Thank you for standing by, and welcome to the Pacific Biosciences of California Inc. 4th Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I I would now like to hand the conference over to Cheven Ward. Please go ahead.
Thank you. Good afternoon, and welcome to the Pacific Biosciences 4th quarter 2020 earnings conference call. We hope that you're keeping well during this time. Earlier today, we issued a press release outlining the financial results we'll be on today's call, a copy of which is available on the Investors section of our website at www.pacb.com or alternatively as furnished on Form 8 ks available on the Securities and Exchange Commission website at www dotsec.gov. With me today are Christian Henry, President and Chief Executive Officer Susan Kim, Chief Financial Officer Mark Van Owen, Chief Operating Officer and Ben Gong, Vice President of Finance.
Similar to last quarter, we are hosting our conference call from a number of different locations. So please bear with us if there are any technical issues or pauses. Before we begin, I'd like to remind you that on today's call, we may be making forward looking statements, including plans and expectations Relating to our financial projections, plans and expectations relating to our research and development efforts, plans and expectations including expectations with respect to timing, Sales and revenue projections, plans in connection with our collaboration partners, including expectations regarding sales related to our collaboration with Invitae, Plans and expectations to grow, accelerate and expand our product portfolio, commercial efforts and commercial footprint, including plans related to our products to increase throughput, Lower cost and develop workflows, adoption of our sequencing technology as a transformative and fundamental tool in research, Clinical and genetic testing applications, the use of our technology for specific projects and applications, including in connection with epigenetic, COVID-nineteen cancer and rare disease clinical research applications potential growth An impact of growing our commercial team and research and development team, plans to make COVID-nineteen protocols widely available to commercial laboratories, The need for more expansive and robust viral surveillance strategy is due to the emergence of more infectious COVID-nineteen mutations and other future events, Such as the impact of COVID-nineteen pandemic on our business partners, our business partners, customers and employees and the use and advantage of our products in COVID-nineteen research.
You should not place undue reliance on forward looking statements Because they are subject to assumptions, risks and uncertainties, it may differ materially from actual results. In particular, the extent of COVID-nineteen's continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, as well as actions taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. These risks and uncertainties are more fully described in our Securities and Exchange Commission filings, including our most recently filed reports on Forms 8 ks, 10 ks and Form 10 Q. Pacific Biosciences undertakes no obligation to update forward looking statements. In addition, please note that today's call is being recorded and will be available for audio replay on our Investors section in 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'd now like to turn the call over to Christian.
Thank you, Trevon, and good afternoon, and thank you for joining us today. Before we begin, I'd like to let everyone know that Ben Gong, our Vice President of Finance, is retiring this quarter. As a result, this is his last earnings call. On behalf of all the employees at PacBio, Susan and I would like Thank him for his significant contributions to the company over the past decade. Before the market opened this morning, we announced that SoftBank is making an investment of $900,000,000 in the company to support The acceleration of our growth initiatives.
We are excited to partner with SoftBank as they can help us expand our reach on a global scale. We believe that this investment validates our leadership position in long read sequencing and will help us Enable us to accelerate the expansion of our product portfolio, expand our commercial footprint and ultimately to realize our vision and Clinical Applications. On our last earnings call, I described some of our key priorities, And I am pleased to report that we're making progress on a number of fronts, including our ability to execute and grow the business. For my prepared remarks, I will briefly review our Q4 financial highlights and then describe key business highlights and summarize our expansion efforts, including the addition of several key management hires. Susan will then walk us through the detailed financials for the Q4 and provide some thoughts around our outlook for 2021.
So starting with an overview of our Q4 2020 financial results. Total revenue for the quarter was $27,100,000 up 41% sequentially from Q3 of 2020. We exceeded our internal Q4 target for revenue and we did not see a significant negative impact from the COVID-nineteen pandemic during the quarter. Instrument revenue was $13,600,000 up 76% compared to Q3 of 2020. Our newly launched SQL2e was well received by our customers, which drove an increase in orders.
Additionally, we received several multisystem orders from customers like the Wellcome Sanger Institute And Berry Genomics. We delivered and installed 35 new SQL2 and 2E systems during the 4th Quarter and ended the year with an installed base of 203 Sequel 2 and 2e systems. Consumable revenue for the quarter was $10,000,000 up 25% sequentially from Q3 2020. System utilization on the SQL2 platform was higher in Q4 2020 than pre COVID levels. Annualized pull through On the SQL2 installed base in Q4 exceeded $180,000 per system compared with approximately 100 $1,000 in Q3.
We are pleased to see this increase in pull through. However, we note that Q4 consumable revenue Benefited from some seasonal stocking orders as is typical in the Q4 of the year. Susan will provide more details on our financial metrics later in the call. Now I'd like to provide a few updates and comments regarding the impact The COVID-nineteen pandemic on our business. Going into Q4, we were cautious about the potential impact That the resurgence of infection rates in Europe and the United States would have on our sales for the quarter.
