Good morning, everybody. I'd like to start by thanking J.P. Morgan for allowing me to present. I've been coming here for about 12 years. We floated in London in 2021, and in 2022, I did a virtual Zoom from Oxford. So I've never actually presented, so I'm a little bit nervous today, but I shouldn't be. It looks like an interesting and fun crowd out there. So for those of you who don't know, we were spun out of Oxford in 2005 to develop a new sensing platform, that is electronic single-molecule sensing. We are applying that initially to DNA, RNA sequencing, and I will talk you through this highly differentiated sequencing platform. The company... I'm going to pass around a sequencer. I want it back, please. It's got a little tracker in it. This is a handheld DNA, RNA sequencer.
You can have a play around with that. We launched the MinION in 2015, and today we are in 120 countries. We have over 7,300 active customers and over 8,800 publications, and you'll hear why that KPI is so important. We have developed this technology from the bottom up, including the consumables, which are the flow cells and the kits. They are manufactured in Oxfordshire, in our bespoke factory, which we opened in 2018. You all know the Life Science Research Tools market is $6.2 billion, but the opportunity to cross the chasm into applied clinical has not been met yet, and I'm going to tell you why.
We are going to make the same transformation as we saw from mainframe to desktop and handheld, and the portfolio of products that Nanopore has will enable that. It still staggers me that we've got 1,200 people. I don't know everybody's name anymore, but we are in 120 countries. The exec team have been together for over 15 years. It's been a lifelong journey for us all. But in recent years, we have poached, attracted commercial leadership from LSRT competitors as we really start to expand commercially. So getting into the numbers straight away, our preliminary revenues for full year 2023 are going to be around GBP 169 million. That's a 39% underlying growth, so removing the COVID, one-off COVID and our Emirati Genome Program revenues.
In the last five years, our compound annual growth has been 39%. The biggest number on here is the fact that 75% of our revenue comes from consumables. People are sequencing. They are pushing the boundaries of biology with our highly differentiated platform. Medium-term, at IPO, we said we would grow greater than 30% year-on-year. We have delivered on that, including 2022, when our competitors saw 0% growth. We continue to push that greater than 30% underlying growth in revenue. We are targeting 65% margin in that medium term by 2026, greater than 65%.
I say that with confidence because it's not just economies of scale, there is manufacturing innovation, and we will build on that innovation to hit our target on margin, and we expect to be adjusted EBITDA break even by the end of 2026. Okay, now, I could spend the whole of the presentation talking about DNA and RNA, so I'm going to be very disciplined in this presentation. We all know DNA is the source code of life, all living things. It doesn't come in one size. Viruses are 10,000 bases, bacterial pathogens, several million, humans, 3 billion, plants can be tens of billions. It has been over 20 years since the first draft genome was completed. The more we look at our DNA, the more complicated it is, and we now know that we have genomics, single point mutations, but we have so much more.
We have epigenetics, we have, for liquid biopsy, circulating tumor cell-free DNA fragmentomics. We have in RNA, transcriptomics, and we are also developing a proteomic workflow. One, I promised I'd only do one Lord of the Rings, one ring to rule them all, one platform to enable and analyze all these multi-omic, nuanced drivers of biology beyond single point mutations on DNA. It's been almost 20 years since I met Spike Willcocks, my co-founder, and he showed me nanopore sensing in academia, a single channel platform. We developed hundreds, tens, hundreds, and thousands of electronic application-specific integrated circuits that underpin the foundation of this platform. In addition, while we were spun out of Oxford, we immediately did partnerships with the godfathers of sequencing in 2005 to 2007, Harvard, Santa Cruz, California, UMass, Texas A&M, and obviously Professor Hagan Bayley at Oxford.
Today, that is 32 academic nanopore groups we have exclusive partnerships with, providing us with an evergreen portfolio of nanopores that power our continuous improvements and also our new offerings, including proteomics. So we have an evergreen IP portfolio that underpins this. We are coming, we are a replacement technology, and we're going to be here for a very long time. So how does nanopore work? As the name implies, a nanopore is a very small hole, nanoscale, and what this animated, present slide shows is a cut-through. The mushroom is actually a protein, and as you can see, the DNA singulates and translocates via the help of a DNA motor called a helicase. It translates at 450 bases per second. Each of those tens, hundreds, and thousands of channels is an individual nanoscale sequencing play.
