We're started. Okay. Thank you very much. I'm here. I'm Dave Westenberg, the Life Science Tools and Diagnostics Analyst here at Piper Sandler. I'm joined by Oxford Nanopore CFO, and we'll just, I guess, start right away, Nick. So thanks. With Gordon stepping down as CEO at the end of 2026 or end of 2025, right? What are the strategic priorities and long-term objectives that the board expects from the new CEO to ensure a seamless transition?
Okay. First of all, thank you very much for inviting us to join today. So Gordon's announced in August of this year they'd be stepping down by the end of 2026. So just a—.
The end of 2026?
Yeah. Not the end of this month.
Okay.
But in terms of where the board are, like, what are we focused on in ensuring, clearly EBITDA break-even is kind of the north star we're focused on in 2027.
Mm-hmm.
We spent a lot of time this year reviewing and refining our commercial and R&D strategy. We've done that through a lengthy process where we know where we wanna focus and, in particular, how we wanna grow in those new market segments where we don't necessarily have the same level of competition as peers.
Mm-hmm.
Biopharma and in segments of clinical as well.
Mm-hmm.
We are very much focused as a board on how we kind of deliver in those markets and how the new CEO, when they arrive, whatever their shape. But what we want in a perfect world is somebody who has experience in those areas to help us commercialize quicker, route to market, grow revenues faster, and achieve the ultimate success of the company.
Yeah. Can you talk about some of the, there's been a number of senior team changes over the last year. How are you feeling about the change of the guard? 'Cause it's not just Gordon who's leaving. There's a few others, so.
Mm-hmm.
You know, how comfortable are you feeling in terms of the change of the guard?
Yeah. So, we have seen a meaningful amount of change across the C-suite and the exec over the last year. And it's important to note that during this period we've still delivered, I think, exceptional growth.
Mm-hmm.
Relative to peers.
Mm-hmm.
I mean, 20, we've guided to 23% this year, from 20 to 23 at the beginning of the year. And last year we delivered 23% underlying constant currency growth.
Mm-hmm.
In a market which is continually down, so first and foremost, financial and commercial execution of the company's been very strong.
Yeah.
Now, we have seen a change of the guard, and it's happening because Gordon announcing he's going. That was always gonna start a process, I think.
Mm-hmm.
The unfortunate thing is we can't necessarily make any new hires until the CEO is here.
Yeah.
Because the CEO is gonna wanna pick their team and put some of these, you know, people in place.
Mm-hmm.
So yes, that's happening. From my perspective, this is evolution.
Mm-hmm.
So it's not revolution.
Mm-hmm.
And, it's important that we try to look to build and add new capabilities around the exec team. And the, you know, Gordon's described this incredibly well, with, when asked this exact question as well, that, you know, he cares more about the future of this company than he does necessarily about being CEO.
Yeah.
As the company, he's done incredibly, and the team have done incredibly well at building, creating fire here with this technology.
Mm-hmm.
It's now kind of time for a new management team to kind of come in and help take it to that next level, which is targeting that billion-plus of revenue, in those market segments where outside of research, ultimately.
Gotcha. Let me maybe talk about some of the technology differentiation. You have long reads, you have methylation, you know, I think it's four hundred and twenty bases per second, something like that, go through a Nanopore. It's in real time, it's a tiny footprint. What do you think attracts customers the most? And if you are gonna bother to say everything, can you give us examples of how some of these features are used in applications that competitors aren't?
Yeah. Absolutely. So why are we growing, in a market which is down and what, I'll say again and again, and, you know, where do we see the growth coming from, in the end market segments where we are? So the richness of information. So we've spent a lot of time this year looking at what we see as 47 market segments where our technology's applicable, about $20-25 billion TAM, and about $13-14 billion where we see as high-priority segments. And when we throw these 47 market segments over the football field, the areas where we think we're in the, you know, the five-yard zone, giving an American analogy, then actually it's where richness of insight coming off a Nanopore device that you can't get on competitor platforms.
Mm-hmm.
So that's the direct nature of reading DNA or RNA and the long read capability. So those two things combined. Now, when you combine that with speed.
