Q3 2020 Pacific Biosciences of California Inc Earnings Call
Ladies and gentlemen, please standby your conference call will begin shortly again, ladies and gentlemen, please standby today's conference will begin shortly thank you.
[music].
California.
Water 2020 earnings conference call at.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require systems during the conference. Please press Star then your ROE on your Touchtone telco.
I would now like to turn the conference over to your host distribution.
Striving toward please go ahead.
Thank you Alexander.
Good afternoon, and welcome to the Pacific Biosciences third quarter 2020 conference calls, we hope that you're keeping well during that time.
Earlier today, we issued a press release outlining the financial results, we'll be discussing on today's call a copy of which is available on the investors section of our website at www Dot P.A.C.B. dotcom or alternatively as furnished on form 8-K available on the Securities and Exchange Commission website at <unk>.
<unk> W.W. dot SBC dot Gov.
With me today are Christian Henry our Chief Executive Officer Susan.
Susan Kim our Chief Financial Officer, and Bank on our Vice President of Finance and Treasurer.
Similar to last quarter, we are hosting a conference call from a number of different locations. So please bear with us if there are any technical issues are positive.
Before we begin I would like to remind you that on today's call, we may be making forward looking statements, including plans and expectations beliefs projections.
Projections.
Research and development efforts potash.
Products sales plans of our collaboration partners lands to grow and put temperature the potential impact of growing our commercial team and other future events such as the impact of the COVID-19 pandemic on our business partners customers and employees and the use of our products in Covidien 18 research.
You should not place undue reliance on forward looking statements because they are subject to assumptions risks and uncertainties and may differ materially from actual results.
In particular, the extent of covert 19th continued impact on our business will depend on several factors, including the severity duration and extent of the pandemic as well as actions taken by government.
Businesses and consumers in response to the pandemic all of which continue to evolve and remain uncertain at this time.
These risks and uncertainties are more fully described in our six true Securities and Exchange Commission filings, including our most recently filed reports on forms 8-K, 10-K, and form 10-Q Pacific Biosciences undertakes no obligation to update forward looking statements.
In addition, please note that today's call is being recorded and will be available for audio replay on the investors section of our website. Shortly after the call ends.
Doctors electing to use the audio replay are cautioned that forward looking statements made on today's call may differ or change materially. After the completion of the live call I would now like to turn the call over to Christian.
Good afternoon, and thank you for joining us today I'm pleased to be hosting my first earnings call for Pacific Bio Sciences, That's a chief Executive officer, and I'm excited to share some of the progress we've made in my first seven weeks.
For my prepared remarks, I will briefly review, our Q3 financial and business highlights provide an update on how the COVID-19 pandemic is impacting our business and finally give some early impressions as CEO and share our view of the opportunity we have to grow the business.
Before I begin I do want to thank all of the employees of tactile for their extraordinary effort during the pandemic drew.
During the quarter, we were able to successfully maintain production and continue with our research and development activities without significant disruption from the pandemic.
I'll start with an overview of our Q3 2020 financial [noise].
Consumable revenue for the quarter was $8 million up 66% sequentially from Q2.
Most of our customers, who had shut down due to the pandemic in the second quarter have reopened we're.
We are pleased to report that system utilization on installed equal to systems had returned to levels similar to or even higher than where they were before the pandemic.
Instrument revenue for the quarter was debt was 7.7 million were down 14% sequentially from Q2.
As I mentioned in our previous earnings call, we have seen significant head get wins in instrument sales due to the pandemic. Many of our instrument sales opportunities have been delayed as some capital budgets were put on hold in Q2, this impacted new bookings and of course instrument revenue in Q3.
We believe these delayed system purchases continue to be opportunities and we've recently seen instrument bookings improving but.
Additionally, we have a healthy system sales pipeline. However, due to the pandemic. It is difficult to predict how quickly these opportunities will be converted to instrument sales.
Total revenue for the third quarter was 19.1 million, which was up 12% sequentially from Q2 over.
Overall, we were pleased with the total revenue we recorded in Q3 as we met our internal forecast, while still navigating through the challenges associated with the pandemic.
We successfully raised 94 million from a follow on offering we conducted in August and ended the quarter with approximately 209 million in cash and investments.
Up from the 120 million balance we held at the end of June the.
The proceeds from the offering will allow us to execute on our two core strategic and Jeff.
Factors driving an expansion of our commercial operation and investing more aggressively in product development.
Susan will provide more details on the financial metrics later in the call Nowadays.
Now I'd like to provide a few updates and comments regarding the impact of Soviet 19 on our business as I mentioned earlier, the vast majority of our customers have reopened and utilization of our installed base a sequel to systems is as high as it was prior to the pandemic.
That said some delays persist in the ramp up of certain large sequencing projects such as the all of US human genome sequencing project in the United States and the Darwin tree of life plant and animal sequencing project in the United Kingdom.
