Good afternoon, ladies and gentlemen, and welcome to the Pacific Biosciences of California Inc. 3rd Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to turn the conference over to your host, Ms.
Trevon Ward. Please go ahead.
Thank you, Alexander. Good afternoon, and welcome to the Pacific Biosciences' Q3 2020 conference call. We hope that you are keeping well during this time. Earlier today, we issued a press release outlining the financial results we'll be discussing 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, our Chief Executive Officer Susan Kim, our Chief Financial Officer and Ben Gong, our Vice President of Finance and Treasurer.
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 would 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, research and development efforts, products, sales, plans of our collaboration partners, plans to grow and the potential impact of growing our commercial team and other future events, such as the impact of the COVID-nineteen pandemic on our business, partners, customers and employees and the use of our products in COVID-nineteen research. You should not place undue reliance forward looking statements because they are subject to assumptions, risks and uncertainties and 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 the Investors 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 would now like to turn the call over to Christian.
Good afternoon and thank you for joining us today. I'm pleased to be hosting my first earnings call for Pacific Biosciences as the Chief Executive Officer, and I'm excited to share some of the progress have made in my 1st 7 weeks. For my prepared remarks, I will briefly review our Q3 financial and business highlights, provide an update on how the COVID-nineteen pandemic is impacting our business, and finally, give some early impressions as CEO and share our view of the opportunity we have to grow the business. But before I begin, I do want to thank all of the employees of PacBio for their extraordinary effort during the pandemic. During the quarter, we were able to successfully maintain production and continue with our research and development activities without significant disruption from the pandemic.
I'll start with an overview of our Q3 2020 financial. Consumable revenue for the quarter was $8,000,000 up 66% sequentially from Q2. Most of our customers who had shut down due to the pandemic in the Q2 have reopened. We are pleased to report that system utilization on installed SQL2 systems had returned to levels similar to or even higher than where they were before the pandemic. Instrument revenue for the quarter was $7,700,000 or down 14% sequentially from Q2.
As I mentioned in our previous earnings call, we have seen significant headwinds in instrument sales due to the pandemic. Many of our instrument sales opportunities have been delayed as some capital budgets were put on hold in Q2. This impacted new bookings and of course instrument revenue in Q3. We believe these delayed system purchases continue to be opportunities and we've recently seen instrument bookings improving. Additionally, we have a healthy system sales pipeline.
However, due to the pandemic, it is difficult to predict how quickly these opportunities will be converted to instrument sales. Total revenue for the Q3 was $19,100,000 which was up 12% sequentially from Q2. Overall, we were pleased with the total revenue we recorded in Q3 as we met our internal forecast while still navigating through the challenges associated with the pandemic. We successfully raised $94,000,000 from a follow on offering we conducted in August and ended the quarter with approximately $209,000,000 in cash and investments, up from the $120,000,000 balance we held at the end of June. The proceeds from the offering will allow us to execute on our 2 core strategic objectives, driving an expansion of our commercial operations and investing more aggressively in product development.
Susan will provide more details on the financial metrics later in the call. Now I'd like to provide a few updates and comments regarding the impact of COVID-nineteen on our business. As I mentioned earlier, the vast majority of our customers have reopened and utilization of our installed base of SQL2 systems is as high as it was prior to the pandemic. That said, 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 the Darwin Tree of Life plant and animal sequencing project in the United Kingdom. The flow of samples from these projects have been hindered by the pandemic.
However, we are seeing signs of this loosening up this quarter and we believe that we should see a ramp up of these projects early next year. With regard to instrument sales in the near term, many customers have delayed capital spending activities and some customers diverted those funds to activities more directly related to near term COVID response. In a typical Q3, we would receive orders for new systems from U. S. Government related customers that are looking to spend their capital budgets prior to the end of the government fiscal year.
However, due to the pandemic, we did not receive any of those orders in Q3 and it is difficult to predict when those opportunities will actually come. That said, as I said before, our sales pipeline is healthy and we expect to see an increase in instrument bookings in the 4th quarter. We will continue to monitor this closely as macroeconomic conditions created by the pandemic may have an extended impact on capital spending. Last month, we announced the launch of the SQL2E system, which represents the next instrument evolution based on our smart technology. The SQL2E system is an exciting new instrument that will make the smart technology accessible to more scientists than ever before.
