Bio-Techne Corporation Stock

Thank you very much, Amber, and a warm welcome to everyone joining us for this update call on our announcement today to acquire Bio-Techne. My name is Florian Schraeder. I'm the Head of Investor Relations at Merck. I am delighted to be joined by Kai Beckmann, Group CEO; Helene von Roeder, Group CFO; and Jean-Charles Wirth, CEO, Life Science.

Before we start, let me emphasize that the closing of the transaction is subject to customary closing conditions, including required regulatory approvals and approval by Bio-Techne shareholders.

In the first few minutes of this update call, we would like to guide you through some key slides we published late this morning. And after that, we would be more than happy to take your questions. With that, I believe we are ready to begin. Over to you, Kai, to kick us off.

Thank you, Florian, and good afternoon, everybody, and thank you all for joining us today. We have exciting news today, and we are delighted to share an important milestone for our company. As announced this morning, we have signed a definitive agreement to acquire Bio-Techne Corporation.

Bio-Techne is a global life science developer, manufacturer and supplier of the high-quality reagents, analytic instruments and diagnostic systems that are powering precision medicine. This represents the third largest acquisition in the history of Merck KGaA.

The offer price is USD 73 per share, and the transaction has been approved by the Board of Directors of Bio-Techne and the relevant corporate bodies of Merck. We believe that the proposed acquisition reflects both the stand-alone strength of Bio-Techne and the significant value creation opportunity we see in combining its capabilities with our Life Science business.

This is not a financial engineering exercise. It's a strategic transaction that builds on our strength, enhances our portfolio and advances our ambition to drive sustainable profitable growth.

Before we discuss the strategic rationale in detail, let me highlight several key transaction parameters.

Given Bio-Techne's attractive growth profile and the highly complementary nature of the two portfolios, we anticipate the proposed transaction to be immediately sales growth accretive for the Merck Group following closing.

For Life Science, especially, growth accretion is expected to materialize by 2028. In other words, we see this proposed combination contributing positively to the growth profile of our Life Science business during the integration phase already.

From a profitability perspective, we expect the proposed transaction to be EBITDA pre margin accretive immediately after closing. This is an important point even before the full synergy potential is realized. The proposed transaction is expected to support the margin profile of the business.

In addition, we have identified approximately EUR 140 million of cost synergies, which we expect to be fully realized by 3 years after closing. These synergies are grounded in clear operational logic, including scale effects and procurement opportunities.

Finally, we expect EPS pre-accretion by year 3 after closing on the proposed transaction, which we anticipate completing by the end of 2026 or early 2027.

Let us move to Slide 3 and take a closer look at the strategic rationale behind this transaction.

This intended transaction is closely aligned with the group's 4 strategic value streams. Most importantly, it would accelerate our shift from selected product portfolios towards integrated workflow solutions by bringing together highly complementary capabilities, we can provide customers with broader, more connected solutions across discovery, development and manufacturing.

In addition, it would sharpen our exposure to our high-growth value drivers. Bio-Techne has a highly innovative consumables-led portfolio across next-generation biology solutions, complemented by strong positions in proteomics and an attractive exposure to spatial biology, multiomics and cell therapy manufacturing.

Moreover, the proposed transaction allows us to leverage capabilities across businesses. The highly synergistic nature of the combination would expand customer access, broaden geographic reach and further strengthen our position across the full Life Science value chain.

Finally, this intended acquisition is an example of how we intend to scale and source innovation through our disciplined M&A and in-licensing. Bio-Techne's proven track technology leadership and innovation engine will enhance our future R&D pipeline and capabilities and further improve our ability to create long-term value.

Taken together, this proposed transaction would be a natural strategic fit and an important step forward for our Life Science business.

Jean-Charles will now guide you through the several opportunities of the proposed transaction. JC, please.

Thank you, Kai. Good afternoon, everyone, for joining also the call. Let me start by saying that I'm generally excited to be here today to discuss why we believe Bio-Techne will be such a compelling addition to our Life Science business.

Bio-Techne has established an outstanding track record and with leading positions across several mission-critical segments of the Life Science industry. The company is recognized for delivering innovative, high-quality consumables and scientific tools for next-generation biology applications and advanced bioprocessing.

Importantly, consumable represent around 81% of sales, creating a highly durable and recurring revenue profile, supported by leading position in high-growth markets, including protein science and special biology as well as precision diagnostics and cell therapy manufacturing.

The business has demonstrated impressive momentum over the last 6 years, growing sales from USD 714 million in fiscal year 2019 to USD 1.2 billion in fiscal year 2025. Adjusted operating income increased from USD 244 million to USD 384 million.

Moreover, we see meaningful potential to accelerate growth throughout our global lab footprint. While Bio-Techne has historically been weighted towards the Americas, we believe EMEA and Asia Pacific offer meaningful opportunities for growth and expansion.

We believe that our go-to-market model and omnichannel customer reach have the potential to grow Bio-Techne footprint and will unlock additional growth opportunities.

Bio-Techne will be also bolster of our position in cell therapy manufacturing through Wilson Wolf and its G-Rex platform. These differentiated tools and consumable end-to-end platform support customers as they move from R&D into commercial scale manufacturing.

We're especially excited about the opportunity to secure access to the next-gen highly scalable manufacturing technology for immune cell therapy once the remaining 80% of Wilson Wolf should be consolidated by 2028.

Let's go to the next slide. The markets Bio-Techne serve are large, growing and strategically important. Advanced therapy manufacturing include areas such as targeted protein degradation, cell therapy is expected to grow at rate exceeding 20% annually in the next years.

Key elements of Bio-Techne offering in the field are characterization and quantification of protein, quality control testing, quantification of translation biomarker and support for diagnostic development.

In a broader context, you may also think of potential synergies with our acquisition of last year, Mirus Bio in transfection technologies. Discovery of novel biology insights growing at high single-digit rate is addressed with a wide range of cell-based system for better disease understanding on cellular level, ranging from immune cell system, stem cell system, organoid, a perfect addition of our HUB organoid business, which was acquired last year.

In the market of enabling of precision diagnostics, which grow at mid-single-digit rates, special multiomics technologies have been developed to help understanding disease on a molecular level. The portfolio range from [ institute, into radiation to mid-plex ] special multiomics transactional and clinical application leadership.

In summary, the cumulative size of the total addressable market reached USD 27 billion, and we think that as a combined group, we will have a position to win in this market.

The next slide illustrates why Bio-Techne will be such a compelling strategic fit for our Life Science business. Together, we will be uniquely positioned to support customers across the full spectrum of Life Science workflow, from discovery and transactional research through development, testing and commercial manufacturing, what stands out immediately in the highly complementary nature of our portfolios.

Bio-Techne has built a strong position in high-growth next-gen biology R&D, including new approaches to manufacturing emerging modality. Its capabilities span reagent solution, precision diagnostics, spatial biology, analytical solution and going forward, cell therapy manufacturing through Wilson Wolf. These trends will fit exceptionally well along our own portfolio.

Within Discovery Solutions, we provide reagents, immunochemistry, biochemicals and cell biology tools that help accelerate breakthrough discovery. Within Advanced Solutions, we offer technically specialized tailored and compliant product and services that support customers in a highly regulated environment as they translate scientific discovery into real-world impact. And in Process Solutions, we provide high-performing solutions, including filtration, chromatography, media, process chemical and single-use assembly that enable bioprocessing efficiency, reliability and scale.

Together, our capabilities will create a powerful scientist and commercial model that will allow us to further strengthen customer stickiness in priority segments and leverage both portfolio globally across the full life science supply chain from discovery to development and manufacturing. With that, let me over to Helene.

Thank you very much, JC, and a warm welcome from my side. Now as we have discussed throughout the presentation, we believe this proposed transaction is expected to create value for our customers, for our shareholders and for our employees.

We anticipate the integration of Bio-Techne into the Life Science segment would yield clear accretion across the three dimensions: revenue growth, margins as well as EPS pre.

So starting with revenues. Bio-Techne is expected to deliver high single-digit growth over the medium term. This reflects its market-leading product and exposure to highly attractive growth areas in Life Science, including, as JC outlined, next-gen biology, advanced therapies and bioprocessing. And importantly, this growth profile would further strengthen the midterm organic sales trajectory of our Life Science business. Leveraging our global platform also provide opportunities to expand Bio-Techne's reach and accelerate growth internationally.

Let's look at earnings. The proposed transaction offers significant margin accretion potential. We would expect immediate EBITDA pre margin accretion after closing. And run rate cost synergies of approximately EUR 140 million by year 3 after closing. Now this represents about 12% of Bio-Techne sales, which does compare favorably with industry benchmarks.

These synergies are expected to support the overall profitability profile of the combined company, while onetime costs are expected to amount in about EUR 500 million. Taken together, we expect the intended transaction to be EPS pre accretive by year 3 after closing.

Our all-cash proposal for Bio-Techne at USD 73 per Bio-Techne share represents the second largest external growth step in the history of Merck. It clearly demonstrates our commitment of accelerating growth and deploying capital to strengthen our competitive position and innovation power through disciplined M&A.

The implied premium of 35% versus Bio-Techne's unaffected share price of USD 54 is attractive for Bio-Techne shareholders, while remaining fully within the financial guardrails for large acquisitions that we have consistently communicated.

And as a reminder, these guardrails are: one, EPS pre accretion, which we expect by year 3; two, IRR above WACC, which we also expect to achieve by year 3; and of course, maintaining our strong investment-grade rating.

This transaction is expected to be funded through a combination of cash and new U.S. dollar and euro-denominated debt. We have structured the financing with discipline. We expect net debt to EBITDA below 3x and an average interest rate between 4% and 5%.

At the same time, we do expect rapid deleveraging after closing, supported by the strong cash generative profile of the Merck Group overall to which all businesses contribute based on their specific cash generation capabilities. And just to frame this proposed transaction, it would be yet another testimony to Merck's disciplined M&A strategy. And with that, handing back to Kai.

Thank you, Helene. And before we move to the Q&A, allow me to summarize the key elements. The proposed transaction is closely aligned with the group's four strategic value streams. This represents a significant step for Life Science and for the Merck Group as a whole.

The intended acquisition strengthens our growth profile and creates a clear path to value creation through strategic fit and financial discipline. We anticipate the proposed transaction to immediately be sales growth accretive for the Merck Group after closing, and we also expect the transaction to be EBITDA pre margin accretive immediately after closing.

Most importantly, this intended transaction would bring together two highly complementary organizations with a shared commitment to scientific innovation and customer success.

Merck has a strong presence in the United States with more than 14,000 employees and 58 sites. Our Life Science products are used in the manufacturing of almost every of the top 30 blockbuster drugs. To date, the U.S. is our largest business hub globally with more than 30 U.S. manufacturing sites. We remain committed to strengthening our U.S. presence because it is an essential innovation and manufacturing market.

Upon closing, the proposed acquisition will also enhance resilience and expand our capabilities within the U.S. Strong domestic capabilities are critical for resilient supply chains, and we are committed to maintaining and strengthening these essential capabilities in the United States. With that, I will now hand over back to Florian.

Thank you, Kai. I believe we are now ready to move to the Q&A part of the call. Amber, I'm handing over to you.

[Operator Instructions] and the first question comes from the line of Sachin Jain of Bank of America.

Three quick questions, if I may, please. Firstly, can you just talk about the high single-digit growth outlook and your level of confidence in that. Are revenue synergies, geographic expansion referenced within that? Or is it upside? The background for the question is that consensus has growth roughly flattish, Bio-Techne this year and mid-single digits into '27.

Second question is, Helene, I wonder if you could just comment on the short-term EPS dilution you see before the 3-year period. It seems to be in the low single digit to confirm.

And then finally, just if you give us some sense of how you're going to split this business across your existing three divisional business lines, that would be helpful.

Helene, do you want to take the EPS part and...

Let me start with the EPS one. I mean, Sachin, this is actually quite easy if I give you two more additional data points. One is if you think about the synergies, you can assume that there's a linear evolution of the synergies over the 3 years. And the other one is then to say like that we are basically broadly happy with where the consensus sees Bio-Techne. And hence, I think with that, you should be able to be able to create your model quite easily yourself.

Now before JC tells you about all of the opportunities that we see, I would want to point towards two things if we look at the high single-digit growth consensus. One, no, it is not in our model, any sales synergies. And B, ultimately, we want to sort of like be careful around looking at this. Let's first look at closing the deal, work around it and then sort of like move forward and give you more color when we have more visibility. And with that, over to JC with all of the optionalities.

Thank you, Helene. And Sachin, again, very exciting to be in this call with you. Talking about the integration. So we expect that Merck will tackle a thoughtful and phased approach to the integration as we have done with the large integration in the past. I'm thinking about Millipore, Sigma-Aldrich or Versum. What we have in mind, number one, we want to focus on business continuity. Two, talent retention. The third element will be customer relationship linked to our new go-to-market approach within Merck Life Science. And the third element, you need to keep in mind that when we do an acquisition, innovation is in the center of what we want to do.

From an integration planning point of view, we'll proceed with discipline and phased manner as we have done in the past. And talking about sales synergy, I expect that we'll be able to leverage on our global footprint. I expect that we'll be able to leverage on omnichannel approach. I think keep in mind that we are selling our direct sales force, e-commerce and so forth.

And to your second question, talking about split by division, we see a very nice complementary of Bio-Techne portfolio within Merck Life Science, very, very nice. We are convinced that the Bio-Techne future acquisition will benefit the entire three business units, but the majority will go to Discovery Solutions.

Do you have further follow-up questions, Sachin?

We will now take our next question from the line of Peter Verdult from BNP Paribas.

Just two questions. Maybe, JC, can I ask you to put your optimistic hats on, and it's going to be another question on why you're assuming no revenue synergies when you're clearly stating you've got an opportunity to globalize a U.S.-focused portfolio. And maybe if you're not willing to go down that road, could you maybe give us some specific examples of where you see the opportunity to bundle the offering -- the combined offering, assuming that the Bio-Techne deal goes through. So just to push you a bit more on the revenue synergy potential.

And then for Helene, on cost synergies and cost of debt assumptions, if I think about Merck's M&A track record over the last 10, 15 years, it's been pretty good, exemplary. And one feature has always been that when it comes to cost synergies, you over-deliver on the amount and you over-deliver on the timing. So I just want to push you a bit more about how conservative you've been with this $140 million number? And the same question goes around the cost of debt assumption. It feels quite -- 4% to 5% seems quite high given current rates.

So Peter, let me start with an answer. First of all, we need to close. So -- and when we close, then we will have a look, point number one, it's -- I want to make sure that we will stay on this specific topic. But yes, I expect that we'll see benefits from the global footprint of Merck. And I'm thinking about region for region, where not only on omnichannel, but region for region, we have very strong capabilities.

And I think I can't emphasize it enough. It's like it is not in the model, and please be so kind and do yourself and others, we're not putting it into the model.

Let's look at synergies, Peter. I mean, we feel pretty good at the EUR 140 million cost synergies. Having said that, if we compare it, it is already at 12% of the revenues of the company. So that's very much in the benchmark.

And as you rightly point out, we have a very successful track record in M&A. And with that, we're confident to be able to deliver these synergies. We expect a normal integration and hence, are looking at the linear ramp-up. very much based on our internal due diligence. But again, let's close the deal first.

We will now take our next question from the line of Matthew Weston from UBS.

Three questions for me, please. Merck has been looking for a large Life Science acquisition for a number of years. Bio-Techne has obviously been there for a number of years. So Kai, why now?

The second question really is around Bio-Techne stock-based compensation, Helene. So historically, Bio-Techne has always excluded stock-based compensation from its financials. So can I please just check that the numbers when you talk about accretion fully assume a normal Merck accounting such that stock-based compensation will go back into the Bio-Techne P&L? I'll leave it there.

So on your second -- sorry, I will just answer the second question because it's fast, it's yes.

I'll take the first one as you clearly directed to me. So I think it's very important to zoom out first before I give you more details on the specific deal. Merck is a growth company. And we always stated growth comes from Life Science and Electronics, and hence, this is where the M&A focus lies. That's what we always said. We have always kind of shared what are the financial criteria as well that we put on that in order to drive growth in these two areas.

In addition, I think we gave you color on how important health care is for us from a cash flow perspective, and we needed to stay healthy to help us to deleverage as fast as we want to deleverage. And hence, our plans to invest in early and mid-stage pipeline in health care. So that's the big picture strategy focus.

And the Bio-Techne transaction is a prime example on how we play the strength of Merck and Bio-Techne comes with an appealing growth and margin profile benefiting the group growth and the group margin. And while at the same time, we use the strong cash flow profile of healthcare for faster deleveraging. And to be more specific on why now. The transaction represents an enterprise value of USD 11.5 billion and it's equivalent to a multiple of 23.2x, and this equals 17.5x, including the target run rate cost synergies of EUR 140 million. And this is broadly in line with the sector, the life science tools sector. And despite a lot higher growth and a higher margin profile. So that gives you an idea why that valuation, of course, wasn't possible 2 years ago.

Understood. Can I ask one quick follow-up? I don't know whether you'll be prepared to share. We will learn more with the [ S-1 ]. Was this a process which Merck won? Or is this a conversation between two companies that's been going on for some time?

I wouldn't want to comment on this one, Matt.

We will now take our next question from the line of Richard Vosser of JPMorgan.

Two questions from me, please. Just thinking about overlaps in terms of the business, it doesn't seem like there are significant overlaps with Merck's capabilities. It looks very synergistic. But just if you could confirm your thoughts on that line.

And then secondly, I noticed, of course, that there is a buyout option that you inherit on this acquisition for Wilson Wolf. So just wondering about the financial terms on that and how that would look and how that would be accounted for.

Let me quickly start. So very important is for that intended acquisition is the focus on innovation. This is the highest importance for us in M&A is focusing on innovation. This is how it contributes to the sector as well as to Merck as a whole. This is very important to put that at first and maybe then in terms of the potential overlaps and complementary nature, the very complementary nature of that deal, JC, can give you some more color.

Richard. So to your first question, yes, there is very, very limited overlap between the two portfolio. I confirm and I echo what Kai said.

Concerning Wilson Wolf, so Wins Wolf is a company, I would say, specialized in cell therapy manufacturing. And so this company is focusing on creating, call it, innovative cell culture device which aim to provide, let's say, a solution to patients which are fighting cancer through new technologies.

And in this context, Wilson Wolf has, I would say, has a proven relevance in the late-stage and commercial cell therapy.

And yes, in 2023, Bio-Techne entered an agreement with this innovative company. And Wilson Wolf may or should be acquired in 2028 based on the 2027 financial performance, and it will be between 4.4x revenue up to maximum EUR 1 billion.

And Richard, thank you so much for this question because this gives me the possibility to mention a little bit of accounting here.

This would represent a derivative under IFRS. And as a result, we would need to account for this option as part of the P&L, and it would be recognized in EBITDA.

So the way we need to do this is like we will need to value it -- we would need to value it as part of the purchase price allocation and then allocate account for it at fair value until there would be an execution of the acquisition.

We will now take our next question from the line of James Quigley of Goldman Sachs.

I've got three, please. So firstly, on -- can you talk to the margin expansion potential for the Bio-Techne businesses? It looks like the slight margin contraction between 2019 and '25. But how should we think about the underlying margin expansion potential here, particularly in the Diagnostics and Special Biology segment? That's number one.

Number two, can you talk to what's included in the EUR 500 million of onetime costs? Typically, when we see these types of deals or cost savings announcements, et cetera, the ratio of onetime cost to cost savings is around about 1:1. So what is in the EUR 500 million? And how should we recognize that as well? Should that be straight line?

And then number three, just a follow-up on the Wilson Wolf option. Can you confirm how much of the business is actually consolidated today? Is it the 20%? Or do you have sufficient control that you have to consolidate all of it? And then can you talk to the '25 revenue and operating margins for Winston Wolf, just to give us an idea of whether the threshold for the EUR 1 billion could potentially be hit for the future payout?

Okay. Maybe let me start with the option. I think the answer around the IFRS points to the fact that like we cannot consolidate it or we would not consolidate it, sorry, I need to watch my language.

Also, please remember that like at this point in time, we cannot comment too much on Bio-Techne's numbers itself. I think the hint towards we feel broadly comfortable with the consensus is all what we would answer here.

And then let me think about the third question. I need some help here.

Onetime costs. I think the other question related to onetime costs. if you could share a bit more details here.

So let's look at the onetime costs. I mean we're looking at roughly EUR 200 million of transactional costs, roughly EUR 300 million of integration costs, and they are roughly distributed across year 1 and 2.

Now as you know, we've done a lot of M&A transaction as a company. And as such, we feel very much this is a customary view of how much this integration would cost and how much work would be around this. So I think there's nothing really too much to read into that number at this point in time. Having said that, we will be back to you once we come closer to closing.

We will now take our next question from the line of Charles Pitman-King of Barclays.

Just trying to double-click a little bit on this cell and gene therapy opportunity you're highlighting. Just I'm wondering what it is that you've seen in the market that has driven you to seek greater exposure in this end market or if it's actually the other areas of the business and cell and gene therapy is more of an additional opportunity, just given the added option of taking on Wilson Wolf by 2028, as you highlighted? And is there any potential read across here for potential synergies to the pharma business if you're actually accessing greater next-gen technology for cell therapy manufacturing.

And then maybe just asking the next step question of thinking about your scientific value chain, if it's your goal to achieve an end-to-end offering as is highlighted on Slide 6, I'm just wondering where the white space still exists once you've accounted for Bio-Techne and Wilson Wolf.

Let me start with the end-to-end question. So of course, it's too early now to speculate on what could be the next step. You saw in that nice puzzle pieces chart that how things fit beautifully together and how we kind of create a better integration of workflow related technologies.

I think from there, it's probably easy to anticipate which could be white spots in terms of technology because we are very much consumables focused, and we need to drive our growth in consumables by the proper integration across different steps in workflows and Bio-Techne. Bio-Techne is a perfect example of how these things fit together. So you take that as the map and then you know what are the white spaces. And I would pass it to JC for your second question.

So the second question was around Wilson Wolf. So to keep it short, Wilson Wolf is focusing on cell therapy. And yes, we see it as a good opportunity for us looking forward.

Quickly. Is there anything that you've seen developing in the market or developing across the pipeline that give you greater confidence today that cell therapy is the correct modality to be investing in for the future?

At this stage, we see positive and good activities in cell therapy improvement.

We will now take our next question from the line of Rajesh Kumar of HSBC.

If I can get some color on your 3-year earnings accretion plan. Obviously, 12% of current revenues. And if I look at consensus, you indicated that the margin -- you're comfortable with consensus on Bio-Techne. So on that basis, you're looking at about 44% margin. And if I take the cash outlay for the deal today, and the numbers you've given, still not getting to return on capital over 8% by '28, '29.

So you indicated it's IRR accretive. It's clearly not returns accretive. So can you help us with the math there? And then you've also clarified you're not assuming revenue synergies. So is the option value a part of the equation or the growth accretion and therefore, what multiples the whole group would be trading as a consequence has gone into the equation?

Just the math of IRR accretion did not add up for me. So I would really appreciate that clarification, please.

Yes. So let's go this step -- through this step by step. As I said now many times, you can't really comment too much on Bio-Techne itself. So hence, we continue to look at what is the consensus model. Then of course, we have the 12% of synergies. And as we said, that is a linear evolvement over time.

Now on top of that, as you rightly point out, we will need to finance the deal using debt. And we have said that the interest rate will be between 4% and 5%, but you need to also take into account that we have a very strong cash generation profile.

And with that, I would like to also remind you of the fact that our three acquisition criteria are EPS accretive in year 3, EPS accretion, IRR above WACC and a strong investment-grade rating. So I think overall, I believe you have most of the numbers.

Then you've also heard JC and myself talking about JC saying there is optionality around potential sales or revenue synergies, but we do not want to put that in a model because at this point in time, it is way too early to quantify anything. And hence, I would really like to urge you not to put it into your model either.

Yes, I get that. But then if you're not getting returns accretion, how are you getting to IRR accretion? I mean I know there are two different calculations there. But how are you getting over WAC on IRR? Because of cash flow, if you mean to say, you think the cash collection cycle is quite different?

Isn't it maybe the easiest thing to actually compare models more in detail because I think the numbers are there. It is working in our model.

Okay. But can you confirm it's not returns accretive, right, until the third year?

As said, our criteria for M&A are EPS pre IRR above WACC and investment grade in year 3.

We will now take our next question from the line of Oliver Metzger of ODDO BHF.

First question is on Bio-Techne academia exposure, which seems to be at around 20%. So most likely was not supportive to growth over the last years. Do you see in your high single-digit growth assumption, some unchanged academia environment? Or does this number also include some recovery in academia?

Second question about cell therapy. So it's for you more or less a new area, but overall pretty small. I don't want to say it's subcritical, but -- and also Wilson Wolf optionality might help on that side. But how do you think about the necessary scale in that business?

And my final question is about your overall setup post the takeover if it happens. So we have waited for some years for a bigger deal to happen. And despite this bigger deal, your financial firepower is still pretty good. And how do you think about the potential M&A in the future? Do you think more, okay, now you have to digest that deal? Or does this deal -- is it an either/or? Or is it an end what you think about further opportunities? That's from my side.

Thank you, Oliver. Jean-Charles speaking, let me start with your question around Academia. You are right. The Academia segment wait for roughly 20% of the total revenue of Bio-Techne. I cannot comment much further until we'll complete the acquisition. But if I compare to our current trend within Merck Life Science today.

Yes, we have exposure to academia. Yes, the market has been kind of muted or changing over the last few years, but we feel that we are at a stage where we reach a bottom. And looking forward, the market should be slightly more attractive. And don't forget, when we think about Academia, this segment is highly, highly innovative.

To your question on cell therapy, I would like to echo what you just said. In terms of size, this is today a small business. but growing nicely. And we talk about manufacturing end-to-end from R&D to commercial. And we see at this stage some improvement momentum in early-stage steps. Kai?

Yes, Oliver, thanks for the opportunity to kind of give you a bit the bigger picture. Before I go there, let's just look into more on the timeline. So first, of course, focus on closing the deal. Second then is on -- and you know that from our past on very proper integration and generating value out of the deal by proper integration. I think we have done that with highest retention rates in the teams and by safeguarding the innovation capability of the companies we acquired across different businesses. So this is the focus -- the near-term focus on a more strategic lens.

Now zooming out, as I shared earlier, kind of the growth company focus that we have and growth comes from Life Science and Electronics, and this is really M&A focus lies. And I alluded to what is the very important role of health care. Health care is very important to us from a cash flow perspective, and it really needs to stay healthy. And this is why we said we want to continue investing in the early and mid-stage pipeline. So these are the strategic priorities over a longer period of time, and we execute whenever the things are strategically impressive as well as they are financially meaningful. And if these things come together, then we act on these deals.

And I think we have time for one last question as we are at the time for the call...

Certainly, so our final question today comes from Falko Friedrichs of Deutsche Bank.

My one question is, can you give us an idea to what extent Bio-Techne could also strengthen your bioprocessing business going forward? And what are the specific overlaps to that business?

Falko. So let me start with your second part of your question around overlap. We don't see any major overlap. We are thinking about synergistic portfolio.

Concerning the contribution of bioprocessing, as I said earlier, we are seeing Bio-Techne as an outstanding strategic fit, which supports our mid- to long-term growth strategically within Life Science. It's true across the entire portfolio, Advanced Solutions, Discovery Solutions and Process Solutions.

We feel that when we'll be able to complete this transaction, Bio-Techne will provide very solid capabilities. Again, I would like to echo what Kai said around innovation. We see strong complementary portfolio, deep customer interaction. And what is also interesting recurring businesses, a large part of their portfolio is consumables related, roughly 80%.

And so to answer to your question, the three business units, Advanced Solutions, Process Solutions, Discovery Solutions will benefit, but a large portion will go to Discovery Solutions.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect your lines.

My name is Mike Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team, and we're excited to be joined by Bio-Techne. We're pleased to host Kim Kelderman, Chief Executive Officer; and Jim Hippel, Chief Financial Officer. Kim, Jim, thanks for being here.

Great. Thanks for having us.

Format will be a fireside chat, but raise your hand if you've got a burning question. I mean maybe just to kick things off, you recently reported, any highlights from the quarter you'd like to talk through sort of how it played out relative to expectations? What was a little bit better, what was a little bit worse?

Yes. So yes, we reported our Q3 and printed negative 2% growth for the quarter, and that was over a prior year quarter of about 6% growth. A couple of dynamics in there that we'll definitely double-click on. But in a quarter like that, you always want to look back and ask yourself, do you have the right strategy and is it rolling out in the right pace? And there, I've been pleased to see that, as you know, our strategy is around having a really broad core that reads on many different end markets, and that gives us the leverage to pick specific fast-growing vertical markets where we can build out full solutions in specific application spaces. And for us, that's cell therapy, it's protein analytics and it's spatial biology.

So if I then walk through what happened in the core, negative mid-single digits, but we have talked about a timing issue with a specific large order that moved from Q3 to Q2. Take that into consideration, we saw that the most important product lines in the core, proteins and antibodies were actually growing low single digits and with that are holding with or actually grow a little bit faster than market. So that's a good sign. There, we have the first growth vertical, cell and gene therapy, where we had some dynamics from large customers that got a fast-track approval and are not ordering this year. However, underlying that was growing 50% and that's also what we like to see in that vertical market.

Then the protein analysis, mid-single-digit growth, again, positive growth for the instrumentation as well. This market has, of course, one read -- a strong read on biotech markets where I will get to in a minute. And then last but not least, our spatial biology franchise that grew mid-teens. And that's also where I would like to see this business. So overall, the strategic aspects of our business we're rolling out as we like them to see. Now there's no question, however, that every one of those product lines saw a suppressed biotech -- early-stage biotech demand. And the nice thing is that we saw that across the board. So we know that it is a very specific dynamic to the early-stage biotech end markets.

And yes, that was not how we expected it because if you think about large pharma has been very strong for us, which is usually an early indicator for health in biotech as well. That wasn't the case. And in the meantime, we have seen 2 really strong funding quarters for biotech, and that would also give us the indication that things would slowly go better. We had 2 mid-single-digit negative quarters in Q1, Q2 in biotech, indicating a sort of stabilization. So it was not unreasonable for us to think that a continued stabilization and then possibly followed by some improvement would be the right direction and trajectory for that end market. That's not how it played out, unfortunately. But fortunately, all the indicators for the end market are still very positive.

Now if you go to the academic end markets there, it exactly played out as we thought, where we had 2 stabilization quarters of negative low single digits. We had some positive news. And there, we flipped into the positive growth led by instrumentation. And then the last end market that we called and talk about is China, where over a year ago, we were -- we saw stabilization and then we called that we would be back into the positive growth territory, and that also happened. And this last quarter, we printed for the fourth time a positive quarter. Last but not least, our bottom line, 34.2% on EBITDA, exactly in line with how we saw that and called it and probably a little bit ahead of where the Street had us. So that's the dynamics for the quarter.

Okay. That's great. I want to follow up on each of those in turn. Maybe let's start with emerging biotech. You talked about it a little bit surprisingly weaker in fiscal 3Q. Why do you think that happened, given you saw stabilization in the last couple of quarters, given funding has been better, given the indicators are still strong? Is this a timing dynamic? Is there some sort of disconnect between funding and spending? Just sort of why was it so disappointing?

Yes, it's a very good question. It is really the underlying dynamics of the funding. And it has been clear that IPOs, M&A, lots of activity in the biotech end market, but very much skewed to the later-stage projects and companies that have assets that are closer to commercialization. And that eventually, of course, trickles into other programs earlier stage where these companies would have -- would broaden their portfolio. But initially, the funding is really focused on boosting the late-stage programs. And we can clearly see that in, for example, our biologics instrumentation, where you are supporting manufacturing and commercialization of these later-stage therapies. You see double-digit growth for us there.

But the overall research activity has been actually lagging in recovery. And there was a nice write-up from Evercore this morning where there was more dynamics underneath being studied and very much in line with how we experienced the quarter and the recovery. Nonetheless, as I mentioned, you already said the funding has been very strong. I mentioned the licensing deals and the M&A activity, all of it at very strong indicators for improved dynamics. And therefore, we're very confident that this sets us up really nicely for fiscal 2027.

Okay. So you think it's just a matter of time. You just need more and more quarters of consistent stability and then those biotechs will work to replenish the pipeline?

Exactly. Yes, it will flow into earlier stage. It will stabilize for us, and then it will highly likely improve significantly, specifically based upon those indicators I just mentioned.

Okay. And then maybe let's talk about large pharma for a second. That's been doing a lot better. Is that normalization post-MFN? Is that more confidence in policy and regulatory? Is that maybe portfolio-specific and technology specific, sort of like what's driving the strength there?

Yes. You mentioned the important dynamics. The budgets in R&D for the large pharma companies is in the mid-single digits. And that's where we would like it to be. It's actually increased a little bit year-over-year, but that's all we need from a funding level point of view. And then as I mentioned earlier, our strategy of having broad access from a core portfolio, but also having these growth verticals that are very applicable in large pharma driving our growth and creating pull-through of our high-margin core reagents, that is the setup that we've seen now for 6 quarters in a row, giving us double-digit performance in that end market.

Now we layer on in the future, additional traction from onshoring as well as from AI, where the initial steps are all about getting more instrumentation and with that more digital information for AI models. And you would like to have highly characterized high-quality reagents to have reproducible results as well. And therefore, we feel that our whole portfolio is very nicely aligned with the trends within large pharma.

Okay. Let's keep going through the end markets. On academic and government, you kind of talked through that's more or less as expected as you thought. Can you parse out maybe U.S. versus OUS, the trends you're seeing there? We've seen really varying results from a number of your tools peers. It seems like things are a little bit murky there. Has visibility improved?

Yes. Overall, we have 22% of our revenues coming out of pharma globally, 10% coming out of...

Academic.

Sorry, academic. 10% of that comes out of Europe academic. Europe academic has been very stable, and there is definitely signs of improvement that we hear from the funding level, but it has been stable for us. It's been the 12% that comes from the U.S. that has been challenged under the last couple of quarters, definitely improved picture, though. We can clearly see an improvement in the type of grants that are being released, very much aligned with our research portfolio and our verticals. So the grants are more in chronic disease versus the infectious diseases.

And on top of that, we see that there are -- that there is more traction in certain grants where if customers get these grants, you will start with buying equipment that will help you in the methods that you will need to utilize during the grant. So you see traction in our protein analysis, you see traction in our spatial biology and cell therapy verticals exactly in line with our strategy. So we can see a nice initiation of heightened activity. And that's in line with our expectations. As I said, we had stabilization for 2 quarters, and now we flipped into the positive growth for the academic U.S. market.

And so are the grants being -- are the grants already being disbursed? Are scientists spending the money? Is there still any caution because we've gotten mixed signals there, maybe they're still a little bit worried that you could have another round of fewer disbursements or fewer grants being granted.

Yes. Overall, there's been quite some dynamics in that end market, right? So we had a government shutdown for a while. Combine that with, yes, we had an approved budget, which was great news with a slight increase on it, but then there were grants being held back. And all these dynamics made it a little bit murkier. But on the bottom line, we can now see that grants are being released. We've seen that the right grants are being released if you talk from a Bio-Techne point of view. And then we can also see that there's traction in the growth verticals or basically the technologies that are on the forefront of research that academics would be interested in the moment you get funding. So all of that actually makes a lot of sense if you take all the noise out.

Okay. Okay. You touched on China as giving you broadly positive indicators moving in the right direction. Is there anything you could expand on that? Is it more on the local biotechs? Is the multinationals there, more generics, branded, sort of like CDMOs, CROs, what parts of China are you seeing better trends from?

We are very excited about the fact that it's a very broad-based recovery, right? We see -- of course, government funding is important, and they have approved their 15th 5-year budget. And that creates a certain foundational health. Also, life science tools is still very high on the agenda of -- to be funded and supported aspects of the Chinese economy. So those are fundamentally good things. But in the meantime, you can also clearly see a heightened activity level on biotech and pharma, if you look at the novel therapies being developed.

And the model there is interesting because many of these companies create novel therapeutics that they then take the rights for the China market, right? And they can create a model where they serve the Chinese market, but out-license for the Western world. And that created a dynamic where that end market became much more fundable and could attract local as well as international money. And therefore, you see definitely a heightened activity level and quite some successes over the last 2 quarters when it comes to licensing to Western companies. So a very broad-based recovery. Four quarters ago, we said it would be back in the black, but we also said it wouldn't be a V-shape that it would be very foundationally coming up from a core strength rather than a jolt of funding, which would happen to be the case over the last couple of years, a more foundational strength, and we're really happy to see that.

Is there any talk of government stimulus or government support? Or does this feel more organic and actual sort of driven by real demand?

Right. So there's, as I mentioned, the broad support from the government with a 5-year plan of funding, and that's foundationally important, but the activity level comes from several corners, private as well as government institutions and very broad-based. So from pharma to biotech, early-stage biotech and academics. So very healthy rebound.

Okay. All right. Let's dive into some of the segments and subsegment results. You talked about cell and gene therapy, some of the moving pieces there in the quarter. More broadly, can you talk about your solutions in cell and gene therapy and sort of how that's been received by the market and what the uptake of that has been?

Yes. The cell therapy is an important strategic pillar for us. We are really focused on having very efficient, scalable and affordable cell therapy solutions, and that's what we're working towards. And we had real nice traction. If you look at our overall portfolio of customers, we've seen a low single-digit growth in the customers. Over the last year, we saw some turnover with companies moving out of cell therapy and some others moving in and coming up with better solutions, better therapies. So we see a healthening of the pipeline while it's still growing.

And yes, we've talked over the last 4 quarters or so about the dynamics of 2 large customers that received FDA Fast Track Designation. That's great news because that will shorten their time to approval. However, it created an air pocket for us when it comes to the revenue throughout fiscal 2027. The -- in 2028 will be -- sorry, 2026. In 2027, we will be past that. And that created a dynamic that influence the top line results. But if you look underneath those 2 accounts, we can see clearly that there is a mid-single digit, high single-digit growth underneath, which is definitely where we expect it to be. And with a recovery in biotech, we definitely believe that the underlying growth should be above 20% on a 12 trailing-month basis. And we have this quarter seen 50% growth, and that's definitely something that we continue to expect from the underlying business.

Are there any other sort of implications or ramifications of those Fast Track Designations? Is there -- have you seen a pickup in interest from other customers? Is there more investment in the space, maybe as some others see the opportunity here and the easier path to commercialization?

It's a very interesting question because, yes, of course, this is a very positive aspect for the 2 companies that will -- that have received this designation when it comes to working together with the FDA and shortening their time lines for approval. And with that, of course, plowing some snow for others to follow a similar path, especially since several of these therapies are relatively novel for the FDA and the reviewers. So that is a good aspect and will bolster the confidence of others to enter.

Now in general, also, people see that, hey, there is a definite interest by the administration for specific therapies. And we have seen, let's call them, fast followers, other companies that feel that, hey, this is very investable. We should do something similar, maybe slightly different. But at the end of the day, enter the same space and develop similar therapies for these very prevalent diseases. And therefore, there is a little bit of a [indiscernible] effect.

Okay. But you still have that air pocket just arithmetic of demand being pulled forward.

Correct. It was a 300 basis points air pocket for Q3. It will be 150 basis points for our upcoming Q4. And from there, it will be out of the comparables.

Okay. Okay. Maybe on that point, let's dive into the numbers a little bit. Jim, maybe you could talk us through sort of the implied 4Q or the 4Q guide, what are the moving pieces there? And then jumping off into next fiscal year, any points, we just touched on the air pocket, but any other dynamics we should keep in mind as we look to next year?

Sure. Yes. So as we think about Q4, the guidance we gave on the earnings call was essentially a flat quarter year-over-year, which, again, taking the 150 basis point headwind in account for these 2 fast-track customers implies an underlying growth or a jump-off point for fiscal year '27 of a positive 2% or so, which is very similar to what our Q3 performance was if you take the 400 basis points, 300 from these 2 fast track, one from this OEM timing and put that into play, it's basically saying the same kind of underlying growth. At the end of the day, pharma is already performing very, very well.

We don't see any reason why that doesn't continue in both the near and intermediate and longer term. Academic is stabilizing and for us, gradually improving. We think that, as Kim outlined, it will be a gradual process, but nonetheless going in the right direction. So we kind of see that continuing. And then, of course, biotech is really the big swing factor. It has been as to when this funding turns into spending. As Kim alluded to, there's all kinds of -- as you dive deeper into the funding detail, it points to a 1-quarter lag for emerging versus the overall biotech in terms of when the funding really started to come in. And so whether it's the very end of Q4 or whether that's the start of our fiscal year '27, if I try and thread a needle.

But nonetheless, it does appear like it's on the horizon sooner -- more sooner than later. And it's not a matter of if, it's a matter of when as long as the funding continues in the right direction. So we've said, hey, we're not going to try to thread this needle anymore by quarter. We're assuming that our Q4 is very similar to our Q3 even for biotech. But either way, it sets us up for a very nice jump-off point as we think about fiscal year '27 because if you think about plus 2 as being the jump-off point, biotech going from high single-digit declines just to flat gives you a couple of extra points. It's over 20% of our revenue. So just that dynamic alone would suggest a nice step up.

And then, of course, you got the dynamic of easier comps in general, definitely in biotech as well as academic and generally improving markets for both academic and in Asia. So it's setting up for a nice, I think, recovery or start to recovery in fiscal year '27. I think we're very pleased with our relative positioning going into our fiscal year '27.

I mean it sounds like you're generally more constructive on most of these factors, but still some uncertainty and some unevenness. Is visibility broadly getting better? Or is it still a little bit challenged with some of these swing factors, things like biotech...

I always say being a very highly consumable-based business as we are, it's a blessing and a curse sometimes, right? It's a blessing because of the great reoccurring nature of it. It's a curse from a forecasting perspective sometimes because the book and ship all happens within a day or 2. So you really got to look at momentum and external factors and try to calibrate all that. I'd say where it is encouraging in terms of the biotech funding starting to turn into spending sooner than later is where we're seeing some increased activity with our customers that require longer funnel building and longer lead times, and that would be in our instrument portfolios, both in our proteomic instruments, but also in our spatial, and we're hearing from the field that for the first time in quite a while, the interest level from biotech customers are starting to pick up there.

The funnel is actually starting to build. So again, that bodes well, maybe not for Q4. But as we start to fiscal year '27, that's a very good sign that we're seeing actually on the field -- in the field right now with regards to our biotech customers. And we saw that same dynamic, by the way, play out in that U.S. academic. So yes, we grew low single digit in academic. That growth was actually driven, believe it or not, by our proteomic instrumentation and our spatial instrumentation.

And we've always said that when we see markets start to turn, we often see it in those 2 areas first because it's -- they're high-growth areas, they're tools that are in high demand by our customers. You can tell that by the consumables usage. Like for example, proteomic analytics has the cartridges. We have not had a down quarter in consumables since COVID for our instruments. So they're using the heck out of our instruments, and it makes sense that when the money starts to become available, that's one of the first places we'll start to spend it.

Okay. Okay. Kim, something you touched on earlier, AI and sort of how that's factoring into conversations. I have to touch on that. Just how prominent is that in your conversations with your pharma and biotech customers in terms of AI applications in research and discovery and sort of how you can fit into that narrative?

Yes. It's certainly on the forefront of many of the discussions. We believe that eventually, the -- it will increase the efficiency of development work and therewith allows for a broader portfolio and more projects that can efficiently move forward to a commercial drug. So increase of the pipeline, bottom line. But short term, you can clearly see that customers would like to make sure that they can use their data for building their models. And therefore, automation is on the forefront of their minds. And of course, our protein analytics platforms, all 3 of them help you creating digital information on your biological instruments -- sorry, biological experiments.

