All the green lights. Means we're live. Thank you, everybody, for joining us for our next presentation. I'm Dan Leonard, the Life Science Tools, Services, and Diagnostics Analyst at UBS, and we're pleased to be hosting PacBio, and with us from PacBio is Christian Henry, their CEO. Welcome, Christian. Thank you, Dan. And thank you to UBS for this opportunity. I'm looking forward to the chat. I am as well. And we're coming off of your Q3 results. So I thought the most efficient way to begin the discussion was just if you could, I could ask you to reflect on Q3 and what were some of the highlights of that discussion? Yeah. Well, I think the first thing is that it's been a challenging year for the tool sector. And PacBio has been no different for us. Q3, though, we saw a return to growth sequentially. So we grew over Q2 levels, which was a nice return to growth. That was driven by a strong consumable quarter for the company. And so we see people using their sequencers more than ever. We also saw total instruments, we sold more total instruments than we did in the prior quarter, which was nice. However, we sold fewer Revios. We had a record quarter for Onso, our short-read sequencer. And that was the biggest quarter we've ever had in the history of the product line. And so that was encouraging to see that grow. We saw the gross margins were down sequentially by design. So we ran a promotional price for the Onso system as an experiment. And that experiment was successful, which had a negative impact on gross margins. But it came in line exactly where we forecasted. So it was not unexpected. If you kind of look geographically, China was strengthened relative to where it's been all years. So we had a nice result in China. In EMEA, we had a few instruments fall out in the last week of the quarter or last 10 days of the quarter, so to speak, due to tender-related issues. And so those instruments weren't lost but delayed getting through the tender processes. And I suspect there were three instruments in particular. A couple of them are likely to come in in fourth quarter. And the third one, probably the first quarter of next year. So they weren't lost. In the Americas, we've had some real challenges in the Americas over the last few quarters, and I think third quarter was the same, and in particular, the funding reductions to the All of Us program are starting to impact the Americas consumables. Now, there are interesting opportunities to see some of that funding return over time. At the ASHG meeting last week, I spent some time with the All of Us team looking at their future and what they might be doing, but for now, the third quarter there was a little bit lighter than what we expected, but on balance, the quarter came in better than our second quarter, pretty significantly better. And kind of set us up well for fourth quarter, where we provided guidance of flat to slightly up, but largely because we had several new product launches, which I'm sure we'll get into in a moment. Absolutely. We'll talk about those. One cleanup on the third quarter. You mentioned a few orders fell out of EMEA due to tendering issues. What does that mean? Is that a circumstance where you win a tender and somebody objects and you have to defend the fact you won the tender? Yeah. That's exactly right. So each country has different rules about these tender processes. And depending, some customers can decide to go direct and not circumvent the tender process, but different aspects of the full tender versus direct tender. There's different levels, so to speak. And in these particular cases, there were challenges. And those challenges basically delayed the process. Got it. So that's business you've won, and it's just a timing issue. That's exactly right. That's exactly right. All right. Well, let's get to the new platforms then. First off, well, I mean, before quick cleanup question before I get to one of the new items, the Revio, you reduced the ASP for the list price for the Revio. Nobody pays list, but I'm sure some do. What are the implications of that? Yeah. Well, first of all, the implications. There's really a couple. First of all, the reason why we were able to reduce the list price is because we've made remarkable progress on driving the production costs of the system down. We've taken tens and tens of thousands of dollars of cost out of the system, and that's given us the ability to expand our gross margins some. And what we've recognized is that the market has perceived that PacBio has the highest quality sequencing data on the market, but it's also expensive. And so in reality, we've become a lot less expensive over the last few years, and not all of our customers really knew or appreciated that. And so as we reduced the production cost of the instrument, we felt very comfortable reducing the list price. However, that list price is actually above where the current ASPs are. And so I don't expect it to have a dramatic impact on our ASP going