50% -- a north of 50% growth platform going forward as it gets more to critical mass. And this is the end of the fiscal year, be close to -- probably not quite, close to $15 million business. So it's starting to become really material to our company.

Okay, so if I could just ask one more on the margin outlook. Jim, nice improvement this quarter. I know we're not talking about next year yet, but it does seem like, at least organically, the business is in a place to start seeing some profitability gains as the smaller businesses mature a bit. Is that a fair way to think about things as you start to sort of contemplate the period beyond 2018?

It is. I mean, we're just now starting to get to our planning process, detailed planning process for next year. But you know, the expectations that we're kind of setting for our team going forward, when you add it all up, from the total company perspective, hopefully -- but I'd say modest margin expansion next year, but somewhere in the 50 basis point range. I think the issue to keep the buy -- keep your eye on though is our strategic thesis of getting back to 40% in 2021 and the last couple of quarters, we've been talking about being a little bit ahead of plan on there. And this quarter was no exception. The strong -- the strong mix, the strong performance in Biotech gave us extra uplift here, so we're thrilled to be over 38%.

And we'll take the next question from Dan Leonard at Deutsche Bank.

This is Mike Sarcone on for Dan Leonard. So my first question, just on China, can you give us a little bit more color on the performance there? And then also comment on any exposure you might have to a potential trade tariff with China?

Yes, we have very little trade tariffs. We have some in our small molecule section, but we can be moving that to its origin -- port of origin, which is our -- which is Bristol, England. So we don't have a lot of concern on tariffs at all. We're not that big in China anyway, to be honest. So -- and we're knocking on the door of being a $50 million business there, which is up a lot in 4 or 5 years from $10 million, $12 million. But the growth rate north of 20%. We've, starting last quarter, really back on track, annualize the issues we have behind us concerning the Baidu scandal and the erosion due to the immunotherapeutic integration product for hospital markets in China. So that's all good. Our core products, our R&D branded systems are all growing quite well. We're actually seeing really nice growth beginning again with our PrimeGene brand in our "China for China" strategy, even outside of just therapeutic period. So pretty good story right there right now. And as well as in Japan. High single-digit, we continue to be rolling in Japan, we are happy about that. And APAC was double-digit, so Asia is all good right now.

Great. And then just on [active dev], you guys had nice performance this quarter, in both the U.S. and internationally. Can you just comment on the sustainability of growth there and your outlook?

Well, I -- I'm going to start with Japan, because everyone's worried about Japan doing some flip-flop on us. We had a couple of good solid years of, let's just call it out, straight erosion in Japan and we've been coming back pretty strong. A lot it is coming from our products and our integration of our products into the stem cell markets, in the cell culture markets. Japan we're obviously affiliated with the iPS stem cell areas as well, and all of that. Actually it's just doing really, really well. And I think their budgets are decent, finally, once they've got their AMED process in place. The rest of Asia is strong, biosimilars in Asia are really helping us, as well as helping everybody, right? So we're strong in Korea, we're strong in China, and we're starting to get going and get traction in India. We have a 60%-plus growth target in India for the foreseeable future and it's a small base, so -- I'm hitting my team, it should probably be higher. So it's all a pretty good story. Europe, it's high single-digits, it's been good. It's still all really largely related to execution and continued collaboration and integration of our teams. We've now bringing Diagnostics division, people into the family fold over there and that's working quite well, too. I think, as far as I know, funding and project timing with -- with Biotech, there is a lot more biotech for us in Europe. All remains pretty strong, pretty healthy. The timing of our projects is pretty healthy. If we are probably off anywhere, we're probably off a little bit in timing in some OEM areas and we had some really large orders a year ago in SimplePlex and cartridges. So that's why we didn't have quite as high a number in SimplePlex, which also deterred the overall number for Protein Platforms. It was still well north of 20% growth, and we're at 85% for the year. So we're not concerned either for that, so. All told, we see our markets holding pretty well. U.S., also, I think as we mentioned in our comments, NIH funding is obviously very good right now. I think just the acceleration of our brand and our image and our critical mass and our commercial sales force, is all working very well. Biotech is -- if you look back the last couple of years in Biotech, we just are getting better and better and better, back in our home turf. And the R&D Systems brand is the gold standard and we're leveraging, and it's working, so.

