Good day, and welcome to the PacBio first quarter fiscal 2022 financial results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Todd Freedman, Director of Investor Relations. Please go ahead.
Thank you. Good afternoon, and welcome to PacBio's first quarter 2022 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 investor section of our website at www.pacb.com, or as furnished on Form 8-K, available on the Securities and Exchange Commission website at www.sec.gov. With me today are Christian Henry, President and Chief Executive Officer, and Susan Kim, Chief Financial Officer. Before we begin, I would like to remind you that on today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, expectations, intentions, guidance, expectations for, including advantages and capabilities in connection with new product technology and software development and launches, and the anticipated timing of such development and launches.
Expectations resulting from continued building and enablement of a HiFi ecosystem, expectations with respect to our partnerships and collaborations, estimates, intentions, and plans to use the company's cash and investments to fund current development and commercialization initiatives until achieving positive operating cash flow without the need to raise additional capital and other information. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties, and could cause actual outcomes and results to differ materially from currently anticipated results, including challenges inherent in developing, manufacturing, launching, marketing, selling new products, and achieving anticipated new sales. Competition, unanticipated increases in costs or expenses, interruptions or delays in the supply of components or materials for or manufacturing of PacBio products and products under development, potential product performance and quality issues, and potential delays in development timelines.
The impact of the COVID-19 pandemic and risks associated with international operations, among others. These risks and uncertainties, as well as other risks and uncertainties, are more fully described in our press release earlier today and in our Form 8-K, Form 10-Q, and Form 10-K, and other filings with the SEC. We disclaim any obligation to update or revise these forward-looking statements except as required by law. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information to compare our performance relative to forecasts and strategic plans to benchmark our performance externally against competitors. Reconciliations between US GAAP and non-GAAP results are presented in the tables within our earnings release.
In addition, please note that today's call is being recorded and will be 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 call. I will now turn the call over to Christian.
Good afternoon, everybody. We appreciate you joining us today as we discuss our results for the first quarter of 2022 and our outlook going forward. As usual, I'll walk through some of the business and commercial highlights, and then Susan will walk through the financials and guidance in more detail, and then we'll open it up to Q&A. I'd like to start there by saying there are three key takeaways that I hope you come away with from our discussion today. First, we are executing on our core objective of rapidly expanding the installed base of Sequel II and II-E systems, as evidenced by us achieving another record quarter of instrument shipments. This growth in our installed base will enable more HiFi data reaching the market. Second, we are making excellent progress on our next generation of short and long-read sequencers.
Our mid-throughput short-read Onso instrument is on track for commercial shipment in the first half of next year, and we continue to believe this will be the world's most accurate short read platform. We're also achieving our internal milestones towards the development of our next-gen long read sequencers. Third, PacBio is in a strong financial position based on our estimates, we intend to fund the company's current development and commercialization plans using the cash and investments on our balance sheet until we reach positive operating cash flows without the need to raise additional capital. With the volatility in the equity markets today, this puts us in a unique and desirable position. Now, let's walk through our Q1 results and discuss how the team is on track to execute on our 2022 plans.
The first quarter was a solid start to the year and in the upper end of our guidance range, with revenue of $33.2 million, a 14% increase compared to the first quarter of last year. Given our revenue in the first quarter, we expect full year revenues at approximately $160 million-$170 million for 2022 or 23%-30% growth. Susan will touch on that later. As we discussed on our last call, first quarter revenue was lower sequentially due to the COVID-19 related headwinds that disrupted our customer operations and our internal team's ability to interact with customers. Additionally, typical first quarter seasonality was exacerbated by macroeconomic headwinds that delayed some capital purchases. Despite these headwinds, I'm pleased to share the team delivered another record instrument quarter with 50 Sequel II and II-E placements.
This is the third consecutive quarter of record Sequel II and II-E placements, and over 1/3 were to new PacBio instrument customers, which continues to underscore the expanding value proposition of HiFi sequencing. New customer applications range from gene editing to plant and animal, to reproductive health and other areas. We are gaining momentum in placing systems driven by our increased commercial presence, improved sales productivity, and significant product enhancements. We started our aggressive investment in early 2021, and since then, we've shipped more Sequel II and II-E s than in the first two years of the platform launch. Our investment in expanding our sales force may lead to lower revenue per sales rep in the short term, as new sales reps are spending significant amounts of time prospecting for new opportunities. This is a crucial step in building a sustainable sales pipeline in each territory.
We believe this is temporary, and as our install base grows, it will drive consumable growth and expand the revenue per rep over the medium term. Additionally, as consumables generally carry higher gross margins than instruments, we will also benefit from gains in gross margin as our product mix changes. Revenue per sales rep is only one metric to drive sales productivity, and we've made excellent progress in improving the velocity of our sales cycle. For example, last quarter, we discussed our instrument turns metric to understand sales productivity with over 90% of our instrument shipments in the quarter from current quarter sales. That trend continues, as nearly all of our instrument shipments in the first quarter were turned within the quarter. Additionally, we are pleased to share that we delivered 18 additional Sequel II-E systems to the Broad Institute in the first quarter.
