Good afternoon, everyone. My name is Jon Osgood. I'm one of the analysts on the European MedTech and Services team at Barclays, and I'm delighted to be joined by Nick Keher here today, Chief Financial Officer of Oxford Nanopore Technologies. Welcome, Nick.
Thank you.
Thanks for coming.
Thank you, Jon Osgood, for having me.
Lots of opportunities for Oxford Nanopore. We'll dive into lots of them as well. You split your revenues into sort of four end markets: research, clinical, biopharma, and applied industrial. Today, research is the biggest portion of your revenues, but it's not the fastest-growing. I wonder if you could talk a little bit about your journey into the clinical and biopharma space, perhaps setting out the move from research to sort of LDTs to regulated tests. Where we are on that journey today, we've spoken about it a lot since Capital Markets Day back in 20. When was it again?
Twenty-three.
2023. Just sort of characterize where we are, what needs to be done in terms of products left to get you into that regulated environment, and just sort of set the scene for us.
Yeah, absolutely. Yeah, research was 67% of revenues in the year just gone. We grew just over 15% in the year, which is a good result given the turmoil everybody's seen, particularly in the Americas with the NIH funding situation, which is about 13% of our revenue overall. Thankfully, we're seeing fast, quick adoption into the applied markets.
Applied industrial, which we kind of badge as anybody doing synthetic biology and the kind of core service providers. Applied industrial is about 12% of our revenues in the year just gone.
Grew 27%. There's about GBP 1.5 billion market here in synthetic biology where we think we've got a right to win.
Particularly because of the nature of our technology, the fact that you get long-read, richer information, quick turnaround time, and price point, and the ability to debatch as well, actually. All of those things mean we think we've got a right to win there, and we're kind of replacing things like Sanger sequencing. We've had great success with companies like Plasmidsaurus, who are doing very well. Then you go into the clinical space, where 13% of our revenues in the year just gone, we grew 60%. In the Americas, we actually grew around 85% overall. We're growing there because the adoption of the technology now really come of age within things like rare disease, within things like infectious disease and oncology, particularly rare blood tumors.
Within rare disease, I think everybody will know you need to have long-read information to get that structural variation. We have a higher diagnostic yield than conventional legacy short-read technologies that are out there. Because of our turnaround time, you can do this in ultra-quick fashion. There are LDTs out there available, reimbursement becoming available in the U.S.
which means that we're seeing this adoption curve really start to increase.
Yeah.
As people are thinking less about us being a reflex test and actually start to think of us as frontline test for things like rare disease.
Okay.
Which is very good. Infectious disease, because of the fact that we get rich metagenomic information, 'cause we've got that long-read capability, even methylation is important here as well. To combine that with our turnaround time and the fact that you can do it within 3-4 hours and the fact that you can miniaturize our technology. I'm gonna do what Gordon always does and pull out one of the sequences right now.
Yeah.
The form factor is right as well. For the infectious disease market, we think, again, this is a space that we can win at. We're pushing very hard on there. It's the LDT market that's seeing the adoption today, but the forward-looking people as well, and like, we've signed deals with Danaher, so Cepheid.
With bioMérieux, who are gonna take this technology into the IVD space as well. Product with, you know, there's various ways in which they're thinking about the end market potential. Think about those high-value infectious disease segments where pricing is also very high today, but, you know, PCR tests don't quite do it.
where you need that full metagenomic information 'cause you don't know exactly what you're looking for.
Yeah.
Just get the entire picture, and you need it quickly to treat patients. This is the answer. Those companies have formed partnerships with us 'cause they can see that this should be the Intel Inside.
Yeah
for that market. Where we are on that journey, we've got AmPORE-TB, which we did in-house, and I think hindsight's always 20/20, but maybe, you know, we might have thought about doing that a different way. We've got that product to market from, you know, the CE IVD status.
We've got that status now for our GridION Dx box as well. Interestingly, in most markets, you only really need to kind of get to a Q line status, as we put it, so like a semi-regulated but locked-down version is kind of what all the customers need from our perspective. That will allow companies like Danaher, bioMérieux to develop these regulated tests on top.
Okay.
The clinical market grew very strongly, even faster, 60%, even faster in Americas.
'cause these things are being adopted now and going more mainstream. We've got a very good partnership with St. Jude's as well. We had them at one of our commercial kickoffs recently, and they talked about the fact that they can turn $1,000 worth of pathology tests for things like AML, and they can do adaptive sampling on our platform, and it costs $150 and gives you the exact same answers that you need to diagnose the patient.
