Pacific Biosciences of California's (PACB) CEO Mike Hunkapiller on Q1 2016 Results - Earnings Call Transcript

| About: Pacific Biosciences (PACB)

Pacific Biosciences of California, Inc. (NASDAQ:PACB)

Q1 2016 Earnings Conference Call

April 21, 2016 04:30 PM ET

Executives

Trevin Rard - IR

Mike Hunkapiller - CEO

Susan Barnes - CFO

Ben Gong - VP of Finance and Treasurer

Analysts

Amanda Murphy - William Blair

Joe Munda - First Analysis

Bryan Brokmeier - Cantor Fitzgerald

Bill Quirk - Piper Jaffray

Tycho Peterson - JP Morgan

Operator

Good day, ladies and gentlemen, and welcome to the Pacific Biosciences of California First Quarter 2016 Earnings 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 [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Trevin Rard. Ma’am, you may begin.

Trevin Rard

Thank you. Good afternoon and welcome to the Pacific Biosciences first quarter 2016 conference call. 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 10-K available on the Securities and Exchange Commission website at www.sec.gov.

With me today are Mike Hunkapiller, our Chief Executive Officer; Susan Barnes, our Chief Financial Officer; and Ben Gong, our Vice President of Finance and Treasurer.

Before we begin, I'd like to remind you that on today's call we will be making forward-looking statements, including plans and expectations relating to our financial projections, products and other future events. You should not place undue reliance on forward-looking statements - subject to assumptions, risks and uncertainties, and may differ materially from actual results. These risks and uncertainties are more fully described in our Securities and Exchange Commission filings, including our most recently filed report on Form 10-K. 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 live call.

I'd now like to turn the call over to Mike.

Mike Hunkapiller

Thanks, Trevin. Good afternoon and thank you for joining us today. We are pleased with our first quarter results and our continued progress in driving growth in our business. Highlights of our Q1 financial results are as follows. We received orders for 30 Sequel Systems and three RS II systems during the first quarter. The Sequel System orders came from a broad range of customers and are well distributed across the US, Europe and Asia. About half of the new systems order represent new PacBio customer sites.

We shipped 18 Sequel instruments during the first quarter compared to 10 instruments shipped during Q4. Total revenue for the first quarter was $19.1 million, up 8% from Q1 2015. We're on target for the revenue forecast for this year. With significant and growing backlog, we're well-positioned to deliver sequential revenue growth throughout the year.

Consumable revenue for the first quarter was $4.6 million, up 8% from Q1 2015. System utilization among RS II users has remained steady. Instrument revenue for the first quarter was $7.8 million, up 11% compared with Q1 2015. We installed a mixture of both RS II and Sequel instruments this past quarter. Going forward we expect almost all of our new installs to be Sequel Systems.

Our gross margin improved from approximately 34% during Q1 last year up to 50% this year - this quarter. This largely reflects the higher margin we generate from selling Sequel Systems compared to RS II systems. We are pleased to see that we are tracking toward profitability with improved product margins.

Now I'd like to provide an update on our recent Sequel product launch. Demand for the new product continues to be robust. We're pleased with the flow of instrument orders coming in and the pipeline for new orders is very strong. We're seeing a good mix of new and existing customers interested in acquiring Sequel Systems.

Beginning with our initial announcement of Sequel System, we have said that we planned a controlled ramp up of instrument system shipments as we deal with the usual issues arising during a complex new product introduction. We’ve also pointed out that we will be working with limited supply of the Sequel SMRT Cells until we transition from our low-volume prototype production supplier to our long-term high volume supplier scheduled for this summer.

While we have ramped up Sequel shipments modestly during Q1 compared to the previous quarter, we have held to our original controlled release plan limiting both instrument and SMRT Cell shipments. Many of the customers in our backlog would like to get their systems installed earlier and those with installed units would prefer a less restricted supply of SMRT Cells, but in general they are understanding of the process we were employing.

In summary, the Sequel product launch is moving along as we had planned. We have a major software upgrade release scheduled for mid to late May and we're on schedule for the summer SMRT Cell supplier transition. The first half of this year is a transition period as we've said before and we believe we're on track to substantially step up the rate of Sequel instrument and consumable shipments in the second half of the year.

