ONT Oxford Nanopore Technologies Plc

03 September 2024

Oxford Nanopore Technologies plc

Interim results for the six months ended 30 June 2024

Solid underlying growth despite end-market headwinds; new customer wins and continued commercial momentum support reaffirmation of full year guidance

Oxford Nanopore Technologies plc (LSE: ONT) ("Oxford Nanopore" or the "Group"), the company behind a new generation of molecular sensing technology based on nanopores, today announces its interim results for the six months ended 30 June 2024.

Gordon Sanghera, Chief Executive Officer, commented:

"Against a challenging backdrop, our financial and operational performance in the first half was solid and in-line with our expectations, underpinning confidence in full year guidance. We delivered robust underlying revenue growth of 12.4% constant currency and margin expansion of 120bps.

 

"We continued with our high pace of innovation in the first half, with new product launches and platform enhancements. For example, we delivered the two product launches aimed at our regulated customer base, GridION Q-Line and Early Access of ElysION, our fully automated samples to answer product. These meet customer needs for routine, end-to-end analyses, for example in clinical and applied industrial markets, particularly with Biopharma customers.

 

"As we look forward, our highly differentiated platform and substantial market opportunity position us well to deliver long-term, sustainable growth. Our growth and margin guidance for the full year remains unchanged. We enter the second half in a strong position; new and enlarged contract wins, such as PRECISE and Plasmidsaurus, coupled with the increased productivity of our sales teams in the second quarter reinforces our confidence in delivering between 20 - 30% underlying revenue growth on a constant currency basis in full year 2024."

 

Summary financial performance

£ million Unless otherwise stated	H1 2024	H1 2023	Change reported	Change CC
Revenue	84.1	86.0	(2.2)%	0.6%
-       EGP	0.3	4.9	(93.8)%	(93.8)%
-       COVID Sequencing	1.2	5.5	(78.7)%	(78.1)%
Underlying revenue	82.6	75.6	9.2%	12.4%
Gross profit	49.5	49.5	0%
Gross margin	58.8%	57.6%	120bps
Adjusted EBITDA	(61.6)	(39.4)	(22.2)
Loss for the period	(74.7)	(70.1)	(4.6)

Notes:

1.     All revenue in this document is what has previously been referred to as 'Life Sciences Research Tools' revenue. Historically Group revenue was split into 'LSRT' revenue (i.e. the core business) and COVID testing, to split out short term revenue in FY20, FY21 and FY22 in relation to the COVID testing contract with the Department of Health and Social Care (DHSC), which came to an end in 2022. Following the conclusion of the contract with DHSC in FY22, Group (or total) revenue is the same as 'LSRT revenue', as such, for simplicity going forward the Group will just refer to this as revenue.

2.     Underlying revenue excludes revenue from COVID sequencing and revenue from The Emirati Genome Program (EGP). All references to underlying growth in this document have been adjusted for COVID sequencing and EGP revenues. Underlying growth includes currency fluctuations unless explicitly stated at constant currency (CC).

3.     Constant currency (CC) applies the same rate to the H1 24 and H1 23 non-GBP results based on H1 23 rates

4.     Certain numerical figures included herein have been rounded. Therefore, discrepancies between totals and the sums may occur due to such rounding.

5.     Adjusted EBITDA is a non-IFRS measure that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted EBITDA is the EBITDA adjusted for i) Share-based payment expense on founder LTIP ii) Employers' social security taxes on pre-IPO awards, and iii) impairment of investment in associate - see page 11 and note 5.

 

H1 Financial highlights

·      Revenue of £84.1million was broadly flat at constant currency (CC), down 2.2% on a reported basis, in-line with expectations.

·      Underlying revenue, excluding an £8.9 million combined headwind from COVID sequencing and the Emirati Genome Program (EGP); increased by 12.4% CC.

o  Underlying revenue growth delivered in all regions, led by the EMEAI and APAC, with underlying growth of 16.4% and 10.6% respectively.

o  Underlying revenue grew fastest across the PromethION product range^[1], up 39.0% in the period to £31.9 million (H1 23: £23.0 million). Underlying revenue from the MinION product range^[2] declined by 10.8% to £27.8 million (H1 23: £31.1 million) which includes a currency headwind and a mix of commercial and product specific factors. Other revenues, representing kits, services revenues and other devices grew 6.4% on an underlying basis to £22.9 million (H1 23: £21.5 million).

·      Gross margin increased by 120 basis points (bps) to 58.8% (H1 23: 57.6%) driven by underlying margin improvements (380bps), particularly across both PromethION Flow Cell and devices, offsetting product mix (140bps) and currency (120bps) headwinds.

·      Adjusted EBITDA loss of £(61.6) million (H1 23: £(39.4 million); driven by increasing operational expenses, primarily the annualised impact of additional headcount as highlighted at FY23 results. Adjusted operating costs were broadly flat (+2.0%) against H2 2023, demonstrating good cost control and with EBITDA loss lower than H2 2023 (£65.6m). 

·      Increase in loss year-on-year to £(74.7) million (H1 23: £(70.1) million). This was predominately driven by increasing operational expenses associated with the increase in headcount partly offset by a lower Founder LTIP charge of £1.0m (H1 23: £14.9 million) and a £5.5 million credit relating to the reversal of historic employers' social security tax charges (H1 23: £1.3 million).

·      Strong balance sheet position; cash, cash equivalents and other liquid investments of £397.1 million^[3] as at 30f June 2024, compared to £472.1 million as of 31 December 2023. Post period end the Group raised net proceeds of £78.2 million, following the successful completion of a multiple times oversubscribed £80.0 million equity placing, which included a new £50.0 million strategic investment from Novo Holdings.

