BIO-TECHNE Corp (TECH) Q3 2026 Earnings Call Transcript

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter and Fiscal Year 2026. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's Form 10-K for fiscal 2025 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to the most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the Bank of America and Jefferies Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim.

Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's Third Quarter Earnings Call for Fiscal 2026. The Bio-Techne team continued to execute with discipline in a dynamic and uneven end market environment. Our quarterly performance was supported by sustained strength from our large pharmaceutical customers and stable to improving trends in our U.S. academic end market. These positives were partially offset by continued softness in emerging biotech spending, resulting in a 2% organic revenue decline for the quarter. Importantly, we are seeing encouraging indicators that point to an ongoing improvement in the U.S. academia and an eventual recovery in emerging biotech, which positions us well for a stronger fiscal 2027. As discussed in our prior earnings call, order timing related to two cell therapy customers that received FDA Fast Track Designation along with the timing of a large OEM commercial supply order created a 400 basis point headwind in the quarter. Excluding these factors, underlying organic revenue growth was 2%. There were several notable highlights during our third quarter, including the following: our Spatial Biology portfolio delivered mid-teens growth and exited the quarter with another record backlog for our COMET platform. Our GMP protein portfolio grew nearly 50% year-over-year when excluding the two fast track cell therapy customers. Within our Proteomic Analysis franchise, favorable instrument placements and utilization trends drove mid-single-digit growth. Our China end market achieved positive organic growth for the fourth consecutive quarter. And our largest end market, large pharma, delivered its sixth consecutive quarter of double-digit growth. We also remained highly focused on profitability. Adjusted operating margin in the third quarter was 34.2%, representing a 310 basis point sequential improvement over fiscal Q2. Jim will provide additional detail on our financial performance later in the call. Now I turn to our end markets, beginning with biopharma, excluding cell therapy. Here, we continue to see a divergence between the performance of large pharma and the performance of emerging biotech. Revenue from our large pharma customers grew low double digits, driven by sustained investment in discovery, translational research and manufacturing. In emerging biotech, however, revenues declined high single digits reflecting the typical lag in spending following the funding constraints experienced in the first half of calendar 2025. Biotech funding activity has since rebounded meaningfully with estimate increases of more than 90% and 50% in our fiscal Q2 and Q3, respectively. Given the typical two- to three-quarter lag between funding and customer spending, we view this as a constructive setup for fiscal 2027. In academia, the team delivered low single-digit growth as the U.S. academic market returned to growth in the third quarter. The improvement in NIH outlays, new grant activity and the 1% increase to the NIH budget have reduced funding uncertainty and position this end market for continued stabilization. From a geographic perspective, the Americas declined low single digits, while Europe achieved mid-single-digit growth. Our two largest fast track cell therapy customers are reported within the North America results. Asia delivered low single-digit growth with momentum in China continuing for the fourth consecutive quarter. China is seeing increasing demand from biopharma and CRO customers focused on antibody drug conjugates, cell therapy and autoimmune disorders. These are areas where our reagents, instruments and analytical platforms are particularly well suited. In April, Bio-Techne announced a strategic brand alignment designed to streamline our portfolio from 10 brands down to three. This alignment simplifies how our customers engage with Bio-Techne across the research to clinical continuum. Our three brands now include R&D Systems, which integrates our full portfolio of research use only and GMP reagents alongside a proteomic analysis instruments previously branded