rewrite this title A Long-Read Duopoly – PacBio or Oxford Nanopore? – Nanalyze

Nanotechnology is all about understanding things at the smallest unit of measurement possible. Like the oceans, we’re only beginning to explore how life works at a cellular level. Next-generation sequencing tools from Illumina $ILMN have allowed all kinds of genomics companies to proliferate with some winners and losers. Both spend money on sequencing tools which is why we find the Illumina razor-blade story so compelling. It’s a pick and shovel play on the growth of genomics.

Despite all the potential, this leader in genomic instruments has been in the growth doldrums since their doomed acquisition of cancer-screening firm GRAIL $GRAL, with revenues trending flat or even negative since.

As the market leader, Illumina should be finding ways to grow their business through selling adjacent complimentary offerings – like long-read sequencing.

The Long-Read Sequencing Opportunity

Illumina instruments perform what’s called “short-read sequencing” which, as the name implies, doesn’t paint a complete picture of the genome. To understand the entire genome you need “long-read sequencing” which is understandably more expensive, but that’s where all the details can be found and fed to hungry AI algorithms for insights. Illumina developed their own long-read offering which is described as “synthetic” and not the same type offered by the two most prominent providers of such tools – Oxford Nanpore $ONT.L and Pacific Biosciences $PACB.

A questionable total addressable market (TAM) for long-read sequencing is something we’ve talked about in the past. That’s because these tools are predominantly used in research applications. But eventually, we’d expect commercial applications to outpace research as everyone adopts the latest and greatest sequencing technology, right?

Not necessarily. If short-read sequencing does the job, who’s going to spend the extra money on long-read? Tech analysts will quickly point to how we’re now looking at moving from the $100 genome to a $10 genome in short-read sequencing. While the same dramatic cost reductions could happen for long-read sequencing, all those Illumina short-read machines aren’t going to be replaced if companies are finding them sufficient for their operations. If it ain’t broke, don’t fix it.

Rather than speculating on the future of these two gene sequencing methods, we can let the numbers do the talking. Revenue growth is always the ground truth for the progress any technology is making. And Oxford Nanopore has been checking the growth boxes. Below we’ve charted the growth of their core offering (what they call life science research tools or LSRT) over time.

Note that COVID ushered in a temporary surge of revenue which masks the real growth of their core offering, so it’s useful to ignore these one-time benefits. It’s all about selling hardware and consumables which are seeing decent growth. There was a stutter step last year which was blamed on a myriad of factors but offered up as a transition to more consistent future growth. This seems to be the case based on the growth of use cases outside of just research. (More on this in a bit.)

If companies want to do long-read sequencing, it’s becoming increasingly likely they’ll be doing it on Oxford Nanopore hardware. That’s because the only other option is currently experiencing some growing pains.

The PacBio vs Oxford Nanopore Duopoly

Oxford Nanopore and PacBio have a duopoly on the long-read instrumentation market right now. That became apparent back in 2018 when Illumina tried to acquire PACB and regulators shot down the transaction because of monopoly concerns. With Illumina’s synthetic long-read offering not seeming to gain much traction, an investment in both these companies seems to corner the long-read opportunity.

However, the last time we looked at Pacific Biosciences, the company seemed to be surviving, not thriving. They were burning gobs of cash with revenue growth quickly drying up. That still appears to be the case today, with preliminary full-year 2025 earnings results pointing to low single-digit revenue growth after negative double-digit revenue growth in 2024. Below you can see where revenue growth dripped off in early 2024 and hasn’t picked up since.

Numerous times revenue expectations weren’t met as the company cited funding constraints, fewer placements, and competition.

When earnings are formally released next month the company should provide guidance for 2026 which they’ll probably approach with caution given past guidance misses. New SPRQ-Nx sequencing chemistry means that, “customers operating at scale could see as much as a 40% reduction from current costs, down to a price of less than $300 per genome.” Let’s hope that keeps being reflected in stronger consumables growth (i.e. customers use their instruments more) which came in at nearly 16% last year. Unfortunately, that was offset by an 18% decline in instrument sales. “Service and other revenue” was up 35% last year, but services don’t scale like an instrument business model does. They’re also not as profitable, and PacBio’s gross margin has been steadily declining over time.

