Great. We're going to go ahead and kick it off. I'm Tycho Peterson from the life science team. I'm pleased to have Biorad with us today. We've got Roop. So maybe just to kick it off, Roop, we could do a quick State of the Union here, 1Q macro. Obviously, a bit choppy. We'll get into that in a bit. But I think importantly, you know, obviously there's been some headlines, a lot of focus on kind of high-level operational, you know, items at the company. Just talk for a second on, you know, you've been at the company for a while now. How would you characterize things, you know, at this point, areas like innovation, infrastructure, go-to-market, commercial? What are kind of the real priorities here in the near term?
Yeah, first of all, Tycho and Matt, thanks for having Bayerat at the conference here. I really appreciate it. So I've been with the company for about two years now, and it's been a lot of change. And part of that change is me coming on board, but also other new leadership that's come on board over the past couple of years, 18 to 24 months, let's call it. And one of the aspects here is just as a new leadership team coming together, really aligning on, obviously, and markets are awfully choppy, as you've said. And they're evolving as we speak, but at the same time, it gave us an opportunity to really look at our business, the different elements of both the tool side and the DX side, and understand what's working, what could be better, and these sort of things. And based on that overall evaluation, we've spent a lot of time going through every area, really, if you will, right? There's commercial transformation that's happening in terms of how we think about end markets, how we think about the accounts, where there's growth opportunities, these sort of things. And where we have a right to win, how do we do more in those areas, as an example, right? Greater pricing discipline. So the list goes on. If I go into the, you know, operational areas, really looking at our manufacturing capacity, our distribution network. As an example, you know, we'd been talking about China for China for over five, six, seven years, and with no actions. We decided it's something we needed to do. We We specifically identified certain SKUs that we thought would be beneficial in China. And we stood up a manufacturing capability within 90 to 120 days. And then when you get into the operational areas, R&D, we've really re-evaluated our overall R&D portfolio. Really looking at where do we, and I'm sure you're going to get into it, right? When we look at our R&D from a historical standpoint, it hasn't been great in terms of the returns there. And so we recognize that there's an importance in ensuring that we have the vitality that we need for future growth. And so we've spent a lot of time really looking at the portfolio analysis. It's resulted in certain impairments we've taken, as an example, in the fourth quarter of this last year. But it's also helped us refocus in terms of digital PCR, where we have leadership. and we're doing more in that area, right? And so one of the things we talked about in our Q1 call is a transition of our over 400,000 assays on our historical digital platform, digital PCR platforms, over to the still of platforms, which is the acquisition we just completed last year. So these are things that just to drive improved execution and focus has been a critical area. Those are just a few examples in terms of what we've been trying to transform towards improved execution. You can call it, it's kind of plumbing areas, if you will, that over time we think will build towards improved financial results and improved growth opportunities in the marketplace.
Yeah, maybe we can just follow up on the R&D kind of, you know, initiatives. You know, what really hasn't worked historically? What are the focus areas, you know, to improve productivity going forward? As you said, the returns, you know, historically haven't been great.
Yeah, if I look at the R&D side, there's two aspects to it. There's the internal R&D, and I'll come back to that here in just a moment, but we've also been acquisitive over the past few years. And just historically we've been acquisitive, and it's been an important part of our overall strategy. That's been no different over the last, let's call it, 68 years. The challenge is where we had focused in terms of M&A opportunities was earlier stage companies that needed to go through that R&D phase and really get to commercial viability. and you know quite honestly it hasn't worked out as well as we would hope and that's both on the DX side as well as on the tool side and so we have re-evaluated how we think about M&A where we want to focus the types of companies we want to focus and there's still a transaction is an example of that which closed June 30th of last year wherein it's a company with in droplet digital PCR which is exactly where our specialty is and they had a product on market that was already selling that had revenue that had a commercial basis which we could then take our commercial infrastructure as well as our R&D capabilities and add value there and it accelerated growth and that's exactly what we're seeing when you look at 24% year-over-year instrument growth and DDPCR for us this last quarter you know that's that's a result of the work we've been doing on that R&D improvement, but also the value of what the new Stella platforms and the collective portfolio that we have within the marketplace.
