Q4 2020 Pacific Biosciences of California Inc Earnings Call

February 10, 2021

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Ladies and gentlemen at the top.

And today's country and scheduled to begin momentarily until that time.

Thank you from home.

Again to stop it and each of these countries that don't typically the momentum until that time your lunch at the time.

Thank you for your patience.

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Thank you for standing by and welcome to the Pacific Biosciences of California, Inc. Fourth quarter of tiny tiny earnings conference call.

This time, all participants are in listen only mode. After the speaker's presentation and there will be a question and answer session.

The ask a question during the session.

And I need to press star one on your telephone if you require any further assistance and that's probably true.

I would now like to hand, the conference over to check and large. Please go ahead.

Thank you.

Good afternoon, and welcome to the Pacific Biosciences fourth quarter, 'twenty and 'twenty earnings Conference call and we hope that you are keeping well during this 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 dot com or alternatively as furnished on form 8-K available on the Securities and Exchange Commission website W.

W. W. The S.

S E C dot Gov.

With me today are Christian Henry President and Chief Executive Officer, Susan Kim Chief Financial Officer, Mark The N of one Chief operating officer, and Bengali <unk> Vice President of Finance.

And I wanted to last quarter, we are hosting our conference call from a number of different locations. So please bear with us if there are any technical issues or pauses.

Before we begin I'd like to remind you that on today's call, we mean and making forward looking statements, including plans and expectations relating to our financial projections plans and expectations relating to our research and development efforts.

And and expectations, including expectations with respect of timing sales and revenue projections and plans in connection with our collaboration partners, including expectations regarding sales related to our collaboration with N V day plans and expectations to grow accelerate and expand our product portfolio commercial efforts and commercial footprint, including plans related to our.

And to increase throughput lower cost and develop workflows and adoption of our sequencing technology as a transformative and fundamental tool and research clinical and genetic testing applications. The use of our technology for specific projects and applications, including and kind of in connection with the epigenetic COVID-19 cancer.

Europe and rare disease clinical research app of applications.

Potential growth and impact of growing our commercial team and research and development team plans to make the COVID-19 protocols widely available to the commercial laboratories, and the need for more expansive and robust viral surveillance strategies due to the emergence of more infectious COVID-19 mutations and other future events such as.

The impact of COVID-19, pandemic on our business partners, our business partners customers and employees and the youth and advantage of our products and COVID-19 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 of the extent of COVID-19, and continued impact on our business will depend on several factors, including the severity and duration and extent of the pandemic.

Well as actions taken by governments 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 securities and Exchange Commission filings, including our most recently filed reports on forms 8-K, 10-K and form 10-Q.

Pacific Biotech Sciences 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 our investor section and our website shortly after the call.

Investors 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'd now like to turn the call over to Christian.

Thank you Kevin.

And good afternoon, and thank you for joining us today.

Before we begin I'd like to Sue and everyone knows that and Gong, our vice President of finance is retiring this quarter.

As a result this is his last earnings call on behalf of all of the employees of Pac Bio Susan and I would like to thank him for his significant contributions to the company over the past decade.

Before the market opened this morning, we announced the Softbank is making an investment of $900 million and the.

And to support the acceleration of our growth initiatives.

We are excited to partner with Softbank as they can help us expand our reach on a global scale.

We believe that this investment validates our leadership position and long read sequencing and will help us and able enable us to accelerate the expansion of our product portfolio expand our commercial footprint and ultimately to realize their vision that whole genome sequencing and using our technology.

From a fundamental tool for the use and a broad range of both research and clinical applications.

On our last earnings call I described some of our key priorities and I am pleased to report that we're making progress on the number of fronts, including our ability to execute and grow the business for my prepared remarks, I will briefly review our Q4 financial highlights and then describe key business highlights and summarize the.

Our expansion efforts, including the addition of several key management hires Susan will then walk us through the detailed financials for the fourth quarter and provide some thoughts around our outlook for 2021.

So starting with an overview of our Q4, 'twenty and 'twenty financial results total revenue for the quarter was $27 1 million up 41% sequentially from Q3 of 2020, we.

We exceeded our internal Q4 target for revenue and we did not see of significant negative impact from the COVID-19 pandemic during the quarter.

Instrument revenue was $13 6 million up 76% compared to Q3 of 2020.

Our newly launched sequel, TUI was well received by our customers, which drove an increase in orders and Additionally, we received every several multi system orders from customers like the Wellcome Sanger Institute and Berry genomics.

We delivered and installed 35 news equal to and to be systems and this during the fourth quarter and ended the year with an installed base of 203 sequel, II and two way systems.

Consumable revenue for the quarter was $10 billion up 25% sequentially from Q3 of 2020.

System utilization on the sequel, II platform was higher in Q4 2020 than pre COVID-19 levels.

Annualized pull through.

On the sequel to install base and Q4 exceeded a $180000 per system compared with approximately 160000, K and Q3.

We are pleased to see this increase and pull through however, we note that Q for consumable revenue.

And it did it from some seasonal stocking orders as is typical in the fourth quarter of the year.

Susan will provide more details on her for Matt financial metrics later in the call.

Now I'd like to provide a few updates and comments regarding the impact of the COVID-19 pandemic on our business.

Going into Q4, we were cautious about the potential impact that the resurgence of in infection rates in Europe, and the United States would have on our sales for the quarter.

Fortunately just about all of our existing customers, who are operating throughout the quarter and as I said before average utilization on sequel, II systems was higher in Q4 than it was prior to the pandemic.

It should be noted that travel limitations did prevent us from installing some systems during the quarter, but the strength of the sequel to the orders enabled us to overcome these challenges looking forward. We believe that the pandemic will continue to cause some uncertainty and our revenue outlook as shutdowns could impact.

Our ability to install new systems, and we believe that some customers may remain conservative with respect the capital spend.

Additionally, on the top of topic of Covid, the emergence of the more infectious mutations and the U K South Africa and elsewhere over the last few months has reinforced the need for more expansive and robust viral surveillance strategy.

Governments and public health organizations around the world are moving quickly to identify and track the different COVID-19 strains and their communities.

Notably in the United States, the CDC contracted with lab for in early January to support the scale up of Covid sequencing using pack bio high five technology.

The COVID-19 whole genome Hi Fi sequencing assay was developed as a research collaboration between scientists at the CDC lab core and Pac bio beginning in early 2020.

Already this year lab force purchased several additional equal to each of systems sequel, II systems to ramp up their surveillance testing with high FICO of and sequencing and we look forward to working with lag for it to continue to scale their operations.

The risk of this global needs.

It's exciting to see that their efforts are already making an impact as lab core was the first to identify the new South Africa varied and South Carolina, and Virginia, just last week.

We're pleased to announce the pack bio will now be making this high this high throughput protocol widely available to commercial laboratories academic researchers and public health institutions globally, who we.

Wish to standup robust high throughput surveillance programs locally.

We believe the use of Pac bio is highly accurate long reads hifi sequencing chemistry for Covid surveillance offers distinct advantages over other technologies, including fewer amplicons dropouts easier African balancing and the ability to face COVID-19 genomes, which can.

Detect the different strains infecting a given the individual.

We are proud to have contributed to the assay development that labcorp and the CDC are now using to understand and get ahead of this rapidly mutating virus.

We plan to build on this experience to further bring the benefits of our technology to bear in the fight against Covid.

Shifting gears to population scale projects as a result of the pandemic some delays persist and the ramp up of certain large sequencing projects such as the all of us human genome sequencing projects and the United States and two of lesser extent, the Darwin tree of life plant and animal.

Sequencing project and the United Kingdom. However.

However, the welcome Sanger Institute, where the Darwin tree of life samples are going to be sequenced has started to prepare its facility to generate 2000 and high quality of reference genomes over the next two years.

In anticipation of receiving those samples.

The welcome Sanger Institute ordered seven new sequel, II systems, this past quarter.

Some of the systems were installed last quarter, and we expect the balance to be installed and the first half of this year.

Moving onto the other business highlights I'd like to discuss our collaboration with the <unk> that we announced last month.

<unk> bio and and V to share of vision that whole genome sequencing using pack by bio hifi reads and of routine clinical setting has the potential to fundamentally transform the genetic testing industry. Together, we are partnering to bring this vision to reality.

<unk> and VP of processes hundreds of thousands of samples per year. We believe that there is of significant opportunity to move the majority of those samples the whole genome sequencing, which is why we are working with and <unk> to develop a new ultra high throughput sequencer and workflow that is expected to be capable of.

The operating at production scale.

Under the agreement.

The VCA will fund the development cost as well as provide input on scale clinical workflows and the new system is expected to enable and V take the sequence up to hundreds of thousands of samples every year and a medium sized production facility.

Upon completion of the new sequencer Pac bio will make the new system and associated consumables available to NVCA for prep.

Preferential pricing for a defined period of time.

In addition, <unk> bio will have the ability to commercialize the new sequencer to other customers as well.

Given the expected scale of the new system, we would expect labs involved with running production scale whole genome projects to be candidates for placement of the new system.

Developing and ultra high throughput sequencer is an important step and our strategy to move towards a broad portfolio of systems and capabilities that allow our customers to choose the right system for their needs and for their budget.

The collaboration with the V day is expected to run for five years over the first few years, we plan to develop the new sequencing platform and related workflows, we expect to rapidly higher and more than 50, new people into our R&D organization, which will dramatically increase our R&D expense.

And detail will be reimbursing us for these additional expenses those reimbursement dollars moving not be accounted for as an offset for these expenses Susan will describe the accounting for the collaboration and more detail later in this call.

As far as revenue is concerned we do not expect any revenue contribution stemming from the direct collaboration for the next few years. However, once the new system is commercially available we expect to see a very significant increase in revenue led by sales to and be too.

And before I get the organizational updates I'd like to share some customer highlights that really demonstrate the power and the potential of Pac bio hifi sequencing technology.

<unk>.

We'd like to congratulate Dr. Dennis Lo and colleagues at the Chinese University of Hong Kong on the development of the new method for highly accurate simultaneous determination of DNA sequence and CPG methylation and one go.

