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Good morning, and welcome to Bio-Techne's Earnings Conference Call for the Fourth Quarter and Fiscal Year 2025. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations.
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 10-K for fiscal year 2024 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 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 UBS, Wells Fargo, Baird, Morgan Stanley, and Deutsche Bank 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 Fiscal Fourth Quarter 2025 Earnings Call. I'm pleased to report that we delivered a solid quarter that was in line with our expectations. The team's continued execution drove 3% organic revenue growth in a dynamic operating environment.
Our performance was once again fueled by strength in the biopharma end markets, particularly among large pharma customers, which fueled robust demand for our automated proteomic analytical instrumentation and cell therapy solutions. Our fourth quarter capped off a fiscal year in which we delivered 5% organic revenue growth. We reinforced our leadership across key markets through a series of innovative product launches, and we positioned the company for sustained future growth. As a reminder, approximately 80% of Bio-Techne's revenue is derived from consumables, including those used for our proprietary instrumentation, and this provides a strong foundation for durable growth.
This resilient revenue mix, combined with the critical value our customers place in our portfolio of tools for research, manufacturing and precision diagnostics was reflected in our differentiated financial performance despite uncertainties many of our customers faced throughout 2025. This performance was once again achieved with a strong emphasis on profitability. The operational efficiencies we continue to implement contributed to an adjusted operating margin of 32% for the quarter. Our team remains focused on striking the right balance between investing for future growth and driving productivity across the organization.
This disciplined approach enables us to maintain our industry-leading profitability while positioning Bio-Techne for long-term success. Before we delve into the quarterly performance, I want to highlight a strategic portfolio action that reflects our long-term financial and operational priorities. Last night, we announced the divestiture of our Exosome Diagnostics business, including the ExoDx prostate test and our CLIA-certified clinical laboratory to MDxHealth, a recognized leader in urology and specifically prostate cancer diagnostics. Following a thorough strategic assessment, we concluded that a single high-performing CLIA test does not provide us the operational leverage needed to support our broader growth ambitions.
We expect the transaction to close in the first quarter of fiscal 2026. Importantly, Bio-Techne will retain access to the proprietary exosome-based technology used in a recently launched ESR1 mutation kit for breast cancer recurrence. We remain committed to leveraging this platform to expand our portfolio of exosome-based gene mutation kits, further strengthening our position in precision diagnostics. Over the past 5 decades, Bio-Techne has built a market-leading portfolio of high-quality, high-margin reagents, instruments, and tools, serving both the life sciences and the clinical diagnostic markets.
The divestiture of Exosome Diagnostics represents a strategic repositioning of our portfolio, and this enables us to redirect investments towards strengthening our core foundation and our growth verticals. This transaction also delivers an immediate uplift to our already sector-leading operating margin profile. Jim will provide additional detail on the financial implications of this deal later in the call. Let's now turn to our end markets, beginning with biopharma.
Throughout fiscal 2025, we saw steady momentum in this segment, particularly among large pharmaceutical customers. However, recent commentary from the U.S. administration regarding potential pharmaceutical tariffs and the proposed implementation of a most favored nation drug pricing model has introduced a degree of uncertainty across the pharma landscape. Despite those evolving dynamics, including shifting time lines, changing tariff structures, and dynamic messaging regarding policy intent, demand for Bio-Techne's broad portfolio remains strong. Large pharmaceutical companies continue to rely on our high-quality reagents and productivity-enhancing tools to advance their pipeline initiatives, underscoring the essential role our solutions play in their research, development, and manufacturing workflows.
The growth driven by a large pharmaceutical customer base continued to be a key driver in the quarter. However, this momentum was partially offset by more subdued performance from smaller biotech firms. These companies remain cautious with their spending amid a constrained funding environment. This trend is consistent with broader industry data, which indicates that biotech funding has declined more than 40% year-to-date compared to the 2024 levels.
Despite these headwinds, our overall biopharma end market delivered high single-digit growth for both the fourth quarter and the full fiscal year. Turning to academia, a segment that continues to attract heightened attention across the life science tools industry. Revenue from our academic customers represents approximately 21% of our total business with U.S. institutions contributing roughly 12%. Given the ongoing uncertainty surrounding the upcoming NIH budget, we conducted a comprehensive assessment to better understand our exposure to NIH-funded research.
Based on this evaluation, our new estimate is that less than 1/3 of our U.S. academic revenue is directly tied to NIH grants. In other words, our total company exposure to NIH-funded research is likely in the low single digits range, and that is notably below our prior estimate of 5% to 6%. In light of recent reports of NIH grant cancellations, we also examined publicly available databases to identify which research areas are most affected. Encouragingly, our analysis revealed that funding for programs that are aligned with Bio-Techne's core portfolio remains largely intact.
