U.S. Markets closed

Edited Transcript of TECH earnings conference call or presentation 5-Feb-19 2:00pm GMT

Q2 2019 Bio-Techne Corp Earnings Call

Minneapolis Feb 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Bio-Techne Corp earnings conference call or presentation Tuesday, February 5, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Charles R. Kummeth

Bio-Techne Corporation - CEO, President & Director

* James T. Hippel

Bio-Techne Corporation - Senior VP of Finance & CFO

================================================================================

Conference Call Participants

================================================================================

* Alexander David Nowak

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Andrew Luten Jones

Stephens Inc., Research Division - MD

* Catherine Walden Ramsey Schulte

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Charles Steinman

Goldman Sachs Group Inc., Research Division - Business Analyst

* Daniel Anthony Arias

Citigroup Inc, Research Division - VP and Senior Analyst

* Daniel Louis Leonard

Deutsche Bank AG, Research Division - Research Analyst

* Puneet Souda

SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the Bio-Techne Earning Conference Call for the Second Quarter of Fiscal Year 2019. (Operator Instructions)

I'd now like to turn the call over to Mr. Jim Hippel, Bio-Techne's Chief Financial Officer.

--------------------------------------------------------------------------------

James T. Hippel, Bio-Techne Corporation - Senior VP of Finance & CFO [2]

--------------------------------------------------------------------------------

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

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

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

I'll now turn the call over to Chuck.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thanks, Jim, and good morning, everyone. Thank you for joining us for our second quarter conference call. I'm happy to report that the strength in our core businesses that we experienced back in Q1 of our fiscal year '19 continued in the second quarter. The company delivered 11% organic growth in the quarter, led again by our Protein Sciences segment with a stellar 14% organic growth for the second quarter in a row.

What makes Q2 more impressive than Q1, however, is the much stronger comps we faced this quarter. You may recall last year the overall company organically grew 14% in Q2, while the Protein Sciences segment grew 15%. This quarter marks the first time Bio-Techne has organically lapped double-digit growth with double-digit growth.

Our strategic plan first rolled out 5 years ago had a long-term goal for the company to be a perennial double-digit grower. It is satisfying for my team including all the employees of Bio-Techne to have reached this important milestone. And by continuing to meticulously execute on our strategy, we believe we are still at the beginning of our growth journey.

As we look at our performance by geography, all major regions continued to perform exceedingly well. The only regions of less than double-digit growth were Europe and Japan. With growth of nearly 20% in Q2 of last year for Europe and over 10% growth last year in Japan, single-digit growth in Q2 of this year for these regions was still respectable.

Meanwhile, the U.S. and the rest of Asia executed exceptionally well, especially considering a challenging nature for this year-over-year comp. In Q2, the U.S. grew in the low teens over the prior year quarter, which also saw growth in the teens. China grew over 30% this quarter versus the second quarter of last year, which also saw growth of nearly 30%. In fact, China grew 30% for the first half of our current fiscal year, marking the first time China has experienced over 30% organic growth in 2 consecutive quarters.

Having such growth in all our regions while facing very strong comps from the prior year is great, but I'm even more pleased with the consistency of our growth rates as a company over the past several quarters. I believe it speaks to the strength of our product portfolio, the scale of markets these products address and momentum behind the fine execution of our strategic plan.

So now let's talk a bit about performance of our products, starting with the Protein Sciences segment. We experienced growth in nearly every single major product category and double-digit growth in most. Our instrument-based solutions continued to receive great acceptance in the market with our automated Western blot solutions growing nearly 30% in Q2 as it also did in Q1. The biologic ICE platform grew 20% in the quarter and our automated ELISA solution, Ella, grew nearly 50%.

Despite the tremendous momentum we currently have with these platforms, we never rest in our laurels and continually seek to meet or exceed our customers' needs through innovation. For example, we recently announced the launch of a capillary electrophoresis SDS PLUS system for the Maurice instrument with novel cartridges, buffers and software for further enhancement of size-based protein characterization and purity analysis.

Also, we launched a new customizable cartridge format with simplex -- Simple Plex Ella immunoassay platform. The new open access 48-sample cartridge enables researchers who are studying unique biomarker signatures that leverage their own segments -- their own reagents to be able to custom immunoassays on the Ella platform.

Both of these new launches are examples of how we continue to develop robust tools that simplify applications and remove complexity, enabling researches to focus on their science.

Growth in the Protein Sciences segment also benefited from continued strength in our core reagents, especially antibodies and cell and gene therapy applications, both of which grew more than 20% in the quarter.

Bio-Techne solutions for the cell therapy workflow span across our product portfolio and include GMP cytokines and growth factors, GMP small molecules, GMP media and high-quality antibodies for flow cytometry and immunocytochemical characterization. The use of GMP reagents early in the manufacturing process is highly advantageous as it eases the cell therapy workflow, transition from bench to clinic by preventing the need to switch the GMP at a later stage when the cost and risk of change is higher and the freedom of change is lower.

In addition, Bio-Techne is focused on developing innovative and technological pioneering solutions that optimize and simplify cell therapy manufacturing with Cloudz, trademark, cell activation kits and the Simple Plex immunoassays. These technologies are designed to expedite cell expansion and improve product quality control, respectively.

We at Bio-Techne are excited to lead the way in providing innovative GMP reagents and highly technical solutions for cell therapy development and manufacturing worldwide.

Moving on to our Diagnostics and Genomics segment, where we returned to growth in Q2 albeit modestly. The ramp of volume orders in our Diagnostics division continues to build, and we foresee year-over-year revenue growth rates continuing to improve in the back half of the fiscal year.

As for our Genomics division, Q2 of last year was the big earn-out quarter for the prior management team where they aggressively sold RNAscope assays and pharmaceutical services to achieve nearly 50% growth, making it an almost insurmountable comp to beat this quarter. Despite the challenge, the division still delivered year-over-year growth in both RUO and diagnostic product revenue. Going forward, the new -- with new leadership in place, executing on more long-term customer retention strategies, the team is reinvigorated to get the division back to solid double-digit growth. With an addressable market size of over $1 billion and superior RNA, ISH technology, in situ hybridization, nothing less is acceptable.

