Executive Summary / Key Takeaways

• OraSure Technologies is executing a strategic transformation, focusing on its core Diagnostics and Sample Management Solutions businesses while exiting non-core areas to streamline operations and enhance profitability.
• The company is leveraging its strong balance sheet, ending Q1 2025 with $247.6 million in cash and equivalents and zero debt, to fund strategic investments in innovation, including the Sherlock Biosciences acquisition and development of new products like a molecular CT/NG test, blood proteomics, and Colli-Pee.
• Significant operational efficiency initiatives, such as insourcing manufacturing and consolidating facilities, are expected to drive meaningful gross margin expansion towards a target of 50% in the second half of 2025 and into 2026.
• While facing near-term headwinds from funding uncertainty in public health programs (PEPFAR, CDC) and disruption at a large consumer genomics customer, OraSure is actively diversifying its customer base and expanding into less public-health-reliant segments.
• The investment thesis hinges on OraSure's ability to successfully execute its innovation pipeline, realize operational efficiencies, and navigate market volatility to translate its core strengths and technological advantages into sustainable, profitable growth.

Setting the Stage: A Transformation Underway

OraSure Technologies, Inc., incorporated in 2000, has built a legacy in the diagnostics and sample management industry, particularly recognized for its pioneering work in oral fluid technology. The company's core business revolves around developing, manufacturing, and selling diagnostic products for infectious diseases like HIV, Hepatitis C, and Syphilis, alongside sample collection devices used across genomics, microbiome, and animal health markets. This foundation, built over decades, positions OraSure with established products and customer relationships globally.

The recent past, particularly the COVID-19 pandemic, marked a period of significant, albeit temporary, revenue acceleration driven by the InteliSwab rapid test. While this period boosted the company's top line and allowed for substantial investment in automation and capacity, the subsequent decline in pandemic-related demand necessitated a strategic pivot. Recognizing the need to adapt to a post-COVID landscape and capitalize on its core strengths, OraSure embarked on a comprehensive transformation.

This strategic shift, initiated around early 2023, is centered on three pillars: strengthening the foundation, elevating core growth, and accelerating profitable growth. It involves a focused streamlining of operations, including consolidating business units and manufacturing footprints, alongside targeted investments in innovation and portfolio optimization. The goal is to build a more efficient, agile, and profitable enterprise less reliant on episodic revenue streams.

Central to OraSure's competitive positioning is its differentiated technology, particularly in oral fluid collection and stabilization. Products like the OraQuick rapid tests leverage proprietary technology for easy, non-invasive sample collection, a significant advantage for point-of-care and self-testing applications. In sample management, devices like Oragene and ORAcollect are the only 510(k) cleared saliva collection devices for clinical applications beyond COVID-19, offering benefits like ambient temperature shipping and long-term sample stability. The OMNIgene GUT device, for instance, provides enhanced microbial DNA stabilization from challenging samples. This technological edge in sample collection and rapid diagnostics forms a critical moat, enabling access to markets where traditional methods are less feasible or preferred.

The competitive landscape is populated by larger, diversified players like Abbott Laboratories (ABT), Thermo Fisher Scientific (TMO), and Becton Dickinson (BDX), as well as more direct competitors in specific segments like QuidelOrtho (QDEL) in rapid diagnostics and various companies in the genomics and sample collection space (e.g., Spectrum Solutions, NowDiagnostics, with whom OSUR is involved in litigation). While larger rivals often boast superior scale, broader portfolios, and greater R&D budgets, OraSure carves out its niche through specialized technology, regulatory clearances for unique applications (like self-testing), and deep relationships within specific customer segments, particularly public health and specialized laboratories.

Strategic Execution and Financial Performance

OraSure's strategic transformation is actively reshaping its business and financial profile. The company has made deliberate decisions to exit non-core, lower-growth, or unprofitable businesses, including the Molecular Sequencing Services business (Diversigen), which was fully exited in Q3 2024, and the Risk Assessment testing business, which is winding down in early 2025. While these exits impact near-term revenue comparisons, they are intended to focus resources on areas with better long-term potential.

The impact of these shifts is evident in the recent financial results. For the three months ended March 31, 2025, consolidated net revenues decreased significantly by 45% year-over-year to $29.9 million. This sharp decline was primarily driven by the expected 98% drop in COVID-19 Diagnostics revenue, which fell from $23.1 million in Q1 2024 to just $0.5 million in Q1 2025, as U.S. government contracts were fulfilled and overall demand decreased. Management expects this decline to continue.

