Pacific Biosciences of California, Inc. (PACB) CEO Christian Henry on Q1 2022 Results - Earnings Call Transcript

SA Transcripts profile picture
SA Transcripts
128.19K Followers

Pacific Biosciences of California, Inc. (NASDAQ:PACB) Q1 2022 Earnings Conference Call May 4, 2022 5:00 PM ET

Company Participants

Todd Friedman - Director, IR

Christian Henry - President and Chief Executive Officer

Susan Kim - Chief Financial Officer

Conference Call Participants

Dan Brennan - Cowan

David Westenberg - Piper Sandler

Tejas Savant - Morgan Stanley

Kyle Mikson - Canaccord

Operator

Good day and welcome to the PacBio First Quarter Fiscal 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]

I would now like to turn the conference over to Todd Friedman, Director of Investor Relations. Please go ahead.

Todd Friedman

Thank you. Good afternoon, and welcome to PacBio's first quarter 2022 earnings conference call.

Earlier today, we issued a press release outlining the financial results we will be discussing on today's call. A copy of which is available in the Investors section of our website at www.pacb.com, or is furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov.

With me today are Christian Henry, President and Chief Executive Officer; and Susan Kim, Chief Financial Officer.

Before we begin, I'd like to remind you that on today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, expectations, intention, guidance, expectations for, including advantages and capabilities in connection with new products, technology and software development and launches, and the anticipated timing of such development and launches, expectations resulting from continued building and enablement of HiFi ecosystem, expectations with respect to our partnerships and collaborations, estimates, intentions, and plans to use the company's cash and investments to fund current development and commercialization initiatives until achieving positive operating cash flow without the need to raise additional capital and other information. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks and uncertainties and could cause actual outcomes and results to differ materially from currently anticipated results, including challenges inherent in developing manufacturing, launching marketing, selling new products and achieving anticipated new sales, competition, unanticipated increases in costs or expenses, interruptions, or delays in the supply of components or materials for or manufacturing of PacBio products and products under development, potential product performance and quality issues and potential delays in development timelines. The impact of the COVID-19 pandemic risks associated with international operations among others.

These risks and uncertainties as well as other risks and uncertainties are more fully described in our press release earlier today and in our Form 8-K, Form 10-Q and Form 10-K and other filings with the SEC. We disclaim any obligation to update or revise these forward-looking statements except as required by law.

During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information to compare our performance relative to forecast and strategic plans to benchmark our performance externally against competitors. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables within our earnings release.

In addition, please note that today's call is being recorded and will be available for audio replay on the Investors section of our website shortly after the call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today's call may differ or change materially after the completion of the call.

I'll now turn the call over to Christian.

Christian Henry

Good afternoon, everybody. We appreciate you joining us today as we discuss our results for the first quarter of 2022 and our outlook going forward. As usual, I'll walk through some of the business and commercial highlights, and then Susan will walk through the financials and guidance in more detail, and then we'll open it up to Q&A.

I'd like to start there by saying there are three key takeaways that I hope you come away with from our discussion today. First, we are executing on our core objective of rapidly expanding the install base of Sequel II and IIe systems as evidenced by us achieving another record quarter of instrument shipments. This growth in our install base will enable more HiFi data reaching the market.

Second, we are making excellent progress on our next-generation of short and long-read sequencers. Our mid throughput short-read SBB instrument is on track for commercial shipment in the first half of next year. And we continue to believe this will be the world's most accurate short-read platform. We're also achieving our internal milestones towards the development of our next-gen long-read sequencers.

And third, PacBio is in a strong financial position based on -- and based on our estimates, we intend to fund the company's current development and commercialization plans using the cash and investments on our balance sheet, until we reach positive operating cash flows without the need to raise additional capital. With the volatility in the equity markets today, this puts us in a unique and desirable position.

Now, let's walk through our Q1 results and discuss how the team is on track to execute on our 2022 plan. The first quarter was a solid start to the year and in the upper end of our guidance range with revenue of $33.2 million, a 14% increase compared to the first quarter of last year. Given our revenue in the first quarter, we expect to continue full year revenues at approximately $160 million to $170 million for 2022 or 23% to 30% growth. Susan will touch on that later.

As we discussed on our last call, first quarter revenue was lower sequentially due to the COVID-19-related headwinds that disrupted our customer operations and our internal team's ability to act -- interact with customers. Additionally, typical first quarter seasonality was exacerbated by macroeconomic headwinds that delayed some capital purchases. Despite these headwinds, I'm pleased to share the team delivered another record instrument quarter with 50 Sequel II and IIe placements.

This is the third consecutive quarter of record Sequel II and IIe placements and over one-third were to new PacBio instrument customers, which continues to underscore the expanding value proposition of HiFi sequencing. New customer applications range from gene editing to plant and animal, to reproductive health and other areas.

We are gaining momentum in placing systems driven by our increased commercial presence, improved sales productivity and significant product enhancements. We started our aggressive investment in early 2021. And since then we've shipped more Sequel II and IIe than in the first two years of the platform launch.

Our investment in expanding our Salesforce may lead to lower revenue per sales rep in the short-term, as new sales reps are spending significant amounts of time prospecting for new opportunities. This is a crucial step in building a sustainable sales pipeline in each territory. We believe this is temporary, and as our install base grows, it will drive consumable growth and expand the revenue per rep over the medium term.