How about replacement cycle opportunities? I mean, just thinking about Bioplex, next-gen launch coming next year. I think you've gotten a stall base over 400 units, at least the last time you disclosed. What are your expectations there on magnitude of the upgrade replacement
Yeah, we're looking forward to the next-gen platform to be coming out, and it's on track to do so. And as we think about it, there's a couple of different aspects here that we've focused on. One is obviously just getting that next-gen platform out there in terms of replacement strategy with existing install base, like you said. The other part of it, though, is we've been focused on menu expansion. And an instrument without menu is really not of value for those users, and we recognize that. And so we've been focused on menu expansion. And I think between install, replacement cycle, but then new market share opportunities with that menu expansion, those are the kinds of things and how we're thinking about it. Again, it's kind of that improved execution and approach, if you will, and then the ability to go deliver on that, which we're driving.
Any way to kind of frame how you think about where pull-through can go with the menu expansion? And I assume most of the installs would be reagent rental as you roll them out.
Yeah, I mean, there's reagent rental. There's obviously the consumable pull-through, which are both. I think it's a little bit early to really talk about what the amounts might be. But we're excited about the potential of that menu expansion and how that can open up further market share for us.
Go back to the earnings call. The 1Q call, you gave a little more, you know, I'd say precise comments on M&A, you know, in particular $100 to $500 million range plus, you know, some smaller bolt-ons, less focus on transformational deals. Maybe just talk about, you know, the messaging there. Should we interpret that as you being closer to the finish line on something? And then does this, you know, specifically, you know, take larger M&A off the table down
Yeah, I appreciate the question because we get a lot of questions around M&A and, again, and historically, buy-ride's been acquisitive in both larger deals and smaller deals, early stage deals. And there seemed to be a bit of confusion as to where is our focus, if you will. First of all, you know, this concept of transformative deals, we wanted to take off the table. Now, arguably, you know, the revenue range, because we are focused on companies that have on-market products have revenue and profits in terms of the targets. You know, that was important to help people understand. We're agnostic in terms of whether it's tools or DX, but at the end of the day, what our focus is from an M&A standpoint is really to help drive incremental value to our customers, first and foremost, that gives us differentiation, that has revenue and profits and cash flow, So that can then accelerate our margin expansion story and free cash flow improvement story. Those are the things that we're focused on. And so when we think about M&A, that's how we want it, you know, part of the criteria that we evaluate it from. And this concept of transformative deals, we don't need transformative deals. The idea here is how do we drive additive capabilities that can then leverage our infrastructure and therefore drive an accelerated op margin expansion.
And you mentioned you're agnostic to life sciences versus diagnostics. I mean, any potential to add a third leg to that stool with a new vertical or no?
To me, for us, it's not about adding a third leg. I think what we look at is things that are synergistic to the existing business and how we can create value from the commercial capability and infrastructure we have, the R&D capability and infrastructure we have and so you know it's not about adding a third leg it's about finding something where we're already playing in tools where we're already playing in DX and be additive to them how about pruning
the portfolio divestitures you know anything that you know we should we should be thinking about on that front that's non-core yeah I mean you know
bi-red's transformed itself over the year over the decades really right when you think about being around for over 70 years and so it that's a process by which or a consideration that always has to be a part of your evaluation so we're looking at it as if you know can we invest more to do more and have a right to win is this the right place to play in if it's not where else should we play that's where the M&A comes into place and so divestitures is another part or another angle of that that we need to be willing to contemplate maybe we could just flip to end
markets anything you know you're seeing uh lately from a customer behavior standpoint you know coming coming out of one queue setting aside the middle east for for now but you know biopharma versus uh academic seems like we've heard from some of your peers biopharma got a little bit
better in april and may yeah i mean biopharma you know so so if i break it down from a biopharma standpoint what we've seen is those in later stage closer to commercial realization receiving funding having activities through those clinical areas and these sort of things if you look at earlier stage discovery kind of areas that's where it's still soft and and unfortunately when you look at our customer base it's a bit more skewed towards that discovery stage and in part of what we've been talking about is, you know, where do we have an opportunity to play in the later stage companies and that are closer to commercial, what value we can add there so we can participate in that part of the market. When you look at academia and government, and I'm sure you'll have some incremental questions, I think it's different based on the region, right? Obviously, we know about the U.S. and NIH, I think the NIH being plus 1% is everyone looks at that headline says that's great, right? But when you look at the underlying how those grants are being cascaded into people's hands for use, they've changed their methodology, and that's having effect on the customers in terms of how they think about money and what they can use and these sort of things. You look at the amount of new grants, it's at a lower level than it's been at historically. So it's a changing dynamic here in the U.S. I think people are cautious as a result of those changes from a government support standpoint. When you look at Europe, it's softened over the course of, I'll say, the last 9 to 12 months. That's something that we're cognizant of. And then when you look at, you know, some positive areas, we see AIPAC as an area that's been positive, seeing it on an uptick, especially in Korea and Japan, and then areas like Australia, et cetera. China is the one where, you know, it's been relatively stable for us overall, whether it's tools or DX, but it's something we're very mindful and paying attention to.
