Bio-Techne Corp (TECH) 2019 Q1 法說會逐字稿

Good morning, and welcome to the Biotech (sic) [Bio-Techne] Earnings Conference Call for the First Quarter of the Fiscal Year 2019. (Operator Instructions)

I would now like to turn the call over to Jim Hippel. Please go ahead -- Jim Hippel, Biotech's (sic) [Bio-Techne's] Chief Financial Officer, sorry about that. Please go ahead.

No worries. Thank you. Good morning, and thank you all for joining us. On the call with me this morning is Chuck Kummeth, Chief Executive Officer of Bio-Techne.

Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2018 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its Investor Relations section.

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

Before I turn the call over to Chuck, I'd like to remind everyone about the changes in segment reporting for fiscal year 2019 beginning in Q1. We have moved from 3 segments as reported in the prior years to 2. These 2 new segments are our Protein Sciences segment and our Diagnostics and Genomics segment. Our Protein Sciences segment consists of the legacy Protein Platforms segment in addition to the legacy Biotechnology segment, less legacy Advanced Cell Diagnostics, or ACD.

The Diagnostics and Genomics segment consists of the Legacy Diagnostic segment in addition to Legacy ACD, which we now refer to as the Genomics division. Our most recent acquisition, Exosome Diagnostics, will also be included in the Diagnostics and Genomics segment.

With that reminder, I will now turn the call over to Chuck.

Thanks, Jim, and good morning, everyone. Thank you for joining us for our First Quarter Conference Call. I'm very pleased to report that we started the year -- fiscal year '19 much how we ended fiscal 2018, on a strong note and in line with our strategic plan.

The company delivered 10% organic growth in the quarter, led by our Protein Sciences segment with a stellar 14% organic growth. The growth in this segment was very broad in almost every product category and geographic region. The Diagnostics and Genomics segment was weighed down by timing of OEM shipments in Q1, but this was not a surprise to us and we expect the timing to be more favorable the remainder of the year, contributing to overall organic growth going forward.

This was also an exciting quarter for us on the M&A front, where we completed 2 acquisitions, Quad Technologies and Exosome Diagnostics, to provide new technologies and give the company and its legacy portfolio access to new and fast-growing end markets.

In a quarter when most of our major geographies produced outstanding results, it's hard to call a favorite, but I will. Europe once again reported double-digit organic growth. While most of our regions reported double-digit growth, what makes this special to me is the consistency of growth we have seen from our European team, averaging double-digit growth there for the last 2 years.

The unified selling model that combines reagents with instruments to sell full solutions to our academic and biopharma customers is most developed in Europe, and it is definitely working. We began to expand this solution-based selling model to the U.S. in calendar year '18, and we are starting to see similar results with solid double-digit growth here as well in Q1. The academic end markets are performing particularly well, with focused solution-based campaigns geared towards these customers, coupled with a favorable NIH funding background.

As in the U.S. and Europe, China also delivered great results in Q1. Growth in this region was up over 30%, with our instrument and genomics portfolios leading the way. The war on tariffs between the U.S. and China has had minimal impact on our growth in China, and we don't expect that to change. China's 5-year plan calls for massive investment in life sciences research, and there are not a lot of China-domestic alternatives to the products we offer their researchers. Also as a reminder, we do not source any products or materials out of China for U.S. customers.

Within the Protein Sciences segment, we experienced growth in every single major product category and double-digit growth in most. Our instrument-based solutions continue to receive great acceptance in the market, with our automated Western blot solutions growing over 30% in Q1, led by our newly released instrument, Jess. And our automated ELISA solution, Ella, growing nearly 70%. And we believe there is still plenty of room to grow from here. For example, diagnostic decisions are increasingly being driven by cytokines and growth factor-related profiles in circulating bodily fluids. This creates a need for a testing platform like our SimplePlex that can accommodate more complex biomarker signatures.

This past month, Bio-Techne entered into a strategic cooperation agreement with Micropoint Bioscience of Shenzhen, China. Micropoint Bioscience has developed a microfluidic diagnostic chip for point-of-care testing that could help revolutionize health care in China by accelerating the speed of diagnosis and giving medical providers the ability to test and treat individuals who do not have access to a health care facility.

The microfluid diagnostic chip from Micropoint Bioscience will advance point-of-care testing by shrinking tests so that only minimal volumes of samples and reagents are required. Working together, Micropoint Bioscience will integrate our microfluidic technology to develop better and more accurate point-of-care diagnostic tools for precision medicine in China. The first will focus -- the first product will focus on patient monitoring for situations like autoimmune disease and cytokine [storm] . The potential for our SimplePlex technology using this application is huge a few years from now, and this is just one example of many potential diagnostic applications for this platform.