So there are 500 on a MinION that's been passed around, sequencing at 400 bases per second. The DNA is native. If you remember nothing else from my presentation today, the DNA is native. That means we see everything. We do not make a PCR copy, where we remove all the high definition and color and produce a black and white single point mutational analysis tool. We take the signal, which is current as a function of time. It's a simple electrophysiology reading platform. If you've had an ECG, that's what it is, but it's doing sequencing. That signal current as a function of time, we use machine learning AI models, we have been for over a decade, to deconvolute that raw signal into real-time DNA, streaming live real time. In order to do that, we need phenomenally powerful compute.
We have been partnered with NVIDIA for over a decade, and that allows us, particularly for our medium scale and high throughput sequences, to stream in real time, DNA, RNA information. We recently, we've been collaborating in 2023 with Apple Silicon team. We have now, for our next generation MinION, integrated it into their next generation iPad, so we can do real-time, live base calling for decentralized point-of-care applications, which I will talk about. So, let's talk about accuracy. We launched nanopore sequencing in 2015, minimal viable product. Disruptive innovators are taught to do that, and today, and since March 2022, our 10 Series chemistry, which came from an academic partnership in Belgium, that was a nanopore that was discovered about a decade ago. It's got a long IP cycle on it.
We can hit, with our single-strand simplex sequencing, all the single point mutations that you can get with sequencing by synthesis. We can also hit the variants that you can get with sequencing by synthesis, but we can also sequence the whole genome. What I mean by that is 8% of the genome is unmapped with sequencing by synthesis. Sequencing by synthesis is short read. Nanopore can do short, hundreds of bases, tens to hundreds of bases long, tens of thousands of bases, ultra long, hundreds of thousands of bases. When we pair that capability with duplex, where the first and second strands go down together, we have single molecule accuracy of Q30, 99.9%. We have telomere to telomere, not draft, complete genomes on Nanopore only, Q40, 99.99%. We polished that to fix some homopolymer issues, and we're at Q50.
It's been 20 years. I've been lying awake at 5:00 A.M. every morning to say this is the most comprehensive end-to-end human genome, 20 years after the draft genome was published, and it's got everything in it. What that means, as we move from the single point mutation biology, and the last 20 years have shown us there are multiple drivers of biological function and, and application to disease understanding, starting with small variants, we're equivalent to sequencing by synthesis. Yet we can do large, more complex variants, structural variation, copy number variation, and repeat expansions. We get, in the same sequencing run, all of these epigenetics. Because we're looking at native DNA, we see all the modifications. It is not a derivatized bisulfite sequencing for epigenetics. That's in your run, comes out of the sequencer... and that means we can uncover the dark genome.
When you couple regions of the genome that are unmapped by short read with large complex variants, over 35% of known diseases are hidden inside that piece, and that is commercially low-hanging fruit for Oxford Nanopore. Now, it's not just about the chemistry that allows us to do this biology in high color and high definition, it's all also about the platforms. One size does not fit all. Sequencing today has been in a mainframe moment. You need $multi-million of CapEx. It's in large, centralized facilities, and transitioning into the clinic, into applied, into near patient, into point of origin, is challenging for a small clinical laboratory to adopt a $1 million machine and all the expertise that goes with it. Our platforms, two things. First of all, we bundle the platforms in OpEx, so from $1,000s to $10,000s, up to $1 million.
That's fixed-term contracts with consumables. There is minimal cost to acquire the sequencer. Affordable, accessible, distributed sequencing. We think that's where the genomic revolution will really be catalyzed, and we will transition from that mainframe moment into sequencing for everybody. Our commercial model is to use our low-end sequencers, starting at $1,000, to really seed the market, to really- those 8,000 publications I talked about, to really publish how native DNA, full depth, high color, is game changing. So those publications are the lifeblood of what we do. For the higher throughput customers, medium use, and high use customers, it's more of a business-to-business sequencing play. And just to give you a sense of what our customer base looks like, our S1s are... Is that, how long have I got? How much time have I got?
You've got more. We can go over.
Five, five minutes?
Presentation. We can go over.
Okay. So, sorry. Our S1 customers, we have over 7,000 of those. They spend up to $25,000. The mean spend, $6,000. Our medium customers, S2, we have around 1,100. They spend $25,000-$250,000, mean of $60,000. And then we have 90 large, high-throughput customers, excluding our Emirati Genome Program, and their mean spend is $600,000. And just looking at the high-throughput PromethION platform, today, we have enabled one genome per flow cell. We have a roadmap, and there is capacity in the system to go to two, then three, then four genomes, which gets us from that full comprehensive genome to $200, and that roadmap is coming, and we are very confident on that. So in summary, we have a platform that provides native DNA.
