Oxford Nanopore Technologies (ONT) has reported a steady performance in its 2024 Half Year Interim Results, with CEO Gordon Sanghera confirming the company's alignment with financial guidance and noting significant underlying revenue growth. With a strong cash position and strategic investments bolstering its market presence, ONT remains optimistic about its full-year guidance, driven by product innovation, sales efficiency, and growing market opportunities.
Key Takeaways
- Oxford Nanopore reported GBP84.1 million in revenues, a 12.4% growth on a constant currency basis.
- Consumable sales of flow cells and kits constituted 74% of the revenues.
- The gross margin improved to 58.8%, and the company maintains a full-year guidance of a gross margin target of approximately 57%.
- A cash position of GBP397 million was reported, with a net cash outflow of GBP75 million.
- The company expects revenue growth from the Americas in the second half, driven by new contracts and improved sales force efficiency.
- Revenue growth was primarily from the EMEA and APAC regions, with the PromethION range leading the growth.
- Oxford Nanopore anticipates higher contributions from applied markets and biopharma segments in the future.
Company Outlook
- Oxford Nanopore confirmed full-year guidance of 20-30% underlying revenue growth.
- The company aims for over 30% CAGR in constant currency over the medium term.
- Oxford Nanopore plans to improve its cash flow and inventory levels in the second half of the year.
Bearish Highlights
- The EBITDA loss increased due to higher costs.
- Revenues from the MinION range declined due to a transition to newer device models.
Bullish Highlights
- The company has seen strong growth in publications, with over 1,400 in the first half of the year.
- New device placements and increased utilization drove revenues in EMEA and APAC.
- Oxford Nanopore is confident in meeting its revenue and margin guidance for the year.
Misses
- Despite overall growth, the company experienced a net cash outflow of GBP75 million.
Q&A Highlights
- Oxford Nanopore is working towards reducing the cost per genome to a range of $200 to $300.
- The company expects increased revenue per head as sales teams become more established.
- Oxford Nanopore is exploring CapEx and leasing options to meet customer preferences.
- The company anticipates demand for the Q-Line and PromethION to contribute significantly to growth in 2025 and 2026.
- Oxford Nanopore is on track for FTSE 250 inclusion following shareholder structure changes.
Oxford Nanopore Technologies, with its ticker ONT, has presented a confident stance in its 2024 Half Year Interim Results. The company has managed to achieve a 12.4% underlying growth and reports a strong cash position, which is expected to support its strategic growth plans. With a focus on product innovation and market expansion, particularly in the Americas and APAC regions, Oxford Nanopore is poised to capitalize on new opportunities and maintain its growth trajectory.
Full transcript - None (ONTTF) Q2 2024:
Gordon Sanghera: Good morning, and welcome to our 2024 Half Year Interim Results Presentation. I'm Gordon Sanghera, Chief Executive of Oxford Nanopore, and I'm joined today by our CFO, Nick Keher. Today, we will talk about some of our successes and challenges in the first half of 2024. We'll be reviewing opportunities for the second half of 2024 and our expectations to meet our commitment to deliver sustainable growth. Moving straight into our first half results. Our revenues for the first half of the year were GBP84.1 million, in line with 2024 guidance. This is 12.4% underlying growth on a constant currency basis. 74% of our revenues are from our consumable sales of flow cells and kits. Our gross margin for the period was 58.8%, up 120 basis points. I am confirming our full year guidance, that is underlying revenue growth of 20% to 30% on a constant currency basis and a gross margin target of approximately 57%. From a cash perspective, we're well positioned with cash or cash equivalents and liquid investments of GBP397 million at 30 June 2024. Our investment from Novo Holdings reinforces and validates Oxford Nanopore's strategy and future growth plans across each of its end markets, which include research, biopharma, clinical and applied industrial. The Novo Holdings team bring deep knowledge of the biopharmaceutical market, including biomanufacturing, a key growth area for Oxford Nanopore, which I will talk more about later in the presentation. Our H1 key highlights, we have made strong progress against our strategic priorities in the first half of the year. On the Innovation front, we will continue to make disciplined investments where it drives value and unlocks new opportunities. This includes platform upgrades, launch of our regulated Q-Line and end-to-end workflows. Highlights in H1 include early access launch of P2i, our integrated PromethION, ElysION, our automation sample preparation platform and our Q-Line GridION. In addition, we have launched complete and comprehensive telomere-to-telomere T2T workflows for population-scale sequencing customers. And I will talk more about that later as well. On the Commercial front, we are seeing strong growth in the rollout of P2 with 1,350 new P2 devices in the field. We have new contract wins in population-scale genomics with PRECISE in Singapore. We are sequencing 10,000 Nanopore genomes with them. We're extending and building on our partnership with Plasmidsaurus for plasmid sequencing and Lonza for biopharma applications. We're on target to launch multidrug-resistant TB assay in Q4 in partnership with bioMerieux and the launch of AmplideX with Asuragen, a gene panel for challenging medically relevant chains also in Q4. On the Operations front, we have expanded our global and logistical networks in Asia Pac, enhancing our customer services in this region. With increasing demand in our applied market applications, we've completed buildout of our development laboratories and infrastructure to support our Q-Line automation workflows. We have continued to improve PromethION, flow cell manufacturability, which is positively impacting margins. We continue to show strong growth in our publications. In the first half of the year, there were approximately 1,400 publications. These publications drive commercial uptake through demonstrable application of Nanopore sequencing creating a direct pathway to commercial revenue. Our total Nanopore sequencing publications are over 12,500 since the launch of MinION in 2015. And with that, I will hand over to Nick, who will get into the financial details for our half year results. Over to you, Nick.
