Bio-Techne - Q4 2024

Transcript

Operator (participant)

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the fourth quarter of fiscal year 2024. At this time, all participants have been placed in a listen-only mode, and the call will be a question following management's prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clare, Bio-Techne's Vice President of Investor Relations.

David Clare (VP of 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 2023 identified 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 Morgan Stanley, Wells Fargo, and Baird conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim.

Kim Kelderman (President and CEO)

Thank you, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. I'm pleased to report that our fourth quarter results came in in line with our initial expectations. Continued stabilization of our end markets, combined with excellent execution by the Bio-Techne team, led to a 1% year-over-year organic revenue growth. This quarter wraps up our fiscal 2024, where our core portfolio of research and diagnostic reagents, together with the four growth verticals that leverage this content, delivered a 1% growth in what has proven to be a challenging fiscal year. It's worth noting that these growth verticals have enabled Bio-Techne to consistently outperform our peer group during this unprecedented post-COVID pandemic period. During this period, we experienced a challenging funding environment for biotech and a significant R&D budget recalibration by large pharma and academia customers.

Let me give you some examples of the business dynamics we've experienced throughout our fiscal year. First, our proteomics analytical franchise, branded ProteinSimple. This business provides productivity tools for laboratories commonly used to expand laboratory capacity. However, these products are also well-positioned for customers that are operating under constrained budgets and are looking to replace manual processes with simple and effective automation. Here we saw mid-single-digit growth for the fiscal year, led by Simple Plex and Simple Western platforms, bolstered by double-digit growth for our instrument-related consumables across all platforms. Our cell and gene therapy vertical, which is led by our quality GMP protein products, also grew mid-single digits for the year and added more customers, even while biotech funding hit a multi-year low. In our spatial biology vertical, we saw solid growth in fiscal year 2024, despite the budget resets by our pharma customers.

Our new spatial biology instrument, COMET, is seeing a robust adoption and will bring accelerated growth to this vertical in the years ahead. And last, the ongoing traction and market adoption of our ExoDx Prostate Test, together with new product launches within our Asuragen franchise, drove double-digit growth in our molecular diagnostics growth vertical all year long. It is these four growth verticals that have carried us through the challenging post-COVID pandemic market slowdown, and we are confident that these same verticals will drive accelerated growth as our core market and our core portfolio of core reagents gradually recover back to long-term historical growth rate. Over the last 48 years, we've amassed a core portfolio of research reagents and diagnostic tools, which include a catalog of over 6,000 proteins and 400,000 antibody types.

These products are critical components to many foundational workflows in virtually all life science, academic, and biopharma research labs globally. Not only do the reagents unlock the power of scientific discovery, they are also the synergistic force behind our four growth verticals. The five year CAGR for these growth verticals is over 20%. They accounted for about 45% of Bio-Techne's revenue in fiscal 2024, which is significantly higher than the 30% of revenue in fiscal 2019. That's only five years ago. Before we get into the details of the most recent quarter, I'd like to officially welcome Dr. Judith Klimovsky to Bio-Techne's board of directors. Dr. Klimovsky is currently the Executive Vice President and Chief Development Officer at Genmab, and she brings significantly end market, scientific, and international experience to Bio-Techne's board. Dr.

Klimovsky's insight and guidance will be very beneficial as we continue to execute our strategy and expand globally. Welcome to our board, Judith. Now, let's start with a discussion of our end markets and geographies, beginning with the biopharma end market, where we saw continued stabilization from our biopharma customers. Overall, biopharma declined low single digits in the quarter, but it was relatively consistent on a sequential basis. There is a broad awareness that biotech funding has been stronger for the first half of the calendar year, which is good news after a very challenging 2023. We anticipate that this recovery will bring incremental confidence to the capital-dependent companies, and that this will eventually drive increased demand for our portfolio of life science products in the coming quarters.

Academia decreased low single digits in the quarter, reflecting a particularly challenging comparison with the same period last year, during which revenue increased upper single digits. From a geographic perspective, North America and Europe both declined low single digits in the quarter, reflecting the aforementioned constraints in biopharma and academic end markets. Although it is worth noting that Europe had particularly difficult comparables, in that it had double-digit growth in the fourth quarter last year. For China, the stabilization trend that we have experienced over the past several quarters fortunately continued into Q4. As China progress through recovery process, we would expect our portfolio of research reagents to be in the first to return to growth, followed by our instrument portfolio. This prognosis is strengthened by the fact that our team in China delivered their second consecutive quarter of double-digit growth for our core reagent portfolio.

This performance was paired with mid-single-digit growth in our biologics portfolio, which consists primarily of the Maurice family of instruments and associated consumables. Overall, China declined high single digits in the fourth quarter, which was in line with our expectations, as last year's stimulus resulted in a comp of mid-teens growth for this geography in last year's Q4. While the impact of the recently announced stimulus will likely not translate into revenue growth for the region until the second half of our fiscal year, we are encouraged by the overall stabilization in this region and the early return of our growth to our reagents. Now, let's discuss our growth pillars in more detail, starting with ProteinSimple instrumentation within the Protein Science segment, where overall organic growth was low single digits for the quarter. As mentioned, robust utilization of these productivity tools drove double-digit consumable growth.

