All right, great. Thank you, everybody, for joining us today. Welcome to J.P. Morgan Healthcare Conference. My name is Casey Woodring from the Life Science Tools and Diagnostics team here J.P. Morgan. I'm pleased to introduce OraSure Technologies. I'm going to pass it over to CEO Carrie Eglinton Manner to do the corporate presentation, and then we'll take Q&A afterwards. So, Carrie, all yours.
Thank you, Casey, and thank you to everybody for joining and for your interest in OTI. I will start, of course, with just a brief flash of our forward-looking statement and share with you what I'll cover in the next 20 minutes and our Q&A as well, which is a company where we are well-positioned for return to growth, well-positioned for margin expansion, and that is through our innovation pipeline, which we've been reinvigorating in the last two and a half years. I'm going to talk on the next page about the work we've done to rebuild the foundation of the business and get us in that position for this return to growth and margin expansion and the balance sheet that underpins the vantage point and the opportunity that we have to do that.
So just a little bit on the last two and a half years and where we got to where we are. In 2022, you all remember well being in the midst of COVID, and for us at OTI, it was a business that had a great opportunity to catch that COVID opportunity, but we had high scrap rates, low margin, and a core business that had become unprofitable. The great opportunity in it was to deliver on the COVID opportunity while completely rebuilding our foundation, and that is our SEA approach. It's about strengthening our foundation, and I'll talk just a little bit about that, to elevate our core and ultimately accelerate profitable growth. That growth is about product innovation, and after we've done this hard work, that's exactly what we're positioned to do: product innovation that can accelerate long-term sustainable profitable growth. So how did we get there?
Because it is hard work to turn that around, and less than two years ago, we had just around $100 million of cash in a business that was draining cash with an unprofitable core. So it was really about right-sizing and rebalancing our cost structure, learning lessons of this very strong delivery in COVID. We improved those scrap rates, we improved product cost, we implemented automation in manufacturing, we implemented process rigor, and retained the talent we needed through those processes to rebuild to our Q3 cash balance of $279 million with no debt and the ability, with the capabilities we've added then, to truly elevate our core, which is about an innovation pipeline expanding, an innovation pipeline to accelerate what we describe as the quantity and velocity of product launches. That is both through organic investment and inorganic investment and diversifying our customer base while we do it.
This is our 25th year as a public company. We have incredibly strong relationships with customers, a strong commercial channel, and very strong process rigor that allows us, as we reinvigorate this innovation pipeline, to accelerate profitable growth and focus on, like I said, the quantity and velocity of our launches. So we've done hard work that well positions us for a return to growth and a return to margin expansion, and even more than that hard work is that we are aligned where healthcare is going. So our vision is to power this shift that connects people to healthcare wherever they are. That's in effortless diagnostic tests and sample management solutions that can increase the access, the quality, and the value of healthcare, connecting people to healthcare with innovation that they need wherever they are. So we've done the hard work, and now it's about seizing these great opportunities.
Those opportunities are in two portfolios. Our diagnostics portfolio, our effortless testing, builds on a history of leadership and strength in infectious disease, sexually transmitted infections, as well as respiratory, and it's a very straightforward strategy to add more tests and more test platforms. Our focus is on instrument-free, instrument-free, effortless self-testing that puts rapid results in the hands of people who need them wherever they are, wherever they want to be. In our sample management solutions portfolio, it is about building on our leadership position with oral fluid self-collection, FDA-cleared, to add more sample types, more analytes, more applications, and for potential value chain expansion in that leadership position. We are very well positioned for that return to growth and margin expansion across both portfolios.