forward. We will certainly have to have more discount discipline. In other words, the same percentage discounts off of the old list to the new list aren't going to make sense. But by having more discipline around that and having customers understand, hey, it's really not $779,000 to get into the technology. It's $599,000 for our flagship Revio platform. That opens up a lot of conversations that perhaps weren't happening before. Okay. And I know there's different thresholds with different grant types. Does being under that $600,000 figure open up a different bucket of money that you? Not really. I mean, the reality is that still under $200,000, it helps you. So we'll talk about that when we get to Vega. But certainly, within a university or an academic setting, maybe not a grant, but a self-funded instrument, there's different levels of approval. Just like I know in my house at home, anything over $500, I'm not allowed to approve. My wife has to approve. But it's the same sort of the same sort of thing. And so reaching more customers with the accessible price was the driver behind that. And we felt comfortable doing it because our production costs are lower. Our realized ASPs are actually a little bit below that list price. And we're able to move that to more customers. Okay. So that could have a psychological benefit from an ASP perspective, which is what I'm modeling. There ought not to be really much or any change. Yeah. I mean, look, there might be a small change at the margin, but not. But not as much as it would appear. No. Understood. No. Okay. All right. So that's the Revio hardware. Right. On Revio consumables, you had a big announcement. Well, I guess first off, SPRQ. Where did that acronym come from? The marketing group is very creative. SPRQ, it's kind of a play on SMRT, SMRT Cells. That SMRT Cell is the semiconductor chip that we use for our sequencing process. There's no real relation SPRQ. Using an acronym like SPRQ and calling it Spark versus smart. Spark. Okay. It's how they came. So the way it's pronounced is Spark. Our SPRQ chemistry is a new chemistry that we're going to start shipping here in a couple of weeks. This chemistry, oh, December 16th, roughly. So probably about three or four weeks away from now. This chemistry is truly a revolution for the company. It does a couple of fundamental things. The first thing it does is it reduces the DNA input requirement of our sequencing process from two micrograms for a human DNA sample down to 500 ng. 500 ng is a really important milestone because it gives us access to millions of additional samples that could be sequenced on the Revio platform that couldn't be sequenced before. One of the biggest challenges of long-read sequencing, particularly long-read single molecule sequencing, like what we have with PacBio, is that you have to extract high-quality, high molecular weight DNA to get quality sequencing out. And so historically, we needed a lot more DNA to get that high-quality DNA to go onto the instruments. But through enhancements to the chemistry, we've been able to shrink or reduce the amount of input required, which completely changes the nature of the number of samples that can get onto a Revio to begin with. For example, anecdotally, one of our customers out of China has consistently said to us, "You realize we reject almost 80% of all the samples that are trying to get put onto a Revio because the DNA quality or the amount of DNA wasn't enough." Now, with this new chemistry, they won't have to do that anymore. In fact, we did an early preview of the chemistry with some customers in our office in Menlo Park, and I'm not exaggerating. One of our customers almost had a tear in their eye because they were so excited about what it could mean for their business, and this is a commercial customer that wants to do newborn screening, that wants to use smaller blood heel pricks and blood spots on blood cards, etc., etc., to get the DNA, and at 500 ng, all of that is now possible. The other thing we did in connection with the chemistry is we have now validated a new protocol for saliva kits, and so since COVID, for biobanking and other types of large-scale sample collection, saliva has become the predominant way of collecting samples. And the reality is that the Revio didn't do a great job with saliva until we've come up with this protocol. And so that opens up a whole nother set of samples. And so this chemistry, first and foremost, opens up literally millions of potential samples to get on the sequencer, number one. Number two, we have fundamentally learned how the DNA actually gets into our SMRT Cell. Our SMRT Cells, for those of you that don't realize, are a semiconductor with 25 million little wells in them. And each well contains the DNA that gets sequenced. And with this new chemistry, we're able to get more of those wells filled with what we need to do sequencing. Therefore, we increase the throughput of every smart cell by a third from 90 