The flow of samples from these projects have been hindered by the pandemic. However, we are seeing signs that this loosening up this quarter and we believe that we should see a ramp up of these projects early next year.
With regard to instrument sales in the near term many customers have delayed capital spending activities and some customers diverted those funds to activities more directly related to near term Tobin response.
In a typical third quarter, we would receive orders for new systems from U.S. government related customers that are looking to spend their capital budgets prior to the end of the government fiscal year.
However, due to the pandemic, we did not receive any of those orders in Q3 and it is difficult to predict when those opportunities will actually huh.
That said as I said before our sales pipeline is healthy and we expect to see an increase in instrument bookings in the fourth quarter.
We will continue to monitor this closely as macroeconomic conditions created by the pandemic may have an extended impact on capital spending.
Last month, we announced the launch of the sequel to reach system, which represents the next instrument evolution based on our smart technology seek.
Sequel to weed system as an exciting new instrument that will make the smart technology accessible to more scientists than ever before.
The system has significantly increased computational capacity and its been optimized for high side sequencing by processing the data on instrument.
This eliminates the need for post processing of sequence data and delivers up to a 70% reduction in secondary analysis huh.
Additionally, the sequel to weed system has achieved two it is designed to achieve up to a 90% reduction in file transfer and data storage needs.
The combination of these advancements will substantially reduce the costs associated with compute and data storage and will help accelerate our customers research.
The market has responded enthusiastically to the new system and we have already received orders the sequel to system is price, 5% to 10% higher than the sequel to.
That is to say the sequel to we system is 5% to 10% higher than the sequel to and we expect it will be available for shipment this month.
Additionally sequel, two systems in the field can easily be upgraded to the sequel, TV, which will provide all of our sequel to customers access to our new capabilities.
[noise] [noise] [noise] with the growing popularity of Pac Bio Hi Fi sequencing, we are seeing new opportunities to collaborate with customers who are on the forefront of applying sequencing toward emerging clinical applications last month, we announced the collaboration.
Children's Mercy, Kansas City, a leader in translational research for sick children.
Aldrin's Mercy recently launched a program called genomic answers for Kid, which is intended to be a data repository to facilitate that search for answers and novel treatments for pediatric just genetic conditions.
Their goal is to collect genomic data and health information for 30000 children and their families over the next several years ultimately, creating a database of nearly 100000 genes.
Children's Mercy now has to sequel to system, which they will use to incorporate hi Fi sequencing into this effort.
We also recently announced the collaboration with NBC focusing on the investigation of clinically relevant molecular targets for use in the development of advanced diagnostic testing for epilepsy.
In the first phase of this collaboration envy tape plants to perform whole genome sequencing on a large pediatric epilepsy cohort.
Sequencing will be performed using multiple pack buyouts equal two systems.
Armed with Pac bio high fives sequencing data and be table work towards generating comprehensive variant profiles to investigate the genetic basis of epilepsy. This.
This research is intended to accelerate envied case development of assays to help patients to obtain more accurate diagnoses and facilitate improved treatment options based on specific genetic targets.
To summarize I'm encouraged by our performance in the third quarter, we were able to reach or internal revenue targets growing sequentially over Q2. We also initiated a few important collaboration that support our belief that smart sequencing with high fives will be extremely important for clinical research applications.
With that I'd like to turn the call over to Susan who will provide more details on our Q3 financial results and our outlook for Q4.
Thanks, Susan.
Good afternoon, everyone I am excited to be onboard and participating in my first earnings call as the CFO of Pacific Bio Sciences.
I'll be providing an overview of our Q3 2020 financial results with comparison sequentially and year over year and.
In addition, I will provide commentary on our outlook for the fourth quarter of 2020.
Starting with revenue total third quarter revenue was $19.1 million.
An increase of 12% from $15.6 million in Q2 of this year.
But a decrease of 13% from $21.9 million in Q3 of last year let.
Let me provide some additional detail on the revenue for the quarter.
Consumable revenue for the third quarter of 2020 with $8 million growing sequentially, 66% from $4.8 million sold in Q2 of 2020 and up 16% from $6.9 million sold in Q3 of 2019.
The sequential growth in consumable revenue reflects the increased utilization of our installed base, which as we indicated has returned to levels prior to the pandemic.
Sequel to consumables represented approximately 70% of our total consumable shipments in the third quarter and roughly 25% of our consumable shipments were purchased for the older sequel system.
It is encouraging that customers have been able to take advantage of the benefits that come with our sequel to system.
We expect the proportion that consumable sales trends equal to systems to continue to grow as the installed base for sequel to continues to expand.
Instrument revenue recognized in Q3 was $7.7 million down from $8.9 million recognized in Q2 and down from $11.6 million recognized in Q3 of last year.