Focusing on the core business provides a clearer picture of the underlying trends. Core revenue (excluding COVID-19 and Molecular Services) was $29.5 million in Q1 2025, a 2% decrease year-over-year, but flat when adjusting for the exited Risk Assessment business. Within core revenue:

• Diagnostics revenue increased 8% to $17.7 million, driven by higher international HIV and HCV sales (approximately $1.2 million increase) and initial sales of the syphilis product launched in Q2 2024. This growth was partially offset by a decrease in revenue from the U.S. CDC Together Take Me Home HIV self-test program, which is expected to end later in 2025 due to funding constraints.
• Sample Management Solutions (SMS) revenue decreased 16% to $9.1 million. This decline was primarily attributed to disruption at a large customer in the consumer genomics segment. However, excluding this specific headwind, SMS revenue from the rest of the customer base grew year-over-year, with strength noted in clinical genomics and animal health, although academic/research markets face uncertainty related to NIH funding.
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Profitability metrics reflect the revenue mix shift and ongoing investments. Consolidated gross profit margin decreased to 41.1% in Q1 2025 from 44.5% in Q1 2024. This was largely due to the lower volume of high-margin InteliSwab sales and increased lower-margin international product sales, partially offset by improved overhead absorption and the exit of the Molecular Services business. The consolidated operating loss widened to $17.8 million in Q1 2025 from $7.1 million in Q1 2024. This was a direct result of lower revenues and gross margins, combined with increased operating expenses. Research and development expenses rose 24% to $9.6 million, and general and administrative expenses increased 21% to $14.1 million, with both categories impacted by the costs associated with the newly acquired Sherlock Biosciences.

Despite the Q1 2025 operating loss and cash burn ($19.7 million used in operating activities), the company's financial foundation remains robust. OraSure ended Q1 2025 with $247.6 million in cash and cash equivalents and zero debt.

This strong liquidity position is a direct outcome of prior period performance, including positive operating cash flow generated by the core business in Q3 and Q4 2024, bolstered by the collection of InteliSwab receivables. This cash balance provides critical flexibility to fund the strategic transformation, including ongoing operational improvements and investments in the innovation pipeline.

Innovation Pipeline and Operational Efficiency

OraSure is actively investing in its future through a diversified innovation pipeline and aggressive operational efficiency initiatives. The acquisition of Sherlock Biosciences in December 2024 is a key component of this strategy, expanding OraSure's capabilities into molecular diagnostics. The integration is proceeding well, with the Sherlock team contributing to the development of a low-cost disposable molecular platform. The initial test on this platform, targeting Chlamydia Trachomatis and Neisseria Gonorrhoeae (CT/NG), is in clinical studies and remains on track for FDA submission by the end of 2025. This aligns with OraSure's sexual health strategy and aims to address a significant unmet need with an accessible OTC molecular test.

Beyond Sherlock, OraSure is advancing several internal and partnered innovation projects:

• Colli-Pee: Progress continues towards FDA clearance for this self-collected volumetric urine device by the end of 2025, targeting applications like STI testing. A new patent has been filed for proprietary chemistry to preserve DNA/RNA in STI samples collected with Colli-Pee, highlighting ongoing technological refinement. Studies show patient preference for self-collected urine over swabs for STI testing due to privacy and ease of use.
• Blood Proteomics: A planned launch in the second half of 2025 will introduce a new solution for blood proteomics, expanding OraSure into blood collection with innovation in protein stabilization. This targets high-growth applications like liquid biopsy, Alzheimer's disease, and diabetes, representing a significant market opportunity. The technology aims to offer benefits like ambient temperature shipping and storage, and compatibility with next-gen proteomics technologies. Initially for phlebotomy-collected blood, future versions may leverage self-collected small volume blood technology via the Sapphiros partnership.
• Microbiome Extraction: New microbiome extraction products are scheduled for release in June 2025, designed to work with challenging samples and potentially unlocking markets in women's health and dermatology.
• Product Extensions: The company continues to enhance existing products, such as achieving WHO Prequalification for the OraQuick HCV self-test (the first of its kind) to open global market access, and receiving FDA clearance for new, more efficient packaging and updated labeling for the OraQuick HIV self-test, including removing the contraindication for users on PrEP and submitting a request to expand the age range to adolescents (14+).