gigabases specification of output to 120 gigabases of output, which means now you can actually do two HiFi genomes on every smart cell. As with the new chemistry, we, in fact, did not change the price. Now the price of a human genome using PacBio Revio is list price of $500 a genome. This is a massive breakthrough. Prior to this new chemistry, the list price was $995 a genome. Now it's down to $500 a genome. This opens up population-scale programs, opens up clinical opportunities where customers are interested in doing whole genome as a replacement for whole exome sequencing for a number of different applications. This chemistry really is a watershed moment for the company, quite frankly. So I'm surprised, and I want to better appreciate this. I'm surprised you didn't lead with the higher throughput, lower cost. You led with lower sample requirement. I think that I don't want people to underestimate how important the ability to reach the whole market is to us building out our business. I think that's been underappreciated. Revio has done exceptionally well even without the ability to reach all the sample types in the market. And now we're enabling all the sample types to get on the system. And we're also enabling a new level of economics that makes large-scale science absolutely feasible. So you really need both, right? You need to be able to access all the samples, and you need to have the economics. This chemistry actually does both. Is that example from China that you shared where only 20% of a lab's inbound samples were actually amenable to the Revio, is that a representative example? So do you view the business as having only had access to 20% of the sample types out there? Whether it's 20% or 40%, I want to use this as an anecdote. Sure. But it certainly is representative that there is a preponderance of samples that couldn't get onto the Revio because either the DNA quality or the amount of DNA that the customer actually had wasn't enough to get high-quality sequencing results. Now our customers are going to have a lot more confidence in getting high-quality results every single time. And so this is an important moment for us. How meaningfully just that feature alone, do you think, in isolation? I know it's impossible to isolate one variable when you have a multivariable problem here, or a multivariable equation, at least. I don't want to call it a problem. Well, challenge. How important? What would that in isolation do for pull-through per instrument? Do you have any sorts of feedback? You have an anecdote that suggests that the pull-through per instrument would meaningfully change just based on this fact alone. I think it could change. I think that there's a lot of variables at play when you think about pull-through and utilization. But certainly, having more samples available to get onto the sequencers first enables our customers to imagine doing bigger projects, imagine doing projects with the samples that they have. So in total of our whole fleet, more of the fleet can get utilized, which would likely raise pull-through. Lots of things at play there on timing. But it also drives instrument demand because now a customer can conceptualize, "Hey, I can do a 50,000-sample project because, number one, I have enough DNA." Excuse me, and number two, the pull-through of the maximum number of samples that you can run per instrument per year goes up to 2,500 genomes a year. The price per genome, if you're doing a 10,000-20,000-sample study, let's just imagine, will be well below $500 a genome. Now it's economically feasible. It's practical from an instrument capacity capability. It's practical from the samples are actually there to get these projects done. I think it changes the dynamic pretty substantially. It'll be interesting to see how it plays out as we start shipping the chemistry and we get into next year. We continue to operate in this capital-constrained environment. I'm sure that puts brakes on things a little bit. I do think that this is an opportunity for us to continue growing the install base, capturing more and more of these bigger projects, and making HiFi long-read sequencing more ubiquitous than ever. On the $500 genome price point you mentioned, to clarify, that's a 20-fold coverage genome. That's exactly right. And that's considered a bit different than the coin of the realm, if you will, which is that 30 times coverage. Do you believe that it's becoming more widely accepted in the community that PacBio 20-fold is equal to a 30-fold coverage on a different piece of equipment? Absolutely, and I think we finally have crossed. I mean, all the titration experiments have been done. What you really need to look at are what are called the F1 scores. Sure. So the ability to call SNPs and indels, the ability to look at structural variation, the evenness of coverage, any systematic errors that might exist in the chemistry. And if you look at it, it is becoming much more widely accepted. And look, the