Published and the Pnas Journal in January this new method will help researchers explore the impact of epigenetic changes and humans and other organisms and has great potential and clinical research and eventually diagnostics and cancer and other disease areas, where methylation changes.

Are known to be important disease markers.

We'd also like to congratulate the team at Hudson Alpha Institute of Biology for their work and leveraging Pac bio hifi reads to help diagnose children with rare disease.

Still for lacking and answered after short read sequencing.

The recent payable of paper published and human genetics, and genomics advances demonstrates the power of hifi sequencing to capture more of the variation across the genome, which gives investigators and clinicians more information to make the diagnosis saving precious time and resources.

And reducing the diagnostic Odyssey.

Shifting now to our organizational team we are thrilled to have mark the I know and on board as our new Chief operating officer, Mark has deep experience and genomics and brings a strong voice of customer into our R&D and operations organization organizations.

In addition, mark will be responsible for leading our corporate development activities, which will become increasingly important as we expand we.

We are also excited to have Peter from and onboard as our Chief commercial officer, Peter has been at the forefront of population scale sequencing initiatives around the world and his vision and ability to execute will move our commercial organization, the new levels and.

In addition to Mark and Peter We have also recently hired for additional commercial executives, who will lead critical areas and product and strategic marketing as well as commercial operations.

As I've indicated on our last call. The key strategy for the company is to increase our direct sales force globally for them.

Making great progress of the theory, because we've hired over 10, new quota carrying sales personnel over the past few months, which puts us well on our way to.

For more than doubling our sales force.

We expect our new sales reps to come up the speed over the first few quarters. After they come on board and then become part of the engine that drives consistent revenue growth.

To summarize I am very encouraged by our performance and the fourth quarter for the second consecutive quarter, we met or exceeded our internal revenue targets.

We have kick started the new year with what promises to be a transfer rate transformational collaboration with the VK and we've made significant progress and expanding our team to drive future growth.

With that I'll turn the call over to Susan who will provide more details on our Q4 financial results and our current outlook for the first quarter Susan.

Thank you Christian and good afternoon, everyone. Despite Q4 still being impacted by COVID-19 headwinds the pack bio team delivered a very solid quarter that included sequential growth and bookings revenues and gross margin.

As Christian mentioned, the sequel, TUI and launch with stronger than anticipated, which resulted in orders and the fourth quarter exceeding our internal expectations, including a number of multi instrument orders from key customers.

Total fourth quarter revenue was $27 $1 million and increase of 42% from $19 $1 million and Q3 of 2020, but a decrease of 3% from $27 $9 million and Q4 of 2019.

The revenue breakdown was as follows instrument revenue recognized in Q4 was $13 $6 million and increase of 76% from $7 $7 million recognized in Q3 and down from $15 3 million recognized in Q4 of 2019.

We installed 35 sequel, II and TUI systems during the fourth quarter and growing the installed base of sequel, II and <unk> system to 203 as of December 31.

And the consumable side of the same and customer usage patterns are expected to be similar across the sequel, II and <unk> system. We will continue to report of combined installed base going forward.

Consumable revenue for the fourth quarter of 2020 was $10 million up 25% sequentially from $8 million sold in Q3 of 2020.

And up 8% from $9 $3 million sold in Q4 of 2019.

The sequential growth and consumable revenue reflects increased utilization on our growing installed base of sequel, II and TUI systems as well as the usual and of your stocking of consumables inventory.

Since the start of the COVID-19 pandemic that resulted in our customer loves being shut down we have been continuing to see meaningful increase and our sequel, one and sequel to E utilization such that we have recently crossed the cumulative five petabytes of sequence on our installed base of sequel II system.

Sequel, II consumables represented approximately 78% of our total shipments and the fourth quarter and roughly 20% of our consumable shipments were purchased for the older sequel system.

And the remaining for the Rs II systems.

We expect the proportion of consumable sales from sequel, II systems to continue to grow as the installed base of the systems continues to expand.

Service and other revenue was $3 5 million and Q4 of 2020 compared to $3 $3 million, and Q3 and $3 $3 million and Q4 2019.

Our service revenue has remained relatively flat over the past year as increased service on the sequel II systems has been offset by declines and service on RFS II and sequel system.

Moving on to gross profit and gross margin and Q4 of 2020, we generated a gross profit of $11 4 million, representing a gross margin of 42% compared to a gross profit of $7 1 million.

Representing a gross margin of 37% and Q3 of 2020.

There are three key reasons why gross margin improved sequentially first asp's on insurance sales were higher.

Second we had improved product mix over Q3 and.

And finally higher volume and manufacturing improved factory utilization.

Year over year, our gross profit and gross margin and the quarter declined from $12 $9 million and 46% generated in Q4 of 2019 as the result of lower revenue and factory utilization, partially offset by higher asps on instrument sales.

Moving onto the operating expenses operating expenses and the fourth quarter of 2020 totaled $35 $4 million up 13% compared with $31 $2 million and Q3 of 2020 and up 15% compared with $38 million and Q4 of 2009.

<unk>.

The increase in operating expense compared to the previous quarter and last year was the result of increased R&D expense related to new product development and an increase in SG&A expense as a result of the growth and our commercial team and the addition of several new executive and higher noncash stock based.

Compensation expense.

Non cash stock based compensation expense included in operating expenses was $4 8 million and Q4 of 2020.

Up from $4 $3 million, and Q3 of 2020 and up from $3 4 million and Q4 2019.

Net income in Q4, 2020 was $74 $9 million and net income per share on a fully diluted basis with 37.

Compared to a net loss of $23 $7 million and net loss per share of 2014, and Q3 and 2020 and.

And of net loss of $100000.

Round two of net loss per share of zero cents and Q4 2019.

The large increase in income was primarily related to the $98 million. One time gain we recorded which was associated with the reverse termination fee. We received from Illumina back in January of last year and recognized in Q4 of 2020.

Turning to our balance sheet, we ended the fourth quarter with the balance of $318 $8 million and unrestricted cash and investments compared with $208 $6 million at the end of the third quarter of 2020.

The increase in cash and investments was primarily a function of our follow on offering in November that netted proceeds of approximately $94 million plus approximately $32 million and proceeds associated with employee stock option exercises.

Partially offset by approximately $16 million of cash used for operations.

Inventory balances decreased in Q4, 2020 to $14 2 million, representing a four point to inventory turns.

Paired with $15 $9 million at the end of Q3, 2020, which represented $2 nine inventory turns and due to the ramp and customer installations and Q4.

Accounts receivable increased in Q4 to $16 $8 million, reflecting of DSO of 49 days compared with $11 $8 million at the end of Q3 2020, reflecting of DSO of 56 days.

As we look out into 'twenty and 'twenty, one and the impact of the pandemic on our revenue growth is still somewhat uncertain.

However, with that said I would like to provide a framework on how we see revenue growing during the year we.

We believe that revenue will grow significantly and the second half of the year as we start to realize the benefit of our expanded commercial investments and infrastructure.

In the short term, we expect Q1 revenue to be slightly lower than Q4 level of.

While we expect the strength, we saw and instrument sales last quarter to carry over into this quarter. We also foresee some softening and consumable sales in APAC largely due to the lunar new year holiday.

This is consistent with the seasonal revenue pattern, we have seen over the past several years.

Although we anticipate slightly lower revenue in Q1, we do anticipate gross margin will improve slightly compared to Q4 as our factory utilization continues to improve.

For Q1, we estimate noncash stock based compensation expense will increase materially to between $10 million to $11 million.

Up from $4 $8 million in Q4, due to new higher employee equity grants accounted for in our operating expenses.

We are forecasting our total Q1 operating expenses to grow and to be in the mid to high $40 million.

I would like to take a moment to provide additional context regarding the investments we intend to make and 2021.

We plan to make significant investments and our business as we push forward with our key objectives.

Our first objective expanding our commercial reach and includes a significant expansion of our commercial organization. We ended the year with 22 quota carrying sales representatives and we are targeting to more than double that number by the end of the year.

Our second objective driving the product development pipeline will entail the development of multiple new products simultaneously.

We ended the year with 158 people and our research and development organization and we are targeting to hire more than 50 additional people and R&D this year.

Our third objective market leadership and whole genome clinical sequencing is off to an accelerated start with our collaboration with <unk>.

As Christian mentioned earlier, we are working with and <unk> to develop and ultra high throughput system and workflow designed to enable and Vijay to sequence hundreds of thousands of samples per year.

For the year 2021 alone we are targeting to spend $20 million to $25 million on this project.

While we expect and be paid to fund. This project, we will likely recognize all or a substantial amount of this expense and the R&D expense line of our income statement and the period in which it has occurred.

The funding we received from and Vijay is likely to be recorded as a liability on our balance sheet and may be amortized into revenue and later periods as we sell of the developed products to and VK in accordance with our agreement or released when other performance obligations are delivered or contingencies lap.

Please be advised that we are still analyzing the proper accounting treatment for these activities and we do not expect to finalize and how it will appear on our financial statements until we report our first quarter 2021 results.

Lastly, as we announced earlier today, we are thrilled to welcome Softbank as a new long term investor the $900 million convertible note will provide the financial foundation for us to capitalize on the significant growth opportunities ahead of the transaction is scheduled to close next week and the red cell.

Of this financing $52 million of expense will be recognized on our P&L and Q1 to account for the expected repayment of the continuation advances due to alumina as a result of the merger termination.

In summary, we ended the year with nearly $319 million of cash on our balance sheet and now with the significant investment by Softbank that is expected to close next week, we will have well over $1 billion and capital, giving us the strong foundation to drive growth over the long term.

With that I will turn the call back to Christian Chris.

Christian.

Thank you Susan to wrap up our prepared remarks, I'd like to reiterate our three core objectives for 'twenty one.

First we plan to dramatically expand our commercial footprint. So that we can serve more customers around the globe.

Secondly, we plan to accelerate our product development pipeline with the focus towards increasing throughput and lowering cost developing and then workflows and finally developing of multi product portfolio. So the customers have access to the right long read sequencing for their scale and applications.

And thirdly, we're focused on moving our smart technology deeper into the clinical diagnostic market, where we believe we have unique advantages over other sequencing technologies. This will be done through the execution of high quality partnerships such as the one with the <unk> that we announced in January.