Their investment in PacBio's HiFi technology positions them to address a breadth of whole genome and transcriptome sequencing research initiatives with the largest install base of Sequel II-Es in the world. To further expand the range of addressable applications, last month, we launched significant enhancements to the Sequel II and II-E platform, and we couldn't be more pleased with the customer reception. Our new products allow the detection of DNA methylation directly on the sequencing instrument with no added workflow steps or cost, a library protocol and on-instrument analysis support for recombinant adeno-associated virus, rAAV, genome sequencing for gene therapy research applications, and significantly simplified library prep processes. Lab technicians can now go from DNA to sequencing in one shift, and HiFi whole genome sequencing requires even lower input, just one microgram per SMRT Cell.
The new processes are also much more scalable and enable customers to run at higher throughput. We believe our DNA methylation offering will have a large impact in the field of epigenetics. Epigenetic differences in DNA methylation explain traits just as genetic differences in DNA sequence do. HiFi sequencing now simultaneously characterizes both the genome and epigenome from a single sequencing library in a single run. Approaches to measuring the epigenome with short reads, like whole-genome bisulfite sequencing, need special sample preparation with separate sequencing runs for the genome and epigenome, which adds cost and time, and they don't address the whole genome. Other long-read technologies fail to match HiFi sequencing and accuracy, particularly for insertion and deletion variants, and for separating and phasing the two alleles, and require complex analysis to detect methylation.
Our offering provides DNA methylation directly from the sequencing instrument with no additional effort. Our new methylation and our existing workflows like Iso-Seq are examples of how we're transforming into a multi-omic company. Children's Mercy Kansas City is expanding its collaboration with us to include these two features in its research study to understand the epigenetic and transcriptomic drivers of rare disease, in addition to exploring associated underlying genomic variants. They've already demonstrated how their use of HiFi has uncovered four times more rare coding structural variants than short read sequencing, and we expect adding PacBio methylation capabilities and isoform sequencing will further strengthen the use case for HiFi. We look forward to improving our Iso-Seq offering later this year with a new kit that we believe will dramatically increase throughput and power higher output transcriptomic research.
We continued to add to our list of clinical research collaborators in the first quarter, and now we have over a dozen working collaborations with the goal of demonstrating HiFi utility across several applications. We're also pleased to offer our new AAV protocol, an analysis solution for AAV vector gene therapy research. AAV vector gene therapy is an exciting and rapidly growing area with over 150 companies working on AAV-based therapies today. High accuracy and complete visibility are critical to the success of novel vector discovery, vector design, and manufacturing quality control for gene therapy products. We believe HiFi sequencing can play a critical role in gene therapy-related research due to its ability to sequence full-length AAV genomes at very high accuracy.
This is important because qPCR, short reads, and less accurate long-read technology can miss important changes that may be present in the AAV sequence, which could negatively impact our customers' research. Over the past two quarters, we've delivered eight instruments to new PacBio customers working on AAV and have several more in our sales pipeline. This new feature is yet another example of how we are developing end-to-end solutions tailored to our customers' specific application needs. PacBio HiFi sequencing has long been a go-to technology in plant and animal research due to their complex genomes and the value that highly accurate long reads bring to de novo assembly and building reference genomes. However, in order to enable broad app adoption of HiFi sequencing in commercial agriculture, new resource-efficient, higher throughput methods are required.
To that end, we are working with Corteva Agriscience to develop end-to-end workflows for plant, pest, and microbial sequencing to further their seed development and crop protection research and production pipelines. We anticipate that these new high throughput agricultural protocols will be made broadly available to the community sometime in 2023. The length and accuracy of HiFi is critical to new seed product development as these genomes tend to be more complex and are harder to sequence and assemble. Moving on, I'd like to take a moment to describe three critical advantages of using native DNA: molecular integrity, absence of amplification steps, and simpler sample preparation in bioinformatics workflow. First, because native DNA molecules that are extracted from cells are directly submitted to the sequencing, the DNA fragment can be much longer compared to synthetic approaches.
Having longer and contiguous sequences lead to greater contiguity of information and improves the results in de novo genome assemblies as well as metagenome communities, haplotype phasing, epigenetic phasing, and structural variant detection. Second, sequencing native DNA molecules by definition, does not use DNA amplification or other molecular biology procedures which are prone to biases and can introduce errors, fragmentation, and other artifacts. Synthetic long reads require these procedures and risk confounding studies with artifacts that can provide potentially inaccurate information. Sequencing of native unaltered molecules enables our technology to look at genomes without these biases, resulting in better coverage uniformity, resolving diploid and polyploid genomes into fully phased alleles, and achieving greater genome completeness.
PacBio sequencing therefore, thereby accesses the whole genome, resolving structural variants in other regions of the genome considered difficult to sequence with short reads due to limitations of the sequencer itself, which can therefore not be overcome with synthetic long-read constructs. Further, amplification steps result in the complete loss of methylation information. Thus, by sequencing native DNA molecules, as I described earlier, PacBio provides both genetic and the epigenetic information simultaneously without any additional effort. Third, the sequencing of long native molecules significantly simplifies all workflow aspects from upfront sample and library preparation to bioinformatics at the back end. PacBio native long HiFi reads do not require bioinformatic read correction steps, complicated read assembly steps, consensus computations from oversampling or subtractions from control samples. We have seen time and time again over the past decade, numerous attempts at synthetic long-read approaches which were all eventually abandoned.