Fortunately, Just about all of our existing customers were operating throughout the quarter. And as I said before, average utilization on SQL2 systems Was higher in Q4 than it was prior to the pandemic. It should be noted that travel limitations did prevent us from installing some systems during the quarter, but the strength of the sequel duty orders enabled us to overcome these challenges. Looking forward, we believe that the pandemic will continue to cause some uncertainty in our revenue outlook as shutdowns could impact Our ability to install new systems and we believe that some customers may remain conservative with respect In the UK, South Africa and elsewhere over the last few months has reinforced the need for more expansive and robust viral surveillance strategy. Governments and public health organizations around the world are moving quickly to identify and track the different COVID strains in their communities.
Notably in the United States, the CDC contracted with LabCorp in early January to support the Scale up of COVID sequencing using PacBio HiPhi Technology. The COVID-nineteen whole genome HiPhi sequencing assay Was developed as a research collaboration between scientists at the CDC, LabCorp and PacBio beginning in early 2020. Already this year, LabCorp has purchased several additional SQL2E systems SQL2 systems To ramp up their surveillance testing with HiFi COVID sequencing, and we look forward to working with LabCorp to continue Scale their operation to service this global need. It's exciting to see that their efforts are already making an impact As LabCorp was the first to identify the new South Africa variant in South Carolina and Virginia just last week. We're pleased to announce that PacBio will now be making this high throughput protocol widely available to commercial laboratories, Academic researchers and public health institutions globally who wish to stand up robust high throughput surveillance programs locally.
We believe the use of PacBio's highly accurate long read, Hi Fi sequencing chemistry for COVID surveillance offers distinct advantages Over other technologies, including fewer amplicon dropouts, easier amplicon balancing And the ability to phase COVID genomes, which can detect the different strains infecting a given individual. We are proud to have contributed to the assay development that LabCorp and the CDC are now using to understand and get ahead of this rapidly mutating virus. We plan to build on this experience to further bring the benefits of our technology to bear in the fight against COVID. Shifting gears to population scale projects. As a result of the pandemic, some delays persist in the ramp up of certain large sequencing projects, Such as the All of Us human genome sequencing project in the United States and to a lesser where the Darwin Tree of Life samples are going to be sequenced has started to prepare its facility to generate 2,000 High quality reference genomes over the next 2 years.
In anticipation of receiving those samples, The Wellcome Sanger Institute ordered 7 new SQL 2E systems this past quarter. Some of those systems were installed last quarter, And we expect the balance to be installed in the first half of this year. Moving on to other Ms. Hayle, I'd like to discuss our collaboration with Invitae that we announced last month. PacBio and Invitae share a vision that whole genome sequencing Using PacBio HiFi reads in a routine clinical setting has the potential to fundamentally transform the genetic testing industry.
Together, we are partnering to bring this vision to reality. Currently, Invitae processes 100 of thousands of samples per year. We believe that there is a significant opportunity to move the majority of those samples to whole genome sequencing, which is why we are working with Invitae to develop a new ultra high throughput sequencer and workflow that is expected to be capable of operating at Production scale. Under the agreement, Invitae will fund the development cost as well as provide input on scaled clinical workflows. The new system is expected to enable Invitae to sequence up to 100 of 1000 of samples every year In a medium sized production facility.
Upon completion of the new sequencer, PacBio will make the new system and associated consumables Available to Invitae at preferential pricing for a defined period of time. In addition, PacBio will have the ability to commercialize The new sequencer to other customers as well. Given the expected scale of the new system, we would expect labs involved With running production scale whole genome projects to be candidates for placements of the new system. Developing an ultra high throughput sequencer is an important step in our strategy to move towards a broad portfolio The collaboration with Invitae is expected to run for 5 years. Over the 1st few years, we plan to develop the new sequencing platform and related workflows.
We expect to rapidly hire more than 50 new people into our R and D organization, which will dramatically increase our R and D expense. While Invitae will be reimbursing us for these additional expenses, Those reimbursement dollars may not be accounted for as an offset to these expenses. Susan will describe the accounting for the collaboration In more detail later in this call. As far as revenue is concerned, we do not expect any revenue contribution stemming from the direct collaboration for the next few years. However, once the new system is commercially available, we expect to see a very significant increase highlights that really demonstrate the power and the potential of PacBio HiFi sequencing technology.
First, We'd like to congratulate Doctor. Dennis Lo and colleagues at the Chinese University of Hong Kong on the development of a new method For highly accurate simultaneous determination of DNA sequence and CpG methylation in one go, published in the PNAS journal in January. This new method will help researchers explore the impact of epigenetic changes in humans and other organisms And has great potential in clinical research and eventually diagnostics in cancer and other disease areas Where methylation changes are known to be important disease markers. We'd also like to congratulate the team at Hudson's Alpha Institute of Biology For their work in leveraging PacBio HiFi reads to help diagnose children with rare disease who still are lacking answer after short read sequencing. The recent paper published in Human Genetics and Genomics Advances Demonstrates the power of HiFi sequencing to capture more of the variation across the genome, which gives investigators and clinicians more information to make a diagnosis, saving precious time and resources And reducing the diagnostic odyssey.