Finally, an update on ExosomeDx. Last week, we announced the National Comprehensive Cancer Network, or NCCN, decision to include EPI as a recommended test in their clinical practice guidelines in oncology for prostate cancer early detection. The updated treatment algorithm includes EPI testing prior to a first prostate biopsy or after a negative biopsy to assist patients, urologists and further define the probability of high cancer -- high-grade cancer and reaching a joint decision to either proceed with prostate biopsy or continue monitoring.

The NCCN guidelines are a recognized clinical standard for cancer care by clinicians and payers in the United States. The guidelines are developed and revised by a panel of expert physicians from 28 leading U.S. cancer centers. The panel revises recommended practice guidelines according to current clinical advents and advances in cancer care.

When we acquired ExosomeDx, we knew it could be a platform that could transform the rapidly growing field of liquid biopsy. We also felt that synergies of ExosomeDx melded remarkably well with our ACD team, the tissue biopsy platform and our immunotherapeutic tools like cell culture. The ExosomeDx team has worked extremely hard these past few years to get to this point of adoption and professional recognition of its EPI test and the value it brings to both patients and payers.

These new guidelines are critical in our efforts to broaden insurance coverage, including Medicare coverage, which we are pursuing with professional rigor. Inclusion in the guidelines will also broaden patient access to the EPI test by affirming its value and then evaluating whether to proceed with a prostate biopsy. Men over 50 with an inconclusive PSA level between 2 and 10 now have another course of diagnosis before yielding to a painful and risky prostate biopsy.

Even before NCCN guidelines or without Medicare reimbursement approval, EPI is rapidly gaining acceptance among urologists throughout the country. Over 4,000 patient tests were performed in Q2 and more than 1,100 physicians have requested over 12,000 kits for future use on their patients, double from what we were requested in Q1. This level of enthusiasm by the urology community and now with NCCN guideline inclusion gives us added confidence that EPI will be expeditiously added to the NGS local coverage determination for Medicare reimbursement.

With regard to non-Medicare payers, the Exosome team continues to make great progress for payer coverage. They have contracted with 25 regional commercial and PPO networks nationwide and have Medicaid enrolled in 25 states.

Going forward, the team has an aggressive pipeline and time line to continually expand the coverage of both private and public payers. Of course, the biggest payer of all, given the demographics of those most likely to benefit from an EPI test, is Medicare, which means that we won't start seeing meaningful revenue in the near term until we have Medicare reimbursement approval.

EPI is the first diagnostic test of many using both urine- and blood-derived exosomes that we will seek approval over the coming years. Our exosome-driven diagnostics platform is unique in the liquid biopsy field and it's positioned to become a true standard of care for diagnosing, treating and monitoring cancers as well as other diseases. Our diagnostic products will enable physicians to take a more targeted and precise approach in their treatment strategies, and thus improve patient outcomes while lowering overall health care costs.

Before turning the call over to Jim, as I often do, I would like to conclude my prepared remarks to comment about our adjusted operating margin performance. While we did indeed experience a 250 basis point year-over-year decline to adjusted operating margin in Q2 due to the acquisitions we have made over the past year, mainly ExosomeDx, I'm very pleased to report that excluding these acquisitions, our adjusted operating margin for the quarter grew 260 basis points year-over-year. I believe this demonstrates our commitment to holding our historically strong core margins, while ramping profitably in the businesses we have acquired over the past 5 years. The team has done a fantastic job executing our productivity and focused investment to overdrive revenue and margin performance, helping mitigate the short-term impact of delayed reimbursement to deferred revenue recognition that we experienced with ExosomeDx.

With the first half of fiscal '19 now behind us, the overall core business is executing better than ever and the predicted outcome of the strategy we outlined -- first outlined 5 years ago is becoming a reality.

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

--------------------------------------------------------------------------------

James T. Hippel, Bio-Techne Corporation - Senior VP of Finance & CFO [4]

--------------------------------------------------------------------------------

Great. Thanks, Chuck. I'll provide an overview of our Q2 financial performance for the total company as well as provide some color on each of our segments.

Starting with the overall second quarter financial performance, adjusted EPS increased 4% to $1.06, while GAAP EPS for the quarter was $0.45 compared to $1.29 in the prior year. Q2 reported revenue was $174.5 million, an increase of 13% year-over-year with organic revenue increasing 11%.

Second quarter reported sales include a 3% growth contribution from acquisitions and a 1% unfavorable impact from foreign exchange translation.

By geography, the U.S. grew in the low teens, Europe's organic growth was in the high single digits, while China grew over 30%. As for the rest of Asia, organic growth was in the mid-teens, led by South Korea and India.

By end market, biopharma growth was approximately 10%, while academic sales growth was in the mid-single digits.

Moving on to the details of the P&L. Total company adjusted gross margin was up 60 basis points compared to the prior year at 70.8% in Q2. The favorable product mix and operational productivity partially offset by the mix from recent acquisitions.

Adjusted SG&A in Q2 was 29.2% of revenue, flat to Q1 and 300 basis points higher than the prior year, where volume leverage is more than offset by the additional SG&A added as a result of acquisitions. R&D expense in Q2 was 9.1% of revenue, also flat to Q1 and prior year.

The resulting adjusted operating margin for Q2 was 32.5%, a decrease of 250 basis points from the prior year period. However, as Chuck already mentioned, excluding the impact from recent acquisitions, core adjusted operating margin expanded 260 basis points year-over-year. This is driven by strong volume leverage, favorable product mix and solid operational productivity.

For GAAP reporting, SG&A in Q2 of last year reflects a $12.4 million charge for the fair market value adjustment of the ACD earn-out. Management views this charge as part of the acquisition price paid for ACD, and thus it was excluded for adjusted earnings in the prior year.