Mm-hmm.
Turnaround time, we think we are uniquely enabled versus other platforms. So the examples in the long read space, just looking at that specifically, it is the rare disease area.
Mm-hmm.
Where we know that we get a higher diagnostically yield versus competitor short read platforms, and then the ability to scale on Nanopore, to your point about footprint and the turnaround time means that we have something that we can compete against other long read players and be able to kind of take share. If we think about infectious disease market, we have the most accurate platform, actually, on small genomes versus other competitors, so Q60.
Mm-hmm.
With the small footprint, turnaround time, accessible nature of the platform, so price point, means that in the infectious disease space we can really take. We think we have a uniquely enabled technology there. Then in Biopharma QC, it's the fact that we can measure the single molecules directly, be that RNA or DNA. In particular, for RNA in the QC, the mRNA vaccine field.
Mm-hmm.
We think, again, we have something that competitors can't do 'cause, you know, we can measure directly, and that means we're uniquely enabled in that field.
I do like the way you actually broke down each feature in different market segments. So we appreciate that. So can you talk about the revenue guidance? I mean, as you mentioned, at the very beginning of the year it was 20%-23%. You're now talking about the top being at the top end of the range. So what's driving you to the top end of the range?
So what, at the beginning of the year, we came out the gate and guided to 20-23% given the headwinds we saw in the U.S. NIH field, just like everybody else. And we were, we believe we were more conservative than others, even though we're still growing 20%-23% and everybody else was kind of guiding to mid-single digits or decline.
Mm-hmm.
And as we've seen the year progress, what we've seen is just a more constructive environment. First of all, we delivered 28% constant currency growth in the first half.
Mm-hmm.
Against peers that were, again, off that mark. As we've continued into Q3 and Q4, we've seen a more constructive Americas region.
Mm-hmm.
Over 50% of our revenues is now non-research anyway in the Americas. It's actually coming from clinical, Biopharma, applied, and markets. Those areas are growing very quickly for us.
Yeah.
Actually, clinical in particular and Biopharma, we're really landing and expanding. We delivered just shy of 80% growth in the first half in clinical in the US.
Okay.
So those markets are doing very well. As we've gone through the year, been more constructive, we've kind of, we've always risk-adjusted our outlook, and we're just seeing that on de-risk now as we're getting to the final months.
Mm-hmm.
So we'll see where we finish.
All right. That's great. Good details. So you've had some changes in your pricing model. Can you talk about the difference in the pricing model and what the reception is from the customer? Can you talk about some of the different utilization differences you've seen as a consequence of price or if you have seen any?
Yeah. Absolutely. So, for awareness, I didn't bring one up on stage, but clearly we've got the, like, the MinION product. Oh, have you got one?
I think so.
Oh, look at that.
It might be in my hotel room, but.
So the smaller devices that we have, which is the MinION, which my presenter is gonna get out now.
No. I have my hotel room.
Maybe we'll have one from the front. So, the MinION device is clearly a small handheld pocket sequencer, essentially, which is quite cheap to manufacture, the first product the company launched. And with a disruptive technology, there was also a chance here to have a disruptive business model, which was to seed the market, as many of these as possible, to get as many hands as possible. Still have that approach. Now, for the larger devices where we have a GPU inside, this has a NVIDIA chip. The P24, the larger throughput machine we have, there's four of them. That means that there's a considerable capital element that comes to us as a business placing these with customers. What we've changed to is instead of placing these devices in a free-for-use environment for customers, we're now selling them directly. We made that change at the beginning of the year.
And so for those larger devices, we now sell them. It's been accepted by customers, actually.
Mm-hmm.
We believed at the beginning we'd see a cash benefit to the company, potentially a margin benefit, potentially a revenue benefit. We've seen it in the first half of the year. We delivered a 10 million GBP improvement on our cash flow.
Mm-hmm.
It's gonna be about GBP 20 million a year run rate and growing, which we're very pleased with. We saw a, you know, maybe 300-400 basis points improvement in gross margin, which is actually sustainable as well, and a similar amount to the top line for the first half.
