It starts with an idea, a vision, taking a chance to make something better, faster, easier
To change the world.
At Revvity, we're reimagining what it means to make the impossible possible, expanding the boundaries of human potential and taking on the world's greatest health challenges. Built from the ground up, with innovation at the core of everything we do, we're leveraging the power of science and technology to achieve critical breakthroughs, helping to discover and develop life-changing therapies faster than ever before and get them in the hands of billions of people around the world. For doctors and patients, it means faster, more accurate diagnoses. We're enabling legendary discovery, delivering world-class customer solutions, and we're doing it sustainably, streamlining the way we do business, using data and AI to unlock new insights and possibilities with record speed. We have emerged from our transformation a better, stronger, more agile company, ready to take on the challenges that lie ahead.
United in science, united in innovation, united in impact, working together to create a healthier tomorrow for everyone. That's Revvity.
Good morning. Welcome to Revvity's 2024 Investor Day. I'm Steve Willoughby, our head of investor relations. It's so good to see so many of you here in person in San Diego today, as well as everybody who's joining us online. First, I want to mention a few disclosures as we are going to be making some forward-looking statements today, which are based on our current estimates and projections, which you should only rely upon as of today, as our estimates may change. I'd also point you to our investor website, our recent SEC filings, our recent earnings press release for additional disclosures to be aware of. So, a couple of ground rules for today's presentations. First, all of the financial figures and metrics you see in today's presentation are based on our current 2024 guidance, which we provided back on November 4th.
As you may have seen in a press release earlier this week, we announced that starting next year, the majority of our applied genomics business is going to be moving into our life science segment. So, the presentations today are being shown under this new operating and reporting structure. And so, in short, it's our 2024 estimates and assumptions, but under the new operating structure that we'll begin working under next year. So, I think we've got a great day for you today. You know, one that I hope you come away with a much better understanding of who Revvity is, what makes us unique, and why we are so confident about our future.
In a moment, Prahlad will be up to give an overview of the business, highlight some of the operating metrics we've been working on, and give you a few key things to focus on in the future. Next, Gene and Craig will introduce our Life Sciences segment, as well as our new Life Sciences solutions business. From there, Kevin, who runs our Signals software business, will share some of the innovations that he and his team are working on right now that we expect to bring to the market over the next few years. After Kevin, we'll reconvene, we'll do a session of Q&A, and then we're going to take a 15-minute break. Coming back from the break, Yves will introduce everyone to our diagnostics business.
He's going to explain to you why our diagnostics business is different than other diagnostic businesses you might be familiar with, and why we think that's a good thing. Next, Madhuri, our Chief Scientific Officer, is going to talk to us about how medicine and science are rapidly evolving and how Revvity is uniquely positioned to capitalize on these trends. Last but not least, Max will bring it home. Max will give an update on the progress we've been making on our operational initiatives and what that means for our financial future. Overall, I hope you come away from today's presentations with a better understanding of Revvity and why we are so confident in our future.
I also hope you come away with a greater appreciation for the significant impact Revvity is having on the advancement of science, medicine, and diagnostics, and how those advancements are directly impacting families and individuals. Before I turn it over to Prahlad, I want to introduce you to the Wallace family, so you can hear how our scientific advancements are directly impacting their family today and in the future.
Wendy, Wendy.
MLD is short for metachromatic leukodystrophy. It's a rare brain disorder that both my children have.
Nala was born a perfectly healthy, normal little girl, and at the age of six months, I realized that she didn't put her feet flat when I held her on my knee, which was a concern, but I was a first-time mother, so I didn't know if it was just me being over the top, so I took her to the doctors, and obviously, they said, "Come back when she starts walking. She's far too young," so she started walking at 16 months, not massively delayed, and when she toddled about, she walked with an inversion in her foot and almost dragged her foot, and after her second birthday, her symptoms started to develop. She started falling over a lot and then developed a tremor in her hands. They instantly said it was something more serious, more neurological rather than her bones.
By that point, she had stopped being able to walk altogether. When they finally did the MRI, after I rushed her in and demanded one, and by that point, it was too late. If it was found quicker, she could have received treatment, and I had to come to terms that my child is dying, essentially. It was like a massive life change. I'd gone from being a mother with two typical healthy children to being told that one of my children was going to die and that the other one was going to have treatment.
The U.K.'s most expensive gene therapy has given 20-month-old Teddy a second chance at life, but tragically, her older sister was diagnosed too late to receive the GBP 2.8 million treatment.
Teddy was a completely different scenario to Nala. It's just magic what it's done for Teddy. Obviously, you can see the difference between Nala and Teddy's. She started walking, and I was like, "This is just a miracle. She's jumping. She's catching a ball." They're milestones that Nala never got to hit. Nala and Teddy received the exact same screening. None of them were picked up because the U.K. doesn't test for anything like this. If they just tested for these diseases and caught them at birth, spent money on the treatment, instead of having years' worth of medical appointments, equipment, medications, hospital admissions, in the long run, surely it would be better for it to be caught at birth.
This is what I'm fighting for, and Revvity has been a massive part in pushing forward for rare diseases to be put on newborn screening, not just in the U.K., but all over the world. Like the drive and the push they have for newborn screening. You know, watching my own child essentially die in front of my eyes day by day. Nala was once a typical child running, singing, dancing, talking, to now be in this condition. Nobody wants to see children dying. And without companies like Revvity, this would just continue happening.
It's stories of kids like Nala and Teddy that motivates us to do what we do on a daily basis. However, for us, the inspiration comes from the fact that we know that there are 100 million new newborns every year that are not screened at birth. If you do the math, that means we could save 100 newborns every day if we were just to screen every newborn. That is what inspires us. Good morning. My name is Prahlad Singh, and I welcome you to sunny San Diego. For those of you who are here in person, hopefully your trip was uneventful and smooth. We are really excited to share with you today our story of how we are revolutionizing science and transforming human lives with groundbreaking innovation. The birth of Revvity was based on the foundational purpose of expanding the boundaries of human potential through science.
Whether that means working side by side with scientific researchers in developing groundbreaking therapeutics for complex diseases or working with lab personnel in screening nearly 40 million babies worldwide annually for life-threatening diseases. Today, we hope to show you how Revvity has evolved as an innovative life sciences and diagnostics company with unique portfolio positions in leading high-growth end markets. How our recurring revenue mix is now 80% coming on a recurring basis with compelling growth opportunities. You will hear from Madhuri today how we are becoming more of a strategic partner to researchers as we continue to close the gap between preclinical and clinical. And Max will tell you how we've transformed our portfolio and the impact that it has had on us being able to provide a differentiated financial profile.
Our focus on execution will continue to result in meaningful capital deployment opportunities as we look into the future. To give you a sense of who we are as a company, we are an innovative life sciences and diagnostics company with roughly $2.8 billion in revenue. A majority of our revenue still comes from the Americas. And as I mentioned, 80% of it is now on a recurring basis from consumables, software, and services. This portfolio now uniquely positioned in high-growth end markets of life sciences and diagnostics. In life sciences, we provide know-how, reagents, instruments, software, and services, today primarily enabling preclinical R&D discovery and development. On the diagnostic side, we are evolving from providing kits and assays and instruments to contiguous workflows, whether it's for newborn screening or in immunodiagnostics, and looking into the future of how we partner in developing companion diagnostics with researchers.
As Steve pointed out, and as we reported in a press release earlier this week, we are bringing our life sciences solutions together as a business unit to be more in sync with our operating model and strategic alignment. Our end customers continue to be pharma biotech and academia and government on the life sciences side. And on the diagnostic side, with immunodiagnostics and reproductive health, we serve public health labs, reference labs, hospitals, and clinics. The portfolio that we have now is ready to support the global megatrends that we've all been experiencing. Whether it's around advancements in cell and gene therapy, precision medicine, the development of companion diagnostics, especially for rare and complex diseases, or more so, as we look into the future, the utilization of AI-enabled solutions.
For those of you who've been observing our journey over the past seven years or so, you'll recall where we started when a third of our business was analytical food and enterprise solutions, a third in life sciences, and about a third in diagnostics, primarily focused on reproductive health. Over the years, as you know, we've transformed our portfolio by acquiring leading capabilities and scientific expertise, both on the life sciences side, primarily for large molecules, and on the diagnostic side with autoimmune allergy. We've continued to expand our TAM, with the two premier acquisitions being BioLegend and Euroimmun.
We also then reached a point in our portfolio where we divested the analytical business and food and applied market along with it, and the PerkinElmer brand, which gave us an opportunity to give birth to Revvity, which today we strongly believe stands in a category of one, with enhanced scientific expertise, a very high recurring revenue mix, and leading market positions in the categories that we play in. This has also transformed our revenue mix and financial profile. One of the main reasons is the markets we play in. The legacy business, the markets that we play in, typically grew in the low- to mid-single digits. The markets that we now play in, in a normal market environment, should be growing mid-single digits.
Our operating margin has grown from 20% to close to 30%, and our adjusted free cash flow has gone from 70% to more than 85%. So we do have high quality of earnings and a very differentiated financial profile. However, our transformation doesn't stop at that, and it'll continue as we streamline our segments and enhance our operating alignment. As you heard earlier, we are shifting the applied genomics business more into the life sciences solutions and with the creation of the life sciences solutions business unit. That will now include instrumentation, reagents, and services. This aligns more with our new operating model and allows us to execute on what our long-term strategy is. It also gives us an opportunity to enhance the commercial and operational synergies that we see now by bringing all of this under one umbrella.
But more importantly, this does not in any way change our LRP assumptions. As Steve pointed out, this operating and reporting structure will be effective in 2025. The other thing that it also does for us is it better enables us to continue to bridge the gap between discovery and cure. As most of you know, primarily our focus has been more so on the discovery and the preclinical side of the business. We continue to want to be part of the journey of the researcher as they take the drug towards clinical and commercialization. And this is where we are continuing to focus on specialized areas that require innovation.
On the diagnostic side, our focus is from moving on by continuing to provide the reagents, assays, and instruments that we do on immunodiagnostics and reproductive health, but more so, how do we partner in developing companion diagnostics for precision medicine for our lab customers? So how do we do it? Our focus is unique and differentiated in three specific ways, which I'll walk you through. One is our approach with our customers and the market. Two is the product portfolio that we bring to bear. And three, the result of it, the market and financial positioning that it brings to the fore. As I've shared this with you earlier, while our focus has primarily been today on drug discovery, preclinical research, and development, we want to be a part of the journey with our researcher as the candidate moves from early discovery towards commercialization.
Towards that effort, our partnership is based on what we provide to them, whether it's technical know-how, IP, reagents, consumables, and then as it moves into the clinical side, if there is a need to develop companion diagnostics. All of this is with the intent that it'll drive additional upside for us versus underlying market. Let me give you a few examples of what that means and what we mean by non-commoditized offerings. Today, you will see here on the BioLegend campus of how we are providing novel antibody and specialty reagents to our customers. You'll hear from Kevin when he comes up and talks about the Signals business of the comprehensive and scalable suite of data management solutions and workflow that we are providing to most of the pharma biotech customers.
And on the diagnostic side, if you look at the newborn screening portfolio, from sample collection to providing the data back to the institution or to the pediatrician, we have a full contiguous workflow under a regulatory environment that is unmatched in its breadth and depth. On the autoimmune side, or more generally on immunodiagnostics, the broad menu of autoimmune and allergy tests that we are bringing to the fore. And all of this is supported by a differentiated automated solution, whether it's with Western blot, ELISA, chemiluminescence, or any modality as such. What is the result of all of this, and what do we foresee from a financial profile perspective? We strongly believe that this will continue to drive faster growth and profitability. On the immunodiagnostics and software side, we expect these product portfolios to continue to grow in the 9%-11% range.
This is where a majority of our scientific innovation is coming out of, and most of this revenue profile is on a recurring basis. The newly created life sciences solutions business we see growing in the 6%-8%. Again, this is where the reagents business continues to provide innovation and drive. But the one aspect that also plays to our favor is our instrumentation business. As we continue to incorporate AI and other automation and machine learning in it, whether it's around in vivo imaging, single-cell analysis, and you will see this when Kevin Willoe, when you go on the tour here today, as to the impact that it's having on our customers and our reproductive health business. Despite the pressure that we've seen on birth rates, that market is going to continue to outperform.
We will continue to invest in that business because that really comes back to the vision of what we are trying to do and why we are doing it. In summary, we reaffirm our long-range financial targets of 6%-8% organic growth in a normal market environment, and none of the underlying assumptions have changed here. Nobody can do this alone. We are supported by a proven leadership team, most of whom you will hear from today on various business segments. There are many others who are in the audience, and hopefully you will get a chance to intermingle with them as we go through the day's agenda. In summary, our focus, as I said when I began today, is on expanding the human potential through science.
And our focus is that how do we continue to increase and strengthen our presence in the key high-growth end markets of life sciences and diagnostics? How do we focus on accelerating innovation? How do we become a partner rather than a provider to our customer, and all of this while we stay focused on implementing our operating model, because there are still a lot of opportunities for us to drive operational efficiency if we continue to execute strongly as we have, but at the end of the day, our real focus is that we want to drive meaningful innovation. You've seen the impact that it has on human lives, and hopefully you'll continue to see and experience that today through these several examples that you will hear. Thank you for your time, and with that, I'll invite Gene Lay to come up on stage. Gene?
Thank you, Prahlad. Good morning, everyone. Welcome to beautiful and sunny San Diego BioLegend campus. My name is Gene Lay, a senior VP of life sciences, joined Revvity through Revvity's acquisition of BioLegend in 2021. I founded BioLegend in June 2002 and served as the President and CEO and the Chair of the Board. Prior to founding BioLegend, I co-founded Pharmingen, a leading life science research reagents company in 1987. The company was acquired by Becton, Dickinson and Company, BD Bioscience, in 1997, and I continued to serve as a VP of operations till 2002 when I decided to go out on my own and shift my focus to starting BioLegend. I have created two very reputable and successful companies, Pharmingen and BioLegend. In 2016, I received the EY Entrepreneur of the Year award in San Diego in life sciences and was a national finalist in the same category.
I have received two honorary doctorate degrees and a master's degree in microbiology and immunology and a Doctor of Veterinary Medicine degree. In 2023, I founded the Gene Lay Institute of Immunology and Inflammation of Brigham and Women's Hospital, Massachusetts General Hospital, and Harvard Medical School, with a mission to translate the scientific discovery to therapy. I'm very excited about the transformation of Revvity. Why am I excited about the transformation of our life sciences business? Because we are uniquely positioned to help accelerate the future of healthcare. I would now like to introduce you to our life sciences segment. It is a $1.4 billion business, principally focused in offering specialized preclinical offerings to help customers advance their work and to drive new innovations.