Complementing these innovation efforts are aggressive operational efficiency initiatives. The company is consolidating its facility footprint and insourcing production activities, notably transitioning Sample Management Solutions manufacturing from external contractors in Canada to its Bethlehem, PA facility. This insourcing project is ahead of schedule, expected to be substantially complete by the end of Q2 2025. These initiatives, combined with leveraging automation capabilities expanded during the pandemic, are projected to result in over $15 million in annual expense reductions and drive significant gross margin expansion. Management targets reaching a 50% adjusted gross margin for the full year 2025, with efficiencies ramping up in the second half of the year and into 2026. This operational focus is key to improving profitability and achieving sustainable positive operating cash flow for the core business.

Competitive Dynamics and Outlook

OraSure operates in highly competitive markets where its technological differentiation and strategic focus are critical. In rapid diagnostics, while larger players like Abbott Laboratories and QuidelOrtho offer broad menus and significant scale, OraSure's strength lies in its oral fluid technology and regulatory leadership in self-testing. The OraQuick platform's ease of use provides a distinct advantage in public health programs and emerging B2B2C channels (specialty pharmacies, telehealth), where patient preference for non-invasive collection is high. However, competing products may offer faster results or lower costs per unit due to manufacturing scale.

In sample management, OraSure's Oragene and ORAcollect devices compete with offerings from companies like Thermo Fisher Scientific and Becton Dickinson. While competitors may have broader product lines or more integrated solutions, OraSure's focus on sample stabilization and specific applications (e.g., microbiome, liquid biopsy) provides a competitive edge. Renewals with key customers like Myriad Genetics (MYGN) and Fulgent Genetics (FLGT) underscore the value and reliability of OraSure's products in supporting advanced genetic testing. The expansion into blood proteomics and self-collected blood via the Sapphiros partnership represents strategic moves to enter new, high-growth segments where its stabilization expertise can be leveraged against existing solutions that may lack ambient temperature capabilities or ease of collection.

The company's outlook for Q2 2025 reflects the current market dynamics and strategic transition. Management guided to total revenue of $28.5 million to $32.5 million, with core revenue expected to be $28 million to $32 million and COVID-19/Risk Assessment revenue approximately $0.5 million. This guidance factors in the impact of funding uncertainty in public health and academic markets, as well as continued disruption from the large consumer genomics customer.

Looking further into 2025, management anticipates moderate core revenue growth, driven by the ramp-up of new products and partnerships (Syphilis, Sapphiros), alongside the benefits of operational efficiencies. Gross margin is expected to be flat to slightly up in Q2 compared to Q1 (low 40s), then expand significantly in the second half of the year as insourcing benefits materialize and volumes potentially increase, moving towards the 50% target. Core operating expenses are expected to remain in the low $20 million range plus approximately $10 million in innovation investments in Q2, including $7-8 million related to Sherlock.

Despite the positive trajectory expected from strategic execution, several risks could impact performance. Uncertainty in U.S. government funding for global health initiatives (PEPFAR, USAID) and domestic public health programs (CDC) could continue to pressure Diagnostics revenue. Softness in academic/research funding (NIH) and disruption at key customers could affect SMS revenue. Regulatory delays for new products (Sherlock CT/NG, Colli-Pee, Sapphiros) could push out anticipated growth contributions. Litigation (Spectrum, NowDiagnostics) poses potential financial and operational risks. Geopolitical risks and tariffs, although currently expected to have minimal impact due to supply chain concentration, remain a factor to monitor. The recently authorized $40 million share repurchase program, while intended to enhance shareholder value, could increase stock volatility and reduce cash reserves if not managed judiciously.

Conclusion

OraSure Technologies is navigating a critical phase of its corporate journey, transitioning from a period heavily influenced by pandemic-driven demand to a focused strategy centered on core growth, innovation, and operational efficiency. The company's strong balance sheet provides a solid foundation and the necessary capital to invest in its future, including the promising molecular diagnostics platform acquired through Sherlock Biosciences and expansion into new areas like blood proteomics and self-collected urine.

While near-term revenue and profitability are impacted by the exit of non-core businesses and external market uncertainties, the underlying core Diagnostics and Sample Management segments show areas of growth and strategic expansion. The successful execution of operational efficiency initiatives is poised to significantly improve gross margins, a key factor in achieving sustainable profitability. The investment thesis for OraSure rests on its ability to translate its proprietary technology and innovation pipeline into tangible market gains, leveraging its diversified customer relationships and operational improvements to drive profitable growth in 2025 and beyond, ultimately creating value for shareholders. Investors should closely monitor the progress of key product launches, the realization of cost efficiencies, and the impact of external funding dynamics on core business performance.