Good morning, everyone. I'm James Gordon, J.P. Morgan European Healthcare Analyst in Europe. I've got the pleasure of introducing the Oxford Nanopore presentation today. You're going to hear from the CEO, Gordon Sanghera, and as you're probably aware, we've got about 40 minutes, so we're going to have a presentation and some questions in here as well. You can register your questions using the app if you know how to do that, and I can read them out from an iPad over there. You can also just put your hand up, and we'll direct questions to you that way as well, so yeah, with that said, thanks a lot for joining us today, Gordon. Look forward to the presentation.
Thank you and good morning, everybody. I'm the one who's jet-lagged in here. My flight came in late last night from London. I'm going to start with our vision, which is to enable the analysis of anything by anyone, anywhere. It's a pretty big, broad statement, but hopefully, in the next 40 minutes, for those of you who are new to the story, you'll get a better idea of what we're talking about here. Oxford Nanopore was established in 2005. We're 20 years old. I'm one of the co-founders, and we were set up to commercialize a single molecule electronic sensing platform. Our first target application area was DNA/RNA sequencing, and we read that DNA and RNA directly without amplification or changing it.
So we read the native DNA, which means it provides us, off the bat, with a multi-omic sequencing run: genomics, epigenetics, so modifications are retained, and direct RNA. So we can look at cDNA and RNA transcriptomics. We also have in development a proteomic assay and also metabolomics. So that speaks to some of the vision: the analysis of anything by anyone, anywhere, a broad sensing platform, commercially focused on DNA/RNA right now. A decade of Nanopore sequencing has seen over 14,000 publications. Today, we are established in 125 countries. We have seen sustainable compound annual growth over the last three years of greater than 30%. And we have manufacturing built from the bottom up that is scalable, that will allow us to hit our medium-term margin targets. Getting straight into our results for 2024, our half-year results, we posted revenues of GBP 99 million.
Disappointed it wasn't 100, but 99 is pretty good. That is underlying year-on-year growth, second half, of 34% on a constant currency basis. Our full year is GBP 183 million within guidance and 23% underlying growth. 74% of our revenues come from our flow cells and our kits, the consumable part of our sequencer. So how are we growing in what has been a very tough and challenging life science research tools market? We have taken the unique value proposition that Nanopore sequencing provides, that native multi-omic platform, and we have targeted in end-market applications areas where we can only provide the solution to uncover the biology of interest. These are, of course, in research, but also in biopharma, in clinical, and applied industrial markets. In tandem, we continue to invest in innovation to drive adoption and utilization. Our two-channel PromethION has been out in the market for 18 months.
We have now 1,900 units. From first half to second half of the year in 2024, we saw a 36% increase in utilization of our PromethION flow cells on this platform. We continue to push the envelope on accuracy and output, increasing throughput, enhancing accuracy, improving quality, driving down cost to the end customers. A real win for us in 2024, and something that we will consolidate and build on in 2025, is targeting end-to-end workflows that really allow us to get at the target markets in research, in biopharma, in clinical, and in applied industrial. Those workflows are ever increasingly moving closer to regulated workflows. For that, we need our Q-Line platforms. We have GridION Q-Line, which we launched this year, and we'll be enabling PromethION with that. That will all be coupled with sample-to-answer automated extraction and sample prep.
There's our partnership with Tecan, and that product range is ElysION, which will come online in 2025. So our medium-term outlook, foundationally based on... Was that me? Did I do that? Foundationally based on the growth we've seen in our target market areas with our unique value proposition, 30% compound annual growth rate. We're targeting greater than 62% margin, and we're on track for adjusted EBITDA in 2027 and cash flow positive in 2028. We have over £400 million in cash equivalents to be able to reach those goals. So one of the questions I get asked a lot is, what is it you're doing that is enabling you to grow in this tough market? The key tenets are this platform is highly differentiated from all the other short-read legacy systems. And that differentiation allows us to target hotspots in the market where only we can provide the biological insights.
