Pacific Biosciences at Goldman Sachs: Sequencing Innovation and Growth

On Wednesday, 11 June 2025, Pacific Biosciences (NASDAQ:PACB) presented at the Goldman Sachs 46th Annual Global Healthcare Conference, discussing its strategic advancements and challenges. The company highlighted its long-read sequencing technology’s potential and addressed financial performance, emphasizing both growth opportunities and market constraints.

Key Takeaways

• PacBio’s HiFi technology excels in structural variation analysis, aiming for cost parity with short-read sequencing.
• Q1 2024 saw a record $20.1 million in consumable revenue, marking a 26% increase year-over-year.
• The Revio platform can sequence 2,500 genomes annually at $500 per genome, with plans to reduce costs further.
• PacBio is targeting profitability by 2027 through top-line growth, gross margin improvement, and reduced operating expenses.
• The Vega platform’s launch has surpassed expectations, attracting new biopharma and metagenomics customers.

Financial Results

• Q1 2024 consumable revenue reached $20.1 million, a 26% increase from the previous year.
• Revio’s pull-through met expectations, with 200,000 to 250,000 annualized per box.
• Spark chemistry contributed to 90% of Revio consumables sold, enhancing output by 33% and reducing DNA input needs.

Operational Updates

• The Revio platform aims to increase throughput from 2,500 genomes per year to tens of thousands.
• The cost per genome is currently $500, with goals to lower it to a few hundred dollars.
• The Vega platform shipped 28 systems in Q1, with over 50% of customers being new to PacBio.
• A distributor agreement with Haoray in China will expand HLA testing lab access.

Future Outlook

• PacBio is focusing on high-throughput long-read sequencing, pausing short-read system development.
• The company aims to capture 5% of the $3 billion whole-genome market.
• Plans include enhancing gross margins through consumable sales and reducing operating expenses by $45 million to $50 million annually.

Q&A Highlights

• Despite capital constraints in the US academic and government sectors, consumable usage remains stable.
• The clinical market, representing 15% of the customer base, shows growth in genetic disease testing and other areas.
• PacBio is proactively managing debt, aiming for a strong financial position to support R&D efforts.

For further details, please refer to the full transcript below.

Full transcript - Goldman Sachs 46th Annual Global Healthcare Conference:

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Great. Well, good morning, everyone. I’m Matt Sykes, life science tools and diagnostics analyst at Goldman Sachs. I have the pleasure of being joined, from PacBio, Jim Gibson, CFO, and Todd Friedman, senior director of IR. Jim, Todd, thanks for being here.

Really appreciate it. Thanks, Matt. Maybe starting off, maybe just give everyone a brief background on the company and remind everyone kind of what some of the key priorities for PacBio are for this year. And maybe revisit the quarter if you

Todd Friedman, Senior Director of IR, PacBio: feel that’s necessary. I’ll give it a start. Thanks thanks, Goldman Sachs, And, yeah, so just just to kick it off, you know, PacBio, we’ve historically been been focused on long read sequencing. Our HiFi technology has the ability to read the genome at long read lengths, talking 15,000 to 20,000 base pairs long. And what that does, that allows you to see the genome in ways that other technology can’t.

It allows you to look at structural variation of the genome. It allows you to understand the long tandem repeats of the genome. It allows you to sequence areas of the genome that are difficult to sequence using other shorter read technologies. And why that’s important is a lot of disease and a lot of genetic variation is often caused by structural variation or these these long repeat regions. And it’s important when you’re studying human genomics and genetics to understand the the variation in these regions of the genome.

And so historically, that’s really what the foundation of our technology has been on. And so that’s really what we’ve been focused on over the past, you know, now fifteen years of commercialization and really bringing that product to the forefront of the sequencing landscape. And so our focus has been to really drive down the cost of long read sequencing and increase the throughput. If you think about, you know, why hasn’t long read sequencing historically been adopted at scales of other NGS technologies, it’s really because of those two gating factors. And we’ve with our REVIO technology today, we’ve made significant progress forward in bringing down the cost of a long read genome from 3 to $4,000 per genome just a few years ago to now $500 a genome.