It's worth highlighting that our Q4 is the seventh consecutive quarter in which the consumables related to our instruments grew at least double digits, which indicates strong utilization of our global installed base. Our protein analysis instrument provides automation, precision, reproducibility, and labor savings, which makes them increasingly ingrained in both academic and biopharma workflows. Our automated multiplexing immunoassay instrument, named Ella, was a standout performer within the ProteinSimple portfolio, as both the instrument and the related consumables increased double digits in the quarter. Ella is quickly becoming the go-to platform for cell and gene therapy customers for viral titer and release testing. Ella also seeing rapid adoption among CROs looking for high reproducibility, paired with high sensitivity in an easy-to-use, fully automated immunoassay platform. Related to immunoassay technology, we recently announced an investment in Spear Bio's Series A funding round.

Spear Bio is an innovation leader in the development and manufacture of ultrasensitive immunoassays, capable of measuring protein markers at attomolar levels from sub-microliter sample volumes. Spear Bio's assays run on qPCR equipment, which is routinely found in research and clinical facilities, therewith tapping into a very broad existing installed base. Spear Bio's initial assay will focus on key biomarkers supporting translational research in Alzheimer's disease. Within our ProteinSimple franchise, we also recently announced the latest addition to our Simple Western platforms called Leo. As a reminder, our Simple Western platforms automate the manual, laborious, cumbersome, time-consuming, and inconsistent Western blotting process that is commonly used to identify proteins in complex mixtures. Leo is a high-throughput automated Western blot system, enabling the simultaneous analysis of up to 100 samples in a single three-hour run.

We are excited to introduce this next-generation system, which is expected to begin shipping in the second half of our fiscal year 2025. We remain the only fully automated Western blot technology provider on the market and see a long runway for the future growth with this portfolio, as our current market penetration is below 30%. Like our other instrument platforms, Simple Western continues to gain traction in cell and gene therapy application, as the system is increasingly used for absolute protein quantitation and relative potency assays. For example, Regulus Therapeutics recently reported positive top-line data from the second cohort of patients in its phase Ib study related to the treatment of a kidney disease called ADPKD. Regulus utilized our Simple Western platform to develop high-performance biomarker assays to measure various proteins in urine as part of this study.

We look forward to working with Regulus and, of course, with all our other partners to further the advancement of cell and gene therapy. I'll now shift to the other growth pillars within Protein Sciences segment, our own cell and gene therapy business unit. This growth vertical includes our proteomic reagents and scalable workflow solutions that enable our customers to accelerate preclinical, clinical, and eventually the commercialization of these next-generation therapeutics. As we've mentioned in the past, order timing from large customers can create quarter-to-quarter lumpiness in our GMP proteins business, and that was indeed the case in our Q4. As a sign of underlying strength, however, we are pleased to see continued growth in the number of customers utilizing our highly active GMP proteins. We will continue to actively seek the market to ensure we partner with our customers early in their development journey.

Within our GMP reagent offering, we continue to drive significant growth in our GMP small molecules business. These small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to regenerative medicine workflows. We are making good progress with our new GMP facility in Bristol, U.K., which positions us well to meet current and forecasted demand for those critical reagents. This small molecule business grew nearly 50% for the quarter and is quickly becoming a material contributor to our overall cell and gene therapy results. In total, our Protein Sciences segment declined 3% organically for the quarter and declined 2% for the fiscal year.

Remember that our Protein Sciences segment is where we have the most exposure to both China and the biopharma end market, and that this segment is positioned to see the most significant improvement as these end markets start to recover. Now, let's discuss the growth pillars in our diagnostics and genomics segment, where our revenue grew by 9% in the quarter and 6% for the full fiscal year. Our molecular diagnostics growth pillar performed exceptionally well as organic avenue growth topped 20%. The value proposition of our ExoDx Prostate Test continues to resonate with both patients and physicians. The test provides critical information to men with a gray zone PSA score on whether to proceed or not to proceed with an invasive and potentially dangerous prostate biopsy. During Q4, ExoDx Prostate volumes increased by almost 35%.

We are seeing momentum across the various KPIs we track for our ExoDx Prostate Test, including a 30% sequential increase in the number of physicians ordering 25 or more ExoDx Prostate Tests per quarter. Rounding out our molecular diagnostics business, the Asuragen brand delivered another strong quarter as the sensitivity and specificity of our proprietary assay chemistry drives global adoption of our carrier screening as well as our oncology kits. This led to mid-teens overall growth for the business, and we continue to advance innovative molecular diagnostic products through our pipeline and are looking forward to the launch of our exosome-based ESR1 mutation kit for breast cancer monitoring, as well as the expanded carrier screening assay in the coming months.

Now, let's discuss our spatial biology growth pillar, where once again, demand for our fully automated, high-throughput, hyperplex spatial biology platform, called COMET, outpaced our manufacturing capacity in the quarter. The cross-organizational manufacturing team continues to implement production process improvements and is making good progress scaling capacity to meet current and forecasted COMET demands. During the quarter, we enabled RNA detection and visualization on COMET with the launch of RNAscope high-plex capabilities for the instrument. Following this launch, COMET is now capable of detecting and visualizing up to 24 protein and 12 RNA targets simultaneously, creating a highly differentiated multi-omics system for the rapidly growing spatial biology market. These enhanced capabilities are in the hands of our initial set of key opinion leaders and will be rolling out across our installed base over the coming months.