So diving a bit deeper into diagnostics, you know the continuum from where we play today in lateral flow self-testing, which is highly accessible, highly affordable. Our strength in HIV, HCV, the syndemic approach that we've bolstered with our partnership with Diagnostics Direct, Syphilis Health Check, in COVID-19 and expanded respiratory opportunities. The continuum increases from that lateral flow strength into increasing capabilities of diagnostic platforms and tests through molecular diagnostic expansion. And I'm going to keep hitting on this focus on instrument-free and self-test capabilities. I'll talk more in the next couple of pages about our partnership with Sapphiros, our acquisition of Sherlock Biosciences, which we announced in December, and how those platforms and tests come right together with our strong portfolio, both in infectious disease, sexual health, and the potential to expand beyond that. So a visual view of our roadmap and our visual lateral flow testing today.
I mentioned HIV, HCV, the Syphilis Health Check from Diagnostics Direct, our COVID-19 test. We continue to invest organically and inorganically in expanding our visual lateral flow, but building with our strategic partnership with Sapphiros on access to digital lateral flow as a platform and the opportunity to expand more tests, as well as the new platform that Sherlock Biosciences adds, which is a molecular disposable OTC self-test, a platform that I'll talk more about in the next couple of pages, but that opens up both that platform and the first test in chlamydia and gonorrhea, which is in clinical trials today and fits right together with our sexually transmitted infection portfolio next to that HIV, HCV, syphilis.
Where molecular point of need as an instrument is interesting is when that point of need instrumentation is low enough cost, fast enough turnaround time, and broad enough menu to make sense in the clinical workflow in which it needs to be adopted. We have access to those platform technologies both through our Sherlock acquisition and our Sapphiros partnership. But we get the question, well, when? When on molecular? Sherlock made sense for us to buy now because it is self-testing that is over-the-counter disposable. It aligns with our instrument-free portfolio and that strength, but we also have access to highly innovative point of need platforms that, again, when it can be low enough cost, fast enough turnaround time, and broad enough menu to make sense in clinical adoption, that's what we think will make sense for us. So going deeper on Sherlock, it's an innovation engine.
It's a platform set of assets. It has test assets, and when we think about our diagnostic strategy to add more tests and platforms that are instrument-free, disposable self-testing, increasing access, quality, and value of care, the potential to take our infrastructure, our strength, and amplify that and leverage the innovation from Sherlock, we are incredibly excited about this opportunity. The platform for the first test is one of isothermal amplification with an oligo pull-down, and I say that only to give you the specifics of the broader assets that Sherlock provides, which are three different amplification chemistries, four different detection methods. Many of you may know Sherlock for its CRISPR technology. The first test and platform doesn't use that. That is a part of the next-gen roadmap and the in-development assets in which we have a lot of enthusiasm around those.
But in the near term, it's about the combination of Sherlock smarts with Sense acquisition that they acquired 18 months before, and that combination first test is this launch into our STI portfolio for CT&G with the flexibility to multiplex and the roadmap that is already in development to move to power-free amplification. That is one of those three amplification chemistries I described, and power-free, I'm sure you know this, but I'll just give the brief description, has the potential to reduce cost, reduce weight, reduce size of the test. It means that the isothermal amplification doesn't require a battery, and it has significant opportunity in cost reduction, access, and quality of care. So we're excited about the platforms and tests of today. We're excited about the platforms and tests of tomorrow. Sherlock's acquisition fits together incredibly well with our strengths. It opens up. The first test opens up.
Everybody knows CT&G is the largest of STI opportunities. It requires molecular diagnostic approaches today. Opening up that opportunity builds on our strengths to go side by side with our HIV, HCV, and Syphilis Health Check offerings. The growth potential is near and midterm. It's in clinical trial today with a plan to submit to the FDA for over-the-counter use by the end of this year, allowing us to build on the strengths we have in commercial channel and customer relationships in quality and regulatory and manufacturing in the 25-year history that has at its core our STI and infectious disease portfolio, so we think there's a lot to like about OTI with Sherlock Smarts and accessible, rapid self-test diagnostics in the hands of people who need them, who want privacy, and who prefer the rapid results when they want them, where they want them.