Looking at our numbers below operating income, net interest expense in Q2 was $5.6 million compared to $2.2 million of net interest expense last year. The higher interest expense is driven by higher debt level that resulted from our acquisition of Exosome Diagnostics in Q1 as well as multiple LIBOR rate increases in the past year on our outstanding line of credit.

Our bank debt on the balance sheet as of the end of Q2 stood at $545.4 million, down from $561.5 million at the end of Q1. Other adjusted nonoperating income for the quarter was approximately $1 million, up $1.1 million from the prior year quarter due to favorable transactional foreign exchange.

For GAAP reporting, other nonoperating includes a $7.2 million unrealized loss from our investment in ChemoCentryx. This is due to the adoption of Accounting Standard Update 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments with readily available fair market values to be recorded as an asset on the balance sheet, and any changes in fair market value be recorded on the income statement. The prior standard, and as reported last year, required changes in fair market value to be recorded in the equity section of the balance sheet.

Moving on down the P&L. Our adjusted effective tax rate in Q2 was 21%, a 350 basis point improvement from prior year due to tax reform. For the remainder of fiscal year '19, we expect the adjusted effective tax rate to be approximately 100 basis points higher than Q2 due to some favorable timing in the current quarter that's not likely to repeat.

For GAAP purposes, income tax expense in the prior year included a very large onetime benefit due to revaluation of deferred tax liabilities that resulted from tax reform.

Turning to cash flow and return of capital. $46.6 million of cash was generated from operations in the second quarter and our net investment in capital expenditures was $4.6 million. $12.1 million of dividends were paid out in the quarter and average diluted shares stood at 38.7 million shares outstanding. Also during Q2, we bought back $15.3 million worth of our own stock using most of the net proceeds from stock options that were exercised during fiscal year '18.

Now I'll discuss the performance of our reporting segments, starting with Protein Sciences segment. Q2 reported sales were $135.5 million with reported revenue increasing 16%. Organic growth was 14% with acquisitions contributing 3% to revenue growth and foreign exchange unfavorably impacting growth by 1%. As Chuck has already described, the growth in this segment was very broad in almost every product category and geographic region.

Operating margin for the Protein Sciences segment was 43.5%, an increase of 60 basis points year-over-year due to strong volume leverage and operational productivity, partially offset by the mix of lower-margin acquisitions.

I'd like to reiterate Chuck's earlier comment regarding our commitment to improving the profitability from our acquisitions. As an example, this quarter, our ProteinSimple branded products achieved a new profitability record with 25% operating margin, which was approximately 400 basis points greater than prior year.

Turning to the Diagnostics and Genomics segment. Q2 reported sales were $39.3 million, an increase of 6% from the prior year. Organically, revenues grew 2% while working in a very tough comp due to last year being an earn-out quarter for the Genomics business. Acquisitions contributed 4% to revenue, including those from Eurocell and Exosome Diagnostics.

Chuck has provided commentary on the test ramp of EPI. He also provided some additional color on revenue and revenue recognition as it pertains to EPI. As a reminder, Exosome Diagnostics has been recognized in EPI revenue on a cash basis. This is the correct accounting treatment, given its recent commercial launch in 2018. For patients insured by private payers, the cycle from test report date to payment can be quite long. This is especially true for patients covered by PPOs. For patients insured by Medicare, billings have been put on hold until decision has been made by CMS on reimbursement.

With Medicare approval still pending and given that the majority of our private payer contracts are currently with PPOs, very little of the tests performed during the past 5 months of ownership were collected before the end of December. Thus, minimal revenue from EPI was recorded in our Q2 results. Furthermore, cash collections on tests performed before the August 1 acquisition date are not recorded as revenue, but rather accounted for in the balance sheet under purchase accounting.

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

Thus, as it pertains to EPI this year, we will be continuing to focus our dialogue on current test trends, private payer contract coverage and public reimbursement decisions, knowing that revenue recognition will lag. As Chuck has stated, the test ramp is impressive. And now with NCCN guideline support, it should accelerate even faster in the coming quarters.

Moving on to operating margin for the Diagnostics and Genomics segment at minus 2.7%, the segment's operating margin was substantially lower than the prior year. However, excluding the dilution from the Exosome Diagnostics acquisition, operating margin for this segment was 17.7% or 180 basis points better than last year. The organic margin improvement was largely due to favorable product mix.

In summary for the quarter, our breadth of growth continues to be solid, both in terms of end markets and product categories. Having a sequential quarter of double-digit organic growth on top of second quarter last year, which was our toughest comp ever, bodes well for the momentum of our portfolio as we head in the second half of our fiscal year. On the bottom line, our adjusted operating margin performance was in line with what we expected at the beginning of the fiscal year but achieved a bit differently.

Obviously, the delay of NCCN guidelines and follow-on Medicare reimbursement has increased the impact of Exosome Diagnostics' dilution to our earnings from what we had anticipated at the beginning of fiscal year. However, the stellar operational performance in our core business is mitigating most of this additional dilution, and we expect this trend to continue for the remainder of the fiscal year. That concludes my prepared comments.

And with that, I'll turn the call back over to the operator to open the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will now take our first question from Dan Arias from Citigroup.