So getting real close to cost parity at short read sequencing as well as the throughput. So using the Revio platform, you’re able to sequence 2,500 genomes a year using our technology. And, you know, just a few years ago, our prior generation technology, know, we we were capped at about 90 genomes a year. So we’ve made significant advances and looking forward just continuing to press on those advances, increasing the throughput to, you know, tens of thousands of genomes and, lowering the, the price per genome down to just a couple $100. And those those development activities are are progressing well.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. Thanks, Todd. And, Jim, maybe before we start getting into some questions, one question I usually like to ask people who recently joined companies, and you’ve been at for about six weeks now. Mhmm. One, why move to PacBio?

What attracted you about the company? And two, kind of any early observations from your brief time so far?

Jim Gibson, CFO, PacBio: Yeah. So thanks, and thanks again for Goldman Sachs for having PacBio and me here today to talk. So I think what attracted me to PacBio is, one of the nice things about living where I live in Silicon Valley is you get to work with companies that are always pressing the leading edge of technologies and different things to really kind of move whole industries forward. And I’ve, over the course of my career, gravitated towards companies that were at the front end of those changes. And I think PacBio really stood out because it’s done a lot of the hard work, as Todd said, over the last fifteen years, really developing and establishing long reads of technology, making it commercially viable.

It’s really sitting now at the crux of establishing itself as a mainstream technology for next generation sequencing. And so I had the opportunity to join what I think is the perfect time, which is they’ve launched the Rebio, and as Todd said, 2,500 genomes a year at about $500. Just launched the Vega, which is a great tool for kind of gaining access to those new clinical and biopharma customers. And in the pipeline, in the near term, is high throughput and multiuse. So things that are really gonna establish the company’s presence in the clinics, and just not just in the research centers, but in the clinics, in pharmaceutical development, those places that I’ve been at other companies where we were the customers of those tools.

And I understand the value of having that technology available. And a great management team, and the technology is fantastic. And I think the other thing I like to talk about is what’s so fascinating about our company is it’s really bringing together the best of semiconductor technology, software technology, optical technology, and chemistry. And, you know, throughout my career, I’ve worked in all those various industries, and it’s really satisfying to see kind of the confluence of all that technology come together to really unlock science over the next five, ten years.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. Maybe just pivoting towards the first quarter results. You had a nice top line beat with strength in consumables. How would you characterize consumable strength from like an end market perspective? Like, what was driving some of that growth?

And maybe put it into some context in terms of where you’re seeing that.

Todd Friedman, Senior Director of IR, PacBio: Sure. Yeah. So like as as you said, we 20,100,000.0 in in consumable revenue, and that was 26% year over year growth. It was it was a record for PacBio, so the the best consumable quarter we’ve had in the history of the company. And, you know, it was as expected pull through on Revio was was in line with our expectations for 200 to 250 k annualized per box per year.

And it was it was across the board we saw strength. You know, whereas we’ve been seeing headwinds in academia with regard to large scale CapEx purchases, we’ve we’ve actually seen consistent usage across all of our customer base, even even in the academic accounts that have been affected by the capital budget constraints that we’ve been seeing over the past couple quarters. So we’ve seen their usage continue and their utilization continue. So we’ve also been seeing strength in the clinical end market. And so those are children’s hospitals, those are genetic testing labs that are starting to implement our technology for their genetic tests.

So so strength there. You know, it’s it’s still early for VEGA so that that product is is is still getting getting up and running as we establish that install base. Good uptake on the Spark chemistry as well. So we launched our spark chemistry in the fourth quarter of twenty four, and this chemistry enables 33% increase in output. But importantly, it also reduces the amount of DNA input required from two micrograms down to 500 nanograms.