We believe native long reads will continue to provide the most accurate, contiguous, and complete genomic and epigenomic information with ever-increasing applications. Nothing has highlighted the limitations of short-read sequencing and whole genome sequencing more than the landmark publications from the Telomere-to-Telomere Consortium, which completed the final 8% of the genome, something that short read sequencing had been unable to do despite years of improvements in informatics and AI. I often get the question, why isn't HiFi and long-read sequencing ubiquitous today? Why are genomes still being sequenced at all with incomplete and insufficient technology? Cost, throughput, and accuracy have historically given short-read technologies the edge and made short reads the de facto winner over the past decade.
Just a few years ago, with the launch of HiFi sequencing, PacBio became the leader in sequencing accuracy, as evidenced by the data from the precisionFDA and the Association of Biomolecular Resource Facilities. Our improvements in accuracy have enabled much broader adoption of long-read sequencing outside of its historical niche areas. We've now seen increased HiFi adoption in human applications. As we discussed, the handful of clinical research collaborations in genetic disease and the growing list of customers conducting research in oncology, gene editing, and reproductive health. We expect our next generation long-read sequencers equipped with HiFi will overcome the remaining two barriers of adoption, cost and throughput, and mark the inflection point of large scale adoption of whole genome sequencing using HiFi. Moving on to short reads, we do remain on track to launch what we believe will be the most accurate short read sequencer.
We expect this sequencer will address other high growth areas in the genomics market, where HiFi sequencing may not be necessary. As part of our strategy, we see this as the best way to address our customers' needs. We aim to develop the right instrument and chemistry for the right application, and not force fit one sequencing technology to address the entire market. It is these transformative products in development, along with the world-class team that we have built, that give me confidence in PacBio's ability to deliver over the next several years. However, delivering on our mission requires substantial investment, and in today's uncertain market and financing environment, we are extremely fortunate to have nearly $1 billion in cash on our balance sheet.
As I earlier mentioned, we intend to fund our current development and commercialization programs using cash and investments that we currently have on the balance sheet until we reach positive operating cash flow, without the need to access the capital markets. Finally, I'd like to take a moment to update you on our collaboration with Invitae. As you may recall, we have partnered with Invitae to create an ultra-high throughput sequencer capable of sequencing tens of thousands of whole genomes each year. The development of this new platform is going very well, and there continues to be great enthusiasm for the potential of adopting HiFi sequencing at scale in a clinical setting. However, given the difficult capital environment, Invitae has asked us, and we are planning to, amend our agreement such that Invitae will no longer make payments during the research and development phase of the collaboration.
In exchange, the pricing of the platform and related consumables to Invitae will be increased to be more in line with our expected market price. The other aspects of the collaboration will continue. For example, we expect Invitae will continue to leverage their internal resources to assist in the development of scaled workflows, bioinformatics pipelines, and other aspects of the project. As a result of this amendment, we believe that Invitae will be on a more level playing field with other large-scale users of our ultra-high throughput system. We expect to complete the amendment during the second quarter. I want to reiterate that this proposed amendment is the result of the macroeconomic funding environment and does not reflect either company's enthusiasm for the collaboration, the development timelines, performance to date, or other product specifications.
With that, I'll hand the call off to Susan to talk about our financial results in more detail. Susan?
Thank you, Christian. As discussed, we reported $33.2 million in product and service revenue in the first quarter of 2022, which represented an increase of 14% from $29.0 million in the first quarter of 2021, and was at the high end of our guidance range. Instrument revenue in the first quarter was $15.6 million, an increase of 4% from $14.9 million in the first quarter of 2021. We delivered a record Sequel II and II-E systems during the first quarter, growing the installed base to 424 systems as of March 31.
Turning to consumables, revenue of $12.7 million in the first quarter grew 22% from $10.4 million in the first quarter of last year, and Sequel II and II-E consumables represented approximately 85% of our total consumable revenue in the first quarter, with the rest from older systems and other consumables. Annualized pull-through per system on the Sequel II and II-E install base in the first quarter was approximately 115,000. In the first quarter, as we discussed on our last earnings call, we saw lower utilization, largely due to the impact of COVID-19 slowing lab productivity. While we saw improvements in some regions towards the end of the quarter, the escalating cases in China and associated lockdowns impacted utilization throughout Q1.
As we've discussed before, our record placement in Sequel II and II-E may have a short-term impact on pull-through, especially as we onboard new customers. Finally, service and other revenue grew to $4.9 million in the first quarter, compared to $3.7 million in the first quarter of 2021, reflecting our growing install base. Shifting to a regional view, Americas revenue of $19.1 million grew 57% compared to the first quarter of 2021 as the region delivered a record number of systems and grew consumables and service revenue commensurate with a larger install base of Sequel II and IIe. Moving to Asia Pacific, revenue of $8.4 million reflected a 1% decline over the prior year period, with lower instrument revenue partially offset by growth in consumables.
