Pacific Biosciences of California, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Pacific Biosciences of California Incorporated second quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I'd like to turn the conference over to your host today, Mr. Todd Friedman, Director of Investor Relations. Sir, you may begin.

Good afternoon, and welcome to the Pacific Biosciences second 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 in the Investors section of our website at www.pacb.com. or alternatively as furnished on form 8K available on the Securities and Exchange Commission website at www.scc.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're hosting our conference call from a number of different locations, so 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 further 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 or 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 that 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. To start, I'd like to welcome the Circulomics team to the PacBio family. As you may have seen, this morning we announced that PacBio has acquired Circulomics, a long-read sample prep company specializing in manipulating high molecular weight DNA, especially in extraction. Circulomics sells its products to approximately 700 customers worldwide. These customers use Circulomics as sample prep solutions across almost every sample type, from cells, bacteria, and blood, to animal tissue, insects, fungi, and plants. Several large sequencing initiatives have used Circulomics' Nanobind extraction kit, including customers like the NIH Center for Alzheimer's and Related Dementias, who used it to extract DNA from blood and brain samples. Nanobind was also used by biologists to sequence the 27 gigabyte hexafluid giant redwood genome. As I've indicated in the past, an important part of our acquisition strategy is to obtain capabilities that will improve our overall sequencing workflows for our smart sequencing . With Circulomics as part of PacBio, we will be able to deeply leverage both their proprietary nanotechnology and significant technical expertise into our complete sequencing workflow, which will simplify our sample and library preparation processes and ultimately enable our customers to consistently generate even higher quality HiFi data. The Circulomics team is based in Baltimore, Maryland, and the team will report to Dr. Kathy Ball, our Senior Vice President of Research. Finally, I want to assure all of Circulomics' current customers that we will continue to support all of the current products on the market, even for those customers that use other platforms that require the extraction of high quality, high molecular weight DNA. As we shared a few weeks ago, we also entered into an agreement to acquire Omnium, a San Diego based company developing a proprietary short read DNA sequencing platform capable of producing highly accurate sequencing data. Omnium's technology has the potential to reimagine the possibilities of short-read sequencing in areas like liquid biopsy, minimal residual disease, and other clinical applications. These two acquisitions underscore both our commitment to strengthening long-read hi-fi sequencing as we begin to position it for clinical germline applications and our strategy to build scale by adding a differentiated technology that is intended to allow us to serve more customers more broadly. With respect to the proposed acquisition of Omnium, I am pleased to report that we have filed all required regulatory documents and we continue to believe that we are on track to complete the acquisition later this quarter. Now, let's turn to second quarter highlights and talk about the business. We continue to see strength in our business as PacBio achieved its second consecutive quarter of record revenue. Product and services revenue of $30.6 million was in line with our expectations and represented an increase of 6% sequentially and grew 79% compared to the second quarter of last year. The record quarter was driven in part by strong consumable sales. Consumable revenue of $12.2 million was up 18% sequentially from the first quarter of 2021 and grew over 150% compared to the second quarter of 2020. PacBio's growing consumable revenue is a result of the SQL 2 and 2E install base expansion. In the second quarter, we installed 38 SQL 2 and 2E systems, bringing the total install base to 282, compared to 148 at the same point last year. Our second quarter placements included 10 SQL 2s and 28 SQL 2Es. About one quarter of our SQL 2 and 2E placements were to new instrument customers. Nearly half of our installed base is now using the SQL 2E platform, meaning more customers are benefiting from significant compute savings and can spend less time on data processing. Some of our new quarters in the quarter included Dante Labs, an Italian company planning to use HiFi sequencing to transport health information into diagnostic and therapeutic solutions. Additional new customers also included an academic reference laboratory that purchased and installed a SQL2E to expand rare and inherited disease research, where short-read exome and short-read whole genome sequencing was unable to explain the newborn's condition. From a regional perspective, Asia Pacific substrate replacements region continued on high sequencing. In China, Novagene expanded its pack biofleet with an order of eight SQL 2e systems, some of which were installed and recognized as revenue in Q2. This was a competitive win, and Novagene is adding capacity for human genomic and de novo agricultural studies. Novagene has already completed over 2,600 projects on PAC biotechnology, including animal and plant de novo genome sequencing, microbial sequencing, full-length transcriptome sequencing, and human genome sequencing. These systems will help them further scale their HiFi sequencing services to customers all across China. In Japan, a new PacBio customer, Bioengineering Lab, adopted the Sequel 2e to run its metagenomics and de novo plant and animal projects. This customer previously used another long read technology, but adopted PacBio sequencing because of HiFi's accuracy and completeness. Moving to EMEA, Strong consumable