Areas such as proteomics, immunohistochemistry and spatial biology, cell culture, cell therapy, and immunology have experienced relatively limited disruption. This reinforces the durability of our academic exposure, which is concentrated in fields of ongoing scientific and clinical importance. As a result, our academic end markets declined low single digits in the fourth quarter and increased low single digits for the full fiscal year. From a geographic standpoint, performance was broadly consistent with expectations.
The Americas delivered low single-digit growth. Europe expanded mid-single digits and APAC, excluding China, grew low single digits as well. Noteworthy is that China delivered a positive surprise, increasing low double digits in the quarter as the region returned to growth ahead of anticipated tariff impact. This momentum was broad-based, spanning our portfolio of research and GMP reagents, analytical instrumentation, and spatial biology solutions.
Beyond the tariff-related activity, market signals suggest that China has stabilized and is well-positioned for a gradual return to modest growth in the coming quarters. Now let's discuss the growth drivers in our Protein Sciences segment, where strong execution drove demand across our portfolio of proteomic analytical tools and cell therapy workflow solutions, and this enabled 4% growth for the segment in the quarter. Fiscal 2025 was marked by several key product launches that further strengthened our position in the market. These launches included the introduction of Leo, our next-generation Simple Western instrument, the introduction of ProPak, enabling the continued expansion of our GMP reagents portfolio and the introduction of AI-enabled designer proteins.
For full fiscal year 2025, our Protein Sciences segment increased revenues by 5%. The demand for our cell therapy workflow solutions remain strong with over 550 customers relying on Bio-Techne's high-quality, consistent and highly bioactive GMP reagents to advance their preclinical and clinical programs. As mentioned, we introduced our ProPak GMP cytokine product line in fiscal year 2025. ProPak deliver precise cytokine concentrations to cell therapy manufacturers and support closed system CAR-T and TCR-T manufacturing workflows. These innovative cytokine delivery systems carry a value proposition that enables Bio-Techne to take share in later-stage and potentially commercial stage programs.
Our GMP reagent portfolio grew 20% in Q4 and exceeded 30% growth for the full fiscal year. Sticking with our cell therapy growth pillar, I'd also like to take this opportunity to give an update on the manufacturer of the leading G-Rex bioreactors, Wilson Wolf. Bio-Techne currently owns 20% of Wilson Wolf and is on track to acquire the remaining 80% by the end of calendar 2027 or earlier contingent upon milestone achievements. Despite the ongoing softness in biotech funding, Wilson Wolf grew over 20% for fiscal 2025, while maintaining EBITDA margins north of 70% for the year.
Next, I'd like to highlight the continued strength of our proteomic analytical instrument business. The productivity gains these platforms deliver, combined with disciplined execution from our commercial teams drove high single-digit growth for both the quarter and the full fiscal year. Importantly, we saw mid-teens growth in instrument revenue, marking the third consecutive quarter of year- over-year growth in instrument placements. Turning to our Simple Western portfolio.
Demand for our next-generation high-throughput instrument called Leo was strong in the quarter. The growing installed base, a robust order funnel and a higher consumable pull-through compared to the legacy Simple Western systems all point to a promising future for this platform. We're also seeing meaningful traction in expanding the use cases for the Simple Western technology. A recent example is the role Simple Western plays in supporting the FDA approval of Abeona Therapeutics cell-based gene therapy.
Our platform was used for GMP lot release testing of both the viral vector and the cell therapy, underscoring its growing relevance as a QC tool in therapeutic development and manufacturing. This is a clear signal that our instrumentation is not only driving productivity in research workflows, but it is increasingly being adopted in regulated environments, an important validation of our strategy. I'd also like to highlight the continued strength we're seeing in our biologics business led by the Maurice platform. Maurice continues to gain share, driven by its ease of use, reproducibility, and strong data compliance, which are attributes that align closely with the needs of our pharma and bioprocessing customers.
As a reminder, Maurice is specced into pharmaceutical manufacturing lines as a QA/QC instrument and demand for bioprocessing instrumentation remains robust. This tailwind, combined with our commercial execution has translated into consistent growth in both instrument placements and consumables pull-through. Wrapping up our Protein Sciences segment, I'd like to turn to our core reagent and assay portfolio. Our research use only consumables, including our industry-leading catalog of 6,000 proteins and 400,000 antibody types grew low single digits in the quarter.