Consumable growth was somewhat muted in the region, with headwinds resulting from COVID-19 restrictions, particularly in China. Other parts of APAC saw strength with record consumables in Japan and our first system placement in Australia since Q2 of 2020. Countries where we've been expanding our commercial reach. Finally, EMEA revenue of $5.7 million was 32% lower compared to the prior year period, as the region was most impacted by the surge in coronavirus cases earlier in the quarter, both at our customer sites as well as among our own employees in EMEA. While COVID-19 impacted both instrument and consumable sales, the team still made great progress growing our reach, with four countries in the region taking their first Sequel II or II-E, including Israel, Serbia, Poland, and Austria.
We also delivered the first PacBio instrument to EMBL-Genopole, the European Molecular Biology Lab, who is preparing to launch HiFi sequencing services across microbiology, human, and plant and animal applications. Moving down the P&L, as a reminder, I will share both GAAP and non-GAAP results for gross margins, operating expenses, and net loss. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release for more information. GAAP gross profit of $14.2 million in the first quarter of 2022 represented a gross margin of 42.7%. Excluding amortization of intangible assets, first quarter 2022 non-GAAP gross profit of $14.3 million represented a gross margin of 43.2%, compared to a GAAP and non-GAAP gross profit of $13.0 million or 44.8% in the first quarter of last year.
The decline was predominantly due to the mix of instruments, reflecting the largest volume of quarterly multi-instrument placements, as well as the Sequel II trade-in incentive in the quarter in Q1 2022, resulting in lower instrument average selling prices, partially offset by higher consumable volumes. Moving on, GAAP operating expenses were $91.7 million in the first quarter of 2022. Excluding a credit of $1.1 million related to contingent consideration remeasurement, which was due primarily to an increase in the discount rate and expenses related to amortization of intangibles, non-GAAP operating expenses were $92.7 million. This represents a 99% increase from non-GAAP operating expenses of $46.7 million in the first quarter of last year, reflecting growth in headcount, operating expenses related to the acquisition of Omniome, and non-headcount related R&D spend.
In terms of headcount, we ended the quarter with 774 employees, compared to 728 at the end of 2021. GAAP and non-GAAP operating expenses in the first quarter included a total non-cash stock-based compensation of $20.9 million, compared to $9.2 million in the first quarter of last year. GAAP net loss in the first quarter of 2022 was $81.5 million or $0.37 per share. Excluding change in fair value of contingent consideration, amortization of intangible assets, and the repayment of continuation advances to Illumina, non-GAAP net loss was $82.3 million, also representing $0.37 per share, compared to a non-GAAP net loss of $35.4 million or $0.18 per share in the first quarter of 2021. Now turning to our balance sheet.
We ended the first quarter with $963 million in unrestricted cash and investments, compared with $1.04 billion at the end of 2021. Inventory balances increased in the first quarter to $29.6 million, representing 2.8 inventory turns, compared with $24.6 million at the end of the fourth quarter of 2021, representing 3.6 inventory turns. The decline in inventory turns reflects our strategy of increasing safety stock levels to manage global supply chain risks, to continue to ensure we have the necessary raw materials to meet our customer demand.
Accounts receivable increased in the first quarter to $27.9 million, reflecting a DSO of 71 days, compared with $24.2 million at the end of the fourth quarter of 2021, reflecting a DSO of 62 days, with the increase primarily due to more revenue booked later in the quarter. Long-term deferred revenue remained relatively flat compared to the fourth quarter of 2021 at just over $25 million, as we did not receive incremental cash from Invitae in the quarter, as Christian discussed earlier. Moving to guidance. For the full year 2022, we continue to expect revenue in the range of $160 million-$170 million, representing a growth rate of approximately 23%-30% compared to 2021.
This guidance assumes there are no more significant or prolonged disruptions related to COVID-19 or its variants, and it assumes the global supply chain constraints are not worsened. Specifically, our revenue guidance assumes the slower utilization we experienced in Q1 recovers and utilization in China improves by early summer. As such, our guidance assumes a back half of 2022 that is much stronger than the first half.
Specifically, for the second quarter, we expect revenue to grow sequentially compared to the $33.2 million reported in the first quarter of 2022, with sequential growth in both Americas and EMEA, partially offset by a slight decline in APAC due to the record consumables revenue quarter we experienced in Japan for Q1. Moving down the P&L, we expect the non-GAAP gross margin to be at the lower end of our previously guided range of between 45% and 47%, mainly reflecting increasing supply chain costs. For operating expenses, we expect the full year to now be in the range of $355 million to $365 million. The increase primarily reflects a non-recurring non-cash stock-based compensation expense true-up due to lower than expected employee attrition we observed in Q1.
We continue to expect interest and other expense to be approximately $15 million for the full year, reflecting interest expense and amortization of debt issuance costs for our convertible notes issued in 2021. We expect the weighted average share count for purposes of EPS for the full year to be approximately 225 million shares. With that, I will turn the call back to Christian. Christian?