And our COMET instrument, very much aligned with doing large experiments as well. And then if you think about the data you generate, you would like to have reproducible data using high-quality reagents where there are many publications as well as good characterization data around those reagents. And that's exactly what we've built over the last 50 years, taking every reagent that we launch very serious, highly characterized and over the many decades, published from all angles. So we do believe that we have a very strong competitive advantage in that environment. To validate it all, we've done a survey of over 100 of our customers, 140 or so, to see how and where they are in their adoption cycles, what their needs will be and very much validated the storyline I just elaborated on. So we're very confident that we're in the right spot with the right sense of urgency with the right direction.

Okay. I mean trends you're talking about in terms of reproducible data, high-quality data, high-quality reagents, automation, more high-content screening, high-throughput screening, that stuff that pharma has been doing for 10, 20, 30 years, right? It's been a trend and a move in this direction. Has there been a real step function change in the last like 6 months, 12 months where it's taken another leg higher where you can see sort of like, okay, this is when pharma started using AI and boom. They're doing a lot more high throughput screening. They're doing a lot more automation. Or is it still more gradual? Is it still to come? Is it -- are they still experimenting with these workflows, these protocols? Or is it already kind of being implemented?

Yes, it's a good question. At the end of the day, I would have to say that, in general, the adoption has definitely increased over the last year. And you can imagine with the rhetoric and the drive top down in the company to be in the forefront, there is definitely a step up. But you're also right in saying that many of them have already been adopting the large language models for several years. So with that, you can conclude that not everybody is at the same stage, right? And you'll see a bell curve. You have the fast movers where they're already building models and starting using the data and others are right on time and started putting it in gear over the last year, and you'll see laggers. And overall, though, the trend is undeniable that we will see this bell curve moving through our customers and their demand and the type of products they would like to have.

And the pharma that's already adopting this and that's sort of further along on the curve, what are you seeing from them in terms of like spend levels overall? Are they spending more money total? Are they spending the same amount of money but shifting it around in terms of baskets? How they're doing R&D, sort of like what are the early learnings in terms of how they're implementing it? Because there's a lot of debate of -- you can make an argument that Bio-Techne and tools in general are beneficiaries here. You could argue that it's a detriment to the space, sort of like it's hard to tell where the overall dollar amount will go.

The overall view is that it will be beneficial, right? And I think that there is now enough data where you don't have to do the exact same volume

[Audio Gap]

but underlying is a very strong [indiscernible] and a strategy that is even in tougher end markets holding up. As I mentioned in my opening statement, we have strength in our core businesses and definitely growth in the verticals we talked about where we have [indiscernible] solutions and we can generate disproportionate growth by pulling through of course, as high margin reagents that sets up work very nicely and I'm very confident that we can be able to further demonstrate the strategic advantage...

Okay. That sounds great. We're going to leave it there. Thanks, everyone, for joining. Kim, Jim, thank you so much for being here. Appreciate it.

Thank you, Mike.

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter and Fiscal Year 2026. [Operator Instructions]

I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and 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. The company's 10-K for fiscal 2025 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 because 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 Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the Bank of America and Jefferies Healthcare Conferences. We look forward to connecting with many of you at these upcoming events.

I will now turn the call over to Kim.

Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's Third Quarter Earnings Call for Fiscal 2026. The Bio-Techne team continued to execute with discipline in a dynamic and uneven end market environment. Our quarterly performance was supported by sustained strength from our large pharmaceutical customers and stable to improving trends in our U.S. academic end market. These positives were partially offset by continued softness in emerging biotech spending, resulting in a 2% organic revenue decline for the quarter. .

Importantly, we are seeing encouraging indicators that point to an ongoing improvement in the U.S. academia and an eventual recovery in emerging biotech, which positions us well for a stronger fiscal 2027. As discussed in our prior earnings call, order timing related to 2 cell therapy customers that received FDA Fast Track designation along with the timing of a large OEM commercial supply order created a 400 basis point headwind in the quarter. Excluding these factors, underlying organic revenue growth was 2%.

There were several notable highlights during our third quarter, including the following: our Spatial Biology portfolio delivered mid-teens growth and exited the quarter with another record backlog for our COMET platform. Our GMP protein portfolio grew nearly 50% year-over-year when excluding the 2 fast track cell therapy customers. Within our proteomic analysis franchise, favorable instrument placements and utilization trends drove mid-single-digit growth. Our China end market achieved positive organic growth for the fourth consecutive quarter. And our largest end market, large pharma, delivered its sixth consecutive quarter of double-digit growth.

We also remained highly focused on profitability. Adjusted operating margin in the third quarter was 34.2%, representing a 310 basis point sequential improvement over fiscal Q2. Jim will provide additional detail on our financial performance later in the call.

Now I turn to our end markets, beginning with biopharma, excluding cell therapy. Here, we continue to see a divergence between the performance of large pharma and the performance of emerging biotech. Revenue from our large pharma customers grew low double digits, driven by sustained investment in discovery, translational research and manufacturing. In emerging biotech, however, revenues declined high single digits reflecting the typical lag in spending following the funding constraints experienced in the first half of calendar 2025. Biotech funding activity has since rebounded meaningfully with estimate in cases of more than 90% and 50% in our fiscal Q2 and Q3, respectively.

Given the typical 2 to 3 quarter lag between funding and customer spending, we view this as a constructive setup for fiscal 2027. In academia, the team delivered low single-digit growth as the U.S. academic market returned to growth in the third quarter. The improvement in NIH outlays new grant activity and the 1 trend increase to the NIH budget have reduced funding uncertainty and position this end market for continued stabilization.

From a geographic perspective, the Americas declined low single digits, while Europe achieved mid-single-digit growth. Our 2 largest fast track cell therapy customers are reported within the North America results. Asia delivered low single-digit growth with momentum in China continuing for the fourth consecutive quarter. China is seeing increasing demand from biopharma and CRO customers focused on antibody drug conjugates, cell therapy and autoimmune disorders. These are areas where our reagents, instruments and analytical platforms are particularly well suited.

In April, Bio-Techne announced a strategic brand alignment designed to streamline our portfolio from 10 brands down to 3. This alignment simplifies how our customers engage with Bio-Techne across the research to clinical continuum. Our 3 brands now include R&D systems, which integrates our full portfolio of research use only and GMP reagents alongside a proteomic analysis instruments previously branded as ProteinSimple. Bio-Techne spatial biology, which includes our RNA scope NC2 hybridization kits and reagents as well as our COMET Multiomic Spatial platform and biotech diagnostics, which encompasses our clinical controls and precision diagnostic solutions.

This structure better aligns our products and technologies with our customers progress from discovery through translational research into clinical and diagnostic applications. It also enhances the visibility of our solutions across digital and AI-driven platforms, making it easier for customers to identify and deploy the right tools within their workflows.

Speaking of artificial intelligence, we continue to see AI increasingly influence both how we operate internally and how our customers approach drug discovery. Internally, we are leveraging AI to design novel and [indiscernible] proteins with enhanced properties, including improved heat stability, bioactivity and solubility relative to the natural occurring proteins. As you are aware, AI tools are only as effective as the data that informs the model. Our models are trained on 5 decades of proprietary data, creating a meaningful competitive mode. And in parallel, we are deploying AI throughout the organization to improve productivity and customer engagement.

From a customer perspective, AI adoption is accelerating the earlier stages of drug discovery, particularly target discovery, which is expected to expand the number of viable programs and improve probabilities of success. The effectiveness of these models depends heavily on the generation of high-quality biological data, which is an area, where Bio-Techne is extremely well positioned. As an example, a recently published collaboration between Providence Health and Microsoft on the GigaTIME AI framework used data sets generated on the Bio-Techne Spatial Biology platform COMET, to convert traditional H&E pathology images into virtual 3-dimensional tissue representations.

We view the growing demand for content-rich biological data sets as a durable tailwind for both our spatial biology and our proteomic analysis platforms. AI also acts as a downstream demand driver for our UO agent and assay portfolios. Every AI-enabled insight ultimately requires biological validation, which will fuel demand for highly specific antibodies functional assays and complex recombinant proteins in mechanism of action studies, biomarker validation and preclinical workflows. These applications align directly with the most differentiated and highest value sections of our portfolio.

Now let's turn to our segments, beginning with Protein Sciences, where organic revenue declined 4% in the quarter. After adjusting for order timing from the previously mentioned cell therapy and OEM commercial supply customers, underlying growth was 2%. Our differentiated portfolio of reagents, instruments and analytical technologies remains foundational to the development and manufacturing of advanced therapeutics, including cell therapies. As a reminder, 2 of our largest cell therapy customers received FDA Fast Track designation, which accelerated clinical time lines and reduce near-term GMP reagent demand as these customers had already secured the materials required to complete their clinical programs.

Excluding the impact of these 2 customers, GMP protein revenue grew nearly 50% year-over-year. This strong performance from emerging cell therapy customers underscores the increasing reliance on GMP-grade cytokines and growth factors, as programs advance for early development through clinical trials and into manufacturing scale-up and commercialization.

Staying with cell therapy, I'd like to provide a brief update on Wilson Wolf. We currently own 20% of Wilson Wolf and remain on track to acquire the remainder of this manufacturer of the market-leading product line of single-use bioreactors called the G-Rex by the end of calendar 2027 or potentially earlier upon achievement of specific milestones. Despite the challenging biotech funding environment, Wilson Wolf delivered low double-digit growth on a trailing 12-month basis while maintaining EBITDA margins north of 70%.

Turning to our proteomic analysis instruments. Growth was led by an operating increase in our Ella benchtop immunoassay platform. Ella automates traditional immunoassays into cartridge-based workflow, delivering rapid, highly reproducible protein quantification with minimal hands-on time. These attributes are driving strong adoption in neurodegeneration research, which is reflected in a 3-year CAGR of 50% across our neurology assay portfolio. While this remains an emerging portion of the business, the recent launch of ultrasensitive capabilities strengthens Ella's position as a leading platform for blood-based neurological biomarker analysis.

During the quarter, we also achieved CE IVD marking for enabling hospitals, clinical laboratories or other European organizations to use Ella as a validated platform for clinical applications, in-house test development, clinical trials or other translational activities. We also saw continued traction across our biologics capitalization portfolio led by our Maurice platform. Maurice is increasingly embedded into biopharma manufacturing workflows as a quality control and the capitalization tool. It is enabling faster and more consistent assessment of critical protein attributes, including size, charge and purity. This drove double-digit growth in both Maurice instruments and consumables.

Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types declined mid-single digits in the quarter. Excluding the impact of order timing related to the previously referenced OEM commercial supply customer, organic growth declined low single digits. Strength from large pharma customers was offset by continued softness in U.S. academic demand and the lingering effects of last year's challenging biotech funding environment. As funding conditions continue to normalize in academia and recent improvements in biotech funding translate into customer spending, we believe that this core portfolio is well positioned to return to growth supported by its differentiated performance in bioactivity, lot-to-lot consistency and reproducibility.

All of these are attributes that become increasingly critical as customer programs advance towards translational and regulated applications.

Shifting to diagnostics and spatial biology, the segment delivered 3% organic revenue growth in the quarter. Before discussing the performance in more detail, I'd like to congratulate [ Steve Krause ] on his promotion to President of the segment. We look forward to Steve building on his player success leading our analytical solutions business over the past 5 years.

Let's begin with our recently rebranded Bio-Techne Spatial Biology portfolio where we continue to strengthen our leadership in C2 hybridization and mid-plex multiomic applications across translational and clinical research. Strong order momentum over recent quarters translated into more than 65% growth for our COMET multiomic Spatial Platform. During the quarter, we installed the first COMET system in China, an important milestone as demand continues to build in the region.

We exited the quarter with another record backlog for the COMET, positioning the platform for continued growth. Performance within our RNA scope portfolio of in situ hybridization kits and reagents improved to high single-digit growth. Growth was driven by further customer adoption in EMEA and Asia as well as increasing use in clinical diagnostic patients in the U.S. Finally, our diagnostics portfolio recently rebranded as Bio-Techne Diagnostics declined low single digits as order timing from certain large customers temporarily impacted our results. Given the concentration of large customers, this business can be lumpy from quarter-to-quarter. And therefore, I want to mention that on a trailing 12-month basis, growth for Bio-Techne Diagnostics remained in the low single digits.

In summary, the Bio-Techne team continued to execute effectively in a mix and market environment. Demand from large pharmaceutical customers remains strong. Our U.S. academic business has stabilized, and we continue to build momentum in China and the broader APAC region. While emerging biotech spending has yet to fully reflect improving funding conditions, engagement and activity levels with this customer base continue to trend positively. We remain highly disciplined in how we operate the business, delivering sector-leading profitability while continuing to invest in the growth factors that will shape biotechy future. with improving funding visibility for our customers and strong positions across our core reagents, cell therapy, proteomic analysis and spatial biology solutions, we believe that Bio-Techne is well positioned for outperformance in the years ahead.

With that, I will turn the call over to Jim. Jim?

Thanks, Kim. I'll begin with additional details on our Q3 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.53, down $0.03 from the prior year with foreign exchange having a favorable $0.02 impact. GAAP EPS came in at $0.32, up from $0.14 in the prior year period. Total revenue for Q3 was $311.4 million decreasing 2% on both an organic and reported basis. Foreign currency exchange was a 2% tailwind, while the prior divestiture of Exosome Diagnostics created a 2% headwind.

The timing impact from our 2 largest cell therapy customers who received FDA Fast Track designation was a 3% headwind, while a large OEM commercial supply order that we typically receive in Q3 but received in Q2 of this year was an additional 1% headwind to revenue. Adjusting for these previously disclosed items, organic growth was plus 2% for the quarter.

From a geographic lens, North America declined low single digits as strength from large pharma and growth in academia was offset by order timing in cell therapy and a biotech end market that is yet to inflect from favorable funding trends. In Europe, revenue increased mid-single digits, including low single-digit growth in biopharma and mid-single-digit growth from our academic customers in the region. We are encouraged by the fourth consecutive quarter of growth in China, where revenue increased low single digits. APAC, excluding China, also increased low single digits on a very strong comp as the Asian geography continues to show signs of sustained improvement.

By end market, biopharma declined low single digits overall. However, excluding our largest cell therapy customers, Biopharma grew low single digits, driven by strong pharma demand, but partially offset by emerging biotech softness. Academia increased low single digits with the stabilization trends giving way to low single-digit growth in the U.S. and Europe growing mid-single digits.

Below the revenue line, adjusted gross margin was 70.4%, down from 71.6% last year, but up 190 basis points sequentially. The year-over-year decline was driven by unfavorable product mix. Adjusted SG&A was 28.7% of revenue, down 30 basis points compared to 29% last year. R&D expense was 7.5% compared to 7.8% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives.

Adjusted operating margin was 34.2%, down 70 basis points year-over-year. The decline was driven by unfavorable mix and volume deleverage, partially offset by the Exosome Diagnostics divestiture. Below operating income, net interest expense was $1.3 million, up $0.4 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end to [ $200 million ], down $60 million sequentially.

Other adjusted net operating income was $1.3 million, down $1.8 million from the prior year, primarily due to nonrecurring foreign exchange gains in the prior year related to overseas cash pulling arrangements. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geography mix.

Turning to cash flow and capital deployment. We generated $86.7 million in operating cash flow with $9.1 million in net capital expenditures. Also during Q3, we returned $12.5 million to shareholders via dividends and ended the quarter with 157.4 million average diluted share outstanding down 1% year-over-year. Our balance sheet remains strong with $209.8 million in cash and a total leverage ratio well below 1x EBITDA. M&A remains a top priority for capital allocation.

Now let's review our segment performance, beginning with Protein Sciences. Q3 reported sales were $226.2 million, a decrease of 1% year-over-year. Organic revenue declined 4% and with a 3% benefit from foreign exchange. Excluding cell therapy and OEM commercial supply timing impacts from our largest customers, organic growth was plus 2%.

Growth was led by our proteomic analysis instrument franchise, which benefited from continued strength in large pharma paired with double-digit growth from our academic end market. As Kim mentioned, our core portfolio of research reagents and assays declined mid-single digits, reflecting a challenging biotech environment and the lingering impact of the U.S. government shutdown on grant activity and fund outlays in the quarter. Excluding the timing impact of a large commercial supply customer, decline in the core portfolio was limited to low single digits.

Protein Sciences operating margin was 44.2%, down 140 basis points year-over-year, primarily due to unfavorable product mix and volume deleverage, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q3 sales were $85.6 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8% and while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment.

Bio-Techne Diagnostics declined low single digits as order timing from certain large customers impacted growth. Spatial Biology grew mid-teens, including over 65% growth in our COMET platform, while our RNA scope portfolio increased high single digits. Segment operating margin improved to 12.1%, up from 9.4% last year driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers. We expect continued margin expansion commensurate with the scaling of our COMET Spatial Biology platform.

As we look ahead to closing out the remainder of our fiscal year 2026, we remain focused on what we can control. This includes our operational and commercial execution, productivity and capital discipline and delivering sector-leading profitability while investing across our growth platforms. The state-of-art pharma end market remains strong. The stabilization and signs of gradual improvement in the U.S. academic market are encouraging. Funding levels for biotech have been very strong in the past 2 quarters, and commercial teams are reporting increased engagement and a higher opportunity funnel from these customers. However, given the timing lag between funding and spending by biotech customers, which typically is 2 to 3 quarters, we believe this end market is the biggest swing factor for growth to accelerate from here.

While we can start to see improvement in the biotech end market as early as our June quarter, our base case is that we won't see a meaningful uptick in growth until the first half of our fiscal year 2027. As Kim mentioned earlier, we also remain encouraged by the progress of our largest cell therapy customers following FDA Fast Track designations. While these designations temporarily reduce near-term GMP reagent demand as these customers advance through their Phase III trials, they meaningfully accelerate potential commercial time lines. This customer-specific headwind moderates in the fourth quarter, impacting growth by approximately 150 basis points year-over-year and will be fully out of our comparisons as we enter fiscal 2027.

Taking these market and customer-specific dynamics into account, we expect organic growth in the fourth quarter to be approximately flat. Excluding the impact of the cell therapy headwinds and we anticipate low single-digit underlying growth across the remainder of the portfolio. This outlook assumes end market conditions are broadly consistent with what we experienced in Q3. and any incremental stabilization or improvement in emerging biotech Spain could prove additive. Importantly, this near-term outlook positions us well for an acceleration in fiscal 2027. as biotech funding should more fully translate into customer spending, academic conditions continue to normalize, company-specific timing headwinds roll off, and we lap easier year-over-year comparisons.

From a margin perspective, we remain focused on investing growth investments with operational efficiency and intend to close the last quarter of the year with approximately 100 basis points of margin expansion over the prior year. That concludes my prepared remarks. I'll turn the call back to the operator to open the line for questions.

[Operator Instructions] We'll take our first question from Matt Larew with William Blair.

I wanted to follow-up on emerging biotech that was down mid-single digits in the fiscal second quarter, and you mentioned down high single digits this quarter. acknowledging the improvement in funding may materialize later in the year. just given that step down, various what you saw from sort of an intra-quarter trend perspective and if you've seen any improvement sort of from January through to March and then now into April?

Matt, thank you for the question. Yes, the biotech end market was indeed our surprise. So I appreciate you owning in on it. we had, of course, very clear visibility to how the funding had been. And as you remember, funding was relatively small in the first half of 2025, calendar 2025. it recuperated a little bit to low single digits in the third quarter and then actually had a real step up 90% growth in Q4. And then we rolled into a new calendar year with yet another good quarter in funding. Underneath that, we saw our 2 large quarters at negative mid-single digits, 2x in a row, indicating some sort of stabilization you take on top of that, that we saw that the funding was up. We know interest rates were stabilizing. M&A deals were up in biotech and licensing deals just as well. We also had a little bit of visibility to commit bookings being positive there.

So we assume the slight improvement in the biotech end market to maybe negative low single digits. But you're right. It did step down to negative high single digits instead. And that really is the whole for our quarter, and it fits very nicely to exactly the gap in our biotech end market. And there, of course, we double clicked and you can see that funding was substantially up in late-stage biotech but early-stage biotech where a larger portion of our core reagents have a direct read on that early stage funding was actually down if you tease that apart. And that is where our surprise came in. The trend during the quarter, we hear from our sales force that there are more interaction and dialogue about possible orders and investments. But for now, we are assuming that with 2 negative mid-single-digit quarters going to high negative singles we can't assume that there is a clear stabilization or improvement. So for now, we're keeping our forecast at flattish because we don't have clear indicators that there is an improvement.

Okay. Okay. Fair enough. And then you talked about the outlook here for the calendar second quarter. I think through the way some of your larger peers have characterized both that quarter and then the rest of the year unfolding, given the OEM timing cell therapy headwinds being removed on your comps, some improvement in A&G. I would just be curious if you're thinking that sort of the mid-single-digit range by the end of of the year, again, kind of consistent with improvement in others are citing, if that's reasonable or if there's another range we should be thinking about? And that's all for me.

This is Jim. Thanks for the question. If I understand your question correctly, you're asking about the end of calendar '26. .

Yes. That's right. Yes. Just given how sort of peers have from the calendar second quarter relative to the balance of the year.

Yes, sure. Yes, I mean, again, we won't be giving any kind of even soft guidance around '27 until next quarter. But as I've mentioned in my prepared comments, we're very encouraged about the upcoming fiscal year. So many of these headwinds that are company-specific will now finally be behind us. And we're seeing -- we have seen a definite stabilization in the North American academic market. And of course, pharma remains strong. So it really comes down to for us to biotech. And admittedly, I think we were probably a little bit -- we saw 2 quarters of "stabilization in biotech and thought perhaps the worst was behind us. But in retrospect, we may have been a little bit -- got the cart a little too far ahead of the horse on that 1 in the sense that the reality is, let's call it, the 2- to 3-quarter lag really hasn't happened yet, given that it's only been 2 quarters -- 2 recent quarters, we've had strong funding.

But it does -- if history is any guide, it does bode very well for the second half of calendar '26 with respect to the biotech market. And of course, that's our first fiscal quarter of '27. And it's also encouraging to hear from our peers who've already announced that they're also expecting an uptick in momentum in the back half of the year, and we tend to agree that thesis.

We'll take our next question from Puneet with Leerink Partners. .

So Jim, first for you, you're 1 quarter away from fiscal -- just given we've been in these markets for some time, the challenges you're well aware of those. Can we still do mid-single-digit growth? Can Bio-Techne do with mid-single-digit growth still in fiscal '27. I think it's an important question just given how we have ended so far.

And on the biotech side, I understand, but just trying to understand, given the end market challenges, -- was there something that surprised you later in the quarter? Or is this more about the way you're building the overall forecasting because I don't think investors were expecting a surprise at this point given that GMP Fast Track designations already surprised 2 quarters ago?

Yes. Puneet, thanks for the question. This is Jim. So with regards to fiscal year '27, I mean, based off the wins we have right now, we think we'd be disappointed if we didn't do at least mid-single-digit growth because all the indicators are pointing towards a gradual normalization of the market. And I'll remind everyone that put these company-specific items aside, which amounts to 3 customers, we were in low single-digit growth even in this environment we're in today with a tough biotech end market. So yes, I think we'd be disappointed.

And I think in terms of what we're looking for in terms of indicators, -- we talked about the fact that in academic, we really saw an uptick in growth in our proteomic analysis instrument portfolio as well as in our spatial portfolio. And you've heard us say this before, Puneet, that those 2, in particular, those 2 growth vectors for us are where we are kind of indicators for us when we step to see the markets come back, that's where the money often flows first. And it's exactly where we saw some very nice growth in U.S. academic this quarter, which gives us added confidence that our customer base is getting more confidence in their funding there.

And so that's also what we're looking for with regards to our biotech customers in terms of an indicator for that inflection point. And again, it's too early to call it at this point, which is why we're being, I think, rather prudent about our Q4 forecast in terms of kind of holding it steady in terms of overall base improvement. But it was encouraging to hear from our businesses and our commercial leads that the interest in -- particularly in our proteomic analysis as well as our spatial biology offerings has picked up recently among our biotech customers, and the funnels there are starting to grow again. So we'll see if that translates into more orders in Q4 for higher revenue in early fiscal year '27. Those are the things we'll be looking for out of our biotech end market.

Got it. And then -- that's helpful. And then, look, on the REO or reagent side, I think you counted that, that business is soft, partly biotech being -- or emerging biotech being the reason. But we have seen 2 readouts from 2 competitors so far. One of them under as an opco under a larger entity in their businesses recovering there. Another one that is a strong in flow cytometry is also showing signs of growth. So how should we -- what gives you confidence that this is not any share loss in R&D Systems and Novus Biologicals. .

Yes, Puneet, thanks Yes, very good question. The -- in fact, a couple of dynamics here. The 1 order we had talked about that got booked in Q2 versus Q3, the 100 basis point what we've talked about previously in this earnings call is actually in that number sits in that core reagents area. And if you look at our comparables with double-digit growth last year, it's almost 20% last year. and compared to some of the other companies that you're talking about having negative numbers to compare against -- we've done our math in our homework and also, of course, our market work. And we're relatively confident that we're actually still pretty well of. And that is the situation for that core business. .

Yes. I'll add there, Puneet, just a little bit so that when people think about our core reagents, they typically think about our proteins and antibodies portfolio rightfully so. But we also include that. There's some other small molecules, there's assays, core ELISA assays, et cetera. But as it pertains specifically to that protein and antibody's portfolio, after you take out this very large 1 customer OEM order that happened to impact that portion of our portfolio, both our proteins antibodies combined grew low single digits this quarter. .

We'll take our next question from Patrick Donnelly with Citi. .

Kim, maybe 1 on the China piece continues to show a little bit of growth there. Can you just talk about what you're seeing and then the expectations visibility going forward? Are you feeling you're in a pretty good spot there as we head into '27? We would like some more detail just on the overall backdrop and expectations there. .

Patrick, thank you for the question. Yes, we are quite excited that we have, for the fourth time positive growth in China. And Obviously, Jim and I were earlier this quarter in China, meeting with government officials exploring how we can further support sins of medicine in the country. We connected with customers in academic as well as in the new companies that are working on new therapeutics, including CROs and CDMOs. And there's a lot of activity. You can clearly see a momentum in the market, especially around the advanced therapeutics.

And so for us, we are not surprised that we are in growth mode again. We call that 1 right a year ago. And there's no reason to believe that, that is going to weaken, I would expect a continued momentum and strengthening of that particular end market, specifically after our visit. We are direct in the market and our team is really well connected with customers on both sides on the biotech as well as pharma as well as the academic side. And yes, it's a positive all around. .

Okay. That's helpful. And then maybe just one more on the biotech piece. Again, a surprising step down there. I guess in terms of your customer conversations, what are you hearing? I mean, the funding has looked quite good for over 6 months here. Typically, that does cause an inflection higher for you guys. Just curious, I guess, on the visibility, the customer conversations, how you're feeling about that market as you head into '27. It feels like it should have been a nice tailwind, certainly going into the next quarter in '27. Obviously, it's lagged a little bit. Just trying to figure out what that could look like as we work our way forward here over the next 6 to 9 months? .

Yes. Patrick, I think Jim already touched on it, right? So we were quite surprised to step down -- after further analysis and if you look at the funding levels for early-stage biotech and later stage biotech, we understand -- but you're right, the funding levels were very encouraging. And as I mentioned, interest rates, M&A deals, all those we're pointing in the right direction. I already mentioned that the conversations are getting better. Interest levels from the biotech markets are improving. .

And last quarter, we have 2x negative mid-single digits. We thought stabilization improvement was there, but to step down we're going back to, okay, stabilization is our next point typically because we need to see the ship turn the corner. And therefore, we are somewhat careful and I think that's the right thing to do. But you're right, all the indicators, including the dialogue with customers are positive. .

And if I could, I'll just add a little bit. I mean kind of going back to my cart before the horse comment, it's will kind of trying to throw a needle here with regards to exactly what quarter you see the inflection point. And we've said that we've looked at our history over the last several decades and look at different ebbs and flows of biotech funding and the range is anywhere between 1 quarter and as many as 4 quarters. But the average of the mean is somewhere between 2 and 3. And -- the reality is, it's only been 2 quarters of solid funding.

So we're kind of right at that median point now. And we're we'll see whether we're seeing that pickup in Q4 or not. Right now, our base case is that it does not, but it doesn't necessarily get any worse from here either. But it does, again, bode well for back half of this calendar year, which is the first half of our fiscal year because at that point in time, you start to get to the, call it, the tail end of the bell curve, but when we usually start to see that flow through.

We'll take our next question from Justin Bowers with Deutsche Bank.

Just going to stick with the current line of questions. But Jim, can you update us on your view for fourth quarter for the different end markets? So what's the view for academic, U.S. academic, biotech, et cetera? And then also, when you double-click on the funding analysis, what sort of competitive dynamics, if any, did you uncover? And then part 3 of that would just be what parts of the portfolio would you start to see the recovery the soonest from the EVP customers?

Well, I'll take the first one and the third and I'll let Kim jump in on the second point. Really quite simple without going through end market by end market. The very simple answer is our base case is we're assuming basically the same level of performance across all our end markets in Q4 that we saw in Q2. Pharma already is very strong. Academic is going in the right direction, albeit slowly. So therefore, we don't see a meaningful move but nonetheless, continued progress. And then with biotech, we're assuming the same kind of performance we saw in Q3 for Q4. As we talked about in my opening comments, that would be the -- that will be -- if there's any potential upside, that's where we think we might see it as in biotech. But right now, that's not our base case. So that's really how we're viewing the end markets.

With regards to -- I saw going to take the third bullet term of what it was now, it was around remind me...

Just around the parts of the portfolio, would you start to see the recovery for biotech, yes.

Thank again, as I mentioned in answering an earlier question, -- we look at our -- we look at the performance, particularly our proteomic analysis business, our spatial business, those 2 growth vectors, cell therapy kind of beats to its own drum, but that's doing -- that's already doing very well. Those 2 growth vectors for us, we believe, is usually an early indicator for us with regards to a turn in the markets when we see those start to inflect. And just as we saw those 2 parts of our business do very well with double-digit growth in our U.S. academic markets this most recent quarter, that's what we're looking for the inflection point in biotech as well.

And like I said, I don't want to get ahead of us, but it was encouraging to hear that the interest level and funnels among our biotech customers for those 2 portions of our portfolio have picked up here in the last several months.

Just to your second question -- oh, go ahead.

No. Go ahead, Kim.

Yes. Your second question was around the trends in biotech, right? So yes, over the last year, funding mix has shifted. And the year before, you could clearly see 75% of all the funding going into late-stage work, clinical development, Phase II and that have 82% of the funding. And the same happened in reverse for the early-stage discovery, which used to be 25% of budgets and now being 18% of all the funding. So that took a step down the early discovery part. And that's really what we bumped into with our corporate portfolios, specifically the assays that Jim mentioned. I don't think that is, by definition, a change in competitive trends and just a change in where the money gets spent.

We'll take our next question from Kyle Boucher with TD Cowen.

I know you touched on this a little bit, but I wanted to ask another -- just a clarification question on the guide. You said flat organic in fiscal Q4 and sort of implying low single-digit underlying growth, excluding the GMP headwinds. But it sounds like there's fewer sort of discrete items in the fiscal fourth quarter. The GMP reagent headwind is pretty small at 150 basis points, the OEM reagent timing headwinds out of the way and you face the easiest comparison year-over-year on organic. I guess beyond biotech performance, I mean, is there anything else that's sort of getting worse?

I can give a slide by and then Jim can double click. No, I'll look at the our end markets. First, the pharma has been double digits and funding have been stable there, maybe slightly improving. So we think our entitlement continues to be double digits. Biotech, we discussed in detail here. Academic, we see a slight improvement, and we are excited that we're back in positive territory for the first time. It's still a frail market. It's certainly not a going to be a V-shaped recovery, I think, but stabilizing and improving is a fair assumption there. In China, we've already discussed with 4x in positive territory and continued momentum. .

So from that point of view, I'm relatively comfortable and the 1 that we are -- have been talking about and we feel could be a detractor still in the biotech area. From a portfolio point of view, our core has been doing good, except for these areas that we discussed. And if you look at our verticals, I couldn't be more positive as cell therapy. We know about the 2 customers, but you take those out, underlying growth was 50%. We're looking at 17% 12 trailing months. And that looks stable. We would like that to be 20% minimum. So it's heading there.

Spatial, as you know, was back to mid-double digits with the reagents improving and COMET instrument at 65% growth. Protemoic analysis. Right now, it's at mid-single digits. And we do know that it belongs in double digits -- deep in double digits. So there, we feel that the biotech uptake would be the trigger to get it back into the zone very long in mid-double digits.

And then the diagnostics area, it was negative for the quarter. especially the diagnostics -- molecular diagnostics products. And that was clearly a timing issue. So there, I do have some positive post backdrop as well that it can come back to normal growth rates. So that's the flyby on the product lines. So overall, comfortable with, of course, be careful for your next quarter, but with a strong trajectory to normalization.

Got it. And maybe just on the GMP reagent business and even space on the Lunaphore side, pretty impressive growth rates almost 50% on the GMP agent side, over 60% for Lunaphore. And how sustainable do you think these levels of growth are going forward? I mean, did they face easy comps year-over-year?

Yes. So the -- taking the 2 customers out, we clearly look at the funnel underneath -- we have 700-plus customers. The number of customers has increased mid-single digits. So that's not carrying it. But customers going deeper into their projects and spending more is clearly the driver. We have 85 programs, the same like last quarter in clinical. However, 18 are in Phase II, and that used to be 15 and still the same 6 customers in Phase III. So there is a progress that the customers are making that drives the growth.

If you look at the cell therapy trials, globally are also increasing significantly. There has been a mix shift from gene therapy to cell therapy, and that's where we're benefiting as well. So we do believe that the 20% growth as a minimum for a 12-month trailing would be the right bar to set. And of course, we can always look at our Wilson Wolf numbers. We talked about mid-single-digit growth this last quarter, and that was over a comparable of 25% growth. And last year, -- but the number of brands that we're writing there is impressive. We are happy that there is a more or less 50% attachment rates with Bio-Techne cytokines and proteins. So overall, we're comfortable with the market underlying activity levels, progress of the pipeline and number of customers that we are putting into the funnel.

We'll take our next question from Matt Etoch (sic) [ Steve Etoch ] with Stephens Inc. .

Maybe just 1 for me and following up on the last question I asked on GMP proteins and cell therapies. Could you just maybe break down how much of those how much of the growth that you're seeing is coming from maybe new program wins versus expansion of existing customers? I would really appreciate that. .

Yes. I just touch based on it. Thanks for the question. Our overall number of customers increased 3% over the last couple of quarters, we saw a rotation. Some customers rotated out, and they started 2, 3 years ago with a setup that turned out maybe not be a winning strategy within the stell therapy. But others have come in and it's all about are you able to scale, are you able to make it cost-effective, and we are certainly helping our customers doing so with the will move G-Rex and cytokines proteins as well as the form factor of the [indiscernible] that we've launched a quarter or 2 ago.

So overall, we feel that the increase in customers, including the churn is encouraging. The number of clinical studies is increasing, and there is progress in the pipeline from by the customers from clinicals 1 into 2 and 3. So we see positive trends in all 3 of those dimensions.

At this time, we've reached our allotted time for questions. I will now turn the program back over to our presenters for final remarks.

Thank you, everyone, for joining today's call. I want to recognize the Bio-Techne team for their continued focus and execution through what has been an extended period of market and customer-specific challenges. We are encouraged by the improving bioelectronic visibility, stabilization in the U.S. academia, sustained engagement from our large pharmaceutical customers and continued momentum across China and the broader APAC region.

As we move through Bio-Techne's 50th year, we do so with a portfolio that has never been better aligned with the direction of science and medicine. Our combination of high quality agents analytical platforms and enabling technologies supports critical workflows from early discovery through translational research and manufacturing. Continued investments across cell therapy, proteomic analysis, spatial biology and precision diagnostics position us well to support our customers and capture attractive long-term growth opportunities.

Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Okay. All right. Welcome, everyone. Just running a minute behind here, but let me get started. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink. And my pleasure to be hosting Bio-Techne team joined by Jim Hippel, CFO; and also David Claire, Head of Investor Relations. Thank you guys for being here in Miami.

Always a pleasure to be here. Thank you.

Great. So maybe, Jim, let's kick off at a high level, maybe at the end markets. What are you -- what's the state of union in terms of the end markets? Maybe give us the latest what you're seeing in demand from the pharma, your large customers as well as the biotech and emerging biotechs and academic end markets, respectively, maybe?

Sure. So as we came out of our December quarter, our Q2, we said we expected the end markets to be pretty much the same in Q3 as Q2 in terms of the buying activity. And as a reminder, in December, if you kind of go through our major end markets, you've mentioned several of them, pharma being the largest large -- big pharma being the largest or roughly 30% of our revenue.

We exited our December quarter with low double-digit growth. That was the fifth quarter in a row double-digit growth, which was little bit of a pleasant surprise for us, frankly, because as we exited, as we got into our Q1, there was still a lot of rhetoric around the potential for MFM pricing on large pharma threats of 100% tariffs, et cetera. And so we've been doing well and in large pharma and was concerned that growth might slow down just because of all the rhetoric. And luckily, large pharma, as we all know, kind of got that under control relatively quickly, signed some agreements to appease the administration, and it appears as those clouds have dissipated, and we continue to do very well in Pharma as a result.

And we don't see that -- anticipate that changing unless there is some other monkey wrench that comes down comes down the road. If you look then at biotech, arguably, one of our in the next largest market, roughly 20% of our revenue. These are smaller biotechs. We had -- we exited our Q2 with mid-single-digit declines in biotech. But if you recall, I know you know this well, Puneet, in the first half of calendar year 2025, biotech funding was down nearly 40%. So the fact that we were only down mid-single digit, we actually saw that as a bit of a win. And we all know there's a lag between funding both from the upside and the downside and when you actually see it in the spend in your results. And so we think that was some the lag that we saw.

And we expected that to continue into the near term. The bright side there was there was definitely some green shoots coming out of both Q1 and Q2 where we saw the October -- or the September quarter. We saw funding actually start to increase again, roughly in the high single digits. And then exiting December, it was something like over 90% or something like that growth.

So very encouraging that we're seeing the money come back in into biotech. And if you step back and think about it, kind of it makes sense because so goes pharma or at least the concerns around pharma, sometimes so goes biotech. Biotech is much more volatile. And if they're concerned about pharma, they are concerned about their potential exits and they're going to move their money somewhere else. And now that they had -- the clouds have cleared for pharma it appears, we're seeing that money now come back into biotech, which is nice. And you're seeing a lot of M&A activity again now. Among large pharma, acquiring biotech, which is encouraging for new investors.

So we saw that exiting Q2, but we know there's a lag. We know there's a 2- to 3-quarter lag on average in the bell curve. To see that come into spending. So we didn't necessarily anticipate much change here in Q3 as a result. And if anything, the outlook with regards to -- as the year progresses in calendar 2026 and especially when you get into our fiscal year '27, which is only 4 months away now, biotechs still continue to look very encouraging in the sense that the latest numbers out of January and February, that growth in funding has only accelerated across all levels of funding, whether it's IPO all the way down to venture capital.

So we're definitely looking forward to that eventually starting to turn to spend. And then, of course, there's academic. Academic is a little over 20% of our global revenue, is roughly half of that in Europe and roughly half of that in the U.S. Europe academic has been fine mid- to high -- sorry, low to mid-single-digit growth, which is kind of what we expect out of academic in Europe. But of course, U.S. academic, we sat here exactly a year ago, literally like the week, the hammer came down from the Trump administration around potential 40% cuts in NIH. We've been dealing with that kind of that cloud, that threat now for over a year, our customers have.

We saw -- we've seen academic stabilize to kind of low single-digit declines. And we didn't anticipate coming out of last quarter that to change immediately despite the fact that Congress at that time was definitely going down a path towards more like flattish to 1% growth as we're ended up actually, of course, but until that actually all gets resolved, we understand why our shell shock academic customers are going to be a bit reserved. Development sensing, of course, is, I think, literally as the day before, a day after our earnings release Congress formally approved a 1% increase. So that's a nice -- a very nice step in the right direction, not to mention they also basically did away with the indirect cost -- indirect cost caps.

And as you know, also limited the number of multiyear grants. So all positives in the right direction. But at the end of the day, you still have to wait to see how the administration is going to actually roll that out. And I think we've been watching the data on NIH grants, and they've been slow to roll thus far, although it's 1 week in March, but at least we saw based on the data that was published during the day, so a nice pickup in grant releases starting in March.

So again, bodes well for that funding now needs to turn to spending that can take some time for that to happen. But we didn't anticipate academic starting to go into growth mode probably into the back half of our calendar year, which is the first half of our fiscal year, and it's still looking like that's how it's going to play out in terms of things settling down. But very encouraging, again, when you get into the back half of this calendar year.

And then you didn't mention it, but the other kind of end market that's important to us, of course, is Asia overall. Roughly 16%, 17% of our revenue, half of that being in China, the other half throughout the rest of Asia. And we've had 3 quarters in a row now of growth in China and 2 quarters in a row in the rest of Asia. In fact, the rest of Asia was double-digit growth this last quarter. So also very encouraging. We were one of the first companies to say, hey, we think China might be turning the corner here with regards to gradually getting back to the growth. And we've been seeing that and it's been nice momentum in China. It's not a hockey stick. It's not a stimulus-driven ramp-up, but it's a nice, steady progression. And we see that continuing throughout calendar 2026.

Is there any reason you're seeing an early pickup in China. I think a number of companies are still cautious, somewhat still waiting for stimulus funding macro news in China, not exactly. And now we have got a conflict, which can impact inflation prices of oil in that. And maybe just on that point, I don't know if you can help us investors understand sort of when your shipping cost, obviously, these are smaller products that you're shipping. Is there any consideration that you're thinking about in terms of inflation prices of oil and whatnot?

Yes. I'll start the latter point first. So I mean, obviously very, very fresh and very new, and you didn't know and even knows how long this really has been. An oil can move 20% in 1 day, who knows, right? But in terms of our exposure, we're not overly concerned about it in the sense that shipping specifically, almost all of our products were shipped by air, not by ships. So there's no issues there in terms of constraints in the waters. But yet air, of course, uses fuel. So fuel costs sustainably high shipping costs could go higher as well, and we'll have to figure out how we help build that into our pricing as well going forward if we need to. But I think it's too, too early to talk about that.

Hopefully, this all settles down before we get to the end of next quarter close, and we want to talk about it. If we do, we'll talk about how we're handling that. And that goes for China as well, by the way. So it's too early to comment on that. I'd say up until now, though, with regards to China. And we've told you about this about a year ago when we were -- had just visited -- just finished a trip in China, and we were hearing for the very first time optimism about -- from customers there about government funding starting to return, funding starting to return in general back into biotechs. And it was the first time in like 3 or 4 years that the conversation was about how much it might grow next year as opposed to how much it might shrink. So it's very encouraging, and that's more or less played out.

We've seen some incremental increase in the government on the government side, but also on the, call it, the industrial side, biotech in particular, where you hear about Pharma now doing a lot of licensing to filter pipelines and using China to do that, and we're seeing that activity as well. Cell therapy is also very strong in China, and we, of course, are positioned there. And then from another differentiator for us, of course, is our instrumentation portfolio and our spatial portfolio, we've always said that those two growth pillars for us would likely be the area we'd see growth first because they're the hottest areas. They're the most -- arguably the most exciting areas of our portfolio and the money return, that's where the money will go first. And we're seeing that in China.