In summary, the team delivered another solid quarter and another solid fiscal year in this challenging funding environment. As our end markets equilibrate back to a non-pandemic environment, we are well positioned to reinvigorate growth across our portfolio of research reagent and continued momentum across our four growth verticals. I'm extremely proud of the execution by the Bio-Techne team in these stabilizing but still challenging end markets. I'm also confident in our ability to deliver differentiated financial performance as our end markets progress through their recovery process. And with that, I'll turn the call over to Jim. Jim?

Jim Hippel (CFO)

Thanks, Kim. I'll start with some additional detail on our Q4 and fiscal 2024 financial performance, and then give some thoughts on the financial outlook for the year ahead. Starting with the overall fourth quarter financial performance. Adjusted EPS was $0.49 compared to $0.55 in the prior year quarter, with foreign exchange having a material impact on EPS. GAAP EPS for the quarter was $0.25 compared to $0.47 in the prior year. Q4 revenue was $306.1 million, an increase of 2% year-over-year on a reported basis, and a 1% increase on an organic basis. Acquisitions contributed 1% to reported growth. For the full fiscal year 2024, revenue approached $1.2 billion, and organic growth was comparable to what we saw in the fourth quarter.

Looking at our organic growth by region and end market in Q4, North America and Europe decreased low single digits year-over-year, while China decreased high single digits. APAC, outside of China, increased low double digits overall, with Japan and Australia both benefiting from growth in cell and gene therapy and regional expansion of our Asuragen portfolio, respectively, while lower government funding and macro constraints continue to impact South Korea. By end market in Q4, excluding China, both biopharma and academia declined low single digits in the quarter. As Kim previously mentioned, we continue to see sequential global stability in our biopharma end market, and academia faced tougher year-over-year comps this quarter.

Below revenue on the P&L, total company adjusted gross margin was 71.1% in the quarter, compared to 71.6% in the same quarter of the prior year, driven by the impact of the Lunaphore acquisition and unfavorable product mix, partially offset by productivity initiatives. Adjusted SG&A in Q4 was 29.8% of revenue, compared to 26.8% in the prior year, while R&D expense in Q4 was 7.8% of revenue, consistent with the prior year. The increase in SG&A was driven primarily by the Lunaphore acquisition, as well as the quarterly timing of annual incentive compensation accruals. Adjusted operating margin for Q4 was 33.5%, a decrease of 360 basis points from the prior year period, but an increase of 50 basis points sequentially.

Excluding the Lunaphore acquisition, which closed at the beginning of Q1, adjusted operating margin was 100 basis points lower than the prior year due to the impact of unfavorable volume leverage and product mix. Looking at our numbers below operating income, net interest expense in Q4 was $1.5 million, decreasing $1 million compared to the prior year period due to lower debt levels. Our bank debt on the balance sheet as of the end of Q4 stood at $319 million, a decrease of $70 million compared to last quarter. Other adjusted net operating income was $0.5 million in the quarter, an increase of $0.6 million compared to the prior year, primarily reflecting our 20% share of Wilson Wolf's adjusted net income, partially offset by the foreign exchange impact related to our cash flowing arrangements.

Moving further down the P&L, our adjusted effective tax rate in Q4 was 22%, consistent throughout fiscal 2024, but up 200 basis points compared to the prior year due to geographic mix. Turning to cash flow and return of capital, $75.5 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $18 million. Also, during Q4, we returned capital to shareholders by way of $12.6 million in dividends. We finished the quarter with 160.7 million average diluted shares outstanding. Our balance sheet finished Q4 in a strong position with $151.8 million in cash, and our total leverage ratio remains well below 1x EBITDA. Going forward, M&A remains a top priority for capital allocation.

Now, let's discuss the performance of our reporting segments, starting with the Protein Sciences segment, where Q4 reported sales were $214 million, with reported revenue decreasing 4% compared to the prior year period. As discussed in last quarter's call, while in strategic review of our portfolio, we have decided to divest the Fetal Bovine Serum, or FBS, business. FBS is approximately $10 million annual revenue business with an operating margin profile and long-term growth rate below the company average. The exclusion of FBS unfavorably impacted reported segment revenue growth by 1%. Thus, organic revenues for the segment decreased 3%. As a reminder, it is our Protein Sciences segment that has the most exposure to the China geographic region as well as to the biotech end market.

Operating margin for the Protein Sciences segment was 43%, a decrease of 170 basis points compared to the prior year quarter, as unfavorable volume and product mix were partially offset by cost management and structural alignment initiatives. Now, turning to the diagnostics and genomics segment. Q4 sales were $90.7 million, with reported growth increasing 15% compared to the same quarter last year. Organic revenue growth for the segment was 9%, with the Lunaphore acquisition having a 6% impact. Our molecular diagnostics growth vertical once again led segment growth. Moving on to the diagnostics and genomics segment operating margin at 12.5%. The segment's operating margin decreased compared to the prior year's 18.5%, due primarily to the impact of the Lunaphore acquisition. Excluding Lunaphore, the segment's operating margin would have been over 20%.

Diagnostics and genomics steadily improved operating margins throughout fiscal 2024, benefiting from the integration of Lunaphore and sequentially increasing volume leverage. The segment's operating margin improved 300 basis points sequentially from Q3 and improved from nearly breakeven operating margin at the beginning of the year in Q1. In summary, as we reflect on this past fiscal year, it has really been a multiyear unwinding of the massive investment that occurred in our industry and end markets during the COVID pandemic. We are pleased that our strategic portfolio positioning, together with the resilient execution by our 3,100 employees, has enabled Bio-Techne's annual revenue to be higher today than it was before the unwinding began. We are encouraged that the past two quarters of sequential stabilization in our end markets suggest that the unwinding is largely behind us.