So switching gears to sample management solutions. So you may know this portfolio as DNA Genotek, which OraSure acquired in 2011. The roadmap for our sample management solutions business, I hit on this briefly, and now I'm going to describe it in a little bit more detail. It's about adding more sample types, more analytes, and more applications with potential value chain expansion through this thread that I will keep describing as powering the shift that connects people to care wherever they are. Oragene is our market-leading FDA-cleared oral fluid self-collection device, the only on the market that, as a sample type, DNA Genotek pioneered for all of the genomics players that were using blood, has spent the last decade plus to add the quality and accessibility of saliva and oral fluid for patients to connect, self-collect in connecting to care.
That sample type opened up opportunities for DNA and RNA. Those are the analytes for applications in genomics broadly. And as we think about where we're going, what we've talked about is in adding new sample types, most of our customers, our strong customer base that we have been vastly diversifying. Consumer genomics is very important in this space, but we've been vastly diversifying to clinical diagnostic customers, to biotech, to pharma, to everyone who wants to be able to reach people where they are with a self-collected saliva sample. We will add, because many of those partners still use blood, we will add blood, and we will add urine, self-collected urine as a sample type. And I'll talk more about urine, blood, and blood proteomics to round out sample management, but the opportunities are significant, and it builds on our leadership position.
And these customers we serve today want other sample types that are increasingly non-invasive, that are FDA-cleared, and those are strengths that we provide. So in the first sample type expansion, our Colli-Pee offering is this novel self-collected volumetric first void urine that you see the funnel on the right-hand side. It's an elegant design with a very simple bobber that, as first void urine is collected, add a specific volume. Once that volume is collected, the rest of the urine just flows through, allowing for capturing of very rich biomarkers in that first void. And we have every confidence that patients who have an opportunity to collect sample or to collect their own sample would prefer to do that through urine. The priority and accessibility of testing has increasingly moved to self-collection. So think STI collection and swabs. Think from physician-collected swab to the momentum around self-collected swabs.
When self-collected urine is an opportunity and it's FDA-cleared and it can lead to expanding access to private testing, private testing with a preference for non-invasive collection is a fantastic opportunity. The chemistries in our portfolio, our expertise is both the device itself, this novel collection that works with standard tubes, and it's also the chemistries that allow stabilization, storage, transport at ambient temperature, and best-in-class stabilization that allows for processing, sequencing down the road on whatever timeframe physician lab wants to process it. Colli-Pee is a tremendous opportunity. We have it today. We've done studies in Europe that's shown that patient preference for self-collection beyond a self-swab, and we plan to submit this by the end to the FDA by the end of the year. In another sample type expansion, I mentioned that our omics customers who use saliva also use blood.
Our strategic partnership with Sapphiros opens access to the first product that they plan to have, which is a small volume self-collected blood in Satio. SatioDot is a dried blood spot. SatioDraw is for whole blood, and look, I don't put up the $92 billion TAM. That's all of traditional blood collection. We all know that what is self-collected blood today is a fraction of that, but the potential is very real. The potential is patients who want to access healthcare wherever they are. They love to do it with our saliva and oral fluid self-collection. They want to do it with blood, and for the applications, the analytes and applications that that opens up for the majority of testing that exists today, and we are very excited about our partnership with Sapphiros that increases our access to new sample type.
We've talked then about our RUO launch planned at the end of the first half of this year into blood proteomics. Blood proteomics is about building on blood as a sample type with the analytes for proteins, the biomarker for so many diseases, and the applications that that opens up, which are far too many to name, but I'll name a few: liquid biopsy in oncology, Alzheimer's disease in neurology, cardiometabolic disorders. Proteins as the basis for disease is both well-established and growing every day. The potential to build on our sample collection stabilization leadership position in saliva and oral fluid with chemistry that stabilizes and stores protein-specific stabilization and storage at ambient temperature for longer periods of time, minimizing need for cold chain in blood collection, is, I think, an early opportunity.