Additionally, as consumables generally carry higher gross margins than instruments, we will also benefit from gains and gross margin as our product mix changes. Our revenue for sales rep is only one metric to drive sales productivity, and we've made excellent progress in improving the velocity of our sales cycle. For example, last quarter, we discussed our instrument turns metric to understand sales productivity, with over 90% of our instrument shipments in the quarter from current quarter sales. That trend continued as nearly all of our instrument shipments in the first quarter were turned within the quarter.

Additionally, we are pleased to share that we delivered 18 additional Sequel IIe systems to the Broad Institute in the first quarter. Their investment in PacBio's HiFi technology positions them to address a breath of whole genome and transcriptome sequencing research initiatives with the largest install base of Sequel IIes in the world.

To further expand the range of addressable applications, last month we launched significant enhancements to the Sequel II and IIe platform, and we couldn't be more pleased with the customer reception. Our new products allow the detection of DNA methylation directly on the sequencing instrument with no added workflow steps or cost, a library protocol and on instrument analysis support for recombinant adeno-associated virus, RAAV, genome sequencing for gene therapy research applications and significantly simplified library prep processes. Lab technicians can now go from DNA to sequencing in one shift and HiFi whole genome sequencing requires even lower input, just one microgram per smart cell.

The new processes are also much more scalable and enable customers to run at higher throughput. We believe our DNA methylation offering will have a large impact in the field of epigenetics. Epigenetic differences in DNA methylation explain trades just as genetic differences in DNA sequence do and HiFi sequencing now simultaneously characterizes both the genome and epigenome from a single sequencing library in a single run, approaches to measuring the epigenome with short-reads, like whole genome by sequencing need special separation, special sample preparation with separate sequencing runs for the genome and epigenome, which adds cost and time. And they don't address the whole genome.

Other long-read technologies fail to match HiFi sequencing and accuracy, particularly for insertion and deletion variant and for separating and phasing the two alleles and require complex analysis to detect methylation. Our offering provides DNA methylation directly from the sequencing instrument with no additional effort.

Our new methylation and our existing workflows like Iso-Seq are examples of how we're transforming into a multi-omic company. Children’s Mercy Kansas City is expanding its collaboration with us to include these two features in its research study to understand the epigenetic and transcriptomic drivers of rare disease in addition to exploring associated underlying genomic variance. They've already demonstrated how their use of HiFi has uncovered four times more rare coding, structural variants than short-read sequencing, and we expect adding PacBio methylation capabilities and Isoform sequencing will further strengthen the use case for HiFi. We look forward to improve our Iso-Seq offering later this year with a new kit that we believe will dramatically increase throughput and power higher output transcriptomic research.

We continue to add to our list of clinical research collaborators in the first quarter. And now we have over a dozen working collaborations with the goal of demonstrate HiFi utility across several applications. We're also pleased to offer our new AAV protocol, an analysis solution for AAV vector gene therapy research. AAV vector gene therapy is an exciting and rapidly growing area with over 150 companies working on AAV-based therapies today. High accuracy and complete visibility are critical to the success of novel vector discovery, vector design, and manufacturing quality control for gene therapy products. We believe HiFi sequencing can play a critical role in gene therapy related research due to its ability to sequence full length AAV genomes at very high accuracy.

This is important because qPCR short-reads and less accurate long-read technology can miss important changes that may be present in the AAV sequence, which could negatively impact our customer's research. Over the past two quarters, we've delivered eight instruments to new PacBio customers working on AAV and have several more in our sales pipeline. This new feature is yet another example of how we are developing end-to-end solutions tailored to our customer specific application needs.

PacBio HiFi sequencing has long been a go-to technology in plant and animal research due to their complex genomes and the value that highly accurate long reads bring to de novo assembly and building reference genomes. However, in order to enable broad app adoption of HiFi sequencing in commercial agriculture, new resource efficient, higher throughput methods are required. To that end, we are working with Corteva Agriscience to develop end-to-end workflows for plant, test and microbial sequencing to further their seed development and crop protection research and production pipelines. We anticipate that these new high throughput agricultural protocols will be made broadly available to the community sometime in 2023. The length and accuracy of HiFi is critical to new seed product development, as these genomes tend to be more complex and are harder to sequence and assemble.

Moving on, I'd like to -- so I'd like to take a moment to describe three critical advantages of using native DNA; molecular integrity, absence of amplification steps, and simpler sample preparation in bioinformatics workflow. First, because native DNA molecules that are extracted from cells are directly submitted to the sequencing, the DNA fragment can be much longer compared to synthetic approaches, having longer and continue sequences lead to greater continuity of information and improves the results in de novo genome assemblies, as well as metagenome communities, haplotype phasing, epigenetic phasing, and structural variant detection.