Growth in the Protein Sciences segment also benefited from continued strength in our core reagents, especially in cell and gene therapy applications. Bio-Techne solutions for the cell therapy workflow span across our portfolio. These include GMP-grade cytokines and growth factors, high-quality antibodies for [flow] cytometry and immunocytochemical characterization, gold-standard immunoassays, next-generation automated immunoassay platforms, DNA and RNA in situ hybridization assays, GMP-grade small molecules and more. Through strategic acquisitions, like Quad Technologies last quarter, and internal scientific innovation, Bio-Techne has become uniquely positioned to provide a broad, innovative and flexible set of reagents and instrumentation across the cell and gene therapy workflow.

In 2019, Bio-Techne will bring its multibrand solutions together with the mission of providing pioneering cell and gene therapy solutions from discovery to the clinic. This cell therapy initiative will unite these reagents to provide a cell therapy community with a rich and user-friendly resource for reagents, instrumentation and scientific expertise across the cell therapy workflow.

The goals of our cell and gene therapy initiative are two-fold. First, we'll provide and develop innovative solutions designed to simplify the workflow for both immune cell- and stem cell-based therapies, such as Cloudz-branded cell activation kits in SimplePlex assays. Second, we aim to make the transition from the bench to the bedside easier by providing progressive solutions that can step through the journey from discovery to cell therapy manufacturing. Thus, this initiative will not only provide immediate workflow solutions, it will also facilitate development of new and innovative technologies to address the current and future manufacturing needs of the cell therapy community.

Moving on to our Diagnostics and Genomics segment, where timing of OEM orders overshadow the underlying strength in its end markets. Based on the scheduling of OEM orders for the remainder of 2018 and into 2019, we knew at the end of the last quarter that Q1 was going to be the most challenging year-over-year revenue comp for this segment. But the OEM deal pipeline for remainder of this year and beyond is still healthy, especially as it pertains to hematology controls and diagnostics reagents [and kits] . Also, the Genomics business, formerly ACD, is still humming along at double-digit growth, especially in the RUO market, where growth is nearly 30% in Q1.

But the big story of this segment is our -- in this segment is our acquisition of Exosome Diagnostics, which closed August 1. As a reminder, Exosome Diagnostics has pioneered the use of Exosomes as a diagnostics tool that detect numerous cancers and neurological conditions from samples of urine, blood or other body fluids, thus reducing the need for certain invasive biopsies.

Its first commercialized liquid biopsy diagnostic test, which is called EPI, determines whether men, who have an ambiguous PSA score between 2 and 10, would benefit from having a prostate biopsy. The EPI test is a rule out test with a sensitivity of 92% that attempts to reduce the number of unnecessary biopsies done yearly, biopsies which can lead to serious complications for patients.

This week will mark the third month since Exosome Diagnostics has been part of the Bio-Techne family. During this time, integration activities have been ongoing to ensure that they have the infrastructure, compliance measures and commercial resources necessary to support the ramp and volume we expect over the course of the next year and beyond.

Urologists in the field have shown great enthusiasm for EPI. In the quarter ended September 30, including the month of July under prior ownership, nearly 3,000 tests were processed, and this is from a sales force that averaged 14 people. This compares to roughly 1,500 tests processed in the quarter ended March 31, when the sales force averaged just 7 people. So since the acquisition date, we have more than doubled the investment in commercial headcount at 32 sales reps. So this gives you a sense of ramp in tests we expect to see within the next 6 months. We also expect the productivity per rep to continue to improve as our marketing campaigns increase visibility of EPI to the urology community and reimbursement by both private and public payers propagates.

Speaking of reimbursement, the Exosome team to date has contracted with nearly 20 private commercial and PPO networks nationwide, and they have Medicaid enrolled in nearly 20 states. Going forward, the team has an aggressive pipeline and timeline to continually expand the coverage of both private and public payers.

Of course, the biggest payer of all, given the demographics of those most likely to take the EPI test, is Medicare. We don't know when EPI will be approved for reimbursement, but we have high confidence that it will be approved. What gives us such confidence? Well, the lab coverage decision finalized on October 10 clearly aligns coverage with NCCN guidelines and provides a format to easily add EPI once it's included in those guidelines.

So when will we see the EPI included in the NCCN guidelines? Well, we expect to see the revised NCCN guidelines for 2018 by no later than December 31, since after that date, they no longer will be 2018 guidelines, but instead, will have skipped a year and go on straight to 2019. Usually, the guidelines are published by September, so they are already later than normal, and hopefully, won't go all the way until the very end of the year to be released.

What gives us confidence that EPI will be included in the NCCN guidelines? Well, the board overseeing the urology in the NCCN guidelines has advised us that a second prospective U.S. clinical validation of the EPI test by a high-impact peer-reviewed urology journal was needed to garner their approval into the guidelines. That validation occurred on September 18 in the European Urology Journal, which published data confirming, [defining] the first U.S. prospective validation study presented in JAMA Oncology in 2016. The publication also disclosed the consensus reached by the study's principal investigators on a care path integrating EPI into the decision [about] proceeding with an initial prostate biopsy.

So now what? We wait, and hopefully, for not much longer. Our team has completed all the steps and checked all the process boxes we believe are required for approval. Also, sufficient external validation has been published. The decision and timing of the decision is now in the hands of the NCCN committee and Medicare. But in the meantime, we are ramping our commercial resources to make EPI available to as many patients as possible and as quickly as possible.