Now turning to some other recent highlights; we were very pleased with the turn out and interest level of customers at the AGBT conference in February in Florida. More than 40 talks and posters at the conference showcased PacBio sequencing data. We co-hosted a workshop with Roche that was attended by over 500 people at the conference. The theme of the workshop was revealing the unknowns in medical research with long-read SMRT sequencing. Speakers from Stanford University, UC San Diego, Uppsala University and the School of Medicine at Mount Sinai all presented on how they're using PacBio data to further their research toward improving human health.

In the hospitality suites, PacBio had a Sequel demonstration system on display and Roche had a demo unit of the Sequel based sequencer they expect to launch later this year. The plenary sessions were kept off by a presentation by our CSO, Jonas Korlach, who presented early data generated from Sequel System demonstrating the power of the platform to produce similar long-read lengths and high accuracy achieved with the PacBio RS II while generating significantly more data.

On the publications front, we have seen a couple of high-profile papers published in recent issues of Science and Nature that highlight the value of the PacBio SMRT sequencing. The major article entitled DNA methylation on N6-adenine in mammalian embryonic stem cells with lead author s from the Yale School of Medicine describes how this research group used SMRT sequencing to identify the sites of N6 methyl adenine in these cells.

Numerous studies employing SMRT sequencing have shown that in bacteria the [indiscernible] genetic modification is important both in regulation of gene expression, resistant to phage infection and changes in bacterial virulence. Until recently it had not been widely believed to be important in higher organisms. Last year three studies confirmed its existence in an insect, nematode and green algae genome respectively [indiscernible] was involved in gene activation in these species. The most definitive of these studies employed SMRT sequencing. The confirmation in this new Nature paper that this methylation pattern also appears in mammalian stem cells and appears to promote gene silencing, they had significant implications in the fields of epigenetics, stem cell research and developmental biology.

The second publication I'll highlight entitled long-read sequence assembly of the gorilla genome made the cover of the April 1 issue of Science Magazine. Scientists from the University of Washington, McDonnell Genome Institute at Washington University in St. Louis and other institutions used SMRT sequencing to generate a very high-quality assembly of the gorilla genome. An important reference says that gorilla is one of our closest relatives.

Previous assemblies of the gorilla genome created with a combination of short-read and Sanger sequencing still contained over 400,000 gaps with large stretches of missing sequence. The team was able to reduce the fragmentation by over 96% using PacBio long-reads and PacBio software tools that have been designed for the assembly of large complex genomes. They also looked at structural variation between gorilla and human genomes finding that 86% of the indels and inversion variants detected with PacBio had never been seen before.

These dramatic results from this study led the authors to conclude “the genome assembly that results from using the long-read data provides a more complete picture of gene content, structural variation and repeat biology, improving population genetic and evolutionary influences. Long read sequencing now makes it practical for individual laboratories to generate high-quality reference genomes for complex mammalian genomes.”

I will conclude my opening remarks with a brief update on our Roche relationship. In addition to coordinating marketing activities with us at AGBT, Roche continues to develop assays in preparation for their Sequel based product launch scheduled for later this year. Meanwhile, we are working on enhancing our manufacturing and service processes to meet the requirements of the Roche launch.

That concludes my initial remarks and I'll turn it over to Susan to provide more details on our financial results.

Susan Barnes

Thank you, Mike, and good afternoon everyone. I will begin my remarks today with financial overview of our first quarter that ended March 31, 2015. I will then provide details on our operating results for the quarter with a comparison to the same period last year. I will conclude my remarks with a brief discussion of our balance sheet.

Starting with our first quarter 2016 financial highlights, during the first quarter we recognized revenue of $19.1 million and incurred a net loss of $19.4 million. Q1 revenue of $19.1 million was up $1.5 million from $17.6 million recognized in Q1 of 2015. Instrument revenue recorded was up $800,000 from last year with $7.8 million recognized in Q1 2016 compared with $7 million recognized in Q1 of 2015.

As Mike mentioned, most of the instrument revenue recognized in the first quarter stem from Sequel installations and going forward we expect almost all of our new installations to be Sequel Systems. Consumer revenue remained steady and increased to $4.6 million in Q1, up from $4.3 million reported in the first quarter of 2015. Service and other revenue reached 15% to $3.1 million in the quarter compared to $2.7 million in Q1 of 2015. Contractual revenue recognized in the quarter was $3.6 million consistent with last year.