No other sequencing platform provides that, which gives you unparalleled, rich insights into the drivers of functional genomics and disease, real time and affordable, accessible platforms. I'm gonna whiz through a couple of these slides because I want to get on to crossing the chasm. So it's really important that the discovery and translational piece continues to be innovated and publications come at breakneck speed because they fuel the translation to patients and into practice. Those publications are the lifeblood of proving out these proof points. This is going to be painful, but these are just some of the landmark publications that have happened, and I'm actually going to skip through this slide. When we zoom out from these publications... And by the way, on the left, it's on the International Space Station. No other sequencer can get anywhere near that.
When we zoom out, what things can we commercially go after with this highly differentiated platform that the competition cannot? Human genetics, cancer, and infection. Human genetics, because we can sequence the whole genome. Cancer, because we can look at 100% of the methylome as part of the sequencing, and infection, rapid, real-time, point of care in critical care settings. These use cases in this presentation will be posted, are available. You should look at these. There's amazing landmark studies speaking to those applications. How do we make these groundbreaking publications and turn it into a hard commercial strategy? At IPO, with the view that we had our foundational Q20+ chemistry launching 6 months after IPO, March 2022, we started to evolve our commercial team from selling directly in the S1 category to our high-throughput, medium-sized, and high-throughput customers.
We've hired some really great talent from the competition to really drive the high-throughput customers. In the medium term, to hit our 2026 targets, we are really going to focus on those S2, S3 customer groupings with this highly differentiated platform... in the targeted areas that we know we are strong, and other competitors cannot get into that space. I've talked about this $3.1 billion. I think somebody deliberately did that to me because they knew I'd talk about the market too much. The opportunity for applied clinical is greater than $100 billion. In order to facilitate that, we are in the death throes of launching Q- Line. So regulated software and hardware on the platform so that customers are enabled to create content. I want to be very clear that we do not create assays and content.
We create the platform and enabling technologies that will allow our customers to create that content through partnerships. We are listening to our customers, particularly medium to high throughput clinical customers. They want automated end-to-end workflows. I've already talked about our sequencing tertiary analysis partners, coupled with front-end automation, will really allow customers to develop these automated assays for applied markets. Our platforms are suitable to do that because they're very low cost, they're affordable, they're accessible. If you've got a PCR lab, you can do sequencing. Think sequencing meets PCR. That's what we bring to the game, and we are in the foothills of partnerships. We have done a partnership with bioMérieux on infectious disease, and they are developing the content for certain assays, taking them to clinic. We are providing the supporting technology in that partnership.
At the other end of the spectrum, we have a partnership with Mayo Clinic. They're looking at cancer applications that are very difficult to see with short read. So, and, and that's just two extremes of the spectrum. There will be many, many more applications. We are developing our partnership schemes. The Q- Line, the automation, the tertiary analysis will drive that adoption from the already 8,800 publications, where people can see what they can do when they look at native DNA with all the epigenome. If they're talking about liquid biopsy, there is modifications on there that are removed when you look at sequencing by synthesis, so you can see the methylation. Fragmentomics is becoming a thing, the size of your cell-free circulating tumor DNA, we can do that. One ring to rule them all.
One platform to provide this multi-omic play, and you'll hear more about us and the use cases in the coming years. So in summary, I'm almost three minutes over, so I'll push the limit. We will continue to grow and take market share from expanding the market with our S1 Genomic Explorers. They're new to sequencing, but because of the fact that we are reading native DNA with all the features it provides and the richness of content, we will continue to grow our Life Science Research Tools business. We have a commercial team and leadership in place now to focus on the medium and high throughput customers and really pushing the value proposition. That's all underpinned by the foundation of our Q20 chemistry, launched in March 2022.
We are very excited about clinical and applications in that space, and our Q Line, our automation, our tertiary analysis partners will really allow us to push on in that, segment. And, we expect to continue to deliver greater than 30% underlying growth year-on-year. And with that, thank you for your time, and we'll take questions.
... So you can ask questions through the-
I'd like my MinION back, please. That's actually one of the original ones. That's the emotional blackmail if somebody thinks they should put it in their pocket and take it away.
