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

Welcome and thank you for joining us. Let me briefly set out how we will structure today. I'll start with some opening remarks and set out our near-term outlook. I'll then hand over to Nick to take you through the first half performance and 2026 guidance in more detail. I'll come back after that to take you through our strategy, the priorities we have set and our longer-term outlook. I'll then close with the key takeaways before Nick and I take your questions. This is my first results presentation as CEO of Oxford Nanopore. So let me take you through how I have spent the last 6 months. I joined Oxford Nanopore because I strongly believe it can become an extraordinary company. And I've seen enough in my time here to know that it is true. It combines a highly differentiated technology platform, a strong research foundation and global reach with the opportunity to unlock significantly more value than the business delivers today. Alongside working with the leadership team to manage the business, my initial focus has been on listening, learning and setting priorities. I've spent significant time with our customers and partners to understand where we are creating value today, where adoption is accelerating and where barriers remain. I've spent time across the organization, understanding our R&D capabilities, manufacturing operations, commercial execution and the processes that will enable us to scale. I've also spoken to investors, governments and other key stakeholders. During the last 5 months, we have undertaken a comprehensive review of the business, including our markets, applications, innovation priorities and capital allocation and have been assessing how the organization needs to evolve to support the next phase of growth. That work has reinforced my confidence in the company, but it has also highlighted areas where we need greater focus, prioritization and cleaner execution. I'll come back to those themes later. Before Nick takes you through the first half performance, I want to set out our near-term outlook and the longer-term ambition behind the strategy. Our 2026 guidance remains unchanged. We continue to expect constant currency revenue growth of 16% to 20% and a gross margin of approximately 62%. This guidance excludes the $20 million upfront payment from the cross-licensing agreement announced today. Nick will explain the agreement and its financial treatment later in the presentation. We also remain on track to reach adjusted EBITDA breakeven in 2027 and positive free cash flow in 2028. Importantly, this is not the end point, but merely a stepping stone in our longer-term ambition to build a $1 billion-plus annual revenue business and beyond. We made strong progress against that path in the first half, particularly on gross margin, cost discipline and adjusted EBITDA. Nick will take you through that performance in more detail shortly. So while there's clearly more work to do, particularly on top line execution, the trajectory towards profitability and cash generation remains intact. With that, I'll hand over to Nick to take you through the first half performance in detail.