And that’s that’s important because it opens up a lot more sample types to long read sequencing. You know, earlier I said two of the major hurdles for long read sequencing have been throughput and cost, but actually DNA input has always been a gating factor for long read sequencing. As, you know, you you you have longer strands of DNA, you require a lot more DNA actually in that precluded some samples like Heal Prick samples or FFPE. Now with a lower input requirements, it opens up the doors to a lot more sample types and we’re seeing more more samples come on to PAC bio sequencers. So pretty broad based usage across across consumables in the first quarter, and we’ve we’ve continued to see that steady utilization actually throughout this quarter too.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: I do wanna touch on the spark chemistry for a bit. Just looking at consumables, can you maybe break out the consumable growth in terms of price versus volume just given your ongoing transition with the new spark chemistry?

Todd Friedman, Senior Director of IR, PacBio: Yeah. So it’s it’s pretty early. So the the first quarter was the full quarter with spark chemistry. Actually, nine 90% of the consumable Revvio consumables we sold were Spark Spark reagents. So that ramp was actually faster than we expected.

And actually, you know, we we we weren’t able at the end of the quarter to to supply some customers. We had some back order. So consumables could have actually been a little bit stronger in the first quarter, but it it the uptake was much faster than we anticipated, which is great. Shows customers are are really interested in in the increased throughput that Spark offers. So yeah.

So it’s Spark has been positive in that regard. Jim, anything to add?

Jim Gibson, CFO, PacBio: No. I mean, I think it’s it’s ease of use as as Todd was saying. It’s the increase in yield has been huge Mhmm. On Spark chemistry, you know, that 33% yield increase on data provided. So and I think, as Todd mentioned, I mean, just the adoption, shows that our customers are incredibly excited with our new SPARC chemistry and the work we’re putting into our chemistry quite honestly, especially as we try to get REVIO and Vega, tuned up and execute even better.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. So shifting to, US academic and government sector, you you mentioned it earlier. Maybe just walk us through, one, your exposure to NIH direct, your exposure overall, USA and G. And then what are you assuming in your guidance for the end, from an end market perspective in terms of growth for this year in that segment?

Todd Friedman, Senior Director of IR, PacBio: Yeah. We’ve it’s always hard to pinpoint exactly what is NIH exposed. I mean, our estimates have been anywhere from 15% to low 20% of total company is tied to NIH. And then if you look at total academic, it’s higher than that. You know, not all academic spending is dependent on NIH spending.

There’s other grants. There’s philanthropy. There’s foundations. So other sorts funding outside of NIH. So when you when you factor in all of academic, that’s probably around 45% or a little bit less than half of our our of our total customer base is that academic and research customer base.

And so we’ve yeah. So what we’ve seen is that from a capital perspective, and this this year has been challenged. You know, revios a half a million dollars, and that is a little bit more difficult for some of these academics now to to get funding for that instrument. On the flip side, Vega has been a nice hedge to that. Yeah.

You know, the lower lower cost platform, you know, is the sales cycles have been a bit faster. Customers are finding it easier to get funding for a piece of equipment that’s under $200,000 versus $500,000. So we’re seeing traction in Vega a little bit more in the academic setting because of that price point. Yeah.

Jim Gibson, CFO, PacBio: Got it. And I think maybe just something to add is one of things we’re noticing, and Todd mentioned this, is our utilization is staying consistent with our academics. So they’re still running samples and still running their experiments. So that we’re capital challenged, the consumables are still being used by these institutions.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: And how are you thinking about sort of I mean, your exposure is global. And, you know, one thought that I’ve had is that The US kind of sees some level of decline in in funding. Maybe Europe, even China will actually step up and take advantage of the situation. A lot remains to be seen, but do you expect other regions to maybe ramp up academic research spending? Have you seen a divergence in that end market regionally outside of The US?