Shifting now to our organizational team, we are Thrilled to have Mark Van Owen on board as our new Chief Operating Officer. Mark has deep experience in genomics and brings a strong voice of customer into our R and D and operations organizations. In addition, Mark will be responsible for leading our corporate development activities, which will become increasingly important as we expand. We are also excited to have Peter Froman on board as our Chief Commercial Officer. Peter has been at the forefront of population scale sequencing initiatives around the world And his vision and ability to execute will move our commercial organization to new levels.
In addition to Mark and Peter, We have also recently hired 4 additional commercial executives who will lead critical areas in product and strategic marketing as well as commercial operations. As I've indicated on our last call, the key strategy for the company is to increase our direct sales force globally. We're making great progress in this area as we've hired over 10 new quota carrying sales personnel over the past which puts us well on our way toward more than doubling our sales force. We expect our new sales reps to come up to speed over the 1st few quarters after they come on board and then become part of the engine that drives consistent revenue growth. To summarize, I am very encouraged by our performance in the Q4.
For the 2nd consecutive quarter, we met or exceeded our internal revenue targets. We have kick started the New Year with what promises to be a transformational collaboration with Invitae, and we have made significant progress expanding our team to drive future growth. With that, I'll turn the call over to Susan, who will provide more details on our Q4 financial results and our current outlook for the Q1. Susan?
Thank you, Christian, and good afternoon, everyone. Despite Q4 still being impacted by COVID-nineteen headwinds, the PacBio team delivered a very solid quarter that included sequential growth in bookings, Revenues and gross margins. As Christian mentioned, the SQL 2e launch was stronger than anticipated, which resulted in orders in the 4th quarter exceeding our internal expectations, including a number of multi instrument orders from key customers. Total 4th quarter revenue was $27,100,000 an increase of 42% from $19,100,000 in Q3 of 2020, but a decrease of 3% from $27,900,000 in Q4 of 2019. The revenue breakdown was as follows.
Intra revenue recognized in Q4 was $13,600,000 an increase of 76% from $7,700,000 recognized in Q3 and down from $15,300,000 recognized in Q4 of 2019. We installed 35 SQL2 and 2e systems during the 4th quarter, Growing the installed base of SQL2 and 2e systems to 203 as of December 31. As the consumables are the same and customer usage patterns are expected to be similar across the SQL2 and 2e systems, We will continue to report a combined install base going forward. Consumable revenue for the Q4 of 2020 was $10,000,000 Up 25% sequentially from $8,000,000 sold in Q3 of 2020 and up 8% from $9,300,000 sold in Q4 of 2019. The sequential growth in consumable revenue Reflects increased utilization on our growing installed base of SQL2 and 2E systems as well as the usual End of year stocking of consumables inventory.
Since the start of the COVID-nineteen pandemic that resulted in our customer labs being shut down, We have since continued to see meaningful increase in our SQL1 and SQL2e utilization such that we have recently crossed a cumulative 5 petabasis sequence on our installed base of SQL2 systems. Sequel 2 consumables represented approximately 78% of our total shipments in the 4th quarter and roughly 20% of our consumable shipments Service and other revenue was $3,500,000 in Q4 2020 compared to $3,300,000 in Q3 and $3,300,000 in Q4 2019. Our service revenue has remained relatively flat Over the past year as increased service on SQL2 systems has been offset by declines in service on RS2 and SQL systems. Moving on to gross profit and gross margin. In Q4 of 2020, we generated a gross profit of $11,400,000 representing a gross margin of 42% compared to a gross profit of $7,100,000 representing a gross margin of 37% in Q3 of 2020.
There are 3 key reasons why gross margin improved 1st, ASPs on insurance sales were higher. 2nd, we had improved product mix over Q3. And finally, higher volume in manufacturing improved factory utilization. Year over year, our gross profit and gross margin in the quarter declined from $12,900,000 46 percent generated in Q4 of 2019 as a result of lower revenue and factory utilization, partially offset by higher ASPs on instrument sales. Moving on to operating expenses.
Operating expenses in the Q4 of 2020 totaled $35,400,000 compared with $30,800,000 in Q4 of 2019. The increase in operating expense compared to the previous quarter last year was a result of increased R and D expense related to new product development and an increase in SG and A expense As a result of the growth in our commercial team and the addition of several new executives and higher non cash stock based compensation expense. Non cash stock based compensation expense included in operating expenses was $4,800,000 in Q4 of 2020, up from $4,300,000 in Q3 of 2020 and up from $3,400,000 in Q4 twenty nineteen. Net income in Q4 2020 was $74,900,000 and net income per share on a fully diluted basis was $0.37 compared to a net loss of $23,700,000 and net loss per share of 0 point in Q3 2020 and a net loss of $100,000 which rounds to a net loss per share of $0.00 in Q4 2019. The large increase in income was primarily related to the $98,000,000 One time gain we recorded, which was associated with the reverse termination fee we received from Illumina back in January of last year and recognized in Q4 of 2020.