Approximately 85% of its revenue comes from our newly formed life science solutions business, which consists of all our reagents, consumables, instruments, service, technology, and technology and licensing, which Craig is going to give you a lot more in a moment. This is a business that has a considerable market opportunity with an estimated $30 billion that we expect to grow in the mid-single digits over the long term. As you can see, this is a business which has a strong profitability profile with overall operating margins in the low- to mid-30s%, with good potential to further improve this going forward. This is a business which thrives on partnering with our customers to drive innovation. We continue to expand into adjacent and downstream markets for additional growth.
Before handing it over to Craig and Kevin, who will tell you a lot more about our life sciences business, I want to show you how our solutions are having a direct and personal impact on the advancement of science and the treatment of disease with our work with the Michael J. Fox Foundation and their efforts to find a cure for Parkinson's.
My name is Nicole Polinski. I am Director of Research Resources at The Michael J. Fox Foundation for Parkinson's Research. The Michael J. Fox Foundation is a grant-funding organization that was started in 2000 by the actor Michael J. Fox. Our mission is to find a cure for Parkinson's disease and better treatments for individuals living with the condition today. Our relationship with Revvity and BioLegend has really had a large impact on the Parkinson's disease community. From understanding how the condition manifests and looks in patients, new targets that can be investigated for therapies, or new markers that we can use to diagnose and track Parkinson's progression. We first partnered with BioLegend several years ago in our landmark study, the Parkinson's Progression Markers Initiative, or PPMI.
BioLegend worked with us to understand the levels of a protein in Parkinson's disease individuals that we think is involved in the disease progression and pathogenesis. The importance of this work with BioLegend and PPMI has been that the community has access to high-quality data that they can understand and use to look at alpha-synuclein in the disease. This is important because they can look at alpha-synuclein and compare it to other markers that are in the condition, how the symptoms progress, how the disease manifests, and understand the role of this protein in Parkinson's disease in patients. While there are a number of companies that offer similar assays, the assay from BioLegend is well understood, and the intellectual contribution from BioLegend has really helped us understand the readouts that the assay has generated and understand how this fits into the complex puzzle of Parkinson's disease.
For that scientist in that video and thousands of others like her around the world, that's why we come to work here each day. I'm Craig Monell. I'm the Senior Vice President of Reagents for Revvity, about 30 years' experience in the life science tool space, and I joined Revvity through the acquisition of BioLegend in 2021. I wanted to talk to you today a little bit about how we serve the biomedical research community, and we do that in a number of ways. First off, we have a leading portfolio of reagents and instruments. The reagents are serving the whole research pipeline from basic research through translational trials or translational studies through clinical trials. Next, we continually develop new products at a very rapid pace and introduce them into the market. The reason we do that is to meet customer requests for new markers and new assays.
We also see a chance for additional growth within our space by looking at new areas of science. Our internal capabilities allow us to address those very easily. We have a lot of technology internally. And then we also look at additional adjacent markets that can make use of materials that we have just with a slight twist. Finally, because we produce our instruments, reagents, software, and other technologies internally, we have the ability to bundle these all together for complete solutions. Now, these may be sold to customers off the shelf, or if they need something different, we can customize it for them. So I want to look at that business. You've already heard from Prahlad and Gene about the $1.4 billion in the life sciences segment. 15% of that comes from software, and Kevin Willoe is going to talk to you about that in just a little bit.
So I'm going to focus on the other $1.2 billion. The growth in this is coming primarily from the reagents and consumables, and those historically have grown in the high single-digit range. The market we're looking at has a $25 billion TAM and typically grows in the mid-single digits. So breaking that down further into reagents and instruments, this year we're looking for about $700 million from the reagents. Of those, 55% come from antibodies, antibody conjugates, and other antibody-related derivatives. Another 40% from other research reagents and 10% from our technology and licensing efforts. Looking at the instruments, we're expecting about $500 million this year, and that's contributed from our main focus areas of sample prep and automation, cellular analysis, in vivo imaging, and detection platforms. So I wanted to turn to kind of what this looks like from a product perspective. So reagents first.
Most of our reagents are designed to interrogate genes, proteins, or cells. Since there's a lot of genes and there's a lot of proteins, we have to have a lot of reagents. Our current portfolio is over 75,000 reagents in that area. For instruments, we have instruments placed all across academia and biopharma laboratories. Those leading platforms have now reached an installed base of over 35,000 instruments. Our technology and licensing efforts. This is largely leveraging technology developed within Revvity, and then sort of elements of that are very useful for some of the therapeutic pipelines. We license it out primarily to biopharma companies. The reason to do that is to make ourselves better partners with them and also to kind of really entrench ourselves as teammates in their success.
So I wanted to show, you know, we talked about reagents and instruments, but they work together. First of all, when we develop new reagents, we have a really talented team of chemists, and they try to push the edge with what we can do in terms of putting new features into those. When they come up with something new, that helps to inform new types of assays we can develop, which also then informs the type of instruments we should build in the next generation. Likewise, on the instrument side, if we develop new capabilities, because we have the ability to generate the reagents in-house and adapt them to any instrument platform, we're able to rapidly put those together and take advantage of any of the new opportunities within the instrument platforms.
So the other way, not just on the product development side, but also on the commercial side, people who buy our reagents, they're fans of that, they can go ahead and they'll be much more interested in buying or looking at the instruments that we have. People who buy our instruments are very likely to use our reagents, and there's also bundling opportunities there. So when we start off, though, typically the reagents are developed for any platform, not just the Revvity ones, because we want them to be useful to as many customers as possible. And the instruments as well are designed with an open platform with regard to open-source platform with regard to reagents. So where does this sit kind of for our customers? Where do our customers sit in the research pipeline?
Well, we've got a lot of folks at the early stages, basic research, discovery, preclinical development. And in those, on the discovery side, a lot of folks are, again, looking at genes, proteins, and cells, or combinations of all those in multi-omics assays. So we look to make solutions for all of those. In the preclinical development side, we have good franchises in immune cell monitoring, cell line engineering, and gene editing. Now, if you look a little bit downstream, more in the clinical phase, that's where you find folks who are going to be using our GMP reagents. They typically are going to buy these for the cell line bioprocessing and then analytical QC of biologics in pharma. All those folks are looking to produce products that are going to help human health through improved diagnostics and therapeutics.
So when we look at our customers, we think about how do we interact with them. We want to be very customer-focused. So we really view this as a partnership with customers. We try to catalyze a two-way conversation with them. So we'll educate them about what we have. If they want what we have, we'll sell it to them. And if they want something different, then we'll build it for them. So right now, within the life science solution business, we've got about 30% of the revenue coming in from the academic and government side and 70% from the pharma biotech side. On the academic side, these are usually folks looking at basic discovery, how does biology work, what's coming next. So we talk with a lot of KOLs.
We learn from them, we listen to them, and that helps inform what we should do next, both on the instrument and on the reagent side. On the pharma side, we also talk to a lot of KOLs, as well as heads of screening labs and things like this. They also give us input. Oftentimes, the advice we get from them is more around product configuration and formulation. By listening to them and following their suggestions, we keep our product portfolio fresh and focused on the customer. So I often think about it when people say, "Well, you've got all these thousands and thousands of customers and lots of different products. So what pulls that together?" I say, "Most of our products are bought by scientists. So the scientists are our customers." Think about our most simple product.
It might be a little plastic tube with a drop of fluid in the bottom as a reagent vial. And we put it out there, and someone will pay maybe $200, $300 for that. A layman on the street's going to say, "Why in the world would anybody pay $200 or $300 for what looks like a drop of water in the bottom of a plastic tube? Makes no sense." But if you're a scientist, you've maybe spent weeks, months, or even years putting together all the elements for an experiment. You might have patient samples that are irreplaceable. And if you use our reagent in an assay and it doesn't work, you've just been set back a lot more than a couple hundred dollars. You've lost potentially a year's worth of work. So we can't fail them. We can't let that happen. We have to come through for them.
When we think about what that means, they're looking for answers. Now, when they're doing an experiment, they may get the answer they want. They may not get maybe the wrong answer. They might get the right answer. It might be the one they hope for. It might be something else. We just have to make sure that when they use our materials, they're getting the right answers. We can't fail them on that. So I always say we're selling answers to scientists. And for that, it makes a lot of sense for us to do a lot of QC, pre-sale consultation, validation of what we're selling, as well as post-sale, just hand-holding them through their data analysis to make sure they get the right answer. So looking at growth drivers, where do we take this? Why do we think we continue to grow above market?
We have our existing portfolio, and we're going to continue to strongly innovate in that, deploy products quickly. As long as we can do that fast, we can grow faster than that market. Emerging science, because of our capabilities internally, we can deploy new technologies in those areas. We're very confident in that. We look at adjacent markets that we don't currently serve in any big way, but we're well-suited to do so. By putting those all together, we should grow well above market growth rates. I wanted to give an example of the first one, first sort of those three pillars I mentioned. This is what's shown as the revenue contribution from life science reagents introduced over the last 10 or so years. Each year is shown in a different color.
What you can see is that the efforts of our R&D to put out new products contribute additively for many years to the revenue ramp. Every year, we do about 1,500, well, over 1,500 new products. A lot of those are antibodies, recombinant proteins, assays, kits, and other such products. If you look at it and you think, "Well, you know, it's not a typical product lifecycle for most industries, why is it that they're still growing after 10 years?" I can show you examples of products back 20 years that continue to grow well. The reason for that is, if you go back to the basic science and you think about it, if we release a reagent and it's useful and becomes an industry standard, that gets entrenched into the scientific literature.
Since our customers are scientists and they're always looking for the next new thing, they look at what people have done before. They want to replicate that and build upon it, so that means they're going to go back and they're going to look and see what those people used in those studies, and they're going to buy it, and so then that happens year after year after year. As long as an area of science grows, if we've established a standard in that area, it will grow along with it, and so, again, we get this long revenue ramp. Now, this particular chart here has significant contributions from both BioLegend and Cisbio, so I wanted to give you a little bit of a background on those because they're also related to the company's transformation.
Going into 2019, the life science business was about $400 million, and it was focused on small molecule analytics. However, the world was embracing larger molecules. All the biopharma were looking at antibodies and such. In 2019, we acquired Cisbio. Cisbio had a leading no-wash immunoassay platform, and that helped to address the large molecule piece and kind of entrench us into the biopharma, biologics, manufacturing, and screening areas. However, it quickly became clear that if we're going to continue to put out new products at both the speed and the breadth and at the cost that was going to be attractive to our clients, we're going to need to have our own internal content development capability. By content, I mean the ability to make the proteins and antibodies and such that go into these assays. In 2021, we acquired BioLegend.
They had a very strong content development engine, and so we now have addressed that issue. Along with that acquisition came an incredibly increased level of expertise in immunology, cellular immunology in particular, and then also a leading franchise in a key market, that being flow cytometry reagents. Turning to the second pillar here, this is areas of emerging science that we easily branch into. So there's a couple focus areas or three focus areas I wanted to point to. One, cellular analysis, multi-omics, and also looking at new ways of exploiting proteins as drug targets. Now, when we do this, we'll want to contribute what we can in the best way with our knowledge. But that also means that to put an effective product out there, we oftentimes will partner with either other industry members, consortia, or customers.
In these particular areas, you see some of the logos down below the target areas for some of our current partners in some of these emerging areas. Now, to drive organic growth, it's not just external collaborations, but we can also collaborate internally within the Revvity businesses. There's a lot of capabilities and a lot of sites within Revvity. So I wanted to give just a couple examples of how we've been doing that. In Colorado, we have a facility and it comes out of the Dharmacon business, and Dharmacon has been famous for a long time for gene modulation and RNA synthesis, but we've been able to use their oligonucleotide synthetic capabilities to make inputs for both our IVD diagnostics business as well as to power BioLegend's proteogenomics businesses.
When we do that and enforce it, we get a great cost saving, sure, but the actual important part there is that we can do much better product development. So when it's always a little bit frustrating in the past trying to get large amounts of oligos designed to our specifications from some of the major outside sources. But by working with internal colleagues, we get what we want at the quality we want to our design on the time frame we want, and we can use that to ensure that our product development goes smoothly. And also, importantly, once we release those products, we know we can manufacture them consistently without any hiccups due to supply chain. Second example, CD34 positive stem cells. We actually gather these in our cord blood banking business, but we've recently begun to release these as RUO products.
Now, they're probably not going to sell a huge amount in and of themselves, but all of our workflows are targeted towards cellular immunology and other assays. So by working these in as controls and other elements for both our diagnostic and our life science businesses and product lines, we're able to really bolster those applications. Now, finally, I want to give you an example of the third pillar, and this is downstream capabilities and adjacent markets, and here, I just want to talk about our GMP bioprocessing expansion. So we have, for a long time, been present at the early stages in the research pipeline for cell therapy companies and pharma and the rest. They use our reagents. They do experiments. They find leads. They start to validate those and such. They like very much the performance of those reagents and what they might do to various cells.
But eventually, all these guys want to scale something up and deploy a product. In order to do that, they need to go into pilot phase and the rest. When they start to do that, they need GMP designation on their reagents. So if we don't build the capabilities to allow them to take that product forward and scale up, then, well, one, we're leaving money on the table, but more importantly, we're forcing those clients who relied on us at the research stage to go ahead and find some other partner to do the scale-up. So many years ago, really compelled by our customers, we started introducing GMP products. And these are typically ones that they've asked us to. They said, "I need to take this to the next level." So we look to put those into our GMP manufacturing facility.
And as we get more requests, we expand the capabilities of that facility. Our focus areas right now are antibodies, cytokines, and cell culture media, though that will increase with some other additions in the near future. The purpose for these right now, these are ones where we're able to offer kind of unique features at a very good value proposition. So to pull that all together, we're in growing markets. We will continue to play in those and look to exceed those market growth rates. We have areas of emerging science that we can address easily, and we have adjacent markets that, with just some tweaks to our baseline research products, we can enter easily.
Together, our portfolios, our ability to innovate, and our ability to provide solutions up and down the chain all the way through drug development should give us plenty of reason to grow for many years to come. Now, I want to turn it over to Kevin Willoe, who's going to tell you about our Signals software. That's another area of the business I think you're going to find very exciting. Prior to that, I think he's got a video.
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I hope that video shows how excited we are about the market opportunities ahead. I'm Kevin Willoe, Senior Vice President of Signals Software.