Todd Friedman, Senior Director of IR, PacBio: Not yet, but that I think that could happen. Okay. I mean, looking at, you know, q one, it was it was academics were low across the board in terms of capital spending. But I think that’s that’s a possibility. And, you know, if if, you know, it continues to be challenged in The US, I think you could, you know, easily see a scenario where you have, you know, some of the leading institutions in in Europe start to pick up spending to to help fill that gap.

And I think there’s there’s always the drive for researchers to to to find results and to find the next cutting edge breakthroughs. And, you know, whether that’s, you know, at US institutions or institutions elsewhere, that’s not gonna change their drive to find, you know, the the next genomic insight or or the next cure or the next biological discovery. So I think I think that’s that is inherent in, you know, the scientists and researchers. And, you know, I think that’s that will be there whether it’s it’s US academic funded or or elsewhere. And how

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: how have you been successful in terms of using alternative sources of sort of financing, whether it’s kind of equipment financing, whether it’s reagent rental. And and I’m just talking about academic and government. I mean, CapEx has been constrained pretty much across the board. So maybe talk a little about your efforts to offer more flexible types of ways to to purchase instruments and reagents and how that’s been successful for you at all.

Todd Friedman, Senior Director of IR, PacBio: Yeah. Sure. So we’ve offered a few different alternatives. So the still the most popular is the straight CapEx purchase followed by the consumable purchase. Though we we do offer flexible options.

We call our run revio or Vega access deals where we’ll reduce the cost of the upfront CapEx. And in return, we increase the consumables on the back end. So when you look at the life of that instrument purchase, you know, the the economic value is is pretty much the same. You’re just shifting the upfront cost to the to the consumables on the back end. And that has been we’ve we’ve had some good traction with that.

So I’d say maybe 10% of our total deals fall within that that category. But but most are are the traditional instrument purchase followed by consumable purchases. There are certain, you know, one off deals where, you know, we we could get creative with some type of rental model, but those have to be pretty strategic deals and and still largely the the CapEx purchase, what we’re focused on.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: And then just shifting over to the clinical market. You’ve seen some recent traction in that market. One, talk about your progress within the clinical market. And can the strengths offset perhaps some headwinds across whether it’s US academic or maybe some areas of biopharma?

Todd Friedman, Senior Director of IR, PacBio: Yeah. I think that’s a that’s a key area to hedge against the the academic is is clinical. Clinical usage tends to be a bit more sticky. So that’s that’s the ultimate goal is is to to get more clinical in terms of our end customer base. Right now, it’s, you know, roughly 15% of our end customer base is DX or LDT or or hospital type customers, what we classify as clinical.

So we’re we’re seeing some good traction there. So customers like like Myriad Genetics is they’re they’re implementing a carrier screen test using our pure target assay. We’ve talked about Quest Diagnostics. They’re implementing an assay using our pure target test. Children’s Mercy Kansas City is is using us as one of their frontline tests for genetic disease.

Radboud in The Netherlands, they’re using HiFi as their primary test for screening for genetic disease testing. So we’re making some tangible progress across genetic disease testing, across carrier screening, targeted panels for difficult to sequence genes. That’s what our pure target test is is really great for. Mhmm. In China, you know, despite all the noise going on in China around around tariffs, we’re actually making some some real progress there.

We just signed a distributor agreement with a a company called Haoray, and they plan to use Vega to really distribute to HLA testing labs throughout the region. So there’s there’s blood labs throughout China, and they wanna use Vega to do HLA testing. And and why long reads offers a unique advantage there is the HLA variants are are often difficult to read using short read, and you get a much better answer with long read and so you get better matches and better results for transplant diagnostics when you use long read sequencing. Berry Genomics wants to use Vega across the region for their thalassemia test. So we’re seeing, you know, different types of clinical applications all over the globe and it’s it’s pretty exciting.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. Maybe shifting to Vega which has been a pretty good story lately at the outset. You you had 28 systems shipped in in q one, up from seven in the prior quarter, so some really good ramp sequentially there. How would you frame the early innings of sort of the Vega instrument launch versus your expectations

Todd Friedman, Senior Director of IR, PacBio: In the environment that we’re in, I should always caveat with that. For sure. And it’s it’s exceeding our expectations. You know, it’s the the the customer base, you know, over 50% of our customers so far have been brand new Yep. PacBio customers, which is that was really the intent of this this product is a lower throughput instrument so that you get more customers coming into the PacBio ecosystem that ultimately are going to progress through and and REVIO customers are ultra high throughput customers.