We've been seeing that in the past 2 or 3 quarters. And even during the 2 or 3 bad years in China, our consumables on those instruments, the cartridges on those instruments were still growing in some quarters, double digit. So we knew that there was likely a capacity constraint building there with regards to instrumentation. And as soon as there was money available we start to see it flow into our instruments, and that is what we're seeing.

Got you. Okay. Then maybe just touching on the 2026 guide. I mean fiscal year 2016 guide, you're expecting to exit fourth quarter and reach mid-single-digit growth for the full year, look at our model, we're modeling about 1% for you guys. But just there -- it appears to be a lot of prudence in there, just given the backdrop that you have experienced. But just wondering any -- in the first few months, what's what if any part of the business is end markets that are changing that give you maybe a slight bit of optimism. Maybe you talked about grants improving, but that's just in the last week or so -- but wondering if there are other factors that?

Yes. I mean so at a high level, I'd say this, our concern is less about if, it's more about when, right? I think all the macro signs are turning much more positive with regards to a true recovery. Again, barring something else that comes out of left field. And so now trying to time the exact pinpoint of a quarter of when that recovery starts is always difficult to do. So that's the one where if there's any prudence or caution we have is in the timing, and I'm not talking about this year versus next year versus 3 years, I'm talking about this quarter versus next quarter versus the start of our fiscal year '27. It is difficult to pinpoint that exactly because for the most part, what we're waiting for is for these -- for the funding that we know is there, both in biotech, as well as now an academic to actually get released get down to the -- work the budgets down to the lab level in the case of academic get the grants starting to roll again and then actually start spending the money.

And again, history tells that, that can take anywhere from 2 to 3 quarters, depending in aggregate, it's very customer specific as to win. So trying to pinpoint that exactly is very difficult, but we're very encouraged by the fact that all the signs are pointing to, indeed, a recovery in the near -- very near term. Puts and minuses specifically to this, the back half of this fiscal year, especially since you mentioned Q4. One of the biggest company-specific headwinds we face this year has been the GMP customers, very, very large customers for us, very, very exciting that they've gotten Fast Track by the FDA which will enable them to get to the clinical trials faster and ultimately hopefully get to commercialization faster.

So the NPV of these two customers has gone up dramatically for us. But the timing of when you would typically see a lull after you finish your clinical trial, then you had to go through the whole formal FDA approval process for commercialization and then the manufacturing validation, all that, that can take typically can take 18 months to 3 years, Fast Track should definitely pull that into the near side, but we anticipate that happening being a conversation a year or two down the road from now. And instead we're having that this year because they were essentially able to skip a step. And the -- these two customers made up nearly half of our GMP protein revenue, so very significant.

So significant that they've been a headwind for us each and every quarter that we had to talk about in our most recent Q2, a 400 basis point headwind. And we're anticipating -- well, we know it's going to be about a 300 basis point headwind in the current quarter we're in now Q3. But as we talk about Q4, that headwind drops off somewhat significantly, about 150 basis points. So there's a tailwind there. We had the continued growth from China, which is a bit of a tailwind. And then I think after that, it's really back to our opening comments on this. It's really a matter of how quickly the academic funding and the biotech funding translates in the spending. And if it doesn't get going, it's going to be in the low end of that, probably the low end of that range. If it starts to happen earlier than later in that bell curve, then it could be in the upper end of the range. But that's really the swing factor in my mind.

Got it. Okay. Then maybe just staying on the GMP reagent side. Can you give us a view into excluding those two large customers what's been the growth despite some of the challenges in the market and whatnot funding situations? How much is the sort of the customer base growing and maybe give us a view into the programs progressing towards the clinic. Any metrics you can provide there?

Sure. So we're very pleased with how our cell therapy franchise has performed overall in this downturn because this is a portion of our business that's more -- the most heavily weighted , one of the most heavily weighted towards smaller biotech and academic. It's about the early-stage stuff happens. And despite all that, we've been able to grow each and every year in the last few years through these down cycles.

Most recently, this current quarter, if you exclude these two customers, the remaining 700-plus customers that we have, grew 30%. Now it can be a bit lumpy even there among those. And on a TTM basis, it was closer to the high teens, but still pretty respectable considering the past year that we've had. How much of that growth was from -- let's talk about the clinical phases. So of the 700-plus customers, over 80 of them are in clinical trials, a little over a dozen of those are in Phase I, I believe -- Phase II, sorry. Phase II. Thank you.

And then roughly half a dozen or so are in Phase III. That's kind of how it's spread. I'd say the customer base itself on a net basis has grown, call it, low single digits. So most of that growth has come within that customer base as they progress not just in the clinical trials but even up to leading to the clinical trials. There's a progression. But I think most important and how we think about it is that there's been a lot of churn within that customer base. So net-net, we've continued to grow the customer base each and every quarter, but there's been a lot of churn. We actually see that churn is a good thing because a lot of these customers got into it 5 years ago when anyone with an idea was getting funded.

And frankly, there was a lot less known about cell therapies and how -- what the challenges are, what the right, 5 years ago, there are today. So there's been a lot of learning, and there was a lot of money that was strong at kind of weigh out their ideas. Point being is that the hurdle to get funded now is so high, especially in academic and biotech, it's got to pretty be a pretty sound thesis or initial argument for what you're going after to even get the money. So the quality that the new customers come in and replacing the ones that are exiting, we believe is much, much higher, which means the overall percentage hits on goal of the whole portfolio should increase. So again, it increases the overall NPV of the business.

And what's your -- is there a steady state sort of expectation for proteins business because it is becoming obviously, two customers became a core topic, but more importantly this is important -- this is becoming a larger line, still not as big as proteins overall. And -- but it's still -- it's one of the fastest growing lines that you have. So just wondering how to think about that longer run. And with these exits -- and then coming into the early stages, how do you think about air pockets or within that growth framework?

Yes. Yes. So I'd say in terms of the underlying growth rate of these remaining 700 and some customers, given that they've been able to grow high teens in a very, very tough environment, we kind of have a floor of 20% on a normal market going forward. To the extent these two customers we talked about, get approved and go commercial, that would be upside to that in the outer years, say, a 5-year LRP. I can't sit here and tell you that there won't be lumpiness in the future, but I would bet, the different based on what we know today, the lumpiness will be much less severe than what we're seeing from these two customers simply because these two customers are very much outliers when you look at when you look at the various diseases that the mostly 700 ones are going after, these two happen to be going after diseases that are very prevalent.

So very large patient basis and therefore, very large clinical trials, which consumes a lot of our proteins and the type of indications that they are happen to use a higher proportion of our proteins than the typical cell therapy does. I mean, to put it in perspective, Puneet, most of our other customers, when they -- if they are able to get go commercial, the amount of annual protein cells, we expect to have them on average has been what the clinical trials have been for these two customers. So it gives you a sense of why we think the lumpiness in the future won't be nearly as severe in the air pockets, they'll happen by the very nature of how the cycle works. Won't be as severe just because they're not the same magnitude of these two customers.

Got it. Okay. Great. Maybe switching gears to connected area, just maybe cell therapy, one of some of the assets that you've acquired in the past, the TC busters, the other capabilities that you've built I mean these have been all obviously application.

The question is really around capital deployment. I mean the leverage ratio remains low what's your appetite? And as we think about these areas, obviously, cell therapy have proven themselves in the market over there, but still somewhat of a nascent market. But broadly speaking, across tools, how are you thinking about areas that still remain very key and sort of -- maybe just going back to what you used to describe as a funnel. So maybe if you can talk about that.

Yes, sure. So I get this question a lot lately because hey, you did so many acquisitions, 19 acquisitions or whatever, the first 10 years that I was here as CFO, of course, with Chuck with most of those years. And now all of a sudden, there hasn't been much since COVID. Now I think not since COVID, a lot of has to do it because, especially during COVID and even after COVID the valuation expectations were just kind of were crazy.

But I'd say this, I'd say, first of all, we still believe that capital deployment towards M&A is a top priority for our capital, our excess capital. We still believe that life science is such a dynamic area that in the long -- in the long haul, we've been here 50 years. We won't be here in another 50 years. It's got to come from a combination of organic, inorganic to stay relevant. And it's an exciting space. There's always something new out there. And then there was a lot of initial building that we did first 10 years of my tenure with Chuck, where we were trying to take this kind of sleepy core and build around it, a portfolio that could really outpaced the growth for the market.

And so we took a lot of shots on goal on that as well as different. We did almost 20 acquisitions, but the reality is only 2 or 3 really became the core of our growth pillars going forward, which is you take those chances early on. And they were relatively small acquisitions, too, so not big chances, right, in terms of capital outlay on H1. So we've matured since then. We were a $300 million company, now we're on $1.2 billion, right? And the beautiful thing is Well, let me back up for a second.

Kim has come in. And before Kim, sorry, top of the funnel, because that we were in that process of kind of company building, the conversation was around how large our funnel was a least always talk about, we have 100 companies in our funnel. The funnel is full and all that. You're not going to hear us talk about how many companies are in the funnel anymore. It's much more about the quality and relevance of that funnel.

And that was one thing that one of the first things Kim did when he came in as new CEO, he go, hey, I want some outside validation on do we have the right strategies in place? Do we have the right portfolio that can grow this company organically and double the company organically in the next 5 to 7 years. And rather than hire a bunch of consultants to do it, you basically upgrade our entire Corp Dev team. So we got a super star out of Danaher Corp Dev. We also brought in a top banker out of Wells Fargo and between the two of them largely the past 18 months massive interrogation of us internally to say, is this the right strategy? And the good news was that they confirmed it was that we're very well positioned.

But they also, in conjunction with that, did a really nice job of saying, and we don't need to do 20 more acquisitions over the next 10 years. But for all the reasons I said earlier, we still need to prioritize M&A. And here's where we need to do it, and here's where we're going to focus our time and energy. And cell therapy is one of those areas of continued interest and we think tons of adjacencies to our current portfolio. Organoids is also a very close adjacency, and we already have a $50 million business in organized. And we think that's going to be -- we could be talking as much about ordering 5 years now as we've been talking about cell therapy. Antibodies, as you know, Puneet, is such a broad space. There's always opportunities to enhance our core antibody portfolio.

And then I'm sure there'll be a question here on AI at some point. But now more than ever, especially with AI and AI models, data quantification and automation and characterization of proteins is going to be even more important, and that's where our entire protein simple franchise as well as our spatial franchise is all about. And so finding other adjacencies to that is also of interest. So this team is now really focused on those companies out there that would be very nice complementary strategic fits and starting to build those relationships.

But it's not about the fact that M&A is tough right now or valuations are crazy right now. It's more about being much more pragmatic about what we want.

Got it. On that point of AI, a lot of discussion, obviously, dry lab versus wet lab. Obviously, you're serving the wet lab. How much of the dry lab action lends into what lab any early indications that you're seeing in terms of demand dynamics?

I'd be surprised if anyone saying really there seeing any early indications of anything right now with regards to AI, it's still very early days. And I'll tell you what our thesis is on it. I don't think we're alone because we obviously bounce this off our customers, including large pharma that we've had many conversations with about. We've bounced this off peer companies when we meet with their fellow CEOs and CFOs.

And then, some of your peer analysts have written some reports on this, which is all very consistent with where our heads were on this, which is that AI is going to be extremely important for every industry going forward. And it's going to replace every industry going forward just like the Internet did. And even though there was concerns for those who are old enough like us to remember, everyone thought it would basically completely destroy every industry and enhanced it is what it did. I think AI will do the same. AI is enhancing our own business internally. We are actively using it to develop next-generation proteins that don't exist in the world, which is phenomenal. But it's going to take time.

And we've been doing -- we've been using AI for 2 years, and we're just now launching our first -- been launching our first proteins in that space. And more importantly, these models need data. They need data. So we actually believe that AI will be a tailwind for our life science tools space for the next several years because it's going to take several years to build up all the data that's needed on the characterization of proteins, and that's both on the instrument side. But also on the wet lab side because you've got to do the wet lab in order to read -- in order for the instruments to read it. After you get 2 or 3 years of good, solid enough data to actually build out these models at that point, I would argue these models start to become more commoditized. And yes, maybe enable some of the skipping of very early discovery screening and so forth. But now the need for high -- more complex proteins, more targeted proteins is going to become even more important. And that's our sweet spot.

The reality is the commodity-based proteins that tend to be used more on the screen because they're good enough for that. It's kind of been a bucket for us for years where we've been always focusing on how do we make those next-generation proteins is really hard to make that no one else can do, to stay where the puck is moving. And I think AI is going to make that puck move even faster, and we are extremely well positioned for that. So we actually see it as a tailwind overall for the industry, at least for the next 3 years, But we think how we're positioned as a tailwind really indefinitely for us. And the last thing I'll say about it is that when you get into a more mature state of this, call it, 5 to 10 years down the road, we don't believe R&D spending is going to go down by pharma.

We argue I think it'll stay that it has been historically in that mid-single-digit kind of growth range. It just means they'll have more drugs in the pipeline because there's no shortage of disease, as we all know. And more of those drugs in the pipeline will be in that translational space, which is where we play and where our strength is.

Yes. Just last question since we're at the time. On margin side, 100 bps margin expansion that you're expecting in -- maybe just tell us what takes you to that mid-30% plus margins that you've had historically?

So as you know, we've -- this past couple of years, we've done a lot of internal restructuring, taking out some layers in the company, pruning some of our portfolio that were less profitable just to kind of keep our margin steady in a very tough environment. And this year, we're actually growing margins in a very tough environment with those actions. But our expansion imagine of the margins going forward is not predicated on some operating system that takes x amount of cost out every year. It's really predicated on growth. And because our companies are -- because our products are so differentiated, they have overall very high margins. We get very high drop-through. So at a very high level, Puneet.

How we think about it, how we struck the planning season every year is that if we are able to grow mid-single digits to high single digits, we should expect at least 50 basis points of margin expansion as a minimum in addition to investing for growth. We get back to our -- what we believe is our entitlement in a normal market of double -- low double-digit growth then we should be expanding margins by at least 100 basis points and still investing for growth. So you do that over the course of several years and you get back to the mid-30s.

Okay. All right. Well, I look forward to that. Yes, thank you for the time here.

Appreciate it.

All right. Good morning, everyone. Day 2 of the 46th Annual TD Cowen Healthcare Conference. I'm Kyle Boucher, an analyst on the life science and diagnostic tools team here. And I'm pleased to be joined by Kim Kelderman and Jim Hippel, CEO and CFO of Bio-Techne. Kim and Jim, welcome to the conference.

Thank you.

So today, I'd like to go through a number of questions, including the company's recent performance, the healthier end markets and then maybe get over to some of your growth pillars. But before we get into that, this year marks Bio-Techne's 50th anniversary. That's a big milestone.

So I guess, Kim, maybe can you take a moment and just reflect on Techne's success to date and give a brief overview of your priorities going forward?

Sure. Well, first of all, thanks for having us. Good to see you, Kyle. Yes, 50th year, we're quite excited about that milestone. Started in 1976 in Minneapolis and the team at that time was really focused on creating hematology controls for that, obviously got very, very acquainted and worked a lot with blood and very successful in creating those controls.

But at some point, also looking at all the other components you find in there, and obviously, there are plenty of proteins. So we learned a lot about these proteins over the years and how to characterize them and how to create a fantastic portfolio, which we now have about 6,000 or so on the market, complex molecules.

And those proteins and know-how really helped us to be extremely good at also creating the antibodies that fit the proteins. And so it gave us a competitive advantage that kept rolling into eventually a broad portfolio of core reagents.

That gives us broad market access. We go directly to market with those -- with that portfolio, gives us broad access and there with good connection with customers, and we continually get the input as to what customers want to research and what kind of tools they would need to do so properly.

And from that, we basically branched into 4 growth verticals because we knew where the market was heading, but we also had the tools to evaluate certain M&A opportunities really well with the know-how we have.

And therefore, we ended up building a very nice franchise around protein characteristics through several acquisitions and organic efforts. We created a cell therapy business unit, same mixture, spatial biology, also same mixture, some acquisitions and organic work.

And then last but not least, the molecular diagnostic business, which is probably the smallest of those 4 verticals. It creates a fantastic setup where you have high-margin core portfolio, basically finding pull-through by our plays in those 4 growth vertical markets through very differentiated offerings. And that's the setup for the whole company.

All right. Got it. Well, maybe moving over to some more nearer-term stuff. You reported fiscal 2Q not too long ago. Total organic growth came in around flat for the overall company, but you had a pretty notable headwind from your GMP reagents business, which we'll get to shortly. But total underlying organic growth was around 3%, so low single digits.

Middle of last year, you gave an outlook for fiscal '26 of plus low single digits. I think the Street currently reflects somewhere around 1% for the full fiscal year. And I think that reflects Techne exiting the fiscal year around mid-single-digit underlying growth, so that would be the June quarter.

So I guess relative to your initial outlook back in late summer of 2025, I mean, how have your views of your end markets changed or progressed? And what's your confidence in Techne being able to exit fiscal '26 at that sort of mid-single-digit organic underlying growth?

Yes. The confidence is relatively high because most of the thesis that we had at the beginning of the fiscal year, when we don't guide, but we give some soft guidance in that we kind of talk through what we believe the markets -- end markets will do. And that's holding very nicely together.

Our base assumptions were that we had a healthy market in large pharma, 30% of our revenues. And fortunately, we've now printed a fifth quarter consecutively double-digit growth, so double-digit growth over double-digit growth, which is -- shows important momentum for us because it is our largest market. That was also the base assumption.

Then we have biotech where the first half of the calendar year last year was really abysmal funding. And it started to stabilize, get a little bit into positive territory in the calendar Q3 and then accelerated in the back end of the calendar year and continue accelerating in January with the funding being up 90%, basically over those last 4 months.

So we do believe we see some green shoots there if it comes to capitalization of that end market. And we do believe that, that eventually will trickle through to life science tools. So a good setup, and for now, stable with the potential to improve, and that was our setup.

The third market, obviously, is academic. 22% of our revenue is related to that end market. 8% though in Europe and 12% in the U.S. We -- in the U.S., we obviously had a very turbulent year that everybody knows about. And it started more or less in February last year. So there's some progress there.

We were relatively certain that there would be bipartisan support to, of course, continue the very important aspect of education and research. The budget get passed. We did assume and know that there's some sand in the engine if it comes to what gets approved and how does the money get handed out. And there's quite some details underneath. But overall, our assumption that, that market will be stable and improve over time is also still holding true in our minds.

And then last but not least, we assumed a relatively stable and positive growth performance in Asia as well as in China. And that also became a true aspect of our budget. Long story short, all the ingredients that we typically talk about with the assumptions are so far holding nicely, and therefore, the projections for the coming quarters, we're still comfortable with as well.

Got it. I'd like to dig into the end markets a little bit in a second. But maybe before then, you've previously mentioned that in times of weak market conditions that Bio-Techne should outperform peers. But as underlying market conditions improve, the gap sort of between Bio-Techne and peers should ultimately widen and lead to even greater outperformance.

So I think other large tools companies are calling for a gradual recovery in the underlying end market. Many of the calendar '26 guides call for somewhere around low single-digit growth. So in that context, as that end market recovers, should Techne be able to meaningfully accelerate underlying growth as the market marches back towards those historical levels?

Yes, assuming that recovery happens in that pace, we feel very comfortable with the outperformance. Obviously, the setup of having the core, which is 52% of our revenues being broad-based applied will make it very dependent on the overall activity level in the end markets.

However, our investments and our play in the faster-growing verticals definitely make sure that these nascent, very applicable new markets are going to continue the outperformance like they have shown over the last couple of years.

But if anything, the 3, 4 markets that I mentioned are going to get boosted by all kinds of different aspects. I think the type of data and the type of processes we address are going to be important for new modalities.

But on top of that, we always talk about automation, we talk about reproducible results, high quality reagents, and if you think about an extra drive of generation of data that you could use for -- through AI to better design or better progress your projects through your funnel, that's right up of our alley, and that's also what we always propagated.

So we are very enthusiastic about the tailwinds and the positioning we have in those 4 growth verticals, and there we've achieved our outperformance as you've come used to, yes.

Got it, got it. Okay. So maybe on the end markets then, just moving on a little bit, large pharma, starting with large pharma. You just mentioned you had a number of quarters of double-digit growth here and large pharma makes up around 30% of your sales. It doesn't seem like strength is really waning here. Would you agree with that?

And I guess the question is, if you think about over the next 12, 18, 24 months, are there any sort of speed bumps that you see? Are there any lingering fears over tariffs, MFN, patent cliffs? I mean do you foresee anything over that time frame that anything could change that would get in the way of this strong growth that large pharma has seen?

Yes. I think that, of course, being in the double digits 5 quarters, you'd think that that's real, but if we look at the overall spirit in that particular end market, the budget has been set mid-single digits more or less for R&D.

We feel that's very healthy, and we feel that, therefore, we can grow to double digits. And again, that's just because the 4 growth verticals we have are very nicely tailored to whatever research as well as translational work needs to be done in large pharma.

If you then layer on top the drive to generate reproducible data, especially as AI becomes a stronger storyline and a more evident storyline in the development of new drugs, I do believe that there will be actually extra push to get from manual clunky processes into what we always talked about, simple, automated reproducible setup.

So I think even without the AI drive that we belong in the double digits for large pharma. But with that additional drive to get more usable data, I am even more certain that we can perform really well in that end market.

So then maybe for the pre-commercial smaller biotech, which I think you said is just under about 20% of sales now, they've been under pressure for a number of years, but the funding environment you've called out a number of times getting a lot better. I think there's been probably 3 or 4 months now positive of funding data out there.

I guess, maybe to start, how long does it really take for that spending to flow through to Bio-Techne? And I guess how are you guys positioned as that money sort of flows back?

Historically, it takes about 3 quarters plus/minus 1, and it's typically different for reagents where -- which are easier or faster to order. And then CapEx is usually a little later in that bell curve.

In general, I wouldn't be surprised if we're going to do a little bit better than that if it comes to the time frame, and that's based on the fact that historically, if there would be a bump in funding, people would have to start building infrastructure, clean rooms, fume hoods and what have you, to then start ordering their equipment and their reagents.

Right now, there is obviously, over the last couple of years, tremendous capacity build in the market that, I believe, the funding will not be used as much to first build infrastructure, but can may be find on average faster into new projects and/or acceleration of projects and, therefore, come quicker to the life science tools. And we're not counting on it, but because our assumption is the historical 3 quarters, I wouldn't be surprised if it's going to be a little bit better than that.

Got it. Okay. Maybe moving on to your growth pillars then, starting with cell and gene therapy, a big area of focus for you guys. And you've talked about this business being roughly $80 million. I believe, from your disclosure, that's around $60 million for your GMP reagents business and around $20 million from the ProteinSimple business, which I think is mostly Maurice. Is that right?

No, it's -- the breakout is a little bit different. It is $80 million run rate last year. $60 million of that was GMP proteins. But the other $20 million is in small molecules and in media, so other reagents you put in there. The -- yes, you do use Maurice and other instrument platforms to analyze and support cell and gene therapy, but we do not count that in that business unit. We count that back in the protein analytics business unit. So that's the difference in breakout.

Got it. Okay. And so that GMP reagents business, maybe to talk about that for a moment. You've been a victim of your own success here creating some really difficult comps back in fiscal '25. But I guess can you walk through sort of the comp dynamic that you've discussed from these 2 major customers? And then I've got a second question on them.

Yes, you're right. We've always been driving to add customers to the funnel, and we now have over 700 customers in the funnel to use our GMP proteins. But at the end of the day, we have 2 large customers that have big projects addressing real broad indications, and those customers have dominated, I should say, from a dollar point of view, the ramp in GMP revenues.

Last year, Q2, we grew 9%, but on the call, we said, listen, underlying it's 6% because there's a couple of big orders in there that we might not see repeat on the short term because once these customers are still in clinical trials, their orders are very lumpy, right? And then fortunately, and for good reasons, 2 of those large companies -- customers have received fast track approval.

That means that the FDA will work together with them to optimize the time to market. And that's great news. But that does mean that we have a year of tough comparables, and that will influence the overall company's organic growth, and the headwind was 200 basis points in Q1, accelerating to 400 basis points this last quarter. And then it weans off to 300 and 150 basis points for the upcoming 2 quarters. And from there, it will be out of our comparables.

So great news that they received this fast track approval. It creates a little bit of a lull. They will start reordering the moment they get confidence that they have to start validating manufacturing and processes, and they will start using our ingredients again. But we've not built our assumptions around that.

We are just very, very supportive of them getting their approvals. And if so, these companies will ramp in a much more steady way. And I wouldn't say steady as in slow growing, steady as in a more predictable way. And we do feel that these customers could be $40 million, $50 million or so each at 4, 5 years in, rolling out their therapies and double that a couple of years later at their peak revenue.

So we are very, very exciting that it is -- excited that there is this future. Underlying, though, and that's most important, you take those 2 customers and that dynamic out of the equation for a minute, you can see that we still grew 30% or so, and that's for me, very important, because you don't want to have a business that only is healthy if those 2 customers do well. We do have a healthy business underneath as well.

Right. Okay. And maybe another piece of the future cell and gene therapy portfolio, Wilson Wolf, which you'll be acquiring by the end of calendar 2027. I guess, can you maybe just speak for a second on Wilson Wolf's recent performance? I think they had sort of a tough quarter last quarter similar to you guys. But I guess, ultimately, how does that technology really fit into your portfolio? And I guess, what are the attractive pieces there you see?

Yes. So Wilson Wolf mainly built around a product called the G-Rex. And the G-Rex is basically a small bioreactor, typical size is 1 liter. The real nifty part of it is that you put the cells you want to grow, typically CAR-T, but you can put other cells in there in this bioreactor.

And then the nifty part is that oxygen can get relatively quickly to the cells because there's a permeable bottom on this G-Rex and then you can basically add all the necessary reagents to make these cells happy and make them grow in the right speed. And for that, you would have to inject small molecules, GMP proteins and cytokines and what have you, which are all ingredients that we are, a, very good at.

We have a large portfolio of and they're extremely high margins. So the G-Rex being scalable and affordable and therefore, has a 45% of all clinicals in the world position, with us being able to connect towards this G-Rex, if it comes to adding our reagents at very high margins, is almost a dream scenario. And it will come true. We own 20% right now. We will own the balance of the company December 2027, which is a little less than 8 quarters from now.

And yes, we feel that, that is a fantastic combo, very similar to all our other verticals where instruments pull through our reagents. In this case, it's a disposable that will pull through our reagents, but a fantastic setup, and it truly enables the cell and gene therapy customers to scale and to make the treatment affordable, which has been some of the higher hurdles for companies to cross. So we enable it.

To growth is very interesting. We do see the parallels between our GMP portfolio, which is mainly looking at regen med and the Wilson Wolf portfolio, which is more in the CAR-T space. Nonetheless, they both have very similar growth rates. They kind of read on the same markets. So we see a good validation of our numbers.

Last quarter, they run -- grew 20%, 12-month trailing, which is something we look rather at because of the lumpiness of the larger orders, and that's been mid-teens, in very depressed, suppressed markets, I should say. And that's actually what we've seen, too, underlaying on -- in cell therapy.

Got it. So maybe another pillar of yours, the proteomic analytical tools, the ProteinSimple franchise. I think more broadly, your analytical tools franchise, including reagents, the consumables portion are over 20%, just over 20% of sales from our math, I guess.

ProteinSimple specifically has grown, I think, at least high single digits for a number of quarters with consumables growing well into the double digits for many quarters. I guess can you discuss some of the drivers behind the strength that, that business has seen sustained for so long?

Yes. Obviously, a fantastic platform, proteomic analytics. We knew it was always coming and going to be important, and it certainly feels over the last years that, that moment has arrived. In total, the business is more than $300 million for us, so it's 25% or so of the company. So it's increased a little bit.

And you're right, that's because the instrumentation also in tougher end markets has continued to be able to perform nicely and increased installed base, and the pull-through of our reagents/cartridges for consumables really has done extremely well in -- under those market conditions as well. 10 out of the 13 last quarters has been in double digits. And that speaks to the utilization.

That means that these technologies are actually very relevant and being used. And it doesn't surprise me because if you think about some fundamental processes like ELISAs or Western blots, and biologic analysis, all of those are very essential in the upcoming waves of projects.

In the meantime, we always pushed forward our automation because, a, it's simple, but it also creates reproducible results and it's actually the actual data. So having actual data, which we label so that AI models can make use of it compared to manual. So we have mainly competed with manual solutions, right?

And in the past, there were some drivers like fewer people in the lab because of pandemic or, hey, are people getting more expensive, we should go to automation, or more so in pharma, our data needs to be of higher quality and reproducible. So those were already drivers. But now with the drive to being able to utilize your data for bigger large language models is actually we feel even more a value proposition we can benefit from.

So all 3 platforms are really well positioned. They're very unique, and they have still plenty of market share to grow into because they are all sub 20% or so market share in these end markets, and have plenty of head space. So we feel that we're well positioned to see continuing that product line, do as well, if not better, in the coming years.

Got it. Actually, I got a question for Jim. Maybe moving on to margins a little bit. I guess on the margins, Jim, Techne has got a pretty big opportunity to materially expand margins over the next few years as the end market recovers, as M&A scales. That is just pretty evident by the 250 bps of margin improvement before reinvestment that you've seen post the divestiture of ExoDx, I guess.

So I guess maybe what are the building blocks that could materially raise Techne's adjusted EBIT margins over the next couple of years? And I guess on that, how does your core reagents business play into this improvement as the market improves?

Before I talk about the expanding margins going forward, talk a little bit about what we've been doing here and now in the past 7 to 8 quarters, has been a lot of internal productivity and product line rationalization, like you talked about ExoDx, for example, to really position the company to weather the end market situation that we've been in for the past couple of years, keeping our margins at way above peer average. And so that we're very well positioned for the next leg of growth in terms of future margin expansion.

So I think we've done a really good job of doing all of that to preserve our margins north of 30% in this environment. And it will, I think, parlay into kind of our thesis in general, which is that over a longer-term period, whether it's 3 years, 5 years, what have you, our margin expansion plans aren't centered around a productivity system or something like that. It's really centered around growth.

And what allows for that is we have such great margin pull-through on such a large vast of our portfolio that we just get -- and then just drop through the bottom line. And so how we think about it from a starting point every planning season is it's sub 5% growth, we want to still invest for growth while maintaining our margins.

So I don't expect a lot of margin improvement in that environment, although we've done years like this past year, we've been able to expand margin despite that. But that's a starting point. You get to growth that's in the 5% to 10% range. We believe because of the drop through, we can still invest for growth and have at least 50 basis points of margin expansion as a starting point.

And then we get back to double-digit growth across all of our end markets, which is our aspiration, and we believe our entitlement, then you're talking about 100 basis points of margin expansion while still investing for growth. So it allows for a path to get back well into the mid-30s, if not higher, in relatively short order with markets returning back to normal.

Got it. So maybe going back to Wilson Wolf a little bit. You've called out a number of times the margin profile of that business. So I guess maybe can you discuss that a little bit and how it would be accretive to the overall portfolio?

Yes. It's one of those magical once-in-a-career type opportunities where an acquisition at least for us is both accretive on the top line growth as well as the margin profile. So their EBITDA margins right now are running around 70%. It is a very, very lean organization, very entrepreneurial in how they go about running their business, which we don't want to get away with that.

But we also are realistic and when that business becomes part of our portfolio, there will be investments we'll need to make from a systems perspective, even from a leadership and people perspective to, if nothing else, make a public company caliber for SOX and things of that sort, but also just from pure sustainability and to prepare it for its next leg of growth beyond that.

So we've modeled in -- we've basically taken a 10% haircut on that margin, assuming that we'll operate at a closer to 60% EBITDA margin, but still not too shabby and still definitely accretive to our 30% plus.

Got it. And maybe moving over a little bit to just M&A and capital deployment. Clearly, M&A has been paramount to the Techne story for the last 15-plus years -- 50 years of Bio-Techne, right? So I guess with that being said, you've got Wilson Wolf on the horizon here, but how important is M&A to the strategy going forward?

Are there areas of the portfolio that you'd like to add to? And I guess the last question would be, would you seek to do something ahead of Wilson Wolf? Or is that something that's sort of pending in the background, you'd sort of wait to see once that's integrated into the business?

I'd like to set up on the Chessboard. You're right, 50 years of Bio-Techne and the last 10, actually, we did these 18 acquisitions or so. And obviously, it makes a ton of sense that if you have this broad exposure to market and you know where the markets are heading, where the pain points are, that you would build out growth verticals where you can differentiate and where you can pull through your reagents and where you can be a meaningful differentiator with your customer base.

So that setup, we really, really like. In the meantime, we have the right abilities to evaluate certain targets and we know how to integrate. And then we always have the setup of you go play in a market, you will win in the market with your handpicked solutions. And as long as it pulls through reagents, the margins will follow as well.

So therefore, as a company, we will always be able to drive top line growth faster than anybody else, but also maintain margin profile that people have come to love. So that's a fantastic setup. Yes, we have Wilson Wolf on the docket for sure. So that's a good thing. But in the meantime, and that will even increase our buying power. But in the meantime, we are ready to do another deal or 2.

But we want to be disciplined. We won't do anything that we would regret. And we have certain areas that we really like. Fortunately, we're not in the position where we have to move because in spatial a couple of years ago, I really needed and wanted an instrument. So that was a kind of a have to move situation, but we're not having that currently.

But we are interested in building out further cell therapy workflows. Our proteomic analysis instrument setup is really, really good. And as I might have mentioned cell therapy workflows and then combine that with building out the core portfolio with other nifty antibodies or protein companies. So those are the 2 verticals as well as the core that we will always continue to maintain.

All right. Great. Well, with that, we're out of time. And Kim and Jim, thank you very much for being here.

Thank you, Kyle.

Thank you for having us.

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Second Quarter of Fiscal Year 2026. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations.

Good morning and thank you for joining us. On the call with me this morning are Kim Kelderman, President and 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.

The company's 10-K for fiscal year 2025 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 because 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 Investor Relations section of the Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the Cowen and Leerink Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim.

Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's Second Quarter Earnings Call of fiscal 2026. Our second quarter performance was largely in line with our expectations. Continued strength from our large pharma customers was offset by a soft yet improving biotech end market and a soft but stable U.S. academic end market. As anticipated, order timing impact from 2 of our largest cell therapy customers receiving FDA Fast Track designations also created a temporary headwind.

And taken together, these factors resulted in flat organic revenue growth for the quarter. Overall, these end market dynamics, combined with solid execution across the organization, drove sequential year-over-year organic revenue growth improvement in most of our product categories. I would like to mention the following highlights. Our core reagents and assays, proteomic analysis instruments and diagnostic kits all grew modestly more in Q2 than during Q1.

Cell therapy, excluding our 2 largest FDA Fast Track customers, delivered strong sequential improvement in year-over-year growth. In our spatial biology franchise, we saw a meaningful acceleration in bookings for our automated common platform. In addition, we delivered our third consecutive quarter of growth in China, alongside notable strength across the rest of Asia. The team delivered these top line results with a continued focus on our sector-leading profitability profile.

Adjusted operating margins expanded like in our first quarter by approximately 100 basis points year-over-year to 31.1%. This performance reflects our disciplined approach to productivity and cost management while continuing to invest in the strategic growth verticals that will continue to shape Bio-Techne's future.

These 4 strategically important growth verticals, cell therapy, proteomic analytical instrumentation, spatial biology and precision diagnostic tools now represent 47% of our total revenue, up from 32% in fiscal 2020 and with that, delivering an upper teens CAGR over the past 5 years. Notably, our core portfolio of reagents, assays and diagnostic controls delivered a competitive mid-single-digit CAGR over the same period.

Calendar 2026 is a milestone year as we celebrate Bio-Techne's 50th anniversary. Several events are planned to mark the occasion, including ringing the NASDAQ closing bell on the 25th of February. Over the past 5 decades, we have built one of the most durable and differentiated portfolios in life science tools, addressing high-growth, high-value applications aligned with global health care megatrends.

We recently highlighted several of these high-value applications during our presentation at the JPMorgan Healthcare Conference. As a case in point, we often emphasize the essential role our GMP reagents and proteomic analysis instruments play in enabling cell therapy workflows. But these capabilities extend well beyond cell therapy as our tools support development and manufacturing across a broad range of advanced therapies.

Our ProteinSimple franchise, for example, is an essential component in the development, manufacturing and quality processes of monoclonal antibodies, antibody drug conjugates and other advanced biological treatments. Turning now to the performance of our end markets in the most recent quarter, beginning with the biopharma customers, excluding cell therapy. The divergence between large pharma and emerging biotech persisted in Q2, although the gap narrowed.

Revenue from our large pharma customers remained strong, increasing low double digits for the fourth consecutive quarter. In contrast, emerging biotech declined mid-single digits, reflecting continued pressures stemming from negative funding conditions during the first half of calendar 2025. While growth from these smaller biotech customers remained challenging, we did see sequential improvement.

As many of you know, biotech funding rebounded meaningfully in the second half of calendar 2025, positioning this end market for improvement going forward. In academia, stabilization in the U.S. continued with constructive developments on the federal funding front. Both the House and Senate appropriation bills include a roughly 1% NIH budget increase, maintaining indirect funding rates and capping multiyear grants at fiscal 2025 levels.

While these bills must still be reconciled, the proposals are far more supportive of academic research than originally feared. For Bio-Techne, a modest decline in our U.S. academic business was partially offset by stable growth in Europe, and this resulted in a low single-digit decline for this end market overall. Shifting to performance by geography. The Americas declined high single digits.

However, after adjusting for cell therapy order timing headwinds, revenue in the region grew low single digits. EMEA was flat against a strong double-digit comparison from the prior year as strength in diagnostics was offset by order timing dynamics. China grew mid-single digits, marking its third consecutive quarter of growth, supported by R&D investments from CDMO, CRO and biotech customers working on advanced therapies. This activity level is driving demand for reagents and proteomic analytical tools.

Across the APAC region, we saw strong broad-based performance with growth approaching 20%. We remain encouraged by the momentum in both China and APAC and believe that these regions are well positioned for continued growth. Let's now turn to our segments, starting with the Protein Sciences segment, which declined 1% organically.

As expected, Fast Track designation from the FDA for our 2 largest cell therapy customers reduced near-term GMP reagent demand given that these customers had already secured the materials necessary to complete their clinical programs. Therefore, the revenue in our cell therapy business declined over 30%, including a 50% drop in the GMP reagents specifically.

However, excluding the 2 customers that are progressing through priority review with the FDA, GMP reagents grew nearly 30%, which underscores the strength of our offering and improving end market demand. Sticking with cell therapy, I'd also like to give an update on Wilson Wolf. As a reminder, Wilson Wolf manufactures the market-leading G-Rex line of bioreactors used to efficiently and economically scale cell therapies.

We currently own 20% of Wilson Wolf and will complete the full acquisition by the end of calendar year 2027 or sooner based upon achievement of certain milestones. Wilson Wolf's G-Rex bioreactor remains highly synergistic with our cell therapy offering. This single-use system requires media and GMP proteins to efficiently scale cell therapies and is fully compatible with our closed ProPak cytokine delivery solutions.

Wilson Wolf performed exceptionally well, delivering 20% organic revenue growth in the quarter and upper teens growth on a trailing 12-month basis. We also continue to advance our organoid initiatives during the quarter. Organoids, lab-grown 3D representations of human organs depend heavily on cell culture matrices, small molecules, growth factors and cytokines, all of which are long-standing strength for Bio-Techne.

The FDA's recent validation of organoid solutions as acceptable replacements for animal-based models further underscores the rising importance of these cell-based systems. To support this shift, we recently launched Cultrex Synthetic Hydrogel, a fully defined synthetic matrix designed to reduce variability relative to the traditional animal-based products and to align with the growing adoption of nonanimal-derived models.

Now let's discuss our proteomic analytical instruments collectively marketed under the ProteinSimple brand. The productivity and precision these platforms deliver across research, biopharma manufacturing and QA/QC applications continue to resonate strongly with customers. Even in a challenging capital equipment environment, particularly among biotech and academic laboratories, instrument sales grew upper single digits in the quarter with strength across all 3 major platforms.

We continue to advance innovation across our instrumentation portfolio, highlighted by the introduction of ultrasensitive assays on our automated multiplexing immunoassay platform called Ella. These new assays enable femtogram level detection of low abundance biomarkers in blood, which represents a two to fivefold improvement in sensitivity over legacy Ella assays. We launched the first application of this enhanced capability for research use only, supporting the detection of neurological biomarkers.

Within our Simple Western franchise, demand for Leo, our next-generation high-throughput automated Western blot system remained exceptionally strong. Leo exceeded our expectations once again, driven by continued robust adoption and an expanding order funnel. This past quarter, we further enhanced the platform by adding fluorescence detection, enabling multiplexing workflows and providing deeper insight into protein expression and pathway characterization.

These enhancements meaningfully broaden Leo's utility in advanced proteomic applications and address significant needs in the biopharma end markets. Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types delivered low single-digit growth for the quarter. The portfolio's lot-to-lot consistency, high bioactivity and broad catalog continue to differentiate this offering.

Stabilization across U.S. academia and biotech, combined with ongoing strength in pharma supported overall performance in the quarter. Now let's turn to our Diagnostics and Spatial Biology segment, which delivered 3% organic growth. Within Spatial Biology, our RNAscope product suite generated low single-digit growth. RNAscope enables researchers to detect and visualize RNA sequences at single cell resolution within intact tissue samples, offering best-in-class specificity and sensitivity.

Customers are increasingly leveraging RNAscope and miRNAscope probes and assays to assess biodistribution and toxicity for nucleic acid-based therapeutics, including antisense oligonucleotides and small interfering RNA therapies. Adoption of RNA scope in our diagnostic settings, which we do through our platform partners also continued to expand rapidly with growth exceeding 20% for both the quarter and the first half of the fiscal year.

Momentum also continued with our COMET instrument, which delivered nearly 40% growth in bookings, marking the second consecutive quarter of strong booking activity. COMET's fully automated multiomics capabilities are increasingly valued by both academic and biopharma customers as a powerful tool for uncovering novel biological insights. Spatial Biology remains the business within our portfolio with the highest academic concentration and a meaningful presence in biotech.

Despite ongoing challenges across both of these end markets, we remain encouraged by the sustained momentum in this franchise. Lastly, our Diagnostics business delivered high single-digit growth, supported by balanced performance across both clinical controls and molecular diagnostic kits. Recent innovation within our molecular diagnostics portfolio is driving increased customer interest, evaluation and adoption, particularly among oncology and carrier screening reference laboratories.

This includes our ESR1 exosome-based mutation kit, which is used to monitor resistance to breast cancer therapies, as well as our AmplideX Carrier Screening Plus kit, which interrogates 11 of the most common genes associated with elevated risk for genetic disorders. In summary, the Bio-Techne team continues to execute extremely well while navigating an end market environment that is stabilizing but still challenging.

Our disciplined focus on productivity and cost management remains a key driver of our operating margin expansion. And although funding uncertainty has influenced customer behavior in emerging biotech and U.S. academia, recent strength in biotech funding activity and the favorable fiscal 2026 U.S. appropriation bills position both these end markets for continued stabilization and gradual improvement.

As we enter our 50th year as a company, I remain confident in the durable moat surrounding our core portfolio and in our competitive positions across our fast-growing verticals of cell therapy, proteomic analysis, spatial biology and molecular diagnostics. With that, I'll turn the call over to Jim. Jim?

Thanks, Kim. I'll begin with additional details on our Q2 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.46, up 10% year-over-year with foreign exchange having a favorable impact of $0.04. GAAP EPS came in at $0.24, up from $0.22 in the prior year period. Total revenue for Q2 was $295.9 million, flat year-over-year on both an organic and reported basis.