Okay.
People will find, like, an adaptive sampling is gonna be a big driver for this company in the oncology space in particular 'cause this is quite cool, but you can train the Nanopore to look for a gene of interest. We've got a Hereditary Cancer Panel out there at the moment. You can ask it to look for 100 different genes of interest. It's like a software program. Then you throw on your DNA sample, and Nanopore, if it's not the right gene, it will just spit it out.
That will very quickly change the need to do a whole genome and actually just do that approach instead. Makes it much quicker, a hell of a lot cheaper because the prep time and cost of kits that you have to buy from third parties goes down. It's, yeah, so it could revolutionize that space.
Currently in that clinical space, most of those or all of those revenues are coming from LDTs?
Almost, yeah.
Okay. Some of those LDTs are second line, but actually you're seeing some adoption in the first line sort of treatment test.
Yeah.
It's fair to say, is it, I'll just get your opinion, that the applications which you have the biggest right to play in are rare disease, infectious disease, and generally things that where you need a quick turnaround time for PoC, and they're where we should be thinking your right to win is?
Yeah. Where methylation is needed as well.
Okay.
'Cause we have the gold standard for methylation.
Maybe you could just talk about the development of methylation as a biomarker, why it's important, and what differentiates Oxford Nanopore's technology in that space.
Yeah, absolutely. If you think about how methylation is done today on conventional platforms, they have a very deep approach, but very narrow approach to look at the entire methylome, so they don't get full 100% of the data. We can get the 100%, and you can go as deep as you like, depending on the coverage you want to go for.
We were with a customer yesterday in New York, actually, who was showing us what they're doing in the transplantation space, where they're using methylation as a predictive marker for knowing when an organ is gonna fail.
That's just in transplantation. It's also the same in oncology, where methylation starts to increase as cancers become active.
This is a predictive marker for the need for patients to kind of go back into hospital for, be it your transplant's gonna fail, be it that your cancer's coming back or it's becoming active. The key thing here is we can look at all of the methylome on all of the sample types. Rather than just looking for things and the needle in the haystack that you know is there, we can just look at the entire haystack and just tell you everything that's there. There is the so what of value of the technology in the methylation. Absolutely agree. We've got more to do here.
There is a 50,000 UK Biobank study going on at the moment where we are unlocking all of this biology, which we believe could actually drive a lot of interest. As we start to show these biomarkers, it's gonna create a whole new wave of interest, particularly from pharma-
Who are gonna think about this from a drug discovery standpoint. Also in the diagnostics world, as people start going, "Actually, this is pretty important." More to come.
Okay. I guess to help contextualize rare disease, infectious disease, methylation, they're the sort of key things to think about in clinical, like. How big are those markets today? Like, is this a share gain opportunity or is it like, expanding into white space where tests aren't currently being done? Like, how should we think about the opportunity for Oxford Nanopore in those two sort of buckets?
Yeah, good question. In terms of like the total clinical market today, broadly speaking, a third to half of the total GBP 9-10 billion of NGS spend that's happening. We think the serviceable addressable market for our technology is more like 20%-25%. The balance of that is conventional tests, be it PCR, assays, other things that are being used today. In the clinical market, we think the total addressable market today is around GBP 10 billion.
Of those high priority segments, clinical is a big chunk.
Okay.
Another big chunk that we haven't quite got to is the biopharma piece.
Yeah.
And so-
We'll get to it.
Yeah, that's maybe GBP 3 billion-GBP 4 billion, and an area that we think is a high priority segment for us as well.
Okay. There's some change from PCR to ONT.
There's some change, there's some expansion, but would you expect to gain share from other sequencing platforms in this space as well?
Yeah. So when I've been to see customers, I think legacy technologies where they've been adopted and they work very well are gonna be very hard to displace, and that's genuinely where we're trying to avoid going. Because actually, some of these technologies do the test very well. In diagnostics, you know, the test that works is the test that's used.
Yeah.
Dislodging those tests is maybe a fool's errand. Actually our focus is to provide value to the customer where they can't see it today.
Our belief is that you can see more on a Nanopore, and we can prove it out, so that's what we wanna show people.
Okay.
What we've seen is these people have multiple other devices in their clinical labs, and we're being used on top of because they have to batch with these conventional techniques because they need a quick turnaround time, because they want the methylation.
Yeah
B ecause they want an infectious disease, quality, accuracy, all of those things that you can get on ours that you can't get on theirs.
Mm-hmm.