So we’re we’re ramping up manufacturing. You know, we we shipped as many as we could in in q one that were coming off the line. We’re going to ramp that up a little bit in Q2, expect the half to ramp even further. And all the while as well, we’re driving down the cost to manufacture the platform. So we’re going to see improving margins on the Vega as well as we get into the half of the year and get into full manufacturing run rate, which we probably won’t get into until the later this year.

But for now, what we expect is we did 28% in Q1, ramping up from that in q two and then further ramp in in the half. And we’re seeing you know, outside of that, you know, what’s what’s been really positive to see is the the number of applications that that are utilizing Vega. So we see biopharma taking more interest in in long resequencing because of the the price point and the throughput of Vega. It really falls in the sweet spot for a lot of these biopharma customers. Metagenomics, we’re we’re seeing customers use it for we’re seeing customers across microbiology for sixteen s sequencing.

So it’s it’s we’re we’re very pleased with the number of new customers and the the broad range of of applications.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: I think you mentioned this earlier, but I’m gonna ask you again in terms of any expectations for a Vega pull through in the future. Is it just simply too early that or is there a way that we should think about it?

Todd Friedman, Senior Director of IR, PacBio: Yeah. I’d say it’s well, yeah. It’s it’s really early, but we we expect it to have, you know, it it to be a low throughput instrument. Okay. So, you know, that’s that’s as much as I’ll say

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: right now, but it it’s

Todd Friedman, Senior Director of IR, PacBio: just still way too early.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. Shifting over to Revvio, obviously, you know, the environment for capital intensive instrument purchase has been challenged as we’ve talked about. But thinking about what’s in your control, how can you kind of reinvigorate growth for Revvio assuming this market environment doesn’t improve dramatically, which if it does, that will take care of a lot of what you would need to do. But I’m just curious kind of like controlling the controllables and how can you actually generate an additional demand for Revio in this environment?

Todd Friedman, Senior Director of IR, PacBio: Yeah. So part of that is so I think our Spark chemistry did a great job with that.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: So So innovation r and d spend. Right?

Todd Friedman, Senior Director of IR, PacBio: Yeah. Exactly. And and and so Spark, it it makes it a more competitive platform. Right? It it lowers the cost per genome.

It increases the throughput. It makes it a more powerful platform. It enables you to put more samples onto the platform. And so that’s that is gonna help drive different opportunities this year. And then it’s it’s the push into clinical as well.

And so so showing the clinical use cases on the increased diagnostic yield that LongRig gives you in genetic disease sequencing. So the more we prove out those proof points and continue to show that, it’s going to drive more demand. On top of that, innovation that is to be launched that we’re working on is we’re developing multi use SMART cells. And so the ability right now you sequence using a SMART cell on our platform. It’s a disposable.

You you throw it out after you use it. We’re developing a technology that enables you to use that several times. And so right then, that that lowers the cost even more to the end customer and further driving the value proposition of Revio. And so development of that technology will will we think help further differentiate the platform.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. Looking at REVEAL pull through, you’re guiding to the low to mid 200 range for the full year this year. Maybe talk through what some of the biggest barriers are for the system in driving pull through improvements. Is it a function of kind of competitors driving down maybe because of short reads, they’re still not seeing that transition over to long read? Or is it more macro related?