 

H1 Business highlights

·      Continued commercial progress in the period, evidenced by improving utilisation across existing customers, leading to a growing revenue opportunity for the Group driven by the enlarged and now established commercial infrastructure. 

·      New contract wins and contract expansions with larger PromethION devices (P24 and P48), including Precision Health Research Singapore (PRECISE), which selected Oxford Nanopore technology to sequence 10,000 long read human genomes to gain deeper insights into Asian genetic diversity, and a multi-million, multi-year contract expansion with Plasmidsaurus, to deliver high-accuracy whole plasmid sequencing with fast turnaround times.

·      New strategic collaborations added to develop and access new growth markets in biopharma, clinical and industrial applications, including a collaboration with Lonza on a novel test to accelerate analysis of mRNA products.

·      Progress was made to advance existing collaborations in H1, including with bioMérieux. A test for determining antibiotic resistance in tuberculosis is expected to be released as a research-use only product in Q4, prior to seeking IVD approvals by the end of 2025.

·      Early Access^[4] launch of PromethION 2 Integrated (P2i) in Q2, and continued rollout of the PromethION 2 Solo (P2S), following its successful launch in 2023. Evidence of continued market traction and disruption with more than 1,350 P2 devices now in the field. The P2 devices represent a new market area of affordable, accessible and high output sequencing.

·      Strong progress against our 2024 innovation goals, with the launch of new products from our regulated pipeline, including GridION Q-Line and the Early Access of ElysION, our sample-to-answer automated sequencing solution, to drive adoption in new clinical and applied industrial markets.

·      Approximately 1,400 peer-reviewed research papers published by users of Oxford Nanopore technology in H1 2024, bringing the total to approximately 12,500 to date, showcasing breakthrough research across cancer, human genetics and infectious disease and demonstrating continued opportunity for growth in the genomics research market.

·      Expansion of the leadership team, to support the business in its next phase of growth: Nick Keher appointed as CFO and Director of Oxford Nanopore in January, adding significant financial leadership experience and a deep understanding of global capital markets. Nick succeeds Tim Cowper, who moves into a new role as Chief Operating Officer and will lead Oxford Nanopore's continuous improvement programmes and expanding international footprint and operations.

See the business review section for further detail.

 

Outlook

FY 2024 guidance

Trading in the second half has started well and remains in-line with guidance. Full year underlying revenue growth and margin guidance reiterated.

·      Underlying revenue growth of 20-30% at constant currency (CC) unchanged and driven by improving sales force effectiveness, increasing customer utilisation rates, growing opportunity funnel and recent product launches.

·      COVID sequencing and EGP headwinds now expected to be approximately £17.5 million (previously £20.0 million).

·      Collectively this equates to 7-16% CC revenue growth (previously 6-15%).

o  As reiterated in the Half Year Trading Update, the Group continues to expect FY24 revenue to be second half weighted, with an approximate 45:55 split

·      Gross margin is expected to be approximately 57%.

o  As stated at FY23 results, the gross margin for 2024 could weaken in H2 dependent on product mix and customer mix.

 

Medium term guidance

No change to medium term guidance:

·      Revenue is expected to grow by more than 30% CC on a compound annual growth rate (CAGR) between FY24 and FY27 underpinned by continued penetration in existing markets and expansion into emerging end-market opportunities, such as Biopharma, Clinical and Applied.

·      Gross margins are expected to continue to improve and exceed 62% by FY27, supported by continued underlying improvements in manufacturing, increased volume growth and further penetration of new end-markets.

·      Operating expenses expected to grow at a CAGR of 3-8% between FY24 and FY27, reflecting a continued focus on financial discipline to leverage the infrastructure the Group has already built and to modulate investment relative to the outlook.

·      The Group expects to reach adjusted EBITDA breakeven in FY27 and become cash flow positive in FY28.

 

Application to the ESCC segment

The Board is encouraged by the FCA's recent changes to the Listing Rules that have combined the existing premium and standard London listing segments into one single segment for Equity Shares in Commercial Companies (the 'ESCC').  The Group is in discussion with the FCA and will formally apply for admission to the ESCC segment by the end of 2024, subject to meeting the required eligibility criteria. The step up to the ESCC segment would make Oxford Nanopore eligible for FTSE indexation.

Presentation of results

Management will host a conference call and webcast today, 3 September, at 10:00am BST. For details, and to register, please visit https://nanoporetech.com/about-us/investors/reports. The webcast will be recorded and a replay will be available via the same link shortly after the presentation.

 

For further details please contact ir@nanoporetech.com

 

-ENDS-

 

For further information, please contact:

Oxford Nanopore Technologies plc

Investors:         ir@nanoporetech.com

Media:              media@nanoporetech.com

 

Teneo (communications adviser to the Group)

Tom Murray, Olivia Peters

+44 (0) 20 7353 4200

OxfordNanoporeTechnologies@teneo.com

About Oxford Nanopore Technologies plc:

Oxford Nanopore Technologies' goal is to bring the widest benefits to society through enabling the analysis of anything, by anyone, anywhere. The Group has developed a new generation of nanopore-based sensing technology that is currently used for real-time, high-performance, accessible, and scalable analysis of DNA and RNA. The technology is used in more than 125 countries, to understand the biology of humans, plants, animals, bacteria, viruses and environments as well as to understand diseases such as cancer.  Oxford Nanopore's technology also has the potential to provide broad, high impact, rapid insights in a number of areas including healthcare, food and agriculture. 

