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spk01: 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.
spk09: 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.
spk06: 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?
spk02: Thank you, Christian. As discussed, we achieved another record in the second quarter with $30.6 million in revenue, which represented an increase of 6% from $29 million in the first quarter of 2021 and an increase of 79% from $17.1 million in the second quarter of 2020. Interim revenue in the second quarter was $14.3 million, a decrease of 4% sequentially from $14.9 million in the first quarter and a 60% increase from 8.9 million recorded in the prior year quarter. We delivered 38 SQL 2 and 2E systems during the second quarter, growing the install base to 282 systems as of June 30. Consistent with last quarter, about three-quarters of these shipments were SQL 2E systems. Customers continued to upgrade to SQL 2E from SQL 2 in the second quarter, representing approximately 400,000 in revenue. Turning to consumables, revenue of $12.2 million in the second quarter grew 18% sequentially from $10.4 million in the prior quarter and was up over 150% from $4.8 million in the second quarter of last year. The growth in consumable revenue reflects increased smart cell usage as a result of our growing in-cell base of SQL 2 and 2E systems. SQL 2 and 2E consumables represented approximately 85% of our total consumable shipments in the second quarter, with the rest from older systems. We continue to expect the proportion of consumable sales from SQL 2 systems to grow as the install base for these systems expands and customers migrate to our newest platforms. Annualized pull-through revenue per system on the SQL 2 and 2E install base in the second quarter Approximated $170,000. Finally, service and other revenue grew to $4.1 million in the second quarter compared to $3.7 million in the prior quarter and $3.3 million in the second quarter of 2020. Our service revenue growth reflects the growing install base of SQL 2 and 2Es. Moving to gross profit and gross margin, second quarter gross profit of $13.8 million was in line with our expectations and represented a gross margin of 44.9%, compared to gross profit of 13.0 million, or 44.8% in the first quarter of 2021. Year over year, gross profit more than doubled to 13.8 million, driven by the growth in revenue, with gross margin approximately 6.2 points higher, primarily due to higher volumes, and higher utilization in our factory. Moving on, operating expenses were in line with our expectations. Operating expenses in the second quarter of 2021 totaled $51.3 million, up 10% sequentially compared with $46.7 million in the first quarter and 70% higher than $30.1 million in the second quarter of the prior year. The increase in operating expense compared to the previous quarter and last year was primarily a result of higher headcount-related spend as we continue to build our commercial and R&D organizations. In terms of headcount, we ended the quarter with 492 employees, 57 more than where we ended the first quarter. We grew our quota-carrying sales force by 11 people, majority of whom were added to our Americas and EMEA regions, bringing the total to 39, and we're well ahead of our target to double our ending 2020 sales rep headcount. We also added new hires in our research and development organization to support our growing number of initiatives. Non-cash stock-based compensation included in operating expenses was $13.9 million in the second quarter compared to $9.2 million in the prior quarter and $2.8 million in the second quarter of 2020. Other income and expense in the second quarter of 3.4 million reflects a full quarter of interest expense associated with our convertible notes. Second quarter net loss was therefore 41 million and a net loss per share was 21 cents compared to net loss of 87.4 million and net loss per share of 45 cents in the first quarter of 2021 and a net loss of 23.1 million or 15 cents per share in the second quarter of 2020. As a reminder, net loss in the first quarter of 2021 included a $52 million expense related to the repayment of continuation advances to Illumina due to our $900 million convertible note financing earlier in the first quarter. Now, turning to the balance sheet, we ended the second quarter with $1.14 billion in unrestricted cash and investments compared to $1.16 billion at the end of last quarter and $319 million at the end of 2020. Inventory balances increased in the second quarter to $18.0 million, representing 3.9 inventory turns, compared with $16.3 million at the end of the first quarter of 2021, which represented 4.2 inventory turns. Accounts receivable increased in the second quarter to $19.9 million, reflecting a DSO of 49 days, compared with $12.9 million at the end of the first quarter of 2021, reflecting a DSO of 46 days. The increase in accounts receivable and DSO compared to the first quarter were primarily a function of revenue linearity in the second quarter. Long-term deferred revenue grew approximately $4.5 million in the second quarter to a balance of $10.2 million, the increase reflecting largely the cash received from Invitae as part of our collaboration agreement to develop our ultra-high throughput sequencer. Now, moving to guidance. I'd like to take this opportunity to provide our estimates for fiscal year 2021. We continue to see growing customer demand for our SQL 2, 2E platform and our HiFi chemistry. As a result, on a quarterly basis, we expect revenue to continue growing sequentially. However, the