Todd Friedman, Senior Director of IR, PacBio: I think it’s a a big part of it is macro. Okay. And so a lot of it you know, most of our customers are still research customers. Right? And research customers are dependent on different projects and and different grant funding coming in for the projects.

And they’ll see a bolus of samples coming in and and money coming in, and and they’ll spend a lot of money. And then, you know, there’s sometimes a lull between their next project. And it’s it’s it’s working to decrease that lull time in between to drive more consumables at at the customer. But ultimately, you know, what you know, the way we think about it is, you know, at at how do we get to 300 k? Right?

Pull through. And that comes down to one extra revio run per instrument per month. And so trying to work with our customers and and find different ways to bring more samples onto the sequencer to get that one extra run per month. And then after that, you’re looking at a a 300 k type pull through number. So, you know, it’s it’s it’s working more closely with them post sale to drive more projects onto the Revvio platform.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Okay. Got it. In last quarter, you announced the development of the ultra high throughput long rate sequencing, which you talked about earlier, while pausing development on your expected high throughput short read system. Maybe just talk through the rationale there, and any kind of color on timing for the high throughput long read system would be helpful.

Jim Gibson, CFO, PacBio: Sure. So let me take this because I’ve got an interesting outside perspective. So I was actually really excited to see the company do that for the simple reason that I think our opportunity right now is in high throughput long read. Yeah. That’s where our leadership position is.

And I think even if the company wanted to keep spending the money, it’s distracting for a company to launch two projects or two products simultaneously. So I think the company, PacBio, we’ve made the right decision in pausing development of the high throughput short read tool while we focus on enabling what Todd was just talking about, which is multiuse, which gets us much closer to cost parity with short read, as well as high throughput, which gets us much more equivalent to sample throughput for clinics. And so I think the company focusing that and making our priority over the next two years is absolutely the right decision. And we still have the technology. We still have short reads sitting there in the bank.

So if the markets start to switch or the funding environment changes, we can take that off the shelf and start developing that again. But we have to keep focus on the lead that we have currently with long read and execute on that over the next two years.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. Yeah. I thought it made sense. I mean, you build your business on long read. Long read will be a place.

It’s it’s it’s a more challenging time now because long read is sort of, for some customers, nice to have, not need to have. But as the environment opens up and funding comes back Yep. Biopharma clinical side, then it’s probably gonna you’re gonna see that. And given your expertise, you wanna kinda keep that core competency. Maybe just and I guess, Jim, staying with you, talk a little bit about the path to profitability.

And Mhmm. Maybe kinda walk us through that assumptions and bridging cash to cash flow positive exiting 2027 Sure. I think is what you had said. And kinda how are you thinking about what level of top client growth would be needed under these assumptions to get there? Yeah.

Obviously, if things recover, it makes a lot easier for you. But just under the current, let’s just assume the current environment kinda stays relatively consistent. What sort of top line growth if you bridge to that, cash flow positivity?

Jim Gibson, CFO, PacBio: Sure. So I think there’s three areas we’re focused on, and they’re really kind of bread and butter of any company. The is how do we grow the top line? And I think one of the things we’re really excited about is what Todd was talking about. As we crack into the clinics and we crack into biopharma and we really sort of unlock the 3 ish billion dollar whole genome market, we have about two to 3% of that market right now.

So even if we just get to 5% through establishing more use cases with our spark chemistry or multiuse or lower sample sizes, that’s we don’t even have to grow the market for us to see outsized growth as a company. And with the path with Revio being our 2,500 a year sample tool to 10,000 plus samples with our high throughput, we believe that’s a very realistic place for us to move to support top line growth even if the market itself isn’t seeing overall growth. Two is we have a very realistic path on gross margin enhancement. I think two reasons, what Todd was talking about, which is as consumables continue to become a bigger part of our revenue proportionately, we have much higher gross margins on our consumables. So that helps drop more money to the bottom line.

