NEW YORK (360Dx) – Since acquiring Advanced Cell Diagnostics about a year and a half ago, Bio-Techne has seen solid growth, and later this year it plans to create a new division for genomic technology that came with ACD, according to company officials.
Although the technology — which provides highly sensitive RNA-based tissue analysis and has been housed in Bio-Techne's biotechnology division — is growing at about 40 percent, mostly in biotech and academic research applications, significant potential exists to drive product sales in immunohistochemistry diagnostics over the longer term, according to the company's executives.
The Minneapolis-based life sciences tools and diagnostics firm took ownership of the RNA in situ hybridization technology, called RNAscope, when it purchased ACD for $325 million in August 2016, launching Bio-Techne into the genomics space.
The technology enables researchers to visualize gene expression in individual cells while retaining information on tissue morphology and is far more sensitive and effective than existing antibody-based immunohistochemistry detection that analyzes cells for cancerous tumors, according to Bio-Techne President and CEO Charles Kummeth.
In an interview, he said that ACD's technology goes into a cell and looks for RNA, leveraging two proprietary probes, whereas "[w]ith classic IHC, you need an antibody to look for a malignant tumor, for example, and about 25 percent of the time you don't have the right antibody, or an antibody does not exist."
RNAscope's multiplex nucleic acid in situ hybridization technology uses a probe design and signal amplification that serves as an alternative to conventional in situ hybridization/in situ fluorescence (ISH/FISH) RNA detection. The method, Bio-Techne said, enables pathologists to profile single-cell gene expression in situ with single-molecule detection sensitivity.
According to the company, the method has the sensitivity to detect most genes in the human transcriptome in situ, and simultaneously quantify multiple RNA transcripts at a single-cell resolution. It noted that to improve the signal-to-noise ratio of RNA ISH, it employs a probe design strategy similar to fluorescence resonance energy transfer, in which two independent probes must hybridize to the target sequence in tandem in order for signal amplification to occur.
To date, the technology has been used mostly in research settings, but the push into the clinical diagnostic space has already begun. Bio-Techne has a partnership with Danaher's Leica Biosystems, which "has done all the regulatory work" for a tissue-based diagnostic test for human papillomavirus using RNAscope, Kummeth said, adding, "The idea here is to keep adding on tissue-based diagnostics with partners like Leica" that have IVD regulatory expertise. There may also be other applications, though he didn't elaborate.
Kummeth said that the firm's organic growth rate is 8 to 10 percent year over year.
ACD grew more than 40 percent in 2017, and is expected to grow 40 percent or higher again this year, driven by its reach into pharma and academic research, and longer term, by its entry into clinical diagnostics, Leerink research analyst Puneet Souda said in an interview.
He noted that the technology has potential for growth as a tissue test used during drug research and as a companion diagnostic to aid in the selection of patients during clinical trials, because it shows better sensitivity and specificity than other tools employed in tissue-based immunohistochemistry diagnostics.
"Currently all the revenue is coming from research use only," he said. "However, it provides a significant amplification over the current standard for IHC used in anatomic pathology labs."
He noted that companies such as Danaher's Leica Biosystems, Roche, and Agilent Technologies' Dako supply platforms in this segment, and they and other suppliers also produce reagents.
"RNAscope technology has a number of advantages that position it well and has driven more than 40 percent growth year over year in that business for the past few years," he said, adding, "You can expect to see that growth continue, and that technology is expected to pivot towards diagnostics."
Souda said that he expects that RNAscope will add $50 million to Bio-Techne's revenues in FY 2018 revenues.
"The number one driver for ACD business growth is a transition in the immunohistochemistry marketplace, from an antibody-based pathology using IHC, to molecular pathology," Kummeth said.
However, he noted that the ACD business is only one among several growth drivers that has taken the firm from $311 million in annual revenues in FY 2013 to $563 million in FY 2017, and these initiatives are expected to help drive greater than $1 billion in revenues in 2022.
The company is also expanding into "branded diagnostics with content-based solutions," he said. In addition to the ACD purchase, Bio-Techne bought ProteinSimple in 2014 for $300 million in cash, giving the company Simple Plex assays and products. These products have potential for use in clinical trials during drug development and later as companion diagnostics to aid in selecting patients who would take the drugs.
The firm has announced two CDx efforts, with Bayer and Merrimack
Bio-Techne also has an investment in Astute Medical, a company that manufactures and markets US Food and Drug Administration-cleared diagnostic tests for acute kidney injury, which uses Bio-Techne's biomarkers, Kummeth said.