Second, sequencing native DNA molecules by definition does not use DNA application or other molecular biology procedures, which are prone to biases and can introduce errors, fragmentation and other artifacts. Synthetic long reads require these procedures and risk confounding studies with artifacts that can provide potentially inaccurate information. Sequencing of native unaltered molecules enables our technology to look at genomes without these biases, resulting in better coverage enormity, resolving diploid and polyploid genomes into fully phased alleles and achieving greater genome completeness. PacBio sequencing, therefore -- thereby accesses the whole genome, resolving structural variants in other regions of the genome considered difficult to sequence with short reads due to limitations of the sequencer itself, which can therefore not be overcome with synthetic long-read reconstructs. Further, amplification steps result in the complete loss of methylation information. Thus, by sequencing native DNA molecules, as I described earlier, PacBio provides both genetic and the epigenetic information simultaneously without any additional effort.

And third, the sequencing of long native molecules significantly simplifies all workflow aspects from upfront sample and library preparation to bioinformatics at the back end. PacBio native long HiFi reads do not require bioinformatic recorrection steps, complicated reassembly steps, consensus computations from oversampling or subtraction from control samples. We have seen time and time again, over the past decade, numerous attempts at synthetic long-read approaches, which were all eventually abandoned. We believe native long reads will continue to provide the most accurate, contiguous and complete genomic and epigenomic information with ever increasing applications.

Nothing has highlighted the limitations of short-read sequencing and whole sequencing more than the landmark publications from the telomere-to-telomere consortium, which completed the final 8% of the genome. Something that short-read sequencing had been unable to do despite years of improvements in informatics and AI.

So, then I often get the question why isn't HiFi and long-read sequencing ubiquitous today. Why are genomes still being sequenced at all with incomplete and insufficient technology? Cost throughput and accuracy have historically given short-read technologies the edge and made short-read the defacto winner over the past decade. But just a few years ago with the launch of HiFi sequencing, PacBio became the leader in sequencing accuracy as evidenced by the data from the precision FDA and the association of biomolecular resource facilities.

Our improvements in accuracy have enabled much broader adoption of long-read sequencing outside of its historical niche areas. We've now seen increased HiFi adoption in human applications, as we discuss the handful of clinical research collaborations in genetic disease and the growing list of customers conducting research in oncology, gene editing and reproductive health.

We expect our next-generation long-read sequencers equipped with HiFi will overcome the remaining two barriers of adoption, cost and throughput and mark the inflection point of large scale adoption of whole genome sequencing using HiFi.

Moving onto short reads. We do remain on track to launch what we believe will be the most accurate short-read sequencer. We expect this sequencer will address other high growth areas in the genomics market where HiFi sequencing may not be necessary. As part of our strategy, we see this as the best way to address our customer's needs. We aim to develop the right instrument and chemistry for the right application and not force fit one sequencing technology to address the entire market.

It is these transformative products in develop along with the world-class team that we have built that give me confidence in PacBio's ability to deliver over the next several years. However, delivering on our mission requires substantial investment. And in today's uncertain market and financing environment, we are extremely fortunate to have nearly $1 billion in cash on our balance sheet. And as I earlier mentioned, we intend to fund our current development and commercialization programs using cash and investments that we currently have on the balance sheet until we reach positive operating cash flow, without the need to access the capital markets.

Finally, I'd like to take a moment to update you on our collaboration with Invitae. As you may recall, we have partnered with Invitae to create an ultra high throughput sequencer capable of sequencing tens of thousands of whole genomes each year. The development of this new platform is going very well and there continues to be great enthusiasm for the potential of adopting HiFi sequencing at scale in a clinical setting. However, given the difficult capital environment and Invitae's asked us, and we are planning to amend our agreement such that Invitae will no longer make payments during the research and development phase of the collaboration. In exchange, the pricing of the platform and related consumables to Invitae will be increased to be more in line with our expected market price.

The other aspects of the collaboration will continue. For example, we expect Invitae will continue to leverage their internal resources to assist in the development of scaled workflows, bioinformatics pipelines and other aspects of the project. As a result of this amendment, we believe that Invitae will be on a more level playing field with other large scale users of our ultra high throughput system. We expect to compete -- complete the amendment during the second quarter.

I want to reiterate that this proposed amendment is the result of the macroeconomic funding environment and does not reflect either company's enthusiasm for the collaboration, the development timelines, performance to date or other product specifications.

With that, I'll hand the call off to Susan to talk about our financial results in more detail. Susan?

Susan Kim

Thank you, Christian. As discussed, we reported $33.2 million in product and service revenue in the first quarter of 2022, which represented an increase of 14% from $29.0 million in the first quarter of 2021 and was at the high-end of our range. Instrument revenue in the first quarter was $15.6 million, an increase of 4% from $14.9 million in the first quarter of 2021. We delivered a record Sequel II and IIe systems during the first quarter growing the install based to 424 systems a as of March 31.

Turning to consumables. Revenue of $12.7 million in the first quarter grew 22% from $10.4 million in the first quarter of last year and Sequel II and IIe consumables represented approximately 85% of our total consumable revenue in the first quarter, with the rest from older systems and other consumables. Annualized pull-through per system on the Sequel II and IIe install base in the first quarter was approximately $115,000.

In the first quarter, as we discussed on our last earnings call, we saw lower utilization largely due to the impact of COVID-19 flowing lab productivity. While we saw improvements in some regions towards the end of the quarter, the escalating cases in China and associated lockdowns impacted utilization throughout Q1. As we discussed before, our record placement in Sequel II and IIe may have a short-term impact on pull-through, especially as we onboard new customers. Finally, service and other revenue grew to $4.9 million in the first quarter compared to $3.7 million in the first quarter of 2021, reflecting our growing install base.

