Oh, yeah? It's all done.
Welcome to the last Fireside Series of day 2 of the 2023 UBS conference. I'm John Sourbeer, one of the UBS life sciences analysts. Joining me on stage is Elizabeth Garcia, my co-coverage. Last but not least, we're really happy to be hosting PacBio here, Fireside Chat. Joining today is COO, Mark Van Oene, and Senior Director of Investor Relations, Todd Freeman. Thanks both for, for joining us here.
Great. Thanks for having us, John, and thanks for those of you that stuck around.
You know, maybe let's, let's start with, you know, Revio. Lots of there's talks in demand here in the market, you know, the long-read platform has launched this year. Year-to-date, placements have been strong, beat consensus last 2 quarters. Can you just talk about, you know, where you're seeing customer demand for these placements? You know, what are new to PacBio, new to long-read type of customers, start there.
Yeah. You know, Revio's been off to a great start. One of the, one of the better, you know, introductions of a product into the market that I've been involved with. We talked earlier on last year about how we, we pre-booked those 76 units, and that was really important just to, to give us the signal that there was demand for HiFi and for long reads at scale. That was, that was our issue with Sequel. It just couldn't sequence enough samples. The market responded really quickly to us, and we got those bookings, and it's continued. You know, we're, you know, from November through, through now, we're ahead of our original plan on the bookings.
What that did was it gave us the visibility into how we were going to grow and ship, you know, and, and just scale the manufacturing. In terms of that mix, you know, most of those early shipments, easiest sale, go and convert your current customers. The majority of those early shipments were all, and sales were all to the existing PacBio customers. Since then, we're really encouraged now with this pipeline shift of these, these new customers to PacBio. You know, as we work through this year, we're up to over 40% of our orders now coming from brand new customers to us, which, which was a thesis. That's ahead of our plan.
You know, we talked before about trying to target, you know, at least 30% new to PacBio, and, and we're ahead of that already, and, and we see that pipeline building, and, and that's what we need to do. You know, we, we only have a few hundred customers with Sequel II and, and, and prior, prior PacBio platforms, and, you know, we have to, we have to grow the install base, and we're seeing that demand and that interest now with Revio.
Great. You know, one of the top investor questions I've received about is a little bit on Christian's comments, on order intake, you know, and the quarter being less than orders shipped. You know, how should we think about placements over the long term? You know, the guidance was year in the second half as sequential increase for quarter-to-quarter in the second half, but, you know, is this increase sustainable, and how should we just think about placements going?
Yeah, think about placements. You know, we have-- every, everyone asks us today, one of the first two questions is around the orders and the backlog. You know, we, we, we think of things annually, and so we're well on track for annually. I would say that, you know, the orders were, they came earlier, and so the cadence of those orders was different than we expect, but we're, we're well on track to, to beat our annual plan for it on orders. We pay our sales team on, on annual orders, not quarterly. The timing of that is a little bit different. The shipments is where you should focus on this. We, we grew our shipments from Q1 to Q2, below 30 shipments in the first quarter, 45 shipments in the second quarter.
That will grow sequentially, each of the next two quarters. We've built the manufacturing and scaled the manufacturing, which is one of the only risks to, to grow, to grow, was to get to be able to manufacture, you know, 40, 50, 60 units a quarter. We've scaled the manufacturing to, to support the demand now, which, which is encouraging. Look for that quarterly growth this year, then in 2024, you know, we'll ship more Revios than we did in 2023. We feel really good about the Revio business and the fundamentals of that. Look at the shipments, and, and, and yes, we'll, we'll make sure that we, we figure out how to talk about backlog and, and bookings, but, focus on those shipments there, and focus on the new customers.
You know, we, we have to maintain, you know, a high rate of new customer acquisition to continue to grow and diversify the use of long reads. The other thing is to look at is just consumable use and adoption, and we had a great first start. You know, we did $6 million in consumables through Revio last quarter. Great first start, and as that starts to balance out, and this mix between existing customers that can crank away right away and the new customers that we have to onboard a little bit more slowly, you know, hoping in a few quarters, we'll be able to narrow down that range of utilization and expectations around pull-through.
You know, on those new to PacBio, on those new to long-read customers, do you have any just additional granularity on, you know, what customer type, what are the use cases you're seeing there?
Yeah, I mean, it's extremely diverse. We've sold now to over 100 different customers, the Revio system, and a big, a big increase there, again, in, in customers. It's across all the different, you know, academic and government and, and, and centralized labs and, and pharma. We're seeing it across all of our different market segments, plant and animal. It's very similar to what we would expect in the diversity of long reads, but I'll say the majority of them are coming from human genetics. That's where the real growth driver is. You know, historically, long reads have been used in plant and animal, you know, complex, difficult to sequence genomes and resolve, where they really just had to spend the extra money for long reads.