Bio-Techne's multiplexing assays business sales are rising 20 percent year-over-year, including royalties, and are also expected to drive its growth, Kummeth noted. The business includes its immunoassay solutions and ELISA kits, as well as a parallel single-plex approach to multiplexing offered through products that it acquired from CyVek in 2014 for $60 million in cash and "earn out" payments tied to revenue milestones.
Kummeth noted that the firm supplies reagents for the instruments made by many of the in vitro diagnostic industry's largest players, including Abbott and Luminex, and that it sells Luminex instruments. Controls, calibrators, other upstream components, such as reagents, purchased by diagnostic companies developing and supplying in vitro diagnostic kits, make up most of the rest of its diagnostics products sales, he said.
When it looks at growth opportunities, the company has "positions in spaces that we can leverage … so we're hunting," Kummeth said recently at the 36th annual JP Morgan Healthcare Conference in San Francisco, California. He noted that among other areas of potential growth, the firm is keeping an eye on the potential to expand into liquid biopsy diagnostics, including exosome and cell-free DNA diagnostics.
To expand in these areas, the company would likely acquire entities so that it can achieve a critical mass, Kummeth said. Along with the firm's CFO James Hippel, he cautioned at the JPM healthcare event that suitable acquisition targets are now difficult to find and expensive, and that the firm tends to favor high-margin businesses that show synergies with its existing products, but it stays clear of companies that might be of interest to larger industry players.
Bio-Techne has completed 12 acquisitions in Kummeth's four and a half years at the firm. And it's likely to have additional cash for acquisitions given a reduction in its tax rate due to the new US tax reform legislation. About 80 percent of the firm's business is done in North America, 12 percent in Europe, and 8 percent in Asia where its business in China is growing at a 20 percent clip, the firm said. Its executives said that they believe its blended tax rate could end up somewhere between 25 and 28 percent, down from 30 percent.
"It's all good, but we just don't know how good yet," Kummeth said at the JPM event, referring to the company's expected new tax rates.
Among the areas in which it is considering acquisitions, diagnostics industry buys are on the radar, he told GenomeWeb, although any potential deal would need to "demonstrate that it can contribute high margins and show synergies with our content or existing instruments," he said.
Nonetheless, the firm has a '"strong pipeline of potential acquisitions," a list of 100 possible targets for the three business segments in which it participates — biotechnology which accounts for 64 percent of its revenues; protein platforms, 15 percent; and diagnostic products, 21 percent.
In biotechnology, the largest division, the firm develops and manufactures biological reagents used in life science research, including research proteins, antibodies, and immunoassays. The division consists of products from the R&D Systems brand that have been part of the company for around 40 years. Bio-Techne expects the division will have a compounded annual growth rate of between 4 percent and 6 percent over the next five years.
Bio-Techne's automated protein platforms division, expected to achieve between 15 percent and 20 percent growth through 2022, consists of automated solutions designed to improve the efficiency of process work streams, and includes automated western blot instruments, bioprocess purity analyzers, microfluidic imaging instruments, and multiplex-ELISA instruments.
Its diagnostics division, which provides hematology controls, blood gas and chemistry controls, and diagnostic assay reagents, is expected to grow at a 5 percent to 8 percent CAGR through 2022.
About 36 percent of its revenues come from pharma and biotech entities, 23 percent from academia, 25 percent from OEMs, and 17 percent from distributors.
Leerink's Souda said that based on a recent presentation by Bio-Techne executives, the long-term outlook for the firm "appears slightly better than our estimates," especially in diagnostics. This week, the investment bank raised its overall revenue estimate for Bio-Techne from $667.5 million to $670.2 million in FY2019 and estimated $728 million for FY2020, but held off providing estimates for the coming year.
Souda said that ACD is less than 2 percent penetrated in an IHC/FISH market worth more than $2.3 billion, and that it has potential to reach 6 percent penetration by 2021.
He said that he believes that ACD will be a major contributor to the firm's growth, accounting for potentially 37 percent of its revenue growth in FY 2018 and 43 percent in FY 2019.
ACD obtains about 66 percent of its more than $30 million in revenue from pharma and the rest currently comes from academic accounts, Souda said.
"It is likely to gain further significance as ACD's technology gains access to companion diagnostics," he noted.
Beyond that, apart from its collaboration with Leica Biosystems, Bio-Techne has a research-use agreement with Ventana, "helping it drive penetration in the high-volume pharma accounts with expectations of penetrating the IHC market more broadly," Souda said.
Among the risks to the firm's growth goals are the potential for a downturn in biopharma R&D funding if regulations "or changes at the FDA lead to dramatic changes in profitability of the drug companies," Souda said. At the JPM event, Kummeth noted that a decline in NIH funding could also impact the firm's revenues, though it had taken steps to mitigate that risk by increasing the share of other customer segments as part of its overall mix.