Oxford Nanopore Technologies plc (ONT) Earnings Call Transcript & Summary

Good morning, and welcome to our 2025 interim results presentation. I'm Gordon Sanghera, Chief Executive of Oxford Nanopore, and I'm joined today by our CFO, Nick Keher. Today, we'll be walking you through both our financial performance and the strategic progress we've made and how that is building real momentum in the business. We're pleased with our performance in the first half, both financially and strategically. What I'd like to do now is focus on the 4 key messages we want you to take away from today's presentation. Firstly, we delivered strong broad-based revenue of GBP 105.6 million. This is ahead of expectations. This is 28% growth on a constant currency basis, which is 25.6% on a reported basis. In addition, we made significant progress on our path to profitability. Adjusted EBITDA loss improved both year-on-year and sequentially, driven by increased gross profits and disciplined control of the cost base. We also made good strategic progress in applied markets, providing momentum to deliver our 2025 targets, which are revenue growth of 20% to 23% on a constant currency basis and a gross margin of approximately 59%. And we're on track to deliver our medium targets, including adjusted EBITDA breakeven in 2027. Now let's look at some of the data on the next slide to understand how Oxford Nanopore's been performing in H1. We delivered strong first half performance with broad-based growth across all geographies, end markets and product types. This was driven by growing customer demand and adoption of our revised pricing model, underlying the resilience and diversity of the group customer base. By product type, 74% of our revenues come from consumables, which grew 25% year-on-year. Devices and Services revenue growth was also strong, up 29%. By region, Asia Pac led with 38% constant currency growth, closely followed by EMEA at 33%, while AMR grew at 17% despite ongoing uncertainty in the U.S. research funding environment. We also delivered strong growth across all end markets. Importantly, we continue to diversify our revenues beyond research, with applied markets now making up 32% of our business, driven by exceptional growth in the clinical space in H1. We continue to focus on 3 key pillars to guide execution of our strategy: first, commercial execution; second, innovation; and third, operational excellence. Starting with commercial execution. In the research market, we delivered 22% growth, particularly strong performance in EMEA and Asia Pac. Our large research and national programs continue to advance. For example, NIHR Bioresource is now sequencing over 300 genomes per week, and UK Biobank completed its 5 pilot phase before entering the production phase later this year. PRECISE program in Singapore was completed, delivering 10,200 Oxford Nanopore genomes on schedule. And Genomics England's Cancer 2.0 program concluded demonstrating the value of our technology in structural variation and epigenetic analysis. More broadly, adoption continues to expand across translational research and population scale projects, methylation analysis as well as RNA and single-cell analysis. In clinical, we delivered particularly strong growth, up 53% in the period, driven by broader adoption in rare disease and oncology, particularly in the U.S. For example, in the U.S., St. Jude's Children's Hospital in collaboration with Chapel Hill, published new pediatric leukemia data showing improvements in detection, cost and turnaround time, highlighting the value of our technology's unique combination of benefits in the clinical market. In Poland, the Marie Curie Oncology Center adopted Oxford Nanopore technology for genome analysis and methylation-based tumor profiling, aiming to replace short-read sequencing to access richer diagnostic insights. In rare disease, the European long-read innovation network, advanced delivery of its 10,000 genome program over 3 years, working to a transition from short-read sequencing to Oxford Nanopore's platform based on improved diagnostic yield and the ability to access native methylation data. In applied industrial markets, we delivered growth of 27% with increasing demand in synthetic biology and industrial applications. Plasmidsaurus continued to perform strongly, expanding into new applications like RNA and adenosine-associated virus, which is a critical vector in gene therapy development. They also expanded beyond the U.S. into Asia Pac and EMEA. Biopharma growth was 19%. We saw growing adoption of our technology for biomanufacturing and production QC workflows. And a major biopharma customer implemented our technology, which now supports QC processes across 7 of their production sites. With the pipeline of activity we see from H2 onwards and our sharper focus on priority end markets, we're confident that this market will deliver substantial growth over the long term. Finally, we expanded our partner ecosystem. In April, we announced our new strategic clinical collaboration with Cepheid to combine the GeneXpert system with the Nanopore platform for infectious disease analysis. A workflow designed to help hospitals and clinical labs to test for infectious diseases more quickly and efficiently. Our second priority is our commitment to innovation, which remains central to our strategy for growth. In the first half of the year, we focused on advancing our regulator product pipeline to drive growth in applied markets, simplifying end-to-end workflows, improving product performance and extending our multiomic capabilities. For example, we showed early data at London Calling combining increased enzyme speed with new flow cell buffers, enhancing our output by 70%. This will significantly increase output and reduce the price of a human genome. This upgrade moves to beta testing in the second half of the year. We've also invested in software simplicity and expanded our end-to-end workflows to support broader use of the technology. In direct RNA sequencing, we launched a new multiplexing kit that allows up to 24 RNA samples per flow cell. This supports a growing number of biopharma applications beyond RNA vaccine quality control, including in drug discovery and sterility testing. We continue to make good progress on our proteomics platform, progressing our closed early access program, protein ID and barcoding. And we adjusted our regular product road map to focus on GridION V2, which will include R10 and RNA chemistries for broader adoption with clinical and biopharma customers. And we also expect to complete CE-IVD submission for GridION in Europe by the end of 2025. Our third priority is our commitment to operational excellence. In the first half of 2025, we made continued operational advances to support our long-term growth. We strengthened our manufacturing capabilities, optimized logistics and improved the customer experience. A notable milestone was a fit out of our global fulfillment center, Spectrum Center in Abingdon bringing together flow cell recycling, logistics and device manufacturing all under one roof. We also introduced next-generation flow cell lines and optimized processes for stability and scalability and strengthened our QA processes to be compliant to ISO 13485 to support our regulated product lines. To further improve the customer journey, we complete the discovery phase of our sales force transformation project and established a new Customer Experience Center of Excellence. And we also delivered an operational efficiency program that reduced our workforce by around 5%, and we're on track to reduce planned non-headcount related spend by a further 5% this year. Importantly, this capital is being redirected to our high priority growth areas. Together, these improvements mark a step change in Oxford Nanopore's operational strength and scalability. So in summary, we've demonstrated strong execution against our strategic pillars in the first half, delivering robust growth in what remains a challenging backdrop, underpinned by the unique benefits of our technology. Continued delivery against these 3 pillars will be critical to sustaining long-term growth and expanding our share across both research and applied markets. And as this year marks 20 years since the company was founded, and 10 years of market validation, we're also refining our commercial strategy to focus on the highest priority end markets and applications. I'll come back to that at the end of today's presentation, and we'll provide a fuller update in Q4. So with strong foundations in place and real momentum across the business, let me now hand over to Nick to take you through the financial performance.