Nicholas Keher: Thank you, Gordon. My name is Nick Keher, and I am the CFO of Oxford Nanopore. And now turning to the financial highlights for the first half of 2024. Overall, we delivered a robust performance, which was either in line or ahead of guidance. Revenues grew 12.4% on an underlying basis at constant currency to GBP84.1 million. When adding back the around GBP2.4 million revenue headwind from currency itself, this puts us closer to GBP87 million or the top end of guidance set out in March of this year for a 45-55 split to total revenues in 2024. Gross margins came in at 58.8%, in spite of a 120 bps headwind from currency, which implies a see-through margin of closer to 60%, which is ahead of our guidance for the year and reflects continued progress on PromethION flow cell margins. Our EBITDA loss has increased 56% versus the prior year, but this is due to the material increase in the cost base, as highlighted at the end of the 2023 results. And in fact, we have materially slowed the expansion of our cost base, which is up only 2% versus the second half of 2023. Our balance sheet remains very strong, with $397 million of cash and cash equivalents at the end of June, which has increased by GBP78.2 million, thanks to the net proceeds of the equities raise associated with the investment from Novo, and our investors in August in what was an oversubscribed placing. Just turning to the next slide and digging deeper into the profile of our revenues. Collectively, revenues declined GBP1.9 million to GBP84.1 million, but as stated, this reflects the currency headwind of GBP2.4 million, as previously highlighted, and also the impact of declining revenues from EGP and COVID, collectively an GBP8.9 million headwind in the period or an 11% headwind altogether. We anticipate COVID revenues remaining broadly consistent to the first half as COVID becomes more endemic than pandemic in nature. EGP revenues, we anticipate rolling off from this point going forward. In terms of the split, revenues have continued to be dominated by consumable sales at 74% and in line with what we saw in 2023. Turning to the next page and by region, underlying revenue growth, excluding EGP and COVID was strongest in EMEA and APAC. EMEAI was driven by a placement of new devices and increased utilization on existing devices as customers' confidence increases just at a time we have seen the sales team become more established. APAC growth was driven by continued commercial service provider uptake and higher utilization for existing customers. Notably, we saw underlying growth in China in spite of the trade restrictions that are in place. Whilst revenue growth from the Americas was more benign, only up 2% on an underlying basis, this reflects the delays seen in funding for major projects, lower MinION sales and the timing impact of hiring in the commercial teams. As we look forward into the second half, though, we anticipate Americas revenues increasing substantially to a revenue growth of over 30%. This is being driven by a material step-up in orders received per commercial head which we saw in Q2 and expect to continue as the sales team established itself continued interest from biopharma and applied market customers and the Q-Line launch. By franchise, revenue growth remains highest from PromethION range and is being driven by both new device placements and increased utilization. Just pausing here, this change in revenue profile is also worth touching upon as it relates to gross margins as improvements delivered across the PromethION flow cell range saw the standout improvement in underlying margins overall. And secondly, as we see growth from healthy but lower margin PromethION sales versus MinION, this will drive a negative mix impact overall. Underlying revenues across the MinION range were down, 11% in the period, but does reflect the impact from the weakening U.S. dollar and the decision to remove the Mk1C device. Turning to the new slide, representing our first half 2024 revenues by customer end market, i.e., the end market of the customer or company buying our products. Based upon our 2024 year-to-date June revenues, around 70% came from customers who are funded to research novel science, such as academic research institutes. 12% is from customers who are utilizing sequencing for application in industrial or service setting such as Plasmidsaurus. 9% from customers who are funded by reimbursement such as clinical labs. And 9% from customers funded to develop, make and sell pharmaceuticals such as biopharma clients. We hope this granular level of data will help people understand how we are positioned today in these end markets but also how we expect the shape of our revenues to grow over time with more emphasis coming from end markets outside of the research space such as biopharma and clinical and applied customers. Gordon will talk to this further in his own section. Turning to our gross margin performance. We have delivered in line with what we have guided in spite of a material FX headwind in the period. We delivered a 120 bps improvement to gross margin, driven by underlying improvements, particularly across PromethION, flow cells, but also across devices, partially offset by mix as we sold more PromethION flow cells than MinION and as we saw a headwind from currency. Looking forward into the second half, we still anticipate a 57% gross margin for the year as we factor in a further weakening from mix, not just the growing proportion of PromethION flow cells overall, but as we see more revenues from customers in the whole genome sequencing space that are an inherently lower margin profile overall relative to other types of business. Turning to the P&L and to a fuller view. We have here a breakdown from revenue to adjusted EBITDA by half. Against the first half of 2023, we have seen adjusted R&D spend remain at a broadly constant level but a decline versus the second half of 2023, as we committed more capital to later-stage development activities, a trend we expect to continue. For adjusted SG&A spend, we have seen costs increased 32% year-on-year and 12% since the second half of 2023, reflecting annualized impact of hiring in H2 2023 and Q4 2023 in particular, as highlighted at the results in March this year. This increase reflects the annualized impact of our head count hiring to establish the commercial infrastructure. As a result of this focused cost control on the cost base, our costs overall are up 18% year-on-year, but only 2% versus the second half of 2023. Looking forward, we anticipate increasing revenues, leveraging the now established cost base, which we will continue to actively manage and allocate capital to prioritize activities. Turning to cash. On cash flow, we saw a net outflow of GBP75 million in the period, reducing our net cash position by GBP397 million. Operating cash flows of GBP56 million reflect the ongoing cost of the business, but also the timing impact of bonuses paid out in the first half. From a working capital perspective, when excluding assets placed with customers, we saw an inflow of broadly GBP6 million, but we see considerable scope for improvement here over the coming years as we work to lower our inventory levels, particularly across the MinION flow cell range. Assets at customers represented an investment of GBP14.4 million by Oxford Nanopore and the largest single cash item outflow outside of day-to-day operations. On the balance sheet at cost, the total value of assets held at customers is now GBP58 million and also represents a potential opportunity for cash flow optimization. Firstly, we have entered in an agreement with a third-party firm to help customers finance the CapEx purchase of ONT devices rather than as an operating lease. This could open up new customers of ONT who want to own the device at the end of the term but also minimizes the cash investment by ourselves in placing devices with customers. We are also continuing to engage with potential partners on the sale and leaseback of our own installed base with customers. This would benefit ONT by releasing capital to us, and we will consider this at the right time for Nanopore as will, in essence, be debt taken on by the company and hence, no sense in taking on whilst we have over GBP400 million of cash on the balance sheet when including the equity raise with the Novo investment. In terms of other items, just to note that we expect an R&D tax credit in the second half of around GBP8 million, but may fall into the first half of 2025. Even without this, from an operational perspective, we expect an improvement in our cash flow in the second half and before we consider any benefits from third-party financing firms to help customers access our devices. With these four points in particular, we have confidence in the second half revenue step-up to meet full year guidance. Turning to the financial outlook for the second half and beyond. For the second half, we are confident in meeting our revenue and margin guidance for the year. We are