Importantly, despite ongoing concerns around NIH outlays and uncertainties surrounding the fiscal 2026 NIH budget, reagent sales to our U.S. academic customers remained flat compared to the prior year period. Another highlight is that we reinforced our leadership in RUO assays through a strategic distribution partnership with Sphere Bio. Under this agreement, Bio-Techne will distribute Sphere Bio's ultrasensitive immunoassays targeting key Alzheimer's disease biomarkers, including p-tau217, NfL, and others. This collaboration builds on our earlier participation in Sphere Bio's $45 million Series A funding round in 2024. Let's now turn to the growth pillars within our Diagnostics and Spatial Biology segment.
Organic revenue declined 1% in the fourth quarter, primarily due to order timing across all three businesses. For the full year, however, the segment delivered 6% organic revenue growth, reflecting the strength of our portfolio. Spatial biology remains the area with the highest exposure to academic customers and as such, has been more acutely impacted by the uncertainties surrounding NIH funding and a softer biotech funding environment. Additionally, order timing for several Lunaphore COMET systems weighed on our performance with geopolitical headwinds delaying instrument placements in the Middle East.
As a result, spatial biology declined mid-single digits in Q4, but grew mid-single digits for the full fiscal year, including nearly 50% growth for Lunaphore. In summary, I'm incredibly proud of the consistent execution by the Bio-Techne team throughout fiscal year 2025, especially in the face of persistent macroeconomic challenges and policy-driven uncertainties. This past year showcased our innovation at scale with several high-impact product launches across both segments that position us well for future growth. Our portfolio remains tightly aligned with some of the most attractive and fastest-growing markets in life sciences and precision diagnostics.
With a focused strategy and a world-class team, we are well-equipped to capitalize on these opportunities and drive long-term value creation. Now with that, I'll pass the call over to Jim. Jim?
Thank you, Kim. I'll start with some additional details on our Q4 financial performance and then give some thoughts on the forward outlook. Starting with the overall fourth quarter financial performance. Adjusted EPS was $0.53 compared to $0.49 in the prior year, with foreign exchange having a favorable $0.03 impact.
GAAP EPS for the quarter was a loss of $0.11 compared to a positive $0.25 in the prior year period. Q4 revenue was $317 million, an increase of 3% year-over-year on an organic basis and 4% reported. By geography, North America increased low single digits year-over-year, driven primarily by our pharma customers. Europe increased mid-single digits, led by strength from our biopharma customers and steady growth in academia.
China increased low double digits as demand improved in front of tariff uncertainties, while the rest of Asia increased low single digits. By end market in Q4, biopharma increased high single digits, while academia decreased low single digits in the quarter. Below revenue on the P&L, total company adjusted gross margin was 70.1% in the quarter compared to 71.1% last year, down year-over-year primarily due to unfavorable product mix. Adjusted SG&A in Q4 was 30.2% of revenue compared to 29.8% in the prior year, while R&D expense in Q4 was 7.8% of revenue compared to 7.9% in the prior year.
The overall stability in SG&A and R&D was driven primarily by the ongoing benefits of structural streamlining and diligent expense control, offset by the funding of strategic growth initiatives. Adjusted operating margin for Q4 was 32%, down 150 basis points compared to the prior year, primarily due to the impact of unfavorable product mix. We continue to execute cost containment measures and prioritize our growth initiatives to drive efficiencies throughout the organization with the goal of maximizing operating leverage while we are in this uncertain market environment. Looking at our numbers below operating income.
Net interest expense in Q4 was $1.4 million, flat with the prior year. Our bank debt on the balance sheet as of the end of Q4 stood at $346 million. Other adjusted non-operating income was $5.2 million in the quarter, an increase of $4.7 million compared to the prior year. The increase was driven by the foreign exchange impact related to our overseas cash pooling arrangements as well as our share of Wilson Wolf's net income.
Moving further down the P&L, our adjusted effective tax rate in Q4 was 21.5%, down 60 basis points compared to the prior year due to geographic mix. Turning to cash flow and return of capital. $98.2 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $4.9 million. Also during Q4, we returned capital to shareholders by way of $12.4 million in dividends and $100.1 million through stock buybacks. We finished the quarter with $155.8 million average diluted shares outstanding, a decrease of 3% compared to the prior year.
Our balance sheet finished Q4 in a strong position with $162.2 million in cash, and our total leverage remains well below 1x EBITDA. Going forward, M&A remains a top priority for capital allocation. Next, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q4 reported sales were $226.5 million with reported revenue increasing 6% compared to the prior year.