The system has significantly increased computational capacity and has been optimized for HiFi sequencing by processing the data on instrument. This eliminates the need for post processing of sequence data and delivers up to a 70% reduction in secondary analysis time. Additionally, the SQL2b system is achieved to is designed to achieve up to a 90% reduction in file transfer and data storage needs. The combination of these advancements will substantially reduce the costs associated with compute and data storage and will help accelerate our customers' research. The market has responded enthusiastically to the new system and we have already received orders.
The SQL2 system is priced 5% to 10% higher than the SQL2. That is to say the SQL2e system is 5% to 10% higher than the SQL2 and we expect it will be available for shipment this month. Additionally, SQL2 systems in the field can easily be upgraded to the SQL2e, which will provide all of our SQL2 customers access to our new capabilities. With the growing popularity of PacBio HiFi sequencing, we are seeing new opportunities to collaborate with customers who are on the forefront of applying sequencing toward emerging clinical applications. Last month, we announced a collaboration with Children's Mercy Kansas City, a leader in translational research for sick children.
Children's Mercy recently launched a program called Genomic Answers for Kids, which is intended to be a data repository to facilitate the search for answers and novel treatments for pediatric genetic conditions. Their goal is to collect genomic data and health information for 30,000 children and their families over the next several years, ultimately creating a database of nearly 100,000 genomes. Children's Mercy now has 2 SQL2 systems, which they will use to incorporate HiPhy sequencing into this effort. We also recently announced a collaboration with Invitae, focusing on the investigation of clinically relevant molecular targets for use in the development of advanced diagnostic testing for epilepsy. In the first phase of this collaboration, Invitae plans to perform whole genome sequencing on a large pediatric epilepsy cohort.
Sequencing will be performed using PacBio Sequel II systems. Armed with PacBio HiFi sequencing data, Invitae will work towards generating comprehensive variant profiles to investigate the genetic basis of epilepsy. This research is intended to accelerate Invitae's development of assays to help patients obtain more accurate diagnoses and facilitate improved treatment options based on specific genetic targets. To summarize, I'm encouraged by our performance in the Q3. We were able to reach our internal revenue targets growing sequentially over Q2.
We also initiated a few important collaborations that support our belief that smart sequencing with HiPhi reads will be extremely important for clinical research applications. With that, I'd like to turn the call over to Susan, who will provide more details on our Q3 financial results and our outlook for Q4.
Thank you, Susan. And good afternoon, everyone. I am excited to be on board and participating in my first earnings call as the CFO Pacific Biosciences. I will be providing an overview of our Q3 2020 financial results with comparison sequentially and year over year. In addition, I will provide commentary on our outlook for the Q4 of 2020.
Starting with revenue, total Q3 revenue was $19,100,000 an increase of 12% from $15,600,000 in Q2 of this year, but a decrease of 13% from $21,900,000 in Q3 of last year. Let me provide some additional detail on the revenue for the quarter. Consumable revenue for the Q3 of 2020 was $8,000,000 growing sequentially 66% from $4,800,000 sold in Q2 of 2020 and up 16% from $6,900,000 sold in Q3 of 2019. The sequential growth in consumable revenue reflects the increased utilization of our installed base, which as we indicated has returned to levels prior to the pandemic. Sequel 2 consumables represented approximately 70% of our total consumable shipments in the 3rd quarter and roughly 25% of our consumable shipments were purchased for the older sequel systems.
It is encouraging that customers have been able to take advantage of the benefits that come with our SQL2 systems. We expect the proportion of consumable sales from SQL2 SQL2 systems to continue to grow as the installed base for SQL2 continues to expand. Instrument revenue recognized in Q3 was $7,700,000 down from $8,900,000 recognized in Q2 and down from $11,600,000 recognized in Q3 of last year. Inter revenue this past quarter reflected the pandemic headwinds on our instrument sales, largely due to customer uncertainty associated with COVID-nineteen and the funding environment for capital spend. Insurance bookings in Q2 had hit a low point for the year, which resulted in insurance revenue in Q3 down sequentially from Q2 of 2020.
We installed 20 SQL2 systems during the 3rd quarter, growing the installed base of SQL2 by 14% to 168 as of September 30. Service and other revenue was $3,400,000 in Q3 2020 compared to $3,300,000 last quarter and $3,400,000 last year. 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. Looking forward to Q4, we are targeting sequential growth in total revenue over Q3. We entered Q4 with a stronger instrument pipeline compared with Q3.