Foreign currency exchange contributed a 2% tailwind, while businesses held for sale created a 2% headwind. Excluding the timing impact from our 2 largest cell therapy customers who received FDA Fast Track designation, organic growth was 4% for the quarter. From a geographic lens, North America declined upper single digits as strength from large pharma was offset by order timing in cell therapy, continued funding pressure in biotech and soft but sequential stabilization from our academic customers.

In Europe, revenue was flat against a very strong prior year comparison with low single-digit growth in academia, offsetting a modest decline from biopharma in the region. We are encouraged by the third consecutive quarter of growth in China, where revenue increased mid-single digits. APAC, excluding China, increased almost 20% as the Asian geography continues to show signs of sustained momentum. By end market, biopharma declined mid-single digits overall.

However, excluding our largest cell therapy customers, biopharma grew mid-single digits, driven by strong pharma demand, but partially offset by emerging biotech softness. Academia declined low single digits with low single-digit growth in Europe, partially offsetting low single-digit declines in the U.S. Below the revenue line, adjusted gross margin was 68.5%, down from 70.5% last year.

The decline was driven by unfavorable product and customer mix, which we expect to gradually improve as the calendar year progresses. Adjusted SG&A was 29.6% of revenue, down 240 basis points compared to 32% last year. R&D expense was 7.8% compared to 8.5% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives.

Adjusted operating margin reached 31.1%, up 100 basis points year-over-year. This improvement was fueled by the Exosome Diagnostics divestiture and productivity gains, partially offset by unfavorable product mix. Our better-than-expected margin reflects deliberate management of productivity and cost containment measures aimed at maximizing operating leverage in a dynamic environment.

Below operating income, net interest expense was $1.1 million, up $0.5 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end stood at $260 million, down $40 million sequentially. Other adjusted nonoperating income was $1.9 million, up $3.2 million from the prior year, primarily due to nonrecurring foreign exchange losses in the prior year related to overseas cash pooling arrangements.

Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geographic mix. Turning to cash flow and capital deployment. We generated $82.4 million in operating cash flow with $5.9 million in net capital expenditures. Also during Q2, we returned $12.5 million to shareholders via dividends and ended the quarter with 157 million average diluted shares outstanding, down 2% year-over-year.

Our balance sheet remains strong with $172.9 million in cash and a total leverage ratio well below 1x EBITDA. M&A remains a top priority for capital allocation. Now let's review our segment performance beginning with Protein Sciences. Q2 reported sales were $215.1 million, an increase of 2% year-over-year. Organic revenue declined 1% with a 3% benefit from foreign exchange. Excluding cell therapy timing impacts from our largest customers, organic growth was 4%.

Growth was led by our proteomic analytical tools franchise with notable strength from large pharma customers as well as low single-digit growth within our core portfolio of research reagents and assays. There was also a large reagent order from an OEM commercial supply customer in Q2 that historically was placed in our fiscal Q3. The timing of this order added an additional 1% growth to Protein Sciences and the company overall.

Protein Sciences operating margin was 39.3%, down 190 basis points year-over-year, primarily due to unfavorable product mix, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q2 sales were $81.2 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment.

Diagnostics Products grew upper single digits, while Spatial Biology was relatively flat. It's worth noting that this segment grew low double digits organically in the prior year, creating a challenging comparison. And as Kim already highlighted, our COMET instruments saw a solid double-digit growth in bookings for the second consecutive quarter. Segment operating margin improved to 10.4%, up from 3.9% last year, driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers.

We expect continued margin expansion as our common spatial biology platform scales. In summary, the team delivered strong second quarter execution in a stable market with improved biotech funding as well as further progression towards more favorable NIH funding outcomes, giving us reasons to believe that customer sentiment should be gradually improving as we progress through the calendar year 2026. We remain excited about the FDA Fast Track designation awarded to our largest cell therapy customers.

These designations accelerate clinical time lines but reduce near-term reagent demand. Following strong ordering in fiscal year 2025, these customers are now progressing through Phase III trials, resulting in a temporary pause in GMP reagent purchases. We expect this headwind to moderate slightly in Q3, impacting growth by approximately 300 basis points year-over-year before moderating further in our fourth quarter and then being completely out of our year-over-year comparisons in fiscal 2027.

Also, as I mentioned in my Protein Sciences commentary, Q2 benefited from the timing of a large commercial supply order from one of our OEM partners that was originally expected in Q3. This timing benefit in Q2 will now be 100 basis points headwinds to Q3. Taking these customer-specific headwinds into account, we anticipate overall Q3 organic growth to be consistent with Q2.

However, excluding the customer-specific cell therapy and OEM headwinds, we expect underlying growth for the remainder of our business to be mid-single digits. This outlook tracks with the stabilization of our end markets and improving customer sentiment. You will recall that in our fiscal Q1, our underlying organic growth, excluding the largest cell therapy customers, was 1%.

In Q2, the underlying growth was 3% when also backing out the favorable timing of the Protein Sciences OEM customer supply order. This near-term outlook also sets us up nicely for continued improvement in Q4 and a great start to fiscal year 2027 as improved biotech funding should translate into higher spending. Resolution of U.S. academic budgets is reached, our company-specific headwinds start to abate, and we begin to lap lower year-over-year comps.

From a margin perspective, we remain focused on balancing growth investments with operational efficiency. We're pleased with the upside delivered in Q1 and Q2 and remain on track to achieve 100 basis points of operating margin expansion for the full fiscal year. That concludes my prepared remarks. I'll turn the call back over to the operator to open the line for questions.

[Operator Instructions] Our first question comes from Matt Larew with William Blair.

So Jim, just following up on the growth cadence. So 1% ex items in fiscal Q1, then 3%, and you're saying mid-single in F Q3. I believe there's a 100-bps headwind in fiscal Q4. So just reading this through, you're expecting sort of for the calendar year '26 ex these items, mid-single-digit growth with improvement throughout the year. Is that the message?

Make sure -- yes. So we haven't come off our low single-digit view for the full year, and that would require mid-single-digit growth in Q4 at least, yes.

And I think, Matt, what you're trying to ask is if you take these 2 large customers from the GMP headwinds out, would that be the underlying growth? And I think that's in the ballpark.

Okay. Very good. And then just following up on gross margins. I think the year-over-year step down makes sense because of your 2 large customers. The quarter-over-quarter initially was less clear, but perhaps it's that large OEM order that shifted from fiscal Q3 into fiscal Q2. So maybe just give a sense for why on a sequential basis, gross margins were down and how those should trend for the balance of the year.

Yes. I mean, unfortunately, it was really driven by an unfavorable mix on a number of fronts, unfavorable mix in terms of our reagents versus our instruments. We talked about the strength in our ProteinSimple franchise, great margins, but still less than our reagents. And we also had some margin pressures in our Diagnostics and Spatial segment there where we had, of course, Spatial underperforming, underperforming the diagnostics side that has higher margin pull-through.

So you got mix issues there. But in addition, within the diagnostics orders, a lot of different OEM customers have different margin profiles, and it just so happened that we had a larger influx of lower-margin customers this quarter. But we, again, expect the overall mix, both within Protein Sciences as well within Diagnostics to gradually improve as those mixes start to unwind more favorably in Q3 and Q4.

We'll move next to Dan Leonard with UBS.

Maybe I'll take up that gross margin question. Jim, what's the driver of a more favorable unwind on gross margin? Presumably, you still expect ProteinSimple to be strong and Spatial, it sounds like it ought to recover given the growth in bookings.

Yes. So with the overall, we think the market gradually improving and our core has been improving, the margins of our -- the high margins of our reagents will start to flow through more. Again, the customer mix within Diagnostics, we have visibility to what's flowing through there, and we believe that will improve as well. So it truly is more of a mix scenario than anything else. And based on our current view and outlook and what we see ahead of us, we see that mix, again, gradually improving in the back half of the year.

Okay. And then a high-level question. Given the times we're in, I would be curious for your team's thoughts on AI's impact on demand for Bio-Techne. Just given the number of times Pfizer mentioned yesterday, AI is a cost saving and productivity enhancer in R&D.

I can give you a high-level view on that, Dan. The -- overall, we do believe that AI is a great enabler, not only for our customers, also for us, obviously. But our customers will use AI to better understand and to better drive their programs forward. Highly likely, AI will help them to be more specific in what kind of materials they want. And highly likely because of the capabilities, the molecules and the ingredients that they will want to use are going to be more complex.

And we've worked for 50 years honing our capabilities in designing but also manufacturing in a reproducible way these ingredients in very high-quality formats. And we believe that these trends will, therefore, play into our cards into the strength that we have built as a company and overall are going to be a tailwind.

We'll move next to Puneet Souda with Leerink Partners.

So first one, I mean, I appreciate the meaningful step-up that needs to happen in the fourth fiscal quarter here in organic growth. And I think you gave some underlying drivers to that. But just wondering, I just want to -- if you could maybe point out a number that we should be thinking about exiting the year? And then on '27, I know it's just 2 quarters away for you after the guide. I was wondering if you're willing to share any thoughts on potentially reaching high single digit. Or is that visibility not clear yet just given all of the moving parts in the end market?

Yes. Puneet, let me begin your first question with the underlying business trends, and I'll let Jim talk to what that means for the numbers. But if you look at our last couple of quarters, and I'll segment it in the way we usually do it, we have our core business, which is a little over half of the company, where we can clearly see a recuperation increase of our run rate business, right? You see the underlying business accelerating, and that bodes well for the activity levels in the markets overall.

And if I then double-click on the performance in our 4 growth verticals in cell therapy, obviously, the 2 Fast Track designation accounts play a big role in that. But if you take those out, the business has been growing 30%. And that's in line with where we expect it to be even in tough markets. We have fantastic traction in organoids, which is a strong up-and-coming end market for us.

The proteomic analysis, obviously, accelerating business too. We're now sitting back in the mid-single digits, accelerating. Spatial 2 times in the black, where we are flattish, but back in positive growth territory for the regions -- sorry, for the reagents and instruments coming along because we have strong order bookings. Sprinkle on top of that, the new product introductions where we have basically every month introduced a significant new feature for every business.

And then not that we're banking on it, but we have seen very positive trending in our end markets. China and APAC for the third time, China in positive growth and accelerating. APAC is turning even stronger. And then, as you know, tough markets in academic and biotech, but we've talked about some of the indicators why there's -- why there are positive opportunities there when it comes to the overall end market health. So that is the underlying dynamic, and Jim can actually translate that in numbers.

Yes. So Puneet, let's just start with the comps we're facing from Q3 versus Q4. So we grew 6% as a company in Q3 of last year, and we grew 3% in Q4. That decrease in growth rate from a comp perspective is a combination of -- from a headwind perspective or a tailwind perspective, a combination of lower headwinds from our -- these 2 cell therapy customers we've talked about, but also easier comps within our both academic and small biotech starting in February.

So there's a 3% tailwind sequentially just right there as a combination of those 3 things. And then as Kim talked about in terms of the underlying momentum we're seeing in our whole entire rest of our business, as I mentioned in my comments, if you exclude these 2 customers and this one OEM timing that we had, our underlying growth was 1% in Q1, 3% in Q2. Our implied guidance would suggest a slight step-up in Q3 and so you see this momentum building within our baseline business.

And so we think that will continue to build as we exit the year in Q4, and that's on top of the 3% tailwind we have from a comp perspective. So that's how we're thinking about exiting the year, which is obviously a very strong momentum as we -- an underlying base business growth as the final headwinds from these customers go away at the start of our fiscal year '27. So not giving any fiscal year '27 guidance, obviously, at this point, but the momentum of the business is very encouraging right now.

Got it. That's helpful, Jim. And then on China, you pointed that out a couple of times throughout the call. What's clearly interesting here is you're growing ahead of the peers indeed consistently. So just could you dive a bit deeper into that? And what's driving this strength, the end market, the customers? What's different here for Bio-Techne versus some of the peers?

The -- yes, China, it's the third quarter, we are in a positive territory, and it's -- the growth is accelerating. I think the China market is overall gaining momentum. They have approved their 15th 5-year funding plan in which life science is, again, a high priority. And we've seen successes from local biotech companies having exits in the form of M&A or through licensing, and you can clearly see a peak of deals done with China biotech. Overall activity in CDMO and CRO is also improving. And I think we're well positioned to capitalize on that, and that's really have been driving our results.

We'll take our next question from Patrick Donnelly with Citigroup.

Helpful rundown there of kind of the moving pieces as we head into year-end and next year. I just want to kind of zone in on a few. It sounds like, again, the message here is mid-single-digit underlying growth if you back out the customers or at least that ballpark for '26. And then as biotech improves and then these customers flip, you have some things to build on as you get into '27. Can you talk about the biotech piece in particular?

Again, still declining for you guys, but it sounds like all the conversations are improving. Obviously, we see the funding numbers, which were quite strong in calendar 4Q. What are you hearing from that customer base? And what's the right way to think about the timing of that funding improvement showing up for you guys in terms of revenue? Is it kind of that 6-month type lag that you've talked about before? What's the right way to think about the path forward on the biotech for you guys?

Patrick, thanks for the question. Sure. Biotech has been a tough end market, right? Obviously, the first half of calendar '25 funding was dismal. That resulted for us in a negative high single-digit Q1 and a negative mid-single-digit Q2, improving, but still not very good. Now we are encouraged because we've really made sure that we are addressing the market with the right products and the right themes.

We also have made sure that we're launching new product introductions continuously fit for that end market. And we, of course, keep a close eye on the overall health of the end market, primarily through the funding. And you just mentioned that Q3 -- calendar Q3 funding stabilized, slightly increased, but funding in Q4 increased significantly. And we've also seen very healthy numbers for the first month of the new calendar year.

Overall, M&A activity is an important indicator and has been trending positive in that market. Licensing has been positive and trending in the market. Lower interest rates are important to funding of that market and are doing well. And then assuming that there will be access to capital, yes, you're right. Typically, the delay of the funding coming trickling through in life science tools is 6 months.

There is quite some underutilized infrastructure in place. So we are anticipating the bell curve to sit at 6 months, let's say, 2 quarters plus/minus 1. And that goes from companies switching on or accelerating their programs and ordering a little bit earlier, especially in the reagent side that can go relatively quickly. But then CapEx takes a little bit longer, and that will be the back end of that bell curve. And that's how we look at the dynamics.

On the cell therapy piece, it sounds like, again, ex those customers, you're seeing pretty good growth. Can you help us size up? I think at our conference when we were chatting, you were talking about at the peak, those 2 customers were maybe as much as 40% of the GMP business. Again, you talked about the GMP business down 50%, so that makes sense.

Are we to kind of expect this -- the GMP business normalizes as we get into 1Q -- fiscal 1Q '27 for you guys and then gets back to that over 20% growth as a business? I just want to make sure we're thinking about clearly the impact of these customers, when it can flip and again, what the right way to think about the sizing of that business is before the customers after and the right baseline.

Patrick, thanks for the question. We're excited that these 2 customers have their Fast Track designation, Obviously, an indication for the importance of the treatments. and we've talked about it extensively. So I'll keep that part short. Underlying 700-plus customers, 85 in clinical studies and 6 in Phase III. But overall, in much more evenly sized customers. So it's not going to be as lumpy as the 2 that we are now working through the specific air pocket we talked about.

But yes, the air pocket was indeed a 200-basis headwind for Q1, 400 for this quarter, Q2. And then we're thinking of the impact to be 300 basis points and then somewhere around 150 -- anywhere between 100 and 200 for Q4 and then a total reset. So your conclusion is right that from there, we will go back to normalized growth. As I just mentioned in the first question, the underlying growth in that business was 30% this last quarter. And that is actually a growth that we would expect from this business.

But take into account that, that is still under very constrained conditions if you look at academic and biotech markets. So overall, we have a very positive view on the end market in particular. Knowing that our comparables will be flushed out Q1 2027, also knowing that the number of clinical studies has increased in a healthy pace and knowing that the mix of clinical studies has tilted towards cell therapy-related treatments, that really plays into our strength and reads much better on our portfolio. So overall, we're very positive about this division going forward into the new fiscal year.

We'll move next to Dan Arias with Stifel.

Jim, I'm sorry, I just want to go back to the outlook one more time, if I can. Is the picture that you're kind of sketching out for the end of the fiscal year, the mid-single-digit growth in 4Q, does that assume that both academic and biotech are growing at that point? Or is it -- is what gets you there really just continued pharma strength and then normalized spending from these 2 GMP customers?

Yes. Because of the easier comps, we can get there largely without seeing much of a step-up in those 2 customers. But again, I think any significant improvement in spending in those 2 partners could be upside.

Okay. And then maybe on the Spatial Biology side, you have the academic exposure that obviously impacts the instrument side of the equation. But on consumables, how are you thinking about the pull-through rate for Lunaphore this year? Is that something that you think can grow as an average?

Yes, Dan, thanks for always keeping a keen eye out on the spatial side of the business. I appreciate it. Yes, listen, it has indeed a larger proportion of revenue linked to the academic performance. Academic performance has stabilized. And what we're really pleased to see is that the mix of the grants has tilted from some research areas more to oncology and neurology and a preferred tool for those research end markets is spatial.

So you do see, even though the market is under pressure that our comps revenues have gone back into positive growth territory, which we are very happy to see in constrained markets. And therefore, this mix is really playing in our favor. A very similar story for biotech. And as you know, we are very happy with our competitive position of the COMET, our fully automated multiomics instrument.

We're really happy to see that our win-loss rates are very high, right there where we want them to be. And the pull-through now is about $45,000 per instrument per year. But we are working hard on getting the multiomic capabilities rolled out and customers trained on it, and that will drive pull-through from our reagents. And we're actively working on broadening our antibody portfolio for spatial analysis as well.

And as you know, we have a broad portfolio of probes in the RNA on the RNA detection side. We will now have a very broad capability and offering from the protein detection side, and we're one of the few that offer true parallel multiomics. And therefore, we are aiming that over time, the pull-through per box on the reagent side would be more in the $90,000 per box per year area. So certainly, a pull-through play that will definitely help driving growth but also drive margins.

Okay. But do you think by the end of this calendar year, you're higher than that $45,000? I mean $90,000 is doubling the pull-through rate would be great. But I mean, is 2026 a year where it's up?

We will certainly be able to see the start of that trend, but that's multi-quarter or maybe even more than a year play that I just talked about. That's a true adoption of multiomics in the space. The space is nascent, but we'll certainly continue to keep pushing forward the ability and the capability that we will offer our customers, and there's certainly demand for it. So that's a longer-term play. But yes, the trend will improve quarter-by-quarter.

We'll move next to Mac Etoch with Stephens Inc.

Maybe just given the FDA's focus on reducing animal models, I'd like to just get an update on how interest has trended for your organoid offerings? And can you just give us a sense for how much revenue that's generated from these product lines in the quarter?

Yes. Organoids obviously is a very interesting trend that we picked upon early a couple of years ago. It's a $1.4 billion market growing at mid-teens and certainly something that we want to play in, especially because of our broad portfolio of products that are very essential in growing cells and not different for organoids. We -- it's about a $50 million run rate business right now. And yes, we're definitely aligning our product portfolio, marketing materials and also our new product introductions in favor of that capability.

Because if you think at the end of it, it's not only reduced use of animal models, but also the organoid model as such gives you a much better result, much more related to an actual human result than an animal model would. So not only is the quality and the consistency of the data you generate from organoids better, it's also a more humane method of getting that data. So overall, a win-win.

And that's also one of the reasons why we just launched our Cultrex Synthetic Hydrogel, which is a gel that helps you grow organoids. And even that gel is now animal-free, and that makes consistency much easier of this medium. And it's also much better to analyze. There's less background noise in any of the analytical methods you would use in organoids. So overall, a very interesting, fast-growing market that makes sense to have a strong adoption in the end markets.

And then it's not only our cell therapy reagents that read on the opportunity. It's also spatial, the spatial capabilities to interrogate the organoids. And then Maurice and Ella in our protein analysis business also are tools utilized in the analysis of organoids. So overall, a real boost for our Bio-Techne product portfolio.

I appreciate the color there. And then secondly, you've also consistently discussed M&A as a core capability. how are you thinking about valuations in the pipeline in front of you today? And are there any particular footholds you think an acquisition might slot in a little bit better?

Yes. M&A has been and will continue to be a core focus for us. We've been very, very busy, not been able to pull a deal off yet, but certainly very interested in deploying our capital that way. We don't really care if it's private or public. We are really looking at where is the best strategic fit. And if you think about it, our core, specifically around novel antibodies, we wouldn't mind at all adding to those capabilities.

Cell therapy is obviously an area that we want -- that we address really well, but we wouldn't mind broadening our portfolio. And then in the proteomic analysis, we're also keen on adding capabilities that would benefit the company and fit our strategic model. So overall, we are very interested. And in the meantime, as you know, we already have kicked off the Wilson Wolf acquisition.

We own 20% of it currently, and we will finalize that acquisition at the latest, a little bit less than 8 quarters from now at the end of calendar 2027. And as you know, this is a business that fits really nicely with the Bio-Techne cell therapy business and has a fantastic synergy between our product lines. It grew 20% this last quarter, has 70% plus EBITDA margins, so immediately accretive. So we're very excited that if nothing else, we will be working on that integration and completing that acquisition. But we're very interested in doing something in between, if possible.

We'll move next to Brandon Couillard with Wells Fargo.

Jim, it looks like you're kind of outperforming on operating margin expansion in the first half of the year, even though mix is kind of working against you as you talked about. You're sticking with the 100 basis points for the full year, but you previously talked about maybe exiting up 200 bps year-over-year. So is there some reinvestment that's happening in the back half of the year that kind of brings you back to the original goal? And just kind of unpack how you expect margins to bear or trend in the second half?

Yes. So if you look at the second half, first of all, we have a bit of an anomaly in Q3. I mean if you kind of look at from Q2 to Q4 sequentially last year, we went from roughly 30% operating margins jumped to 30 -- almost 35% operating margins and then in Q4, we were back down to 32%. There was some timing of expenses as well as some mix, but mostly timing of expenses that occur between Q3 and Q4, which kind of caused that lopsidedness.

How we're thinking about it is that from a sequential perspective, we'll see continued improvement in gross margin as that mix -- negative mix starts to unwind. And we'll see sequential revenue growth, which we always do seasonality-wise from Q2 to Q3 and usually even a little bit of a step-up from Q3 to Q4 beyond that. So how we're thinking about it is that sequentially, the margin will continue to expand.

Roughly half of that expansion will come from the gross margin improvement throughout the back half of the year and the other half will come through the higher revenues that we expect to have in the second half of the year. How that plays out by quarter is Q3 will be a tougher comp on an operating margin perspective, but Q4 will be an easier comp. And when it's all said and done, we think it will be 100 basis points of improvement for the second half.

Okay. And then just a question on operating cash flow down pretty meaningfully in the first half. I mean you typically do just under half of the full year operating cash flow in the first half. So is there something going on in terms of a timing dynamic that you'd like to call out? And where do you see cash flow shaking out for the full year right now?

Yes. And we may have mentioned in the last earnings call, but I'll mention it again. So first of all, our Q2 cash flow was very strong. It was on par with last year, as you'd expect with our revenue being on par. It was really a Q1 issue, and it was really 2 main drivers. The first one being the amount and timing of our bonus accrual payouts for incentive compensation purposes. If you go back a year ago, Q1, we had a very low payout in our bonuses. And in the fiscal year '25, we had a more normal payout.

And so that turned out to be a much larger cash outflow in bonuses from a year-over-year comp perspective in our first quarter. We also had some timing of tax payments that impacted Q1, and that timing of tax payments will gradually unwind throughout this fiscal year. Some of it already did in Q2. But the more permanent timing difference for the year will be that Q1 payment of incentive cash bonuses to employees.

At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kim Kelderman for any additional or closing remarks.

Thank you, everyone, for joining today's call. I want to acknowledge the team's outstanding execution amid a complex and continually evolving market environment. The renewed momentum in biotech funding, progress around the U.S. economic budgets and strong engagement from our large pharma customers all reinforce our confidence in the ongoing recovery of our end markets.

As we enter our 50th year, we do so with a portfolio that is more durable, more differentiated and more strategically aligned with the future of science and medicine than at any point in our history. The strength of our durable core portfolio, combined with our continued investments across cell therapy, proteomic analytical instruments, spatial biology and precision diagnostic tools position Bio-Techne exceptionally well for the opportunities ahead. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, and welcome to the second day of the JPMorgan Healthcare Conference here in San Francisco. My name is Ta-Von Wilson. I'm an associate in the health care group based in New York.

I'm pleased to introduce and host the Bio-Techne team here, Kim Kelderman, the CEO; and Jim Hippel, to my right, who's the CFO. Kim?

Thank you, Ta-Von. It's always a pleasure being here, and it's exciting to be here for the third time for myself. We have a very excited 2026 ahead of us, and I'm really looking forward going through the presentation, which will start with an overview of the company and then followed by a double click on the strategy going forward. But before I get into the data, I would like to draw your attention to our safe harbor statement, which you can find on our website www.biotechne.com under the Investor Relations section.

Now let's start with the content and of course, with a very important part, which is our mission, right? Our mission is to improve the quality of life by catalyzing advances in science and medicine. This is what drives us every day. It's what excites us. And this is how we create value for our customers as well as for our shareholders. As I mentioned, I will first give you a snapshot as to where we are as a company. So who are we? Bio-Techne. We are headquartered in Minneapolis. I have 3,100 colleagues working out of 34 global locations. Over the last 50 years, we have built a differentiated portfolio of protein-based core products, which we can leverage to then address very unique applications and there we serve very high growth markets.

We report in 2 segments: The Protein Sciences segment, you can see here in the middle as well as the diagnostics; and Spatial Biology segment. And in Protein Sciences, we have 7,000 proteins I say, 6,000 proteins, maybe 7,000 later this year. But for now, 6,000 proteins, we have 400,000 antibodies and a vast immunoassays. We have a nice portfolio of proteomic analytical instrumentation. And it's very relevant across our markets, but also very much so in very high-value growth applications such as cell therapies.

Going to Diagnostics and Spatial Biology segment. Here, we build a unique position in Spatial Biology, and that's on the backbone of our RNA scope portfolio as well as an automated instrument called COMET. We have a precision diagnostics tools business in which we have very sensitive, easy-to-run molecular tests that we sell to laboratories.

We've also established ourselves as a leader in diagnostics the agents and controls. And those serve critical applications, such as hematology and clinical chemistry. Now moving to the right side of the slide, where you can see that we've achieved $1.2 billion in revenue in 2025. And the breakout is that we have 81% coming from consumables, 9% from instruments, 7% from services and 2% from royalties. Now noteworthy is that 12% of these revenues out of the 81% are actually consumables directly pulled through by our installed base. By our instruments. Now this highly differentiated consumable rich portfolio, of course, allows us to have an industry-leading profitability profile.

Now if we double click on the revenues, you can see on the outer circle here on the left that we have 73% of the revenues coming from Protein Sciences, 27% coming from the Diagnostics and Spatial Biology business. Now that percentage came down a little bit over the last year, even though fast growing. It came down, and that is mainly because the divestiture of our exosome diagnostics business late last fiscal year. If we go to the inner circle on an nine o'clock position, you can see 41% of our revenues coming from our core reagents. These are the proteins, the antibodies and the small molecules. Now those give us leverage into fast-growing new areas such as cell therapy, where you would use GMP versions of those core reagents. And that right now, the cell therapy business is 7% of our revenues.

We have a highly differentiated position in the proteomechanitical instrumentation, and that has grown to 25% of our revenues. The core diagnostic controls for IVD are 12 and then the precision diagnostics tools that we sell into reference labs are 4% of our revenues, Spatial Biology 11. Now if we go to the top right, you can see that with our differentiated high-quality portfolio that we've built a strong position in the biopharma segment, 51% of our revenue is coming from there. 20% of our revenue is coming from academia. And we like that position because it really fuels innovation, and it is driving early market adoption in that segment. from diagnostics and then 30% -- 13% from distributors that we use to address APAC and parts of China.

From a geographical point of view, 58% and of the revenues from Americas, 15 million from APAC, including China, and then 27% coming from Europe. And in the next slide, I will complete the Bio-Techne overview by summarizing the foundations of our success. And this will explain why we have such a strong competitive advantage and why we can continue to build out defendable position. So over the last 50 years, we created a durable and differentiated product portfolio. which gives us a balanced exposure to established and emerging applications across fast-growing end markets where we can be successful through our portfolio leverage from our protein and antibody content. This resulted in a strong reputation as a scientific leader, which helps us to inform the areas of innovation to unlock further high-growth areas.

In addition, we've built a lean and nimble organization with a culture of ownership and accountability. And this enables us fast and impactful decision-making. Now this is admirable position to be in, but what is the strategy for our portfolio going forward. And for that, I will guide you to the next couple of slides. First off, our portfolio creates leverage across various growth factors. Basically, these growth factors here on the left-hand side of the slide are the stages of program would go through from discovery all the way to commercialization. And that's how we segmented the markets. The first one would be the discovery of novel biological insights, and this is driven by scientists and academia and basic biopharma research.

We have the development and manufacturing of advanced therapeutics with a clear focus for us on cell-based therapeutics and then enablement of precision diagnostics, which is across basic IVD and specialty laboratories. As you can see, our products went really nicely across those three growth verticals, and this gives us broad access. And it gives us the advantage of serving and observing, emerging and existing applications. And therefore, we have picked various growth verticals. And here, I mentioned three of those. Three of those applications. And each one of these applications, we will double-click on. One, of course, cell therapies, the other one, proteomic applications in drug development and then spatial interrogation.

So let me get to the first one. These slides actually have 3 columns in it. The first column is our starting point and how it creates leverage. The second one to customers' unmet needs. And then the third one is about how it guides our innovation and how we will create runway and the trends that will help us grow into the future. So for this one, the cell-based systems and therapies, we have created, and we're early movers really on the GMP portfolio that we've developed for CAR-T and stem cell-based regenerative medicine and organoids. There, we have selected certain voting small molecules and culture to then create GMP versions of these products. Our dedicated GMP facilities, they provide security of supply.

Of course, manufactured under the right regulations and then create scale for our customers, all the way from smaller quantities in research through the clinical stages and then all the way up to commercial scale. We have 700 GMP customers that are in 85 clinical trials and they all enjoy our high bioactivity and lot-to-lot consistency of our products. Our protein simple instrumentation is well positioned in proteomic analysis, including QA/QC. And this is mainly used in cell-based therapy workflows. And then Wilson Wolf. We currently own 20% of the company, and we have an agreement to acquire the balance by the end of calendar year 2027, and this will bring us to G-Rex. G-Rex is a disposable bioreactor in which our customers can grow their cells efficiently and cost effectively. Now to the unmet needs. It's typically around robustness, cost effectiveness scalability.

And actually, the same is very much true for organoids as well. The nice thing is that we are perfectly positioned to address these needs and our innovation is aligned as such as well. So therefore, we will continue to launch high-performance AI design proteins, further elaboration of the form factors where we have the ProPak cytokine delivery system. This delivery system gives you the right concentration, the right volume of proteins or cytokines for your cell therapy, and it really enables industrialization and therefore, scale at a good cost of these therapies. And then we want to continue to drive robust organoid solutions. So our position and our innovation positions us really nicely to enjoy the growth run rate. And that is driven by the drug development progression and the scale-up of companies going through their clinicals.

It's driven by the increased number of drug approvals, such as in CAR-T and Reagent MEt and then, of course, the continued adoption of organoids. So our offering has created a real formidable position in our $2 billion TAM, and it's growing at 20%. And I think that's a very durable market in front of us because we're pretty nascent still there. And I think there are even chances for acceleration down the line. Our second application that I want to highlight is the high-value proteomic applications in drug development. This is mainly addressed by our protein simple analytical instrumentation, which, by definition, is easy to use very cost effective and has high sensitivity to analyze proteins.

Now that, of course, gives us a great position in the proteomic analytical technologies. We have three main platforms there. The first one is Simple Western, which is a fully automated high-quality western blot, which gives you quantitative and reproducible results. We have automated ELISA platform. This one is called Ella, and Ella provides fast, reproducible, multiplex biomarker analysis across all stages of development, all the way from discovery to QAQC testing in manufacturing.

Biologics franchise has Maurice. The instrument Maurice. It's a true workhorse, and it delivers high resolution and reproducible data for biologics as well as for complex molecules. Those three platforms have been relatively successful, and we are very proud of the capabilities and we amassed 8,000 instrument installed base across these three platforms. Now to the unmet needs. Very important is the ease of use, cost efficiency, scalability. And then the proteomic data coming off these instruments needs to be formatted to enable AI. This is a big one. And therefore, our innovation is very much aligned. Our priorities are to deliver new applications across our platform.

This, of course, drives our -- the increase of our TAM. It drives a number of placements of instruments and it increases the consumable pull-through of our installed base. So very important because it drives growth in several dimensions. Simple Western Leo was a fantastic launch of a high-throughput Western blood instrument. We have an upcoming launch of ultra sensitive immunoassays for Ella. And then we are, of course, working on the AI insight generation for proteomic data. The growth runway is continued adoption of automated Western blot for manual solutions applications growth into neuro and possibly inflammation. And that is, of course, on the back of the ultrasensitive cartridge that we're launching.

And then the search of novel advanced biologic therapy, such as the monoclonal antibodies to antibody drug conjugates as well as the cell and gene therapies. Now that gives us a highly differentiated position in a $4 billion addressable market. So also very, very interesting position to be in. Now to the last application I want to highlight spatial interrogation. And this is mainly across translational and clinical development. The backbone for this is our RNA scope portfolio. RNA scope gives you detection of RNA on a single molecule sensitivity and a single cell resolution. And that in intact tissue. There, we have 75,000 probes across 450 species, a truly market-leading portfolio.

And by the way, we can make any probe that you would like to have in addition to the existing ones. The second very important consumable stream to the spatial biology solutions is our antibody portfolio where we are creating critical content for panels. And then, of course, the third most important part of this business is the differentiated spatial platform that we have acquired a couple of years ago called COMET. This is a true multiomic platform. So you can look at RNA as well as DNA in parallel using the RNA scope and using our spatial antibodies. And simultaneous, and that gives you true multiomic analysis and is, therefore, a real new innovation driver. We have a very strong and growing installed base for COMET.

The unmet needs, they are really centered around enabling an skeptic tools to support genomic medicine and eventually to define a standard of care for multiomics facial interrogation. Now here on the right-hand side, you can see a range of innovation priorities highlighted that will allow us to leverage and expand our current position. And there, we've tapped into the attractive, fast-growing market where we have quite some runway. So in summary, a leading automated multiomic position in the $5 billion spatial biology market. Now I want to round up our strategic overview with sizing the total addressable markets that we serve.

Here, you can see the breakout into the three growth factors I talked about earlier from discovery and manufacturing and commercialization of new therapeutics and of course, the enablement of precision diagnostics. In total, we are serving a $27 billion market with significant growth potential. Now at the bottom here, you see that our real unique position in there is that our core portfolio broadly addresses each and every one of those three markets, and it enables our leadership in key high-growth applications. And therewith, we will be able to deliver sustained above-market growth.

Now if we go to the next slide. This is actually the testament to this statement, the sustained above-market growth because over the last 5 years, we grew our revenue 10% CAGR, right? And this was a period with quite some turbulence and headwinds in there. If you think about it, part of our 2020 -- fiscal 2023, all of our '24 and all of our fiscal 2025 had quite some headwinds in it. It started with large pharma portfolio. Investments in strategic and in fast-growing applications. So the financial performance really shows our competitive moat and the value our customers place on our products.

Now that brings me to my very last slide. basically explaining how we will continue to grow this mode, right? You see the three bubbles, the top left one there, over the last 50 years, we've built a differentiated proteomic core portfolio with broad access to all 3 strategic markets we talked about. Our science capabilities really guide and help identify critical applications. existing ones as well as emerging ones. And for -- and within those applications, our customers have certain problems that they want industry to solve. And that really helps us develop as well as acquire scalable and differentiated solutions that customers are really waiting for.

Now once we do that, we, of course, go back to the first bubble and we leverage our core portfolio to then build out these applications to drive further growth and further adoption, and that helps us boost our growth rate. Now in summary, on the right-hand side, we are addressing $27 billion TAM, growing at high single digits. We are building out a durable position across high-value, high-growth applications and to continue to outperform the market. We are pursuing impactful innovation and innovation as well as M&A will remain a key ingredient to our DNA. In our high-value portfolio and lean operating structure helps us deliver industry-leading operating margins, and we always target between 35% and 40% operating margins.

And that, of course, is industry-leading and a fantastic position to be in. Now thank you for your interest in the presentation part of our session. And with that, we'll go to the Q&A session with Ta-Von.

Thank you, Kim. So I have a few prepared questions here, Kim. And as you kind of get settled there. So we'll go through a few mix questions here. So one, we'll go through trends. We'll go into Protein Sciences, Diagnostics, spatial Biology. And then lastly, going into maybe some insights into the future. So I'm looking way innovation and things like that.

So I guess, starting with trends. So how would you characterize current trends across your core end markets? And then how do these compare to what you saw exiting fiscal year '25?

Yes. Thanks for the question. Obviously, we have the markets that were a little constrained that I will highlight here. The biotech industry was really challenged. In Q1, we saw a decline of high single digits in biotech. But we also talked about green shoots, improving conditions. We talked about the funding in biotech improving. As you might remember, the first half of the calendar year 2025, funding was dismal, right? So it was negative 20% or so. But then to Q3 of the calendar year, had 7% increase year-over-year. And then Q4, actually, it was really after the raises with 90% increase in funding.

And that eventually will come trickling down in Life Science Tools. So that's a good indicator. We also saw in the biotech area, more M&A and licensing activities. So that's a good indicator for improvement, and then interest has continued to come down. which is also a good indicator for improvement. So overall, we are positive about the direction that the biotech industry is heading into Academic is a separate story. We feel that it is stabilizing. It's 20% of our revenues, 8% coming out of Europe where pretty steady performance with mid-single digits.

But in the U.S., it's certainly, as of February last year was relatively turbulent. And we went through a value there with negative mid-single, negative high single and now the last quarter negative low single-digit declines. But we feel it's stabilizing. You hear the rhetoric is more around a flat budget versus negative 20%, right? And what we certainly can see is the shift in the grants, the targets that the grants on what they target if it comes to the research. It was very much earlier around the vaccinations infectious diseases, and it's now shifting much more towards chronic diseases, which read much better on our product portfolio.

So overall there, we also feel that things are improving. And one thing that we're certain about is that our comps will improve as of February. And then last but not least, the trend in large pharma. There, we are actually very, very happy because we had quarters of double-digit growth. We were a little bit worried about the most favorite nations. Negotiations, et cetera. But that seemed to have been resolved relatively quickly. And as you hear at the conference this week, lots of positivity and investment going forward. So we are very bullish about the end market and has really driven our growth over the last couple of quarters.

Okay. Thank you. I do want to double-click on one thing that you mentioned briefly in your presentation and that's China. And so we know that China has been an end market that has been definitely volatility over the last few years. But we know that Bio-Techne has seen some consistent growth over the last 2 fiscal quarters. So what do you think is kind of unpacking that and do you see that as a trend to continue in the future?

Yes. So China is 8% of our revenues. And yes, we had 2 quarters back in the black. And we feel that's something that we continue to achieve and that could accelerate. We always mention that we feel that China will be the fastest-growing region. Again, maybe not in the same speed as 10 years ago, but it's still a very promising region Biotech funding has been good. The Chinese government has issued their 15th 5-year plan. And again, life science funding has been -- is a high priority, and so funding has been good.

On top of that, the companies -- biotech companies in China have been able to get some real good licensing deals. And there with foreign funds coming into the country, and I think that's definitely more bubbly and therefore, more activity in that area. And therefore, I feel that it definitely conducive to further growth and further acceleration and much healthier than it has been over the last couple of years.

Got it. I think it's a good time to maybe transition over to protein sciences. And so we'll start with cell therapy. And we talked about MFA a little bit into your response there. But just even taking a step back, we know that a lot of your large cell therapy customers have Fast Track designation that could lead to some accelerated approvals, and that could be potential headwinds as well. I guess what do you think about that topic? And could you give us a little bit of an update?

Yes, it's very important to us. Of course, cell therapy has been growing very fast for the company. We grew it to $80 million in cell therapy and $60 million of that is the GMP proteins. Two of our customers, larger in the GMP proteins, receive fast-track designation, which is fantastic news for those companies, obviously, very important treatments that they're working on and accelerated review by the FDA, which is great news, but it does create an air pocket for us as a company.

We've talked about the quantification of it. We had 200 basis points headwind in Q1, 400 basis points current in the last quarter in Q2. And then still some headwinds in H2, but much less if it comes much less compared to the overall company's volumes. So we -- our guide was low single digits for the year, and we have assumed 0 orders for the balance of the year from those two customers. We believe that typically it's minimally 18 months or so for those customers get approved. Of course, there will be some work in manufacturing and validation. So we'll see some orders, but we're not counting on them.

It's great, though, that these customers make progress to approval because we know in our models for those treatments, they can become a year 5, $40 million to $50 million customers each. And then when there are more at maturity, they could become $80 million to $100 million customer. So very, very inspiring for the future. But yes, a shorter-term air pocket that we'll have to go through.

Got it. Moving slightly over to GMP proteins. And so we know that historically, GMP proteins were historically -- sorry, 20% of growth in the longer term. But has something changed there? Do we expect to see a lower level of growth going forward? Where do you see that line of business?

The outlook for that part of the business has remained pretty much the same. Yes, we talked about the air pocket. But if you look at the number of clinical trials in cell and gene therapies, actually still increasing. And then more interesting for us is that the mix in the clinical trials is definitely skewing to cell therapies a little bit away from the gene therapies. And the cell therapies obviously read much better on our portfolio. And in fact, year-over-year, the cell therapy number of trials increased by 57%. So that is a real good indication.

Now our products, we're one of the early movers, very high quality. We can scale so we have plenty of access points into that market. And therefore, we think that the 20% is very achievable once we get through the air pocket or underlaying by the air pocket. And that might even accelerate once 1 or 2 or 3 of these customers enter commercialization, there is a true step up in the growth rates.

Got it. And I think last on Protein Sciences, Wilson Wolf. I know you talked about that and the acquisition will be complete by the end of calendar year but you already own sort of 20% of the business currently. So I guess broadly speaking, where does Wilson Wolf sort of sit in the entire portfolio?

Yes, Wilson Wolf, and I mentioned earlier, they bring the G-Rex, which is typically a 1-liter disposable bioreactors. It's very efficient, very cost effective, and it is currently being used in 45% of all the clinical trials going on globally. So a fantastic position. And this bioreactor, while you want to grow yourselves, you would then utilize GMP proteins, cytokines, small molecules. And as I mentioned already, we've designed the ProPak, which gives you a close system to put all these high-value reagents into the bioreactor. And it really enables scaling as well as industrialization of the cell and gene therapy market.

And that's, I think, the missing link at the moment. So that will really help addressing the future growth. And then the go-to-market, I mean, those are the same customers as our GMP proteins and that will use G-Rex. So there's also synergies on the go-to-market can collaborate. We're already doing so, but that certainly will improve increase while we own it.

Sure, sure. We can move on to Diagnostics and Spatial Biology. And so when we think about that, maybe -- taking a step back for a second, just broadly speaking, products and the end markets you're addressing with the business.

Do you mind saying that again?

Sure. No. So discussing the spatial biology, like what are the products and primary end markets are addressing?

