Bio-Techne Corp (TECH) 2021 Q2 法說會逐字稿

Good morning and welcome to the Bio-Techne Earnings Conference Call for the Second Quarter of Fiscal Year 2021. (Operator Instructions)

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

Good morning and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne.

Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2020 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. The tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com.

I will now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our second quarter conference call. Hoping you and your families have remained safe as we get closer to turning the corner on this horrible pandemic.

The Bio-Techne team delivered another strong quarter, accelerating our organic growth year-over-year to 19%, building on the strength we experienced last quarter. In fact, our 19% organic growth rate represents the strongest performance since I joined the company in 2013. This growth was broad-based across our segments and geographies as our penetration in biopharma continue to be red hot, and even academia returned to double-digit growth. The new normal of social distancing and staggered shifts has become an accelerant for the continued adoption of several of our technologies, namely Simple Plex and Simple Western. I will dive into the specifics of each of these platforms later, but they are all gaining traction and remain in the early innings of penetrating their large respective markets.

We delivered this record organic growth with a continued focus on profitability as our adjusted operating margin improved 530 basis points year-over-year to 38.7%. Some of this improvement reflects the timing of hiring and investments to drive future growth but shows the leverage and profitability inherent in our business model.

The COVID pandemic continues to impact traditional ways researchers are staffing labs and conducting experiments as well as the ways we are interacting with these customers, but I'm encouraged with the innovative solutions researchers have leveraged to push science further and the innovative strategies our commercial teams have implemented to meet their evolving needs in these challenging times. Academia, in particular, is getting better at managing through the COVID-related restrictions. And we are encouraged with the sequential improvement we experienced in this end market. While we experienced robust growth with both biopharma and academia customers in Q2, both of these end markets remain largely close to outside visitors, creating challenges for our commercial team to get in front of customers.

Our commercial team once again did an excellent job adjusting to this new normal, leveraging webinars to educate current and potential customers on our portfolio of reagents, cell and gene therapy solutions, tissue biopsy and spatial analysis solutions and instruments. During the quarter, our team got even more creative, using virtual coffees and happy hours to get increased face time with our customers. These virtual meetings and webinars will remain an important and cost effective part of our commercial strategy for the remainder of the pandemic and beyond.

Our digital marketing initiatives remain an important tool to differentiating Bio-Techne, educate the scientific community on our portfolio of innovative and productivity-enabling tools, drive traffic to our website and ultimately convert this traffic to revenue. These digital efforts have become an increasingly more effective tool during the COVID pandemic, and we continue to execute this strategy at a high level in Q2.

Researchers often begin their quest for reagents and research productivity tools with an Internet search, so ensuring Bio-Techne is one of the top results of these searches is critical to drive traffic to our website, convert these visits to sales of our products. Leveraging search engine optimization and targeted ad strategies remain a key component of our digital strategy and both continue to generate high returns on investment, with an outsized impact on sales within our antibody and protein portfolio. Last quarter, we announced the launch of [OneWeb,] a new website that unites all of Bio-Techne's brands under 1 easy-to-navigate site, enabling our customers to order products across our instrument and reagent portfolio and 1 website while leveraging algorithms to drive purchases across our portfolio and position the business to realize increased revenue synergies. We began a scaled launch of [OneWeb] in November, and initial customer feedback as well as traffic to our website has been positive.

OneWeb, paired with our SEO and targeted ad efforts, drove double-digit growth this quarter in the number of sessions, page views, new users and repeat users on our website. Given the correlation of our revenue growth this quarter, our strategy is clearly generating results, and we will continue to pull this growth lever going forward.

Now let's discuss performance of our growth platforms, starting with Protein Sciences segment, which grew 19% organically for the quarter. Growth is strong across our core reagent portfolio, with both RUO proteins and antibodies growing low-double digits. In addition to the impact of academic labs reopening in our digital initiatives, our reagent business also experienced a favorable tailwind from custom work for biopharma customers in need of additional protein or antibody capacity. Our customer reagent development business increased over 60% in the quarter, and we are leveraging multiple strategies to capitalize on this outsourcing trend going forward.

During Q2, we continued to push our cell and gene therapy initiatives forward. One of the key components within our cell and gene therapy business is GMP proteins, with these cytokines and growth factors playing a critical role in a cell and gene therapy workflow. Revenue generated from our portfolio of GMP proteins once again increased nearly 100% in Q2. Recall that we recently opened a 61,000-square foot state of the art GMP reagent manufacturing facility to address the expected demand for GMP proteins and reagents as a growing pipeline of cell and gene therapeutics progress through the regulatory approval process. We made significant progress qualifying the facility and have begun manufacturing production lots of select GMP proteins.

We also executed our second long-term GMP protein supply agreement in the quarter. We remain in various stages of discussion with several other biotech companies with pipeline in cell and gene therapy for potential long-term GMP protein supply agreements and are very pleased with the funnel of potential deals.

Sticking with cell and gene therapy, our genome engineering services business, which includes our nonviral vector-based gene transfer technology, TcBuster, continue to gain attention from the cell and gene therapy industry. I would also note that we are seeing a growing list of collaborators and positive feedback on Cloudz, our nonmagnetic bead-based cell separation technology for human T cell, natural killer cells and human regulatory T cell, Treg, activation and expansion kits. We are still in the early innings of both TcBuster and Cloudz, but both of these innovative cell and gene therapy workflow technologies remain important pieces of our cell and gene therapy workflow solutions.