Thank you, Susan. The team executed tremendously in the first quarter amidst one of the most trying macro environments we've ever seen. With a third of the year behind us, we believe that we are on track to meet our revenue target we set forth at the beginning of the year. Our product roadmap is full of exciting and innovative products that we can't wait to share with the genomics world. By our estimate, we intend to fully commercialize these exciting new products using the cash and investments that we currently have on the balance sheet. In turn, we believe that will drive us to operating cash flow positive in the future. With that, I'd like to invite the operator to open the floor to Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we will pause momentarily for our first question. Our first question today will come from Dan Brennan with Cowen. Please go ahead.
Great. Thanks for taking the questions and congrats. Maybe just a couple of tactical ones short term, and then some bigger picture ones. Just on, I know there's a lot of discussion on China, you know, you guys summed it up there in the concluding comments. I'm just wondering, did you say what China did in Q1? And, you know, what specifically it sounds like you're assuming by the end of the quarter, Q2, it's kind of getting back on track, kind of what's assumed in Q2 and for the rest of the year for China.
Yeah, I think, you know, I think in Q1, China probably represented about 15% of the business. You know, for the rest of the year, we're hopeful that, you know, as it recovers, I suspect second quarter might be a little lighter than that, given the lockdowns and the environment right now. As Susan pointed out, you know, if things kind of start to moderate in the summer, you know, that gives us some good belief that we're gonna achieve the 160-170 that we've outlined.
Got it. No. Thanks, Christian. Just one more tactical one since you brought it up last quarter. I didn't hear a mention of it today, but just to get it off the table, like, emerging Biopharma, you guys had cited some noise coming into the year. I'm not even quite sure how big that is as a % of the revenues, but just to kind of check the box here, was there any impact? What was the trend in that customer base, as the year started off in the first quarter?
Yeah, I think it was consistent with what we were talking about, you know, back in January. Any of the smaller emerging companies that are, you know, not generating positive cash flows and that, you know, are sitting in this macro environment are definitely longer sales cycles right now, and they were that way throughout the first quarter. Quite frankly, I don't expect them to change over the balance of the year. We've considered that when we, you know, when we're talking about our guidance and how we're thinking we're gonna build the business.
Obviously, we're really excited, you know, in areas like AAV, where there are some smaller customers that are, you know, smaller in terms of size and balance sheet customers there that have been rapidly adopting the products because the Sequel IIe, you know, really serves them well across what they're trying to do. Some of the emerging, you know, kind of more traditional pharmas, you know, I still think that business is gonna be tough for us until, as they manage their own balance sheets. I suspect, you know, that will start to improve as the world normalizes. Q1, as I'm sure you understand, Dan, was a pretty big shock to the system for all of us.
Got it. Then Christian, you spent a fair amount of time in the prepared remarks discussing all the advantages that, you know, native long-read sequencing platform has over something that is, you know, deemed to be synthetic. I'm just wondering, like, did you see any pause at all? Is there any pent-up demand for placements, such that as we get through AGBT and we see kind of more details about Revio, you know, is there, you know, could there be either an unlock event with some customers that are on the sidelines right now? Just maybe give a little color for kind of, you know, what the sales force was seeing during the first quarter.
Yeah. You know, obviously, I ask that question a lot, and have really been laser focused on it. What we've seen is, in general, it hasn't really slowed the sales cycles down. Perhaps maybe a little bit in Europe more than in the United States and in APAC. You know, I do think there's probably potential for a bit of an unlock as folks start to understand what other techniques might look like.
You know, when you really sit and talk to the customers. They parrot back to me all the things I just pointed out in the prepared remarks that, you know, if we're serious about doing long-read sequencing, we need to be using PacBio because you just get more complete information, you resolve the biology in a more detailed way. They know that we are continuing to improve, you know, as evidenced by the direct methylation launch that we had just a few weeks ago. They just see that there are significant limitations, but that doesn't mean they're not, you know, learning about this. I think at the end of the day, you know, our growth is likely to be unhindered by Revio.
Great. Then maybe one last one. Just on the new high throughput platform, I think we're expected to get some data or a look at it in the back half of this year. Just could you remind us specifically like what we're gonna see, when we're gonna see it, and how should we be thinking about it? Obviously Sequel II is doing well, you have a big opportunity ahead of you, but net, I think there's, you know, potentially building excitement for what the new platform could be and do.
Just maybe an update on what we're gonna see and how we think about what the potential opportunity is versus, you know, number one, there's an upgrade opportunity obviously, but like, how do we think about the potential new customers that they could, you know, this could draw in into the long read market?
Yeah. Dan, that's a good question. Thank you for it. You know, I think the one thing that we've seen time and time again, as you can start to offer advances in the technology that are, you know, very significant along different axes, whether that's, you know, accuracy, throughput, cost, you get to see major traction in the market, and you see a bit of a replacement cycle. You see new customers coming into the market. Our intent, and it's basically the same strategy that I described to investors, you know, when I first joined, is to build a multi- you know, a multi-product portfolio with different instruments at different price points and throughput capabilities that give more and more customers access to the power of long reads and the power of hi-fi sequencing.