SP-4 Yes, thanks for asking. The Spatial Biology franchise, very proud of it and how we build it. The -- actually, it addresses the translational and clinical part of the market. I talked about the market being 5 billion. The translational and clinical part is about 75% of that. If you think about as a scientist, you'd really want to know which RNAs are active. So you want RNA detective on a molecular level that we can provide with the ACD RNA scope portfolio, and I mentioned 75,000 probes. And the vast opportunities you have there. On the other hand, these RNAs that typically become a protein or they block protein from popping up. And that means that you really would like to see what happens the protein level.

And for that, we're building critical panels based upon our spatial antibodies. And that -- and those are fantastic consumable revenue streams. The one thing you really need is a unique instrument that is a high throughput and fully automated. And that's what the government brings that gives you the capabilities in multiomics. And then most recently, we also launched proximityscope, which gives you the capability of looking at protein interaction, which is also pretty unique in spatial. So overall, that portfolio is doing really, really well, and I'm really happy with the position we are in.

Okay. More of a getting sort of a broader macro question here. So we know that academic and biotech funding uncertainties are about, right? And so when you think about that from the business of special biology, what do you think is going to take to have an improvement in demand there?

Yes. I think the normalization of the market is a foundational improvement because that business has a large participation in academic as well as in biotech. So the underlying improvement of the markets is an important one. That will help all those float higher. But then again, we also are working on the pull-through, right? So every instrument right now pulls through about per year per instrument in consumables. Adding the RNA scope as well as our spatial biology antibodies on there, we are aiming to get a $90,000 pull-through of our reagents on this instrument per year. So that really would help the growth. In the meantime, the multiomic capabilities and the new capabilities in proximity scope for voting interaction are very important innovations just as well, and that will give us meaningful growth.

Okay. Thank you. We'll switch now to more insights in the future innovation and things like that. And maybe just to kick off, let's looking into calendar year '26, '27, what kind of gets you the most excited about the business?

Most excited. Well, as I talked about our DNA being an innovation, and guided by, of course, our broad market know-how. Innovation is very important. It has been and it will continue to be. We spent 8% of our revenues in R&D. And we have really transformative new products coming to the market. We have a group of AI designed proteins, and we will continue to launch those because the heat stability as well as the hyperactivity are true enablers in cell therapy. I mentioned the ProPak. We will broaden the different product types in that portfolio.

We launched Leo, which is the 100 capillary high-throughput Western automated Western blot system. If you look at a 24-plex results within 3 hours, it's really record breaking. So very, very inspiring launch Ella has already fantastic market adoption is entering the diagnostic space. Some companies are using it as a diagnostic tool. And then on top of that, the lounge of our ultra-sensitive cartridges in the second half of this -- second half of our fiscal year in the upcoming quarters is going to be bringing us into the regenerative as well as the inflammation -- and that's also very, very exciting. I mentioned already, the proximity scope for spatial is a real novelty.

And then I'm excited to see the traction we also generate in the molecular diagnostics business. It's a little smaller, so we don't talk as much about it. But if you look at our exosome-based ESR1 detection kit, it gives you the ability to look at the monitoring. And with that, you can truly improve the life expectancy of patients by doubling it. I mean that's a fantastic tool that we're providing into the market that has a real change on patients' experiences. And then last but not least, the Oxford Nanopore kit for carrier screening is a very interesting tool to, to improve the quality of health. So yes, basically, new product introductions.

Great. Good. And it sounds like a lot more to come there. So excited to hear that. I know we've got about less than 2 minutes left. So I'll wrap up with just one question here.

So getting into fiscal 2026 specifically, are you still anticipating low single-digit growth for the year? And what are the primary assumptions behind this?

Yes, I mentioned it earlier, we still expect low single digits. That's what we said previous earnings call, and we don't revise that up until our next earnings call in a month from now. Yes, I think that we are going to get to this air pocket that we mentioned earlier, right? That's the -- that's really what's driving our results at the moment. In the meantime, I talked about our assumptions in improvement of underlying markets. And you can then do the -- we will talk about the headwinds and quantify them. So then you can do the math as what is the underlying business doing minus the 400 basis points for Q2 and then what our actual results is. So I think that air pocket as well as improving markets are really what's driving the low single digits.

Great. Got it. I know we have about 30 seconds left. Any final thoughts that you want to leave the audience with?

Well, we talked about innovation being part of our DNA. M&A is that as well. We are less than 1x levered. So we would like to continue our M&A streak and of course, very educated, very disciplined. We would like to build on our cell therapy business, our organoids as well as our proteome analytical research instrumentation as well as our core portfolio. So that's our interest from that point of view and it's still a very important pillar of the company.

Thank you, Kim. Thank you for your time.

Thanks.

All right. I guess the music is off and that is our queue. So thank you all for joining us today for our conversation. We'll kick things off and then you'll do most of talking to tell this incredible story for us. But for everybody, I'm Jack Cassel, Senior Vice President with NASDAQ. And I'm excited for our discussion today with the Chief Executive Officer, Kim Kelderman; and Chief Financial Officer, Jim Hippel, for Bio-Techne.

So maybe for the audience, let's level set with just an overview on the business.

Thank you, Jack, first of all, for having us and hosting the conference. We're very excited, and we are 15 years in the making. So Bio-Techne itself, 50 years old. However, we say old, the core business that we have created over these 50 years is 7,000 proteins and 400,000 antibodies, basically lego blocks for any life science tools, laboratory that wants to make progress. So we're deeply entrenched in everything research really.

But over the last 10 years or so, we've really doubled down on trying to utilize these components into faster-growing application areas. And we have 4 application areas that we focused on. One of them is cell therapy. Basically, everything to do with growing cells, immune cells or regenerative cells to cure diseases. And for that, you need all these core components I mentioned earlier, and we also have a bioreactor to help grow these cells processes.

The second area we focused on is proteomics, proteomic analysis. We know that has been a heavily debated area for a decade, but we feel that the market and the capability of generating data is now there to really support proteomic. I would say. It's a business that we built through organic as well as inorganic activity.

Third dimension is spatial biology where you can interrogate tissue and see what the cells are doing amongst each other and whether your therapies are working, very important in going forward research.

As well as then last but not least, a molecular diagnostics business, which basically has the capability to interrogate very hard to find genes and also hard to read genes, where NGS struggles. And that's what we're really focused on. So we created a nice little niche there.

All 4 of those areas really utilize our core reagents and are in fast-growing markets that are aligned with the mega trends as we see them in life science tools.

Okay. We're going to talk a bit about those trends, so I appreciate that. But you recently announced your Q1 '26 results. Is there anything specific you'd like to highlight in those?

Yes, a couple of strong dynamics in there. One was that we have built the cell therapy business, which has been a rapidly growing. And with that, of course, also relatively lumpy. We had a 60% growth, 90% growth quarters last year. This year, we had the great news that 2 of our larger customers have obtained Fast Track approval by the FDA. And that means that they can basically get to an approval faster and that they will have to reduce the number -- can reduce the number of clinical patients that they run, and they had ordered enough for them to complete their clinical stages. That really gives us an air pocket if it comes to the revenue for several quarters from those customers. However, underneath, we have really nicely added customers to our pipeline and added customers to a level of 700 or so in total right now.

Another couple of real good dynamics underneath though, which was that large pharma continue to grow double digits for us, which was the third consecutive quarter. We had China for the second time in positive growth territory, second time, meaning 2 consecutive quarters. Our protein analysis instruments continue to grow very nicely and the pull-through of the reagent still in double digits, 10 out of 12 quarters. And then last but not least, the spatial biology business also continue to accelerate growth now back into positive growth territory with double-digit bookings.

Margins were good. So we had kind of forecasted 20% on the bottom line, ended up being 29.9%, so 90 basis points higher, which is good. We've done quite some good work around efficiencies and around operational footprint and organizational structure. So all that worked out really, really nicely. And that set up the quarter with a couple of positive underlying trends and, of course, a temporal revenue air pocket in the cell therapy customers that get their Fast Track approval.

Okay. Shifting gears a bit, let's just discuss some of the end markets for Bio-Techne that you serve, starting with the biopharma market. What is your exposure to that end market? And what are the trends you're seeing with those specific customers?

So biopharma in aggregate is about 50% of our revenue. So it's large end market. We split it out between large pharma and biotech. They typically have different trends and drivers. Large pharma is 30% of that 50%. And that has really done nicely for us over the last 3 quarters. As I mentioned, double-digit growth 3x in a row. We were somewhat worried last couple of quarters when there -- was rhetoric about high tariffs on medication and that possibly would create a reaction in large pharma. But large pharma has reacted relatively quickly and negotiated a path forward, so continued its strength.

Biotech is very much related -- sensitive to funding. And overall, the fiscal -- the calendar year funding was down mid-teens year-over-year and that definitely put pressure on that end market and resulted in high single-digit negative decline, if you will, negative growth. And there, we see definitely some improvement. First of all, some M&A deals. Lower interest rates is always good for that end market. And we feel that there is some momentum in the funding as well. The last 3 months, funding was definitely significantly positive year-over-year and those are good indicators that it is stabilizing and hopefully in the balance of the year, accelerating again. So those are the 2 trends in the biopharma market.

Sticking with the markets you serve or I guess the end markets, another large one, it seems is academic research. So maybe you can help the audience with how large is that end market? What is that geographical split? And what are some of the trends you're seeing there?

Yes. Academic research redeemed very -- is important, not only because it's for us, 20% of our revenues, but also because where as a scientist, you learn your methods and the instrument software as well as the [ cadence ] that you use. It's important to be there because they will branch off into biotech and into large pharma and then of course, bring some of that experience with them. So it's an important market for us.

12% of our revenues comes out of U.S. academic in the balance. The 8% comes out of Europe academics. Europe academics has been mid-single-digit grower. That's where we expect it to be and has been relatively stable. U.S., however, since February, really, it has been very turbulent, right? There was talk about budget cuts and certainly a shift in which type of projects get funded by the NIH. And that created some uncertainty in the market. So people definitely started reacting to it and reduce their spend.

We do feel overall that there's still things to be negotiated, right? And there's not a final budget yet. We do feel that, overall, there's always -- there's typically a drive to have a good budget for academics is bipartisan support who -- to kind of make sure that the economics are in good shape in the country in the U.S. But it's not there yet. So we'll have to see how that evolves.

Two certainties we have. One is that we can see which programs are getting funded, and that has definitely shifted away from infectious diseases and from immunization towards traditional diseases such as neurology as well as oncology and weight management. So those areas definitely more aligned with our product portfolio. So that's a good thing.

And the other certainty we have is that as of February, our comparables will look a lot better and something that also will help our overall growth numbers again. And yes, that's the dynamic around academics.

Okay. Previously, you had mentioned China, maybe we'll stay there for a second on kind of the trends you're seeing in that market as well as your outlook for that market going forward?

Yes. China, obviously, historically, over the last 10 years, very important growth driver for us. At the peak, they were 10% of our revenues, right now around 8% of the revenues. They, of course, saw big out flux of international business activity in the country.

Definitely not all green yet. There are definitely some other problems to chew through if you think about real estate market, et cetera. However, after the COVID debacle, where there was really not a good response from China for the Chinese people. There was increased sensitivity around life sciences and improved funding levels and definitely a doubling down in novel modalities. And if you think about -- of course, they're not going to catch up on 50 years of small molecule research that we've done in Europe and the U.S. However, the new modalities in cell and gene therapies are very interesting to leapfrog some of it. And China is technically taking that bull by the horns and has pushed it forward relatively quickly. And if you now see that there are quite some M&A deals where large pharma has like in-license some of these technologies. And that creates an environment where there's heightened activity. So there is foreign currency flowing into China again, and there is an exit strategy. So these projects are definitely picking up again in the CRO market as well as biotech activity is increasing. That's why we were not surprised to see a back to positive growth Q4, fiscal Q4 for us. Even though we were worried that there was some -- maybe some prebuying because there was a relatively large tariff deadline looming. So we were worried that, that was a symptom of that. But then our Q1, which was after this tariff deadline expiring was in the black just as well. And I think that's a testament to overall activity level improving.

We think it will continue to accelerate. It will -- it might not be the activity level as it was 5, 10 years ago. But we do believe that it will be north of our average growth as a company and that it will be a leading region if it comes to growth. And we think mid-teens, mid-high teens would be a good indicator -- expectation for us in China.

Okay. Now Bio-Techne's had several product launches over the last year or so. Are there any specific that you'd like to highlight?

Yes. It's a very good question. We basically spent a little over 8% of our revenues back into R&D. We feel that innovation -- organic innovation is important to long term, be able to compete. It's obviously an industry on the move, right? So we've got places to go. And we have basically innovated in the core as well as in all 4 growth verticals. In the core, you can see that we've pushed forward the protein design through utilization of AI to make them hypersensitive or to make them more heat stable. And that's nice because now researchers have these high-powered hyperactivity proteins but they're also patentable because they're not available in nature. So that's a very interesting look.

In cell therapy, we have created a form factor of we call it ProPaks, that's basically little bags of proteins or cytokines in certain quantities and in certain dilutions. So that way, there is a lesser chance of mistake, operator mistake as well as a smaller chance of contamination. That's an important form factor for cell therapy. So that way, we can actually attach more of our reagents into the processes related to cell therapy.

Protein analysis, the next business unit there. We have launched Leo, which is a very high volume, 100 capillaries, 3-hour run rates with 24 targets per capillary. So a big machine for large pharma, and it's really finding some good traction and obviously has very high pull-through and reagents. So that was a very nice innovation that definitely beat our expectations.

In spatial biology we have rolled out a multi-omics method that you can use on our insulin COMET from Lunaphore, which is an acquisition out of Switzerland, we did a couple of years ago and pull through high-quality reagents on the RNA as well as on the protein side. And this last quarter, we launched on protein-protein interaction. So then you can actually see what the interactions are between proteins. And that's a real novel modality that none of our competitors really offers in a special setup as we have.

And then last but not least, in the molecular diagnostics. There, we have launched a ESR1 breast cancer test for breast cancer resistance, treatment resistance. And with that test, if you do it on the right time and you swap the patient to a new treatment, if you do that on the right time using this diagnostic, you can double the life expectancy of a patient, so definitely a significant impact. And we have launched a collaboration with Oxford Nanopore out of the U.K. here, and they have long-read sequencing methods, which really enabled a nice panel of inherited diseases, so that also a product that we distribute. So these are all the innovations, it's very active.

A lot. I love that. You mentioned earlier in reference to the earnings call that 2 of your cell therapy patients had received the Fast Track designation. You had also mentioned that you expected this to be a near-term headwind, but realistically, an intermediate term positive. Can you explain that?

Yes. As I mentioned, the Fast Track is obviously a designation that you receive if you have a therapy that's going to have a significant impact on health and that's true for U.S. and Europe. It also is an indication of interest and that there is going to be interest in marketing such cell therapies.

In the past, some of the cell therapies were really novel and mind boggling as to what the impact could be, but they're not always scalable and certainly not always affordable. And I think these 2 fast tracks are definitely related to something that can be broadly applicable, and that is important for us because that will drive volume longer term. And we think that these customers would be, 5 years in, they could be $40 million, $50 million GMP protein customers each and peak revenue, 10, 15 years in, you could think of doubling that over time. So those could be substantial customers and obviously, very important to us that there is a recognition of these cell therapies and that there's also a commercialization example and that we can support these customers making a significant impact on the health of the different countries.

Okay. Sticking with cell therapy, you own 20% of Wilson Wolf and plan to acquire the remaining business by the end of, I believe, calendar '27. Can you share a bit of how that fits with the portfolio?

Yes. So Wilson Wolf is a company that owns a product called a GRx. It comes in different sizes. But basically, it's a container, a small disposable container in which you can add all of the reagents that a certain cell population would need to multiply. And the nifty part of it is that the bottom of it has a permeable -- for oxygen permeable floor. That means that cells usually sit at the bottom. All the food ingredients of small molecules, everything they need in the broth sits on top of them. And then from underneath, they can get this oxygen supply.

And there, with this nifty device can really be scalable. So you put 11 of those in a, let's say, mini bar size incubator. It's cheap, affordable. So therefore, more applicable in many countries. And what you do there is you utilize this GRx to do your clinicals and eventually commercialize the therapy. And as a reagent manufacturer and having our core, we are very interested in having that in our portfolio because we can attach all our high-margin reagents into this incubator, which is true innovation. So that's how the synergy works, and that's why we're excited about this acquisition.

Okay. Let's move on to the protein analytical instrumental business. It's a mouthful, I will say. What are the offerings here? And where are you in terms of market penetration?

I think overall, it's -- the protein analytics for us, the markets we address is about a $3 billion market. Right now, we are on average with the 3 platforms, around 10% market penetration. So there's still plenty of headspace, and I really like that we are having real good market share gains, and you can see that from our growth numbers. And we're not kept out at any time soon. So that's going to be a long-term mid-teens growing business with very nice pull-through on the reagents.

There are 3 platforms in there, and I won't go through each different one. But basically, they address very traditional manual processes such as Western Blot or ELISA, that are entrenched in laboratories but are hard if it comes to doing them manually, but they're also not very consistent and they don't have actual data coming off of them because they're not quantitative. And our solutions are per definition addressing these broader processes. They do it in a very simple way, repeatable way. And basically, that created a business where there's good data, very reproducible data coming off these instruments because we utilize very nifty cartridges that have all the capillaries and all the intricacies in there so that the customer doesn't have to deal with these intricacies and it makes it simple and quantifiable.

Okay. For the sake of time, just shifting gears a bit to your outlook for fiscal '26. Are you still anticipating single-digit growth for the year? And what are the primary assumptions behind that?

Maybe I'll jump on to this 1 here. So before I get to the fiscal year as a reminder, we have a June fiscal year. So if they think is mid-calendar year when we talk about our end of the year. But to kind of level set our expectations on more of a long-term perspective. Life Science [ to close with the pillar of ] life science tools, 30-plus years has been overall mid-single-digit kind of market grower.

And with the growth verticals that Kim spoke to, we anticipate -- our entitlement is a double-digit growth company in a normalized end market environment. And our history has shown that to be true in more normalized markets as well. So that to us is our entitlement as we think about where -- when we get back to "normal". But for that to happen, we have to get all of our end markets back to normal. And as Kim talked about, 1 of the 3 is in large pharma, which is important, but the other 2 need to follow biotech and academic. And they've been pressured because of the administrative change and following COVID, they called the COVID hangover and so forth. And it looks like right now, the good news is that there's some green shoots ahead that those things are behind us. And now it's not so much about how much worse can it get, but when does the recovery start and how does it start. And as Kim talked about, we're starting to see some green shoots in biotech with the funding coming back the last 4 or 5 months year-over-year. We see hopefully, some resolution to the U.S. academic. NIH budgets where both houses of Congress have now narrowed it down to more of a flat budget as opposed to 20% or 40% cuts, which was threatened back in February. But it will probably take another 4 or 5 months for -- at least 3 or 4 months for it to kind of get, I mean, approved by the Congress and then ultimately see how it's implemented by the administration. So by the time we get to midyear calendar '26 or the end of our fiscal year, we're hopeful that the academic markets will start to return back to a more normalized buying pattern. And as long as the biotech funding continues to increase, there's usually a 2- to 3-quarter lag between funding and spending. That also lines up well with the start of our fiscal year '27 or call it, back half of calendar 2026 to have these headwinds behind us and the markets return back to normal.

Between now and then, though, the markets are stabilizing. Well pharma is already there in terms of growth. And we believe that biotech and academic won't get any worse from here and will start to stabilize. And we've proven time and time again that our growth vectors, they outperformed the market in down markets. But as the market stabilize, they outperform even more. And when markets are stronger or healthy, they outperform even more yet.

So with those markets stabilizing, we believe our growth factors led by our ProteinSimple franchise that can just spoke of our spatial biology franchise, we'll continue to take more market share and we'll get us from the, call it, flattish growth that we've -- if you take out the 2 customers, the flattish growth that we've had in the most recent quarter, and that we're expecting this next quarter to turn into low -- call it, low single-digit growth or so in the back half of the year. In addition to the fact, we got easier comps. We're going to be lapping the tough academic environment that started in February. We have -- our Diagnostics business has actually performed very well for us, around 10% or 15% of our business. It's been a mid- to high single-digit grower, even in this most recent quarter on a very tough comparables as well. More little lumpy business, these are diagnostics sell to large OEM instrument makers and laboratories, and they buy very lumpy once or twice a year. They happened to front-load their purchases last year, and we still grew on top of that. This year, those purchases appear to be more level loaded. So that is an easier comp as well in the second half.

So a long way of saying, we will incrementally take share in a stabilizing market as the markets improve. We will have easier comps in the back half, which should allow us to be in the black as opposed to flattish or slightly in the red. And then hopefully, as we get into the back half of calendar 2026, the market's actually -- all 3 end markets start to improve, not just stabilize. It gets us back to a double-digit type entitlement.

Great. A lot of upside. Appreciate it. Well, we are out of time here. So apologies for not getting to Q&A, but thank you so much for sharing the story. Kim and Jim, great job.

Yes, thank you.

We'll look to get going here. Thanks for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. I have Jim Hippel from Techne with us today.

So Jim, a bunch of different stuff to cover. Maybe we can just start high level as we work our way through the year here for you guys, coming out of fiscal 1Q for you, you guys kind of reset a little bit in terms of the pacing how this year is going to go. Maybe just talk through the expectations for 2Q and then the ramp in the back half and maybe just some of the things to call out that changed a little bit over the course of the last couple of months.

Yes, sure. Happy to. So thanks for having us, by the way. Always good to see you.

Yes, of course.

Maybe I'll start a little bit with the dynamics of Q1 because that even parlays into how we're thinking about Q2 and the rest of the year. So we ended the Q1 with negative 1% growth. We did have 2 of our cell therapy customers, very large customers, who did not purchase any material from us this quarter and likely will not for the remainder of the year, and I'm sure we'll have some questions in more detail around that. So you got to take out those 2 customers to really talk about the real company, the rest of the business. And if you back out that's about 200 basis points of headwind. So the negative 1% really is 1% for the rest of the company in terms of growth.

So we'll start there. I'd also say I got to put some end market context in all this, right? So when we -- if we back up another quarter, when we came out of our Q4, which was the June quarter, the go-forward view was one of the murkiest I can remember in a very long time in this industry for 20 years. Because it wasn't so clear where -- especially for academic and biotech and at that point, even pharma, which direction the end markets were going. NIH was still in disarray with threats of 20%, 40% cuts, all that stuff. We had biotech funding that was down 30% year-to-date at the end of June. And pharma, which had been doing well for us and had, from our perspective, essentially recovered because we had 2 quarters in a row of double-digit growth in pharma.

We were concerned that, that growth rate might start to come down because of the rhetoric that was coming out in July around [ MF ] pricing and tariff -- 100% tariffs, et cetera. So coming out of our fiscal year '25, the near-term outlook is, well, we don't literally know if things could get -- actually get worse before they even get better, much less when do they start to get better. Fast forward 3 or 4 months, a lot of things can change and a lot of things have better, thank goodness. The first one, most importantly being pharma, which makes up 30% of our revenue, that seemed to have been a storm cloud like a monsoon that came through and left in like a Saturday afternoon. Larger pharma companies stepped up. They put some pricing deals out there on certain drugs. I don't think we're all that painful for them and seemed to appease the administration, and it's been pretty quiet ever since then.

So I think everyone feels pretty confident that, that threat has come and went. We saw in the behavior of our customers, too, as well, where in July, before we had our earnings call, we saw a slowdown in our pharma customers. So we kind of saw the correlation from the rhetoric translate into our results. But then again, right after those agreements were made, we saw a bounce right back. And we ended yet again another quarter of double-digit growth in pharma. So white to the brown on that one, it looks like we've dodged a bullet and pharma is still in good shape going forward. If we go to the other extreme and go to academic, what's evolved over the past 4 months, 5 months or so is that the appropriation committee for both houses and Congress have essentially messaged a roughly flat budget for NIH, which is a major improvement from a minus 20, minus 40 that was being batted around before. And we can see the anxiety of our academic customers start to settle down as a result of that.

The worst quarter we had in our academic business, U.S. was in the March quarter when all this anxiety started with NIH, and we were down high single digits. In our Q4 June quarter, it was the upper range of being down low mid-single digits. And now in our most recent September quarter, it was down low single digits. So all moving in the right direction and kind of heading towards that flattish, I think, expectation that's now kind of most people have built in. So good news because there seems to be at least some floors developing on where that might go. And a lot -- the floor is a lot higher than where even thought it would be initially. But admittedly, we're not out of the woods yet, right? There still has to be a bill pass. And who knows when that will happen, hopefully, January. And then we got to have -- see how the Trump and [ RFK ] administration actually administers that budget. But at least it's -- there's some green shoots coming out of academic there to at least stabilize the market, if nothing else.

And then finally, there's biotech. And for the first 6 months of calendar 2025, our back half of our fiscal '25, we have been at flattish to low single-digit growth in biotech despite the funding being down 30%. We know there's a lag between funding and spending, and no one knows for sure how long or short that lag is, but we know there's one. And we did have concerns that we would start to see some catch-up there with regards to spending following the funding trends. And sure enough, that did happen in our Q1. We had one of the -- unfortunately, one of the worst results in our small biotech that I've seen in 12 years in this company, where we were down high single digits in small biotech. Yet, I feel better about small biotech now than I did 4 months ago because what has also transpired is the funding levels for biotech has increased each month, every single month since July, August, September, all the way through November, the last 2 months being very high, where that year-to-date funding has gone from minus 30% now to minus 13%.

And it shouldn't be a surprise. These are -- it's a high beta, high-risk tolerance kind of investing environment. And you're all in when things look good and you get skittish when things look bad. And those investors look at pharma because that's their eventual exit. And now that looks better. And not only that, but pharma is picking up some of their M&A. They're doing a lot of licensing activity. So it all helps biotech. And the stabilization in academic, I think, also helps biotech because that's their future innovation. So it's not necessarily surprising that for biotech to stabilize and improve and the funding to start to come back in the market, you need to see the cloud start to dissipate in those 2 end markets. So it all goes hand in hand.

So we think it's enough at least to stabilize in the biotech market for now and not have it get any worse from here. But in terms of it improving from here, back to that leg, we're only 4 or 5 months in of funding improvement. We need to see more of that. But assuming that continues, the likelihood of us seeing that in our numbers may not be until the start of our first quarter of fiscal year '27, which is the back half of calendar 2026. It could happen sooner? Yes. But our base case is we don't really see it until then. So that's kind of how the end markets shape up as the year has progressed, the calendar year has progressed. So now to your question, which is what does that mean for the future? And as I said before, we did on an adjusted basis, adjusting those 2 customers out, we did plus 1% this quarter.

The headwinds from those 2 customers double next quarter from 200 basis points to 400 basis points. But right now, we're predicting roughly the same overall growth rate. So call it minus 1%. But what that really means is if you add back the 400 basis points, ex those 2 customers, we're improving from 1 to 3. So what's driving that forecasted improvement? Not the end markets because our base case is that pharma is already at normal, stays normal and that biotech and pharma kind of stay where they're at, but don't materially improve until we get to the back half of 2026. But what does improve is our relative performance, led by our ProteinSimple franchise and our Spatial franchise. We have a long history now over a decade history with ProteinSimple to know that ProteinSimple often leads us into a recovery.

They help keep us as a company in the black throughout the entire downturn over the last 3 years. We've never had a down quarter in ProteinSimple. And we also have data that demonstrates that during normal markets, they far outgrow the market, which we kind of internally compare to our core reagents. During a down market, that spread -- they still outperform, but that spread narrows quite a bit. And during a stabilized market, it's somewhere in between in terms of that spread. We believe we're in the -- we're at the turning point of a declining market into a stabilizing market. And therefore, we expect ProteinSimple and our spatial biology to perform better relative to the market more in a stabilized market than they would in a declining market. Now we have some current data to support that. This isn't all just kind of history and algorithms because we saw in -- we've seen steady progression of ProteinSimple throughout the quarter and Q1 into October.

And with regards to spatial, it was notable because we had our only down quarter in spatial in Q4. It was down low single digits, and it was flat in Q1. But more importantly, in Q1, when you peel the onion back layer, our reagents flipped from being negative to positive. And our instrument comment, although the revenue was still down, the bookings increased double digit. And we've seen that momentum continue into October. So at least so far, that thesis is alive and working. And so we think it's -- those 2 businesses outperforming even more in a stabilized market will give us that extra couple of points of growth in Q2. Now as we get into the back half of the year, I'm not suggesting that we're going to take any more share. I'm not suggesting at this point that the markets are going to improve until the back half of 2026. It's really a math equation where our comps become easier.

We start to lap the academic comps that hit us hard starting in February. We haven't talked about this much, but our Diagnostics business, which is a combination now of our legacy diagnostic controls and calibrators, combined with our growth vector of a surge and laboratory kits powered by the Exosome technology, that diagnostics business for us has been performing very well throughout all of this. And in fact, in Q1, we grew mid-single digits on top of a mid-teen comp last year. And for the year last year, they were high single-digit growth combined, but they were teens growth in the front half and minimal growth in the back half. So very lumpy business.

These customers buy once or twice a year, and it's never in the same quarter every year. And last year, it was very front-loaded. This year, our customers are telling us it's going to be much more even throughout the year. So that becomes easier comp for us as well. So it's -- what I'm saying is that the incremental improvement that we expect to see throughout the remainder of the year, partially driven by our own relative performance as a portfolio driven, but also the math of easier [indiscernible] which means that any earlier improvement in end markets is actually upside. So a long-winded answer. We answered 4 questions that one answer...

No, that was very helpful. Definitely want to dive into all that. Why don't we cover the 2 customers first, and then we can dive in. So maybe just give a little bit of context. You have these 2 large iPSC customers, stem cell customers. What does the concentration look like in terms of how large they are on a relative basis? How long will this impact linger? Maybe we can start there and obviously have a few more questions about it.

Sure. So these 2 customers are definitely outliers and outliers in a very positive way. And we've had all kinds of questions why you have these 2 outliers and why are they outliers? The 2 simple reasons I can give for this is, number one, the disease states that they're going after are very large, very large populations. So that means a lot more product that's needed to support trials. And it means when they knock on wood, they go commercial, there'll be huge commercial customers as well. The other reason is because of the type you mentioned iPSC. So as a reminder, our cell therapy franchise, I just generalize and say it's cell therapy or even overgeneralize and say, cell and gene, but it's really a cell therapy franchise. And there's 2 major components to it.

There's the immunotherapy CAR-T side of things, which is largely used for fighting cancers. But there's also the iPSC or stem cell or another word for is regenerative medicine therapies that essentially grow up stem cells, but they all involve the growing up of cells, and they all require cytokines to do that, our cytokines. And we're a top 3 player in the immunotherapy CAR-T space, but we are by far the #1 player in the regen space. And part of the reasons for that is because the -- both the quantity in terms of the number of types of proteins that are used to grow up cells in regen men are a lot more, a lot higher than they are in immunotherapy and the complexity of those particular proteins are also way more complex. In fact, in some cases, we think we're the only ones that know how to make them. So that's why we by far become the #1 player in that space, which is why if you're a regen therapy customer, you're more than likely to be buying our proteins, and that's how we have these 2 customers. And they use a lot more proteins in the growing up of those cells.

So that's higher content per dose. That's why these are such outliers. Within our 700 customers, these 2 do make up -- recently have made up as much as 35%, 40% of our GMP revenue.

Okay. And I guess in terms of how this played out, right, that big of a customer, presumably you have a very close relationship. You have some visibility into what they want to order and then apparently do not want to order. I guess what happened in terms of them this air pocket forming seemingly quite quickly? And then when does -- to your point, when it flips commercial, it should be super interesting for you guys, what is the visibility to that happen? Maybe we start with what happened coming in and then what could ramp?

So first of all, start off because we're -- I'm sure we're on a microphone here. No offense to our customers. Of course, we love our customers, and we love these 2 customers very much. But -- and we respect the fact that by their very nature and what they're trying to do, they're very secretive. -- and about everything. And we get that, and we respect that. And we try to manage around that as best we can. And we knew before -- we knew by the end of our last fiscal year that these 2 had gotten Fast Track designation. What we didn't know was what that actually meant in terms of its application and more specifically, what it meant for us. There's no -- always we need to understand it. There's no boiler point for -- or you're fast track, that means XYZ.

It just means you're going to get some special attention from the FDA to do whatever it takes to get your -- either trials faster and/or through the approval process faster. And that could take on all different kinds of forms. So we didn't know. And these customers were reluctant to tell us much about what it would mean. And given they didn't tell us much, we didn't necessarily think it was going to impact the because it can mean that once they get past their Phase III, then they'll speed up the approval process. They could be as simple as that. Well, it was until we got whatever it was, halfway through the first quarter, we're like there was no orders coming in. And so we basically like you need it -- this is important to our -- this is material to our company.

We need to know at least are you going to buy stuff or not? And if you're not, why not? So at the end of the day, they did give us the information, which we've now shared publicly, which is that they were fast tracked, which we already knew. But for them, what that meant is that they -- in essence, I'm oversimplifying it, but in essence, they were able to skip a phase of their trial. And the material they bought from us in fiscal year '25 was going to be used for their Phase II trial, which was going to be ongoing now. And the material they were going to buy from us in fiscal year '26 was going to be for their Phase III trial next year. Well, now they no longer need to do, call it, that Phase II. So the material they bought for Phase II can now be used for Phase III. So skip a year. Now we were going to hit this, and we will with all -- as many customers -- I hope we hit this with all of our customers, that means we're being successful in terms of this chasm.

Once they get their Phase III approval, there is a natural chasm. We see it in biologic drugs where it could be 18 months to 3 years from the time Phase III results are published and the actual approval and commercialization. Not only is there a paperwork and all that to the pure approval, but then you have to get the manufacturing processes documented, those approved, all that fun stuff. So anyways, but going back to this most current year, we said, okay, so does that means you're not going to buy anything from us next quarter. That's correct. What about after that? -- we can't say for sure. Well, if that is the reason they're not buying from us, then they're not buying anything the rest of the year. So that's our base case as they're not buying anything from us for the rest of the year.

We've been told definitively well, obviously, now in history, but Q1, no and Q2, no. So that's what's baked into our forward view with regards to the rest of this fiscal year. Now with regards to commercialization, all that, we're in uncharted territory here. I mean, let's face it, there's only a handful of actual cell therapies that are actually commercialized. So not enough to make -- have any statistical relevance really. And there's been 0 IAC. These will be the first 2 that we know we've got -- Google checked it, AI checked it. We're pretty sure these are the first 2. So you kind of got to go back to the biologics, take a look at what's kind of normal if this is going to follow that path. And what's normal is 18 months to 3 years from the time Phase III results are published to commercial launch. Now given this is fast track, I would expect this to be much closer to 18 months than the 3 years. And could it be faster?

Sure, it could be. We've heard that there's instances where the FDA will actually work in parallel with you during Phase III before the Phase III results are even known, start to work the paperwork trail for approval. So it could be faster. But our base case is not knowing or having information for anyone else is that it will be 18 months, which would put us somewhere in the fiscal year '28 time period for us to start to see the commercial launch. Now the next question is, well, then how fast is the launch and how big does it get? And given the -- we know what disease states they are, we know what the population sets are, we can run that math. And when we run that math on a per dose basis, it's kind of 2 points we look at. There's what I would call full maturation, which can take 10, 15 years. It's different for every drug. And then there's kind of midpoint, which is more in the horizon of LRP 5-year kind of model.

Depending on whether this uptick is linear or J curve or upside down J curve, bottom line is in a mature state, these could be $80 million to $100 million customers each and halfway point, which is probably closer to most investors' time horizon here, if you're thinking 5 years out, could be as much as $40 million to $50 million, so very, very sizable revenues from just 2 customers.

Yes, absolutely. So to your point, it sounds like at the peak, they were combined 40% of GMP. Is that?

At one point, one given quarter, they were.

Sure. Okay. And I guess the next logical question is, are there more of these that could pop up? Do you have any other customers this large in terms of concentration? Are there others in a similar -- whether it's Phase III, whatever it may be? I guess, how do you approach that?

So as much as these causes kind of short and intermediate term heartache and headaches, I wish we had a whole bunch of more like these ever on docket. These truly are some outliers just given the disease states they're going after. We do have 698 other customers. We have 85 of those that are in clinical trials. We have roughly 2 dozen of those that are in Phase II, Phase III. But they follow the more normal trend of what we'd expect to see, which is when they're full commercialization at full potential between $5 million to $15 million a year each.

And when they're maxed out in their clinical trials, they're sub-$1 million, but still very large relative to your typical RUO customer. Said another way, there's enough of them out there. We don't anticipate any of them, whether they fall off for some reason or they hit this chasm because they're successful, it being that material to have us be talking about it at a conference like this. But I kind of hope I'm wrong, and I hope there is. But as of right now, we don't see it.

Okay. Understood. Okay. That all makes sense. So maybe moving on from the 2 customers. It does sound like, again, on the end market side, you are feeling better about most of the pieces. Maybe we can start with biotech, to your point, the funding has picked up. It's certainly looking better, whether it's the indexes, the secondaries, maybe some IPOs at some point. Maybe dive in a little bit. You touched on it a little bit earlier, but just in terms of what lag you typically see, obviously, again, the downturn probably hit you guys a little bit last quarter. How quickly could this pick things up on the biotech side for you? Are you having more constructive conversations? What are the expectations for that market for you guys?

Well, I'm not going to be able to give you an answer that's as precise as anyone wants to hear, including myself because the reality is it's customer-specific in terms of how fast this money translates into spend. It really is. And we've seen some customers where it just instantly shoots through them. And we've seen other customers where you're like, are you ever going to spend the money, it goes on forever. And we've tried to come up with some averages. And I guess if -- we have to -- at some point, we have to come up with our own base case.

So our base case is somewhere between 2 and 3 quarters is the lag. But we've seen examples where it's happening much faster, and we've seen examples where it's taken a quarter or 2 longer than that, which is why we're careful in kind of saying not even picking a specific quarter, but to say, hey, fiscal year -- sometime in fiscal year '27, we feel like as long as it doesn't go backwards from here, there should be a lot of tailwind from funding to support a biotech recovery.

Okay. And then pharma, similarly, it sounds like the conversations there are a little more constructive. That regulatory overhang seems to be removed. What do those discussions look like with customers? And how is the sentiment around that end market for you?

Yes. It's -- the conversations are fine. I mean you got to remember relative to, say, a Thermo or Danaher, we're still a relatively small company and kind of like it that way because we kind of play on the radar a little bit, too, right? We don't get -- we don't talk to big purchasing agents and so forth. Our customer at pharma is usually the researcher on the bench. So it's almost a consumer model more than a B2C. So I share with you only because I don't have a lot of additional insight to say what the executive of pharma companies are thinking about their business. So I rely a lot on what they're saying publicly, what we're hearing from our peer companies who do have some of those conversations.

And then I try to triangulate that with what we're seeing from a behavior perspective because at least the one insight we do have is being in a 80%, 90% consumables business, we see their activity every day. And so we can kind of correlate that with what we're hearing externally. And what I'd say is that what we're hearing and seeing is very consistent with what I think you're hearing both from them, those customers, but also from our peer companies that do business with them also. And -- and that is -- I mean, they're all doing very well.

I mean, even during the IRA year 2024, for the most part, pharma increased their R&D spend mid-single digit. It was just how they were -- where they were increasing it is what caused a dislocation in the tool space that supports R&D because most of that was going towards very late-stage, high derisk as they were reallocating their more discovery-based programs.

And our prediction back at the end of 2024, which I think some people thought we were a bit crazy for saying this, but was that this is going to be mostly behind them. It wasn't that they didn't spend any money, they did. It's not like they're not making any money, they are. And when this reallocation of the portfolio is complete post-COVID, they'll now take their increases and spend that more pro ratably. And I think that's exactly what we've seen all through calendar 2025. And I don't see anything slowing that down. And if you want to get even more to make more theoretical about it and long term about it, it's no secret that there are some significant patent cliffs coming for many large pharma companies. So they're going to have to bolster their discovery pipeline to fill that gap down the road. And whether that's internally or whether that's investing more and buying more biotech companies, I'm not so sure we care because it's all good for the industry one way or the other.

Yes. Yes. And then the other end market, obviously, academic government, you touched a little bit on as well. Pretty roller coaster ride, let's call it, this year in terms of how big the cuts were and how tight those budgets got. Where are we now? Again, to your point, hopefully, there's a budget in January, there was a shutdown. Did the shutdown track as you expected in terms of the guide? And then yes, when do you see those dollars start to loosen up a little bit?

Well, I'll start with the shutdown. There's like shutdown like every other year, it seems like it's not -- are not a shutdown. I've never paid attention to a shutdown in the 12 years I've been at this company until this one just because there was so much angst on NIH in general. And I wasted a lot of time paying attention to it because nothing changed. I mean it's not -- it didn't get any better or worse when the shutdown was announced, and it didn't get any better or worse from a run rate perspective after it was over. So it's very temporary. At the end of the day, we talk about academic and government, it's really academic. And the only reason why government is even thrown in there is because a portion of the funding does come from NIH. Of course, we all know that. And yes, the government was shut down.

So a little bit of business we might do with the government went to 0, but it was a knit -- if you're an academic institution, you still got the same budget you had before the shutdown, you're still doing your experiments. That's why I don't think you see -- and even in 30 days, even though it was the longest or whatever it was, the longest in history, it's not long enough to cause a stop in research at the academic institution.

Sure. Okay. I'd love to dive into a few different product verticals. I mean you mentioned ProteinSimple as maybe the leading indicator. It seems like that's picking up a little bit. What are you guys seeing in that business? And what's the right way to think about that, to your point, as maybe leading the business out of a little bit of challenges here?

Yes. I mean, so we've had not had a declining quarter in our ProteinSimple franchise, as I mentioned before, throughout this entire downturn. But it's not because our instrument sales haven't suffered. They have like anything -- any instrument maker has to relies on CapEx. But it's the consumables, it's the cartridges that have kept that business in the black. We've had most quarters in the past 2 years have been double-digit growth. We've had some as high as 20% growth in a very, very tough end market environment. And what it does is just further convinces of our thesis that these instruments are doing what we said they would do, which is provide productivity to our customers. They are using them like crazy when their budgets are tight. They've been using them so much for so long.

We believe there's probably -- hit a capacity problem with needing more instruments. So we do believe when the CapEx budgets start to flow back, and we think that already is starting, that our instruments will have a high priority and they're not a very high-cost instrument either. So it's easier to make room for those than it might be for some other very high-end instruments. One more space. So yes, consumables -- I was going to say about that...

Sorry, we can come back to it. So that's helpful. And then I guess the other part, you mentioned COMET with the spatial side. It seems like those placements are going well. What are you seeing there? And then what do we -- what's the right way to think about the utilization? I mean, we -- I think we hover around 40,000, 45,000 pull-through per instrument. But what are you guys seeing there on the box side and then as well on the pull-through?

I was before. So as I say, what substantiates what I'm saying also about the pent-up demand is our funnel for interest in instruments is the highest it's ever been. And customers are just saying, we and then we're ready. So that's also what gives us added confidence there. With regards to spatial and COMET, so COMET is our most expensive instrument, it's a higher dollar instrument. So it's even arguably more sensitive to CapEx budgets.

Also, spatial in general, of our entire portfolio of spatial has got by far the highest exposure to academic and smaller biotech because it's a newer technology and that tends to get adopted earlier first there and then move up to pharma. So our spatial overall franchise and anyone involved in spatial has been probably hit the hardest by these downturns in academic and biotech. And I think we've done relatively very well considering. With regards to the instrument specifically, though, yes, the revenue was down this most recent quarter. But as I mentioned earlier, the bookings were up double digit.