ScaleReady, our JV with Fresenius Kabi and Wilson Wolf formally launched at the beginning of calendar 2021, with the mission of providing the most simple, scalable and versatile cell and gene therapy manufacturing platform in the industry. As a reminder, this consortium pairs Bio-Techne's portfolio of cell and gene therapy workflow solutions, including our Cloudz' self-separation and activation technology, GMP proteins and genome engineering services with Fresenius Kabi's leukapheresis instrument and Wilson Wolf's bioreactor to enable a modular, cost efficient workflow solution. The ScaleReady website is up and running, and the commercial team began its initial customer outreach campaign, including initial contact to over 600 industry participants and almost 250 gene and therapy companies.

Also during Q2, Bio-Techne made an initial strategic investment in Changzhou Eminence Biotechnology Company, a China-based life science company with best-in-class media, including CHO cells and other serum-free media products as well as custom cell line and media formulation development services. Eminence will use the financing proceeds to expand its manufacturing capacity and increase the service capabilities of its China-headquartered GMP media production facility. Investing in Eminence expands Bio-Techne's foothold in providing additional products and services to support the needs of the rapidly growing Chinese biopharmaceutical industry and fits extremely well with our existing high-growth product portfolio in China. We look forward to working with the Eminence team.

Now let's discuss our proteomic analytical tools portion of the Protein Sciences segment, where the strong momentum we saw in Q1 continued with our portfolio of instruments and assays, enabling research labs to increase productivity while adhering to social distancing and staggered work shift protocols. Once again, we experienced very strong growth in our Simple Plex, multiplex and [ELISA spin,] Ella. Our revenue almost doubled year-over-year. Encouragingly, Simple Plex utilization within our customer base continued to diversify as researchers leveraged Ella to investigate inflammation, cancer, neuroscience and other disease states and biological pathways. Ella's relatively small footprint, low price point, sub-picogram level sensitivity and reproducibility is driving both instrument placements and consumable pull-through. Our clinical program with Micropoint in China is on track, which speaks to the incredible diversity Ella is capable of. We are now taking Ella through a 510(k) process in the U.S., which will unlock new clinical opportunities for this amazing platform.

It was a similar story with our automated western instrument portfolio, where we grew almost 30% in the quarter. Our Jess- and Wes-automated western platforms turned the labor-intensive, messy, inconsistent, cumbersome, manual Western blot process, which can take up to 2 days, into a fully automated, reproducible, sample-to-answer 3-hour process. This value proposition has been resonating incredibly well with researchers as they return to the bench. And with our solutions less than 15% penetrated in the addressable market, there is plenty of room for continued growth.

Our biologics instruments, which provide protein purity information and are used directly in bioprocessing, also had a standout quarter as we experienced broad demand from biopharma, including several companies with COVID-19 vaccines in various stages of development or commercialization as well as continued interest from companies working on cell and gene therapy.

Now I'll provide an update on our Diagnostics and Genomics portfolio, where organic growth revenue also increased 19% in Q2. Let's start with an update on our ACD or tissue pathology franchise, where organic revenue increased in the upper 20% range for the quarter. This growth was broad-based across geographies and product lines, including very strong performances from miRNAscope following its launch this past summer as well as BaseScope. Momentum we experienced in RNAscope last quarter continued in Q2 as the single-cell, spatial resolution and high sensitivity provided by this technology continues to drive market adoption.

Biopharma's need for increased productivity while working with limited or staggered shift remains a tailwind for our PAS, or Pharma Assay Services business, within ACD. Our biopharma outsourcing spatial genomic analysis has drove over 40% growth in this business in the first half of fiscal year '21.

Now let's discuss our Exosome Diagnostics business, starting with our prostate cancer liquid biopsy assay, the ExoDx Prostate test. Encouragingly, we believe most of the urology practices across the country have reopened, and we experienced another sequential increase in our prostate test volume. But patient traffic is still down from last year as older patients are more likely to quarantine at home until they become vaccinated. We expect urology practice traffic to continue to improve as vaccines make their way into the segment of the population, which in turn should have a positive impact on our ExoDx Prostate testing volumes.

In the meantime, our home kit version of the test continues to be the safest solution for patients to continue to work with their urologists. Recall that we partnered with baseball Hall of Famer, Cal Ripken, Jr. to co-promote our ExoDx Prostate test following his personal prostate cancer journey, including his use of the ExoDx Prostate test, which ultimately influenced his potentially lifesaving decision to get the biopsy that led to the discovery of his aggressive prostate cancer. The marketing campaign continues to be successfully leveraged across all social media platforms and channels and is driving traffic to the Fight like Cal page on the ExoDx website, where we saw page visits increase over 1,400% sequentially. We also launched a physician locator function on the ExoDx website, enabling patients interested in taking the test to find physicians offering a test in their respective city.

Our Exosome Diagnostics platform is not just limited to our ExoDx Prostate test. There is a full pipeline of high-value diagnostic tests, with our [ExoTrue] kidney transplant rejection assay next in line for commercialization. We expect ExoTrue to become an important tool in the management of kidney transplant patients, where it's easy to collect urine-based sampling -- sample, enabling increased adherence to testing protocols. We completed verification of the assay and have optimized the workflow. Initial ExoTrue data has been accepted for publication in a well-respected medical journal, and we anticipate publication in the coming weeks.

Despite generally soft non-COVID-related diagnostic testing volumes, our Diagnostic Reagents division once again delivered a solid quarter, with organic revenue increasing in the upper single digits. This is actually the sixth quarter in a row that our Diagnostic Reagents division has delivered positive growth as the development pipeline and, to a lesser extent, COVID-related opportunities continue to bear fruit and smooth out the impact of what can sometimes be a lumpy bulk reagent order.

I'd like to now give an update on our COVID-19 initiatives. The products we sell are directly related to COVID research. For example, reagents and instruments with specific viral research applications, ACD probes to detect the virus within tissue and sales of bulk diagnostic reagents used in COVID testing applications was an estimated 3% tailwind to our business in Q2. We expect that research and COVID will be around for many years, thus making this tailwind a sustaining new layer of our product portfolio going forward.