--------------------------------------------------------------------------------

Daniel Anthony Arias, Citigroup Inc, Research Division - VP and Senior Analyst [2]

--------------------------------------------------------------------------------

On the -- Chuck, on the segment performance, can you just touch on reagent solutions? It sounds like things were a bit above trend there for the core biotech business. And then on the analytical solutions side, I'm wondering about -- a little color there on the business this quarter. And then what that says about the outlook in the context of the 15% to 20% target that you've had there?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [3]

--------------------------------------------------------------------------------

Okay. Great. Well, we were just chatting about this before the call. We should have probably brought out antibody a little more than we did in the discussion or the press release or anything else, but we had a record quarter for antibodies. We were over -- way over 20% growth. We were strong across the board. The comp on proteins from last year was like a 16% growth, so we're near flat there. But if it's holding, it's going to ramp as the GMP goes up. So we had stellar performance in RSD. Assay is also really good across the board. Royalty is strong and Luminex. Luminex is still doing really well. If you look at our entire assay line from ELISA all the way through multiplex, we're still double-digit growth. So those strategies are still working flawlessly, so an exceptional quarter for that division. And on ASD, we probably got to stop saying 15% because we keep doing 20% or better. So I'd say the outlook is definitely leaning towards 20-ish, more than 15%, the way it's been. Momentum looks pretty strong still. What I can say about -- Western blot solution near 30% a few quarters in a row now. It really has crossed the chasm and is just lighting it up. We know it's a big market. We always said so. How many quarters did I speak on this about, it will be a 10-year slog of 10% to 15%. And suddenly about a year ago, it's just kind of hit and it's continuing. So the adoption is happening, I think, for making this automated Western blot the new standard of record out there for doing Western in laboratories. So we're really happy. Biologic has bounced back nicely from about a year ago, I think. We had some pain in there. It's been pretty good. And Ella is just starting to knock out of the park, another quarter of 50% growth and we don't see any end in sight. And the new cartridge platform we announced here is a big deal because this is the first cartridge that's an open platform. So all those big guys that don't want to let their stuff out of their sight would give to us to make a close cartridge system. Now they can take the system and they can do it themselves, dial it in and give it to us. We don't need to know what's in it and make the cartridges form. So we're going to see even more uptick, I think, on clinicals in support if this thing is still a sleeper, I think, in terms of a platform, which is about the very first acquisition we did. It's taken a few years, but it really is now moving fast and is very material now in size for the company. So that addresses both those divisions for you, I think.

--------------------------------------------------------------------------------

Daniel Anthony Arias, Citigroup Inc, Research Division - VP and Senior Analyst [4]

--------------------------------------------------------------------------------

Yes, it does. And then maybe on Exosome. Now that EPI is in the guidelines, do you feel like the pieces are in place for the LCD. I mean, obviously, the algorithm now reflects EPI as an option, but there are other parts of the document that look like they are still being updated. So I'm just -- I'm curious whether you think the table is now sufficiently set for the reimbursement policy? And then what's your assumption on timing at this point, if you have one?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [5]

--------------------------------------------------------------------------------

Yes. So I want to make a few careful comments here. And I want to do this while everyone's on the line, so that we don't have the same sets of questions coming one at a time afterwards and just to make it very apparent. This is a really highly competitive space as you guys know. There is a lot of stuff going on around in liquid biopsy. Everyone thinks they are better, and there's a new company every day and it's very aggressive. And I can only imagine what these poor committees between NCCN and NGS are going through trying to see who really has what it takes here with the real data. We know our science is undeniable. We know our results are undeniable. We do what we said we'd do. We got to the NCCN a couple of months later than we thought it'd be -- we know why. We can't even tell you why. I can just say it's extremely competitive and those are the reasons. With regards to NGS, we have to go under what's called a reconsideration for the LCD. That's in process. We all know what the rules state. It's a 1- to 6-month process. We have no insight of the NGS, so we don't know. It's highly competitive. If we knew stuff, we probably couldn't tell you anyway, but we feel very, very comfortable that our science and our results will prevail and we'll get through this. It is a great test. It really works. Patients need it and it's going to happen. So whether it's next month or in June, I don't know. But -- so I'm sure you guys will all ask again one-on-one anyway, but that's what we know right now and this is a huge first step. We do think that we'll see some level of uptick even though the test rate has been improving drastically even though we haven't added any salespeople in 3 months. This should even have an impact. We don't know for sure. We'll see. We'll know more in a month or 2, but we're getting ready. As Jim stated, we have thousands and thousands of kits being requested and we're logging now 4,000 plus a quarter in terms of tests and we're on a 40% to 50% growth clip right now before NCCN. So I don't know what it'll move to. But a year from now, I'm sure it'll be a big, big number.

--------------------------------------------------------------------------------

Daniel Anthony Arias, Citigroup Inc, Research Division - VP and Senior Analyst [6]

--------------------------------------------------------------------------------

Yes. Okay. If I could just maybe sneak one more in for Jim. Jim, on the op margins, the expansion of the core business was pretty significant. It sounds like leverage and cost discipline were pretty good there. Was there anything related to the timing of hiring that maybe we should consider when we're modeling the back half. And then, I guess, along those lines, can you just maybe elaborate on what that means for the year if we just think about the outlook for the legacy business and then how that comes together with whatever Exosome dilution you're expecting at this point?

--------------------------------------------------------------------------------

James T. Hippel, Bio-Techne Corporation - Senior VP of Finance & CFO [7]

--------------------------------------------------------------------------------

Yes. I mean, I think the hiring play a little bit a part of it in the sense that it's a pretty tough labor market right now in terms of finding the right people that you need, and so the businesses are a little bit behind in hiring. I wouldn't say it was the biggest contribution in the margin expansion. The bigger contribution was the strong volume leverage and some good product mix. But nonetheless, there is a bit of that going on and we anticipate some of those planned heads to be filled here in the second half of the year. So having said all that and as we think about the back half of the year, we still expect strong operating margin expansion in our core business, perhaps not at the same rate that we saw in the first half. And that will do a lot to help offset the dilution we're seeing in Exosome. So our total view for the year hasn't come off what our initial kind of guidance was 6 months ago.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [8]

--------------------------------------------------------------------------------

We still think it's 200 to 400 basis point dilution, but how we get there may move around a little bit. We had such great overdelivery in the core business. If that continues, we can either choose to have less dilution or invest harder. Personally, there are so many products in this Exosome platform, I would love to do more things in parallel if we could afford to. We're ready to go with clinicals on both the bladder as well as the kidney rejection signatures, so -- right now. So we're actively working on getting a clinical starter with partners.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Our next question comes from Puneet Souda from SVB Leerink.