For more information please visit: www.nanoporetech.com

 

Forward-looking statements

This announcement contains certain forward-looking statements. For example, statements regarding expected revenue growth and profit margins are forward-looking statements. Phrases such as "aim", "plan", "expect", "intend", "anticipate", "believe", "estimate", "target", and similar expressions of a future or forward-looking nature should also be considered forward-looking statements. Forward-looking statements address our expected future business and financial performance and financial condition, and by definition address matters that are, to different degrees, uncertain. Our results could be affected by macroeconomic conditions, delays or challenges in manufacturing or delivering of products to our customers, suspensions of large projects and/or acceleration of large products or accelerated adoption of pathogen surveillance or applied uses of our products. These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements.

 

 

Business review

Notes: In this section, all growth rates are year-on-year unless otherwise stated. All underlying growth rates referred to in this report have been adjusted for EGP and COVID sequencing. Underlying revenue includes currency fluctuations unless explicitly stated at constant currency (CC). See reconciliation in the Financial Review section. Certain numerical figures included herein have been rounded. Therefore, discrepancies between totals and the sums may occur due to such rounding.

 

Performance summary

In the first half of 2024 the Group delivered results in-line with expectations, delivering revenue of £84.1 million (H1 2023: £86.0 million), broadly flat on a constant currency (CC) basis, down 2.2% on a reported basis.

On an underlying basis, excluding an £8.9 million year-on-year headwind from the EGP and COVID sequencing, we delivered 12.4% CC revenue growth. Underlying growth was robust against a challenging macroeconomic and end market backdrop, particularly in the research field due to constrained funding and elongated customer cycles. This robust growth is testament to our highly differentiated sequencing technology platform, which is being adopted in end-markets only suitable to Oxford Nanopore products relative to other sequencing platforms, and the strength and dedication of our teams across the globe.

Growth continues to be driven by high quality, recurring consumables revenue, accounting for 74% of revenue in H1 24, consistent with last year. Consumables revenue increased 10% year-on-year on an underlying basis, driven by strong PromethION Flow Cell demand and associated kits, partially offset by decline in MinION Flow Cell sales. Device sales grew 7% on an underlying basis, driven by the PromethION range.

The PromethION product range grew 39.0% year-on-year on an underlying basis, through increasing customer flow cell utilisation and new device sales. This helped offset softness in the MinION product range, which declined 10.8% on an underlying basis, due to a mix of factors including currency, higher volumes sold through distributors and the discontinuation of the Mk1C device. We anticipate the launch of the MinION Mk1D alongside the launch of GridION Q-Line and ElysION to support the next leg of growth for the MinION product range.

Underlying growth was delivered across each region, and it was strongest across EMEAI and APAC, with commercial momentum building for the second half across all regions, supported by new product launches, a number of new and expanded contracts, and a continued step up in sales team productivity, as already seen in H1.

Gross margin increased by 120 basis points year-on-year to 58.8%. This margin expansion was predominantly driven by driven by underlying margin improvements, predominantly across both PromethION Flow Cells, but also across devices, offsetting headwinds from mix (140bps) driven by lower MinION revenues relative to PromethION and currency (120bps). Adjusted EBITDA loss of £(61.6) million, an increase of £22.2 million (H1 23: £(39.4) million). The increased loss reflects the annualised cost from investment in our headcount and infrastructure to support our ambitions, in line with prior guidance. Adjusted operating costs were broadly flat (+2.0%) against H2 2023, demonstrating good cost control in the period. In-order to support improving profitability going forwards, we continue to assess current and future investments with a focus on greater prioritisation of activities to deliver on our growth objectives whilst supporting a strong return on investment.

The loss for the period was £(74.7) million, a year-on-year increase of £4.6 million (H1 23 £(70.1) million).

At 30 June 2024, cash and cash equivalents and liquid investments^[5] totalled £397.1 million, compared to £472.1 million at 31 December 2023. Post period end the Group raised net proceeds of £78.2 million, following the successful completion of a multiple times oversubscribed £80.0 million equity placing, which included a new £50.0 million strategic investment from Novo Holdings.

Working capital in the period increased £8.5 million, including assets subject to operating leases of £14.4 million. Excluding assets subject to operating leases, working capital would have decreased £6.0 million.

Post period end the Group entered into a new arrangement with a third party firm to provide customers with financing options to fund capex purchases in certain markets, which could potentially help alleviate the financial burden on Oxford Nanopore from leasing devices directly. Adoption of this service by Oxford Nanopore customers could benefit future cashflows through reducing the investment required in placing assets with customers (£14.4 million in H1 2024).

Alongside this, the Group remains in active discussions with third party firms over the potential sale and leaseback for Oxford Nanopore owned assets at customers to release invested capital to the Group as and when required.

Execution of our strategy     

Commercial execution

Our commercial model focuses on driving rapid adoption and utilisation of our products to catalyse change and growth of the sequencing and analysis market.

In the first half of 2024, we delivered underlying revenue growth in all regions, led by EMEAI and APAC. The enlarged and now established commercial infrastructure is driving a larger revenue opportunity funnel across all regions which we will look to execute upon in H2 2024 and 2025. This is further supported by the increasing number of end-to-end workflows, applications and products to drive customer engagement and adoption.

Revenue in H1 came from a diverse group of customer types including Research, Biopharma, Clinical and Applied Industrial customers, accounting for 69.9%, 8.8%, 9.4% and 11.9% of H1 revenue respectively. We have seen increasing interest amongst each customer group, and in particular across Biopharma and Applied customers given the benefits of Oxford Nanopore's platform over existing technologies.