And your revenue this past quarter reflected the pandemic headwind on our instruments sales largely due to customer uncertainty associated with Coke at 19, and the funding environment for capital spend.
Instrument bookings in Q2 had hit a low point for the year, which resulted in insurance revenue in Q3 down sequentially from Q2 of 2020.
We installed 20 sequel to systems during the third quarter growing the installed base a sequel to by 14% to 168 as of September 30.
Gordon and other revenue was $3.4 million in Q3, 2020, compared to $3.3 million last quarter and $3.4 million last year.
Our service revenue has remained relatively flat over the past year and increased service on sequel to system has been offset by declines in service on RFS II and sequel system.
Looking forward to Q4, we are targeting sequential growth in total revenue over Q3.
We entered Q4 with a stronger pipeline compared with Q3, however, the timing of instrument installations can be unpredictable due to the ongoing impact of Cove in 19.
This presentation has also been strong we are closely monitoring the impact of Lockdowns in countries like France, and the UK to see how this latest wave of infection may impact our consumable sales.
Moving on to gross profit and gross margin in Q3 of 2020, we generated a gross profit of $7.1 million, representing a gross margin of 37%.
Compared with a gross profit of $6.6 million, representing a gross margin of 38.7% in Q2 of 2020.
The decrease was primarily attributed to quarter to quarter fluctuations in the average selling price of instruments.
Year over year, our gross profit in the quarter improved compared to the gross profit of $6.9 million in Q3 of 2019, which represented a gross margin of 31.6%.
The improvement in gross margin compared with last year was primarily due to inventory reserve taken last year as a result of the product transition from sequel to park.
Partially offset by under absorbed overhead from lower factory production in Q3 of 2020.
Looking forward to Q4, we anticipate gross margin will improve as our factory utilization continues to improve.
We expect gross margin percents in Q4 to be in the low fortys.
Moving to operating expenses operating expenses in the third quarter of 2020 totaled $31.2 million up 4% compared with $30.1 million in Q2, 2020, and down 11% compared with $35 million in Q3 of 2019.
The decrease compared to last year was primarily a result of merger related expenses, which were incurred in Q3 of 2019.
The sequential increase compared with Q2 is primarily a result of increased R&D expense related to new product development costs.
We continue to believe in the promise of our high firing capability.
Therefore, our goal is to accelerate our new product development efforts as well as expand our direct sales force to better serve our markets across the mid and long term.
As a result, we expect our operating expenses to grow sequentially in the fourth quarter.
Non cash stock based compensation included in operating expenses was $4.3 million in Q3 of 2020 up from $3.6 million in Q3 of 2019.
Net loss for Q3, 2020 was $23.7 million, which translated to a net loss per share of 14 cents.
Turning to our balance sheet, we ended the third quarter with a balance of $208.6 million in unrestricted cash and investments.
Compared with $120 million at the end of the second quarter of 2020.
The 88.6 million increase in cash was primarily a function of our follow on offering in August that netted approximately $94 million plus.
Plus nearly $11 million in proceeds associated with employee stock option exercises.
Partially offset by approximately $60 million of cash used for operations.
Inventory balances decreased in Q3, 2000 $20 million to $15.9 million, representing a 2.9 inventory turns from $16.8 million at the end of Q2, 2020, or two and a half inventory turn.
The improvement in churn is due primarily to the higher consumption of our consumable sales inventory.
Accounts receivable increased in Q3 to $11.8 million, reflecting idea. So a 56 days from $11.3 million at the end of Q2 2020, reflecting a dsos 50 days.
The change primarily attributed to the timing of instrument billing.
Finally, as a result of the merger termination with Illumina earlier. This year, we received a reverse termination fee of $98 million back in January.
Consistent recorded as a deferred gain on our balance sheet.
Don't tell everyone that contingency associated with the reverse termination he law and therefore this amount will be recognized as other income in our Q4 2020 income statement Weve.
We believe the tax impact of this gain will be minimal due to the existence of our accumulated net operating loss and R&D tax credit.
With that I will turn the call back to Christian.
[noise]. Thank you Susan.
As many of you may know one of my first objectives. Upon joining the company is to define the core strategies that will drive our execution and growth over the next several years, although I've only been at the company for several weeks that strategic planning process is well underway and I look forward to sharing more detail with you in the coming months.
Today, However, I'd like to share three core objectives that will drive us and 2021.
First core objective for 2021, we'll be focused on expanding our commercial reach with the launch of the sequel to and to eat systems and the emergence of highly accurate long reads or high fiery Pac bio is now being recognized as not only the leader in lottery sequencing, but also as the leader in accuracy and complete.
And that's among all sequencing companies these advances make our products desirable to more customers than ever before.
As a result, we need to expand our commercial team to take advantage of new opportunities and to meet the needs of these new customers today, we have a modest global sales force of approximately 20 sales personnel.