We're starting with RUO, but what we've proven is our ability to provide leading sample collection stabilization devices and chemistries that become very important in industry and in the ability to connect people to care wherever they are, and that's the theme that we're building on. That's the theme that we have a strong balance sheet that allows us the opportunity, the visibility to how we continue investing organically and inorganically to deliver a return to growth and a return to margin expansion from where we are today, so I will close with the financial highlights and our operating mantra. If we have our Strengthen, Elevate, Accelerate approach, our operating mantra is innovating and operating with disciplined execution and accountability.
It is about turning the corner from strengthening our foundation into innovation for the mid and long term that builds on the strength we have, leverages the capabilities we have, invests in the talent and our own customers and partnerships to return to an over 50% gross margin, which is in our goals and sights, in a great position of strength and a great opportunity and that we've proven we know how to do the work, and we are incredibly excited about the future, so with that, I will park on our SEA. I'll close for our Q&A and turn it over to Casey.
Great. Thank you. That was a really helpful overview. I guess, Carrie, you've been CEO of OraSure now for over two years. Can you just reflect on the progress made since your appointment and what your key initiatives are for the next 12- 18 months?
So I talked about strengthen, elevate, accelerate. I would reiterate the work that is in that. Looking at the two years, the most important things we did were to rebalance and right-size the organization. We're a small business. We consolidated back into those two portfolios into one. We right-sized our cost structure with our revenue, which means closing sites. We reshored from Thailand. We closed our site in Belgium. We closed Minneapolis. We are moving contract manufacturing from Canada into the Lehigh Valley in Bethlehem, where our manufacturing, our center of excellence of manufacturing is. And we've done that by retaining the talent we need to invest in our future and invest in innovation. It has been less than two years since we had $100 million in cash and had an unprofitable core business that was draining more of it.
Turning that around to deliver core break-even in cash flow from operations by Q3 was a really important part that enables us to invest in the portfolio we have today and in the platforms and tests, the sample types, analytes, and applications that can put us in a return to growth, a return to margin expansion, and I'm just proud of our team, grateful for the hard work, and for the people who have been part of that work and are really excited to return to innovation.
You noted that one of your key initiatives was streamlining the cost structure. Just what areas of opportunity do you see on that front for 2025 and beyond?
We're in a really good place in terms of our cost structure. I mean, to deliver break-even on cash flow from operations in Q3, it's building on that. We were able to implement significant automation through our manufacturing facilities in taking advantage of the lessons we learned in COVID. We're able to build on the process improvements we've made, the product cost reductions like repackaging our COVID-19 test, led to a significant product cost reduction opportunity to do the same in our HIV platform. So it's really that we've done the work to be well-positioned in our cost structure today, and through growth, we have a lot of leverage for margin expansion. Through the growth opportunities that build on the rigor of our Lean Six Sigma processes, our automation, our infrastructure, the site consolidation, which continues, we will continue that: the last of our Canadian manufacturing shift in 2025.
As we deliver growth, it is with, I'm going to repeat, significant leverage for margin expansion.
I guess on Sherlock, just can you elaborate on the strategic rationale of that deal? I think following Sapphiros's, it seemed like a key part of your strategy was securing distribution agreements. So curious on if the acquisition is signaling any sort of shift in strategy there.
Our strategy remains to increase innovation with more tests and platforms and diagnostics and more sample types, analytes, and applications in sample management solutions. The distribution agreements we have done have purely been about expanding access to innovation. So our strategy is to deliver growth expansion, profitable growth expansion, margin expansion through that additional innovation. So look, we have done the work to have the opportunities to invest organically and invest inorganically, whether that's in full acquisition like Sherlock, which you referred to, or the distribution agreements on terms that make sense for us. With smart capital deployment, we think it's really smart capital deployment and access to that innovation. But I just say the strategy remains the same, which is expanding innovation.