Finally, Before I turn the call over to Jim, who will give more details on our financial performance, I would like to comment on our adjusted operating margin performance in Q1. While we did not -- while we did indeed experience a 140 basis point year-over-year headwind to adjusting (sic) [adjusted] operating margin due to the acquisitions we have made over the past year, especially Exosome Diagnostics, I am very pleased to report that excluding these acquisitions, our adjusted operating margins grew 200 basis points year-over-year in Q1. I believe this demonstrates our commitment to holding our historically strong core margins while ramping profitably in the businesses we have acquired over the past 5 years.

Overall, the first quarter was a great start to what I believe will be great year among many more ahead as we proceed on executing to our strategic plan.

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

Thanks, Chuck. I will provide an overview of our Q1 financial performance for the total company as well as provide some color on each of our segments.

Starting with the overall first quarter financial performance. Adjusted EPS increased 9% to $0.98, while GAAP EPS for the quarter was $0.45 compared to $0.42 in the prior year. Q1 reported revenue was $163 million, an increase of 13% year-over-year, with organic revenue increasing 10%. First quarter reported sales includes a 4% growth contribution from acquisitions and a 1% unfavorable impact from foreign exchange translation.

By geography, the U.S. grew in the low teens, Europe's organic growth was in the midteens, while China grew over 30%. By end market, biopharma growth was in the high single-digits while academia sales growth was in the high teens. Note that all references made to growth rates by region and end market exclude our OEM sales, which mostly occur in our Diagnostics and Genomics segment, and to a lesser extent, in our Protein Sciences segment.

Moving on to the details of the P&L. Total company adjusted gross margin was essentially flat for the prior year at 72% in Q1, while volume leverage and operational productivity was negated by the mix from recent acquisitions. Adjusted SG&A in Q1 was 29.1% of revenue, a 170 basis points higher than the prior year, where volume leverage was more than offset by the additional SG&A added as a result of acquisitions. R&D expense in Q1 was 9.1% of revenue, down 30 basis points from prior year due to volume leverage and timing of projects.

The resulting adjusted operating margin for Q1 was 33.9%, a decrease of 140 basis points from the prior-year period. However, as Chuck already mentioned, excluding the impact from recent acquisitions, core adjusted operating margins expanded 200 basis points year-over-year. This was driven by strong volume leverage, favorable product mix and solid operational productivity.

For GAAP reporting, SG&A in Q1 reflects a $7.8 million increase for stock option expense over the prior year. As you may recall, a new retirement policy was implemented in the fourth quarter of fiscal year '18 that permits retirees to continue investing in certain time-based stock option grants during employment. This new policy resulted in accelerated stock compensation expense for those employees meeting the definition of retirement back in Q4. For those same employees who received their stock option awards during the annual Q1 grant period, the entire grant award was expensed in the current quarter. This results in a year-over-year timing difference that will largely reverse when we get to the fourth quarter of this year.

Looking at our numbers below operating income. Net interest expense in Q1 was $5 million compared to $2.1 million of net interest expense last year. The higher interest expense is driven by higher debt level that resulted from the acquisition of Exosome Diagnostics as well as multiple LIBOR rate increases in the past year on our outstanding line of credit. Our bank debt on the balance sheet as of the end of Q1 stood at $561.5 million, up from $339 million at the end of Q4.

Other adjusted [nonoperating] for the quarter was $0.8 million, essentially the same as the prior year quarter. For GAAP reporting, other nonoperating includes a $2.2 million unrealized loss from our investment in ChemoCentryx. This is due to the adoption of Accounting Standards Update 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities. It requires equity investments with readily available fair market values to be recorded as an asset in the balance sheet, and then any changes in fair market value be recorded on the income statement. The prior standard required changes in fair market value to be recorded in the equity section of the balance sheet.

Moving on down the P&L. Our adjusted effective tax rate in Q1 was 22.5%, nearly a 7 percent point improvement from the prior year due to tax reform. For fiscal year '19, we expect this adjusted effective tax rate to stay consistent to Q1, plus or minus 100 basis points.

Turning to cash flow and return of capital. $38.6 million of cash was generated from operations in the first quarter, and our net investment in capital expenditures was $4.3 million. $12.1 million of dividends were paid out in the quarter, and average diluted shares stood at 38.8 million shares outstanding.

Now I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q1 reported sales were $126.4 million, with reported revenue increasing 17%. Organic growth was 14%, with acquisitions contributing 4% to revenue growth; and foreign exchange unfavorably impacting growth by 1%. As Chuck has already described, the growth in this segment was very broad, in almost every product category and geographic region. Operating margin for the Protein Sciences segment was 43.2%, an increase of 50 basis points year-over-year due to strong volume leverage and operational productivity, partially offset by the mix of lower-margin acquisitions.

I'd like to reiterate Chuck's earlier comment regarding our commitment to improving the profitability from our acquisitions. As an example, this quarter, our ProteinSimple branded products achieved a new profitability record with well over 20% operating margin. That is approximately 900 basis points greater than the prior year.

