Bio-Techne Buoyed by Growing Demand for Cell and Gene Therapies, Long-Term Goals on Track

Business Strategy & Outlook

Bio-Techne is a market leader in proteins for the pharma, biotech, academic, and diagnostic markets and maintains strong market positioning in antibodies and testing controls for diagnostic partners. The firm’s market leadership in proteins has not come at the expense of pricing, and Bio-Techne is often the highest-priced provider of proteins and antibodies. Bio-Techne is likely to capitalize on current high growth of biologics in the 6%-8% range, which have been outpacing the mid-single-digit growth of traditional small molecules. Cell and gene therapies require protein inputs, and Bio-Techne’s reputation for quality in a market with few regulatory quality minimums help Bio-Techne win new business despite relatively robust competition. To have long-term success, Bio-Techne needs to maintain a dominant position in proteins, and at the same time expand its presence in genomics, without compromising on quality standards across the firm’s large protein

portfolio.

Bio-Techne’s strategy involves prioritizing top line growth with manufacturing capacity investment and large-scale customer deals, while complementing organic growth with meaningful

acquisitions. The company is heavily focused on gaining a foothold in genomics, and has seen some early success with Applied Cell Diagnostics’ RNA-ish and Exosome’s liquid biopsy ExoDx, two technologies that are in the process of being scaled to the market after being acquired within the last five years.

Though the coronavirus pandemic initially depressed sales, with lab closures early in 2020 and uncertainty on academic research funding, Bio-Techne has also seen some upside. The firm offers

direct-to-home liquid biopsy tests and has seen high demand for proteins used for COVID-19 vaccines and treatments. The recent approval of the ExoDx biopsy was well-timed, given that the test

can be sent directly to a patient’s home for urine collection following approval from a telehealth doctor. While the ongoing pandemic has been a net negative, expanded capacity of COVID-19 testing and high demand for protein inputs have mostly offset temporary headwinds of lab shutdowns and research cuts.

Financial Strengths

Bio-Techne has solid financial strength. Though leverage had temporarily increased from acquisitions, and debt/adjusted EBITDA reached a multiyear high of 2.25 times in 2019, Bio-Techne now has net debt leverage of about zero. Barring any large acquisitions, leverage to remain well below 2.0 times over the coming years. Bio-Techne’s healthy interest coverage ratio also indicates an appropriate level of debt, with the firm maintaining an operating income/interest expense ratio in the high-single digits, with the ratio ending 2020 at around 15 times. The interest coverage well above 20 times over the next five years. Bio-Techne’s primary source of funding for acquisition activity is a $600 million revolving credit facility, established in August 2018. This credit facility can be extended to an additional $200 million, and the company also took out a term loan of $250 million, with both facilities set to mature in August 2023. As of year-end 2020, Bio-Techne had $344 million of long-term debt, split between the term loan and revolving facility. The additional lending capacity of the credit agreement gives Bio-Techne an appropriate level of flexibility to make capital allocation decisions, and lenders appear to have high confidence in the firm’s ability to pay interest and principal on the debt, with the credit agreement allowing for a maximum interest rate of 75 basis points over Libor for standard lending.

Bio-Techne has generated good levels of operating cash, with consistent operating cash flow above $120 million in each of the last nine years, and the cash flow averaging $442 million in the next five years. We also expect free cash flow to average $353 million over that period.

Bulls Say

While private payers currently do not cover the ExoDx biopsy test, getting reimbursement approvals along with expanded indications could allow for product revenue upward of $100 million, compared with under $50 million currently.

Bio-Techne is set to benefit from high market growth of biologics, which require protein inputs, and regulatory approvals of biosimilars could be an additional tailwind for protein growth.

Funding for academic health research through the National Institutes of Health could increase in a post pandemic world, and could offset state budget cuts in academia.

Company Description

Based in Minnesota, Bio-Techne is a life sciences manufacturer supplying consumables and instruments for the pharma, biotech, academic, and diagnostic markets. The company reports in two segments, protein sciences (75% of revenue), and diagnostics and genomics (25%). The protein-focused segment makes equipment and associated consumables for protein characterization and analysis and sells antibodies for research and clinical purposes. In diagnostics, Bio-Techne provides controls and calibrators for diagnostic manufacturers and has a portfolio of diagnostic oncology assays. The United States accounts for about 55% of revenue, and the firm also has operations in EMEA (20% of sales), the U.K. (5%), and APAC (15%), with the rest of the world accounting for the remaining 5%.

(Source: Morningstar)

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