And my opening remarks touched on the number of specific accomplishments the team made toward executing on the strategies there.

Moving forward, we expect Inc, sort of engagement and the global fight against Covid as we believe that hifi reads can make a significant positive impact.

You'll see us work to expand our global network of collaborators and rare inherited diseases, who seek to leverage pack by hifi reads to solve for 50% of the cases that allude diagnosis with the other technologies today and <unk>.

Closing, we have a strong finish to the challenging 2020, and although headwinds associated with the pandemic still exist I believe our core strategies expanded leadership team and improved execution will drive growth in 'twenty and 'twenty, one and beyond.

And finally Softbank investment of $900 million provides us with the financial resources to work towards achieving our objectives. I believe we are of significant opportunity in front of us and I'm excited about our future.

That concludes our prepared remarks, and with that we'd like to now open it up for some Q&A.

And bear in mind day to ask a question you will need to pass for one on the telephone to meet you all.

And my question press the pound key.

Yeah.

Your first question comes from Doug Schenkel of Cowen. Your line is now all of them.

Hey, good afternoon, everybody and thank you for taking my questions.

First off thanks for all your of your help over the years and good luck of the next chapter.

And.

Christian.

And I want to just talk about kind of I guess the high level strategic question.

Illumina and attempting to acquire.

Pacific Biosciences was essentially attempting to go from being just the short read sequencing company to being both short and long read.

It's been asserted the Pac bio could almost reverse that plays out playbook essentially going from being the dominant long read sequencing company to being both long reach and short read.

With that and mind, how are you thinking about the best way to achieve that is it the organic or is it inorganic and part of the reason I start with this question is with the investment from Softbank does it change how you think about the question of organic versus inorganic.

Well, Doug first of all of its good to hear from you and thank you for the question you know when you think about this question I'm going to first start and address.

And what does the Softbank capital due for US. There's no question that it gives us a lot more flexibility to think about how we can create scale, how we can create a multi product portfolio.

And how we can drive our business forward faster and I think one of the things I'm very interested in is a combination of organic and inorganic opportunities and.

I think the inorganic opportunities are more.

Accessible to us of course now that we have some more capital to work with.

With respect to the specific strategy of short read long read long read shortly I think if you step up higher level and and try to think about what we can be the company we want the b the the <unk>.

Most of that.

Biological solutions company with a number of different products in our portfolio and that could encompass.

Obviously long reads, where we're going with that and our leadership position and and driving the accelerated development of products. There. It could encompass short reads and Theres, obviously large markets that are.

Uniquely accessible to short reads of at least today and then but it also could encompass market adjacencies complementary technologies abilities for us to look at the <unk>.

From the front end of our workflows as well as the back and so developing those complete solutions for.

For our customers and I think right now we're just so thrilled to have.

This relationship building with Softbank to give us the capital we need to think big because I do think with our leadership team and.

And our long read hifi sequencing capability.

A lot of opportunity in front of us.

That's super helpful. Thanks, Thanks for that Kristen and then and maybe if I could just ask the second question on another recent development.

And you share some additional details on the agreement with the <unk>, which of course was a really exciting development over the last several weeks.

Regarding the five year duration that you outlined I just wanted to clarify does that mean that this is of exclusive with the DTA over this period and does that mean and that's the expectation in terms of when they would actually be and instrument commercialized.

Just wanted to maybe unpack a little bit about what happens during those five years and what comes after and.

And you also talked about the concept of essentially being able to have and industrialize Pac bio instrument that would be well suited for larger central labs, like it'd be too, but not limited to and be too is there a scenario where this disagreement also leads to the development of.

The instruments that are bore well suited for clinical applications and a more decentralized.

Thank you.

Yeah, Theres, a lots of them back there, Doug, but let me see let me see how I can do for.

The agreement with the DPA is is not an exclusive arrangement.

Excuse me for any period of time.

But rather.

It's.

We are developing we're embarking on a long term collaboration with them to develop multiple products. So the first product is much much closer than than five years out.

And that product will be this ultra high throughput sequencer that will given the <unk> the power to.

Do hold genome sequencing at production scale at prices substantially below $1000 I believe I said that and the press release in January.

And what the unique feature of course is debt, we will be giving and beat the preferential pricing, but we will also be free to market that product and that sequence for broadly to a number of different customers and as you can imagine we will leverage debt technology to develop potentially.

<unk> shoots of that product.

For more decentralized situations or.

Or different.

Current levels of throughput or capability, so that we can.

Meet the needs of the market I think this is one of the one of the core strategies that I've been talking about since I've since I joined the company was developing a product portfolio that.

And that reaches each customer in the way they want to be in the way they want to do sequencing and it and it does start at the at the high and with.

Within <unk>, but you can imagine that the technology will be applicable across a broad spectrum spectrum of customer types and applications and so that's that's where it will go from there we will have products beyond this first product with <unk>, but that will be.

Those will impact themselves over time of course.

So hopefully that helps a little bit for you Doug.

Yes, yes nicely done and Kristian and I knew for a lot of you. There. So thanks, thanks for all of that color I'll get back in the queue.

Great. Thank you Doug.

Your next question comes from Tea has some volume because they have been working for them.

And is now all of them.

Hey, guys. Thanks for the time this evening.

The question can you share a little bit more color on sort of your early up the conversations here.

For the existing projects and.

A year of participating and including all of us and Darwin tree of life.

How should we think about sort of the consumable pull through on the sequel and in 2021 and beyond.

Yeah. Thank.

Thank you for the question my expectation is debt as these.

And as these projects ramp the day would be optimizing their sequel to platforms and therefore be running likely at the higher end of.

Our our pull through metrics and so that's how I would be thinking about it and in some cases, if they wanted to they want to accelerate maybe there'd be expanding their their infrastructure now interestingly you know the.

These are large projects and there's a lot more to the story than just doing the sequencing.

It's getting.

It's getting the samples and and the reality is that the slow profit and it takes a while for for these for these customers to get the process and ready for sampling and then ultimately get them on the sequencer and so we would expect them to be scaling of Covid has not been our.

Friend and this area.

But as you know.

As the the world starts to open back up we would expect them to be ramping up accordingly, and then likely operating at the higher ends of their of of our pull through of metrics to be sure.

Got it and then one on on the instrument side to what extend the did some sort of order push outs, you mentioned last quarter come through and the fourth quarter and yoda and the 35 of installs.

And it looks like you expect the instrument revenue momentum to continue and the first quarter here. So is that I'm just trying to parse out how much of that is just more of a catch up versus sort of strength and the order book of new orders that came in and <unk>.

Yeah, I think there was I think there is definitely some strength and the order book and <unk> and as I talked about there were some installations that we couldnt get.

Across the goal line, because we couldnt travel so.

Hopefully those will get installed in Q1.

But I think there's you know the sequel to Lee is a very powerful.

The instrument in the sense that it allows us to reaching the customers that don't have the compute infrastructure and that coupled with the.

And the excitement around Covid surveillance, coupled with the.

The the accuracy of Hi, Fi and and the precision FBA.

The studies that have been done to show to show how powerful our assistant can be on that front.

Basically are generally increasing demand across the board and.

Getting a lot of customers are excited about where we can take this technology. So I think in Q4 of the sequel to we'd launch helped us some of that wound care is carrying over into Q1 and I suspect we'll be at a pretty common theme throughout the year.

Got it and one final one for me here on the TUI actually are you starting to see early adopters of the platform performed more long read sequencing given the time data storage and compute cost savings generated by the by the announcements.

It's a little too early to tell it usually when you launch of new system. It takes the quarter to two to really kind of see where the where the metrics might settle out and so why don't we why don't we try to update everyone on that as we get a little bit deeper into the year here.

Got it fair enough. Thanks.

Yep. Thank you.

Your next question comes from Tycho Peterson with Jpmorgan. Your line is not all of them.

Hey, Thanks, I'll add my congrats to Venezuela, it's been great work on a day over the years.

The question I want to go back to the $900 million of infusion from Softbank and I understand it's early days, you're looking at organic and and potentially and organic investments, but one of the questions. We got today is whether this can help to accelerate the timeline for the $1000 plant and great Gino and you've been kind of marching down the path for a while.

To what degree of do you think it can help accelerate some of those developments.

I think I think it can clearly help because we will be aggressive and investing.

And what it probably does more than maybe of shaved a little bit of time off but it but it also helps improve the certainty by which the time goes and so when you get into the scope.

<unk> development projects and as you can imagine you're trying to manage.

Two two of our goal of line to get of product out the market, but you're also trying to trying to make sure you stay focused and get the right product out of.

And on time, so, although we may be able to bring the timeline and some of it's more likely that what it will do is help us prevent the timeline for getting pushed out too much if that makes any sense Tycho.

It does yes.

And then on and VK.

And I know you said no revenues here in the near term I just want to make sure. There's no milestones that could be triggered as part of the the program and then.

To what degree do you think payers are ready for whole genome and the clinic or youre going to have to do some heavy lifting on that Trump.

Yeah, you know that's a good question Tycho so with respect to revenue, obviously and <unk> the customer already.

And we've talked about the collaboration we're doing with the with them as the on the epilepsy projects. So we will have revenue from that side, but with respect to the collaboration it really is.

True partnership where theyre going to we have the joint steering Committee in fact, our first joint steering Committee meeting and I believe next week.

The first significance of theirs planning and net were already starting down the development.

Pathway and so the <unk> will be reimbursing us for that so we will see we will see cash flows, but not but not revenue, it's kind of the Susan outline and we'll see that sooner rather than later.

And I'm, sorry, I forgot the other part of your question there type of payers payers and ready for whole genome and there and at the App.

So I think I think the question becomes the.

The questions all about what's the value of the genome and what's the price and.

And I believe that we with the DTA will be able to price the genomes at low at a low enough price that it will be competitive with other.

Other types of tests out there. So for example, Exxon and other types of things and if you can and if you can continue to demonstrate the increased diagnostic yield which were seeing through a number of our collaboration and then it becomes likely that that payers are going to be more.

More and more <unk>.

Excited to actually pay for these things.

That being said each payer, it's going to be and particularly in the United States each payers going to be its own.