We continue to make progress with the commercialization of the COVID-19 serology assay that we co-developed with Kantaro Biosciences based on Mount Sinai's technology. The Kantaro serology assay is a truly differentiated test, providing not only information on the presence of COVID-19 antibodies, but also the level of titer of those antibodies. In November, the Kantaro COVID-SeroKlir assay received EUA approval as a semi-quantitative assay, and we have submitted additional data to the FDA supporting a full quantitative claim as we received in Europe with a CE mark.

We have commercial agreements now set up in many countries and are in discussions with many U.S.-based lab systems. To date, most of the demand for COVID-19 testing has been PCR-based, geared towards answering the question, "Am I infected with COVID-19?" Now that vaccines are becoming available while the virus continues to mutate, we believe demand for serology testing will increase as patients look to answer the question, "Am I immune?" Ultimately, following a full FDA quantitative claim, we believe the Kantaro assay will be able to answer this important question, allowing us to return to the pre-COVID lifestyle we are all looking forward to.

Our Q2 is evidence of the growth we are starting to unlock with our portfolio of proteomic analytical instruments, tissue pathology and spatial genomics products, cell and gene therapy workflow solutions and liquid biopsy diagnostics. These large high-growth end markets remain underpenetrated, and we're in the early innings of realizing the full potential of these growth technologies and platforms. Layer on to these the content and cross-divisional synergies inherent in our core reagent portfolio, and I'm increasingly confident in our ability to deliver our long-term revenue and profitability targets. I'm extremely proud of the execution the Bio-Techne team delivered during the first half of our fiscal 2021, and we're looking forward to building on this success in the second half of 2021 and beyond.

With that, I'll turn it over to Jim.

Thanks, Chuck. I will provide an overview of our Q2 fiscal '21 financial performance for the total company, provide some additional color on the performance of each of our segments and give some thoughts on the remainder of our fiscal 2021.

Starting with the overall second quarter financial performance, adjusted EPS was $1.62 versus $1.08 1 year ago, an increase of 50% over last year, representing a new company record. Foreign exchange positively impacted EPS by $0.08.

GAAP EPS for the quarter was $1.15 compared to $3.02 in the prior year, representing a 62% decrease. Our GAAP EPS results in the second quarter of last year benefited from a favorable realized and unrealized gain on our investment in ChemoCentryx.

Q2 revenue was $224.3 million, an increase of 21% year-over-year on a reported basis and 19% on an organic basis. Foreign exchange translation had a favorable 2% impact on our revenue.

Our strong growth in Q2 was fairly consistent across the globe, ranging from the high teens in the U.S. to 25% organic growth in China. By end market, biopharma growth was very strong at over 20%, and it was nice to see academia continued to improve, growing the low teens during the second quarter.

Moving on to the details of the P&L. Total company adjusted gross margin was 71.5% in the quarter compared to 70.6% in the prior year. The increase was primarily driven by favorable volume leverage.

Adjusted SG&A in Q2 was 25.2% of revenue, a 310 basis point decrease compared to the prior year, and R&D expense in Q2 was 7.5% of revenue, 140 basis points lower than the prior year. While our adjusted SG&A and R&D spend both increased sequentially and compared to the prior year, a tight labor market in the life science space did not allow us to fill all headcount additions to the team at the pace we'd originally anticipated. Given the continued improvement we are seeing in our end markets, we still plan to fill these positions and continue with investments that position the company for growth going forward. The resulting adjusted operating margin for Q2 was 38.7%, an increase of 530 basis points from the prior year period and a 50 basis point sequential improvement from Q1.

Looking at our numbers below operating income. Net interest expense in Q2 was $3.4 million, decreasing $1.1 million compared to the prior year. The decrease was due to a continued reduction of our bank debt during fiscal '21 as well as lower floating interest rates. Our bank debt on the balance sheet as of the end of Q2 stood at $231.5 million.

Other adjusted nonoperating expense was $1.3 million for the quarter compared to $2.5 million expense in the prior year primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For GAAP reporting, other nonoperating income includes unrealized gains from our investment in ChemoCentryx.

Moving further down the P&L, our adjusted effective tax rate in Q2 was 20.6%, 120 basis point improvement over the prior year, with the improvement primarily driven by geographic mix. We expect our effective tax rate going forward to be consistent with Q2, barring no changes in corporate tax law.

As Chuck mentioned, during Q2, we made a strategic equity investment in China-based Eminence, a company focused on providing media as well as custom cell line development and media formulation services to the Chinese biopharmaceutical market. The $130,000 noncontrolling interest line item reflects 1 month loss from a portion of Eminence we do not own. The impact to other lines of the P&L as a result of consolidating Eminence was immaterial in Q2.

Turning to cash flow and return of capital. A record $89.3 million of cash was generated from operations in the quarter. In Q2, our net investment in capital expenditures was $11.4 million primarily driven by the completion of our new GMP protein factory. And during Q2, we returned capital to shareholders with $12.4 million of dividends. We finished the quarter with 40.3 million average diluted shares outstanding. Our balance sheet remains very strong, with $283 million in cash and short-term available for sale investments and a total leverage ratio of well under 1x EBITDA.

Next, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q2 reported sales were $172.2 million, with reported revenue increasing 22%. Organic growth increased 19%, with foreign exchange having a favorable impact of 3% on revenue growth. Within the segment, the strong growth was very broad-based, with double-digit growth in nearly all reagent, assay and instrument platforms. As Chuck described in his remarks, platforms of notable mention include Simple Plex, Simple Western, biologics and cell and gene therapy, especially pertaining to GMP proteins. Operating margin for the Protein Sciences segment was 46.6%, an increase of 360 basis points year-over-year, due primarily to favorable volume leverage and cost management.