So you can ask the questions through the interface, which you're probably all familiar with, and there's a lady with a microphone here, if anyone has any questions. If not, you'll have to put up with me starting them off. Maybe I'll start one off then, which would be, you had a, an analyst meeting towards the end of last year, where you actually talked for the first time about setting a target for clinical and applied use of the product. So where are we with that clinical and applied use, and what's the roadmap to that becoming a much bigger use?
So I think there are three parts to that. Number one is our genomic explorers publishing and showing use cases, so that publication. Then we have to then think about what does a commercial partnership look like? And, you know, with bioMérieux and with Mayo Clinic, there's a statement of works and a work plan, which is a year or so, and then you've got to think about, is this going directly into RUO, LDT, CLIA waived, or we're going to go straight for full diagnostic? So that's sort of a year. So it's a kind of 18- to 36-month cycle to go from, you know, a really interesting publication and use case to early revenues.
But we have, you know, we've signaled that we have started that process now because we believe we have so many interesting potential things that our customers want to do in the clinical space. We are going to really drive that. And we believe that, you know, it'll be still snowball, but it will be a couple of years. When we talk about medium-term revenues, we're very focused on the cash cow, which is Life Science Research Tools.
What is it that means the product is now ready for more clinical and applied use that you couldn't do a few years ago?
I think, partly accuracy. The, I didn't really fully appreciate in order to win confidence of existing hardcore Illumina customers, you have to give them what they already have. And in, in achieving that, that really is changing people's perception of, what they can now do with Nanopore. So, you know, that I have said many times today, that Q20 chemistry in March was critical in laying the foundations to transition, to be able to give them what they want, what they can do today, but with added benefits and value, whether that's decentralized, real-time point of care, or it's long reads, or it's comprehensive methylation, all these different things. And there's lots of exciting translational and discovery research we're doing. For example, there is a 4,000 sample trial looking at long reads for neurodegeneration in Alzheimer's patients.
It's well known that structural variation is important in neurodegeneration, and, you know, NIH are now doing that study, and that's going to produce some insights. That's then going to produce potentially biomarkers for diagnostics. So there's all these markers been laid down, and we don't want to wait until something... We want to be ready to catch those and catch those opportunities and really slingshot them into revenue generating in that sort of 2026 and beyond timeframe.
The gentleman over there, please.
Yeah. Can you speak more on potential protein applications? Are you planning on sequencing proteins?
Yes. So with the platform we have, we can change the nanopore. So there's a bunch of academic partnerships and internal programs so that we can actually do protein sequencing. The principle we use at the moment is an enzyme called an unfoldase, which, as it implies, it takes a protein, and it pulls it apart. We attach a piece of DNA, so we can pull it into the hole, and we can now see it going through translocating. We cannot read all the amino acids yet. So we have proof of concept that we can get the protein to unfold and pass through the nanopore. So that is still in development, so it's a little bit further out, but we ultimately believe we will be successful in providing a fully sequenced, single-molecule protein platform.
The exciting thing about that is we'll be able to look at post-translational effects at the single molecule level, as well as the fact that that continuum goes DNA, RNA, so genomics, transcriptomics, proteomics, and actually we can do metabolites as well, but we're not working on that right now 'cause there's only so many things we can do. But that is the ultimate vision, is to do that across the spectrum.
Maybe while the microphone's going there, just to put it in context, why would someone want to sequence a protein? What would that be useful for?
Right. I'm, I'm a chemist, not a biologist, so if anybody wants to correct me, please do. But your source code tells your RNA messengers what to do. That then tells and encodes proteins. So sometimes we look at output, which is proteins, to say these diseases are underpinned or they're great markers for disease. But when we can start to build that continuum back to the transcriptome and back to the source code and link it all up, your understanding of biology just changes dramatically. You now have three orthogonal measurements on the drivers of that biology, and that, everybody says, will be game-changing, and it will be. And when you couple that with the machine learning AI revolution that's happening, it's great, and machine learning is fantastic, but if you have really phenomenally high-def data, that's what is also important.
The quality of the data, not just machine learning AI. When you couple those three drivers of disease together, it will be game-changing, and the rate at which we will understand the underpinning biology and genomics of disease will change dramatically. Most importantly, early diagnosis. That's what that will bring.
Thank you. I think I saw a hand raised over there somewhere.