Our innovation and our continued commitment and investment to innovation drives new adoption of platforms, our P2, as I've talked about already. We have, in the last three years, invested heavily over doubling our commercial infrastructure and operations, and we are now reaping the benefits of that investment. And we continue to develop automation and enhance our manufacturing operations to hit our medium-term margin targets as well. So what is it about this platform that is unique? So what you see here in this picture is a cutaway of a protein, a nanopore. And what we do is we provide native DNA/RNA. I think there's a book running how many times I'm going to say native and tough market conditions today. But native DNA, what that means is that we literally pass that DNA in its natural form, like ticker tape. And on our MinION, that's 500 individual nanoscale sequences.
On PromethION, it's almost 3,000 individual nanopore sequences. As that DNA passes through, we use machine learning AI. We have had a seven-year partnership with NVIDIA, and we use their GPUs to decode that raw signal to real-time streaming of DNA/RNA information. That is fed into our EPI2ME workflow, and we have a range of platforms from point-of-care distributed to desktop to high-throughput centralized sequences as well. We also have an evergreen IP portfolio. So what do I mean by that? In 2005, when we set up spun out of Oxford, those patents are now coming to an end. We have, in the last 20 years, partnered with 34 nanopore academics, and we have 2,500 patents and patent applications to ensure that we have an evergreen portfolio that will allow us to have this sustainable innovation on this platform as we extend beyond DNA/RNA to proteomics and to metabolomics.
The three things that drive adoption and growth, it can be one, two, or three of these: the richer insights, faster time to result, real-time streaming DNA/RNA information from point-of-care to desktop to high-throughput sequencing, affordable, accessible platforms. One or all three of these benefits drive adoption and growth of our platform. Also, what does it mean, and why is it important to look at native DNA? So if you think about a human genome, three billion letters, you chop it up into 200 base pairs, you photocopy it and make a high-color image, black and white, and introduce multiple errors, you end up with small variants, which is what your legacy sequencing by synthesis platforms deliver. And they've 20 years of amazing genomic insights, but we're kind of coming to the end of that cycle. What we are seeing ever increasingly, there are large complex variants.
There are short tandem repeats. There are copy number variants, and these large variants are also significant. Because we read the native DNA, we do not make copies. We retain the modifications, both in DNA and in RNA. In DNA, that is methylation, so we are able to create a comprehensive epigenome as part of our sequencing run. What that means, when we compare the legacy systems, 8% of the human genome is unmapped. Virtually no long structural variations are read, and hardly any of the methylome is understood. Now, 8% doesn't sound like very much, and it was often thought of as junk DNA, but it turns out, wrapped inside what you're missing in these legacy systems, often referred to as the dark genome, 25% of human disease is encapsulated in that, so it's really significant. It's really important.
Oxford Nanopore, with our sequencing platform, delivers true T2T, fully annotated, multi-omic genomes. It will give you comprehensive variants, critically important in neurodegeneration and cancer, and all base modifications, including RNA modifications. And I'll talk a little bit more about that later. That, in turn, we are seeing enhancements in diagnostic yield, acceleration of biomarker discovery, and detecting all these variants, bringing together a more holistic view of the genome. So some of the partners, and we have a lot, and I'm very nervous of spending the whole of the rest of my time getting sucked into talking about the amazing work that our customers are doing. So I'm going to keep it very high level, and there's a lot of resource on the website with all these customers.
We are in human genetic research, in oncology, in rare and undiagnosed disease, and distributed point-of-care infectious disease, as Steve Jobs would say, making a significant dent in these areas with these partners. And just to delve in a little bit, so in 2024, one of our large population-scale breakthrough programs was our 10,000 genome Nanopore sequencing program with PRECISE. That will include T2T genomes. So we are seeing the emergence of the first local reference genomes, comprehensive reference genomes, not relying on the standards that exist out there today, but having local genomes. And it's important in Singapore because it's a very multi-ethnic population group. With Genomics England and UMC Utrecht, there's some really great examples of rare disease using long reads and structural variants and copy number to look at rare disease.