Turning to the Diagnostics and Genomics segment. Q2 reported sales were $52.5 million, with reported revenue increasing 20%. Organic growth for the segment was 19%, with foreign exchange translation having a favorable 1% impact on revenue. Similar to Q1, our Genomics division led this segment in the quarter. We experienced strength across the entire ACD-branded portfolio, with miRNAscope, BaseScope and our diagnostics partnership with Leica being honorable mention.

Also a driver of growth for Diagnostics and Genomics, Exosome Diagnostics Q2 revenue increased over 100% from last year, with higher collections from Medicare, private payers and patient cash collect driving the year-over-year increase. As Chuck mentioned, our Diagnostic Reagents division continued its growth streak by executing on COVID-related opportunities to offset the headwind many of its traditional OEM diagnostic customers are facing with patients foregoing routine visits to the doctor.

Moving on to the Diagnostics and Genomics segment operating margin. At 15.5%, the segment's operating margin improved from 2.2% reported in the prior year. The increase reflects favorable volume leverage in our Genomics division, less dilution from Exosome Diagnostics as well as strong cost management.

In summary, our fiscal 2021 is off to a great start. With 15% organic revenue growth during the first half of the fiscal year, our results thus far have demonstrated that our portfolio of products and solution offerings are more relevant than ever to our customers who are on the front lines of diagnosing and developing cures for disease. We believe that the current pandemic has only strengthened the resolve of our customers to accelerate their great work, and we will continue to do everything in our power to provide them the tools to help them succeed. Thus, we see the current momentum of our business continuing in the back half of our fiscal year.

However, to support our customers' needs beyond the remainder of this fiscal year, we need to catch up on our investments in our product pipeline and postsales service and support while continuing to invest in customer engagement activities, especially those of a digital nature. We started to make progress with these additional investments in Q2 but to -- but intend to accelerate back to our plan in the back half of the year. If successful, these investments may slightly lower our operating margin from its level in the first half of the fiscal year but will position us well for our long-term strategic plan of continued double-digit growth for years to come.

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

(Operator Instructions) And our first question is from Puneet Souda with SVB Leerink.

Chuck, congrats on this strong quarter, impressive growth here in Protein Sciences and across the board. First of all, could you provide sort of the contribution that we're seeing from GMP proteins and cell and gene therapy? And sort of how should we think about that for the full year here, given the momentum that you're seeing so far?

Yes. Sure. Well, we're not going to give too much real, in the weeds detail on it. We've been talking about growing 100%. We've talked in the past of being a $30 million-type portfolio, with most of it being serum right now, and we're -- and pretty much, our run rate on proteins at $10 million, and we gave you the growth rates in there. We have the ability to increase, I guess, what we make here at the headquarters by a factor of 4, if we need to. So we're good while we take the time to qualify the new site, which is going along really well.

Again, we've talked in the past about this $10 million in GMP proteins growing to maybe $20 million next year and then doubling in after that. And then hopefully, it really starts ramping once we start getting the production side of the therapeutics as they come out of the back end of clinicals.

The rest of the portfolio, it's kind of hard to say. We had a great quarter for both acceptance for both Cloudz and for TcBuster. We talked about we're getting an awful lot of new revenue to get a look at these technologies and do preclinicals with, so we're pretty excited. The team is pretty excited. It's the best quarter we've really had for TcBuster. We're actually working on expanding the site already or we're making it, so it's a bit of surprise so fast.

So it's kind of hard, Puneet, to tell you what it's going to be next year, but I think probably double what is this year and probably double again next year after that. And as we've said in our 5-year outlook here, in our $1.5 billion goal, we see -- a $300 million business is what we see. So it will be consisting of a bunch of components, $150 million or so, at least in GMP proteins, but the rest sort of between Cloudz, TcBuster, instrumentation, ACD for technologies for spatial cell analysis, Ella testing for QC testing and the workflow, all these bits and pieces roll up to $300 million. And we're probably a year away from getting any more -- doing a real detailed guesses in just what the recipes look like. I think the safest one is the GMP protein piece right now.

Got it. That's very helpful. On Ella, this was a really strong quarter again. I think you pointed that out in the past couple of quarters, too. Obviously, that product line is gaining significant traction here. Can you give us a sense of where this business could be? I mean this is a competitive ELISA market after all, so where could it be? And what are the other key initiatives that you have in, including the 510(k) approval that you're submitting for?

And in that same context, if you could just help us understand, I mean, there's quite a bit of momentum right now in proteomics. Obviously, Bio-Techne is core to proteomics. You are one of the leaders across the board in antibodies, protein cytokines and broadly across proteomics. So maybe just help us understand where that could -- where this business could be, the Protein Sciences business overall and the proteomics business could be overall and sort of longer-term and 5-year time frame?

Well, it's growing beyond our expectations. Clearly, we're super well positioned in proteomics. And as the wave of research hits and as this golden era keeps growing and money is siphoned off these stimulus plans for more pandemic relief and pandemic research so it never happens again, we're going to be a big beneficiary. We're seeing -- we're really seeing a lift in every part of our business in every geography. It was just astounding. I don't think I've ever seen a more green dashboard so -- in my career.

It's hard to pin down what's COVID and what's just research. Now we've dug into what's going on with our customers and they're certainly -- bigger biopharma are investing more. They're taking the cash there. The ones -- the vaccine makers are obviously doing more. Companies that are doing well off COVID are taking that cash and doing more R&D. And whether it's more R&D and more research, we're benefiting.

