Good afternoon, everyone, and welcome to the Pacific Biosciences of California, Inc. Third Quarter 2020 Earnings Conference Call. I would now like to turn the conference over to your host, Ms. Trevin Rard. Please proceed.

Thank you, Alexander. Good afternoon, and welcome to the Pacific Biosciences Third Quarter 2020 Conference Call. We hope that you are keeping well during this time. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacb.com, or alternatively, as furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. With me today are Christian Henry, our Chief Executive Officer; Susan Kim, our Chief Financial Officer; and Ben Gong, our Vice President of Finance and Treasurer. Similar to last quarter, we are hosting our conference call from a number of different locations, so please bear with us if there are any technical issues or pauses. Before we begin, I would like to remind you that on today's call, we may be making forward-looking statements, including plans and expectations relating to our financial projections, research and development efforts, products, sales, plans of our collaboration partners, plans to grow, and the potential impact of growing our commercial team and other future events such as the impact of the COVID-19 pandemic on our business, partners, customers, and employees, and the use of our products in COVID-19 research. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties and may differ materially from actual results.

Good afternoon, and thank you for joining us today. I am pleased to be hosting my first earnings call for Pacific Biosciences as the Chief Executive Officer, and I'm excited to share some of the progress we've made in my first 7 weeks. For my prepared remarks, I will briefly review our Q3 financial and business highlights, provide an update on how the COVID-19 pandemic is impacting our business, and finally, give some early impressions as CEO and share our view of the opportunity we have to grow the business. But before I begin, I do want to thank all of the employees of PacBio for their extraordinary effort during the pandemic. During the quarter, we were able to successfully maintain production and continue with our research and development activities without significant disruption from the pandemic. I'll start with an overview of our Q3 2020 financial. Consumables revenue for the quarter was $8 million, up 66% sequentially from Q2. Most of our customers who had shut down due to the pandemic in the second quarter have reopened. We are pleased to report that system utilization on installed Sequel II systems had returned to levels similar to or even higher than where they were before the pandemic. Instrument revenue for the quarter was $7.7 million, which is down 14% sequentially from Q2. As I mentioned in our previous earnings call, we have seen significant headwinds in instrument sales due to the pandemic. Many of our instrument sales opportunities have been delayed as some capital budgets were put on hold in Q2. This impacted new bookings and, of course, instrument revenue in Q3. We believe these delayed system purchases continue to be opportunities, and we've recently seen instrument bookings improving. Additionally, we have a healthy system sales pipeline. However, due to the pandemic, it is difficult to predict how quickly these opportunities will be converted to instrument sales. Total revenue for the third quarter was $19.1 million, which was up 12% sequentially from Q2. Overall, we were pleased with the total revenue we recorded in Q3 as we met our internal forecast while still navigating through the challenges associated with the pandemic. We successfully raised $94 million from a follow-on offering we conducted in August and ended the quarter with approximately $209 million in cash and investments, up from the $120 million balance we held at the end of June. The proceeds from the offering will allow us to execute on our two core strategic objectives: driving an expansion of our commercial operations and investing more aggressively in product development. Susan will provide more details on the financial metrics later in the call. Now I'd like to provide a few updates and comments regarding the impact of COVID-19 on our business. As I mentioned earlier, the vast majority of our customers have reopened and utilization of our installed base of Sequel II systems is as high as it was prior to the pandemic. That said, some delays persist in the ramp-up of certain large sequencing projects, such as the All of Us human genome sequencing project in the United States and the Darwin Tree of life plant and animal sequencing project in the United Kingdom. The flow of samples from these projects has been hindered by the pandemic. However, we are seeing signs of this loosening up this quarter, and we believe that we should see a ramp-up of these projects early next year. With regard to instrument sales in the near term, many customers have delayed capital spending activities, and some customers diverted those funds to activities more directly related to near-term COVID response. In a typical third quarter, we would receive orders for new systems from U.S. government-related customers that are looking to spend their capital budgets prior to the end of the government fiscal year. However, due to the pandemic, we did not receive any of those orders in Q3, and it is difficult to predict when those opportunities will actually come. That said, as I said before, our sales pipeline is healthy, and we expect to see an increase in instrument bookings in the fourth quarter. We will continue to monitor this closely as macroeconomic conditions created by the pandemic may have an extended impact on capital spending. Last month, we announced the launch of the Sequel IIe system, which represents the next instrument evolution based on our SMRT technology. The Sequel IIe system is an exciting new instrument that will make the SMRT technology accessible to more scientists than ever before. The system has significantly increased computational capacity and has been optimized for HiFi sequencing by processing the data on the instrument. This eliminates the need for post-processing of sequence data and delivers up to a 70% reduction in secondary analysis time. Additionally, the Sequel IIe system has been designed to achieve up to a 90% reduction in file transfer and data storage needs. The combination of these advancements will substantially reduce the costs associated with compute and data storage and will help accelerate our customers' research. The market has responded enthusiastically to the new system, and we have already received orders. The Sequel IIe system is priced 5% to 10% higher than the Sequel II, and we expect it will be available for shipment this month. Additionally, Sequel II systems in the field can be easily upgraded to the Sequel IIe, which will provide all of our Sequel II customers access to our new capabilities. With the growing popularity of PacBio HiFi sequencing, we are seeing new opportunities to collaborate with customers who are on the forefront of applying sequencing toward emerging clinical applications. Last month, we announced a collaboration with Children's Mercy Kansas City, a leader in translational research for sick children. Children's Mercy recently launched a program called Genomic Answers for Kids, which is intended to be a data repository to facilitate the search for answers and novel treatments for pediatric genetic conditions. Their goal is to collect genomic data and health information for 30,000 children and their families over the next several years, ultimately creating a database of nearly 100,000 genomes. Children's Mercy now has two Sequel II systems, which they will use to incorporate HiFi sequencing into this effort. We also recently announced a collaboration with Invitae, focusing on the investigation of clinically relevant molecular targets for use in the development of advanced diagnostic testing for epilepsy. In the first phase of this collaboration, Invitae plans to perform whole-genome sequencing on a large pediatric epilepsy cohort. Sequencing will be performed using multiple PacBio Sequel II systems. Armed with PacBio HiFi sequencing data, Invitae will work towards generating comprehensive variant profiles to investigate the genetic basis of epilepsy. This research is intended to accelerate Invitae's development of assays to help patients obtain more accurate diagnoses and facilitate improved treatment options based on specific genetic targets. To summarize, I'm encouraged by our performance in the third quarter. We were able to reach our internal revenue targets, growing sequentially over Q2. We also initiated a few important collaborations that support our belief that SMRT sequencing with HiFi reads will be extremely important for clinical research applications.