And last but not least, in December, we announced a program with UK Biobank to sequence 50,000 of the UK Biobank samples to create the world's first comprehensive methylome, the first atlas of the methylome. And that will be significant and important. And some of the use cases I'm going to talk about now will have this small DNA logo. They are methylation examples. So try and remember that. So in translational research, we are seeing rapid newborn screening becoming a routine clinical program here in the UK, in the US, and starting to see some customers in Europe as well. So moving to diagnose these rare disease children in seven days rather than many, many weeks. At Al Jalila Children's Hospital, they have one-third of their newborn rare disease who are undiagnosed with short reads.
In a small study of just 39 patients, there was a 13% increase in diagnostic yield where we were able to resolve the genetic causes of the diseases in these children. One of my favorite examples, and it really speaks to distributed point-of-care time-to-result rich content. That is CNS tumor classification through methylation. Methylation tumor profiling of CNS tumors, this is typically in children, very prevalent, in real time, intraoperatively, providing the neuropathologist with guidance on whether they should commit to surgery or other treatment. It really showcases fast time-to-result, richness in content, distributed, affordable, accessible. That was done on a MinION. For those of you who haven't seen, that's a MinION sequencer. We actually penned a strategic alliance with the UK in December with UK Biobank, Genomics England, and NHS. UK Biobank program is the 50,000 methylome.
NHS England, over the last three winters, we have been working on respiratory metagenomic sequencing of patients in ICU. They have tested 450 patients. Of those 450 patients in ICU with respiratory infection, we're returning the result in four to six hours versus four to six days. 45% of those patients were on a broad-spectrum antibiotic that was ineffective. So they were able to change treatment same day or next day. It's game-changing. That data and that work is now going to be rolled out into 30 NHS trusts. And it has an additional benefit. It's also. That's the clinical angle here. There's a biosecure approach as well. If and when our next pandemic emerges, you will see it in these frail patients in ICU. So you also have an always-on screening workflow as well.
We are also making good progress with our partnership with bioMérieux to launch our drug-resistant TB profile workflow. TB, as I'm sure you all know, pre- and post-COVID, is a number one killer in low- and middle-income countries. We will be rolling that out in the first half of 2024. Shifting over, 2024 has also been a breakthrough year for biopharma for us. We launched plasmid sequencing two years ago. That has really piqued the interest of biopharma. It's across the continuum from drug discovery and development and clinical trials and also in manufacturing QA/QC. In September, we held our first biopharma day, our Nanopore Biopharma Day, and we had customers from across the biopharma spectrum, from cell and gene therapy, synthetic biology, RNA vaccine manufacturers, developers, right through to gene editing.
All of these areas, there are lots of really interesting evaluations and workflows that we will be developing and talking a lot more about in 2025. We will need for these clinical and these biopharma customers ever-increasingly end-market regulated platforms. We will build on our Q-Line GridION and ensure that the PromethION fleet is also regulated in 2025. We will continue to innovate. We have headroom in the PromethION flow cell to get us towards a $200-$300 fully annotated genome, and that's with full methylation, copy number, structural variation, etc. The machine learning AI step changes that are occurring in that field, we can leverage those to continue to push both accuracy and throughput.
Most importantly, 2025, we will continue to build on our end-to-end sample-to-answer, end-to-end workflows in the clinical, in the biopharma, and in the applied industrial arena to really drive that adoption with this highly differentiated platform and continue our growth. Couple of things, and I am running short of time, so Charles wins that bet. But I'm going to do two more minutes because I just want to talk about things I'm excited about in 2025. Direct RNA is a kit we launched five years ago. But this last year, we've really seen a step change in interest. And we are beginning to see early interesting translational and research studies looking to look at early diagnosis in cancer. On the left-hand side, as you're looking at this slide, I am showing what legacy platforms you can remove for direct RNA sequencing, for RNA vaccine discovery and RNA vaccine manufacture.