other long-read competitors need 40-fold or more to get to a 30-fold genome. So 30-fold was a marker kind of as a delineation. The truth is lots of customers do more than 30x with short-read genomes, and some do 30x. And so it's really kind of a measuring post. What people are appreciating now, it's really the quality of the genome you get. How much coverage do you need to get the quality that you're looking for? And it's very clear that at 20x, a PacBio HiFi genome is certainly equivalent, if not actually superior, to a short-read 30x genome. Other long-read players, they need 40x to get to a 30x because of differences in error profiles and different nuances of the techniques and chemistries. When you were talking about benefits of higher throughput, you mentioned the number of genomes per year somebody could run on a Revio with the SPRQ chemistry. I'm glad I now know what that stands for. Yeah, no, I like it. It's a lot easier to say. But do they have to? So what I'm wondering is the number of genomes you can run on an instrument with other instruments is larger than this amount. And I'm just trying to better understand what is the application that somebody thinks they have to have a Revio for? I think they absolutely have to have a Revio these days for any rare disease research and any rare disease in clinical settings. In fact, more and more of our people are adopting Revio and working to make HiFi sequencing the first-line diagnostic test for rare and undiagnosed disease, particularly in pediatric settings. This is everywhere from the major children's hospitals in the United States to I was just in the Netherlands a few weeks ago, and there's groups in the Netherlands working to basically make HiFi sequencing the national standard for rare disease diagnosis. There's a really good reason for that. The reason is that with a Revio run, you can get all of the genetic variation, the standard variation of SNPs and indels and things like that. You also get the structural variation. You also get the epigenetics, so the methylation calls. You get the phasing of the genome. All of this with one run out of the box. In fact, I was with a key customer last week, and he was really the spearhead at this institute to put Revio in the clinical. It's their first-line clinical test now. He said the clinicians that are ordering the tests are saying, "We need that HiFi magic." Okay, I'm the CEO of PacBio, so that's obviously a great thing to hear. HiFi is becoming a brand name. HiFi as a brand name, but we need that HiFi magic. And what they mean by that is the data is so clean that the ability to understand what's going on with the genetics and relate it to the phenotype of whatever is being presented is just so much easier. And the solve rates are substantially better. The completeness of the genome that we provide, so we see all of the dark regions of the genome that short-read approaches can't see. And the limitation has been economics, informatics tools, etc. And we've lowered the input DNA amounts over the last three years since I've become CEO of the company. We have embarked on a very aggressive program to put new technology into the field to increase the informatics capabilities. So we have an advanced computational biology program now with a team that builds the tools that allows you to leverage all of these parts of the genome that you couldn't see before. So the combination of all these things is we're really starting to, quote, "enable the HiFi magic" in these children's hospitals. And also the turnaround time. So Revio is a 24-hour run. So it still takes. You have to prepare the sample and run the sequencer and then analyze the data. So the reality is that you don't get an answer necessarily in 24 hours. But it's rapid, that in most situations, it makes perfect sense now to use in that kind of clinical setting, which is really exciting. So when you think about Revio in general, that's a huge area where we're seeing growth. Another area where we're seeing it is in carrier screening. So we launched earlier this year a new targeted sequencing panel called PureTarget. It's a repeat expansion panel. And it looks at genes that short-read sequencing has a really hard time managing. So we've had pretty substantial adoption, and one of our biggest success areas this year has been selling Revios into the clinical diagnostic companies, Quest, Labcorp, Myriad Genetics, those kinds of companies. And they're implementing the technology in a carrier screening mode so they can run it alongside a short-read workflow to get those genes that they couldn't otherwise get. They're using historical older methods like long-range PCR and MLPA and even Southern blots and these techniques that are 20, 30, or more years old back from when I was in college. And they're replacing them with Revio because the workflow is easier, the answers are better, and the economics are way better. And so we're seeing that as another must-have application. The