Moving to gross profit and margins, we generated gross profit of $9.5 million in Q1 2016 representing a gross margin of 50%. This was up from $5.9 million of gross profit and 34% gross margin recognized in Q1 of 2015. The increase in margin year-over-year was primarily a result of the introduction of the higher margin Sequel instrument revenues into the product mix.

Moving to operating expenses, operating expenses in the first quarter of 2016 totaled $28.1 million, an increase of $2.8 million from the $25.3 million incurred in Q1 of 2015. $1.1 million of the $2.8 million increase was due to increased non-cash stock-based compensation expense.

Further breaking down our operating expenses, R&D expenses in the quarter were $16.4 million, $1.9 million higher and $14.5 million of R&D expenses occurred in Q1 of 2015. Year-over-year increase in Q1 R&D expenses was slightly due to higher compensation expenses in 2016. This expense increase resulted from a growth in R&D headcount required to continue the product development and advancement of the Sequel product line. R&D expenses this quarter included $1.9 million of non-cash stock-based compensation expense, $600,000 increase over Q1 of 2015.

Sales, general and administrative expenses for the quarter were up $900,000 from a year ago. In Q1 2016, we incurred $11.7 million of expenses compared to $10.8 million in Q1 of 2015. SG&A expense increase in Q1 2016 was also largely a result of year-over-year increase in compensation related expenses, included non-cash stock-based compensation expense. The increase in compensation was driven by growth in number of sales, marketing, field and office staff required to successfully support the growth of Sequel products. SG&A expense in the quarter included $2.2 million of non-cash stock-based compensation, up $500,000 from the $1.7 million recognized in Q1 of 2015.

In the area of other income and expense, in Q1, we recorded $800,000 of net interest and other expense. This is primarily related to interest on the debt we took on in Q1 of 2013. Ben will provide further guidance on our ongoing expense rates later in the call.

Now turning to our balance sheet, in Q1, our cash and investments increased by $9.2 million to a balance of $91.5 million from $82.3 million at 2015 year-end. The increase was primarily a result of $26.5 million of proceeds from our ATM in the quarter and offset by a net loss in the quarter of $19.4 million.

This quarter, accounts receivable increased $2.7 million to $8 million, up from $5.3 million at the end of 2015. This increase reflect higher product revenues in Q1 compared to Q4 and timing of collections. In Q1 of 2016, inventory balances increased $1.2 million to $12.2 million from a $11 million at the end of 2015.

This concludes my remarks on the financial results for the quarter, and I would like to turn the call over to Ben.

Ben Gong

Thank you, Susan. I’ll now be providing an updated forecast of our 2016 financial performance. First of all, as Mike mentioned earlier, we booked orders for 30 Sequel systems this past quarter. As a reminder, we do not provide a forecast for future instrument bookings. We reported our actual instrument bookings for Q1, because this differs materially from our instrument installs and revenues. Our plan is to continue reporting bookings numbers during this transition period. Therefore, we expect to also report our Q2 instrument bookings next quarter.

Now moving on to revenue, our Q1 revenues were a little above our previous forecast, and therefore, we continue to expect our total revenue for the year to be at least $93 million. Excluding Roche contractual revenue, this represent at least a 70% increase in product and service revenue year-over-year.

Looking at the near-term, we expect Q2 revenue to grow sequentially over Q1. As a reminder, we do not have milestone revenue to recognize this year, so quarterly comparisons of revenue from last year will vary. As an example, in Q2 last year, we reported total of about $25 million in revenue, out of which $10 million represented milestone revenue. For Q2 this year, we expect our product and service revenue to increase significantly year-over-year. However, that growth will not likely make up for the $10 million decrease in milestone revenue. Therefore, we expect our total Q2 revenue to be less than the $25 million we reported for Q2 last year. As a side note, the quarterly amortization of Roche contractual revenue in Q2 should remain the same as Q1 and roughly $3.6 million.