And we'll move next to Puneet Souda at Leerink Partners.

Yes, Chuck, so my first question is around just Biologics. I just want to get a bit more clarity. Is this squarely in the [FI] and iCE platforms? And you mentioned competition there, so could you elaborate on that? Is that some -- are these more sophisticated technologies, like LC/MS or UVs, that are coming in here competing? Or what's your sense and how do you get back to those growth rates, given this potential competition there?

It's entirely in iCE, and it's partially iCE, partially Maurice in the platform, right? So when we launched Maurice, it has both [FI discharges] -- historically, we were a charge-based instrument and our competition had both, right? So we went after that and it worked quite well of taking some share. We also took the iCE280 out of service, which also gave us probably some more uptick there, maybe 1.5, 2 years ago. So there's some of that as well. Where we're seeing the competition has been one large company. It's Beckman Coulter, who really is the more or less the process of record where we compete, and that's where we haven't taken share. They have out-share us by a large margin, so we still feel very confident of continuing to work towards growing. It is a great market. I think there's room for growth for everybody, us included, no matter what happens. But they are competing more a little bit the last quarter here we see in price. Like I said, they've kind of woken up, they see us now becoming more of a threat, because we are, it's becoming a sizable business. There are also -- there is also competition in other existing applications, like HPLC, where we also can use the instrument in processes. So there's some of that happening as well. And there is other integration. We have to get this instrument platform more mainstream, in more LiMS environments, like Empower and Chromeleon and stuff. That's in development. So all that's happening, we're not that concerned, not yet anyway. I think it's more of blip and you come off the results we've had the last year in this platform, it stands to reason. And again, I'll point out, we were at 33% growth in this division last quarter. There was definitely a little bit of pulling in, so I think that stands to reason. Now if we show flat to 4% next quarter, it'd be a different discussion. But we don't see that right now. I think it will be much healthier.

Okay, and on ACD, I just wanted to get clarity, this was 30% in the quarter. What's your expectations sort of near to midterm here? And what's your sense on the sales force overall? Are you happy with the sales force makeup right now? And is that enough to drive accelerated growth here?

I think you've got to remember a couple of things. This -- we had -- we had what the team locally calls the Super Bowl event just occurred. So we had a 18-month, full team, full court press, towards this $45 million milestone, and with their management. And we've had a management transition since that milestone has been achieved, so we have to transition to the new leadership there from Tom. And get everybody back on track. We didn't win the game, it's not over. It's just one inning of you guys and it's great you hit your milestones and you're all getting paid, but we've got to stay on top of things. So there's a little bit of that, and I think we're through that. We still performed 30% growth. To be honest, I thought it would be -- could be much worse, given they were clearly, pull ahead to go, as there always is in reaching milestone, right? People are always going to do that, it's just human. So going forward, we still see it as we have been saying. It's a 35%-plus game for quite some time. I would like to say 40%. I'd say it's 35% to 40% until we know more about our process going forward, but it should be north of 30%, for sure. So we think it's quite healthy, it's still a big, big area. We have new applications coming with the platform. We are obviously accelerating with the automation partners and diagnostics, so it's a very good story that remains. It was this quarter, and it will remain to be -- it will remain to be so. You said about their hiring, too. And they're probably a little better on track this quarter on hiring versus last quarter, and we're pushing on that. So they are at about 160 people, which is a little over double from when we bought them. And this coming year, we expect them to add 20, 25, 30 people, probably largely commercial and technically, FASes commercially, so.

Okay, and just last one. You already have a great collaboration with Leica here. I just want -- could you update us, where do you stand with Ventana right now? Obviously, that's the larger piece of the market.

Well, we're still working with them and we're working both sides, top down with the management, as well as bottoms up, with shaming them to come to the table, by basically using our FASes in the field to tune in their instruments to use our products. And then we have their, their customers go back to Ventana saying, "We need to have this integrated, because it works really great." So that's all working pretty well. And there's Dako, too, we're talking to. I do believe this will be a standard in a few years. And if -- it remains for them to become great partners in automation, or we'll deal with automation ourselves, one or the other. So the growth is there, the profits are there. This is a north of 80% gross margin kind of platform, as we talked about, so there's plenty to work with there to build this into a very, very fulfilling division of the company. And obviously, we're not afraid of instruments, so we'll take care of ourselves if we have to. But so far so good with Leica. We are quite friendly with the executives there, as well as the standard here in general, of course. I've got great hopes and I do hope Ventana will come on board more seriously if we go forward here, but not much yet. Most of what we're getting with Ventana is the work we're doing in the field with their machines with our people.