I guess just to follow up on ANG, here in the U.S., do you subscribe to The View? we could start to see some catch-up spending over the summer, or is the multi-year funding dynamic and labs just hoarding funds too much of a headwind?
We don't believe that there's going to be a catch-up, quite honestly. I think people are wanting to get research done, first and foremost, and it's imperative that we have that as part of the overall ecosystem. With that said, people continue to be cautious in terms of how they spend the money, where they spend the money, and, you know, we think that that's going to continue through the rest of the year. And so we don't expect a catch-up.
Maybe just jumping into some of the businesses, digital PCR instruments up 24% in the quarter. Can you unpack some of the underlying demand drivers and how much of this is tied to the replacement cycle for the QX700 versus competitive wins?
Yeah, I mean, we're obviously very happy with the instrument growth on a year-over-year basis for our droplet digital PCR platforms. When we look at that, there's a few different contributing factors, even in a soft market. Number one, it really speaks to the value and the extensive portfolio we have, number one, and just in terms of the instruments. Number two, it also speaks to the differentiation that our over 400,000 assays that we have have on our Droplet digital platforms, but also reinforced by the amount of publications. We have more technical publications than anybody else. We have over 12,000 publications. And that just gives further validation in terms of the ability for our instruments to be used in research to really add value. And so I think we're considering the soft environment overall. Where you have differentiation, you have an opportunity to win. And I think that's what we saw in that first quarter, and really not just the first quarter because we saw that in the fourth quarter as well. And then, you know, things that we're doing like migrating our assay library to the QX700 series instruments, which is the former STILA instruments, is just further reinforces kind of our differentiation and value that we provide to our customers.
How about consumables for digital PCR, like down mid-single-digit? Was it similar in academic and pharma? And now that you've poured it over, I think, as you said, 99% of the assays, how should we think about that transition on demand?
Yeah, I mean, there's a bit of lag time from when the instruments are sold, right, to when you'll see that consumable pull-through really get to normalized pull-through rates, if you will. So, and then that's usually a six to 12-month cycle we've seen at least historically. With the softer market, you know, does that elongate? So that's something we're cognizant of and that we're tracking and evaluating. As we think about consumable pull-through, right, I mean, it's a mid-single-digit decline on a year-over-year basis. Sequentially, it was a little bit worse than that, and which speaks to, I think, just the and markets softening even further as we went through the end of 25 into the beginning of 26. But it's, at the end of the day, research is still getting done. We need to, you know, need to be able to support our customers and we're focused on that from helping support their consumable needs and usage.
Maybe switching over to Process Chrome then, 1Q track to plan, but obviously you had a big reset coming out of 4Q from up high single to down mid-teens. Maybe just talk about the portfolio there. You know, is it 8 to 10 commercial programs and then a lot of clinical programs? Maybe give us a sense of the scale there. And how do we think about, you know, your visibility into that market going forward?
Yeah, first of all, the visibility is good in terms of what we have with our customers. Our account teams do a really nice job in working with the large pharma companies to really understand where they're going, what they're trying to do. And that's something we've focused on improving over the years since the de-stocking periods. With that said, when you look at the distribution of our, the vast amount of our revenue comes out of those in the commercial phase. So they've got therapeutics on market, whether it's vaccines or drugs. But when you look at the greatest number of customers we have, it's actually those in the clinical phases. So, and one of the things that we've seen is over the past few years, an increase in the number of customers that are in those early stage clinical phases, evaluating what residents to use, and as a reminder, we play in the polishing stage and kind of a niche area, a critical area, but a niche area. We're not playing in the broader bioprocessing, right, that others might be. And so for us, within there, once you're specced in, you're in, once you're specced in in that clinical stages, you're in there through that commercial phase. And then it's just a question of, you know, how significant is the drug in the marketplace or how successful is it in the marketplace?