Entity, and we're going to have to work with them and we're going to put.

And that's another great reason, why we've decided to do partnerships here because the <unk> team has a lot of expertise and that area and we we will build some expertise, but the truth is we want to rely on our partners if that makes sense.

Yeah. That's helpful. And then last one on the Covid front I'm, just curious how you're sizing the viral surveillance opportunity and how much of the variant and sequencing do you think ends up being done on short read versus long lead.

Well I think I think of the.

We haven't put I don't have and answer in terms of absolute sizing at this point I know, there's a lot of <unk>.

<unk>, that's coming into this area through.

We just saw and appropriation of over $1 billion.

That is trying to get get through Congress right now.

I think it's only good for us we're seeing it on a global basis, though we are seeing in Germany, and the UK et cetera.

And but.

But I think that.

Long versus short will really be dependent on how quickly we can get into the market. One thing I would say is that our our long read sequencing capability the.

The pricing is extremely competitive with short reads and the information you get is fundamentally better for example, you get all of the phasing information, which allows you to really understand what's going on and a much deeper way and so we're price were absolutely price competitive the lab core.

Protocol that we've talked about you can multiplex up the 900 samples per run.

And so it's a very.

Just a very compelling value proposition and it's.

I think I think the answer will be it's up to us in terms of how fast we can move and get in front of the right people and we're making a lot of progress there already.

Okay. Thank you.

Your next question comes from Amit <unk> from.

Your line is now.

Hi, This is Rachel on for Steve and thanks for taking the questions of that.

And so and the clinical space and you guys have announced the number of impressive partnership partnerships, so with the surgeon and children's mercy and and others and what else.

And we expect to see from stockpile and the partnership segment and how should we think about the cadence of these new clinical partnerships and then also given your new capital and Fox Levi's and pursuing clinical applications on your own or will you stick with partnerships and the near term.

Yeah, I think I think strategic thank you for the questions.

We have aggressive internal goals on launching more.

The <unk>.

Clinical partnerships and I would expect them to look similar to what we're doing for example, with children's Mercy.

For example focused and in rare and undiagnosed disease as our first real area to continue with our objective to continue proving.

Why of Pac Bio Hi Fi genome is so important in the in the clinic and why that's so useful and so I would I would anticipate that we would be.

Trying to put at least put several and place this year and I said.

It's a bit a periodic because each the I'll take the zone.

Life of its own to get them across the goal line I think one of the things that the the.

The capital does is it allows us to think much more creatively about how we how we get into these partnerships.

How how big they can become because we have we have the financial wherewithal to help really drive and build this market out.

With respect to pursuing clinical applications on our own.

We're still of the belief that.

Our core competencies are creating the great technology and.

And and.

And and partnering with others and so our general preference is to be partnering with others with that core expertise and possibly in certain situations developing.

Developing developing our own.

Clinical product or capability, but we really want to be known as the company that's willing to partner with all of these clinical providers.

And build our business that way, because we think that will make more sense for us over the over the long term.

Great and going off of that so as you guys continue to go lower the cost what end markets do you think will be the first to consider shifting to a long read platform and the clinical space really like beyond the clinical partnership that you have sales like rare diseases for example, and.

And could you talk about the sizes of those opportunities and what you guys need to do the start to capture those markets and that's all for me. Thanks.

That's the that's a mouthful for sure.

And from the line, maybe Mark wants to talk a little bit about some of the areas, where we think long reads can penetrate.

Mark do you want to try that one sorry, where remote too so it makes it a little trickier.

Yeah happy to take that one on for you. So I do think there's a big opportunity still for long read sequencing and Christian talked about and as I mentioned, the portfolio and I'm going to just reiterate there is nothing more important and then delivering on this product and the entire workflow for the sort of the beauty of collaboration and getting into the clinical whole genome sequencing opportunity, but but I do see of.

Big opportunity for us to deeper penetrate into labs with the sequel, II or extensions of the sequel to EBITDA.

The thousands of tier two core labs or the the thousands of clinical testing labs that will require the partner and build out the workflows and automation of reporting and ways that we just haven't up until now and so I think expanding our commercial efforts is critical for us the getting into the new segment of life and so so think of that as just lab penetration for long read sequencing from there.

There are also a number of from extensions of markets. The long reads already will benefit.

Okay.

Yes.

Yeah.

Ladies and.

And I think of a clinical applications here its differentiation with the HLA testing for transplants or former co genomics or no way of regions and so it's not just clinical whole genome sequencing I do think there's a big clinical targeted market. The opportunity. So long reads and I also think we are way underpenetrated and transfer of illness and.

So the Iso's type of applications to look up the full length isoforms and look at the also forms that exist and and sprinkle those and with either single cell of a bulk from RNA studies of the great opportunity for us to start to explore especially if you think about clinical oncology and then and then what we always say the people that we just don't know yet what the next applications, where they're going.

The emerge because not enough people who've been using the technology and so as we as we.

As we scale of our customer base and expects to be a series of new applications that have emerged for us to take on and commercialized and kit for the market.

Yeah.

Perfect. Thank you.

Once again to ask a question for you.

For one on the telephone.

Yeah.

And now the question from Michael.

Mike and Tom.

From two Fitzgerald Your line is now Inc.

Hi, guys. Thanks for taking the questions and I want to congratulate and great work with use of some of it.

Best of yourself.

And then also congrats on the investment from Softbank and I know, it's been asked a bunch of transfer in the call, but can you just help us think about the uses of cash of the next few years and as it relates to this investment in particular.

And I know, there's other ways to allocate capital, but in the near term of how are you prioritizing some of those buckets like the sales force and product development. The backend technology like you mentioned, Chris and then maybe some of the acquisitions, but I'm just curious what your kind of perspective and what your thoughts are regarding kind of the prioritization of the nuance of the influx of cash thanks.

Sure and thanks for the question when you think about prioritization and the first thing we have to do is go back to our core strategies of what are we trying to get accomplished here over the next couple of years and the FERC. The you know the first thing where there's low hanging fruit and direct revenue growth opportunities.

Is scaling our infrastructure on the commercial side you heard Mark talk a lot about several different applications, where we are of very small presence today, yet we have very powerful technology and capabilities.

There are thousands of laboratories out there many of which we just don't even call on and so I think you'll see us continue to accelerate our debt.

And the money from Softbank helps us accelerate that opportunity for example, and Europe.

Although we were budgeting.

<unk>.

The significant growth and head count because we really are underpenetrated. There now we can think bigger about how do we how do we fully build out that team and how do we take advantage of this incredible opportunity with for example of Covid surveillance sequencing to build out build out our capability of <unk>.

Has the board so I would say commercial.

Commercial scaling is still going to be front and center.

On the R&D front.

The ability to take on multiple projects simultaneously is it is a core competency that we are building and that requires more infrastructure around the R&D team not just the R&D people itself. So it's project management and strategic planning and so that we will.

Investing incremental resources to enable us to.

And to ensure we can be successful of developing multiple products at the same time and and I think thats core quota.

<unk> of our technology, our quarter are our strategies because.

If we can get that multi product portfolio.

Celebrated and into the market and we can reach more and more customers and leverage the investments in the sales force. For example, if we can drive the ENT and workflow, we can theres opportunities and sample prep theres opportunities to monetize the informatics, but that really have you in order to do that.

We have to have highly automated highly production line capabilities.

Capabilities, and we're going to make investments and that to make sure.

To make sure that we can do that and then lastly.

And inorganic growth or M&A or partnership.

There are real opportunities out there that I think would be highly complementary with the company.

The first thing you have to think through when you start to think about things.

Opportunity of this is obviously are they and markets, where you can bring something to the.

To the table and then secondly, do you have the management team that can execute and.

And make sure that when you make a bit and investment that you can get the maximum benefit out of it and we've worked really hard over the first part of my 10 year here as CEO to build out that management team and capability and I'm proud to report that we've got a great team and we're we're just getting started.

And there's a lot there's a lot more opportunity for us to bring people on board. So now we have that in place and so now it's really thinking strategically looking for people that share the same vision people and companies and organizations.

The share of the same vision of us that we have.

And then and then putting us leveraging the resources that we have to kind of build our business and create scale.

So that's.

A lot to it but I think it's kind of you have to think about it and that order.

Yes, Kyle determine the always on.

And I'll, just add and just a couple of comments with respect to this year in terms of our organic investment and I had talked a little bit about it during my prepared remarks, but to put it into perspective in terms of and the investments that we're making to drive for long term growth. We are we are adding over.

100 head count across the company, whether or not they all come on board.

It still remains to be seen but we aren't pushing hiring quite a bit and so youll see us ramp and our operating expenses will ramp accordingly.

Okay. Thanks, Scott for the I really appreciate that and.

Just sticking with us.

Theme and I'll keep the kind of kind of wait but of course.

And you referenced the $20 billion Tam last month, and just wanted to hear your view if this investment kind of accelerates your ability to penetrate deeper expand I guess in that market and then you were talking about which markets could be accessible and the near term, but just as it relates to fuck accelerating the the pushing to those sort of markets.

Is this.

And is this kind of tailwind.

Tailwind and headwind just wanted to hear your thoughts there and thank you again and just yet.

And I appreciate the comments thanks.

Yeah Bill.

And it's a good question and and the truth is we wouldn't have taken this investment if we didn't think there was opportunities for us to accelerate our potential into these large tam.

And the sequencing market is only getting larger.

We have a clear opportunity to lead at the whole genome level of of sequencing and we have a clear opportunity to create a great business around.

Other aspects of the market like like the Mark outlined earlier and so this investment and really brings an incredible partner to the table and softbank and their reach and their resources I think will help us expand our business.

The straight away, but then over the long run the year.

We will be able to take advantage of having the capital to accelerate our opportunity entities and and and drive growth and that.

That's really at.

At the end of the day My core strategy is how do we drive scale and growth as quickly as possible, we have and incredibly powerful set of technologies already but what can we do to go even faster and that's what we're going to be working on.

Okay, Alright, that's as per.

And I appreciate your answer there.

And I just wanted to talk about the use of the Tegra and all of it. It's obviously very promising congratulations on and of course.