We plan to dramatically increase the size of that sales force over the next year. In fact recruiting is already under way for more than a dozen new sales positions. We believe these new physicians will enable us to reach more potential customers than ever before which will help us grow.
Of course hiring and training takes time and I would expect that it would take at least a few quarters. Once news a new sales person is hard to get up to speed and start contributing in a meaningful way.
As we expand our sales force, we will also need to expand our ability to execute within the commercial organization. As a result, I expect that we will invest in marketing sales operations and service resources to ensure that we can quickly convert opportunities.
[noise] [noise] and ensure that each customer has a great experience with Pac file.
Our second core objective is focused on driving our product development pipeline.
Our smart technology has headroom to improve and we have several programs underway to significantly increase the throughput of our sequencing system.
This will be critically important as we engage in the large scale whole genome sequencing market.
In addition to increasing throughput we will also be improving the upfront sample preparation processes. So that our customers have robust fully automated protocols that require less starting material.
Our third core objective is focused on moving our smart technology deeper into the clinical diagnostic market, where we believe our technology has unique advantages over other technologies available today.
Using high firing needs. There is a number there is emerging evidence that researchers and clinicians can increase their solid rate for rare genetic diseases that have not been solved using other sequencing technologies to leverage our technology in the clinic, we will continue to execute on high quality collaborations and partnerships such as the one.
None that we were announced with envy today and children's Mercy, Kansas City, this past quarter and our ongoing partnership with the sure Jed.
With the recent advancements in our smart technology and the near term products to come our long read sequencing technology will enable our customers to fundamentally advance our understanding of genomics. We expect this will have significant impact across a broad.
But across broad areas of human Biomedical research agriculture, microbiology infectious disease, and ultimately to improve human health.
Before I conclude my prepared remarks, I want to reflect on the recent shutdowns in Europe and the rapid increase in Tova cases in the United States.
As a reminder, that the business environment is highly volatile, particularly with respect to new capital purchases. Nonetheless, we believe that we can grow our revenues sequentially over Q3 levels.
However, the amount of growth may be impacted by the emergence of closures related to the pandemic such as what is currently happening in Europe.
In fact closures do the due to the pandemic may have an impact on our revenues in the first half of 21 as well.
Even with the challenges associated with the pandemic. This is an exciting time for me to be joining the company. The Pac bio team has created technology and products that are truly remarkable and has created a strong foundation for building a great business. We believe that Pacbio sequencing is clearly the gold standard for establishing reference genome.
And it is the go to technology for plant and animal sequencing.
Pac bio is held in high regard among customers for high integrity and excellent customer service and the launch of several new products has given the company a great opportunity to grow I look forward to pushing us to build a great company by accelerating the advancement of the technology and increasing our commercial presence in the markets we serve.
This will conclude our prepared remarks, and now we will open up the call for questions.
Thank you at this time I would like to inform everyone in order to ask a question. Please press star one on your telephone keypad.
And that is its star one to ask a question.
We have just first question from Doug Schenkel from Cowen Your line is open.
Hey, good afternoon, Kim Pac bio. Thank you for taking the question. So first just on some.
Some of your commentary on systems could you just on pack, whether or not there.
Any notable differences by geography in terms of delay and pipeline progression I guess kind of the same question on application areas where.
The ability to accept instrument to place orders and spend a little more durable versus dollars.
Yes, Doug it's good to talk to you. The you know what we are seeing geographically is it the challenges there are really mostly focused in MRF and in EMEA and probably even more strongly than than EMEA than am are confident am army.
Meeting Americas.
But you know what we're seeing is that an instrument order maybe somewhat delayed.
Due to kind of funding changes or or you're really timing of when people are getting back to work and we saw some of that in Q2 impacted us in Q3, if you kind of look out in the future here.
As we said in their prepared remarks, we see.
The pipeline improving across pretty much across the board and it just what will be concerned about as thinking through if we do have significant closures like what we see in France. For example, right now how that will impact us in the very near term.
If that if that answers your question the second part on applications.
I think there's a lot of excitement around whole genome sequencing right now with with ISI reads and we're getting a lot of.
Traction and a lot of good collaboration because as Weve outlined and so I'm actually pretty excited about that.
Okay, that's super helpful Christian and maybe kind of building off of that well maybe.
You know maybe the placements would have been higher if it hadn't been for the pandemic.
I I think were there was definitely some encouraging progress was almost equal to consumable utilization number numbers, you talked about utilization normalizing to levels at least as high as three pandemic levels.
Just wondering if you'd comment on first was there any stocking dynamic in the quarter and then second.
Maybe it's a little bit early to ask this question again, but if we look back it's equal one I believe pull through kind of got to about $200000.
Annualized I think it was eight quarters so launch.