--------------------------------------------------------------------------------

Puneet Souda, SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst [10]

--------------------------------------------------------------------------------

Chuck, first on Exosome. Just wanted to get a sense of now having spent some time with the Exosome team knowing products more there and the pipeline, I mean, what's your confidence longer term about the estimates that you had laid out earlier for fiscal year 2022 in the 8-K? And maybe for Jim, I just wanted to ask you on your comments around Exosome. I just wanted to make sure how are we looking at the next 2 fiscal quarters? Should we not be assuming any revenue there? Because I know Exosome actually had some RUO revenue, so I just want to make sure I have that correct.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [11]

--------------------------------------------------------------------------------

Yes. So -- yes, there's not much revenue. Jim went pretty carefully through the whole cost and cash to accrual basis. So it's going to take us probably into Q1 of next year to start really getting revenue recognized. The RUO and the CDx side, there's some stuff happening there, of course. We've got a lot of potential with the blood side of this platform, which there's different ways to recognize revenue, which we're working on. But in general, in terms of us following our model and what's in the 8-K, I think we have no reason to move away from any numbers on that. If anything, we've said this is conservative and I think it's still conservative, to be honest.

--------------------------------------------------------------------------------

James T. Hippel, Bio-Techne Corporation - Senior VP of Finance & CFO [12]

--------------------------------------------------------------------------------

Yes. And I'll just add to that, we went through our annual strategic planned update with all the teams and the Exosome team still feels very comfortable and upbeat about hitting that kind of number 5 years out. With regards to -- in the very short term here, as Chuck said, with regards to revenue in Exosome, I mean, definitely in a very near term we expect revenue recognition still be fairly minimal. The wild card in this fiscal year is still Q4. If we were able to get more earlier acceptance of Medicare reimbursement approval, that could bode well for Q4. But if it's delayed, then honestly, we will continue to defer recognition until we get into early part of fiscal year '20.

--------------------------------------------------------------------------------

Puneet Souda, SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst [13]

--------------------------------------------------------------------------------

Okay. Got it. On ACD I just wanted to make sure I had the number right. Can you remind me again what was ACD in the quarter? And are -- you made some comments about customer retention strategies, so I just wanted to make sure are you seeing more increasing competition in the market? Or is there -- the market dynamics or anything that's changing in the market that's leading you to take that approach?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [14]

--------------------------------------------------------------------------------

No. Quite the opposite, actually. We're at this point now saying integration is probably complete. I mean, a year ago, they finished their earn-out milestone quarter and we found out they -- like always, they sell the desks and the chairs and everything they can and it came a very tough comp. So it was -- you can tell by the numbers overall from segment and the lumpiness was pretty predictable on the diagnostics portion. So it was low single digits for the quarter. Coming off that comp, we kind of warned you about that. Looking forward, it's double-digit this quarter, hoping even 20 or better where. We're back in place with the full team for the services part of the business. Our new leader, Kim Kelderman, has done a great job of really building out a strategy and going back after -- we call them customer retention strategies. There's a lot of focus on getting in but staying in is important as well with these big customers. And that's starting to improve a lot. It is a big market, and it is no less a big market than -- like the Western blot was for ProteinSimple. It just takes a while to get some traction to get going here, but I feel actually better about the long-term growth for the Genomics division than it probably was around the Western blot solution 2 to 3 years ago, to be honest. It's a -- and we got a pipeline of products coming we haven't talked about yet. We've got [base plex] and [high plex] coming. DNAscope is coming and RNAscope is really just starting to get rolling, to be honest. So we've got partnerships with all the automation players out there, formally with Leica, but we have relationships forming and beginning with the others as well. And that's going to bode well also. So this too is a technology that is incredible science and really works, and there's a lot we can do with it, so we intend to.

--------------------------------------------------------------------------------

Puneet Souda, SVB Leerink LLC, Research Division - Director of Life Science Tools & Diagnostics & Research Analyst [15]

--------------------------------------------------------------------------------

Okay. That's very helpful. And just last one, if I could squeeze in. In China, obviously, a strong quarter. Just wanted to get a sense of what's exactly driving the growth there? And maybe if you can give us some update on PrimeGene if that's part of the growth?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [16]

--------------------------------------------------------------------------------

That's part of it. So we're kind of through the melee we had with them a couple of years ago. And they're feeding cell therapy accounts. They're back in the hospitals with different systems. Growth rates are very large there, actually, and help contributing to 30% overall. RUO there -- our R&D systems brand continues to be at 25% or better grower; hasn't stopped and never did. And instruments had north of 50% kind of growth rate. So we had a very, very good quarter in China. But our -- all our instrument peers out there also had pretty good quarters in China. Probably a bit of it is -- could be buy forwards off tariff scare, although others have commented there isn't a lot of tariff issues with the Life Sciences segments in China, but there could be some of that. We always were 30% or better with our instruments there and this was an exceptionally strong quarter. I'd like to think it was execution. We have built our team bigger. We have an applications lab, the demo lab now there performing, so -- we have new people now in different cities. It's just expanding. And I think we're starting to hit more of an accelerated stride. Overall, it's still -- we're still -- overall, the company is $50 million kind of business in China. So there's a lot of room for growth at this level in my opinion still. We've always said kind of 25-ish our goal. We've had 2 quarters at 30% or better. I like 30% better. I'd like to think we can continue there, but we'll see.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

Our next question comes from Catherine Schulte from Baird.

--------------------------------------------------------------------------------

Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]

--------------------------------------------------------------------------------

You previously guided to at least high single-digit organic growth for fiscal '19. Any change to that now that you finished the first half of the year with double-digit growth? Just how should we be thinking about the back half?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [19]

--------------------------------------------------------------------------------

Well, David, put in my comments about employees all being stacked of hitting 2 quarters in a row and being the perennial double-digit grower, which is our goal. We're probably still going to speak in terms of range. We've been saying 8% to 12%. Let's say 9.5% to 12%. So it's hard to promise 10%. 10% is a big number to promise. But we certainly seem to be doing it and doing it quite easily here right now. So we'll see.