Moving on to gross margin, we are pleased to see the improvement in gross margin up to 50% this past quarter, which was largely driven by the change from RS II instrument shipments in Q1 last year to primarily Sequel instrument shipments in Q1 this year. We expect to see similar gross margins in the near term. However, as a reminder, the $3.6 million in quarterly contractual revenue would just about go away after Q3 this year. And since this has recorded 100% gross margin, our overall gross margin percentage will likely decrease in Q4 this year. For the year, we expect our average gross margin percent to be in the high 40%, which is up from our previous forecast of the low-40s.

A further note on quarterly comparisons. As I just mentioned earlier, in Q2 last year we reported $10 million of milestone revenue and 100% gross margin, which brought our total gross margin up to 58% for that quarter. We do not expect the gross margin to be as high in Q2 this year.

Our operating expense in Q1 increased by 11% compared with Q1 of last year. But as Susan mentioned earlier, a large portion of the increase stemmed from increased non-cash stock compensation expense. We expect to continue to report stock compensation expense at this higher level throughout the year.

Taking this into account, we expect our total operating expense to grow by roughly 10% for the year. This comparison excludes the one-time $23 million gain we recognized in Q3 last year associated with the amendment of our property and leases. We now estimate our combined non-cash stock compensation expense and depreciation expense to be between $5 million and $6 million per quarter this year. Regarding interest expense, we continue to expect to record approximately $3 million for the year.

To sum up our forecast update, we expect to record a net loss of approximately $73 million for the year, which includes over $20 million of non-cash expense.

And with that, we will open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Amanda Murphy with William Blair. Your line is open.

Amanda Murphy

Hi, good afternoon. I had a question on the software side of the commentary that you made. So you had talked about making iterations with early access customers and obviously the upgrade coming in May. So I was just curious what – can you maybe summarize the sort of issues that have come up or kind of what you’re working on now? And then also just kind of give us a sense of how customers are thinking about the May upgrade? So do you think in other words, people might be waiting for that to come out before ordering the platform?

Mike Hunkapiller

Well, I don’t think that people who are not yet customers know about the software release we have planned in May, so I don’t think that’s an issue. We have had a series of sort of interim minor bug fixes and things over the last two, three months since we started doing installs. This is the first major one where we have got to continuing bug fix type software changes, but it’s mostly ones that have to do with increasing performance and adding support for some of the applications that weren’t initially supported with the first software release. So it’s tailored along with some minor chemistry changes as well. So it’s the first big change that we will add to the software since we went out there.

Amanda Murphy

Got it. Yes, I guess I was to ask -- maybe this is broader question Ben, so obviously you have given guidance and commentary on revenue throughout the year. But from our perspective, and maybe it’s too early to answer that, but how do you think about the trajectory of bookings over time? So it’s -- beginning of the launch, you have rose coming online in the back half of the year. Should we think about acceleration over a period of time or how do we think about that relative to what you have put up in the past couple of quarters?

Ben Gong

I will take a first shot at that one. We are not trying to give a forecast on the Sequel orders, but the revenue forecast is at least as strong as what we were giving from before, so a combination of our Q1 performance and the order flow and the pipeline we have, give us the confidence of at least seeing that same sort of revenue growth. I hope that helps.

Mike Hunkapiller

I mean, we did comment that we think we have a pretty strong pipeline with potential new orders and we are seeing continued very strong interest in technology, so that’s why we were able to kind of reaffirm what we thought we would do for the year from a revenue perspective, and a little bit by how fast we can ramp up things, but we feel that we are pretty much on track with what we initially planned for that, so as long as the SMRT Cell shipments supplies come in we’ll be in pretty good shape.

Susan Barnes

Sometimes we hesitate on quarter to quarter fluctuations on orders because they are cut off along the way so if you over interpret that number it could be a mistake as well.

Mike Hunkapiller

We are very pleased with where we came in the quarter and the other way to look at it is we’ve now had 79 bookings in two quarters, first two quarters introduction that represents half of what we sold with the RS over a five plus year period.

Amanda Murphy

And then I just had a quick one on application that you’re seeing or maybe it’s hard to answer, but you did I think you said that half the orders were for non-tech bio customers is that correct?

Mike Hunkapiller

That's right. Just to give you an indication of let’s say orders from new sites versus existing sites.