Will the will the spending with the you mentioned like 20 to 25 and the expenses I guess in 2021, Susan is that going to be kind of back half loaded and just wanted to understand how to think about that and then also I guess the sequence here will be available to and Vijay for favorable pricing and of course, but in terms of broader commercial adoption and look for other customers.

<unk> I believe you mentioned non Christian when could that occur within this five year kind of timeline and I wasn't quite clear on that.

<unk>.

Yes.

Oh go ahead of and went to what's the dollars and they'll go ahead with the dollars and then we'll go from there.

Yeah. So I'll give you the indication Kyle of just in terms of how of that investment will ramp over time. So as Christian mentioned, we have kicked off we're ramping.

In terms of hiring as well as the expenses associated with the development of the new platform.

We have our joint steering committee kickoff that is happening next week and so.

So I would think of it as of Q1, because we're here in February of Q1 will be lighter, but then for the most part of the rest of the year will be pretty linear Q4, probably slightly more than obviously Q1, just given the nature of ramping a whole new program within the company.

Yeah, and with respect to the products.

There is no time.

Associated with in other words once we get the profit once we get the product built the seek new sequencer built will be able to broadly commercialize it.

And and.

And and scale and accordingly of course, we're going to give them BPA priority and anytime you anytime you did.

Develop of new product the.

The first.

As you go through the scale up we're going to focus exclusively on N V day, but that's not because they have and exclusive right. That's just because you know they are a partner and collaborator and we want to ensure that they are absolutely successful.

And we're so thrilled to be part of that with them.

But we will be able to quickly commercialize that product.

As we as we ramp up accordingly.

Okay, alright, thanks, and I know him.

I heard you mentioned the umbrella and the non exclusivity I guess that was the first part of it. So thanks for that and just wanted to.

One last like softball kind of question so.

I know you guys have or at least some or I guess the cold source of it really has some of them just like pediatric and rare disease data kind of regarding the partnership which holds the mercy and Kansas City, but when can we see some new diagnostic proof statements come out and the near term and I know, they're presenting and Hebt I was wondering if there could be any update there on the call regarding new data. Thanks.

Yeah, I mean, I think we will we'll leave that to our collaborators and states.

As the.

We don't want to steal their thunder, but the but the reality is of that Theres a lot of great work going on we're on the road the pursuing several new.

New partnerships and one of the things that you can also see Hudson Alpha just released some data.

Recently over the last several days or lap this past week and so you should check out the Hudson Alpha release, because that that's a very powerful proof statement.

Okay perfect. That's all of small congrats on all the progress and all of the updates guys all of us.

Thank you.

Thank you very much thanks for the support.

Yeah No further questions at this time I will now turn the call back to the question Henry for closing remarks.

Okay.

Well, thank everyone for joining us today, and we look forward to speaking with you on our next call and.

If you have questions and the future of please feel free to reach out so thank you very much.

This concludes today's conference call. Thank you for joining you may now disconnect.

[music].

Thank you for standing by and welcome to the Pacific Biosciences of California, Inc. Fourth quarter of Tony Kenney Earnings Conference call.

And this time all participants are in a listen only mode.

Third of speak of the presentation and there will be a question and answer session.

The ask a question during the session you will need to pass for one on your telephone Okay for you.

The acquired any further assistance and stuff.

J O I.

I would now like to hand, the conference over the Chubb and White. Please go ahead.

Thank you good.

Good afternoon, and welcome to the Pacific Biosciences fourth quarter, 'twenty, and 'twenty earnings Conference call and we hope that you're keeping well during this time.

Ww the.

S E C dot Gov.

With me today are Christian Henry President and Chief Executive Officer, Susan Kim Chief Financial Officer, Mark The N of one Chief operating officer, and Ben Gong <unk>, Vice President of Finance.

Moving to last quarter, we are hosting our conference call from a number of different locations. So please bear with us if there are any technical issues or pauses.

Before we begin I'd like to remind you that on today's call. We may be making forward looking statements, including plans and expectations relating to our financial projections plans and expectations relating to our research and development efforts and plans and expectations, including expectations with respect of timing sales and revenue projections and plans and <unk>.

And actually with our collaboration partners, including expectations regarding sales related to our collaboration with N V day plans and expectations to grow accelerate and expand our product portfolio commercial efforts and commercial footprint, including plans related to our products to increase throughput lower cost and develop workflows and adoption of our sequencing technology as a true.

Formative and fundamental tool and research clinical and genetic testing applications. The use of our technology for specific projects and applications, including and kind of in connection with epigenetic COVID-19 cancer and rare disease clinical research applications.

The potential growth and impact of growing our commercial team and research and development teams plans to make the COVID-19 protocols widely available for commercial laboratories, and the need for more expansive and robust viral surveillance strategy is due to the emergence of more infectious COVID-19 mutations and other future events such as the.

The impact of COVID-19, pandemic on our business partners and our business partners customers and employees and the youth and advantage of our products and COVID-19 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 of the extent of COVID-19, and continued impact on our business will depend on several factors, including the severity and duration and extent of the pandemic.

Well as actions taken by governments 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 securities and Exchange Commission filings, including our most recently filed reports on forms 8-K, 10-K and form 10-Q.

Pacific Biotech Sciences 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 our investors section and our website shortly after the call.

And investors 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'd now like to turn the call over to Christian.

Thank you Kevin.

And good afternoon, and thank you for joining us today.

Before we begin I'd like to thank everyone know that Ben Gong, our vice President of Finance is retiring this quarter.

As a result this is his last earnings call on behalf of all the employees of Pac bio Susan and I would like to thank him for his significant contributions to the company over the past decade.

<unk>.

Before the market opened this morning, we announced the Softbank is making an investment of $900 million and the company to support the acceleration of our growth initiatives.

We are excited to partner with Softbank as they can help us expand our reach on a global scale.

Some of fundamental tool for the use and a broad range of both research and clinical applications.

On our last earnings call and I've described some of our key priorities and I am pleased to report that we're making progress on the number of fronts, including our ability to execute and grow the business for my prepared remarks, I will briefly review our Q4 financial highlights and then describe key business highlights and summarize the.

The expansion efforts, including the addition of several key management hires Susan will then walk us through the detailed financials for the fourth quarter and provide some thoughts around our outlook for 2021.

So starting with an overview of our Q4 2020 financial results total revenue for the quarter was $27 1 million up 41% sequentially from Q3 of 2020, we.

We exceeded our internal Q4 target for revenue and we did not see of significant negative impact from the COVID-19 pandemic during the quarter.

Instrument revenue was $13 6 million up 76% compared to Q3 of 2020.

Our newly launched sequel, TUI was well received by our customers, which drove an increase in orders and Additionally, we received several of them several multi system orders from customers like the Wellcome Sanger Institute and Berry genomics we.

We delivered and installed 35, new sequel, II and two pieces and this during the fourth quarter and ended the year with an installed base of 203 sequel, II and TUI systems.

Consumable revenue for the quarter was $10 million up 25% sequentially from Q3 of 2020.

System utilization on the sequel, II platform was higher in Q4, 'twenty and 'twenty than pre COVID-19 levels.

Annualized pull through.

On the sequel to installed base and Q4 exceeded $180000 per system compared with approximately 160000, K and Q3.

We are pleased to see this increase and pull through however, we note that Q for consumable revenue.

And it did it from some seasonal stocking orders as is typical in the fourth quarter of the year.

Susan will provide more details on her for Matt financial metrics later in the call.

Now I'd like to provide a few updates and comments regarding the impact of the COVID-19 pandemic on our business.

Or you end of Q4, we were cautious about the potential impact that the resurgence of in infection rates in Europe, and the United States would have on our sales for the quarter.

The ability to install new systems, and we believe that some customers may remain conservative with respect the capital spend.

Governments and public health organizations around the world are moving quickly to identify and track the different COVID-19 strength in their communities.

Notably in the United States, the CDC contracted with lab for in early January to support the scale of the Covid sequencing using pack bio Hi Fi technology.

The COVID-19, and whole genome, Hi Fi sequencing assay.

Developed as a research collaboration between scientists at the CDC lab core and Pac bio beginning in early 2020.

Already this year lag chorus perks of several additional equal to each of systems sequel, II systems to ramp up their surveillance testing with high FICO of and sequencing and we look forward to working with lag for it to continue to scale their operations.

The risk of this global needs.

It's exciting to see that their efforts are already making an impact as lab core was the first to identify the new South Africa variant and South Carolina, and Virginia, just last week.

We're pleased to announce the pack bio will now be making this high this high throughput protocol widely available to commercial laboratories.

<unk>, researchers and public health institutions globally.

Wish to standup robust high throughput surveillance programs locally.

We believe the use of packed buyers highly accurate long reads hifi sequencing chemistry for Covid surveillance offers distinct advantages over other technologies, including fewer applicant drop outs easier African balancing and the ability to face COVID-19 genomes, which can.

And detect the different strains infecting a given the individual.

We are proud to have contributed to the assay development that labcorp and the CDC are now using to understand and get ahead of this rapidly mutating virus.

We plan to build on this experience to further bring the benefits of our technology to bear in the fight against Covid.

Shifting gears the population scale projects as a result of the pandemic some delays persist and the ramp up of certain large sequencing projects such as the all of us human genome sequencing projects and the United States and two of lesser extent, the Darwin tree of life plant and the animals.

Sequencing project and the United Kingdom. However.

And anticipation of receiving those samples.

The welcome Sanger Institute ordered seven new sequel, II systems, this past quarter.

Some of the systems were installed last quarter, and we ex that the ballots to be installed and the first half of this year.

Moving onto the other business highlights I'd like to discuss our collaboration with the VCA that we announced last month.

<unk> bio and and Vijay share of vision that whole genome sequencing using pack by of bio hifi reads and of routine clinical setting has the potential to fundamentally transform the genetic testing industry. Together, we are partnering to bring this vision to reality.

Currently and VCA processes hundreds of thousands of samples per year. We believe that there is of significant opportunity to move the majority of those samples the whole genome sequencing, which is why we are working with the <unk> to develop a new ultra high throughput sequencer and workflow that is expected to be capable of.

The operating at production scale.

Under the agreement.