Thank you, Christian. And good afternoon, everyone. I am excited to be on Board at participating in my first earnings call as the CFO of Pacific Biosciences. I will be providing an overview of our Q3 2020 financial results with comparison sequentially and year-over-year. Starting with revenue. Total third quarter revenue was $19.1 million, an increase of 12% from $15.6 million in Q2 of this year but a decrease of 13% from $21.9 million in Q3 of last year. Let me provide some additional detail on the revenue for the quarter. Consumable revenue for the third quarter of 2020 was $8 million growing sequentially 66% from $4.8 million sold in Q2 of 2020 and up 16% from $6.9 million sold in Q3 of 2019. The sequential growth in consumable revenue reflects the increased utilization of our installed base, which, as we indicated, has returned to levels prior to the pandemic. Sequel II consumables represented approximately 70% of our total consumable shipments in the third quarter, and roughly 25% of our consumable shipments were purchased for the older Sequel systems. It is encouraging that customers have been able to take advantage of the benefits that come with our Sequel II systems. We expect the proportion of consumable sales from Sequel II systems to continue to grow as the installed base for Sequel II continues to expand. Instrument revenue recognized in Q3 was $7.7 million, down from $8.9 million recognized in Q2 and down from $11.6 million recognized in Q3 of last year. Instrument revenue this past quarter reflected the pandemic headwinds on our instrument sales, largely due to customer uncertainty associated with COVID-19 and the funding environment for capital spend. Instrument bookings in Q2 had hit a low point for the year, which resulted in instrument revenue in Q3 being down sequentially from Q2 of 2020. We installed 20 Sequel II systems during the third quarter, growing the installed base of Sequel II by 14% to 168 as of September 30. Service and other revenue was $3.4 million in Q3 2020 compared to $3.3 million last quarter and $3.4 million last year. Our service revenue has remained relatively flat over the past year as increased service on Sequel II systems has been offset by declines in service on RS II in and Sequel systems. Looking forward to Q4, we are targeting sequential growth in total revenue over Q3. We entered Q4 with a stronger instrument pipeline compared with Q3. However, the timing of instrument installations can be unpredictable due to the ongoing impact of COVID-19. System utilization has also been strong. We are closely monitoring the impact of lockdowns in countries like France and the U.K. to see how this latest wave of infections may impact our consumable sales. Moving on to gross profit and gross margin. In Q3 of 2020, we generated a gross profit of $7.1 million, representing a gross margin of 37% compared with a gross profit of $6.6 million, representing a gross margin of 38.7% in Q2 of 2020. The decrease was primarily attributed to quarter-to-quarter fluctuation in the average selling price of instruments. Year-over-year, our gross profit in the quarter improved compared to the gross profit of $6.9 million in Q3 of 2019, which represented a gross margin of 31.6%. The improvement in gross margin compared with last year was primarily due to inventory reserves taken last year as a result of the product transition from Sequel to Sequel II, partially offset by under-absorbed overhead from lower factory production in Q3 of 2020. Looking forward to Q4, we anticipate gross margin will improve as our factory utilization continues to improve. We expect gross margin percent in Q4 to be in the low 40. Moving to operating expenses. Operating expenses in the third quarter of 2020 totaled $31.2 million, up 4% compared with $30.1 million in Q2 of 2020 and down 11% compared with $35 million in Q3 of 2019. The decrease compared to last year was primarily a result of merger-related expenses, which were incurred in Q3 of 2019. The sequential increase compared with Q2 was primarily a result of increased R&D expense related to new product development costs. We continue to believe in the promise of our HiFi read capability. Therefore, our goal is to accelerate our new product development efforts as well as expand our direct sales force to better serve our markets across the mid and long term. As a result, we expect our operating expenses to grow sequentially in the fourth quarter. Noncash stock-based compensation included in operating expenses was $4.3 million in Q3 of 2020, up from $3.6 million in Q3 of 2019. Net loss for Q3 2020 was $23.7 million, which translated to a net loss per share of $0.14. Turning to our balance sheet. We ended the third quarter with a balance of $208.6 million in unrestricted cash and investments compared with $120 million at the end of the second quarter of 2020. The $88.6 million increase in cash was primarily a function of our follow-on offering in August that netted approximately $94 million plus nearly $11 million in proceeds associated with employee stock option exercises, partially offset by approximately $60 million of cash used for operations. Inventory balances decreased in Q3 2020 to $15.9 million, representing 2.9 inventory turns from $16.8 million at the end of Q2 2020 or 2.5 inventory turns. The improvement in turn is due primarily to the higher consumption of our consumables inventory. Accounts receivable increased in Q3 to $11.8 million, reflecting a DSO of 56 days from $11.3 million at the end of Q2 2020, reflecting a DSO of 50 days. The change is primarily attributed to the timing of instrument billings. Finally, as a result of the merger termination with Illumina earlier this year, we received a reverse termination fee of $98 million back in January, which has since been recorded as a deferred gain on our balance sheet. As of October 1, the contingency associated with the reverse termination fee lapsed, and therefore, this amount will be recognized as other income in our Q4 2020 income statement. We believe the tax impact of this gain will be minimal due to the existence of our accumulated net operating losses and R&D tax credit.