quarterly revenue mix can shift based on the volume of instrument placements in any given quarter. Additionally, multi-instrument orders from customers with larger projects can add additional variability to timing of orders in any particular quarter. For the full year 2021, we expect revenue to grow in the range of 62 percent to 67 percent compared to 2020, which represents revenue of approximately $128 million to $132 million with sequential growth in each Q3 and Q4. In the first half of 2021, we placed 79 SQL 2 and 2E systems, which exceeded our internal expectations, and we continue to project the number of installs to grow in the second half relative to the first half, reflecting our increased commercial presence and customer demand. Moving down the PML, we expect full-year 2021 growth margin to be between 45% and 46%. For operating expenses, we expect the full year to be between $218 million and $222 million, which includes in VKR&D expenses, which we estimate between $20 million and $25 million for the full year. As a reminder, as part of the terms of our convertible notes, we expect to incur approximately $3.5 million in interest expense every quarter going forward until maturity or conversion of the notes, which represents 1.5% interest per annum, and amortization of debt issuance costs. We expect weighted average share count for purposes of EPS for the full year to be approximately 200 million shares. Please note that these estimates exclude the impact from the proposed omnium acquisition and the related tight financing announced last month. We do expect that the first full quarter post-closing of the Omnium acquisition will increase our quarterly operating expense run rate by approximately an incremental 12 to 19 million. We expect the impact from the acquisition of Circulomics to have an immaterial contribution to our P&L in 2021. We are also mindful that there is a growing uncertainty around the COVID-19 Delta variant and its effect on commercial activity, and therefore our estimates reflect our best estimates given the current state of the pandemic. With that, I will turn the call back to Christian. Christian?
spk06: Thank you, Susan. When I joined PacBio last September, I laid out a clear plan to drive revenue growth, expand our product offering, and to show how PacBio HiFi Genomes can have a real impact in clinical whole genome applications. We've now had five consecutive quarters of revenue growth, achieving quarterly revenue over $30 million for the first time. Our results indicate that our commitment to commercial expansion is beginning to drive us forward. We've also been able to expand our research and development teams and are progressing well against developing our multi-product long read sequencing portfolio that we expect will enable our customers to dramatically expand the size of their projects as we push the cost of HiFi sequencing well below the $1,000 genome barrier. Finally, we have entered into several transformative collaborations that are demonstrating the power of HiFi in understanding the genetic basis for rare and undiagnosed disease. Additionally, with the acquisition of Circulomics, we are delivering on our strategy to dramatically improve the front end of our smart sequencing workflow so that customers can operate at greater scale with even better sequencing results. And then finally, our announced acquisition of Omnium represents the beginning of a new era in sequencing. Omnium's highly accurate short read sequencing platform is expected to enable us to enter into large markets where our long read sequencing technology has not historically been able to access. We will soon have the ability to offer our customers the right sequencing technology for all of their applications. We will reach more customers than ever before, which will not only lead to the sales of Omnium's platform, but our SQL platforms as well. The addition of the Omnium team will also allow us to further scale our organization to meet the challenges of the future. To close, I am both pleased with our continued execution and hungry to drive further expansion into our end markets. It's rewarding to see firsthand how our technology is enabling better science. Looking at the sequencing landscape today, I am confident that there are thousands of more customers that can realize the benefit from highly accurate and complete sequencing, and it's our mission to bring that to them. Thank you, and with that, I'd like to open up the call for questions. Operator?
spk01: Ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Ladies and gentlemen, if you have a question at this time, please press star and then the number one on your touch-tone telephone. The first question comes from the line of Tycho Peterson from J.P. Morgan. Your line is open.
spk05: Hey, good afternoon. Christian, I want to start with one on Omnial. One of the questions we've gotten is just they're using emulsion PCR up front, and that's been a cumbersome issue for some of your competitors in the past. So I guess in your view, how easy is it going to be to kind of move away from that? And can you maybe talk to some of the steps that are required? We've heard anecdotally that maybe you have to redesign the flow cell. You may need to innovate around chemistry. So I'm just curious as you think about kind of the roadmap and that path to first commercial launch in the first half of 23, you know, what are some of the key steps you think that need to be taken here? And then does Circulomics play into any of that here on the sample prep side, or is that mainly for SQL?