Turning to the Diagnostics and Genomics segment. Q1 reported sales were $36.7 million, relatively flat to the prior year. Organically, revenues declined 2% due to unfavorable timing of diagnostic OEM shipments, partially offset by double-digit growth in our Genomics business. Acquisitions contributed 2% to revenue, including those from Eurocell and Exosome Diagnostics.

Chuck has provided commentary on the test ramp of EPI. Here, I will provide some additional color on revenue and revenue [recognition] as it pertains to EPI. Exosome Diagnostics has been recognizing EPI revenue on a cash basis. This is the correct accounting treatment, given its recent commercial launch in 2018. For patients insured by private payers, the cycle from test report date to payment can be as long as 90 days. For patients insured by Medicare, billing is then put on hold until a decision had been made by Medicare on reimbursement. With [Medicare] approval still pending and given we only owned Exosome for the last 2 months of Q1, very little of the tests performed during these 2 months were collected before the end of September. Thus, minimal revenue from EPI was recorded on our Q1 results. Furthermore, cash collections on tests performed before the August 1st acquisition date are not recorded as revenue, they're rather accounted for in the balance sheet under purchase accounting.

In order to record revenue at the time EPI tests are delivered, there needs to be enough cash collection history and detailed analysis performed at the payer level to substantiate an accrual for [likely] payment. Given how recently EPI has been commercially launched, it is our current view that there will not be enough cash collection history and substantial analysis completed to allow for accrual-based revenue recognition until at least the fourth quarter fiscal year '19, and perhaps, not until Q1 of fiscal year '20.

Thus, as it pertains to EPI this year, we will be focusing our dialogue on current test trends, private payer contract coverage and public reimbursement decisions, knowing that the revenue recognition will lag. As Chuck has stated, the test ramp is impressive, increasing approximately 25% per month. And with 32 sales rep all trained, we expect the test ramp to keep increasing at this rate.

Moving on to operating margin for the Diagnostics and Genomics segment at 6.9%, the Diagnostics segment's operating margin was substantially lower than the prior year. However, excluding dilution from the Exosome Diagnostics acquisition, operating margin for this segment was 20.3% or 40 basis points better than last year. The margin improvement was larger due to favorable product mix.

In summary for the quarter, our breadth of growth continues to be solid, both in terms of end markets and product categories. The overall growth was in line with our expectations, while our overall adjusted operating margin performance was better than expected, largely due to favorable mix. On the bottom line, tax reform continue to be a real positive for Bio-Techne as it was for most U.S.-based companies.

As we look out the remainder of fiscal year ahead, our view remains much the same as a quarter ago. We expect our legacy business to continue to execute to a strategic plan as it has the past several years. For fiscal 2019, this means at least high single digit organic revenue growth, keeping in mind that in the near term, the most difficult year-over-year comp resides in our fiscal Q2.

Executing this plan also means holding the strong operating margins we have maintained in our legacy core reagent portfolio while rapidly expanding operating margins in our fast-growing genomics and instrument platforms. As we stated last quarter, depending on how the relative mix of our businesses turns out, adjusted operating margins for the legacy total company, therefore excluding Exosome Diagnostics, could be anywhere between flat to 100 basis points improvement in fiscal '19 compared to fiscal year '18. Although with our most recent performance, it appears the upper end of that range looks more promising.

As for Exosome Diagnostics, the outcome for the year is much more difficult to predict, largely due to the accounting for revenue recognition and the uncertainty of timing for Medicare reimbursement approval. What we are focused on is continuing to drive the EPI test count higher, so that when we have Medicare approval and enough history for accrual-based revenue recognition, we will be entering fiscal '20 on a trajectory to hit our 5-year strategic goal of $150 million of annual revenue from this business unit in fiscal 2023.

Of course, in doing so, we will be mindful of the bottom line and measure in additional investment that is commensurate with hitting our sales rep productivity goals and ensuring Medicare approval. In the very near term, be aware that Q1 only recorded 2 months of expenses from the Exosome acquisition, while Q2 and beyond will reflect a full 3 months. Thus, we expect overall company margins to slightly decline sequentially in Q2 before improving in the back half of the year.

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

(Operator Instructions)

I assume there are some.

We'll go ahead and take our first question from Dan Arias, please go ahead -- from Citigroup.

Chuck, I wanted to spend a few minutes on the Diagnostics and Genomics segment. First, on the OEM timing issues, how much revenue fell out of the quarter there? And will that be mostly recognized in 2Q? Or do you expect that to be regrouped over the course of the year? And then on ACD, I think you mentioned 30% growth in the research setting and double digits overall. What specifically was the all-in growth rate for ACD? And then what are you expecting for the all-in growth rate for ACD for the year?