However, the timing of instrument installations can be unpredictable due to the ongoing impact of COVID-nineteen. System utilization has also been strong. We are closely monitoring the impact of lockdowns in countries like France and the U. K. To see how this latest wave of infections may impact our consumable sales.
Moving on to gross profit and gross margin. In Q3 of 2020, we generated a gross profit of $7,100,000 representing a gross margin of 37%, compared with a gross profit of $6,600,000 representing a gross margin of 38.7 percent in Q2 of 2020. The decrease was primarily attributed to quarter to quarter fluctuation in the average selling price of instruments. Year over year, our gross profit in the quarter improved compared to the gross profit of $6,900,000 in Q3 of 2019, which represented a gross margin of 31.6%. The improvement in gross margin compared with last year was primarily due to inventory reserves taken last year as a result of the product transition from SQL to SQL2, partially offset by under absorbed overhead from lower factory production in Q3 of 2020.
Looking forward to Q4, we anticipate gross margin will improve as our factory utilization continues to improve. We expect gross margin percent in Q4 to be in the low 40s. Moving to operating expenses. Operating expenses in the Q3 of 2020 totaled $31,200,000 up 4% compared with $30,100,000 in Q2 of 2020 and down 11% compared with $35,000,000 in Q3 of 2019. The decrease compared to last year was primarily a result of merger related expenses, which were incurred in Q3 of 2019.
The sequential increase compared with Q2 was primarily a result of increased R and D expense related to new product development costs. We continue to believe in the promise of our Hi Fi Re capability. Therefore, our goal is to accelerate our new product development efforts as well as expand our direct sales force to better serve our markets across the mid and long term. As a result, we expect our operating expenses to grow sequentially in the 4th quarter. Non cash stock based compensation included in operating expenses was $4,300,000 in Q3 of 2020, up from $3,600,000 in Q3 of 2019.
Net loss for Q3 2020 was $23,700,000 which translated to a net loss per share of $0.14 Turning to our balance sheet, we ended the 3rd quarter with a balance of $208,600,000 in unrestricted cash and investments, compared with $120,000,000 at the end of the Q2 of 2020. The 88 point $1,000,000 increase in cash was primarily a function of our follow on offering in August that netted approximately $94,000,000 plus nearly $11,000,000 in proceeds associated with employee stock option exercises, partially offset by approximately $16,000,000 of cash used for operations. Inventory balances decreased in Q3 2020 to $15,900,000 representing
a 2
$16,800,000 at the end of Q2 2020 or 2.5 inventory turns. The improvement in turns is due primarily to the higher consumption of our consumables inventory. Accounts receivable increased in Q3 to $11,800,000 reflecting a DSO of 56 days from $11,300,000 at the end of Q2 2020, reflecting a DSO of 50 days. The change primarily attributed to the timing of instrument billing. Finally, as a result of the merger termination with Illumina earlier this year, we received a reverse termination fee of $98,000,000 back in January, which has since been reported as a deferred gain on our balance sheet.
As of October 1, the contingency associated with the reverse termination fee lapsed and therefore this amount will be recognized as other income in our Q4 2020 income statement. We believe the tax impact of this gain will be minimal due to the existence of our accumulated net operating losses in R and D tax credits. With that, I will turn the call back to Christian.
Thank you, Susan. As many of you may know, one of my first objectives upon joining the company is to define the core strategies that will drive our execution and growth over the next several years. Although I've only been at the company for several weeks, that strategic planning process is well underway and I look forward to sharing more detail with you in the coming months. Today, however, I'd like to share 3 core objectives that will drive us in 2021. Our first core objective for 2021 will be focused on expanding our commercial reach.
With the launch of the SQL2 and 2E systems and the emergence of highly accurate long reads or HiFi reads, PacBio is now being recognized as not only the leader in long read sequencing, but also as the leader in accuracy and completeness among all sequencing companies. These advances make our products desirable to more customers than ever before. As a result, we need to expand our commercial team to take advantage of new opportunities and to meet the needs of these new customers. Today, we have a modest global sales force of approximately 20 sales personnel. We plan to dramatically increase the size of that sales force over the next year.
In fact, recruiting is already underway for more than a dozen new sales positions. We believe these new positions will enable us to reach more potential customers than ever before, which will help us grow. Of course, hiring and training takes time and I would expect that it would take at least a few quarters once a new salesperson is hired to get up to speed and start contributing in a meaningful way. As we expand our sales force, we will also need to expand our ability to execute within the commercial organization. As a result, I expect that we will invest in marketing, sales operations and service resources to ensure that we can quickly convert opportunities and ensure that each customer has a great experience with PacBio.