confident in this for 4 key top line drivers. First of all, we have seen the total number of direct and indirect sales heads increased 80%, but orders per head are now down only 8%, implying a material improvement in our underlying operational efficiency. And secondly, with the sales teams more established and greater discipline from a data perspective, we are also seeing an increasing opportunity funnel across each region, a leading indicator for future growth. Next is not just our sales teams maturing but our customers as well, with the utilization per device, particularly on the PromethION range up meaningfully year-on-year. Lastly, our belief in the outlook is also supported by product launches that will drive new customer demand. The Q-Line range available now on GridION and in the future on PromethION alongside the ElysION, we believe will drive uptake, and in particular, across biopharma and applied customers. Turning to my next slide. On FY 2024 guidance, we are reiterating it with some nuanced updates to help people model the second half. We now expect the EGP and COVID headwind to be smaller, likely contributing GBP2.5 million in 2024 versus GBP20 million last year and previous expectation of closer to zero. However, on currency, we have already seen a total headwind of 2.8% or GBP2.4 million in the first half, and if rates remain constant with those seen already, we would see that headwind moderate to 2% for the year but still around GBP3.4 million in total. Looking at [indiscernible] specifically, if the average hits 1.3% for the year or around 5% worse than those seen in FY 2023, then the headwind will be GBP3.9 million in total, and hence, more than offsetting the benefit we are seeing from longer but lower COVID revenues. We are also reiterating our medium-term guidance. We expect a good step-up in the second half of this year with underlying growth set to accelerate exiting the year strongly and into 2025 and beyond, where we reiterate our growth rate expectation for over 30% CAGR at constant currency. We see EBITDA breakeven in 2027 as top line revenues continue to grow, expanding into these outlined end markets and geographically with increased gross margin leveraging an established cost base. We then see cash flow breakeven the year after, with our net cash position to be boosted by the GBP78.2 million net equity issuance completed post period end providing considerable headroom for the group as we achieve our goals. I'll now hand back to Gordon for strategy and closing remarks.
Gordon Sanghera: Thanks, Nick. So I'm going to give you a summary of how we see the rest of the year playing out. As a reminder, Oxford Nanopore's platform is a sensing technology that is completely different from other sequencing technologies in the market. A range of features of the platform include the ability to sequence native DNA and RNA. We can sequence any length of fragment, short, long and ultra long. We can sequence in real time for immediate analysis for near sample sequencing. Our platforms are flexible and scalable to meet customer needs from a point of care to large centralized formats. We have flexible pricing and service and OpEx and CapEx financing options to broaden accessibility of the platforms. We also provide full and comprehensive genomes. Users can see richer insights, accurate multiomic data that is invisible on other platforms. And this is all in one sequencing run. The platform is uniquely positioned to provide not only the genome but also comprehensive methylation, structural variation and copy number variation. 20 years after the completion of the draft human genome, customers can now access full multiomic genomes on one platform with the launch of our telomere-to-telomere T2T workflow. This enables affordable, accessible, comprehensive human reference genomes. We believe this will catalyze richer insights and tailored reference genomes for local populations. And this unique capability will be key to winning future population-scale sequencing programs. Our rich and comprehensive genomes are also scalable. We have a road map to deliver a $200 multiomic genome. Today, we have one human genome per flow cell. Our road map through our continuous improvements program will deliver two genomes per flow cell in the short to medium term, and ultimately up to four genomes per flow cell. So rich content, which is scalable, affordable and accessible to all. Innovation highlights in the first half of the year include continued strong demand for P2 with an installed base of 1,350 P2 units, driving strong consumable growth, launch of ElysION, our automation platform and Q-Line GridION, and enabling us to start pushing into end-to-end sample-to-answer fully supported workflows, such as plasmid sequencing. Our commercial operations through targeted focus areas will allow us to continue to grow in a challenging market. We continue to build on the global commercial leadership teams that we invested into in each of our three regions. And as Nick has articulated, we are starting to see a return on that investment. This commercial team has a clear focus on application areas which has enabled us to grow in this challenging research tools market. We have targeted application hotspots in the research tools market that are growing strongly, where Nanopore can offer a unique value proposition. Whilst the Research segment continues to be the largest and most important, we are seeing good commercial traction in clinical, biopharma and applied industrial sectors. Looking at our commercial highlights by customer type. In the research area, we won a 10,000 genome program with PRECISE in Singapore. In APAC, we have won a program studying several thousand genomes to understand intractable diseases and the link to aging. The NIHR Bioresource program announced last year has now commenced, targeting 22,000 genomes initially in areas of psychiatric, common and rare disease. In the clinical space, we have continued to garner strong interest in rapid insights in infectious disease, particularly in critical care settings. An exciting and developing opportunity in real-time interoperative brain tumor profiling is also emerging. And in Q4, we expect to see the rollout of drug-resistant TB with bioMerieux and Asuragen's AmplideX carrier screening kit also in Q4. In the applied industrial sector, we have signed a multiyear, multimillion dollar agreement with Plasmidsaurus. We are looking to build on the success of plasmid sequencing as part of our push into the $1.6 billion synthetic biology opportunity, which will allow us to displace traditional methods such as Sanger sequencing. The biopharma opportunity continues to develop at pace. Our Nanopore customer conference in mid-September will showcase customer talks from BioNTech (NASDAQ:BNTX), Merck, Sanofi (EPA:SASY) (NASDAQ:SNY), Regeneron (NASDAQ:REGN) and Lonza. Target (NYSE:TGT) application areas include direct RNA vaccine discovery and RNA vaccine QA/QC manufacturing as well as opportunities in cell and gene therapy. As I summarize and before I wrap up, I wanted to remind you that the opportunity that Oxford Nanopore has ahead is not restricted to the current sequencing market. We have shown today a number of examples of H1 successes that we will build on in the second half of the year, where customers may already run legacy sequences, but we're providing richer information. Where customers may have relied on service providers, but we can give them control of their research with actable high-performance platforms. Where customers are using other methods like culture or arrays where we can give them richer data faster. And for some customers who may not have been able to get the answers to their questions at all, with direct RNA, for example, we are opening up entirely new opportunities. As we continue to develop end-to-end workflow solutions, we will start to reach more users who want to make decisions on the genetic data rather than users who are exploring novel new genomes. Whether these customers are in health care, pharma, food or agricultural industries, we believe that only our platform can make these analyses happen easily and right at the point that the information is needed, particularly for biopharma production and clinical applications. So in summary, our performance in H1, robust underlying revenue growth of 12.4% on a constant currency basis, 120 basis point margin expansion. I'm confirming our full year guidance that is underlying revenue growth of 20% to 30% on a constant currency basis and a gross margin target of approximately 57%. We have a substantial opportunity in the medium term as well, large and growing market opportunity beyond the present sequencing market underpinned by our highly differentiated platform. Future growth will be driven by new product pipeline and commercial productivity ramp. This will enable revenue growth of greater than 30% compound annual growth between financial year 2024 and 2027. With that, I would like to open up the floor to questions.