Now, our industry waits for a return to normalized market growth, which for life sciences, we believe, is mid-single digit growth over the long term. How long it will take for this recovery to happen is a challenge for anyone to predict, but there are indications that a gradual recovery in the back half of calendar year 2024 and throughout calendar 2025 is a real possibility. These indications include the following: OEM customer destocking appears to have abated. Biotech funding in the first half of calendar year 2024 has improved significantly from 2023 levels, while large pharma customers may have completed the realignment of their R&D pipeline priorities by the end of calendar 2024, with the pandemic now in the rearview mirror and the implications of new pharma industry-specific government regulation better understood.

And finally, the China region should realize a lift in instrument growth at the start of calendar 2025 due to government stimulus that has been announced. As our end markets gradually recover, we believe that Bio-Techne's relative revenue growth outperformance will also continue. Value proposition that our proteomic analysis platforms have demonstrated to our customers during this downturn has resonated in strong instrument-based consumable growth the past two years, and by our calculation, there is pent-up demand and needed capacity for more instruments. Our cell and gene therapy offering has demonstrated value proposition by adding new customers throughout the past two years, even when new biotech funding has been drastically reduced. Our spatial biology growth vertical now has an automated solution that is unmatched in its speed and multi-omics capabilities, that will also pull through larger quantities of our gold standard RNAscope and antibody reagents.

And last but not least, our molecular diagnostics growth vertical is already in growth acceleration mode, as its unique and underpenetrated portfolio of products continue to take market share. Thus, the gradual road to end market recovery over the next 18 months, together with our expectation for continued outperformance, forms our baseline case for Bio-Techne's organic revenue growth in fiscal 2025. Our current momentum suggests low single-digit growth in the first half of the year, with the possibility of mid-single digit growth once the higher biotech funding returns into biotech spending. Our organic growth could gradually accelerate to the high single digits in the second half of the year, as Chinese stimulus funds are released and assuming large pharma budgets are normalized for the calendar year 2025.

As we look to adjusted operating margin for the year ahead, we intend to fund all new investments with productivity initiatives and cover inflation with pricing actions, allowing the anticipated volume leverage to drop through to the bottom line. However, following a year of missed incentive compensation targets, there will need to be a reinstatement of incentive compensation accruals for both bonuses and sales commissions. The impact of this reinstatement will create an approximately 100 basis points headwind to fiscal year 2025's full-year adjusted operating margin, and more severely impact the first half of the year than the back half. Thus, we expect first half adjusted operating margin for fiscal year 2025 to be approximately 200-300 basis points lower than prior year, and the second half margin to be approximately 100-200 basis points higher than the prior year.

First half of the year, we'll have margin headwinds related to the incentive compensation reinstatement, as well as continued negative product mix. While the second half margin should benefit from greater revenue volume leverage, planned productivity initiatives, and improving product mix. Assuming the indicators that we are all seeing are correct, fiscal year 2025 should be the year of gradual recovery for our end markets, and with it, allow us to exit the year poised for double-digit growth and a multiyear run towards adjusted operating margins over 35%, as per our long-term objectives. That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the line for questions.

Operator (participant)

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue by pressing star and two. Once again, to ask a question, please press the star and one. We'll take our first question from Puneet Souda with Leerink Partners. Your line is open.

Puneet Souda (Senior Managing Director)

Yeah. Hi, guys. Thanks for taking my questions. Just wondering, if you can elaborate a bit on the RUO antibodies and cytokines in the quarter. How did that fare? And also, it seems that your instrumentation portfolios are still holding up while your, your attached consumables are growing with that, with that instrumentation portfolio. Maybe just help us understand the instrumentation dynamic a bit, because when we look at the peers, instrumentations have been weaker, but it just seems like there's a bit more demand. Maybe a part of that is Lunaphore. Just if you could help, help clarify the instrumentation as well, on that end as well.

Kim Kelderman (President and CEO)

Yeah, Puneet, good morning. Thanks for your question. Let me start with the instrument question that you asked. Yes, like, like most others, our instrumentation growth rates have been under pressure in the end markets as we know them. Specifically, China and biopharma being constrained. But we are also proud to mention that the consumables directly related to these instruments have been growing double digits now, seven quarters in a row. So we are very confident that the installed base is getting utilized optimally, and that we are filling up capacity that we have in the installed base. And therewith, with funding coming back in, we are pretty certain that there will be a drive to get increased capacity in the field, and therewith, drive our implementation numbers.

Your question on the RUO antibodies, it's been obviously, you know, the dynamics with the different end markets swinging a little bit and in a bottoming out process, and that makes it a lumpy business. Overall, we are looking carefully at all the different product lines, and we see some lumpiness quarter-over-quarter, but no, nothing that we are alerted about. We feel overall that that portfolio is nicely positioned.

Puneet Souda (Senior Managing Director)

Okay, thanks. Then, Jim, just clarifying the comments on fiscal year 2025. Does this mean a mid- to high single-digit overall for 2025 and an exit rate in the fourth quarter of 2025 of low double-digit? Just wanted to make sure I was clear on that for organic growth.