Mm-hmm.
So what's the response from customers been? You know, on the whole, we're quite happy, actually.
Mm-hmm.
You know, customers have, you know, on the whole, it's been good because it leaves, it allows for easier, transparent communication with the customers. They understand more about the approach, about how we're placing these devices with customers. And, the feedback, pushback has not been too extensive, actually.
Mm-hmm.
There's always gonna be pockets of people who aren't happy. Let's not kid ourselves. We're now selling these things rather than placing them. So of course they'd rather get these things for free. But on the whole, a positive response.
Gotcha.
In terms of what we've seen for customers in terms of utilization, we're still a growth-based company. So with our PromethION range, we talked about utilization going up around, you know, 60% for the high-end devices. That and that's year on year, we're seeing this. And that talks about the fact that on a relative level we're quite low at the beginning.
Mm-hmm.
But we're just seeing that throughput increase. We're very happy with what we're seeing. We're not seeing that slow down either, so yeah. And now, just for awareness, our mix has maintained 74% consumables, 26%, you know, devices, services and other. So next year we're expecting we're gonna see a rebound in volume for devices as well.
Mm-hmm.
At that higher throughput, price and hopefully continue to see that really high utilization rate continuing as well, which is why we're confident about our outlook.
Gotcha, so I mean, we wanna talk about next year 'cause I think, you know, you had some price increases last year. I think they're smaller this year, but.
Mm-hmm.
Can you say what, you know, most of your competitors are lowering prices or at least, you know, giving more throughput and raising prices less than that additional throughput? So can you talk about the strategic necessity of Nanopore sequencing and the fact that you can charge more? And then, you know, consequently, do you believe there's elasticity of demand if you were to lower prices in the future?
Yeah. So, this is a multi-factorial thing that we need to talk to. So first of all, some competitors actually are raising their list prices in the end market. They then just use that to discount down.
Mm-hmm.
We're having a similar approach.
No problem.
We have increased the prices this year. Went live two days ago, I think, so list prices are going up around 5% globally.
Mm-hmm.
On the consumables, and this allows our commercial teams to kind of potentially look at those discounted options as well, and we don't capture all of that because we always have volume-related discounts that kind of play through. Now, where we see our ability to price higher, we've actually always seen it.
Mm-hmm.
Because the value you get off a Nanopore genome is higher, we believe, than what you get off other platforms.
Mm-hmm.
Because of that richness of insight, because of the methylation or long read capability, you know, that richer insight piece.
Yep.
And so we are looking at this as always trying to maintain our premium pricing versus peers, and we always will. Now, the interesting thing though is the dynamic of throughput. So we are looking at ways of increasing our throughput quite meaningfully. And over the next two years, you'll hear more about this and you'll see it delivered. And as our throughput goes up, we actually believe this will allow us to be quite competitive on price point with even the higher throughput instruments that are out there. We're not gonna go down to those levels.
Mm-hmm.
But it will allow us to maintain a premium and potentially convert a higher proportion of the market share base that's out there. But the realistic, you know, we're never, you're never gonna see us wholesale replace instruments that are out there. This is not real, it's just not realistic.
Mm-hmm.
But we will see a great proportion of the market be able to switch over for sure.
Gotcha. Maybe you can talk about your partnership and investment from bioMérieux. How are you leveraging the relationship in infectious disease and how far away are you from seeing real revenue contribution from this relationship?
So for bioMérieux and Cepheid, I think we are, you know, material revenue generation two, three years, I think it's fair to say.
Mm-hmm.
Now, that doesn't mean that we're not gonna see more things like launching and happening. It just takes time for these things to ramp up. What we're looking at with these players, in the infectious disease space is, well, they're adding real capability in terms of knowledge, you know, process, and also market access. So we believe we've got a platform which offers unique features and benefits, as do they. And we could be the intel inside or the engine. So essentially how we get that information off, then you'd be that in the sample prep, library prep area, they can add real benefit here. They could then add real benefit in the tertiary analysis kind of software end of the, piece at the end.
Mm-hmm.
