Terrific. Welcome, day one of the TD Cowen Global Healthcare Conference, 46th annual. Pleased to be joined here on stage. I'm Dan Brennan. I cover tools and diagnostics, the management team of Pacific Biosciences. To my right, we have Christian Henry, CEO. To his right, we have Susan Kim, who's the CFO. Christian and Jim, welcome.
Yeah. Thank you. Thank you for the opportunity.
Definitely. A lot going on. A strong finish to the year in 4Q. A lot going on in 2026, clinical business. You've got the reusable SPARQ-Nx. You've got even new products maybe on the horizon with ultra-high throughput. Just, maybe just an intro, if you would, about how you're thinking about the business and how you're thinking about the year ahead.
Yeah. you know, one of the things we've done at PacBio over the last five years is really develop the end-to-end workflow. When I came in as CEO, I realized that for us to really realize our opportunity, we needed to build the end-to-end workflow, now we have that. What I mean by that is everything from the different types of samples that can go onto a sequencer, to the automation, to the sequencers themselves, which get all of the excitement, but really you need the entire workflow to the informatics. Over the past five years, we've built all that up with the intent that HiFi data, which is the most accurate, most comprehensive data in sequencing, will make inroads into the clinical markets, particularly in a whole genome context.
In 2025, we really started to see that as customers like the Radboud in the Netherlands have now made it the standard of care first line, first line test. What they've done is they've replaced, six other tests with the HiFi genome, and that's just indicative of what we're starting to see around the world. As you start to look into 2026, we are rolling out what we call our SPARQ-Nx chemistry, which is a real breakthrough.
Not only does it give you better performance, more throughput, better, methylation calling performance, and you know, just as high accuracy as all of us had, it also gives us the opportunity to dramatically lower the price to the customer because we're now using the SMRT Cell multiple times, which is the most expensive component of the system. Looking into 2026, it really is all about expanding the size of the projects, expanding the install base, of course, because now we have price points that can be competitive with short read sequencing in virtually any context. Now you have more accurate sequencing, more higher diagnostic yield in rare disease context and economics that are competitive. It really puts us in a position to grow.
Terrific. Maybe I'll, yeah, jump in with, you know, on the high level part. AGBT was just last week. I think it's worth hitting upon that one. Maybe speak a little bit, I think, from your perspective, correct me if I'm wrong, you guys have the Spark, SPARQ-Nx, you know, kinda coming, that was a key topic, but probably was more just reiterating what's in the place for yourselves versus you had Illumina come out with TruPath. You got Arcellx out there as well. Maybe speak a little bit about your key takeaways from AGBT, and then maybe we can hit upon, you know, your thoughts on TruPath and the competitive environment.
Yeah. Well, I think, you know, AGBT is always an eventful week for the tools space 'cause there's always a lot going on. I think my first core takeaway is that long reads matter. And you see that as our competitors are trying to look more like long reads. What they don't have that we have is that we sequence single molecules natively, and that allows us to see not only the whole genome in terms of the variants and the insertions and deletions, but to see all of the structural variation and importantly, to see the epigenetic state, whether that's methylation with methyl C or hydroxymethyl C. Something like TruPath, they can't see the epigenetics and they can't. It's a lot more expensive than what we do.
It's not true single molecule. It's still short read sequencing. From that, you know, from a competitive dynamic, I'll start there and then I guess go back to kind of the higher level impression, is that we are in a very, very strong spot because now we have economics that are more compelling than ever. We have continued improvements in our ability to see from telomere to telomere that others can't. All of that combined allows us to get to have a differentiated product. If you start to step back and think of, okay, what's really going on in the sequencing market?
You're seeing massive amounts of commoditization with all of these players with basically the same data type, you know, competing against each other for competing generally through price, which is, I guess, good for end users, but certainly perhaps not great for the industry. Then you have the long-read sequencing players, of which there's only two. We both have very unique data sets with unique capabilities, so we don't get stuck in that commoditization game as much.
I think, you know, that was kind of my takeaway, that we're in better position than we've ever been in as a company because our offering is more complete and more economical, and the rest of the industry is really working hard to kind of fight for every nickel. It's gonna be interesting to see, you know, Illumina, which is the largest player, of course, still has a, I think, a very significant stranglehold on the short read side of the market.
I think that was kinda my takeaway.