Our second core objective is focused on driving our product development pipeline. Our smart technology has headroom to improve and we have several programs underway to significantly increase the throughput of our sequencing system. This will be critically important as we engage in the large scale whole genome sequencing market. In addition to increasing throughput, we will also be improving the upfront sample preparation processes so that our customers have robust, fully automated protocols that require less starting material. Our 3rd core objective is focused on moving our smart technology deeper into the clinical diagnostic market, where we believe our technology has unique advantages over other technologies available today.
Using HiFi Reeds, there is emerging evidence that researchers and clinicians can increase their solve rate for rare genetic diseases that have not been solved using other sequencing technologies. To leverage our technology in the clinic, we will continue to execute on high quality collaborations and partnerships such as the ones that we announced with Invitae and Children's Mercy Kansas City this past quarter and our ongoing partnership with Asurion. With the recent advancements in our smart technology and the near term products to come, our long read sequencing technology will enable our customers to fundamentally advance our understanding of genomics. We expect this will have significant impact across broad areas of human biomedical research, agriculture, microbiology, infectious disease and ultimately to improve human health. Before I conclude my prepared remarks, I want to reflect on the recent shutdowns in Europe and the rapid increase in COVID cases in the United States.
These are reminders that the business environment is highly volatile, particularly with respect to new capital purchases. Nonetheless, we believe that we can grow our revenues sequentially over Q3 levels. However, the amount of growth may be impacted by the emergence closures related to the pandemic, such as what is currently happening in Europe. In fact, closures due to the pandemic may have an impact on our revenues in the first half of twenty twenty one as well. Even with the challenges associated with the pandemic, this is an exciting time for me to be joining the company.
The PacBio team has created technology and products that are truly remarkable and has created a strong foundation for building a great business. We believe that PacBio sequencing is clearly the gold standard for establishing reference genomes and it is the go to technology for plant and animal sequencing. PacBio is held in high regard among customers for high integrity and excellent customer service and the launch of several new products has given the company a great opportunity to grow. I look forward to pushing us to build a great company by accelerating the advancement of the technology and increasing our commercial presence in the markets we serve. This will conclude our prepared remarks.
And now we will open up the call for questions.
Thank you. We have your first question from Doug Schenkel from Cowen. Your line is open.
Hey, good afternoon, team PacBio. Thank you for taking the questions. So first, just on some of your commentary on systems. Could you just unpack whether or not there have been any notable differences applications, there's been areas where the ability to accept instruments and to place orders has been a little more durable versus others?
Yes. Doug, it's good to talk to you. What we're seeing geographically is the challenges are really mostly focused in AMR and EMEA and probably even more strongly than EMEA than AMR, AMR meaning Americas. But what we're seeing is that an instrument order may be somewhat delayed due to kind of funding changes or really timing of when people are getting back to work. And we saw some of that in Q2 impacted us in Q3.
And if you kind of look out in the future here, as we said in the prepared remarks, we see the pipeline improving across pretty much across the board. And it's just what we'll be concerned about is thinking through if we do have significant closures like what we see in France, for example, right now, how that will impact us in the very near term, if that answers your question. The second part on applications, I think there's a lot of excitement around whole genome sequencing right now with HiFi reads and we're getting a lot of traction and a lot of good collaborations as we've outlined. And so I'm actually pretty excited about that.
Okay. That's super helpful, Christian. And maybe kind of building off of that, while maybe the placements would have been higher if it hadn't been for the pandemic. I think there was definitely some encouraging progress was on the SQL first, was there any stocking dynamic in the quarter? And then second, maybe it's a little bit early to ask this question again, but if we look back at SQL 1, I believe pull through kind of got to about $200,000 annualized.
I think it was 8 quarters in the launch. Do you think at this point you can get there or beyond what's sequel to over the coming
quarters? Yes. I think that I'll let Ben address the question on the pull through because he's got more history than I do still. But on the stocking, there wasn't a lot of stocking per se during the quarter. I think it was people were getting back to work and we one thing at PacBio that we have is we have an excellent way of tracking the runs.
It's our SmartLink software and we're able to see what many of our customers, not all, but a significant majority of our customers are actually running. And we were quite encouraged that people were running their systems pretty consistently all through the quarter. And so we don't think it was a stocking phenomenon, particularly in the Q3. With respect to pull through, maybe Ben, you could address that.