as ProteinSimple; Bio-Techne Spatial Biology, which includes our RNAscope in situ hybridization kits and reagents as well as our COMET Multiomic Spatial platform; and Bio-Techne Diagnostics, which encompasses our clinical controls and precision diagnostic solutions. This structure better aligns our products and technologies with our customers' progress from discovery through translational research into clinical and diagnostic applications. It also enhances the visibility of our solutions across digital and AI-driven platforms, making it easier for customers to identify and deploy the right tools within their workflows. Speaking of artificial intelligence, we continue to see AI increasingly influence both how we operate internally and how our customers approach drug discovery. Internally, we are leveraging AI to design novel and patentable proteins with enhanced properties, including improved heat stability, bioactivity and solubility relative to the naturally occurring proteins. As you are aware, AI tools are only as effective as the data that informs the model. Our models are trained on five decades of proprietary data, creating a meaningful competitive moat. And in parallel, we are deploying AI throughout the organization to improve productivity and customer engagement. From a customer perspective, AI adoption is accelerating the earliest stages of drug discovery, particularly target discovery, which is expected to expand the number of viable programs and improve probabilities of success. The effectiveness of these models depends heavily on the generation of high-quality biological data, which is an area where Bio-Techne is extremely well positioned. As an example, a recently published collaboration between Providence Health and Microsoft on the GigaTIME AI framework used data sets generated on the Bio-Techne Spatial Biology platform, COMET, to convert traditional H&E pathology images into virtual three-dimensional tissue representations. We view the growing demand for content-rich biological data sets as a durable tailwind for both our spatial biology and our proteomic analysis platforms. AI also acts as a downstream demand driver for RUO reagent and assay portfolios. Every AI-enabled insight ultimately requires biological validation, which will fuel demand for highly specific antibodies, functional assays and complex recombinant proteins in mechanism of action studies, biomarker validation and preclinical workflows. These applications align directly with the most differentiated and highest value sections of our portfolio. Now let's turn to our segments, beginning with Protein Sciences, where organic revenue declined 4% in the quarter. After adjusting for order timing from the previously mentioned cell therapy and OEM commercial supply customers, underlying growth was 2%. Our differentiated portfolio of reagents, instruments and analytical technologies remains foundational to the development and manufacturing of advanced therapeutics, including cell therapies. As a reminder, two of our largest cell therapy customers received FDA Fast Track Designation, which accelerated clinical timelines and reduced near-term GMP reagent demand as these customers had already secured the materials required to complete their clinical programs. Excluding the impact of these two customers, GMP protein revenue grew nearly 50% year-over-year. This strong performance from emerging cell therapy customers underscores the increasing reliance on GMP-grade cytokines and growth factors, as programs advance for early development through clinical trials and into manufacturing scale-up and commercialization. Staying with cell therapy, I'd like to provide a brief update on Wilson Wolf. We currently own 20% of Wilson Wolf and remain on track to acquire the remainder of this manufacturer of the market-leading product line of single-use bioreactors called the G-Rex by the end of calendar 2027 or potentially earlier upon achievement of specific milestones. Despite the challenging biotech funding environment, Wilson Wolf delivered low double-digit growth on a trailing 12-month basis while maintaining EBITDA margins north of 70%. Turning to our proteomic analysis instruments, growth was led by an operating increase in our Ella benchtop immunoassay platform. Ella automates traditional immunoassays into a cartridge-based workflow, delivering rapid, highly reproducible protein quantification with minimal hands-on time. These attributes are driving