You can take a one-month multi-assay system out and replace it with a two-day workflow with Nanopore Direct RNA sequencing, and that is something you'll hear more about in this year, and we're very excited about getting into that RNA space. We will, in 2025, see great step changes in our understanding and utilization of methylation. Every week, we see a breakthrough publication. This will start to translate into routine use, and we are excited about not just DNA, RNA, but proteomics, and later in the year, we will be talking about proteomics as well, so just to finish on numbers, as this is J.P. Morgan Healthcare Conference, we are today operating in the life science tools market, but the real opportunity is to cross the chasm into the applied markets, and we think the potential there runs into 100 billion.
There is a real untapped market there, and our medium to long-term outlook is to ever-increasingly go over to those markets. I've already talked about our medium-term outlook. I'd just like to leave you with these key takeaways. Strong H2 growth, 34% year on year. Very strong growth in the second half of the year, and the fourth quarter was stronger than the third quarter, so real momentum going into 2025. It is driven by the unique value proposition the platform brings. It is driven by our focus on target markets where we have a unique solution that no other platform can provide, and that is in these incredibly tough market conditions, so we are very excited about the long-term opportunity here, and we're well capitalized to execute on our goals, and with that, I'd like to thank you for your time and happy to take questions. Thank you.
Thank you. Would anyone like to kick off the questions? Maybe I'll kick one off. We've also got Nick here, who is the CFO with us as well. So I've got a question here. Yeah? And if you could wait for a microphone, please. Excuse me. First of all, congratulations on your good results. I'm just curious, has Oxford Nanopore made any effort to a long read? Is it relevant to have a long read solution? Thank you. And if you could repeat the question as well. Yeah, could you just, you want to know about our long read? Yes. Do you have any technology available for long read in the future? And also, second question, do you think long read will be relevant in this market? Sure.
So the technology we have can measure short fragments, 100 bases, really important in liquid biopsy and applications over there, where the DNA presents itself as small naturally. But we can also, we started with long reads, 10, 20, 30, 50,000 bases is what we would define as long. So that's our routine bread and butter. But we also have capabilities to do ultra -long. The longest read that somebody has done is three and a half million bases. And there is no reason why a full chromosome won't be mapped in one contiguous read one day. So ever-increasingly, we believe the market will turn to having a platform that reads the native DNA the way it's biologically presented from the patient, not to obliterate it down into 200 base pairs and turn it into a black and white picture.
So yes, and our T2 T workflow uses long, tens of thousands of bases, and ultra- long to assemble comprehensive genomes. And that will be a new gold standard for local populations that will be a game changer. So yes, absolutely, we are 100% invested in long reads. And they come naturally. You just have to present the DNA to the platform. There's no additional cost, complexity, or in silico funny money. So your long read is not synthetic long read? It's actual? It's actual, and we read the actual DNA. And you know, interestingly, on the liquid biopsy point, while I'm at it, they're not short. If you use a short read sequencer, you naturally only look at the short reads. It turns out the liquid biopsy samples can be several thousand bases, 1,600 bases long. And it's an area now that's called fragmentomics.
The distribution of the size of the reads tells you something significant about the aging of the cancer in liquid biopsy applications. Thank you.
Any other audience questions?
Yep. How high is the base calling accuracy in direct RNA sequencing, especially for the long RNA transcripts?
Ooh, that's a good question. 98.9%. Yeah, it's about 98.9% for RNA. Still work in progress, though. One of the challenges with RNA is there are so many modifications. So you kind of almost need more modifications to train the base caller. It's a chicken and egg thing. But that's pretty, it's sufficient for the biopharma applications for RNA discovery and RNA manufacturing. And we're pretty excited about utilizing it there. But more to come. Thank you.