The excitement around the instrument is still kind of -- it's off the charts. There really is no other instrument on the market that can -- whether it's multiomic capabilities, the plexing, the speed, the pure automation, hands-off automation that's truly automated from end-to-end without any manual steps in between. There's just nothing in the market that can beat it. And again, the pipeline for that continues to grow large as well. So again, it's a matter of the money coming back. And I think the bookings improving the way they did in Q1 is a very strong sign of that. And it's a big reason why we think spatial will lead -- together with ProteinSimple will lead us into a recovery.

Yes. And on the pull-through side, I mean, are you guys seeing any utilization trends? Any numbers you want to throw out?

Yes. Yes. So that's the reason we're excited about this instrument because of the pull-through opportunity. So already today, on a run rate basis, we're getting about $45,000 a year pull-through on just the chips that are needed to run the instrument, consumable chips kind of similar to our cartridges and ProteinSimple. What hasn't even really started yet is the pull-through of our reagents, both our reagents on the RNA scope side for RNA detection, but also for the antibodies for the protein detection. It is an open system, so it can use anyone's antibodies. But we are feverishly developing panels of antibodies for all different types of applications, of course, picking the most popular ones first, so that customers don't have to monkey around and try to figure out which antibodies will work or not work when we can demonstrate we got a panel that's been proven to work and they'll buy ours. That's just getting started.

And we think that will double the pull-through to up to $90,000 a year. But more importantly, the margins on that stuff is some of our more profitable products in our portfolio. So it's exactly why we bought this -- [indiscernible], this common instrument because we love the whole blender and juice model, and this is at the pinnacle of that.

Yes. And to your point on margins, I mean, initially, obviously, this was pretty dilutive. I guess where are we on the margin ramp overall to your point? Obviously, the consumables, that's where the margins really jump. But where are we on the margin trajectory of this business so far?

Well, it's not a margin trajectory right now. It's still a loss trajectory and how does that loss become first breakeven, then we can talk about margin. But we're probably still 18 months to a year perhaps away from breakeven. But again, to put that all in context, when we bought ProteinSimple 12 years ago, it was a $50 million business, and it was just under breakeven at $50 million in revenue. And now it's a 30% plus operating margin business. Our ACB company that we bought, which is our RNA scope business for RNA detection was roughly a $25 million business, was also not profitable when we bought it at $25 million, and that is between 25% and 30% operating margin today and growing. So what I can tell you, I won't tell you the exact size, but right now, when we bought Lunaphore, COMET which just launched.

So it's still smaller than both of those companies. So it's still in its very infant stages. And so that's why we're not concerned about the lack of profitability at this point. And the opportunity for profitability arguably is higher or even higher than those 2 platforms, if nothing else, because of the pull-through of those very high reagents.

Sure. Okay. That's helpful. And then maybe the GMP business, obviously, we talked a little bit about it earlier. But the GMP side, I guess, how do you think about the growth trajectory here? Clearly, some noise near term. But maybe remind us how large that business is and what the right way to think about the, let's call it, normalized growth is for this business?

I like GMP proteins ex these 2 customers...

Yes, I guess so.

Yes. Well, okay, we talked about including these 2 customers. We've talked about it that it's roughly a $60 million run rate business, which is part of a larger $8 million cell therapy business because we also sell small molecules, we sell media and things of that sort. What it does -- that $80 million does not include and probably just because it is hard to measure, and therefore, we don't -- we think we know, but we're not going to say numbers that we can't measure 100%. But our RNA scope business in spatial as well as our ProteinSimple franchise, specifically both Maurice and Ella, Simple Plex and Simple Western are also heavily used in both cell and gene therapy for QC/QA monitoring. We have a sense, I'm not going to say it out loud, but it's material. And the reason why we can't measure it precisely is because they don't often tell us what they're using the instruments for us.

So we try to gauge it by the type of cartridges they're buying, and we look to see what the kind of things they're working on that we know of that they publish and it's how we kind of triangulate this, but we know there's a lot of usage of these instruments for -- which is exciting, too, because that means it will be used once they go commercial as well for QCQA. But that gives you a sense of the size and materiality for our business. In terms of -- with these 2 customers being on a chasm here for a while, it's going to reduce the size of the business temporarily for sure. But we still expect the business to grow 20% off a new baseline admittedly, but off a new baseline. And then once these 2 customers go commercial, then 20% becomes by far the floor and it can only go up from there. And why do we feel so good about the cell therapy?

I mean I get a sense talking to investors and stuff I read in the press and so forth, there's a down right now in cell therapy, at least more than I've seen before, and I'm not exactly sure why. But I think part of it is because it's all relative. There was such a euphoria around cell therapy, especially during the COVID days when there was -- everyone was flush of cash and you're throwing money at every good idea. And cell therapy was a very exciting space and there was a lot of good ideas and people are just throwing money at it. And so maybe the rate of new clinical trials growth is still growing, but maybe it's slowing, and that's causing some people some pause. But what we see is that the quality of what is coming into those funnels is much greater than it's ever been.

So when the -- everyone is flushed with cash, anyone with half a brain and half an idea can get funding. And now you in tough funding environment, you got to have a pretty high hurdle of scientific relevance, and it's still growing despite that. And another example of that is our customer base. So it was just a year ago, we had 550 customers, and now we have 700 customers. Admittedly, a large part of that -- one of the reasons for that is because we've gone through a program shared with Wilson Wolf to offer at very, very strong discounted pricing grants, we call them grants to academic and even some small biotech, kind of going off of the whole NIH play that it's tough to get money from the government, but maybe you can get money from us for your cell therapy program.

And they have actually to submit a grant to us. And our scientific -- we have a lot of good scientists. They look at it and they say, hey, this is viable, we'll do it. It costs us very, very little because this is a very high-margin product. We lock them in on our early-stage development. If they have success in their early stage, they need their next batch of proteins, now they're going to pay for it, but it's sticky, they're going to buy it from us. But why I even mentioned this is because the fact that we had a number of grants that we were going to give out, and we had -- we were oversubscribed by 2x. So that tells me that the interest for cell therapy among the scientific community is still extremely high. It's just about the funding. And when the funding starts to work its way back, that's one of the first places it's going to go.

Yes. So is it fair to think of the GMP piece is once you annualize these 2 large customers, which I guess would be fiscal 1Q next year, it gets back to growing at 20%...

Absolutely. That's our expectation.

Yes. And then maybe a quick one. I know we're right at time. Just on the margin side, -- what's the right way to think about the margin progression this year, to your point, 2Q is maybe with these customers declining a little bit and then presumably ramping to some level of growth in the second half. What is the margin cadence? And how are you guys thinking about the expense side?

Yes. I think we more or less messaged that we think the margin expansion will be very similar next quarter to this quarter. There's some pluses and ups and downs. But it's not -- at the end of the day, we're saying our top line overall is going to be about the same anyway. So it kind of makes sense that the margin expansion will be roughly the same. And then that margin expansion should increase enough to get us to an overall at least 100 basis point improvement for the year. So that means a higher than 100 basis point in the back half of the year. But we talked about -- I gave you some rationale as to why we think the second half revenue will be stronger organic growth-wise than the first half. And naturally, with that higher organic growth comes a very strong pull-through that allows for those margins to continue to expand.

Okay. Sounds good, Jim. Thank you so much.

Okay. Thank you. Appreciate it.

So I'm Daniel Markowitz. I cover Life Science Tools, Diagnostics and Med Tech here at Evercore ISI. With us, we have James Hippel, CFO of Bio-Techne; and Dave Clair, Investor Relations. So thank you both for being with us.

Yes, Dan. Thanks for having us. Especially first thing after the turkey hangover.

Great to be here.

So starting off sort of high level on the 1Q overview. You posted an organic decline of 1%. Can you just give us a quick overview of the quarter and I guess, the macro environment as you see it today?

Yes. Let me start with what I see as our highlights for the quarter from an end market perspective. Large pharma continues to perform very well for us. As a reminder, large pharma is about 30% of our revenue. We had like the third quarter in a row of double-digit growth in large pharma. So we can talk more about what our concerns were there, but we were obviously very pleased to see that the strength there has continued.

From a regional perspective, I think the highlight was China. We had our second consecutive growth each quarter of organic growth in China. We're expecting a third here this coming quarter. And we do believe there that, that market has turned the corner to -- back to a growth scenario, and we think gradually progressing growth. If you look at our portfolio, highlights, again, we're our approaching simple franchise as it has been throughout the softness has occurred in our industry in the past couple of years now.

We had yet another quarter of double-digit growth in our consumables that the instruments -- cartridges that the instruments used to run, which continues to confirm our thesis that our instruments are widely used and needed for productivity and tough budget constraints, and our customers are using them like crazy. Also, Spatial was a highlight, in the sense that our Spatial was probably the most over-indexed to the academic and biotech end market of all of our major product categories.

And you may recall in our fourth quarter, we slightly declined in spatial as a result of the end market pressures, but we saw that stabilize and sequentially improved to flat in our most recent quarter. But more importantly, if you dig underneath the surface a bit, our reagents actually flipped from negative to positive growth. And our [indiscernible] instruments, which is the automated version for Spatial for our platform, although declined for the quarter from a revenue perspective, the bookings were actually up double digit year-over-year.

So we do believe that it's a very encouraging sign to see Spatial come back, and we're projecting a decent quarter here, it's most current quarter as well. So we feel like that's turned. And then last but not least, it's actually good news, although a temporary intermediate to say, headwind is within our cell therapy space. Our 2 largest customers got fast tracked by the FDA. And as a result, didn't need to buy the same material that they had bought from us last year, and that caused us a headwind, which is what ultimately caused us to be negative 1% as opposed to what would have been positive 1%.

And then last but not least, I think, is our margin profile. Despite being relatively flat, even down 1% and these 2 customers being very profitable customers, we were still able to manage 90 basis points of margin expansion on the bottom line.

Great. Very helpful. So I guess, first, starting on, you mentioned Spatial. It sounds like bookings are strong. It sounds like it's turned a bit. And you mentioned most exposed in biotech. I guess just focusing on that biotech end market, what's your exposure there? And how would you describe sort of the current environment versus the last few quarters and how you'd expect that broader market to unfold in the next 6 to 12 months?

Yes. So smaller biotech represents roughly 20% of our revenue base. And if you back up a quarter to the end of our fourth quarter, which was the end of the June quarter, we were still able to show relatively flattish, even low single-digit growth in our biotech end market despite funding as of June year-to-date being down 30% year-over-year. And we expressed some concerns coming out of Q4 around how long can that gap really persist. We know there's a gap between funding and spending. And even though we believe we're taking share overall in the biotech end market, that was a pretty wide gap. We figured that there's a chance that still to hit us.

And in fact, it did. In our most recent Q1, biotech was down high single digits for the quarter, which was like the worst quarter we've I think ever had in biotech, small biotech. But yet, we actually feel better about the end market now than we did a quarter ago, largely because -- well, 2 reasons. One is if you look at why is biotech funding down, it's more risky investment dollars, and they tend to be more volatile with regards to what's going on in pharma and what's perceived to happen with pharma, maybe with MFN pricing, for example, which was a concern a quarter ago. And that's a lot of these investors exit. So that can cause them to hold back.

And even the stabilized academic environment funding can cause hesitation at biotech because that's the source of their innovation for the future often as that's the case. So we saw those things happening, not to mention and then in real dollars, the 30% being down. So now you move a quarter ahead, what's changed? Well, there's definitely more visibility now into pharma as well as even academic. Large pharma, our biggest concern a quarter ago was that the double-digit growth rates couldn't continue in an environment where the administration was going after MFN pricing, 100% tariff threats for not onshoring enough, et cetera, et cetera.

But pharma seems to have stepped up the play pretty quickly on that and responded in a way that was favorable administration, and that noise has largely gone away. I think we all pay attention to that and haven't heard much about that here recently. And our results in pharma showed that at double-digit growth. Not to mention, you're seeing a lot of M&A activity pick up. We all know a lot of larger pharma companies have patent cliffs that are coming and whether they're looking at M&A again to help fill that gap, which often comes from being from biotech and/or licensing activities, which often comes from biotech, whether it's here or abroad, is making, I think, the investment profile for biotech -- that risk profile more reasonable. And by the way, it shows in the numbers, right?

So every month for our first quarter and into October for 4 months in a row, there's been increased funding year-over-year into the biotech space. So we see that as an encouragement. We think that will hopefully be enough to at least stabilize the biotech market from here. The question is when does it start to actually improve? Well, it gets back to how long does that -- assuming that funding growth continues, when does it manifest itself in spend? And that could be 6 months, it could be 9 months. If we're fortunate, we'll start to see it maybe in our Q4 of this year, but it definitely sets up well for fiscal year '27, if nothing else.

Got it. That's super helpful. And then same question for academic and government. I guess, sizing your exposure there, how would you describe the current environment versus the last few quarters and how that market should unfold over the next 6 to 12 months with the NIH budget and these different moving pieces?

So as a reminder to everyone, academic and government is roughly 20% of our global revenues. Roughly half of that is in Europe and roughly half of that or so is in the U.S. What it's worth the academic market in Europe has been very stable, very steady, nice -- relatively mid-single-digit growth. I haven't talked about it much because everyone is concerned on the U.S. side, but Europe has held up very, very well, and we expect that to continue.

With regards to the U.S., so again, similar to biotech a quarter ago, it was very, very blurry with regards to what the outcome with NIH funding is going to be and what the impact that will have on our academic customers. There were still 40%, 20% plus type of reductions being thrown around. What's changed in the past 3, 4 months is that the appropriations committees from both houses of Congress have signaled that like flat budgets makes more sense, which is a huge relief considering where we started from it, potentially minus 40%.

So I think a lot of the anxiety that our academic customers have faced for the better part of calendar 2025 is starting to subside a bit. And we've seen that gradually appear in our results as well. We had high single-digit declines in the -- basically the back half of our fiscal year '25, which is the first half of calendar '25 and in our most recent Q1 that narrowed down to low single-digit declines. So the anxiety level definitely appears to have alleviated a bit and that they're kind of preparing themselves more for perhaps a flat budget going forward as opposed to a very severe negative budget.

But we're not out of the woods yet, right? I mean we still have to have Congress pass something, and then we have to see how the Trump administration actually administers that budget. But at least there's some clarity on which direction it's going. And to summarize it, I guess, I'd say a quarter -- 4 months ago, let's say, it wasn't clear at that point when -- especially all 3 of our major end markets, which direction it was going to go from there, flat, up or down.

Whereas right now, we feel like the risk of it getting any worse has definitely neutralized. And now it's more about if there's clarity concerns, it's more about when and how does the recovery start and at what kind of ramp does it happen. So it's kind of where we were 1.5 years ago or so coming off of the IRA that impacted big pharma. So -- but again, I think it sets us -- we've got a couple of quarters here to figure that out, but I think it does set up for a much improved fiscal year '27.

Great. And then the last one on the 1Q. On the call, you guys spoke about some promotional activities in both academic and government and biotech. Can you talk a little bit about those activities, I guess, where in your portfolio, they were focused and the thought process behind these actions?

And we brought it up only because it was a bit of a margin headwind to us, in the sense that we didn't have the amount of pricing throughout the company that we typically do. We typically get 2% to 3% pricing. Obviously, during the high inflationary period, we're getting considerably more. But in a normalized state, that's what we usually kind of aim for and what we achieve. And this quarter, it wasn't like our pricing was negative, but it was relatively flat for the quarter. So we still -- there is still obviously a level of inflation.

So therefore, we had a little bit of margin pressure as a result of that. But it wasn't a broad-based discount program and we're highly advertised. This is a very targeted approach. I mean, at the end of the day, we know especially our academic customers and some of our biotech customers are struggling right now or at least have a lot of anxiety around concerns. And so what you want to do is be partners with them and show them that you're there with them in good times and bad and allows for sticky customers so that when budgets do come back or stabilize, then they're happy to pay a higher price down the road.

But it wasn't even wide scale among academic customers. I mean, we sell to hundreds of thousands of academic or at least tens of thousands of academic customers, and they're not all short on funds or concerned. So it's those that you know that are most impacted by this and then you try to help them out. And that's really what that messaging was about.

Got it. Great. Super helpful. And then on the '26, I wouldn't call it guidance, but a soft guidance. I guess back in August, you provided a framework for the Street for about low single-digit growth in fiscal '26. I'm just confirming, does that framework still hold today?

Yes, we still think it's in the cards. And while we say I can kind of lay out how we're thinking about the very near term and then the back half of the year, we also kind of soft guided that we thought our Q2 will be very similar to our Q1 in terms of absolute results on the top line as it pertains to organic growth. And -- but the underlying strength of the business is continuing to improve. And that's because this headwind that I'm sure we'll speak more of with these 2 cell therapy customers caused us about a 200 basis point headwind overall for the company in our first quarter.

And based on what they bought from us last year, assuming they don't buy anything more from us this year, that's about a 400 basis point improvement. As a reminder, we grew 90% in GMP proteins in Q2 last year, and that was -- a lot of that was driven by these 2 customers. So bottom line is if our headwinds increase by 200 basis points and our absolute target for organic growth for the company is the same, that means that adjusting for that, the underlying markets are actually getting better from barely positive to now decent low single-digit growth positive.

So what's behind that? Well, we talked about the market stabilizing. We have an amazing portfolio of both core reagents, but also these growth vectors we talk about, our ProteinSimple franchise, instrumentation franchise, talked about our Spatial franchise, of course, our cell therapy overall franchise and even our molecular diagnostics franchise. So they're all above-market growers by far. And in stabilized markets, they tend to outperform even more than in very tough markets, call it, declining markets. And in growing markets, that spread even widens further.

And given that right now, we feel like there's more stabilization in our end markets, we think we'll see further strength in our ProteinSimple franchise and our Spatial, those 2, especially as well as the fact that we continue to have a ton of innovation going on across our businesses with new product launches that even in a stable market will allow our organic growth to accelerate from here, albeit slightly, but accelerate from here when you back up the cell therapy impact.

Now as we -- that's for Q2. Now as we get into the back half of the year, I'm not about yet to call a turning point in terms of academic and biotech going from stable to growth. But what I will say is the comps get easier, right? We start to lap the academic comps right away in our Q3 as well as biotech tough comps or easy comps, I should say -- easier comps. And we also have some easier comps in our diagnostics and genomics -- Diagnostics segment, I call it our OEM Diagnostics business as well as our Lab business. Those tend to be very lumpy in nature in terms of the ordering patterns from more concentrated customers.

And last year, they happened to buy a lot more in the first half of the year than they did in the second half of the year. There still was very solid mid- to high single-digit growth for the year. That was kind of the pattern, whereas this year, it's looking like it's going to be more of a consistent pattern throughout the quarter. So we had much tougher headwinds in that segment. We didn't talk about it much, but it was actually a pretty tough headwind we had in the first half of the year with a less of a headwind in the second half.

So bottom line, I guess, Daniel, the second half is not about calling any kind of inflection in the markets. It's really more about the position of our portfolio, be able to take more share in a stabilized market and lapping easier comps.

Got it. Super helpful. And we're definitely going to touch more on those cell and gene customers. I'll come back to that. But I guess just on the macro uncertainties, I think when you laid out the initial framework, you spoke about this low single-digit framework, but that was until uncertainties lifted. I guess what would you say are the primary uncertainties that are weighing on Bio-Techne today?

Yes. I think the main one is the academic outcome and more that it is only 10% of our business on a U.S. perspective, but it does cause ancillary hangovers in our biotech space. I think that to me is the biggest question that still needs to be answered with regard to how that ultimately gets resolved and where that stands and how it gets administered. I think not if, but when that does, to me, that's the last remaining concern a biotech investor would have with regard to invest in this market going forward. So I would expect that to continue as well. So to me, that's the biggest item out there.

Got it. And I guess how do you feel about the state of that today? I know you mentioned budgets potentially flat, and we need to wait to see a final outcome, but would budgets flat mean the business is flat? Or I guess, how would that impact growth?

Yes. I mean that's another interesting -- it's a good question. And for us, what we're saying is I believe we have been overall outperforming in academic U.S. despite the declines. Like I talked about high single-digit decline, mid-single-digit decline, low single-digit declines, we know that our customers are behaving much more severe than that. We've had customers tell us they're cutting budgets 15%, 20% in anticipation of what may come down the pipe. We've been monitoring some of what our peers say based on that. We feel like we are doing better than most in academic.

And so even in a -- as that market stabilizes, we feel like we can outperform. Now as far as returning to growth, I think we can grow even in a flattish U.S. academic market and it gets back to how the money is being spent. And you may have heard me say this before, Daniel, I know many in this room probably heard me say this in some one-on-ones, but what's always been told to me by our top scientists and our company and many who worked to come out of academic is that, yes, NIH levels when they go up and go down, the water level goes up and down, all boats rise. And that's generally a good thing. And when all boats go down, generally not a good thing. But what really moves the needle is where the current and the river is.

And you could be in a high NIH funding environment, be stuck in the back water and not doing a whole lot or you can be in a lower funding environment and be right in the middle of the current and yet be outgrowing what you did in a better NIH. And as an example, during the COVID years when NIH budgets were being increased by double digit year after year after year, our academic growth was basically mid-single digit. Why? Because so much of that extra money was being earmarked towards infectious disease research and vaccine development, et cetera. And that's not the wheelhouse that our reagents and instruments play in. So we did okay, but didn't see the massive upswing, at least not in our U.S. academic market.

If this administration puts their money where their mouth is, they're very vocal about, that's not their priority. Those areas of research are not their priority. But what is a priority is immunotherapy type diseases, cancer, diabetes, neurological diseases. And guess what, that's exactly the wheelhouse where the majority of our tools play in research. So that's why I believe that if even a flattish market, as long as that existing money is being redirected towards areas of research that our tools are perfectly fitted for, then we could actually grow in that environment.

Great. And then the other uncertainty that I remember at least at the time, and we touched on this, was within pharma. It seems like a lot of the uncertainty is already sort of seemed to have lifted, and I think you already touched on it with tariffs, MFN. I guess, is that potential upside versus what that initial framework laid out? Because I think the main uncertainties were both on the pharma side and academic. So academic still holds, but pharma seems to have lifted. I guess what's the impact there?

Yes. I mean, I think we -- again, we had double-digit growth in biotech and pharma yet again this most recent quarter. So I'm not -- in our forward view of guidance, we're not necessarily considering pharma to accelerate from there. It's already, for us, kind of back to normal. We expect to grow double digit in pharma in a normal environment. So for us, the upside is really more around the academic and biotech space. And right now, we don't assume much, if any, real true market recovery, at least not in the back half of our fiscal year yet. We are expecting it to stabilize. So if it actually starts to inflect and recover, that could be upside. But we're thinking that being more of a back half of calendar 2026 event.

Got it. Okay. Great. And so now going over to cell and gene therapy to talk about the Fast Track and those sort of dynamics. So on the call, you pointed to Fast Track as causing some temporary headwinds in the business. Can you explain this dynamic? I guess why does Fast track lead to a headwind in the first place in basic background?

It's a good question. And we're learning this as we go, too, both us as well as through our relationship with Wilson Wolf who has seen it earlier. So first thing is Fast Track designation doesn't mean anything specific. It's very kind of -- it's kind of customer-specific in terms of how it's implemented. But in theory, it's the same in that it basically says that you have a -- you're looking at a disease state that can impact a lot of people and shows a lot of promise.

And therefore, the FDA gives you this designation to get your process through your trials and ultimately through your FDA approval and commercialization ramp Fast Track from any kind of bureaucracy and paperwork, et cetera. So that's the spirit of what it is. How it gets implemented, though, it could be different from company to company. And we really did not know until this most recent quarter what this was going to mean for these 2 specific customers that we knew going into the fiscal year had recently got Fast Track designation, but didn't really understand what that would really meant from an impact perspective, especially for us and nor were they -- they're very secretive by nature, and they weren't willing to necessarily come forward and say, here's what's going to happen.

And so it really wasn't until we got halfway through the quarter and saw that the orders weren't repeating like they had been all last year and kind of pressure them to help us out to help understand what's going on. And essentially, what they told us was that for them, this Fast Track designation allowed them to essentially skip a phase. So where they were buying material from us to kick off their Phase II trial, they got accelerated to basically combine their Phase II, Phase III in the same trial. And therefore, they don't need to buy material for us this year for Phase III because they already have it. And so made it very clear to us say we're going to buy anything from us at that point in Q1 and probably not in Q2. And beyond that, they don't say anything. But we've assumed that basically it's going to hold for the rest of the year until they get through these clinical trials and then go through the process of formal approval with the FDA.

Got it. And is it just random that 2 different programs happen to be getting Fast Track at the same time and having the same impact? Or were they connected in any way?

Yes, they're not connected. And I guess, it's very fortunate in terms of how we were positioned. These 2 customers, they happen to be, I already mentioned by far, our largest customers. Even though we have 700 customers, these 2 make up a very significant part of that revenue. And they just happen to be very, very large disease states and very promising. So this is all about the shot on goal, right? This is why we have 700 customers and continue to build that base and even give grants of free product out to academics on occasion who are starting new therapy ideas because if you get in early, it's very sticky. And statistically, what we don't know exactly if it follows the same realm as biologics, roughly 5% make it all through. But when they do, it's big. And we were very fortunate to be linked up with these 2 very early on and have them both hit Fast Track status, but they're not linked in any way.

Got it. Okay. And can you just give us some more color on how you learned about the Fast Track designation? I guess what was your communication with the customers? Is it that they reached out and told you, hey, just so you know this is happening, this is going to impact the way we purchase? Or is it more hey, we noticed you haven't placed an order in a while. What's going on? Oh, we got this Fast Track thing.

Yes. I'm not going to say when we knew because I know everyone is trying to figure out which 2 of these are and our customers are getting extremely secretive. So we definitely don't want to be the ones that leak anything. And so I can't give you that information because you can probably narrow down which this might be. But no, I mean, we read about it and try to reach out to them and say, what does this mean? What does this mean? And I don't -- I was saying I think they were still trying to figure out what it meant for them, quite frankly, until we got into this fiscal year.

So yes, it -- and why is that? In this stage of clinical trials, and this is true with all of our customers, not just these 2, I call it a bit of being a victim of our own success, right? So because one of our selling points aside from what we believe is having the highest quality GMP proteins is the availability of those proteins that we can -- we've invested $60 million in what we believe is the world's largest GMP protein factory and basically supply that is -- I'd say, basically infinite and [indiscernible] for what this market probably ever need.

But we did that purposely to put our customers at ease that says, no matter where you get in your clinical trials or your commercialization, you don't have to worry about the availability of product. We have it, and we have it at a moment's notice. And so -- and that's the way it's worked. They're very secret by nature. And so they don't need to give us advanced orders. They can put an order on a Tuesday for millions of dollars of product and have it delivered on Thursday. Obviously, knock on wood, some of these get into commercialization, that's when you'll -- and by the way, they're going to want to start to have formal supply agreements at that point because now you're in commercialization, that supply is going to be locked in, and I think there'll be a lot better visibility at that point.

And are you able to say -- is there a formal list that gets published by the FDA where you saw the customer on the list? Or is it some sort of new source that mentioned it? I guess like where can investors look to see which programs got Fast Tracks?

I don't know if you have the answer to that one, Dave, but...

Yes, I don't have the answer to that.

It's probably a combination of both. I'm guessing there is public -- it is publicly posted, but there's also often press releases done by companies as well once they've get in that designation. So -- but do they press release it right when they know, maybe not, maybe they do. So it's kind of a combination of both company-specific notifications, but also looking at government websites and seeing what's going on.

Got it. Okay. So the main sort of takeaway on why an air pocket, basically lesser patients need to get dosed in clinicals versus what had been expected prior to the FDA Fast Track. Is that the right way...

Or yes, whether it's less or not, technically, yes, that's the answer, but it's basically a whole phase of trials that is no longer needed because they basically condense the 2 into 1. So at the end of the day, that means less patients, yes.

Got it. So I mean you can sort of frame this as a short-term pain for long-term gain if these programs get approved since I think the approval would come sooner. So I guess how should we handicap the likelihood that either of these gets approved? I know that's a very general question. And obviously, you're hoping that they both get approved because that would be great for patients, great for you, for everyone. But should I think about this as like a completed Phase II? Or like what's the right way to think about it?

I mean I couldn't give you an odds or what this does in terms of probability of success. I think it's less -- I mean, it's obviously good news because the data was strong enough to accelerate. But I don't think it necessarily means that it's chances of now surviving Phase III is greater than it otherwise would have been going into Phase III. Obviously, skipping a Phase II helps a lot. But in terms of comparing it to other Phase III, is it statistically any better or not, I'm so sure I've ever read anything that says that.

What it does, though indicate is just how important these therapies are to society in general because of the very large indications they are and the importance that the administration puts on these 2 therapies as well. So bottom line is the NPV, as we call it, of these 2 customers has gone up dramatically because -- not only because of time value in terms of holding it in, but not only even if -- once it, let's say, does get approved, the time it will take to get through that approval process should also be lessened. So it's more about the NPV going up because how do you want to risk adjust it, it comes in considerably sooner than what otherwise would have.

That NPV going up, is that just because of the time line? Or is it also this Fast Track indicates to you that there's a higher likelihood of...

From our perspective, we're saying it's because of the time line coming in closer. I don't think any of us are going to try to guess whether this -- I mean, statistically increases the odds or not. I can sit here and tell you high level that it makes sense that it does, but I could also counter that and tell you many reasons why it doesn't. I'm not an expert in here. We're not experts in FDA approval process. So I'm not going to tread that water, but all I can say is that it's a net positive, no question about it.

And we would have been having the same conversation, knock on wood, a year or so from now, had they gone through the normal phasing. And we learned this from Wilson Wolf. Wilson Wolf is earlier into this, they got 5 or 6 that are already in commercial very recently. And so they've been through this before, and they kind of saw this coming and realized, hey, this J-curve of exponential buying of proteins and/or bioreactors for clinical trials is true, but there is a bit of a cliff that occurs between final Phase III approval or final Phase III results and actual FDA approval and commercial launch.

And that gap can be 18 months to 3 years. It doesn't mean it goes to 0, but it definitely diminishes to 0 because you're basically selling product just for production runs and testing and so forth. But there is a bit of a chasm there that occurs naturally. And we've been talking about that chasm as it pertains to these 2 customers likely a year, 1.5 years from now, but it got pulled in. Now we're talking about it now.

Right. So obviously, you already touched on a lot of investors are trying to figure out which therapies these could be. Is there anything you're able to share on the population size, the [indiscernible] of interest? Just sort of anything to help investors sort of frame...

What I will say is in terms of what we think it means to us based on these disease states and the potential that, call it, the midpoint of the ramp of the potential commercial ramp is somewhere between $40 million to $50 million of revenue to us for each one of these customers. I say mid because it's hard to say exactly if it ever gets full. But if you look at a long-term 10-year kind of commercialization ramp, we believe that halfway point there would be $40 million to $50 million of revenue for us. Not necessarily in time, but in terms of potential patients to be served on an annual basis.

Okay. And if I run through the unit economics, is that on just the reagents business, which I think, correct me if I'm wrong here, is about 5,000?

This is just on the GMP protein part of our business.

Right. So that's about 5,000 of GMP proteins that are sold per therapy. So it's like...

I don't have the exact numbers on this one, but when we put out those numbers, they're usually as they relate to the CAR T cell therapy, which is in line with where the GRx participates. I don't know if we've given out figures on the regen side. These are -- that's the other thing I'll point out is that these are actually -- these aren't CAR T therapies. I'll give you that much. They're actually kind of regen medicines, so iPSC type therapies, stem cell. And they do involve a lot more protein just by the very nature of having to grow up a lot more cells for these type of therapies. So it is a higher -- it's very likely a higher content per dose for us, which is another reason why the numbers have been so big even during clinical trials.

That is super helpful. I know it's hard to give a lot of visibility. That's really helpful data point. And so when would you expect to see the commercial ramp if one were to get approved? Would that be a fiscal '27 event, fiscal '28?

You can tell it different. I mean, our base case is fiscal year '28 to start to see that launch. That still assumes they get through Phase [III] trials this year and then there's an 18-month or so gap to get to a formal approval, which is a lot shorter still than 3 years. Could that be sooner? Potentially, but that's our best -- that's our base case right now, it's fiscal year '28 to start the commercial ramp, yes.

Okay. And in terms of your level of visibility that you actually have within these programs today, do regular communication in terms of what stage they're in, how much inventory they're holding, I guess what is communication with these different customers?

They generally don't hold inventory. So they'll buy as they need, but they will often buy enough for whether it's a whole trial or a large of a population set that they feel comfortable doing simply for consistency purposes, even though we have amazing lot of consistency that they want to take out any possible -- possibility for variables as much as they can. So that's why they tend to buy in very large quantities and it tend to be very lumpy. But is it one -- I think some customers buy enough for one whole run or one whole trial, some because the trials are so large, they can't necessarily do that and they'll buy in stages. But they generally don't hold inventory.

And I guess how do you deal with the lumpy business? You just add more lumps. I'm sure you...

That's the idea you need. Well, I always joke that even our RUO reagent business that we often refer to as our run rate business, if you look at it on a -- we have 500,000 SKUs, right? If you look at it on a SKU by SKU level, it's actually a very lumpy business.

It actually is a 10,000...

But there's just so many of them that it evens out and someday, that's what we think our cell therapy business will be like.

Right, right. Great. And so in terms of sizing, it's also really helpful, the $40 million to $50 million each therapy could be when commercial. And I guess that's versus if you just size the headwinds that you quantified for us here in fiscal '26, and it gets you to, I think it was about $26 million from these 2 programs i fiscal '25. So I just want to make sure I had those numbers right.

You're in the right ballpark.

Got it. And they're pretty evenly split, so call it $13 million-ish per program? Or is [indiscernible] than the other?

We've not given that information out now. But yes, I mean, they're both. Relative to the other 800 programs we have, they're both significantly large. I think one is a little bit bigger than the other one, but it's -- we haven't necessarily given the magnitude on either one.

Got it. Yes. I guess I was initially surprised when I heard that 2 were essentially Phase II projects were such a large portion of the cell and gene therapy business because I know there's also a huge ramp as you go from Phase I to Phase II, II to III. But I just wanted to touch on customer concentration a bit. So based on that $26 million, it seems like these 2 programs are about 40% to 45% of total GMP reagents for Bio-Techne. I guess how do you get customer concentration so high within Phase II programs? And I guess what does that say for the future...

Well, Yes. I mean, admittedly, we were a bit surprised by this, not necessarily surprised this quarter, but over the last 6 quarters, we've been surprised just how much these 2 customers have seriously ramped. And actually, I'm surprised just because it's -- as we learn more about what these customers were working on, it became more obvious as to why that was the case. But yes, it just gets back to that these 2 are -- they're essentially outliers. I mean, we've always said our typical cell therapy customer, we think is somewhere between -- on average between $5 million to $10 million of revenue on a commercialized basis. And these 2 customers were basically there in a Phase II -- Phase I, Phase II basis.

So it does give you a sense of the uniqueness of these 2. But it also tells you the scale potential, especially for our -- we don't -- we talk about cell therapy a lot like it's one thing, and we talk a lot about the CAR T side of cell therapy, immunotherapy because of the linkage with our GRx. But we actually are the world leader in GMP proteins for the iPSC regen medicine space. And the applications for that actually argue dwarf the applications for CAR T. There are a lot earlier stage work being done right now, but the applications are larger.

So arguably, the eventual addressable market is much larger. And I got back -- I mentioned this earlier, because of the complexity of the proteins and the number of proteins that are involved in developing therapies from iPSC cells, it requires a lot more of our proteins on a per dosage basis. So could another one of these pop out to work a few years from now that we didn't see coming? Sure. That's always a potential because we don't -- for the most part, we don't know exactly what our customers are working on because they don't tell anybody. But I would necessarily model it that way.

We've been -- we've modeled it that, hey, roughly just using -- because this is still -- cell therapy is a new area. So will it be statistically the same as biologics? Who knows, but that's the best we have to go off of. So looking at the stats of biologics, roughly 5% kind of make it through and you take 5%, you make it through it and you kind of take an average of $5 million to $10 million per customer on a commercialized basis, and that's how you build up our revenue base to several hundred million over the course of 10 years or so. These 2 are definitely outliers to that model.

Yes. Got it. And then just on the timing for potentially, I guess, your base case being fiscal '28. I think I mentioned on a call I had with you guys, fiscal '28 could be setting up to be a really, really attractive year, bringing on Wilson Wolf, potentially having one of these therapies, which is going to be at a very depressed level, ramping all the way to commercial. I guess can you just speak to -- I know it's super early, but is this the right way to think about it? Could it be a really strong year for...

I mean I hate to get all giddy about 2 years on the road when we're struggling in the current quarter. But yes, absolutely, that's why we're still so excited about our opportunity for sure. And even since you mentioned Wilson Wolf, so at the latest, we will own that at the end of calendar year '27, hence fiscal year '28. And there's always a potential to strike a deal a bit earlier there, who knows, but -- or even for him to his target -- for [indiscernible] to hit his targets, which he still thinks he can at this point, we'll see.

But what we're -- what I'm getting at, I guess, is that the customers, he's already got 5 or 6 in commercial. He's in half of the clinical trials in T cell trials already. So there's definitely potential for more between now and the 2 years that we ultimately own it. And I guess what I'm getting at is the real inflection point in that business is more likely -- it's most likely to occur post our ownership. So as fast as it's growing now, and it's predicted to be 20% plus growth here in the near term and then continue to accelerate as these commercial programs ramp, the real heavy steep part of that ramp, we think will likely occur after we own 100% of it.

Yes. Great. And the customer concentration piece that we were just talking to, is it mostly because they're working on stem cell therapy, you said the economics are higher there? Or is this just a much bigger patient population than some of the, I guess, the average within your...

Perhaps are you referring to the Wilson Wolf?

Go back to those 2 customers?

Okay. I'm sorry, say the question again.

So the reason that within Phase II, there's such high customer concentration, even though it's only Phase II, not one of your Phase III programs. Is it because of stem cell therapy and then not CAR T because you said that...

It's not -- it's one of the reasons, but it's not by far the only reason. I mean, is our average stem cell customer a little higher content than our T cell? Yes. But that's not the main reason is, we believe, it's because of the population size potential for these 2 disease states.

Got it. And then I guess just zooming out on the broader cell and gene business. What percent of the businesses or I guess, what percent of programs are stem cell versus CAR T versus any other bucket that you put it into?

I don't know if we -- I don't think we've split it out that way. If I had a guess, though, I would say that on a pure program basis, there's probably more of a -- we call immunotherapy, which includes CAR T and killer cells, all that stuff. I do want to bet that the number of customers are probably bent more towards that side just because it's further along in its development. But our actual revenue is more bent towards the regen side just because it's much heavier content per research.

Got it. Great. And then the last one, can you just remind us how many programs you have total in the cell and gene therapy business? How many in clinical trials, Phase I, II, III?

Yes. So again, we've reached 700 customers, which is up from like 550 a year ago. So continue to add a lot of customers. But only about 85 of those or so, Dave, I think 85 of those are known to be in clinical trials and roughly, call it, a couple of dozen are in Phase II, Phase III.

Got it. Okay. Great. I think we hit everything. I can open up to investor questions in the last minute or I can give it back.

Great. Any message you want to leave us with?

Well, I love some of your other comments and observations around what -- which is one of the reasons why it's so excited to be about our company and not 5 or 10 years from now, but maybe next year or the year after that. And we haven't even -- that's just in the cell therapy piece. Our ProteinSimple franchise, we continue to innovate. I mean we spend pretty consistently 8% of our revenue on R&D, and we've got new product launches across our entire portfolio. We have a talk about, but we can't know today around our AI -- new AI-developed proteins, which have attributes that aren't found in nature and can therefore be patented, and we're taking the lead in that. That impacts our core.

We have these GMP ProPaks which automates the process of putting the precise amount of GMP proteins into the Wilson Wolf container. That's enabling us for the first time ever to actually convert a Phase III customer to our proteins. We've got new product launches like Leo and ProteinSimple, and we got higher sensitivity cartridges that are going to address our neuro market for SimplePlex, proximity protein-to-protein identification for our Spatial. I can go on and on, but all of our major product categories have these new product launches that have either just launched or are going to launch in the next quarter or 2, which is just going to enable us to continue to take share and expand our market.

Great. Lots to look forward to. With that, thank you so much for the time.

Thank you.

Thank you.

Okay. Great. We're going to kick it off. I'm Tycho Peterson from the Life Science team. We're pleased to have Bio-Techne with us today. Welcome.

Maybe kick off with a little just a quick look back on the fiscal first quarter, some gives and takes, but you did talk about kind of core growth up 1%, maybe setting aside the cell therapy kind of noise here. We'll unpack that in a minute, but just talk a little bit about what you saw in the quarter.

Tycho, thanks for having us. Yes, the overall growth for the quarter was negative 1%, a little bit -- a result that doesn't really reflect our underlying performance because you already mentioned we were 1% positive if you take 2 larger companies that received their Fast Track designation and therefore, didn't order this year compared to last year, and that really drove a negative 200 basis points on the top line.

But underlying, if you think about the end markets as well as our 4 growth verticals, the end markets that did do a little bit better than we had expected was definitely large pharma, 30% of our revenues, and we continue to be in the double digits performance there. And last year, we -- or last quarter, we were actually a little worried about the rhetoric with some of the tariffs and most people were pricing that we were worried that they would tap the brakes, but they didn't. And that was a positive for a quarter.

Overall, we saw some stabilization in the academic and the biotech markets as well. And then from our 4 growth verticals in cell therapy, other than dynamics we just mentioned, we had a very nice number of customers we added to the pipeline. We had stabilization in China, and we saw some real nice results in our spatial biology business. And that really was on the positive side for the quarter.

And maybe we could just unpack the pharma strength geographically, anything to kind of call out there? And how is the kind of the -- how have the discussions evolved on the back of some of the onshoring announcements?

For large pharma?

Yes.

Yes. Well, as I said, large pharma was continued to be in double digits, broad strength. We could see even our core consumables, which are usually growing with market were back in mid-single digits. So that indicates a healthy overall activity level across the board. And then our -- as I mentioned, our 4 growth verticals, very nicely aligned with the projects that are being pushed forward right now in large pharma.

And specifically our proteomic analysis tools, all 3 of the platforms are taking share and are definitely benefiting from the investment dollars that flow back into the R&D activities for large pharma, and that's certainly a tailwind for us.

And any geographic color? I mean, obviously, you've had kind of this out-licensing trend from China. So how about pharma globally? Where are you seeing the strength?

Yes, it is actually on both sides of the ocean in Europe and U.S., very healthy. We will see what the deglobalization and/or the investments in the U.S. particularly will bring that might shift this dynamic a little bit. But for now, we saw a healthy growth in the U.S. as well as in Europe. And then on the biotech side, it was definitely a return to solid growth in China.

And biotech funding obviously picked up a lot in October. I think you've made some comments about maybe faster conversion than a typical 2 to 3 quarters. What's kind of behind that?

Yes. Over the last year, the tougher times in biotech, you clearly could see that there was a rotation in the companies, even though, let's say, in the prior years, when there are new companies getting funding, they might have to start with getting buildings, building clean rooms and building out their facilities.

Right now, we've seen over the last year, definitely several of the earlier-stage companies having to close their doors, some of the mid well-funded companies certainly being careful with their spend to make sure that they don't have to close their doors and some very well-funded larger ones that made nice progress.

With a recapitalization of the industry, we believe that the ones in the mid that have been kind of kind of worried about spending, those are the ones that get funded. And therefore, there will not be spend in buildings and clean rooms, but more immediately into accelerating programs and/or switching on new programs, which then definitely translates to instruments and consumable growth.