Operator: Thank you. [Operator Instructions] And up first, we have Veronika Dubajova from Citi. Please go ahead.
Veronika Dubajova: Hi. Good morning, Gordon and Good morning, Nick and thank you for taking my questions. I have three please. One is, just following up on your comment on the acceleration in the Americas that you expect in the second half, in particular, can you sort of help us understand what underpins that expectation for that 30%-plus sales growth in the second half of the year? What needs to happen for you to get there? What's your degree of confidence? And maybe just looking at the full year guidance more broadly, where in that 20% to 30% range do you feel most comfortable today with four months left to go? That would be my question number one. Second, Gordon, thank you for the detail on some of the contracts that you won in the population space. I was just wondering if you can quantify sort of to what extent those are key drivers of growth in the back half of the year and kind of give us any more sizing impact? And then my final question is a bit more financial for Nick around the gross margin. It seems to me that maybe you are tracking a little bit better than you had hoped for or expected in the first half of the year. If you could talk about what has gone right and what you see in terms of the second half of the year, that would be helpful. Thanks, guys.
Gordon Sanghera: Let me just say something about the U.S. In the last 12 months, we've hired Julie Collins and [Stefan Banati] (ph), who are both senior execs with a long history at Illumina (NASDAQ:ILMN). And they have been building -- that leadership has been building the teams and which has seen an evolution from our early commercial U.S. teams. And I think we're starting to see a return on that investment in those people.
Nicholas Keher: Yes. And so just to put a bit more color around it as well. So absolutely that, the improving sales force efficiency across each region. But in particular, also the U.S., with those changes that have been made. The teams are now betting in, and the order book that we have in front of us gives us a lot of confidence in terms of what we're going to be -- what we've already won to deliver in the second half of the year. In terms of the opportunity funnel as well. So as that sales team kind of established itself, it's now growing an opportunity funnel to execute upon that will help derisk 2025. And when we look at the customer level, like we said, we are seeing that kind of customer group now establish themselves and use their PromethIONs in particular, much more. So we are seeing utilization rates increase across the larger devices of PromethIONs that are out there, and we're seeing it across territory as well. So there is a lot -- the four key things we highlighted on the slide, they are applicable to each market, but in particular the U.S., we have got good visibility going into the second half. And that's why we're confident over the delivery that's coming in the U.S. in particular. I think you've actually got four questions, Veronika, as well.
Gordon Sanghera: Yes. If we move to the population-scale genomics programs, I think what we are seeing and the NIHR Bioresource program reflects this even though our contract was signed last year. It just takes longer for things to get going. So it's not just lengthening sales cycles in these large centralized programs, but it's also just people getting on board and getting things moving, which I think is a result of a lot of money to do these research programs. But we're up and running with NIHR now. We're very excited about PRECISE because it's four ethnic minorities there. And it's a very, very sophisticated and highly regarded outfit, Singapore Genome Institute of Sequencing and -- Singapore Institute of Genome, sorry. Anyway, that we think is very exciting because they will be publishing their papers. And our telomere-to-telomere will really give us an advantage and we're really looking forward to PRECISE also publishing some telomere-to-telomere genomes as well.
Nicholas Keher: Just going on to the guidance question. So from a revenue perspective, where do we feel comfortable. So the midpoint of guidance, essentially as we have it today, we have very good visibility to. Clearly, we still have a third of the year still to go. And as everybody can see in the numbers, there is an implied step-up in the second half, which we are already in and delivering upon that can -- has to continue for that rest of the third of the year. So we have that visibility to the midpoint of guidance, but we are -- and we are executing upon it. And we haven't moved the guidance range today because we are at the midpoint. As we get further into the year, perhaps we kind of update. But from where first year in as well, I think the right thing to do at the moment is keep guidance where it is, and we can come to this at a later point. Now in terms of the gross margin, yes, we've delivered a very strong performance in the first half. We did say this, or at the beginning of the year in March at the last set of results, we expected a stronger first half. We did anticipate that if we -- customer mix, product mix could actually be a headwind against as we've seen that but we have actually delivered quite a strong improvement in the PromethION flow cell range. It will be steady from here the progress that we see. But we're encouraged by what we've delivered already. Now that means as we go into the second half of the year and for the full year, perhaps there is some good news on the margin to come. But again, let's keep it 57%. Let's just see what the mix kind of delivers over the next three, four months as well from a customer's perspective, but we think we're in a good place in terms of the guidance that's out there at the moment.
Veronika Dubajova: Excellent. Thank you, guys. And yes, Nick. You are right, there were four questions in it. Thanks for answering all of them. I’ll get back into the queue.
Gordon Sanghera: Thank you.
Operator: Thank you. And our next question now comes from Odysseas Manesiotis from Berenberg. Please go ahead.