Yes, I'd be happy to. Yes Doug, you're right that the pull through revenue has gotten back up to, let's say, $160,000 let's say, for SQL Twos, which is kind of where we were right before the pandemic hit. Kind of hard to predict where it's going to be going in the future. We are driving toward increasing that by having some of these high volume or larger projects like the All of Us project and the Darwin Tree of Life project hopefully kicking off or ramping up, I should say, next year. But at the same time, that's going to be a contest between new system placements.
So I'd say at this time, we're it's a bit early for us to predict where that's going to settle out. We're just happy that it's kind of recovered back to where we had gotten it to before the pandemic hit.
Okay. That's helpful.
Oh, sorry, Christian.
Yes. No, that's fine. I'd just say the last point on that is that I think that as we drive our commercial organization and we believe that will drive accelerated placements in the market. It will be interesting as Ben said, it will be interesting to see how fast we can empower those customers to ramp to get to the throughput levels that we would be hoping on the consumables. And we can't predict that now, but obviously, our objective would be to at least maintain or even grow from those pull through numbers.
Okay. That makes sense, guys. And maybe just the last one, specifically on the clinical side. As you noted in your prepared remarks, you had a couple new announcements over the last quarter. And then I guess Invitae was actually in October.
Is the role of PacBio in these agreements largely to elucidate the link between structural variation and genetic disorders? I ask because I'm just trying to understand if these agreements serve largely as ways for PacBio to get in there and really serve as a complementary tool to short read solutions or whether or not, you view these types of agreements as really being positive leading indicators for PacBio increasingly being viewed as competitive or even replacing short read solutions?
Yes. I think that's a great question, Doug. Thank you. I think that right now, we are clearly a complementary technology, given the fact that our costs are higher than short read approaches. However, there are customers and partnerships that are looking to figure out can they create a PacBio workflow that as we increase our technology and capability, increase our throughput, can they do more and more and get more benefit from the long read sequencing?
And so I think today we all have to look at it as it's a complementary technology, but there are a lot of cases where customers are interested in could this be a technology that we could bring more into high throughput practice. And we have some work to do on our side on driving the cost and throughput of our machines up, cost down and throughput up. But I'm really excited about the prospect of being to do that over the next few years.
Okay. Thanks again.
Yes.
We have your next question from Tejas Sabat from Morgan Stanley. Your line is open.
Hey, guys. Good evening. Just a couple of quick ones here. Christian, can you talk about just early customer feedback to the 2E announcement? And specifically, should we expect to see customers perform more long read sequencing given the time data storage and compute saves cost saves that you've spoken about?
And also over time, what fraction of the user base do you expect will Yes, Tejas. Thank
Yes, Tejas, thank you for the questions. I think the early customer feedback has been, thank you. Advance this is a great advancements. Being able to do the secondary analysis on the instrument really simplifies our life. And I think what you're going to see is customers that have significant compute infrastructure already in place may not upgrade, but they still may upgrade just because the fact that they can save money on the storage side.
What I think is the most exciting aspect of the 2e launch is it's an instrument now that you can take into a core lab, maybe not necessarily the 1st tier core lab, but a 2nd tier core lab and actually create an accessible workable solution for them. Because if you have to buy the instrument and then buy another $100,000 of compute on top of it, that's a pretty significant budget. Now we've just eliminated that other piece of compute. And so it gives us an opportunity to get into places where we probably haven't been able to penetrate before because the overall cost is too much. On how many customers are going to actually upgrade, I think they'll probably be a reasonable percentage.
And I do think new customers and new machines, I would believe that we're going to have predominantly people buying the 2E. It's just a great value for just a little bit more money.
Got it. And then just following up on Doug's question earlier on the clinical side, Christian, your work on children's Morrisey and the Invitae program, How do you expect sort of pediatric samples to kind of like ramp over time? And what do the economics look like for PACB? I mean, are you initially given that these are sort of research efforts, discounting these samples to like enable clinical adoption down the road or is it a full price sample for BAC B as it otherwise would be?
Well, in general, I think the pricing is kind of consistent with our discounting methodologies that we use for these customers. We may be more aggressive in certain situations, particularly where we are trying to get maybe some really collaboration in terms of workflow benefits or the ability to try new things with the customers that we could then standardize throughout the market. And so I think that in the short term, it will the pricing is kind of discounted, I would say, but not so heavily discounted that it's not kind of consistent with what we do. In the long run, I think our customer I think it will be the opportunity for us is as we drive our throughput up, we share the benefit of those gains or share the economics associated with the benefit between us and the customer. And we've seen this kind of story work in the past, and it'll just be dependent on market conditions and what the customers' needs are on how much of the sharing that we in fact do.