We also, to be fair, don't actually have the ecosystem around the product the same way some of our competitors do today, but that is coming.
Okay.
We've got to be realistic with where we're gonna land and we're gonna expand. Absolutely. That's what you're seeing. The technology is now at the point from a robustness, from an accuracy, from a cost perspective where that's what we're seeing as well.
Okay. Maybe just thinking about competitors in this space. What differentiation from PacBio, the other long-read player, and how would you characterize your technology versus the other Nanopore player that we've seen launch, which is Roche?
On the PacBio front, and the other long-read technology that they have, good technology. You know nothing bad on that front. But I think with ours, we can see native DNA and RNA. That's really important.
We can do longer reads. We can do any read, actually, length. You get the methylation from seeing direct data points. You can see modifications on RNA that you can't see on these other platforms, any other platform, actually.
The ability to scale on Nanopore is clearly there. Form factor is also an important piece about, you know, size of the technology. I think we have, you know, we all have benefits over each other in certain instances, but we've been growing historically, you know, very quickly. You know, we delivered 24% last year in a market which is definitely challenged.
Yeah.
23% the year before that. You know, I think we're kind of proving that the Nanopore technology has a real place here, and actually we've got a long way to go still.
Yeah.
Against the other Nanopore player to launch very different types of technology.
Okay.
That's a key one, which is, again, we can see with our technology, you don't need to take a copy. We can see any read length. That means that we get all of the methylation data, we get all of the direct information from looking at the DNA in its native form or the RNA and one day protein.
The fact that you can kind of get that long read information, which we talked about from structural variation in things like rare disease, but over time, it'll probably be proven out that it's important in everything.
The form factor and the ability to debatch all of these things play into this as well.
Okay.
Yes, there's more competition in the market. I wish there was less. Where we are today, the reasons why we're growing, we don't see these things changing.
We hosted a panel yesterday with a genomic expert from the Broad Institute, and she was talking about the Illumina TruSight assay.
She characterized it as a direct shot at PacBio and ONT. How are you thinking about it in the competitive dynamics?
Yeah. Again, it's the Constellation renamed technology as well. We've seen it coming for quite a while. I think it's yet another attempt trying to do long read. Again, I would just kind of emphasize the same points that we kind of talked all the way through, which is this is essentially a technology that's stitching together.
It's imputed, it's not direct.
Okay.
It's taking short reads and putting them back together. How, you know, I think there's a lot to be proven out still. How good is this gonna be versus what we can do at looking at it directly, the entire read length or any read length that you wanna go for. When you're looking at long variants in particular, we think we'll continue to have an edge. If you wanna do long read and you want the methylation, we give you the methylation for free. You're not gonna have to do a second test.
Yeah.
I think there is also, you know, I think we've got a lot more to understand about that product, still from like a price point. Ultimately, yes, they put one up there, but how much volume has to come with it? The device that you're gonna have to do it on versus our own. There's a lot of considerations for the customer.
There's a timeline for when all these things come together for that product, whereas for our own, you can do it today.
Yeah, I think it's also quite nice and endearing that everybody's recognizing that long reads are important and multi-omics information is important. It's great that all these things have come together. It'd be just great if you can do it all on one platform.
Yeah.
You can't. Nanopore.
Yeah. Okay. Maybe taking a look at biopharma. Can you just high level run us through exactly what ONT is doing in the biopharma space and the quality control space, and why they're uniquely positioned to save pharma companies money, or what's the value proposition for Oxford Nanopore?
This has been going on for a few years, where we're seeing a lot of pharma company interest, particularly around certain key features of the technology. First of all, like a door opener, something as simple as plasmid sequencing.
Used in all kind of cell biology experiments, but you want a quality, you want a control step to make sure whatever you're putting into your cell line is the right thing. The gold standard for a long time has been seen as Sanger, and I think we're changing that now. That actually the gold standard will become ONT.
We're seeing a lot of customers kind of evaluating our technology to move plasmid sequencing over to ourselves. It's because you can get the full plasmid of information, we think you can see more, and we can do it at a price point and a time which is more competitive than what you can see from competitors.
Okay.
That's the first thing. The other tests that go alongside it are things like mRNA vaccine production, where we've signed a contract with one of the leading players in the quality control environment, and this isn't against sequencing now. This is actually against 7-8 orthogonal types of tests, where essentially people are doing HPLC, mass spectrometry, gels, essentially to try and approximate what the vaccine looks like.
Mm-hmm.
Whereas we can just look at it directly.
Mm-hmm.