Shifting to a regional view. America's revenue of $19.1 million grew 57% compared to the first quarter of 2021, as the region delivered a record number of systems and grew consumables and service revenue commensurate with a larger install base of Sequel II and IIe.

Moving to Asia-Pacific. Revenue of $8.4 million reflected a 1% decline over the prior year period with lower instrument revenue partially offset by growth in consumables. Consumable growth was somewhat muted in the region with headwinds resulting from COVID-19 restrictions, particularly in China. Other parts of APAC saw strength with record consumables in Japan and are our first system placement in Australia since Q2 of 2020, countries where we've been expanding our commercial reach.

Finally, EMEA revenue of $5.7 million was 32% lower compared to the prior year period as the region was most impacted by the surge in coronavirus cases earlier in the quarter, both at our customer sites, as well as among our own employees in EMEA. While COVID-19 impacted both instrument and consumable sales, the team still made great progress growing our reach with four countries in the region taking their first Sequel II or IIe including Israel, Serbia, Poland and Austria. We also delivered the first PacBio instrument to EMBL GeneCore, the European Molecular Biology Lab who is preparing to launch HiFi sequencing services across microbiology, human and plant and animal applications.

Moving down to P&L. As a reminder, I will share both GAAP and non-GAAP results for gross margins, operating expenses and net loss. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release for more information.

GAAP gross profit of $14.2 million in the first quarter of 2022 represented a gross margin of 42.7%. Excluding amortization of intangible assets, first quarter 2022 non-GAAP gross profit of $14.3 million represented a gross margin of 43.2% compared to a GAAP and non-GAAP gross profit of $13.0 million or 44.8% in the first quarter of last year. The decline was predominantly due to the mix of instruments, reflecting the largest volume of quarterly multi instrument placement, as well as the Sequel I trade-in incentive in the quarter in Q1 2022, resulting in lower instrument average selling prices, partially offset by higher consumable volume.

Moving on, GAAP operating expenses were $91.7 million in the first quarter of 2022. Excluding a credit of $1.1 million related to contingent consideration remeasurement, which was due primarily to an increase in the discount rate and expenses related to amortization of intangibles, non-GAAP operating expenses were $92.7 million. This represents a 99% increase from non-GAAP operating expenses of $46.7 million in the first quarter of last year, reflecting growth in headcount, operating expenses related to the acquisition of Omniome and non-headcount related R&D spend. In terms of headcount, we ended the quarter with 774 employees compared to 728 at the end of 2021.

GAAP and non-GAAP operating expenses in the first quarter included a total non-cash stock-based compensation of $20.9 million compared to $9.2 million in the first quarter of last year. GAAP net loss in the first quarter of 2022 was $81.5 million or $0.37 per share. Excluding change in fair value contingent consideration, amortization of intangible assets and the repayment of continuation advances to Illumina, non-GAAP net loss was $82.3 million, also representing $0.37 per share compared to a non-GAAP net loss of $35.4 million or $0.18 per share in the first quarter of 2021.

Now turning to our balance sheet. We ended the first quarter with $963 million in unrestricted cash and investments compared with $1.04 billion at the end of 2021. Inventory balances increase in the first quarter to $29.6 million, representing 2.8 inventory turns compared with $24.6 million at the end of the fourth quarter of 2021, representing 3.6 inventory turns. The decline in inventory turns reflects our strategy of increasing safety stock levels to manage global supply chain risk, to continue to ensure we have the necessary raw materials to meet our customer demand.

Accounts receivable increase in the first quarter to $27.9 million, reflecting a DSO of 71 days compared with $24.2 million at the end of the fourth quarter of 2021, reflecting a DSO of 62 days with the increase primarily due to more revenue booked later in the quarter. Long-term deferred revenue remain relatively flat compared to the fourth quarter of 2021 at just over $25 million, as we did not receive incremental cash from Invitae in the quarter, as Christian discussed earlier.

Moving to guidance. For the full year 2022, we continue to expect revenue in the range of $160 million to $170 million, representing a growth rate of approximately 23% to 30% compared to 2021. This guidance assumes there are no more significant or prolonged disruptions related to COVID-19 or its variant and it assumes the global supply chain constraints are not worsen. Specifically, our revenue guidance assumes the slower utilization we experienced in Q1 recovers and utilization in China improves by early summer. As such, our guidance assumes a back half of 2022 that is much stronger than the first half.

Specifically for the second quarter, we expect revenue to grow sequentially compared to the $33.2 million reported in the first quarter of 2022, with sequential growth in both Americas and EMEA partially offset by a slight decline in APAC due to the record consumables revenue quarter we experienced in Japan for Q1.

Moving down the P&L, we expect the non-GAAP gross margin to be at the lower end of our previously guided range of between 45% in 47%, mainly reflecting increasing supply chain costs. For operating expenses, we expect the full year to now be in the range of $355 million to $365 million. The increase primarily reflects a non-recurring non-cash stock-based compensation expense true up due to lower than expected employee attrition we observed in Q1.