Thank you, Gordon. For those that don't know me, my name is Nick Keher, and I am the CFO of Oxford Nanopore. There are 3 key takeaways I want to leave you with from the financials today. First, we are delivering revenue growth that is significantly ahead of the markets we operate in, and we believe this growth is sustainable for the long term. Second, we are making strong progress on our pathway to breakeven with a 22% improvement in adjusted EBITDA loss supported by our internal fiscal discipline. And third, we've made a meaningful improvement in our cash profile, reducing our cash burn driven by adoption of our new pricing model. On the numbers themselves, we are pleased to report a strong first half performance. Revenues were up 25.6% on a reported basis and 28% on a constant currency basis, ahead of our full year guidance. On the graphs on the right-hand side, you can see this growth has come from all regions, which is particularly encouraging given the well-documented challenges in the U.S. market. By product range, the PromethION range continues to be the key driver of growth, particularly across the larger devices, where flow cell utilization increased by 61% in the period alongside increasing device placements. On the MinION range, we are starting to see a stabilization, and we anticipate future growth here as adoption broadens in the biopharma market. Gross margin remained solid at 58.2%, driven by adoption of the new pricing model, but this was offset by a one-off charge taken in the first half against inventory related to devices. We also demonstrated good cost control in the period with adjusted operating expenses up just 1% year-on-year. Combined with strong gross profit growth, this delivered a meaningful improvement in adjusted EBITDA loss down to GBP 48.3 million, demonstrating our commitment to achieving adjusted EBITDA breakeven in 2027. Finally, we finished the period with GBP 337 million of net cash, leaving us well capitalized to deliver on our stated goals and on track to reaching cash flow breakeven in 2028 with ample resources to hand. Turning to the next slide on the pricing model. Before we drive into the financials in further detail, I want to take a moment to recap the pricing model changes we implemented early this year. In February, we updated our pricing model, moving to a CapEx-first approach for the larger devices with compute and removing the project pack options that effectively place devices with customers for free with a preset volume of flow cells. This change was designed to improve simplicity and transparency for customers whilst maintaining accessibility and affordability. So far, the move has been positive and ahead of expectations in terms of the financial benefits. On revenues, we saw a tailwind in H1, though this was moderated somewhat by device volumes being marginally lower to flat. This likely reflects the timing of the change, as we missed the majority of our customers' budget cycles, meaning some customers didn't have the budget available for CapEx purchases versus the project pack option. As we move into 2026, with our customers now planning against the new pricing model, we expect this to reverse accordingly, particularly in EMEAI and AMR. On gross margin, we believe most of the improvement in H1 was driven by the new pricing model. We believe this benefit is sustainable and could strengthen further in H2 as the proportion of CapEx sales grow. And finally, on cash, this is where the change has had the biggest impact so far. We no longer carry the cost of placing devices with customers as part of Project Pack, as customers now buy the devices outright. We expect to see further improvements to our cash flow as the number of assets at customers reduces and as margins increase accordingly. Turning to gross margin. We delivered 58.2% in the period. That's just below our 59% target and slightly down on the prior year of 58.8%. We see this as temporary in nature only. The 58.2% reflects significant underlying improvement driven by the adoption of our new pricing model and continued margin improvements on our PromethION flow cell line. These benefits more than offset continued FX and mix headwinds, which we expect to continue to H2 and see us underlying movements to our margin mix overall. In the period, we also took a GBP 3.3 million one-off charge related to excess and obsolete inventory. Excluding that charge, gross margin would have been 61%, comfortably above our 59% guide for the full year. When we look at this underlying picture and factor in the expected weighting of revenues in H2, we remain confident in delivering our full year gross margin target of 59%. Turning to the next slide on a pathway to breakeven. So with our outperformance on revenue and absolute gross profit growth, I am pleased to report that we translated this into operating leverage, delivering a meaningful 22% improvement in adjusted EBITDA loss versus the prior year and a 14% improvement versus H2 2024. The key drivers were the strong gross profit growth, we've already discussed, combined with internal fiscal discipline. At the start of the year, we announced and delivered a reduction in go-forward spend split evenly between head count and nonheadcount costs. This has allowed us to reallocate capital into higher growth activities. As we look forward, we continue to see the same levers at work, the combination of revenue growth, gross margin expansion and disciplined cost control, supporting our path to adjusted EBITDA breakeven in 2027. Now turning to cash. Today's results show the improving profile of our business, driven by the adoption of our new pricing model. We delivered an GBP 11 million improvement in operating cash before working capital versus the prior year despite a GBP 5.2 million cash charge related to internal restructuring. Working capital outflow was GBP 6.2 million, largely reflecting bonus payments in the first half, otherwise showing a solid improvement overall. On assets at customers, which represents the historic cost of us placing devices with customers as part of Project Packs, we saw a notable benefit from increasing adoption of the new model. Outflows fell to GBP 5.5 million, down from GBP 14.4 million last year, and we expect further improvement in H2 as more customers shift to outright CapEx purchases. With an improving loss profile, successful adoption of the new pricing model and further progress to come on inventory levels, we believe we can continue to make significant improvements to our cash profile. And with GBP 337 million in cash, cash equivalents and liquid investments, we are well capitalized to deliver on our stated goals. Turning to full year guidance. We are reiterating all of the measures set out at the start of the year despite the uncertainty still present in our end markets. Capital spending continues to be constrained, particularly in the U.S. research market where federal funding pressures, including NIH, remain a challenge. In China, end user controls also continue to be a headwind. Even with these pressures, demand for our differentiated platform remains strong across both the research and applied end markets. That gives us confidence to maintain our full year revenue guidance of 20% to 23% constant currency growth, which is meaningfully above our peers. We continue to expect a 45-55 weighting in revenue with H2 revenue growth lower than H1, given the stronger comparative period last year. On gross margin, while we came in marginally below our full year target in H1, we are reaffirming our full year target of 59%, supported by the strong underlying momentum in H1 and the weighting of revenues to H2. On adjusted OpEx, we continue to guide to 3% to 4% growth for the full year, which remains at the low end of our medium-term guide. This does imply a step-up in costs in H2 versus H1, as we continue to invest in the business for future growth. Overall, we believe this performance will lead to a further improvement in adjusted EBITDA loss versus 2024, keeping us on track for adjusted EBITDA breakeven in 2027. Turning to the final slide and just to recap. So first of all, in H1, we delivered top line results ahead of both our end markets and our full year guidance, demonstrating strong demand for our technology. We believe this technology is capable of addressing a market of $20 billion to $25 billion in total with $13 billion to $14 billion within just our high-priority target segments. Gordon will talk more about this shortly. Second, we are making good progress on our pathway to adjusted EBITDA breakeven in 2027. And third, we've made a meaningful improvement to our cash profile, which we believe is sustainable and with the potential for further upside through working capital management. With that, let me hand back to Gordon to take you through the final slides.