EMEAI (Europe, Middle East, Africa and India)

We delivered £34.1 million of revenue in EMEAI in the first half, up 16.4% on an underlying basis (down 4.3% on a reported basis, including headwinds from COVID sequencing and the EGP).

The strong underlying performance across the region was driven by both the placement of new devices and increased utilisation of existing devices. Investments made in 2023 in innovation, to improve product performance and end to end workflows, coupled with a now established, highly experienced commercial team, have driven customer confidence and adoption of our technology at scale. We have also benefitted from an expanded reach via channel partners, now covering 11 countries in Eastern Europe.

Growth in EMEAI has primarily been driven by large scale genomic initiatives. Previously delayed projects such as the 22,000 sample human health and disease study led by the National Institute for Health and Care Research (NIHR) Bioresource and other large-scale projects are now ramping up.

From a customer perspective, we have seen stronger traction within clinical labs, cancer research labs and core facilities running Human Whole Genome Sequencing (WGS) and targeted panels using adaptive sampling. Including a further rapid roll out of WGS in Exeter and national programmes such as the Clinical Long-read Genome Initiative (lonGER), a national German programme to advance the understanding of rare disease and a collaboration to advance precision cancer medicine research with MATRIX (a national centre for clinical cancer research in Norway). We have also seen a substantial increase in utilisation in translational research from key public labs and diagnostic work in private labs. We have been particularly successful in implementation of CNS tumour sequencing, leveraging full genome epigenetics for tumour classification, with expansion across UK, Norway and the DACH region. In the UK we also announced the completion and expansion of a successful three-year pilot programme with Guy's and St Thomas' (GSTT) in January to deliver a respiratory metagenomics service with an integrated respiratory infection and biosecurity application. The pilot programme has been expanded to ten NHS hospital sites, with further opportunity for global adoption. GSTT have been a leading example for the rest of the region with sites in the Nordics and Saudi implementing similar workflows.

Across the Middle East we have also seen strong growth in adoption of our technology for national and strategic projects, including several population scale programmes and newborn screening projects which are driving strong pull-through of core consumables. In India the infectious disease surveillance market has become strategically important, and we are working with key customers on national scale implementation of Tuberculosis projects supported by the India Government.

APAC (Asia Pacific)

APAC revenue in the first half was £18.4 million, up 10.6% on an underlying basis (up 4.6% on a reported basis, including the year-on-year COVID sequencing headwind), in-line with expectations. Growth in the region has been driven by continued adoption by commercial service providers and higher utilisation for existing customers.

China revenue was down 1.8% on a reported basis year-on-year, including the headwind from COVID sequencing. Excluding this headwind, underlying growth in China was 7.5%, driven by increased utilisation, partially offset by reduced PromethION device orders due to changing export control restrictions, as previously highlighted, and a currency headwind of approximately 5%.

In the first half, we entered into a large-scale Asia-Pacific programme, that will conduct whole genome sequencing on several thousand samples for novel identification of intractable diseases, including cardiomyopathy. In Indonesia our partnership with the Satriabudi Dharma Setia Foundation (YSDS) continues to flourish, with now over 20 P2 Solo's deployed in field to support basic research programmes across Indonesia, with potential for further expansion.

In the period we also signed an agreement with Precision Health Research Singapore (PRECISE), which selected Oxford Nanopore's PromethION devices to sequence 10,000 long read human genomes, over a period of approximately 12 months, to improve understanding of genetic architecture and diversity in Singapore's multi-ethnic Asian population.

Post period, end we also announced agreements in the rare disease setting, with the Hong Kong Genome Project to determine genetic drivers in suspected cases unresolved with current testing methodologies and with the Victorian Clinical Genetics Services (VCGS) in Australia to develop genetic screening techniques in disorders such as Huntington's.

AMR (The Americas)

AMR revenue of £31.6 million increased by 1.9% year-on-year on an underlying basis, down 3.7% on a reported basis when including the headwind from COVID sequencing.

Whilst we made good traction with key accounts in the first half, primarily across our PromethION product range, growth was tempered by continued delays on funding for major projects across our customers and a decline in MinION sales, which we are addressing through upcoming new launches.

We expect to see higher revenue growth from the Americas in the second half, driven by growth in the biopharma space, continued uptake by distributors, and improved commercial execution. The investments we have made in the commercial team will help us drive towards significantly larger opportunities and higher value wins.

In the first half we started to see accelerating interest from new-to-Oxford Nanopore customers, driven by a combination of 1) increased awareness of Oxford Nanopore's technology and its advantages over other sequencing technologies and 2) better geographic coverage and sales led customer interaction, reflecting the investments we made in 2023 to scale and strengthen our commercial team, including the appointment of key strategic hires.

In the first half we also saw strong traction with customers running applications for which we have significant technical advantage over alternate technologies and where we have developed end-to-end workflows, for example: plasmid and direct RNA sequencing. We saw increased interest from new biopharma customers across the US, including several top 10 pharmaceutical companies driven by the introduction of new end-to-end workflows.

New customers in the first half included a major genome centre in Canada, which is starting several large cohort genome projects for diseases of aging and cancer. They selected Oxford Nanopore's technology platform due to its ability to analyse methylation, RNA and other variant types enabled by long read sequencing. We also signed a contract with a government distributor, which will enable significantly easier purchasing options for US Government accounts. In addition, we signed a new contract with the Canadian Food Inspection Agency, which will use Oxford Nanopore technology for food safety testing via microbiology.  

