Executive Summary / Key Takeaways

• Bio-Techne's core investment thesis centers on its differentiated portfolio of high-quality life science tools and diagnostics, strategically positioned in high-growth areas like cell & gene therapy, spatial biology, and molecular diagnostics, which continue to outperform broader market trends.
• Recent performance, including 6% organic revenue growth in Q3 FY25 and 9% organic growth in Q2 FY25, demonstrates resilience despite challenging end markets, driven by strength in key growth verticals and improving large pharma demand.
• The company is actively mitigating macro uncertainties, including potential NIH funding shifts and tariff impacts, through operational efficiencies, global footprint optimization, and targeted strategic initiatives, aiming for full tariff mitigation by early FY26.
• Technological leadership, particularly in automated protein analysis, multiomic spatial biology, and AI-engineered proteins, provides a competitive moat and is expected to drive future consumable pull-through and market share gains.
• While near-term growth momentum may temporarily slow in Q4 FY25 due to macro uncertainties, management remains confident in a gradual recovery trajectory positioning the company for high-single-digit organic growth exit and progress towards long-term margin objectives.

The Foundation: High-Quality Tools for Scientific Advancement

Bio-Techne Corporation, trading under the ticker NASDAQ: TECH, stands as a key provider of specialized biotechnology reagents, instruments, and services essential for research and clinical diagnostics worldwide. With a history tracing back to being a pioneer in commercializing research use-only (RUO) proteins in 1985, the company has strategically evolved its portfolio. It now supports the entire scientific workflow, from fundamental biological discovery through the development and manufacturing of advanced therapeutics and enabling precision diagnostics. This evolution is underscored by the increasing contribution of its four key growth verticals – Proteomics Analytical, Cell & Gene Therapy, Spatial Biology, and Molecular Diagnostics – which together accounted for approximately 45% of total revenue in fiscal year 2024, up significantly from 30% just five years prior.

The life sciences tools industry is characterized by intense competition, with larger, more diversified players like Danaher Corporation (DHR), Agilent Technologies (A), and Thermo Fisher Scientific (TMO) holding significant market share. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Bio-Techne operates with an estimated aggregate market share of 5-7% in its primary markets, positioning it as a specialized player against these giants. These larger competitors often benefit from economies of scale, broader distribution networks, and integrated solution offerings. For instance, Thermo Fisher boasts a market share of 20-25% and superior scale efficiencies, leading to lower manufacturing costs and higher operating margins compared to Bio-Techne. Danaher, with a 15-20% market share, leverages operational efficiency through its business system and strong cash flow generation. Agilent, holding 10-15% of the market, is strong in analytical instruments for genomics and diagnostics.

Bio-Techne strategically positions itself by focusing on innovation and differentiation within specific high-potential niches, rather than competing head-to-head across the entire spectrum. Its strength lies in providing high-quality, specialized tools and reagents that are critical components in complex workflows, often offering performance advantages that resonate with researchers and clinicians. This focus allows Bio-Techne to build a competitive moat based on its proprietary technology and strong brand reputation within its target markets.

Technological Edge: Fueling Innovation and Differentiation

A cornerstone of Bio-Techne's strategy and competitive advantage is its commitment to technological differentiation and innovation. The company's portfolio is built on several key technological platforms:

• High-Purity Reagents: Leveraging decades of expertise, Bio-Techne provides a vast catalog of highly characterized proteins, antibodies, and other reagents. This foundational technology ensures reliability and reproducibility in experiments, a critical factor for researchers. The company is now applying Artificial Intelligence (AI) to this core strength, using internal knowledge and a vast dataset to develop AI-engineered designer proteins. These proteins are engineered to exhibit hyperactive properties, enhanced heat stability, and other novel features not previously possible. The stated goal is to create patentable proteins that significantly boost cell-based work and offer enhanced receptor binding. The company launched its first two designer proteins in Q1 FY25 and added four more in Q2 FY25, with a steady cadence of new launches expected. This initiative aims to create a differentiated offering that can command premium pricing and drive adoption in high-value applications like cell therapy.
• Automated Protein Analysis (ProteinSimple): Bio-Techne's ProteinSimple brand offers automated platforms like Simple Western, SimplePlex, and Maurice. The Simple Western platform remains the only fully-automated Western Blot system on the market, addressing a laborious manual process. The upcoming LEO system, a next-generation high-throughput Simple Western, aims to analyze up to 100 samples in a single three-hour run, significantly improving sample throughput and reproducibility. This targets increasing laboratory capacity and efficiency, a key need for customers. The Maurice platform is critical for biotherapeutic characterization, providing protein identity, charge, and purity testing. A recent co-marketing agreement with Waters Corporation (WAT) aims to expand the market awareness of MauriceFlex's capabilities, particularly for gene therapy QA/QC and mass spectrometry sample preparation. These platforms offer tangible benefits like ease of use, precision, reproducibility, and labor/cost savings, driving strong consumable pull-through (double-digit growth in instrument-specific consumables for eight of the last nine quarters as of Q2 FY25).
• Spatial Biology (Advanced Cell Diagnostics - ACD): The COMET system is Bio-Techne's fully automated, high-throughput spatial biology platform. Its key differentiator is its multiomic capability, enabling the simultaneous detection and visualization of up to 24 proteins and 12 RNA targets on the same tissue sample. This provides a truly integrated view of biological processes in situ. The company has made significant progress upgrading the installed base with this capability and is launching validated R&D Systems branded antibodies for use on the platform. The RNAscope capabilities paired with the growing antibody portfolio are expected to support a consumable stream with the highest pull-through of any instrument under the Bio-Techne umbrella. This technological lead positions Bio-Techne for continued leadership in the rapidly evolving spatial biology market, enabling new scientific discoveries and accelerated drug development.
• Molecular Diagnostics: Leveraging its exosome-based diagnostic technology combined with Asuragen's proprietary chemistries, Bio-Techne develops precise diagnostic tools. The ExoDx Prostate IntelliScore test (EPI), which helps guide prostate biopsy decisions, continues to see strong adoption, with unit volume growing over 30% year-to-date as of Q3 FY25. The company is realizing synergies, such as the upcoming launch of a kitted exosome-based test for breast cancer-related ESR1 mutations, commercialized through the Asuragen laboratory channel. Asuragen's chemistry resolves difficult-to-analyze genes, exemplified by the launch of the AmplideX Nanopore Carrier screening Plus Kit.

For investors, these technological differentiators are crucial as they form the basis of Bio-Techne's competitive moat. They enable the company to offer unique value propositions, potentially command premium pricing, drive recurring revenue through consumables, and capture market share in high-growth segments. Continued investment in R&D, even amidst cost management initiatives, is aimed at maintaining this technological edge and fueling future growth.

Segment Performance and Financial Health

Bio-Techne operates through two reporting segments: Protein Sciences and Diagnostics and Spatial Biology.

The Protein Sciences segment, the larger of the two, generated $227.7 million in net sales in Q3 FY25, a 6.1% increase year-over-year, and $643.8 million for the nine months ended March 31, 2025, up 4.3%. Organic growth was stronger, reaching 7% in Q3 FY25 and 5% for the nine-month period, reflecting improving pharma end markets and continued strength in cell and gene therapy solutions. The segment's operating margin was 45.6% in Q3 FY25 and 42.2% for the nine months, benefiting from volume leverage but partially offset by the reinstatement of incentive compensation accruals. This segment is most exposed to macro headwinds but is also expected to see the most significant improvement as markets recover. Key drivers include robust demand for GMP reagents (TTM growth >13% as of Q3 FY25), particularly GMP small molecules, and strong consumable pull-through from protein analytical instruments like Maurice. Opportunities in organoid solutions, fueled by FDA emphasis on reducing animal testing, are expected to be a tailwind, building on over $50 million in annual core reagent sales for this market.