Upon completion of the new sequencer Pac bio will make the new system and associated consumables available to NVCA for preferential pricing for a defined period of time and.

In addition, <unk> will have the ability to commercialize the new sequencer to other customers as well.

Given the expected scale of the new system, we would expect labs involved with running production of scale whole genome projects to be candidates for placement of the new system.

The collaboration with the VCA is expected to run for five years over the first few years, we plan to develop the new sequencing platform and related workflows, and we expect to rapidly hire more than 50, new people into our R&D organization, which will dramatically increase our R&D expense.

And before I get the organizational updates I'd like to share some customer highlights that really demonstrate the power and the potential of Pac bio hifi sequencing technology.

<unk>.

We'd like to congratulate Dr. Dennis Lo and colleagues of the Chinese University of Hong Kong on the development of the new method for highly accurate simultaneous determination of DNA sequence and CPG methylation and one go.

Published in the Pnas Journal in January of this new method will help researchers explore the impact of epigenetic changes and humans and other organisms and has great potential and clinical research and eventually diagnostics and cancer and other disease areas, where methylation changes.

And are known to be important disease markers.

We'd also like to congratulate the team at Hudson Alpha Institute of Biology for their work and leveraging Pac bio hifi reads to help diagnose children with rare disease, who is still lacking and answered after short read sequencing.

The recent paper and paper published and human genetics, and genomics advances demonstrates the power of hifi sequencing to capture more of the variation across the genome, which gives investigators and clinicians more information to make the diagnosis saving precious time and resources.

And reducing the diagnostic Odyssey.

Shifting now to our organizational team we are thrilled to have mark the I know and onboard as our new Chief operating officer, Mark has deep experience and genomics and brings a strong voice of customer into our R&D and operations organization for organizations.

In addition, mark will be responsible for leading our corporate development activities, which will become increasingly important as we expand.

In addition to market Peter we have also recently hired for additional commercial executives, who will lead critical areas and product and strategic marketing as well as commercial operations.

As I've indicated on our last call. The key strategy for the company is to increase our direct sales force globally for.

And making great progress in the areas, we've hired over 10, new quota carrying sales personnel over the past few months, which puts us well on our way to.

For more than doubling our sales force.

We expect our new sales reps to come up the speed over the first few quarters. After they come onboard and then become part of the engine that drives consistent revenue growth.

To summarize I am very encouraged by our performance and the fourth quarter for the second consecutive quarter, we met or exceeded our internal revenue targets we.

We have kick started the new year with what promises to be a transfer rate transformational collaboration with <unk> and we have made significant progress and expanding our team to drive future growth.

With that I'll turn the call over to Susan who will provide more details on our Q4 financial results and our current outlook for the first quarter Susan.

As Christian mentioned, the sequel, TUI and launch was stronger than anticipated, which resulted in orders and the fourth quarter exceeding our internal expectations, including a number of multi instrument orders from key customers.

Total fourth quarter revenue was $27 $1 million and increase of 42% from $19 $1 million and Q3 of 'twenty and 'twenty, but a decrease of 3% from $27 $9 million and Q4 of 2019.

We installed 35 sequel, II and TUI systems during the fourth quarter growing the installed base of sequel, II and TUI system to 203 as of December 31.

And as the consumables are the same and customer usage patterns are expected to be similar across the sequel, II and <unk> system. We will continue to report of combined installed base going forward.

Consumable revenue for the fourth quarter of 2020 was $10 million up 25% sequentially from $8 million sold in Q3 of 2020.

And up 8% from $9 $3 million sold in Q4 of 2019.

And since the start of the COVID-19 pandemic that resulted in our customer loves being shut down we have since continued to see meaningful increase and our sequel, one and sequel to E utilization such that we have recently crossed the cumulative five petabytes of sequence on our installed base of sequel II system.

Sequel, II consumables represented approximately 78% of our total shipments and the fourth quarter and roughly 20% of our consumable shipments were purchased for the older sequel system and.

And the remaining for the Rs II systems.

We expect the proportion of consumable sales for sequel, II systems to continue to grow as the installed base of the assistance continues to expand.

Service and other revenue was $3 $5 million and Q4 of 2020 compared to $3 $3 million, and Q3 and $3 $3 million and Q4 2019.

Our service revenue has remained relatively flat over the past year and increase service. The sequel, II systems has been offset by declines and service on <unk> and sequel system.

Moving on to gross profit and gross margin and Q4 of 2020, we generated the gross profit of 11 4 million, representing a gross margin of 42% compared to a gross profit of $7 1 million, representing a gross margin of 37% and Q3 of 2000 and.

'twenty.

There are three key reasons why gross margin improved sequentially for.

First a S p's on interest sales were higher.

Second we had improved product mix over Q3, and finally higher volume and manufacturing improved factory utilization.

Year over year, our gross profit and gross margin in the quarter declined from $12 $9 million and 46% generated in Q4 of 2019 as a result of lower revenue and factory utilization, partially offset by higher asps on instrument sales.

Moving on to operating expenses operating expenses and the fourth quarter of 2020 totaled $35 $4 million up 13% compared with $31 $2 million and Q3 of 2020 and up 15% compared with $38 million and Q4 of 2019.

<unk>.

Based compensation expense.

Noncash stock based compensation expense included in operating expenses was $4 $8 million and Q4 of 2020.

Up from $4 $3 million, and Q3 of 2020 and up from $3 4 million and Q4 2019.

Net income in Q4 of 2020 was $74 $9 million and net income per share on a fully diluted basis with 37.

Compared to a net loss of $23 $7 million and net loss per share of 14 and Q3 of 2020.

And of net loss of $100000, which round two of net loss per share of zero cents and Q4 2019.

The large increase and income was primarily related to the $98 million. One time gain we recorded which was associated with the reverse termination fee. We received from Illumina back in January of last year and recognized in Q4 of 2020.

The increase in cash and investments was primarily a function of our follow on offering in November that netted proceeds of approximately $94 million per.

Plus approximately $32 million and proceeds associated with employee stock option exercises.

Partially offset by approximately $16 million of cash used for operations.

Inventory balances decreased thank you for 2020 to $14 $2 million, representing a four point to inventory turns.

Paired with $15 $9 million at the end of Q3, 2020, which represented $2 nine inventory turns and due to the ramp and customer installations and Q4.

Accounts receivable increased in Q4 to $16 $8 million, reflecting of DSO of 49 days compared with $11 $8 million at the end of Q3, and 2020, reflecting of DSO of 56 days.

As we look out into 'twenty and 'twenty, one and the impact of the pandemic on our revenue growth is still somewhat uncertain.

However, with that said I would like to provide a framework on how we see revenue growing during the year we.

We believe that revenue will grow significantly and the second half of the year as we start to realize the benefit of our expanded commercial investments and infrastructure.

In the short term, we expect Q1 revenues to be slightly lower than Q4 levels. While we expect the strength, we saw and instrument sales last quarter to carry over into this quarter. We also foresee some softening and consumable sales and APAC largely due to the lunar new year.

For holiday.

This is consistent with the seasonal revenue pattern, we have seen over the past several years.

Although we anticipate slightly lower revenue in Q1, we do anticipate gross margin will improve slightly compared to Q4 as our factory utilization continues to improve.

For Q1, we estimate noncash stock based compensation expense will increase materially to between $10 million to $11 million.

Up from $4 $8 million and Q4 due to new higher employee equity grants accounted for in our operating expenses.

We are forecasting our total Q1 operating expenses to grow and to be in the mid to high $40 million.

I would like to take a moment to provide additional context regarding the investments we intend to make and 2021.

We plan to make significant investments and our business as we push forward with our key objectives.

Our first objective expanding our commercial reach includes the significant expansion of our commercial organization. We ended the year with 22 quota carrying sales representatives and we are targeting to more than double that number by the end of the year.

Our second objective driving the product development pipeline will entail the development of multiple new products simultaneously.

We ended the year with 158 people and our research and development organization and we are targeting to hire more than 50 additional people and R&D this year.

Our third objective market leadership and whole genome clinical sequencing is off to an accelerated start with our collaboration with <unk> as.

For the year 2021 alone we are targeting to spend $20 million to $25 million on this project.

While we expect and VK to fund this project, we will likely recognize all or a substantial amount of this expense and the R&D expense line of our income statement and the period in which it has occurred the.

Funding, we received from and Vijay is likely to be recorded as a liability on our balance sheet and may be amortized into revenue and later periods as we sell of the developed products to and VK in accordance with our agreement or released when other performance obligations are delivered or contingencies lap.

Please be advised that we are still analyzing the proper accounting treatment for these activities and we do not expect the finalized how it will appear on our financial statements until we report our first quarter 2021 results.

The result of this financing $52 million of expense will be recognized on our P&L and Q1 to account for the expected repayment of the continuation advances due to alumina as the result of the merger termination.

With that I will turn the call back to Christian.

Christian.

Thank you Susan to wrap up our prepared remarks, I'd like to reiterate our three core objectives for 'twenty one for.

First we plan to dramatically expand our commercial footprint. So that we can serve more customers around the globe.

We plan to accelerate our product development pipeline with the focus towards increasing throughput and lowering cost developing and then workflows and finally developing of multi product portfolio. So the customers have access to the right long read sequencing for their scale and applications and.

Thirdly, we're focused on moving our smart technology deeper into the clinical diagnostic market, where we believe we have unique advantages over other sequencing technologies. This will be commentary of the execution of high quality partnerships such as the one with the <unk> that we announced in January.

My opening remarks touched on the number of specific accomplishments the team made towards executing on these strategies moving forward, We expect inc. Sort of engagement and the global fight against Covid as we believed that hifi reads can make a significant positive impact youll see us work to expand our global network of.

<unk> and rare inherited diseases, who seek to leverage backed by high five out of reads to solve for 50% of the cases that allude diagnosis with other technologies today and.

In closing, we have a strong finish to the challenging 2020, and although headwinds associated with the pandemic still exist I believe our core strategies expanded leadership team and improved execution will drive growth and 2021 and beyond and.

That concludes our prepared remarks, and with that we'd like to now open it up for some Q&A.

And as a reminder to ask a question you will need to pass for one on your telephone to withdraw the question Ross the pound key.