spk06: Okay. So with Circulomics, we'll just start there. Circulomics is principally driven for the SQL platform and long reads. The team there is world-class at understanding how to handle long fragments of DNA and we're going to leverage their capability into our long read work. That being said, they're experts, you know, kind of at thinking about handling DNA in general. And so I suspect over time, you know, they may find their way onto the Omnium side of the equation as well. But the principal, for the principal driver is really developing our long read workflows. With respect to Omnium, you know, we were very thoughtful about that, about EPCR and thinking through how do we get broad market adoption, and we think EPCR could be useful in some applications, but the reality is that we would much prefer to have a different clustering capability, and so as we were doing the diligence, we definitely approached, we definitely came up with some different approaches, and one of the reasons why we've decided to slow the development down because I think, as I've said a couple weeks ago, they are ready to go to beta right now, effectively, in order to really nail down that clustering method so that we can, you know, operate at a much bigger scale, much higher density. And we believe that we're confident that we can get that done. Interestingly, we'll be leveraging some of the internal PacBio expertise to help in that mission, which is pretty exciting and will show how the combination of both companies will give us expertise on the short read side, and then I suspect some of the Omnium folks will help us on the long read side as well. With respect to redesigning the chemistry in the flow cell, you know, it's unlikely that we're going to have to do significant changes there. So I don't think that's a big barrier for us.
spk05: Okay. That's helpful. And then a follow-up unrelated question around guidance. You know, I guess two parts, just any color you can give us on 3Q versus 4Q, just trying to think about kind of year-round budget flush and how you're thinking about, you know, the sequential step-up into 4Q. And then Given that you are guiding a bit below the streets at 134 million, I'm just wondering if there are things that would drive you to the upside, for example, like COVID surveillance. Did you bake anything in for that?
spk06: Yeah, Tycho, that's great. I think Susan in her remarks tried to point out that we expect to continue growing sequentially, so we would expect Q3 to be better than Q2 and Q4 to be better than Q3. And so I would be thinking along those lines. You know, we guided in a pretty tight range in where the street is. You know, we're in the same ballpark. And so I'm, you know, I'm not really – we were just looking at – we're trying to think through the, you know, the environment with respect to COVID and Delta variants and where the state of the market is. The good news is we had record – We have record demand generation coming into our funnels in Q2. If you want to wrap in Q2, we're continuing to expand the sales force. And so I'm actually very optimistic about our opportunity that's in front of us. But we thought that as we put guidance out for the first time kind of on an extended basis that we would be thoughtful about. I think somebody said Skype.
spk05: Yes, that is very helpful. Thank you.
spk01: The next question comes from the line of from . Your line is open.
spk03: Hey, guys, good evening. I just want to follow up on the guidance question that Tycho just asked you. You know, specifically in terms of the instrument install cadence, Christian, I mean, you had about sort of 41 units in the first quarter and 38 here. Was there any pull forward from multi-unit orders or some such that we need to be thinking about Because it looks like, I mean, in terms of installs, we are sort of flattish in the third quarter with a slight tick up in the fourth quarter. So we're just trying to do some quick mental math here in terms of what it implies for your instrument placements this year, you know?
spk06: Yeah, so I do believe that instruments are going to grow in each quarter from here. I do think the reality is that when we get larger installs, larger instrument orders, the timing of when they actually come in. Do they come in in the third quarter or do they come in in the fourth quarter? How does it be variable? And unfortunately, when we're still a little bit small, you know, a few instruments have an impact on the rest of the business when you look at the consumables still not being larger than instruments. Now, You saw in Q2, we had a great consumable quarter, and I think that the install-based growth is starting to pay dividends for us on that front, and you'll continue to see that through the rest of the year. But I'm actually very encouraged at what we're seeing in the sales funnels with respect to the instrument placements. And as you know, the more we can place the instruments over time, that will drive consumable growth, which will help drive gross margin expansion and and also create more sustainable long-term growth. And so on balance with the guidance we gave, you know, we do see instrument placements increasing over the back half of the year. And, you know, the timing in any particular quarter can change, of course. But, you know, the other piece to think through is that we had very good success competitively in the marketing Q2. I think we highlighted that, you know, in one particular quarter significant deal with Novogen. That was a very competitive deal that we won. And so, you know, I think on balance, we are capturing the minds of customers with respect to HiFi and its power. And I think that's only going to bode well for us as we get into the back half of the year into 2022.