Got it. Obviously, a lot of talk on reshoring here. That's maybe a little bit further out and a little more large pharma than biotech. But just talk a little bit about how you think you're positioned over the next couple of years as maybe more capacity comes back to the U.S.

Yes. The reshoring will certainly be of influence. I mean, I call it deglobalization because it's not only coming to the U.S., but overall, you see that region for region manufacturing is becoming more common. And knowing that there will be more manufacturing coming to the U.S. is obviously a good thing. We have good sales coverage.

We are -- we have a good brand name in the U.S. And we have been taking share in Europe and Asia. So no reason to not also do that in the U.S. Overall, I look at it as the deglobalization. If you have one large manufacturing plant that you obviously run it really, really efficiently. And your inefficiency sits in the fact that you will have to ship globally and through different borders and more paperwork. And that is not revenue or spend that comes into the life science tools direction.

However, if you manufacture locally, now your shipping lines are shorter, but you have several manufacturing plants, and that will have some inefficiencies and that you will have duplication of instrumentation, that you will have more QA, QC as well as validation runs. And that inefficiency will sit more in the life science tools spend. So overall, I think it's a positive for the industry.

You mentioned share gains a couple of times. Maybe we could just jump to innovation and talk about some of the drivers behind that. I know you've got the new proximity scope in spatial, the automated cartridge for Simplex. Maybe talk on some of the recent developments. And then as we think ahead to '26, are there big new product launches?

Yes. I think we certainly always have made sure that we want to drive our growth basically based on innovation and staying ahead of our competition. In our 4 growth verticals, we've really made very nice progress when it comes to innovation, and we should because 8% of our revenues get reinvested into R&D activities.

And if I go vertical by vertical, we have the cell and gene therapy where you know all about the upcoming acquisition of Wilson Wolf. But to make sure that we strengthen our offering, we certainly have looked at offering more and designing more AI-generated proteins that have ultra specificity or are more heat stable than others, and they're patentable and they can command a price premium.

So we're very excited about that. In the meantime, in that same business, we've launched the POPEX, which is basically a different packaging for your proteins that you then directly inject into, for example, a bioreactor like the G-Rex. And that form factor makes human error less likely. It also decreases the risk of contamination. And that's a value proposition so high that even companies in later-stage clinicals are now considering changing the usage of their GMP proteins based upon that form factor.

So we have one real nice case in point where a third company in a Phase III clinical swapped to our GMP proteins because of the POPEX form factor. So that's an innovation we're very proud of. If I look at the protein analysis, we have announced or will launch in our second half of the year, the Ella cartridge for ultra sensitivity. That will -- Ella ALA was always very preferred for the small, small form factor, ease of use, speed, consistency but the sensitivity had a certain ceiling, and that would make it less likely to be used in neuro diseases as well as in inflammation.

With this new cartridge, which will enable it to be 2 to 5x more sensitive, that is a market we can now go after with the other value propositions that gives it a very interesting future. And that's just the Ultra -- the Ella.

On the LEO side, the Wilson Wolf side, we launched this instrument LEO, which has 4x higher capacity than our previous generation, but also more precision and more detection abilities, absolutely a throughput machine for larger pharma and lived up to all the expectations. And I might have mentioned in the past that we -- the expectations and the rollout commercialization was done in a much more how do you call it, stable end market situation.

And now we are -- have seen some more turmoil in our markets in the past couple of quarters. And we still have been hitting for the last 3 quarters, all our targets as they were set in better times. So that's really a test to this instrument. In the spatial, you mentioned proximity scope. It's a new lounge that basically allows you to look at protein-protein interaction and very important lens for researchers. So with the COMET instrument and our RNA detection as well as the protein detection.

And our antibodies and our protein-protein detection, we are really ahead of the pack if it comes to fully automated full multi-omic capabilities in spatial. And I feel -- we feel -- I feel that we are really well set to continue to outcompete in the translational section of the spatial biology market.

And then last but not least, molecular diagnostics. There, we launched exosome-based ESR1. ESR1 breast cancer marker, resistance breast cancer marker. So it will tell you when to change therapies. And with that, doing that on the right time, you can double life expectancy of the patients, very important innovation. And then last but not least, we have an Oxford Nanopore-based genetic testing kit that made it to the market, which is also a combination of very hard to sequence genes.

So NGS is having a tough time with those genes. And we have an elegant solution to really quickly read those difficult but important genetic diseases genes. So that's just a small grab of all the substantial innovations we've brought to market.

And maybe we could segue into inorganic too. You did Lunaphore, I think, 2.5 years ago. Just talk a little bit about. You've said M&A remains a priority. You obviously mentioned Wilson Wolf. Talk a little bit about current backdrop for M&A, how you're thinking about kind of valuations, other target areas? And then what are the gives and takes on whether Wilson Wolf gets done? Yes.

Yes. Overall, our highest priority for capital deployment is M&A. We had a year or 2 in which we did not see high-quality targets coming to market. Right now, that has improved. So there's a better high-quality targets that are available and pricing expectations are elevated, but not observed anymore.

So they're improving. We are 0.6x leverage. So we have -- we definitely have appetite and capacity to do -- to be active in the market. We would love to do so, but we will be, of course, disciplined in not doing anything we would regret. We are very good in evaluating targets from a technology point of view and integration capabilities are very, very good. Good process and a good M&A team.

So ready if we have the right opportunity. We like strengthening our portfolio in, for example, cell therapy. Organoids is a real dimension that's really taking off across Europe and the U.S. There are some nifty things we could add to that portfolio. And then our protein analysis instrumentation, there's always some room for additional technologies in there, too. Those will really be our focus. The core, other antibody types, protein types, there are some new entrants there, too, new capabilities that we could add to our portfolio very nicely.

Spatial, I think we are really well off right now. We have a very good offering, and that's true for our molecular diagnostics business as well. So if there's M&A activity, you should probably think core and the 2 that I just mentioned.

And I guess does the optionality around Wilson Wolf kind of limit your ability to do bigger deals? Just how do you think about that?

Yes. To the contrary, actually, it's obviously -- latest, it would be December of 2027 that the asset become ours unless there are milestones hit, and then it will be earlier. Nonetheless, we, of course, did our homework in what would be our capacity quarter-to-quarter and in between.

Fortunately, with the leverage I just mentioned as well as our debt capacity, we could easily do a deal or 2 typical for our -- in the size that is very typical for us in between. And the interesting thing is that with the top line as well as the bottom line for Wilson Wolf, is that you would think our capacity would go down for temporarily, but it actually increases our capacity to do deals. So it won't be to the detriment of our overall deal activity.

Maybe we could just touch on GMP proteins. You've had some headwinds tied to a small number of customers there. Just talk about the size of that GMP business today. What headwinds are kind of baked in for the year? And how is the business growing outside of those few customers?

Yes. So last year, we talked about the overall cell therapy business for us being $80 million run rate. The GMP protein section of that is $60 million. Q1, Q2 last year, we grew 60% and 90% in cell therapy, and that was pretty much driven by large orders for obviously, companies in clinical studies that have larger indications, so large populations for their clinical studies.

Not by coincidence, those companies have received Fast Track designation. That means typically that, of course, the FDA will prioritize your review and you can submit your documents while you're progressing through your program rather than at the end of it. And in the meantime, you typically get -- you get allowed to have a little bit higher risk by reducing the number of clinical studies or the number of clinical patients you do because there's such a health benefit at the end of it.

So therefore, very much aligned with the large indications, also aligned with the rhetoric in trying to make America's -- Americans healthy in the big indications. So this is really good news for these companies. For us, we will, therefore, have a little hiatus in -- during a period where these companies will not order proteins because they have enough to finalize the clinical studies.

And that will give us headwinds. We had 200 basis point headwinds in Q1 and 400 basis points in Q2. The second half of our year, we will still have some tailwinds. They will be abating quarter-by-quarter, and they will be fully out of our comparables after our Q4.

And any change on the competitive front with new entrants coming into the market?

In cell therapy? No. It's pretty much the same. There are 2 European players that were ahead of us in this market, and we've competed with successfully. We have really carved out a stronger position in the regen med area where the more complex proteins are of importance.

And we have 49 years of experience in designing, but also manufacturing very complex proteins in very consistent ways. So that's really where we carved out our strength, and we are market leaders there. And I see that with -- especially with the new efforts in AI designs enabled further design of proteins that we can continue to have that advantage. And that's also where the market is heading. So we feel very comfortable with the competitive landscape.

Maybe can you just dive into that a little bit, how AI is helping on the protein design front?

Yes. Of course, we have a -- after 49 years being in this space, vast databases on different characteristics of the proteins that we have designed and produced. And we always -- we're proud of being able to characterize them and make sure that there's lotto lot consistency and that we know how to make and design more complex proteins.

And with those databases, combine that with public databases, you can start looking at what are -- how do you design certain characteristics of proteins in there. And we all know that stability and heat stability is a very important aspect. Specificity is always an important aspect. And utilizing AI, you can increase your specificity, you can also design in more heat stable characteristics.

And therefore, you get higher performance proteins that actually do not exist in nature, and therefore, they are patentable. So having the database and the know-how, having the ability to design them, but also the know-how how to produce them really gives us a competitive advantage that we then can translate into better performance for the customers and therefore, also being able to command a price premium.

Interesting. Maybe on pricing, you did notice or call out some promotion activity on the protein science side of the business in the recent quarter. Can you maybe just talk, was this to take share, protect share? And how broad across the portfolio was this?

Yes. It was in the protein sciences where we did promotions. And you can see them in the different websites and LinkedIn. You can see our promotions. They are typically grants. So a company would start a new program or a academic institution, they start a new program, and we could -- we assign a 10k grant or so in which they get to use our proteins.

For us, with these proteins being super high margin, it's not very expensive. It's better than just lowering your prices across the board. That's not very specific. We believe that in constrained funding environments, fewer programs get started, but the programs that do get started are usually of high quality because they obviously have something special to them. And that could be the clinical indication or application or scalability or -- but they can also just be -- that it's something that has a high NPV.

And therefore, we want to be part of those programs. And as you know, the moment you start generating data utilizing certain ingredients like proteins or the G-Rex, right, the moment you start generating data utilizing those, the further you get into those clinicals, the stickier it becomes, right?

The customer usually wouldn't want to swap any ingredients anymore once they have clinical data. So we feel that it is seeding the market more so than just dumping price. And you can see that last quarter, we had 550 cell and gene therapy customers for our GMP proteins, and it's now bumped up to 700. And much of that is through those grants. And we hope to seed these high-value programs right now so that when the funding gets better, these companies will continue utilizing our ingredients.

And is that mostly for biotech or academic or both?

Yes, both. Both sides, we've done these grants. And again, there's a little review board in the company that looks at which of these programs make -- really make a lot of sense and have a certain promise. And then we collaborate with these customers to, even in tough times, start exciting programs.

And maybe just on that, just touch on the academic backdrop. I mean, grants have been flowing despite the shutdown, more consumables than instruments, obviously. But just talk a little bit about what you've seen in the current environment and how you're thinking about the calendar year ahead?

The shutdown, government shutdown...

Yes, more like the NIH outlook, right, on a flat backdrop presumably.

Yes. So as of February this calendar year, it was relatively messy in the U.S. academic. Fortunately, European academic was mid-single digits and stable and is doing well. And I think that might even improve over time. U.S. academic was relatively messy, and we went from negative high single digits to negative low single digits. So there's sequential improvement.

We see that our core reagents, which usually indicate overall activity level were more stable this quarter in academic. We saw August, September having finally some positive year-over-year numbers when it comes to the outlays of the grants. And we definitely keep real close -- a close eye on the -- not only the number of grants, but the type of grants, right?

So from grants very much focused on infectious diseases and immunization, you can see that there is definitely a swing towards the oncology and neurological diseases, which is way more -- much more aligned with our portfolio which is good. So then the proceeds are coming back into the market. The use of proceeds are coming our way. And then if you look within the grants, what technology usually money gets spent on, which used to be very NGS heavy is now much more in proteins and proteomics based. So also within the grants, the money is flowing a little bit more in our direction.

So we see very positive signs in the NIH markets -- the academic markets. And then the close down of the government was very much noticeable in like institutions like CDC and NIH, but those are definitely small endpoints for us on the overall company perspective. And that's less than 1% exposure, and we've really not changed our forecast or our feelings about the balance of the year based upon that.

And does the push toward more multiyear grants make things better? I mean you talked about better funded research and maybe better projects getting funded. So if labs have visibility for a couple of years now, fewer grants, but maybe better visibility?

Yes, I would agree. I think that when you can plan out your grant and you know that there is a continuation of the program definitely helps you with scheduling your purchases and when you get to certain needs and when you need new instrumentation. So I think that's a benefit.

And we've got just over a month left in the year. Any thoughts on kind of budget flush in the biopharma side in the year-end?

Yes. Well, it's likely -- it could be -- it could definitely happen. We don't talk a lot about it because at the end of the day, only 10% of our revenues are related to instrumentation. 80% is consumables, 10% is service. So the service and the consumables, so 90% of the company are not influenced by budget flush. So therefore, it's not a big theme for us.

Great. We'll leave it at that. Thanks.

Thank you, Tycho.

[Audio Gap]

Is intended to be more of a fireside chat, so I'll stop along the way and poll for any questions. So feel free to chime in as needed. And with that, I'll turn it over to you all for any opening comments that you want to make, and we'll launch into Q&A.

Yes, sure. Thank you, Mac. It's always a pleasure to be here. Stephens is always one of our favorite conferences to attend. Just real quickly, I can maybe start off with just some of the highlights for the quarter for us that we just finished in Q1.

If we look, first of all, our pharma end market continue to perform very well for us. We had double-digit growth in pharma for the third quarter in a row. That represents roughly 30% of our revenue for those keeping score. We saw continued strength in our -- or I should say, we saw some rebound and strength in our key core pillars, growth pillars, that being our ProteinSimple franchise, third or fourth straight quarter of double-digit consumable growth. And we saw momentum pick up on the instruments in the back half of the quarter into October, very encouraging to see.

Our spatial biology franchise also appears to be turning the corner. As a reminder, our spatial franchise is probably the most heavily indexed of our product portfolio to academic and small biotechs, which have been the most -- end markets under the most pressure. And as a reminder, in our Q4, we had low single-digit declines in that business for us, which we were actually pleased with considering the overall market. But we saw that flatten out in our Q1. And more importantly, we peel the onion back one level [indiscernible] consumables actually increased low single digits and our instrument [indiscernible] actually improved double digit. So we see the spatial turning a corner and returning to growth as well, which is encouraging.

We saw continued growth in China, now the second quarter in a row of growth in China. We're forecasting growth yet again in the third quarter. So it looks as though that market has finally bottomed and is starting to progress forward. And I think most exciting, although from a quantitative perspective, that's not exciting right away, is with 2 of our largest cell therapy customers receiving FDA Fast Track Designation. And that -- these are very large customers for us, very large designations from a disease perspective and really increased the NPV, call it, of these 2 customers to accelerate the approval process. That's the very good news from an intermediate and long-term perspective. From a more short-term perspective, it does create a headwind because they essentially have to skip a clinical trial and don't need any more material for that. So that was a big news, a big swing item for us in the quarter from a growth perspective, but overall, a very positive story for that part of our business.

And then finally, on operating margins, we see that as a highlight as well. We expanded operating margins by 90 basis points in the quarter despite the tough conditions on the top line. Did that through a combination of portfolio management. As you know, we exited our exosome business in early Q1. And we did a lot of productivity initiatives around factory consolidations. And so together, those 2 items were basically enable us to not only hold our margins, but expand our margins in a tough operating environment. And it also sets us up well for future margin expansion as the markets turn.

Well, quite a bit to unpack there. I think you kind of front ran about half of my question.

I'm setting you up for some fingers.

Anyways, on your 1Q '25 call, you mentioned a little bit of a pickup in biotech demand as you just highlighted. How would you characterize the current trends across your core end markets, say, large pharma, biotech, academia? And how do these compare to what you saw exiting FY '25?

Yes. So as a reminder, we exited FY '25 our Q4, overall, we had 3% organic growth that quarter. We had over 4% organic growth in our Protein Sciences segment. And we exited Q1 with a minus 1%, although adjusting for these 2 customers, it was plus 1%. But yet, hopefully, it comes across. We sound much more upbeat about the future despite that 3 or 4 months later than we did 3 or 4 months ago. And why was that? And you may recall, for those who listened to our call at the end of Q4, it was one of the most cloudiest times that I can remember in my 20 years in this space with regards to the immediate future because there was still really not much resolution around what was going to happen with NIH funding.

Biotech funding as of the end of June was down 30% year-over-year. And then the newest headwind was literally a week before our earnings call, the administration put out new threats on large pharma around MFM pricing and around 100% tariffs if they don't reshore things of that sort. And pharma had been leading the recovery had been leading the growth. And so we were concerned about potentially that softening up a bit going forward. So that was, I won't say bleak, but short-term, very cloudy forward view that we had 3, 4 months ago.

What's encouraging now when I look at those end markets is that, first of all, I'll start with pharma. Those potential headwinds in clouds luckily appear to be short-lived. Pharma stepped up pretty quick and pretty bold and put some pricing mechanisms in place, both for GLP-1 most recently, but also for Medicaid, seems to have appeased the administration are also committed -- many of them committed to do more onshoring activities in the U.S., which also appears to appease the administration. So we're not hearing much, if anything, any more about it. MFN [indiscernible] or tariffs. So as a result, we had another double-digit growth in pharma. And if anything, the future looks more clear as opposed to less clear with regards to that important end market.

When we look at academic on the other side of the spectrum, as a reminder, U.S. academic is roughly 12% of our revenues. And what's changed in the last 3 or 4 months is both -- the appropriation committees of both houses have essentially recommended a flattish NIH budget, which is actually great news considering the 20% to 40% cuts that were desired by the executive branch administration.

Now we're not completely out of the woods here yet, obviously, because we still don't have a bill that's passed and how the Trump administration will actually administer that budget remains to be seen, but it's a major headwind that's -- at least there's more clarity around what the absolute budget size will be, and it's a step in the right direction. And we saw our behavior of our academic customers also calmed down, I would say, the anxiety level came down. And we've seen a nice steady trend where if you go back to February, March when the hammer first came down on NIH, we had high single-digit declines in academic U.S., level off a little bit in our Q4, June quarter with mid-single-digit declines. And the most recent quarter here in Q1 was low single-digit declines. So it appears as though our customers are getting more and more comfortable with the fact that it's going to be a flattish budget as opposed to a deep, deep cut.

And then last but not least, biotech. So biotech has been hanging in there very well for us. For all fiscal year '25, we had flattish to low single-digit growth in biotech despite the 30% year-over-year funding cuts, and -- or yes, less funding, I should say. And we kind of forewarned in the last quarter that, that spread, although we do believe we're taking market share in biotech, that spread was probably not sustainable. And we know there's a lag between funding and spending anywhere between 6 months to a year. So we were concerned that those headwinds were still yet to hit us. And in fact, they did in Q1. We had probably the worst quarter in small biotech that we've had in a very, very long time at high single-digit declines in small biotech.

But we actually feel better about biotech going forward than we did 3 or 4 months ago because for 4 months in a row now, I'm sure you all see the stats, biotech funding has actually increased and increased steadily higher and higher each and every month, where October, I think, was 80% growth year-over-year, something like that.

So I don't personally think that's a coincidence. Biotech is the most -- it's got the highest beta in terms of investors, it's a higher risk profile. So they're kind of all in when they see the clouds are clear in pharma and academic, which is their exit and their innovation pipeline. And they also are quick to refrain from investing and perhaps going elsewhere like AI when there's -- when it's cloudy in pharma or cloudy in academic. So to us, it's not a coincidence, and that's kind of what we expect to see. We probably won't see that recovery in biotech for another 2 to 3 quarters down the road. That sets us up well for sure for fiscal year '27 as long as that continues. And it should allow at least our biotech end market to stabilize and not continue to accelerate declines.

Got it. And then maybe stepping back just from your end markets, China has obviously been part of the conversation, too. How is China today shaping Bio-Techne's growth trajectory over, call it, the next 12 to 24 months from both a regulatory and competitive standpoint and where do things stand today?

So from a regulatory perspective, not an issue because almost most of our products, if not all, are sold in the RUO space. So there's no regulatory issues with our company with regards to China. We -- the good news is that we already talked about this is 2 quarters in a row of growth in China. We're expecting a third one this coming quarter. So we believe China in the next 12 to 24 months will now be a net contributor to growth as opposed to a detraction from growth like it's been for the past 2 years. It's encouraging that the decline in the investment in life sciences in China over the past 2 years has not been because of a lack of change in priorities by any means of the government. It's been more about the overall economic situation.

So it does appear that it's starting to stabilize. And it doesn't surprise us that the places where money will go first is in life sciences. And that's what we're starting to see is that funding return back from the government, but also seeing a resurgence in smaller biotech activity and CRO activity, as we've probably heard about the out-licensing and so forth and things like that, that are also taking place and accelerating. So we think the China market recovery this time is for real. But it won't be a V-shape like we saw in the old days. It's going to be a slope out, but we're still fairly confident that -- and I think we're the only ones that say this in our space that China -- if you look 5 years down the road, China will be the fastest-growing region in life science tools, and it will be for us.

Maybe I'll just add one thing. I think one of the big trends is the advanced therapies innovation that's happening in China. And so you kind of had the bellwether with Legend and CARVYKTI, the partnership with Janssen. But those deals have kind of ramped and the local companies want to work with a multinational like Bio-Techne who's already well penetrated into the space as well. So I think we'll get really preferential usage in China itself, too. So I think all of the underlying elements that Jim kind of outlined, we're really well positioned for the advanced therapies innovation that's happening in China as well.

And I didn't address the comment or question around competition there, local competition. And 12 years I've been at this company, we've always been hypersensitive and concerned about local competition in China because that's how China is -- they are very quick to adapt and innovate and sometimes copy, and they're very good at all of that. So we're always very kind of hyper paranoid about that.

But the strength of our brand and let me just summarize it this way. We visit China at least once or twice a year. We visit many customers of all sorts. And the question I'd like to always leave the customer with before the meeting is over is, can you help us understand what your top 3 or 4 or 5 buying criteria are. And almost hands down, every customer says almost an exact same order, quality, consistency, availability, then price, then is it made in China or not made in China. And what that tells me is that regardless of where you are located in the world, a scientist is a scientist, and they want their stuff to work. And at the end of the day, the reagents are -- especially the reagents, but even our instrumentation are some of the lowest cost parts of their experiments, and they don't want it to fail because of that. And so that's what always gives us encouragement that we're still very well positioned in China.

And yes, there's some formal competition there, but there always has been. But there's also not enough of it in terms of the actual needs and demand of what the future of life sciences is in China. So there will always be a place for multinationals like ourselves. And as long as we continue to live by our quality and live by our brand mission, our competitive strength will be the same in China as everywhere else in the world.

Got it. I appreciate the color there. Maybe diving into the individual segments themselves. As you highlighted, Protein Sciences was down modestly year-over-year in 1Q largely tied to the cell therapy customer dynamic. Ultimately, customers receiving accelerated approval would seem to be a positive for tech. Could you just elaborate on why this causes the unexpected headwind in the near term?

Well, I'll talk about the headwind quantitatively that we'll talk about it qualitatively. From a headwind perspective, we talked about it last year. We were very -- we didn't call out too specific, but we did say in our -- especially in our Q2, that the 9% growth we posted last year in Q2 was more like mid-single-digit growth. And we said, hey, we had 60% growth in cell therapy in Q1. We had 90% growth in cell therapy in Q2. It was driven by our larger customers progressing through clinical trials and don't expect this kind of growth rate going forward. It's still kind of a 20% growth business. This is -- we're in this lumpy stage, right?

So we were as transparent as we could be about it, we were. And it's really these same 2 customers that gave us that upside that we talked about 60%, 90% last year relative to 20% in cell therapy is what's now a headwind this year because they're essentially not buying from us. So it equates to roughly a 200 basis point headwind in the first quarter that we just had, which is why the minus 1% is really a 1% growth when you look at everything up the entire company. And then for the upcoming quarter, we estimate it's roughly a 400 basis point headwind because it was a much larger purchasing quarter for them last year.

In the second half of the year, there are still headwinds with regard to the 2 customers, but they are less than they are in the first half. And Will, some qualitative as to what's going on with these 2 customers and why they paused buying?

Yes. I think a couple of things happened. Of course, them getting Fast Track status. They had a massive amount of work that kind of went into that, and they ramped up their inventory. And as they got Fast Track Designation, they were able to apply that kind of going forward into this last phase of their clinical trials. I think overall, it's great news. I mean the clinical results from these customers are fantastic, be beneficial, of course, to all the society if both of these ultimately are approved. And very good for us kind of long term as well.

We think about our overall exposure into the space, it's kind of a unique space. So we've ramped from about 550 customers a year, 1.5 years ago to 700 customers. We have 85 of our customers in clinical trials, 6 of those are in Phase III clinical trials. So in terms of us kind of penetrating and getting shots on goal, we feel fantastic about the position that's growing, notwithstanding our forthcoming acquisition of Wilson Wolf, which will help us actually participate even further in clinical trials. So we've got some I think welcome exposure coming on that front.

So I think on the whole, net-net, as challenged as the space has been, we've really ramped, I think, our kind of long-term potential in the space. And as I said, if these -- if both of these therapies go through, if we look at 18, 36 months down the road, we should see a pretty substantial amount of return from the work that they're doing and the work we've invested to support them.

Yes. Maybe a few things to unpack there is this mostly pertains to GMP proteins, I think that's typically seen to be a 20% plus longer-term growth construct. Do you think the environment has changed and this is less reasonable now? Or do you think you can return to that eventually and this is just more of a lump.

I absolutely think so, for sure. I think this is -- in a sense, it's a fairly lumpy piece. A big part of our efforts this last year to drive kind of further into the pre-IND and then expand our basis in the clinical space, I think without a doubt will return. There's a couple of modalities too for us. So there's one kind of getting in early and getting in pre-IND. The other one is really twofold as customers really look to industrialize growing cells, whether it's immune cell or regenerative medicine applications. We bought kind of a form function to this party for the later-stage groups and our ProPaks. We've already converted a late-stage customer onto the ProPaks, which is a way of directly integrating our GMP proteins into the workflow, and we displaced somebody else. So kind of proving the point that you can get a later-stage adoption.

The other thing that we've done is we've invested quite heavily in AI-generated proteins. So we've launched growth factors, for example, that are more soluble, more heat stable, et cetera, that would be very enabling as folks get through to wanting to scale and industrialize production of these therapies. So we're getting kind of in early pre-IND just by really broadly seeding the market and engaging customers. And then we're coming in later as well with kind of form factors that would fit into the workflow process. So our view is incredibly positive kind of going forward. And I think without a doubt, we have the market-leading position in that regard.

And I'll just add to throw some numbers at that to support what Will just said. If you actually -- because it can be lumpy, if you look at our TTM growth in cell therapy, it is a low double-digit growth despite the fact that -- the vast majority of our customers in cell therapy are going to be in that biotech, small biotech and academic space, which has been the most under pressure in the past year or more. So that gives you a sense of the underlying strength there. As Will said, we've increased our customer base from 550 to 700 in a time period that's also been under a lot of stress.

The external -- some of the reports, some of the analysts do externally do surveys and so forth should say that actual cell therapies, we take the gene therapies out, the cell therapies continue to increase in terms of the number of the ones that are in clinical trials. It's over 2,000, I believe now that are in clinical trials. And this is a more maybe qualitative thing to say, but we believe that to this kind of digestion period post-COVID, the quality of those that are in clinical trials and the quality of those that are in pre-IND and just getting -- are much better. And if you think about cell therapy, the excitement around it really kind of got hyped up and exploded during COVID. And then there was a ton of money floating around with all the COVID-derived revenues being reinvested. And every ID in cell therapy was being funded, whether it was good or bad.

And now under more constrained environment, it's got to be a pretty good indication for it to get any funding at all. So the quality of what's going in the pipeline, we believe, is also better, even if the absolute number isn't dramatically up from where it was, which means the shots on goal just have a higher percentage hit rate.

Okay. And then you mentioned this headwind. I think it equates to, call it, roughly $20 million CGT-related headwind in FY '26. Could you framed up your early and late-stage exposure, but could you just give us a sense qualitatively what a commercial approval might look like in terms of revenue versus like a Phase III or late phase project?

Yes. I mean you can add -- I'll jump in and you can add if you want to. Typically, what we expect in a commercialized therapy versus one that's in a clinical trial is it could be 5 to 10x the revenue depending on what the indication is. And that's true with these 2 that have been Fast Track. What's different about these 2 dramatically different, frankly, than the other 85 we have in clinical trials today is the diseases that they're going after in terms of the population set, very, very large. And therefore, even as a late Phase I, early Phase II trial, the amount of proteins they were buying to support these trials was equivalent to what we'd expect from a commercialized typical T cell therapy.

So hence, why we had all this lumpiness the past 6 quarters as these 2 customers were progressing through. But you can only imagine the same 5 to 10x applies to these 2 as it does to the smaller ones. So I'll pause put it out there now. I mean, we see these customers combined being $100 million of revenue once the commercialization fully ramps up. And that's probably a starting point.

It obviously takes several years to get to that.

Yes, yes.

And then moving on to maybe the last piece of cell and gene therapy, Wilson Wolf, you own 20% of it. I think a lot of people would love to understand how this asset really benefits Bio-Techne, whether it's through integrated workflows, GMP protein pull-through or access to new customers? And then secondly, do you expect any additional benefit once you fully own Wilson Wolf? Or is this largely integrated already?

Yes, sure. Think about the value creation thesis there. You have kind of the preeminent bioreactor for the immune cells, so growing T cells in that space, kind of paired with both our medias, which are already used in clinical trials as well as our growth factors in cytokines. Just on the surface, those combined, right? One is kind of the app store, and we have all the apps that go kind of into it being the bioreactor itself. So as you also may know, we've got a joint venture called ScaleReady that is already kind of actively in the market and has driven a lot of penetration. So on the immune cell side of the equation. Wilson Wolf has also over 700 customers, and they're more skewed to later-stage clinical trials because they were in very early in the process.,, and they participate in over half of the immune cell therapy trials, and they're in the last 4 release.

So they've got a fantastic position. So just if you just looked at the math on it, which is great, it's accretive top and bottom line for us. But then we start thinking about the more along the lines of value creation. So I mentioned earlier our ProPak for cytokine delivery. So that can be directly integrated into -- just as an example, into the Wilson Wolf GRx bioreactor setup. So you can imagine that as you're scaling and industrializing a process that we become kind of the perfect marriage in that sense. And so are we all the way there in terms of tying off all elements of that workflow? We're pretty close. It will only get better as we bring Wilson Wolf in.

I think the other area is where we come at this, and we didn't kind of mention it earlier is that our instruments are also used for potency and quality release testing in immune cell therapies. So every drug that's on the market right now, save one utilizes our platform, our Ella platform. And very broadly, it has become the standard, much like Maurice's is for large molecule production QC release testing, the Ella platform has become the de facto standard there.

So we start bringing a very different kind of workflow solution from both the development aspect all the way through to QC. So yes, we think it's going to drive a lot of areas. I think also as we convert and look to convert later-stage folks who want to industrialize the process or improve it, so it becomes more affordable and accessible that we're kind of uniquely positioned to offer that.

And then, of course, from a financial perspective, I couldn't be more excited about it because I believe they have 5 customers who just got approved for commercialization. They probably have some more on deck we can't talk about. But I believe by the time we consummate this purchase, they'll be right at the inflection point where these commercial ones are ramping because as you said, it takes 3 to 5 years for -- even once you launch commercial for it to kind of fully start to ramp. So I think it will be a majorly accretive to our growth even post purchase. And then, of course, majorly accretive to the bottom line where they have 60% to 70% EBITDA margins already today.

Maybe just following up on that. I think in the past, you've said it's roughly 70%. But under your umbrella, it'd probably be closer to 60%. Is that correct?

Yes. Yes, just simply because they're still a private company, there's some investments we need to make to kind of make it public company worthy, I'd say.

But still highly accretive.

Yes, absolutely.

Maybe I'll stop here before moving on to see if the audience has any questions. Great. Awesome. Maybe touching on the ProteinSimple side or the instrument side. Just given the funding environment remains constrained, how has instrument demand trended so far this year?

It's trending in the right direction. It's what I call a little bit choppy in the last several quarters. We had a couple of quarters in a row of consecutive instrument growth. And in last quarter, it dipped a bit largely because of the biotech decline I talked about. But it's like everything else, I think you get a little bit of choppiness is a sign of a bottoming perhaps of the market and stabilization. And given how Q1 played out and we saw the instruments start to come back in the back half as well as continue in October, we do believe Q1 was probably more of an anomaly in that trend and we started to see a few quarters ago with instrument placements increasing year-over-year, that trend continuing going forward. So -- and maybe you can talk a little bit, Will, as to what's driving that and why our instruments are doing so do well and will continue to do well.

Sure. I think as we've shared consistently, right, we've had very high levels of growth or consistent growth in the consumables component kind of pulling through as well as the services. So we know the systems are kind of being utilized across the page. If we think of our relative position in different markets, so in the biologics space, right, we are the standard for QC release assays in that large molecule process. So as you think of that market and bioproduction just in general, growing, we're really benefiting from that. There's a couple of other elements that really make us uniquely positioned. So with the work being done in kind of that ramp in ADCs, the Maurice platform is really uniquely suited for those very more complex analytics required to do the release testing in both the development side there. We're seeing kind of a ramp-up back in China in that space. And then we also know with the onshoring that we expect that there'd be a positive driver in the Maurice.

So the biologics platform is incredibly well positioned. It's very durable in the space. And as we kind of expand the applications there, we're seeing utilization of the new applications as well as benefiting from the market. If we think of the Ella platform, it's really playing across an entire continuum of high-throughput discovery, which is happening out there in the university, you think of the Olink platforms. Those platforms and any other doing high-throughput proteomics detection, they're generally using our content, so our antibodies. I won't specifically talk about anyone that utilizes those because we can't. But in general, imagine the vast majority of discovery work that's happening is happening with our content.

As that translates through into translational space, there are certain applications where they might use different platform than Olink or our platform, which is the Ella platform. So we've got this, again, nice broadly playing in the discovery market, and we're kind of catching it in the translational space. We're seeing that with Novomol-Dx and other diagnostic companies that want to adopt that for -- whether it's for a laboratory developed test or otherwise. And we've taken that through some regulatory hurdles recently here in North America and in Europe.

And then the Simple Western platform is the only fully automated Western platform on the market. We've seen tremendous adoption but have a marginal penetration, about 18% or so of that market. We've recently launched a platform called Leo within that Simple Western platform. And that has just had better-than-expected adoption. It's a higher throughput format, and we're seeing folks use that for really different kind of expanding the application and usage space there given its level of quantitation, the ability to have standard curves, et cetera.

So you start kind of blending this in that we're able to deploy content on a couple of different platforms in Ella and Simple Western in that translational space. So if you think about that long-term trend of high-throughput proteomics translating we have an incredible position there. And so I think what we're seeing is, as Jim alluded to, the trends are improving, and we're seeing utilization of the consumables or the cartridges ramp accordingly.

I'll look in that real quickly by -- and thanks for mentioning the consumables and utilization because even though we had a blip in the actual placements in terms of growth this most recent quarter, the consumables growth was still 20% plus. So -- and we've had, I don't know, 4 or 5 quarters now in a row of double-digit increases in our consumables, which are the cartridges used in the instruments. To me, that's the ultimate as a nonscientist, are they using the instrument or not? And they're using at that kind of level even in tough budgetary environment.

It tells you, first of all, these instruments are -- hence the name ProteinSimple the brand. It's around simplification, it's around productivity and highly being used in a tough budget environment. It kind of fits our thesis exactly how we thought the intent of these adding value for our customers, these products were supposed to do. And then, of course, after many -- not only quarters, but years of double-digit now growth in our consumables in these instruments, it tells you that they're starting to use up their capacity, too. So when the money comes back, the first place they're going to go is want to buy some more instruments. And that's what we started to see. We started to see it in the last several quarters and here more recently as well, which is why we're very encouraged.

That's great to hear. Maybe just trying to keep us on track, moving over to the spatial business. This business has weighed on performance a little bit more recently, and it's more heavily exposed to biotech and academic end markets. So -- could you just talk about what you're seeing in terms of demand here among that end market? And -- but also outside of that, what do you think -- what do you think it will take to drive an improvement in demand here? And what gives you the confidence long term?

Well, I mean, I think -- and Will can jump on this after I'm done bubbling here because he's got more science back -- way more science background than I do. But everyone you talk to customers, spatial is still a very hot area. It's a very exciting area for science. Call it next-generation IHC is the way I think about it in terms of maybe replace all of IHC at some point in time in the future. And we have the best solution for that, especially as it pertains to the translational space that Will was talking about. And we make that clear, some people ask us, how do you compete with 10x and so forth? And the answer is we don't. They're much more upstream in discovery. And if they do well, that's great because the output of customers using their instruments becomes the input for us. We absolutely believe we have the best solution for the translational space with our COMET instrument combined with our world class-leading RNAscope reagents and assays for the RNA.

And now with the COMET, we be the only instrument in the market that can do look at both RNA and proteins on the same slide, the same time, fastest instrument. I mean basically, every box you'd want speed, simplicity, overall cost per sample, be able to look at multiomics in the same run, preserve the sample. There's no other instrument in the market that can do what this instrument does. And of course, no other company has the capability of our RNAscope reagents.

So very, very excited about that space. And the fact that the worst quarter we've had was low single-digit decline a couple of quarters ago, in a very tough end market, as you alluded to, with both a high academic and biotech exposure tells you not only the strength, I think, of the overall spatial market in terms of priority where money is going to be spent, but also our positioning in it.

Okay. And then I think you talked about the potential for spatial instruments to be the highest pull-through instruments in your portfolio. So can you just talk about what you're seeing in terms of pull-through opportunity, both in the near term and long term?

Yes. I mean we -- already, we're on a full run rate basis, we're getting roughly $40,000, $45,000 per instrument pull-through. And admittedly, most of that is just off the chips that are used to think of it as the cartridge component of these instruments that you need chips to run the instrument on. What's still yet to come is all the pull-through from our RNAscope, which is all our instruments have just recently been upgraded for that capability as well as the antibodies. And it is an open system so that you can use anyone's antibodies. But us, of course, us being a world leader in antibodies, we are rapidly producing panels for specific applications so that customers don't have to finagle with their own antibodies to figure it out. They can just check a box and say I'm going to use the application, pick that panel.

And that is still all yet to come. And we're rapidly developing these panels, starting to sell them. But when those start to ramp, both on the RNAscope and the antibodies, that could double the consumable pull-through that we currently get at very, very high margin.

Okay. And then just trying to wrap up here over the next couple of minutes, but you reiterated expectations for this low single-digit organic growth in FY '26 despite the near-term headwinds associated with the cell and gene therapy. What gives you confidence in achieving that? And what are the key levers supporting that sequential...

Let's talk about the sequential improvement from Q1 to Q2 first because it actually is improvement even though the headline number was relatively the same, i.e., call it, minus 1%, if you want to say what we like to say low single digit, minus whatever, minus 1%. But we already talked about there being a known quantitative 4-point headwind with these 2 customers. So that actually could translate to a 3% coming off of a 1% adjusted for those 2 customers. And really, what that -- what that relates to is what I call stabilization.

First of all, our pharma market remaining strong at double-digit growth and then continued stabilization of our academic market and future stabilization of our biotech as opposed to sequential declines in biotech because of the funding improvement. That's kind of the assumptions around the underlying market. And we have a track record of showing that our growth verticals, namely our ProteinSimple franchise, our spatial franchise and our cell therapy, although right now, those are being impacted by these 2 headwinds, the spatial and ProteinSimple in particular, in just stable markets, they tend to take more market share than they do in declining markets. And then in normal markets, we. Expect very solid double-digit growth from those two.

So the fact that we've seen those two growth verticals turn the corner in the case of spatial, in the case of ProteinSimple start to really ramp, that's what we'd expect to see in a stabilizing market, and we think they will lead the growth, and it's really company specific, but lead the growth for next quarter relative to Q1.

With regards to the back half of the year, it's too early to predict any further improvement in markets at this point. But even if the markets kind of stay the same as they are in Q2, we have easier comps. We'll start to lap the academic headwinds that began in February. And of course, the tough biotech market that kind of hit right away in the early part of the year when funding started to drop. So a second half story is more -- right now, is more about easier comps. The Q1 to Q2 story is about our growth verticals starting to show that spread, that acceleration in a more stabilized market.

And as far as beyond that, we don't give any guidance beyond our fiscal year at this point. But I will say this, there are other companies that have calendar year ends that are starting to talk about calendar 2026 and even calendar 2027. And we absolutely fully agree with their assessment that the markets will continue to improve. And my personal belief, and I understand why, because everyone is a bit shy after being stubbing their toes more than once with regards to these end markets, but I think they're being a bit conservative. History shows that in life science tools, when the recovery starts, it usually happens rather rapidly. So we're very encouraged right now in terms of the setup for our fiscal year '27.

That's great to hear. Just as a follow-up on that, you're probably not going to answer, but what is the growth potential of this business in a normal environment? [indiscernible] really fast-growing business because it seems like there's some puts and takes on the end markets. We've been doing really for 3, 4 years now. In a normal environment with a couple of things going your way with the cell therapy becoming [indiscernible], et cetera. Is this -- should this be a double-digit growth business? Is that something that...

Absolutely. I mean, absolutely, that's what we've designed the company to be. That's -- to us, that's a definition of a growth company is double digit. We were set up beautifully for that. We've shown historically that we can do that. And in fact, even pre-COVID, we were on the path to double-digit growth, and we didn't even have the portfolio we have today.

The other thing I'd mention that why it gives us confidence about returning back to double-digit growth in normalized markets is our core reagents. That's our core antibodies, proteins, the most -- not only most competitive, but the most highest penetration we have. We never say that those have to be double-digit growth for the company to be double digit. They just grow at market or even a point -- well, of course, we always aim to be better than market. Let's just say they grow at market, call it, mid-single digit because that's a normal market for life science tools. Where the accelerated growth comes in is from these growth pillars, cell therapy, spatial, ProteinSimple, in particular, those 3.

Those 3 businesses pre-COVID, 5, 6 years ago, made up 30% of our portfolio. Today, they make up 45% of our portfolio. And it's not because the core has shrunk. The core has held its own. It's not even grown from there. So -- and there's still -- all 3 of those are majorly underpenetrated. And in the case of ProteinSimple, part of the reason why they're underpenetrated despite they've grown so much is because they continue to expand the applications. All 3 platforms continue to expand their market potential. So what you got to kind of snowball effect. Our 3 growth vectors now are a larger percentage of the company when markets return to normal, they will exceed market growth by at least 500 basis points or more and be a larger component to the double-digit growth of the overall company, if that makes sense.

So it's kind of a flywheel. And this is all before the commercialization of cell therapy kicks in. We believe we're in double digit. When commercialization of cell therapies really kick in, say, 5 years from now, it could actually accelerate from that. That's an important question because, I mean, our whole LRP is based off of a double-digit growth.

Great. Well, I think we're running up on the time limit here, but I think that's a great place to end it.

I like it, too. That's a good place.

Thank you.

Okay. We'll go ahead and get started. Happy to kick off the 2025 Stifel Healthcare Conference. I am Dan Arias. I'm the Life Sciences and Diagnostics analyst here at the firm. We're happy to have Bio-Techne with us here this morning. We have Kim and Jim from the company. Dave sitting out front here. Guys, thanks very much for joining us today.

Thank you. Thanks for having us.

