Pacific Biosciences of California, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Pacific Biosciences of California, Inc. First Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Todd Friedman, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to the Pacific Biosciences first quarter 2021 earnings conference call. Earlier today, we issued a press release outlining the financial results we will be discussing on today's call, a copy of which is available on the investor section at our website at www.pacb.com. or as furnished on the Form 8K available on the Securities and Exchange Commission website at www.sec.gov. With me today are Christian Henry, President and Chief Executive Officer, Susan Kim, Chief Financial Officer, and Mark Van Owen, Chief Operating Officer. Similar to last quarter, we are hosting our 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 will be making forward-looking statements, including providing predictions, estimates, plans, expectations, and other information. 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. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update or revise these forward-looking statements. In addition, please note today's call is being recorded and will be available for audio replay on the investor section of 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'll now turn the call over to Christian.

Thank you, Todd, and good afternoon, everybody. Thanks for joining us today. I'll start today's call with an overview of our first quarter results and business highlights. Then Susan will provide some more detail on the financials and some thoughts regarding the second quarter. PacBio had the strongest first quarter in its history, delivering record quarterly product and services revenue of $29 million in the first quarter, an increase of 86% compared to the first quarter of last year. Revenue also grew 7% sequentially and exceeded our expectations. The strong quarter was driven in part by record SQL 2 and 2E placements as we delivered 41 new SQL 2 and 2E systems, growing our install base to 244 units as of March 31st. Our new placements included 10 SQL 2s and 31 SQL 2Es. Two quarters into the launch of the SQL 2E, we continue to be pleased with its reception. And through new purchases and instrument upgrades, about a third of the SQL 2 install base is now 2E. SQL 2Es reduced data footprint with its on-instrument data processing and cloud enablement, combined with our industry-leading HiFi sequencing, are enabling us to reach a broader customer base. In fact, roughly one quarter of SQL 2Es placed in the first quarter were new PacBio customers. These customers include a pharmaceutical company using the system for in-house development associated with an AAV gene therapy vector, and BioTools, our first SQL 2E service provider in Taiwan, who plans to use its SQL 2E for 16S metagenomics, among other applications. We also installed a SQL 2E at Queens University Belfast. the first PacBio instrument on the island of Ireland, where researchers expect to use highly accurate long reads in human whole genome and plant and animal genome research. Several multi-system installs also drove record sequel to quarter, as existing customers scale to address a diverse set of sequencing applications. For example, we installed multiple units at LabCorp to support its contract with the CDC to sequence positive SARS-CoV-2 cases in the U.S. In the first quarter, LabCorp represented about half of all CDC-related GSAID submissions. This led to COVID-19 surveillance-related revenue in the first quarter in the low single-digit millions. We are pleased with the Biden administration's recently announced plans to invest 1.7 billion into a national network to identify and track coronavirus mutations. Genomics will be at the heart of this endeavor, and these congressionally approved dollars will expand the government's genomic sequencing efforts while also creating critical research partnerships under a consortium called the Centers of Excellence in Genomic Epidemiology. We stand ready to support everyone involved in this critical work. We believe our technology is uniquely positioned to build a surveillance foundation to better prepare for future pathogen-related health crises. Our flexible and scalable protocols can be used not only on SARS-CoV-2, but for surveillance in influenza, HIV, HAIs, foodborne pathogens, community antibiotic resistance, and strain level identification of microbes in complex samples. Finally, with respect to COVID and consistent with our strategy to simplify our workflow for customers, we are developing a fully kitted product for COVID surveillance, which we expect will be available later this year. We intend to leverage the development of this kit to offer a suite of best-in-class solutions for infectious disease surveillance, as we believe this will be an important area for the company in the future. We also delivered a multi-system order of SQL 2Es at the Wellcome Sanger Institute in the first quarter related to the Darwin Tree of Life program. And Berry Genomics in China ordered several systems to expand its sequencing services including the launch of its Thalassemia Gene Atlas clinical trial program. Instrument revenue grew sequentially across all regions, with PacBio's HiFi accuracy driving a competitive tender win in the UK for neurological disease research, and we booked the first SQL 2 system in Italy at a new university core lab. Moving to consumables, first quarter revenue was $10.4 million, up 3% sequentially from the fourth quarter of 2020, up 25% compared to the first quarter of last year, and well ahead of our expectations. We were somewhat impacted by the Lunar New Year in February. However, the recent growth in system installs and robust utilization among service providers in China more than offset this impact. we saw increased utilization on the SQL 2 and 2E systems. In fact, utilization levels on the existing installed instruments were at record highs. In particular, APAC in China contributed to our greater than expected consumable quarter as service providers continued to work through a backlog of projects spanning human structural variation projects for rare and neurodegenerative diseases, plant and animal research, and metagenomics. We are proud to support these and other customers, like Discovery Life Sciences, who has started sequencing for the Gabriella Miller