Organic revenue growth was 4% for the quarter with foreign currency exchange having a favorable impact of 2%. The segment's organic growth was driven by strong performances in our cell therapy and protein analytical tools businesses, especially from large pharma customers. Operating margin for the Protein Sciences segment was 43.6%, an increase of 60 basis points compared to the prior year, primarily due to the impact of favorable volume leverage, cost management, and ongoing structural alignment initiatives. Turning to the Diagnostics and Spatial Biology segment.
Q4 sales were $89.7 million, with both reported and organic growth decreasing 1% compared to the same period last year. Growth in Assurgen, our ExoDx prostate cancer test and our diagnostic reagents business was offset by the impact of macro uncertainties on our spatial biology portfolio and the timing of projects from our companion diagnostics customers. For modeling purposes, total Exosome Diagnostics revenue was $25.9 million in fiscal 2025 with an unfavorable impact of 200 basis points on our corporate adjusted operating margin. As Kim mentioned in his remarks, we reached a definitive agreement to divest the Exosome Diagnostics business to MDxHealth, and the business will be classified as a business held for sale until the anticipated close of the transaction during the first quarter of our fiscal 2026. Moving on to the diagnostics and Spatial Biology segment operating margin, which was 6% compared to the prior years;s 12.5%.
The decrease in margin was primarily due to unfavorable product mix. We expect this unfavorable product mix within the segment to start to reverse in Q1 of fiscal year '26, and we anticipate an immediate improvement in the Diagnostics and Spatial Biology operating margin following the Exosome Diagnostics divestiture. In summary, Q4 was in line with our expectations and our teams continue to execute extremely well, especially considering the turbulent market conditions induced by biotech funding challenges as well as NIH funding and tariff uncertainties potentially impacting our customers. Prior to the emergence of NIH funding and tariff uncertainties, our business was on its way back towards double-digit organic growth, which we continue to view as the long-term growth rate of our business under normal market conditions.
Looking ahead, predicting when these uncertainties will be resolved and when we might see more stabilized end markets remains challenging. We are hopeful that the ongoing House and Senate appropriations process will bring greater clarity to the government's fiscal 2026 NIH budget. Encouragingly, select members of Congress continue to express support for NIH funding, but the final outcome is unlikely to be known before this fall. In the meantime, additional risks are emerging, including the potential for budget precision and a shift toward multi-year grant funding by the executive branch.
These factors are contributing to cautious purchasing behavior among our U.S. academic customers, and we expect this dynamic to persist until there is more certainty around funding. Turning back to our pharma end market. Uncertainty remains around the potential tariff exposure our pharmaceutical customers may face under the current U.S. administration. While the recently announced U.S.-EU trade agreement, which includes a blanket 15% tariff on pharmaceuticals is a constructive step.
The U.S. administration is still proposing up to a 250% tariff on pharmaceutical companies in the future. Compounding this uncertainty is the administration's recent push for most favored nation pricing, which could impact the profitability of the largest pharmaceutical companies and in turn, their reinvestment into R&D. And finally, turning to our biotech end market. This segment is responding cautiously to the broader uncertainty impacting innovation and commercialization.
Concerns around reduced innovation from the academic sector, coupled with potentially lower returns on invested capital from clinical pipelines are weighing on sentiment. These pressures stem from the possibility of diminished profitability post commercialization due to policy shifts such as MFN. As Kim noted biotech funding has been notably soft year-to- date with industry reports estimating a decline of over 40% compared to 2024 levels. We do not anticipate a meaningful rebound in funding for smaller biotech companies until there is greater clarity around NIH appropriations, tariff policies and drug pricing reforms.
Taking all of these factors into account, we believe Bio-Techne has navigated a highly dynamic and uncertain market environment with discipline and resilience, delivering low single-digit organic growth in the most recent quarter. Moving forward, we anticipate that our organic growth will remain in the low single-digit range until the current headwinds across our end markets begin to subside. That said, we maintain a high degree of confidence that our end markets will return to their long- term historical growth trajectories once these uncertainties are resolved. The underlying secular drivers, an aging global population, increasing demand for improved quality life and the accelerating pace of scientific breakthroughs in life sciences remain firmly intact and continues to support the long-term growth outlook for our business.
In terms of adjusted operating margin, we remain committed to balancing strategic investments that fuel future growth with productivity initiatives that enhance profitability in today's dynamic environment. A portion of these strategic investments will be funded through the reallocation of resources previously dedicated to the ExoDx franchise, now redirected toward our core growth pillars. These include advancing the next generation of our automated proteomic analysis and spatial biology platforms, expanding applications in cell therapy and reinvigorating our core reagents portfolio with targeted investments in organoid research and AI- driven protein development.