Amanda Murphy

But did you talk about the customer base in terms of human versus plants and animals recognizing that obviously not every center is dedicated to human but there is, I think there is a decent amount of companies out there around human and platforms that might be leveraged given the existing technologies, so it would be - I think it would be helpful to kind of talk about what you're seeing from an adoption perspective in terms of who are ordering the platform?

Mike Hunkapiller

May be a slight increase as we saw in the first quarter of the sequel introduction in terms of a tilt towards the human side as we had seen even with the RS last year but it's really as we tried to kind of mention briefly pretty much across the board in terms of the application space between the microbial world, plant and animal world and the human space, we’re seeing pretty good uptick in all of those areas and in all of the geographies.

Operator

Our next question comes from the line of Joe Munda with First Analysis. Your line is open.

Joe Munda

I would just wanted to touch, you touched a little bit on geographies there I just wanted to get a sense of the demand you’re seeing, I know competitors have been talking about a little bit of softness in Europe. I was hoping to get a little bit of color there from you guys in seeing as far as breakout geographies in demand any help there would be great?

Mike Hunkapiller

Well I assume you’re specifically talking about Europe.

Joe Munda

Yes, I'm specifically talking about Europe.

Mike Hunkapiller

Actually we had a very good quarter in Europe both in Q1 as well as Q4 on sequel systems, so we’ve not seen that issue arising.

Susan Barnes

And the pipeline was strong for Europe as well.

Joe Munda

As far as Roche goes, I know you touched a little bit here, you gave us a little color on AGBT, I’m just wondering last quarter you gave us some idea of how many systems went to Roche, is there any chance can you give us some sort of color there as far as this quarter is concerned?

Mike Hunkapiller

We shipped an additional few instruments to Roche at this point as - I think we tried to highlight, most of those shipments – or I mean, all the shipments to them so far have been for their internal development efforts on assays and beginning of their training program for some other field people. We don't expect a substantial ramp up until they get closer to their product introduction.

Joe Munda

So very similar to the handful you shipped them last quarter?

Mike Hunkapiller

Pretty close.

Joe Munda

And then my final question, the transition of the headquarters, in your mind how is that going as far as on schedule, on point any color would be great?

Mike Hunkapiller

Yes, going on just fine. So over the next year we expect to be transitioning to that new location but we have overlap in terms of business here, so it will be a pretty orderly move from this location to the next location which is a quarter mile away.

Operator

Thank you. Our next question comes from the line of Bryan Brokmeier with Cantor Fitzgerald. Your line is open.

Bryan Brokmeier

Are you producing SMRT Cells in line with your expectation?

Mike Hunkapiller

Yes.

Bryan Brokmeier

Is there any --.

Mike Hunkapiller

But we expect it to be very constrained in the first part as you get there.

Bryan Brokmeier

Is there any variability in the rate of production of the SMRT Cells at the current manufacturer and do they have any ability to ramp a little bit over the next quarter?

Mike Hunkapiller

Well, they will ramp a little bit as we sort of compress some of the development efforts that we’ve had going on there. But coalesce to the sort of final design, but they have long term limited supply capabilities to us that they are predominantly an R&D development house they will do low-level manufacturing but they won’t devote a substantial portion of their SaaS capacity to one supply effort which is why we’ve sensed early part of summer of last year we've been working with one of their partners to convert over to a high volume SaaS that will be dedicated to us. They have been doing what we expected out of them we just knew that we were going to be limited by them.

Bryan Brokmeier

And those the 30 orders that’s really strong, where they all research platforms?

Mike Hunkapiller

Other than the – well if you can count them the ones, the few that we shipped to Roche as – we got orders from Roche as research because that’s what they are using them for, yes.

Bryan Brokmeier

And if customers place orders today, are they still able to receive them in 2016 or you now starting to work on 2017 placements?

Mike Hunkapiller

More likely if they’re placing it today we’ll still be able to deliver in 2016.

Bryan Brokmeier

And then lastly, is there a shift of some overhead costs to R&D from cost of goods which also positively impacted the gross margin?

Susan Barnes

No.

Mike Hunkapiller

I think he meant the opposite. You meant was there a shift of overhead into operating expense but from a gross margin side?

Susan Barnes

That's why I said into R&D.

Mike Hunkapiller

The answer is no.

Operator

Our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is open.