Now the human genetics world is catching on to, you know, at this price point and at this scale, the utility of long reads for human genetics. So that's where we're seeing our biggest growth right now and, and the biggest, biggest opportunity for, for Revio going forward. Todd, any, anything you want to add to that?
I guess, you know, within human genetics, any additional color there, you know, where you're seeing demand break out? Is it like population sequencing, rare and undiagnosed disease, RNA-Seq, any, you know, additional color?
Yes, yes, and yes. You know, population so that's a very different market, right? It's, it's kind of a made-up word. Let's not kid ourselves, but it's, you know, it's really just trying to baseline understand genetics, and usually with some healthcare spin, but it's really a research study. Those, you know, require a different amount of information. Traditionally, those have been a long-read market. All of Us last year, with some of their surplus budget, they were really sample limited. You know, their recruitment was going slower, they had to spend their money. You know, rather than just doing short-read genomes or more short-read applications, they started to weave in some long-read and some single-cell and some RNA work.
So, so the All of Us program has been a great new way for us to learn about the impact of long reads in PopGen. Then since then, you know, and there's 1,000 of those genomes available publicly now, and, and they'll do a 10,000 sample study by the end of this year. That continues to grow for us. Since then, MBRU in Dubai has adopted HiFi for, for their PopGen study, and Sampled here in the U.S., is taking on some of the Veterans Affairs project. They've had this big MVP, Million Veteran Program, going on for years, and, and they're now going to start spending on long reads.
We're seeing now that, you know, the surplus of money from these programs is moving outside of just short reads and into long reads, and RNA, and single-cell. It's exciting, and that's going to be a big thesis. Outside of PopGen, you know, to me, it's all around, you know, how do you drive medical genetics? It's going to be, it's going to be research right now and understanding disease, a lot of neurological, but it's whole genome sequencing. Where we're doing a lot of proof studies right now is with children's hospitals, rare undiagnosed disease. The reason there is to show the value of the information you can get and the solve rates. You know, what's the solve rate using long reads versus exomes or short reads?
A lot of these programs have always been done with clinical exomes, and there wasn't a big enough advantage to go and spend the difference between an exome and a short-read genome. Now we're starting to see people like Bioscientia in Europe, say, "Look, we're going to go from clinical exomes to, to, to HiFi genomes," and make that leap right to us. You know, here in the US, GeneDx probably has the majority of market share for clinical exomes. You know, they're now scaling with us to go move all of that business into, into HiFi genomes. It's the same thesis that Invitae had with us years ago. You know, that's why we were developing a high throughput long-read sequencer. They wanted to go all their clinical exomes to, to HiFi genomes.
so we're starting to see more of these, these big service providers take this on at scale, and it's, it's going to be a big part of our business.
You know, I think we're about 2 quarters in now with customers having a, a Revio on hand. You know, just any early feedback, learnings, you know, areas of focus, updates coming?
Yeah, I mean, no, no, no, no really high tech, you know, instrument's going to go without some hiccups. We've had a, we've had a few software bugs that we fixed. You know, we've, we've been really proud of this one. The, the failure rates, we had, we had an internal target, that we weren't going to launch it unless we were under a certain hard failure rate. So, so we knew that we were fine with having run thousands of cells internally. You still want to make sure that plays out in the field. Our hard failure rates are way below where, where we set our, our goals. That's been encouraging. There's, there's little, little learnings along the way, it's, it's been quite, quite robust and quite, quite exciting for us.
The one thing that, that's throwing people off is sort of the variability they get right now. you know, on our old Sequel platform, we had a mechanism to prevent them from overloading a cell, and if you overload it, you lose it. People are underloading as a result. They're not always getting their 90 gigs, 'cause they don't want to overload, so they're underloading. We're going to build that feature back in and later this year, release that so that, you know, people running 15 KB libraries or greater are always going to get that 90 gig to their input.
You know, manufacturing capacity, you touched on it, briefly, but just maybe dig in there, a little additional color. Just any color around that, the ramp in the second half, you know, when do you think you were going to be burning through that backlog, meeting, meeting demand? How should we think about this?
Yeah, I mean, I feel good with how we set up manufacturing. We, we do a lot of the Revio manufacturing through contract manufacturers that have that burst capacity. You know, the biggest wild card is some of these PopGen programs. You know, if they have to go and spend their money in 18 months, we're going to have to be able to, you know, support that really quickly. So, we have a good sense of the forecast for the baseline business Revios, and then any of these big things, we don't forecast them. They'd be incremental, and that's where we would just use our contract manufacturer to scale it. I'll let you talk about it.