Do you do you think at this point you can get there or beyond what the sequel to over over the coming quarters.
Yeah, I think that I'll, let Ben address the beep.
The question on the pull through because he see he's got more history than I do still but on the stocking there wasn't a lot of stocking per se during the quarter I think it was a.
People were getting back to work and we we one thing at Pac bio that we have as we have an excellent way of tracking.
The runs its our Smartlink software and were able to you know we're able to see what are what many of our customers not all but but a significant majority of our customers are actually running and we were quite encouraged that people were running their systems pretty consistently all through the quarter.
And so we don't we don't think it was a stocking phenomenon, particularly in the third quarter with respect to pull through maybe Ben you could address that.
Yeah, I'd be happy to yeah, Doug you're right that the pull through revenue has gotten.
Backup to let's say a 160000, let's say for a sequel to switches.
So kind of where we were right before the pandemic head.
Kind of hard to predict where it's going to be going.
In the future, we are driving toward increasing that by having some of these no high.
Are you more larger projects like the.
All of US project and the Berlin tree of life project, hopefully kicking off or ramping up I should say next year, but.
But at the same time, that's going to be a contest between new new a system placements.
So I'd say at this time, we're it's a bit early for us to predict where that's going to settle out. We're just happy that it's kind of recovered back to where we had gotten into before the pandemic. It.
Okay, Yeah, I think that's helpful.
Sorry, Chris Yeah.
No that's fine I'd, just say the last point on that is that I think that you know as we drive.
Drive our commercial organization and.
We believe that will drive accelerated placements in the market it'll be interested as Ben said it'll be interesting to see how fast we can.
Empower those customers to ramp to get to get to the throughput levels that we would be hoping on the consumables and.
We can't predict that now, but obviously our objective would be to.
At least maintain or even grow from those to pull through numbers.
Okay that makes sense guys and then maybe just a last one specifically on the clinical side.
And as you noted in your prepared remarks, you had a couple new announcements over the last quarter.
Yeah I know.
Okay. It was actually in October.
It is the role of Pac bio and these agreements.
Largely to elucidate the link between structural variation in genetic disorders.
I asked because I'm just trying to understand if these agreements are largely as ways for Pac bio to get in there and really serve as a complementary tool to short read solutions or whether or not you.
View these types of agreements as really being positive leading indicators for Pac bio increasingly being viewed as competitive or even replacing short read solutions.
Yeah, I think that's a great question, Doug. Thank you I think that right now we are clearly a complimentary technology high given the fact that our our costs are higher than short read approaches. However.
You know there are customers and partnerships that are looking to.
Figure out can they create a pac bio workflow that as we increase our technology and capability increase our throughput.
Can they do more and more and get more benefit from the long read sequencing and so I think today, we all have to look at it as it's a complimentary technology, but there are a lot of cases, where customers are interested in.
Could this be a technology that we could.
Bring more into high throughput practice, and we have some work to do on our side on the on driving the cost and throughput of our machines up costs down and throughput up but I'm I'm really excited about about the prospect of being to do that over the next few years.
Okay. Thanks again.
Yep.
We have your next question from take US sovereigns from Morgan Stanley. Your line is open.
Hey, guys. Good evening I'm, just just a couple of quick ones. Here question can you talk about just early customer feedback to the two he announcement and specifically should we expect to see customers perform more long read sequencing given the time data storage and compute saves.
You know cost saves that you've spoken about and also over time, what fraction of the user base do you expect well upgrade here to the two we is it sort of essentially 100% off your existing sequel user base.
Yes. He just thank you for the questions you know I think the early customer feedback has been.
Thank you you know this is a great advantage. This is a great advancements being able to do the secondary analysis on the instrument or not.
Really simplifies our life and I think what you're going to see is customers that have.
Significant compute infrastructure already in place may not upgrade but they still me upgrade just because this is the fact that they can save money on the on the storage side. What I think is the most exciting aspect of the two easy launch is it. It's an instrument now that you can take into a core lab.
Maybe not necessarily the first trick or elaborate a second tier core lab and actually.
Create an accessible workable solution for them because if you have to buy the instrument and then by another $100000 of compute on top of it you know that but that's a pretty significant budget now we've just eliminated that that other piece of compute and so it gives us an opportunity to get into.
Places, where we probably haven't been able to penetrate before because the overall cost is too much on how many customers are going to actually upgrade I. You know I think I think they'll probably be a reasonable percentage and I do think new customers and new machines I would believe that way.
We're gonna have predominantly people buying the two week, it's just a great value for tore just a little bit more money.
Got it and then just following up on Doug's question earlier on the clinical side question. You know your work on children's Marci, and and a and B T program. How do you expect sort of pediatric samples to kind of like ramp over time and what do the economics look like for Pac B. I mean are you initially.