Thank you, Francis. Good afternoon, everyone. My name is Nick Keher, and I am the CFO of Oxford Nanopore. Turning to the first half financials. We delivered revenues of GBP 116.7 million, representing 12.3% growth at constant currency. As we set out in the July trading update, the first half growth was below our expectations. This is primarily due to the material decline in China, where revenues were down approximately 16% year-on-year, reflecting enhanced export control restrictions and changes to commercial operations in the region. The ongoing geopolitical situation in the Middle East also led to revenue decline of approximately 14% in that region. Outside China and the Middle East, group revenue growth was approximately 16% at constant currency, which gives a better indication of the underlying performance across the rest of the business. The timing of both customer orders and contract wins in the Americas also affected first half growth. As we stated previously, we do not expect to recapture those lost revenues in H2. EMEAI delivered strong growth of 23.8% in constant currency despite disruption in the Middle East and known headwinds within the research space. Whilst revenue growth was below our expectations, we delivered a gross margin of 62.2%, in line with guidance, representing a 400 bps improvement year-on-year. Coupled with the strong gross margin, we saw the benefits of the restructuring and efficiency actions taken in FY '25. Adjusted operating expenses were down 7% year-on-year, contributing to a 54% improvement in adjusted EBITDA loss to GBP 22.1 million. This is meaningful progress on our path to breakeven. On cash, we finished with GBP 234.5 million of net cash, down by roughly GBP 70 million versus December 2025. This reflects the normal working capital seasonality we've seen in prior years alongside specific one-offs, and we expect a meaningful improvement in our cash performance in H2. As we look forward, we continue to expect our net cash bottoming out above GBP 100 million as we pass through breakeven in 2028. Turning to further details on revenue mix. Device sales grew strongly, up 32.6%, which reflects strong growth across the PromethION range with each product line growing in the period. The P2i performance was particularly strong with revenues and device placements more than doubling. Over time, we expect a strong increase in device sales to support further consumable pull-through. Reported consumable growth was 2.7%. As a reminder, this represents a mix of PromethION and MinION flow cells and kits. This growth rate is lower than anticipated, but we believe this is largely temporary in nature for 3 main reasons. First of all, we had a number of large research programs that contributed significant consumables revenue in H1 2025 that did not repeat in the first half of this year. Second, PromethION flow cell volumes grew by over 20%, but this was partially offset by lower average selling prices as customers moved into higher volume discount tiers. Third, we saw some expected normalization in the revenue mix as we move to the CapEx pricing model as customers adjusted to buying differing volumes of consumable products when they're now paying for devices outright. Given the strong growth in devices, particularly the P2i, we believe this will drive higher consumable sales as those customers set up their new devices and begin ordering. Together with continued underlying flow cell volume growth, we are demonstrating and the comparison becoming easier as we lap the large programs that rolled off, we expect stronger consumable growth in the second half. At the product range level, PromethION continued to be the growth driver for the group, again, driven by the devices and in particular, the P2i. Turning to end market demand. Our revenue mix continues to move towards the applied markets, a gradual shift towards commercially funded demand that is more stable in nature and an important part of where we intend to focus growth over time. Research revenue grew 5.4% to GBP 76 million despite the impact of NIHR, GL 2.0 and PRECISE II that ended last year. Together, these contracts represented an approximate GBP 8.3 million or 11.5% headwind to revenues for the segment. Growth was supported in particular by the winning of the Sequence ME program in EMEAI. Clinical was the fastest-growing end market in the period with revenue of GBP 17.6 million, up 35.4% on a reported basis. Growth was driven by reimbursement-funded labs running assays or developing new clinical methods. I would also note the high-profile contract win with MyOme, and Natera company announced today in the rare disease space that will be a growth driver going forward. We continue to deliver strong growth across biopharma with revenues reaching GBP 9.5 million, up 25% from the prior year, with more to come as we see continued uptake across both R&D and QC customers. Industrial revenue grew modestly up to GBP 13.7 million, up 6.2% year-on-year, driven by continued adoption of our plasmid sequencing capabilities. Turning to our gross margin bridge. We have delivered another period of strong underlying margin progression with gross margin reaching 62.2%, in line with FY '26 guidance. As expected, the nonrecurrence of the GBP 3.3 million one-off noncash inventory charge recorded last year contributed 315 basis points to the year-on-year improvement. Product and customer mix was a 160 bps headwind, which we expect to moderate over time as the mix of consumables and devices evolves and as PromethION margins continue to improve. Importantly, the move to the CapEx pricing model initiated last year, alongside yield improvements and consumable recycling drove significant underlying margin improvement of 305 bps. There's further opportunity from PromethION flow cell recycling and additional yield improvements, which should support higher margins over time. Against this, FX was a further 60 bps headwind in the period, which we expect to moderate in the second half at current rates. The next slide gives some additional context on how our gross margin profile has developed and where we see further potential over time. As a reminder, our consumable sales represent revenues of MinION and PromethION flow cells and kits. Across consumables, gross margins have increased from 64% in 2023 to around about 75% today. Over the longer term, we believe there is potential to move above 80%, which is a level we are already achieving across specific product lines. Across Devices & Services, gross margin has improved from approximately 23% to around 34% today, and we see a path towards approximately 40% over the longer term. The improvement to date has come from the new pricing model, which has structurally improved product economics together with better flow cell yields, MinION flow cell recycling and greater scale. Looking forward, further upside is expected from yield improvement and flow cell recycling, particularly across the PromethION flow cell range as well as SKU optimization and greater scale in services. None of this assumes any contribution from business development activity. There are also known headwinds to manage, particularly inflationary pressures in compute and memory costs. We're addressing these through product development changes, forward purchasing and pricing. Turning to adjusted EBITDA. The combination of revenue growth, gross margin expansion and cost discipline translated to a 54% improvement in our adjusted EBITDA loss from negative GBP 48.3 million to negative GBP 22.1 million in the period. There is also a sequential improvement of around GBP 16 million in the second half of 2025. Our adjusted EBITDA losses have narrowed materially since the end of 2023, reflecting a mix of strong revenue growth, improving gross margin and stronger cost discipline, including the efficiency and strategic realignment programs executed in 2025. In the first half of 2026, adjusted operating expenses were down 7% year-on-year. We expect the year-on-year reduction to narrow towards flat in the second half, while continuing to see further efficiency opportunities going into 2027. Most importantly, our adjusted EBITDA breakeven target for '27 remains intact, underpinned by revenue growth, further gross margin expansion initiatives and continued cost control. Turning to cash. We ended the period with GBP 234.5 million in net cash, cash equivalents and other liquid investments with no debt. This was GBP 68.3 million lower than at the year-end, reflecting the normal seasonality to our cash flows and one-offs. Operating cash flow outflow before working capital movements improved sharply to GBP 17.6 million, around GBP 27.2 million better than the first half in 2025 and broadly in line with our adjusted EBITDA performance. Working capital absorbed GBP 21.6 million compared to an outflow of only GBP 6.2 million last year. And this was the main reason for the cash performance being softer in the first half than the second half. The largest movement was GBP 18.2 million in payables, which included GBP 25.7 million related to 2025 bonus payments that will, of course, reverse in the second half. CapEx and capitalized development costs totaled GBP 30.1 million, for which the lion's share of GBP 24 million represented R&D capitalization, which is up from GBP 20 million in the prior year. We also spent GBP 4 million on licensing patents and GBP 2.1 million on PPE. The remaining movements were smaller, such as tax, which is GBP 1 million outflow and noting that we expect to receive our R&D tax credit in the second half of around GBP 10 million. Cash outflow in assets to customers has also improved to GBP 2.6 million, which is materially lower than the GBP 14.4 million recorded 2 years ago in the first half of '24 before we changed the pricing model to CapEx first. Other investing and financing items contributed a small net inflow of GBP 4.6 million. During the period, we entered into a material cross-licensing agreement with a global diagnostics company. The agreement brings together specific intellectual property from Oxford Nanopore and the counterparty, providing a freedom to operate under existing IP and a strengthening of our overall IP position. On the economics, we will receive $20 million of upfront revenue in 2026, recognized at 100% gross margin. We are then set to receive a further $15 million of revenue across '27 and '28 related to product purchases. On top of this, we will receive an ongoing royalty in the low to mid-single-digit level related to the counterparty's platform revenue that will run for the life of the patents. Based upon analyst expectations for the counterparty's product sales, we believe the vast majority of economic value or around 90% of the arrangement sits in that longer-term royalty stream. As a reminder, our FY '26 guidance of 16% to 20% constant currency revenue growth excludes $20 million upfront. Royalties will also be additive as earned to the guidance and are not included in FY '26 or medium term at all because we cannot reliably forecast the counterparty's future revenue from the platform at this time. Today, we have also entered into a new cross-licensing agreement with a global diagnostics company, which we believe is potentially transformational for the group's outlook. On the economics, we are set to receive a $20 million licensing fee, which will be recognized during the second half of 2026 at 100% gross margin. There will also be an additional $15 million in committed product purchases to be recognized over 2027 and 2028 that analysts and investors should model our current group margin. On top of this, we will also receive a net royalty calculated as a low to mid-single-digit percentage of revenues generated by certain life science and diagnostic products incorporating the licensed intellectual property for the life of the license plans. Based on market expectations for the products outlined in this agreement, we believe the vast majority of the economic value, around 90%, sits in that long-term royalty stream. As a reminder, our FY '26 guidance of 16% to 20% constant currency growth excludes the $20 million upfront. Royalties will also be additive as earned and are not included in our 2026 or medium-term guidance given these are not our products. From our position, on top of the financial benefits, we see a strong strategic rationale for the deal, which also enhances our IP position. Turning to FY '26 guidance. Guidance on our core business remains 16% to 20% constant currency revenue growth in line with the trading update. We continue to expect to deliver approximately 62% gross margins, in line with the original guidance and first half performance. Adjusted operating expenses are now expected to be negative 2% to flat year-on-year compared to the original guidance of 0% to 5% growth that we set out in March. Looking to the second half, we have significant revenue coverage that underpins our 16% to 20% guidance range from already confirmed business before adding on pipeline opportunities. Proportionately, this equates to the same level of coverage as we had going into the second half of 2025, providing confidence in the full year outlook. Including the $20 million upfront payment from the global diagnostics company, which equates to a 680 bps improvement of incremental constant currency revenue growth for 2026, this lifts top line constant currency growth expectations from 21% to 25% to 23% to 27%, respectively. Because that $20 million upfront payment is recognized at 100% gross margin, it will add 200 bps to gross margins, lifting the 62% reported number to 64% overall. Taken together, these deliver a material improvement in the adjusted EBITDA loss for 2026 with efficiency work continuing beyond. I will now pass over to Francis Van Parys to talk through our updated strategy.