strong adoption in neurodegeneration research, which is reflected in a three-year CAGR of 50% across our neurology assay portfolio. While this remains an emerging portion of the business, the recent launch of ultrasensitive capabilities strengthens Ella's position as a leading platform for blood-based neurological biomarker analysis. During the quarter, we also achieved CE-IVD marking for Ella, enabling hospitals, clinical laboratories or other European organizations to use Ella as a validated platform for clinical applications, in-house test development, clinical trials or other translational activities. We also saw continued traction across our biologic characterization portfolio led by our Maurice platform. Maurice is increasingly embedded into biopharma manufacturing workflows as a quality control and characterization tool. It is enabling faster and more consistent assessment of critical protein attributes, including size, charge and purity. This drove double-digit growth in both Maurice instruments and consumables. Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types, declined mid-single digits in the quarter. Excluding the impact of order timing related to the previously referenced OEM commercial supply customer, organic growth declined low single digits. Strength from large pharma customers was offset by continued softness in U.S. academic demand and the lingering effects of last year's challenging biotech funding environment. As funding conditions continue to normalize in academia and recent improvements in biotech funding translate into customer spending, we believe that this core portfolio is well positioned to return to growth, supported by its differentiated performance in bioactivity, lot-to-lot consistency and reproducibility. All of these are attributes that become increasingly critical as customer programs advance towards translational and regulated applications. Shifting to Diagnostics and Spatial Biology, the segment delivered 3% organic revenue growth in the quarter. Before discussing the performance in more detail, I'd like to congratulate Steve Crouse on his promotion to President of the segment. We look forward to Steve building on his prior success leading our Analytical Solutions business over the past five years. Let's begin with our recently rebranded Bio-Techne Spatial Biology portfolio, where we continue to strengthen our leadership in situ hybridization and mid-plex multiomic applications across translational and clinical research. Strong order momentum over recent quarters translated into more than 65% growth for our COMET Multiomic Spatial Platform. During the quarter, we installed the first COMET system in China, an important milestone as demand continues to build in the region. We exited the quarter with another record backlog for the COMET, positioning the platform for continued growth. Performance within our RNAscope portfolio of in situ hybridization kits and reagents improved to high single-digit growth. Growth was driven by further customer adoption in EMEA and Asia as well as increasing use in clinical diagnostic applications in the U.S. Finally, our Diagnostics portfolio, recently rebranded as Bio-Techne Diagnostics, declined low single digits as order timing from certain large customers temporarily impacted our results. Given the concentration of large customers, this business can be lumpy from quarter-to-quarter. And therefore, I want to mention that on a trailing 12-month basis, growth for Bio-Techne Diagnostics remained in the low single digits. In summary, the Bio-Techne team continued to execute effectively in a mixed end market environment. Demand from large pharmaceutical customers remains strong. Our U.S. academic business has stabilized, and we continue to build momentum in China and the broader APAC region. While emerging biotech spending has yet to fully reflect improving funding conditions, engagement and activity levels with this customer base continue to trend positively. We remain highly disciplined in how we operate the business, delivering sector-leading profitability while continuing to invest in the growth factors that will shape Bio-Techne's future. With improving funding visibility for our customers and strong positions across our core reagents, cell therapy, proteomic analysis and spatial biology solutions, we believe that Bio-Techne is well positioned for outperformance in the years ahead. With that, I will turn the call over to Jim. Jim?