Mm-hmm. And maybe just one more TruPath since, you know, it's come up a fair. Do you think like, are there any customers that normally you would be candidates to buy PacBio that TruPath might not be as good, but maybe it's gonna be good enough? Like, do you think about it that way? Are there any incremental risks, do you think, to like your kinda growth strategy look over the next couple years from TruPath?
You know, I actually don't. Look, the one thing that Illumina has is an install base that's bigger than anyone else's. No question about it, that's clear. However, if you look at what we can do now with our SPARQ-Nx chemistry, we're less expensive, you can see more of the genome, it's higher accuracy, and we have informatics solutions now that cover the gamut, so it's a very complete solution. If you're interested in doing long reads, the cost of a Revio isn't so dear that it doesn't preclude you from getting into the market. Now, if you're not really interested in long reads, and maybe you wanna do a long read experiment to supplement something, perhaps that is a viable avenue.
We've actually had customers do head-to-head studies against the TruPath technology versus PacBio, and they ended up selecting PacBio, and that's happened 100% of the way, where we have a perfect score so far. I think what we're bringing to the table is extremely compelling, and what our competitor's doing is trying to fit a square peg into a round hole which is really nothing more, in at least in my view, than proof that long reads do matter, and they're gonna be increasingly important. There's a lot of biology that we are not seeing today because the world is dominated by short reads.
Okay. The U.S. academic revenue base, I think is, you know, could be 30% of revenues. NIH is a smaller component than that, but it's certainly a big end market, and you've been able to deal with it in these tough times. It's been a hurdle, certainly. Can you just give some color about how that customer group did last year for you and kind of what you've assumed in the guidance for this year?
Yeah. It was certainly tough. The U.S. academic market was tough. I think when you, when you start to keep score of the number of new Revios placed, you know, we were placing anywhere from, you know, 12 to 20 Revios a quarter over the course of the year. I think in all in, we placed what? two, four-
One, one, two.
What?
One, one, one, and two.
Yeah. We basically placed a handful of Revios into that academic segment.
Yeah.
That was because, you know, because of the funding environment being so challenging. Our starting point is a low base going into 2026. We, you know, to put it in maybe a dollar context, we had close to a $30 million hole just in the academic segment that we had to make up, and we still were able to grow in 2025. That's partially because the Vega launched, partially because our consumable business became really strengthened over the course of the year, and you saw three of the four quarters of 2025 being all-time record consumable levels, which is great for us because not only is it showing that people are using and generating the data which will drive more studies, but also it drove our gross margins up, et cetera.
Looking into the guide for 2026, we continue to believe that the academic market in the United States will be challenging, and so we took a very conservative view and assumed, you know, basically assumed status quo.
It does seem as though in the early days of the year, perhaps things are likely to be better than 2025. How much better? I don't think anyone can tell you, at this point in time, and we certainly are, just maintaining kind of a cautious stance towards academic market, and our guidance and our growth will be driven outside the United States, where Europe is absolutely our fastest-growing market right now, and with, the clinical, you know, the clinical customer segment being key.
Was that perhaps better? Was that some color at AGBT that you picked up? Just I don't know what the tone was there from customer meetings, or was that just kind of year to date sales force feedback?
Well, I think it's both. I mean, I certainly am in touch with the sales force, and I'm pretty close to the business. As you know, I like to have my fingers in everything. you know, some from direct customer feedback, also some from AGBT. You know, it did seem the mood of AGBT, you were there too.
Yeah.
The mood was reasonable.
It wasn't just because there were new products. It was because I think there was some energy. Last year's AGBT was really when everything went to chaos.
Right. Right.
I think it was tough. It was basically, there was no way it was going to be worse than last year's AGBT.
Yeah. Yep. Maybe just on clinical, like how big is the clinical revenue base today? Kind of can you give some color on like what it grew at last year, kind of what's assumed for this year?
Yeah. In terms of shipments last year, we grew what? 50%?
Almost 55%.
Yeah.
55%.
55%, so it was remarkable.
As a total percentage of revenue, it's still, you know, kind of in the teens.
It's accelerating. I think 2026, we would expect it to continue to grow. Whether it grows 55% or not, I mean, we'll see.