Thank you, Nick. There are 4 reasons why I'm confident about the opportunity at Oxford Nanopore. First, I have seen this type of opportunity before. I've spent more than 20 years in life sciences at GE Healthcare, Cytiva and Radiometer. One lesson from those businesses is that great technology creates the opportunity, but customer adoption and execution determine how much of that opportunity you ultimately capture. Vicor is particularly relevant. This was a highly respected research platform with excellent science. We preserved that strength in discovery research while expanding into adjacent regulated markets such as biomanufacturing and quality control by aligning the offering much more closely with customer needs. I see a similar opportunity at Oxford Nanopore. We have a differentiated sensing platform, a strong position in research and significant potential to broaden adoption in markets such as biopharma and clinical. Second, we have global reach. I've led businesses across Europe, Asia and North America, and Oxford Nanopore already has a customer base and commercial presence across those markets. Third, much of the difficult technology work has already been done. The platform exists, the science is proven and the customers are using it today. And finally, I believe there is significant headroom between what the technology can do and the value the business captures today. So I don't see a company that needs to reinvent itself. I see strong foundations and a significant opportunity to turn more of that technology advantage into customer value and durable growth. The last chapter of Oxford Nanopore was about proving the extraordinary breadth of what this technology can do. The next is about choosing where we can create the greatest value for customers and winning there. That is the opportunity. But to realize it, we also need to be clear about where we are today and what must change. Over my first few months at Oxford Nanopore, I have conducted a detailed assessment of the business. My conclusion is straightforward. Our foundations are strong, but we are not yet converting those strengths into adoption and growth at the level we should. Customer interest in the platform is strong, but adoption remains below its potential, and the customer experience has not always been as consistent as it needs to be. Our technology is highly differentiated, but our product road maps have at times been driven more by what is scientifically possible than by customer problems we are trying to solve. We have a broad set of opportunities, but that breadth has not always been matched by sufficient portfolio focus, clear choices and operating discipline. And while we have talented and highly committed teams, we need greater leadership depth and capabilities to scale sufficiently. None of that requires us to reinvent Oxford Nanopore. It requires us to be much clearer about where we focus, more deliberate about how innovation translates into customer values and more consistent in how we execute. Those conclusions have shaped the strategy that I will take you through now. Our objective is sustainable, profitable growth, and our approach is built around 4 mutually reinforcing pillars to drive shareholder value. The first is customer-centric growth. We will focus our resources on the high-value applications where our technology has a clear right to win. We will strengthen our understanding of customer needs, develop clearer value propositions and work with customers and third parties to accelerate and broaden adoption. The second is focused innovation. We will continue to invest in our differentiated technology platform, but with a clear commercial purpose. Our product and technology road maps will be aligned more closely with the needs of our priority customer segments with a stronger focus on dependable, robust and easy-to-use products and workflows. In the near term, this is focused more on delivering product performance and workflow enhancements than on entirely new product development. The third is disciplined execution. We will simplify the portfolio, strengthen our operating model and introduce clearer ownership, standardized processes and more consistent performance measures aligned with our strategy. Portfolio simplification is already underway, and we are already changing the way we work. This is about making execution more predictable and building a business that can scale efficiently. The fourth is a high-performance culture, which underpins the other 3 pillars. We will continue to build leadership depth, add talent, strengthen the commercial, operational, regulatory and GMP-ready capabilities required to scale while retaining the ambition, agility and innovation that makes Oxford Nanopore distinctive. These are not separate programs. Our market choices determine where we focus innovation. Focused innovation creates products and workflows that address priority customer needs. Disciplined execution allows us to deliver consistently and at scale. And our culture and capabilities determine how effectively we bring the strategy together. The strategic direction is now clear. We are now in the process of operationalizing it, translating these priorities into specific portfolio choices, refining our go-to-market approach, product road maps, operating plans, milestones and measures of progress. Today, I will go into more detail on the first and fourth pillars, customer-centric growth and high-performance culture. The first sets out where we will focus and how we intend to win. The fourth sets out the organization, leadership and capabilities we need to deliver. For focused innovation and disciplined execution, the direction is also clear and the work is underway. We are now translating those priorities into detailed operating plans and are putting appropriate governance processes in place. We will return to those pillars once that operationalization is further advanced, and we can explain the outputs, milestones and measures against which investors should assess our progress. Let me begin with customer-centric growth, where we will focus, why we believe we can win and how those choices support our long-term growth ambitions. So let me start with how we decide where to participate. For each application, we assess 2 things: how differentiated the value of our technology is and how readily the opportunity can be realized. Differentiation without a credible route to adoption is not enough. Equally, an attractive market where we add little differentiated value is not a strategic priority. Our right to win is strongest where richer biological insights, speed, flexible deployment and greater ease of adoption materially change the customer decision. The research market sits firmly in our current sweet spot where end users value new insights in biology for discovery purposes. In selected biopharma workflows, we also see strong differentiation and a credible path to adoption. Clinical offers significant opportunity, but many workflows carry a heavier evidence, regulatory, reimbursement and market building burden. So the appropriate participation model is often different. This slide is a simplified representation grouped into broader end markets of detailed analysis that sits behind every application area, including customer needs, adoption requirements, competitive dynamics and expected returns. The principle is straightforward: invest most where we can create distinctive customer value and a credible return, use collaborations where they can accelerate access or reduce the burden of adoption and remain selective elsewhere. That assessment then determines how we participate. We do not need to build and own every element of every solution. At one end of the spectrum, we can enable others through licensing, technology transfer or off-the-shelf compatibility with relatively limited capital. Further along, we can use OEM co-development or commercialization arrangements. Where our differentiation is strongest and where we have the capabilities to do so, we can own the full solution and capture the product economics directly. The level of investment, control and value capture rises as we move across the spectrum. For research and core biopharma QC workflows, the case for a fuller Oxford Nanopore solution is strongest. In clinical