And moving next to Amanda Murphy at William Blair.

I actually had 2 sort of longer-term questions for you, Chuck. So I guess, starting with China, so obviously, a lot of growth there and I'm just wondering if you can remind us how big of a business that is now and looking forward over the next 3 to 5 years? So for some of your comparable companies, China is quite large as a percentage of revenue. So just wondering how big you think that business can become, relative to the overall pie, if you will?

Well, as I've mentioned many times, and it's really one reason I was hired here to begin with, I have a lot of experience in China. I have run and built a lot of businesses in China. I go there 3 times a year. My entire executive team travels there quite a lot and all of them have experience in China. So taking that business from roughly $12 million, 5 years ago, to nearly $50 million now as a complete company, it's great, but it's still small, right, for our background. There's a lot -- a long way to go. It will come through organic, it will come through acquisition. We are looking for more "China for China" acquisitions. The whole area knows our brand, we have all these sea turtles that went home, that grew up in the U.S., got their PhDs, worked 20 years here, then went home and have all this funding. They know R&D Systems and that's why we continue to see 20%, 25%, 30% growth quarter-on-quarter. We have the PrimeGene "China for China" and we've worked through our blip there, that's on track. Even their business, they are -- is actually tripled in the last 3 years since we bought them. So taking out the therapeutic part of the business, that is coming back slowly, with CFDA approvals coming online. So I still remain bullish. I personally think we should be growing 30%-plus. It's just -- there's a lot of area, there is a lot of space. You can only grow so fast, you have to do it city-by-city, team-by-team, office-by-office. We're expanding heavily now into Beijing, that office, and we'll expand there. All of our R&D in Asia and China for ACD is actually in Beijing, where most of our other critical masses are in Shanghai, so that will be nice, to sort of balancing things out. And we're doing more things in other cities now. We're getting more people into Hangzhou, of course, which is -- there's a lot of (inaudible) in Hangzhou these days, in Shenzhen and other areas. So I still see, easily 20-plus percent growth and hopefully, 25%, so.

Got it, okay. And then maybe one for Jim. And so at the Analyst Day, I guess it was a couple years ago, or a year ago, you guys outlined some longer-term targets, I think it was $850 million -- $850 million, kind of with the current portfolio and $1 billion over a 5-year period. I just was curious, fast-forwarding now, how you're thinking about those numbers? Are you still comfortable with them? You have done a few smaller acquisitions since then, so just wanted to get an update on how you're kind of progressing toward those longer-term goals, in your mind?

I'll just simply -- sure, I'll just simply say, Amanda, that I think we're on track. I think we're right on track to where we want to be at this point in time to hit those goals. And we hope to actually beat them, but definitely on track to at least meet them.

We'll go next to Catherine Schulte at Baird.

Just curious to get more details on the additional commercial and infrastructure investments you referenced making on the Protein Platforms side. Is that primarily a sales force expansion?

It is probably across the board there. We have -- we've got 4, actually 6, solid instrument platforms being sold. So we're continually beefing up our R&D and software areas. Getting compatible with Empower and Chromeleon takes more software people, so we're beefing up technically as well as commercially, and we've never stopped the pace commercially. So we're currently well over 300 employees and probably on our way to 400 next year, to 1.5 years or so. And this was roughly 150 when we bought it, so more than double. We moved into a new building, just as we bought the company, and we still have plenty of room for expansion there as well, so we're good there. It's a beautiful site and we're hiring and growing. Last quarter, we didn't hire enough and you saw that reflected in our numbers and this quarter, a little bit of catch-up there, so with -- we're on track there. I'd rather focus on capturing growth and planning for the future, with really good, solid growth and getting the team in place, than worrying about an extra point or 2 of margin on these accelerating businesses.