Right.
it certainly is. We have a lot of opportunity as customers are scaling. Customers like the Radboud now are, you know, are going from low 1,000 numbers of samples to high, you know, to high thousands to 10+ thousand samples. You're gonna see significant growth in some of those kinds of accounts. We have seen some of our bigger clinical scale customers in the United States launch their tests in 2025, and these are principally in kind of single gene or carrier screening type applications, and we would expect to, one, see full year kind of growth from those, but also, those are at the beginning early days of scaling. We saw in the fourth quarter, Berry Genomics got the Sequel platform through the NMPA in China for thalassemia.
They'll roll out that test this year at scale, so that'll be a great opportunity for us to continue growing. You know, there are a lot of clinical opportunities that are growing and it's global. It's not just one specific application. It's whole genome sequencing in a rare disease context. It's carrier screening, it's thalassemia testing or single gene type testing, you know, which that test alone, according to Berry Genomics, has in China alone, a market of over 400,000 tests a year. We have a great product there, you know, that has a great opportunity to drive significant penetration. You know, Berry does extremely well at this.
There's been a lot of folks have a lot of questions and concerns about China in general. We see China as a huge opportunity. We see that market. For example, there's over 1 million exomes a year being done in China alone right now. That market is ripe for conversion to whole genome. They are very forward-looking. So we see, you know, we see significant opportunity there. The short read side of that market is very competitive. There's, you know, more than 6 competitors that are China-specific competitors. On the long read side, particularly with HiFi sequencing, you know, there are no competitors. We have a real significant opportunity.
maybe just one, was the 55%, was that shipments of like consumables? Was that boxes? What was the 55% for clinical?
It was consumables.
Yeah.
That's principally consumables.
Consumables.
Yeah.
We have instruments, of course...
Right
... that we sell on top of that. One of the great things about the clinical side of our business is most of those customers need redundancy. So they have, when they buy, they either buy in twos or they, or they start with one for their research and validation, and once they go, you know, go to commercialize, they'll add a second, third, or fourth. You know, we have a handful of customers that have four more instruments that are cranking.
Maybe, staying on clinical, framing out the opportunity, what are your top three indications you think in clinical?
Well, I think number one has to be the opportunity in whole genome application in rare disease.
You know, Rare Disease, there's what? 300, 400 million patients today. Rare Disease is not rare, and I know many of you have heard that many times from lots of companies, but it's a reality. The diagnostic odyssey is real. You know, February was Rare Disease Month, and that odyssey is real. Anything we can do to fundamentally improve the diagnostic yield, decrease the time, you know, basically increase the turnaround time or decrease the time to an answer, has a dramatic impact on the healthcare system, on the patients. By far our number one application area that we're going after right now is Rare Disease. The second is, you know, carrier testing.
We developed the Kinnex PureTarget 2.0 assay that we launched in, what was that? September. That assay is getting a lot of traction. We're actually in 26 making it so that you can customize the assay so that you can look at your genes of choice. The beautiful thing about our technology is you can look at your genes of choice across the entire genome, whereas with other technologies, you just can't. Now you can look at, you know, tandem repeats, you can look at segmental duplications, you can look at a whole bunch of different things that you couldn't look at. As we customize it, that provides us even more opportunity. That, you know, in 2026, I would expect to see some of our customers really start to drive, you know, drive that.
We're also seeing newborn screening as an important application. We're involved in a major program in Thailand right now where they are really trying. I was just in Thailand a few weeks ago actually, and they're trying to integrate whole genome, long read whole genome as the newborn screen to effectively future-proof those genomes and get value out of it. One compelling statistic I saw when one of the teams presented to us was that the Thai government believes they're generating $6 of value for every $1 they spend in sequencing. I'd love to.
Do the math.
I, you know, I didn't check the math. We, you know, so take that for what it's worth. But it is compelling to believe that particularly in these single-payer healthcare systems where you can do a whole genome at birth and actually get value out of it over the life of the child or the human. We're at price points now with SPARK-Nx that we can actually provide that capability to someone like to a government like Thailand as an example. That's a, that's another key one. I guess the last one I'll say, you know, is we are seeing a lot more interest in germline-driven oncology, in particular, you know, in a pediatric setting.
We saw several examples in 2025 where the customer is sequencing, you know, the children as they come in with rare disease, but they're using that sequencing capability and the pediatrician focusing on oncology sees the opportunity to get the great data that we provide, and it's really helping provide insight into those cancer cases. I think that's not as big an application area for us yet, but it certainly is an area where you're gonna see us really focus over not just 2026, but probably, you know, for the next five years as we kind of build out that business too.