We can tell you the weight of it. We can tell you the modifications that are on it. That provides the customer with a more direct way of measuring what they've just made.
Okay.
That's important from a quality control step, from a safety perspective and an efficacy perspective. When we're thinking about personalized cancer vaccines and where they're all going, we think we could play a big part in this. That deal was struck. Being used in that mRNA vaccine production space we're very excited about because we're not just being evaluated by one player, you know, we're being evaluated by all of the players. These things take time.
They're coming through.
Yeah.
We have other workflows that are also getting a lot of interest like AAV and sterility testing more broadly, where they have. You know, there's a reason, you know, infectious disease, we think we've got the leading platform. It's essentially infectious disease in certain instances in biopharma QC, where you're using the same workflow, give or take, same approach, but you get the same rich metagenomic information quickly. For quality control, that's quite important.
What we're looking at here is an economic pull for the pharma company, which as a CFO I get. Then you're also getting this quality control step pull as well because you can see more with the information, and it's quicker.
You know, there are a lot of reasons why we're being evaluated by these pharmaceutical companies, and we think we can take sequencing into an area where you don't see sequencing today.
On that biopharma piece, when you do the quality control test, do you do it on the sort of big batch of API that they've produced or do that post fill finish when it's in the vial and you're testing it there? Like, is it one test or is it, you know, 5,000 tests?
Depends on what you're doing. mRNA, it's 'cause it's personalized cancer vaccines, this is literally per patient.
Okay.
For that European provider that we've also signed sterility pieces they're doing, they're having one facility that's monitoring several sites.
That is much more big batch biologic production.
Okay. Makes sense. Maybe we can talk a little bit about, you know, outlook in the last few minutes. You did 24% constant currency growth in 2025.
You're guiding to 21-25 this year and broadly similar next year. You had originally set a target of over 30% CAGR 2024-2027. Obviously that's unlikely to happen at this stage.
Yeah.
Can you just talk us through what has changed since setting that guidance in 2024 to essentially being, you know, 5%-10% below it now?
Yeah, absolutely. When we set guidance in 2024, the beginning of 2024, rolling back the clock now, when I joined, we had to push guidance back first of all. We actually were aiming for break even in 2026. Joining in 2024 and evaluating everything we could see, it was kind of clear that that wasn't gonna be the case, otherwise that'd be this year.
Yeah.
Break even was gonna be in 2027.
Mm-hmm.
Cash flow break even in 2028. Those were always the north stars of essentially what we were aiming for as a company, as a board, and as a management team. That's what we were kind of setting in stone, and we've reiterated that. Now, we did say when we set those guidance points, we said, "To help you with your models and investors as well, we believe we would get there through growing over 30% a year." That's what the aim was on a CAGR, 2024-2027, underlying constant currency. Then gross margin is to be over 62% and cost growth about 3%-8% a year.
Now, as we went through 24 and we delivered 23% growth, we were doing a big operational review internally.
last year we did a strategic review as well of looking about how we can grow this business quicker because what we were seeing is we weren't necessarily getting to that top-line growth that we wanted to. Now, we always said if we didn't achieve the top line, we would modulate the bottom line.
That's written down in the 2024 release that we put the guidance out. Anybody can check it. We always said that that's what we would do. Last year we took out a considerable amount of cost from the business twice.
Yeah.
We demonstrated that we do what we say.
As we went through that strategic review about why we weren't growing top line quickly enough, it led to a lot of changes internally as well because I think it's fair to say what's changed in our model, part of it is the market's been tougher than we expected.
Yeah.
I think everybody may forgive us for that because actually the NIH has happened post the guide.
Yeah.
China has been tougher from an export control restrictions point. I think it's just that is the reality. We didn't expect it to be this size of a headwind.
Yeah.
On balance, we could have done better as well. There is an execution part here where we you know, lot of soul searching, but we can be better as a company. Even though we're growing a lot faster than all of the competition.
Undoubted.
Yeah.
We think we actually could be doing better again.
Yeah.
That's because we can see these end markets we're going for. We can see there's GBP 13-14 billion that actually we should win at. It's just how do we get there as quickly as possible?
Now I think we're aligning on that path to do it. We've made very clear with everybody that 2027 breakeven Adjusted EBITDA was written in stone, and we've kept it in stone. We've not moved it out even though we're not growing as fast at the top line because we're doing better on margin. We're doing better on cost control.
Okay. Great. We've got five seconds to spare, so I think I'll end it there. Thank you very much for your time this afternoon. Hope you all find it useful.
Thank you very much.