Perfect. Good afternoon, everyone. This is Rachel Vatnsdal with the Life Science Tools and Diagnostics team here at J.P. Morgan. I am joined by Christian Henry, CEO of PacBio. So, as we typically do for these sessions, this will be a 40-minute session. Roughly half of the time is a presentation, followed by roughly 20 minutes of Q&A. So, with that, I will pass it off to Christian.
All right. Thank you, so thank you for joining us today, and my name is Christian Henry. I'm the President and CEO of PacBio. I want to thank J.P. Morgan for the opportunity to get in front of you today, but before we begin, I want to remind you that we may be making some forward-looking statements, and these forward-looking statements may have risks and uncertainties, and so I'd like you to refer to our SEC documents and our website. So with that out of the way, let's get started. The mission of PacBio is to enable the promise of genomics to better human health. Now we attack this mission by creating the world's most advanced sequencing technologies that enable researchers, clinicians, and others to explore the parts of the genome that were previously inaccessible with other technologies, and so we're really proud of what we've been able to accomplish today.
Today, I hope to leave you with three key takeaways. First, we continue to drive innovation forward. In 2024, we launched a groundbreaking new benchtop platform, the Vega system, as well as a major enhancement to our flagship Revio long-read sequencer. And this strategy of driving a multi-platform portfolio is alive and well. And we'll talk a lot more about it and where we're going with that. Secondly, the company is absolutely committed to improving efficiency, reducing costs, and lowering cash burn. In the Q4 of 2024, we substantially lowered our cash burn. And so, we'll talk a little bit more about that as we get into the presentation. And finally, 2024 was a watershed year for the company in its pursuit of developing a clinical portfolio of products for our customers around the world to leverage the power of our technology.
Focused primarily in the LDT market in areas like genetic disease and carrier screening and other emerging applications. Today, we'll talk a little bit about where we're going in our future with respect to the clinical opportunity. But for those of you that may not have as much history with the company, I'd like to just step back and talk a little bit about where we've come from. PacBio provides a comprehensive portfolio from end to end, from sample to answer, of long and short-read sequencing technologies. Our HiFi long-read sequencing technology is the most accurate sequencing technology in the market and allows us to reach parts of the genome that other technologies just can't reach. And this is used in a variety of applications, from agriculture to laboratory-developed tests and clinical research. We also have a leading short-read sequencing technology that we call SBB.
Our first product platform that we've launched, the Onso system, offers the best-in-class sequencing accuracy for short-read sequencing. This is going to be really important as we start to look towards the growth in liquid biopsy markets, where looking for needles in a haystack is absolutely essential. Our products serve a large and growing market. Today, we believe the market is estimated to be around $6 billion and is growing around 9% annually to what we estimate to be more than $8 billion by 2027. We expect long-read sequencing to continue to gain more of the share as we offer complete solutions, and we offer higher throughput and lower-cost solutions to enable researchers to leverage the best-in-class technology for their solutions.
For example, this is particularly useful in the human genomics market, which is currently $3.1 billion. In 2024, our technology was cited in over 1,000 publications and preprints. We put this in the deck to show the scale at which PacBio is actually penetrating and reaching the market. These publications range across population health, cancer, RNA, neurology. Basically, they run the gamut, and what they really show is that we are driving a gold standard of comprehensive sequencing and sequencing accuracy, and this is enabling us to empower customers to do more than they ever could do before. So, I'd like to spend a moment talking about our 2024 financial results. This morning, we put out a press release regarding this. For the year 2024, we did $154 million, which meant we did $39.2 million in the Q4.
Our consumable revenue, which is a key driver of our gross margin, grew 11% in the year. And we did $70 million of consumable revenue. In fact, what's really interesting is we had an 81% increase in the data generated on our platforms. And if you take the last five years, which is when we launched our HiFi technology, we've seen 42-fold more data produced in 2024 than just five years ago. So, we're having this rapid expansion due to the fact that we've created higher throughput, lower-cost platforms. Speaking of platforms, the Revio is our flagship long-read sequencer. And we placed 97 units in 2024. And Revio is the fastest platform to be adopted in our company's history. Finally, we ended with a very strong balance sheet. We ended the year with $390 million in cash and investments.