--------------------------------------------------------------------------------

Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

--------------------------------------------------------------------------------

All right. Great. And then can you just give us some thoughts on your outlook in Europe given there are some macro uncertainties out there? How long do you think that strength continues?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [21]

--------------------------------------------------------------------------------

Yes, we've had a nice 2-year run of double-digit growth in Europe, and we kind of guided last quarter that we probably see ourselves in the high single-digit going forward safely as we get bigger. And we're kind of there this quarter, although it's for more mixed reasons than anything else, I think. I don't think we're seeing any real issues with Brexit or economies faulting or funding going away in Europe. Our execution is still doing really well there. Our harmonization strategy with our -- within our divisions is in the -- building out full subsidiaries in these new countries that we're in is still building growth and their share we're taking, so. So I think we're -- high single digits is very safe, I think, for the short term. I'm still hoping that we can do better. But there are certainly risks in the air around, and people are talking about softening Europe a lot; everybody seems to be. So we haven't seen as much as most, but we saw a little bit too this quarter, it's obvious by the numbers, so.

--------------------------------------------------------------------------------

Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22]

--------------------------------------------------------------------------------

Okay. And then if I can sneak one more in on ACD. How should we think about the time line and path forward for potential clinical tests using ACD's platform?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [23]

--------------------------------------------------------------------------------

Well, that's a hard one. We need partners for that. We are -- we're working with them. There's a lot of opportunity. If I had to focus on where we're going to put our regulatory and clinically strength, it'd probably be ExosomeDx, to be honest right now. But we're focused on partners with a lot of interest. There's a lot of people wanting to work with us. There's some we can't talk about. They want to stay hidden right now. But we have some news-worthy partnerships established already. And this is a great platform and it's a very different kind of biopsy. In the day, you still need -- you need tissue, and there are a lot of tissue banks out there. There's a lot of work to be done with tissue, and solid tumor is still an area of great concern for oncology. So we see a great future for this as a platform. And -- but it'll take more partnerships. We're not going to do all of this on our own, obviously.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Our next question comes from Patrick Donnelly from Goldman Sachs.

--------------------------------------------------------------------------------

Charles Steinman, Goldman Sachs Group Inc., Research Division - Business Analyst [25]

--------------------------------------------------------------------------------

This is Charlie on for Patrick. If I can just touch back on China on the core reagent side. I think you guys had talked in the past about picking up share for maybe some of the smaller players who don't really have the ability to scale that business. So can you kind of just help us tease out the run rate for those share gains? And maybe what you kind of view as the market rate versus what share you are gaining?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [26]

--------------------------------------------------------------------------------

Yes. It's a great question, I'm glad someone asked it. Lately, we aren't talking enough about our core, and our core is just knocking it out of the park lately and allowing us to do all these great acquisitions and fund the way we're funding them. But with antibodies over 20% growth, we're clearly taking share. We think as a market, antibodies is somewhere in the 6% to 8%. It's a broad category, obviously, and it depends on what area you want to talk about antibodies. But as a holistic kind of market, it's about in that range, and we're sitting here at 20% -- over 20%, and we've been double digit for a while, so we know we are. Why are we? I think there's 2 reasons. One, I think the flight to quality to validate antibodies, GMP reagents, GMP proteins is driving off the little guys a lot and us, major players, in the market are benefiting from this, certainly, and it's only going to get better. When you look at what's going to happen with GMP, needed to be in everything, just 2 to 3 years out. We actually think we can't move fast enough to scaling up more and more GMP equipment and getting beyond just RUO because we think the world with the whole CAR-T, biosimilar everything happening in immunotherapeutics, the demand is going to -- the throttle point for all these therapies may end up being the reagent for the -- to feed these cells.

The other thing is our website. I mean, we have invested heavily in our website, and we had a good model. Abcam was 10 years ahead of us. I mean, they had an exceptional website, and they still do. But ours is pretty darn good now. And we are -- we have got a broad portfolio. We can do near single-point ordering in a lot on areas. We're working on that as well, so we can have a 1-basket approach. The amount of content we put it online, and when you're dealing with the antibodies, you got to have a lot of pictures and lots of citations with a lot of data that's got to go online to actually move those antibodies because there's tens of thousands of them. And researchers are always in a quandary of what they need, what they're looking for. So you've got to have that content online, and we've been going after that for good 5 years now and it helps. So we have a very big program of monitoring our digital metrics. And our traffic on our website has been going up double-digit quarter-on-quarter for -- it'll be 3 years now this July when we launched the first new website. So it's had a huge impact for us to increase our share we think. So those are 2 main issues, I think. And by the way, we are -- I think the other part, I guess would be great products. We are able to make products in a lot of cases no others can make. This is hard science. We have the best portfolio, we have the top stuff. So when researchers want to get the best quality, in some cases the only skew that they know that can work, they come to us. So that hasn't gone away either, so.

--------------------------------------------------------------------------------

Charles Steinman, Goldman Sachs Group Inc., Research Division - Business Analyst [27]

--------------------------------------------------------------------------------

Got it. And then on the core diagnostics side, I think last quarter, there was some lumpiness around timing there. Did that come back in the quarter? And just trying to figure out like how we should marry that with the back half of the year.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [28]

--------------------------------------------------------------------------------

Yes. Always lumpy and it'll be up for a while, but yes, it did recover pretty well. We had tough comp from last year too I realized that. But it was modest, decent growth. And again, we see a better second half. We are seeing now from these new programs, the pipeline I've been talking about these last few quarters is starting to hit. And that alone will get better, so.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Our next question comes from Drew Jones from Stephens Inc.