This is part of that, part of that journey. You know, we're obviously moving towards the higher end first because we see incredible opportunity in whole genome sequencing, in particular, with higher throughput platforms, you know, the ability to reach the sub-$1,000 cost that we've talked about in the past. You know, when you start to think about our development programs, our programs are progressing well, the teams are working hard. You know, as I pointed out, I guess at JPM in 2021, these platforms would take a few years to get out, and I think we're largely on track. You know, later on this year, I suspect we'll give more information, but today I don't wanna let the cat out of the bag, so to speak.
Great. Thanks, Christian.
Our next question will come from David Westenberg with Piper Sandler. Please go ahead.
Hi. Thank you for taking my question. My first question is actually a follow-up on the high throughput platform, but instead like the collaboration with Invitae. I totally appreciate, you know, it a lot has to do a lot with Invitae's cash position is what, you know, kind of a reading into it. But sorry if I'm hard-headed here, but if they're not funding this and, you know, you're not changing your guidance except for, I think there was $5 million that was stock-based comp, you know, how is this platform getting funded? And is this maybe a 2023 funding event? I'm sorry if I'm missing that, maybe I'm too hard-headed here.
No, it's a great question. It's probably good to take a moment to just clarify. You know, if you think about it, the way we're doing the accounting for the Invitae payments, what they really are prepayments for buying the actual system. You know, what we've been doing is, as they pay us, we put that into deferred revenue, and we're still recording the R&D expense on our P&L. You know, the P&L doesn't change at all. We've been investing all along and recording R&D expense. We'll continue to do that. And then you've got this building deferred revenue. We are working with Invitae such that all we're really doing is changing the timing of when they make payments, to give them.
Got it.
You know, some flexibility on their cash. That's why it's really important to understand this. What's really happening is we increase the pricing of the final product such that we'll actually capture more gross margin. If you look at the NPV of this particular project, if you look at other projects, we actually will make more profit and more cash flow under this, you know, amendment than we otherwise would have made. The other thing that's really beneficial to us is that their pricing will be such that others will be able to compete with them a little bit better. I mean, they're still gonna have incredible pricing.
They're completely committed to the relationship, and they're still investing their internal resources, but we've just reallocated how they pay for the machines by paying at the end of development instead of along the way. That's really the difference. The R&D expense continues to be recorded as you know, as it has been.
Got it. Appreciate you. I had a gap in my coverage of you guys when that was signed, so thanks for the reminder there. Then in terms of pull-through, I think Susan laid out some of the Omicron in January and then kind of what was happening in China. Would you maybe give us a sense for what you had in pull-through in maybe March or April? I'm just trying to get a sense of, you know, is this pull-through, you know, normalizing as we're heading further into the quarter, and then it looks like it's behind you or, you know, anything like that?
Well, I don't think we're gonna give individual months because, you know, any individual month could be aberration.
Yeah.
What we can say is that pull-through is improving over what we reported in Q1. Now, you know, pull-through is a metric that's, you know, dominated by both the numerator and the denominator. At some level, as we sell more instruments per quarter, the pull-through will likely go down, particularly when we're selling to so many new customers. You know, one of the things that in our executive business reviews this quarter was uncovered is that the time to get a new customer, you know, to run their first chips or first smart cells could be as much as 90 days from when it's installed because they're working on workflows, et cetera. Then from there, it's training and scale up with samples.
As you're seeing us get so many new customers, that puts pressure on the short term, you know, short term pull-through. As we sell so many more instruments, obviously that hurts the denominator. Now, you know, when we sell to a very high throughput or high throughput capable customer like the Broad Institute at such a large scale, you know, that will likely help the pull-through, but it will be somewhat offset because they have, you know, they get great pricing because they do so much volume, you know, and you have that whole mix. At the end of the day, you know, we think that pull-through will increase from here. Also, you know, China, right? China has been...
We did okay in APAC because we sold a lot of instruments, but pull-through in China was well below our expectation during the quarter. As that recovers, that will bring the number up as well. There's a lot of different factors at play. But I do think on balance you're gonna see the number improve from here, and we'll go from there.
Perfect. That was a really nice detailed answer there. I'm just gonna ask really one because I think it's gonna be very short. The one-third of the new customers, was that inclusive or net of that big order to the Broad Institute?
That's inclusive of. You know, we ship 50 systems.
Okay.
It's 1/3 of those 50 systems.
Closer to more than half. All right. Thank you very much.
Thank you.
Our next question will come from Tejas Savant with Morgan Stanley. Please go ahead.
Hey, guys, good evening. I wanna go back to that, the Broad order you mentioned, Christian. As you sort of had framed the guide, you know, on your Q4 call, was that sort of already contemplated or was that all upside which came through late in the quarter? And then, as you think about your order funnel or your instrument backlog here heading into the back half of the year, can you just give us a sense for the breadth of the demand versus any other sort of like large multi-unit orders that we should be thinking about?