That gives us the capital we need to execute on our strategic plan for 2025 and beyond. Let's talk a little bit about our core strategy. Our core strategy is to offer an end-to-end suite of solutions so that we can reach customers where they are, simplify the workflows, and enable a broad swath of customers with leading technologies. In 2024, we made a lot of progress in this. We focused in the first half of 2024 on the front end of our long-read sequencing workflow. We launched products like the Nanobind PanDNA Kit, which allows you to improve DNA extraction. Because one of the challenges with long-read sequencing is you need to extract long fragments of DNA simply and reliably. That kit actually enables that. We then improved the automation of our system through the HiFi Plex Prep Kit, which enables automation.
As we scale up our throughput, automation is critical for consistent utilization. Finally, in the first half of 2024, we launched our PureTarget Kit. Now, this is a targeted sequencing kit that targets 20 very difficult-to-sequence genes and has actually been foundational in our success in developing our clinical customers in 2024. We'll talk a little bit more about that in a few slides. In the second half of the year, we were much more focused on our core platforms, so the Revio system as well as the Vega benchtop. Revio, we launched a new chemistry improving that workflow and that capability. Vega is a new product. We'll talk about those in a second. We also launched a new, what we call, SmartLink Cloud, which is a new way for our technology to interact with the cloud, with local compute.
It enables our customers to leverage other informatics pipelines, simply and seamlessly moving their data where it needs to be. This is really important, particularly in areas like rare disease, where customers need to develop the understanding by looking at larger and larger cohorts of samples. Let's spend a second diving into Revio and the Spark chemistry. We started shipping this new chemistry in December. We announced it in November. It's on the Revio platform. Probably the most important advance in this chemistry is that we've lowered the DNA input requirements. In other words, the amount of DNA required to be that you need to run the sequencer down to 500 nanograms, which is a four-fold reduction than the V1 chemistry on the Revio system. This enables us to access millions of samples that were previously inaccessible on the Revio platform.
We also increased the throughput of the system to 120G per SMRT cell, and that is a 33% increase, and I'm happy to report that the early sequencing runs that have been done with customers' hands are seeing 28% improvement in their throughput just in the first few weeks of this year. We're very excited about that, and the reason why that's so important is it enables a lower cost per genome. Now, at list price, a HiFi genome is less than $500. That's a remarkable achievement compared to just what we were a few years ago, and on top of that, it increases the scale and throughput of the Revio system to 2,500 genomes a year. While we launched the new chemistry, we also wanted to improve the multi-omic capability of the platform.
We introduced improvements to our methylation 5-MC caller, as well as we introduced 6-Methyl A calling with the Fiber-seq assay. This gives customers more value and more opportunity as a multi-omic platform for their research. Vega is our benchtop sequencer. This platform is really loaded with innovation and fundamentally gives us a new way to access thousands of desktop-level customers, which we estimate to be up to a billion-dollar market annually. This is the first time in PacBio's history on the long-read sequencing side where we've had a portfolio of sequencers. This is essential to our strategy because we need to meet customers where they are with the right level of throughput and the right level of capital cost. The Vega system, priced at $169,000, is accessible to virtually all major labs around the world. It's powered by the same SMRT cell technology.
And the data concordance with the Revio platform is quite remarkable. In fact, in one study, we showed it was 0.997 concordant. And so, we're very happy about it. It's a turnkey solution. So, everything you need is on board. It's a simplified workflow with just two consumables. But it has all the compute, the demultiplexing capability, DeepConsensus, all on board. And it runs all of our sequencing assays. It's also a flexible system. It allows 12 and 24-hour runtimes, ideally suited for targeted sequencing applications, microbial and other smaller genome genetics, and really clinical applications. And so, we started shipping this early, actually. And we shipped seven units in the fourth quarter. And we're scaling up manufacturing through the first half of the year. So, let's talk about our priorities for 2025.
Our core priority in 2025 is actually very simple: return to revenue growth and drive gross margin expansion. We have four key areas in which we're focused to make this a reality. First, we're enabling the full-scale release of the Vega system to broaden our reach in the market. As I said before, we launched the system early because we were successful in the development program. And so, we'll be scaling it up through the first half of the year, which will drive incremental revenue. On the Revio platform, we'll be accelerating samples through our Spark chemistry, as I said at the beginning of my remarks. So, the Spark chemistry enables millions of more potential samples to get on the Revio system, increasing the value proposition.