Thanks, Kim. I'll begin with additional details on our third quarter financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.53, down $0.03 from the prior year with foreign exchange having a favorable $0.02 impact. GAAP EPS came in at $0.32, up from $0.14 in the prior year period. Total revenue for Q3 was $311.4 million, decreasing 2% on both an organic and reported basis. Foreign currency exchange was a 2% tailwind, while the prior divestiture of Exosome Diagnostics created a 2% headwind. The timing impact from our two largest cell therapy customers who received FDA Fast Track Designation was a 3% headwind, while a large OEM commercial supply order that we typically receive in Q3 but received in Q2 of this year was an additional 1% headwind to revenue. Adjusting for these previously disclosed items, organic growth was plus 2% for the quarter. From a geographic lens, North America declined low single digits as strength from large pharma and growth in academia was offset by order timing in cell therapy and a biotech end market that is yet to inflect from favorable funding trends. In Europe, revenue increased mid-single digits, including low single-digit growth in biopharma and mid-single-digit growth from our academic customers in the region. We are encouraged by the fourth consecutive quarter of growth in China, where revenue increased low single digits. APAC, excluding China, also increased low single digits on a very strong comp as the Asian geography continues to show signs of sustained improvement. By end market, biopharma declined low single digits overall. However, excluding our largest cell therapy customers, Biopharma grew low single digits, driven by strong pharma demand, but partially offset by emerging biotech softness. Academia increased low single digits with the stabilization trends giving way to low single-digit growth in the U.S. and Europe growing mid-single digits. Below the revenue line, adjusted gross margin was 70.4%, down from 71.6% last year, but up 190 basis points sequentially. The year-over-year decline was driven by unfavorable product mix. Adjusted SG&A was 28.7% of revenue, down 30 basis points compared to 29% last year. R&D expense was 7.5% compared to 7.8% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin was 34.2%, down 70 basis points year-over-year. The decline was driven by unfavorable mix and volume deleverage, partially offset by the Exosome Diagnostics divestiture. Below operating income, net interest expense was $1.3 million, up $0.4 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end stood at $200 million, down $60 million sequentially. Other adjusted net operating income was $1.3 million, down $1.8 million from the prior year, primarily due to nonrecurring foreign exchange gains in the prior year related to overseas cash pooling arrangements. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geography mix. Turning to cash flow and capital deployment. We generated $86.7 million in operating cash flow with $9.1 million in net capital expenditures. Also during Q3, we returned $12.5 million to shareholders via dividends and ended the quarter with 157.4 million average diluted shares outstanding, down 1% year-over-year. Our balance sheet remains strong with $209.8 million in cash and a total leverage ratio well below 1x EBITDA. M&A remains a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q3 reported sales were $226.2 million, a decrease of 1% year-over-year. Organic revenue declined 4%, with a 3% benefit from foreign exchange. Excluding cell therapy and OEM commercial supply timing impacts from our largest customers, organic growth was plus 2%. Growth was led by our Proteomic Analysis instrument franchise, which benefited from continued strength in large pharma paired with double-digit growth from our academic end market. As Kim mentioned, our core portfolio of research reagents and assays declined mid-single digits, reflecting a challenging biotech environment and the lingering impact of the U.S. government shutdown on grant activity and fund outlays in the quarter. Excluding the timing impact of a large commercial supply customer, the decline in the core portfolio was limited to low single digits. Protein Sciences operating margin was 44.2%, down 140 basis points year-over-year, primarily due to unfavorable product mix and volume deleverage, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q3 sales were $85.6 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment. Bio-Techne Diagnostics declined low single digits as order timing from certain large customers impacted growth. Spatial Biology grew mid-teens, including over 65% growth in our COMET platform, while our RNAscope portfolio increased high single digits. Segment operating margin improved to 12.1%, up from 9.4% last year driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers. We expect continued margin expansion commensurate with the scaling of our COMET Spatial Biology platform. As we look ahead to closing out the remainder of our fiscal year 2026, we remain focused on what we can control. This includes our operational and commercial execution, productivity and capital discipline and delivering sector-leading profitability while investing across our growth platforms. The state of our pharma end market remains strong. The stabilization and signs of gradual improvement in the U.S. academic market are encouraging. Funding levels for biotech have been very strong in the past two quarters, and our commercial teams are reporting increased engagement in a higher opportunity funnel from these customers. However, given the timing lag between funding and spending by biotech customers, which typically is two to three quarters, we believe this end market is the biggest swing factor for growth to accelerate from here. While we can start to see improvement in the biotech end market as early as our June quarter, our base case is that we won't see a meaningful uptick in growth until the first half of our fiscal year 2027. As Kim mentioned earlier, we also remain encouraged by the progress of our largest cell therapy customers following FDA Fast Track designation. While these designations temporarily reduce near-term GMP reagent demand as these customers advance through their Phase III trials, they meaningfully accelerate potential commercial timelines. This customer-specific headwind moderates in the fourth quarter, impacting growth by approximately 150 basis points year-over-year and will be fully out of our comparisons as we enter fiscal 2027. Taking these market and customer-specific dynamics into account, we expect organic growth in the fourth quarter to be approximately flat. Excluding the impact of the cell therapy headwinds, we anticipate low single-digit underlying growth across the remainder of the portfolio. This outlook assumes end market conditions are broadly consistent with what we experienced in Q3. And any incremental stabilization or improvement in emerging biotech spending could prove additive. Importantly, this near-term outlook positions us well for an acceleration in fiscal 2027 as biotech funding should more fully translate into customer spending, academic conditions continue to normalize, company-specific timing headwinds roll off, and we lap easier year-over-year comparisons. From a margin perspective, we remain focused on balancing growth investments with operational efficiency and intend to close the last quarter of the year with approximately 100 basis points of margin expansion over the prior year. That concludes my prepared remarks. I'll turn the call back to the operator to open the line for questions.