Yes, first on the one, the quarter for the diagnostics, the tools side of the business, was about like last quarter and probably just a little bit better. Looking forward, what fell out was between $1 million to $2 million, probably. Looking forward, I think it'll come back. These are large customers that -- they don't even tell us which quarter. They can move these orders, as you know, as much as a year. I do think we'll get these things back with some -- with more, even. The pipeline looks -- as I mentioned, looks pretty good. And we have new business in the pipeline that we aren't prepared to talk about yet, it looks good looking out 2 quarters from now. So we're negotiating on many fronts. Part of that issue, too, is glucose. And we have been definitely holding our own with glucose. There have been some price increases as well to deal with some of it. But as you know, it's a category that is going away in the next 5 years, so this is going to be a harvest kind of a mode. So I think we're okay that performance the next couple of years, but we do have to replace it. So that's one issue there. In terms of specifics around ACD, and we're not going to give as much specifics as we used to. So we mentioned we were at just south of 30% in RUO, is largely like last quarter, I'd say even a little better as well than last quarter. Looking forward, we see more of the same. Any softness in the overall number is probably still from the lag and slowness on the pickup on CDx side with Leica and another potential partners. They do tell us a strong story though, Leica in particular, has half a dozen new tests coming. And they are going to come out anywhere between the next 3 months and 18 months. And so we're actually quite bullish on our partnerships and hoping to solicit more here as well. And there's more to be had and there's discussions going on as well. So it's kind of more of the same, the same kind of rates we talked about for the Genomics division. Looking forward, don't see anything really falling out of place there.

Okay, so the forecast on ACD relative to last quarter is unchanged in your mind.

I would say yes.

Okay. Okay. And then just on Exosome, you talked about a $30 million contribution this year from EPI. Obviously, it sounds like the recognition [math] changes that, so I just wanted to clarify what, if anything, you're expecting this year. And then if you're able to talk to, a, maybe the bolus of revenues that you think you might recognize once you do get Medicare approval; and b, maybe a sense for test volumes that you're expecting this year, since it sounds like visibility there is better than revenue visibility.

Yes, so we want to give some clarity and visibility around tests line. We told you how the Q1 went for the calendar year and how the first quarter, which we only realized 2 months of it. And we're on a 25% growth clip per month. We've gone from 14 reps to 32, who as of -- I would say by January 1, all 32 should be fully up to speed and really in the groove. And then you can do your own ratios from there and see how the ramp should be. You move that kind of ramp forward, we are watching and I wouldn't say throttling, but we're definitely watching and helping them with their P&L so that we're not getting too far ahead of our skis on dilution. We came in the quarter just under their predicted spend. So even though we're little bit light on what would been expected for test [line] and then revenue we could have collected, we are definitely okay on the spend side because we're watching and kind of tailoring as we go. A move from 7 to 32 reps in 6 months is a big move, it's a lot to absorb. As you know, the full plan to get to that number we talked about quarter ago of $30 million, which we aren't going talk about anymore, in terms of what that is because we don't know, as Jim stated, when we really can collect. So it could move into next year, even, by a quarter. So -- but the test volume is what matters. And I think that, that's a number of 60 reps. And we'll just have to see how we grow. We want to feed that beast in as smart a way as possible. The leadership we have there, we're thrilled with. The commercial leadership is fantastic. We are attracting reps from all the players and all the competitors because everybody knows that we can make payroll for them whereas the startup probably couldn't. So it looks pretty bullish. So we'll just have to see. And then we're being told, of course -- with a decision, we're told that the volume demand could double to triple overnight with that decision. We just don't know. It's growing pretty well without it, to be honest. So we're really kind of happy. Without the decision, we're still growing at 25% per month. What that entails out in terms of revenue, when we'll get it? So what happens now, as we're told, there's no guarantee on a [look-back] of 12 months, but that's been kind of the norm. And as you know, when a decision for Medicare goes out and goes out on the wire, what usually goes out with it is what is going to be allowed to be paid and what's been submitted. And of course, we have our submissions in [and will be going in,] and they will make that decision on what they will pay as they give the decision. And we'll be going back to a look-back a full 12 months, of which, not even right now, not until next August, a lot of that will just go through purchase accounting if we get it. It won't even be considered revenue. So we got this safety area for a while. I would say we're not really strategically in trouble with Medicare until next summer. But for us to wait that long, we don't think it'll take that long. And as Jim pointed out, we're getting dangerously close to the end of the year, where we won't even need to worry about NCCN guidelines for 2018 because the year is almost over. So they submitted their guidelines last year in September. So they're already late. So we're waiting, but we can't hound them. It's a committee that we have to leave alone, of course. So we've been told that everything is in place. We know they have a heavy agenda. As you know, there are other -- 3 other solutions that have been in the guidelines for 3 years, and this makes the fourth, and we think we're the best of the 4, so I'm sure that gives them a conundrum to discuss as well, which we know nothing about. So -- but we're all real positive. The team is just positive, it's just a matter of when. And I think it'll be soon. Does that help?

It does.

We'll move on to our next question from Puneet Souda from Leerink.