spk03: Got it. Very helpful. And then one quick one on Circulomics. I know the press release said that the contribution for 21 is pretty small, but as we think about the longer-term trajectory here, can you help us dimension the size of that opportunity and perhaps share what fraction of their sales are from customers who are using other long-read technologies in the market?
spk06: Well, I think we'll give some generalities. I mean, the reality is their revenue is very small, and that's why we said what we said in the press release. They do have a significant of their revenue. There's a significant proportion going to other technologies, and that may or may not continue on. It's our intent to fully support all of those customers in the market. And, you know, I was on the phone with with competitors this morning reassuring them to that effect, that we will support everyone in the market. But what you really need to think about is how this impacts our sequencing workflow and allows us to make the upfront extraction and sample preparation library prep easier so that customers can scale faster using the smart sequencing technology. And so the real benefit here is to our base business and to our ability to, you know, to accelerate our consumable pool because customers will have an easier. This is going to be especially important as we think about launching new platforms, as we've talked about, that can sequence many, many more samples per year than our current platforms can. And so what we're really doing is we're setting the stage to have people be ready to operate at very high scale, if that makes sense.
spk03: Got it. And one final one for me, Christian. Can you just confirm your plans on the core sort of SQL platform in terms of new chemistry or software releases? Should we expect one around that ASAEG timeframe like PacBio has done in years past? And sort of on a related note, I mean, you're integrating a couple of deals here and managing these external collaborations as well. What are you doing internally to make sure that the focus on the SQL commercial scale-up and onboarding all these new employees remains intact?
spk06: Yeah, that's a really, really important question. And the truth is this would be possible if it hadn't started with a vision that's built out of a very senior management team that's capable of handling scale. And so if you look at the leadership team that I've been fortunate enough to recruit, all of these managers have significant experience at operating at multibillion-dollar scale with very large teams and lots of complexity. And so that was the first – that was the reason why I went so hard to hire such a senior team. And so we put that team in place, and now we can leverage those capabilities to keep us laser-focused on – developing the long read technology and taking really the foundational assets of the company to the place where they need to go because we think there's significant opportunity in front of us in long read sequencing and we're definitely going to make sure we don't take our eye off the ball there. With respect to the SQL platform, we will continue to develop and improve on that platform. And so, you know, although I'm not going to comment with respect to the timing of enhancements to the platform on this call, you can be assured we will continue to improve that platform, make it more robust, more usable, more valuable to our customers so that we can keep expanding our install base. And then at the right time, when the next generations of products are ready, we'll move those into the market and continue and give customers much greater choice and flexibility on what scale they want to operate at. And I think that will help us, you know, really maximize our opportunity in the market. Very helpful. Thank you. Yeah. Thank you.
spk01: Your next question comes from the line of Stephen Ma from Piper Sandler. Your line is open.
spk04: Great. Thanks. And thanks for the questions. So one on SQL 2 ASP trends, you know, I'm just looking at my model and it looks like ASPs for SQL 2 in the quarter ticked up incrementally. And just wondering if you can confirm that and then maybe some of the rationale and some of the trends that caused that. Was it due to less multi-unit orders or was it something else?
spk06: Yes, Susan, do you want to comment on the actual ASP in the quarter?
spk02: Happy to. So that is confirmed that the ASP incrementally was higher in Q2 than Q1, but it's not materially different. And you're right that there is a mixed shift in terms of the instruments that come in and the different capacity with respect to multi-assets. unit orders, but we had multi-unit orders in Q1. We had multi-unit orders in Q2. So it's not a big driver, but also the ASP difference isn't that big between the two quarters.
spk06: Yeah. Some of it is, some of it's also regional differences, you know, where in any given quarter, the ASPs might be a little different from, uh, from region to region. I don't think there was enough of a difference to really a fundamental change in, in the way we're selling. In fact, you know, I've instructed the sales force that instrument placements are a top priority and that we're going to keep building out that install base. You know, so we were happy with the ASP in Q2, but it really wasn't.
spk04: Okay. And then maybe just a follow-up talking about SQL 2.0. Can you give us a sense for 2022 SQL placements, given all the investments in the sales and marketing and commercial organization and Salesforce?