I've been in the industry for over 30 years working for a number of enterprise software companies, and I've seen a number of trends and technology emergence: the move to client-server computing, the resolution of the year 2000 issue, and the move to mobile computing. But I feel today the opportunities ahead of us are greater than those behind us. With the emergence of SaaS, the continued proliferation of AI and ML, and just the overall sense of innovation customers seem to have. At Revvity Signals, we provide software that allows scientists to create new drugs, find better materials, and run safer clinical trials. So why am I so excited about the opportunity ahead? Because innovation is truly leading the way, and we are focused and leading with innovation. Customers are truly excited about what we're doing.
I visit dozens of customers a year, and I'm constantly getting feedback on how great the products are, how easy they are to use, and how intuitive they are. We have a SaaS-based platform developed by scientists for scientists. Our scientists have lived in our customers' shoes. Therefore, they understand the challenges and opportunities they've faced, and they focus on developing a product to meet those needs. We see multiple paths to growth, which I'll cover in a minute, so let me introduce you to the Signals business. We have decades of scientific and technical expertise. In 2012, we acquired CambridgeSoft. CambridgeSoft was a pioneer in the cheminformatics space from back in the 1990s. CambridgeSoft became the foundation for what the Signals business is today. In 2017, as the market moved to SaaS, we introduced the first SaaS electronic lab notebook product, Signals Notebook.
SaaS has truly changed the way that vendors build software and customers use software. In the on-premise days, typically you'd put one or two minor releases and one major release out a year. But there was typically a backlog for IT systems. It would take a while to upgrade these systems. Customers would typically be a version or two behind. With SaaS, we're putting out iterative changes regularly, with 10-12 changes a year and major releases that are just proliferated out to our customers with no effort on their end. This has made customers be able to innovate more and allowed us to provide more value and incentivize customers to expand usage. We serve multiple markets, which I'll talk about in a minute. So a couple key stats. We're roughly about $200 million in revenue.
We have about 4,000 customers, over about a million users, and we serve the largest pharma, biotech, material science, and even academic markets. We're growing at low double-digit growth, and 10 out of the top 10 and 46 out of the top 50 pharma and biotechs all use our products. And when I say use, I mean at scale, with hundreds or even thousands of users. So looking at some key business metrics, metrics like organic growth and our profit are always important metrics to gauge the health of a business. But in software, particularly software companies with SaaS assets, there are other unique metrics that need to be considered. Some of those are ARR, or annual recurring revenue. This is the amount of revenue we'll take over a 12-month period from our SaaS products. This is growing at about 30% a year. Next, APV, annual portfolio value.
This takes all of our portfolio of products, on-prem and SaaS, and normalizes the revenue. SaaS products' revenue is taken ratably, meaning monthly. On-premise is a bigger chunk taken upfront, and the rest is ratably, so APV kind of smooths out those peaks and valleys to give a good perspective on how the business is going. That's growing about 12% a year, and last, net retention rate. It looks at the number of customers who are upselling or expanding, minus those that are leaving the platform. Our net retention rate is 106%, so we have a lot of customers continuing to expand and use. These metrics in the software world put us in best of class. It also provides the perfect mix of revenue predictability from the SaaS side, which is highly predictable, and growth, so diving deeper into the portfolio. On the left side, you'll notice our SaaS products.
On the right side are our hybrid or on-prem products. The first SaaS product is Signals Notebook. It's a product that allows scientists to gather, capture, and collaborate around information. On top of that is Signals Research Suite. It expands the capabilities of the Notebook to provide additional workflows, analytics, and data integration. So combined, scientists can gather, collaborate, and share information, but also have analytic insights to make decisions where they should focus or where they shouldn't focus. So it's a great combined solution. Next is Signals Clinical. We've had a clinical business for over a decade, and we were using an analytic tool with professional services and some pre-built IP and workflows. We've basically taken that capability and productized it. We've used the power of our SaaS platform and taken this analytics and these workflows and built a platform. So it's now more scalable.
It's easier to proliferate users, and it's a better profit margin because it's more product and less services. On the hybrid side, ChemDraw. It's a standard tool for drawing and collaborating. It is the de facto standard in the industry. Everybody from the largest pharmas to students in academia are using it on a regular basis. And then Spotfire. So we've taken Spotfire, and we've built in additional capabilities and workflow and some IP. Spotfire is the leader in the research market. But it's not only the product. It's the IP and capabilities and workflows that we've built on top that really make it so powerful in the markets it serves. Now I'm going to map our products onto our customer's workflow. The first thing you'll notice is that we go wide and deep. Most of our competitors focus in one particular area.
We go further downstream as well as deeper. So it gives us multiple growth opportunities to grow further into commercial, which for us is primarily manufacturing and quality, and to go deeper in each particular area. As you'll see, we're strongest in discovery, but we're doing a lot more work in the other areas as well. At the end of the day, customers are looking for a single platform that bridges discovery, scale-up, and manufacturing. They don't want to jump in and out of technologies. They don't want to have technology overlaps or integration convergence. So we provide a single platform across the lifecycle. So looking at the markets we serve, we're focusing on research informatics and clinical analytics. Our strongest presence is in pharma, really the top 20 pharma. It's where we started. We started there because they had the most dire needs.
Frankly, they're most demanding, had the most data needs, and our thought was, if we can satisfy them, we can bring that product downstream to smaller companies who maybe don't have as demanding needs, so a very strong presence in pharma research. We also have a very targeted offer in clinical. As I said, we have clinical analytics primarily focused around safety and efficacy, so we have the opportunity in the clinical analytics space to continue to grow deeper, but also with all the white space to grow broader, areas like real-world evidence or in-stream trial monitoring, and lastly, materials science. Materials science is a great growing space for us. They have many of the same needs as our pharma customers. The market we serve is about $4 billion, growing at high single digits.
We have a lot of room to grow within that market, but as we go further downstream, a lot more room to actually grow the size of the TAM. So looking where our growth is going to come from. Three major areas. The first is expansion with existing customers. As Craig mentioned before, biologics and large molecules continue to be a heavy focus. We're continuing to put more capabilities in the products to address those customer needs. Our customers are saying we want a single platform to allow us to focus on small molecule and large molecule, which is exactly the strategy that we've embarked upon. Next, SaaS has truly changed the way we can upsell accounts and bring more value. We're adding consistent capabilities. They're getting more value. Therefore, they're able to proliferate out to more users and more user groups. Next, new offerings.
Signals Synergy is a component for our Signals Notebook product that allows us to expand collaboration to CRO partners. So our pharma may have outsourced trials or research. They'll use Signals Synergy to collaborate those efforts with their pharma partners and their CROs. And next, a product called Labgistics, which I'll talk about in a slide or two. The last area, new customer wins. As I said, as we met the demands of the tier-one accounts, it's easily opened the door to the tier-two and tier-three. And with SaaS, these customers no longer have the burdens of needing really large IT organizations or tens of millions of dollars for on-premise systems and challenges upgrading. SaaS allows us to service those customers easy in a very cost-effective manner. And I talked about material science. So material science is a great market for us. It's specialty chemical, materials, and food.
We've typically serviced it primarily with the product capabilities we've had. But after bringing on a number of customers, we've decided to continue to expand the platform. So we're adding additional capabilities such as formulation that those customers need. So we have the ability not only to grow with the product we've had two years ago, but to grow even further with things like formulation. Some of our growth enablers, AI and ML. Frankly, we've been doing AI for 10 years. It wasn't called AI back then. We were doing predictive analysis, looking at historical information to predict what's going to happen in the future. Now that they've categorized it as AI and ML, a lot of people are embracing it more. But we're also putting a number of capabilities into the product to allow us to really provide AI and ML capabilities.
Our customers really want us to embed it in the workflows. So we've done things like added semantic search, text summarization, and antibody predictions. And we have a lot of other things we're integrating. Our strategy is to look at the customer's use case and workflow and integrate AI and ML as it makes sense, not just at a generic sense. Low touch, no touch, or digital. The world has really moved to looking at software in a digital sense. So we have to make sure we have our search engine optimization so they find us. We have to make sure we have a very intuitive and easy-to-use website so they get the information. We have to make sure we're putting content that is high value. So when they get to the information, it's resonant and it's relevant to them. We've also moved further downstream with e-commerce.
So there's a number of products that customers will be able to take that entire journey on their own. There's others where they'll take parts of the journey and they get us involved to take them the rest of the way. All of this resulting in we expect to be a 9%-11% growth. So diving deeper on two initiatives. The first is in the design area, and the second is in logistics. So BioDesign is a design tool for large molecules. As Craig and I both said, it's a market that's growing rapidly. Biologics like antibodies or new modalities like CAR-T are more complex than small molecules. They need different workflows. They need different tool sets. BioDesign provides cloning and molecular design capabilities.
It allows us to expand the footprint within the clients, again, moving towards that single platform, but also allows us to address net new users. Next is logistics, tools for complex logistics execution. This assists with the complex laboratory logistics and scale-up and manufacturing. These tools focus on bioprocessing groups, again, allowing us to expand our footprint, moving more towards that single platform, and again, focuses on new users. So we're bringing more value to the customer. We're also able to sell more seats. We have a tremendous amount of internal users using our products, groups like the Genomics Insights Center of Excellence, cell line engineering services, and gene editing teams. So they're not only using our products to help run their business better, but they're giving us invaluable feedback that allows us to incorporate that feedback into our products to ensure we're staying ahead of market needs.
This is all resulting in a lot more satisfied customers, and it is reflected in the 106% retention rate. The transition to SaaS for a number of customers has been very compelling. Here's an example of a customer who had eight different scientific disciplines with hundreds of users on four different on-premise notebooks. The notebooks couldn't communicate, couldn't collaborate, were difficult to maintain and upgrade, and very, very expensive. We were able to take all of these hundreds of users, transition them over to the Signals Notebook. They're now sharing and collaborating data and information. They've been able to reduce the license costs. They've been able to reduce staff costs. They don't have to worry about some of the challenges in security because we're now managing that all for them, and they've seen a drastic improvement in user satisfaction, and in turn, we've seen more users.
All of this has resulted in them being able to reduce the number of trouble tickets for these systems by over 1,000%. There's a value to us too. We believe that the lifetime value to us of a SaaS customer is 50% greater than that of an on-premise customer. Why? Because it's viral in nature. It's very sticky. We're continuing to add more capabilities, which adds more value and allows them to add more users. So how are we going to grow? A couple of areas. Expansion within existing customers. As I mentioned, our customers are great. They give us a lot of feedback. They're constantly asking for directions they want us to take it to put in the product. And given the viral nature, we're just continuing to expand quarter after quarter with the users. Next is new offerings. I talked about Signals Clinical, Signals Synergy, Labgistics, and others.
Last, new customer wins. Again, as we go downstream to tier-two pharmas or as we move more and more to material science, the core products we have are addressing their needs. And that'll just have a ripple effect. The more new customers, the more they'll grow virtually, and it'll continue to grow. At the end of the day, we're leading through innovation. Many of our customers are embracing SaaS, and they're looking for help moving down the SaaS journey. We have happy customers. We see opportunities both within our existing accounts and markets as well as new accounts and markets. And our business is growing profitably through iteration, all resulting in helping our customers unleash that big, beautiful science. Our success is a key component of the robust outlook we have for the overall life science business. Craig highlighted the exciting and differentiated offerings within the life science business.
We expect to have a $1.4 billion business growing at above market rates with margins greater than 30%. We're going to do this through a differentiated portfolio with growth opportunities both in the markets we play and adjacent markets. We stand out in terms of scale, future growth potential, and profitability. With that, I'll turn it back to Steve for the first of two Q&A sessions.
Thank you. You guys want water? So for the Q&A, as mentioned, we have two Q&A sessions. Following this first session, we're going to take about a 15-minute break and start back up. I highly encourage all of my sell-side and buy-side friends to ask questions today. All of the questions will be happening here live in the room as we're not doing anything via the webcast today. So I've got two mic runners right around. Antony, please go ahead.
Please state your name and your firm as well. Thank you.
All right. Good morning. This is Doug Schenkel from Wolfe Research. Thank you for the fantastic event and hosting all of us and for taking our questions. So this was a really helpful overview of the life science portfolio. It's clear that you have a great complementary portfolio of reagent products anchored by BioLegend, but clearly complemented by a series of products added organically and inorganically over the last several years. It's also clear how your instruments really complement the reagents. What was maybe a little less clear for me was whether or not the instrument portfolio is where you want it to be today and are there opportunities to maybe broaden that portfolio to target some of the growth areas that you focused on?
And then kind of similar to that on the Signals side, which is clearly a great high-margin, high-growth business, are there opportunities to use Signals to drive growth in other areas of the business? So it's clear how you can grow Signals in itself, but can that be kind of a leader to basically drive growth in other areas of the business?
Thank you for the question, Doug. Let me start with the instrument side of the question first. And I think you will see today during one of the breakout sessions when Kevin Willoe and the team sort of go through the portfolio that we have and how it links. I think the aspect for growth when you think on the instrument side comes down to not the box that you're going to build, right? I think that day has gone.
It's more about the information that you provide and how do you provide that information. So the amount of machine learning that you are able to put on it, and you will see some examples of that today where on the in vivo imaging side, we've already started to sort of implant that. And that's sort of going to be the driver on the instrument side of the business. So I don't want to steal the thunder of the team, and hopefully, you'll get a chance to see that later in the afternoon. To the second question that you had, I think one of the examples that sort of amplifies as to what we are able to do and connect the dots between Signals and the Life Sciences side of the portfolio is Image Artist. Image Artist was designed specifically to be able to be operated on our instrument portfolio.
I'll, again, want Kevin to probably elaborate a bit more on that.
Yeah. So I think Image Artist is a product that both sales teams work and collaborate on, right? So they're bringing their expertise of the instrument and the scientific workflow, and we're bringing our expertise on building softwar
e. So it's the perfect connectivity between the software world and the instrument world, and it's definitely a differentiator. And you'll see more examples of that, Doug, when we go also on the diagnostic side of the businesses of how the teams are working together and the benefit that we get.
All right. Is it possible if I can ask one more? And I hate to kind of go off script given the focus of today. That being said, we hosted an investor event earlier this week.
There is probably no surprise to any of you. A tremendous amount of focus on the current environment and the uncertainty related to some of the end markets that you address coming off of the election last week. It's a little bit of an unfair question given it's only been a few days, and I don't think any of us have any answers, but when you think about areas of heightened uncertainty, the outlook for NIH funding, the impact of tariffs, potential changes in how pharmaceuticals and biologics are regulated, do you have any thoughts on how you can uniquely serve customers in this period of uncertainty, and in some ways, I don't want to lead the witness, but I think a lot of your offerings can be part of the solution versus part of the problem in a time of change, but obviously want to get your thoughts.