partner-led routes are often more appropriate because validation, regulated deployment and channel access are significant parts of the solution. This approach allows us to scale intelligently, retaining control where it matters while using external capabilities where they improve speed, reach or returns. The same logic applies across the customer workflow. Our differentiated core includes library preparation, sequencing and base calling. Around that core, customers need sample collection, extraction, preparation, automation, analysis interpretation and integration into their existing systems. We will build where Oxford Nanopore has a clear advantage, but we will not recreate capabilities that others already deliver well. Across research, biopharma and clinical markets, specialist third parties can make workflows easier to deploy and extend our reach into customers and channels. The objective is not collaboration for its own sake. It is a more complete dependable customer solution with clear accountability for the end-to-end experience. This allows us to focus our own investment on the platform and the priority workflows where we create the most value while using specialist capabilities to remove adoption barriers. Bringing those choices together gives us a focused path to 2030. The total market is very large, but our strategy is not to pursue all of it. We have identified a serviceable market of approximately $14 billion to $16 billion and within that, 3 priority areas where we can target organically now, research whole genome sequencing, biopharma and selected clinical. Today, research accounts for about 2/3 of group revenue. It is our largest market, a core strength and an important contributor to growth. Over time, we expect the mix to become more balanced. Clinical and BioPharma start from a smaller basis, but are expected to grow faster and become approximately 2/3 of group revenue by 2030. The chart shows the direction of travel rather than precise end market guidance. The important point is that we're not relying on one market. We are maintaining and growing the research franchise while building scale in the high-growth areas where our technology has a clear right to win. That changing mix supports our path to more than $700 million of organic revenue by 2030. Business development, licensing and royalties could provide additional upside. The next slide explain where we will focus within research, biopharma and clinical and what needs to be true for adoption. Research is our strongest position today and remains a central part of the growth plan. We are focusing on applications where long reads and native methylation materially change the biological answer, large genome centers, biobanks, core laboratories and disease research programs dealing with structural variation, phasing, difficult low and complex genomes. Our advantage is not simply read length. It is the ability to combine long and ultra-long reads phasing and methylation in one flexible workflow from exploratory studies through to larger production scale cohorts. The route to scale is clear, a stable production-ready PromethION workflow, prioritized bioinformatics, strong support and visible road maps for priority customers. We also need to continue improving output and cost per genome while building evidence that demonstrates the added utility of long reads and methylation. Methylation is one of the clearest example of Oxford Nanopore's differentiated product utility. DNA sequence tells us the underlying code. Methylation helps reveal how that code is being expressed and can distinguish healthy from diseased biology. Oxford Nanopore can capture sequence and native methylation in the same run without a separate assay or consumable. That matters commercially because it allows us to create products and workflows that are harder for legacy approaches to replicate. We already have 4 panels shipping, including methylation, pharmacogenomics and cancer digital panels with tumor profiling expected from the second half. The Prader-Willi example illustrates the potential clinical value. Sequence alone did not provide the answer while methylation phasing identified the hidden cause. This is what we mean by converting technology leadership into product leadership, creating distinctive salable applications that deliver more information without adding another workflow or consumable. Biopharma is the fastest growing of our priority end markets and represents a significant long-term opportunity. We are focusing on controlled R&D and QC workflows where current approaches rely on multiple assays, tenders and handoffs. That fragmentation creates long turnaround times, significant labor and a substantial integration burden for customers. Native long reads can provide richer context around constructs, reduce reconstruction in complex libraries, deliver results faster and in selected workflows, consolidate identity, integrity, purity and contaminant readouts into one test. Our participation model will be selective. We build -- we intend to build and support core QC workflows directly while using channel and service provider routes for broader R&D applications. The work required is clear, kits, productized bioinformatics, the CFR-ready instrument path, strong comparative evidence and a focused go-to-market plan. This slide brings the biopharma opportunity to life through a specific mRNA quality control case study. Today, manufacturers often use a series of separate instruments and assays to assess the critical quality attributes of an mRNA product. Identity, integrity and purity may each require different methods, different data systems and multiple handoffs. What we have demonstrated is that a single Oxford Nanopore can consolidate multiple quality control measurements, providing a comprehensive view across a range of attributes with the outputs brought together in a single report. That demonstrates the potential customer value very clearly, a simpler workflow, faster results, fewer methods to maintain and a more complete picture of product quality. The next step is to productize that demonstrated capability into a dependable, validated and audit-ready workflow that biopharma customers can adopt with confidence. This is a good example of focused innovation in practice, starting with a customer problem where our technology can do something distinctive, demonstrating capability and then turning it into a product and workflow that can be adopted at scale. Clinical is a significant opportunity, but we will approach it with discipline. We will focus on selected workflows where richer information or speed can change a clinical decision, rare disease and rapid hold-through genome sequencing, tumor profiling and selected acute infectious disease applications. The technology has a clear role. Long reads can resolve structural variants, repeats, phasing and difficult genes. Native methylation can support tumor classification and adaptive sampling and flexible device can improve speed and deployment. But clinical adoption is gated. It requires locked workflows, clinical grade reporting, laboratory integration, evidence, health economic utility and trust. Our model will, therefore, combine Oxford Nanopore-led enablement in specialist centers and reference laboratories with partner-led IVD and channel routes where broader deployment requires capabilities beyond our core. This is a targeted enablement strategy, not an attempt to build every clinical solution ourselves. This is another example of what the platform can already do when applied to a specific customer workflow. In this acute leukemia study, 8 separate conventional pathology assays were consolidated into a single Oxford Nanopore adaptive sampling run. That single run generated 9 categories of output, including copy number variants, methylation and pharmacogenomics at an indicative cost around $350 to $450 per sample compared to approximately $1,650 to $2,050 across the conventional assays. The study demonstrates the ability of the platform to consolidate multiple tests into one workflow while providing richer information and potentially significantly lower cost. The opportunity from here is to take demonstrated capabilities like this and develop them into validated, reliable and integrated workflows