Our goal is to leverage the increased samples as well as the lower price per sample to drive adoption of the platform into the market from agriculture through the clinical areas. And yet, while we continue to focus on being disciplined about cost, we continue to invest in future products and future product launches. We have incredible technology that we continue to develop internally. And we believe that innovation will be essential for long-term durable growth. And so, we will continue to develop that technology. And finally, we'll be really focusing on our clinical strategy to improve the ability for us to penetrate into that market, offer customers complete solutions, enabling them to develop LDTs so that they can serve their patients worldwide. Financially, we've been focused on improving PacBio's financial position in 2024. And that'll continue in 2025.
This is an area where we're actually quite proud of the fact that we were able to reduce our non-GAAP annualized operating expenses by more than $75 million in 2024. We'll get the full-year benefit of that in 2025. We successfully completed a convertible note exchange, reducing our debt load by $259 million and extending the maturity of our 2028 notes by 18 months into August 2029. We did this while maintaining the interest rate of 1.5% on those notes. So, we are very fortunate to have positive carry on that debt outstanding. As we reduced our expenses, we were laser-focused on reducing spans and layers. One of the things that we uncovered is we became more efficient and actually more effective. It's one of the reasons why the Vega platform was actually launched early. Finally, we reduced our cash burn.
As you can see, we burned $70 million in the first quarter of 2024. By the end of the year, we were at a run rate of $27 million. Now, looking into 2025, the first quarter is usually the heaviest spend quarter. We do expect these trends to continue. Just in the last two years, we've launched three groundbreaking new platforms into the market. For a small company, that is a pretty significant achievement. As I said before, we have more innovation in front of us. We're currently in the process of developing both a highly scaled, high-throughput short-read sequencer capable of extraordinary accuracy for use in the liquid biopsy market and a population-scale HiFi long-read sequencing platform that will drive costs down significantly, enable scale, particularly in the population-scale markets.
And so, this will round out the core of our strategy of building a multi-product portfolio. But as I said, innovation is really at the heart of what we do. And we have several technologies in development, all focused on improving the on-market platforms and driving new platforms at higher throughput. Things like higher-density SMRT cells, which reduce the cost, allowing you to pack more information into a smaller footprint. New SMRT cell formats that make it even easier for our customers to access the technology. New manufacturing processes. We're in the process of moving to more advanced semiconductor manufacturing process, which will dramatically drive the cost out of the SMRT cell, which is the semiconductor component of our technology. Even things like chip reuse, the ability to use chips more than one time. Faster chemistries, which will enable faster runtimes and more throughput.
Finally, wrapping all of this up with more informatics capabilities across the end-to-end solutions so that even the smallest customers will have access to the most advanced bioinformatic pipelines. As I said, 2024 was really a watershed moment for us in the clinical side of our business. This is just a listing of a few of the customers that really are starting to adopt long-read sequencing and HiFi in particular in their workflows. It's things like targeted panels for neurological disorders, carrier screening, neurosensory disorders, whole genome sequencing for rare disease. I want to drill into just a couple before we wrap up. The first one is this morning, we launched a press release with Radboud University Medical Center that shows extraordinary results on their ability to improve yields or our understanding of rare disease through cohorts that they've done.
They've taken this information basically from sequences where they've tried these patients to sequence them with short-read sequencing technologies and have been unable to understand what's going on with the patient. They move it to HiFi. They're seeing extraordinary results. This paper came out just actually the other day. As a result of this, they've committed to sequencing 5,000 HiFi genomes in a clinical setting focused on rare disease. We really believe this is the beginning of germline genomics moving to long-read sequencing. We're really excited about that. On Vega, one of our collaborative partners, Berry Genomics, has been an early adopter of HiFi sequencing for their assays, particularly in China. They've been developing a thalassemia assay on the SQL2 platform and taking that through the NMPA process, i.e., the Chinese FDA.