I've always said that Simple Plex was a sleeper, right, and it had for a few years now. And if it keeps growing at a near 100%, it's going to be really big really soon. So we've now -- we're now well over 500 instruments placed worldwide, which is a lot. This is an amazing machine, and it just does a lot for what -- for the money. It's just an amazing piece of technology from an amazing team that has worked on it for many years before we acquired the company.

I think that was seen by Micropoint early on in China, and we're on track with their clinical. And this could be -- that deal alone could be $100 million of revenue in 3, 4 years if they hit their targets. This is a guy that did Mindray, so he has a lot of credibility. He is very interested in making a very standardized patient monitoring platform for large hospital systems in China, and there's a lot of them. We are taking through the 510(k) process here in the U.S. so we can try to list more interest like Micropoint in China. See -- and Micropoint is going to do all the CFDA themselves. They're experts. They're doing -- they're done with the panels. They're doing everything.

Here, I don't know. We were probably not set up to do all that ourselves. We'll do the 510(k). We're going to do it off a standard analyte, something well-known, something we can get to the system. And then -- and we are talking to potential interested parties, but this thing -- it's got legs. And it's got legs in neuroscience, it's got legs in oncology, it's -- anywhere that this proteomic needs -- needed to be testing biomarkers, this is the machine.

As you know, the competition is out there in a multiplex format. Starting with Luminex, we're partners with them as well. But we don't have cross-talk with our platform. And now we're increasing the channels, so we're at 8, and we maybe could go higher. But at 8, that's kind of a sweet point. And to have 8 channels of no cross-talk with the type of [pseudo-noise] we have with this machine and in only 1 hour sample-to-answer, it's kind of unheard of.

Of course, there's others, Meso Scale. I think we've got some work to do to crack where Meso Scale really, really hit because they've got a full workflow with software, and it really is integrated into the workflows of their customers, and we've probably got more of a stand-alone box. We've got to get better at that piece of it, and we're working on that.

And then of course, there's the whole clinical side. This thing really could be a point-of-care machine. We're working on a 4x8 cartridge, something that you don't have to queue up a lot of tests in order to run it. And anyway, I just -- I see a strong future. And you asked what it could become, I think this is a $200 million to $300 million business in 5 years, to be honest, or more. It could be much bigger. It depends on the acceptance and how well we keep diversifying into new applications.

But automated ELISA, multiplex-based proteomics, biomarker research, it's -- as you just said, it's all the rage right now. It's accelerating, not leveling out, so we see a strong future in this platform. We're not surprised by the 100% growth, even though this thing is already a big platform. It's as big as anything we also had in the original ProteinSimple segment, including Simple Western now. It's getting there. If it keeps growing where it is, it will be the biggest very soon.

That's super helpful, Chuck. And if I could squeeze last one in for Jim. Jim, I appreciate the investments into Eminence and obviously, the GMP facility, which is delivering growth now. And when you look at on the acquisitions front and organic growth, we just -- we have not seen much on that end lately. Is it largely a function of the valuations in the space or anything else or certain specific areas that are sort of more challenging versus attractive? Just walk us through your assumptions there because obviously, that's an important part of what Bio-Techne has done in the past.

Yes. What I'd say on the valuation front is that the valuations have been a challenge for many years. That's really nothing new. It's really the ebbs and flows of the deal flow, what's coming out available and I think for a lot of 2020, probably the pandemic being a good reason why the flow wasn't as strong as it had been in prior years. But in the last several months, we're starting to see that turn around and seen a lot more deal flow, a lot more interesting targets. So it's hard to predict because there's a lot of stars that need to align, but I would predict that we'll see more activity by us on that front in the remainder of calendar year '21 than we saw last year.

And our next question is from Catherine Schulte with Baird.

Congrats on a strong quarter. I guess first, just as you think about the outlook for fiscal '21, last quarter, you talked about maybe a 10% to 15% range for the year. So just curious if you had an updated thought on where you should end up in that range or if we should be thinking about a new range given the strong performance you saw this quarter.

Sure. I'm not sure who's note it was this morning, talking about clearing 15-plus percent for the year. We've stayed away from that. We certainly were bullish on ending up double-digit again. We left our comments at continuing momentum, and the momentum is 15% half year. And we have the easiest comps ahead of us the rest of the fiscal year, so you can do the math from that. But yes, we're pretty bullish at continuing at the levels we're at or even better, to be honest, so -- at this point.

Okay. And you've talked about some research labs, perhaps needing to buy a second version of things given social distancing and building out secondary labs. How much of the rebound that you've seen do you think is related to perhaps some of that stocking or build-out dynamic?

There is a little bit of stocking. After last quarter and then these [blow of] results, and we don't have much COVID in our numbers yet. COVID is all still coming for us, hopefully, the serology. We did a big deep dive really globally, what the hell is going on and why are we doing so well? And so we did -- we really did an account-by-account, customer-by-customer breakdown, by segment of how we're doing and why. And there's really no silver bullet. We're up with vaccine makers for obvious reasons. We're up with biopharma for a lot of reasons we talked about, but there's been more OEM work as well. They're all having a pretty good year, so they're outsourcing more. So we've had more custom work given to us.

Academia has been certainly the duplicity issue, and some surge comeback and maybe some budget flushing on multiple fronts, to be honest. We discovered some, I think, not material. It's not like it's half our growth or 1/3 or 1/4, but there's a little there. And it's really a sum of the parts is what comes down to for us. No silver bullet. It's not all COVID, it's not all anything, but it is a rising tide, really it's just -- research is doing really well on all fronts for us.

We've -- we're perfectly positioned, as Puneet said earlier, I mean, in proteomics. It's just -- we're in the right spot right now. And whether you're buying antibodies to make COVID tests or you need overflow help because you're stacked with the working capacity to develop vaccines or your academic institutions that are staggering, you're building out new labs and you've got to buy more equipment, preferably equipment that has it's productivity inclinated like ours, not so expensive, that's kind of where it's all coming from.