Thanks, Nick. Our success and the continued outperformance against our peer group is underpinned by the unique benefits our platform delivers, richer insights, rapid results and accessibility at scale. Large cohort programs are showing the biological value of the novel information only our technology can access. Translational labs are deploying Oxford Nanopore with speed and additional information are mission-critical. And because our platform is accessible and affordable, it opens up broader deployment across health care systems worldwide. This combination, richer insights, rapid results and accessibility is what enables us to sustain growth in the broader market. Today, we are a company with a strong technology and operational foundations, well positioned for the next 20 years of growth. In the last 12 months, we've delivered more than GBP 200 million in revenue. This is supported by a team of over 1,300 employees, serving customers in more than 125 countries. Our technology has been cited in over 18,000 publications and is backed by a portfolio of more than 2,500 patents. We've achieved a 5-year revenue CAGR of more than 30%, underscoring the scalability of the business model and the global demand for our highly differentiated technology platform. So this year, is a major milestone for Oxford Nanopore, 20 years since the company was founded. Over that time, we've gone from idea to working method, prototype to product, innovating, making and deliver what many thought was impossible. We've continuously iterated performance, making breakthroughs in chemistry and machine learning that have driven single molecule accuracy from 85% at launch to over 99% today, and there's more to come. More importantly, our data provides comprehensive native DNA coverage, reaching all parts of the genome with added multiomic insights that are powering both discovery research and growth in applied markets. The next 20 years holds immense potential for us. As part of our evolution, we are refining our commercial strategy. As we've discussed before, the total addressable markets relevant to Oxford Nanopore are well over $150 billion. Within that, we see substantial serviceable addressable markets of approximately $20 billion to $25 billion, spanning both the existing sequencing supplier market and nonsequencing molecular markets. This market can be broken into 47 segments across 4 domains: clinical, research, biomanufacturing QC and other specialized areas. Oxford Nanopore's platform is uniquely differentiated by comprehensive data outputs, rapid turnaround and accessibility across diverse settings. These strengths allow us to disrupt established approaches. Within this $20 million to $25 billion serviceable market, we have identified $13 billion to $14 billion of higher priority segments where our differentiation creates the strongest value for customers and the greatest opportunity to capture share, either directly or through partnerships. Our commercial strategy is focused on executing against these higher priority segments to maximize long-term growth and value creation. To summarize, H1 2025 was a strong half. We delivered broad-based revenue growth of 28% on a constant currency basis, underpinned by the differentiated strength of our technology. We improved adjusted EBITDA year-on-year and sequentially, showing real progress on our path to profitability. Looking ahead, we are reaffirming our 2025 guidance. Revenue growth of 20% to 23% at constant currency, gross margin of 59% and adjusted OpEx growth of around 3% to 4%. And beyond 2025, we are confident in our long-term trajectory. With a clear commercial strategy focused on high priority segments and a robust innovation road map, we are on track to deliver our medium targets including adjusted EBITDA breakeven in 2027. So with strong foundations in place, a unique and disruptive platform and growing momentum across both research and applied markets, we're excited about the opportunities ahead. And finally, I would like to finish by saying it's been the privilege of my career to cofound and lead Oxford Nanopore through this journey. As I announced earlier this month, I will step down as CEO at the end of next year after 21 years in the role. With strong foundations we built together, I believe that will be the right moment to hand over to a new leader. Until then, I remain absolutely fully focused on executing our strategy and driving the business to profitability. With that, I will now invite the operator to open the line for Q&A.