But I think given what we have in our R and D pipeline, we're going to be able to create a business where overall gross margins will improve because we have products that are priced better for the company.
Got it. And then a 2 parter on the sales force expansion here, Christian. I know you spoke about sort of a dozen open positions. How large do you envision the sales force being in steady state down the road? And have you had sort of early conversations with some of the core labs in the large genome centers perhaps in the U.
S. Where you don't essentially have them as your marquee customers, but they could become marquee customers over the next 12 months or so? And then secondly, just a little bit of a fuzzy question, if you will, on culture. I mean, regarding your push to a more aggressive customer centric culture here, what are you doing internally to ensure that the core DNA of the company around sort of R and D innovation stays intact?
Yes. That's such a great question. Let me see if I can unpack all of these. So with respect to sales force expansion, I do think over the long run, you're going to see us dramatically increase from here. I probably am not ready to tell you, well, we're at 20 now, we should be at 120 at some point.
But I think what you're going to see is we're going to unpack this in phases, particularly while we still have the headwind of the pandemic. It does I want to make sure that we aggressively build, but we do it in such a way that we can be responsible on the P and L side of the on the expense side of the equation. But also prepare ourselves as we launch new products, the sales force is in place and ready to go and train. So that's the balance that we're playing. I also think there's the balancing act there too is we want to grow quickly, but I want to make sure that we hire the highest quality people we can, we get them trained appropriately.
And so we have some infrastructure to build around that, particularly in our commercial operations organization. And so that organization doesn't really exist very much yet today. And so I need to build we need to build some of that. Once we get that in place, then we could actually accelerate our hiring probably faster. But I think in 2021, you should be thinking that we will hopefully more hopefully double our sales force, if not more.
But it really does depend on how the pandemic plays out, I think, at some level. With respect to conversations with customers, that's actually been one of the best parts of getting back into this role. I've been able to reconnect with a lot of customers around the world and been able to rekindle some of those relationships. And I do think we have significant opportunities in major customer sites around the world to get more engaged in their programs, particularly with HiFi sequencing. I mean HiFi sequencing has really changed the game for the company.
And now that we are with the launch of the 2E and what we have coming down the road, I think we have a great opportunity to get really to build up some market share and capability in those customers. And so stay tuned on that, but I've had a lot of great conversations there. And then finally, with respect to culture, you're right. We want to create a customer centric culture. We want to improve our execution.
We want to become more disciplined about how we execute and prioritize our products. But one of the most important aspects of the company is the fact that the innovation here has been unbelievable and the level of capability and talent is, it's really second to none. It's a fantastic team. And so one way you do that is, as we're doing our strategic planning process, we're reevaluating things like our mission and what are the core values that drive the company. And we're getting the entire organization engaged in that process.
So I think my goal is to be inclusive and to drive that get everyone to see why being customer centric is so important, but also let's not lose sight of getting to the cutting edge. And so you'll see us continue to invest in R and D as well. So they don't because we do have those opportunities. So it's a whole bunch of things that we have to do in order to maintain that culture. Got it.
That helps.
Yes, that was great. I appreciate the time this evening and welcome to the call Susan.
Thank you, Taytas.
We have your next question from Tycho Peterson from JPMorgan. Your line is open.
Hey, good evening, Christian. Good to have you back. I know one of the things you're committed to is narrowing the cost curve with short read. And I didn't hear a lot about that. You talked about product development as one of the 3 core objectives.
But it might be helpful to just level set how you're thinking about the path to $1,000 platinum grade genome and are there things you could do to accelerate that that you've maybe identified at this point?
Yes. Tycho, it's great to hear from you. Sorry about that, Tycho. We are accelerating this. This is actually the central aspect of R and D, right.
We have to drive the throughput up of our systems, which drives cost down. And we also, as we develop new platforms, we have to fundamentally think through how do we drive the platform cost down too, so that when you're looking all in on a sequencing project, you're getting to those competitive prices, where we need to be at population scale. And there's a couple of different things that were in the short term that we're going to be focused on. We still have lots of opportunity on the chemistry itself even on SQL2 platform. And so you'll see us working really hard on making chemistry improvements, which increase throughput, which then lowers the cost of sequencing.