Post period end, we announced a multi-million, multi-year contract expansion with one of our large US customers, Plasmidsaurus, a company that provides affordable, high-accuracy whole plasmid sequencing with fast turnaround times, solely using Oxford Nanopore technology. With their expanded capacity they are now expanding their menu of offerings to include other applications such as amplicon and bacterial whole genome sequencing. The new collaboration reflects our push into the $1.5bn synthetic biology opportunity and the opportunity for nanopore-based sequencing to displace traditional methods such as Sanger sequencing.

Plasmids are a critical part of the life sciences industry, serving as vectors to introduce genetic material and utilised in 1) gene therapy 2) vaccine development and manufacture (both DNA and mRNA) and 3) production of therapeutic proteins.

Innovation

Our commitment to innovation is central to our strategy for growth; our accessible technology delivers richer data and rapid insights providing both new and improved ways for customers to answer biological questions. In line with the strategic priorities set out earlier this year we have been focused on the launch of new products aimed at expanding our research market including the P2i device, and the launch of new products from our regulated pipeline, including GridION Q-Line and ElysION, our sample to answer automated solution, now in Early Access. In addition, our Applications and R&D teams have been focused on developing and releasing a number of end-to-end workflows to support our user research and simplify their sample to answer experience, including a series of nanopore only workflows such as the Nanopore-only Microbial Isolate Sequencing Solution (NO-MISS) workflow for microbial sequencing and the highly awaited nanopore only telomere-to-telomere (T2T) workflow.

 

New product launches to drive adoption in new clinical and applied industrial markets

In the first half of 2024 we delivered on the launch of new products from our regulated product pipeline. Including the upgraded Q-Line range of products, which provides a locked-down version of hardware, software and chemistry, enabling users to develop and deploy their assays without needing to follow our accelerated upgrade path used by pure research customers. The Q-Line GridION launched in May and the PromethION Q-Line will now be available during 2025.

ElysION (formerly known as Project TurBOT), which launched in Early Access in Q2, is progressing towards becoming a regulated device for future clinical applications, showcasing the Group's ongoing commitment to expanding and supporting advanced research and diagnostic applications.

ElysION is designed to offer integrated and automated extraction, library preparation, sequencing, basecalling, and data analysis for multiple samples, all within a single device. This device will accelerate the proliferation of workflows through health ecosystems such as the respiratory metagenomics work pioneered by GSTT. It does this by providing a hands-free, simple workflow from raw sample to analysis, therefore reducing the expertise required in a hospital laboratory for example.

Enabling accessible, distributed sequencing - towards anyone, anywhere

We continue to innovate towards a new future of near-sample, real-time, low-cost technology that can provide rapid insights to characterise biological samples in any environment, from clinics to factories to classrooms.

Following the launch of the compact and high-output PromethION 2 Solo (P2S) device in 2023, we launched the PromethION 2 integrated (P2i), with integrated compute and screen, in Q2 2024. We have been pleased to see the strong interest in both of these devices across a diverse set of customers. The P2 installed base (consisting of both P2S and P2i) is now more than 1,350 across a broad range of users and applications.

 

In addition, the pocket-sized MinION has been revamped for the first time since 2015 and the new, format, (the "Mk1D"), will provide improved performance enabling robust, high accuracy (>99%) performance in field. The Mk1D is with developers^[6]), ahead of a wider launch in Q4 2024.

 

Delivering increasingly rich, high performance multiomic data: 

Oxford Nanopore is reshaping the market and meeting customer needs through the provision of multiomic (regarded as any  combination of two or more 'omics such as including genomic, transcriptomic, epigenetic, proteomic, and more) data on a single platform, and in addition the provision of broad types of genetic variation on the same platform, enabling customers to generate a more accurate picture of the genome than with legacy technologies. 

In the first half of 2024 we continued to focus on driving performance improvements in the field, with our upgraded basecalling architecture. The platform now delivers simplex accuracy (when a single strand is read by the nanopore) of over 99% for production users and 99.75% when using our more advanced basecalling models, as highlighted at our London Calling conference in May. These basecalling improvements also extend to the number of epigenetic modifications (such as methylation) that we can detect at market leading accuracy. Our teams continue to explore methylation beyond the 5^th base (5mC), including 5hmC, 6mA,4mC. We also announced the release of a new, all-in-one T2T sequencing bundle, enabling T2T sequencing of human genomes without the need for other technologies. The capability to produce T2T assemblies addresses the gaps left by traditional sequencing methods, facilitating more comprehensive studies of complex genomic regions such as centromeres and telomeres. As part of Oxford Nanopore's mission to enable the most comprehensive human genomes, the Group announced a pathway to sequencing whole T2T human genomes on a single flow cell, through improvements to output and by removing homopolymer errors with new pore chemistries

Advancing direct RNA sequencing to support breakthrough science

Our teams applied all the improvements from our DNA chemistry and basecalling and made further advancements in direct RNA (the messenger molecule that carries genetic information from DNA and directs the synthesis of protein) sequencing, following the successful launch of a new RNA kit and flow cell in H2 23. This application is unique to nanopore-based sequencing,

 

In the first half of 2024 the Group showcased continual increases in direct RNA sequencing accuracy, with single molecule raw-read accuracy of 98.8% median accuracy. Improvements to run conditions protocols have also resulted in an approximate 20% output increase in reads over runtime, delivering around three million more total RNA reads over a 72 hour run. This update will enable significant advancements in the RNA research market alongside novel applications of direct single molecule sensing such as mRNA vaccine research, where non-natural RNA bases used in their development need to be sequenced.

 

The Oxford Nanopore's platform can now be used for comprehensive real-time quality control (QC) testing for mRNA vaccines, combining multiple critical quality attributes into a single, efficient test. This integrated approach, which is being released on GridION Q-Line - simplifies the QC process, making it faster, simpler and more reliable. Traditional methods for mRNA vaccine QC are often time-consuming and require multiple platforms and techniques.