Thank you. My question is about protein sequencing. You mentioned that later in the year, we might hear new developments from the company about proteomics, protein sequencing.
My question is about if you project in the future, five years from now, would you see more protein type of applications or nucleic acids will still be the core of the company?
I think because we start, so if you do it just snapshot, so we remove the historical piece, I think you'll see very similar. And I think the reason for that is, whilst people, everybody, this is the year of the proteome, right? Everybody's really excited. The UK Biobank thing's happening, and it's all about proteins. That's just because we've rinsed everything we can out of short read legacy systems.
As people latch on, and they are to more to the native DNA RNA, and then we provide the proteome in five years' time, the two will catalyze and we will find more insights and interesting things in the genome and the epigenome and the transcriptome because we've got the proteome. And then we'll have the metabolome. And that's all on the same platform. And I think those three will accelerate and regenerate the market in those segments. I don't think proteomics will win over genomics. They go hand in glove. And we've been overly focused here, and now we're going to see emergence of proteomics. And when the two are connected together, it will be a thing of beauty.
Hi. Question over here. Yeah. Big fan of the platform from a lab perspective. Just wondering, so you were talking about the end-to-end solutions that you're building.
Wanted to know a little bit more about your vision with on the software side. So is this more of like building software internally for analytics or partnerships? Just any thoughts on that?
Yeah. So we provide the sequence data in standard industry formats. Now, beyond that, customers can do their own personalized, and you see that a lot in academia. But we also have partnerships with Fabric, Geneyx, others, VarSome. And so we are open to those third parties to provide those solutions as well. And but we can hand off a workflow to academics and researchers who want to use their own as well. But it is an area that is absolutely important that we invest in. It's one that really comes to fruition as we move, as you say, to those end-to-end applications. And it's an area of active research for us in 2025.
If I could ask a question now, particularly as I've got Nick next to me. So the acceleration in H2, so 34% growth, why have you seen such an acceleration? What's happened to the research use and the applied use? Is it a big step up in applied? Is there anything one-off there?
Yeah. So to Gordon's point, Q4 is bigger than Q3. We exited the year very strongly. Utilization of the PromethION devices in particular is growing very strongly. So year on year, 55% growth of that entire product range. If we then look at the product categorizations, research was our weakest market on a reported basis, and that's because we had things like the EGP contract rolling off in COVID. Our strongest growth was in the applied space, so over 40% kind of growth year on year. Then biopharma, then clinical, then research.
I think it's really the technology coming of age. The existing customers who have got the devices are now starting to use the product more, but also those new applications, particularly like synthetic biology, where we've done very well, and actually, quite encouragingly for 2025, that we've won a lot of contracts in the year. They haven't necessarily delivered a substantial part of our revenue in 2024, so actually, they're going to help support our 2025 growth rate instead. The applied contract with Plasmidsaurus in particular has done very well, but all of the research contracts, so the UK Biobank piece, the GEL piece, PRECISE, all of these are actually revenue generators that are going to deliver growth in 2025.
Maybe as a follow-up to that, so as you think about 2025, do you think of research growing at the same pace and applied growing at the same pace, but applied is just a bigger part of the overall pie now? Or could there actually be further acceleration?
I think for applied and biopharma, we'll continue to see very strong growth. For research, we're growing clearly above the market as well, particularly on an underlying basis. Don't see that stopping. But the higher the growth rates will be, will be more that applied biopharma clinical. And over a three-year view, we see that kind of acceleration being at that high level.
For biopharma, I think we're very excited because actually we could see a year where we see that exceptional growth, actually, where the products start to get adopted more in that QC, QA space, where we'll see larger contracts coming through from major biopharmas. The great and the good are already our customers. It's now actually about how we translate them from being that research customer to that manufacturing partner. And the contracts are a lot stickier. They're a lot bigger, and they're great at margin as well. So there's going to be one of those years coming where the biopharma piece really accelerates off, and it'll be very good for us. And you mentioned the margin. So it sounds like gross margin did a little bit better for the full year than you'd actually guided for.
