The Sequencer Stopped Being the Product

Illumina’s 2025 was flat. Revenue of USD 4.34 billion, unchanged on both a reported and a constant-currency basis, with a GAAP operating margin of 18.6 percent and a non-GAAP operating margin of 23.1 percent. As a headline it reads like a market that has stopped moving.

It is not. The market moved considerably in 2025. What stopped moving was the company that had, for two decades, been the market’s definition. And the reason it stopped moving is the most useful thing anyone said about this industry all year: sequencing stopped being an instrument business and became a run business, a reagent business and, above all, a reimbursement business. The sequencer is no longer the product.

A flat year that is not a flat market

Start with the number that Illumina itself put next to the flat one. Revenue outside China was USD 4.10 billion, up 2 percent on both a reported and a constant-currency basis. The distance between USD 4.34 billion and USD 4.10 billion is China, and China is a drag rather than the market. The first conclusion, then, is that the world’s largest sequencing company grew 2 percent in the places where it is actually competing, and lost ground where a combination of local competition, pricing pressure and constrained research budgets has been visible for several years.

Now put the challenger beside it. Oxford Nanopore reported revenue of GBP 223.9 million for the year to 31 December 2025, up 22.2 percent on a reported basis and 24.2 percent at constant currency, slightly ahead of the top end of its own guidance. Gross margin improved 110 basis points to 58.6 percent. On scale the two companies are not comparable; on trajectory they are the whole story. One grew 2 percent ex-China, the other grew 24 percent, and the difference between them is not a difference in the demand for sequencing. It is a difference in where in the workflow each company is standing.

What actually fell inside the flat number

The composition is more revealing than the total. Illumina’s product revenue rose USD 53 million, from USD 3,656 million to USD 3,709 million. Its service and other revenue fell USD 82 million, from USD 716 million to USD 634 million. Total revenue fell USD 29 million, from USD 4,372 million to USD 4,343 million.

Read those three movements together and a specific picture appears. Instruments and consumables, the razor and the blade, grew. The line described as service and other contracted by more than a tenth. Whatever sits inside that line, it is the part of the business that depends on an installed base being maintained, upgraded and renewed rather than on new placements, and it is the part that should be the most durable. A sequencing company losing ground on the annuity while holding the hardware is a sequencing company whose customers are sweating assets rather than expanding them.

One qualification, and it matters: the fourth quarter was better than the year. Revenue of USD 1,159 million against USD 1,104 million in the prior-year quarter means the exit rate is above the average, so the flat full year understates where the business ended.

The growth is in the big box and in the clinic

Oxford Nanopore’s segment disclosures do something that no press release can: they locate the demand. Revenue from clinical customers grew 59.9 percent. BioPharma grew 30.4 percent. Applied industrial grew 27.2 percent. Research, the historical heartland of the technology, grew 15.1 percent. By product, the PromethION range grew 43.1 percent, other revenue including kits and services grew 12.0 percent, and the MinION range grew 2.4 percent.

Two things follow. The first is that the hand-held sequencer, the device that made this company famous and that still anchors the category’s public imagination, is not where the growth is. A device growing at 2.4 percent in a market growing at 24 percent is a device that has found its niche and settled into it. The second is that the high-throughput box, the one that sequences human genomes at population scale, is growing at 43 percent because that is where the clinical volume is. Growth in sequencing has migrated from the laboratory bench to the hospital, and the product mix has migrated with it.

The geographic split says the same thing from another direction. Revenue grew 26.3 percent at constant currency in EMEAI, 23.2 percent in Asia-Pacific and 22.2 percent in the Americas. That is unusually even, and it argues against reading 2025 as a story about any single territory. It reads instead like adoption broadening across health systems that have separately decided sequencing is worth paying for.

The price of a test is now set by a fee schedule

Here is the mechanism the industry spends too little time on. In Florida, Medicaid has reimbursed rapid whole genome sequencing since 1 January 2024 for patients aged 20 or younger with a complex or acute illness of unknown origin who are receiving inpatient treatment in an intensive care or high-acuity paediatric unit. The state requires no prior authorisation for the test and instructed managed care plans to remove any that existed and to reprocess earlier denials. CPT code 81425 carries a fee of USD 2,716 on the 2025 schedule.

That single administrative document explains more about where this market is going than any instrument launch. The moment a sequencing test has a payer code and a published fee, its price stops being a vendor’s decision and becomes a schedule entry. Growth then depends on one variable only: how many patients meet the eligibility criteria. And those criteria are written by a payer, not by a laboratory.