So that’s a critical part of us as we do that. In addition, as we bring things like Vega out of sort of the R and D production to true production level, the costs start to drop for us there dramatically. And three is with Revio, there’s a couple of things we’re working on. As we get better with the chemistry and as we get better data with that, we can do things like adjust the GPU requirements for our Revio tool. And that’s one of the biggest pieces of the cost, quite honestly, so we can continue to drop money to the bottom line there through gross margin enhancement.

So is just taking a smallish larger portion of an already existing huge market. Two is just executing on these cost of goods sold savings we have and through multiuse and others. And three is really sort of thoughtful spend on everything else. And the thing was prioritizing long read. So putting the short read on the shelf freed up a significant amount of money that we’re spending in R and D and still allowed us, quite honestly, to invest more in long read.

So not only did we decrease our r and D spend by not going after short rate, but we’ve increased our r and D spend on long rate to just create more distance. And two is just smart spending. And I’ve talked about this in a couple other meetings is I think when companies are launching lots of products or money is easy, you’re you’re just not as efficient as a company. You don’t need to be. Right?

You’re kinda and now we as a company, we’ve gotten the revolutionary technology launched. So now we’re really focusing on doing it well. How do we execute as a business efficiently? And that’s something we’ve got 500 plus employees that know what they’re doing. We know where we wanna go.

We’re gonna be as efficient as humanly possible as we execute over the next years and not waste money quite honestly.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Yeah. I mean, it’s a trick. Right? You have to learn from these times Yep. And run a lean operation.

But the trick is

Jim Gibson, CFO, PacBio: That’s right. Don’t go back

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: to not running a lean operation when things get better. Actually, use the you That’s exactly Never waste a crisis is what I said. Exactly.

Jim Gibson, CFO, PacBio: Keep the discipline.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Exactly. Just digging a little bit deeper, you did mention some, you made some comments on gross margin, but I just want to dig a little bit deeper. You highlight expectations to exit Q4 this year at greater than 40%. Maybe give us just some color around the gross margin drivers for this year. You mentioned a few, if there’s any more additional ones.

But what is your gross margin target in order to get to that positive free cash flow by

Jim Gibson, CFO, PacBio: ’20 ’20 Yes. So I’ll take the one. So yes, we I think we guided about 40% plus as we exit the year. We believe that’s absolutely realistic for a few reasons, what I highlighted. One is as we shift more to consumable mix.

Two is we realize the benefits of multiuse as both our customers realize the cost benefits of multiuse, and we realize the gross margin benefits of multiuse. And three is absolutely executing on the switch in the REVIO cost profile by more effective GPUs as well as getting Vega into production. And then going forward, it’s that continuing as we move and then we get multiuse more mainstreamed and get the high throughput. We’re gonna see some significant cost of goods sold increases or sorry, decreases as well as our gross margin increases. And it’s honestly, it’s quite it’s leveraging the same sales force.

It’s leveraging the fact that we’ve already done the biggest pieces of investment in the core technology now. It’s realizing sort of our next generation smart cell rollout, which will give us big cost effectiveness on scale. So and these are all just iterative deliverables on our current technology, which is why we feel they’re very realistic for us to execute on and get to cash flow neutral than cash flow positive in ’28.

Todd Friedman, Senior Director of IR, PacBio: Yeah. So I think it’s so 2025, it’s it’s about Vega costs coming down in the half, consumables gaining as a as a percentage in the half of the year and taking cost out of the revio. There’s there’s some costs that are yet to come out of the revio. They’re actually in those lower cost revios are actually in our inventory today, and and we’re gonna be be shipping those very soon. And then looking past ’25, it’s it’s multiuse chip and going to the the ultra high throughput platform.

As you get to a high throughput platform, a denser chip, it will will mean that we could we could price it in a way that is expanding our gross margin while reducing the cost per genome.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. And then on the cost front, last quarter you talked about the expectation of lower annualized OpEx run rate by approximately 45,000,000 to $50,000,000 by the end of this year. You know, maybe can you talk through some of the areas of focus on the cost out side of things and how you’re striking the balance of remaining prudent in spend while also trying to maintain a competitive edge on long read sequencing? I mean, it’s always that tricky balance.