Even with this redirected investment, we expect adjusted operating margin expansion of approximately 100 basis points in fiscal year '26 compared to fiscal 2025, starting flat year-over-year in our first quarter and ramping to roughly 200 basis points higher by Q4. That concludes my prepared comments. And with that, I'll turn the call back over to the operator to open the line for questions.
[Operator Instructions] We'll take our first question from Puneet Souda with Leerink Partners.
First one on the guide. I just wanted to clarify in the outlook comments you made. Are you expecting low single digit for the full year fiscal '26? And if you could talk a little bit about the cadence of that over the next 4 quarters. How should we think about the Protein Sciences segment growth within that context versus the DSS growth?
Yes. Hi, Puneet, this is Jim. So first of all, to clarify, the guidance was not necessarily for full year fiscal '26 growth of low single digits. It was that we expect low single-digit growth until there is more certainty around the various administration policies out there on academic funding and pharmaceutical tariffs, MFN pricing.
And if that takes the full fiscal year to become more certain, then yes, that would translate to a full fiscal year '26. But to be clear, I'm not necessarily anticipating that. It will take the full year for that uncertainty to become more known. With regards to the segment, as you know, we don't give guidance specifically by segment. I'd say there's some puts and takes within both the segments, but I wouldn't expect a big material change in the growth rates in either one under this environment.
Okay. That's helpful. And then on the pharma -- large pharma segment, it appears instrumentation did well. That's in contrast to some of the things that we're seeing from the peers.
Maybe can you talk a little bit about what instruments are driving growth there? Lunaphore was obviously weak in academic setting, but just wanting to understand what's picking up in instrumentation? And how should we think about the overall antibodies and cytokines business to perform this year because obviously, that's consumables and should be more resilient despite somewhat the challenging market backdrop.
Hi, Puneet, thanks for the question. The instruments indeed, to our delight, did really well in large pharma. And we have seen that trend over the last couple of quarters because we know that our instrumentation are getting more and more utilized, not only in the early discovery phases, but also in the QA and QC applications for production. And there, we're getting specced in.
And we definitely see strong growth in the biologics product lines. And then on top of that, we've launched the Simple Western high-throughput system called Leo, which is kind of tailored to large pharma users because it has much higher throughput. And that's what I attribute the successes to for serving the large pharma customers. On the Lunaphore side, yes, we had strong traction.
And in my prepared remarks, I already mentioned that we were pretty unlucky with three placements of the instruments where we couldn't execute on the -- putting them in commission in the Middle East due to political turbulence. And therefore, we'll have to push out those instruments to next quarter. But in the meantime, if I look at the win- loss rate and the order book for that product line, we're looking pretty strong.
We'll take our next question from Dan Leonard with UBS.
So I appreciate we're in an uncertain environment. But when you're thinking about the outlook, Kim, would you still commit to that market plus 500 basis points of growth that you've talked about previously?
In an extreme environment, Dan, and thanks for your question, it's obviously harder or less predictable to outperform exactly those 500 basis points or more. We obviously have a track record where we've done so for a couple of years. But yes, if markets dry up or are really turbulent, it could be different. However, over the quarters where I definitely hope and see that there will be more clarity around the two or three topics Jim mentioned earlier.
I have no doubt that we will have the same differentiation to our peer group, but also a very much intact long-range model where we will be growing 500 basis points or more compared to market, and that will then naturally also bring us back to double digits.
Understood. And then my follow-up on your operating margin expansion. I'm curious how you can accomplish 100 basis points of operating margin expansion on low single-digit growth. Is that due specifically to the divestiture of Exosome? Or is that something that you could commit to at that growth level?
It is being driven by the divestiture of Exosome. As we mentioned, Exosome was a headwind of about 200 basis points to our margin in fiscal year '25. But we are making strategic moves to reinvest some of the money we had put in Exosome prior into other growth pillars. So we think we can do that and continue to fortify our positions for growth going forward in our core growth pillars while still providing some margin expansion back to investors, hence, the 100 basis points.
We'll take our next question from Dan Arias with Stifel.
I appreciate you doing the legwork to understand the NIH exposure there. Low single-digit exposure is actually pretty low. Can you expand on where the funding is coming from for the 2/3 of the academic customers that aren't tied to the NIH? Is it pharma? Is it private sources? Where are these guys getting their money from?
Yes. Based on the research we've done, Dan, and you probably can see the same as a lot of surveys out there that have been published with regards to where academic institutions in the U.S. do get their money from and pretty consistent that roughly 50%, 55% of their funding comes from federal sources. And of those federal sources, roughly 50% comes from NIH. So that equates to roughly less than 1/3 of the academic research funding coming from specifically NIH.