But I believe the second half was still a little bit lower than the first half. So why has the margin contracted? And why is that then going to go back up again?
Yeah. So at the beginning of the year, we said that margin. Unfortunately, some of these things are outside of our control. Because essentially, customer mix, we're not going to not sell to people. So customer mix type of devices that are going out, these are things that aren't necessarily in our control as we go forward. And some of those larger programs do naturally have a lower margin overall as well. So when we put guidance at the beginning of the year, we said 57%, assuming that things don't go our way. We've delivered above that. And actually, that's in spite of about 190 basis point headwind from currency as well.
So if you added that to the overall picture, we were closer to 60% margin, actually, not far off, regarding to 62% by 2027. So hopefully the market can get confidence that actually we are doing things here from an operational perspective that are beginning to come through and drive that higher margin overall for the company. So there's nothing, in terms of mix for next year, there's still going to be things that are outside of our control. But PromethION product flow cell up double-digit gross margins in the year. MinION continued to actually do well as well, and on devices, as we look forward, we think we've got things that can actually help accelerate, well, improve the margin further there.
So as we look to that 2027 timeline, depending on mix, because we never know that mix will be necessarily, that 62% number we've got very good confidence in. Thank you.
And what about below the gross margin line? So you're targeting getting to overall profitability in 2027 and cash in 2028, I believe. But there's lots of exciting things Gordon was talking about that might require a lot of investment. So might you need to ramp OpEx a lot to access all these things?
So I mean, the key thing is, over the last three years, absolutely, there's huge investment gone into the platform. So there's already a lot of capital put to work there. And there's a lot of efficiencies we can kind of drive through from a commercial perspective.
We've got a lot of leading indicators to show that the improvement in our commercial productivity is continuing. And actually, we've not reached that peak yet. And actually, we won't do for a year or two. So there's a lot that we can drive through from that commercial infrastructure. From an R&D perspective, we are investing a lot, particularly in that later stage development piece and these applications and workflows and software development to essentially kind of push us down to those new markets as well. We are guiding to a corridor of about 3%-8% CAGR to 2027. And there's some things we can work on internally to ensure that we're as efficient as possible. And we're doing that.
I think just on that point. So if you think about the R&D play that will come, the heavy lifting has been the last three or four years in developing the R&D platform. The work and the effort to create content, workflows is relatively low cost, and it has a huge impact. Our plasmid sequencing workflow is one workflow, and it's generating tens of millions. So that content creation is relatively straightforward, and it is later stage development and regulated, which is how we've evolved in the last couple of years. But the heavy lifting on the platform for DNA RNA is done. Thank you. We've maybe got time for one more question.
One final one from me. I think you did an equity raise last year. So what might you do with the extra cash?
So we haven't earmarked the cash for anything in particular.
I think it's fair to say as we came into the beginning of this year, we had some people who were a bit worried about, first of all, where we're going to make break even in 2027. The growth rates that we were kind of putting up, given, I think it's fair to say it's been a challenging market, and you'd have seen from the overall shape of how competitors have done as well, it's been a tough year. We've kept our guidance and actually hit our guidance and actually seen an acceleration in the second half. All of that, at the beginning of the year, though, people had a few more questions and were worried about the strength of the balance sheet as well. With Novo, there was a clear strategic opportunity with them coming in, as anybody can see.
And that extra cash that we brought in will essentially ensure that we've got over £100 million on the balance sheet as we break through 2027 and 2028. So there's nothing set for it at the moment unless anything happens.
I can always think of how to spend money.
But now the idea is we're going to keep over £100 million in net cash as we go through break even.
Great. Thank you very much. Enjoy the rest of the conference. Thank you very much.