Have you guys ever said how big you think your clinical business could be in five years?
I don't think we ever have. I probably won't share that today. I suspect, you know, I suspect it can be over half of our business five years from now.
probably substantially over half even.
What would you say your top priorities are to drive that clinical business?
The 1 priority is. The top priority has to be to. We do need a higher throughput sequencer. We're in the middle of developing that sequencer, and when that sequencer comes to market, that will enable the biggest scaled clinical testing laboratories to embrace our technology and implement it. That's probably numer one. Number two is the continued demonstration of clinical evidence. And number three would be the demonstration of the health economics.
In fact, in our corporate goals this year, we have a focus on developing those health economic studies because, as I said earlier, customers like the Radboud are replacing a battery of tests with one test of a HiFi whole genome, and so starting to really measure not in terms of technology, not just in terms of improved patient outcome, which of course is by far the number one thing, but also the fundamental fact that if you use HiFi, it's actually less expensive to the system than every other sequencing technology. I think that's underappreciated. It's been underappreciated because we haven't had the scale yet to be able to do it. Now we have the complete workflow. We have Revio, which continues to improve in performance.
We'll have future generations of instruments not that far down the road. We have the SparkNex chemistry, which allows us to price the genome itself at prices comparable to what short reads can do. Now there's basically nothing left but to adopt the technology. We've put ourselves in a really good spot.
Maybe one more just on the health economics. Is that more driven by you've got to run big studies, you got to enlist, or is it more just mining what's out there? That could be we could see faster publication of some of those.
Well, I think. It's a multi-step process. The board was asking me exactly that question. You know, first we need to collect the data of things that are out there that we can mine and start to really understand it and generate it. We may want to do some studies, so they get published in, you know, peer-reviewed journals, and it's not just PacBio saying, "Hey, this is what it looks like." What I also wanna know what it looks like today and start there and then work rather than kind of keep ourselves blinded. It's gonna be a combination of both.
maybe just on SparkNex, you sound very excited about the opportunity. What's the initial feedback been? Have you disclosed like the chip reuse? Obviously, you saw Roche come out with $20 fixed and, you know, what kind of price per genome is this gonna lead to?
With the SparkNex chemistry, we went into the beta program. We started shipping the beta program in the fourth quarter. We actually shared some of the beta data at JP Morgan conference. We've shared it, we continue to share it with our customers. What customers are seeing is a 20%-25% increase in yield per run. Each SMRT Cell is delivering not just from the reuse port, but each run itself is generating 20%-25% more data. The usage from run, use to use, the data output is very consistent. The quality of the data is very consistent. It was really important for us in the beta phase to see in our customers' hands how did that workflow actually work.
We'll end up going to market with three total uses, so the initial use plus two reuses. The first part of the beta was just one extra reuse 'cause we wanted to get people used to the workflow. We've expanded the beta. We started shipping the expanded beta reagents, we're kind of expanding it globally, and we expect to fully commercialize it, you know, really kind of by early summer, late spring, early summer, and we'll see that. That, you know, it's actually the only beta program I've ever been part of where we're charging customers to be part of the beta. You have to pay $100K to get into the beta program, and you know, you get 384 genomes with that.
It's, you know, it's a good deal for the customer, but you actually have to pay to play, so to speak, which is good. Kind of indicative of that. What does it mean in terms of pricing? The reality is that the list price, if you only do two genomes, you know, run 1 SMRT Cell, it's $345 a genome, all in. Ask all the other providers, you know, what do they price if you only wanna do one genome? Quite frankly, you know, I think you would see that our price is very competitive there. If you wanna run at scale, say you wanna run on the order of 10,000 sample projects, you're gonna be sub $300.
If you wanna run 50,000 samples, you're gonna be, you know, in the $200 range, or even less. In all of those different paradigms, our gross margin is accretive to where we are today. This is one of those unique times in your career when you get to launch a product that not only provides a substantial benefit economically to the customer, which will help drive growth, but it also is highly accretive to our business. As you saw in 2025, we improved our gross margins, what? By 700 basis points, give or take. In 2026, our initial guidance is anywhere from what? 100 to-
$400.