You'll also see us start to really work hard on more on the front end. So that as we our systems become higher throughput, we lower the input requirements of DNA so that we can access more samples than ever before. We'll also look at how do we fully automate the sample prep process so that when you're in a high throughput situation, you're not going to lose a deal because your system is not automated. And I think those are some things that we're working on now and you'll see progress on those fronts in 2021. And of course, one of the beautiful aspects of the technology is that we are leveraging the semiconductor industry and we have the opportunity to kind of continually advance the state of the art of the number of VMWs on a chip.
And in due course, you'll see advancements on that front as well. So we're pushing on a lot of different vols at the same time here with the goal that we believe is achievable of being very competitive with short read sequencing at the whole genome large population scale. And then following up on
some of the discussion on the clinical opportunities earlier, I think this is something investors have always struggled with a little bit. What are the right opportunities for long read? And you've obviously been entrenched in transplant diagnostics. You mentioned epilepsy with EVTAY and Rugged. Are there other opportunities you've identified early on?
You've only been there a few weeks, but from your perspective that you think are particularly underappreciated from the clinical side for you guys?
Well, I think those are probably in the sweet spot right now. And I think opportunities will applications will emerge even more as people understand that we really can drive the cost down on long read. I think the only applications in my mind that probably aren't very accessible are liquid biopsy type applications where you're looking at cell free small pieces of cell free DNA. It probably doesn't make sense to be using the PacBio technology there. But you can imagine a day when every sequence is effectively a high quality de novo human sequence because the cost is reasonable and you can use that in a clinical setting.
And I do think we definitely have that vision and I do think some of our clinical partners have that vision as well. So we'll see how we go down the road there. But out of the gate, I think we've got a lot on our plate and a lot of opportunity there.
Okay. And then one or 2, hopefully, quick ones on the model before I hop off. But on the Children's Mercy, dollars 100,000 genomes over 7 years at, call it, 3,000 genomes now could be a pretty meaningful opportunity. Can you help us think about how that volume ramps over the next couple of years?
Yes. You know what, I think that's I'm not sure I don't believe that they're using all 100,000 on PacBio sequences at least out of the gate. So that probably wouldn't be a fair way to model it. We're working with them and they're you should be thinking now they're in they're much lower than that. And in fact, Ben, you might know the exact number that they're doing right now.
I don't know if you know that number, but I don't, to be honest. We could I could follow-up with Tycho on that.
Yes, Tycho, I would just add, they have 2 SQL2 systems right now, which is pretty good start. It is as you mentioned, it's a 7 year program. And so I don't think they actually have all the samples, Even if you have the running capability to actually run through those, I think the idea here is to do that over a period of time. And our goal here is to continue to increase the throughput of the system so that we can help them do more and more of those genomes over the course of those years.
Okay. And then just lastly on the launch of the 2E, you mentioned kind of the dynamic in upgrading some of the SQL 2s that are out there. I know you still have some RS2s out in the field. Do you think this is enough to kind of convert some of those older platforms that never upgraded to SQL2?
I think, absolutely, I mean, this is a pretty compelling opportunity. And to the extent there are RS instruments out there, I'll challenge our field force to make sure we get the SQL2V in front of those customers and make sure they have a significant opportunity to upgrade because the reality is that it's good for us too if we can move everyone forward into the SQL 2e platform.
Okay. Thank you. Thanks.
We have your next question from Carl Mixon from Cantor Fitzgerald. Your line is open.
Hi, guys. Thanks for the questions. Welcome, Christian, Susan. So I appreciate the color on the new bookings and the government orders being over pressured recently. But just was wondering if you had any kind of expectation that the lost opportunity or revenue could be recaptured maybe the next year or so.
Just kind of wanted to get your thoughts there and maybe these customers, these opportunities were kind of a little bit more concrete than what we might have heard?
Yes, that's a great question. And my belief is based on talking to the sales force and spending some time with the sales management is that, yes, those opportunities some of those opportunities may be lost because budgets were allocated to maybe a COVID project instead of where they originally allocated. But the vast majority, I really would call them delays and I would expect us to be aggressively pursuing those opportunities to get them converted into either new customers or additional sales as expeditiously as possible. The good news is that we our sales execution processes are have improved over the course of the last year. And now with this significant focus in commercial that the team is feeling, I think that we are going to have opportunities to convert those potential sales into actual sales likely in 2021.