Jim Hippel (CFO)

Well, I guess, as I said, I've given some guidance on how I think the year will progress based off of, you know, a baseline market expectation, and that baseline market expectation is for a very gradual improvement in our end markets. You know, I don't think we see anything immediately that would suggest an improvement in our end markets in the very near term, but I think by the end of the year, we're hoping that we start to see some uplift with biotech, given the increased funding that we've seen so far year to date, that should turn to spending. And then continue to 2025, you have the Chinese stimulus starting to kick in and pharma budgets being reset.

So that's kind of the gradual progression of the growth rates as we see it. And that's what I've outlined in my prepared comments. And how fast that progression happens or how slow it happens, will depend on what the full-year number ends up, you know, being.

Operator (participant)

Our next question comes from Jacob Johnson with Stephens. Your line is open.

Jacob Johnson (Managing Director)

Hey, thanks. Good morning. Maybe, Jim, sticking on the guidance theme. I heard, you know, some headwinds on the margin side in the first half of the year due to incentive comp, et cetera. It sounds like maybe a little bit better in the back half of the year, but still, we're looking at operating margins in FY 2024 that are, you know, well below where you'd been historically. I know some of that's related to acquisitions. I guess, as we think about returning to growth in the back part of this year, how should we think about incremental margins as growth picks up again? And then I heard 35% plus, but you know, at times we've seen a 40% target longer term.

Is there any reason you couldn't get back to 40% over time with the caveat of M&A can always be dilutive to margins?

Jim Hippel (CFO)

Yeah, it's, thanks for the question, Jacob. So just to reiterate, from a margin perspective, you know, we do have a significant headwind with the, incentive compensation, accrual restatements across the entire company, and it's about 100 basis points. So without that headwind, I believe we, we would be talking about some incremental margin improvement this year. That being said, we do see a line of sight, assuming the, growth rates accelerate throughout the year, we do see a line of sight to margins operating, adjusted operating margins, being 100-200 basis points higher than we ended this year, which would end us in the year somewhere in the mid-30s. My comment around, you know, 35% was actually greater than 35%.

So it was really the message that we see that, you know, this year is a year of recovery, that would set us up very nicely to get back to our long-term growth objectives, which is north of 35% operating margin, up to 40%, of course. We've. That's the range we've always stated, and back on track to our long, you know, long-term growth plans. So that was the main message behind that comment.

Jacob Johnson (Managing Director)

Got it. Makes sense. Thanks for that, Jim. And then, Kim, maybe you know, Jim mentioned getting back to double-digit growth. Maybe just to revisit the 2023 Investor Day and the potential for growth, you know, well into the double digits. You talked about your four key growth franchises earlier and the traction there, and obviously, those are key to more robust levels of growth when the macro normalizes. I'm just curious, a year later, after that Investor Day, are there any of those kind of four platforms where you're more confident in the growth outlook? And then on the flip side, any of those pillars where maybe you have more restrained expectations?

Kim Kelderman (President and CEO)

Yeah, thank you, Jacob. It's a good question. It is quite, I must say, quite comforting that, you know, we look at these four growth verticals very carefully because, you know, those are also areas where investment dollars flow in and our activity level is very high. We continuously look at our progress there, but also the competitive landscape. You know, you take that all together, and we're still very committed to each and every one of those. We feel that we have really differentiated positions with a wonderful symbiosis between those four growth verticals and the core reagents, where each of these growth verticals pulls through our core reagents is very high margins, and we have definitely very differentiated positions in the market. So we're still very confident about it.

The difference that you could, you know, you would ask is like, so what, what is the difference between now and a year and a half ago? And that's obviously that the end markets have slowed since, and that the question is not so much, will we get to the numbers that we, at that time, projected, but the question is, when do you get to those numbers? And that time frame is likely delayed. You know, so in five-year forecasts, you always think about a couple of mediocre years, a couple of good years, a couple of bad years. Unfortunately, now we had a couple of lackluster years behind us, so hopefully, those are out of the system and we're still on track.

But it could well be that that takes a little longer, and then, and then you would have to think about delaying the $2 billion mark. But whether we get there is not the question, and we're really confident with our platforms.

Operator (participant)

Our next question comes from Dan Arias with Stifel. Your line is open.

Dan Arias (Managing Director)

Hey, good morning, guys. Thanks for the questions here. Jim, just looking at the model, can you maybe true us up on where GMP reagent revenue finished for the year, and then what you think a good starting point on growth might be for this year? New products, I believe, but still recovering customer spending. So what do you think that translates to for 2025, just given the importance there to the growth algorithm?

Jim Hippel (CFO)

Yeah, thanks for the question, Dan. You know, in GMP, you know, overall GMP revenue growth for fiscal year 2024 did grow. We, you know, we did have growth overall for the year, even though it was choppy, which is a positive sign in a very tough year. And so we expect those growth rates to increase, obviously, in an improving market. So that's essentially what's been baked into the forward guidance.

Dan Arias (Managing Director)

Okay, but is there any way you can kind of, like, give us a number to work for, work with as a jumping-off point?

Jim Hippel (CFO)

Well, I'd say this, we grew roughly mid-single digit for the year, for the full-year in 2024.