When they learned about Vega and they came to our facilities to run the early samples, they were, quite frankly, they were blown away with the fact that the technology on Vega is more accurate. It's higher throughput. It's easier to use. So, they took their first two systems in December, triggering a milestone. They currently have a purchase commitment to purchase 50 units for the thalassemia and then ultimately their Fragile X assay. For those of you that are familiar, these are assays that short-read sequencing really can't undertake. What's happening is that long-read sequencing on Revio and now Vega are replacing legacy technologies and enabling new insights and new clinical opportunities that didn't exist before because the technology wasn't there.
As we wrap up, we've taken this momentum that we're gaining with respect to the clinical market and the new Vega platform, which we've developed with clinical in mind, and we intend to develop and launch an IVD solution aligned to the final phase four guidance, so we are actively getting the Vega system scaled up, and we'll be working with partners to develop IVD-driven assays so that we can have an FDA-cleared instrument by the time the stage four market approval is required, and this will be an important strategic priority for the company because we do think the Vega system has applications across a wider array of clinical areas, and we look forward to doing that, so as we wrap up our takeaways, I hope you'll agree that you can see we're continuing to drive significant innovation, focusing on our strategy of achieving a multi-product platform.
Financially, we really are driving discipline in spend reduction, which is reducing our cash burn. We expect to return to growth in 2025 through the launch of these new products and as our clinical opportunity continues to emerge. We're focused on developing technologies and products that will enable us to serve a very large clinical opportunity as well as the rest of the research market. With that, thank you for your attention. We'll get to the Q&A.
Perfect. Thank you, Christian. First question here, just around the pre-announcement this morning. You pre-announced just over $39 million. Guidance range was roughly $40 million there. Can you just elaborate? What were some of the drivers on that revenue number for the quarter?
Yeah. The Q4 was we did. I would characterize this as we did okay.
We were a little bit under our expectation, but not dramatically, and the drivers of missing our own internal expectation was a little bit of weakness in APAC and continued weakness in AMR. Our European business actually did quite well during the quarter, and consumables actually grew sequentially. So, we're seeing growth in consumables, which in the long run bodes really well for us because that's how we grow our gross margin, and that's a demonstration that people are actually using the technology. With respect to the quarter relative to the third quarter, we didn't ship as many Sequel II systems. Onso, we didn't ship quite as many Onsos, and so, those are really kind of the gaps a little bit.
Gotcha. Yeah, maybe digging into that consumables comment a little bit. So, at 3Q, you noted that you were expecting European consumable utilization to increase sequentially.
Sounds like that kind of went according to plan. Anything else to call out on the consumables line, whether that's by platform or geography, that we should be aware of for 4Q?
Well, I think what is continuing to be a nice opportunity for us is that we've launched these new kits. And so, we're getting more sample prep revenue than we've ever been able to get before. And as those applications continue scaling, it gives us more opportunity. And we continue to see that even in 4Q as we're seeing customers using our PureTarget, for example, using the Kinnex kits. We actually were able to get some key Revio placements because of Kinnex. And so, that was actually exciting. And the RNA opportunity, looking at whole isoforms, I think is underappreciated for the company.
I do think that as we kind of move into 2025, you're going to see more conversation about why whole isoforms matter and why really understanding RNA at that level is fundamental to understanding the biology. And we're seeing some nice collaborations come forward in that area.
That's helpful. Another highlight from the pre-announcement was just the Vega placements. You placed seven in the quarter. So, I was wondering, can you elaborate on this? Was that in line with your expectations? Was that a little surprising, just given how recently you have launched this platform? And then you highlighted some of the feedback that you've received with customers on this instrument, given some of the data and how important that is in the clinical space. So, what types of customers are getting the best traction with Vega at this point?
You know, it's really broad.
The reality is that we currently have hundreds of opportunities in our funnel, so we announced the product in early November at the American Society for Human Genetics, and we had an incredible launch event, which really started to spur the opportunity funnel, and we're seeing a broad, really a broad base of customers, hundreds of opportunities. 70% of those opportunities are brand new customers, and that's actually, for me, a very exciting metric. It might mean the sales cycle might take a little bit longer because they're new customers, but the point of Vega is to widen our reach in the market so that we can get more customers leveraging HiFi technology, creating new applications, because that's what happens when you have new customers testing or using the technology.