We'll take our first question from Matt Larew with William Blair.

I wanted to follow up on emerging biotech that was down mid-single digits in the fiscal second quarter, and you mentioned down high single digits this quarter, acknowledging the improvement in funding may materialize later in the year. Just given that step down, I would be curious what you saw from sort of an intra-quarter trend perspective and if you've seen any improvement sort of from January through to March and then now into April.

Matt, thank you for the question. Yes, the biotech end market was indeed our surprise. So I appreciate you honing in on it. We had, of course, very clear visibility to how the funding had been. And as you remember, funding was relatively dismal in the first half of 2025, calendar 2025. It recuperated a little bit to low single digits in the third quarter and then actually had a real step-up, 90% growth in Q4. And then we rolled into the new calendar year with yet another good quarter in funding. Underneath that, we saw our last two quarters at negative mid-single digit two times in a row, indicating some sort of stabilization. You take on top of that that we saw that the funding was up. We know interest rates were stabilizing. M&A deals were up in biotech and licensing deals just as well. We also had a little bit of visibility to the COMET bookings being positive there. So we assumed a slight improvement in the biotech end market to maybe negative low single digits. But you're right, it did step down to negative high single digits instead. And that really is the hole for our quarter, and it fits very nicely to exactly the gap in our biotech end market. And there, of course, we double-clicked, and you can see that funding was substantially up in late-stage biotech, but early-stage biotech, where a larger portion of our core reagents have a direct read on, that early-stage funding was actually down if you tease that apart. And that is where our surprise came in. The trend during the quarter, we hear from our sales force that there are more interactions and dialogue about possible orders and investments. But for now, we are assuming that with two negative mid-single-digit quarters going to high negative singles, we can't assume that there is a clear stabilization or improvement. So for now, we're keeping our forecast at flattish because we don't have clear indicators that there is an improvement.

Okay, fair enough. You talked about the outlook for the calendar second quarter; thinking about how some larger peers have characterized that quarter and the rest of the year, and given OEM timing and the removal of cell therapy headwinds on your comps and some improvement in A&G, I'm curious whether you're thinking mid-single-digit growth by the end of the year, consistent with what others are citing, or whether we should be thinking about a different range. That's all for me.

This is Jim. Thanks for the question. I make sure I understand your question correctly. You're asking about the end of calendar '26.

Yes. That's right. Yes. Just given how sort of peers have framed the calendar second quarter relative to the balance of the year.

Yes, sure. I mean, again, we won't be giving any kind of even soft guidance around '27 until next quarter. But as I've mentioned in my prepared comments, we're very encouraged about the upcoming fiscal year. Some of these headwinds that are company-specific will now finally be behind us. And we've seen a definite stabilization in the North American academic market. And of course, pharma remains strong. So it really comes down for us to biotech. Admittedly, I think we were probably a little bit premature; we saw two quarters of stabilization in biotech and felt perhaps the worst was behind us. In retrospect, we may have gotten the cart a little too far ahead of the horse on that one in the sense that the reality is the two- to three-quarter lag really hasn't happened yet given that it's only been two recent quarters where we've had strong funding. But if history is any guide, it does bode very well for the second half of calendar '26 with respect to the biotech market. And of course, that's our first fiscal quarter of '27. It's also encouraging to hear from our peers who've already announced that they're expecting an uptick in momentum in the back half of the year, and we tend to agree with that thesis.

We'll take our next question from Puneet Souda with Leerink Partners.

So, Jim, first for you, you're one quarter away from fiscal '27. Just given we've been in these markets for some time, the challenges you're well aware of those. Can we still do mid-single-digit growth? Can Bio-Techne do mid-single-digit growth still in fiscal '27? I think it's an important question just given how we have ended so far. And on the biotech side, I understand, but just trying to understand, given the end market challenges, was there something that surprised you later in the quarter? Or is this more about the way you're building the overall forecasting because I don't think investors were expecting a surprise at this point given that GMP Fast Track designations already surprised two quarters ago.