Yeah. Doug, and I'll start, and Max, you can jump in. Let me start by saying I don't think it's an unfair question because it's on everybody's mind, right? So might as well get the question out and try to figure out how to. As you would imagine, we've sort of planned these scenarios as we and all companies with their worth and salt would have imagined and planned scenarios around these. Let's take the two examples that really are top of mind, right? One is the change in the administration, and the second is China. For China, as you know, for the last decade or so, we've been working diligently to a day where we would have to be in China for China. I think on the reproductive health side, on the autoimmune side, we've primarily accomplished that goal, right?
All the supply sourcing, R&D, development, manufacturing, distribution in China for China happens in China. So we don't sort of import anything in there. Same thing on the autoimmune side. We continue to build that portfolio. On the life sciences side, we don't have a whole lot of competition there. So we've not taken that step. And I think we'll see and assess how that goes. Concurrently, on the other side, less than 1% of direct material sourcing that we use in our company comes from China. So if there is one thing that came out of COVID is we built supply chain redundancies across the globe to be ready for a day, whatever that day might be, that might result in something that we don't have control over. So what we have focused is controlling what we can control and plan for that.
On the administration side of the question, look, I think it's an unknown. I mean, we don't know what we don't know. But what we do know is we control and focus on executing a portfolio and a pipeline that gets the best reagents out into the marketplace, have the best instrumentation, ensure that every newborn is screened to the best of our ability, and focus on what we can control.
I think you answered it beautifully.
All right.
Hey, guys. Mike Seigner at T. Rowe Price. Just, I had a question on the reagents kind of build there, the downstream capabilities. I think you quantified it as 100 basis points. Is that all the GMP expansion there? And then if you could just kind of touch on that, is this the first foray into that? And how big could that sort of be if we looked out three to five years, the GMP commercial-grade opportunity specifically?
Maxwell, do you want to start? Yeah.
So I think if you look at the reagents growth drivers, right, the one you're referring to is the expanding into the market adjacencies, which we said was roughly 100 basis points contribution. I would say the majority of that is related to the GMP work that we are expanding upon. I think in terms of sizing the exact dollar amount, I think you can get there roughly by the 100 basis points in the size of our reagents business. I think it's an area we remain incredibly excited about. And it's an area that we've talked about didn't require a ton of capital investments in order to build out.
A lot of it was just refining the work that we already do today, and I think it's an area that we're going to continue to be excited about. It's just one that might take a little bit of time. It's something that you work with your customers over a multi-year period. It's not something that happens overnight, but we do think it'll be a meaningful contributor to our growth algorithm over the long term.
Anthony? Yep.
Dan Leonard from UBS. Thank you. Two unrelated questions. First one for Gene and Craig. Can you talk a bit about the pricing opportunity in the reagent business? I think it was a point of pride for you that over a long period of time, BioLegend had never implemented a price increase. I'm curious if that's changed and how you're viewing that opportunity going forward, and then a question for Kevin.
Just hoping you could clarify what proportion of the Signals portfolio would you attribute to small molecule versus large molecule today? Thank you.
Maybe start with Craig.
Okay. Pricing. Well, on pricing, yeah. As I think you mentioned, we hadn't raised prices on our U.S. list from inception of the company through 2022. We had huge inflation that kicked in. There had been inflation all those years, but we'd always kept reinvesting to kind of be more and more efficient, right? The cost of our inputs kept going up, but we were able to keep our margins and even expand them simply by looking at innovation. Now, in 2022, very large increases on some of those input pieces. So we did do a price increase at that point, and then we did a small one at the beginning of 2023.
We did not increase prices for 2024, and we have no plans to increase prices on the BioLegend side because you're referring specifically to the BioLegend case for 2025, and the reason for that is we can continue to look at economies of scale, refining our processes, and maintaining our margins or even increasing them simply by innovation. The nice thing about reagent manufacturing in many cases is it's batch, which means your costs are on the setup, on the QC, on the data interpretation. The materials that actually make, whether it's one gram or 50 grams, they don't really scale. Those scale linearly, but all the rest of the cost doesn't.
So we believe we're able at our scale to have the best sort of cost profile going forward, and we'd much prefer to pass that on to our customers rather than ratchet up and take every dollar out of their pocket. We'd rather give them more answers if we can.
And to continue to outgrow the market too.
Absolutely. We'd rather outgrow by becoming more relevant than simply trying to drive our price. Yeah. Small molecule versus large. It's a tough question to answer at the moment for two reasons. One is it depends on which product, right? So Spotfire is molecule agnostic, so it doesn't matter. But we see the biggest growth opportunity for the Signals Notebook and the SaaS suite, the growth of large molecule. We've just started that journey.
We've had a number of customers who chose us for small, and we're going to make a large molecule decision on a separate platform, and they liked the platform. They said, "We're going to wait." And we've been building in capabilities to allow them to start using it with large molecule and buying more licenses. So I can't tell the exact number at the moment. We will track it once our biologic products are out, and we actually have a way to track specifically. But we're at the beginning of the growth trajectory for that large molecule.
Over here. Eve.
Hi there. Eve Burstein from Bernstein Research. Thanks so much for having us and for taking the questions. I wanted to dig in a little bit more on software and drill down into two of the key growth drivers that you guys highlighted.
So maybe first question on expansion with existing customers into biologics and large molecule, which you just talked about. Just to clarify, are the new products that you're talking about, BioDesign and the biologics molecule for Signals research, am I right? I think I saw on the slide that they're expected in 2025. And if so, can you give us a little bit more there?
Yeah. So with biologics and large molecule, there's ways to address it, right? We're adding capabilities to the product outside of those two products where people can start using the core platform on biologics and large molecule. BioDesign is going to be out in 2025, and Labgistics to follow afterwards.
So our strategy right now is to put incremental capabilities into the product so people can start using it for large molecule and biologics to the point where it's enough to be a standalone module, and then we'll introduce the module. So we're not going to just wait. So the answer is people are going to start using it now and ramp it up as those products come to market even more.
And if I can just add to what Kevin said, Eve, if you recall during one of the calls, we've said Kevin's team's focus is on the user groups. They have user groups two, three times a year. And then basically the customers sort of give a very good insight into what their demand is or what their need is.
And that's where the modular approach works very well, that they are able to introduce the on-the-platform on a much more modular basis.
Okay. Thank you. And then on new customer wins or expansion to smaller customers, it makes a lot of sense that as you've moved more to SaaS-based products, your portfolio has been more accessible to smaller customers. But sales to smaller customers also requires a really different commercial setup and a higher level of commercial intensity than you've had previously. And it requires a real financial commitment, which we understand you may have been a little bit hesitant to make in the past. And you highlighted that there's a low-touch or no-touch sales approach, but I don't know that that's really enough for those smaller customers.
So why is now the right time to pursue this opportunity, and what kind of capital or manpower are you actually committing to go after it?
Yeah. So maybe I can start. I think as you look at the new customer wins, I would actually say there's two buckets of the new customers. One is expanding into some of the smaller pharma biotech customers. And second is acquiring customers in the material science landscape. So I think as you look at the commercial execution across those two areas, first, on the smaller pharma customer side, it is really leveraging the e-commerce platform. You can go on our website, see the demo of the tool, and go and sign up right there on the website. It's an easy use, or you can click the chat. It is a low-touch solution for us to be able to penetrate that market.
We will not be investing significant commercial headcount, nor do we think we need to, to execute on that opportunity. I think where you might see some additional headcount is in the newer areas of materials science, but it's not an immense amount of new headcount. I think there you also have some very material large customer accounts where you can get at with more of a strategic account management style, and we've already seen some early wins this year on some meaningful contracts.
Kevin, maybe you could add, too, on how we're leveraging existing capabilities in materials science.
Yeah, well, so a couple of things. Again, most of our materials science companies these days are just buying the core platform, but now as we're adding more capabilities like formulation, we've already had it, but we're beefing it up a little bit more for them or design of experiment.
It's going to allow them to use it on a broader basis. The one thing that I would say is that it is easier to sell customers the SaaS product than the on-premise product because we have multi-tenant environments we just turn on and they evaluate as opposed to going on-site in their data center and installing the software. So it's actually less of a lift for us and them for tier two or accounts looking at SaaS than it was for on-premise. Frankly, our success in tier two is going to be ramped up mainly because we're focusing on it more. We were just so focused on those tier ones. Now we have the bandwidth to focus on tier twos with no additional investments from a sales perspective unless we decide to expand material science a bit.
Puneet.
Yeah. Thanks, Puneet Souda, Leerink Partners.
Thanks for taking the question. So Prahlad, the high-level question for you first, and then maybe a more deeper one for Gene and the BioLegend team. Prahlad, different companies in the life science tool space take a different approach to working together across divisions and segments. Some are siloed, some are working closer. That drives more innovation, that drives more products into the market, and it creates better working synergy. So just wondering where you are, where do you see Revvity positioned and how close of a collaboration that you see across different divisions, where it is, and where would you like it to be? I'll just stop there.
Maybe we could hold that question for the second Q&A session after we've gone through the diagnostics. I think you will learn a lot in the next hour and a half.
So we'll come back to you on that one if you want to ask something.
I will respond to it after you've seen the second session because that sort of gives you a few nuggets into how the two businesses are working together.
Okay. Then if I could get one more, just asking in terms of where do you think the just looking at the life science portfolio where it is today, do you have all the right pieces? And if there is disruption coming, again, let's see. I hope not, and given all the uncertainties in the marketplace, but if it was to, where are some of the areas where you think there's more opportunity?
Yeah. It's a good question, Puneet. And look, it's not that we've sort of shut our eye off and not looking at opportunities.
There are two pieces to the puzzle, right, that you might have some needs, but you also have to have targets available that sort of fit and sync in with your strategy both culturally and from a portfolio perspective. That match hasn't happened yet. So if there are areas of growth, we continue to look for it, and there are opportunities over the next several quarters or as they come to the fore, we will definitely keep our eye on it. I think the bigger thing is that we've acquired 12 companies. We've tried to meet the needs that we had. There were, if you were asking me this question in 2020, 2021, there were significant gaps in our portfolio. We were a small molecule company, and the market was moving towards large molecule. We didn't have anything, literally. And that's where the acquisition spree.
We've put largely the pieces together, but we'll continue to be on the lookout is probably the best way to answer the question.
Okay. Thank you.
Maybe down in front here, Madeline, Robert.
Thanks. Robert Moses, RGM Capital. Just had a question on the Signals business. What percentage is SaaS cloud versus perpetual today? And as you're going through that transition, you talked about the value. Could you just give a sense of where we're at in that journey in terms of that conversion? And are you converting your installed base, or is it more so new SaaS for new logos?
So it's both. So with the acquisition of CambridgeSoft, they had an electronic lab notebook on-premise. So most of those customers, CIOs and CFOs have a cloud-first strategy. And if it's not a cloud product, you have to justify why.
It's transitioning those customers who had perpetual licenses and were just paying maintenance over to SaaS. So they're having a better, less manageable system that we're now managing, and we're also having a new revenue stream. And it's new customers, right? We rarely ever see a new customer in the notebook side looking to buy an on-premise notebook, right? And if they do, we really try to convince them otherwise because that's not the direction of the market overall. So it's a combination of existing customers transitioning over and net new customers. But as I said before, the beauty of SaaS, we're going to have access to markets we would never have access to with an on-premise system. They just didn't have the resources and the technology expertise to put these big on-premise systems.
I think maybe just one other piece to add on that as well.
I think as you look at our SaaS as a percentage of the overall portfolio, it's roughly a third of our software revenue today is SaaS related. I think we're probably in the middle innings of that journey. But the other point I'll mention is that we are ahead of our two main competitors. And I think we've mentioned that we think that is a true differentiator for us and why we win in the marketplace. And we look to continue to execute and be ahead of the game in the coming years.
Andrew.
Andrew Cooper, Raymond James, thanks so much for the time and everything today. Maybe just a quick one for me on GMP as you talk about it and sort of some of the customer pull and the natural move downstream.
Can you give us a sense what are the win rates when you come and say, "Hey, we have this capability to bring to bear?" And in the scenario where a customer still goes elsewhere as they move into that next phase, what's the reason why?
Correct. Craig, do you want to start?
Yeah. So most of these historically have sort of evolved out of the early stage seed planting with customers who have come to us for some solution. Maybe it's a particular media that they wanted to use because it happens to help their cells grow and differentiate in the way that they want. Or maybe it's a particular functional antibody or particular cytokines. So there's a lot of, say, smaller companies that will work with us.
Then to the extent that they're seeing what they want, that naturally goes to a larger scale subsequent proposal and then a larger proposal as they march down their development pathway. They're kind of locked into the materials that they started with as long as we can deliver and as long as they function well. That's where a few years ago we were starting to need to hand people over to others. We don't want to do that anymore because it's disrupting to them. Frankly, we can serve that market. When we look at the little guys, we're continuing to march through that development pipeline with them. That's why we say it takes a few years to play out because they don't get to really large scale until they get some success in the clinic, pilot scales at least.
I think we'll wrap up the first Q&A session now and enter into a 15-minute break. We'll have a longer Q&A session at the end of the presentation, so we'll come back in 15 minutes. Thanks.
My name is Sumaira Ahmed, and I am a patient living with seronegative neuromyelitis optica spectrum disorder, also known as NMOSD. And I'm also the founder and executive director of the Sumaira Foundation. The Sumaira Foundation is dedicated to raising awareness of NMOSD, MOGAD, and other rare neuroimmune conditions. In 2014, after sudden vision loss in my right eye, I lost vision in both of my eyes, and I couldn't feel half of my body, and neurologists, neuro-ophthalmologists, and neuroimmunologists diagnosed me with neuromyelitis optica, and that was the very first time that I had ever heard it.
My initial question was, "Am I going to die from this?" I Googled my disease, trying to find resources or community or advocacy. Everything was so sad and depressing and gloomy, and that's just not who I am. It didn't take me very long after my diagnosis to decide that I was going to do something about this. I was going to take matters into my own hands. Even if it only helped one other patient, that was more than enough for me. What makes Euroimmun and Revvity unique is their interest in working with all the different stakeholders to really get an understanding of diagnostics. They're working with doctors, scientists, researchers, but they're also working with people like myself, patients, patient advocacy.
So they're tackling diagnostics from so many different angles so that they have all of these different vantage points, making it really a holistic process of how they approach diagnostics. Every single person who I've met at the company is so dedicated to their work, and they're so passionate, and I think that they approach their work with a lot of humanity, which you don't always see in big companies. So it's really nice to see people working with their hearts and brains, and that really inspired me.