--------------------------------------------------------------------------------

Andrew Luten Jones, Stephens Inc., Research Division - MD [30]

--------------------------------------------------------------------------------

Chuck, you just talked about the favorable backdrop for your reagent business for -- on the demand side. Can you talk a little bit about the pricing trends and whether the increased demand for GMP and validated product mix gives you the more leeway on price there?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [31]

--------------------------------------------------------------------------------

In fact, it does. GMP-related products are roughly 30% higher in price. And we're not the lowest-cost product in town anyway. So researchers will pay for quality, and we're talking about GMP grade 4 for production and for finishing out clinicals and whatever. They're okay with paying it.

In terms of price overall, we've had a decent price here. We're 1-ish-or-so percent little better on price. We have the metrics, we have the systems in place and actually know how to monitor price, we didn't have that 2, 3 years ago. And so we're able to now build it into our strategies. All of us in this team come from large companies. We're used to having very strict pricing strategies and tools to work on price and just used to it. So we're finally at a place where we can now do what we know how to do and that's part of the game. So if you see us at 10% in our reagents business, you can count on 1% being on price. Whereas 4, 5 years ago, we'd have been at 8% or 9% because we wouldn't known anything about price and probably wouldn't had any price. So that's part of it. Now market condition has changed all this, of course. But that's kind of current state of affairs and with decent funding in our industry, and I think, everyone's probably prescribing to that kind of a goal, I think.

--------------------------------------------------------------------------------

Andrew Luten Jones, Stephens Inc., Research Division - MD [32]

--------------------------------------------------------------------------------

Got it. And then jumping over to EPI. I just want to make sure I heard that right. Physician uptake doubled sequentially, is that right? And if so, where was the incremental demand coming from? Was it existing practices, greenfield docs? Just a little better color on that.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [33]

--------------------------------------------------------------------------------

Yes. The double uptake was on the kit requests, all right? And we're at about -- we're public on about 1,100-or-so urologists, which we think is roughly 10%. So we're just starting to get going really. In terms of the test uptake, it's more like 40%. And we're going to be -- we hopefully -- and that's about NCCN guidelines. So how that goes forward, hopefully, up. But it's a step 1 for an increase and then step 2 portion is Medicare. So a good growth rate about probably all we can maybe assume right now, given all the other issues we got to deal with, so. Remember this is an LDT model. So if we're growing 40%, 50% a quarter, we got to do 40% to 50% more tests in our lab. So it's a lot of scaling up you got to do in this model, so. It isn't just selling.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Our next question comes from Dan Leonard from Deutsche Bank.

--------------------------------------------------------------------------------

Daniel Louis Leonard, Deutsche Bank AG, Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

Just a few perhaps quick ones here. First off on the reagents business or the Protein Sciences business overall. Are you taking any of the outperformance in upside in investing, triggering any investment to support future growth? Or is upside there really going to fund the diagnostics business? That's my first question.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [36]

--------------------------------------------------------------------------------

Well, we don't -- we're a company, not a set of companies. So it all goes in a strategic pool. Those we'll fund, we think -- we'll continue to fund. But I will make a comment in terms of investments for the core business and for Protein Sciences. So it's all about GMP, my friends. And we are investing at about a double the rate in capital we have been in terms of -- which isn't a lot, by the way, for this company, but -- in terms of a business, but it is going up. Because we see the potential in GMP grade proteins and reagents to be really, really big going forward, mainly to support our cell therapy business. And we're going to have news coming out soon. We're building more and more around this model of our cell therapy abilities and it's going to be no less as exciting as ACD and ExosomeDx has been, in my opinion. So another quarter or 2, and then hopefully, we'll be talking about that more. But we're getting ready. I'm not kidding. And you look at the numbers of what CAR-T and cell therapies are going to be in terms of the market. It's unbelievable. And there are -- no one's ready for it. There are so many clinicals going on, and how they're going to get the stuff they need to actually be in production for these therapies, we all got to get going now. So there's a lot to go after. Lead times in some of these big pieces of equipment, fermenters, lyophilizers are -- can be 1 year to 2 years, because they're almost all custom a little bit, and I can tell you we're on it.

--------------------------------------------------------------------------------

Daniel Louis Leonard, Deutsche Bank AG, Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

That's helpful color. And then my second question on ACD. So the path to getting back to double-digit growth, is that more of a fiscal 2020 event, given that the comparisons in the second half of '19 are still not easy? Or do you think you could get there in the second half of the year?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [38]

--------------------------------------------------------------------------------

No, it's this quarter.

--------------------------------------------------------------------------------

Daniel Louis Leonard, Deutsche Bank AG, Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

This quarter?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [40]

--------------------------------------------------------------------------------

It's this quarter. It's going to happen. We're finishing up integration. We didn't really start integration until this milestone earnout thing was over. There's one thing I learned in this. We gave these guys an 18-month earnout. Because there was only 18 months, we left them largely alone. We didn't start integrating as soon as we should've. And we've spent this whole year integrating. So a few of them left with their money, of course, (inaudible) the leader we knew he was going to leave. We have brought in a fantastic new team and leadership team and working on stepping. A lot of key incumbents are still there as well, of course. Head of commercial is still there, fabulous person. And it's just about getting back on it. I can't tell you. Acquisitions are acquisitions, and they're all different, and they all hit a 1-year bump, I think, when you start integrating, and we're finishing -- we're getting to the end of that bump. And I'm hoping that it'll be a double-digit growth starting this quarter going forward here, and safely and then ramp from there, so.

--------------------------------------------------------------------------------

Daniel Louis Leonard, Deutsche Bank AG, Research Division - Research Analyst [41]

--------------------------------------------------------------------------------

And final clarification on EPI. Have you already submitted your request for reconsideration to NGS for their LCD? Or is that something you expect to do in the coming weeks or months?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [42]

--------------------------------------------------------------------------------

I think we've submitted, resubmitted and resubmitted. I think it's such a delay off the NCCN, and I got to find out from Tom just what version we're at with NGS. They're well aware of this, I know that. So the process is ongoing. We're in process for that to happen. So I kind of believe that we have anything waiting around to be filed or what.