Bill Quirk

Quick question, I'm just trying to foot the model here between shipments and installs because obviously we had more shipments last quarter than we had install recognized revenue, did we have a little bit of that phenomenon going on here this quarter as well?

Susan Barnes

Yes.

Bill Quirk

And then in terms of Roche's development plans, can you help share with us a little bit kind of what the menu development looks like, so we can obviously better have a handle on what that trajectory might look like? Thanks.

Mike Hunkapiller

Well, the answer is no, as we said before we are leaving it up to Roche to make the announcements when they decide to as to what their panels are going to be initially and what their longer-term plans are as well. So, it's not up to us to reveal their plans but to them. A sense of what they are but it's just - it’s their business so we have to be careful about that.

Bill Quirk

Mike, may be asking the question in another way, at what point would you anticipate that we get a bigger update on that so that obviously the Roche analyst that also asked, can have a better handle on what their side of the trajectory might look like?

Mike Hunkapiller

Again that’s a question that’s better addressed to Roche, I mean they gave some hint of what some of their plans were back in at AGPT but they have a large organization to go through in order to go through their validation process for diagnostic market as well as training their people and they don't want to get too far ahead until they are ready to do that and break the tail. Just so they don’t confuse their own sales affiliates, so I would prefer that you address that question to them.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Tycho Peterson with JP Morgan. Your line is open.

Tycho Peterson

Mike, can you may be just touch on what the funding environment is like for projects that include long-reads, in other words is it easier to get grants through in the past couple of months if the project includes the long-read component?

Mike Hunkapiller

You're talking about in the academic world --

Tycho Peterson

Yeah. NIH. Are you seeing a shift toward more long-read projects?

Mike Hunkapiller

Well, I think yes in a sense that we are seeing more activity in the academic sector in the US then we had for a while, whether those are all NIH grants or other kinds of grants, I’m not quite so up on the detail. But I think for the last year we’re certainly seeing a bigger interest in understanding the importance of structural variation in particular and how much the genome in certain areas we just completely missed in the short-read technologies, all of the shot-read technologies. And, even NHGRI had a specific grant proposal mid last year that was directed towards really improved genome assemblies for references using longer read technologies. But I think in general, it's mostly not so much because NIH is driving it, as because the scientists who are applying for money are realizing how much more they can learn using long reads and getting really good quality sequences and I think the guerilla publication in science is a really good indication of that value on a genome that had been looked at a lot over a 10-year plus period and when you realize how much was missed despite the various generations of medium and short-term rate read approaches that were applied to it. It certainly helps in that regard of bringing it that issue to a wider audience.

Tycho Peterson

Okay. And then wondering if maybe you can touch on the competitive landscape, to the degree to which, how often are you doing head-to-head with 10X and maybe just talk a little bit about your own path to bring down the sample input requirement with the RainDance collaboration, that seems to be something your customers are looking forward to?

Mike Hunkapiller

Well, occasionally, people will raise questions about 10X or Moleculo, which has kind of dropped off the charts or similar kind of link or synthetic reads, whatever you call them. I don't think at this point, it’s been a major issue and more than handful of -- tiny handful of sales situations. Not dissimilar from -- you still get the occasional question from a customer about how we compare to the nanopore-based technologies, but I don't think at this point, either of them is a major competitive issue for us. I'm not saying that’s based that way forever, but that's kind of the history that we've had over the last six months.

Tycho Peterson

Okay. And then in terms of reducing sample input requirements with RainDance, can you maybe just touch on the timeline there?

Mike Hunkapiller

Well, the issue isn't so much reducing the sample input requirements with RainDance, it’s being able to do, I would correct, it’s maybe the wrong word, but more efficiently how you take advantage of being able to look at really long pieces of DNA, but not breaking them down in the end to 200 base pair sequence reads, but breaking them down into 5 to 10 KB sequence reads to really not lose your ability to get at structural variation information. And so it's not fundamentally different from the 10X approach or the Moleculo approach or the all complete genomics approach. It just doesn't get stuck with the issues of PCR bias and the impact of doing 200 base pair sequence reads. It's not geared per se to using less material. It may require little less material in the start, but that's not been the primary goal for the project.

Tycho Peterson

Okay. And then lastly, one of the things you talked about at AGBT was the Sweden population sequencing effort and is it fair to assume that most of the easy pop seq efforts that are going to come forward will have a long read component to it?