Kids First Pediatric Research Program, aiming to create a large-scale database of clinical and genetic data from patients with childhood cancers and congenital disabilities. Discovery Life Sciences also expects to start sequencing for the NIH's All of Us Research Program soon, with samples already in-house. As I've said on prior calls, one of our key strategies is to invest in our research and development pipeline to both accelerate our current programs and to develop the ability to take on more projects. During the quarter, we made significant progress in this area. For example, earlier this week, we released our latest HiFi protocol and software update. The newest product update enhances our leading long read chemistry with even more HiFi reads at or above 99.9% accuracy. Additionally, the new chemistry streamlines the sample prep process, allowing labs to scale to sequence hundreds to thousands of human genomes per year. Perhaps most importantly, this opens up hi-fi sequencing to more sample types, such as volume-limited blood, tissue, and cell lines, as we've been able to reduce the DNA input requirements by threefold. the broader and more flexible sample specifications can drive hi-fi sequencing into more projects and more applications. Turning to our collaboration with Invitae, the first quarter was a solid start to our multi-year development partnership. Work has already commenced developing the ultra-high throughput sequencer that we believe will deliver a highly accurate long-read genome at substantially below $1,000 per genome. I'm pleased to report that the teams are working extremely well together and have made substantial progress on aligning the key development milestones and product requirements. Meanwhile, utility for PacBio long read sequencing is already demonstrating success with our collaboration with Children's Mercy Kansas City, one of the nation's top pediatric medical centers. In the first quarter, Children's Mercy added four Sequel 2Bs to its fleet and increased their whole genome sequencing output to help improve solve rates for families and children living with undiagnosed rare diseases. Researchers at the hospital are already finding that HiFi sequencing demonstrates higher sensitivity and specificity than short read whole genome sequencing and can identify more rare variants per genome than other technologies. As we continue to invest in these clinical collaborations, researchers around the world are using PacBio sequencing to elucidate the genome and its relationship to human health and disease. For example, researchers at the University of Washington and the Mayo Clinic published studies using PacBio sequencing to discover and characterize complex pathogenic variants likely associated with ALS or Lou Gehrig's disease. Pi Phi sequencing deciphered these variants in highly repetitive regions of the genome, areas that cannot be accurately represented using other sequencing platforms. Also this month, researchers at Nationwide Children's and the Broad Institute published cases using PacBio sequencing to find pathogenic complex structural variants in childhood cancer and a rare genetic blood disease. In both cases, researchers explained the limitations short-read sequencing had in detecting these variants. Similarly, another recent study published in the Journal of Science used PacBio HiFi sequencing to assemble 64 haplotypes from 32 diverse human genomes and uncovered over 100,000 structural variants, in which over two-thirds went undiscovered by short-read sequencing. These studies clearly show the potential for HiFi sequencing in human genome applications. But our technology also remains critical in plant and animal research. Yesterday, Nature magazine released its special issue highlighting research papers from the Vertebrate Genome Project, a consortium targeting to complete reference genomes for all 70,000 known vertebrates. As the flagship paper outlines, These complete genomes are fundamental in applying genomics in biology, disease, and biodiversity conservation. Further, the authors confirm the use of long reads as essential for maximizing genome quality. The vertebrate genome project model is also inspiring other large-scale sequencing initiatives, including the Earth Biogenome Project, which aims to decode the genomes of all eukaryotic species within 10 years. And we're just beginning to scratch the surface of the potential applications that long reads can address. For example, a preprint study earlier this month showed the incredible performance and potential for PAC biosequencing in single cell genomics. Long reads, once thought to be off limits to single cell genome sequencing because of the throughput and input requirements, could eventually be a differentiated method in understanding complex genetic variation at the single cell level. Turning to our organizational updates, we made great progress in expanding our team. We added six quota carrying sales reps in the first quarter. In addition, we filled another six sales reps positions with second quarter start dates, including a general manager for EMEA and a country manager in Japan. Both of these leaders have deep experience in our space and will be instrumental in driving our expansion strategies in Europe and APAC. We are well on our way to doubling our number of sales reps in the field this year from the 22 reps that we had at the end of 2020. We also completed a marketing reorganization to better align our team to specific applications and champion the voice of customer into our product development process. We also announced Dr. Hannah Valentine as a director nominee for election to the board of directors at our annual meeting. Dr. Valentine will bring decades of experience as a professor of medicine at the Stanford University Medical Center and as the NIH chief officer for scientific workforce diversity. I look forward to the leadership and expertise she'll bring to our growing organization. Finally, while Dr. Mike Hunkepiller will not stand for reelection to the board of directors, he will continue to be an advisor to the board and an important partner for me as we continue to push our technology forward. I'd like to thank Mike for his contribution and his leadership over the past decade and his role in transforming long-read sequencing technology to where it is today. Now, I'll turn the call over to Susan to discuss the financials. Susan?