Odysseas Manesiotis: Hi. Thanks for taking my questions. I would want to start with the two-part question on your recent project announcement project announcement. It was a good project announcement. So one on PRECISE, I saw PacBio also announcing that they're involved. So I wanted to see, is this going to be an evenly split contract between the two of you and why -- how report of your tax is used here? And second part to this question, regarding the H2 benefit of both PRECISE and Plasmidsaurus would have GBP10 million to GBP15 million revenue estimate be a reasonable assumption? And the second question is, I ask -- I mean, looking at some of the slides, a lot of metrics have improved for you in Q2, particularly on the order front that -- could you give us a sense of how sales or book-to-bill figures changed between Q1 and Q2 and how that backs your confidence on continued sequential recovery over the coming two quarters? Thanks.
Gordon Sanghera: So on PRECISE, we have been contracted to sequence 10,000 genomes. That is what I know about long-read sequencing of PRECISE. I have no idea what PacBio's contract is or visibility of it. We have a 12-month contract, we're up and running, and we're looking forward to PRECISE presenting some of the data sooner rather than later. And I will reiterate the T2T workflow is going to be significant, and really exciting, especially as we start to look at those local ethnic contribution from the 4 major population groups in Singapore. That's a really exciting program. I don't know what pipeline we're doing, and I have no visibility. So no comment on that.
Nicholas Keher: And just going to the second half benefit. For awareness, I think we've said this to everybody, the Plasmidsaurus contract, in particular, multimillion dollar, multiyear. They were already an existing customer. So the second half benefit as such is not that significant. But as we go into 2025, 2026, it helps underpin the growth rates that we're looking for and the incremental contribution that will come from that customer as they expand globally. In terms of the PRECISE contract running for circa 12 months, it has started. We are delivering product to the customer. I'd expect a broadly 50-50 split of the value of this over the next six months and then into 2025. And -- that's if everything goes in a straight line, we're not assuming anything goes in a straight line. So in terms of the combined second half benefit, I'd say its mid-single-digit millions that essentially will help us. which is in line with what we've already expected. On your second question about the metrics that have improved, and this is a good point. So on Slide 13, the key drivers that underpin the confidence in second half ramp-up. Those figures that we've got in there, and we're looking to get the number of inside -- direct inside sales heads and the average monthly orders per head. What you'll see there is the Q1 to Q2 ramp-up in spite of head count increasing marginally in Q2, but significantly against the year before. Now using those figures combined, essentially getting the size of our order book, and you can see the acceleration that's happened into Q2. We've continued that in Q3 and Q4 looks promising as well. So -- we've made this point before, but if you were to take our average orders per head analysis from FY 2022 and multiplied it by the number of heads that we have in field now if it's direct and indirect sale -- inside sales, then essentially, you'll be getting not just this year's revenue number, but next year's revenue number as well. Thank you.
Operator: Thank you. And from RBC, we have Charles Weston with our next question. Please go ahead.
Charles Weston: Hello. Thanks for taking the questions. Three please. First of all, on MinION. I wonder if you could -- you give us some explanation about the performance and why it was down in the half. I wondered if you could sort of quantify this point around the drop off in demand for Mk1C versus ahead of the launch of the D? Does that mean that we're expecting some sort of rebound perhaps in 2025, not just because of new device, but also potentially of weak comps in 2024? Secondly, on PromethION, was the growth very broad-based? Or was it focused on specific customers? And was it also broad-based across the big PromethION slide 24, 48 versus the P2. And then lastly, on Slide 9, thanks for providing that breakdown of customers which looks new. How does that relate to the 10% to 20% target of revenue from applied markets in 2026, which of those buckets would you have classified in that target before, please?
Gordon Sanghera: If I start with the last one first. We talked about 10% to 20% applied market contribution in Capital Markets Day looking forward. So what we have decided to do is to break that down, and we will probably be higher contribution by the time we hit 27%. And I think that's a reflection of two things. One is the slowdown in the underlying research markets, but also traction in the Plasmidsaurus for Applied Industrial, some of the clinical applications and this is some of the research [indiscernible] applications as well as bioMerieux, Asuragen, [indiscernible] and other partners that we have, acceleration of those. And also with that tightening market and competition in the underlying research space, we are pushing in that direction a little bit faster. So we anticipate looking at 2026, 2027 to have more than that 20% contribution. And we're just responding to that in an agile manner. That's where our Q-Line comes in and our automation. And the kind of the really exciting interesting one is biopharma, and you should really look at for the Nanopore Community Meeting Biopharma Day in Boston. Just the sort of scale of interest from the London Calling day in May to September, it's really developing a pace, and that's a really exciting segment as well. So I think it will be more. On MinION, jumping to your first question. The Mk1C to Mk1D. Mk1C compute is really running out of steam with the latest and greatest base callers. So we do have to switch out from Mk1C to Mk1D. So some of that contribution to MinION sales being down a bit is really just that switch out. And I would say that was the majority of the driver there. And I'll hand over to Nick to talk about that and PromethION broad or specific growth.
Nicholas Keher: Thank you, Gordon. So exactly. On the MinION piece, absolutely right. So the contribution from the Mk1C delta one year to the next is about 2.1 million. So the majority of it. Clearly, what we will have seen though is customers who were buying the Mk1C historically will continue to buy flow cells and associated items as well. It just -- and perhaps switch to other devices. So it's not as if we would have lost it completely, but it's -- in terms of the sales tagging process, we can see that kind of delta. And clearly, in our underlying numbers, we also have currency impact, which would have impacted it as well. Now does that mean we're going to see a rebound? And what does that mean for weak comps? So yes, I think as the Mk1D launches, it will help rejuvenate the MinION franchise from a growth perspective. But don't forget, we have all the growth drivers as well. Q-Line, as Gordon has talked to, the ElysION launch as well that will help support that. And particularly on the Q-Line, the focus of the RNA in that flow cell, therefore, the biopharma customers. So we will have a weaker comp in 2024 where as we go into 2025, which is beneficial from that perspective. And we would expect good growth coming from the launch of Mk1D. On the second question of PromethION, it has been broad-based. Geographically, actually as well as a bit of a divergence and a bit more EMEA and Americas relative to APAC on the lot -- and it is larger devices. We've seen that utilization really ramp up. But let's not forget, we have just launched the P2 and P2i, it's going to take time for that kind of natural utilization rate to fall. And we've been very encouraged by the kind of pull-through that we see from that range of products that is now over 20% of the total kind of PromethION consumable pull-through. So it has -- yes, so sorry, it has been broad brush. It has been the larger devices. We've seen that utilization increase. We are talking over 20%. And it's across -- generally, it's the P24s, P48s, which are with the bigger customers as well.