We continue to expect interest in other expense to be approximately $15 million for the full year, reflecting interest expense and amortization of debt issuance costs for our convertible notes issued in 2021. We expect the waited average share count for purposes of EPS for the full year to approximately 225 million shares.

With that, I will turn the call back to Christian. Christian?

Christian Henry

Thank you, Susan. The team executed tremendously in the first quarter amidst one of the most trying macro environments we've ever seen. With a third year behind us, we believe that we are on track to meet our revenue target we set fourth at the beginning of the year. Our product roadmap is full of exciting and innovative products that we can't wait to share with the genomics world. And by our estimate, we intend to fully commercialize these exciting new products using the cash and investments that we currently have on the balance sheet. And in turn, we believe that will drive us to operating cash flow positive in the future.

With that, I'd like to invite the operator to open the floor to Q&A.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions]

And our first question today will come from Dan Brennan with Cowan. Please go ahead.

Dan Brennan

Great. Thanks for taking the questions and congrats. Maybe just a couple of tactical ones short-term and then some bigger picture ones. Just on -- I know there's a lot of discussion on China, you guys summed it up there in the concluding comments. And I'm just wondering, did you say what China did in Q1? And what specifically -- it sounds like you're assuming by the end of the quarter, Q2, it's kind of getting back on track kind of what's assuming in Q2 and for the rest of the year for China.

Christian Henry

Yeah. I think, in Q1, China probably represented about 15% of the business. And for the rest of the year, we're hopeful that as it recovers I suspect second quarter might be a little lighter than that, given the lockdowns in the environment right now. But as Susan pointed out, if things kind of start to moderate in the summer, that gives us some good belief that we're going to achieve the 160 to 170 that we've outlined.

Dan Brennan

Got it. No. Thanks Christian. Just one more tactical one. Since you brought it up last quarter, I didn't hear a mention of it today, but you to get it off the table, like emerging biopharma, you guys excited some noise coming into the year. Not -- I'm not even quite sure how big that as percent of your revenues, but just to kind of check the box here. Was there any impact? What was the trend in that customer base as the year started off in the first quarter?

Christian Henry

Yeah. I think, it was consistent with what we were talking about back in January. Any of the smaller emerging companies that are not generating positive cash flows and that are sitting in this macro environment are definitely longer sales cycles right now. And they were that way throughout the first quarter. And quite frankly, I don't expect them to change over the balance of the year. We've considered that when we -- when we're talking about our guidance and how we're thinking we're going to build the business.

Obviously, we're really excited in areas like AAD, where there are some smaller customers that are smaller in terms of size and balance sheet customers there, that have been rapidly adopting the products, because the Sequel IIe really serves them well across what they're trying to do. But some of the emerging, kind of more traditional pharmas, I still think that that business is going to be tough for us for -- until as they manage their own balance sheets. And I suspect that will continue -- that will start to improve as the world normalizes, but Q1, as I'm sure you understand, Dan, was a pretty big shock to the system for all of us.

Dan Brennan

Got it. And then, Christian, you spent a fair amount of time in the prepared remark, discussing all the advantages that native long-read sequencing platform has over something that is -- deem to be synthetic. But I'm just wondering, like, did you see any pause at all? Is there any pent-up demand for placements, such that as we get through AGPT and we see kind of more details about infinity. Is there -- could there be either an unlock event with some customers that are on the sidelines right now, just maybe give a little color for kind of what the Salesforce was seeing during the first quarter?

Christian Henry

Yeah. Obviously, I asked that question a lot, and really been laser focused on it. And what we've seen is, in general, it hasn't really slowed the sales cycles down, perhaps maybe a little bit in Europe, more than in the United States and in APAC. And I do think there's probably potential for a bit of an unlock as you kind of -- as folks start to understand what other techniques might look like. But when you really sit and talk to the customers, they care back to me all of the things I just pointed out on the -- in the prepared remarks that, if we're serious about doing long-read sequencing, we need to be using PacBio because there you just get the -- you get more complete information, you resolve the biology in a more detailed way. And they know that we are continuing to approve, as evidenced by the direct methylation launch that we had just a few weeks ago. And so, they just see that there's -- there are significant limitations. But that doesn't mean they're not learning about this. And I think at the end of the day, our growth is likely to be unhindered by Infinity.

Dan Brennan

Great. And then maybe one last one, just on the new high throughput platform, I think we're expected to get some data or a look at it in the back half of this year. Just could you remind us specifically, like what we're going to see, when we're going to see it? And how should we be thinking about? Obviously, Sequel IIe doing well, you have a big opportunity ahead of you, but that I think there's potentially building excitement for the new platform could be and do. So, just maybe an update on what we're going to see and how we think about what the potential opportunity is versus -- number one, there's an upgrade opportunity obviously, but like what's the -- how do we think about the potential new customers that, this could draw into the long-read market?

Christian Henry

Yeah. Dan, that's a good question. Thank you for it. I think the one thing that we've seen time and time again, as you can start to offer advances in the technology that are very significant to long different axis, whether that's accuracy, throughput cost, you get to see major traction in the market and you see a bit of a replacement cycle. You see new customers coming into the market and our intent -- and it's basically the same strategy that I described to investors.