Dan Arias (Managing Director)

Okay, and then maybe just as a follow-up on the outlook and the growth that the company is capable of here. One of the things that you usually talk about when it comes to forecasting is this idea that Bio-Techne is historically and consistently been 500-1,000 basis points above peers on organic. To what extent do you think that that logic applies in 2025, if we just think about the assumptions on market growth that are implied there?

Jim Hippel (CFO)

I mean, we're sticking with that guidance, right? And I think this quarter is yet another testament to it. By our calculations, our peer group in total, you know, shrank roughly about 4% this quarter, and we grew 1%. And so, you know, kind of back to Puneet's question in terms of that getting back to double-digit growth, we are absolutely confident that when the market gets back to mid-single-digit growth, we will be at double-digit. And so trying to predict when that full market recovery happens is difficult to do.

But, you know, I think we're trying to be somewhat conservative in a slower pace of recovery, that 2025 as a calendar year will be a year of recovery, and, you know, it might take that full calendar year to get there, which is why we're being a bit conservative on the fiscal basis that ends in June. You know, we've been hearing from our peers also that bioproduction is looking to recover here perhaps a bit sooner, which might be the first, you know, bit of jolt that the industry needs to kind of get going again, too. So, again, I think there's a lot of positive signs. We called them green shoots last quarter. I think they're still green shoots this quarter. They just haven't quite sprouted yet.

You know, I'll also point out that we have some company-specific activity that will help our growth rate as well. We have obviously the Lunaphore COMET launch that is happening gives us multi-omic capabilities, so that should be an upside for growth. And then we have our Leo instrument that Kim talked about and our ProteinSimple franchise, which is already gaining a lot of interest from customers since we announced that future release. So between our company-specific activities and the market improving, you know, we're feeling pretty good about next year, but we're just being very conservative around the pace of market recovery, as I think everyone else is in our peer set.

Operator (participant)

Next question.

Dan Leonard with UBS. Your line is open.

Dan Leonard (Managing Director and Research Analyst)

Thank you. I have a question on your RUO reagent product line. Is there anything you could do to accelerate growth there, independent of market improvement?

Kim Kelderman (President and CEO)

Yeah, thanks for the question. It's, you know, the linkage to the growth platform is key there. Some of the RUO reagents fit nicely in the pull-through. As you know, we now have enabled, for example, the COMET instrument to utilize our Bio-Techne antibodies that sit in the RUO reagent. And you know, those mechanisms will start pulling through the core. Of course, the core goes to market itself, but that is a lackluster end market. Now, we can also think about how do you get through that better than others? And that's by continuing to improve and solidify our marketplace as well.

So the marketplace, making sure that it's easy to transact with Bio-Techne, making sure that our website is in great shape. Combine that with the vertical platforms pulling through those reagents, you know, is the secret sauce there. And fortunately, in parts of the portfolio, that is already working because some of the RUO product lines are already in the black. Thanks for the question.

Dan Leonard (Managing Director and Research Analyst)

Got it. Appreciate that. And Kim, correct me if I'm wrong, but it seems like your spatial portfolio is less subject to macro headwinds. So could you size that portfolio in aggregate at this point, and how fast do you think it grows in 2025?

Kim Kelderman (President and CEO)

Yeah. So fortunately, we've seen some resilience in that portfolio. But I wouldn't say it's immune, right? So there are still larger pharma customers that would have a run rate of one million or more if it comes to quarterly usage of some of our reagents. And there is shuffling going on in that end market, in which sometimes programs get closed or sometimes locations get consolidated. Now, overall, I don't think that will have a long-term effect on the need of spatial biology. I'm very confident that will be there. But the shuffling in the interim could result in some lumpiness.

Overall, the run rate of that business is now at $120 million, and we see double-digit growth in the coming years, especially because we're nicely combining an instrument, top-notch instrument in the market, that can pull through our RNAscope reagents as well as our antibodies. And right now, that instrument is running or pulling through just short of $50,000 a quarter. And once we got all our reagents linked to it, we feel that that pull-through could double and thereby become our highest pull-through instrument. So I'm very confident this is going to be a very, very positive product line for us and a positive effect on our company.

Operator (participant)

Our next question comes from Tom DeBourcy with Nephron Research. Your line is open.

Jack Meehan (Equity Research Analyst)

Hi, thanks. This is Jack Meehan on for Tom DeBourcy. Was wondering if you could elaborate on what you're seeing, as it relates to China stimulus, how that, you know, what parts of the portfolio, you know, are exposed to that, and maybe just how it impacted the current quarter and confidence it steps up in the second half of the fiscal year. Thanks.

Kim Kelderman (President and CEO)

Yeah. Thanks, Jack. The, you know, as you know, the funding program is trickling through the different systems and regional governments. It's certainly on its way. That's what we hear. Customers are certainly interested in receiving the benefits and also interested in spending the money already. And as you know, it's highly tailored to instrumentation only, and I think we're really well positioned to benefit from it. A couple of data points. First of all, our instrumentation is pretty unique, and it creates efficiencies and improves the data that you get out of it. So there's a fantastic value proposition there. Secondly, about a year ago, a similar funding concept was put in place, and we truly benefited.

That's why our current Q4, the one we're reporting on right now, had relatively high comparables year-over-year because of that funding, and that worked out really well for us. This program is, is put in place for three years, so we feel that the moment these funds become available, we will benefit short term, and then, you know, I feel it will be a positive driver for the coming years ahead, which is, of course, better than just a, you know, one quick jolt that then falls flat again. So I'm, I'm happy with that, that, that concept. Now, in the meantime, out of our four product lines, we have the Ella, Ella product line, and that one has already been growing very nicely in China.