[Operator Instructions]. And our first question comes from Veronika Dubajova from Citi.

Maybe we can start with gross margin. I'm just, Nick, curious, obviously given underlying improvement you've demonstrated in the first half of the year. If you could talk through, one, how you think about the back half of the year and also your ability to hit that low 60s margin maybe ahead of the schedule that you have communicated?

Absolutely. Thank you, Veronika. So on the gross margin, clearly, for the first half, 58.2% with a GBP 3.3 million headwind take from the inventory write-down. Ex that, we would have been broadly 61%, which kind of exemplifies the strength of the business and also the underlying improvements that we delivered in the first half overall. And I think that's really important because when we look at the gross margin ex the write-down. That is a true look forward see-through where our margin is kind of trending towards. Clearly, FX and product and customer mix are kind of outside of our control, and we anticipate there to be headwinds in the second half. But within those underlying improvements, the majority has been driven by the pricing model changes and the adoption of CapEx by customers, which is sustainable. The margin absolutely is a sustainable piece of that. And for the -- roughly 1/3 of it is from the PromethION Flow Cell improvements, particularly on gross margin there because of the recycling. And we've only really started the journey here. So actually, we see improvements as likely continuing, not just into the second half, but into '27. So yes, for the second half of the year, we think that kind of ex one-off is a true see-through to where our margins should be. And what gives us some headroom for anything from an FX and further product and customer mix headwinds in the second half. And then hopefully, for investors, this gives us a bit of confidence that as we look to that '27 time line, we can achieve a greater than 62% gross margin, particularly as the PromethION Flow Cell improvements continue.

Excellent. And maybe just to touch upon that quickly, the improvement that you saw in the first half, would you expect the second half improvement to be similar or better given that a lot of these initiatives were not fully loaded in the first half of the year? And I'll hop back into the queue.