This is the same gate that governs the wider diagnostics market, where coverage rather than technical capability sets the ceiling on adoption, and where fee-schedule policy can compress an entire category’s revenue even as test volumes rise. It is why the sequencing forecast in this series rests on clinical volume compounding faster than research spend, and why the coverage decisions matter more than any instrument cycle.

The margin paradox

Put the two companies’ profit structures side by side and the industry’s central tension appears. Oxford Nanopore earned a gross margin of 58.6 percent and still reported an adjusted EBITDA loss of GBP 86.7 million, improved by 31.2 percent on the prior year, and a loss for the period of GBP 145.2 million. It has committed to adjusted EBITDA breakeven in 2027 and positive cash flow in 2028. Illumina earned a non-GAAP operating margin of 23.1 percent on revenue that did not grow.

So the challenger has the growth and the gross margin and no profit, and the incumbent has the profit and no growth. Gross margin percentage is not where the economics of this industry live. They live in manufacturing scale, installed base and the cost of the selling and support organisation that sits under every instrument. A company at 58.6 percent gross margin that is losing money is a company whose operating structure is sized for a revenue base it has not yet reached. A company at 23.1 percent operating margin with flat revenue is a company whose structure is sized correctly for a market that has stopped expanding under its feet.

The strategic question is therefore not who grows faster. It is who reaches the crossover first: the challenger reaching operating scale before its capital runs out, or the incumbent finding a growth line before its installed base stops renewing. Both are live. Neither is settled.

What this means for a 13.2 percent market

Pheonix’s series for the global next-generation sequencing market runs from USD 15.80 billion in 2025 to USD 42.60 billion in 2033, a 13.20 percent compound rate. That number is a blend, and the blend is the point. A market in which the dominant short-read franchise grows 2 percent outside China and the long-read challenger grows 24 percent cannot be modelled as a single rate. The 13.2 percent is what you get when clinical volume, consumable pull-through and mix shift carry the aggregate while the largest single participant moves sideways.

That is a defensible forecast, and it is also a fragile one, because it depends on a specific assumption: that clinical volume keeps compounding faster than research spending. The Florida policy is an example of the mechanism that makes that true. A cut to a fee schedule is the mechanism that makes it false, and it can arrive without warning, because it is an administrative decision rather than a commercial one. The wider diagnostics market has already shown how quickly a payment cap can travel through a testing category.

What would break it

Three things, in order of likelihood.

First, a long-read price war. A company that has promised EBITDA breakeven in 2027 has to choose between margin and volume, and when the choice is forced it will choose volume, because volume is what absorbs fixed cost. Price cuts at the high-throughput end would pull revenue out of the fastest-growing layer of the market at exactly the moment the forecast needs that layer to carry the blend.

Second, China continuing to be a drag rather than stabilising. The difference between flat and 2 percent is one territory, and a market forecast that assumes the drag ends has an unhedged assumption inside it.

Third, and least discussed, a failure of the short-read replacement cycle. Consumables revenue is an annuity on an installed base, and an installed base ages. If laboratories extend instrument life instead of replacing it, the pull-through decays quietly, one year at a time, in exactly the line that already contracted in 2025.

The conclusion is uncomfortable for anyone who still thinks of this as an instrument market. The sequencer is a durable, well-engineered and increasingly commoditised box. The money is in the run, the reagent and the reimbursement code, and the three companies best positioned over the next eight years will be the ones that own those, not the ones that own the best box.

For the full dataset, six-chapter analysis and forecast, see the Global Next-Generation Sequencing Market 2026-2033 report. The companion Global Diagnostic Tests Market 2026-2033 report sets out the reimbursement mechanics in more detail, and the mammalian transient protein expression report covers the upstream input market these platforms depend on.

The rest of this series

This piece is one of seven in a connected body of analysis on the molecular diagnostics and bioprocessing input markets. The others: The Reagent Is the Business, on why instrument placements are a cost and reagent pull-through is the revenue; Fifteen Per Cent a Year, on how the clinical laboratory fee schedule decides who grows; The Twenty-Eight Day Rule Is Over, on sequencing entering mandated release testing; Transient by Design, on why a non-clonal process has a structural ceiling; A Qualification Is Not an Approval, on what actually gates the organ-on-chip market; and What the Chip Costs Per Data Point, on the unit economics of an experiment.