So very powerful to hear directly from Sumaira Ahmed, which is a patient and a key collaborator, how the work that we're doing in immunodiagnostics is advancing science and also impacting patient outcomes. It's really personal stories like these that, you know, illustrate our purpose at Revvity. Good morning. I'm Yves Dubaquié , Senior Vice President of Diagnostics.
I have over 25 years' experience in the healthcare industry, and as a trained biochemist, I know how important it is to lead with science in this industry. So expanding the boundaries of human potential with science was one of the reasons for me to join the company two and a half years ago, and it continues to be so. So I'm excited to share with you an overview of our unique and high-growth diagnostics business that is having positive impacts on patients' lives today and how we expect this to continue. So there are a number of things that I want to show you today regarding how we uniquely play within specialized diagnostics.
First, I will introduce you to our portfolio, which may look slightly different than what you are likely used to from other diagnostics companies, and also show you how this difference is what makes us unique. Next, I'll touch on how we've focused intensely on driving innovation both in existing and new markets. Then I'll highlight how we're, you know, concentrating to penetrate key markets globally, especially the U.S. And finally, I'll show how we're leveraging some of our key capabilities and strengths across the business. So let me give you an overview of Revvity Diagnostics. About 60% of the $1.4 billion revenue comes from our high-growth immunodiagnostics business, with the remainder from our market-leading reproductive health business. We have been growing revenue in the mid-single digits over the past five years on average, and delivering strong operating margins of 27%.
We operate in markets of meaningful size and underlying growth. Our estimated TAM exceeds $30 billion, growing at a mid-single digit five-year CAGR, and I will explain to you why we expect this business to continue to grow above this rate going forward. Our leadership position in these specialized markets is really based on us providing complete end-to-end testing solutions. This includes sample preparation, analytical platform, software, and service, so I think it's actually underappreciated for a specialty diagnostics company like ours that we have a broad variety of platforms ranging from mass spectrometry to immunochemistry to molecular techniques, as well as cellular assays, so I think it shows that we're taking a very tailored approach to answering a diagnostic question, so a key area of focus is autoimmunity, where we have a market-leading position in an area that is under-tested globally.
The key differentiators here are really the broad assay menu, quality, and performance across our tests. Another specialization area is infectious diseases. Here we have an extensive suite of assays for various conditions, such as latent tuberculosis, tropical infectious diseases, as well as blood bank testing. Our newborn screening franchise provides complete sample-to-result solutions, ensuring that screened babies get a healthy start to life, and finally, we operate a global network of clinical laboratories that offers access to diverse patient populations and through which we can effectively partner with pharma and biotech companies in helping them in their development programs, so as my colleagues have been highlighting earlier today, our diagnostics franchises play a key role in this continuum of research to cure. We are, you know, screening patients both at birth and later in life through advances in genomics.
We then, you know, help diagnose highly complex diseases to finally, you know, monitoring drug therapy, therapeutic dose, and efficacy. But what I really want you to take from this slide is that this is not a linear process, but it's actually circular and provides important feedback loop to diagnostics. Every touchpoint that we have with a pharma/biotech customer critically informs us about the diagnostic needs of the future for these therapeutics. So, for example, over 40 active clinical trials today are using Revvity Cell and Gene Therapy technologies. And our licensing team obviously continues to drive or grow the number of these programs and customers. So every one of these touchpoints provides an important feedback loop, and I view this as a key differentiator for our business. Now let's pivot to who are our customers.
One of our key customer segments is obviously the private diagnostic labs, including major lab networks. They value our specialized diagnostics tools, but also our scalable automation to reduce hands-on time and cost. We continue to support their growth as we see rapid consolidation globally in this particular market sector. At university hospitals and research labs, we often engage with key opinion leaders and lab directors. They value really our innovative comprehensive testing solutions, as well as our deep therapeutic area expertise. We're a partner to help them develop assays for novel biomarkers and are able to expand our diagnostics menu that way. Another important customer segment that we have a very entrenched relationship with is our public health screening and testing labs. These customers really count on our end-to-end screening solutions and value our unwavering commitment to 24/7 service, quality, and continuous menu expansion.
For example, we partner with every state-run newborn screening lab in the U.S. Now let me turn to our market-leading immunodiagnostics franchise, which makes up about 60% of the overall diagnostics revenue. Now, this is a truly unique and special business, which has a profound impact on the diagnostics journey of patients. Our $800 million business has been growing high single digits on average in the past five years. So 50% of the revenue is from autoimmune testing, followed by infectious disease and allergy. Now, this durable growth profile has been achieved by participating in selective specialty markets where we hold podium positions, such as autoimmunity, as well as latent tuberculosis. We intend to leverage these underlying high-growth conditions by menu expansion, new automation solutions, and share gain.
In particular, Euroimmun and T-SPOT.TB have strong brand recognition and a positive reputation for performance, quality, and clinical differentiation. Now, there are several key factors which will allow this business to continue to be successful. First, elevated underlying market growth. Second, innovation in existing and adjacent sectors. And third, geographic expansion and penetration opportunities. Based on these key growth drivers, which I will lead you through, we expect our immunodiagnostics business to grow high single- to low double-digit on average going forward. Let's talk about market growth first. Autoimmune disease testing is a very attractive market with strong growth fundamentals. As you see here, plotted for the U.S. data for one of the most common autoimmunity biomarkers, ANA, or antinuclear antibody, the prevalence is steadily increasing.
Now, this is fueled by, you know, demographic trends, increased exposure to environmental factors, infection, as well as increased awareness about these types of diseases. This is a high-complexity diagnostic area with over 80 distinct diseases described, affecting one in 10 people globally. Nonspecific symptoms really require highly specific and sensitive assay panels, which often, you know, reflects to secondary and tertiary tests. Frequently, autoimmune assays become chronic, requiring patients to be tested repeatedly. And finally, clinical adoption is still under-penetrated even in developed markets. So we are well-positioned to capitalize on this attractive and sustainable growth opportunity because of our strong therapeutic area background, which started over 35 years ago at Euroimmun, as well as our continued innovation. So we brought many innovations to markets. And here I want to highlight two recent ones specifically for you.
Both innovations really result in reduced operator hands-on time and increased testing flexibility, which ultimately improves lab productivity. And this is what our customers count on. So the AP2400 is a latent TB testing platform that we've launched a couple of months ago. The automated workflow is particularly attractive for high-volume testing labs that do not want to compromise clinical performance. So we expect this platform to drive improved market positioning and share gain for our TB franchise. And we expect FDA approval in the first half of 2025. Another area that we are focusing on is the expansion of multiplexing solutions for autoimmune testing. The EUROBlotOne provides miniaturized immunoblots in a format that allows both single and multiplex testing in the same ELISA analyzer, again, improving lab productivity and also saving very valuable sample volume.
We've launched this solution for infectious disease and will follow with autoimmune menus in the second half of 2025, so we also have a strong pipeline of innovations that we're working on in new and adjacent areas, such as neurodegenerative diseases, as well as active tuberculosis. As you know, neurodegenerative diseases affect millions of patients worldwide, with Alzheimer's disease being the most common illness. Now, with the availability of disease-modifying drugs, the detection of early-onset Alzheimer's finally has become therapeutically actionable, so here, our focus is on moving from cerebrospinal fluid samples to serum or whole blood in order to detect low-abundance biomarkers for Alzheimer's disease, as well as other neurodegenerative diseases. This will require high-sensitivity detection platforms, as well as novel sample preparation methods.
We're also concentrating on assays for active tuberculosis, which continues to be the number one infectious disease killer now that COVID has subsided, claiming the lives of over 1.25 million people per year. Effective tests for active tuberculosis already exist, but all of them are based on sputum. So here, we're really focusing on something that does not exist today, which is a blot-based rapid diagnostic to detect the most challenging cases of tuberculosis, such as late extrapulmonary tuberculosis, as well as in pediatric patients. So we have over 20 years' history in tuberculosis research and diagnostics. So we know the disease, we know the market conditions, and we have a good understanding of the test requirements. Now, let me turn to our third immunodiagnostics growth driver. Geographic expansion represents another significant growth opportunity. What you see here is the relative share of our U.S. versus rest of world revenue.
As you can see, we experienced tremendous growth over the past seven years, growing from five to 15%. The U.S. is the largest autoimmune testing market in the world. We believe that it continues to be under-penetrated, and we're making meaningful investments to tailor our FDA programs, so to tailor our R&D programs, rather, to FDA requirements. Good progress there has been made, but a significant opportunity still remains in front of us. Hopefully, you now have a better understanding of what our immunodiagnostics business is and why it is so special. Driven by the factors that I described, we expect this business to grow between 9%-11% on average going forward. As you've seen, we do have very strong capabilities to help diagnose autoimmune and other complex diseases.
But importantly, we shorten the time of each patient's diagnostics journey, which is so critical to drive clinical decisions and ultimately improve patient outcomes. So this is really an outstanding diagnostics business, unlike others, which has significant opportunity still in front of it. So while our immunodiagnostics franchise is helping deciphering some of the most complex diseases, let me now turn to our reproductive health franchise. And here, I want you to hear directly from one of the impacted families how we help patients at their earliest stages in life.
My name is Ashlyn Ahrens. My family lives in Tulsa, Oklahoma. I'm a mom to two, Eli and Eleanor. My husband, Christopher, works as a physical therapist in an inpatient rehab setting, and I work as a physician assistant in pediatrics. Eli is so sweet. He's a great child, super funny, super active, super sweet boy.
He was a little bit slower to develop as far as his motor skills go. He didn't start walking until around 18, 19 months. Around two and a half, we realized he was still crawling up the stairs when his friends were walking up and down them. And we were a little bit worried about that. And then one day, specifically, my husband asked if I was concerned that he was still pushing off of his knees to stand. So we got him tested, and he, in fact, has Duchenne. That's just really hard for any parent, I think, to get a diagnosis for their child that they're not going to live as long as you would hope they would live and not get to do the things that you would hope that they would get to do.
The impact that Revvity has had on the Duchenne program and the Duchenne community at large is huge. I think that with the free testing that's readily available at an early age, kind of whenever parents are ready to test, whenever physicians, practitioners are ready to test, it's being caught, and that's huge. If we hadn't had our diagnosis last year, we've already seen some changes over the past year, and that's with treatment. So God only knows where we would be had we not started treatment when we did. I think newborn screening should include DMD. It includes sickle cell anemia in a lot of states. It includes cystic fibrosis in a lot of states. Duchenne is a progressive, aggressive, and terminal neuromuscular disorder. So I don't see any reason why it shouldn't be on the newborn screenings.
When you receive a diagnosis like Duchenne or even other rare disorders, your whole world is changed. Your outlook on life is changed. Families look for hope. Companies like Revvity are giving families resources that are allowing them to get diagnoses early on and treatments early on and ultimately giving them hope.
What a moving testimony from the Ahrens family, courageously battling Duchenne muscular dystrophy, which is such a devastating disease. It's really making a difference for children like Eli by diagnosing these rare diseases early in life, which is the focus of our newborn screening solutions. Let me give you now an overview of our reproductive health franchise. This $500 million business has been growing low single digits on average in the past five years. Now, bear in mind that this is significantly outperforming global birth rate trends, which I will discuss later.
Now, the majority of the revenue, about 70%, is from newborn screening, followed by prenatal and maternal health, as well as cord blood banking and rare disease services. So we are the industry leader in newborn screening with over 40 years of history. And we have built strong relationships with public health institutions, key opinion leaders, patient advocacy groups, and of course, also our customers, the newborn screening labs worldwide. But most importantly, our screening solutions save the lives of over 85 babies every day. And you've seen firsthand the deeply personal impact that this can have on the quality of life of a child and their family. So this further underscores the purpose we have at Revvity and shows by what we're motivated every day. So the foundation of our leadership position are our comprehensive and scalable screening solutions, which focus really on the unique needs of our customers.
We not only have FDA-approved solutions or tests for over 70 conditions, which include metabolic, endocrine, or genetic disorders, but we also have high-touch instrument and clinical services. Now, the workflow always starts with the same sample, a Dried Blood Spot or DBS obtained from the heel prick of a newborn in the hospital. This sample carton gets sent to the clinical laboratory where the blood analytes are extracted and subjected to the analytical modality. I've already touched upon the fact that we have a wide variety of diagnostic platforms that we're using to answer the diagnostic question. But most importantly, in this workflow, the entire workflow is wrapped in comprehensive software solutions that track samples, report out results in a highly efficient and compliant manner.
Now let me tell you how our newborn screening business is able to significantly and consistently outperform the global birth rate trends in developed countries by over 600 basis points each year. There are several key growth drivers that enabled our business to grow 2%-4% in the low to mid-single digits over the past years. We see this growth rate continue going forward. First, geographic expansion with new customers. Second, menu expansion with existing customers. Third, menu expansion by introducing new and innovative products. Let's talk about geographic expansion. You've heard some of these numbers earlier today from Prahlad, but let's go through it one more time. If you consider that of the 140 million babies born, only about 40 million, or 30%, are being tested for at least one disorder, it becomes very clear that this is a massive growth opportunity.
100 million babies remain untested. So the number of countries that have implemented national programs for screening has been steadily rising to over 100. And we continue to engage with the health authorities of countries that do not yet have such programs. In addition, the recent WHO proclamation, which emphasizes the importance of newborn screening, will drive further awareness in those countries and may be unlocking funding opportunities. So all of these factors not only point to a massive growth opportunity, but they also represent a responsibility for us to bring newborn testing to more babies across the world. Another growth driver is to increase the menu adoption with existing customers. So there is meaningful dispersion in the number of tests per baby conducted, both at the U.S. state level as well as across the globe.
So for example, while California will test for 59 disorders, Montana might test for 33, Germany for 19, and China for nine. So as clinical evidence continues to accumulate, we see great potential in existing customers adopting more of our available menu over time. We talked about innovation being another key growth driver. And in the U.S., the adoption of new tests or new tests for newborn screening is really guided by a federal advisory committee, the Recommended Uniform Screening Panel, or RUSP. This panel is recommending a standardized list of disorders from which the states then will select their specific programs. Now, the number of RUSP-approved conditions has steadily increased to over 64 in the past 20 years. And one of the key factors here is really the availability of treatments for new rare diseases, also fueled by cell and gene therapy.