When I first joined is to build a multi-product portfolio with different instruments at different price points and throughput capabilities that give more and more customers access to the power of long reads and the power of HiFi sequencing. And this is part of that journey. And we're obviously moving towards the higher end first, because we see incredible opportunity in whole genome sequencing in particular at -- with higher throughput platforms, the ability to reach the sub thousand dollars cost, that we've talked about in the past. And when you start to think about our development programs, our programs are progressing well, the teams are working hard. And as I've pointed out, I guess, at JPM in 2021, these would -- these platforms would take a few years to get out. And I think we're largely on track. And so, later on this year, I suspect we'll give more information, but today I don't want to let the cat out of the bag, so to speak.

Dan Brennan

Great. Thanks Christian.

Operator

And our next question will come from David Westenberg with Piper Sandler. Please go ahead.

David Westenberg

Hi. Thank you for taking my question. And so, my first question is say a follow-up on the high through platform, but instead like the collaboration with Invitae. I totally appreciate. It has to do a lot with Invitae's cash position is what kind of a reading into it. But -- and sorry if I'm a hard headed here, but if they're not funding this and you're not changing your guidance, except for, like there was $5 million that was stock-based comp, how is this platform getting funded? And is this maybe a 2023 funding event? I'm sorry if I'm missing that maybe I'm too hard headed here.

Christian Henry

No. It's a great question. It's probably good to take a moment to just clarify. So, if you think about it, the way we're doing the accounting for the Invitae payments, what they really are, are prepayments for buying the actual system. And so, what they -- what we've been doing is as they pay us, we put that into deferred revenue and we're still paying the -- we're still recording the R&D expense on our P&L. So, the P&L doesn't change at all. We've been investing all along and recording R&D expense, we will continue to do that. And then, you've got this building deferred revenue.

And so, we are working with Invitae such that all we're really doing is changing the timing of when they make payments to give them some flexibility on their cash. And that's why it's really important to understand this, what's really happening is, is we increase the pricing of the final product, such that we'll actually capture more gross margin, more -- if you look at the NPV of this particular project, if you look at other project, we actually will make more profit and more cash flow under this amendment than we otherwise would've made. And the other thing that's really beneficial to us is that their pricing will be such that others will be able to compete with them a little bit better. I mean, they're still going to have incredible pricing. They're completely committed to the relationship and they're still investing their internal resources. But we've just reallocated how they pay for the machines by paying at the end of development instead of along the way. And so, that's really the difference and the R&D expense continues to be recorded as it has been.

David Westenberg

Got it. Appreciate you. I had a gap in my coverage of you guys when was signed. So, thanks for the reminder there. And then, in terms of pull-through, I think Susan laid out some of the Omicron in January, and then kind of what was happening in China. Would maybe give us a sense for what you had in pull-through and maybe March or April? I mean, I'm just trying to get a sense of, is this pull-through normalizing as we're heading further into the quarter and it looks like it's behind you or, anything like that?

Christian Henry

Well, I don't think we're going to give individual months, because any individual month could be aberration. But what we can say is that pull-through is improving over what we reported in Q1. And now, pull-through is a metric that's dominated by both the enumerator and the denominator. And so, at some level, as we sell more instruments per quarter, the pull-through will likely go down, particularly when we're selling to so many new customers. One of the things that in our executive business reviews this quarter was uncovered is that the time to get a new customer to run their first chips or first smart cells could be as much as 90 days from when it's installed, because they're working on workflows, et cetera, et cetera. And then, from there, it's training and scale up with samples. And so, as you're seeing us get so many new customers, that puts pressure on the short-term pull-through and as we sell so many more instruments, obviously that hurts the denominator.

Now, when we sell through a very high throughput or high throughput capable customer, like the Broad Institute at such a large scale, that will likely help the pull-through, but it will be somewhat offset because they have -- they get great pricing because they do so much volume. And you have that whole mix. But at the end of the day, we think that that pull-through will increase from here. And also, China, right? China has been -- we did okay in APAC, because we sold a lot of instruments. Pull-through in China was well below our expectation during the quarter. And as that recovers, that will bring the number up as well. So, there's a lot of different factors at play. But I do think on balance, you're going to see the number improve from here. And we'll go from there.

David Westenberg

Perfect. That was a really nice detailed answer there. I'm just going to ask really one, because I think it's going to be very short. The one-third of two new customers, was that inclusive or net of that big order to the Broad Institute.

Christian Henry

That's inclusive of -- we take the whole -- we ship 50 systems, so it's one-third of those 50 systems.

David Westenberg

So, it's closer to closer to more than half. All right. Thank you very much.

Christian Henry

Thank you.

Operator

And our next question will come from Tejas Savant with Morgan Stanley. Please go ahead.

Tejas Savant

Hey, guys. Good evening. So, I want to go back to that Broad order you mentioned, Christian. As you sort of had framed the guide on your 4Q call, was that sort of already contemplated, or was that all upside, which came through late in the quarter? And then, as you think about your order funnel or your instrument backlog here heading into the back half of the year, can you just give us a sense for the breadth of the demand versus any other sort of like large multi-unit orders that we should be thinking about?