Yeah, I mean, in terms of, yeah, backlog, we want to get to a place where, you know, ultimately exiting the year, we're, you know, able to deliver a Revio to a customer who, who places the order in the quarter. Yeah, to start the year entering with 76 units in backlog and, and, and growing that in Q1, you know, we want to get to a point where customer, you know, places an order that quarter, we're able to deliver it, that they're not waiting, you know, 4-5 months to, to get their Revio. That's, you know, how we think about scaling manufacturing and, and getting to that type of constant rate.
Yeah, the caveat being, I don't want to make 100 systems this quarter just to bleed backlog and, and then have to wind it all back down again. So we're trying, we're trying to work through that backlog surgically so that we keep customers all happy. If you order three, I might just give you one or two for now and, and another customer that third and, and hold your other in backlog. So we're trying to spread them around to everybody and, and not overbuild the manufacturing capacity. Yeah, I'm with Todd. You know, a two to four-week backlog would be great going forward, if we could get there.
I, I know you're not providing pull-through guidance on the Revio, but when you look at your, your internal expectations, how, how are things tracking there? You know, are customers finding the samples to sequence?
I mean, it's, it's really early. We, you know, Q2 is the first full quarter of having Revio in the field, and, you know, it was only, you know, 32 systems to start the quarter. It, it's definitely too soon to, to call a trend, but, you know, we had about $6 million in, in consumables for the quarter, which, you know, was a little bit ahead of our expectations. But in terms of utilization, you know, what, what we've typically said is, a sequencer, you know, typically follows this cadence of 25%-40% of max utilization. And what we saw in Q2 was, you know, Revio was, was right in that range, so, about where we expected it.
Customers not only buying SMRT Cells to get going on sequencing, but you know, they're churning them through their Revio. We saw some standing orders in the second quarter, which is, which is a good sign. That means a customer is placing an order for the next year for a certain amount of SMRT Cells to be delivered at a certain cadence. A good sign that this customer expects samples to continue to come in, and is ready to commit to take those shipments over the next year. It's, it's too early to kind of call a pull-through number, but like we've been saying, you know, 25% utilization to 40% utilization is typically where a sequencer falls. You know, right now, that's, that's what we're seeing.
I, I imagine sometime next year, we'll have a better sense dollar-wise, what, you know, Revio has in terms of pull-through.
Our systems are connected for our tech support team to be able to remotely service and support and troubleshoot. As a piece of that, we can monitor runs, we'll, you know, we'll have enough data to say, are they running on average 2 or 3 or 4 of the cells at once? You know, how regular are they running? We can, we can start to decipher that information, and we know exactly what's sitting on their shelf versus what's been run based on our shipment data. We'll have, we'll have some pretty good data to triangulate once that install base is a little bit bigger.
You know, when you think about that Sequel, the current users on the Sequel IIe, going to the, the Revio, you know, how do you envision that, you know, upgrade cycle going? Is it, you know, 3 to 2 today? Like, would it just go, you know, 2 to 1, like 1 to 1?
Yeah.
How, how does that track?
Yeah, so it's a multi-year cycle, right? You have to always think of it in that context. Over the multiple years, you know, to me, it's one to one, or sometimes it's even greater than one to one. In the initial start of that, you know, if you've got, you know, five Sequel IIes, you might only buy two or three Revios, and then as you fill up the capacity, start to expand. Most people now are a little bit more cautious about expanding as they need capacity, versus just pulling it all in right away. Over time, we do expect that to be a one-to-one transition, but again, over, over multiple years.
I guess, you know, maybe just broader long-read sequencing market. Seeing strong demand, seeing new long-read customers come in, you know, I guess, where do you think the market plays out over the long run? You know, say, if it goes from 10% of samples today, could it go to 20%-30%? How should we think about the trajectory just on long reads?
Well, let's, let's hope so. No, it's, you know, long reads have been desirable, but they were, they were just too expensive, and the throughput wasn't there. What we're seeing now with Revio is the throughput's there to do meaningful science. You know, customers like the Broad are talking about how they can convert 30%, 40% of their work to long reads to take on these programs. It's because you have the information they're going to gather and, you know, how many more Caucasian short-read genomes do you need to sequence to look at a disease, right? I think short reads will move into diverse populations and start to understand those.
A lot of the studies that have been done on arrays and, and on, on short reads in, in Western Europe and North America will start to shift to long reads, to, to look at the other parts of the genome that they haven't, and to include the epigenetics. So that epigenetic component is going to be a big driver of why we think, you know, 10%, 20%, 30% of some of these markets will shift from short to long reads for, for, for big genomic studies. It's also just different applications. You know, I'm, I'm still really big on, on the single-cell long-read play and, and looking at the whole transcriptome.