sales in the region were driven by growth in plant and animal sequencing as our customers leverage our highly accurate long reads to understand the genetic variation that can ultimately help organisms adapt to changing climates, conserve endangered species, and produce higher-yielding and disease-resistant crops. Also in Europe, the genomics core Leuven installed their Sequel 2e the first in Belgium, and will use their new instrument to research structural variation and other human applications. Finally, the Americas region had record revenue in the second quarter. Sequencing for the NIH's All of Us research program is underway and is expected to add thousands of high-quality long-read genomes to the program's database over the coming quarters. COVID surveillance using PAC biosequencing continued in the second quarter, contributing to modest consumable revenue with volume slowing in June corresponding to the overall COVID cases declining in the United States. And in the second quarter, we booked another SQL 2e system at a university lab to ramp up their COVID surveillance efforts and to detect other emerging viruses. We remain committed to serving the broader surveillance need especially in light of the growing Delta variant, and we expect to offer our fully kitted COVID solution before the end of the year. Taking a step back from business updates, this past quarter was a landmark in the ongoing genomics revolution. Nearly two decades after the completion of the Human Genome Project, researchers finally assembled a human genome in its entirety. We believe this feat could not have been done without our highly accurate long hi-fi reads. This new sequence decoded the last 8% of the genome that has been missed years. The new reference now includes assemblies for all 22 autosomes plus chromosome X, including 200 million base pairs of new sequence containing over 2,200 gene copies, 115 of which are predicted to be protein coding. I'd like to congratulate everybody involved in the Telomere to Telomere Consortium, and we are incredibly proud of the contribution PAC Biosequencing made to this important effort. This study shows there is still so much to learn about the genome, and highly accurate long reads are one of the best technologies to teach us. The goal of research initiatives like the Telomere to Telomere Consortium is to gain deeper understandings of biology so that we can ultimately better human health. We share this mission with our research customers, which is why we continue to collaborate with leading institutions like Rady's Children's Hospital to demonstrate PacBio sequencing in the clinical research setting. As part of our collaboration, PacBio and Rady's will work together on a study focused on long read, whole genome sequencing of rare disease cases for which previous short read whole genome and exome sequencing yielded no answers. The study, which is currently underway, already detected variants unidentified by other sequencing methods. Staying on rare and inherited disease, we are pleased to see that ACMG updated its guidelines and now provides a strong recommendation to support the use of exome or genome sequencing as either a first or second line test in patients presenting with congenital anomalies or intellectual disabilities. These updated guidelines can provide clinicians with justification for ordering sequencing-based tests and may ultimately reduce the diagnostic odyssey for patients and their families. We strongly believe HiFi whole genome sequencing technology could be used to develop first-line tests as it elucidates parts of the genome undetected by other technologies. Short tandem repeats, for example, have proven association with dozens of disorders and are challenging areas for other sequencing technologies to sequence. And, as a recent study by researchers from the Garvin Institute in Australia explains, Established short-read NGS platforms are unable to genotype large and complex repeat expansions, potentially leaving cases unsolved. We also believe that our HIFI sequencing can address other key clinical applications. For example, our collaboration with Berry Genomics continues to show the benefit of PAC biosequencing in its thalassemia carrier screening test, which is in development. Research results from their latest study in July reveal that HiFi sequencing was able to identify all panel variants present with no false negative results and was able to improve carrier assignment through the identification of rare variants missed by current panel tests. Additional studies continue to show HiFi's utility in pharmacogenomics. Last month, scientists at Leiden University Medical Center used PAC biosequencing to develop a computational method that significantly improved the prediction of drug metabolism based on the CYP2D6 sequence. CYP2D6 is responsible for the metabolism and elimination of approximately 25% of the clinically used drugs and is difficult to sequence due to its pseudogene and several structural variants. This is just one more example where having complete long-read gene information can be clinically beneficial. Turning to our organizational updates, we made significant progress in expanding our team. We added 11 quota-carrying sales reps in the second quarter, bringing the total to 39 at the end of Q2, and we're well on our way to achieving our goal to double our ending 2020 sales rep headcount by the end of the year. We also successfully broke out our Americas and EMEA regions with the hire of Neil Ward as the EMEA general manager. Neil brings extensive experience developing sequencing markets in the region and deep customer relationships with his time working with the UK Biobank and Genomics England. Under Neil's leadership, the EMEA region will have an increased focus on the end customer. We added other key leadership positions to our team during the quarter, including hiring Dr. Kathy Ball to lead our newly created research function. This function will focus on directing investments into early research and technology development activities to broaden our toolkit and feed our product development pipeline. I'll now turn the call over to Susan to discuss our financial results. Susan?