spk06: Well, I think that if you look at the demand generation in our funnels, if that's any indication, I do think there's an opportunity to continue growing. Of course, we're not in a position to start guiding to 22 yet, But the reality is that we are really starting to reach more customers than the company ever has before. And that very fact is starting to spread the word, so to speak, of HiFi, which we believe will generate demand. If you remember, when I first joined the company, one of my foundational strategies was to increase our commercial footprint Because when I did my channel checks, and even today, not enough people understand what PacBio does and why we do it and why long reads are important. And so we're, you know, we're really growing our commercial footprint and then backing that up with enhancements to the SQL platform that make it more useful. And I think you're starting to see that. You're seeing the consumables grow. You're seeing the total revenue of the company grow. We've had five quarters in a row of sequential growth now, and we're really starting to, you know, get some momentum going. And so I'm excited about the rest of this year and 2022 as well, but probably too early to really comment on anything specific there.
spk04: Okay. Yeah, I appreciate the color you were able to provide. So, yeah, maybe just moving then on to the consumables. I know you did about 170,000 per instrument this year. Is that a good run rate going forward? And, you know, also, could you give us a sense, you know, given that you guys are placing so many more instruments now, could you comment on the consumables ramp on a new SQL 2 instrument?
spk06: Yeah, I think in general it still fits the customers a few quarters better. you know, to ramp to a reasonable run rate. And that will be dependent on if it's a brand new customer or it's an addition to their install base. Imagine a core lab that has a three or four month backlog. We put a new system in there. They're going to ramp very quickly. Whereas a brand new customer will take a little bit longer to get the workflows, you know, nailed down and how they're going to analyze the data. And so it's going to be variable. I think, um, I think where we are in the 170s is not an unreasonable place to be. You see it bounce around from quarter to quarter. That's a little bit dependent on how customers take their shipments and also how many systems we're placing in any given quarter. But on balance, these are pretty reasonable places for us to be. If you look at the actual utilization, I think We see overall utilization starting to click up some on a per-system basis, which will ultimately help us a little bit as well.
spk04: Okay, great. And if I can sneak in a final one regarding Circulon. You mentioned in the press release the potential for an automated workflow. Do you envision – it staying as a standalone instrument, or would you integrate it with SQL 2? And if you are integrating it, are you going to integrate it also into the low-cost long read clinical sequencer you're developing with Invitae? Thank you.
spk06: Hey, Mark, you want to take this one?
spk08: Yeah, happy to. So I do believe that, at least initially, this would be a standalone instrument for automation. You know, one of the great things about these nanobind disks is that they are a little bit easier for us to automate. And, you know, Kelvin and team have shown that even just things like Kingfisher extraction robots can be used quite readily. So think of this as a standalone, not something that I would initially try to integrate into the SQL-type platform. And the focus, and Christian mentioned this earlier in the questions, you know, the focus right now is for this with the long reads. There are synergies of the team and there are opportunities for us to explore how we could use this for extraction or purification for short read technologies, but the focus initially is to make sure that we're optimizing the long reads and focus on the SQL platform with this team.
spk01: Our last question comes from the line of Kyle Mixon from CounterCard Genuity. Your line is open.
spk06: Hello?
spk01: Excuse me, Mr. Kyle Mixon from Condo Card Genuity. Your line is open. You may ask the question.
spk09: Looks like we lost Kyle.
spk06: Yeah, perhaps.
spk07: Can you hear me? Hello?
spk06: Yes, there you go. Hey, Kyle.
spk07: Okay, sorry, guys. Hi, guys. Thanks for taking the question. Sorry for the audio. Congrats on this acquisition today. I know it's small, but it's nice to see everything kind of coming together. And on CircuitLemix, obviously you're investing now in optimizing the front end of the workflow, and you've already got a great long read and a short read platform as well. I'm just curious if you're interested in deploying capital to maybe inorganically enhance the back-end technology and analytics similar to what Illumina has done with Etico and Blue Bee and Annuncio recently. And I think it's interesting because back in 2011, Illumina acquired Epicenter, and then from there went on to have some clinical deals, right? And so it's an interesting kind of time, I guess, and kind of the parallels are interesting. So I'm curious to hear your thoughts around, you know, the bigger picture, hearing your thoughts on the analytical kind of data side, too.
spk06: Yeah, I think Kyle, thank you for the question, Kyle. And, you know, the truth is we're looking across the entire workflow, you know, starting with sample prep and, you know, kind of the front end because we really need to make sure that we get very high-quality DNA going into the sequencer so that we get high-quality data coming out of it. But it is the back end and the informatics and data science side is going to be very, very important to us particularly as we get to scale with the next generations of systems and with our collaboration with Invitae, for example. So, yes, we're thinking through strategically how do we address that side of the equation and what are our opportunities. And so that definitely is on our radar. But I think at this moment, you know, what's most important is making sure that we get very strong workflow data up to the data analysis part, and then as we get the new systems to market and really start to think about how do we integrate the data infrastructure between both Omnium and the PacBio infrastructure, what are the data science solutions that are going to help our customers solve their problems? And so it's clearly on our radar. but it's one step at a time here.