Just like we want to look at the whole genome, we, we want to look at the whole transcriptome and all those isoforms and what those are contributing to disease, and how those then correlate to the proteome. Right now, the RNA protein correlations aren't great because people aren't looking at the hundreds of thousands of isoforms that exist. They're looking at the 20,000 genes. And so that whole transcriptomics field is going to shift for us in a meaningful way as well.
We're seeing, you know, you know, customers benefiting from a price decline in, in short-read sequencing. You know, in the past, they might have just, you know, put those savings back into to, you know, do more samples. What we're seeing more of these days is, you know, I'm, I'm, I'm spending less on, on short-read sequencing, and, and that money that I have now, I'm going to, I'm going to use for different omics. I'm going to look and deploy that into long reads. I'm going to deploy that into maybe single-cell or, or spatial. You, you see, you know, long reads and, and other omics being kind of, beneficiaries from some of this, savings that customers are realizing.
Well, you know, maybe let's do that shift then from long read here to short read, to talk about some of the other products in your portfolio.
Yeah.
instruments there. You know, at 2Q earnings, you announced the Apton Biosystems acquisition, you know, and the move to a high-throughput sequencer. Maybe just can you talk a little of, you know, how this could develop, develop and accelerate that SBB chemistry to a high-throughput, and just any color on valuation there, too, as well?
Sure. First off, we, we started shipping the Onso sequencer just in the last couple of weeks here. That's our mid-throughput, short-read sequencer, and part of that Omniome acquisition we did a little over 2 years ago now, around 2 years ago now.
Mm-hmm.
You know, when, when we acquired Omniome, we had made the decision it was important to go after the oncology market, and you aren't going to beat Illumina on price ever. If we could find something more accurate, we could differentiate ourselves and, and hopefully use that sensitivity to, to win a foothold in oncology. We looked at all the different players, you know, when we bought Omniome, we had also been in discussions with Apton, because they had a high-throughput sequencer, but it was just an SBS sequencer, and, and we, we just didn't think that was going to be competitive.
We were intrigued by the idea of, in the future, if we can really get, you know, 90% Q40 data in the market for short reads, you know, what Apton could do to help accelerate that into, into a higher throughput, short-read platform. We stayed really close with John and his team as, as they made a little bit of progress on, on their system. As we got near the end of the Onso program, we had that confidence to go and, and make another investment into the short-read market, because we've demonstrated now, and multiple collaborations have shown that this accuracy is going to matter for oncology. It's not just that you can detect things with less reads, and you can, so there's an economic advantage to our, to our chemistry over SBS.
There's also things that we see that you could just never see with SBS. It's gonna be an economic thing, plus, oh God, like, we're gonna miss it. In a lot of these applications, mid-throughput's gonna get people an entry point, but they're gonna want higher throughput sequencers. We went back, and we actually had Apton do a little collaboration with us. We sent some of our team over and used their clustering, their flow cells, their optics, and their whole sequencing system, but our SBB chemistry. Within six weeks, we were able to sequence a human genome at pretty high quality and de-risk the idea of how this can accelerate the program.
So to me, now, it's, they've got really high-resolution imaging and optics that are hardened, that they've been using for years. They've got multiple Alpha systems that they're, they're running, you know, day-to-day. So rather than us having to go and build out that optical train and the optical system and all of, and then reinvent their clustering, they've got great end solution clustering as well. We can take that and just start integrating with SBB. That's, that's the acceleration and the de-risking that we're talking to doing. It's always been a part of our 2026 model, when you look back at our investor day, you know, we had some, some high-throughput, short-read revenue in that model. You know, just if anything, you know, it de-risks that, and it, and it may accelerate some of that revenue.
I guess maybe just run through the, or any additional color on just valuation?
Oh, yeah. Sure.
You know, maybe the milestone payments, maybe how this is different than, than Omniome and-
Yeah, it's, it's hard... It's really hard to, to value. Todd, Todd spins the models for me. It's really hard to value a standalone sequencing company right now, that's sort of, you know, that far from having a product on market, you know? We've looked at as many comparables as, as we could, you know, you know, emerging short-read sequencers that are either public or private, or how they've done with their fundraisings in their last rounds. We looked at some other comparables in the space, as you can imagine. We knew that they'd raised just under $60 million, so we knew, kind of knew, what their investors would, would take for a flat round.
The reason why we got to this $85 million was, A, it's all stock. Probably not worth 85 today, given our performance. You know, it's all stock. You know, we thought that it was an appropriate valuation, given what our synergy models were telling us. Now, you know, the milestone is very different. Our Omniome milestone should get triggered later this month, right? Once we start shipping our reagents to TGen there this month, we'll trigger that Omniome milestone.
It was on first customer ship, but with Apton, we said, "Look it, you know, because of this, this concern over what's the right valuation, the milestone, $25 million, can be stock or cash, depending on what we want to do at the time, it's based on achieving $50 million of revenue with their product." If, if we get to $50 million of revenue with that high-throughput product, we'll have no problem paying that milestone, and more than support it. We structured it very differently and intentionally because of some of the, the questions we were having around what was the right value.