For that, you know, the assay development side. So with both parties, we have very good relationships. We are looking to expand the number of partners we're working with.
Mm-hmm.
In this space as well, and we're looking for these partners to be able to add an ability for us to kind of capture a larger proportion of the market overall and bring in those capabilities around the entire value chain that we know we can't add on today. But we can be the piece in the middle that kind of gives everybody the metagenomic information in a quick turnaround time to be really valuable in infectious disease.
Really helpful. So let's talk about the gross margins, high fifties, low sixties today. How are you thinking about your ability to lower production costs? Are you thinking, is there anything, you know, in the near term where it could create a step function change, whether it be automation or new facility or anything like that?
Yeah. Where we are today, the step change will come from recycling of the PromethION flow cell. So a decent chunk, so our consumables line in the flow cell itself, a decent chunk of the COGS is actually on the cost of the chip itself.
Mm-hmm.
When we send these flow cells out to customers, we give them a box. They can send them back to us, and quite a lot of them do. Good for the environment.
Yeah.
We then deconstruct the flow cell and the silicon chip itself, we clean it down, scrub it completely, and then we can reuse it, and we've found that we can reuse these in a significant proportion of our flow cells.
Mm-hmm.
That lowers our cost of goods quite meaningfully, as you can imagine.
Mm-hmm.
That's step one that essentially we're working, we're doing now, early stages with the PromethION flow cell. We already do it with the MinION flow cell, a high proportion. If we equal that MinION to prompt, then that should add about 10 percentage points to our PromethION overall gross margins, which will flow through into our group gross margins and take us into the mid-sixties. The second piece is automation. Today, it is a semi-automated process for manufacturing the flow cells. It may never be fully automated for the prompt or the min, but the step change on a five, 10-year view could be a new chip that is fully automated and will allow for modularized automation, essentially.
Mm-hmm.
We can put automation manufacturing in different regions quite simply. Over time, that's where it will go to. For the MinION and PromethION, we'll automate more of the process steps because a decent chunk of the COGS is a human element.
Mm-hmm.
But this is more so that as we scale and we reach $500 million, $1 billion of revenue, this will lead to incremental gross margin improvements, but the ability to scale effectively as well. The next step change on a five, 10-year view is that where we can fully automate the process straight from day one. And then that could be a real step change.
Got it. Let's talk about maybe the PromethION plus flow cells that are slated for limited release probably right now and then broader availability next year. What are you thinking about the ASP and these new flow cells? And what's the uplift that you can see in utilization and consumable pull-through once it's widely adopted?
Good questions. Not fully, we've not communicated, and we've not gone into this in a lot of detail. So I think this is watch this space.
Mm-hmm.
On the ASP point in particular. We've got something here that we need to be very careful with when it kind of comes to how we launch it, how we communicate it, how we price it. Because, the feedback we're getting in terms of throughput is quite exciting in terms of what it could do for us, for those beta customers that have the product.
Mm-hmm.
We could be talking where we are today. That one point depends on sample type.
Yeah.
Product type. So you gotta be very careful about when we talk about genomes per flow cell.
Mm-hmm.
But, you know, in a perfect environment, maybe at 1.25 today, conventional prompt.
Mm-hmm.
blood sample, etc., etc., where we can get it to is maybe considerably higher than that.
Mm-hmm.
Like I say, could put us in a if we're thinking about all of the features of the upgraded PromethION that we've got coming through, so not just buffer chemistry, actually, you know, motor, enzyme, kit, and also GPU on a new device.
Mm-hmm.
Then we could be talking about a step change in the product that actually puts us competitive with some of the higher throughput devices that are out there.
Interesting.
And it will, yeah, exactly. So then at that point, we need to think very carefully about how we're launching this.
Mm-hmm.
How we're thinking about it from a pricing perspective because we think, you know, we are already having conversations with customers that have landed with us with rare disease.
Mm-hmm.
They're already. We're talking to them about, well, higher volume applications being in oncology, where they would give us this business we know if the throughput was high enough so that we could price per sample lower, and we want that business.
Yeah.