As I mentioned at the beginning of the earnings call, we have seen the consumables on all four of our platforms continue to grow double digits in the market as well, and indicating that there is a very healthy usage of our instruments. So overall, I'm pretty confident that this will be a positive driver for the company. But like everybody else, the timing and when it trickles through is a little bit more vague, but I think the if is more important than the when, and I'm pretty certain the if is going to take place.

Jack Meehan (Equity Research Analyst)

Sounds good. Thank you.

Operator (participant)

Our next question comes from Matt Larew with William Blair. Your line is open.

Matt Larew (Research Analyst)

Hi, morning. I want to start on Lunaphore. Obviously, for some, a few quarters now, you've reported that demand is outstripping capacity, and I know you brought manufacturing in-house and are attempting to scale that up. So could you maybe speak to where you're at from sort of fixing the manufacturing there from a backlog perspective, and how those two things maybe filter in to what you think you can deliver from Lunaphore in fiscal 2025?

Kim Kelderman (President and CEO)

Yeah, thank you for the question. First of all, we were delighted that we saw a healthy demand above our capacity. That's, of course, always a good starting point, painful nonetheless. So our teams have worked really hard in cranking up the capacity. And, yeah, I think that's ongoing now for a little over two quarters, and I'm very pleased to see the progress there. And, yes, we've mentioned it, that it was still a consideration in Q4, that the our last fiscal fiscal quarter that we're now reporting on. But that in Q1, fiscal year 2025, this problem should be going away. So the lines of capacity and demand are going to be crossing, you know, any week or any month right now.

From there, we should, we should not be held back by the capacity constraints anymore, and, and just be able to, to focus on, on, on increasing demand. So, it's looking very promising from that, from that point of view, you might not hear about that, that topic anymore.

Matt Larew (Research Analyst)

Okay, that's good to hear. And then, Jim, just thinking about margins next year. Obviously, you gave the first half for second half guidance. But I think just if I kinda do quick math on the top line and what it implies for margins, that you know, spending next year, absent some of the resets you described, is gonna be quite a bit less than year-over-year growth than in recent years. You referenced some productivity programs, so maybe just want to get a sense for you know, where you're targeting from an efficiency perspective and you know, kind of what the balance is between trying to pull costs out to get margins back in line relative to allocating investment for some of the future growth opportunities.

Jim Hippel (CFO)

Yeah, I mean, the reality is that we've been working on productivity initiatives throughout this down cycle, so definitely throughout fiscal 2023, 2024, and have more projects in the fiscal year 2025 as well. And, you know, it's a delicate balance of making sure we adjust the structure inside of our business relative to our volumes, while maintaining and fueling the growth pillars or growth verticals in our company that are allowing us to outperform our competition and will propel us into double-digit growth once the market gets back to normal growth rates.

It's a delicate balance, but I think we've been pretty successful in these initiatives that we're doing, and we have line of sight to do that yet again this year and basically offset any new investments we're making in those growth pillars in particular, to keep them moving forward to our five-year, you know, plan objectives. So it's an ongoing process for our company.

Operator (participant)

Our next question comes from Patrick Donnelly with Citi. Your line is open. And Patrick Donnelly, your line is open. We'll take the next question from Catherine Schulte with Baird. Your line is open.

Catherine Schulte (Senior Research Analyst)

Hey, guys. Thanks for the questions. Maybe first, just on the outlook for the first half of low single digit organic growth, does that hold for the first quarter as well? And then any color on how we should think Protein Sciences, specifically in the first half versus the back half?

Jim Hippel (CFO)

Yeah, I'll take that. Thanks, Catherine. Yeah, again, it's a gradual increase that we're talking about, based off of market projections, right? And I said in my opening comments that, you know, somewhere between low and mid-single digit growth in the first half, which would suggest some level of progression in both our end markets and our absolute performance in the first half of our fiscal year 2025. So I want to make sure that that's clear. With regards to where that improvement comes from, I know Kim mentioned this in his opening comments as well, largely that's gonna come from our Protein Sciences segment, right?

Because that's the segment, that's the part of our business that's most been severely impacted by China, by the biotech funding issues, by the slowdown in big pharma. That's all hitting dead center into Protein Sciences segment. So as those end markets recover, Protein Sciences segment will be the most, which will be what recovers the fastest and the most, which will improve our mix over time throughout the year and ultimately improve our margins throughout the year, which is another basis for why we believe the second half margins will be significantly better than the first half.

Catherine Schulte (Senior Research Analyst)

Okay, got it. Then maybe for China, any thoughts on kind of how that trended throughout the quarter? It sounded like stabilization was what you guys were seeing, but any differences as you worked your way throughout the quarter, and then, you know, what are you expecting for the first quarter for China?

Jim Hippel (CFO)

I would just say, as for China, that it was basically a repeat of Q3. It really was, in terms of you look at the absolute dollars, the growth rates, you know, our reagents continue to be double digit like they were last quarter, which is a great sign for recovery, but instruments continue to be down. We're not projecting any major pickup on instruments until we get into our first quarter 2025, or sorry, first calendar 2025, when the stimulus kicks in for China. So we see China as continuing to be stable, but then really pick up its growth rates in the back half of our fiscal year.