spk07: Okay. That's helpful. Thank you for that. And I guess just sticking with StriculaLimx, it appears the kits can kind of increase the yield on, I guess, the high-end segmenting, but does that impact the cost at all? I just wanted to kind of understand that. And obviously it seems like there's more of an emphasis lately on accuracy and read length. They weren't exactly talked about as bottlenecks,
spk06: um you know months ago so i guess if you were to update your list of priorities where does you know reducing the cost like we talked about um in the past kind of uh phone on that list now it's still right at the top and i do think making making sample prep easier gives you more yield through the sequencer more yield means lower cost per base uh so therefore you know lower costs overall so you know, driving the cost down still is a very, very top priority. The second priority is making sure that each system has the throughput, you know, that operates at a scale the customer is looking for. So, you know, we're really interested in getting into the very high volume sample human germline sequencing areas. And as a result, we need to make sure we build out our platform such that it can do large, large numbers of samples at very low cost. And so everything, of course, is interrelated, starting with the actual cost per base and then going to the throughput, which lowers the cost of the capital, so to speak, as you amortize it in a lab. And then none of this data quality stuff, Read length, accuracy, none of that can be sacrificed because really that's our leader. We are the leaders in the market in accuracy. We need to continue that and forward, and we're going to be pushing really hard on that lever while we drive costs down and drive scale up for everyone.
spk07: Okay, awesome. And Susan just had a question for you. So the NVTA agreement announced back, I guess, like in January, we've discussed the economics, but I know that a certain portion of revenue is going to hit the P&L at some point. Is that included in this outlook for the end of 21, or how should we think about that, the top-line impact from the NVTA agreement?
spk02: So, Kyle, the way to think about that is the revenue won't hit until we actually launch the product. So the investment that NBTA is making is sitting in our long-term deferred revenue balance on the balance sheet, and none of that hits the revenue in 2021. Okay.
spk07: Got it. That's right. That's right. All right. Just one last question for me. I think I'm the last one in the queue. So, Christian, it's been about a year since you kind of, you know, took the role of a CEO. I remember in August 7th, I think, of last year was when that press release went out. If you could look back and kind of reflect on the past year, some of those objectives that you, you know, put out there, how would you kind of say that the company has done in executing on those? And what do you, you know, what's your goal is now looking forward a year in advance? Thanks.
spk06: I am really proud of what we've been able to accomplish in this time. If you think about it, we've completely transformed the company in basically every respect. We've taken the leading long-range sequencing capability and we've deployed a new commercial organization to accelerate revenue and get more customers using the technology than ever before. We've created a new leadership team. and a bold vision of where this company could go, thinking about being a multiomics platform where we can solve customers' problems as opposed to just offer one technology. We'll have a whole suite of technologies that we can offer. And then the leadership team we've built, quite frankly, in my opinion, is second to none. At every step of the way, you know, from Mark and Susan who are on this call to, you know, the new marketing and commercial team that we've built, Peter Froman as our chief commercial officer, you know, all the way down the line, we've been able to really upgrade the talent and create a vision for where the company is going to go. So I actually think that we've exceeded my expectations for the first year. However, we're at the very beginning of this journey. If you look at the genomics landscape, you know, the opportunities are still just right in front of us. If you think about it, the omnium acquisition itself basically doubles the potential pay dollars. And we have the management team and the ability to develop and execute to really take advantage of that. And so, you know, I think when people think of PacBio, they think of us a lot differently than they did 12 months ago. And so I'm excited about what we've done, but I'm even more excited about what's in front of us in the next couple of years as they unfold and as we continue to transform this landscape. It's going to be a lot of fun.
spk07: That's great. Well said. Really excited to see that going forward. Thanks a lot, guys, for taking the time.
spk06: Thank you.
spk01: I am showing no further questions at this time. I would like to turn the conference back to Todd Friedman for closing remarks.
spk09: Thank you. As a reminder, a replay of this call will be available on our website in the investor section, as well as through the dial-in instructions contained in today's earnings release. Thank you for joining us today. This concludes our call, and we look forward to updating you on our progress in the third quarter.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. You may all disconnect.
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