Turning to our balance sheet, we ended the 4th quarter with a balance of $318,800,000 In unrestricted cash and investments compared with $208,600,000 at the end of the Q3 of 2020. The increase in cash and investments was primarily a function of our follow on offering in November that netted proceeds of approximately $94,000,000 plus approximately $32,000,000 in proceeds associated with employee stock option exercises, partially offset by approximately $16,000,000 of cash used for operations. Inventory balances decreased in Q4 2020 to $14,200,000 representing A 4.2 inventory turns compared with $15,900,000 at the end of Q3 2020, which represented 2.9 inventory turns due to the ramp in customer installations in Q4. Accounts receivable increased in Q4 to $15,800,000 reflecting a DSO of 49 days compared with $11,800,000 at the end of Q3 2020, reflecting a DSO of 56 days. As we look out into 2021, The impact of the pandemic on our revenue growth is still somewhat uncertain.
However, with that said, I would like to provide a framework on how we see revenue growing during the year. We believe that revenue will grow significantly in the second half of the year as we start to realize the benefit of our expanded commercial investment and infrastructure. In the short term, we expect Q1 revenues to be slightly lower than Q4 levels. While we expect the strength we saw in instrument sales last quarter to carry over into this quarter, We also foresee some softening in consumable sales in APAC, largely due to the Lunar New Year holiday. This is consistent with the seasonal revenue pattern we have seen over the past several years.
Although we anticipate slightly lower revenue in Q1, We do anticipate gross margin will improve slightly compared to Q4 as our factory utilization continues to improve. For Q1, we estimate non cash stock based compensation expense will increase materially to between $10,000,000 to $11,000,000 up from $4,800,000 in Q4 due to new higher employee equity grants accounted for in our operating expenses. We are forecasting our total Q1 operating expenses to grow and to be in the mid to high $40,000,000 I would like to take a moment to provide additional context regarding the investments we intend to make in 2021. We plan to make significant investments in our business as we push forward with our key objectives. Our first objective, expanding our commercial reach, Includes a significant expansion of our commercial organization.
We ended the year with 22 quota carrying sales representatives And we are targeting to more than double that number by the end of the year. Our second objective, driving the product development pipeline, will entail the development of multiple new products simultaneously. We ended the year with 158 people In our research and development organization, and we are targeting to hire more than 50 additional people in R and D this year. Our third objective, market leadership in whole genome clinical sequencing is off to an accelerated start with our collaboration with Invitae. As Christian mentioned earlier, we are working with Invitae to develop an ultra high throughput system and workflow designed to enable Invitae to sequence 100 of thousands of samples per year.
For the year 2021 alone, We are targeting to spend $20,000,000 to $25,000,000 on this project. While we expect Invitae to fund this project, We will likely recognize all or a substantial amount of this expense in the R and D expense line of our income statement in the period in which it has occurred. The funding we receive from Invitae is likely to be recorded as a liability on our balance sheet And maybe amortized into revenue in later periods as we sell the developed products to Invitae in accordance with our agreement or released when other performance obligations are delivered or contingencies lapse. Please be advised that we are 2021 results. Lastly, as we announced earlier today, we are thrilled to welcome SoftBank as a new long term investor.
The $900,000,000 convertible note will provide the financial foundation for us to capitalize on the significant growth opportunities ahead. The transaction is scheduled to close next week. As a result of this financing, dollars 52,000,000 of expense will be recognized on our P and L in Q1 to account for the expected repayment of the continuation advances due to Illumina as a result of the merger termination. In summary, we ended the year with nearly $319,000,000 of cash on our balance sheet And now with the significant investment by SoftBank that is expected to close next week, we will have well over $1,000,000,000 in capital giving us a strong foundation to drive growth over the long term. With that, I will turn the call back to Christian.
Christian?
Thank you, Susan. To wrap up our prepared remarks, I'd like to reiterate our 3 core objectives for 2021. First, we plan to dramatically expand our commercial footprint so that we can serve more customers around the globe. Secondly, we plan to Developing a multi product portfolio so that customers have access to the right long read sequencer for their scale and applications. And thirdly, we're focused on moving our smart technology deeper into the clinical diagnostic market, where we believe we have unique This will be done through the execution of high quality partnerships such as the one with Invitae that we announced in January.
My opening remarks touched on a number of specific accomplishments the team made toward executing on these strategies. Moving forward, we expect Our engagement in the global fight against COVID as we believe that HiFi REITs can make a significant positive impact. You'll see us work to expand our global network of collaborators in rare and inherited diseases who seek to leverage PacBio HiFi reads To solve 50% of the cases that elude diagnosis with other technologies today. In closing, We had a strong finish to a challenging 2020. And although headwinds associated with the pandemic still exist, I believe our core strategies, expanded leadership team and improved execution will drive growth in 2021 and beyond.
And finally, SoftBank's investment of $900,000,000 provides us with the financial resources to work towards achieving our objectives. I believe we have a significant opportunity in front of us, and I'm excited about our future. That concludes our prepared remarks. And with that, we'd like to now open it up for some Q and A.
Your first question It comes from Doug Schenkel with Cowen. Your line is now open.
Hey, good afternoon, everybody, and thank you for taking my questions. First off, thanks, Ben, for all your help over the years and good luck on the next chapter. Christian, I want to just talk about kind of a, I guess, a high level strategic question. Illumina in attempting to acquire Pacific Biosciences was essentially attempting to go from being just a short read sequencing company to being both Sure. And long read.