So that's the math behind that number. And for us, of course, U.S. academic is only 12% of our business. So...
Yes. Okay. And then maybe on Wilson Wolf, since you guys touched on that. Obviously, the top line performance that would trigger the change of control is something that you can only do so much about, but the EBITDA threshold could be managed to, especially since I think that's the one that's actually closer to hitting the target.
Do you have a sense for whether that business is going to be run with a sooner rather than later takeout in mind? Or is it really just kind of it will do what it does and that change will take place whenever that happens to happen?
Yes, Dan, I think, of course, we keep a close eye on it because we are quite interested in having the assets under our management because it's a fantastic product portfolio and very synergistic with not only our reagents, but also with our top and bottom line. So EBITDA, to your question, it's going to be close. I think if there's a little bit of tailwind in the business, it's definitely possible that the EBITDA threshold will be triggered and that we will be rightful owners of the asset earlier than the December 31 of '27, which is the date where we would get it no matter what, right? It's going to be close.
So we keep an eye on it, and we, of course, are rooting for Wilson Wolf to achieve it.
We'll take our next question from Matt Larew with William Blair.
You referenced a set of unknowns that's sort of driving the low single-digit outlook. And I think it's likely that those are not resolved simultaneously and probably there's some cadence to how that occurs. It sounds like you did a lot of customer outreach and surveys over the course of the last few months. What did you learn about budget unlock and what will really kind of catalyze spend from those different sets of uncertainties that are influencing the outlook?
Well, I think from the academic perspective, Matt, it comes down to this customer behavior. We're hearing that despite the NIH funding being less than 1/3 of what actually fund these academic institutions, natural behavior is to kind of overreact and hold back on everything, being concerned of where money might come from in the future. And so we're hearing about at least temporary budgets being cut 10%, 15% across the board in terms of not cut, but just in terms of holding back on spending in anticipation of what may or may not happen. So I think our actual belief after talking to many customers and hearing a bunch of surveys around this is that what we're experiencing now in academic is from a behavior perspective, might be worse than any actual negative outcome of the funding.
So I actually view a resolution of, call it, certainty of where the NIH budgets fall out, whether that's flat, whether that's minus 10% or even minus 15%, I actually view that as upside once that unknown becomes known because we believe customers are actually behaving more conservative than even the worst-case scenario.
Okay. So obviously, the Exosome divestment followed the -- an early one, the Atlanta Biologics one a couple of years ago. You referenced M&A remains a key focus. In light of some of the portfolio reshaping that's going on, you referenced sort of renewed focus on margin profile. How are you thinking about M&A, be it by segment, be it by stage of company or relative profitability and potential?
Yes. Thank you, Matt. Well, M&A is still the highest priority and will be for the capital deployment. And yes, we would be very interested in getting product lines and companies that are aligned with our strategy, right, high-margin, high-volume products that we can ship through our channels globally.
And therefore, investing in our core -- the core reagents, adding to that is very likely a desirable scenario. Cell therapy, there are still many capabilities that we could add to our very successful cell therapy franchise. And then we have a very strong portfolio in instrumentation and related consumables in the ProteinSimple franchise. And there, we also see capabilities that we could add.
And yes, therefore, we're keeping a very precise list of targets that we are nurturing and definitely would be very eager to act on it.
We'll take our next question from Kyle Boucher with TD Cowen.
I wanted to just dig in a little bit on trends you're seeing between large pharma and biotech, and maybe how they sort of trended throughout the quarter? And then maybe on the large pharma side, some peers have been a little bit more positive on large pharma that it's sort of stable, if not steadily improving a little bit. So I guess just in the context of your low single-digit growth expectation, how does pharma sort of fit within that framework?
Yes. So even this most recent quarter, we had low single-digit growth and yet our pharma -- large pharma grew double digit. So large pharma has been very robust for us as well. And our guidance going forward basically assumes more of the same.
Is there a risk that could soften a bit with the MFN concerns and so forth? Yes. We feel like that's balanced with somewhat from academic being a bit overly conservative right now with regards to what the eventual outcome there could be. So our -- the low single digit basically is more of the same that we saw this current quarter.
We just lived through a quarter of some of the largest uncertainties we faced in the life science tools industry in quite a long time. And those uncertainties haven't gone away. They haven't gotten any worse, but they haven't gotten any better. And so we kind of expect more of the same in all three of our major end markets until these uncertainties are resolved.
