Navigating Market Currents: Bio-Techne's Q2 Fiscal Journey
Organic Revenue: A Balancing Act of Strengths and Challenges
In the second fiscal quarter, Bio-Techne experienced a stable organic revenue, with significant contributions from major pharmaceutical clients counteracting a softer market in emerging biotechnology and U.S. academic sectors. This period also saw a temporary dip in purchases of GMP reagents from two key cell therapy customers, influenced by FDA Fast Track designations. However, excluding these specific timing effects, the company's organic growth would have registered approximately 4%.
Enhanced Profitability Amidst Evolving Margins
The company demonstrated improved profitability, with adjusted earnings per share (EPS) rising by 10% year-over-year to $0.46. Concurrently, the adjusted operating margin expanded by about 100 basis points, reaching 31.1%. This was achieved despite a slight reduction in adjusted gross margin to 68.5%, attributed to shifts in product and customer portfolios. Management confirmed that Bio-Techne is on track to achieve a full-year operating margin expansion of around 100 basis points.
Future Projections: Navigating Headwinds and Harnessing Growth
For the third quarter, Bio-Techne anticipates organic growth patterns similar to Q2. The outlook incorporates specific company-related headwinds: an estimated 300 basis point impact from cell therapy timing and a 100 basis point effect from an OEM order shift. Despite these factors, management expects underlying growth to be in the mid-single digits, buoyed by robust double-digit growth in China and the broader Asia-Pacific region.
Deep Dive into Divisional Performance: Protein Sciences
The Protein Sciences division reported sales of $215.1 million, marking a 2% increase from the previous year. While organic revenue saw a 1% decline, primarily due to the aforementioned cell therapy purchasing pause, the segment's organic growth would have been 4% excluding these impacts. Noteworthy areas of strength included high single-digit growth in proteomic analytical instrument sales, strong demand for the Simple Western Leo system, and low double-digit growth in core reagents and assays.
Diagnostics and Spatial Biology: Strategic Growth and Divestitures
The Diagnostics and Spatial Biology segment recorded Q2 sales of $81.2 million, a 4% decrease year-over-year on a reported basis. The divestiture of Exosome Diagnostics reduced reported growth by 8%, while foreign exchange provided a 1% tailwind, leading to 3% organic growth. Segment operating margin significantly improved to 10.4%, largely due to the divestiture and ongoing productivity enhancements. Spatial biology, particularly RNAscope and COMET bookings, showed promising growth, alongside strong performance in clinical controls and molecular diagnostic kits.
Geographic Performance: Regional Variations and Market Dynamics
Geographically, China achieved mid-single-digit growth for the third consecutive quarter, and the broader Asia-Pacific region approached 20% growth. This was largely driven by increased R&D investments and activity in advanced therapies. Conversely, the Americas experienced a high single-digit decline, though adjusting for cell therapy order timings, growth was low single-digits. EMEA remained flat, balancing strong prior-year comparisons with current order timing dynamics.
Market Segments: Pharma vs. Biotech and Academia
An ongoing divergence was observed between large pharmaceutical and emerging biotech markets. Large pharma revenue grew low double digits for the fourth consecutive quarter, while emerging biotech saw a mid-single-digit decline, albeit with sequential improvement. The academic sector experienced a low single-digit overall decline, with modest growth in Europe balancing a slight decrease in the U.S. Positive developments in U.S. federal funding proposals were highlighted as potentially constructive.
Q3 Outlook and Financial Stability
Bio-Techne projects Q3 organic growth to be consistent with Q2, factoring in anticipated headwinds from cell therapy timing and an OEM order shift. Excluding these, underlying business growth is expected to be mid-single digits, reflecting improved market sentiment. The company reiterated its target for a 100 basis point operating margin expansion for the full fiscal year. Cash flow from operations in Q2 remained strong, comparable to the previous year.
Strategic Initiatives and Future Trajectory
During the investor call, discussions centered on key strategic areas, including the organoids business, which boasts a run-rate of approximately $50 million. Bio-Techne's planned full acquisition of Wilson Wolf by the end of calendar year 2027 or sooner was also noted, with Wilson Wolf demonstrating 20% organic revenue growth in the quarter. The company emphasized its robust core portfolio and strategic investments in cell therapy, proteomic analysis instruments, spatial biology, and precision diagnostic tools, positioning it for gradual market improvement as biotech funding recovers and academic budgets stabilize.
Bio-Techne: A Profile in Life Sciences Innovation
Bio-Techne Corporation, headquartered in Minneapolis, Minnesota, is a global life sciences enterprise dedicated to developing, manufacturing, and distributing high-quality reagents, instruments, and services for research, diagnostics, and bioprocessing. Its product offerings span recombinant proteins, antibodies, immunoassays, nucleic acid probes and kits, single-cell analysis solutions, and automated protein analysis systems. Iconic brands such as R&D Systems, Novus Biologicals, ProteinSimple, and Advanced Cell Diagnostics provide critical tools for cell biology, immunology, proteomics, and genomics applications worldwide.