Yes. So I wouldn't want people factoring in too much aggression into the second half gross margin, if that's possible. And that's why we're keeping with the 59% guide for the full year. But if we look at the facts, the pricing model adoption, it only increased as the months went on into the first half of the year into June from when we launched it in February. So we should get a full half benefit in the second half from that kind of adoption. And on the PromethION Flow Cell recycling, like I say, we've already started the journey. So should we continue to see kind of improvements in gross margin as we look forward, we're already into the second half of the year. We're going to -- there are going to be times when it doesn't kind of hit the mark that we need to because of the mix of products that we have out there. But on an underlying basis and all things being equal, we should see that be delivered. And I'm kind of -- what I'm trying to set up here for people as well is that belief that we can kind of improve from that 59% this year to over 62% in '27 with the improvements, particularly on PromethION Flow Cell continuing.

And our next question now comes from Charles Weston from RBC.

Congratulations, Gordon, on the tenure of your career at Oxford Nanopore. My question is on the 30% or more than 30% CAGR from 2024 to 2027 because that includes 20% to 23% growth in 2024. So I don't need to be a mathematical genius to mean that you need higher than 30% growth in 2026 and 2027. So how dependent is that acceleration on a recovery in the academic markets in your mind? And is this catch-up effect expected evenly in 2026 and 2027? Or is it more back-end weighted?

Thank you, Charles. You're absolutely right. It does include the guidance for this year. As we looked and set the model expectations over a year ago now, when we were reviewing that we always assume that research will actually be a low-growth market for us. And the reason for that being it's just difficult to predict, particularly when we look at the larger one-off contracts that you can win in terms of those pop-gen style contracts, so the growth is really like weighted towards the applied markets, and in particular, growing quicker in clinical, applied and biopharma. So when we look at each of one of those today and how we've delivered, clinical has actually had a very strong first half of the year. We see lots of opportunity for further expansion into the clinical markets. And as we improve our throughput on the PromethION flow cell, we see more business able to come through to us. But even where we are today, we're seeing real good adoption in place like rare disease and oncology. So we've got -- got detailed, but like where we look at the $13 billion to $14 billion of high priority segments, the vast majority -- a big chunk of it actually -- sorry, not the vast, but the big chunk of it is in that clinical space, where we have lots of white space for us to go into. Also within biopharma and within the applied space, we have large market opportunities where the technology is well suited to, and we believe we can win. So it's about lining up those priorities now in the right order, building the right segment strategies that go alongside them, paths for our product and then executing on it to how we deliver enhanced growth rate in '26 to '27. And being specific, it was never weighted towards a recovery in the research market.

So sorry, does that sort of accelerate through '26 and '27 or sort of step up in '26?

I think because we're going to have an easier comp, we'd expect a bit of more of a '26 then into '27. It will always be a bit lumpy given the kind of comps that we're playing against and the value of the devices we're pulling out.

We're now moving to a question from Kyle Mikson from Canaccord.

Nick, you kind of talked about this a little bit, but the devices and the service revenue grew at a healthy faster rate than consumables revenue. Just again, could you kind of contextualize walk through how much of that device growth was from the price model changes given -- amid this offsetting decline in volumes. Just wondering if you could -- if you feel protected against continued volume declines as the pricing benefit rolls off?

Thank you. Good question. So on volumes overall, we've got to look by product line. And within the MinION range, like essentially broadly flat grid, was a little bit down. PromethION, the larger devices was a little bit down as well, but that's because of the comps we're playing against. First half of last year, we placed a lot of devices out with the likes of PRECISE. So we know we have these kind of false comps, I'd also say, in terms of volume perspective because those devices will be coming back to us post the end of the contract now. When actually we look at the revenue growth that was delivered in the first half, pricing was a big benefit for the devices revenue growth that you saw with the volumes being slightly down marginally. However, there's an important piece here, which is we only went live with the communications to customers in January on the new pricing model changes and they only went active and live in February, and we continue to honor any existing PO or order that was in from a customer or even tender that related to the old project pack style. And quite consistent feedback we've had, particularly across EMEAI and AMR is that the customers weren't ready for this from their own budgeting perspective. So actually, we know that customers didn't have the necessary budget available to factor in for adopting the CapEx model approach. They're going to be ready as we go into '26 and '27 now. So we do -- it's really difficult to unpick completely, but we do think we've actually had a bit of a headwind there from a volume perspective, and hedge revenue perspective from the fact that the customers' budget models were or budgets weren't completely set against how the new pricing model was rolled out. Now everybody is aware of it. We don't think that will be a headwind anymore.

That was great. And then Gordon, quick one for you. Congrats on the tenure at Nanopore. Great job. I want to probe on the refined commercial strategy. I know there's going to be an update in 4Q. Is that going to involve discontinuing any devices or releasing new devices? Or is that purely a sales and marketing change?

What was the question in there, Kyle?

Yes. Just the refined commercial strategy update that you're going to provide in the fourth quarter.