Yes, Puneet, thanks for the question. This is Jim. With regard to fiscal year '27, based on what we see now, we'd be disappointed if we didn't achieve at least mid-single-digit growth because all the indicators point toward a gradual normalization of the market. Putting company-specific items aside, which amount to three customers, we would have been in low single-digit growth even in today's tough biotech end market. In terms of indicators, we saw an uptick in growth in our proteomic analysis instrument portfolio and in our spatial portfolio within academia. As we've said before, those two growth vectors are indicators for us: when the markets begin to recover, that's often where investment flows first. That's exactly where we saw strong growth in U.S. academic this quarter, which increases our confidence that our customer base is getting more confidence in their funding. We're looking for similar signs among our biotech customers as an indicator of an inflection point. It's too early to call, which is why we're being prudent with our Q4 forecast and holding it steady for overall base improvement. However, it was encouraging to hear from our business and commercial leads that interest, particularly in our proteomic analysis and spatial biology offerings, has picked up recently among biotech customers, and the funnels are starting to grow again. We'll see if that translates into more orders in Q4 and higher revenue in early fiscal year '27. Those are the things we'll be watching in the biotech end market.

Got it. And that's helpful. On the RUO reagent side, I think you commented that that business is soft, partly because of biotech. But we have seen two readouts from competitors so far. One, from an operating company within a larger entity, shows their business is recovering. Another, which is strong in flow cytometry, is also showing signs of growth. What gives you confidence that this is not leading to share loss in R&D Systems and Novus Biologicals?

Yes, Puneet, thanks. Yes, very good question. In fact, there are a couple of dynamics here. The one order that we had talked about that got booked in Q2 rather than Q3, the 100 basis point swap we've mentioned previously and on this earnings call, is actually included in that number. It sits in the core reagents area. If you look at our comparables, which had double-digit growth last year — almost 20% — and compared to some of the other companies you mentioned that have negative numbers to compare against, we've done our math and our homework and, of course, our market work. We're relatively confident that we're still in a strong position, and that is the situation for that core business.

Yes. And I'll add there, Puneet, just a little bit so that when people think about our core reagents, they typically think about our proteins and antibodies portfolio, rightfully so. But we also include that there's some other small molecules, there's assays, core ELISA assays, et cetera. But as it pertains specifically to that proteins and antibodies portfolio, after you take out this very large one customer OEM order that happened to impact that portion of our portfolio, both our proteins and antibodies combined grew low single digits this quarter.

We'll take our next question from Patrick Donnelly with Citi.

Kim, maybe one on the China piece, continues to show a little bit of growth there. Can you just talk about what you're seeing and then the expectations visibility going forward? Are you feeling you're in a pretty good spot there as we head into '27? We would like some more detail just on the overall backdrop and expectations there.

Patrick, thank you for the question. Yes, we are quite excited that we have, for the fourth time, positive growth in China. And obviously, Jim and I were earlier this quarter in China, meeting with government officials, exploring how we can further support science and medicine in the country. We connected with customers in academic as well as in the new companies that are working on new therapeutics, including CROs and CDMOs. And there's a lot of activity. You can clearly see a momentum in the market, especially around the advanced therapeutics. And so for us, we're not surprised that we are in growth mode again. We called that one right a year ago. And there's no reason to believe that that is going to weaken. I would expect continued momentum and strengthening of that particular end market, specifically after our visit. We are direct in the market, and our team is really well connected with customers on both sides, on the biotech as well as pharma as well as the academic side. And yes, it's positive all around.

Okay. That's helpful. And then maybe just one more on the biotech piece. Again, a surprising step down there. I guess in terms of your customer conversations, what are you hearing? I mean, the funding has looked quite good for over six months here. Typically, that does cause an inflection higher for you guys. Just curious, I guess, on the visibility, the customer conversations, how you're feeling about that market as you head into '27. It feels like it should have been a nice tailwind certainly going into the next quarter and '27. Obviously, it's lagged a little bit. Just trying to figure out what that could look like as we work our way forward here over the next six, nine months.