Mike Hunkapiller

Well, that would be our plan. It's up to the customers to say what they’re going to do, but we've done a pretty decent job of piggybacking on -- even with the RS on a lot of those big population studies where they are going to do obviously more than certainly an RS to do from the number of samples and even more than a handful of sequel systems at this point to do, but that said, they all recognize that they need far better definitive reference genomes within their population subgroups to make sense out of the larger base of data that they generate. And we try to participate in all of those programs.

Operator

Thank you. And we have a follow-up from the line of Joe Munda with First Analysis. Your line is open.

Joe Munda

Thank you. Just really two quick questions, Mike. There’s been a lot of noise coming out of Gene at published proof-of-principle study, any thoughts there that we're talking about serving the clinical market, and how does that, I guess -- how does that relationship with Roche, how does that coalesce with what you guys are doing with them? And then my second question for Ben, on the last conference call, you talked about 60 million in funding for the year, is that 60 million in addition to what you just did at the ATM or 60 million for the full year? Thanks.

Mike Hunkapiller

Well, the Gene paper is a proof-of-principle. I will point out that the proof-of-principle paper describing smart sequencing came out around 2001, I believe. It takes a long time to go from proof-of-principle to a commercial product. So I wouldn’t expect that as a system to be ready to be released shortly. What Roche’s long-term interest in that, should they get it to a commercializable perspective, again you best address to them. They seem fully committed to the launch of our system. If you read that paper somewhat closely, they are dealing with all the kind of problems that we were fighting 10 years ago and then some, and in many respects, the data that’s shown in that paper are worse than the ones that we were fighting. Related, but much worse, and so their read lengths are very, very short.

Their problem with a stutter in where the enzyme treats these compounds, really, really striking. But what they are doing internally, we have no direct window in. We can only go by what they’ve shown publicly, both in this paper and some of the presentation and meetings. But I think they made it clear in the paper, it was a very early proof-of-principle approach. There is lots of proof-of-principles on the nanopore technology from a host of groups that's come out over the last 30 years and that's still being a struggle by Oxford and other companies to turn into a full blown commercial entity. So there is just a lot of technical issues with that technology and they are likely to suffer from all everybody else has. So we’ll see.

Ben Gong

Yeah. Joe, just to follow up on that, I think part of your question was how does that relate with our partnership with Roche and we said this in the past that our agreement with Roche approach is such that they have exclusive rights to distribute our products so long as they do not commercialize the competitive sequencing technologies for clinical diagnostics and so whether it’s Gene or any other sequencing technology that would compete and Roche chooses to commercialize that and they would lose exclusivity with us.

Susan Barnes

And the last time, I think Ben was trying to give a broad brush guidance on cash burn, not cash raise. So just want to be a little careful about the only way that in order to -- if we were talking about raising 60 million, we would then be talking about having somewhere in the area of that kind of number that we ended last year with still on the bank at the end of the year. So we are very product with our capital raises. We try to do one we need to, but not be cavalier about diluting shareholders. So we’ll approach that market very carefully.

Ben Gong

Yeah. It helps to clarify it all Joe the context -- we ended the year with 82 million in cash and we said that we estimate that operations would consume roughly $60 million in cash during the course of the year. And so in order to not end up with that low of a cash balance, our intention was to raise additional capital during the course of the year. You fast forward and you see that we in fact did raise capital in the first quarter to the tune of about $26.5 million.

Operator

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Hunkapiller for closing remarks.

Mike Hunkapiller

Thank you. So, in closing, we remain steadfast in our commitment to bring the unique advantages of our smart technology and products to our customers and the scientific community in general. We believe that smart sequencing provides the industry's most complete and accurate picture of genome produced with superior performance and sequencing accuracy, uniformity of coverage, extremely long read lengths and the ability to characterize DNA-based modification.

Furthermore, by providing scientists with an ability to obtain a comprehensive set of sequence information with a single experiment, smart sequencing is often the lowest cost and only research tool available to meet their needs. We are very excited about our new sequel system and the opportunity it presents for us to deliver smart sequencing to a much broader set of customers. Thank you for joining us and we look forward to talking again in three months’ time.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.

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