Thank you, Susan. As many of you may know, one of my first objectives upon joining the company is to define the core strategies that will drive our execution and growth over the next several years. Although I've only been at the company for several weeks, that strategic planning process is well underway, and I look forward to sharing more detail with you in the coming months. Today, however, I'd like to share three core objectives that will drive us in 2021. Our first core objective for 2021 will be focused on expanding our commercial reach. With the launch of the Sequel II and IIe systems and the emergence of highly accurate long reads or HiFi reads, PacBio is now being recognized as not only the leader in long-read sequencing, but also as the leader in accuracy and completeness among all sequencing companies. These advances make our products desirable to more customers than ever before. As a result, we need to expand our commercial team to take advantage of new opportunities and to meet the needs of these new customers. Today, we have a modest global sales force of approximately 20 sales personnel. We plan to dramatically increase the size of that sales force over the next year. In fact, recruiting is already underway for more than a dozen new sales positions. We believe these new positions will enable us to reach more potential customers than ever before, which will help us grow. Of course, hiring and training takes time, and I would expect that it would take at least a few quarters once a new salesperson is hired to get up to speed and start contributing in a meaningful way. As we expand our sales force, we will also need to expand our ability to execute within the commercial organization. As a result, I expect that we will invest in marketing, sales operations, and service resources to ensure that we can quickly convert opportunities and ensure that each customer has a great experience with PacBio. Our second core objective is focused on driving our product development pipeline. Our SMRT technology has headroom to improve, and we have several programs underway to significantly increase the throughput of our sequencing system. This will be critically important as we engage in the large-scale, whole-genome sequencing market. In addition to increasing throughput, we will also be improving the upfront sample preparation processes so that our customers have robust, fully automated protocols that require less starting materials. Our third core objective is focused on moving our SMRT technology deeper into the clinical diagnostic market, where we believe our technology has unique advantages over other technologies available today. Using HiFi reads, there is emerging evidence that researchers and clinicians can increase their solve rate for rare genetic diseases that have not been solved using other sequencing technologies. To leverage our technology in the clinic, we will continue to execute on high-quality collaborations and partnerships such as the ones that we announced with Invitae and Children's Mercy Kansas City this past quarter and our ongoing partnership with Asuragen. With the recent advancements in our SMRT technology and the near-term products to come, our long-read sequencing technology will enable our customers to fundamentally advance our understanding of genomics. We expect this will have a significant impact across broad areas of human biomedical research, agriculture, microbiology, infectious disease, and ultimately to improve human health. Before I conclude my prepared remarks, I want to reflect on the recent shutdowns in Europe and the rapid increase in COVID cases in the United States. These are reminders that the business environment is highly volatile, particularly with respect to new capital purchases. Nonetheless, we believe that we can grow our revenue sequentially over Q3 levels. However, the amount of growth may be impacted by the emergence of closures related to the pandemic such as what is currently happening in Europe. In fact, closures due to the pandemic may have an impact on our revenues in the first half of '21 as well. Even with the challenges associated with the pandemic, this is an exciting time for me to be joining the company. The PacBio team has created technology and products that are truly remarkable and has established a strong foundation for building a great business. We believe that PacBio sequencing is clearly the gold standard for establishing reference genomes, and it is the go-to technology for plant and animal sequencing. PacBio is held in high regard among customers for high integrity and excellent customer service, and the launch of several new products has given the company a great opportunity to grow. I look forward to pushing us to build a great company by accelerating the advancement of the technology and increasing our commercial presence in the markets we serve. This will conclude our prepared remarks, and now we will open up the call for questions.