The Diagnostics and Spatial Biology segment reported $89.2 million in net sales in Q3 FY25, a 2.0% increase year-over-year, and $256.6 million for the nine months ended March 31, 2025, up 8.8%. Organic growth mirrored reported growth in Q3 (2%) but was stronger for the nine months (9%). While Q3 growth was impacted by order timing in OEM diagnostics and Asuragen, underlying performance remains healthy (diagnostic reagents high-single digits YTD, Asuragen low double digits YTD). The segment's operating margin was 9.4% in Q3 FY25 and 6.2% for the nine months, showing improvement year-over-year for the nine-month period due to volume leverage and productivity initiatives, despite the impact of incentive compensation accruals and product mix. Continued strong adoption of the ExoDx Prostate test (>30% FYTD volume growth) and momentum in the Spatial Biology business, particularly with the COMET instrument achieving double-digit growth in Q3 despite academic market uncertainty, are key drivers. Management anticipates continued operating margin improvement as the COMET platform scales.

On a consolidated basis, net sales increased 4% in Q3 FY25 to $316.2 million and 6% for the nine months to $902.7 million. Organic revenue growth was 6% for both periods. Gross margins remained healthy at 67.9% in Q3 and 65.5% for the nine months. Adjusted gross margins, excluding specific items, were 71.6% and 70.6%, respectively. Operating income was impacted by a non-recurring arbitration award ($38.9 million in Q3, $40.6 million 9M) and restructuring costs ($0.4 million Q3, $13.7 million 9M), leading to lower GAAP net earnings ($22.6 million Q3, $91.1 million 9M) compared to the prior year. Selling, general, and administrative expenses increased significantly due to these factors and the reinstatement of incentive compensation accruals, partially offset by cost management. The effective income tax rate was also significantly impacted by discrete tax items, including the non-deductible portion of the arbitration award ($7.8 million tax expense in Q3 FY25), resulting in a 41.0% rate in Q3 and 24.9% for the nine months. Excluding discrete items, the forecasted tax rate is approximately 23.1%.

Financially, Bio-Techne maintains a strong balance sheet. As of March 31, 2025, cash and cash equivalents stood at $140.7 million. The company has significant liquidity with $670.0 million available on its revolving line-of-credit facility. Long-term debt obligations were $330.0 million. Cash generated from operating activities was $189.4 million for the nine months ended March 31, 2025. Capital expenditures were $26.1 million for the nine months, with approximately $12.0 million expected for the remainder of FY25, financed through available funds and operating cash flow.

The company actively returns capital to shareholders through dividends ($38.0 million paid 9M FY25) and share repurchases ($175.7 million 9M FY25), recently approving a new $500.0 million share repurchase plan. The total leverage ratio remains well below one time EBITDA, indicating solid financial health and capacity for strategic investments like the planned acquisition of the remaining 80.1% of Wilson Wolf (forecasted payment up to $1.0 billion plus contingent consideration between FY26-FY28).

Outlook and Managing Uncertainty

Management's outlook for the remainder of fiscal year 2025 and initial thoughts on fiscal year 2026 reflect a dynamic market environment marked by both potential recovery drivers and new uncertainties. While the first nine months of FY25 were largely in line with or exceeded initial expectations, recent developments have introduced near-term caution.

The primary new uncertainties are potential shifts in US academic funding, particularly related to NIH grants, and the escalation of global tariffs. Management noted that the NIH issuing guidance of a flat indirect cost reimbursement rate and the Trump administration's proposed 40% cut to NIH funding have created uncertainty for US academic customers, potentially impacting capital equipment purchases. However, they view severe long-term cuts as unlikely based on historical precedent and believe a potential shift in NIH focus towards chronic diseases aligns favorably with Bio-Techne's portfolio.

