You don’t go to the leading edge of life sciences / bioproduction looking for bargains, as the strong growth and margins available to companies facilitating the rapid growth of new biologic treatment options like gene and cell therapies has fueled strong share price performance (and multiples) for larger, better-known companies like Danaher (DHR) and Thermo Fisher (TMO), as well as smaller players like Bio-Techne (NASDAQ:TECH).
I find a lot to like in Bio-Techne’s leverage to cell and gene therapy-enabling products like GMP protein production and non-viral gene editing, as well as its leverage to life sciences / bioproduction research tools, spatial biology, and molecular diagnostics. I don’t find nearly as much to like in the valuation, but stocks like this are a “you either get it, or you don’t” sort of proposition where you’re basically betting that the underlying growth of the market and the company’s strategic decisions will eventually lead to enough revenue and profit growth down the line to redeem an eye-watering valuation today.
A Long Runway In Cell And Gene Therapy
Through both M&A and leveraging internal manufacturing capabilities grounded in a long history of producing proteomic research reagents, Bio-Techne has built a business segment to leverage the exceptional underlying growth potential in cell and gene therapies over the coming years.
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, as well as complementary tools in spatial biology and immunocytochemistry. All told, management has sized its opportunity in CGT at over $3B today, growing at over 20%, and the company only has a small low single-digit market share today.
GMP proteins are a major thematic driver right now, growing 180% in the fourth quarter and helping drive 80%-plus growth overall for the Cell and Gene Therapy (or CGT) business. GMP proteins are proteins produced in dedicated facilities and in accordance with strict quality management guidelines, ensuring biological activity, purity, and batch-to-batch consistency.
These proteins are not used directly in therapies (they’re not infused or injected into patients), but they’re used to produce cell and gene therapies that are practically 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 of commercial operations there should drive meaningful growth for several quarters, with the business scaling from around $30M to over $200M over the next several years. In addition to ramping up this facility, management has already started talking of broadening the business into GMP antibodies and media, as well as RNA and DNA products. As an aside, Bio-Techne tried to acquire Aldevron, a manufacturer of GMP-grade plasmid DNA, mRNA, and proteins back 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. While the company’s legacy proteomic reagents and diagnostics (calibrators and controls) operations aren’t particularly sexy, they are still growing at a mid-single-digit clip and they generate good cash flow for the business.
Beyond this are interesting opportunities in analytical instrumentation, spatial biology, and molecular diagnostics.
The Analytical Solutions business is growing at a double-digit rate for Bio-Techne, with the company leveraging 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 time. The Maurice platform automates protein profiling, while Ella, a benchtop immunoassay platform, can be used in a range of applications like monitoring cytokine storms (in CAR-T recipients or COVID-19 patients) and detecting impurities in finished biologics production runs.
Bio-Techne’s Advanced Cell Diagnostics business offers RNAscope and DNAscope, and in-situ RNA/DNA hybridization platform that detects target RNA or DNA within a single cell without disturbing the tissue morphology. This allows users to examine biomarker status, structural variation, and so on, and is useful in a range of applications from cancer diagnostics to ensuring whether reprogrammed T-cells for CAR-T are expressing the intended antigen receptors.
In molecular diagnostics, Bio-Techne hasn’t seen the hoped-for adoption of its ExoDx Prostate IntelliScore liquid biopsy for prostate cancer (a rule-out test after ambiguous PSA results), but reimbursement has improved and post-pandemic normalization of office visits should drive more use. Beyond this, though, the company is building out a broader portfolio of biomarker-based screening products that can address a range of diseases/conditions, with a particular focus on genetic carrier screening and oncology diagnostics.
All told, Bio-Techne is targeting markets with combined addressable revenue of over $15 billion a year, including high-growth areas like analytical research tools, cell/gene therapy, spatial biology, liquid biopsy, and molecular diagnostics. Given that cell and gene therapies are practically in their infancy (or at least early toddlerhood), I see significant growth opportunities in tools and consumables that facilitate research and production, and I think Bio-Techne has a good starting position today.
I also doubt that the company is anywhere close to done with its M&A program. More than a decade ago, I followed Bio-Techne (then Techne) as a sell-side analyst, and the change in the company since then has been remarkable. Much of that change can be tied to a change in management and operating philosophy (actively targeting growth), but M&A has played a key enabling role, including deals for Asuragen (diagnostics kitting), B-MoGen (TcBuster gene editing), Quad Technologies (Cloudz), Exosome, Cyvek (Ella) and ProteinSimple (automated equipment, including Smple Western).
Most recently, the company announced an unusual deal for Wilson Wolf, the manufacturer of G-Rex bioreactors (used to grow/produce proteins or cells like T-cells in volume). Bio-Techne isn’t buying the company today, but now has the option to buy 20% when the company reaches $100M in revenue and the whole company at $225M in revenue (or $135M in EBITDA), as well as another option if those targets aren’t reached. No definitive terms have been reached, but at $225M in revenue, it seems likely that the deal would cost over $2B.
I’m looking for high-teens annualized revenue growth over the next decade and EBITDA margin expansion to over 42% in 2024 (as well as long-term FCF margins in the high 20%s), but those targets don’t really matter. I don’t think there’s any way to derive a bottoms-up fair value that will look attractive today, though comparative analysis to other high-growth life sciences / bioproduction names suggests a current EV/forward revenue of around 16.5x isn’t completely unprecedented (Danaher paid 17.6x forward revenue for Aldevron).
The Bottom Line
Investing in highly-valued “hyper-growth” stocks has never really been in my wheelhouse; I’ve done it and made money doing it, but I’m always reluctant to make “forget the valuation and buy … it’ll all work out eventually” recommendations to others. I do like Bio-Techne’s leverage to growth in bioproduction generally and cell/gene therapy research and production more specifically, but this is definitely not a stock for investors who can’t accept high risk.