Ever since the growth problems started, management has been shifting their language more towards surviving than thriving. They expected to burn $115 million of cash in 2025 and have $330 million in cash and receivables on the balance sheet. The clock is ticking with $645 million in senior notes coming due in 2028 and 2030. Our previous conclusion hasn’t changed a bit. “We’re going to avoid PACB until they can show a clearly feasible path to positive operating cash flows which would demonstrate an economically viable long-read platform.” We’re only interested in leaders for any given theme. Oxford Nanopore seems to be the leader in long-read right now with more revenue, stronger revenue growth, and a much stronger balance sheet than PacBio which gives them better funding options if they need them.

Oxford Nanopore’s Success

In last year’s piece on Oxford Nanopore we talked about monitoring progress in key markets such as biopharma. In other words, we want to see revenue growth coming from something other than research. Oxford provides three additional revenue segments – clinical, biopharma, and applied industrial – the growth of which can be seen below (in USD millions):

Oxford plans to release their 2025 results in March, but in the meantime, we’re given preliminary numbers for assurance which reflect strong revenue growth of about 25%. And it’s where that growth came from that matters most. For the entire year, Clinical revenue grew by approximately 60%, BioPharma by approximately 30%, and Applied Industrial by approximately 27%. Research revenue grew by approximately 15% during the period despite end-market funding pressures. It’s promising to see every segment that isn’t research growing faster than research. Selling research instruments to institutions with fickle budgets means the company will be subject to a lot of volatility.

Other key metrics we said to keep an eye on included PromethION adoption rates, new large-scale manufacturing contracts, and real clinical traction, which we touched on earlier. PromethION is Oxford’s flagship long-read DNA and RNA sequencing machine, built for real-time, large-scale applications like researching complex diseases or analyzing genetic trends across large populations. Contrast that to MinION, which is a handheld device better suited for small reads. As we’d hoped, the more expensive PromethION devices are driving most of Oxford Nanopore’s growth.

Regarding large manufacturing contracts, Oxford Nanopore and Bio-Techne extended their biomanufacturing contract into 2032, focused on building tools for the screening and diagnosis of genetic disorders. We’re not given specific numbers here, so it’s hard to know how significant this partnership is.

Valuation and Runway

Things appear to be progressing as we’d hoped, but you wouldn’t guess it by looking at the company’s valuation. With annualized revenue of £211 million GBP and a market cap of £1.57 billion GBP, Oxford Nanopore sports a simple valuation ratio of 7.4, right in line with our catalog average. Despite the strong execution and double-digit revenue growth, Oxford Nanopore stock has an average valuation. Perhaps investors are concerned about the company’s survivability.

When a company achieves positive operating cash flows, investors can breathe a sigh of relief. It’s now theoretically possible for a company to generate all the cash it needs without having to sell equity or raise debt. Oxford Nanopore says they should “achieve breakeven” next year which implies some sharp reduction in their current cash burn. The below “cash bridge” shows how much cash they burned through for the first half of this year, about half of which was from operations.

At that burn rate they should have about 2.5 years runway left before they need to sell shares (dilute investors) or take on debt (they currently have no long-term debt). However, that doesn’t mean they won’t need to raise capital. If the value of long-read can be demonstrated across enough domains with appropriate pricing, perhaps Oxford can develop a sizable business while enjoying all the benefits that come with being the dominant provider of a necessary tool. If demand to scale requires capital, they may look at raising debt or selling shares at the highest valuation possible.

Conclusion

The long-read sequencing story seems to be on track, but we need to see more commercial growth. Diversifying away from research will be a hurdle the company needs to clear before investors are willing to ascribe it a premium valuation. It will also prove that long-read sequencing can be commercially viable in the face of cheaper short-read options like those from Illumina. With two companies having a commanding market share of the long-read opportunity, one seems to have the advantage right now and that’s Oxford Nanopore.