You know given that these are sort of research efforts discounting be samples to like a you know a enable clinical adoption down the road or is it a full price samples for for back be as it otherwise would be.
Well in general I think the pricing is kind of consistent with our discounting methodology is that we use for these customers. We may be more aggressive in certain situations, particularly where we are trying to get.
Maybe some really collaboration in terms of workflow benefits or.
The ability to try new things with the customers that we could then.
Standardize throughout the.
Throughout the market and so I think that in the short term. It will you know the pricing is kind of.
Probably you discounted I would say, but not not not so heavily discounted that it's not kind of consistent with what we do in the long run I think our customer I think it will be the opportunity for us is as we drive our throughput up.
You know we share the benefit of those gains are shared the economics associated with the benefit.
Between us and the customer and we've seen this kind of story work in the past and it'll just be dependent on market conditions and and what the customers' needs are and how much of the sharing of that we in fact do but I think given what we have in our R&D pipeline.
We're going to be able to create a business where you know overall gross margins will improve because we have products that are priced price better for the company.
Got it and then about a two parter on on the sales force expansion here Christian I know you spoke about sort of you know it doesn't open positions.
How how large do you envision the sales force being in steady state down the road and and have you had sort of early conversations, but you know some of the core labs in the large genome centers, perhaps in the U.S. you know about you but are you don't essentially have them as your marquee customers, but they could become marquee customers over the next 12.
Months, or so and then secondly, I'm just just I'm a little bit of a fuzzy question. If you will on on on culture. I mean, I'm you know regarding your push to a more aggressive you know customer centric culture here. What are you doing internally to ensure that the core DNA of the company around sort of R&D innovation.
One stays intact.
Yeah, those that's a good that's a great question.
Let me see if I can unpack all of these so so with respect to sales force expansion.
You think over the long run you're going to see us dramatically increase from here I, probably not ready to tell you well. We're at 20 now we should be 120 at some point, but I think what you're going to see is we're going to unpack. This in sales is particularly while we still have the the head.
When did the pandemic it does I want to make sure that we aggressively bill.
But we do it in such a way that we can you know that we can be responsible on the on the personnel side of the equation on the expense side of the equation, but and but also prepare ourselves as we launch new products. The sales forces in place and ready to go and train. So that's the balance that we're playing.
I also think there's the the balancing act here too is we want to grow quickly, but I want to make sure that we hire.
The highest quality people, we can we get them trained appropriately and so we have some infrastructure to build around that.
It, particularly in our commercial operations organization, and so that that organization doesn't really exist very much yet today, and so I need to build we need to build some of that once we get that in place then we could actually accelerate our hiring.
Probably faster, but I think it's 2021, you should be thinking that you know we will hopefully more hopefully double our sales force if not more but it really does depend on how how the pandemic plays out I think at some level with.
With respect to conversations with customers, that's actually been one of the best parts of getting back into this role I've been able to reconnect with a lot of customers around the world.
And been able to rekindle some of those some of those relationships and I do think we have we have significant opportunities in major customer sites around the world to get more engaged in.
In their programs, particularly with high sequencing I mean, I think cequent things really change the game for the company and now that we are you know with the launch of the two E and what we have coming down the road I think we have a great opportunity to get really.
To build up some market share and capability in those customers and so stay tuned for on that but I I've had a lot of great conversations there and then finally.
You know with respect to culture, you're right, we want to create a customer centric culture, we want to improve our execution, we want to become more disciplined about how we execute and prioritize our products, but one of the most important aspects of the company is the fact that the innovation.
In here has been unbelievable and to the level of capability and talent is you know its really second to none it's a fantastic team and so it's one way you do that as well as we're doing our strategic planning process, we're reevaluating things like our mission and what are the core values.
That drive the company and we're getting the entire organization engaged in that process. So you know.
I think my my goal is to be inclusive and to drive that.
Get everyone to see why being customer centric is so important but also let's not lose sight of.
Getting to the cutting edge and so you'll see us continue to invest in R&D as well. So they don't you know so because we do have those opportunities. So it's a whole bunch of things that we have to do in order to maintain that culture.
Got it that helps I appreciate it yeah that was great time appreciate the time this evening and welcome to the call Susan.
Thank you congrats.
We have your next question from Tycho Peterson from JP Morgan Your line is open.
Hey, good evening Christian could have you back.
I know one of the things you're committed to is is.
On the cost curve with short read and I Didnt hear a lot about that you talked about kind of product development is one of the three core objectives, but.
Be helpful to just kind of level set how you're thinking about the path to a thousand dollars platinum read genome and are there things you can do to accelerate that that you've maybe identified at this point.
Yes, Hi, Joe it's great to hear from you.
Sorry about that Tyco.
[laughter].
The yes. We are we are accelerating. This this is this is actually the central aspect of R&D right. We have to drive the throughput up of our systems, which drives cost down and we also as we develop new platforms.