Got it. And then maybe a quick clarification on China, pretty impressive growth there in the fiscal fourth quarter. Could you quantify how much maybe pull forward you saw in the fiscal fourth quarter? I think you mentioned that activity sort of picked up ahead of potential tariff impacts. Is that right?
Yes. That was definitely something that we saw. Like in China, there were a couple of dynamics. One is that we had some benefit from funding that was being released.
That was a tailwind. And then China itself was, of course, aware that there was a deadline looming when it comes to the tariffs, and there might have been some behavior in pulling in purchases before these deadlines expire and before the tariffs would be enacted. And that's what drove our double-digit results. And we wanted to make sure that, that's not something we feel that the region would deliver every quarter from now, but that we would see, if you take those out, a very stable China that is inching forward and accelerating again to modest growth.
So that's how we would look at it.
We will take our next question from Brandon Couillard with Wells Fargo.
I just want to clarify on the margin outlook. I think you talked about 200 basis points in the second half of the year. Does that assume an accelerating top line outlook? And if you could just touch on kind of what's embedded for net pricing and any tariff headwinds for the year, it would be helpful.
Yes. Just so to clarify specifically, we expect there to be about 200 basis points of improvement by the time we get to Q4. So not necessarily the entire second half, but by the time we get to Q4. And the ramp of going from flat to 200 basis points is a combination of the timing of Exosome Diagnostics completely rolling off of our ledger and ongoing productivity initiatives that we're implementing right now that will gain traction in terms of hitting the bottom line as the year progresses. And then the natural lift of revenues that we have from a seasonality perspective in the back half of the year versus the front half of the year.
So it's really a combination of all three of those things that allow for that margin expansion to accelerate throughout the year.
Great. And just one follow-up on China in the quarter, low double-digit growth. How would that kind of break down between consumables and instruments? And was there any stimulus benefit in the period?
Yes, there was a handful of instruments that we shipped related to stimulus. And yes, the breakout between consumables and instruments, we usually don't give, but it's relatively similar.
Yes. What I'd add to that is that I think the growth we saw in China was driven a little bit by the stimulus, as Kim mentioned, but also by the instruments that we believe customers were ordering in anticipation of tariffs, which never really materialized. And we talked about the fact that we think overall, the Chinese market is stabilizing to a market growth that's roughly flat going forward and maybe slightly positive, and that would be more consistent with how our reagents performed.
We'll take our next question from Daniel Markowitz with Evercore ISI.
I had two. The first one, as you think through the drivers of margin expansion in fiscal '26, it seems like the guide is assuming low single-digit organic. And it's hard to expand margins at that kind of top line growth. But of course, you have a couple of tailwinds coming from the tariff offsets and the ExoDx divestiture.
Is the plan to toggle the amount of ExoDx reinvestments depending on top line? Or would any upside to the organic top line lead to upside to margin expansion as well?
So I'd say that our base case that we're operating right now is low single-digit growth until the markets improve. And I can't predict when exactly that will be, but we are managing the business under that low single-digit growth environment, taking productivity actions as you would expect us to do in that kind of situation. Those productivity actions, combined with Exosome Diagnostics no longer being in our results gives us margin headroom for reinvestment back into our businesses when the markets do return. So that's how we're managing the business today.
Now if you're asking when these uncertainties become get resolved, and we should see some tailwinds from that, we will decide when that happens, what next investments are on deck to make and the trade-offs between reinvesting that upside into future growth platforms and/or giving them some more margin back to the investors. So we will continue to have that balancing act as the markets return back to normal. But right now, we're managing the business under a low single-digit growth environment and through productivity actions and ExoDx allowing us to still reinvest for growth while expanding margins.
That's helpful. And then the second one, just on cell and gene therapy. I know you called out Wilson Wolf plus 20% and called out strength in cell therapy in the press release and on the call. Was this similar across the rest of the cell and gene portfolio?
I'm sorry, could you repeat the question one more time? I'm not quite sure we understood the context.
Sorry. Yes, you called out Wilson Wolf about 20% growth. Was that similar growth profile across the rest of the cell and gene portfolio?
Yes, it was. It was almost identical.
Yes.
We'll take our next question from Mac Ittosh with Stephens Inc.
Maybe just following up on the previous question around cell and gene therapy. Can you maybe flesh out some of the puts and takes around this end market just given the current challenges?
Yes, I didn't hear the question. Do you mind repeating it?
Yes, apologies. I was just saying I just wanted to follow up on the prior question. I was just hoping to see if you all could flesh out some of the puts and takes around the cell and gene therapy end market just given the current challenges.