400 basis points of further improvement. We're on this trend of improving gross margins, growing revenues, decreasing costs, you know, which is all driving towards profitability, and expanding our market share because we're more competitive than we've ever been.
Do you think you'll have some $10,000 and $50,000?
I do.
Yeah.
I do. You know, I won't call, I won't call the ball in this particular session. Yeah, I mean, I think the conversations we're having today are on a whole different scale. In 2024 and early 2025, we were talking about projects in the 1,000-3,000 sort of range. Today, you know, late 2025 and 2026, you know, we're talking anywhere from, you know, 400,000 samples down to 10,000+ samples. The nature of the conversation has changed because we've been able to get to new economics, number one, and number two, because it continues to be shown that HiFi data provides you the most comprehensive view of the genome, and with that, more biology. It's pretty straightforward from that perspective.
Have you kinda tested it out? I mean, is there any risk it's deflationary that you lower the price and there's less demand elasticity, so actually customers just spend less?
In the short run, there's always that threat, right?
The timing of when a customer actually has the samples to run to take advantage of the price is certainly a challenge that, you know, we have to manage. I've been fortunate in my career that I've had to manage this.
Several times over the career. And it is a challenge. Sure, there is that potential. If your time horizon is, say, 12 months.
I would say very little chance because the reality is that we wouldn't be involved in these bigger projects if we didn't have this ability or capability to price.
Okay. We have a couple of minutes left. Maybe just one on Revio. I mean, we've talked about it throughout. When you think about the pull-through guide, it's up a little bit year-over-year. Just discuss like the utilization outlook and kind of what the error bars around that you think.
Yeah, I think so right now, a typical Revio customer is using their, you know, on the average, I don't wanna talk about the median, but on average, you know, we're kind of in the 20% range, right, of utilization. I suspect in 2026, you're gonna see utilization continue to grow. We saw it strengthen over the course of 2025. So we're probably gonna be somewhere in the, you know, low 20s, you know, low and maybe in... Now, there are big error bars around that. Our best customers are all at kind of 80-plus % utilization. Then we have lots of customers that are, you know, turning it on once a month. So, you know, that's kinda where all this shakes out.
What I think will happen is as the projects scale in size and reuse, one of the powerful aspects of reuse for the company is that once you put that SMRT Cell on the machine, it stays on the machine, and you have a certain amount of time to actually use it and go through uses. That will be a forcing function to.
You know, force usage. You know, the customers have not reacted negatively to that at all.
They're like, "Yeah, we have projects. When we do a project, we do a project." That's actually not an issue. I think, you know, getting the utilization over the next year or two into the mid-twenties, if not closer to, you know, 26%, 27%, 28%, probably are opportunity for us to go after.
Maybe just in closing, we're just about out of time. You know, we kicked it off with what's ahead in 2026. Maybe just wrap it up and maybe just kind of sum it up about maybe the, you know, the business, the stock here, how you feel about the business and, you know, heading into the new year.
Well, I think the two takeaways. Number one, we've developed a product portfolio now, with a combination of the economics, the capability, the completeness of the workflow, the comprehensiveness of the informatics infrastructure to really take on the real market opportunities in everything from rare disease to oncology to AI-driven drug discovery, as we, you know, kinda talked about. Number two, our balance sheet is really strong. We continue to improve our cash flows. You know, we've driven our expenses down. Our gross margin is improving. Our revenue growth opportunity is accelerating. We are truly a global business where we're seeing the business opportunity outside the United States be, quite frankly, even stronger than inside the United States.
You know, we're able to mitigate the risks that way. When you think about, you know, fundamentally how patients are gonna take advantage of HiFi, it's a really compelling reason for us to be doing what we do every day. You know, I can't really comment on the stock. Stock's, I figure the stock will follow our performance, and we're just gonna keep our heads down and keep going.
Yeah. I was more trying to say like the valuation here versus the opportunity ahead.
Oh, well, gosh. I mean, look, I think our opportunity today is better than it's ever been in the history of the company.
I think we've positioned the company, we have the leadership, and we have the customer base. I think, 26 and 26 to 30 is gonna be a remarkable time for the company.
Awesome. Well, that's a great wrap-up. Thanks, Christian. Thanks for being here.
Yeah.
Appreciate it.
Thank you.
I'm gonna leave it at this point. I can't shake.