And so we are gonna go down that route, and it's a considerably higher volume than what we're on today. So we know that there's a dynamic here to play through. We've just gotta make sure we execute properly on it. And so, unfortunately, I can't give you any much more details other than we're, you know, excited about where this could get to.
Yep. Got it. Yeah. It actually sounds like we've a lot of good questions that could be asked in a few months. So what are the strategies being implemented to accelerate growth in America in twenty twenty-six? How will you mitigate the potential impact of continued uncertainty in NIH and research funding?
At the beginning of this year, well, end of last year, actually, when we could see what was kind of developing in the U.S. market in particular, we could have kind of cut and run to a point. Actually, I think a lot of people have kind of taken their sales teams down, commercial infrastructure down. We actually used the time to restructure and 'cause we were already going towards Biopharma, towards applied, towards clinical end market use cases. What we've done is essentially doubled down on that, and we're reaping the rewards, as you've seen, from the fact that we still delivered 17% growth in the Americas in the first half, despite the research environment. We're gonna continue to do that.
So we've got a lot of opportunity in the Biopharma space, which is happening now, clinical as we've talked about, and applied industrial, particularly the synthetic biology market. We're pushing, doubling down on these areas. We're very happy with how we're set up for this year. We think we're the only company delivering that sort of growth.
Mm-hmm.
In this market environment, even in research, we delivered single-digit % growth, which I think is good versus other people.
Mm-hmm.
Value the technology, accessible nature of it. That'll just continue. But we're gonna continue to push harder and faster into clinical, into Biopharma, into applied. And as we go into next year, well, at the end of this year, like I say, more constructive conversations in Americas.
Mm-hmm.
More customers looking at the technology, evaluating it, more so with customers on Monday, where but like, you know, in these hospital environments where the big users of these established technologies that work very well, but they can't answer all the questions they have. They can't do it within the timeframe they need to.
Mm-hmm.
And they're looking about, you know, the footprint we have. It's not hard to add a P24 or two alongside these other platforms, and we need to kind of integrate, help make that happen. So if we can, we can just see us expanding further and further into the established customer base that exists today.
Gotcha. You know, in the half-year results, you talked about the $13-14 billion higher priority in ONT. Can you break down by end market and where you see the biggest opportunity for the technology?
Yeah. So, too, we've all got favorites in the company about areas that we're kind of like looking at today.
Mm-hmm.
but.
Of course.
And we've never given the specific 13-14 billion broken down. But the majority, essentially, is within that. Well, actually, research is a big chunk of it today.
Yep.
As you can imagine, clinical, but Biopharma. And the reason why Biopharma has got clinical as the fastest growth segment for us today.
Mm-hmm.
It has been, and it surprised all of us, actually, about how quickly it's actually taking off there, and that'll continue to do very well. The part that's maybe my CFO hat on.
Mm-hmm.
Is the Biopharma piece because of the stickiness that we think we're talking about being part of drug companies' INDs now, which is essentially being tied in for a twenty-year revenue stream, which for me is quite valuable?
Mm-hmm.
It's very sticky. If the drugs work, then essentially production volumes are only gonna increase, and we're talking about a multiple size of contract value increasing as well and twenty-year lifespan.
Mm-hmm.
There's a $4 billion opportunity for us in the Biopharma QC space. We're literally at the start of this, but we're already talking about contracts that we're signing that are $1 million of value per company, per drug, per site. We're talking about expansion here in quite a, you know, 10-20 companies, multiple assets per company, multiple sites per company. This could grow quite quickly.
Mm-hmm.
We're very excited by it. We have to execute on this. Being very balanced here, arguably we could have done better on execution.
Mm-hmm.
And this is why we were looking to evolve things. So we maybe didn't have, the product wasn't quite right out of the gate, and so we kind of had to go again and develop some of these things. You know, we maybe we could have gotten there quicker, if we'd have done things in a different way. So we need to kind of reflect on that, and we are, we are, we have. And we're gonna add more capability around the business to make sure that we can execute better year on year from here as well.
Appreciate it. Thank you very much for your time.
Thank you very much, Dave.