And how we do that, we will continue to very diligently look at organic, inorganic, ranging from distribution agreements to acquisitions that make sense with our partners, that make sense in collaboration, and that make sense on terms that work for OTI.
How significant of an opportunity does the proteomics market pose for OraSure? And would you say that that's the key area of focus for sample management moving forward?
I think it's early. So by sharing that we're launching RUO, I think signals that it's early, but I think it's really exciting because proteins are such a well-established biomarker in correlation to disease. So the potential for the ubiquity of blood collection and to improve that with a blood proteomics chemistry that's protein-specific and stabilizing and storing and allowing ambient temperature, I think is a significant long-term opportunity. But in the near term, I'd say it's early.
Okay. And I guess as a follow-up in sample management, how should we think about the end market recovery trajectory for 2025? And if you can give us an update on recent customer conversations across your different end markets there.
Our genomics end markets have been flat when they've been positive. I mean, I think the industry is well aware of this. We see that still gradual recovery. Every quarter in 2024 was a sequential increase. We see the green shoots of growth. We've diversified our customers significantly. I've shared that consumer genomics, of course, is important. No single customer is more than 10% of our core revenue in that space. And what we've been doing is diversifying our customer base into clinical diagnostics, into biotech, pharma, and beyond. And we've shared many of those customers. We've shared our customer renewals, our exclusive agreements to give a feel for those green shoots while that recovery has still been gradual. We see that continuing in 2025. I think my punchline there is it's a matter of if, not when.
We fundamentally believe that this is the first start of precision health diagnostics. Collecting sample and diagnostics in genomics and beyond is the important key in precision health. And we believe in it. It's a matter, I'll make my punchline a real punchline, and say it's a matter of if, not when that recovery happens.
Okay. That's helpful. I guess stepping back in terms of 2025, appreciate you guys having given guidance, but on the last earnings call, you did note that you expect moderate growth in 2025. Can you just walk through the drivers there and how the new products will contribute to that growth rate?
Yeah. I just talked about the sequential growth in molecular. In our diagnostic side, we grew in our core diagnostics 40% in 2023. Through Q3 of 2024, we've continued to grow. The drivers include this incredibly strong STI portfolio with HIV, HCV, and Diagnostics Direct Syphilis Health Checks. So as we use our STI portfolio to address the syndemic approach, and syndemic, I'm sure you've heard it, but I'll just reiterate, it's the synergies of epidemic and STIs that those populations who need that testing need multiple types of testing. So the catalysts for growth are the patient preference for saliva, access to self-testing in HIV. It's the professional syndemic tests of HIV, HCV, syphilis, and now the potential to add Sherlock's molecular diagnostics platform to put another CT and G test rapid results side by side. So it's really about momentum through our partnerships and distributed products.
It's our own product launches and it's the strength of the public health and clinical approaches that are making a real difference in STIs and infectious disease more broadly.
You stated that your goal is to reach 50% gross margins over time. Can you just walk us through what that timeline looks like and what are the key variables there in order to achieve that?
Yeah. You know how we guide, so I'll call it a medium-term timeline. Our margins were in the 30s. In 2022, it was on my financial page, but we've gotten that back up into the mid-40s. We have a very clear goal to return in our return to growth, return to margin expansion as well. And we can see that line of sight to over 50% with this right-sized cost structure that we have today and with the volume growth that provides significant leverage opportunity in that margin expansion. So it's the site consolidation. It's the automation. It's the repackaging of our platforms. It's our process improvement. It's supplier rigor and product cost out. It's across the board. We are relentless in dealing with reality, and we have a lot of confidence and optimism on where we can go in returning to growth and margin expansion.
We think our balance sheet shows that.
Yeah, I guess along those lines. So in 2024, you divested the risk assessment testing business and Diversigen. How would you assess the legacy portfolio currently? Are there other areas of opportunity there? And then on the flip side, you mentioned the balance sheet. Should we expect more Sherlock type of deals moving forward?