I'm interested in your competitive differentiation again for your S3 customers. I think you showed us that there were 90 of them. I mean, it seems pretty obvious what you bring to the S1 and S2 type customers, where they might not have the deepest pockets, and the flexibility is a great advantage to them. But the S3 guys, they presumably have the facilities, they have the deeper pockets, and would be prioritising throughput. So what is your value proposition for those guys?
Sure. You're absolutely right. There is, there's the S3 population scale programs tend to be very price sensitive, but we tend to take a percentage, pre-COVID, we were knocking doors open. Now it's become normal that some percentage of a population scale program will require long reads because you can't get the dark genome, you cannot get that 8%, you don't get full methylation, you don't get any structural variation. And those things are becoming more commonly and better understood as the long read players, ourself and the other guys, really push that value proposition. And so ultimately, we see that as the Trojan Horse strategy. Eventually, somebody's going to wake up at $200 and get everything, instead of them paying another $500 for a bisulfite methylation map, and then $1,200 for some short, long read thing that Illumina provide.
You're going to get it all for 200. So I think it's time. We have been in short read mainframe for 20 years plus, and it's just going to take time, and it's established, and it's well understood. So we are very happy that we are in those programs. And where we do see traction is, for example, hard to diagnose multifactorial genetic disorders. That is 400 million kids globally, and we're seeing traction in that arena. Rapid real-time insights in NICU and PICU on newborns. And obviously, you've made the point about in, for example, intensive care, respiratory infections, looking at antimicrobial resistance. So there are areas where pushing the value proposition, getting into those clinical settings, will really make people start to think about what they might be missing out on.
But it will take time, and it is very difficult to shift the central Illumina users that exist today.
Is anyone else in the audience with a hand up? Otherwise, you're going to get another question from me. In that case, I'll ask one, which is, you provided a pre-close update today, and you talked about revenue performance in 2023 and also gross margin. Revenue growth in the second half was a bit slower than the first half. So to what extent was that one-off factors? Is there a slowdown going on in the market or less demand for your products, or is there more one-offs that we shouldn't really extrapolate to 2024? Could you talk about that?
Certainly. Yeah. So, so we, over the last few years, we've focused on growing our underlying revenues, and we said at IPO in October 2021, that we would grow at greater than 30%. So during, during 2023, we actually grew at 39% on an underlying basis. That was, split into the first half of 46%, the second half, 32%. So I think one of the differentiating factors of Nanopore is that 75% of our revenues are consumables. And as we're growing at, at that rate, and we've continually grown at that greater than 30% rate, you're taking on new customers. The, the onboarding of customers without the added hit that you get from placing a box, means that you have to get your customers up and running and get them, using flow cells.
So it's difficult to predict the exact timing of that. We very much focus on trying to get better at helping our customers to get running and get running flow cells, and we only recognize revenues when we sell a flow cell. Moving into the medium term, we have so far delivered greater than 30%, and we see the market will continue to want our differentiated platform, and that growth rate will continue.
Thank you. I think in the release this morning, you also made a comment about, some of your products contain some quite high-tech chips and limitations in terms of which countries you can import those to. So what is the situation there, and when do you think that might be resolved?
So what we're talking about here is the NVIDIA embargo, U.S. imposed around mid-September, and then changed it about 4 times. So the challenge there is compute is not integrated into the sequencer, so you could use the NVIDIA chips and take them out and use them somewhere else, and that's the sort of boiling down 160 pages into my layman's understanding. So there is a workaround. We're going to integrate the compute into the platform. So that's a short-term challenge for us. But it does, it did have an impact because we were in contract negotiations and competing, and with that sort of knock in confidence as to whether we could deliver because of the regulators. And the U.K. followed the U.S. regulation.
It just, you know, it was a little bit of a wobble in the marketplace.
I can see we've got 2.5 minutes left, so maybe the final question, which would just be, key things for us to look out for this year?
I think you'll see ever-increasing two things. Nanopore-only telomere to telomere local reference genomes, which are critical. So the era of Genome in a Bottle is going to end quite soon. Everybody's going to have localized... And one of our flagship projects will be in Asia. I just remembered I'm not allowed to say where. where there are multiple populations contributing. and I think you'll see the clinical application space really start to populate quite, quite quickly because there is some really exciting things that we've been doing for the last 12-18 months that are really going to come to fruition as we move into 2024, and Q-Line will be a big catalyst of that area.
In that case, we'll wrap it up there. Thank you very much.
Thank you.