You have to fundamentally think through how do we drive the the platform cost down too. So that when you are looking all in on a sequencing project, you're getting to those competitive competitive prices.
Where we need to be ITT population scale, you know, there's and there's a couple of different things that were in the short term that we're going to be focused on it we still have lots of opportunity on the chemistry itself, even on the sequel to platform and so you'll see us.
Working really hard on making chemistry improvements, which increase throughput, which then lowers the cost of of sequencing. You'll also see us start to really work hard on more on the front end. So that as we are systems become higher throughput, we lower the input requirements of DNA. So that we can.
You know access more samples than ever before we'll also look at look at how do we fully automate the sample prep process. So that you know when you're you're in a high throughput situation you know you're not going to lose a deal because because your systems not automated and I think those are some some things that.
That we're working on now and you'll see you'll see progress on those fronts in 2021 and of course, one of the one of the beautiful aspects of the technology is that we are leveraging the semiconductor industry and we have the opportunity to kind of continually advance the state of the art of the number.
The CMBS vmw on a on a chip and you will in due course, you'll see advancements on that on as well. So we're pushing on a lot of different ball, but at the same time here.
With the with the with the goal that we believe is achievable being very competitive with short read sequencing at the whole genome large population scale.
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And then following up on some of the discussion on the clinical opportunities earlier I think this is something investors have always struggled with a little bit what are the right opportunities for long read.
Obviously been Intrexon transplant diagnostics, you mentioned epilepsy with every day and rugged are there other opportunities you've identified early on and then there are few weeks, but from your perspective that you think are particularly under appreciated from the clinical side for you guys.
Well I think those are you know those are probably in the sweet spot right now and I think opportunities will applications will emerge even more as people understand that we really can drive the cost down.
You know on on long read I think you only applications in my mind that probably aren't very accessible our liquid biopsy type applications, where you're looking at cell free small pieces of cell free DNA, it probably doesn't make sense to be using the pack biotechnology, there, but but you can imagine.
In a day when you know every sequence.
It is effectively a high quality de novo human sequence because the cost is is reasonable and you can use that in a clinical in a clinical setting and I do think.
We definitely have that vision and I do think some of our clinical partners have that vision as well. So we'll see we'll see how we go down the road there but out of the gate I think we've got a lot on our plate and a lot of opportunity there.
Okay, and then one or two hopefully quick ones on the model before I hop off but on the children's Mercy how does that.
No 100000 genomes over seven years.
Yes.
It could be a pretty meaningful opportunity can you help us think about.
How that volume ramp over the next couple of years.
Yeah, you know what I think.
That's that's I'm not sure I don't believe that they're using all 100000 on on Pac bio sequences at least out of the gate, so that probably wouldn't be a fair fair way to model. It you know, we're working with them and there you know you should be thinking now they're in they're much lower.
Than that and that fact, Ben you might know the exact number that they're doing right now I don't know if you know that number but I don't.
Honest, we could I just follow up with.
Michael on that.
Yeah, Tyco I would just add you know they have to sequel to systems right now, which as you know in a pretty good start. It is as you mentioned is a seven year program and so.
I don't think they actually have all the samples you know even if you had the running capability to actually run through those I think the idea here is to do that over a period of time and our goal here is to continue to increase the throughput of the system. So that we can.
Help them do.
You know more and more of those genomes over the course of those years.
Okay, and then just lastly on the launch of the two you mentioned kind of the dynamic and upgrading some of the sequel teams that are out there I know you still have.
Some artists to feel do you think this is enough to kind of convert some of those older platforms that never upgraded the sequel to.
I think absolutely I mean this can this is a pretty compelling opportunity and to the extent. There are there are as instruments out there you know I'll challenge our field ports to make sure we get the sequel to be in front of those customers in and make sure they make sure they.
Yeah.
Have a significant opportunity to upgrade because.
The reality is is that it's good for us to if we can move if we can move everyone forward in the sea into the sequel to two we platform.
Okay. Thank you.
Thanks.
We have your next question from Carl Nixon from Cantor Fitzgerald. Your line is open.
Hi, guys. Thanks for the questions welcome Mcchristian Susan.
Richard the color the new bookings and the government orders being Overpressured recently, but just was wondering if you had any kind of expectation that you know the lost opportunity. Your revenue can be recaptured maybe the next year or so just kind of one or two and get your thoughts there maybe.
These customers these opportunities were kind of little bit more concrete than now.
Hope you have matured.
Yeah, that's a that's a great question and our my beliefs based on talking to the sales force and spending some time with the sales management is that yes, those those opportunities some of those opportunities may be lost because.
Because budgets were allocated to maybe a covert project instead of instead.
Instead of where they originally allocated but the vast majority you know I really would call them delays and I would expect us to be.