The ongoing tariff war, especially Chinese tariffs on proteomic analytical instruments imported from the US, is expected to create a temporary headwind. Management quantified the potential annual impact to adjusted operating income at approximately $20 million if no action were taken. However, they have mobilized teams to mitigate this impact through optimizing their global manufacturing footprint for regional production, leveraging their global supply chain, and implementing targeted price adjustments. They expressed confidence that the bottom line impact of current tariffs will be fully mitigated by the start of fiscal year 2026.

These macro uncertainties are expected to cause temporary distraction for customers, leading management to forecast a temporary slowdown in growth momentum to low-single digits in Q4 FY25. Adjusted operating margin in Q4 is expected to be 100 to 150 basis points lower than Q4 of last year due to the temporary tariff headwind.

Despite this near-term tempering, management maintains confidence in a gradual recovery trajectory. They expect more clarity on NIH funding and tariffs over the next three months. The outlook for the remainder of FY25 and into FY26 is supported by anticipated drivers such as the translation of improved biotech funding into spending, the impact of Chinese government stimulus funds starting in calendar 2025 (expected to flip China from negative to modestly positive growth), and a potential return to more normal levels of large pharma R&D spending in calendar 2025 as pipeline realignments conclude.

Management reiterated expectations for adjusted operating margins, forecasting the first half of FY25 to be 200 to 300 basis points lower year-over-year due to incentive compensation accrual reinstatement and negative product mix, but the second half to be approximately 100 to 200 basis points higher, benefiting from volume leverage, planned productivity initiatives, and improving product mix. Excluding discrete items, the consolidated income tax rate for the remainder of FY25 is expected to range from 23.0% to 27.0%.

Assuming the indicators of gradual market recovery are correct, management believes fiscal year 2025 should position the company to exit the year poised for double-digit growth in a multiyear run towards their long-term objective of adjusted operating margins exceeding 35%.

Risks and Challenges

While the outlook is cautiously optimistic, several risks could impact Bio-Techne's performance. The uncertainty surrounding US academic funding, particularly the outcome of proposed NIH policy changes, could dampen demand from a significant end market, especially for capital equipment. The ongoing tariff war poses a risk to profitability and supply chain stability, although management is actively working to mitigate this. The sensitivity of biotech customers to the broader macro environment and economic uncertainties could lead to continued frugal spending, impacting growth in that segment. Furthermore, changing national laws and policies related to trade, manufacturing, and healthcare in various jurisdictions could adversely affect operations and financial results. The inability to fully recover increased costs from tariffs or supply chain disruptions, or delays in doing so, could negatively impact margins. The full impact of these external factors remains uncertain and subject to rapid change.

Conclusion

Bio-Techne Corporation is a fundamentally strong company with a differentiated portfolio strategically aligned with high-growth areas in the life sciences industry. Its history of innovation, particularly in high-quality reagents and automated platforms for protein analysis, spatial biology, and molecular diagnostics, provides a significant competitive moat against larger, more diversified peers. While recent macro uncertainties related to NIH funding and tariffs are expected to temporarily temper growth momentum in the near term, management is proactively addressing these challenges through operational agility and strategic mitigation efforts, aiming to minimize the impact on the bottom line by early fiscal year 2026.

Despite the current dynamic market, Bio-Techne's solid financial health, robust cash flow generation, and strategic capital allocation priorities, including M&A and share repurchases, position it well for future growth. The expected gradual recovery in end markets, coupled with the continued outperformance of its growth verticals and the impact of new technological advancements like AI-engineered proteins and multiomic spatial platforms, supports management's confidence in accelerating growth in the second half of fiscal year 2025 and beyond. For investors, Bio-Techne represents an opportunity to invest in a high-quality company leveraging technological leadership and operational resilience to navigate external turbulence and capitalize on the long-term growth potential of the life sciences market. The key factors to watch will be the pace of market recovery, the effectiveness of tariff mitigation strategies, and the translation of NIH funding clarity into academic spending.