 

New understanding of RNA's functional significance - and related emergence in RNA-based therapies including vaccines - has underscored the importance of RNA-related research. Nanopore-based sequencing offers the only direct RNA sequencing technology, where other technologies rely on conversion of RNA to cDNA, which loses important information in the process. This represents an opportunity to provide a new generation tool and develop new applications in RNA sequencing.

 

Simplifying products and workflows to support broader usage

To support different users taking advantage of nanopore sequencing, innovations are being introduced to simplify and make more accessible the end-to-end sequencing process. These include provision of easy-to-use data analysis tools in EPI2ME, the analytics tool set, for increasingly broad applications, from infectious disease, biopharma quality control testing, human variations and single cell. This enhanced interface equips users at all levels of expertise with the information they need, wherever they are.

Operational excellence

In the first half of 2024 we continued to focus on improving our operational and manufacturing infrastructure and processes to enable long-term growth and drive margin expansion. This includes optimising manufacturing processes through innovation to drive efficiency, building a best-in-class, resilient supply chain and strong global teams, with a focus on culture and people development.

We completed the build-out of development laboratories in Sherard Building, which are now fully operational to support launch of Q-line. In addition, the build out of the 57,000 sq ft Spectrum Building is expected to be completed and operational from Q4 2024 with flexible expansion space to support continued growth.

In-line with our priority to expand our global logistics network to make it an easier and more predictable customer purchasing experience, we further expanded logistics and operations in Japan, Canada and Singapore to improve the customer experience in APAC and North America. We continued to make significant investment in customer experience across all regions, and expanded our teams in North America, EMEAI and APAC, with staff in three hubs and seven countries, covering eight languages. Our regional expansion has been supported by a global Customer Success learning and development programme which has led to a double-digit growth in the number of customer service certified professionals in our customer facing teams.  

A new Global Customer Operations team has been established to drive customer centred process changes, initially focused on large, complex accounts and orders.  The roadmap to drive the strategic improvement of our customer support systems is well underway, with new digital tools to triage customer questions in real-time, new web platform and store journeys (for plug and play devices such as MinION) delivered in H1 2024. In 2024 we will see the first phase of our next generation order management platform delivered.

Our Channel Partner programme has supported sales growth, enhanced customer experience, and facilitated improved export processes.  We have delivered a comprehensive set of tools to enable our partners to be successful, our tooling facilitates both pipeline and customer management directly by the partner.

In-line with our objective to strengthen key supplier relationships to further drive reliability and resilience of supply, we conducted comprehensive reviews leading to improved risk-based scenario planning to drive improvements in resilience of supply.  

 

Sustainability - Product, Planet, People

A commitment to sustainable impact is core to Oxford Nanopore's mission. Last year, we formalised that commitment by introducing our sustainability strategy - product, planet, people - that supports our commitments to progress initiatives across environmental, social, and governance (ESG). We built on that strategy this year by publishing our Net Zero Transition Plan, outlining the targets we have set to ensure progress is being made to contain global warming to 1.5C. In the first half of 2024 we published our second sustainability report, detailing updated ESG commitments, which include:

Product

·      Strengthening our relationships and collaborations with the education landscape, utilising these examples to showcase student research impact across demographics and geographies

·      Continue to establish global support and logistics to fulfil our vision to enable anyone, anywhere to use Oxford Nanopore products

Planet

·      Reduce the carbon intensity of our operations by identifying projects to reduce carbon emissions; repeating our target to reduce the tonnes of Scope 1 and 2 CO2 e emitted per £m revenue by 2.5% again in 2024

·      As part of net zero commitments a dedicated Supply Chain Engagement programme will be developed and launched during 2024

People

·      Embed the Values in Action programme to support an employee-engagement culture, where employees have a voice to contribute ideas that support key decisions

·      Increase our Board gender diversity to at least 40% female representation by FY24

 

Summary and Outlook

First half financial performance was solid, despite a challenging backdrop and represents a strong step towards our full year guidance. We delivered robust underlying revenue growth of 12.4% CC and a 120 bps margin expansion despite currency headwinds.

 

From an outlook perspective, we are confident in being able to deliver the full year guidance that we set out in March. We expect to deliver underlying revenue of growth of between 20-30% CC and gross margin of approximately 57%.

 

 As we look forward, our highly differentiated platform and substantial market opportunity position us well to deliver long-term, sustainable growth. We are focused on key strategic initiatives to drive value, including disciplined investments in our technology and commercial operations where appropriate to unlock key opportunities in priority markets.

 

Over the medium-term we see significant opportunities ahead, reflected both in the progress we have made in the current research market and the steps we are taking to address many potential uses for our technology in biopharma, clinical and applied industrial markets. Our rich innovation pipeline and the investments we have made in scaling our commercial infrastructure put us in a strong position to deliver over the medium term and we expect revenue growth to return to more than 30% CC on a compound annual growth rate between FY24 and FY27.

 

 

Financial review

 

All 'underlying revenue' throughout this document is adjusted for COVID sequencing and the EGP revenues. Underlying revenues include fluctuations in currency unless explicitly stated otherwise.

 

Certain numerical figures included herein have been rounded. Therefore, discrepancies in between totals and the sums may occur due to such rounding.

 

Performance Summary

 

The Group delivered revenue for the six months ended 30 June 2024 of £84.1 million (H1 23: £86.0 million), broadly flat year-on-year at constant currency; marginally down (2%) on a reported basis, including foreign exchange headwinds.