We offer testing solutions for all of these RUSP disorders today because we're engaging early on with the newborn community and anticipate which disorders will be nominated next. This defines then an organic R&D pipeline for us. Let me highlight two of these innovations from this pipeline for you. One, Metachromatic Leukodystrophy, and the other one, next-generation sequencing for newborn screening. You have heard from the Wallace family earlier today that MLD, what a rare and, I mean, what a devastating disease MLD is, and which affects the nervous system and really is just a death sentence if left undiagnosed and untreated. We've been partnering early on with pharma companies operating in this space. In March 2024, Orchard Therapeutics received FDA approval for their gene therapy. Now, often these types of therapies show better efficacy the earlier during the disease process they're administered.
This is why it's so important to identify these patients as early as possible. We've launched an MLD research assay today, and we're planning a path to FDA approval in combination with other anticipated disorders. With that strategy, we can then stay ahead of future RUSP nominations and turn on these diseases when they become nominated. Another innovation that we launched this year is our next-generation sequencing panel for newborn screening. As we see rapid acceleration of genetic research, it makes sense to interrogate a specific set of genes that are associated with these inherited diseases. I want to emphasize that this is really a rapidly evolving field with the goal to complement and augment our existing newborn screening. Much more work is needed, but it holds a tremendous potential to improve neonatal care. I shared with you our newborn screening growth drivers in detail.
If we're combining these with a stable outlook for our cord blood banking and prenatal and maternal health segments, we expect the total reproductive health business to grow 2%-4% going forward. So hopefully, I was able to show you how passionate we are about reproductive health and why it is fueling our purpose on a daily basis. There's so much opportunity to improve neonatal and prenatal care, and we believe that our testing solutions will continue to drive solid growth for the years to come. So finally, let me show you how we leverage many of our unique and internal capabilities in intra-company collaborations. You've heard some examples earlier today from Craig about insourcing. And so through insourcing of critical in vitro diagnostic raw materials from our life science business, we're able to strengthen the security of supply and become less dependent on the external suppliers.
One such opportunity comes from this very site here, BioLegend, which is a rich source of high-quality antibodies for both our immunodiagnostics and reproductive health businesses, so as we shop the Revvity store first, we're creating meaningful synergies for margin expansion in addition to stabilizing our supply chain. We're also leveraging expertise in our core reproductive health markets into meaningful opportunities for cell and gene therapy manufacturing. As we have built unique capabilities and infrastructure to cryopreserve cord blood stem cells, we're able to partner with pharma to support critical steps in their cell therapy manufacturing processes and logistics. These turnkey solutions are really avoiding significant infrastructure investment that these manufacturers would need to make otherwise, so let's bring these different parts together for the outlook of the overall diagnostics business.
Combining the high single-digit immunodiagnostics and low single-digit reproductive health growth rates, we're assuming the overall diagnostics business to grow between 6% to 8% going forward. In addition, we see significant opportunities for strategic collaborations with customers on top of that. And you will hear more about this upside from our Chief Scientific Officer, Madhuri, in a minute. So in summary, we feel very confident in our strong potential across specialized markets and in our ability to deliver above-market growth. This is a truly unique business. Now, before turning it over to Madhuri, let's have another look at how we're partnering with rare disease organizations to make a difference in patients' lives.
My name is Sarah Shira Emmons. I'm the Vice President of Patient Affairs and Community Strategies at The Jane Foundation. The Jane Foundation is focused on discovering a treatment for dysferlinopathy, which is an ultra-rare condition.
One of the things that's unique about dysferlinopathy is that a person will live a normal, healthy childhood, and then at some point in early teenage or adult years, they begin to notice changes in their muscles and their strength, and it comes out of nowhere because it's a recessive condition. There isn't a family history typically, and so it's quite a surprise to the family and the individual when they start to become weaker right at a time in their life when they would normally become stronger. Some of the cutting-edge approaches that the Jane Foundation has been involved in revolve and center around diagnostics, and so that's where our relationship with Revvity has really flourished.
Revvity's work is at the very forefront and beginning of where all of us in research and on cutting-edge rare disease work are. Without having patients identified in all the rare diseases, we really can't do anything. Having teams at Revvity who are quick to respond, who are able to creatively solve problems with us in real time is extremely valuable. It's almost like we're at the same organization when we talk to them or when we communicate with them. Just their level of responsiveness and creativity is hands down the highest that we've seen. And that impacts the patients and our ability to serve them. And so that's something that we have not experienced with other companies that I find really, really valuable. And it's consistent across the teams that we work with.
What an amazing representation of precision medicine in action.
We have been on this journey with Jane Foundation for over a decade and will continue to collaborate with them in their quest to find precision medicine for patients with dysferlinopathy. My name is Madhuri Hegde, and I'm the Chief Scientific Officer of Revvity. I'm a fellow of the American College of Medical Genetics and Genomics and a diplomat of the American Board of Medical Genetics and Genomics. My career has spanned from doing basic research, discovery, and running high-complexity clinical laboratories. I have almost 200 peer-reviewed publications and have been the recipient of several research grants. I came to Revvity about eight years ago, and I've really enjoyed doing basic research, contributing to the molecular understanding of disease and advancing genomic medicine when I was in academics. But Revvity has really offered me the chance to see the immediate and tangible impact of these rapid advances.
You have heard today about our foundational capabilities, which truly span the entire spectrum of human health, but as Prahlad mentioned right at the start, these foundational capabilities are based on cutting-edge technologies, keeping a constant focus on the scientific advances. What I'm going to talk to you today is about the changing face of medicine, where we are today, what the future looks like, and what we are doing at Revvity to stay ahead of it. Medicine is changing rapidly. We live in a very dynamic environment where the expectation is to remain spry, adapt, and deliver. The current state, the way we look at it today, is we live in this world of symptomatic medicine, but what is changing is we are moving into these new modalities of screening for neonatal, prenatal, pediatric, and adult phases.
At Revvity, we are really positioned ourselves to contribute to transforming these basic fundamentals going from predictive, preventive, personalized, and participatory medicine, which is called P4. This is really reflected in the market today, and you can see this on the slide of how the market is expected to grow. But the customers are really seeking partners who can accelerate their journey from concept to clinical impact. What we saw about these capabilities from my colleagues today, think of them as beads on a string, which live in a very tightly connected ecosystem to support these modalities going from new drug or compound development, develop high-complexity assays, partner with pharma to develop companion diagnostics, early screening, diagnosis, and monitoring patients. This really spans the entire disease course. And at Revvity, we are very well positioned to enable the P4 that I mentioned in my previous slide.
If you think of these beads on a string, none of these are linear. We all know that the customer entry point could be in any of these areas. The added complexity to these entry points is that the customer needs could depend on their product or their project itself, which could mean that the customer needs are in diagonally opposite areas. This is really an outstanding feature of what we do at Revvity, is to remain nimble and deliver cross-functionally. I'm going to show you a couple of examples of how we have been able to achieve this. Our acquisitions are thought of as distinct assets, but they are really business units with clear focus lanes. These acquisitions, which you have heard of today, really added immediate scale, expertise in highly specialized areas, and expanded Revvity into new and attractive markets.
I'm going to talk about two examples of the acquisitions we have done recently. One being Horizon in the life sciences, adding to the life sciences portfolio and expanding the life sciences portfolio into cell engineering. That comprises of CRISPR and RNAi reagents, cell models, cell engineering, and base editing technologies. These additions really enable our customers in their quest to understand gene function, genetic disease drivers, and therapeutic delivery. You just heard from Yves about the specialty diagnostics portfolio, which was enabled by the addition of Oxford Immunotec. Addition of Oxford Immunotec brought the T-cell immunology technology to our company with their latent TB product, and now we are also focused on the active TB product. But this really also uses Revvity's channel expertise and the workflow solutions we have across Revvity.
What you have seen today is how we are bridging the gap from research to reality and enabling precision medicine. The idea really is how do we close this gap between life sciences and diagnostics, again, going from discovery, preclinical development, clinical, commercial screening, diagnostics, and monitoring. But before I show you the examples, I want to talk about four unique differentiators, which are truly unique to Revvity and bridge this gap between life sciences and diagnostics. These unique capabilities are really positioned to drive precision medicine. The first one, you have heard a lot about it today, is our ability to develop cutting-edge content development, be it in antibodies or in diagnostics. From Eve, you heard about our leadership position in newborn screening. Today, Revvity's assays and tools are used in more than 100 countries, from established markets to new and emerging markets.
These tools are really important for early screening and early identification of babies because we have seen today that precision medicine is the only way for early intervention, which is enabled by early screening. Bringing these two together and going on to the third one, which is truly unique to Revvity only, is our global laboratory footprint. The global labs have a broad accreditation profile and support our life sciences and diagnostics portfolio by giving them a unique window into needs and regions, needs and drivers of the different regions. Added to that is our broad genomic database, which enables our pharma partners to understand the efficacy of their drugs and the impact of these new drugs in diverse genetic populations. These three matchless capabilities really sort of bring into these unmatched capabilities, really bring us into the specialized and omics expertise we have been able to develop.
I'm going to show you three examples now of how these unique differentiators support our foundational capabilities. The first one is of Duchenne muscular dystrophy. You saw from Eli's example how devastating this disorder is. The incidence of Duchenne is about one in 5,000. Though it is categorized as a rare disorder, it's truly not a rare condition. It is a devastating disorder with no cure today. The Duchenne gene is the largest gene in the human genome by size. So it's really not easy to screen for mutations in this gene. In our global clinical labs, we offer one single comprehensive assay, which enables the detection of all mutations in one single format. Previously, this used to be done in multiple steps using a variety of different methods. Most important is early diagnosis.
Revvity is the only company which has a CK-MM assay, which is FDA approved, which can be used for newborn screening. Yves talked about the RUSP panel, and today DMD is being considered to be added to the RUSP panel. The advantage here is that there is already an FDA approved product, which can be picked up by the states and implemented, and Ohio is already starting to look into that. The sequencing-based assay enables the new cell and gene therapy approaches that are being developed. This is really important for the pharma companies to understand what is the mutation so that they can target the mutation, understand the efficacy of the drug or the approach they are using, understand what the disease modifiers are, and enable genome-wide identification of any of target hits.
But last but not least is that CK-MM assay is going to have a huge impact on early diagnosis of these boys so that the pharma companies who are developing these assays can intervene at the right time. The second example I'm going to give you is about the prevalent diseases. And this is really a great example to show how our life sciences and diagnostics portfolio has come together to address some of the toughest challenges our customers have. We all know that diabetes is a global pandemic. But what is more alarming is the growth of Type 1 diabetes, the increase in Type 1 diabetes. About 20 years ago, nine children out of 100,000 were affected by Type 1 diabetes. Today, it has gone to 15 per 100,000, and it is expected to grow to several million by 2040.
There is one single FDA-approved drug on the market today which can delay the progression of Type 1 diabetes, which makes it very important that early diagnosis has to happen so that these kids can go on this particular drug. With collaboration across the company with life sciences and diagnostics, we were able to develop an autoantibody assay for neonatal detection. Governments like the Italian government have already mandated, starting 2025, that kids under the age of one will be screened for Type 1 diabetes. This product did not exist a year ago. Bringing together our prowess in omics, immunology, antibodies, we were able to fast-track this product development and bring it to the market. So thinking of therapies and the two examples I gave you of Duchenne Muscular Dystrophy and Type 1 diabetes, it's really important to select the right type of approach when treating these conditions.
Coupled with our gene delivery portfolio, we have now added the Pin-point base editing technology. Of all the genes we know today with disease-causing mutations, about 50% of those mutations are single nucleotide changes. So this one single technology, which is a Pin-point technology, has a broad application across a large number of diseases. You heard from Yves about a newborn screening sequencing product which we brought to the market this year. This will go beyond screening Duchenne muscular dystrophy into looking at thousands of conditions for early detection, and Pin-point technology is perfectly suited to address many of these conditions. The Pin-point technology has a reduced cytotoxicity, a lower rate of genomic aberrations, less off-target hits, which really differentiates itself from the CRISPR-Cas9 approaches. So what I have shown you today is how we are bridging this gap from discovery to cure.
With our global commercial footprint, our global laboratory footprint, we are uniquely positioned to capitalize on opportunities for growth as science and medicine rapidly advances. That, coupled with our internal capabilities in manufacturing, research, and development, and a global quality and regulatory network, we have this ability to innovate and create novel solutions for our customers. But the focus really is on how to improve patient outcomes. Now, I'll hand it over to Maxwell Krakowiak, our Chief Financial Officer.
Thanks, Madhuri. As you've heard throughout today's presentation, Revvity has been built on the foundation of innovation, scientific expertise, and a passion for what we do. And it's that internal fuel that focuses us on delivering our mission to improve human lives around the world and puts us in position to continue doing so as the needs of our world continue to evolve. Hello, everyone. I'm Max Krakowiak, Chief Financial Officer of Revvity. In addition to the positive impact that we as Revvity are having on society, we also believe that we are in a category of one in regards to our financial profile and future value creation opportunities. Today, you are going to hear me discuss the how. How our new portfolio puts us in position to deliver differentiated organic growth. How our Revvity operating model is going to help us execute operationally and deliver best-in-class margin opportunities.
How we plan to drive a creative, disciplined capital allocation to maximize the return to our shareholders. Now, before we head into the future profile of Revvity, we thought it was important to take a look at how the transformation has changed our financial profile. Starting first from a revenue perspective, we now play in faster-growing end markets with stronger market positioning and with a higher mix of recurring revenues. But it's not only our revenue profile that has been enhanced. It is also the quality of our earnings. Our operating margins are now in the upper 20s. And over the past five years, our free cash flow has grown at 11% CAGR. This is not the same company. And our financial trajectory as a result of the transformation has improved for the better.
Now, as a result of this transformation and all of the acquisitions and the significant divestiture, there was one glaring need that arose out of the transformation, and that was that we as a company needed a unified and aligned operating model that could help piece together all of the great cultures that we have acquired and all of the different business processes to allow us to be aligned to how we are going to deliver on our strategic mission as a company. Now, this Revvity operating model has four main pillars. One is on accountability and making sure that we have the right level of visibility and ownership on all of our key KPIs. Second is agility and our ability as an organization to meet the ever-evolving needs of our customers and end markets.
Third is on digitalization as we continue to focus on investing in digital capabilities that will allow us to operate more efficiently and change the way we work as an organization. And lastly is on talent and how we are putting our people in the best chance to succeed. Now, the Revvity operating model was launched shortly after the birth of Revvity in March of last year. It has the complete support of everyone around and throughout the organization. And I would say that our operating model is focused on, one, driving that innovation engine, two, is best-in-class customer satisfaction, and three, is operational execution, all of which will lead to strong financial performance. Now, in terms of where we are on the journey, given that we have just launched this a little over a year ago, we are still in the early to mid-innings.