My pleasure. Kim, maybe just an obvious place to start would just be talking about the quarter, you reported 1 week, 1.5 weeks ago. Maybe thinking about the top line first, 1% overall organic, Protein Sciences was down, Spatial was up -- I think Spatial and Diagnostics was up. And there's a lot of crosswinds going on in life sciences land today. So maybe we can just talk a little bit about that and we can naturally move our way into GMP, which was a meaningful part of the conversation on the quarter.

That's correct, Dan. Yes, a quick flyby on the market -- sorry, on the company's results for the first quarter. We had a organic revenue decline of 1% and that was really based by 2 larger customers that had ordered GMP proteins in quite high volumes a year earlier, Q1 and Q2. You might remember that in those quarters, the GMP proteins were growing 60% and 90%, and we were saying, listen, don't extrapolate that because there's definitely some tailwind there.

These companies had some additional tailwind in that they got fast-track approval from the FDA designation, and with that, could shorten their clinical studies, and with that, they had enough materials, and therefore, didn't order new materials this quarter. That gave us a 200 basis point headwind, and therefore, the underlying growth is really low single digits in the 1% range.

Now overall, we were more optimistic in our call than usual, and that was more based upon fly through the 3 to 4 end markets and our verticals. The end markets, academic, really tough end market, but we saw some positive outlays and we clearly see some of the grants more aligning with our research market. So we had some positive feeling about academics, especially as the quarter progressed. So definitely, in the last month, we saw some momentum building.

We had biotech, obviously, very constrained funding market. However, there were some positive outlays and a little bit of positive momentum maybe based by increased M&A and licensing activity. And then we had our pharma markets, large pharma, where we had already a couple of quarters of double-digit growth, but just before our earnings call a quarter ago for Q4, we were, of course, a little worried that the MFN discussions and the letters from the President going to the CEOs in pharma talking about tariffs, we were worried that they would slow down, but they didn't.

So all those end markets and then we're kind of stabilizing, right? And then on top of that, we pushed to second -- achieved a second positive growth quarter in China. So those are the 4 kind of end markets that looked more stable than they usually looked. And then from the 4 growth verticals point of view, spatial is building momentum; cell therapy, yes, taking those 2 customers out, we had a real successful quarter in adding customers.

The ProteinSimple franchise doing really well, and again, with double-digit growth for the 10th time out of 12 quarters in the consumables, building some momentum in the order book. And in molecular diagnostics, also lapping a 34% quarter a year ago, still mid-single digits. So we felt in every of our verticals also some momentum.

So therefore, yes, the negative 1% was, in our feeling, not representing the official momentum in the quarter because we saw these trends, and we were therefore, for the first time, in quite a while, more optimistic than usual.

Okay. How has visibility changed over time with the GMP business? You have a greater number of customers, obviously, than you used to, but there is a concentration at the top. To your point, these were 2 of your largest, if not your largest customers. So how has visibility changed? And how do you think your forecasting abilities change over time? Do you see this becoming less of a lumpy business for you?

Over time, with more customers and also, of course, more customers progressing through the phases and then even more so -- more important is customers progressing into commercial stages that will -- the law of numbers will, of course, make the ramp more stable over time. I think the most important part there is going commercial, and we have 0 commercial customers currently, 5 in Phase III.

But in the early phases, customers typically buy enough material to finish a whole clinical study. So by definition, that becomes very lumpy. They will not order like every month or every quarter. But once you go commercial, they will have supply agreements, they typically go for rolling forecasts, and then things become much more manageable.

It might still not be super smooth, but yes, at least you know what's coming from an order perspective. But over time, we saw it in DRD for many years, it was a very lumpy business and it continued to grow the diagnostic reagents and controls, and it's now also been much more stable for all of us over the years.

Yes. So Jim, the way that it will work for the next couple of quarters is 200 basis points headwind that we just experienced that steps up to 400 this quarter and then down to 200 again in the third quarter. Is that based on discrete forecast on that part? How confident are you in that trajectory there?

Yes. I mean, hopefully, it's a, I'd say, a base case in terms of not getting much worse that because we essentially took most of the revenues out from those 2 customers in that view. They really have -- these 2 specific customers haven't given us any specifics beyond -- really beyond December in terms of what they'll mean and when they'll need it. Based on the fast-track designation, we're assuming they're not going to need anything for a while. But if they do order in the second half, there will be some upside to what we talked about.

What do you think is the right growth rate for this business? It's been an above-average grower. I mean, I would certainly put it in the bucket of some of your most important products in the franchise. So how do you see long-term growth for GMP?

I think that in recovering markets, I wouldn't say at full speed, but also not when it's totally subdued and in distress. But in recovering markets, we feel that 20%-plus is a good rate. We have a real nice coverage from the GMP proteins, launched the ProPak, which is a form factor where human mistakes as well as contamination is highly reduced.

And then small molecules, we have made investment there for GMP production in the U.K. So we have a real broadening portfolio with some good innovations. So we feel that, that should be 20%-plus. But if you then think about a further recovery in the markets and especially if you would add Wilson Wolf to the equation later, that should be north of 20%.

I'll add there as well because that's -- if your time horizon in the next 3 to 4 years, I think I agree with Kim completely 20%-plus is kind of what we expect as we add new customers and customers progress through clinical trials. But you get beyond that and hopefully, many of these customers start to become commercialized, it could actually be significantly higher than 20%.

Yes, we have the 2 that are now working on their clinicals and going into their filing that by themselves could drive significantly higher than 20%.

Yes. Okay. Okay. We may come back to that. There's lots of stuff I want to cover here. Maybe just moving to academic. We've talked a lot about the sluggish demand that exists in the U.S. You actually sounded a little bit encouraging on the call. Can you maybe just elaborate on where things were getting a little better? Does that translate to equipment purchases maybe over the next couple of quarters being a little bit better for you guys and then couch it in terms of your overall NIH exposure, which you guys have kind of said is on the lower end?

Yes. Yes, I'll start high level. So 22% of our revenues for the company come from academic, 10% is related to Europe academic and that has been nicely stable in the mid-single digits; 12% comes from the U.S. academic, and there, as of February last year, everything was going swimmingly. But then I think the turbulence that was created is definitely put a lot of pressure on our results.

The good thing, though, is that the last couple of months, you saw that the NIH outlays were actually improving and maybe even positive year-over-year. And one important factor that we clearly see and follow is that the number of grants that are getting enacted on are definitely much more aligned with our research areas in oncology and neurology, et cetera, versus in infectious diseases and in vaccination.

So in a way, the shift towards those areas is an additional benefit for us. And why we were enthusiastic is because the core, which is usually very sensitive to overall activity level and the core products are all the proteins and antibodies that you would use in basic research, that core was, for the first time, flat coming from declines and indicates the overall activity level, and that was true in this specific academic market as well.

So we feel that, that market is finding its activity levels again. And then one thing is for sure, we will be lapping February pretty soon, so comparables will get easier as well.

When we were talking earlier in the year, the way in which you were thinking about the situation in the U.S. was very much that it was the uncertainty around the budget rather than the actual numbers that was causing the biggest problem in the mind of the academic scientists. Do you still feel like that uncertainty removal will drive better spending? Or is the reality of what the dollars and cents might be looking more important in your mind over the next, call it, 2 to 3 quarters?

I mean I think the answer is, yes. I think what we've seen in the past 3 quarters in our academic end market, particularly our reagents, which kind of show the day-to-day mentality of our customers points to exactly that where in the sense that as the proposals that were coming out of the 2 of the houses for a flattish budget year-over-year became more public and pronounced, we saw the run rates continually improve towards that flat growth that we saw this most recent quarter.

So said another way, the customers are starting to behave now more like what the expectation is, which is for more of a flat budget versus 2 quarters or 3 quarters ago when the hammer first came down around threats of 40%, 20%, that range of cuts, not so much with us, but we believe the end markets, we were hearing customers talk about voluntarily slashing their budgets by 15%, 20% in preparation of what was to come. We're not hearing that -- we have not heard that this most recent quarter, and our results would suggest they're behaving more like how they're expecting more of a flattish budget going forward.

Okay. And then maybe just on the core reagents business. It was flat in the quarter. As you guys have pointed out, it's pretty resilient given what we're talking about here. What do you think about the prospects for acceleration in reagent demand going forward, if, in fact, some of this uncertainty, academic or pharma, is starting to subside?

Yes. I think if the markets normalize and you would see more research activity in pharma, biotech, getting normalized funding levels and academic returning to their normalized activity level, we certainly think that the entitlement of this portfolio is in line with market or slightly better. So that would be, in our mind, mid-single digits or high-mid or low-high single digits, but that in that range.

And by the way, I think right now, one of our key end markets, that being pharma, is behaving, what we call normal because for us, we expect double-digit growth in pharma, even though their budgets are probably growing mid-single digit on average, year-over-year their R&D budgets are. And in our core reagents, we are seeing at least mid-single-digit growth in pharma, so it corelates.

So do you feel comfortable that pharma can continue to be double digit from here?

Well, pharma won't be, but we will be in pharma.

You would in pharma.

Yes.

And the reason is that -- I mean everything I've been reading and hearing is that pharma budgets continue to be up mid-single digits and are expected to be again next year. As long as they're up mid-single digits and they're not doing any massive reshifts of their portfolio, which they went for that major shift in calendar year 2024, it should continue to be a normal market. And for us, normal, our expectation is to grow essentially 2x that in pharma.

Okay. Maybe a little bit on spatial. Spatial is a business where there is academic sensitivity, and I think that's impacted you. But Lunaphore is a clinical translational tool as much as it is a research tool. It doesn't really compete with the 10xes of the world, et cetera. Can you maybe just talk a little bit about the puts and takes there in terms of drivers versus headwinds? Do you think that, that business can continue to stay up and grow, maybe accelerate to our point, some of these things are starting to peel off?

Your view is correct. Spatial, in general, has a little bit of a disproportional read on the biotech as well as on academic, especially if it's being used as a research, let's say, translational tool, and therefore, has seen some pressure. However, quarter-over-quarter, we've seen this business also improving. And we talked in the call about it being back to flat for the reagents that meant for the ACD RNA scope that went back in the low single digits.

And instruments still had some headwinds with a decline of low-teens. However, in total, they were flat, building momentum. And in Lunaphore, we saw a double-digit order growth, which is a very good indicator for us. Overall, the instrument is definitely, from a performance point of view, a winner. We see a great win-loss rates for the accounts where we compete, and we feel that we've got quite some momentum in taking market share in down and up-markets, we will be able to do so.

And of course, from a pull-through point of view, this instrument is very interesting for our company because we have our 85,000 RNA coprobes. We have over 100 antibodies now validated for the instrument. And most recently, we launched the protein-protein interactions, which gives you a true multiomic view as to what's going on and those will take 2 antibodies to run. So we feel this is going to be a very, very good pull-through growth driver for the company.

Jim, are you able to separate out ACD growth from Lunaphore growth within the spatial bucket?

Absolutely.

Could you do that for us?

No.

Okay.

But I just did.

But yes, we actually, I mean...

I just did. I said like ACD was low single digits and Lunaphore was low-teens negative, and in aggregate, they were flat.

But importantly, and you may have said this, Kim, I missed it, but the bookings for the instruments were up double digit. And it's the one instrument we have where we do look at the bookings because it's a larger instrument, it can often spread to 2 quarters to build and ship versus our ProteinSimple typically book and ship in the same quarter. So it was very, very encouraging to see double-digit growth in bookings.

And do you think that pull-through when we were talking was in the 40,000, 50,000 per instrument per year. Do you see that as stable going forward or is there the potential for acceleration just given that it does sound like it has the momentum?

I think there's definitely potential for acceleration because we haven't even gotten started really with the antibody pull-through yet in any of our RNA scope, and that's kind of a -- that's a low bar, I think, we put out there. But between the RNA scope pull-through, the antibody pull-through and then just the chip pull-through on the instrument itself, 40,000 is a starting point.

Yes, we think over time that in our models, Dan, this is going to double.

It's going to be a double as far as overall revenues for the Lunaphore business?

It's going to double -- the pull-through per box per year is going to go from, let's say, 45 to 90.

Can you put a time frame on that for modeling purposes or is there...

Yes. I've not thought about how we say that externally with the appropriate buffer in there. So of course, I know my internal models, but let me think about that.

Maybe Simple Western. I do want to make sure that I hit a couple of the important product categories, at least in my mind, anyway. Simple Western has been this really great business for you. It's been 15% to 20% growth over time, but it's been 20-plus in certain periods. Probably more than it's been below 15%. Is that still a range that you think is appropriate there?

Can you touch on Leo, the new instruments? And how does what you're doing in cell and gene therapy play into the Simple Western growth rate because my understanding is that there is some demand coming from those customers for that product?

Yes. No, it's very broadly applicable. Of course, Western blot is a process that gets used everywhere. And our simple way of automating it and then having quantitative results instead of visual results is a huge differentiator. We have very good success with our original offering. And now we recently added -- 3 quarters ago, we added a Leo instrument, which is basically more specific, but also 4x higher throughput, meaning you can run 100 samples instead of 25.

You can run different samples in the same run doing different experiments. So very flexible, high throughput if it comes to the consumables as well, so definitely a benefit, higher ASP box and has met all our expectations from a launch point of view, if you look at the quantities of boxes we've placed. And those launch targets were set in more normalized markets. So in a way, this is outperforming our targets in a subdued market. So we're very optimistic about it.

And yes, of course, people are going to find different applications for it because Western blot was just such a messy process. Now you can, first of all, automate it; and secondly, you can bring it back in the lab for other applications. And you asked about the cell and gene therapy applications, the AAV potency, the gene potency application is one that is really driving some of the adoption at the moment.

Okay. Jim, maybe just thinking a little bit about the course of growth over the year, so down 1% in 1Q. It sounds like something similar in 2Q and then low single-digit growth in the back half, especially as the comps ease, to our point here, presumably some easier or better end market conditions.

So 1% growth feels like a good starting point for the year, but it also feels like there's ambitions for something higher. Leaving aside the obvious, which is that a bunch of academic customers decide to spend more or pharma ends up being better, where do you see the upside in the model when you really look, primarily, I guess, at the back half of the year, which is where things seem like they have the most variability, but tell me if I'm wrong there?

Yes. So let me tell you how we think about our forecast from a buildup perspective and then it might become more obvious where the upside is. So as we think about from going from Q1 to Q2, we've called for essentially the same amount of overall organic growth, which is, call it, minus 1% roughly.

But the reality is you take out these 2 customers we spoke of, the underlying -- the whole -- the business in its entirety is actually gradually stepping up its growth rate. So if you backed out these 2 customers, as Kim talked about in Q1, we were plus 1, not minus 1.

If we do the same for our forecast for Q2, the headwind is even greater. It's about a 400 basis point headwind as opposed to a 200 basis point. We grew 90% in cell therapy a year ago in Q2. So you back those 2 out, that means the minus 1% actually is more like plus 3% for the entirety of the company.

So we're seeing -- predicting a gradual ramp-up in our overall growth rate. And really, what's behind that is, I'd say, from a portfolio perspective, now that we're seeing stabilized -- more stabilized markets in academic, we believe biotech will start to stabilize now that funding appears to have come back 4 months in a row with growth year-over-year.

We've always said, Dan, and we've seen this before, we saw it a year ago when we were starting to come out of the COVID halo or COVID hangover that our growth pillars, our growth verticals kind of lead us out of -- back into growth. They're the kind of early indicators for us. And sure enough, we saw momentum pick up -- we've seen momentum pick up in ProteinSimple for a few quarters now, but particularly in the back half of Q1, and that's starting so far in October, some very solid momentum across our entire ProteinSimple franchise, not just 1 or 2 of the platforms.

And then, of course, spatial, we talked about the turn we saw in spatial in Q1, and we've seen that momentum continue into October, which is encouraging. So that's where we'd expect to see kind of for us, the leading indicators of market stabilizing and us outperforming the market, and that's exactly what we're seeing right now. So those 2 things we think will lead us to better growth in Q2, combined with, to a lesser extent, but nonetheless, China and Asia overall.

We are expecting yet a third quarter in a row of growth in China and Asia overall in Q2. So we do feel like this is the start of a new recovery process, not just lumpiness like we saw for the better part of 2.5 years prior to calendar 2025. So that's what gets us from the plus 1% to the plus 3% adjusting for these 2 customers. As we think about the back half, we're not really predicting any -- at this point, any changes in the market trajectories of any of our key end markets.

It's more about lapping easier comps as you talked about, the academic comp, has been a tough comp ever since February, but we'll lap that in February. And even the biotech comps, they become easier as well. So it's more of a comp story in the second half, not to mention these 2 customers, as you kicked off early in the conversation, they do have headwinds in the second half, but less so than the first half.

So the upside here is that the markets go from being stable to actually recovering, namely academic and biotech. If there's any true recovery there in terms of growth from end market, then we have upside, I think, in our second half.

Okay. So the take-home message is that your assumption, the 2% to 3% that we might model for the back half, that you don't seem to be disagreeing with, doesn't require any improvement in the end market conditions, what's in place today can get you there and so then it's about what kind of improvement we see from here?

Correct.

You are a victim of your own calendar when it comes to comparing Bio-Techne to other tools players. And so the beginning of calendar 2026 would have you being 2% to 3%. And then if something were to be higher in the back half of calendar '26, it could feel like the 3% to 4% that we're kind of looking at for other life sciences companies.

So the question is, because there is a question embedded there, is 2027 the year when you think you resume above-peer growth? Because that kind of has been your calling guard for a long time. I think that's why people invest in Bio-Techne in a lot of situations.

And the above peer growth is -- we believe becomes much more -- the spread becomes larger when the markets are stable and improving, and so the answer is yes. And if you actually think about even the first half of calendar 2026, at low single-digit growth, you said 2% to 3%, I think you can easily tack on a couple more points on top of that because of the headwinds of these 2 customers that will still linger.

So I think we already are talking about potentially being in the mid-single-digit growth in the early part of 2026. Absent these 2 customers, I do believe that's still ahead of what most of the peers are saying. And if the markets continue to recover, and we believe they will, history shows when these markets turn, they turn relatively quickly. We saw that exactly a year ago as we were predicting to come out of the COVID hangover as well as the IRA situation that was impacting large pharma.

We had a stick -- as you remember, Dan, we did stick our neck out early and say, "Hey, we think we're in the midst of a recovery here. And it played out exactly how we -- not exactly, but in aggregate, it played out how we thought it would in our first and our second quarter, and it really wasn't until February when the hammer came down with the administration on academic and then followed by biotech everything else that, that a whole new set of headwinds came up.

But it did turn really quickly. We went from flattish growth to end calendar -- fiscal 2024 in June, and then we went to mid-single-digit growth, high single-digit growth, and we were predicting -- internally, we didn't mention it, we were predicting and we were on the path to double-digit growth in our Q3, Q4 February.

So that just gives you a sense -- we've seen this before, admittedly more shallow and less enduring downturns that the market has seen. We've seen very quick snapbacks, but I think it could happen again. I'm not calling -- making a call for it, but I'm saying it wouldn't surprise me because we've seen that movie before.

So you still see there being a path back to double-digit organic growth for the company?

Absolutely. Absolutely. I mean that's -- anything short of that, we're not -- then we got to change our strategy.

Op margins. All of the op margin expansion is -- you will expand margins this year. Let's start with positive.

I told you we would.

You did. But when we were talking about it, I certainly wasn't expecting it to all come from a divestiture. So there's not a lot of organic growth. It's tough to get leverage on 1%, 2% growth. But you are lapping some comp expenses from last year, if I remember correctly. So why is there not more of an organic op margin expansion opportunity this year?

So you talk about the mechanics, I'll quickly talk about the philosophy.

Sure.

So overall, Dan, we -- yes, could we have further optimized our op margin? The answer is probably yes. The -- in fact, though, we went into the year thinking that listen, these are tough conditions, and then you can always take your benefits and your savings to the bank and have them flow through the P&L. But you also have to make sure that you do continue to be a -- position yourself as a double-digit grower and as a grower that outpaces the others in the market.

And for that, you have to invest. And of course, we had a certain level of R&D investment already. But we also, with this hard work that gives us this strong bottom line, wanted to make sure that some of that benefit goes into specific investments. And we want to make sure that we have a next-generation Lunaphore platform in the making, we want to make sure that there's new detectors and new applications coming for the ASD for analytical business in proteins.

We have seen how powerful those new introductions, new product introductions are and how differentiated the setup is, especially once we continue driving it. And then in the meantime, we also want to make sure that in a subdued market where customers have less funding available, the programs that do start are typically of high quality.

Those are the ones that they're really committed after and that maybe people still would invest behind, but they have constrained funding. So what you want to do is make sure that you're part of a program. For that, we have -- you often see these press releases around grants where you could get a grant where you get a certain number of protein reagents, a certain number of G-Rexs.

And we wanted to make sure we seed the market because at the end of the day, you know how sticky revenue will be once you seed it and once you're part of a certain treatment, and we want to be in the forefront of it. So we use some of these monies that we could have trickled through for investment in new product development, AI capabilities as well as seeding the funnel.

Yes. And I'll take it one more step further. The way I look at it is, yes, it was -- technically we exited -- chose to exit the exosome lab business through a divestiture. But I see it simply as we prioritize what we invest in all day long, every month, every quarter, we're prioritizing what we're going to invest in. And there are certain things we choose not to invest in that kind of gradually go away and no one even notices.

My point being is that it wasn't necessarily -- to me, it was less of a divestiture and more of a prioritization choice on where we want to invest for growth going forward -- profitable growth going forward. So it may be a bit of a nuance, but it wasn't about, hey, we're just going to sell this business and that everything else is going to be normal. It was a purposeful choice so that we can invest more in the areas I think will give us more profitable growth faster in the future.

So anyways, that's a philosophical thing. In terms of the mechanics, yes, we talk about 1% growth. But remember, we still were minus 1% with these 2 customers, and they're very profitable accounts. So still a pretty big significant headwind in terms of that mix.

Secondly, yes, there's still -- 70% of our costs are people costs, and there's still wage inflation. We're in a 3% to 3.5% minimum. So you still have that headwind. So we're doing a lot of productivity initiatives just to counter that.

And then you mentioned comp tailwinds. I just want to clarify that. We don't necessarily have any comp tailwinds. We had comp headwinds last year because we essentially had comp targets for the company that were in line with where we grew. We grew, as a reminder, mid-single digit in fiscal year '25. And so the comp was mostly paid out on target, maybe slightly above in certain areas, including our sales force.

The year before that, we've massively missed our internal comp targets, and therefore, got paid out significantly less. So last year was more about getting a true-up and that hopefully, knock on wood, we'll hit our internal targets this year and pay out about the same. So it's not a headwind or a tailwind at this point.

Last question in the speed around here. Just to that point and to Kim's point on there, there are things that need to be invested in, in any one year, especially for a company trying to develop the types of products that you are. When you look at the next 12 to 18 months, do you see your -- do you see the investment levels that will be -- investment and compensation and expense levels that will be required for the business as on the way down, on the way up or something on par with where we've been?

I think we are in a healthy investment level. So we're not starving the company at all. I think that one of the things I forgot to mention earlier, we have accelerated and taken dollars to assign to a relatively new opportunity, at least for the U.S. in organoids. It's right over alley if it comes to being able to grow cells and to manipulate cells into a certain state.

So it's an opportunity that was already, let's say, 5 years in the making in Europe, but we're definitely now accelerating in the U.S. as well with these organoids being accepted for generating data by the FDA. So definitely another opportunity to invest in.

Now I think the moment markets will normalize and our growth would go back into double digits, as we mentioned, you could be more aggressive on the investment levels. And fortunately, we're in a company that has plenty of ideas or projects that we could kick off. And we would do so in normalized conditions and always make sure that we end up somewhere around 35% on EBITDA margin and manage the company around.

If we keep the belt somewhat tightened, then we would run to 40% unless we do M&A, unless we do some heightened R&D investments. So that's how we always manage the company to be a best-in-market EBITDA company as well as the top line growth.

Okay. It's a good session when your last question involves organoids. So I'm going to leave it there and say thank you both for attending. Appreciate it.

Yes. Thank you, Dan.

Thank you, Dan.

Our next session here is the management team from Bio-Techne. We're lucky to be joined by Kim Kelderman, Jim Hippel and Dave Clair. I'll kick things off.

I believe this is your first public venue since earnings a week ago. And I'd like to reflect back. What were the highlights, what points do you think needed clarification?

Well, first of all, we are honored for being with you, and thanks for inviting us to your great conference, Dan. It's always an honor.

And I don't think anything needed clarification. It was a fantastically done earnings call. But I think the question is the highlights of the quarter. Yes, the quarter had a negative 1% organic growth in the top line, which was mainly a result of larger orders in the GMP proteins, not repeating year-over-year. And it was a negative $7 million impact, and there, we are kind of driving that red number. However, not really reflective of what we feel the overall performance of the business was and not reflective of the trends in the markets.

And I'll start with these end markets. We feel that in pharma, we had 3 or -- 2 or so quarters in the double digits. We were a little worried earlier this year, calendar year about that may be slowing down with the MFN kind of rhetoric. However, we were very pleased to see that pharma continue to be in the double digits. Biotech continued to show some strengthening. And we feel that the rhetoric around number of deals and the funding levels were improving. Academic, we found a flat quarter.

Our core was actually doing well there. Europe was mid-single digits as we expect it to be. And in the U.S., negative low singles, which was definitely a quarter-over-quarter -- throughout several quarters ever since February, an improvement, and we saw strengthening during the quarter in that end market as well. China, we always look separately, I know it's a region, not a market, but we look at it as one market, 2 quarters in the black, and that is also an encouraging result. We'll probably double-click on China later on.

But if you then look at our, let's say, five businesses, the core and four growth verticals, that's a different lens of looking at it. The core was flat, which had been in the red over the last couple of quarters. So we saw it strengthening again, throughout the quarter, strengthening and within October, same thing. So very positive there.

And then the four growth verticals, gene therapy, we added a bunch of customers -- in cell therapy, I should say, sorry. And we have tremendous new product introductions and mid-single-digit growth in the protein analytics. We have spatial back in flat, so -- but not declining anymore. And a real strong instrument funnel. And then last but not least, molecular diagnostic, low -- mid-single-digit growth, but over a 34% growth quarter last year, also finding real nice traction. So those are the dynamics of the end markets as well as the growth verticals.

And then bottom line at 29.9% EBITDA margins was also very strong, and that's also broadly driven by three different buckets that we managed relatively well. And with that, we actually were quite happy with how we came out of the quarter, knowing that we had this big headwind and with our outlook going forward.

Okay. That was very thorough. The GMP proteins part of your business certainly was a story of the quarter. And I'd like to talk a bit about that. So first off, the $7 million headwind, that's the lesser revenue from those two customers you called out, correct?

Correct.

Can you talk about what was the growth rate in GMP proteins, excluding those customers? Or is that a not meaningful metric?

It is meaningful because it will talk about the overall activity level in biotech. And biotech markets, even though including you, have indicated like listen, there is some improvement, right? So we were sitting at negative 30% levels for biotech market before this quarter and now it has improved with a couple of strong months to negative 19%, so there is improvement, but it doesn't -- it still doesn't sound like it's in a great spot, right? So we're really happy with the indicators going in the right direction, but it's not in a great spot.

What we really focused on is adding customers. So you heard us a year ago around 500, 550 customers, now 700. We want to seed the market. It's an investment that we are willing to make because it's not very expensive. And being early on in these development programs will kind of integrate your reagents for Wilson Wolf, their G-Rex, into these workflows. And with that, help these customers to scale, help these customers to have an affordable therapy and then be locked in. Overall, I think we were -- I have to look at Jim, but I think we were low -- no, mid-single digits negative for the rest of the portfolio.

Okay. Can you talk about customer concentration then in GMP proteins? Or I guess you've talked about it, but could you elaborate on that? Are these two customers, half of the business? Or are they some different number?

Last year, our cell therapy business grew 60% to 90%, and it was in Q1, Q2. So that's the comparables that will indicate that -- like at that time, we said, listen, don't extrapolate the 60% to 90% growth numbers because it's lumpy. And unfortunately, we were right. The concentration is in a way very much based upon what kind of indication does a company work on, meaning how many patients do they have to get through their clinical trials.

And they will typically order enough material to complete one clinical trial. That, of course, gives then the Phase I, Phase II, Phase III, each time, relatively large step-ups. And of course, in commercial, these customers will be -- if successful, will be even larger if it comes to revenue volume. Now the nice thing, though, is that in commercial, it's much more -- much less lumpy, right, because it's a normal growth trajectory versus a clinical-over-clinical type of dynamic.

The customer concentration. So I mentioned $60 million in total, GMP proteins, $7 million year-over-year hiatus, that will give you the concentration because those were the two largest customers we have. And then for the next quarter, it will be $12 million in absolute dollars. That's 400 basis points headwind for the company. And that was their max quarter. That was the highest order quarter for those two large companies. So that gives you the dynamics and the absolute quantitation -- quantification of the impact.

Okay. Can you talk a bit how your GMP protein revenue split looks like between commercial? I assume commercial isn't part of the business yet, but we can just clarify versus Phase III versus earlier phases in clinical development versus preclinical. Just what does that pie chart look like?

Yes, 700 customers in total, of which 85 are in clinical trials, you can do the math because I'll go to Phase II is 16 and Phase III are 5 and 0 commercial customers. So commercial is indeed then 0 revenue. And then we have not broken out revenue by clinical, not because we want to keep it a secret, but also because to protect our customers, first of all, because there's only a handful in there. But secondly, because we don't always know where the material gets used, if it's in a I or II or III, right? So we have not broken it out that way. But you do know now the absolute number and the breakout between clinicals.

Okay. And how do you risk adjust your forecasting in cell therapy? Because the gamut of companies that have active programs in the area range from large pharma, large biotech to publicly traded biotech companies that are sub-$100 million in market cap. So what is your process for trying to better risk-adjust the forecasting there?

Yes. We do, of course, internally look at order patterns, try to stay connected with customers and we know what orders get placed in the short term. So we look at the internal order book. But overall, and that shouldn't be a secret, last year, we were always talking about this -- it will be lumpy, but you should expect a 12-month trailing of 20% or north of 20%, between, let's say, 20% and 30% growth. And that is kind of the line that we manage against.

Okay. And to think about the long-term opportunity here, I think you said a moment ago, GMP proteins were a $60 million revenue line item. Can you put that in context of what your capacity is? I think when you opened the St. Paul facility a few years ago, there was discussion around a few hundred million dollars of revenue-generating capacity, but I'd like to revisit that if we can.

Yes, indeed, I think at that time, we were saying $250-or-so million in revenue capacity. The real interesting dynamic, which is not atypical, but it was -- the scale of it was unexpected is that how much better your yield gets, the moment you start documenting and validating the processes, which you need to do to become GMP validated. And we also have a relatively large setup.

And that meant with the yield improvement of anywhere between 50 to 100x, combine that with much bigger reaction vessels, we are not worried about capacity for the coming one, two lustrums, 5, 10 years. We are totally in the green if it comes to capital invested. Even if these guys go commercial. So that will be good for the facility.

Okay. Great. Well, with that out of the way, let's talk about some of those growth pillars you mentioned? Protein in -- Protein Sciences first. We'll start off with ProteinSimple. You mentioned a mid-single-digit growth rate there. What's your degree of confidence that, that returns to a double-digit growth rate? And what would be the drivers to get you there?

Yes. Confidence is very high. We have 10 out of 12 quarters where we had consumable pull-through of more than double digits, really indicates the utilization of the instrument base. Under a suppressed environment, the instrument placements themselves have been negative -- mid-single digits negative. But we know that under normalized conditions, especially where we're heading right now and in the last month and with the indicators that we talked about for these end markets, we do believe that instruments themselves will go back in the black, deep into the black. And then continue to expect a similar behavior on the consumables, maybe even slightly improve. Then the sum of that will be in the teens, maybe mid-teens where we expect it. And that's also the dynamic that we are seeing underlying.

Okay. So right now, double-digit consumables growth, mid-single-digit equipment decline blends into a mid-single-digit growth rate.

Correct.

And you turn that instrument growth rate that will bring the full fleet up to that mid-teens level?

Exactly.

Do you have any new product cycles that could help drive that turn in the instrument revenue trajectory, independent of end market improvement?

Yes, absolutely. So every product line, actually very inspiring new product introductions. Start with Ella, right, which is a very small near-to-patient ELISA capability that -- we just launched an ultra-sensitive cartridge, which really allows it to compete with entrenched customers where we believe -- sorry, competitors, where we believe now with the simple and affordable setup in the ELISA space that we can start nibbling away in the space of neurology and inflammation and that we now have a solution that is sensitive enough and has all kinds of other advantages that definitely will now be on the radar of these competitors.

So we believe we can take market share in a newly addressable market. It was already a very healthy product line in ELISA itself by automating it in a simple and affordable way. But now we'll have more promise.

In Western blot, we have launched the Leo instrument, which has automated Western blot with 4x the capacity of the previous instrument with 100 samples at the same time. Very, very high sensitivity and quantitative results. So an absolute differentiator. For 3 quarters, this product launch has exceeded our expectations that we had set for ourselves even in subdued markets. So we're really enthusiastic about that product launch.

And then we have our Maurice and MauriceFlex. MauriceFlex is somewhat newer, not absolutely new, so it's already on the market for a little bit. But the fractionation capabilities where you can take a specific part of your sample and inject it on mass spec, definitely a differentiator, and we're taking share there as well.

If I jump back to Ella, we are also really seeing this instrument being adopted in different LDT spaces. So customers that run lab-developed tests for near-patient results, and it's holding up really nicely because of the consistency and easy to use. We have announced a year ago that there is a Novomol-Dx, a diagnostic company for testing around your eye, your tears. And they are going to go to market and chose Ella as their platform. And we have a relatively nice pipeline of diagnostic companies that chose Ella as their platform. And we also have IVD capability, so we can support these customers going into the U.S. as well as in the European markets to have a registered box, and that will definitely be an additional driver for Ella adoption and sticky revenue and pull-through.

Okay. So it sounds like you have a pipeline of serial innovation across each one of your protein...

Yes. In the application side as well as the capability of the instrument. Yes.

Got it. And could you then talk a bit more -- we spent time on GMP proteins, but you have a bigger cell therapy opportunity. Can you talk more about your efforts to grab wallet share across the entire cell therapy workflow?

Yes. Cell therapy workflow, of course, we have there are different dynamics as you're well aware of. The Wilson Wolf asset that we do not own yet, we own 20%, but we will own the rest of it in 2027. This is this bioreactor where you can grow cells very efficiently, scalable and fast, affordable. So all kinds of real good benefits. That is a product that sits in 45% of the clinicals globally, and we feel there's a real stronghold in the cell therapy, really enables some cell therapies. And specifically helps them jump the hurdles of scalability as well as affordability.

Of course, our reagents in order to manipulate the cells and make them happy and grow fast, have been a core focus for us to make sure that we have the portfolio that you would need in cell therapy. We have added some hypersensitive and hyperactive proteins that we designed through AI. We have a good portfolio of media, which is obviously food for the cells -- cell therapy. And then we also have small molecules that make the cell stable, et cetera. So a whole portfolio of reagents that go into the cell therapy.

And then last but not least, we also worked on the form factor because people worry about contamination and the form factor you will hear us talk about ProPaks, basically gives you a little hose that goes into the reactor with a pouch that has the right amount, the right concentration of a certain protein or whichever ingredient you will need, and then you can feed it into the system in a closed way. And therefore, easy to use, not human failure with pipetting and concentrations and amounts of it as well as contamination reduction. So an increase of efficiency there, too. So those are a portfolio of cell therapy reagents.

Is it too early to talk about a ProPak attachment rate to the Wilson Wolf bioreactor?

Yes, the attachment rate, I wouldn't really know yet. So it is indeed too early. But what we do look at is that we feel that when customers use our reagents and then you change the form factor is not a big deal. So we know we can swap our own customers. But what we hope and what we've seen evidence of is that we can actually use the ProPak and its benefits I just talked about to then have a customer swap from enemy protein to a Bio-Techne protein. And that's really where we were using it, want to use it for even more so. And we have evidence of a later stage -- later in clinical, a customer that has now swapped the protein they use based upon that form factor. So we're quite happy to see that we have some customer wins through the ProPak.

Is that one of the five clinical -- five Phase III customers you mentioned earlier on GMP proteins?

Yes.

Okay. Versus the enemy proteins. I haven't heard that before. I like it.

I couldn't find the right word, but you know what I mean.

I like it. Why -- you mentioned on the conference call that Wilson Wolf had a flat quarter as well. Why would their quarter have been flat? I would have thought their revenue mix would lean a little bit more commercial. There'd be a bit -- they wouldn't have the same exposure to lumpiness that you would have.

No, absolutely. That's true. So Wilson Wolf had a flat quarter, 12-month trailing of low teens. And yes, they have more than a handful of commercial customers, and they should be seeing less lumpiness. However, the customers do not order every month or every quarter. So there's still some lumpiness with two orders this year and one order this year. And so there's still some lumpiness -- and I think there's two dimensions really.

One was -- is that the biotech market is improving, but it's certainly not healthy yet. So they are also selling into a tough market. And then the other dynamic is some lumpiness because their upcoming quarter forecast is mid-20s inorganic growth. So you'll see it equilibrating back to -- we always think a 20%-plus growth in healthy conditions. So mid-teens in somewhat subdued conditions is not unimaginable.

Okay. Makes sense. Circling back to that ProPak comment from a moment ago, winning a Phase III customer sounds pretty meaningful because otherwise, the time to face progression from someone in preclinical to Phase I, Phase II, Phase III could take quite a while. So if you're able to just pick off Phase III clinical trials, that seems to be the more nearer-term bigger opportunity.

Right. Very meaningful. And...

What does the [ funnel ] of those look like?

Yes. very meaningful because even if it's a Phase I or II or III, you salvage your customer that you would otherwise never see again, right, from that protein perspective. And that's why we are really -- are excited about the ProPak and talked about it so much because, yes, again, it's a definite improvement for our customer if it comes to pipetting their own reagents and our proteins and other materials. But -- so it is definitely a benefit for those customers.

But for us to being able to convert and it will be more likely clinical Is and IIs than IIIs typically, right? But nonetheless, converting somebody that is in a clinical stage is a definite win. And we have not talked about the pipeline there yet, and I don't know we have -- that I would know these numbers right now.

Okay. Understood. Well, a final question on Protein Sciences before we pivot to Diagnostics and Genomics. Every now and then, depending on different FDA announcements, the organoid business within Bio-Techne enters the talk track. Can you tell us how big is that business for you? And how do you view that opportunity over the mid- to long term?

Yes. So I think organoids as a market, right, in Europe, it was already pretty much an important trend. With the recent rhetoric around, we should get more out of animal and more into human representative samples -- sampling and testing, the organoid also became a true driver in the U.S. end markets.

And in the past, I guess that pharmaceuticals always liked the organoid because it's much more representative of human testing than an animal would be. However, the FDA would not really accept any of that data and would not have experience with the organoid model. And therefore, you then always have to go back and just as well start in animal models. But that obviously changed recently, which is really near and dear to our happiness, not only for all the poor animals but also for the quality of the clinical results, but also for the -- for our business because organoids are obviously made out of cells, for that, you need to make it a pluripotent stem cell. You then need to grow it, and you need to have it in a certain setup.

So cell manipulation with our portfolio of reagents and cytokines and proteins is exactly what we do. And therefore, the organoids business, maybe even without focusing on it, when we started counting what we sell into organoid companies is around $50 million already. And it was not a real targeted approach. So we figured last year, let's start being much more targeted around it on the commercial side as well as on the R&D side. And yes, we see real nice traction in there, and it had a CAGR over the last couple of years of 20%. We think we can accelerate it, especially since there's such drive into -- for good reasons, into organoids, into human models.

In the meantime, we've not talked about a product that we've licensed from a university that gives us the ability to create synthetic membrane. So a membrane is basically the base that you grow your organoid on. And there's obviously food in there. Most of the membranes in the current markets are still animal-based and animal-derived. So now you have organoid growing on animal-derived product. But if you really want an animal-free product, then you would need a human -- an organoid -- human organoid growing on synthetic base. And we've licensed this from a university. We've launched it quietly, but that's yet another stimulant to be in the forefront in organoids.

Okay. Well, with that, let's pivot to Diagnostics and Genomics and start off on spatial biology. How would you describe your confidence that spatial biology returns to double-digit growth from -- I think you mentioned it was a flat growth rate in the quarter.

Yes, a flat growth rate in the quarter, but -- and again, that business has the most exposure of all our businesses to the biotech funding -- biotech markets, which have seen constrained funding as well as academic, which have seen constrained funding. So not surprisingly, that business dipped into the red. But quarter-over-quarter continued to improve for the last couple of quarters and is now back in the black, which is nice, especially knowing that last year, they still cranked out double digits. So it's -- Q1, Q2 are tough comparables. And being back in the black is a good sign.

The -- it was low single digits, actually flat, I should say. Low single digits on the reagent side, flat overall, and that's because the instrument had a negative quarter. However, very inspirational is that the book order -- the bookings have double-digit growth in them. So we see that part of the business improving as well.

So we think that, that will continue to accelerate to where it belongs, which is in the mid-teens, in line with market recovery. But we are definitely taking share underneath, right? So that will help the growth to accelerate faster like it did last year.

Okay. Well, before I run off the clock here, I wanted to make sure we spoke about your 2026 framework. And Jim, I wasn't sure, on the conference call, I thought that in Q&A, you underwrote mid-single-digit growth for the second half of the year. Did I hear that correctly? And what would be the drivers of that mid-single-digit growth performance in the back half?

Yes. So I didn't specifically call out the second half, but I did say we still have confidence that we can get to low single-digit growth for the year. Now you can run some numbers and say, what does that mean you have to get to in terms of growth in the second half. If we do, call it, [ minus 1% ] or so the first half. And is it high end of low single digits or low end of mid-single digits? It's somewhere in that range that can get you there. And keeping in mind, too, our second half revenues are just numerically larger than the first half, so they have a higher weighting on the year as well, okay?

And so in terms of the growth being there in the second half even more so than the first half, we're already talking about how the underlying growth is -- we are expecting to accelerate from adjusting for just these two customers, going from 1% growth in Q1 to 3% growth in Q2 when you take these two customers out.

When you look ahead to the back half of the year, a couple of things. One is -- or a few things. One is that the headwinds from these two specific customers are still there, but they start to diminish. So they're not as severe as they are in the first half. We also start to lap the academic and biotech headwinds that we -- it started with the administration change in January, February. So that will be less of a headwind, maybe even a slight tailwind in academic as we get into the second half.

So that combined with just the fact that -- and we also still see China improving. So China should also be a tailwind relative to last year in the second half, China and frankly, Asia overall.

So with the China end market gradually improving, pharma remaining strong, academic and biotech, not even having to really return to growth, but just stabilizing, we start to lap some easier comps. And then that together with the momentum that we're seeing in our portfolio, particularly around our growth pillars, around ProteinSimple and around spatial.

We've seen this before in other downturns. And even a year ago, when we were coming out of what I call the COVID hangover before the administration change and create yet another headwind for our industry, we were seeing our end markets start to turn or stabilize. And it was being led by our -- in our company, it was being led by our growth verticals, it was being led by ProteinSimple and spatial and of course, cell therapy. And as we've talked about already today, we're seeing that strength recur in ProteinSimple and spatial start to turn, and we're seeing that momentum continue in October.

So again, a combination of, I think, we'll lead with our growth verticals, the market is stabilizing and passing some -- lapping some very tougher -- or some easier comps, I guess, I should say. All that combines to say we should be able to get to that kind of growth rate in the second half to support a low single-digit growth for the year.