that can be adopted more broadly. And that is exactly the type of application we want to prioritize, where the differentiation of our technology translates into a clear and tangible benefit for the customer. That sets out where we will focus and how customer-centric growth will be delivered. But making the right market choices is only part of the answer. We also need the leadership, capabilities and culture to execute those choices consistently and at scale. That is why high-performance culture is the fourth pillar of our strategy and why strengthening the leadership team has been an early priority. We've already made notable progress. We are building from an experienced leadership core, including Nick leading finance and operations and Lakmal, who has the longest tenure with the company, leading science. In the last 3 months, we have added significant capability across the executive team, including new leadership across people, medical and information technology. Tina St Leger has joined as Chief People Officer; Andrew Watson as Chief Information Officer; and Davide Manissero as Chief Medical Officer. Conor McKechnie will join in October as Chief Marketing and Communications Officer. Together, the existing team and these new appointments strengthen the leadership depth and functional experience needed for the next phase of Oxford Nanopore's development. But this is not simply about who sits on the executive team. It is about how the whole organization operates, how clearly we set priorities, how close customers and markets are to our decisions, how quickly decisions are made and how effectively teams work together. That is why alongside strengthening the leadership team, we have reviewed our culture and listened directly to employees across the organization. That broader view, together with feedback from our employees has reinforced the same themes that came to the strategy process. There is strong alignment across the organization around the priorities we have identified. First is focus. We need to align the organization behind a smaller number of strategic priorities, so people are clear on what matters most and where we are choosing to invest our time and resources. Second, we need to bring our customers closer to decision-making and product development so that customer needs play a stronger role in setting priorities across the organization. Third, we need to clarify accountability and speed up decision-making. As we scale, clearer ownership should help us make decisions faster and execute more consistently. Fourth, we need stronger collaboration across teams. Many of the outcomes our customers need to cut across R&D, product, commercial and operational teams. So we need those teams to working together more effectively. And finally, we need to simplify the way we work, creating a more agile and responsive organization without adding unnecessary bureaucracy. The employee survey results gave us a useful baseline. We had 67% participation, 75% positive engagement and 73% of employees said they would recommend Oxford Nanopore. So there's a strong foundation to build on, but also a clear agenda for change. Our focus now is to translate these teams into action, aligning the organization behind the strategy, strengthening accountability and collaboration and making it easier for teams to deliver for customers. That is an important part of building the high-performance culture we need to support the next phase of growth. Let me now connect the strategic choices to the financial framework. FY '26 guidance is 16% to 20% constant currency growth, which equates to approximately GBP 260 million to GBP 269 million or $345 million to $355 million of revenue. We have now provided a view on the priority applications where we see the greatest opportunity across research, biopharma and clinical and the potential to build towards greater than $700 million of revenue by 2030. Research is our largest market today and will remain a significant contributor through 2030. It is expected to grow more slowly than Clinical and BioPharma, but from a much larger base. Clinical and BioPharma are expected to grow faster and become a greater share of group revenue, while industrial continues to provide steady single-digit growth. That changing mix supports group organic revenue growth above the mid-teens from FY '26 with the rate rising over time as the higher-growth markets increase in weighting. By 2030, we are targeting more than $700 million of revenue. This does not rely on future business development, licensing or royalty opportunities, which could provide additional upside. And importantly, the $20 million upfront payment from the cross-licensing agreement is excluded from this organic framework and from the FY '26 guidance. By FY '30, we see adjusted EBITDA margins above 15% and positive growing free cash flow from FY '28. That financial framework is supported by a disciplined approach to capital allocation. Our first priority is organic investment in the core business, funding the innovation engine, the product and workflow road maps that support our priority applications and the manufacturing capacity required to scale. Investments will be directed to programs with clear customer value and commercial potential. Second, partnerships will be used as strategic enablers. We will invest where collaboration can expand the serviceable addressable market, remove a workflow or adoption barrier or accelerate access to customers and channels. These opportunities will be assessed against clear strategic and financial criteria, including a target return on invested capital above 15%. Third, we will consider selective M&A where it can accelerate adoption or strengthen our position in a priority application. This will help us improve our ability to grow faster and increase the strategic capabilities of Oxford Nanopore. All 3 priorities are underpinned by a strong balance sheet. Maintaining financial flexibility is important given our variability in our markets and the investments required to deliver the strategy. The principle is simple: allocate capital behind the areas where Oxford Nanopore has the clearest right to win, apply discipline to every investment decision and protect the balance sheet as we build towards our 2030 targets. Let me leave you with 3 key takeaways. First, Oxford Nanopore has strong foundations and a significant opportunity ahead. We have a differentiated technology platform, a global customer base and clear areas where that technology can create distinctive value for customers across Research, BioPharma and Clinical markets. Second, we now have much greater clarity about how to turn that opportunity into sustainable profitable growth. We are making clearer choices about where we compete, focusing innovation more closely on customer needs, strengthening execution and building the leadership and capabilities required to scale. The direction is clear, and we are now operationalizing the strategy across the business. I look forward to updating you in due course on the progress we are making, particularly on focused innovation and disciplined execution. Third, we have set clear financial milestones. By 2030, we are targeting more than $700 million of revenue and adjusted EBITDA margin above 15% and positive and growing free cash flow. Those targets do not rely on future business development, licensing or royalty opportunities, which could provide additional upside. And 2030 is not the end point, it's an important milestone towards a longer-term ambition I set out at the beginning, building Oxford Nanopore into a $1 billion-plus revenue business. I'm an operator at heart. I'm competitive, pragmatic and focused on execution. There is significant work ahead, and I will be transparent about where performance needs to improve and decisive about the changes required. But we have strong foundations, clearer priorities and an organization we are strengthening to deliver against them. My confidence comes from that combination, the quality of the technology and the opportunity in front of us, but also much greater clarity about where we will focus, how we will win and what we need to do differently to create sustainable value for customers, partners and shareholders. Thank you. Nick and I will now take your questions.