Be aggressively pursuing those those opportunities to get them converted into an either new customers or additional sales as as expeditiously as possible.
The good news is that you know we are sales execution processes are have improved over the course of the last year and you know now with this significant focus in commercial that the team is feeling I think that we are going to have.
Opportunities to convert those.
Convert those potential sales into actual sales likely in 21.
Yes, Thanks Christian so it does sound like the B I guess sales force expansion is kind of focus and go but just was wondering if any of these more recent international lockdowns or the increase in coal the cases really domestically and internationally are going to really potentially pressure that sales force expansion as it relates to.
May be a country that's out of the U.S. if at all.
Yeah, I I Bill look we started recruiting.
We've we've opened up for acquisitions, we're starting the recruiting process.
Theres no question that you know.
Block Downs have an impact on how fast you can recruit interview higher so you know I would be.
It would be silly to say that doesn't have some impact the good news is that everyone is.
Everyone is on zoom and everyone is able.
Able to interview and so I think that I think it won't it's not as bad as it would have been in the old days clone quote, but I think it will have some impact.
However.
Over the course of a year I think we should be able to I guess moving we've got a lot of you know theres been a lot of interest in Pac bio with this with this transition and I'm hopeful that we can leverage that into some hiring so that would be good.
Darren Thank you turning.
Turning to the sequel to rollout I know, it's early there's a lot of uncertainty, but are you expecting any substantial cannibalization of the sequel to consumable revenue earlier in 2021, and then also was likely to comment on the feedback you've received on this new a trade up program I'm curious because it's the first time I think are offering credits customers looking to switch their instrument from a.
Competitor, rather than just a pac bio instrument and from what I understand it you just for North America. This program and so are you rolling out similar programs and promotions and other like regions.
Yeah.
So I don't think we're going to see significant cannibalization of consumable revenue because basically taken the consumables work on both systems and so as you know the two we the real.
Dr is the on on compute the compute that's been improved.
And so you know you are not going to see cannibalization in that sort of way as we saw from sequel to the sequel one.
With respect to the the new promos these are new.
New ideas that the Pac bio team is coming up with and there's been some early interest and we'll see how it goes I think it's too early to say.
To tell whether how well it's going to work on one reason why you started in Americas as some of the other regions have much.
Much longer sales cycles, and so we'd like to try to get some quick wins as opposed to.
As opposed to kind of having it out there and really long sales cycles will so we'll see how that goes but one thing you can be assured of is that we are going to be as we grow our commercial footprint, we will be focusing on the nuances of each geography and doing promotions are doing activities.
In each of those regions that really drive sales.
Sales for that particular region and I and that's something that's really important to me because theres no question that there's differences between.
Asia Pacific and Europe, and Americas and.
To date the company has had.
He has had a very small sales footprint. So they haven't really had the capability to operate globally in the same way that maybe will help us down the road.
Okay that sounds perfect. It's extremely helpful I'm going to leave it there guys, but nothing to update my question and I'll talk to you soon.
Thank you.
We have your next question from Steven mile from Piper Sandler Your line is open.
Great. Thanks for the question then Susan Graver feature on the call.
Talk to you again Christian.
Yeah. Thank you.
Okay.
Just just just mostly follow up question.
But a lot of ground, but.
But.
As your costs go down and there is more of a focus on clinical applications.
We're going to be internal clinical development Pac bio, we kind of own your own clinical development programs or will it be strictly partnerships going forward.
Yeah, I think the core strategy today is to really focus on partnerships that said there may be opportunities.
That make more sense for us to develop internally and you know I do think we have to be thinking through whether we should have the FDA cleared instruments.
And how that would help us in them in the market as I said at the beginning of my prepared remarks, we're working on a strategic planning process right now and and you know this is front and center in the plan is trying to work through that what makes the most sense one thing I would say is that.
That common strategies like building panels may or may not make sense, because I I believe that we are moving to a world of whole genome sequencing in the clinic and you know I really want to make sure that that we're moving to where the puck is going as opposed to where.
It's been and but there may be that said, there's still maybe opportunities on panels that that might make sense I would just stay tuned there and as we kind of unpack our strategy in more detail to that.
The community.
Bill will definitely address that issue.
Okay, great. Thank you and then one more quick one before we help.
On you're talking about FDA cleared instruments as a potential.
Asked for it but can you give us any updates on equal to and the China regulatory process.
Then you have to bear.
Yes, So Barry you know Barry I don't really have a real updates today other than they have been.
I talked to the folks at Berry and they're working hard on getting the system through the process and you know hopefully I'll have more information for you at another time, but I don't have a significant update on that today.
Okay, great. Thanks for the questions.
Yeah.
There are no further questions at this time presenters. Please continue.
Okay, well, we'd like to thank you everyone for attending todays call and we.
We look forward to speaking with everyone. After our next quarterly earnings call. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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