Then, in the long run, creating upsell opportunities as their projects get more scaled and moving to Revio and then perhaps even beyond Revio. So, for me, what was exciting was 70% new customers, literally hundreds of opportunities across a broad portfolio. We had double-digit orders. So, the truth is we could only ship seven. That's all the units we had available to ship. But I'm also extremely proud of the R&D team because they were able to launch a very high-quality product actually early. And that was a big accomplishment after a pretty tough year for us. We ended on a very high note. And so, that's pretty exciting.
Perfect. Maybe just spend a minute talking about how you view the long-term opportunity for that platform. How large do you think this market could be?
What do you anticipate that adoption curve to really look like, given 70% are new to PacBio type of customers as well? And then can you just comment on where do you think potentially we could see throughput assumptions land for Vega as well?
Yeah. Starting with the opportunity for instruments, I do think Vega is an ideal platform for people doing targeted assays. And that's the vast majority of customers. And what's also interesting is some of the early placements of Vega have been into accounts that have Revio or they have access to a Revio, but they want the convenience of having the Revio on the desktop in their lab. And Revio is so easy to install and use. It's really two cables. There's an Ethernet cable, and there's a power cable. And everything else is contained in that.
And so, the early installations have shown they show up in the morning. They do a little bit of software configuration, and they're done by the afternoon. And people are sequencing the next day. Why do I talk about that in the context of the total opportunity? It's a simple enough system that it can reach virtually all of the core labs around the world and a lot of the PIs or individual investigators. It's priced at $169,000, which many people at the launch, quite frankly, they were quite surprised. But we can make good margin with that because of the miniaturization and all of the experience we got with Revio. We embedded it into this platform. And so, the opportunity is truly in the thousands of systems.
How that will manifest itself, I suspect what will happen is in the early days, it will start small in the sense that if you have so much of your funnel new to PacBio, sales cycles could be as much as nine months or even in some cases more, or they're getting it in their funding cycle. But I think that that will, over time, really create a snowball effect. And you'll start to see that momentum where you can be placing dozens of instruments a quarter pretty consistently.
Perfect. That's helpful context. Then just on the chemistry launch that you talked about during your prepared remarks. So, you announced that upgrade to Spark Chemistry last quarter. It requires less DNA input than before. So, can you provide more details on this launch? What does this really do from opening up a market and test sample types as well?
And then any feedback you've received from various customers on it as well?
Yeah. So, simply put, the feedback's been we had one customer. They came in before. We did a little pre-launch with some customers. We had one customer come in. And when we sat down with them in the conference room, the slide comes up. And I think Dave was actually in the room, Dave Westenberg, our VP of Marketing here. The customer almost started crying because what it means, 500 nanograms of DNA input means now heel pricks, so newborn screening and other types of activities. It means robust saliva sample types. These were not sample types that were really accessible by the Revio system. And post-COVID, a primary sample type now is saliva. And so, it opens up millions of samples and new opportunities.
In fact, right now, we're in discussions with a group that wants to sequence hundreds of thousands of people. And they want to use saliva as the principal sample tool. And the truth is, 12 months ago, we wouldn't have had the opportunity to be in this conversation. Now we're in this conversation. These deals always take a lot longer than you think. And it's never quite what it seems. So, it takes a while to navigate. But the real opportunity is there. And that's why the lower input amount is so important. The early experiences have been great. In fact, in Q3, we actually sold a Revio because we shared the protocol and the chemistry even before it was launched. It was someone I know personally. I said, "Hey, try this." And then they had so much success, just first runs right out of the gate.
They bought a Revio within a couple of weeks, which helped our Q3.
Yeah, for sure. Maybe alongside that, just the cost per genome for Revio as a result of some of these new chemistry upgrades as well. You've talked about how the price per genome on Revio alongside the Spark chemistry is now roughly $500 a genome. Previously, that was near $1,000. And so, what has customer feedback been on that pricing? And how is that driving additional adoption of Revio as well?
Yeah, that's actually fundamental to the fact that it allows us to get into these population-scale programs and allows us to have conversations in the clinical market for whole genome sequencing with customers like Radboud, for example. The price per genome is still an important barrier to entry in driving long-read sequencing down towards where short-read sequencing is critical for us to open up the opportunities.