Christian Henry

Yeah. Okay. A couple things. So, with the 1Q guide, some of the Broad order was contemplated, but not all of it. And we were hedging a bit in our internal thinking because you -- when it's an order that big, you never know when it's going to -- the timing of which it was going to actually manifest itself. So, some was, but not all. And then, if you think about the back half of the year, one of the things that's really exciting and one of the things that is driving why we made these commercial investments is the number of named opportunities for new instruments is that one of its largest -- if not its largest level ever in the history of the company. And what that means is that we have more sales coverage or more coverage of potential instrument sales to meet our forecast and meet our guidance. And let's face it.

That's because we've hired more sales reps and those sales reps are in fact prospecting. And so, there's lots of ways to look Salesforce productivity. And I tried to highlight that on -- in the prepared marks, hopefully that was effective. But it's revenue per rep over time. It's sales velocity. It's -- how big is the sales funnel and the quality of the leads you're getting. All three of those things are generally improving for the company and give us a strong pathway to growth for a long time to come. And that's what's so powerful.

I guess, the last thing I'd say with respect to the funnel, when you do a -- an 18 unit sale to the Broad that now they have 23 instruments in their fleet, that's really a lighthouse account. And that's a validation of the technology, a validation of where the technology's going, the applications, they see lots of opportunity in numbers of samples and projects and that lighthouse genome centers and that might be competitive with them. And so, that's actually -- that's one reason why it's such a powerful win for us during the quarter. And the other reason is, we really enjoy working with the Broad. They're very collaborative and they will help push us as much as anyone else. So, that's really great.

Tejas Savant

Got it. Super helpful. And then -- appreciate the color you've shared on China, Christian. But I guess, one of the questions that we've been getting is, what sort of like driving your confidence, perhaps conversations with local government authorities, or your marquee sort of customers in the region there, that makes you assume that things get better by the summer? It seems like it's a pretty fluid situation. And the lockdowns kind of like ebb and flow, at least in Shanghai and Beijing, et cetera. So, I'm just curious as to how you thought about that when you made that assumption in the guide of a summer recovery and normalized utilization and placements there in the back half.

Christian Henry

Well, I think, one of the reasons why we've made some of these assumptions is we actually hired a really highly qualified country manager in China now, who is phenomenal. And in fact, he was a big reason why we had such a nice quarter on instruments. We had a lot of trade-ins from Sequel I to Sequel IIe. And so, we were building a little bit, I mean, better than the company's ever had Intel on the ground, which helps us kind of understand that. But as Susan said in her comments, look, we don't know -- we -- none of us know exactly when things will return to normal. We probably air on the optimistic side instead of the absolute pessimistic side. But we also see our business growing throughout APAC. And we also see -- like, we talked about China had a -- I mean Japan had a fantastic quarter. We finally sold an instrument in Australia. We're starting to build out some of these other territories that can help offset some of the challenge in China should -- should China not recover as we expect. And if China -- and as Susan also said, look, if China doesn't recover, it will clearly put pressure on our guidance at some point. But we have a lot of -- as I said before, our opportunity funnel is very significant and we will work to mitigate that and grow on top of that, as you guys would expect us to.

Tejas Savant

Got it. And then one final one for me on, just traction for that HiFiViral kit. I think, on the last call, Christian, you'd mentioned sort of high single digit millions in COVID contributions. This year you'd -- that was last year and this year you'd expect that to skew more towards consumables. Is that a possibility of a little bit of upside there, given how that kit perhaps did, thanks to the Omicron variant, or how are you feeling about that contribution at this stage of the year?

Christian Henry

I think that -- I think it has potential that contribute, but I don't think it's going to be a significant contribute -- contribution to make our year or not make our year. And one of the reasons for that is, particularly in the United States, testing is down a bit, or surveillance has been down a little bit. The time to implement a new technology, some labs are -- they love the assay. They want to be engaged, but they're not -- there's a lot of uncertainty of how much further surveillance there will be in funding. And so, although, it's been an incredible learning experience for us and generated some good revenue and been able to get a us into public health labs where we had no chance of getting into before. I don't expect it to be a major contributor to our revenue for the balance of the year. I could be wrong, if we have another search, but that's kind of where we see it on that.

Tejas Savant

Got it. Very helpful. Thanks for the time guys.

Christian Henry

Yeah.

Operator

And our next question -- [Operator Instructions]

And our next question will come from Kyle Mikson with Canaccord. Please go ahead.

Kyle Mikson

Hey, guys. Thanks for taking the questions. Congrats on the quarter. I wanted to start with the next …

Christian Henry

Hey, Kyle.

Kyle Mikson

Sure. So the PacBio products like the next-gen kind of tools need be kind launching, hopefully soon. It has been three years or so since the launch of the 8M chip in the Sequel II, and like, earlier in the call, you're pretty vocal without developing at least a next-gen sequencer pretty soon, so that would probably require a higher density smart cell. And I know that like, whole genome costs and throughput are kind of like the critical factors you're assuming. And when you became CEO, Christian, in 2020, you talked about like, I think increasing throughput by 25X and reducing costs by like, I think seven-fold or so. So, are those like metrics -- those kind of like threshold, like, so kind of reasonable for the smart technology in near-term. And these like next-gen kind on of PacBio products. Could those be launched like this year in 2022 or is that more of a 2023 kind of story?