Yeah, and, and really the value, too, around accelerating the development. If, if you could get this high-throughput product out quicker in the middle of... You know, you have a lot of customers going through a high-throughput transition right now to a new product. If, if you're able to launch a product in this, you know, in the middle of this cycle versus the tail end of this cycle, it, it gives you a much better, a bigger opportunity to get into more customers.
Yeah.
Getting into those customers, more quickly will, you know, accelerate that consumable revenue faster into high throughput, and more high-throughput consumable revenue leads to better gross margins. Ultimately, that acceleration is how we got comfortable, too, with the valuation. Also looking at OpEx, you know, this, this, you know, we're committed to 5% OpEx growth through 2026, and this was a pretty lean team that developed this product. So we're bringing aboard about 14 full-time employees, and, you know, these are employees in overall that we would have hired either later this year or early next year. So it doesn't really add any incremental OpEx.
In fact, our, our guidance, the other week, we're calling for, for lower OpEx growth than originally anticipated in 2023. You know, looking at kind of the valuation and the model, it's how quickly can we accelerate this program and really de-risk it by getting this, this already in place Alpha systems, and doing it without spending establishing incremental OpEx.
Yeah, it's probably less OpEx for an extra, if they don't have to go and build all those sequencers...
Yeah.
to go and start integrating on.
Yeah, I, I guess, you know, I think I counted Omniome to Onso was 22 months. You know, is, is that the proxy you should think about here, or how, how many timelines there?
Well, high, I mean, high-throughput sequences are a lot more difficult to, to make robustly than, than mid-throughput. It's, you know, it's why Illumina hasn't had a lot of competition on, on the high end, but there's a lot of emerging mid-throughput players. It's probably a little longer than what was with Omniome, but it's, it's not far from that. It's, it's in that timeframe. Again, you know, it's within our, our, our guidance around our 2026 revenue model.
You know, last one here on this, I guess, you know, just any thoughts on, you know, pricing in the market, you know, where you would compete with some of the existing high-throughput launches on there today when, you know, enhanced maybe with SBB and increased accuracy, how that should fit in there?
Yeah, we haven't talked about when we've obviously modeled some different price scenarios, but we haven't decided where we're gonna price it. A key factor for that is gonna be the performance of Onso over the next couple of years. You know, as multiple collaborators have shown us now, you know, if they only use a third of the sequencing, you know, price per gig is not the way to think about it, right? It really is, you know, what's, what's the, what's the price it's gonna cost them to get that answer? You know, if it's a third of the sequencing, you know, our $3 per gigabase becomes a $1 per gigabase comparable. We feel.
you know, we're going to learn a lot over these next 2 years about the performance and sensitivity of Onso that will help us inform that pricing. But for sure, we think we can price this competitively, not with where the market is today, but where we think it will be when we launch it. So we know enough about the space to, to think about what, what we have to compete with in, in that time frame. So, so we're very comfortable. You know, Apton, Apton built everything around low cost. You know, if you look at their old, their old investor deck, it was, "Can we do a $10 genome?" So all the decisions they made was off-the-shelf components, really, really simple flow cell design, you know, you know, relatively inexpensive components and lasers. The reagent volumes are pretty small.
Everything they built was, how can they make it so they can do a $10 genome and make some margin? So they made some really good trade-offs that are going to let us go and, you know, build a product that, you know, ultimately lets us price it wherever we need to. Then the extra value will likely come from the accuracy of the SBB.
You know, shifting to Onso, I think it's been about 2 weeks since you announced the first shipment out the door.
Yeah.
Any just additional updates there, color, you know, customer received it, anything up and running yet?
Yeah, no. We, we shipped it, you know, on, on the day of our earnings. We installed, we installed it the following Monday. By the end of that week, it was up and being validated. It's passed all its validation runs now. You know, all of the validation runs exceeded our 400 million clusters per lane and greater than 90% Q40. It's hitting all of our metrics already. You know, this week we're training the customer. TGen's excited, so they're, they're running our, they're running our libraries and our samples this week, next week, we'll likely ship them a bunch of consumables and trigger the milestone and, and turn it over for them to run their own samples. It's, it's going exceedingly well.
you know, we, we expect that, typically, you know, 3 to 5 days, get it in there, install it, validate it, and, and start training. you know, we're likely to ship a few more this quarter. We're, we're sort of limiting the release here. We just want to make sure this is a really good customer experience, you know, overall, really, really happy so far.
I guess just any additional incremental color on, on the backlog there, you know, customer type, you know, new to PacBio customers, just, you know, domestic versus international mix, any...