Yeah. Okay, couple things. With the Q1 guide, some of the Broad Institute order was contemplated, but not all of it. You know, we were hedging a bit in our internal thinking 'cause when it's an order that big, you never know the timing of which it was gonna actually manifest itself. Some was, but not all. Then if you think about the back half of the year, you know, one of the things that's really exciting and one of the things that is driving why we made these commercial investments is the number of named opportunities for new instruments is at one of its largest, if not its largest level ever in the history of the company.
What that means is that we have more sales coverage or more coverage of potential instrument sales to, you know, meet our forecast and meet our guidance. Let's face it, that's because we've hired more sales reps, and those sales reps are, in fact, prospecting. You know, so there's lots of ways to look at sales force productivity, and I tried to highlight that in the prepared remarks. Hopefully, that was effective. You know, it's revenue per rep over time, it's sales velocity, it's how big is the sales funnel and the quality of the leads you're getting.
You know, all three of those things are generally improving for the company and give us a strong pathway to growth for a long time to come, and that's what's so powerful. I guess the last thing I'd say with respect to the funnel, you know, when you do an 18-unit sale to the Broad Institute that now they have 23 instruments in their fleet. That's really a lighthouse account, and that's a validation of the technology, a validation of where the technology's going, the applications. They see lots of opportunity in numbers of samples and projects. Those lighthouse genome centers that might be competitive with them, and so, you know, that's actually.
That's one reason why it's such a powerful win for us during the quarter. The other reason is, you know, we really enjoy working with the Broad. They're very collaborative and, you know, they will help push us as much as anyone else, so that's really great.
Got it. Super helpful. You know, appreciate the color you've shared on China, Christian. I guess one of the questions that we've been getting is, what's sort of like driving your confidence, you know, perhaps conversations with, you know, local government authorities or your marquee sort of customers in the region there that makes you assume that things get better by the summer? It seems like it's a pretty fluid situation, you know, and the lockdowns kind of like ebb and flow, at least in Shanghai and Beijing, et cetera. I'm just curious as to how you thought about that when you made that assumption in the guidance for a summer recovery and normalized utilization and placements there in the back half.
I think, you know, one of the reasons why, you know, we've made some of these assumptions is we've actually hired a really highly qualified country manager in China now, who is phenomenal. In fact, you know, he was a big reason why we had such a nice quarter on instruments. We had a lot of trade-ins from Sequel I to Sequel II-E. So we're building a little bit, I mean, better than the company's ever had intel on the ground, which helps us kind of understand that. As Susan said in her comments, look, none of us know exactly when things will return to normal. We probably err on the optimistic side instead of the absolute pessimistic side. We also see our business growing throughout APAC.
We also see, like we talked about, you know, Japan had a fantastic quarter. We finally sold an instrument in Australia. You know, we're starting to build out some of these other territories that can help offset some of the, you know, challenge in China should China not recover as we expect. As Susan also said, look, if China doesn't recover, it will clearly put pressure on our guidance at some point. You know, as I said before, our opportunity funnel is very significant, and you know, we will work to mitigate that and grow on top of that, you know, as you guys would expect us to.
Got it. Then one final one for me on just traction for that HiFiViral SARS-CoV-2 Kit. I think on the last call, Christian, you'd mentioned sort of, you know, $ high single-digit millions in COVID contributions. That was last year, and this year you'd expect that to skew more towards consumables. Is there the possibility of a little bit of upside there, given how that kit perhaps did, thanks to the Omicron variant? Or how are you feeling about that contribution at this stage of the year?
You know, I think it has potential to contribute, but I don't think it's gonna be a significant contribution to make our year or not make our year. One of the reasons for that is, you know, particularly in the United States, testing is down a bit. Our surveillance has been down a little bit. The time to implement a new technology, some labs, you know, are. They love the assay, they wanna be engaged, but they're not, you know. There's a lot of uncertainty of how much further surveillance there'll be in funding.
Although it's been an incredible learning experience for us and generated some good revenue and been able to get us into public health labs where we had no chance of getting into before, I don't expect it to be a major contributor, you know, to our revenue for the balance of the year. I could be wrong, you know, if we have another surge, but that's kind of where we sit on that.
Got it. Very helpful. Thanks for the time, guys.
Yeah.
If you would like to ask a question, please press star then one. Our next question will come from Kyle Mikson with Canaccord. Please go ahead.
Thanks. Hey, guys. Thanks for taking the questions and congrats on the quarter. I wanted to start with the.
Thanks, Kyle.
Sure. The PacBio products or the next gen kind of, you know, tools that you're gonna be kind of launching hopefully soon. It has been three years or so since the launch of the SMRT Cell and the Sequel II. Like, you know, earlier in the call, you were pretty vocal about developing at least a next gen sequencer pretty soon, so that would probably require a higher density SMRT Cell. I know that like, you know, per genome cost and throughput are kind of like the, you know, the critical factors here you're assuming. When you became CEO, Christian, in 2020, you talked about like, I think increasing throughput by 25x and reducing costs by like, I think sevenfold or so.
Are those like metrics, those kind of like thresholds, like, still kind of reasonable for the SMRT technology in the near term? These like next gen kind of PacBio products, could those be launched like this year in 2022, or is that more of a 2023 kind of story?