last one I'll touch on, and I know we're going to run out of time, is that with respect to transcriptomics and RNA sequencing. And so our Kinnex kits enable you to look at the whole transcriptome and look at the individual isoforms in a complete sort of way. That's never been done before. And we're seeing a lot of uptake and growth in that area. I'm surprised you didn't mention Kinnex earlier. I should have probably. You're probably right. It's really. Kinnex is an application that the RNA sequencing market could be a multi-hundred-million-dollar market opportunity for us. Being able to look at all of the isoforms really helps you understand how splicing events in the genome affect protein expression. All right. So I'll apologize in advance. We're not going to talk about Onso, this chat. We're not going to talk about gross margin improvements. Okay. We have eight minutes to talk about Vega. Let's talk about Vega. Let's talk about Vega. So that was the Big Bang launch at ASHG. Gosh, I have a number of specific questions. But maybe why don't you kick it off and tell me what you're excited about most with Vega? Yeah, I tell you the reception. So Vega is PacBio's first benchtop sequencer. If you haven't seen it yet, you should check it out on our website. But it's a 2 ft by 2 ft benchtop system that actually delivers 60 gigabases of data every single run. What we've done is we've taken the innovation that we've done with Revio and been able to shrink it down into a form factor that includes all of the compute. We've dramatically simplified the way you interact with the system. There's only two consumable trays now. And we did that with the ability to penetrate deeper and deeper into the market to get new users using HiFi. And so by simplifying it, we think we can reach a much deeper part of the market. And of course, we did this, and we launched it with a list price of $169,000. And so at $169,000, it's more than twice as powerful as the Sequel IIe. It's less than half the price of what a Sequel IIe was. It's obviously almost a quarter of the size. And at the same time, we launched SMRT Link Cloud. We're launching SMRT Link Cloud. So it will be connected to any S3-compatible cloud service. So now you'll be able to move your data around a lot easier, stream your data directly up to the cloud, which enables collaboration, tertiary analysis, basically everything to make the system easier for our customers so that we can move deeper and deeper into the market, protect the pricing of Revio. We also have a program for $79,000 plus a reagent commitment. You can buy the system as well. So it really is the first sequencer that we've ever launched that we think can go into virtually any lab in the world. How important do you think Vega will be to driving future Revio demand? I think you're hitting the nail right on the head. This is why you do this. What you want to do is you want to create ubiquity with HiFi data and then over time move all those customers up to Revio and then beyond Revio. Revio is going to sit in the portfolio for a very long time. And when you think about it, could a third of the Vega users ultimately move up to Revio? That's completely conceivable that you could see that over time depending on projects and scale, etc., etc. Well, and I want to talk a little bit about the analogy of the HiSeq and the MiSeq. And this is actually quite a different aspect, right? You weren't selling MiSeqs in the hope that in a future period of time, getting somebody hooked on sequencing data would get them to do much bigger sequencing projects. I feel like that wasn't part of the dynamic. But this could be different. And please correct me if I'm wrong. But the broader question is I'd love to dive further into this analogy and better understand where does it hold for PacBio and maybe where does it break down, that HiSeq and MiSeq analogy? I think the analogy is actually quite strong. I was fortunate enough to be part of both the HiSeq and MiSeq launch and part of the quite frankly, it all came under my leadership at that time. So the reality is the analogy continues to hold. What we needed, we need to have a portfolio of sequencers that meet the customers where they are so that they can get engaged. If you remember back in the HiSeq, MiSeq phase, the truth is next-generation sequencing was still quite new, and it wasn't as standard. So you were still trying to basically move into the markets to replace Sanger sequencing, to replace other methods. So a lot of the parallels are the same, and here's a very inexpensive instrument with higher price consumables on a price per gigabase, just like that's what we did with MiSeq. The same thing with what we're doing with Vega. The price per run is $1,100, and you can do one smart cell at a time and generate 60G. Whereas the price per run on an equivalent basis is $500. So it's a lot more expensive per run, but the capital cost is less, and the simplicity is much greater so that you can