Yeah.
Advise us on that.
Yeah, it's, it's going well. We, we talk a lot about, you know, our ability to enter short reads globally, because of the scale of the commercial team and the distributor network we have. You know, so we've, we've gotten, you know, more than half our orders from Asia, you know? There's that, just like early Revio, they, they want that new technology. More than half our orders are from Asia. We've already got orders in the system from over eight different countries, you know? You're starting to see, you know, this is not going to be just a U.S.-focused opportunity for us. We really are able to globalize this from day one. I'm, I'm really excited by, by the diversity.
Now, a lot of these are in and around oncology and oncology markets, and, and we expect that. You know, these are customers that want to explore the sensitivity of Onso, that are really intrigued right now. I'm encouraged. I don't know if there's other color you want to provide, but I'm really encouraged by the early order book.
Yeah, no, across, you know, applications, you know, from, liquid biopsy, gene, gene editing, research, several different applications, service providers, academic labs. Pretty, pretty, satisfied with the diversity of customers that have ordered so far.
Actually, TGen's an interesting one because they were collaborating with Omniome when we acquired them, so they'd had early insight into the value of the accuracy. They weren't a beta customer because they were just happy with us running their samples, but they have always been sold on this. When they bought Onso, they'd never been a long-read customer of ours, so there, they bought a bundle. Now TGen became one of our early Onso orders, but also, you know, a new customer to PacBio with Revio because of that, that collaboration and that joint sale. It's, you know, we're starting to see that ability for us to satisfy a couple of different market applications for them to really play out.
I'm going to ask one more here, and I'll let Liza jump in and ask a couple questions. You know, you, you did touch, you know, a little bit about, I guess, from the Apton acquisition, but, you know, that sequencing less, and I think you've mentioned that AGBT use-
Mm-hmm.
you know, roughly 50%, 57% reduction in all-in costs, given the accuracy and the sequencing of Onso. You know, now that you have shipped units, you know, you've had these customer discussions, you know, how, how is that resonating? Does that come up in the conversations? Any just additional feedback now since then?
Yeah, I don't know if 57% is the right number. I think we'll learn more about that. It's, it's probably in that range, but, there's a, there's a couple of different ways they're going to save money. You know, what people are seeing is they don't need to do, like, molecular gymnastics to do error correction. The workflows and the library prep and, and the, and the deconvolution of those is much simpler and much easier, so there's going to be savings there. Then it really is just about, you know, having to sequence less to, to get to your, to your variants.
That's probably in the order of, you know, a third of the sequencing, and it may be, it may be even greater than that because, you know, as Christopher Mason showed, it's not just a Q40 sequencer. He's now, he's now publicly put out a bunch of his sequencing runs at Q50 plus. You know, that's why I wait and see. You know, if it stays at 90% Q40, it's, it's probably a 3x reduction in sequencing. If it, if it plays out the way I think it may and, and more of these applications turn in to be a Q50 type quality, then it will, it will reduce it even further.
Great.
Great. Awesome, guys. I'll keep it quick, but, I guess rounding it out on products, go to the original Sequel. How should we think about kind of the pull-through back half of 2023 and maybe longer term, and how to think about that instrument?
For Sequel?
For Sequel. Sequel II. Sorry, Sequel II.
Yeah. I'll tie to the, to the, the details, but at a high level, there will always be some customers that will stay on Sequel, a, a small number, because they just don't need 15 times more data.
Yeah.
All right, and so there will be some Sequel that will persist over time. If you think about what we've done, you know, we've, we've given the person the ability to get, you know, a 25M SMRT Cell versus an 8M SMRT Cell, so three times the data on a chip for cheaper.
Mm-hmm.
Right? If you've got access to both, why, why would you pay more for a third of the data? I think that's why we're seeing this really quick overall transition from Sequel II to the Revio. Todd.
Yeah, I mean, in the, the first... second quarter, it was, yeah, the first full quarter of Revio, and already, you know, 44% of the consumables were related to Revio. We expect that to, you know, Revio to take over the majority of consumables here in, in the second half of the year easily, and, you know, the, the ramp-down continue. You know, we talked about the first few, several orders we got, were from existing customers. You know, most of our largest customers, that were, you know, production Sequel II customers, have already gotten their first Revio and are going to be the ones that, that cut over first to Revio. We'll, we'll likely see the Sequel II pull-through, come, come down pretty quick, and, and customers start to decommission those.
Yeah, so I, I expect the second half, you know, Revio to take the majority of consumables, and that trend continue, continue into 2024. Having some tail of Sequel II consumables, for those customers that opt to stay on the platform.
Great. Well, congrats on such a quick launch, I guess I know this is probably a little bit less applicable for, for you, but if you could just remind us kind of biopharma customer exposure, kind of thinking at a global level for the company, and then kind of what you're seeing from biopharma customers, just given how topical that conversation's been.