And your first question comes from Doug Schenkel of Cowen. Your line is now all of them.

Hey, good afternoon, everybody and thank you for taking my questions.

First off thanks, Ben for all of your help over the years and good luck of the next chapter.

Christian.

I want to just talk about kind of I guess the high level strategic question.

Alumina and attempting to acquire.

Pacific Biosciences was essentially attempting to go from being just the short read sequencing company to being both short and long read.

It's been asserted that Pac bio could almost reverse that plays out playbook essentially going from being the dominant long read sequencing company to being both long read and short read.

Well.

Doug first of all of its good to hear from you and thank you for the question. When you think about this question I'm going to first start and address what does the Softbank capital due for US. There's no question that it gives us a lot more flexibility to think about how we can create scale and how it.

And can create a multi product portfolio.

And how we can drive our business forward faster and.

Think one of the things I'm very interested in is.

The combination of organic and inorganic opportunities and.

I think the inorganic opportunities are more.

Accessible to us of course now that we have some more capital to work with.

With respect to the specific strategy of short read long read laundry and short read I think if you step up higher level and and try to think about what we can be at the company.

Want to be the.

The most advanced buyer.

Biological solutions company with a number of different products in our portfolio and that could encompass.

Obviously long reads, where we're going with that and our leadership position and and driving the accelerated development of products. There that could encompass short reads. There is obviously large markets that are.

Uniquely accessible to short reads of at least today and then put it also could encompass market adjacencies complementary technologies abilities for us to look at the free.

The front end of our workflows as well as the back and so developing those complete solutions for.

For our customers and I think right now we're just so thrilled to have.

This relationship building with Softbank to give us the.

The capital we need to think big because I do think with our leadership team and.

And our long read hifi sequencing capability.

A lot of opportunity in front of us.

That's super helpful. Thanks, Thanks for that question and then and maybe if I could just ask a second question on another recent development.

And you share some additional details on the agreement with the <unk>, which of course was a really exciting development over the last several weeks.

Regarding the five year duration that you outlined I just wanted to clarify does that mean that this is of exclusive with the DTA over this period and does that mean and thats the expectation in terms of when they would actually be and instrument commercialized.

One of them, maybe unpack a little bit about what happens during those five years of what comes after and.

And you also talked about the concept of essentially being able to have and industrialize Pac bio instrument that would be well suited for larger central labs, like and B J, but not limited to and be too is there a scenario where this disagreement also leads to the development of.

The instruments that are bore well suited for clinical applications and a more decentralized.

Thank you.

Yeah, Theres a lot the back there Doug, but let me see let me see how I can do for.

The agreement with the and VK is is not an exclusive arrangement.

Excuse me for any period of time.

But rather it's our.

We are developing we're embarking on a long term collaboration with them to develop multiple products. So the first product is much much closer than than five years out.

And that product will be this ultra high throughput sequencer that will give and VK the power to.

Do whole genome sequencing at production scale at prices substantially below $1000 I believe I said that and the press release in January.

And what the unique feature of course is that we will be giving and beat the preferential pricing, but we will also be free to market that product and that sequence for broadly to a number of different customers and as you could imagine we will leverage that technology to develop potentially.

<unk> shoots of that product.

For more decentralized situations or.

Or different.

Current levels of throughput or capability that we can.

Meet the needs of the market I think this is one of the one of the core strategies that I've been talking about since I've. Since I joined the company was developing a product portfolio that is that reaches each customer in the way. They wanted the in the way they want to do sequencing and it and it does start at the.

At the high and with.

Within <unk>, but you could imagine that the technology will be applicable across a broad spectrum spectrum of customer types and applications and so that's that's where it will go from there we will have products beyond this first product with <unk>, but that will be.

And those will unpack themselves over time of course.

So hopefully that helps a little bit for you Doug.

Yes, yes nicely done and question.

For a lot of you there. So thanks, thanks for all of that color I'll get back in the queue.

Great. Thank you Doug.

Your next question comes from Tea has since like the way the Morgans from your.

Your line is now open.

Hey, guys. Thanks for the time this evening.

Question can you share a little bit more color on sort of your early up the conversations here for the.

The existing projects.

And just a year of participating in including all of Us and Darwin tree of life, how should we think about sort of the consumable pull through on the sequel.

In 2021 and beyond.

Yeah.

Thank you for the question my expectation is that as these as these projects ramp the day would be optimizing their sequel to platforms, and therefore be running likely at the higher and of our our pull through metrics and so that's how I would be thinking about it and in some case.

And as if they wanted to and they want to accelerate maybe they'd be expanding their their infrastructure.

Now interestingly.

These are large projects and.

And there's a lot more to the story than just doing the sequencing.

Getting.

It's getting the samples and the reality is that the slow process and it takes a while for for these customers for these customers to get the process and ready for sampling and then ultimately get them on the sequencer and so.

We would expect them to be scaling of Covid has not been our friend and this area.

But as you know as the the world starts to open back up we would expect them to be ramping up.

<unk> and then likely operating at the higher ends of their of our pull through of metrics to be sure.

Got it and then one on on the instrument side to what extent the did some sort of order push outs, you mentioned last quarter come through and the fourth quarter and here and the 35 of installs and.

Yeah, I think there was I think there is definitely some strength and the order book and <unk> and as I talked about there were some installations that we couldnt get okay.

Across the goal line, because we couldnt travel so.

And hopefully those will get installed in Q1.

But I think there's the sequel to me is a very.

Powerful instrument in the sense that it allows us to reach into the customers that don't have the compute infrastructure and that coupled with the.

The excitement around so the surveillance coupled with the.

The the accuracy of Hi, Fi and and the precision of FCA.

The studies that have been done the show to show how powerful our assistant can be on that front.

Basically are generally increasing demand across the board and.

Getting a lot of customers are excited about where we can take this technology. So I think in Q4 of the sequel II launch helped us some of that wound care is carrying over into Q1 and I suspect we'll be at a pretty common theme throughout the year.

Got it and one final one for me here on the two we actually are you starting to see early adopters of the platform performed more long read sequencing given the time data storage and compute cost savings generated by the by the enhancements.

It's a little too early to tell it usually when you launch of new system. It takes a quarter to two to really kind of see where the where the metrics might settle out and so why don't we why don't we try to update everyone on that as we get a little bit deeper into the year here.

Got it fair enough. Thanks.

Yes. Thank you.

Your next question comes from Tycho Peterson with Jpmorgan. Your line is now open.

Hey, Thanks, I'll add my congrats to Venezuela has been great work on the C over the years.

Christian and I want to go back to the 900 million dollar of infusion from Softbank and I understand it's early days, you're looking at organic and potentially inorganic investments, but one of the questions. We got today is whether this can help to accelerate the timeline for the $1000 plot and great Gino and you've been kind of marching down the path for a while.

To what degree of do you think it can help accelerate some of those developments.

I think I think it can clearly help because we will be aggressive and investing.

I think what it probably does more than maybe it shaved a little bit of time off but it also helps improve the certainty by which the time goes and so when you get into these.

<unk> development projects as you can imagine youre trying to manage.

Two of our goal of line to get our product out the market, but you're also trying to trying to make sure you stay focused and get the right product out on time, so although we.

May be able to bring the timeline and some of it's more likely that what they'll do is help us prevent the timeline for getting pushed out too much if that makes any sense Tycho.

And it does yes.

And then on and VK.

And I know you said no revenues here in the near term I just want to make sure. There's no milestones that could be triggered as part of the.

The program and then.

To what degree of do you think payers are ready for whole genome and the clinic or youre going to have to do some heavy lifting on that Trump.

Yeah, you know that's a good question Tycho so with respect to revenue, obviously and VK the customer already.

And we've talked about the collaboration we're doing with the with them as the on the epilepsy project. So we will have revenue from that side, but with respect to the collaboration it really is.

True partnership where theyre going to have a joint steering committee in fact, our first joint steering Committee meeting and I believe next week.

Our first significant so theres planning and net we're already starting down the development.

Pathway, and so and <unk> will be reimbursing us for that so we will see we will see cash flows, but not but not revenue, it's kind of the Susan outline and we'll see that sooner rather than later.

And.

And I'm, sorry, I forgot the other part of your question there type of payers payers already for whole genome and air and it yeah.

So I think I think the question becomes.

The question is all about what's the value of the genome and what's the price.

And I believe that we with the DTA will be able to price the genomes at low at a low enough price that it will be competitive with other.

Other types of tests out there. So for example, exome and other types of things and if you can if you can continue to demonstrate the increased diagnostic yield which we're seeing through a number of our collaboration and then it becomes likely that that payers are going to be more.

More and more.

Excited to actually pay for these things.

That being said each payer it's going to be.

Particularly in the United States, each payers going to be its own and.

Entity, and we're going to have to work with them and we're going to put.

That's another great reason, why we've decided to do partnerships here because the <unk> team has a lot of expertise and that area and we we will build some expertise, but the truth is we want to rely on our partners if that makes sense.

Yes, that's helpful. And then last one on the Covid front I'm, just curious how you're sizing the viral surveillance opportunity and how much of the variance sequencing do you think ends up being done on short read versus long lead.

Well I think I think of the we Havent put.

Don't have an answer in terms of absolute sizing at this point I know, there's a lot of.

Funding that's coming into this area through.

Just saw and appropriation of over $1 billion.

That is trying to get get through Congress right now.

Which I think is only good for us we're seeing it on a global basis, though we are seeing in Germany, and the UK et cetera.

And.

But I think that.

Long versus short will really be dependent on how quickly we can get into the market. One thing I would say is that our share our long read sequencing capability the.

We've talked about you can multiplex up the 900 samples per run.

And so it's a <unk>.

It's just a very compelling value proposition and.

It's up to US I think I think the answer will be it's up to us in terms of how fast we can move and get in front of the right people and we're making a lot of progress there already.

Okay. Thank you.

Your next question comes from Lee true Thanks, though.

Your line is now.

Hi, This is Rachel on for Steve Thanks for taking the questions and so and the clinical space and you guys have announced the number of impressive partnerships partnerships with the surgeon and children's Mercy and the others.