We have not said, Kyle, exactly when, you know, when we're going to launch these products and when development will be finished, nor have we given specific specifications. Clearly it's because the Sequel II is performing extremely well in the market. Customers are very excited about it. At some point, we will continue to advance the technology to the state where, you know, you're talking orders of magnitude and levels of throughput, et cetera. I don't wanna quote specific numbers today, but it is kind of, you know, our mantra, right?
So we have to increase the throughput very significantly so we can enable scaled science, whether that's in clinical research applications or in, you know, kind of whole genome surveillance kinds of projects or genomic T2T-like projects, etc. It will be important for us to get there soon. We will unpack that more. The development programs are going very well, and we continue to hit our internal milestones and so we're right on track for that. At the right time, we will unveil it more wholesomely, but we don't, we wanna make sure that we maximize our opportunity with the Sequel II-E platform while we have it, if that makes sense.
Okay. Yeah, that was great. That's fair, Christian. Appreciate that. And maybe just on Omniome kind of similarly, this has been touched on before. I just wanna revisit it 'cause the beta launch I think is, should be ongoing. Can you provide any more maybe details on the specs for the Omniome platform, maybe for the beta units right now? There's been talk about flexibility obviously in the marketplace, like how many flow cells per run are you thinking? Maybe cost per G or per flow cell even. I guess overall, like how should we and how should investors really think about some of these metrics as they stand out and kind of stack up versus the emerging or the existing kind of short read companies?
You know, for example, cost per gigabase is, you know, $5-$50 per gig nowadays. I'm just curious to hear like any more clarity there, given the market is obviously becoming a little bit more crowded.
That's a good question, Kyle. I'm sure we'll talk about it more at AGBT, and hopefully, you know, if you're there, you know, we'll spend a lot of time on it, I'm sure. But in a nutshell, you know, we see the platform as being highly competitive with any of the emerging players. It'll be a mid-throughput system, as we've talked about. It will have accuracy, Q40, 90% of the reads will be Q40, is our expectation right now. You know, in terms of cost per G, it will be competitive with the emerging players and the existing players. But one of the things that we're gonna...
Our accuracy is so much higher than the competition that we really wanna change the narrative because we wouldn't wanna talk about the price per answer. Because if you can even if you're selling at $5-$7 a G, let's just use that hypothetical that you said, you know, what really matters is how many Gs do you need to get that answer? That's really where I think we're gonna shine more than the other emerging players. I mean, on straight cost per G, it'll be competitive, absolutely, but we'll still be able to generate more gross margins, you know, that will make sense for us. But it's really about the offering to the customer.
How many Gs of sequencing or how many samples can I put in a flow cell to get the answers I want? Because that's what really drives the economics. The accuracy drives the level of coverage, and less coverage obviously means less sequencing. Less sequencing means less cost, it also means more speed, which gives us a lot of competitive advantages that I think will make the platform very compelling.
Okay. That was great. I look forward to hearing more at AGBT. Maybe just finally, wanna touch on some of the new workflows that kind of transform the Sequel II into like a five-base sequencer, without all the kind of additional costs and, you know, time and effort. I guess I'm just kind of wondering like what the five-base functionality does for your clinical efforts, and I know that Children's Mercy values epigenetic modifications for pediatric rare disease. I think that you were alluding to that earlier. Ultimately, like, do you think that the direct method calling could improve diagnostic yield of long-read sequencing for different diseases?
Absolutely. I mean, we'll stick with the Children's Mercy example for a minute. I mean, they were one of the early access users, and even the first runs that they're getting, they're seeing, you know, allele-specific or haplotype-specific epigenetic profiles that give them, you know, indication and clues into disease. I think that, you know, at a fundamental level, changing the narrative of what a complete genome is, what a clinical grade genome is, the utility from the genome, it's all of these different tools, whether that's structural variant analysis, whether it's methylation, whether, you know, epigenetic status, whether it's the ability to call, you know, the haplotypes without having to do any extra work.
Starting to see all of this genetic picture in one assay with one informatic workflow really changes the game and helps us resolve the biology. At the end of the day, that's gonna be one of the core value propositions of the long, you know, of long read sequencing in general versus short read. As we get throughput and cost down, you know, it would be surprising to not see very significant transition, particularly in clinical applications when you just wanna see more of the genome to understand what's going on.
Okay. That was great. Thanks a lot. Appreciate it. Congrats again.
Thanks, Kyle. It's good to talk to you.
This will conclude our question and answer session. I'd like to turn the conference back over to Christian for any closing remarks.
Great. Thank you. Thanks to everyone for the questions. You know, after 2 years of limited travel, we're finally excited to get back on the road and interact with our customers and investors. Right now, we're in the midst of our Discoveries Roadshow, where we're traveling to 20 cities around the world to put HiFi sequencing on display. I invite you to look at our schedule on our events webpage and join us for one of our meetings if you're available. We're also excited to see you at AGBT next month. We'll be having an investor meet and greet and panel Q&A with our leadership team to kick the event off, so we hope you can make it. Thank you, and we look forward to continuing to update you on our progress throughout the year. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.