Operator (participant)

Our next question comes from Justin Bowers with Deutsche Bank. Your line is open. Justin Bowers, your line is open.

Pardon the mute there. Can you talk, can you talk, good morning. Can you talk about the biopharma end market and how that performed across the different geographies? And then any notable pockets of outperformance or underperformance across the different growth pillars?

Jim Hippel (CFO)

Yeah, I mean, biopharma, you know, taking China out of the mix, which we, when we report biopharma, it's really excluding China anyway. We mentioned that it was low single digit growth and was very consistent globally, both in Europe and in the U.S. And yes, so low, you know, low single digit decline, growth. But, you know, more importantly, the sequential performance of biopharma was consistent in Q4 as it was in Q3. So try not to get too caught up in growth rates because they can give a bit wonky, but really focused on the momentum of the business going forward. And because 80% of our business is consumable, that book and ship in the same day, it really is all about the momentum.

We're encouraged that the momentum overall, even within biopharma, has at least stabilized. So, you know, I think, we've been saying this, it was really no change in our message from the past two quarters, where we felt like, the December quarter was a bit of a bottom, and that we're kind of in this bottoming process until the markets start to fully recover. And as I mentioned in my opening comments, there's reasons to believe, from a macro perspective, that it will recover sooner than later, but it will probably be a gradual process going forward.

Justin Bowers (Research Analyst)

Thanks, Jim. A quick follow-up on Lunaphore. In terms of linking the reagents to, to, the instruments there, is that like a multi-quarter or a multi-year process? Can you talk about that, that process and phasing a little bit?

Kim Kelderman (President and CEO)

Yeah. Thanks, thanks for the question. No, the initiation of linking the RNAscope HiPlex to the COMET is actually happening this quarter, and is going to roll out throughout this quarter. The antibodies you could be using right now, so that's also already in place. Will we broaden that portfolio and add different tools to it? Yes, and that will be, you know, just a filling out of the toolbox over the coming quarters and years. But, you know, to start, to get going and to do your experiments across most diseases, most species, fully automated multiomics, that's possible as we speak and in the coming months.

Operator (participant)

We'll take our final question from Sung Ji Nam with Scotiabank. Your line is open.

Sung Ji Nam (Managing Director and Senior Equity Research Analyst)

Hi, thanks for taking my questions. Just on the academic end market, I know it's relatively small, but is the expectation there also for that segment to gradually recover throughout fiscal year 2025, given comps get easier? You know, if you could maybe highlight some of the key puts and takes for that end market.

Jim Hippel (CFO)

Yeah, I would just say from an academic perspective, it's even throughout the pandemic, both, you know, during the pandemic and post-pandemic, and I think as we track our peer performance, we're not that different in that it hasn't been an overly dynamic environment for academic. It's been pretty much a low single digit to mid-single digit kind of growth in our space. And we had some lumpiness in our comps this quarter, but that's kind of what we're predicting going forward. You know, call it a low single digit market growth in academia, and that's what, you know, basically what we've experienced for the past several years, and we see that kind of not changing much going forward.

I'm sure you follow as much as I do, there's different bills in Congress right now that would suggest that it will reconcile somewhere in that range anyway, going forward from an NIH perspective.

Kim Kelderman (President and CEO)

Yeah. I think what is a positive driver for our company is that much of the NIH funding, but also the Horizon funding in Europe, has been focused on infectious diseases and technologies and sciences related to infectious diseases, initiated through and because of the pandemic. But that there is a more normalization as it comes to, you know, doing your studies and your sciences around neurology as well as immuno-oncology, and those are areas we are stronger and better positioned in. So overall, we feel that the mix coming out of those funds will be in our advantage.

Sung Ji Nam (Managing Director and Senior Equity Research Analyst)

Gotcha. And then just on molecular diagnostics, you know, also a small part, a small business, for you guys, relatively speaking, but you saw very strong growth throughout 2024. And just kind of curious if this is more a function of you taking share, or is it just the underlying market growing faster than expected? And then kind of, could this kind of level of growth momentum, could that continue into 2025 as well? Thank you.

Kim Kelderman (President and CEO)

I think it's a mixture, and thanks for the question. There are certainly just fundamental improvements where we feel that we are taking share. There's also, of course, some, you know, some dynamics that we should not count on going forward all the time, because we don't know exactly. Remember that we had a couple of quarters of inventory adjustments, and then we knew that, with the destocking, that we were going through a couple of quarters that were lackluster. And then we call the end of that, in December, and that we would be free and clear of that in the new calendar year. And that became true, but I do believe that some of the inventories also got normalized, and that there is a little extra momentum there that won't repeat.

Overall, though, I think there is some real underlying strength in that these end markets are healthy and we are taking market share.

Operator (participant)

It appears we have no further questions. I'll turn the program back to the speakers for any additional or closing remarks.

Kim Kelderman (President and CEO)

Yeah, I will go ahead with my closing statement. Thank you very much for joining the call today and for all the insightful questions. I'm extremely proud of the Bio-Techne team's accomplishments and all the results that we have been able to deliver in the quarter and in the fiscal year, even under the current market conditions. Our differentiated portfolio addresses some of the highest growth markets in life sciences and is positioned to deliver best-in-class performance for all of our stakeholders going forward. So thank you very much, and till the next earnings call.

Operator (participant)

This does conclude today's program. Thank you for your participation, and you may disconnect your line at any time.