It's been asserted that PacBio could almost reverse that playbook, essentially going With that in mind, How are you thinking about the best way to achieve that? Is it organic or is it inorganic? And part of the reason I start with this question is, With the investment from SoftBank, does it change how you think about that question of organic versus inorganic?
Well, Doug, first of all, it's good to hear from you and thank you for the question. When you think about This question, I'm going to first start and address what does the SoftBank Capital do for us. There's no question that it gives us a lot more To think about how we can create scale, how we can create a multi product portfolio And how we could drive our business forward faster. And I think one of the things I'm very interested in is A combination of organic and inorganic opportunities. And I think the inorganic opportunities are more Accessible to us, of course, now that we have some more capital to work with.
With respect to the specific strategy of I think if you step up a higher level and try to think about what we can be as a company, We want to be the most advanced biological solutions company with a number of different products In our portfolio, and that could encompass, obviously, long reads, where we're going with that Our leadership position and driving the accelerated development of products there, it could encompass short reads. There's obviously large markets that are uniquely accessible to short reads at least today. And then but it also could encompass market adjacencies, complementary technologies, abilities for us to look at The front end of our workflows as well as the back end, so developing those complete solutions For our customers and I think right now we're just so thrilled to have this relationship building with SoftBank to give us The capital we need to think big because I do think with our leadership team and our long read Hi Fi sequencing capability, We have a lot of opportunity in front of us.
That's super helpful. Thanks for that, Christian. And then maybe if I could just Ask a second question on another recent development. You shared some additional details on the agreement with Vitae, which of course was a really exciting development over the last several weeks. Regarding the 5 year duration that you outlined, I just want to clarify, does that mean that this is an exclusive with Invitae over this period?
And does that mean that's the expectation in terms of there would actually be an instrument commercialized. I just want to maybe unpack a little bit about what happens during those 5 years and what comes after. And you've also talked about the concept of essentially being able to have an industrialized PacBio instrument that would be Well suited for larger central labs like Invitae, but not limited to Invitae. Is there a scenario where this agreement also leads to the development of instruments that are more well suited for Clinical applications in a more decentralized approach. Thank you.
Yes. There's a lot to unpack there, Doug, but let me see How I can do. First, the agreement with Invitae is not an exclusive arrangement Excuse me, for any period of time, but rather it's our we are developing We're embarking on a long term collaboration with them to develop multiple products. So the first product is much closer Then 5 years out. And that product will be this ultra high throughput sequencer that will give Invitae the power to Do whole genome sequencing at production scale at prices substantially below $1,000 I believe I said that in the Press release in January.
What the unique feature is, of course, is that we will be giving Invitae preferential pricing, But we will also be free to market that product and that sequence broadly to a number of different customers. And as you could imagine, we will leverage that technology to develop potentially offshoots of that product For more decentralized situations or different levels of throughput or capability That we can meet the needs of the market. I think this is one of the core strategies that I've been talking about Since I joined the company was developing a product portfolio that reaches each customer in the way they want to be In the way they want to do sequencing. And it does start at the high end with Invitae, but you could imagine That the technology is will be applicable across a broad spectrum of customer types and applications. And so That's where we'll go from there.
We will have products beyond this first product with Invitae, but that will be those will unpack Themselves over time, of course. So hopefully that helps a little bit for you, Doug.
Yes, nicely done, Christian. I knew I threw a lot at you there. Thanks for all that color. I'll get back in the queue.
Great. Thank you, Doug.
Your next question comes from Tejas Savant with Morgan Stanley. Your line is now open.
Hey, guys. Thanks for the time this evening. Question, can you share a little bit more color on sort of your early Popsy conversations here? For the existing projects, you're participating in including all of us in Daventry of Life. How should we think about sort of the consumable pull through on the sequel in 2021 beyond?
Yes. Thank you for the question. My expectation is that as these projects ramp, they would be Optimizing their SQL to platforms and therefore be running likely at the higher end of Our pull through metrics, and so that's how I would be thinking about it. And in some cases, if they wanted to accelerate, maybe they'd be expanding Their infrastructure. Now interestingly, these are large projects and there's a lot more to the story than just doing the sequencing.
It's getting the samples and the reality is that's a slow process And it takes a while for these customers to get the process, get them ready for sampling And then ultimately get them on the sequencer. And so we would expect them to be scaling up. COVID has not been our friend in this area. But as the world starts to open back up, we would expect them to be ramping up Accordingly, and then likely operating at the higher ends of their of our pull through metrics to be sure.
Got it. And then one on the instrument side. To what extent did some Order push outs you mentioned last quarter come through in the Q4 here in the 35 installs. And it looks like you expect Instrument revenue momentum to continue in the Q1 here. So is that I'm just trying to parse out how much of that is just more catch up versus sort of Strength in the order book and new orders that came in, in 4Q?
