Bio-Techne Corporation (TECH, Financial) sells specialized proteins, antibodies and other reagents, as well as instruments for protein analysis, to life sciences researchers at academic institutions, biopharmaceutical companies and government-funded research entities. Its products are used by scientists to investigate potential therapies for disease. Most of the company’s products are for research purposes only, and so they avoid the need for expensive, time-consuming regulatory approvals. The products are also relatively inexpensive, and they generally do not represent large cost items in most clients’ research budgets. With a portfolio of more than 275,000 products, Bio-Techne has by far the largest portfolio in its field, making the company a key supplier across its customer base.
We have also owned this stock in Baron Growth Fund for many years. We believe that Bio-Techne has attractive financial characteristics, including consistent revenue growth potential, high profit margins potential, and low capital requirements. We also believe the company has a reputation for manufacturing high quality, reliable, consistent products. The company has a staff of scientists who stay current with scientific advances and areas of interest for researchers and help direct product development into these growing areas.
Starting in 2010, the company’s organic growth slowed to the low single digits because of academic funding constraints, which hurt customer spending, and a lack of re-investments in the business by the former management team. Chuck Kummeth, who assumed the CEO position in April 2013, has been taking steps to reinvigorate growth, including hiring new executives and salespeople, making acquisitions, and expanding in China where the government is committed to investing in life sciences research.
We bought the stock in the quarter because we believe the fundamentals of this attractive business will continue to improve. In the most recently reported quarter, organic growth accelerated to 7%, the highest level in years. The funding environment for the company’s customer base is stable. Drug development budgets are improving. There have been proposed increases in the NIH budget, though uncertainty about the final budget remains. The company is annualizing the acquisition of a business called Protein Simple, which we believe has potential to drive revenue growth acceleration through the sale of its innovative instrument platform that automates the Western Blotting technique. Management has an aspirational plan to grow the company’s revenues to $1 billion in the next five years. Despite improving fundamentals, the stock price trades at what we believe is an attractive level.
From the Baron Asset Fund shareholder letter Q3 2015 by Andrew Peck.