Yes. So I think as we talked at Capital Markets a couple of years ago, we were transitioning a significant chunk of our growth trajectory will be coming from applied markets. We're going through a process right now, where we are matching up the products we have, the opportunities that sit in front of us. We talked about the $14 billion to $15 billion opportunity. And the good news is there's a lot of things we can do. So trying to piece through to pick the low-hanging fruit that kind of matches and aligns with the platforms we have. That's part 1. Part 2 is then thinking about the medium term about what the future platforms look like. And it's really bringing all of that together in a more comprehensive medium- to long-term growth trajectory that takes us through and beyond EBITDA breakeven in 2027. So there will be new platforms, but the first order of business is where can we get maximum value from the ones that we have established in the market space.

And from Berenberg, we now have Sam England with our next question.

So just on U.S. research, is it fair to say the business held up a bit better than expected in the first half? In the release, you suggested you might be a bit less impacted in that market than peers given the lower price point and accessibility of your platform. So is that something you're actually seeing on the ground or hearing from customers at the moment? And does it mean you're taking some share in a softer U.S. market? And then I suppose more broadly, how much conservatism is now baked into the guide on the research side of the business, given the softness you're seeing?

Yes. Thank you, Sam. So on the first question, is exactly one of the things we've seen when we look through the details of the data in our AMR region. I just got a snippet that's quite interesting. Well, I think the average order size in the Americas is actually essentially half what we saw in EMEAI in the first half of this year and that is kind of speaking to the accessible nature of the technology. So I know that there's maybe some perception here about the move to the CapEx model, for instance, is going to have an impact on our ability to be accessible. But if you look at the range of products we have against the competitors out there, we are by far the most accessible technology for the customers. And so in the kind of this environment where there's a bit more constraints on budgets. I think we may well have been able to kind of be an option for customers as well for them to be able to access and get going still. So perhaps we've got a bit more of a defensive moat around our business and the fact that we are accessible there. I think that's fair. And then in terms of conservatism, we are being prudent with the guide. We set this out at the beginning of the year that we were going to be prudent on what we were saying for 2025, given the headwinds and the uncertainty in particular, that we saw in the Americas space around the research funding environment, but also because of the export control restrictions we were seeing in China and kind of slipped before I think it's fair to say. So we didn't want that to be the case again. And we're setting a guide -- we are, we believe, it is prudent and that we can achieve. And as we look into the second half of this year, we believe that it's the right thing to kind of keep that prudence because the risks still remain. And with the uncertainty in the U.S. market, it didn't really feel like it was the right time to change tack there, and we just kind of keep going with the strategy we have and aim to outperform again.

And up next, we have a question from Kane Slutzkin from Deutsche Bank.

Just on biopharma, I was just sort of thinking on that growth there and having a sort of step change there. How should we be thinking about that sort of growth or that step change in the growth there, which obviously could be quite significant when considering the timing element to a lot of that when contracts are announced, et cetera. So just thinking about how we should think about that sort of step change in biopharma?

In terms of the application space, you can talk about the financial side, Nick. The application space is very exciting for us. We have a unique value proposition, and it does revolve around affordable, accessible, distributed. But for example, in vaccine manufacturer for mRNA, direct RNA analysis. And then in cell and gene therapy as well, we have a unique value prop across the whole spectrum. And there is real excitement around the valuations. And in terms of when biopharma want to make announcements, that's really in their hands. And we are -- and we remain very excited about this space because we do believe we have a very unique value proposition in biopharma.

And just on the step change piece because through this refined commercial strategy as well, it's quite pleasing to kind of see where biopharma kind of came up in terms of the size of the market opportunity, but also the fact that we believe we can kind of go and access this as well and quickly. And so the technology, the developments we have to do, there are some things that we need to do still, but we can only broaden out the size the opportunity, and enhance the speed at which we grow into it. But for the here and now, okay, and how we're thinking about it. We have got a large number of large clients, essentially that are evaluating the technology. And we are hoping to kind of move from that evaluation phase into QC manufacturing directly. And as I think we've said at the July trading update, we have had some that have actually made that change already, both in Europe and in the U.S. We haven't been able to kind of communicate that as widely as we like at the moment, but we are hoping to in due course. And I think when we kind of talk about the caliber of customers that are doing this, we think it will help people realize that breadcrumb for people about the growth rates that are going to come thereafter from it. And there's also a piece here, which is just a law of small numbers. It's the smallest segment for us today. And as single contracts, multiple contracts come through in the single million dollars of value each, we think these will build and because of the recurring nature of them, it provide kind of like a real intrinsic value to the company as well.

And up next, we have Zain Ebrahim from JPMorgan.