Yes. Thanks, Christian. So it does sound like the, I guess, sales force expansion is kind of all systems go. But just was wondering if any of these more recent international lockdowns or the increases in COVID cases, really domestically and internationally are going to really potentially pressure that sales force expansion as it relates to maybe countries outside of the U. S, if at all?
Yes. Look, we started recruiting. We've opened up for acquisitions. We're starting the recruiting process. There's no question that lockdowns have an impact on how fast you can recruit, interview, hire.
So I would be it would be silly to say that it doesn't have some impact. The good news is that everyone is on Zoom and everyone is able to interview. And so I think that I think it won't it's not as bad as it would have been in the old days, but I think it will have some impact. However, over the course of the year, I think we should be able to get moving. We've had a lot of there's been a lot of interest in PacBio with this transition and I'm hopeful that we can leverage that into some hiring.
So that would be good.
Got it. Thank you. Turning to the SQL 2e rollout. I know it's early, there's a lot of uncertainty, but are you expecting any substantial cannibalization of SQL 2 consumable revenue earlier in 2021? And then also, I was wondering if you could comment on the feedback you've received on this new trade up program.
I'm curious because it's the first time I think you're offering Kredits customers looking to switch their instrument from a competitor rather than just a PacBio instrument? And from what I understand, it's just for North America this program. And so are you going to be rolling out similar programs in or promotions in other like regions?
Yes. So I don't think we're going to see significant cannibalization of consumable revenue because basically the consumables work on both systems. And so it's the 2E, the real drive is the on compute, the compute that's been improved. And so you're not going to see cannibalization in that sort of way as we saw from SQL 2 to SQL 1. With respect to the new promos, these are new ideas that the PacBio team is coming up with and there has been some early interest and we'll see how it goes.
I think it's too early to tell whether how well it's going to work. One reason why you start in Americas is some of the other regions have much longer sales cycles. And so we'd like to try to get some quick wins as opposed to kind of having it out there and really long sales cycles. So we'll see how that goes. But one thing you can be assured of is that we are going to be as we grow our commercial footprint, we will be focusing on the nuances of each geography and doing promotions or doing activities in each of those regions that really drive sales for that particular region.
And that's something that's really important to me because there's no question that there's differences between Asia Pacific and Europe and Americas. And to date, the company has had a very small sales footprint, so they haven't really had the capability to operate globally in the same way that maybe will help us down the road.
Okay. That sounds perfect. It's extremely helpful. I'm going to leave there guys, but thanks for taking the questions and I'll talk to you soon.
Thank you.
We have your next question from Stephen Ma from Piper Sandler. Your line is open.
Great. Thanks for the question. And Stephen, great to meet you on the call and good to talk to you again, Christian.
Yes.
Nice to meet you.
Yes, nice to meet you. Just mostly follow-up question because we've covered a lot of ground. But as your long read costs go down and there's more of a focus on clinical applications, Is there going to be internal clinical development to PacBio where you kind of own your own clinical development programs or will it be strictly partnerships going forward?
Yes, I think the core strategy today is to really focus on partnerships. That said, there may be opportunities that make more sense for us to develop internally. And I do think we have to be thinking through whether we should have FDA cleared instruments and how that would help us in the market. As I said at the beginning of my prepared remarks, we're working on a strategic planning process right now And this is front and center in the plan is trying to work through that what makes the most sense. One thing I would say is that that common strategies like building panels may or may not make sense, because I believe that we are moving to a world of whole genome sequencing in the clinic.
And I really want to make sure that we're moving to where the puck is going as opposed to where it's been. And but there may be that said, there still may be opportunities on panels that might make sense. I would just stay tuned there. And as we kind of unpack our strategy in more detail to the community, we'll definitely address that issue.
Okay, great. Thank you. And then one more quick one before we hop. On you talked about FDA cleared instruments and the potential path forward, but can you give us any updates on PEACLE2 and the China regulatory process that you have with Barry Genomics?
Yes. So Barry, I don't really have a real update today other than they've been I talked to the folks at Barry and they're working hard on getting system through the process. And hopefully, I'll have more information for you at another time, but I don't have a significant update on that today.
Okay, great. Thanks for the questions.
Yes.
There are no further questions at this time. Presenters, please continue.
Okay. Well, we'd like to thank everyone for attending today's call, and we look forward to speaking with everyone after our next quarterly earnings call. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.