Yes, I think there was definitely some strength in the order book in 4Q. And as I talked about, there were some installations that we couldn't get across the goal line because we couldn't travel. Hopefully, those will get installed in Q1. But I think there's the SQL 2e is a very Powerful instrument in the sense that it allows us to reach into customers that don't have the compute infrastructure and that coupled with The excitement around COVID surveillance coupled with the accuracy of Hi Fi and the precision FDA Studies that have been done to show how powerful our system can be on that front, basically are Generally increasing demand across the board and getting a lot of customers are excited about where we can take this Technology. So I think in Q4, the SQL 2e launch helped us.
Some of that will carry is carrying over into Q1 and I Expect will be a pretty common theme throughout the year.
Got it. And one final one for me here on the 2E actually. Are you starting to see early adopters of the platform perform more long read sequencing given the time data storage and compute cost savings Generated by the enhancements?
It's a little too early to tell. Usually when you launch a new system, It takes a quarter to 2 to really kind of see where the metrics might settle out. And so Why don't we try to update everyone on that as we get a little bit deeper into the year here.
Got it. Fair enough. Thanks.
Yes. Thank you.
Your next question comes from Tycho Peterson with JPMorgan. Your line is now open.
Hey, thanks. I'll add my congrats to Ben as well. It's been great working with you over the years. Christian, I want to go back to the $900,000,000 Infusion from SoftBank. And I understand it's early days, you're looking at organic and potentially inorganic investments.
But one of the questions we got today is whether this Can help accelerate the timeline to the $1,000 platinum grade genome. You've been kind of marching down this path for a while. To what degree do you think it can help accelerate some of those developments?
I think it can clearly help because we will be aggressive in investing. I think what it probably does more than maybe it shaves a little bit of time off, but it also helps improve the certainty by which The time goes. And so when you get into these complex development projects, as you can imagine, you're trying to manage To a goal line to get a product out to market, but you're also trying to make sure you stay focused and get the right product out On time. So although we may be able to bring the timeline in some, it's more likely that what it will do is help us Prevents the timeline from getting pushed out too much, if that makes any sense, Tycho. It does, yes.
And then
on Invitae, I know you said no revenues here in the near term. I just want to make sure there's no milestones that could It'll be triggered as part of the program. And then to what degree do you think payers are ready for whole genome in the clinic or are you going to have to do some heavy lifting On that front?
Yes. That's a good question, Tycho. So with respect to revenue, obviously Invitae is a customer already. We've talked about the collaboration we're doing with them on the epilepsy project. So we will have revenue from that side.
But with respect to the collaboration, It really is a true partnership where they're going to we have a joint steering committee. In fact, our 1st joint steering committee meeting is, I believe next week, our first significance of there's planning and that we're already starting down the development Pathway, and so Invitae will be reimbursing us for that. So we'll see cash flows, But not revenue, it's kind of Susan outlined, and we'll see that sooner rather than later. And I'm sorry, I forgot the other part of your question there, Tycho. Hey, payers, are payers ready for whole genome and the payment?
Yes. So I think the question becomes The question is all about what's the value of the genome and what's the price. And I believe That we with the detail, we'll be able to price the genomes at low at a low enough price that it will be competitive with Other types of tests out there, so for example, exomes and other types of things. And if you can continue to demonstrate the increased diagnostic yield, which we're seeing through a number of our collaborations, then it becomes likely that payers are going to be More excited to actually pay for these things. That being said, each payer is going to be And particularly in the United States, each payer is going to be its own entity and we're going to have to work with them and we're going to put That's another great reason why we've decided to do partnerships here because the Invitae team has a lot of And we will build some expertise, but the truth is we want to rely on our partners, if that makes sense.
Yes, that's helpful.
And then last one on the COVID front. I'm just curious how you're sizing the viral surveillance opportunity And how much of the variant sequencing do you think ends up being done on short read versus long read?
Well, I think We haven't put I don't have an answer in terms of absolute sizing at this point. I know there's a lot of Funding that's coming into this area through we just saw an appropriation of over $1,000,000,000 That is trying to get through Congress right now, which I think is only good for us. We're seeing it on a global basis So we're seeing in Germany and the UK, etcetera. And but I think that Long versus short will really be dependent on how quickly we can get into the market. One thing I would say is that our long read sequencing capability, the pricing is extremely competitive with short reads And the information you get is fundamentally better.
For example, you get all the phasing information, which allows you to really And so we're price we're absolutely price competitive. The LabCorp Protocol that we talked about, you can multiplex up to 900 samples per run. And It's just a very compelling value proposition and it's up to us. I think the answer will be it's up to us in terms of how fast we can move And get in front of the right people and we're making a lot of progress there already. Okay.
Thank you.
Your next question comes from Rachel Van Stel with Piper Sandler. Your line is now open.
Hi, this is Rachel on
for Steve. Thanks for taking the questions you guys. So in
the clinical space, you guys have announced a number of impressive Partnerships, so with the Sturgeon and Children's Mercy and others, what else can we expect to see from PacBio in the partnership segment? How should we think about the cadence of these new clinical partnerships? And then also given your new capital influx, will you guys be clinical applications on your own or will you stick with partnerships in the near term?
