Pacific Biosciences of California, Inc.

Good day, everyone, and thank you for standing by. Welcome to the Pacific Biosciences of California Incorporated third quarter to 2021 earnings conference call. At this time, all participants are in a listen-only mode. And 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 1 on your telephone. And if you require any further assistance, please press star 0. I would now like to hand the conference over to the Director of Investor Relations, Mr. Todd Friedman. Please, go ahead, sir.

Good afternoon, and welcome to PACBio's third 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 of our website at www.pacb.com, or alternatively at furnished.com. on Form 8K available on the Securities and Exchange Commission website at www.sdc.gov. With me today are Christian Henry, President and Chief Executive Officer, Susan Kim, Chief Financial Officer, and Mark Van Owen, Chief Operating Officer. 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 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. On today's call, I will start with a brief update on our strong third quarter performance. Next, I will discuss the progress we are making in some of our target markets. And finally, I'll share how both PacBio and the research community, more broadly, are innovating to further drive the utility of HiFi sequencing. Then Susan will discuss our financial results and full year guidance. Q3 marked another successful quarter as we continued to make solid progress against our strategic initiatives. We achieved another all-time record for revenue in the third quarter, with product and services revenue of $34.9 million, an 83% increase compared to the third quarter of last year, and a 14% increase over the second quarter of this year. We installed 44 SQL 2 and 2E systems, which is also an all-time quarterly high and brings our total installed base to 326 units, almost double the installed base we had at the end of the third quarter last year. SQL 2 and 2E is now the most installed PacBio sequencer in the history of our company, and we are on pace to break our record for the most sequencers placed in a single year. Nine of our system orders were new to PacBio instrument customers from across all regions. This is encouraging as it demonstrates our investment in developing a world-class commercial organization is enabling us to reach more customers than ever before. As of the end of the quarter, we have doubled our quota-carrying sales team, achieving that goal a quarter ahead of our plan. Additionally, the product enhancements that we've made over the past year are providing more value to our customers, which is driving adoption of our platform. Over the past year, we've been working to develop tools to help us understand our growth in specific target markets, and today, we're pleased to provide some insight into the revenue contribution from these key markets. We will provide this information aperiodically. Additionally, please note that the size and relative growth rates are approximate and intended to be used as directional in nature. First, the human germline market is our largest and fastest growing and contributes just over one-third of our total revenue year-to-date. Included in this market are translational research customers focused on areas like rare and inherited disease, carrier screening, pharmacogenomics, and HLA, as well as population genomics and other research initiatives. Human Germline includes customers like Children's Mercy Research Institute, which is showing signs of success using PacBio HiFi in the Genomic Answers for Kids program. Recent findings from the institute help substantiate the use case for accurate long-read sequencing in the clinical research setting. The program has completed over 600 HIFI genomes to date and uncovered multiple diagnostic findings attributed to disease, including structural variants, single nucleotide variants, and repeat expansion disorders that were not found with previous sequencing methods. HiFi WGS uncovered over four times more rare coding structural variants than short read WGS and found variants in genes of unknown significance in over half of the undiagnosed cases. These genes or variants may prove one day to be pathogenic and provide insight into unanswered questions today. Outside of rare and inherited disease, customers in our human germline focus include Prenetics, a leading genetics and diagnostic health testing company, and a new instrument customer in Q3 that installed the Sequel 2e to further differentiate its carrier screening test outside the United States. It also includes existing PacBio customers like Berry Genomics. Berry announced last week they received NMPA approval for the Sequel 2, which they will brand as the SQL 2 CNDX in China as a clinically qualified system. This approval is an important step for them to submit data for clinical trials, and it's planned for selling the SQL 2 directly to hospitals. This milestone also marks the first regulatory body to approve a PAC bio instrument. Other programs in our human germline category include the Human Pan Genome Reference Project, which uses PacBio sequencing to build a more diverse representative reference genome. The project has already been made available over 40 reference quality human genomes to researchers around the globe and expects to complete hundreds more. Moving on, the plant and animal market, with the myriad of diverse and complex genomes, continues to be a main staple for highly accurate long-range sequencing, and year to date, represents just under one-third of our revenue. This category includes initiatives like the European Reference Genome Atlas, which is leveraging PacBio HiFi sequencing to help generate reference quality, complete and error-free genome assemblies towards its goal to ultimately assemble at least 200,000 plant and animal species across Europe. It also includes customers like the USDA, which installed multiple SQL 2Es in the third quarter, utilizing their remaining year-end budget. We're encouraged by the USDA's progress towards its five-year science blueprint and its goal to use WGS to tap into genetic diversity and use genomic technologies to accelerate breeding progress, decrease susceptibility to climate change, pests, and diseases, and increase yield potential. Next. Roughly 20% of our business comes from infectious disease and microbiology applications, which includes customers like Drexel University, who installed its SQL 2E to address its needs for COVID-19 research today, and to have a pathogen surveillance solution on hand that prepares them for the next emerging threat, like respiratory infections. Also related to infectious disease and microbiology, Nkaba Biotech, our African distributor, has partnered with the African Center of Excellence for Genomics and Infectious Disease to place the first SQL 2e in West Africa. Professor Christian Hoppe will implement HiFi sequencing at the center to fill the gaps from other short