We think we're where we need to be in our core portfolio. We have wound down declining and unprofitable portfolios, ones in which we hadn't invested for years and were treating as the cash cow as they were. I'd say we are where we need to be in our core portfolio. The last of those was that risk assessment winds down and will be largely completed here in the first quarter. You should definitely expect, in our capital deployment, our priority is to invest in innovation. We have been very consistent in that. We had to completely rebuild the foundation of the business from one in which the cash balance had declined, the core had become unprofitable. We were draining money and our innovation pipeline was weak. That turnaround means, and where we've delivered financially, we've delivered 10 quarters consistently.
Where we have delivered is in a financial position that allows us to have visibility to great opportunities to invest organically and inorganically. And so yes, you will continue to see us looking for the best ways to serve our customers, to expand access, quality, and value of healthcare, whether that's internal or external, with partners and internal innovation that can return our business to growth and expand our margin. So.
Got it. No, that's helpful.
We're diligently continuing to look, and we got a cash balance that allows us to do that.
That makes sense. I guess turning back to Sherlock, first on the CT&G side, can you just elaborate on the market opportunity for the OTC version of CT&G and then what the go-to-market strategy would look like for that test commercially?
Yeah. Again, I'm going to reiterate. The potential to add CT&G into a sexual health portfolio is significant. CT&G requires a molecular diagnostic test, right? These are platform tests today. There is no over-the-counter disposable rapid self-test today. And so the opportunity to add that capability into our portfolio is really significant. We think that the right approach is to put that side by side with our HIV, HCV, and Syphilis Health Check test and to expand well beyond the strength we have today in our 25-year commercial relationships and commercial customer relationship and commercial strength and to be the content provider in what we refer to as B2B2C. And that's all the healthcare services providers that are going direct to people who want to connect to healthcare wherever they are, consumers, patients, and otherwise, provide them content where they wrap their healthcare services around that. They connect to treatment.
They spend the big costs on marketing and being the face of it. And we will continue to develop innovation that provides content to every one of those players in addition to the strength of our syndemic approach and our portfolio, which is incredibly strong today. And our innovation will continue to put content in that that can increasingly reach people where they are through our partners, B2C partners who do not want to be IVD manufacturers. And I don't want to do what they are doing, and they do not want to be IVD manufacturers. So we will increasingly provide that content for them.
Got it. Makes sense. Looks like we have a couple of minutes here left. Just in closing, what's the key takeaway that you want investors to leave with here today?
That we're incredibly well-positioned for growth and margin expansion. We've delivered what we've said. We've done the hard work, and this is our opportunity to return to innovation and create value for the near, mid, and long term.
Actually, we actually do have a couple of minutes left. Maybe one more.
Two.
Yeah. Just on Sherlock, you mentioned the next-gen technologies. They were pretty well known for developing CRISPR technologies there. So just how are you thinking about R&D spend, and are those next-gen technologies going to be something that you guys continue to focus on?
The next-gen technologies are very much included in our investment plan in Sherlock. I talked about power-free amplification. This is for ambient temperature. I talked a little bit about CRISPR. It's an exclusive license in two different detection methodologies that complement the hapten and oligo pull-down methodologies. We are very enthusiastic about the investment potential in Sherlock. We've shared that we plan in 2025 to spend between 20 and 25. That wasn't a clever 2025, but we've shared that we'd plan to spend between $20 million and $25 million of investment. A large portion of that is for the clinical trial, to finish the clinical trial for CT&G, disposable molecular diagnostic self-test.
But in addition, we are very much thinking about that platform capability and a molecular platform that increases access to rapid test results for patients wherever they are and the pipeline of tests that can be added after we launch CT&G. And again, we plan to submit that by the end of the year to the FDA.
Okay. Great. Well, I guess we'll leave it there. Thank you so much for the OraSure team for joining us today. Thank you all for joining us, and have a great rest of your conference.