Patrick, I think Jim already touched on it. We were quite surprised at the step down. After further analysis, and if you look at the funding levels for early-stage and later-stage biotech, we understand it. But you're right, the funding levels were very encouraging. As I mentioned, interest rates, M&A activity, and other factors were pointing in the right direction. Conversations are getting better and interest from the biotech market is improving. Last quarter, with two negative mid-single-digit results, we thought stabilization and improvement were underway. But with this step down, our focus shifts back to stabilization because we need to see the ship turn the corner. So we are being somewhat cautious, and I think that's the right approach. Still, all the indicators, including the dialogue with customers, are positive.

And if I could, I'll just add a little bit. I mean, kind of going back to my cart before the horse comment, it's like kind of trying to thread a needle here with regards to exactly what quarter you see the inflection point. And we've said that we've looked at our history over the last several decades and look at different ebbs and flows of biotech funding and the range is anywhere between one quarter and as many as four quarters. But the average or the mean is somewhere between two and three. And the reality is it's only been two quarters of solid funding. So we're kind of right at that median point now. And we'll see whether we see any of that pickup in Q4 or not. Right now, our base case is that it does not, but it doesn't necessarily get any worse from here either. But it does, again, bode well for the back half of this calendar year, which is the first half of our fiscal year because at that point in time, you start to get to the, call it, the tail end of the bell curve of when we usually start to see that flow through.

We'll take our next question from Justin Bowers with Deutsche Bank.

Just going to stick with the current line of questions. But Jim, can you update us on your view for fourth quarter for the different end markets? So what's the view for academic, U.S. academic, biotech, et cetera? And then also, when you double-click on the funding analysis, what sort of competitive dynamics, if any, did you uncover? And then part three of that would just be what parts of the portfolio would you start to see the recovery the soonest from the biotech customers?

Well, I'll take the first one. Thanks for the question. I'll take the first one and the third one, and I'll let Kim jump in on the second point. It's quite simple: without going through each end market, our base case assumes basically the same level of performance across all our end markets in Q4 that we saw in Q2. Pharma is already very strong. Academic is moving in the right direction, albeit slowly. So we don't see a meaningful move, but we do see continued progress. For biotech, we're assuming the same kind of performance in Q4 that we saw in Q3. As I mentioned in my opening comments, if there is any potential upside, we think it would come from biotech, but right now that's not our base case. Regarding which parts of the portfolio would recover soonest, as I said earlier, we look to our proteomic analysis business and our spatial business. Those two growth vectors, while cell therapy tends to march to its own beat and is already doing very well, are usually early indicators of a market turnaround when they begin to inflect. We saw those two parts of our business perform very well with double-digit growth in our U.S. academic markets this most recent quarter, and that's the kind of inflection point we're looking for in biotech as well. I don't want to get ahead of ourselves, but it was encouraging to see that interest and funnel activity among our biotech customers for those two areas of our portfolio have picked up in the last several months.

And Justin, to your second question, oh, go ahead.

And Justin, to your second question around the trends in biotech, right? So yes, over the last year, funding mix has shifted. And the year before, you could clearly see 75% of all the funding going into late-stage work, clinical development, Phase I, II, III, and that has become 82% of the funding. And the same happened in reverse for early-stage discovery, which used to be 25% of budgets and now being 18% of all the funding. So that took a step down in the early discovery part. And that's really what we bumped into with our core portfolio, specifically the assays that Jim mentioned. And I don't think that is, by definition, a change in competitive trends. It's just a change in where the money gets spent.

No. Go ahead, Kim.

We'll take our next question from Kyle Boucher with TD Cowen.

I know you touched on this a little bit, but I wanted to ask another clarification question on the guide. You said flat organic in fiscal Q4, sort of implying low single-digit underlying growth, excluding the GMP headwinds. But it sounds like there's fewer sort of discrete items in the fiscal fourth quarter. The GMP reagent headwind is pretty small at 150 basis points. The OEM reagent timing headwinds out of the way. You faced the easiest comparison year-over-year on organic. I guess beyond biotech performance, I mean, is there anything else that's sort of getting worse?