Chuck, wanted to touch first on the Protein Platforms. You saw solid growth there. Ella, I think, you commented about 70% growth. Just wanted to get a sense of what was driving that. And is there anything unique there, or is it just the antibodies that are doing well? Or just help us understand what's driving the growth there.

Thanks for the question, Puneet. I'd love to talk about this business all day long. It is just lighting it up. As you know, we took a gamble on the CyVek technology almost 5 years ago now. And it's taken a while to get to a point of being material, which it is, finally. And a 70% growth rate on this business being material, if this continues, it's going to be maybe all we're talking about in a year or 2. The clinicals are involved and are going very, very well. They're taking a lot of cartridges. And these are very, very big pharma companies. We have other initiatives in place. We're -- it takes couple of years to get rolling on these clinicals. We have got a half a dozen to a dozen other pharma that are ramping up doing things, so we expect there to be strong growth. And then this Micropoint deal we just did in China, which had TV coverage, by the way, it was amazing. This is the company with the founder who was the founder of Mindray. So this is a company and a team that knows what they're doing. I love this application because it's for ubiquitous patient monitoring, going after cytokine storm and a lot of autoimmune, different diseases. It'll be -- it's a high-throughput system for an A-rated hospital setting. So once we think that kicks in there, it'll -- and they're doing all the FDA requirements, they're covering everything for us over there. We just have to supply cartridges and the instruments. [And they already wrapped them] . And there's no real change to any design, anything, it's just really an integration, an OEM kind of agreement. And the numbers are staggering. So we'll talk more about them once they get started because it's an 18-month clinical they have to do. But these guys have a pedigree that get things done, so we're pretty impressed. And hoping that will incite a lot of other interest here in the U.S. as well. So Ella has got a strong future. And I -- we said along we thought it could become a standard and potentially a point-of-care standard. [So that is how they work]. So we'll see.

Okay, and then briefly on China, just wanted to get a sense of -- it seems like it's fairly low in terms of any tariff impact now, but what's your view? Obviously, you have lot more reagents versus hardware. So how should we -- any sense of -- that you're getting in China that reagents could face similar tariffs in the longer term? Or any sense there, what's your outlook for the fiscal year here in China, given the growth profile that you're already getting?

Well, this is the probably the best growth we've seen in the couple of years at least, maybe longer, I'm not sure. It's solid in the 30s percent. And we really grew on all fronts. I mean, the PrimeGene business really has come back really strong, everything from its OEM component to the China for China component. The CFDA Baidu scandal thing is behind us and hospitals are buying. So they've got their certificate, so things seem to be ramping well there. We're getting involved in more potential GMP-grade demand products that are going into oncology and different solutions in China, not so different than the rest of the world chasing cell therapy and looking for GMP-grade everything. We are all going to be riding those GMP-grade set of reagents very soon, and I predict a shortage probably in 5 years if we don't all start capitalizing towards it. What's great for us is we're picking up share because these little guys that can't afford, they were biting at our ankles 3, 4, 5 years ago. They're going to disappearing because they can't make the investment, and the requirements are now getting much more stringent. There's been an outcry for quality validated antibodies, and it's been heard. And us top 5 or 6 or 7 suppliers that have heard those cries and delivering validated antibodies, and a lot of those little guys are going away. So in terms of China, it all flows well there for China as well. The instrument business is flowing quite well there. There's a lot of need for it. There may have been a few machines that were -- some people afraid the tariffs might hit them later. There could have been some of that, but not a lot. In general, our products, especially the reagents and the tools, they go into programs that are already government funded. And the government's not stupid there. They know that if they're raising tariffs on products that they're going to buy and they are going to end up paying more for, it is kind of silly. So we're kind of -- we're not really affected by too much. We've been kind of omitted from all that. It could happen, but there aren't any local suppliers. We'll pass it on and the government will just have to pay more. So that's the way it will be. So far, there has been no impact, and our demand has improved, our growth has improved, our results have improved. And we have now knocking on a 150 employees in China, and we've -- this is the best time we've seen in China in a couple of years.

Okay. And just last one on academic, just wanted to get your view on the full year -- full fiscal year with NIH is looking good. What sort of growth rate should we be sort of modeling here going into the year?

Low double digit.

Yes. Low double-digit, like it's been. We don't see any change.

We'll move our next question from Catherine Schultz (sic) [Schulte] from Baird.

Just going off of Puneet's last question, just curious if you could talk about end market performance within Protein Sciences. What did you see in pharma versus academic, government and so on?

Pretty balanced. Double-digit in Europe in both categories. Academic was even a little higher than biopharma here in the U.S. But in that area, I mean, that's probably including the services side. I'd say it's pretty balanced here in U.S., too. If you're talking just Protein Sciences, pretty balanced, low double-digit.

Okay. And then on the M&A front, how would you characterize your appetite as we stand today? And where within your portfolio would you most like to add? And then with the recent pull-back in the market, does that increase your interest in public [assets] ? Or are you going to remain more on the private side?