[Operator Instructions] Our first question today is coming from Zain Ebrahim from JPMorgan.

Zain Ebrahim, JPMorgan. I'll try and stick to 2. My first question is on the royalties on the diagnostics agreement you signed today. Can you just walk us through that agreement in more detail and how we should think about the durability of the royalties tied to the agreement? You mentioned it over the course of the IP. So should we assume 10 years or even longer than that for modeling? And how meaningful could the royalties be to your 2030 outlook? I know you mentioned it's about 90% of the NPV, but any further color there would be helpful. And then my second question is on the Clinical, BioPharma strategy, which was helpful to understand more from the presentation. And you mentioned it will be about 2/3 of revenues by 2030. So just to clarify, how much of that expectation is derisked by collaboration that you've already signed so far? And you're already delivering strong BioPharma revenue growth now, but the guidance or target in 2030, it seems to imply an inflection in revenue growth for BioPharma. So when can we expect to see that inflection?

Okay. Thanks, Zain, for the question. I'll briefly comment on the first question and leave Nick to give you a little bit more detail. It's an important agreement for us. It's a sign up that we have a strong IP portfolio. It is one of the participation models that we feel is very relevant to our participation in the market. We're pleased with its potential impact, and we think this can be quite instrumental for us as a company. Nick?

Yes. Thanks, Francis, and thanks for the question, Zain. So clearly, we are limited by the amount of detail we can talk to and want to honor the confidentiality of the agreement that we've signed. At the same time, we absolutely recognize that we've got to balance this with ensuring that we give investors and yourselves the necessary information to be able to kind of model this out going forward. So on the royalties themselves, low to mid-single digit, Market expectations is what we can kind of point to is the significant growth for the products this covers to 2030. And as a result, quite a bit large contributor kind of transformational actually for potentially our P&L as well with the drop-through being 100% gross margin. On the length and duration of the patents within, clearly, we can't give you firm dates on this. We don't think that will be appropriate. But thinking beyond the usual forecast horizon that you've talked to, so beyond that 10-year period, I believe we should be looking at that and quite a long duration indeed. Clearly, as everybody knows, patents usually have like 20-year life. It won't be that long, but it is towards that end rather than the 10. And as you're absolutely right, when we put all of that together, we see 90% of the economic value of this belonging in the royalty stream versus the upfront and product purchases.

Thanks, Nick. On the second question, I think it's important to state that high-value applications that we are targeting and those that we talked about, which includes Clinical and BioPharma. As we estimate, they currently represent about 40% to 45% of group revenue and will grow into probably more like 65% of group revenue by 2030. The growth rate of the BioPharma and Clinical opportunities are in the high single-digit range. And as they grow in importance -- they're already growing at a high rate. And as they grow in importance and proportionately become a bigger part of that group revenue, we expect to see our overall growth rate to accelerate. In terms of collaborations that have already been announced and signed, we have publicly spoken about a number in the Clinical space. There's a number of others underway, and we are being validated by about 20 BioPharma customers at the moment. We cannot name those, but they are actively evaluating our technology and adopting them in their workflows. So we estimate that it is a pretty -- we're pretty confident in the execution of that activity and the proportion it will be of the more than $700 million we target by 2030.

Sorry, just to kind of add as well on that kind of revenue split. So yes, 35% today being the applied markets, switching to 65% by that 2030 time frame. And the BioPharma piece, clearly, there's 2 elements here. There's the QC elements that we've got with the evaluators, but we see a very significant opportunity within the R&D space as well.

Next question will be coming from Kyle Mikson of Canaccord.