Charles Weston: Great. Thanks very much.
Operator: Thank you. And we now move on to a question from Zain Ebrahim from JPMorgan (NYSE:JPM). Please go ahead.
Zain Ebrahim: Hello. Zain Ebrahim, JPMorgan. Thanks for taking my questions. Just a few for me, please. First question, just in terms of the PRECISE contract that you signed last month that you've talked about. Maybe beyond that contract, could you talk about how you're thinking or what you're seeing in the market in terms of appetite for long-read genome sequencing contracts and how this contrasts with H1 so far? And do you believe you've got the contracts that you need in place to execute against the -- against the guidance, it sounds like you do, but I just wanted to clarify that. And maybe just to build on Veronika's question from earlier, what do we need to see to be able to deliver the top end of the guidance range? That would be my first question. And then my second would be on China. So there, you reported 7.5% underlying growth and some of your peers have seen some weakness there. So can you maybe talk about are you still seeing resilient growth in China compared to some of your peers? And how you're thinking about the growth contribution from China going forward within your midterm guidance?
Gordon Sanghera: Okay. We'll do China first. From a technical perspective, long reads, there's huge appetite. China market's kind of inverted to the rest of the country in that most of our business comes either through distributors or through our partnerships and service providers and they continue to see the unique value proposition, whether it's in single cell population scale and soon to come T2T, playing a bingo game today, see how many times I can mention that workflow. So you all remember how significant that's going to be. So we have seen that growth because there isn't -- it's difficult for the other long-read company to scale in China. And it's a very CapEx-sensitive market. So being able to use our OpEx models has seen us get that growth. I don't know if you want to comment on China.
Nicholas Keher: Yes. So thanks. I mean that underlying growth number as well, don't forget that includes the currency headwind and the currency headwind has been pretty significant for China. So we're over double-digit underlying growth. It is all in fact, going to all. It is thanks to the kind of increasing utilization on customers which is beneficial for us. As we look forward though, look, there's no mistake that it's difficult to operate in getting product into China, given the kind of trade restrictions that are in place. We don't see that changing. It could potentially even get worse. So whilst we're doing very well, we don't -- we're cognizant to the risk profile. And so as we look forward from it, we don't anticipate it being the kind of driver for going over that 30% growth rate. That's going to come from those new market opportunities that Gordon has talked to, enhanced customer adoption and increasing utilization in line with what we've already seen. So it's not the driver. But clearly, we're very encouraged by what we've seen relative to what our peers have said. And clearly, you can see what they've all said about the difficulties they're having there. On the first question of PRECISE, I mean, Gordon, do you want to start with the long read piece as well?
Gordon Sanghera: Yes. I think typically, and we've seen this for several years now, you either get focus contracts such as NIH Card, which is Alzheimer's, which is 4,000 samples for looking at neurodegeneration, NIHR Bioresource looking at central nervous system, CNS, and rare disease or you have population-scale programs like PRECISE, which is whole population, where 10% or 20% are long read and then there's us plus the other guys. But we do believe that the telomere-to-telomere workflow will really give us a competitive edge, not just against the long-read competitors, but also in the short-read space. There are no global reference genomes. We have the European genome and the North American genome. And it's abundantly clear to everybody that you need local genomes. And that switch from a sort of generic genome to local populations will be significant, and we're really excited about that. And it will give us a competitive edge against long and short read competition in these population-scale programs. And we hope and anticipate that, that will increase the percentage of long-read genomes that are done. But today, it's in that 10% to 20%.
Nicholas Keher: And just as how that kind of helps us from a guidance perspective and what else do we need to do? We have the work in front of us and the wins, if you like, to deliver against the guidance that's set in the market. It's now about how we can kind of push the teams as hard as possible to kind of move up that guidance range with the four months of the year that we have left. So don't make a mistake. We've got a lot to execute upon. There's a lot that we need to kind of get right. But as we sit here today, we're in a, like I said, a good spot in terms of the midpoint of the guidance range, and it's how we kind of move forward from here. So yes, thank you.
Zain Ebrahim: Very helpful. Thank you.
Operator: And up next we have David Westenberg from Piper Sandler. Please go ahead.
David Westenberg: Hi. Thank you for taking the questions here. Just another one on the population sequencing. You had big wins in PRECISE and Plasmidsaurus. As we're thinking about the medium-term guidance, how dependent is the medium-term guidance on winning new deals? And I'm just kind of thinking about as we roll into 2025, you'll obviously have those contribution in the first half, but it is going to start to comp and maybe make the growth a little bit difficult, more difficult to hit that medium-term guidance. I guess that one would be for Nick. And then maybe just as a question on pricing for Gordon. It looks like the market leader is thinking about more around quality than necessarily lowering the price. I know you already have long reads, you already have some of the multiomics methylation as a tool that you have. But how do we think about pricing as a whole, including Nanopore over the next, say, three to five years? Because it definitely sounds like the market leader wants prices more stable. And then just as we think about your customer absorption of price if you were to theoretically lower price, is the fact that you're decentralized make you a little bit less at a risk for seeing big reductions in revenue when you would theoretically introduce price if you were to do that. Let me know if that needs any clarity. Those are my questions.
Gordon Sanghera: So doing the quality versus price one first. Are you talking in the context of population-scale programs or are you talking more generally on pricing?
David Westenberg: I'm not. I'm talking about generally speaking, I mean, I know a lot of times we use -- there is a market leader that set a cost per gene paradigm, that's maybe not the best way to think about Nanopore sequencing, I think you've always kind of changed that conversation. But just in terms of where you see overall market pricing and what you would do in relation to the market? That's not in population. That's just in general.