reach kind of that walk-up customer in the core lab and go that way. So it was really the same way. If you look at it, the MiSeq was one of the most successful instruments in history and with an installed base of over 10,000 units. I do think Vega has the same kind of potential. Of course, that was over a decade. So let's make sure we don't set expectations too high. But the reality is that it is a very similar moment in time where it is kind of our moment where we have that separation of the portfolio. Yeah, the MiSeq was successful very much on its own merits. But it never struck me that it drove a lot more demand for the HiSeq. I mean, at least this is the way I model it. And I'm sure your Illumina model was a lot more detailed than mine. But Illumina's high-throughput customer base didn't grow that much. It was by 800 labs. It had the highest-throughput instrument. And that grew a little bit over time. But it seems to me that for you, that the opportunity could be a little bit bigger and that it's more important that you get people hooked on the data format with the Vega than it was for Illumina. That opportunity is a little bit different. I'd love to hear. You are exactly right on that, and the reason why is the sequencing market has evolved in the 15 years since MiSeq came out, that really next-generation sequencing is a standard now, and now it's up for us to demonstrate a new technology that can replace other sequencing technologies, and so Vega is all about getting new customers engaged with the technology so they appreciate the power of what HiFi can do and then scale there because it's likely that Vega is going to sit in labs right next to MiSeqs, right next to NextSeqs, right next to NovaSeqs, and over time move customers in that direction, so you're spot on with that. Where it also is going to be interesting is Vega is likely the instrument that will take through an FDA process at some point and start to think about a true diagnostic FDA-cleared diagnostic product. We'll see how we go. There's no commitment there yet. But we have been thoughtful about how we design the instrument should we decide to go down that pathway. And the amount of throughput is good for many diagnostic labs and lots of different applications. Final thought. I almost hate to end on this note, but I want to be balanced and we'll run a minute over here. But so in one circumstance, the launch here could have more of a potential to have more of a multiplier effect on demand for your higher-throughput instruments than the analogy. But on the other hand, you're launching into a different environment. Illumina's got a new instrument that's at a similar price point. Oxford Nanopore has an instrument that is even cheaper. How do you think about that from a competitive standpoint in that the market's different than maybe it was for the MiSeq back in, I think that was 2012-ish? Yeah, give or take. Give or take. I've got a lot of gray hair since then. I think, look, you're right. The market is much more competitive. There's much more choice. It's a great time to be a scientist because there is so much technology. What I would say about the Vega is that it provides you all of the power of a Revio in terms of the ability to see structural variation, epigenetics, methylation. All of the compute is included on board. There's only two cables. There's a power cable to a regular 120 V socket and an Ethernet cable. And so the simplicity is completely next level. It's tried and true. It's 0.996 R-squared value comparing Vega data to Revio data. So it is a smaller package. So in a competitive environment, Vega gives you all of the benefits of long read at a much lower, lower capital entry point. And so I do think for us, it's really important to meet customers where they are. Our objective is to provide these solutions to the customers at whatever scale they need and then over time move them up. I do think Vega's going to be very competitive against other long read players and the short read players. And I think one question that comes up a lot too is, does Vega cannibalize any of the Revio sales? And you talked about it helping accelerate Revio sales. I completely agree. There may have some impact, but the early indications after now it's been on the market for a few days is that customers see a very clear delineation. And so I don't expect substantial cannibalization. And I think you're going to see some Vega sitting right alongside Revio's. Okay, so entirely different markets and when you think about the competitive environment in that lower price point market, it sounds like you feel pretty confident that the ease of use as well as the unique features of the technology you're bringing to that part of the market, you're going to be well positioned if I could try to play back. I believe we will, yes. Okay. Well, with that, sorry to keep you late. We're out of time. Oh, it's fine with me. Christian, thank you for joining us. Thank you. Cheers. Cheers.