Christian Henry

Yeah. So, we have not said, Kyle, exactly when we're going to launch these products and when development will be finished, nor have we given specific specifications. And clearly, it's because the Sequel IIe is performing extremely well in the market. Customers are very excited about it. But at some point we will continue to advance the technology to the state where -- you're talking orders of magnitude and levels of throughput, et cetera. I don't want to quote specific numbers today, but it is kind of -- our mantra, right, is we have to increase the throughput very significantly. So, we enable scaled science, whether that's in clinical research applications or in kind of whole genome, surveillance kinds of projects or genomics like projects, et cetera. And so, it will be important for us to get there and get there soon. We will unpack that more. The development programs are going very well. And we continue to hit our internal milestones. And so, we're right on track for that. But at the right time, I -- we will unveil it more wholesomely. But we want to make sure that we maximize our opportunity with the Sequel IIe platform while we have it, if that makes sense.

Kyle Mikson

Okay. Yeah. That was great. That's fair, Christian. Appreciate that. And maybe just on Omniome kind of similarly, this has been touched on before. I just want to revisit it because the beta launch, I think should be ongoing. Can you provide any more -- maybe details on the specs for the Omniome platform, maybe for the beta units right now? There's been talk about flexibility obviously in the marketplace. Like how many flow cells per run are you thinking, maybe cost per flow cell even? And I guess, overall, like how should we and how should investors really think about some of these metrics as they stand out and kind of stack up versus the emerging of the existing under short-read companies, for example, cost per gig basis, five to 50 gig -- per gig nowadays. And so, I'm just curious to hear, like any more clarity there, given the market is obviously becoming a little bit more crowded.

Christian Henry

Yeah. So, that's a good question, Kyle. I'm sure we'll talk about it more at AGBT. And so, hopefully, if you're there, we'll spend a lot of time on it, I'm sure. But in a nutshell, we see the platform as being highly competitive with any of the emerging players. It'll be a mid throughput system, as we've talked about. It will have accuracy Q40, accuracy. 90% of the reads will be Q40 is our expectation right now. And in terms of cost per G, it will be competitive with the emerging players and the existing players.

But one of the things that we're going to -- our accuracy is so much higher than the competition that we really want to change the narrative, because we want to talk about the price for answer, because if you can -- even if you're selling it $5 to $7 a G, let's just use that hypothetical that you said, what really matters is how many Gs do you need to get that answer? And that's really the -- that's really where I think we're going to shine a more than the other emerging players. I mean, on a straight cost for G, it'll be competitive. Absolutely. But -- and we'll still be able to generate more gross margins, that will make sense for us. But it's really about the offering to the customer. How many Gs of sequencing or how many samples can I put in a flow cell to get the answers I want, because that's what really drives the economics. And the accuracy drives the level of coverage and less coverage obviously means less sequencing, less sequencing means less cost, also means more speed, which gives us a lot of competitive advantages that I think will make the platform very compelling.

Kyle Mikson

Okay. That was great. I look forward to hearing more at AGBT. And maybe just finally, I want to touch on some of the new workflows that kind of transformed the Sequel IIe like a five base sequencer, without all the kind of additional costs and time and effort. I guess, I'm just kind of wondering like what the five base functionality does for your clinical efforts. And I know that Children's Mercy values epigenome modifications for pediatric rare disease. I think that you were alluded that earlier, but ultimately, like, do you think that the direct methylation could improve diagnostic yield of long-read treatment thing for different diseases?

Christian Henry

Absolutely. I mean, we -- we'll stick with the Children's Mercy example for a minute. I mean, they were one of the early access users and even the first runs that they're getting, they're seeing allele specific or haplotype specific epigenetic profiles that give them indication and clues into disease.

And so, I think that, at a fundamental level changing the narrative of what a complete genome is, what a clinical grade genome is, the utility from the genome, it's all of these different tools, whether it's structural variant analysis, whether it's methylation, whether epigenetic status, whether it's the ability to call the appetites without having to do any extra work. And starting to see all of this genetic picture in one assay with one informatic workflow, really changes the game and helps us resolve the biology. And at the end of the day, that's going to be one of the core value propositions of the long-read sequencing in general versus short-read. And as we get throughput and cost down, it would be surprising to see -- to not see very significant transition, particularly in clinical applications when you want to -- you just want to see more of the genome to understand what's going on.

Kyle Mikson

Okay. That was great. Thanks a lot. Appreciate it. Congrats again.

Kyle Mikson

Thanks Kyle. It's good to talk to you.

Operator

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Christian for any closing remarks.

Christian Henry

Great. Thank you. Thanks everyone for the questions. After two years of limited travel, we're finally excited to get back on the road and interact with our customers and investors. Right now, we're in the midst of our discoveries road show, where we're traveling to 20 cities around the world to put HiFi sequencing on display. I invite you to look at our schedule on our events webpage and join us for one of our meetings, if you're available. We're also excited to see you at AGBT next month. We'll be having an investor meet and greet and panel Q&A with our leadership team to kick the event off. So, we hope you can make it.

Thank you. And we look forward to continuing to update you on our progress throughout the year. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line at this time.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.