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'COVID Hangover' Subsiding, But China Uncertainty Remains for Bio-Techne


Note: This story has been updated with comments from a conference call to discuss the firm's financial results.

NEW YORK – The effects of the biotechnology market downturn that came after two years of strong growth due to the COVID-19 pandemic, dubbed the "COVID hangover," may be subsiding for Bio-Techne, but unexpected volatility in the Chinese market has caused uncertainty for the firm going into its new fiscal year.

Chuck Kummeth, president and CEO of the Minneapolis-based company, said on a conference call to discuss the firm's financial results on Tuesday that it finished its fiscal year 2023 "largely as expected," navigating a choppy macroenvironment with "transitory headwinds," such as a softer biotechnology funding environment and high volumes of customers destocking inventories they had built up during the pandemic.

But challenges in China came as a surprise to the company and are expected to last for at least another quarter, Kummeth said. In the third quarter of fiscal year 2023, the firm saw its business in China "come roaring back," and growth continued into the first half of the fourth quarter. But that growth "abruptly stalled" as expected annual biotechnology funding from the government did not arrive, and now it is unclear when government funding for new life sciences programs will resume.

Despite that uncertainty, the firm still saw growth in the mid-teen percent range in China during the fourth quarter, and Kummeth said that when funding returns the company expects robust growth. "When they turn the lights back on, which will happen probably within a quarter or so … we're going to be off like a terror," Kummeth said.

Added Bio-Techne CFO Jim Hippel, "Given China's history and publicly stated importance of life sciences to their sovereign strategy, we expect that the funding will return sooner rather than later, and when it does, it will be strong."

Other headwinds felt throughout the quarter, both Kummeth and Hippel noted, were the struggling biopharmaceutical funding environment and continued destocking by original equipment manufacturers. Hippel said that destocking by some of Bio-Techne's OEM licensing and supply customers negatively impacted overall revenue growth by about 2 percent.

However, he added that those headwinds are subsiding as the funding environment stabilizes and destocking continues to wind down. The firm is hopeful that the headwind from lower biotechnology funding is weakening, and Bio-Techne estimates that destocking will be finished by the end of the calendar year, and potentially could become a tailwind in 2024 as buying from OEM customers resumes, Hippel said.

Even with the headwinds during the quarter, Bio-Techne announced that its fiscal Q4 revenues rose 5 percent year over year.

For the three months ended June 30, the company reported revenues of $301.3 million compared to $288.2 million a year ago, missing Wall Street analysts' average estimate of $307.3 million. Its Q4 organic revenues also grew 5 percent year over year.

Diagnostics and Genomics revenues were $79.0 million, up 10 percent year over year from $71.7 million. Organically, the segment's revenues were also up 10 percent. The spatial biology business saw growth in the low-double-digit percent range in both the fourth quarter and the fiscal year, Kummeth said.

The acquisition of Swiss spatial biology firm Lunaphore "strengthens our spatial biology franchise," Kummeth said. Hippel noted that the acquisition is expected to add at least 1.5 percent to Bio-Techne's reported growth in fiscal year 2024, with a forecast standalone growth rate of more than 100 percent.

The firm's ExoDx prostate test saw Q4 revenue growth of 68 percent and full-year 2023 growth of 92 percent year over year, the company noted in a statement. Kummeth added that more than 100,000 tests have been performed to date.

Protein Sciences revenues were $223.0 million, up 3 percent year over year from $217.0 million, with organic revenue growth of 4 percent. This segment has the most exposure to the biotechnology funding market considerations and feels the most impact from OEM customer destocking, Hippel noted.

The company's collective cell and gene therapy product portfolio grew almost 30 percent in Q4 and increased more than 20 percent during the full fiscal year, Kummeth said. Its GMP protein business grew almost 60 percent in the fourth quarter, he added.

The firm's Protein Simple business grew in the low-double-digit percent range in the quarter, led by nearly 20 percent growth in its Simple Western revenues, Kummeth said. The platform has seen "robust adoption … in gene therapy applications," he added.

The company is also continuing to build the test menu for its Ella ELISA instrument and launched 36 assays during the 2023 fiscal year. Neuroscience and cell and gene therapy remain the focus of development and menu expansion initiatives, Kummeth said, but the firm is also working toward clinical diagnostic applications for the platform. It has completed its ISO 13485 audit for one of its manufacturing facilities and once the company receives certification, it will be ready to pursue clinical diagnostic opportunities, which will open "a large potential end market" for the instrument, he said.

Will Geist, president of the company's Protein Sciences segment, said that the instrument has "seen nice adoption" for use with laboratory-developed tests, and the ISO certification, which is related to the design, production, installation, and servicing of medical devices, will drive broader clinical adoption.

Bio-Techne reported Q4 net income of $75.5 million, or $.47 per share, compared to net income of $61.5 million, or $.38 per share, a year ago. Its adjusted EPS for the recently completed quarter was $.55, meeting the analysts' average estimate.

For full fiscal year 2023, Bio-Techne reported revenues of $1.14 billion, up 3 percent from $1.11 billion in 2022, and in line with the consensus Wall Street estimate. Its 2023 organic revenues grew 5 percent year over year.

Full-year 2023 Diagnostics and Genomics revenues were $292.6 million, an increase of 6 percent year over year from $274.8 million, and Protein Sciences revenues were $845.7 million, an increase of 2 percent year over year from $832.3 million. 

For fiscal 2023, the firm reported a net income of $285.3 million, or $1.76 per share, compared to $272.1 million, or $1.66 per share, in 2022. Its adjusted EPS for 2023 was $1.99, in line with the consensus Wall Street estimate.

Hippel noted that M&A remains a "top priority for capital allocation." Kummeth added that the firm is currently exploring multiple M&A opportunities and expects fiscal 2024 to be a "big M&A year" across the industry as smaller companies can't afford to go public and instead will look to be acquired. Kummeth cited cell and gene therapy and proteomics as potential areas of interest.

Bio-Techne ended fiscal 2023 with $180.6 million in cash and cash equivalents and $23.7 million in short-term available-for-sale investments.

Hippel said that the firm expects the first half of fiscal 2024 to grow similarly to fiscal year 2023 but noted that the second half of 2024 may see accelerating growth rates as China's government funding possibly returns and OEM destocking ends.

In Tuesday afternoon trading on the Nasdaq, Bio-Techne's shares were up nearly 4 percent to $84.28.

In a separate announcement on Tuesday, the company said that its board of directors has decided to pay a dividend of $.08 per share, payable Sept. 1, 2023, to all common shareholders of record on Aug. 18, 2023.