Okay, that's helpful. And then, any color on how the Trevigen and Atlanta acquisitions performed in the quarter, relative to your expectations?

Well, you know we had the usual thing that happens, when you pick up something like this, you integrate into your distributors and there is obviously, a little breakage there. We actually are quite happy with how things have transitioned. Atlanta is going quite well, I'm really excited about how fast that transition turned, because it's a little more -- a little easier than (inaudible) right now, so the big work becomes for how we leverage and take these product lines globally, which we're working on. So they're both real small, small teams. But we've got our people in there, we're helping -- they are already starting to build leverage, the bigger Bio-Techne, and trying to (inaudible). That's good and it's good for morale. I'd just say, stay tuned. The whole cell culture franchise they are working on is a top priority for the company, so we're continuing to look in that space. We're hoping to buy more things in that space, and organically invest in that space.

And we'll go next to Matt Hewitt at Craig-Hallum.

Maybe blend a couple of the key topics so for in the Q&A, Asia and ACD. What are you seeing as far as an opportunity set there? Where are you going to be driving more investment, particularly with ACD and Asia? And how do you see that playing out over the next few years?

Well, when you balance between 30% and 50% growth, it's -- so where do you want to focus? Everything is rolling on all cylinders. So I would say the potential -- I mean, who is the farthest behind in the regions is maybe your question. I would say Asia right now has the most potential. And we're expanding by percentage in headcount the most there. As I mentioned, we're putting in a demo center in Beijing, where we're expanding the team there significantly. Europe, though, has been pretty good and it's growing quite well. And then the U.S. is where the bigger market is, and we just have to keep feeding that beast. So it's been a good model, Tom Olenic running it, has years of experience in this company and this field. And we have had very little turnover at all since the milestone. This is a Silicon Valley company, you meet your milestones, and you worry about Valley people leaving you into the startup, the next lottery ticket. And we are -- we did much better than we thought in terms of attrition, so that's all very good. And I'd just say, stay tuned. Pretty much whatever they ask for right now, which they're pretty conservative, we kind of give them.

And we'll hear from Paul Knight next with Janney Montgomery Scott.

This is Carolina Ibanez-Ventoso on for Paul Knight. A follow-up question on the expansion of addressable markets for ACD. We're wondering, what is the initial response from pathologies? And if you can elaborate a bit more on your approach to penetrate the pathology market, since this represents a new end market for you?

Yes, well, it's important. I think the whole diagnostics side of the business model, using Leica is, to be honest, has actually been slower than we like. We're still growing mostly probably in BioPharma, and it's being, the products are being used really in the clinicals and checking out their drug, so to speak. So great growth. We can design a probe for somebody in 2 weeks, and we have over 15,000, so we continue to build on accounts with business. We also continue to build on accounts, there's a lot of new business activity all the time. And that's why we have such focus on the commercial side of things. And it is an awareness issue, too, getting the -- getting these pathologists and getting researchers in pathology with drugs, with BioPharma, to actually move from IAC, from that type of pathology to molecular pathology, it takes great data and great results, and which we have. I haven't checked the paper account, but it was 1,100 or so, maybe near 1,200 papers now. I mean, it's exploding. I mean, the bottom line is, these people get, especially these academics, they get a hold of stuff, it works so well, they want to write about it and show off their findings. And we outpace every other area, including Protein Platforms, in terms of papers. So that's the kind of visibility we're looking for to help move the needle on adoption, so. And again, it's such a big market that there's plenty of room to grow here for quite some time, we think, so -- without automation and I made comments on automation, but automation it's just going to get better, so.

And gentlemen, it looks like there are no additional questions at this time. I'll turn the program back over to you for any additional or concluding remarks.

No, I guess that's it for now. It was a pretty solid quarter for us, we felt. We beat top and bottom line. We had great margins, we're ahead of schedule there. We have one area to work on, obviously, but I'd rather have just that than have something across the board. We really have a very successful business going. And the numbers year-to-date, this is going to be a banner year for this company, it's going to be a record year, really, on all cylinders. So you know, hang tight, we're hoping for a good Q4 and we'll talk to you then. Thanks.

And ladies and gentlemen, once again, that does conclude today's conference call. And again, I'd like to thank everyone for joining us today.