--------------------------------------------------------------------------------

James T. Hippel, Bio-Techne Corporation - Senior VP of Finance & CFO [43]

--------------------------------------------------------------------------------

There was communication with NGS that day (inaudible) announcement.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Our next question comes from Alex Nowak from Craig-Hallum Capital Group.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [45]

--------------------------------------------------------------------------------

So Chuck, just staying on the cell and gene therapy side of the business. Do you need to make any additional acquisitions there to round out that product portfolio? Or do you think you have everything you need and just -- now you just need to build everything out internally there?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [46]

--------------------------------------------------------------------------------

It's a good question and very insightful. We've been public about we're probably now looking for a new platform like an ExosomeDx or an ACD. But we are still rounding out, we think, is a fantastic potential workflow that collectively together could be just as big or bigger than an ExosomeDx as a platform. I think we're probably 1 or 2 small acquisitions away of filling out that workflow circle. As you know, we've got the Ella platform, we've got GMP proteins, we've got the Quad Cloudz beads. We don't have bioreactors. We have a partnership in place. We don't have gene editing, but we have a partnership in place. So there are some things we're still looking at to do that. And I would -- I can't promise you acquisitions, but that is certainly where we're hunting. And given our history, it's probably likely we're going to get something.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [47]

--------------------------------------------------------------------------------

Okay. Understood. And then maybe just outside of the cell and gene therapy side. How do you think about M&A going back into calendar 2019 here? Do you think you reached a point where you like to go back out and acquire maybe some larger businesses? Or you still going to stay more on the bolt-on side?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [48]

--------------------------------------------------------------------------------

We're on the bolt-on side, especially for now. I think given that we're a year late on finishing integration with ACD, which I just explained, and I want to get that really off and running safely and then we're right in the middle on ExosomeDx. So these are some big nuts and we paid a lot of money for, we got to get right. Our board wants to make sure we get them right. We can strap on these little bolt-ons, no problem without a lot of work like Cloudz was with -- in Atlanta and things, it's not an issue. And we'll continue that and be opportunistic. Frank Mortari is a busy guy here looking at deals for us. And we still have a pipeline of well over 100. We are participating in a couple right now, and we'll see what happens. But probably nothing large. We're at 2x leverage, I think -- Jim, right? So we've got some powder, if we need it. But some things came to a process that we really wanted to see if they -- even though we're not really ready, and we wouldn't like to have seen a process, if they came to a process, we probably participate. But we don't see them do well in public processes anyway. But -- so I never say never, but it's largely going to be small bolt-ons this year, I think, and hopefully, a few. We'll see.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [49]

--------------------------------------------------------------------------------

Okay. That's helpful. And then I know a few others have touched on this. But just on the Protein Platforms business. This thing just continues to be on fire. So Chuck, what inning are we at right now with that business? I'm just trying to figure how much longer can we grow at this sort of rate?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [50]

--------------------------------------------------------------------------------

Years. Now if you're -- if we're going back to the 15% number, for sure. People are trying to squeeze us to say 20%. We've been at 20%. I think it's going to be 15% to 20% for years. Western blot, we're seeing at 10% market share. We're growing 30%. We're finally hitting stride, but there's a long way to go. Biologics is safe. In Simple Plex, I don't even know what to tell you. This thing can go to so many markets, it could even be in point-of-care. This Micropoint deal alone in China could be a $100 million deal. If they -- and we got to wait 2 years for clinicals to be done, but can you imagine the size of doing patient monitoring across all of China for cytokine storm for all their cell therapies. This is the company led by a guy who did Mindray over there. So we're really impressed of him and his team. He is extremely well connected. He knows what he's doing. His panels were great. He's already wanting more panels for more things going with us. And this is just one area in a different country. We haven't even started doing this stuff here. So we have a lot of different cartridge types on the drawing board here around the Ella platform. And I think it's going to be amazing if you look out 5, 10 years.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

We'll now take our final question from Paul Knight from Janney Montgomery.

--------------------------------------------------------------------------------

Unidentified Analyst, [52]

--------------------------------------------------------------------------------

This is actually Casey on for Paul. We wanted to know what were the standout instruments in the ProteinSimple part of your business?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [53]

--------------------------------------------------------------------------------

Almost all of them. Everything but -- so we have MFI, we have Milo. Those 2 were okay. But not as strong as the other bigger ones. The biggest standout has been the Western blot. This is the Wes and Jess, and Jess is 2/3 back of the sales. So Jeff -- we're lining it up probably right now because there is such demand from this new instrument, Jess, which is the big brother to Wes. This allows us also do things with Wes to go more academic whether it's more pricing pressure and stuff, so that's all -- the strategy's worked very well. And then biologics has really come back pretty well, and that's also been a 20% grower. So -- and then Ella, and Ella's been growing between 50% to 100% every quarter for the last couple of years. So I just mentioned enough on that, so.

--------------------------------------------------------------------------------

Unidentified Analyst, [54]

--------------------------------------------------------------------------------

Okay. Great. And then one final question. In Q3 coming up, will you guys see any effect from the government shutdown as far as government spending?

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [55]

--------------------------------------------------------------------------------

Yes, I asked that. I got questions out to my teams and commercial; no one thinks so. I was a little more concerned about the cold weather last week, with all our schools and everybody shutting down, but not hearing anything yet.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

As there are no further questions from the phone, I'll now turn the call back to your host for any additional or closing remarks.

--------------------------------------------------------------------------------

Charles R. Kummeth, Bio-Techne Corporation - CEO, President & Director [57]

--------------------------------------------------------------------------------

Okay. Well, thanks everybody for listening. We had a record number of people online too for this, so really happy for that. It was a great quarter, and we hope to deliver another one next quarter, so talk to you then. Thank you.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.