We have a ton of tremendous potential in front of us as an overall organization. Now, one of the outputs of our Revvity operating model is our ability to capture operational synergies. You've heard them consistently throughout today's presentations. We've identified three main focus areas here, and we want to highlight a couple of examples. First, on innovation and our focus on cross-portfolio solutions. Whether it was Yves referring to it in diagnostics around the cryopreservation and what we're doing with pharma customers, or whether it was around Madhuri and our ability to create the Type 1 diabetes assay, those are just a few of the many, many examples of how we are leveraging our internal skill sets around all of our business units to fuel our innovation engine. Secondly, from an operations standpoint, we continue to have immense opportunity around sourcing and particularly insourcing.
Again, you heard this many times throughout today's presentation, whether it was the oligos example, the antibody example. Those, again, are just a few of the many examples of insourcing opportunities we have as an organization. Also, we can look at manufacturing and logistics optimization. For those of you that are here in person today, you will get a sense of this firsthand when you go through the BioLegend facility tour. But there are also other areas around footprint consolidation. On our most recent earnings call, we just mentioned one of the examples of our new headquarters in Waltham, Massachusetts. But that is also just one example of many footprint consolidations we've been able to execute on and help us deliver on our synergies.
Thirdly, from a commercial perspective, we spent a lot of time in the past talking about our focus on e-commerce and strategic accounts and how these initiatives will enable us to cross-sell and unlock the full value of the Revvity store through already existing commercial channels. Underpinning all of this is our focus on our digital capabilities and how we plan to drive efficiencies in the ways that we work as an organization. Another output of the Revvity operating model has been the renewed or enhanced organizational structure we now have as an organization. We mentioned in the press release earlier this week. I know Steve and both Prahlad mentioned it on their prepared remarks today, but we are reallocating the majority of our applied genomics business into our life sciences segment, and we are consolidating our life sciences reagents and instruments business into life sciences solutions.
Now, these two changes are meant to drive, one, a clear focus of execution and, two, helping us unlock the full potential of our commercial and operational synergies. As you look at it from a financial perspective, this move of roughly $150 million of revenue from applied genomics into the life sciences business creates essentially two business segments with roughly 50/50 splits of our revenue, with each representing $1.4 billion. Additionally, from an operating margin standpoint, you notice that our segments have become closer to parity in the overall company average. But both segments still maintain an opportunity for further margin expansion. From a timeline perspective, we will continue to report under our existing structure throughout 2024 on our Q4 earnings call and the release of the 10-K. And then starting in Q1 2025, we report under our new structure.
Now that we are through with some of the logistics, let's take a look at the future financial profile of Revvity, starting first with our growth algorithm. We believe that our transformation now provides us with an enhanced growth algorithm. That enhanced algorithm is on the foundation of us being in faster-growing end markets with stronger market positioning and higher recurring revenues. If you take a look at our historical performances by business units on a pro forma basis over the past five years, you will notice that mostly all of our businesses are within their LRP. Now, if you take a step back and look at those five years and what has happened, there have been significant ebbs and flows. You've had the whole dynamic of COVID, and you've also seen a robust pharma biotech spending cycle followed by the recent headwinds in the past 18 months.
But I think the results of Revvity over that time period showcases, one, the resiliency of our new portfolio and, two, the differentiated performance versus our peers. And I think, as you've heard throughout today's presentation, we still have immense opportunity in front of us across each of our business units that will enable us to deliver 200 basis points of growth above our average market rates. Now, in addition to the above-market growth rates, we also have additional upside opportunities through our tech and licensing partnerships with pharma biotech, as well as the companion diagnostics opportunity in our rare disease services business. We believe that in a normalized market environment, we should grow 6%-8%, and that result will continue to be differentiated versus our peer group over the long term.
In addition to the enhanced growth algorithm, we believe that our new portfolio provides us with superior margin opportunities. Starting first with gross margin, we anticipate in a normalized market environment to be able to expand our gross margin 25 basis points per year. That is on top of already gross margins that are north of 60%. Why we believe that we are able to continue to expand our gross margins is, one, the mix in volume from our faster-growing, higher margin areas of life sciences reagents, software, and immunodiagnostics. Two, the benefits of our Revvity operating model, particularly around our pricing processes, as well as us being able to execute on the operational efficiency through our M&A synergies and our supply chain around areas such as sourcing, overhead, and logistics.
In addition to the 25 basis points of gross margin expansion, we believe that as a company, we have the opportunity to deliver 50 basis points of operating expense leverage on a per-year basis. This, to me, is one of the more exciting areas of our Revvity transformation. And it's one that I think is maybe underappreciated by our investors. The thesis is simple. We believe that R&D should grow in line with our revenue, while SG&A should grow at half the rate of sales. Now, how do we get this SG&A leverage? It's really a combination of two things. One, our innovative product portfolio, and two, the Revvity operating model.
And when you put the combination of those two things, particularly around initiatives such as e-commerce and strategic account selling, what we're able to do is unlock the full value of the Revvity store through already existing commercial channels and commercial reach. It does not require additional headcount. I think when you look at it from a G&A perspective and our focus on digital investments and digital capabilities, it's going to enable us to keep our G&A relatively consistent as our business continues to grow and expand. To summarize it from a margin perspective, today we already have operating margins in the upper 20s%. But we believe that our entitlement of operating margins can go up to the mid-30s%, which represents the best in class across the industry.
Now, we get there by 75 basis points of margin expansion per year, which equates to incremental margins in the upper 30s to low 40s. So I've mentioned that this transformation, one, has provided an enhanced growth algorithm. Two, has provided us with superior margin opportunities. But an additional benefit is also improved cash flow generation. And you've already started to see the benefit of that in 2024, as our free cash flow conversion should be north of 90% this year, which is dramatically improved from our historical performance, which hovered around 70% free cash flow conversion. And as we look towards the outer years, we believe that our free cash flow conversion should be sustained north of 85%. And that is on the foundation of three key drivers. One, our portfolio is just naturally less capital intensive. We have a higher mix of recurring businesses.
Two, we continue to invest in digital capabilities around core cash processes such as AR and AP, leveraging tools like AI and automation. And third, we are able to leverage the Revvity operating model to provide clear accountability and ownership to the cash metrics across the organization. This 85% conversion also includes a self-funded portion of an increase in CapEx as we continue to reinvest back in the business to drive our operational initiatives, as well as enhance our product development roadmaps. So if you take the combination of our already strong balance sheet positioning and our improved cash flow generation, we as Revvity have an ample opportunity in front of us in terms of capital deployment. If you look back over the past couple of years, there's been two actions we've taken. One, we've been on a significant deleveraging journey.
Two, we've had a much stronger balance between M&A and our share repurchases. Over the past two years, we have repurchased more than $500 million worth of shares. We've recently announced the additional $1 billion of share repurchase authorization from our board. I think going forward, you will continue to see a balanced but yet flexible approach to capital deployment with a focus on maximizing the value creation opportunities for our shareholders. Now, underpinning our capital deployment opportunities is our approach to capital deployment. I think, as you've seen over the past couple of years during our acquisition spree, we had an intentional focus on building internal capability breadth and scientific expertise.
And now, although our key priority areas have and will continue to evolve in the future, what's important is that we now have an internal innovation engine that we can leverage to continue to drive our faster-growing core areas of life sciences reagents, software, and immunodiagnostics, and leveraging our collective ability to be able to drive and expand into new markets. I think you will continue to see that theme going forward as we focus on attractive profitable growth investment areas. And we will be focused on one, bolstering our key channels, two, providing differentiated scale, three, helping us bridge scientific gaps in the portfolio, and four, continuing to enhance our internal scientific expertise. So bringing this all together in terms of our future financial outlook, we believe that as Revvity, we should be delivering double-digit EPS growth per year in a normalized market environment.
That EPS growth is comprised of 7% from our revenue and 3% on the back of our operating margin expansion of 75 basis points per year. The upside opportunity from capital deployment that I mentioned is further upside to our EPS algorithm. Now, I know many of you today were very anxious to get official 2025 guidance, and I hate to be the bearer of bad news, but you're going to have to wait until our Q4 earnings call. However, I did want to provide a little bit of color on things to consider for 2025. First, if you look at it from a market environment standpoint, as we mentioned on our Q3 earnings call, we believe the path to normalization is going to continue into 2025. Our margin expansion will be dependent upon our ultimate organic growth for next year.
However, as we've showcased in 2024 and even in a tough market environment, we're able to provide differentiation on our operating margin expansion versus the peer group. As you look at two below-the-line items, we believe our net interest expense should be roughly $70 million next year. That's essentially equivalent to the Q4 exit rate we have. Now, that is up significantly year over year, but it's really on the backbone of two factors. One, we have a lower cash balance, again, due to the deleveraging journey that I previously mentioned. And two, we do expect to have lower interest rates on our cash balances. From a tax rate perspective, we anticipate a 20% tax rate next year. That includes a Pillar Two headwind of roughly 100-150 basis points. However, as we've showcased throughout 2024, we have been making meaningful progress on our tax planning initiatives.
We continue to do so in the future and ultimately bringing our tax rate back down into the high teens. Now, before I conclude on today's personalized journey through Revvity, I wanted to provide a personal story of my own and one that really embodies why I'm so excited to come to work every single day at Revvity. Last year, Steve and I were on a roadshow, visiting various investor sites. At one of the sites, in an elevator ride down, one of our shareholders had mentioned to me that their child had been diagnosed with a disease at a very young age. They had mentioned that if it was not for Revvity's newborn screening capabilities, their child would not have been able to receive the proper amount of care and been able to live a normal life.
To me, as a father of three, that's a story that hits particularly close to home, and I think if you were to interview any one of our 1,000 employees across the globe, they're going to have a similar story, so to conclude and bring this home, we believe that as Revvity, we are in a category of one. We have created an innovative life sciences and diagnostics company with an enhanced product portfolio. When you combine that with our focus on the Revvity operating model and our intense focus on innovation, customer satisfaction, and operational execution, it's going to be what enables Revvity to deliver differentiated organic growth above the market, industry-best margin opportunities, and meaningful capital deployment for our shareholders, but again, it's not just the financial profile that we think differentiates us as Revvity. It's the impact that we have on the world around us.
You've heard it consistently throughout today's presentation, whether it was from Gene, Craig, and Kevin around how we as Revvity are bettering the discovery and development of therapeutics, or whether it was from Yves in regards to how our diagnostic screening and testing business is helping save patients' lives, or whether it's from Madhuri in terms of how we as Revvity are best positioned to deliver on the needs of precision medicine. I'll bring you back a little bit to how I open this. Revvity has been built on the foundation of innovation, scientific expertise, and a passion for what we do, and it is that internal fuel that unifies, drives, and differentiates us as Revvity. With that, Steve, I'll turn it back over to you for Q&A.
Okay, so let's do some more questions. We're ready to go. Let's start right behind with Anthony right there. Michael, go ahead.
Hey. Thanks for taking the question, guys. Michael Ryskin from Bank of America. Throughout the presentation, you kind of touched on this at the end. You talked about what your view of market growth is and your opportunity to grow above market. I want to dig into that a little bit, especially maybe on the life science component on the reagent side. I mean, you talked about innovation, expansion to adjacencies like omics, like some of the GMP capabilities. All that makes sense. But when we talk to a lot of your peers in the reagents business, everyone's investing in innovation. Everyone's focused on some of the same adjacencies.
So can you just dive into that a little bit of what makes you uniquely positioned to continue to outgrow the market, whether this was just a little bit of low-hanging fruit from BioLegend over time or just sort of the sustainability of that above-market growth?
Yeah, sure. I think when you look at our life sciences reagents business, I think it's important to go back to a lot of the themes that Craig had mentioned, really around how we partner with our customers. It's different than the rest of the peer group. We are focused at it from a scientific expertise lens and how we are helping them solve the most challenging problems that they face. Two, I think we pride ourselves in our customer service. It is not the same customer service between us and our peer group. I think the third one is really around the quality of what we provide and how we position it from a value proposition standpoint. He mentioned the dynamics around pricing. We are here as the best value offer for our customers with the best service and the highest quality products.
I think that's, to us, why we believe that we are going to continue to grow above market.
Then thanks. If I could squeeze in a quick follow-up. On the Maxwell towards the end, you were talking about capital deployment and M&A opportunities. Just doing the quick math of the pie chart kind of points to something like $2.5 billion of M&A through 2028. If you think about the scale of what you brought on with BioLegend and Euroimmun, just how should we think about future M&A? Is it going to be something a little bit chunkier or a bunch of smaller technology bolt-ons? Just goes to the question I think was asked earlier in terms of, are there any big legs to the stool that are still missing, or is it just more about little bolt-ons here and there? Thanks.
Yeah. Michael, I think the way to think of it, the response is similar to the question that was asked. I think the big gaps in the portfolio we have filled, which was primarily around large molecules, biomolecules where we had. We'll continue to be acquisitive. We've been an acquisitive company. I don't think that's going to go away. But I think it's going to be a bit more focused rather than what we had been in terms of how aggressive we were is the way to think of it.
Dan.
Yeah.
Hi, guys. Dan Arias from Stifel. I wanted to follow up on Mike's question just on above-average growth there. If I look on the slide, you have the 200 basis points as being capable in normal market conditions. I mean, one way to think about that would be to say that you have the growth drivers that you do, that you can employ at market growth of 2%, 4%, 6%. So is it right in thinking that there is some end-market condition mix that needs to be in place in order for those upside drivers to materialize? Or is the 200 basis points of above-market growth really set to be something that takes place sort of in any environment?
Yeah. I would say it's probably more of the latter, Dan. And I think you've seen a testament to that over the past couple of years with the choppiness, particularly in the pharma biotech space. I mean, I think for us, and as we've shown throughout today's presentation, in each of our end markets, we have opportunities to deliver above-market growth rates. And I think what we're most excited about is really the resiliency of our portfolio and being able to continue to show that differentiation throughout any cycle.
All right. And then just as a follow-up, I probably will wait into 2025 waters, which I'm sure you're psyched about. But just thinking about the 6%-8% that you've laid out as an LRP long-term, and then what you said about 25%, which is that it's a path to normalization, which doesn't necessarily suggest that 2025 will be a fully normalized year. But if I think about the lower end of the range, 6%, and thinking about 200 basis points of above-market growth, and then some of the drivers that you have from licensing, rare disease services, which it sounds like you feel good about, the consensus number and the way that 2025 is rolling out from the companies that have put an outlook out says that 3%-4% organic growth is sort of a number that might be possible.