Yes, I think strategic thank you for the questions. I think we have aggressive internal goals on launching more clinical partnerships And I would expect them to look similar to what we're doing, for example, with Children's Mercy, for example, focused In rare and undiagnosed disease as our first real area to continue with our objective to continue proving why PacBio HiFi genome is so important in the clinic and why that's so useful. And so I would anticipate that we would be Trying to put at least put several in place this year. And I just It's a bit aperiodic as each field takes its own life of its own to get them across the goal line. I think one of the things that The capital does is it allows us to think much more creatively about how we get into these partnerships, How big they can become because we have the financial wherewithal to help really drive and build this market out.
With respect to pursuing clinical applications on our own, we're still of the belief that Our core competencies are creating the great technology and partnering with others. And so our general preference is to be partnering with others with that core expertise and possibly in certain situations Developing our own clinical product or capability, but we really want to be known as the company that's willing to partner with All of these clinical providers and build our business that way because we think that will make more sense for us over the long term.
Great. And going off of that, so as you guys continue to lower the cost, what new markets do
you think will be the first to consider shifting to a
long read platform in Clinical space, really like beyond the clinical partnerships that you have, so like rare diseases, for example. And could you talk about the sizes of those opportunities and what you guys need
That's a mouthful for sure. Mark So, Mark, I know it's on the line. Maybe Mark wants to talk a little bit about some of the areas where we think long rates can penetrate. Mark, you want to try that one? Sorry, we're remote too, so it makes it a little trickier.
Yes, happy to take that one on for you. So I do think there's a big opportunity still for long read sequencing. And Christian talked about segmenting the portfolio. And I'm going to just reiterate, there's nothing more important Then delivering on this product and the entire workflow for the Invitae collaboration and getting into the clinical whole genome sequencing opportunity. But I do see a big opportunity for us to deeper penetrate into labs with the sequel 2e or extensions of that sequel 2e.
It's the thousands of Tier 2 core labs or the thousands of clinical testing labs that will require the partner and build out the workflows and automation and reporting in ways that just haven't up until now. So I think expanding our commercial efforts is critical for us to getting into that new segment of lab. So think of that as just lab penetration for long read sequencing. There are also a number of extensions of markets that Long Reed's already will benefit. Jason, when I think about clinical applications here, Yes, differentiation with HLA testing for transplants or pharmacogenomics or no AMP regions.
And so it's not just clinical whole genome sequencing. I do think there's a big clinical targeted market Opportunities are long reads. I also think we're way under penetrated in transcriptomics. And so the ISO seek type applications to look at full length isoforms I mean, look at the isoforms that exist and sprinkle those in with either single cell or bulk RNA studies is a great opportunity And then what I always say to people is we just don't know yet What the next applications are they going to emerge because not enough people have been using the technology. And so as we scale our customer base, I expect to be a series of new applications that are going to emerge for us to take on and commercialize and get to the market.
Perfect. Thank you.
We have a question from Kyle Mike Sutton with Cantor Fitzgerald. Your line is now open.
Hi, guys. Thanks for taking the questions. And I want Congratulations, Ben. It's great working with you these past over the past year or so. And then also congrats on the investments from SoftBank.
And I know it's been asked You don't have a bunch of time during the call, but can you just help us think about the uses of cash over the next few years as it relates to this investment in particular? And I know there's a lot of ways to allocate capital, but in the near term, how are you prioritizing some of those buckets like the sales force and product development, Back end technology, like you mentioned, Chris, and then maybe some of the acquisitions. I'm just curious what your kind of perspective and what your thoughts are regarding kind of the prioritization of the Duong, give the in force cash? Thanks.
Sure. And thanks for the question. When you think about prioritization, the first thing we have to do is go back to our core strategies. What are we trying to get accomplished here over the next couple of years? And the first thing where there's low hanging fruit and direct Revenue growth opportunities is scaling our infrastructure on the commercial side.
You heard Mark Talk a lot about several different applications where we have a very small presence today, yet we have very powerful technology and capabilities. There are thousands of laboratories out there, many of which we just don't even call on. And so I think you'll see us continue to Accelerate our the money from SoftBank helps us accelerate that opportunity. For example, in Europe, Although we were budgeting a significant growth in headcount because We really are underpenetrated there. Now we can think bigger about how do we fully build out that team And how do we take advantage of this incredible opportunity with, for example, COVID surveillance sequencing To build out our capability across the board.
So I would say commercial scaling is still going to be front and center. On the R and D front, the ability to take on multiple projects simultaneously is a core Competency that we are building and that requires more infrastructure around the R and D team, not just the R and D people itself. So it's Project management, it's strategic planning. And so that we will be investing incremental resources to enable us To ensure we can be successful at developing multiple products at the same time and I think that's core to our technology Our strategy is because if we can get that multi product portfolio Accelerated and into the market, then we can reach more and more customers and leverage the investments in the sales force, for example. If we can Drive the end to end workflow, we can there's opportunities in sample prep, there's opportunities to monetize The informatics, but really have you in order to do that, we have to have highly automated, highly productionalized Capabilities, and we're going to make investments in that to make sure that we can do that.