And has your longer-term outlook for that business changed? And just thinking ahead to 2017, you know, the benefit of easy comps, I mean, can that business get back to high single-digit growth?
Yeah, I mean, you know, our focus is with kind of the reset that we needed to do because of the vaccine, government policy change in vaccines. For us, getting to a high single digit is the ultimate goal. I think we're being cautious and really understanding the end market dynamics because there is a lot of government policy, at least rhetoric, I'll say. Some of it's actual changes that are being implemented. There's also rhetoric out there. And so we want to see how that might evolve. We feel very good about the amount of activity we have with our customers and what they're doing. I think it's a little bit of where it settles out, and that's why we set more of a near-term mid-single-digit expectation with the idea that we need to build towards a high single-digit growth rate over time.
Quality controls, you know, this is a business growing mid-single digits for this year. you continue to see strength you're making investments talk about some of the priorities
for for that part of the portfolio yeah i mean quality controls i mean we're we are the market leader in quality controls and and you know it's it's uh an important area for us in our diagnostics uh side of the business and and so uh because we have a right to win in that area part of what we evaluated when we looked at our r d spend is is how do we do more there and so we've moved money over to quality controls or incremental investment in quality controls, and really look at how do we win in all regions. We are especially strong, for example, in the Americas. We have opportunities for growth in other regions, and so what more can we do in those areas and how can that help drive that mid-single-digit growth rate that we see in quality controls historically? And today, can we see that improve over time?
And then maybe just rounding it out on life sciences, you know, obviously digital PCR, Process Chrome get most of the attention, but you still have 50% of that portfolio, you know, away from those businesses. Can you just talk about some of the other drivers, whether it's QPCR or, you know, any smaller markets that are starting to emerge?
Yeah, I mean, first of all, you know, one of the things that we have is also a nice applied sciences business that really is driven off of our droplet digital PCR platform right in in food science as an example in wastewater management that's a nice area of business that's an opportunity for further growth potentially and that's how we've kind of looked at it in terms of incremental investment so that's that's another area when you look at qpcr we've got a very nice install base there and as we think about the dynamics in the marketplace one of the things we're evaluating is what more can we do from a qpcr standpoint, and that's an opportunity. You look at areas like Western blot imaging, one of the challenges from an end market standpoint is, you know, Western blot is one of these areas that new labs need to have, and new lab startups have declined, and so there's headwind from that standpoint. But we have some, you know, R&D happening in that area in terms of driving incremental improvements in the platform that we have over time and how that might help us participate and drive growth in that area, even with new lab startups declining potentially.
Shifting over to clinical, setting aside Middle East for a minute here, you know, you've indicated that growth could going forward be below the 3% pre-COVID CAGR. Maybe talk about what's driving that change and how we should think about, you know, opportunities for the business to do better?
Well, I think we've touched on a number of areas that are the potential drivers to help us, right? The DDPCR area, and I'll say, you know, kind of PCR overall is an opportunity, especially considering our assay library and the positioning we have there. We talked about, you know, quality controls in the diagnostics area. And then ultimately, we do think it's unfortunate with the conflict that's happening in the Middle East and the impact it's having on our business and other businesses. But ultimately, you know, all of that gets dealt with and hopefully gets back to normalcy. And when it does, we believe because of the position we already have, Middle East is an opportunity for further growth. We're also seeing strength in areas like APAC as a region, and that's another important growth area for us. And so there's a number of elements here that we think over time, even considering some of the challenges here in the U.S. or in Europe, there's opportunities for growth in other ways.
And on the Middle East, can you help us baseline, you know, what assumptions were previously embedded there and how you're thinking about the recovery cadence and mix across the portfolio? It seems like some markets, like hospitals, could come back in sooner.