Yes. So we're actually -- we know that the biotech markets are depressed from a funding level, but the later-stage companies still invest in their programs. And that's really what's driving the results. I think it could be better with a broader, healthier market in biotech and pharma.
But overall, I'm impressed with the resilience of our cell and gene therapy franchise, which we will hope accelerate at some point. But with 20% growth, it's in constrained market. It's showing its value, and it's showing that many companies are still investing behind the cell therapy solutions.
Appreciate that. And then you also highlighted the cell and gene therapy opportunity for the Ella and Simple Western instruments. Is there any way to frame up how much of your instrument revenue comes from the cell and gene therapy end market or what this can mean for growth going forward?
It's hard for us. We typically don't divulge that information. We -- because customers could order an instrument and use it in several applications. We do notice from the interest in the different application nodes that we release that there has been clearly a tilt towards the applications in cell therapy.
Yes. And I'd also say that the strength in our ProteinSimple franchise was driven this most recent quarter, but for several quarters now by both our Simple Western and our Maurice platforms. And we know that -- and from both large pharma and smaller biotech customers, both. And so we know that the applications that those are being used for and can tend to be more downstream in nature, whether that's in biologics or whether that's in cell therapies.
So I think to Kim's point, the cell therapy clinical tends to be more later stage, and that's where the money is still going.
We'll take our next question from Patrick Donnelly with Citi.
Maybe on China, helpful to talk through -- it seems like maybe a little bit of some pull forward. Can you talk about, I guess, what you saw underlying in the quarter and then the expectations going forward? Where are we in that region? How are you thinking about in terms of that low single-digit growth going forward, how China plays into that would be helpful.
Yes. Thank you, Patrick. Right. There's a couple of dynamics going on in China.
And I think the most important one for us is, of course, the funding has been a long storyline over the last couple of years, but we always knew that we were -- with the most recent funding that it was going to be a slight impact -- positive impact for us, not the main driver. Then we have the China for China market, which is a positive driver for us, which we feel is stabilizing. And then last but not least, we now have quite some activity, a high activity level in China out-licensing technologies and therapies globally. And that is really what is driving some of the heightened activity level.
And that's also what we feel is going to be the true driver for the upcoming growth where we feel that there will be a continued recovery in the China region to get back to modest growth.
Okay. That's helpful. And then maybe one for Jim. Just in terms of the guide, obviously, I get the kind of the short term, low single digits.
I guess in terms of the visibility, are you guys just -- is it just the biotech and academic piece, just a little bit of caution there and want to wait and see before calling any sort of inflection? What are you guys looking for in terms of gaining a little more visibility and ramping back to maybe a little bit more of the normal growth rates we're used to seeing from you guys?
No. I mean, Patrick, that's exactly right. I mean rather than sit here and try to call an inflection point and call a point in time of when the decisions are going to be made around NIH funding and how the executive branch is going to manage to that and when funding will actually return back to biotech, I mean, I'm not a sus any more than anyone else is. So those are the key indicators we're looking for.
We do believe that once all this noise around NIH funding and settles down, we think our customers in academic will also settle down and regroup. And we do think right now, we're experiencing the worst of it. So I see that as upside when that happens. And hopefully, that happens early this fall, but we all know they can drag out longer than that.
So we'll have to wait and see. And then biotech funding, same thing. We're monitoring that. The good news is the past couple of months, it appears as though the funding is starting to come back a bit, but it's still down a lot year-over-year from a year-to-date perspective.
So 2 months doesn't make a trend, but we are encouraged by that. But we do believe the biotech funding sentiment follows kind of a combination of both the academic sentiment and the large pharma sentiment. So -- and it can accelerate otherwise. So I think getting resolution on the pharma tariffs, the pharma MFN pricing and how that's going to play out.
Once those are more known, I think those will all be inflection points for stabilization of our markets and confidence to reinvest in R&D.
We have reached our allotted time for the question-and-answer session. I would now like to turn the call back over to Kim Kelderman for any additional or closing remarks.
Thank you for joining today's earnings call. As mentioned, I'm extremely proud of the Bio-Techne team for their continued execution during this prolonged period of uncertainty across our markets. Our differentiated financial performance reflects the strong value our customers place on our uniquely positioned portfolio of research reagents, proteomic analysis tools, cell therapy workflow solutions and diagnostic and spatial biology products. In fiscal 2025, we strengthened our portfolio through several innovative product launches and reshaped the business with the divestiture of nonstrategic assets.
These strategic moves enhance our competitive positioning and allow us to focus investment on our core products and our key growth pillars and with that, unlocking sustainable value creation for all our stakeholders. Thank you again, and I wish you all a great day.
Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.