 

Underlying revenue growth, excluding revenue from the Emirati Genome Program (EGP) and COVID sequencing, was 12.4% on a constant currency basis.

 

Results - at a glance

 

£million	H1 24	H1 23	Change (%)
Revenue	84.1	86.0	(2.2)%
Gross profit	49.5	49.5	0%
Gross margin (%)	58.8%	57.6%	120bps
Operating loss	(77.0)	(74.8)	(3.0)%
Adjusted EBITDA	(61.6)	(39.4)	(22.2)
Loss for the period	(74.7)	(70.1)	(4.6)
£million	30 June 2024	31 December 2023	Change (%)
Cash, cash equivalents and other liquid investments[7]	397.1	472.1	(15.9)%

                                               

 

Underlying revenue by product range

 

Underlying revenues grew fastest across the PromethION product range, representing all devices and flow cell sales from the PromethION range, reaching £31.9 million from £23.0 million in H1 23, representing underlying growth of 39.0% when stripping out the impact of EGP.

 

Revenues from our MinION product range, representing all sales of MinION Flow Cells and devices that run MinION Flow Cells (GridION and MinION) reduced to £27.8 million from £31.1 million in H1 23, representing a reduction of 10.8% when stripping out the impact of COVID sequencing.

 

Other revenues, representing kits, service revenues and other devices grew 6.4% underlying to £22.9 million when stripping out the impact of EGP and COVID sequencing.  

 

£million	H1 24	H1 23	Change ( %)
PromethION product range	32.0	27.4	+16.7%
Less EGP	(0.1)	(4.5)
Underlying PromethION product range	31.9	23.0	+39.0%
MinION product range	28.5	34.3	(17.0)%
Less COVID Sequencing	(0.7)	(3.2)
Underlying MinION product range	27.8	31.1	(10.8)%
Other	23.6	24.3	(2.8)%
Less EGP	(0.2)	(0.5)
Less COVID sequencing	(0.5)	(2.3)
Underlying Other	22.9	21.5	6.4%
Revenue	84.1	86.0	(2.2)%
Less EGP	(0.3)	(4.9)
Less COVID Sequencing	(1.2)	(5.5)
Underlying Revenue	82.6	75.6	9.2%

 

Geographical trends 

 

The Group aims to make its technology available to a broad range of scientific users, and currently supports users in more than 125 countries. In some territories the Group works with distributors to achieve or enhance its own commercial presence. 

 

Reported revenue is down on H1 23 in AMR and EMEAI impacted by the reduction in EGP and COVID sequencing revenue in H1 24. Underlying revenue growth was delivered across each region, and it was strongest across EMEAI and APAC, with commercial momentum building for the second half, supported by new product launches, a number of new and expanded contracts, and a step up in sales team productivity in the second quarter.

 

Reconciliation of reported revenue to underlying revenue by geographical region:

 

£million	H1 24	H1 23	Growth (%)
AMR	31.6	32.8	(3.7)%
Less COVID Sequencing	(0.2)	(2.0)
Underlying Americas revenue	31.3	30.8	1.9%
APAC	18.4	17.6	4.6%
Less COVID Sequencing	(0.2)	(1.1)
Underlying APAC revenue	18.3	16.5	10.6%
EMEAI	34.1	35.6	(4.3)%
Less EGP	(0.3)	(4.9)
Less COVID Sequencing	(0.8)	(2.3)
Underlying EMEAI revenue	33.0	28.4	16.4%

 

 

The Group's Gross profit of £49.5 million was in line with H1 23.

 

 

%	H1 24	H1 23	Change
Gross margin %	58.8%	57.6%	+120bps

 

Gross margin improved from 57.6% in H1 23, to 58.8% in H1 24. This margin expansion was predominantly driven by driven by underlying margin improvements across both PromethION Flow Cells and devices, offsetting headwinds from mix (140bps) and currency (120bps).

 

Impact of headcount 

 

Average headcount (FTEs)	H1 24	H1 23	Change (%)
Research and development	504	445	13.3%
Production	156	150	4.4%
Selling, general & administration	621	455	36.5%
Total	1,281	1,049	22.1%

 

In H1 24, the Group increased its average headcount by 22.1% from H1 23. This increase was predominantly across research and development and in the commercial and marketing teams.  

 

The Group invested in bringing onboard new research and development staff to support the later stage development activities across its disruptive platform.

 

In H1 24 the Group's manufacturing headcount has increased by 4.4% from H1 23. This follows the significant expansion of the team in 2021, when staff covering all manufacturing stages and processes expansion were recruited to cater for increased demand from a growing client base.

 

The largest increase in the Group's average headcount took place in the selling, general and administration functions including legal functions and corporate executives, with an increase of 36.5%. The significant expansion of the commercial teams in key geographic regions supports the Group's business growth objectives globally. In addition, the investment in in-field and customer support teams was necessary to maintain and increase customer loyalty and customer retention.

   

Research and development expenses 

 

The Group's research and development expenditure is recognised as an expense in the period as it is incurred, except for the development costs that meet the criteria for capitalisation as set out in IAS 38 (intangible assets). Capitalised development costs principally comprise qualifying costs incurred in developing the Group's core technology platform.

 

 

£million	H1 24	H1 23
Research and development expenses	48.0	48.2
Adjusting Items
Employers' social security taxes on pre-IPO share awards	1.4	0.6
Adjusted R&D Expenses	49.4	48.8
Amortisation of capitalised development costs	(10.1)	(8.7)
Capitalised development expenses	15.3	8.9
Total R&D Expenses and Capitalised development expenses	54.7	49.0

 

The net increase of £0.6 million in Adjusted Research and development expenses reflects the groups continued investment in innovation and was principally due to:

 

·      a 13.3% increase in average headcount leading to a £2.8 million increase in payroll costs and a £5.8 million increase in materials and other costs, partly offset by a £1.7 million increase in the RDEC tax credit.