And what else can we expect to see if in fact bio and the partnership segment and how should we think about the cadence of these new clinical partnerships and then also given your new capital and Fox for you guys and pursuing clinical applications on your own or would you stick with partnerships and the near term.

Yeah, I think I think strategic thank you for the questions.

We have aggressive internal goals.

On launching more.

Clinical partnerships and I would expect them to look.

<unk> of what we're doing for example, with children's Mercy for.

The example focused in and.

And our rare and undiagnosed disease is our first real area to continue with our objective to continue proving why of Pac Bio Hi Fi genome is so important in the in the clinic and why that's so useful and so I would I would anticipate that we would be.

And trying to put at least seven.

Several and place this year and I said it.

It's a bit a periodic debt each deal take the zone.

<unk> of its the one to get them across the goal line I think one of the things that the the capital does is it allows us to think much more creatively about how we how we get into these partnerships.

How big they can become because we have.

We have the financial wherewithal to help really drive and build this market out with respect of pursuing clinical applications on our own.

We're still of the belief that our.

Our core competencies are creating the great technology and and.

And partnering with others and so our general preference is to be partnering with others with that core expertise and possibly in certain situations.

Developing developing our own.

Clinical product or capability, but we really want to be known as the company that's willing to partner with all of these clinical providers.

And build our business that way, because we think that will make more sense for us over the over the long term.

Great and going off of that so as you guys continue to lower the cost what new markets. Do you think will be the first to consider shifting to a long read platform and the clinical space really like beyond the clinical partnership that you have sort of like rare diseases for example, and.

And could you talk about the sizes of those opportunities and what you guys need to do the start to capture those markets and that.

All for me thanks.

That's the that's a mouthful for sure.

And I know and so on the line, maybe mark wants to talk a little bit about some of the areas, where we think long rates can penetrate.

Mark do you want to try that one sorry, where remote too so it makes it a little trickier.

Yeah happy to take that one on for you. So I do think there's a big opportunity still for long read sequencing and Christian talked about segmenting, the portfolio and and I'm going to just reiterate there's nothing more important and then delivering on this product and the entire workflow for the sort of the in vitro collaboration and getting into the clinical whole genome sequencing of opportunity, but but I do see of.

Big opportunity for us to deeper penetrate into labs with the sequel, II or extensions of the sequel II.

What's the just the thousands of tier two core labs or the the thousands of clinical testing labs that will require the partner and build out the workflows and automation of reporting and ways that we just haven't up until now and so I think expanding our commercial efforts is critical for us to getting into that niche segment of less of them. So so think of that as just lab penetration for long read sequencing from there.

There are also a number of the extensions of of markets. The long reads already will benefit.

Yes.

And.

And I think where clinical applications here its differentiation with the HLA testing for transplants or former could genomics or no way of regions and.

And so it's not just clinical whole genome sequencing I do think there's a big clinical targeted market opportunities for long reads and I also think we are way underpenetrated and the transfer of illness and so the iso's type of applications to look up the full length isoforms from it.

The rest of forms that exist and sprinkle those and with either single cell of a bulk RNA studies of great opportunity for us to start to explore especially if you think about clinical oncology.

And then and then.

We say the people that we just don't know yet what the next applications that are going to emerge because not enough people have been using the technology and so as we as we as we scale of our customer base and starts to be a series of new applications that are going to emerge for us to take on and commercialized and kit for the market.

Yeah.

Perfect. Thank you.

Once again to ask a question. Please pause for one on your telephone keypad.

We have the question from.

Mike and.

Tom Fitzgerald Your line is now Inc.

Hi, guys. Thanks for taking the questions and I want to congratulate and great work with you have some.

And Thats yourself.

And then also congrats on the investment from Softbank and I know, it's been asked a bunch of transfer and the call. But can you just help us think about the uses of cash over the next few years as it relates to disinvest and in particular.

And I know, there's other ways to allocate capital, but in the near term how are you prioritizing some of those buckets like the sales force and product development. The backend technology like you mentioned, Chris and then maybe some of the acquisitions, but I'm just curious what your kind of perspective and from what your thoughts are regarding kind of the prioritization of the nuance of the influx of cash thanks.

Sure and thanks for the question when you think about prioritization and the first thing we have to do is go back to our core strategies of what are we trying to get accomplished here over the next couple of years and the FERC. The the first thing where there is low hanging fruit and direct revenue growth opportunities.

Is scaling our infrastructure on the commercial side.

<unk> heard Mark talk a lot about several different applications, where we are of very small presence today, yet we have very powerful technology and capabilities.

The one thousands of laboratories out there many of which we just don't even call on and so I think you'll see us continue to accelerate the the.

The money from Softbank helps us accelerate that opportunity for example, and Europe.

Although we were budgeting.

Hey.

The board, so I would say commercial.

Commercial scaling is still going to be front and center.

On the R&D front.

The ability to take on multiple projects simultaneously is a core competency that we are building and that requires more infrastructure around the R&D team not just the R&D people itself. So it's project management and strategic planning and so that we will.

The investing incremental resources to enable us to.

And to ensure we can be successful of developing multiple products at the same time and and I think thats core net.

<unk> of our technology, our quarter are our strategies because.

If we can get that multi product portfolio.

Celebrated and into the market and we can reach more and more customers and leverage the investments and the sales force. For example, if we can drive the and and workflow, we can theres opportunities and sample prep theres opportunities to monetize the informatics, but the <unk>.

Really have you in order to do that.

Have to have highly automated highly production of lives Cape.

Capabilities, and we're going to make investments and that to make sure.

To make sure that we can do that and then lastly.

The inorganic growth or M&A or partnership.

There are real opportunities out there that I think would be highly complementary and with the company.

The first thing you have to think through when you start to think about things those opportunity of this is obviously are they and markets, where you can bring something to the.

To the table and then secondly, do you have the management team that can execute and and make sure that when you make a bit and investment that you can get the maximum benefit out of it and we've worked really hard over the first part of my 10 year here as CEO to build out that management team and capability and.

I'm proud to report that we've got a great team and we're we're just getting started there's a lot. There's a lot more opportunity for us to bring great people onboard. So now we have that in place and so now it's really thinking strategically looking for people that share the same vision people and companies and organizations.

The share the same vision of us that we have.

And then and then putting us leveraging the resources that we have to kind of build our business and create scale.

So that debt.

A lot to it but I think it's kind of you have to think about it and that order.

Yes, Kyle determine the always on.

I'll, just add and just a couple of comments with respect to this year in terms of our organic investment and I had talked a little bit about it during my prepared remarks, but to put it into perspective in terms of and the investments that we're making to drive for long term growth.

We are adding over 100 head count across the company, whether or not they all come on board.

Remains to be seen but we aren't pushing hiring quite a bit and so youll see us ramp and our operating expenses will ramp accordingly.

Okay. Thanks, guys for the I really appreciate that and I.

I guess just sticking with this theme.

And I don't keep of kind of kind of way but of course.

And you referenced the $20 billion Tam last month, and just wanted to hear your view. If this investment of kind of accelerates your ability to penetrate deeper expand I guess in that market and then you were talking about which markets could be accessible and the near term, but just as it relates to talk of accelerating the the push into those markets.

Is this.

Is this kind of tailwind.

On the headwind just wanted to hear your thoughts there and thank you, Okay and just recently.

I appreciate the comments thanks.

Yeah Bill.

And it's a good question and and the truth is we wouldn't have taken this investment if we didn't think there is opportunities for us to accelerate our potential into these large tam.

And the sequencing market is only getting larger.

We have a clear opportunity to lead at the whole genome level of of sequencing and we have a clear opportunity to create a great business around.

Other aspects of the market like like the Mark outlined earlier and so.

This investment and really brings an incredible partner to the table and softbank and their reach and their resources I think will help us expand our business.

The straight away, but then over the long run the year.

We will be able to take advantage of having the capital to accelerate our opportunity and of these Tam and.

And and drive growth and Thats really.

At the end of the day My core strategy is how do we drive scale and growth.

And as quickly as possible, we have and incredibly powerful set of technologies already but what can we do to go even faster and that's what we're going to be working on.

Okay Alright, that's.

That's perfect I appreciate your answer there and.

And I just wanted to talk about the even the tegra and all that.

The very promising congratulations on and of course.

Well the well the spending with the you mentioned like 20 to 25 net of expenses I guess in 2021, Susan is that going to be kind of a back half loaded and just wanted to understand how to think about that and then also I guess, the sequencer will be available to and VCA for favorable pricing and of course, but in terms of broader commercial adoption and look for other customers.

<unk> I believe you mentioned non Christian.

And could that occur within this five year kind of timeline and I wasn't quite clear on that thanks.

Yes.

Oh go ahead.

And to what the dollars now go ahead with the dollars and then we'll go from there yeah. So I'll give you of indication and Kyle of just in terms of how of that investment will ramp over time. So as Christian mentioned, we have kicked off we're ramping.

In terms of hiring as well as the expenses associated with the development of the new platform.

We have our joint steering committee kickoff that is happening next week.

And so I would think of it as Q1, because we're here in February of Q1 will be lighter, but then for the most part of the rest of the year will be pretty linear Q4, probably slightly more than obviously Q1, just given the nature of ramping a whole new program within the company.

Yeah and.

With respect to the products.

There is no time.

Associated with another words once we get the once we get the product built the seek new sequencer built we will be able to broadly commercialize it.

And and.

And and scale and accordingly of course, we're going to give them the <unk> priority and anytime you anytime you did.

Develop of new product.

The first.

As you go through the scale up we're going to focus exclusively on and VCA, but that's not because they are and exclusive right. That's just because.

They are a partner and collaborator and we wanted to share that they are absolutely successful and.

And we're so thrilled to be part of that with them.

But we will be able to quickly commercialize that product.

As we as we ramp up accordingly.

Okay, alright, thanks, and I know him.

You mentioned the umbrella for non exclusivity I guess, that's the first part of it so thanks for that.

One last like softball kind of question so all of them.

I know you've got some of it or at least some or I guess the cold source of it really has some of them just like pediatric and rare disease data kind of regarding the partnership with total Mercury and Kansas City, but when can we see some new diagnostic proof statements come.

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