Gordon Sanghera: Good question, David. So we welcome the fact that the market leader has now understood the quality of the genome is of paramount importance, and that may come at a premium. Now what we do think, though are current one genome per flow cell versus the price of a [basement] (ph) genome, if you like, a basic draft genome. This is a fully multiomic telomere-to-telomere genome, is, the gaps too big. So getting to two genomes per flow cell, we think, brings the gap down close enough that a premium product will be in the right price bracket versus the basic product, where people talk about $100 or $200 a genome. But we do have a road map that gets us all the way down into that $200 to $300 genome with three then four genomes per flow cell, which comes in the medium to long term. The -- right now, the focus is getting to two genomes per flow cell. And that, we believe, with the quality we have, remember, that's 100% of the methylome. That's full structural variation. That's full copy number variation. And all of these things are becoming increasingly important. But we do think, right now, that's a premium price that's abridged too far. And getting to two genomes gets us into that. And it absolutely -- we concur with the market leader, the multiomic quality, they took about the fifth base. You look at the multiomics we can provide. It's far more comprehensive than that. And we're excited that they're talking about that because we think we have an offering that will be play out at a premium. And again, that telomere-to-telomere local reference genome will play a significant part in driving adoption and catalyzing our market penetration in the population-scale programs. I think in terms of overall pricing per gigabase on PromethION and your question about central versus decentralized. Our P24 and P48 offerings are high throughput centralized platforms and we compete very effectively even with short read on certain attributes, but certainly on long read from a pricing perspective per gigabase. And the OpEx models we have, we're very competitive in large centralized programs, and we're starting to see the benefit of that with the NHIR contract now up and running, PRECISE and others to come. I'll let Nick comment on the impact. medium-term revenue.
Nicholas Keher: Yes. Thank you. So you're absolutely right. winning these large programs, which have a time horizon associated with them provides a headwind to, essentially, from a growth perspective as we look beyond. However, what we're kind of not discussing at the moment are the new programs that are going to be coming behind that to replace the current ones that we're doing. And we'll update on those towards the end of the year and how these new program wins are going to support growth beyond the 2025 level. The proportion of our business that's coming from these larger contracts anyway is not as big as kind of the installed base when it starts moving 20% up in terms of utilization rate, which is what we're seeing on the PromethION larger devices anyway. So in terms of where we are for the year, there's an accounting piece that kind of is a key to get across. So as we exit the second half of this year, everybody will be able to take a calculator and see what the exit growth rate is looking like. Now the important thing to note as well is as the more devices that we're placing at the moment, particularly across the OpEx model, that actually gives us forecast visibility of a nine, 12-month horizon which essentially underpins quite a lot of the growth rate expectation for the first half of next year. As we start to go into the second half of next year and now our sales teams, commercial teams are embedded in and really established and they've got tenure of at least more than a year, we expect that kind of revenue per head analysis to increase further and come back to what we saw in that 2022 level and kind of underpin the growth expectations we've got. And offset any headwind from these larger programs kind of rolling off. So new programs coming behind the ones that we've done today, we'll talk more about that in times to come. Then we've got increasing utilization rate across our quite substantial installed base. And we've got an improved kind of sales force efficiency play as well coming through. So as we exit 2024, hopefully, that will give people confidence as we go into 2025 with the growth rate that we need to deliver.
David Westenberg: Thank you. Very helpful.
Operator: Thank you. And our next question now comes from Paul Cuddon from Deutsche Numis. Please go ahead.
Paul Cuddon: Thank you very much. With limited time remaining I've just got two. I'm just wondering if you could provide a bit of detail on the former reporting by S1, S2, S3 and indirect in terms of customer numbers and average revenue per those different customers? And also, a bit of an explanation of the CapEx and future finance lease options. I mean, do you think if the customer actually owns the device, they may actually kind of start to utilize it kind of more than they otherwise would? Thank you.
Nicholas Keher: Great. Thank you, Paul. So let's do the CapEx versus leasing one first. So I think -- and Gordon will add to this as well. As we go into those new customer end market segments, we believe we're going to see increased interest from a CapEx perspective. We're already seeing it. And we're putting this kind of -- this financing option for customers in place because that's how they want to purchase the device as well. So we think this will help hopefully be an enabler for growth into certain market segments, certain customers that we didn't have before. And we're already seeing that come through from customer demand. As we kind of talk about that S1, S2, S3 split, I'll take it offline, if that's okay. We can give you the kind of the numbers as they are today and in the average revenue per customer. Clearly, you can see from this year has been about actually increased utilization per customer level anyway. So -- and particularly in that S3 category where we're seeing the larger P24, P48 devices increase and you'd have seen some weakness in the S1 because of the MinION performance as well. But we'll take that offline, if that's okay for the firm numbers because we're not publishing in the results anymore, and we can kind of give you a guide instead.
Gordon Sanghera: And on the CapEx -- increasing CapEx visibility is a reflection of the maturity of the platform as we hear from traditional customers. And I think that's really driving that demand, and we are reacting to that demand. We've always had a CapEx option, but it's becoming ever more significant with these more mature customers who want to own the platform.
Paul Cuddon: And do you think there might be an opportunity to sort of monetize existing customers who are on leases that may well want to own the device they currently have?
Gordon Sanghera: Absolutely, absolutely. It's a bit of both. And there are certain customers who are mature with the tech. So they move from research mode into applied market mode and bioMerieux is a great example of that.
Nicholas Keher: And I think the biopharma customers are good examples of that as well. What we're seeing is we have a significant number of customers in the biopharma space, the large biopharmas, in particular who will be using it in the research setting, evaluating it in manufacturing, who are now going or looking -- considering for that QC space, and they will want to own -- not one device, but multiple devices for the sites that they have and it will be a CapEx-like purchase that they're going to go in for. It will be Q-Line. It will be a different pricing model, it will be a price per test. So it will be different from kind of the established way of thinking about it. Now in terms of the existing installed base with the customers that are there today, if their utilization rate is ticking along, then absolutely kind of happy to keep the relationship where it is. If their utilization rate isn't where we think it should be, we can take those devices back, and actually, we can look to resell them to new customers instead. And that is definitely a play for 2025, 2026 that we're going to really actively manage the installed base that's out there. And in the U.S. and the U.K. in particular, for tax reasons, there will be a benefit from what we could consider, selling the devices direct to the customers that already have them. And as we go direct in more and more markets, then there will be an opportunity to do that as well.