Congrats on the margins and profitability in the quarter and all this color in the deck is great. So my first question, I wanted to ask about the near-term outlook. Underlying growth in this kind of medium-term guidance is high teens, it looks like. Is that a good way to think about fiscal '27 growth on the Street consensus is at 20%. So I'm just curious, given probably a more favorable comparison to '26. And on this note, when you think about maybe beyond '23, it looks like clinical you're kind of being a little maybe conservative. How does clinical sort of expand meaningfully beyond this medium-term forecast as well? And I have a follow-up.

Do you want to take that, Nick?

Yes. Thank you. On the first one, the near-term outlook. So mid-teens and accelerating, I think, is a kind of key point here. So absolutely right. So there's a few moving pieces to kind of bear with us. We've got 2026 where we've got 16% to 20% almost like core business underlying growth. Then we've got this $20 million nonrecurring revenue that will come on top, which takes us to that 23% to 27% for this year. Now as we go into '27, we've got that core growth rate of, say, 16% to 20%. And from that, we expect to grow mid-teens in '27 and then to accelerate as we go to a greater than $700 million revenue that is by 2030. And consensus being at 20% today for next year, I would just also flag that our guidance does not assume anything for royalties from the global diagnostics company that we signed the agreement with or any other future business development activities that we are looking at. So I just want to make sure that people kind of capture that in their models that this will be additive overall. And then beyond 2030, I know Francis will add to this, but just on the shape of the model, you're absolutely right. There's a lot for us to do in the clinical space, and we've got very high confidence in the adoption that we can see coming through. But in terms of some of these development opportunities, particularly with peers, there will be perhaps beyond 2030 for some of them when the traction really starts to get going. And I think it's very fair to say that, yes, the BioPharma piece being absolutely critical to that 2030 horizon. Clinical is a larger opportunity over the longer term. So it's more that the growth rate will continue to accelerate there beyond 2030 and what our model expectations are. Francis?

Yes. I think the way to look at it from now until 2030, the biggest proportion of our growth will come from BioPharma because it's a nearer-term opportunity. Clinical is the larger opportunity. And as you think about market segments like infectious disease where we're likely to move towards an IBD type play through partnership, those development product and regulatory requirements for that to really drive meaningful revenue, they are in the outer years and so will accelerate beyond 2030 quite significantly.

Perfect. And for my follow-up, just looking at R&D expense that's declined meaningfully recently, particularly in the first half of 2026. Obviously, that's getting you towards your EBITDA and your cash flow target. So that's great. But I am curious how critical to the medium term, I guess, the 2030 targets, the pipeline efforts are such as the Raytheon line that's probably more near term and then even protein sequencing. Obviously, that's more longer term. Curious of those efforts and how you might invest maybe in terms of that going forward.

Yes. So near term, we expect R&D expenses pretty much where they are at the moment. Obviously, within the prioritization of our research and development products prioritization or project prioritization, we will make some changes. We will make some adjustments, but that doesn't affect the total spend on the near term. We expect the spend to then beyond from 2028 on to evolve as we grow revenues. We are committed to our protein program as an example. So we expect that, that will then continue to be an important part of our investments as we continue to invest in the platform. Nick, do you want to share more details on that?

Yes, absolutely. So I mean, pivotal. Innovation is fundamental to the company and our success. And so we're always going to continue to invest in it. In terms of the key things that you talked to there, absolutely, part of the planning as we're going through. As Francis has alluded to, we're going to come back with more details on Pillar 2 and Pillar 3, which will kind of feed into this as well, Kyle. But in terms of what we've delivered to date, as you know, we went through quite a significant strategic realignment exercise last year where we decided to stop certain activities and that you're seeing the benefit of that now. As we go and just complete the operationalization now of the strategic plans that have been outlined, we'll come back with further details again before -- well, actually, before our full year results for sure, we will detail a bit more. But we're not saving our way to greatness here. We're actually just focusing and reallocating capital to the higher ROI activities and the things you've talked to are clearly on the road map.

Our next question will be coming from Jon Unwin of Barclays.

It's Jon from Barclays. One on 2027 revenue and then on gross margin, please. Just on 2027, given you're forecasting to grow 16% to 20% constant currency this year, if you grow mid-teens in 2027, what would be causing that year-on-year deceleration in growth? And the GBP 15 million of committed product revenue that you have over the next couple of years, just to confirm that is included in your growth expectations for next year and 2028, but that you might also see on top of that some royalty income, which is not included. And then on the gross margin, where do you think gross margin can get to in 2027 given your lowered revenue expectation, but recommitment to the adjusted EBITDA breakeven? And would you have been able to achieve that EBITDA breakeven next year without this new licensing contract and the committed product revenue that you've got?

Yes. I think it's got 5 questions there, John, but I will just try and pick them off one by one. So 2027 revenue and gross margin. So first of all, the $15 million of product revenue from the global -- from the cross-licensing arrangement, that is included in that mid-teens revenue expectation and then accelerating. Royalties are not. So royalties are on top of both the '27 or the medium-term outlook and even the '26 numbers that we're talking to. And the reason for that is because it would be really inappropriate for us to try and predict the revenue expectations for this and the market would have already done that anyway. In terms of where the gross margin can get to in 2027, it's why we kind of -- we did put this slide in around the progress we've made so far. So on consumables, we've seen gross margins reached, roughly speaking, 75%. And as you can imagine, that's a mix across both MinION, PromethION and kits. On MinION, the teams have done an incredible job of essentially the recycling efforts, and we're above that medium-term target of 80% already. On PromethION, the teams are answering this one as well and essentially are kind of moving towards recycling at higher amounts on the PromethION flow cell, which will have a significant benefit to the gross margin. And we are already achieving recycling in certain percentage now already. On Devices & Services, it's about scale and services. And in devices, we clearly got -- as the industry does, we can see the headwinds on compute costs. We can see the headwinds on things like memory costs. We're helping to offset some of these through development activities to reduce our cost of goods, so we don't have to think about pricing. In certain instances, we may have to think about pricing as well. But we still believe we can achieve that 40% gross margin over time. And it's been a linear equation now about what the mix will look like next year. But in terms of where we are at the moment, 62% this year, we see meaningful improvement is available for next year as well. So we saw a 400 bp improvement in this year alone, maybe not unreasonable to think about that sort of improvement going forward as well. Do we need this royalty agreement to hit EBITDA breakeven? No. Is it going to help? Yes. Is it going to be additive to this? Yes. And we're really -- we really hope the market and investors understand what this deal could be for us, which is transformational to the profitability of the company. Is that everything, Jon? Or did you have the next one?

