You don’t go to the forefront of life sciences/biomanufacturing looking for bargains because the high growth and margins available to companies facilitating the rapid growth of new biological treatment options such as gene therapies and cellular fueled strong share price performance (and multiples) for larger, better-known companies like Danaher (HRD) and ThermoFisher (TMO), as well as smaller players like Bio-Techne (NASDAQ:TECH).
I really like Bio-Techne’s leverage on cell and gene therapy products such as GMP protein production and non-viral gene editing, as well as its effect on life science research tools life/bioproduction, space biology and molecular diagnostics. I don’t find as much to like about the valuation, but stocks like this are kind of a “you get it or you don’t get it” proposition where you’re essentially betting that growth under- The underlying market and the company’s strategic decisions will eventually generate enough revenue and earnings growth to redeem an attractive valuation today.
A long track in cell and gene therapy
Through both mergers and acquisitions and leveraging in-house manufacturing capabilities built on a long history of producing proteomics research reagents, Bio-Techne has built a business segment to take advantage of growth potential under outstanding underlying of cell and gene therapies in the years to come.
Bio-Techne’s offerings include Cloudz cell activation kits that use non-magnetic beads to separate and activate cells, the TcBuster non-viral gene-editing platform and its GMP proteins, and complementary space biology tools and in immunocytochemistry. In total, management has valued its opportunity in CGT at more than $3 billion today, growing more than 20%, and the company today only has a small single-digit market share. .
GMP proteins are currently a major thematic driver, growing 180% in the fourth quarter and helping to drive overall growth of over 80% for the cell and gene therapy (or CGT) business. GMP proteins are proteins produced in dedicated facilities and under strict quality management guidelines, ensuring biological activity, purity and batch-to-batch consistency.
These proteins are not used directly in therapies (they are not infused or injected into patients), but they are used to produce cell and gene therapies which are almost in their infancy. As such, I think a handy shortcut for readers is to think of them as consumables used in the development and manufacture of cell and gene therapies like Novartis‘s (NVS) Kymriah (CAR-T) and Zolgensma (gene therapy).
Management recently opened a new GMP protein manufacturing facility and the ramp-up of commercial operations is expected to drive significant growth for several quarters, with business growing from approximately $30 million to over $200 million over the course of the year. of the next few years. In addition to ramping up this facility, management has already begun talking about expanding the business to GMP antibodies and media, as well as RNA and DNA products. By the way, Bio-Techne attempted to acquire Aldevron, a manufacturer of GMP-grade plasmid DNA, mRNA and proteins in 2021, but lost out to Danaher.
Far from a one trick pony
Bio-Techne’s CGT operations are the “sizzle” today, but there’s plenty of steak behind it. Although the company’s legacy proteomics and diagnostics (calibrators and controls) operations are not particularly attractive, they continue to grow at a single-digit pace and generate good cash flow for the company.
Beyond that, there are exciting opportunities in analytical instrumentation, space biology, and molecular diagnostics.
The Analytical Solutions business is seeing double-digit growth for Bio-Techne as the company capitalizes on growing demand for automation in the lab. The Simple Western is the only automated tool for Western Blotting, a technique that identifies specific proteins in a sample and can require hours of hands-on work. The Maurice platform automates protein profiling, while Ella, a benchtop immunoassay platform, can be used in a range of applications such as monitoring cytokine storms (in CAR-T recipients or COVID-19 patients) and the detection of impurities in the production cycles of finished biological products.
Bio-Techne’s Advanced Cell Diagnostics business offers RNAscope and DNAscope, as well as an in situ RNA/DNA hybridization platform that detects target RNA or DNA within a single cell without disrupting tissue morphology. This allows users to examine biomarker status, structural variations, etc., and is useful in a range of applications from cancer diagnosis to testing whether CAR-T reprogrammed T cells are expressing antigen receptors. planned.
In molecular diagnostics, Bio-Techne did not see the hoped-for adoption of its ExoDx Prostate IntelliScore liquid biopsy for prostate cancer (a test ruled out after ambiguous PSA results), but reimbursement has improved and Post-pandemic normalization of office visits should drive more usage. Beyond this, however, the company is developing a broader portfolio of biomarker-based screening products that can treat a range of diseases/conditions, with a particular focus on genetic carrier screening and oncology diagnostics.
In total, Bio-Techne targets markets with combined addressable revenues of more than $15 billion per year, including high-growth areas such as analytical research tools, cell/gene therapy, space biology, liquid biopsy and molecular diagnosis. Given that cell and gene therapies are pretty much in their infancy (or at least in their early infancy), I see significant growth opportunities in tools and consumables that facilitate research and production, and I think that Bio-Techne has a good starting position today.
I also doubt that the company is about to finish its mergers and acquisitions program. Over ten years ago, I followed Bio-Techne (then Techne) as a sell-side analyst, and the evolution of the company since then has been remarkable. Much of this change can be linked to a change in management and operating philosophy (actively targeting growth), but mergers and acquisitions have played a key role, including deals for Asuragen (diagnostic kit), B -MoGen (TcBuster gene editing), Quad Technologies (Cloudz), Exosome, Cyvek (Ella) and ProteinSimple (automated equipment, including Smple Western).
More recently, the company announced an unusual deal for Wolf Wilson, the maker of G-Rex bioreactors (used to grow/produce proteins or cells like T cells in bulk). Bio-Techne is not buying the company today, but now has the option to buy 20% when the company reaches $100 million in revenue and the entire company at $225 million in revenue (or $135 million of EBITDA), as well as another option if these objectives are not met. No definitive terms have been agreed, but with revenue of $225 million, it seems likely the deal would cost more than $2 billion.
I’m looking for annualized teen revenue growth over the next decade and EBITDA margin expansion to over 42% in 2024 (as well as long-term FCF margins in the top 20%), but these goals don’t really matter. I don’t think there’s a way to derive a bottom-up fair value that will look attractive today, although benchmarking with other high-growth life science/bioproduction names suggests that an income Current EV/forward of around 16.5x is not completely unprecedented (Danaher paid 17.6x forward earnings for Aldevron).
Investing in highly regarded “hyper-growth” stocks has never really been in my wheelhouse; I’ve done it and made money doing it, but I’m still hesitant to make “forget the review and buy…everything will work out” recommendations to others. I like Bio-Techne’s leverage on the growth of biomanufacturing in general and cell/gene therapy research and production specifically, but it’s definitely not a stock for investors who can’t not accept high risk.