Jim Gibson, CFO, PacBio: Sure. So I’ll start. So you’ve mentioned it. So we’re we’ve targeted a 45,000,000 to $50,000,000 decrease in overall spend. We believe most of that will be realized in ’26 as we’ve annualized that spend.

We did it in a couple ways. One is we paused the development of our high throughput short read. That drops that was probably 50% of the savings as we sort of paused that development. And then we took some of those savings and reinvested back in long reed. And the rest was we did some changes in the span of control in our sales force.

So we really focus we’re really focused on feet on the street right now. Honestly, it’s just being more efficient, having people out there, not having sort of that middle layer that was managing our sales force. So that enabled us to free up some dollars. And three was just some reductions across the business, and that’s the efficiencies I was talking about. Now that we’re focused, now that we’re delivering in these areas, let’s focus our resources inside the company on that.

So that’s how we believe we’re gonna realize these savings going forward. And then one of the things to realize is one of our significant pieces at least from our OpEx is noncash stock based comp and others. So we feel there’s a realistic path to us to significantly reducing our run rate moving into next year and then sort of holding it steady or reducing it even more into ’27.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: And and then maybe just talk about the balance sheet. I mean, you guys have done some pretty smart refinancings, pushing some of these things out. I think it’s actually, I think it’s a bit underappreciated Mhmm. By investors what you guys have actually done on the balance sheet. But maybe just give us, for context, kinda what what shape is the balance sheet in today?

What does the runway look like? If you are getting that cash flow positive, it doesn’t sound like you’ll need to do much more, but just kind of maybe give us sort of your thoughts on balance sheet and and and any kind of needs going forward.

Jim Gibson, CFO, PacBio: Sure. So I’ll start. Todd got more of the details. So I think right now, we’re sitting in a great position with cash. You know, we exited the last quarter with about $350,000,000 on the balance sheet, which is what gives us the confidence that we have the money we need to execute on our r and d plan and continue to grow.

I think, as you highlighted, we do have debt sitting on the balance sheet. It’s, you know, four or five years out before it matures. So we believe that if we execute as we talked about and come out of ’27 cash flow neutral moving into cash flow positive, we’ll be in a very good position to readdress our debt from a position of strength. Meaning, do we equitize some of that debt? Do we renegotiate it into more favorable terms, or do we retire some of that debt?

And we think by that time, if, you know, we continue to see the growth we’re doing, our debt will be more aligned with our revenue coming in as well. So we feel good about if we execute on the business over the next two years, we’ll have many options in how we deal with the debt coming out of ’27 into ’28. And I know, Todd, you’ve been looking at this in detail. Yeah.

Todd Friedman, Senior Director of IR, PacBio: And I think, you know, one thing you could you could just look for in the past couple years is we we we’re very proactive about it. You know, we’ve we’ve done two deals now to to push out the duration and reduce the amount of debt. And and as Jim mentioned, we’re we’re over four years from the nearest maturity. And the the deal that we did in the fourth quarter of of last year was was one where we we reduced the principal by by over 200,000,000 and extended the duration eighteen months. And so, you know, it’s something that the the management team talks about every week.

And so it’s it is something that, you know, if you just look at what we’ve done in the past, and it’s it’s part of our strategy going forward is to to to really handle that debt well in advance of it it becoming due.

Matt Sykes, Life Science Tools and Diagnostics Analyst, Goldman Sachs: Got it. With that, we’re out of time. But Jim, Todd, thank you very much. Really appreciate it.

Todd Friedman, Senior Director of IR, PacBio: Thank you, Matt. Appreciate it. Thanks,

Jim Gibson, CFO, PacBio: Matt. Thanks, Jim.

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