Yeah. biopharma and pharma, you know, as a % of revenue is, is in the single digits. It's, it's, it's not a, a, a huge part of our, our revenue base. That is one area where, you know, that was a customer base where we, we expected them to continue to use Sequel II, specifically around AAV applications. You know, Mark mentioned, you know, some customers just don't need the pull-through of Revio, and AAV, gene vector sequencing is one of those applications. That is an area where we saw some, some biopharma customers, push out. You know, they were planning to sequence on, Sequel II or, or even purchase a Sequel II this year, delay that, that purchase, due to, to the, the biopharma funding atmosphere. Yeah.
Okay, great. Yeah.
You know, actually, maybe I just want maybe dig in here a couple applications, in the last 10 minutes. I, I just, you know, liquid biopsy, just any thoughts on demand and applications there, you know, short read, long read, how that's coming through on, on your different platforms?
Yeah. Liquid biopsy is, is one of those specifically why we, we invested in the short-read technologies. You know, if you think about what that test is trying to do, you're, you're taking a blood sample, and, and you're trying to look for DNA from a tumor or DNA from a, from a, from a, you know, from, from, from a, from a baby. You're trying to look for something other than the normal DNA. In your blood, that gets chopped up into little short fragments, and so they're all about 200 base pairs plus or minus 20 base pairs long. So it's little short pieces of stuff floating around, that you don't need a, a sequencer that can sequence 20,000 bases for. Specifically, You know, that market I think will always stay on short reads.
Because you're looking for very minor amounts of this tumor DNA in this, this, this sea of, of normal DNA, you need that sensitivity. So, so liquid biopsy, to me, is, is our play, into, into short reads with our sensitivity and our differentiation. It's why I think you need both mid and high throughput to fully capture the different market segments within liquid biopsy. The big one there that excites me is MRD. Like, there's a lot of talk about early detection. You know, the market that's nearer term is MRD, this residual monitoring of a disease. You know, with multiple tests per year, you're, you're, you're staying with that patient. A lot of it's tumor-informed, and so it's specific to that patient.
If we can, if we can use our technology to get into MRD, that's the beachhead that we're looking for, and we're directing our organization specifically at that. You know, let's not try to be a short-read sequencer for everybody. You know, let's, let's play where we've got a strength with accuracy. The rest of the other markets, you know, the germline genetics, the transcriptomics, you know, all the different microbo- microbial things, you know, those are much better applications for long reads. It's just people haven't had affordable, accurate long reads to do it, and so they've been using, they've been using short reads to, to attack a problem that's better suited for long reads.
You know, one piece that doesn't get talked about a lot, I think, is the agricultural and applied markets. Just can you remind us what % of revenue that is there and just how that's been trending for you seeing that customers?
Yeah. That's, you know, historical PacBio, that's been kind of the bread and butter for long reads because you're looking at complex genomes, you know, sometimes significantly larger than the human genome with, you know, several different, you know, multiple times the amount of chromosomes, so extremely complex genomes. That's always been in the wheelhouse for long reads. What's great is, you know, with, with the Revio launch, those same customers are, are benefiting from the increased throughput. They want to scale their agricultural samples on Revio, just, you know, as much as customers want to, you know, human genomics customers want to scale human genomes on Revio. That's still, you know, I, I...
As a % of you know, total revenue, Revio, it's, it's, you know, second, you know, next to, human, human genomics.
...Still a lot of demand from, from ag, from biodiversity projects, like the Darwin Tree of Life program. You know, they, they're using Revio to, to really kind of ramp up the amount of reference genomes they want to build. It's, it's still, you know, a focus for us and, and still, you know, I think it's a strong market.
Yeah, it's interesting. I forget about the, the dramatic increase in, in throughput with Revio. We had a postdoc presented at our company meeting from the East Coast, and she was so excited because what took her a year on Sequel, she just did in, like, 3.5 weeks. It just sort of put it into perspective for me. It's like, Oh, you're right, we did drop a lot more capacity on the market. Plant and animals, one of those where the whole movement to a pangenome reference is really important. It's not just one and done anymore. If they're going to do a, a big study into some fungus or some pine tree, you know, they're going to want to create this big pangenome reference.
Long reads have always been used for that, but it's been just taken years to get it done. We're seeing a lot of interest in researchers, not even just the Cortevas of the world, but researchers go and start to create these pangenome references with us as well.
You know, I think at the investor day, you know, you know, you talked about developing the high throughput short-read, we've seen that in the acquisition. Also, there was discussions on the desktop.
Yeah.
long read. You know, is that still in the plan? Just any thoughts on how that could play out?