We'll probably remain more on the private side. We're just a tish over 2x on leverage. We definitely have some capacity, but we did 5 deals this last year and we're integrating. We're -- we have enough, play. We know how important it is to get Exosome Diagnostics right. We are definitely at the inflection growth area where we need to really take Genomics division to the next level. It's a $60 million, $70 million run rate business, as we've talked about last quarter. It's growing in the numbers we told you. And so that still needs attention. We have new leadership there as well. We're expanding in Europe, and we're just getting off the ground with that in Asia. We have the Atlanta Biologics, we don't talk much about, but it is a media business, a serum business. We've got ideas to expand that globally and rebranding it with R&D Systems, that takes some work. We have some smaller ones as well that don't take a lot of work, but somebody has to be assigned to it. I mean, there's always something. So we're a little busy right now. So where are we interested? We still run a process, Frank's still pretty busy here. We run a meeting every 2 weeks. Our hopper is still over 100, it's definitely more private than public. I don't see a lot of prices going down an awful lot for the privates, especially the sizes we look at. Where we're most interested is probably still working through this flywheel for cell therapies. There's a lot more positions in the wheel that we don't have. We got a lot of positions. We're definitely a player now. We love that. We're getting a lot more interest because of it. We're getting more critical mass. But there are certain other areas. A wonderful bioreactor solution came into sight, we have been looking at it. We're still looking at things in single cell areas. There's interest levels, areas that we're looking at still. There's quality control, there's pieces of that cell therapy workflow that there are some nice, small companies that have formed and are growing and riding that wave. And the numbers -- you know as well as I do, the numbers predicted in CAR-T and in cell therapies in general the next 5 years are staggering. So I do think it's going to be an everybody wins market if you just get in. So it's a matter of getting land at this point.

We'll go ahead and take our next question from Patrick Donnatelly (sic) [Donnelly] from Goldman Sachs.

Maybe just one on ACD, the clinical opportunity there. I know you mentioned like maybe kind of taking a little bit longer to pick up than you expected. Can you just kind of talk through the opportunity there? Again, acknowledging it's early. And then also, I know you guys aren't exclusive with Leica, so is there opportunity to expand to other partners? Any thoughts there would be great.

Yes. So Leica's our first partner and our primary partner, but we're not exclusive and we are working with Ventana and there are some things going on there. We got some notes -- Jim's looking at a few notes here as well. I like the menu and what they're looking for in Leica. They are trying very hard, they seem very serious. We are definitely also working with the Ventana and we're working with some others as well. We're not going to name them right now, but there is strong interest. As we get critical mass, I think there's going to be interest. This tissue biopsy technology really works, and the market understands what in-situ hybridization is because it's been around a while, it just never had a solution that worked this well before. So as we go transition from really research, where people get trained and publications will happen and critical mass will happen and awareness grows, it'll grow more and more towards the [pathologist] , I think.

CDx

And CDx, companion diagnostic capabilities, is where there's going to be the next wave of attraction. I don't think it's overnight. This stuff takes time, but the scale is big. I mean, these are billion-dollar markets to get into these areas. And so we just have to be patient, and patient, we will be.

That makes sense, that's helpful. And then maybe staying on ACD. Just since the payout occurred, I know there's always risk of increased employee attrition, people leaving. Any pull-forward on the revenues to hit the milestone. Can you just talk through what you've been seeing since then? Clearly, the underlying trends seem pretty healthy, but just curious on the inside, what you guys are seeing there.

On ACD?

Yes.

Okay. We call it Genomics division now, but -- yes. So the leader left recently. We brought in -- and we talked about it probably 4 months ago or so. Kim came in. Kim is running Genomics -- pretty much all the Genomics, except for [Ion Torrent], I think, from Thermo Fisher. He's worked for me before. I know him from my thermal days. He came via BD. He has an outstanding track record. This guy is a leader. I think he knows 5 of 6 languages. He's a super good global leader. He's a team player and he's got his hands personally on this. He actually lives just across the bridge from where the office is, so it's not a big operation yet in terms of what Kim's experience is, so it's kind of child's play for him, really. He has that, along with the Diagnostics division as well. And in terms of right now, we're working on, we want to make sure the team stays intact. It has been. We have -- the company's Chief Medical Officer is Rob Monroe, who is from that business unit. All those scientists are still intact. We have retention packages in for all key people, of course, that's going to run out a few years. The excitement's never been better. So I think we're in a good place. If you want to work for a great company and be part of an exploding division, this is a good place to come. Tissue biopsy is going to be a big deal in a lot of areas, and we have a close cousin now, a technology platform with a liquid biopsy with Exosome, of course, as well, which we will be doing things together in the future, but not yet. There is certainly competitive forces being there in Newark and it's the Bay area, but I think we're doing okay with that so far.

Great. And if I could just sneak one last one in, just on Europe, it continues to be a standup there with midteens growth. Can you just talk about the durability of double-digit growth there? Any key markets you're looking at that have really driven the outperformance that you feel good about over the next year or so?