David Westenberg: Excellent. Thank you.
Operator: Thank you. And from Stifel, we have James Orsborne with our next question. Please go ahead.
James Orsborne: Thank you. Hi, Gordon. Just a few questions from me. Just on the Q-Line. I know MinION was released in May of this year. Just to get an interesting -- a bit of color on the uptake of Q-Lines so far. And also noticed the PromethION Q-Line that, I guess, have been pushed back into 2025 a little bit. I just wondered if there's anything material there or if it's just a little slippage in timing, that would be helpful.
Gordon Sanghera: Sure. So I think the Q-Line release has gone well, demand is good. And we are focused on trying to get that out of the door, which has given us a little bit of a push on the PromethION time line. We have some upgrades we're putting into PromethION, and we want to fold those in as part of the upgrade rather than do a Q-Line rev and then have to do a rev on some of hardware, software pieces. So we're just coinciding it all. But the demand -- we have targeted demand on for GridION for specific application areas as we deliver that platform. What's kind of next in the queue is actually ElysION, our automation platform because kind of some of these applications, they go hand in glove. And then we will get on to PromethION. But there is demand across the whole fleet from MinION, Flongle and MinION, P2, P24 and P48 as well as GridION for Q-Line platform and we will work through those over time. And we think this is going to be very significant and very important in our 2025, 2026 growth and revenue contributions.
James Orsborne: Okay. Great. It's very helpful. And just one more in the interest of time. Just on the index inclusion and the ESCC statement in your interims. Is there anything beyond the shareholder structure that needs to change? Or is there anything else that you need to provide to be able to be included in the ESCC segment?
Nicholas Keher: Thank you for the question. And I think it's a good point. So clearly, with the lag share rolling off in October, we will be eligible for the step up, we have to treat this as it is like a mini IPO as well. But from a shareholder perspective, otherwise, we have -- there's nothing that we need to do on that front. We've engaged with our advisers. We are on the track for the step-up. And hopefully, that would allow us to be enabled for FTSE 250 inclusion in due course as well.
James Orsborne: Great. Thanks very much guys. Appreciate that.
Operator: Thank you. We currently have no further questions from the conference call. So I'd like to hand the call back over for any questions from the webcast.
Unidentified Company Representative: Thank you. So we've got a couple of questions from Miles Dixon at PeelHunt. First question is, why were the orders per head in the commercial team weaker in Q1 2024?
Nicholas Keher: Perfect, I'll take that one. So Miles, this is purely -- that is why we put two lines on the graph here. The total number of salespeople in the field, essentially the indirect sales has risen so this is just a mathematical point. When you've doubled your head count from one year to the next and Q2 versus Q2 of the prior year up 80%, you'd expect dilution to happen in terms of average orders per head because the sales -- the guys -- the girls who turn up, they can't be productive from day 1, and it takes six to 12 months for these people to kind of become productive in any new job. That's exactly what we're seeing, and that's what we guided to in March as well that it would take time for these people to establish themselves before they can start kind of generating revenue. That's the only reason. So it's purely an effect of incremental heads driving down the average orders per head. Now we're starting to see that reverse to a more of a normal position. We're still not at the level we were in FY 2022, but we are trending back in the right direction. Hopefully, that helps.
Unidentified Company Representative: Great. Next question from Miles was when building internal [indiscernible] revenue forecast. How much are they a function of applying -- sorry, known growth rates on launches of new products or in new regions versus growth of the wider market and/or greater market share.
Nicholas Keher: So there's multiple approaches to doing LTO forecasting. So for our perspective, we are looking at market growth rates, and we look at various sources of information that we kind of compile those as well. We then also triangulate with our own position in terms of what we are seeing in the market. And a key one here is go a layer down and think about the content that we're creating because it's not just about having the device in the market, you then actually need workflows for people to be able to enable the revenue, talk about BRCA1, BRCA2 in the LDT space, thinking about the RNA workflow for QC in manufacturing for biopharma. So we take this a lot lower in terms of granularity we do go into. So it's -- we're thinking about product, we're then thinking about customer, thinking about workflow, thinking about market segment that opens. And then we talk about market share gain that we can get within that. And the difficulty really comes where actually, we're going into markets where there is no sequencing provider today, particularly in the biopharma space that when we look at the competition. Easy ones maybe when they were thinking about plasmid sequencing, where there is an established but much older technology available. Our competitors aren't suitable for that, and we see a $1.5 billion revenue opportunity for us to kind of go into overtime as well. So we could probably spend 1.5 days talking about how we kind of -- comes the underlying revenue forecast for the company. But we are taking in as many data points as possible trying to triangulate it and also taking a risk view as well when we do it.
Gordon Sanghera: A simplified version of that is, we can clearly see from 10,000 feet up, hotspots in the market like single cell. And then the unique value proposition entirely owned by us in the RNA space or near-patient critical care infectious disease. So we can then target these and you have to layer in, does it need automation? Yes, no. We make these end-to-end workflows. And then we can say that's a GridION, that's PromethION, that's a P2, that's a Flongle, and we can layer all of that in and then target our innovation pipelines to meet those unmet needs in the market where we deliver a unique value proposition, whether it's near patient, RNA or other. And kind of that all feeds into that ability to continue to, in an agile way, grow in what is a challenging market as we've seen from the peer group results. Thank you.
Unidentified Company Representative: Great. Thank you. There are no further questions. I'll hand back over to you for any closing remarks.
Gordon Sanghera: I'd just like to say thank you for your time today. It's been, as ever, the last three months have been challenging. I've been saying that for 20 years, but we are very excited about closing out 2024 and really laying down the foundations to build in our targeted multiomic areas and we think it's going to be an exciting close to the year as we look to close out 2024. Thanks, everybody.
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