And then lastly, Inorganic growth or M and A or partnership, there are real opportunities out there that I think would be highly complementary with the company. The first thing you have to think through when you start to think about things, those opportunities is obviously are they in markets where you can bring something To the table. And then secondly, do you have a management team that can execute and make sure that when you make An investment that you can get the maximum benefit out of it. And we worked really hard over the first part of my tenure here as CEO to build out that Management team and capability, and I'm proud to report that we've got a great team and we're just getting started. There's a lot more opportunity for us to bring great people on board.
So now we have that in place. And so now it's really thinking strategically, Looking for people that share the same vision, people and companies and organizations that share the same vision of us that we have And then putting use leveraging the resources that we have to kind of build our business and create scale. So that's a lot to it, but I think it's kind of you have to think about it in that order.
Kyle, this is Susan. I'll just add just a couple of comments with respect to this year. In terms of our organic investment, I had talked a little bit about it during my But to put it into perspective in terms of the investments that we're making to drive for long term growth, We are adding over 100 headcount across the company, whether or not they all come on board, it still remains to be seen, but we are Pushing hiring quite a bit and so you'll see us ramp and our operating expenses will ramp accordingly.
Okay. Thanks guys for that. I really appreciate that. And I guess just sticking with this Seem, I don't keep it kind of light, but Christian, you referenced the $20,000,000,000 TAM last month. I just Wanted to hear your view if this investment kind of accelerates your ability to penetrate deeper or expand, I guess, in that market.
And then, you were talking about which markets could be accessible in the near term. But just as it relates to like accelerating the push into those markets, Is this tailwind to headwind? Just wanted to hear your thoughts there. And thank you. Again, I appreciate the comments.
Thanks.
Yes. No, it's a good question. And the truth is, we wouldn't have taken this investment if we didn't think there was opportunities for us to Our potential into these large TAMs. The sequencing market is only getting larger. We have a clear opportunity to lead at the whole genome level of sequencing And we have a clear opportunity to create a great business around other aspects of the market like Mark outlined earlier.
And This investment really brings an incredible partner to the table in SoftBank and their reach and their resources, I think, will help us Expand our business straight away, but then over the long run here, We will be able to take advantage of having this capital to accelerate our opportunity into these TAMs and drive growth. And that's really at the end of the day, my core strategy is how do we drive scale and growth As quickly as possible. We have an incredibly powerful set of technologies already, but what can we do to go even faster? And that's what we're going to be working on.
Okay. All right. That's perfect. I appreciate your answer there. And I just wanted to talk about the Invitae agreement a little bit.
Obviously very promising. Congratulations on it, of course. Will the spending you mentioned like $20,000,000 to $25,000,000 in expenses, I guess, in 2021, Susan. Is that going to be kind of back half loaded? I just wanted to understand how to think about that.
And then also, I guess, The sequencer will be available to Invitae for favorable pricing, of course. But in terms of broader commercial adoption like for other customers, I believe you mentioned that, Christian. When could that occur within this 5 year kind of timeline? I wasn't quite clear on that. Thanks.
Go ahead with the dollars. No, go ahead with the dollars and then we'll go from there.
Yes. So I'll give you an indication, Kyle, of just in terms of how that investment will ramp over time, so as Christian mentioned, we have kicked off, we're ramping in terms of hiring as well as the associated with the development of the new platform. We have our joint steering committee kickoff that is happening next week. And so I would think of it as Q1 because we're here in February, Q1 will be lighter, But then for the most part, the rest of the year will be pretty linear. Q4 is probably slightly more than obviously Q1, Just given the nature of ramping a whole new program within the company.
Yes. And with respect to the products, There is no time associated with it. In other words, once we get the product Built, a new sequencer built. We'll be able to broadly commercialize it And scale it accordingly. Of course, we're going to give Invitae priority.
Anytime you develop a new product, The first as you go through the scale up, we're going to focus exclusively on Invitae, but that's not because they have an exclusive right, that's just because They are a partner and collaborator and we want to ensure that they are absolutely successful, and we're so thrilled to be part of that with them. But we will be able to quickly commercialize that product as we ramp up accordingly. Okay.
All right. Thanks. And I heard you mentioned the non exclusivity, I guess that's part of it. So thanks for that. Just one last like softball comp question.
So I know you guys have released some or I guess Children's Mercy really has some of this like pediatric and rare disease Data kind of regarding the partnership with Scholz Mercy in Kansas City. But when can we see some new diagnostic proof statements come out in the near term? I know they're presenting at HBT. I was wondering if there could be Any update there regarding new data? Thanks.
Yes. I mean, I think we'll leave that to our collaborators As they we don't want to steal their thunder, but the reality is that there's a lot of great work going on. We're On the road to pursuing several new partnerships. And one of the things you can also see HudsonAlpha just released some data Just recently over the last several days or last just the past week, and so you should check out the HudsonAlpha release because That's a very powerful proof statement.
Okay. Yes, perfect. Thanks for all the progress and all the updates guys. I'll talk to you soon. Thank you.
Thank you. Yes. Thank you very much. Thanks for the support.
There are no further questions at this time. I will now turn the call back to Christian Henry for closing remarks.
Well, thank you everyone for joining us today. And we look forward to speaking with you on our next call. And If you have questions in the future, please feel free to reach out. So thank you very much.
This concludes today's conference call. Thank you for joining. You may now disconnect.