My question is on APAC, and you saw very strong growth in the first half of this year of 38%. I'm just thinking about the second half in 2026, how we should think about that in the context of China. It sounds like you're assuming further tightening of export control restrictions. So just your latest thinking there. And also with the completion of the PRECISE Singapore contract, what do you see as the key drivers of continued strong growth in APAC?

Thank you, Zain. So yes, we had a very good first half indeed. In the second half, we don't see it as being quite as strong, essentially as what we saw in the first half and again, because of that kind of comps that we're playing against. However, we are quite encouraged by what we're seeing, not just in like Singapore ex PRECISE, but also in places like Australia as well. And even in China. And part of the piece here is the adoption in the applied market space were against conventional legacy technologies for things as simple as in synthetic biology. We're seeing a lot of opportunity where kind of that's coming of age. And then in the clinical space, particularly in the road disease area, where, again, in the markets in APAC, we're seeing uptake and evaluation phase is now moving to scaling, which essentially is giving us confidence as we look forward as well. So for the second half, still anticipate good growth, perhaps not as strong as what we delivered in the first half. We won't get drawn into 2026 just yet. And clearly, we'll talk about that more when we get to the end of the year. But we've got all the building blocks for what we need to see, which is essentially growth into those non-research non-lumpy business points, which is I think where you get in to as well in the more stable applied and clinical areas.

And from Barclays, we now have Jon Unwin with our next question.

I have 2 questions, but they're both on the pricing model. The first question is, are you able to quantify what revenue growth would have been in the first half if you hadn't changed the pricing model, i.e., what was the benefit from the pricing change? And then the second question is under the old model where you placed a device that had a volume contract. How long were those contracts typically? And what I'm trying to understand is if any revenue pull forward you see from changing the price model will be a net benefit in the midterm revenue guidance range period or whether actually it will come out in the wash because the contract is typically 1 to 2 years? Just trying to understand that.

Yes. I'll take the second part first, if I can, actually, just on -- so it depends on the device type. So if we're looking at the larger devices, say, the P24, the grids, then essentially, we got around 9 months visibility from when we kind of took the order for the shipments of flow cells to go through. And so the vast majority is washing through now actually. So that's -- but we don't -- I mean, all that did was essentially underpin the flow cell delivery dates essentially went alongside those. Do we expect this to be a net benefit in the pull forward? Well, as we kind of talk to, we actually kind of did catch some customers out in terms of the timing of this switch and their budget availability, particularly as we look into the kind of second half of the year until we get into the new year. So I think it's going to be washed -- it's going to come through in the wash essentially. We don't anticipate that much. In terms of quantifying it overall, the gross margin is probably the fairest place to look. We believe it was roughly 2/3 of the benefit that we saw in the year. Now why are we being more specific on this? It's because of the kind of the complexity that goes into it, the fact that we did see this kind of marginal volume impact because of the timing for customers and their budgets. The fact that we did -- we have seen a pricing benefit on device in particular, but the wash through, as you've called it as well, from revenues out of the prior year and deferred revenue terms, all of these things are kind of coming through in the wash, I think don't allow us to give you a firm number on it. But in the gross margin, where we can evaluate it cleaner, we estimate it's around 2/3 of the benefit overall.

And we now move on to a question from Andrew Whitney from Investec.

Just a quick one. On refinement of commercial strategy, it's really interesting. I know Kyle's asked about it earlier in the call. Just looking at your lower, medium and higher priority segments. Is that broadly how you thought it would play out when you set your midterm guidance a while back? I mean, you've done a bit of incremental work now. Has that changed any of your thinking about how the midterm can play out and what the opportunities are after the midterm guidance? I'm just curious on your relative confidence on the longer-term opportunity.

So what we said at Capital Markets Day, was that we felt that there was going to be the underlying growth from the research markets, and that continues and is good and strong, represents 68% of our revenue. The remaining 32% is from the applied markets, and that's where the growth really is. That's where the growth drivers are coming from. That's what we said. What I stated clearly at Capital Markets Day was we will definitely get the mix wrong. And when we look at what we said there, about 1/3 is what we projected now, and we're at 32%. What we're doing with this strategic review is rather than kind of sitting back and seeing more customers are driving in, which is great and important because that really tells us where the markets are going to be hottest and where our unique value proposition is. We're blending that with the TAMs and the SAMs and leading to that $14 billion opportunity, which then allows us to really be targeted. So I would say the outlook in the next couple of years, what we have got in our pie chart for growth in the applied markets, I think we'll be far closer to what we actually hit. And it was probably part of the natural evolution. We needed the market to sort of tell us where to go through sticky applications. But in terms of industrial, biopharma and clinical, they remain a constant. And the mix now, we think we've got a much stronger -- we've got our arms around where that takes us next. And that's why we feel confident about the medium-term outlook and the growth trajectory we need to hit EBITDA breakeven.

We now move on to a question from Julie Simmonds from Panmure Liberum.