and long read technologies and to help provide a more complete genetic picture of viruses and microorganisms. Finally, just about 10% of our revenue today comes from oncology and emerging applications. While still nascent today, long-read sequencing has been demonstrated as a useful tool in emerging applications like gene therapy, CRISPR, and synthetic biology, and we see a growing list of publications and studies supporting the use of PAC biotechnology in these areas. What's exciting to me is that as we reach more customers, we expect to see important new applications of long-read sequencing emerge, which will further catalyze our growth. Finally, we expect the addition of a short-read sequencing platform to drive growth in oncology applications upon its launch. One of our core strategies to accelerate the adoption of HiFi sequencing has been to develop end-to-end kitted solutions to make PacBio sequencing accessible to more labs and to simplify customer workflows. One of these kitted solutions includes our HiFi viral kit for COVID-19, which we expect to launch in the coming weeks. HiFi Viral allows customers to scale genomic surveillance testing quickly and efficiently with an accurate and robust solution to capture all variants, including novel mutations. In our view, it also offers a simpler kit than protocols from other providers with fewer reagents and less pipetting at a very competitive price. The University of Louisville, for example, explained that their early access use of HiFi viral allowed them to reduce hands-on time by 80% while improving mutation detection compared to PCR amplicon approaches used by other sequencing technologies. We are extremely proud of this assay design. Our team developed a robust product with redundancy and capture design, allowing HiFi viral to catch emerging variants and we've already seen it identify novel variants missed due to the other assays' fixed designs. We look forward to sharing more when we officially launch the kit in the next few weeks. Beyond HiFiViral, we plan to also release an updated end-to-end microbial genome assembly application on the Sequel 2e system. This update doubles the current multiplexing capacity while continuing to deliver the industry's leading standard for reference quality microbial genomes. Together, these two releases provide public health and microbial research labs with a powerful menu of applications to service a broad range of use cases on their SQL2E platform. With this exciting set of improvements for WGS, we're continuing to build on PacBio's unique ability to simultaneously detect not only the genomic information, but also the epigenetic signature. We're expecting to bring an updated and vastly improved version of this feature to the SQL 2 and 2E platforms early next year, and have received immense interest in this feature at ASHG last month. Customers are already talking about seamlessly adding methylation to their PacBio sequencing runs to bolster their research. As you can see, we're committed to making HiFi sequencing not only the highest quality, but also the easiest to use and the most complete data type available. With the addition of circulomics in the third quarter, we are already beginning to see progress in simplifying and improving the long read sample prep. This past quarter, the team collaborated with the Coryell Institute for Medical Research to develop a high molecular weight DNA reference product based on its NIGMS and NHGRI cell repositories, which are among the most widely used repositories in genomics research. Coriel's adoption of Nanobind is a testament to the superior quality of the technology and the growing demand for long read sequencing, which often requires high molecular weight DNA. We are pleased to have a solution in-house that addresses this important part of the long read sequencing workflow, and we're fully committed to supporting customers on any platform. In the backdrop of all these improvements, we're pleased to see data published in September from the Association of Biomolecular Resource Facilities that compares major commercial short and long read sequencing technologies, which affirms PacBio as a leader in accurate and complete sequencing. Specifically, the publication shows that circular consensus reads, or HiFi reads, have the lowest error rate of all technologies and the highest mapping rate and the highest precision in calling variants in clinically relevant regions. And there's still headroom to make HiFi more accurate as the scientific community keeps pushing their boundaries. The genomics team at Google Health, for example, shared a feasibility study on their deep consensus tool that builds on PacBio software to produce even more accurate HiFi reads. According to the preprint, the software reduced read-level errors by 42% and increased total HiFi yield by approximately 9%. The tool also increased the yield of Q30 and Q40 reads. Similarly, the PacBio team collaborated with bioinformaticians at NVIDIA in a study to train deep learning models to polish HiFi reads and reduce errors by 25 to 40%. As you can see, sequencing accuracy is a north star and we'll continue to invest in raising the bar. Improved accuracy has the potential to translate into more clinically relevant genomic discoveries, more complete and better reference-grade genome assemblies, both human and non-human, and higher sensitivity to novel mutations in viruses and bacteria. As we expand our install base and get HiFi sequencing into more customers' hands, it creates an environment where researchers can push the boundaries of SQL 2 and its addressable applications. The Broad Institute, for example, recently published their Moz IsoSeq protocol, which has the potential to transform the way single-cell and RNA-Seq are performed. According to the Broad, this new protocol achieved up to 22 times improvement in throughput, generating up to 40 million isoform reads per 8m smart cell, and is fully compatible with most protocols that generate full-length cDNA, including existing 10x genomic single-cell cDNA libraries. Not only is this a breakthrough in the amount of single cell data obtainable in a SQL 2 run, but deciphering full length isoforms is something currently unattainable on short read single cell sequencing or site seek. This is especially important as there are unique isoforms associated with specific cell types relevant to cancer and disease. Finally, a month and a half after we completed our acquisition of Omnium, I'm pleased to report our development timelines remain on track globally to launch the first platform using the Omnium technology in the first half of 2023. Our combined R&D teams are making solid advancements, leveraging each other's expertise. We have seen an increase in the number of invention disclosures submitted, including dozens of new disclosures leveraging the synergies between the company's technologies. With that, I'll turn the call over to Susan to discuss our financial results. Susan?