And then our reagents, too, it's broad-based. Even ELISA, I mean, that one thing that we can always go back to and just look at our good old ELISA kits, just [Q] kits, 35 years old, and they kind of ebb and flow with projects and kind of the health of projects in biopharma. It was the best year in years. So it just kind of speaks to the broad-based growth. And we're not the only company talking about it, right? Everyone is riding this wave right now, and we just have be riding a little higher than most, which is great for us.

Okay. And last one for me. Just on the Exo kidney transplant test, you talked about publication in the next few weeks. What's the path forward for that test? And how should we think about potential launch timing there?

Yes. I really was hoping that we'd be talking about that publication by now. It's -- it really is imminent. It should be days, not weeks, but who knows? The data looks fantastic. If we -- if it'd been published, we could talk about the data. It's very good data. It's the first peer-reviewed article. We need to get a second. We need to do an outcomes test. There's work to be done before we start going after an LDT approach or working with a MAC or get started. But we're on the path, and we think we're at a year or less here of getting into early access selling of this thing. Probably a good year away from a crosswalk or anything, but we'll see.

We're also looking at partnerships as well, and we're also looking at other MACs, not using the same one we did prostate through. So we got a lot going on here. It's just been going very well. That platform is astounding. It works so well. It's amazing.

As you know, exosomes, we feel, is the best-in-class for liquid biopsy. And the data is going to prove it here when you start seeing some of it. And there -- it's a big market. There aren't the same kind of barriers like we have with prostate and urologists. Organ centers and -- there are not so many of them, so they're not so hard to go after in terms of commercial attack. And it's a big need. I mean it's a horrible thing to have to be given a new kidney and then lose it or to damage it through biopsies or with testing it as you're worried about rejection. And half of all these are rejected within 10 years. So there -- this is a tool that really has been needed. And it's paying a cup, and it can be sent in. It doesn't have to be done with an on-contact phlebotomist or something. So we see a lot of upside in the price -- the cost first and the price second is going to be, I think, really good compared to what's out there now. So...

And our next question is from Alex Nowak with Craig-Hallum.

So the vaccines are being administered now. More are coming soon. It looks like immunity to a particular variant actually might last pretty long, but then we're seeing new variants that come out that lower the overall efficacy. So I guess my question is how does the vaccine rollout and the emergence of these new variants change your thinking around this -- the quantitative COVID antibody test? And then you mentioned it in the prepared remarks, but where do you stand with partnering this test with the vaccine companies and then just separately, the diagnostic labs?

Yes. Well, as you know, Alex, we've had this test kind of ready to go since late last spring. And there's been, I guess, a lot of flutter and clutter with the FDA and a lot of poor EUAs that came out early on qualitative versions of serology, and there's a bit of a hill decline here for getting accepted. There won't be real demand until there's enough vaccine out there, enough people vaccinated to create that demand with -- they're calling their doctors to find out, "How do I find out if I'm immune or not? Can I see my grandkids or not?" People want to go back to concerts and get on planes and get on trains and be in malls again, and no one is going to feel really good until they know they feel safe. And this is without a variant. This is without a mutation.

As you know, we're tied at the hip with Mount Sinai, and they've got the longest range testing known here on immunity, and we're running at like 7 or 8 months, and they don't see a reduction in immunity with antibodies yet. But the powers to be there do feel that it will follow the corona family, and it will be variable with individual, but between probably 1 and 2 years of immunity, but not forever. If it doesn't mutate, that means a boost there. If it mutates, then we're kind of looking at a flu every year kind of thing, right? So -- and then we're trying to hit a moving target like flu does, which is harder.

All that speaks to the more of a need to serology. People are going to want to know consistently, are they immune? Do not be surprised if in a year or 2, on your app on your phone, you're carrying an immunity passport and how you're doing with COVID so you can be led on to whatever or let into whatever. All that technology is coming, and it's not coming in one full flush, which is a problem. Everything is slower than we want.

Vaccinations are going slow. By summer, we're not going to be probably at herd immunity yet. We're not going to be at a point where enough people are vaccinated, where we're going to feel safe. There's going to be a growing and growing demand for serology. And we're hoping to get our quantitative claim, be the only one given by the FDA very soon.

All the data is submitted. We have actually -- from the WHO, we have the sample that will give us the means to actually quantitate our standard curve to theirs so there can be an international standard that the FDA is looking for to get behind. So we're right in the thick of it, and we've got great partners with Mount Sinai, so I do expect we'll get through it.

And in over a year, we probably won't be the only one, but we'll be very -- we'll be the first one, and we'll be a very good one. But I think serology will be on the rise. I think people in PCR, I think it's not going away either. It's going to be a much slower tail than people think. You probably heard of that in other calls this week. Unfortunately, we're turning the curve, but it's going to be a long tail on getting back to normality, and we're going to get a piece of this probably. Nothing to the extent of some of these -- some of the companies that are out there answering the question," Am I sick?" But we're a research company first. This is all gravy for us. We expect to be helping, and we're going to have a great piece of science to help with.

That's very helpful. And maybe to expand on the more macro life science funding flush that you're seeing here. So right now, Washington is hashing out the COVID stimulus plan. What specifically are you hearing in that plan that could be deployed for life science research funding? And for how long could that benefit last? And then I guess the same question but directed more towards China, their plans with the next 5-year plan, are you hearing anything in particular there?