Just wondering in terms of the change in the sort of strategy as far as the regulated products are concerned and the focus on the GridION Q, which seems to have pushed back the PromethION a little bit, where the thinking is behind that, please?

I don't think it's a change. I think we're just reacting to the market. There's some strong biopharma and clinical Q line we want to get out there. And so we're just getting ahead of that curve in demand. But that doesn't change the strategy on Q-line PromethION. That's still on the deck and still being worked on.

Are there any applications that it sort of pushes out because it will be slightly later?

Like -- I think it's fair to say, we are looking forward to kind of getting the prom Q out there as being a helper, an enabler, essentially, particularly for that clinical space. The reason why the Grid Q is essentially -- we're kind of ensuring that is out there and is developed as it needs to be, is immediately really that biopharma piece in particular, as Gordon has kind of alluded to. Getting specific on applications. The truth is we're actually seeing adoption in the clinical market on Prom for the RUO version anyway. So this isn't being a blocker to that. I think once we get the Q line out there, it actually catalyzes exactly. And then the next pieces that will catalyze even further growth will be things like the throughput on the flow cell, where we know customers will give us even more business essentially as soon as we can get that throughput higher. So we know what we're going to work on, and I think part of this refinement of commercial strategy, it's clearly leading to kind of the prioritization of activity internally and what we need to do. So your question is absolutely valid. I don't know if we're going to go on specific indications as such, but just know that we're still seeing that growth in clinical even on the RUO version of Prom.

And up next from Peel Hunt, we have Miles Dixon.

My question is also on the -- or thinking about the commercial strategy and the adoption of the CapEx first pricing model. Clearly, that's going a bit ahead of what you expected. I was wondering for those customers that have moved over to that pricing model, is it too early for you to be able to see what the trends are for demand on the run rate of flow cells versus the preset number? And does that differ by clinical and applied versus research customers?

Yes. Valid question. So in terms of the CapEx versus non-CapEx customers, we already had that largely because of distributors. So one of the reasons why we felt confident about moving over as well is because all of our sales through distributors, so the majority of in APAC sales, if you like, were already CapEx related anyway. And so we already did have some of those trends. The more interesting trends though are actually the ones you talked to lately, which is about the end market wants where actually, we can see the customer trends, say, on research, it ebbs and flows, more than we would like. Whereas when you look at the trends for, say, a biopharma and applied customer and a clinical customer, they kind of get to a level and build instead. So we are -- we do look at that. We do monitor that. In terms of the -- what will happen in EMEA and AMR for those customers who are going to now be buying a device CapEx rather than leasing it. This is also something that we're looking forward to seeing because there is a school of thought that now a customer is paying for the box that they are going to be using it more often rather than having it placed for free because they made a commitment instead.

And we now take a follow-up question from Charles Weston from RBC.

What should we be expecting from reacceleration of the MinION franchise? Does that come from MinIONs or GridION Qs? And then secondly, what's the time line of the rollout of that higher throughput chemistry, please?

So we've said on -- doing the second one first. So higher throughput chemistries will be -- we talked about it at London calling, showing that 70% increase in output. So we're going into beta testing now in H2. We will be doing it, releasing it in a controlled manner. It's a new enzyme and a new buffer system. And the platforms we have are really good, and we're really mindful of we're not just going to force releases out at breakneck speed because we don't need to anymore because of the maturity of the platform. So we'll release in certain markets over first -- second half of this year and moving into next year in a controlled manner. With regard to MinION, the company has a commitment to affordable, accessible, distributed, how that strategically fits in as we evolve the platform over the next couple of years, particularly in the medium to long term that will all be part of the strategic planning and the process. What we do see in front of us are opportunities, as you would imagine, with our high throughput PromethION. And so getting the balance right is critical and part of the strategic plan that we're moving forward.

Just to add to that as well, just -- I mean, specifically, the growth of the MinION range, yes, it will be the Grid Q as a kind of key piece on it. So particularly as we kind of go into that biopharma space where we can already see the kind of the level of demand coming through the pipeline for that device and that product. So that will be the part that kind of reenergizes it. And as Gordon has alluded to as well as part of the refinement of commercial strategy, completely, there will be segments that essentially fit very well with things like the MinION, where we know how -- we'll know better how to target.

Yes.

Thank you. And that concludes today's Q&A session. So I'd like to hand the call back over to the management team for any closing remarks.

I think I just wanted to thank everybody this morning. We have great momentum. We're very excited about what's happening. And just to reassure everybody, I am here for the next 16 months, and I'm really excited about what's in front of us, including the transition, working with the Board to find my successor. We are well positioned. We have a lot of momentum, and we're really looking forward to updating you on the exciting opportunities that we can see in Q4 on the applied market space and our 2026 targets. So thank you all for your time this morning.