And the early response has been, quite frankly, really strong for us. And if you're a customer doing significant volume, you're actually going to be well under the $500 genome. And so, we're very quickly approaching where short-read sequencing is, but with the added benefit of being single molecules so that you get all of the epigenetics, you get all of the structural variation, you get all of the SNPs and indels and all the features of the genome. So, for the first time, and you get telomere to telomere, you can sequence the parts of the genome that short-reads can't do. So, now it's becoming overwhelming for many applications that you can get all of this information at a price that if you add up what you have to do on short-reads to try to get things, it's actually quite competitive right now.
And I think that will help us a lot in 2025.
Yeah. That brings me to my next question on 2025. So, we just talked about some of the exciting product launches you have across Vega and Spark chemistry, but also some of the dynamics on the Revio platform as well. But that said, the sector has obviously been pretty dynamic with some of the macro backdrops. So, how are you thinking about this comment of returning to growth in 2025? What are the puts and takes that we should be aware of? Street is roughly at around $190 million right now. So, how comfortable are you with something in that level?
Well, today, we're not going to give guidance. We're going to give our guidance in February on our earnings call. So, I won't comment on that specifically.
But the puts and takes for returning to growth are really all about driving a successful Vega launch, continuing to really enable our customers through new applications, continuing driving and pushing on the informatics so that we keep seeing consumable growth, really driving efficiency and sales productivity, so improving it. The macro backdrop is still tough. And I would be surprised to see it improve dramatically from here, at least in the first half of the year. And so, we are focused in 2025 on all of the things that we can control. And that's making sure our customers have a great experience, making sure that we execute as an organization across from the time we accept a lead to the time the system's installed until the time a customer publishes a paper.
The other area where I think 2025 we'll see growth and an opportunity is in the clinical and the LDT space because those customers, they're running businesses based on our technology. And they'll have much more durable consumable streams, which are pretty much immune to some of the macro headwinds. And so, that will be an important. On the downside, I do think that the change in administration creates anxiety, whether it has an impact or not. I don't think anyone truly knows that. China, there's been a lot of talk about stimulus. But quite frankly, we really haven't seen the benefits of that yet. And so, our financial picture and forecasts, we're not anticipating any benefits from that. And so, we're just going to really focus on our execution. We're going to focus on serving our customers and continuing to drive innovation.
All these things will help us drive return to growth in 2025 and beyond. Yeah. I wanted to follow up on your comment there regarding the new administration. I think a lot of us in the room have been wondering just on NIH funding and kind of what have you been hearing from your customers on that front? Can you remind us what is your direct and indirect exposure to NIH budgets as well?
So, from an exposure perspective, probably about 20% of our revenue is direct, indirect NIH funded, give or take. Our customers, I think, are generally a bit confused. I don't think that they really have a good handle, and I think the problem is confusion creates indecision, which slows buying cycles. I mean, that's really the challenge.
Our belief is that, and I think our customers believe, there still will be NIH money there to drive advanced research for these kinds of technologies like ours and that there will still be opportunities. But it's really getting from the investigator who is fully bought into the technology and ready to go to the purchasing agent who is leveraging indecision, so to speak, to delay purchases. And I think the first part of the year we'll probably see some of that. We certainly saw some of that in Q4. And we didn't really see any significant budget flush. Sometimes in fourth quarter, you'll see a budget flush, which enables capital equipment purchases. We really didn't see a lot of that in the fourth quarter.
Perfect.
Then just in the last few minutes here, just on the cash flow break-even targets that you have laid out, can you walk us through what do you really need to do for PacBio to execute and stay on track on reaching those cash flow break-even targets by 2026 and then flipping to cash flow positive in 2027?
I think the first thing we have to do is we have to get back to growing. And I do think with reasonable growth in 2025 and some gross margin expansion, we'll be on track. If we're unable to grow, obviously, it'll get harder for us to achieve that. But we can control what we can control. I think the second piece here is being disciplined about our spending and continuing to focus on project prioritization because innovation still is the lifeblood of what we do.
And so, we can't strangle the innovation, but we have to be very diligent about which products we prioritize, in which order, make sure that we have efficient management structures in place, which is one reason why we keep reducing layers and layers. We're finding that to be actually quite effective. And so, if we can do those things, that will keep us on track and moving towards positive cash flows.
Perfect. Christian, with that, we are unfortunately out of time. So, thank you so much for joining us today. And thank you, everyone in the room as well.
Thank you. Cheers.