Well, we'll start reverse. China is not really good at laying out what they're going to do but -- the way we're looking at it, I think the 14th version of a 5-year plan, what typically happens is year 1 is a little bit soft, and year 2, it kicks into high gear. Year 5 is a bit softer, too. And we had a bid that we call budget flush over there too because they are also changing some tax consequences there. So I think everybody had strong instrument results in China. Probably we're seeing a little bit of pull forward from that. I haven't seen it much mentioned, but we certainly saw it, and we'll admit to it.

But I think it's going to be really good, the next plan for China. I think health care is still way behind where they are in other parts of their economy and their industry. And it's a lagging industry and they -- and now more than ever with COVID, and they certainly don't want to see a pandemic hit there. Their people want health care there. And life sciences is on the rise still. That's why we continue to see 25% or better growth, and we will for a long time, I think.

I think as far as our government is concerned, whether it ends up being $600 million more or $1 billion more or $1.9 billion, there's going to definitely be portions of this that are given as grants and been done for pandemic research and which really is infectious diseases, which there really hasn't been a whole lot of. Most of the NIH, as you know, is really focused more on oncology, neuroscience and different areas like that. I mean as I've mentioned often, when's the last time you paid more than $1 for an antibiotic? I mean there's -- we're behind in a lot of areas around infections. And I think there'll be a lot of overflow and a halo effect from -- I think it's one reason that the official NIH budget for this year now looks at -- is looking at 3%. I think they're all holding off until they see what's going to really drift out around these stimulus packages into the science community, which I think there'll be some. It's hard to quantify. I think there'll be some. And if there's not, you'll see more pressure for the NIH to get more, I think.

And our next question is from Dan Arias with Stifel.

Chuck, on the GMP proteins business, you've talked about pharma customers looking for a provider that can handle some pretty large orders there, multimillion-dollar lots. Do you have some of these in the pipeline or as semi-firm commitments at this point? And then when we think about what you're prepared to do in terms of supplying your initial days with the new facility, what is the plan for scaling up that portfolio? It sounds like the idea is to kind of start off with a couple of key molecules and then work from there. So I'm just curious what the portfolio expansion ramp looks like and whether that's what you really need in order to sort of drive the acceleration that you've talked about recently.

Sure. Well, we landed our second, and these contracts are -- they started years ago with these guys coming to us and asking, "We've been buying protein from you forever, and we buy them in small lots, and we're probably a large customer for you at maybe $0.5 million a year. If we get into cell and gene therapies and we need proteins as part of the workflow, we need something like probably 10-or-more-million a year. Could you do that?" And back then, we -- all we could say was no, we couldn't.

So now fast forward to here, this is more build in the factory. Even there, we've improved our current site and headquarters that we can do probably up towards of about $40 million or so annually of GMP proteins here. So we've done a lot of -- good job there, and that's going to fill the gap while we qualify this factory and wait for the large orders because we're not going to have a large venue, a large catalog here. We're going to be making far less than 50 different proteins there.

We are qualifying on the major runners, and you can guess what they are. They start with an I-L. And we'll go from there. Both these first 2 customers have needs of over $10 million a year. And we are in negotiation with at least a half a dozen others, and I won't tell you who, but one of them has a need for $50 million a year.

What we've done with these customers, because it's hard for them to give us a forecast, we've talked with new contractors that we're demanding 95% of their volume. Whatever they end up needing, it's really an unknown right now how these things take off, when they come out, what the forecast is going to be, what's the ramp, how do we plan for it. And they know it, too. They know it's frustrating for us because how do you prepare? So what we've done is turned our contracting towards, "We want to see a range of what you need. We'll be there. We don't know when, but we expect 95% of your volume that's contracted." So that's kind of the gist of how we're doing business.

And these, call them, 8 customers would swamp us out for years if they hit their forecast, just these. And there's another 50 to 100 after that, so we're not concerned about filling this factory eventually.

Yes. Okay. Okay. And then maybe on the EPI side, I appreciate some of the comments that you made thus far. Leaving aside the doc visit dynamic and just the challenges related to the pandemic, what do you think the things are that the urology community needs to see this year in order to really feel like this is a test that's sort of a must-use option rather than a nice-to-have option? Is it additional data and publication? Is it being seen by a sales rep now that you've kind of solidified the use case a little bit? I'm curious about what you think at this point, given where we are, really kind of fulfills the dream here.

Your latter comment. I think the utility, the outcome studies, that's what the large payers are looking more for. And we're probably halfway there, and we are very close to landing one of the major, I can't say that we're out of it either but we're -- hopefully it's imminent. And when we get one, we'll get more. But that's what they're looking for, the outcomes. How does it really save money for the industry, right, and save more lives?

The urologists, we've sold through roughly 2,500 of them, and there's about 20,000. So we got a lot of work to do. And of that 2,500, 77% have reordered. So once they're in it, they believe it. I think it really is more of a commercial issue, of getting in front of them and [getting] and selling. And I think the home kit is sealing part of the gap, and certainly, Cal is helping a lot. We have some great KOLs. We're going to get back in front of NGF here in February for reconsideration. That's going to help quite a bit. I think that will be a positive story.

But I think it's a grind. I think these urologists, like a lot of different specialty doctors, they're hard to convert. I'm certain a large portion of them enjoy their $1,500 piece biopsies and know that they're mostly negative and don't care, so it's just the state of the business. We have to grind through them. We have to almost shame them into moving into this methodology because it's better for the patient, even though it's less revenue for them. And the better urologists get it, and they're on board, and we're converting them, but it's not going to be a 1-year event here. So...

And our next question is from Jacob Johnson with Stephens.

And I'll add my congrats on a really nice quarter. Just, Chuck, one question on the outlook for this year, and I want to make sure I'm clear on your comment earlier. You're lapping, I think, a similar organic growth quarter -- organic growth number next quarter and then obviously much easier comp in the fourth quarter. Is there any reason organic growth shouldn't be at this 19% level like this quarter or potentially higher in the next couple of quarters?