·      There was a further £1.4 million benefit from lower share-based payments and associated costs.

·      These increased costs have led to a £6.4 million increase in capitalised development costs to £15.3 million. This included £7.6 million of staff costs and £7.7 million of third-party costs. This is partly offset by £1.4 million higher amortisation costs to £10.1 million for the period.

 

 

Selling, general and administration costs 

 

The Group's selling, general and administrative expenses increased by £2.4 million to £78.5 million. On an adjusted basis, selling, general and administrative expenses increased by £19.6 million in H1 24 to £81.5 million (H1 23: £61.9 million).

 

		H1 24	H1 23
	Selling, general and administrative expenses	78.5	76.1
	Adjusting items:
	Share based payments expense on Founder LTIP	(1.0)	(14.9)
	Employers' social security taxes on pre-IPO share awards	4.1	0.7
	Adjusted selling, general and administrative expenses	81.5	61.9

 

The main changes were: 

 

·    The total increase in the average headcount in Selling, general and administrative of 36.5%, this was primarily driven by our planned increase in headcount in the commercial teams (46.7% increase compared to H1 23). Coupled with inflationary pressures of salaries, this resulted in a £9.7 million increase in payroll costs.

·    An increase in depreciation of £0.1 million to £6.5 million in H1 24 from £6.4 million in H1 23.

 

Total share-based payment charge included in Selling, general and administrative expenses decreased by £14.3 million in H1 24 to £4.8 million compared to £19.1 million in H1 23. The reduction was primarily driven by a decrease in the Founder LTIP charge (from £14.9 million in H1 23 to £1.0 million in H1 24).

 

 

Adjusted EBITDA

 

£million	H1 24	H1 23
Loss for the period	(74.7)	(70.1)
Income tax expense	3.3	3.5
Finance income	(7.7)	(7.2)
Interest on lease	1.9	1.1
Depreciation and amortisation	19.8	19.9
EBITDA	(57.3)	(52.9)
Adjusting items:
Share based payments expense on Founder LTIP	1.0	14.9
Employers' social security taxes on pre-IPO share awards	(5.5)	(1.3)
Impairment of investment in associate	0.1	(0.1)
Adjusted EBITDA	(61.6)	(39.4)

 

Adjusted EBITDA losses increased from £39.4 million to £61.6 million. This was primarily driven by increasing operational expenses associated with the increase in headcount partly offset by a lower Founder LTIP charge and a credit relating to the employers social security tax charges. 

 

Exchange gains and losses

 

As the Group receives a significant amount of revenue in US Dollars, we seek to reduce the exposure of the Group to fluctuations in currency by entering into a range of derivative forward contracts.

 

During H1 24 this resulted in a loss of £0.1m. In H1 23 the strengthening of the USD resulted in a gain of £2.1 million. These amounts are presented in other gains and losses.

 

Balance sheet 

 

Key elements of change in the balance sheet during the period comprised the following: 

 

·      the net book value of Property, plant and equipment was £56.9 million at 30 June 2024 an increase of £7.0 million since 31 December 2023. This has been driven primarily by purchases of assets subject to operating leases £5.1 million, which includes the purchase of NVIDIA's A-series on new PromethION devices.

·      Intangible assets of £38.0 million at 30 June 2024 has increased by £5.1 million from £32.9 million at 31 December 2023 as a result of additional projects having passed through the capitalisation criteria in the period.

·      Inventory of £108.0 million at 30 June 2024 has increased by £6.5 million from £101.5 million at 31 December 2023. This has been driven primarily by an increase in PromethION Flow Cell inventory.

·      Net decrease of £15.3 million in Other Financial Assets between current and non-current is due to the redemption of maturing investment bonds since 31 December 2023.

 

Cash flow 

 

·      Cash, cash equivalents and other liquid investments were £397.1 million at 30 June 2024, a decrease of £75.0 million since 31 December 2023 (see note 5).

·      Both H1 24 and H1 23 had a net cash outflow of £60.0 million from operations.

·      Increase in working capital of £8.5 million includes an increase in inventory £6.4 million and assets subject to operating leases of £14.4 million partly offset by a decrease in payables of £12.5 million. Excluding assets subject to operating leases, working capital would have decreased £5.9 million.

·      Post period end the Group entered into a new arrangement with a third party firm to provide customers with financing options to fund capex purchases in certain markets, which could potentially help alleviate the financial burden on Oxford Nanopore from leasing devices directly.

·      Adoption of this service by Oxford Nanopore customers could benefit future cashflows through reducing the investment required in placing assets with customers (£14.4 million in H1 2024).

·      Alongside this, the Group remains in active discussions with third party firms over the potential Sale and leaseback for Oxford Nanopore owned assets at customers to release invested capital to the Group as and when required.

·      Net Cash inflows from investing activities of £4.3 million (H1 23: £40.9 million) includes:

o  The proceeds from other financial assets of £19.3 million (investment bonds)

o  Interest received of £5.1 million

Partly offset by:

o  The purchase of property, plant & machinery of £4.8 million

o  The capitalisation of development costs of £15.3 million

·      Net Cash outflows from financing activities of £1.9 million (H1 23: £1.9 million) includes:

o  Lease and interest payments of £3.3 million partially offset by

o  Proceeds from the issue of shares of £1.6 million