I'll give a quick overview and then Jim can go into more detail. Looking at our end markets first: pharma has been double digits and funding has been stable, maybe slightly improving, so we expect our entitlement business to remain double digits. Biotech we discussed in detail. In academic, we see a slight improvement and are pleased to be back in positive territory for the first time; it's still a fragile market and not going to be a V-shaped recovery, but stabilizing and improving is a fair assumption. In China we've already discussed being four times in positive territory with continued momentum. From that perspective I'm relatively comfortable. The area we've been talking about that could be a detractor remains biotech. From a portfolio standpoint, our core has been doing well except for the areas we discussed. Looking at verticals, I couldn't be more positive. Cell therapy: excluding two customers, underlying growth was 50%, and over the trailing 12 months it's 17%, which looks stable; we would like that to be at least 20%, so it's heading in the right direction. Spatial returned to mid-double-digit growth with reagents improving and the COMET instrument growing 65%. Proteomic analysis is currently mid-single digits, but it belongs in deep double digits, and a biotech uptick would be the trigger to get it back into the mid-double-digit zone. Diagnostics was negative for the quarter, especially molecular diagnostics products, which was clearly a timing issue, so I have some confidence it can return to a normal growth rate. That's the overview on the product lines. Overall, we're comfortable, though cautious about the next quarter, and see a strong trajectory toward normalization.

Got it. And maybe just on the GMP reagent business and even spatial on the Lunaphore side, pretty impressive growth rates almost 50% on the GMP reagent side, over 60% for Lunaphore. I mean how sustainable do you think these levels of growth are going forward? I mean, do they face easy comps year-over-year?

Yes. Taking the two customers out, we look at the funnel underneath. We have more than 700 customers, and the number of customers has increased by mid-single digits, so that's not driving it. The growth is clearly driven by customers going deeper into their projects and spending more. We have 85 clinical programs, the same as last quarter. However, 18 are in Phase II, up from 15, and there are still six customers in Phase III. That progress by customers is driving the growth. Cell therapy trials globally are also increasing significantly. There has been a mix shift from gene therapy to cell therapy, and that's where we're benefiting as well. We believe that 20% growth as a minimum on a trailing 12-month basis is the right bar to set. And of course we can always look at our Wilson Wolf numbers. We talked about mid-single-digit growth this last quarter, and that was over a comparable that grew 25% last year. The number of grants we're writing is impressive. We're pleased to see roughly a 50% attachment rate with Bio-Techne's cytokines and proteins. Overall, we are comfortable with the underlying market activity levels, progress of the pipeline, and the number of customers we are putting into the funnel.

We'll take our next question from Mac Etoch with Stephens Inc.

Maybe just one for me and following up on the last question asked on GMP proteins and cell therapies. Could you just maybe break down how much of that growth you are seeing is coming from new program wins versus expansion of existing customers? I would really appreciate that.

Yes, I just touched base on it. Thanks for the question. Our overall number of customers increased 3%. Over the last couple of quarters, we saw a rotation. Some customers rotated out and they started two to three years ago with a setup that turned out to maybe not be a winning strategy within the cell therapy. But others have come in, and it's all about are you able to scale? Are you able to make it cost effective, and we are certainly helping our customers doing so with the Wilson Wolf G-Rex and our cytokines and proteins as well as the form factor of the ProPak that we've launched a quarter or two ago. So overall, we feel that 3% increase in customers, including the churn, is encouraging. The number of clinical studies is increasing, and there is progress in the pipeline by the customers from clinicals one into two and three. So we see positive trends in all three of those dimensions.

At this time, we've reached our allotted time for questions. I will now turn the program back over to our presenters for final remarks.

Thank you, everyone, for joining today's call. I want to recognize the Bio-Techne team for their continued focus and execution through what has been an extended period of market and customer-specific challenges. We are encouraged by the improving biotech funding visibility, stabilization in the U.S. academia, sustained engagement from our large pharmaceutical customers and continued momentum across China and the broader APAC region. As we move through Bio-Techne's 50th year, we do so with a portfolio that has never been better aligned with the direction of science and medicine. Our combination of high-quality reagents, analytical platforms and enabling technologies supports critical workflows from early discovery through translational research and manufacturing. Continued investments across cell therapy, proteomic analysis, spatial biology and precision diagnostics position us well to support our customers and capture attractive long-term growth opportunities. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.