Oh, it's not just in the plan. I've, I've moved people off Revio onto that, and pushing hard. It. You know, the whole idea, for the desktop version, is to leverage the technologies that are in Revio, but, you know, you know, lower throughput, lower CapEx, you know, more decentralized, you know, probably would become our first clinical box if we ever take something through the, the CE-IVD route or the U.S. FDA route. For sure, we're going to be taking it through, the China NMPA, with Berry Genomics, and that was the collaboration with Berry. Was around using a benchtop device to go and, like, just diversify the testing for, for beta thalassemia. So, that's well underway.
It's not going to be. It's not one of these, you know, really long, multi-year programs because we're leveraging 25M SMRT Cell and core technologies we already have. Yeah, we're pushing hard, and it's an important part. You know, you get Revio here for a year, year and a half, and then, you know, prove even more value of HiFi, and then, and then let people go and get into that market with a little bit less CapEx spend.
It, you know, maybe just in here in the last couple of minutes, a couple high-level, long-read questions. You've seen the short-read market, you know, you've seen talks of $100 genome, sub-$100 genome. Revio has definitely brought down that price of the long-read market, you know, where do you see the dynamics playing out in here from, from a pricing standpoint?
Yeah. It depends on the application where that matters, right? We always use the price per genome as... It's, it's just, to me, it's just a measuring stick of, of the pricing of the technology. It doesn't mean that short reads, in my mind, 5 years from now, are used for genome sequencing. Right? Like, I'm not going to spend any time building a whole genome workflow for Onso or for short reads. You know, that, that's where I would invest in making sure that people can use long read data and do genomes with long reads that include the epigenome. I think that's going to become a more and more important part of genome sequencing. So I always think that the long reads will have a premium for whole genome sequencing, a premium price, because of the, the differentiated value over short reads.
You know, so where we have to pay attention to that, that $100 genome is, you know, that $1 per gigabase or that $2 per gigabase that, that, you know, Illumina and BGI and Element or whoever else is going to drive towards. You know, that's important for us to think about in the context of liquid biopsy or some of the different microbial or infectious disease. So, so it's, it's a, it's a benchmark for where we have to think about the ability to price short reads, but not necessarily whole genomes. So, and so I have to think, you have to differentiate it that way. I think there's going to be a premium, value for long read genomes over short reads for, for forever.
I think there's going to be a premium value that we can get in the short-read market with a higher accuracy because of the extra sensitivity.
You know, maybe just, yeah, touch on just academic demand, you know, any updates we've seen there? We've seen the NIH budgets. How is that playing through to your customers?
Yeah, I mean. So just like we've been a little bit protected in China, because of the new product launches, we're also protected a little bit with the academic budgets, especially here in NIH, because even if that budget's flat or slightly down, there's the shift within the spend. What we're trying to capture now is a spend shift within that NIH budget, not looking for them to increase budget so that we can grow. It is this shift that we're seeing, and as Todd, Todd alluded to, people don't have to spend as much on their short reads, so they're adding extra omics into their, into their studies, and so that's a shift of the spend of NIH.
You know, anything we're doing for All of Us is a shift of the All of Us dollars. To us, it's, it's not new money that All of Us was granted. It's the shift within that, that, that we're paying attention to, more so than just the, the overall magnitude of the budget.
I guess last question here, you know, bring it high level, you know, philosophical. Maybe where do you see we are, what inning today, you know, in long read? Then if you get the desktop, you start to see clinical penetration, you know, like, where do you say we would be in five years from now?
Oh, God, what are we, 1% market share? We're probably, we're probably not even into an inning yet. You know, we're, we're, we, we're still warming up. You know, it's a huge opportunity for us. You know, you talk about these, these rare disease cases and children's hospital networks, you know, they want to help these families with this diagnostic odyssey. And we think we can help them, and we can help faster and, and for cheaper than, than what they're doing and, and actually, you know, solve more of these cases. I think there's a real opportunity for us in that clinical aspect. You know, I looked at the GeneDx's and the Bioscientia and some of these larger providers to really accelerate our win in shifting clinical exomes to, to clinical HiFi genomes.
I, so I'm going to be leaning hard on our partners to help us drive that marketplace. There's, you know, the, the pay, the payers are, are getting more accustomed to paying for genetics and genomics in a lot of these cases. I feel like a lot of work's been done over the years to get the payers' heads wrapped around the way we're doing this testing, and, we're going to be prize, primed for growth. It's, it's so early and, you know, that, that's why it was important for us to get Revio out when we did, because these markets are earlier in, in, in their, in their potential, and, I think we're poised with the right technology to take them on.
Great. Well, I think with that, we're at the top here, and thanks for the time. Mark and Todd, thank you very much for joining us today, and thank you for those for listening in.
Thanks, Sean. Thanks, Linda.
Thank you.