Do you feel like the low end of a 6%-8% LRP range is doable next year?
I think you're going to have to wait for official guidance into our next call, Dan.
Is there anything about what the market assumptions being made by the companies that have talked about 3%-4% as a reasonable number for?
Yeah. I think we're going to take the next several weeks, Dan, to assess what we think we are comfortable coming out with. And then I think in our Q4 earnings call, we will do that.
Can't blame a guy for trying. Luke.
Yeah. Luke Sergott from Barclays. Just wanted to follow up on that so there's a lot of uncertainty headed in there and so getting to that normalized market rate, what are you guys hearing from your customers from the drug discovery and biopharma, given all the pipeline rationalization? China right now is a complete unknown. I mean, what are your customers over there saying that when they'll get back to that normal? Or what's it going to take for them to really kind of say, "All right. We're back to that reinvestment of normalized rates"?
I think it's a lot of wait-and-see approach still, Luke. I mean, if you look on the reagent side of the business, you saw the results that we announced at Q3. The reagent side of the business continues to do well. Discovery is going on. It comes down to the CapEx spend that you would expect from pharma biotech, and that's the piece I think there is still a wait-and-watch. There is release of funding, but there was so, for example, there was no super budget flush that folks have expected. So that hasn't happened, and that's why we see that we call it more what we refer to as a path to normalization. Some are calling it gradual normalization, whatever the term you want to use, but that's the way to reflect on it.
All right. Great. And then just here when you guys are talking about bridging the gap between the discovery to the clinic, you have all the pieces in place that seem to where you have diagnostics starting to talk to life science a lot more. How much of the strategy really was just more of now that you guys have those pieces in place that you're now trying to super drive that and where the discoveries you're making on life sciences are having that much more impact on your diagnostics portfolio versus in the past it was like, "Oh, we have this screening test," or, "We're doing some rare disease work. We can come up with a screening test." How much are those two businesses now talking to each other?
That's a good question, and referring back to what Puneet asked also on this earlier, Luke, look, when we made these acquisitions, they were made solely based on the opportunities that we would get by filling the gap in our portfolio on the large and biomolecule side of the portfolio. I think what we have seen is there are additional drivers for internal synergistic opportunities around the technology, which we didn't assert that they would be to that level. I mean, you saw a few examples here.
But if there is need for an antibody or if there is need for a raw material on either side of the portfolio, whether it's on diagnostics or life sciences, it is much easier to have the scientists sit in a room, define, design, and decide what do they need, and build that out rather than have to wait with an external vendor to get in line to what we want and customize it to what your need is. That's the added benefit that we are seeing. And it is not just for the current portfolio, but also as you look at future pipeline products or NPIs that you're planning to bring to fore. That's where I would say that that wasn't asserting to be that opportunity would exist.
Over on this side. Jack, if you can run the mic over Madeline.
Patrick.
Oh, go ahead, Patrick. Yeah. Go ahead.
We can't see you. That's fine.
Yeah. Patrick Donnelly from Citi. Prahlad and Yves, maybe one for you on the diagnostic side. The China piece is obviously a variable here. We get a lot of questions about VBP. Could that be escalating? Can you just talk about your assumptions around that piece, what you're hearing, again, both near-term and even long-term when you think about that immuno DX, I think it's 9%-11%, what you're assuming for China and how to think about the VBP potential impact?
Yeah. It's obviously a germane question, Patrick. VBP is not a new phenomenon, and we've talked about it. We've talked about local competition, and we've talked about what the government has said for the past several quarters. The way we have focused on over the past decade is on reproductive health. We have gone in country for country fully. As I said, all the way from raw material sourcing, R&D, development, manufacturing, customer service, all of it is in country for country. On the autoimmune side, we've also moved quite a bit of our portfolio in there where we feel there is local competition. There is local competition in the marketplace. We have assumed price declines in our portfolio. But you have to keep in mind that reproductive health and autoimmune are niche and specialized products.
Will they eventually come under the purview of VBP or any other act over the next several years? Yes. Our focus is how do we continue to innovate and bring new assays into the marketplace so we are a step ahead of the competition. That's strategically what we've said over the past several years, and that is our path.
Yeah. I think just maybe just to add one financial in terms of the LRP and the outlook for immunodiagnostics of 9%-11%, we anticipate that China immunodiagnostics is growing probably mid-single digits, which as you look at this year, it is going to grow mid-single digits. And that's with a mid-single digit headwind from our change in the go-to-market strategy.
OK. No, that's helpful. And then Max, maybe one I understand you guys don't want to touch certainly the growth piece on 25. I guess when you think about the margins, it kind of says in the slides contingent on what level of organic growth it is on the margin expansion opportunity. Can you just talk about, I guess, the moving pieces there if there is a bit of a lower growth environment in this gradual build back to the 6%-8%?
Maybe it's a little bit below the 75 basis points. Maybe just talk about the moving pieces. I know the SG&A, half the revenue rate. If the revenue comes down, just how to think about what that margin expansion opportunity is if growth does shake out a little bit lower than the LRP.
Yeah. Sure. So I think if you think about it more longer term, I think as we've mentioned, if there's a year where we're growing mid-single digits, the 75 basis points of operating margin expansion will probably be closer to 50 basis points. Right? Now, another data point would be if you look at this year, it's roughly a flat market environment or a flat organic growth for us as a company. And we're still expecting to expand margins by 30 basis points. That gives you a little bit, I think, of context in terms of some data points. But as you look at 2025 in particular, I'd say there's two factors at play. One, we still have immense opportunity on our operational synergies as I walk through today. And two, we're not going to completely starve the business for investments.
So as a leadership team, we'll make the right level of trade-offs there. But over the long term, we continue to be extremely excited about our margin potential as a company.
Jack.
Thank you, Jack Meehan from Nephron Research. I wanted to continue on in immunodiagnostics. So you had a great slide that just showed the historical growth versus what's assumed in the LRP. And I think for that business over the last five years, it's grown high single digits. And now you're forecasting 9%-11%. But China is going to slow down. So can you just bridge us on what is accelerating to kind of get you up to that 10% rate?
Yeah. And so actually, if you look at the historical performance of immunodiagnostics, China has been a net headwind. So if you remember during the periods of 2020 through 2023, you had essentially all the lost revenue from COVID. And so actually, if you look at immunodiagnostics outside of China, the historical growth rate is in the low teens. And so for us, as we look at the future outlook, one, I've already mentioned our assumptions around China. And two, we're actually probably putting a little bit more of a moderated growth expectation outside of China for immunodiagnostics.
OK. And as one follow-up, I think you talked about 200 basis points from new products in that business as well. Can you talk about how much is coming from T-SPOT versus other things? And maybe just give us a mark-to-market on that. I think it was $75 million of sales or so in 2019. Just how is that business today?
Eve, maybe I'll touch a little bit on the financial piece, and then I'll let you talk about some of the new products. As you look at, let's first talk about the T-SPOT and the Oxford business. I think we've mentioned that that was one business in particular since acquisition that has had some headwinds, particularly if you look at its market presence, mostly being in Asia and Europe. COVID was a challenging dynamic for that business. I think we remain incredibly excited about its future going forward. It's been roughly a flattish business probably since the time of acquisition, but it's one that we believe we still have the competitive right to win and are excited about our recent product launches, particularly the AP2400 that we've talked about.
I think when you look at the overall growth algorithm for immunodiagnostics, we believe that our tuberculosis business is growing probably right in line with our overall company average for the immunodiagnostics side. And Yves, maybe you want to talk about just some of the additional new products we have?
Yeah. So in the other areas of autoimmune testing, we're launching some new panels for our IDS, CLIA platform in the US, so get FDA approval. We're super excited about a connective tissue disease panel. And we will see several waves of hopefully approval there in the next year. And as Max mentioned, I think for the AP2400, what has been holding us back with actually a clinically higher performing test than the competition has been really the automation piece.
Now this automated workflow puts us on par with the competition with a clinically differentiated test and in the US with higher reimbursement. That's why we believe there's a strong market positioning with this new platform.
Two other things, if I can just add to what Yves said, Jack. One is around the US market. While we do focus on China, if you look at the US market, we've done very well. But there is still a lot of room that we still need to get to in the US. It's still 15% from a CAGR. This is a number, as you saw in his slide, could go to 40%. Two areas, specifically two disease areas to keep in mind where we are seeing a lot of opportunities for growth as we look forward from our pipeline. One is around neuro autoimmune, and second is around nephrology.
Keep in mind, and I think I've said this till the cows come home, autoimmune testing is still in its infancy. And right now, it's just the general screening of autoimmune diseases that happen. The next layer that comes in is how do you go into neuro autoimmune, how you look at specific neuroantibodies, which makes it a whole lot more of a specialized area to focus on. So I have said this, and I think Euroimmun and BioLegend are going to be the two best acquisitions in the history of the company. And I think Euroimmun has already proven that. And BioLegend is on its way to do that.
Matt.
Great. Thank you. Matt Sykes from Goldman Sachs. Appreciate you guys hosting us today. Yves, I've got just sort of a two-part question on newborn screening. You outlined some of the growth drivers. One is geographic expansion. Another one was related to expansion of conditions that are being screened for. So as you think about geographic expansion and you think about maybe moving towards areas where there actually are an increase in birth rates, there typically is also an affordability issue. So as you think about how your infrastructure is set up and maybe the flexibility you have in COGS, can you meet that demand in those types of markets? And then secondly, on the number of conditions, is the fact that a lot of these conditions are not druggable a gatekeeping factor for those conditions actually being screened for?
Meaning if there's no therapy available for a condition being screened, it's helpful to know, but it might not be as important of a condition being screened. So given that you want to increase the number of conditions being screened, is that an important driver for you to have that therapeutic development alongside of it?
Yeah. Maybe I'll start with the latter part. I absolutely agree. I mean, there's no point in screening if there is no treatment in most cases, but that's why I think one of the key growth drivers is the advances we see in rare disease therapeutics, and I think with cell and gene therapy, we've seen several of those examples, and we mentioned several of those, so I think that will be really driving the continuation here in that field. In terms of the emerging markets and screening, cost is clearly an issue in those geographies, but again, we're also looking to see how we can adapt from a COGS perspective and going maybe manufacturing closer in some of those geographies. I mean, that could be another area there as well.
Madhuri, I think.
Let me give you. I'm sorry. I can't hold my passion on you. Please excuse me. Let me give you two specific examples, Matt. If you take Indonesia, India, and the African continents, that makes up 35, 27, and four million of births.
So what is the number?
I don't know what numbers you said.
75 million of births. That's what it accounts for. TSH. One penny a pill is therapy for it. One in 1,200, one out of 1,200 kids have TSH as a genetic birth deficiency. Correct me if I'm wrong. And the therapy is a penny a pill. So the therapies, I understand for MLD and for DMD and for SMA, they are very expensive. But I think what we are talking about is basic screening. Just for PKU, for TSH, for basic newborn genetic disorders, which can be managed or treated relatively inexpensively. That's where the opportunity for us is. And that's why we've started now making foray in India and Indonesia, two key markets where you are getting government acceptance on moving. India just announced in their budget last year that they are going to move forward in collaboration with the UN announcement around newborn screening.
So there is a lot of opportunities there for us. Sorry, I didn't mean to stop, Madhuri.
I was just going to go back to the two examples I gave, which is Type 1 diabetes and Duchenne. Though the basic tenet of newborn screening is that where there is a therapy available, what is changing with newborn sequencing is to identify those conditions early on so that you can slow down the progress of the disease itself. So you're changing fatal conditions to more chronic conditions. But that is really the fundamental here that the CK-MM assay will allow for early detection and thereby early intervention and slow down the progress.
Thanks. And just one quick follow-up. Max, you talked a little bit about changing sort of the pricing strategy or redeveloping some of the processes there. Could you maybe unpack that a little bit and give some color on that? And is there an effort to harmonize the pricing strategy across the portfolio? Just given all the new businesses that you've acquired, does it make sense to try to harmonize that strategy, or does it not?
Yeah. So I think from a pricing perspective, part of the Revvity operating model was just putting in, I would say, a more consistent process for each of our business units. I think a lot of it tended to be manual and very bespoke and a little bit unorganized historically. And so as a result of the Revvity operating model, we really created clear guidelines and expectations around our pricing policies. But it is going to differ by business unit. I mean, the pricing strategy you have in life sciences reagents is not the same you're going to have for life sciences instruments or the same we're going to have for software or immunodiagnostics, reproductive health. They're all different. But each business unit and all the acquired companies, they should be aligned if they're in the same business unit and what the market needs are to a single pricing strategy.
That is really what the Revvity operating model has been focused on.
Rachel.
Perfect. Hi, Rachel Vatnsdal from JPMorgan. Thanks for taking the questions. I want to follow up on Patrick's question earlier around China. So I know you mentioned that assumed within the LRP that you're thinking that immuno DX grows mid-single digits. But how should we think about the entire China exposure and what's embedded in your underlying assumptions? Also, you've talked about how stimulus could potentially be a tailwind for you guys. So would stimulus help get you back to that long-term growth rate, or do you think that would be additive on top of it?
It's a couple of questions there, Rachel. So I think first, let's talk about stimulus. I think if you go back and look through the past couple of decades in China, stimulus has always been there. I think we've talked about that this stimulus package has gotten a lot more hype around it, a lot more attention to it. But it's not a new phenomenon in the China market. That has always been there to help companies and academic markets. And I think that's going to continue in the future. So although this one might be building off of a relatively lower base due to the headwinds, I don't think it's a relatively unique dynamic. I think it's one that will continue to be there over the long term.
I think as you look at our China exposure overall, as a reminder, it's 17% of total company revenues, 10% on the diagnostic side, 7% on the life sciences side. I've talked about the diagnostics, biggest piece of immunodiagnostics and the assumptions there. I think as you look on the life sciences side, we expect China to grow in line with our overall averages across the business unit. So life sciences solutions, 6% to 8%, and software, high single to low double digits. I don't think China is any different.
Perfect. And then just quick follow-up. Just on the gross margin expansion, you've talked about 25 basis points is embedded within the LRP on the gross margin line. Can you just walk us through how much of that is truly based on volume versus in your own control?
Yeah. I would say actually the majority of it is probably driven by a volume perspective. When you look at the actual expansion, I think the operational synergies that we are driving is essentially helping us offset the inflation that we're seeing from a material standpoint, and then you get the benefit on the volume side.
Thank you.
Any other questions from anyone? I think at this point, we'll wrap it up. I appreciate everyone's time this morning. Hopefully, you have a much greater understanding about Revvity and why we are so excited about our financial future. So thanks for joining us today.