Yes, we've studied the situation best we can. Europe is Europe, and I'm not sure anyone gets 3 to 5 years of prosperity in Europe without a hiccup, but we've had a couple [at least here.] I think the next big risk will be some surprises that happen around a hard Brexit. I'm not even convinced a hard Brexit will occur. But if it does, we've studied what it does to us, and it doesn't do anything material to us whatsoever. So we think we're all right. Again, we have the kind of products and tools in place that customers want. And these customers are, in large part, very academic or biotech-company related, and they will get it if they need it. If we end up having to do something around prices because of some arrangements with the EU or the U.K., and then we'll deal with it. But our model right now suggests that we don't have anything material to worry about there. Funding, of course, is on a country-by-country basis in Europe and remains pretty strong across the board. I think we're still living off of the nice balance we've gotten here from going fully all Europe, with subsidiaries across all the countries in Europe, buying out our distributors and keeping their teams excited. And they're on board, they all stayed on board, the leaders of these businesses, and expanding and taking share locally in these countries. So right now, it looks pretty good. I think we're trying to crack and get more into Eastern Europe. Iran was a good idea for a while. And we still look at other areas as well. Israel is a strong area for us. I think Russia eventually will be good, not yet though. But those are all going to be a gravy layer. The main thing for us to get right is to continue seeing strength in U.K. and Germany. Germany and U.K. are roughly the same size, and Germany should be bigger. So we would say there's still more share to get in Germany, to be honest. France has come up nicely mainly because of we bought Eurocell, which was located in France. So now we have a French subsidiary, and it allows us to actually get a little more -- a little deeper into the country. Italy is also a little surprising, but again, this is where we bought out Space. And really, our Southern European operations, our leadership all come from that entity. And so of course, Italy is taken care of. And there's always been strong research in Italy. So that's all looking pretty good. So outside of a scare like a New Greece or Italy runs into trouble with going back to the lira or something, who knows? I mean, these all cause short-term pops in Europe. But you guys will see it before we see it. So right now, looking good.

We'll move on to our next question from Dan Leonard from [Dooshey] Bank (sic) [Deutsche Bank].

So hoping -- appreciate the color on broad-based strength in Protein Sciences. But hoping you could offer some color on the Biologics product lines. Not Atlanta, but the [capital area for] electrophoresis products that rebounded last quarter, but a couple of quarters, had a hiccup?

It's improved. So -- but the comps have been strong still. I mean, this last quarter was still a 30 plus percent comp, and we did okay. And it's obviously reflected in our numbers. So looking forward, I think we see improvements. But this isn't a unique solution, where we have kind of the whole market to ourselves like we do with Western blot. This is the one where we are competing with other technologies, everything from ion exchange, which is still the primary solution used in production, which we fight every day. And I think these large customers, where the development team fights the manufacturing team on what should be used in production. We've been winning with our ICE platform, and -- but there has -- it has been a tough fight. We had definitely had some softness a couple of quarters ago, some of it related to some of that, but also related to the fact that we don't have the Empower limb system integrated, where a lot of manufacturers require Empower now. [Otherwise], we are in full-blown development of that now. We'll have that -- we're 6 months into it, actually. We hope to have it released by next summer. And just the messaging of that has helped the platform, to be honest. These guys don't make knee-jerk decisions right there. They're specifying platforms for their production QC for new generations and for the long term, so this is helping improve the category. We still -- I think we're still not as happy as we'd like to see on the size side. Charge, we're okay, but on size, which was the new Maurice platform, I think there's still more share to get. And then we're also looking at expanding and getting more application help and helping drive that against that -- against those competitive forces. And so far, so good, Dan. The numbers have improved there as well. So we'll see how it goes. I don't think we're back in the days of 40% growth anymore with that platform, but double-digit is certainly realistic.

Okay, appreciate that color. And just an operating question for Jim. Jim, I was surprised that R&D expenses didn't tick up more sequentially, given you had 2 months of Exosome. Was there anything timing-related? Or does Exosome just have fewer folks working in R&D than I thought?

No, there was some timing items. In fact, some of the same folks who work on development of cartridges for SimplePlex, for new cartridges, as well as in our own facility here in Minneapolis, some of the folks that work on new protein development, they ebb and flow between development and operations when there are certain demand flows. And this quarter in particular, particularly on SimplePlex side, there was high demand to get cartridges to customers, and so there was a shift from those resources making, developing new cartridges to producing cartridges for sale. And we expect that shift will -- they've caught up essentially with that backlog, and we expect that shift will move back to R&D, more R&D expense in the forward quarters.

So this is an area we do some activity-based accounting. They're coded between research versus manufacturing. This is a heavy manufacturing quarter. And you saw by the numbers we gave you on SimplePlex, it's just exploding. So we're going to be hiring more and probably, again, expanding there and probably more on the R&D side. So that will level out. We still stay committed to our -- I think our levels of investment that we've always been.

(Operator Instructions) We have no further questions at this time. I'd like to turn it back over to you.

Okay. Well, we're about on the hour anyway, so that's fine. Thank you, everybody, for the great call and the great questions. And of course, we'll be following up with most of you on one-on-ones after this. And look forward to talking to you all again next quarter. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.