There was one that I wanted to ask that I think I did ask in the original 7 questions I asked. Just if you are seeing mid-teens growth next year, but you're doing 16% to 20% this year, is it fair to assume we could see a deceleration in growth next year ex the royalties and...

So sorry, Jon, I did miss that one. So -- and the reason why -- so when we've gone through this work, what we've done is look at fundamentally all of the applications our customers are doing today on the platform to understand exactly what they're doing today. And we've also got our pipeline, which is very material of opportunities we looked at, and it's also split the same way of the applications people are working on. So what we've done when we've looked at that is we've got around 40% to 45% of our business that is within those target applications that is growing very quickly. And then we've got this like if you like all the other application areas that we're being prudent about what could happen there in terms of growth rate because if we end up assuming the halo effect from these efforts that we're doing leads to a significantly above market growth rate for these other application areas where we're not going to have the same level of focus, then we could end up getting caught up. And so what we're really doing is being prudent on that 55%, 60% of the business. And also, we recognize that it could take a bit of time before refocusing the company and the organization on those target applications start to generate the results that we want. So we're just being cautious at this moment in time. we hope -- certainly hope not to see a deceleration to that mid-teens level, but it would be inappropriate for us to kind of put anything out there at this moment in time otherwise. We will, of course, come back at the full year results and provide detailed in-year guidance as well.

Next, we're going to Veronika Dubajova of Citi.

I have 2, please. My first one is for you, Francis. Just kind of bigger picture R&D. What do you see as priorities as you kind of fast forward for the business over the midterm? Where would you like to spend those R&D dollars? And what are the big opportunities in your mind? And I guess maybe just related to that, we've had already some pruning of the portfolio. Any further opportunities that you see related to the future developmental projects that you think could be discontinued or act? And then my second question is for you, Nick, on the very impressive OpEx control we saw this half year. Maybe give us a little bit of flavor of what's enabling you to bring that guidance down in terms of the OpEx growth? And any other big opportunities that you see for further reduction on operating costs?

Thank you, Veronika. So going back to the first question on R&D, thank you for that. As I mentioned earlier, we believe it is -- our spend in R&D is pretty much at the right level, but the priorities need to be closer aligned with the customer needs that we identified in our target high-value applications. And so that's the work we are going through now and where we will come with additional detail towards full year results. That's our ambition to come back with a finalized plan and clarity on product road map, portfolio simplification initiatives, et cetera. But just to give you a flavor, how I look at it in the near term, as we go through the needs of our customers in those high-value target applications, they're not driven by new products. They are driven by product enhancements, workflow completions, ensuring we have a consistent, robust, easy-to-use workflow on our current platform. So that will drive a number of enhancements and refocusing our efforts on making sure we make those happen first. Medium term, I also do not see the need to execute -- to develop new platforms to execute on this strategy. We are pretty happy with where we are with the technology. Customers are adopting. We've just not seen the full potential of that. And I think in order to realize that, we need to ensure we develop the capabilities that those markets and market segments require. Longer term, we are committed to ensuring the capabilities of the platform continue to evolve. We've spoken earlier in the call on protein. That will become an important opportunity at some point, and we are committed to continue our investment in that space. So I think what you're hearing and what you'll see when we report out more specifically on our future R&D spend is that it's more of pruning, focusing towards the right customer segments. And then from a portfolio simplification standpoint, this work was started last year. We've already made a couple of announcements there. I don't think it's a material wholesome change. We are happy with the portfolio we have today, some of which needs further investments in terms of future upgrade. But we don't expect a wholesome change versus where we are today with our platform. There's a couple of further adjustments of smaller programs that we'll communicate. But the majority of the work in the portfolio simplification has started last year is underway and is soon to be finalized.

And just on your second question about OpEx control. So what's enabling us here to do this? So last year, we went through quite painful exercises within the company. And the second of which was the strategic realignment exercise to sharpen the focus on the portfolio and within the R&D projects that we were doing. And that has -- we're seeing the benefits of that now. We also did the same across the -- not just -- it wasn't just R&D, it was across SG&A as well. And we've seen the benefits there and have allowed us to reallocate capital internally. We have absolutely with investors in the market tried to have a say do kind of and build trust. And I think we're showing that. That's why we're kind of disappointed with what happened with the top line in the first half in all honesty. But on the OpEx piece, we said we were going to be cost disciplined. We've demonstrated that ahead of expectations. And when we look forward into next year or the second half of this year and the year ahead, we've got buy-in, I believe, internally for actually how we're going to continue to drive -- be more efficient internally with our capital. And those -- the big things are looking like logistics costs where we can recover more than what we are doing at the moment, and that's reported within that sales and distribution line. And then on things like overall IT expenditure, software, et cetera, we've been doing things internally to look at this already. We can already see that we've got duplication here of programs that we've got in-house. It's a big number. And actually, we're going to execute on that over the next 6 months, and you're going to see the benefits of that next year in the numbers as well. These things are going to allow us to reallocate capital and essentially focus on the higher growth activities essentially as we're doing in R&D as well. So we're pleased with how we've gone. We'll continue to try and do better than what we're guiding to on the OpEx line as well.

Our next question will be coming from Sam England from Berenberg.