Yeah, I mean, I think, you know, obviously that was maybe a surprise to folks in terms of the news of the Middle East and how strong it is for us. That's been a focus area over multiple years for us, and our commercial teams have done a really nice job. And if you think about it, the Middle East effectively is as big as China for us, right, just to kind of frame that for folks. And I think that's lost. And it's especially strong on the DX side there. As we thought about the Middle East and the conflict, and Middle East includes those that are affected by the conflict regions, but also more broadly there's other areas like Turkey or North Africa that aren't affected by the conflict specifically. So it's a broad area, if you will. But what we did is we were much more cautious in terms of those that are the conflict areas and pulled that down in terms of the expectations for the rest of the year while leaving the other areas there. I think as the conflict and there's resolution to all of it, infrastructure rebuild and these sort of things will be prioritized. But ultimately, you know, the Middle East is focused on investing in improved health care. And therefore, when it gets back to a more normalized environment, then the growth opportunities are going to be there again.
And then China, diabetes-related, you know, BBC headwinds were the primary driver of the high single-digit decline last year. I guess, how do we think about, you know, the setup for the remainder of this year in China? What's embedded around tender dynamics, pricing, volume?
Yeah, China is, knock on wood, relatively stable for us, both on DX and tools. And just as a reminder, we haven't been affected by VBP, right? And so let's put that to the side. What we were affected by at the end of 24 is rate reimbursement change, specifically in our diabetes portfolio. And so that's, you know, obviously we've lapped that from an annualized aspect. But we haven't seen any other potential headwinds at this point in time, and so we don't necessarily think that there's other rate reimbursement. But China is focused in driving reduced health care costs, and so they're continuing to evaluate what other opportunities they have to do that. So, you know, we need to be close to the end markets.
So it sounds like you're not concerned that there could be risks on VBP going forward, And there's been increased focus on, you know, NHSA policy, less of an issue, you know, for you guys, obviously. But could there actually be upside, you know, around, like, microbiology? We've heard about that from some of the peers.
Yeah, I mean, you know, when you look at – we're obviously trying to position ourselves to drive opportunities for growth in China. And when you look at – and specifically what I'm pointing to is the China for China investment that we made and now being – producing certain SKUs on the tool side in China, right? We think that'll give us an opportunity to participate in more tenders, and as a result of that, that's incremental growth opportunities, right? Quality controls has been strong for us in China, and part of what we're evaluating is can we do more there from a quality control standpoint? So, you know, China's an important overall market, one that can't be forgotten, and that's how we look at it. And so we're evaluating how can we win more and drive some growth there.
Got a couple of minutes left. I'm not going to let you off the hook without asking about Sertorius. So I guess the word is optionality. Help us understand just how you're thinking about that internally. Is it all or nothing? Could you sell down some of the stake for a deal? How do you think about the various paths here?
Yeah, it doesn't surprise me we couldn't get through one conversation, but that's okay. It's the norm. So Sertorius, we've been very explicit in that it provides us optionality. it is at our discretion could we sell something of it yes we could sell something of it in the more near term for a particular purpose whether that's another M&A deal these sort of things so that the control is in our hands in terms of what we do and now with all that said when you look at where Sartorius is you know they had a recent capital markets day you know they've got obviously very specific plans for growth and arguably with the end markets the they are it's it's an undervalued stock in of itself and so when you look at our position it has an opportunity for growth and if if we don't need to do anything with that stake then allow it to uh grow over time uh as they their valuation improves as well
you know one question we've gotten is just the potential to spin this shares to you know your shareholders ahead ahead of the you know trust dissolving 2028 is that something that you know is under consideration?
Well, I mean, we look at all sorts of things. I think, you know, what might make sense, how does it ultimately create value for Bio-Rad and create value, therefore, for our shareholders is ultimately how we think about it. And so, you know, we'll look at all the options that could be potentially out there and evaluate those accordingly.
And just, I guess, last one on the tax issue because this comes up a lot. I know we talked about it on our call after the quarter, but just get people comfortable with the idea that you've been accruing and that you're not going to have that tax liability, because I think that's still an open-ended question from our discussions.
Yeah, I appreciate that call out. And when the accounting rules changed and this whole mark-to-market concept had to be implemented, one of the things that the company did is, as we mark-to-market the sartorius value of the shares, we also put a tax liability on the balance sheet to the tune of 22.7 percent of the value of the the state that we have and so you see that fluctuation and so you know that is on the balance sheet there's obviously a cash flow if ever you needed to there was a use of those shares and and therefore there's a tax liability incurred then you have the pnl taken care of taken care of but you have the cash flow that needs to be the outflow for them for that So you that is sitting on the balance sheet that's been disclosed in the financials for a number of years
Great, I think we'll leave it at that. Thanks.