I'm going to let my esteemed CFO answer that one for you.

Yes. Listen, the way we're thinking about the forecast is more about the current momentum we have in the business and the sequential momentum going forward as opposed to year-over-year growth rates because it gets wonky, especially in Q4 for us, with what happened in Q4 last year. So the way we're thinking about it is that the momentum, from an absolute revenue perspective, continuing. If history is any guide, usually, our Q3 and Q4 -- our fiscal Q3 and Q4 are slightly higher than our second quarter, and it's nothing else because there's less holidays within those quarters as there are in the November and December time frame. So that's kind of how we're thinking about it. We think the momentum that we saw -- the step-up in momentum that we saw in absolute terms in Q2 is with us, at least for the rest of the fiscal year, and so that's kind of how we're thinking about the forecast going forward.

Got it. And then Chuck, you made some interesting comments on TcBuster earlier. It sounds like business development efforts are going well there. Can you give us any more details on where that offering stands? Maybe how many customers you're working with, any color around that? And then you mentioned the potential to maybe add some capacity. Would that suggest that the opportunity here could be greater than, I think, the kind of $50 million revenue aspiration you've previously outlined?

I think it's more about the ramp and the acceleration to that $50 million. I don't think we know enough yet. The gene editing portion of the workflow is not the most expensive -- not the most valuable part of the workflow. It's a critical part, obviously, and we'll see.

The domain of customers is a little over 100, as you know, and we are certainly working with a couple of dozen. And we are certainly sold to more than half a dozen, quite a few. And they come -- and they're coming in bigger chunks, so they get access and do a 2 trial, it's hundreds of thousands of dollars. So we're in the millions now for revenue with TcBuster, so it's starting to get there. This thing is going to happen.

Unfortunately, it's a critical part of a brand-new workflow for a cell and gene therapy that's radically different than using viral approaches, so it's kind of next generation. So we've got to kind of grind through getting a half a dozen, dozen, 2 dozen of these guys lined up and get them into their clinicals and then get going on it. I think this one really is a J-curve for 5 years from now to the 5th to 6th year, whatever it ends up being. But it's going to -- it's also going to probably be growth rates of 50% to 100% starting now for the next 2 to 3 years until it grows even faster, if it really ramps, as these things go into production. So...

And our next question is from Patrick Donnelly with Citi.

Chuck, maybe just on the ACD side, nice to see that back to growth prepandemic, even beyond that. Can you just talk a little more color on what you're seeing in that market and expectations going forward? Again, certainly feels like it's found its footing here. What can we expect over the next few quarters there?

Yes. I think -- well, given the likes of other companies in the domain, like NanoString and 10x and others, spatial -- and they're all helping. They're helping create an industry, right? So we're all working on creating a spatial analysis, and there's a big need for spatial analysis in the workflow for all research and proteomics for one as well as other areas. So it really comes down to that. If you need to do -- down to single cell analysis and you really care about the morphology of your tissue sample, which is precious, this is a great technology.

Also, other technologies that use antibodies, sometimes you can't find the antibodies or they aren't working well or they're not producible. Looking for a gene is much more -- it's much more on or off, it's there or not. And so this technology with the Z probe trees that could detect and get the signal is -- it's foolproof. So that's why we're seeing a lift.

Kind of link a lot of our softness to a couple of years ago, we had to reorganize Europe. Europe is just on fire now. The plans really are definitely working in Europe. Europe is doing great. We had over 20% growth in Europe this quarter. So it's a nice thing to see, and our Genomics division had a big part of it. We're also seeing good growth across the board in Asia as well, although smaller, starting to catch on.

And we've mentioned them, our RNAscope and BaseScope, they're also growing nicely. And our high plex -- our multiplex version is starting to grow. We'll get an FFP version of the high plex out here soon. That will really be really needed, I think, and compete well with us out there. And then, of course, DNAscope is coming at the end of this fiscal year, we hope, and that's another platform.

So it's a great pipeline. It's got a lot of legs. Again, we see $200 million, $300 million division here with this technology in our 5-year plan. And it keeps growing at the near 30% growth, it's back to -- it won't take that long.

Yes. That's helpful. And then one for Jim. Just on the margin side, can you just talk through kind of how we should think about that going forward, including the Exo impact? I know that Medicare shifted over to accrual-based accounting this year. So maybe just the impact of Exo in the margin and expectations kind of -- as we approach kind of that 40% you've talked about for a little while here.

Yes. And I think we've shared this last quarter, and it's a similar story this quarter. If you exclude Exosome from our results, the total company would have been in the low 40s with regards to our adjusted operating margin. So that will give you some insight as to the dilution impact of Exo currently.

With regards to the margin profile, second half versus first half, I mean, the margin performance has far exceeded our expectations, but mainly because we are behind our investment plan as I've mentioned even last quarter, right? So it is absolutely important that we continue to invest in our R&D pipelines and in our customer-facing and customer service -- postsale service in order to maintain this momentum. So we do expect to get caught up on those investments. And if we are successful in doing so, our margin profile, we think, will be slightly less in the back half than it is in the front half, but still very, very strong compared to last year and ahead of plan of where we thought we'd be at this point in time and our track to a total company performance of north of 40% in the next couple of years.

And we have reached the end of the question-and-answer session. And I'll now turn the call over to management for any closing remarks.

Well, thank you, everyone. It was a record quarter. We enjoyed it. We enjoyed this call. We know they're not all like this. We hope we don't have one of the other kind very soon. And we look forward to seeing you next quarter, and it should be a great second half this year, we think, so -- well, tune in again next quarter. Thank you.

And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.