We have your first question from Doug Schenkel from Cowen.

So first, just on some of your commentary on systems. Could you just unpack whether or not there have been any notable differences by geography in terms of delay and pipeline progression? And I guess kind of the same question on applications. There's been areas where the ability to accept instruments to place orders has been a little more durable versus others.

Yes, Doug, it's good to talk to you. The challenges we are seeing geographically are really mostly focused in AMR and EMEA, and probably even more strongly in EMEA than AMR. What we're seeing is that an instrument order may be somewhat delayed due to funding changes or really the timing of when people are getting back to work, and we saw some of that in Q2 impacted us in Q3. Looking out into the future here, as we said in the prepared remarks, we see the pipeline improving across pretty much across the board. We'll be concerned about significant closures like what we see in France, for example, right now, and how that will impact us in the very near term. If that answers your question. The second part on applications, there’s a lot of excitement around whole-genome sequencing right now with HiFi reads, and we're getting a lot of traction and good collaborations as we've outlined. So I'm actually pretty excited about that.

Okay, that's really helpful, Christian. Building off that, the placements might have been higher if it weren't for the pandemic. There has been some encouraging progress in the Sequel II consumable utilization numbers. You mentioned that utilization is normalizing to at least prepandemic levels. I'm curious, first, if there was any stocking dynamic in the quarter. Secondly, it might be a bit early to ask, but looking back at Sequel I, I believe the pull-through reached about $200,000 annualized after eight quarters. Do you think it's possible to reach or exceed that with Sequel II in the upcoming quarters?

Yes. I'll let Ben address the question on the pull-through because he's got more history than I do still. But on the stocking, there wasn't a lot of stocking per se during the quarter. I think people were getting back to work. One thing at PacBio that we have is we have an excellent way of tracking the runs. It's our SMRT Link software, and we're able to see what many of our customers, not all, but a significant majority of our customers are actually running. We were quite encouraged that people were running their systems consistently throughout the quarter. We don't think it was a stocking phenomenon, particularly in the third quarter. With respect to pull-through, maybe Ben, you could address that.

Yes, I'd be happy to. Yes, Doug, you're right that the pull-through revenue has gotten back up to, let's say, $160,000 for Sequel IIs, which is kind of where we were right before the pandemic hit. It's kind of hard to predict where it's going to be going in the future. We are driving toward increasing that by having some of these high-volume or larger projects like the All of Us project and the Darwin Tree of Life project hopefully kicking off next year. But at the same time, that's going to be a contest between new system placements. So I'd say this time it's a bit early for us to predict where that's going to settle out. We're just happy that it's kind of recovered back to where we had gotten into before the pandemic hit.

Okay. Yes, I think that's helpful. Sorry, Christian.

Yes. I think – No, that's fine. I'd just say the last point on that is that I think that as we drive our commercial organization, and we believe that will drive accelerated placements in the market, it will be interesting to see how fast we can empower those customers to ramp up to get to the throughput levels that we would be hoping for on the consumables. We can't predict that now, but obviously, our objective would be to maintain or even grow from those pull-through numbers.

Okay. That makes sense, guys. And maybe just a last one, specifically on the clinical side. As you noted in your prepared remarks, you had a couple of new announcements over the last quarter. And then I guess Invitae was actually in October. Is the role of PacBio in these agreements largely to elucidate the link between structural variation and genetic disorders? I ask because I'm just trying to understand if these agreements serve largely as ways for PacBio to get in there and really serve as a complementary tool to short-read solutions or whether or not you view these types of agreements as really being positive leading indicators for PacBio increasingly being viewed as competitive or even replacing short-read solutions.

Yes. I think that's a great question, Doug. Thank you. I think that right now, we are clearly a complementary technology given the fact that our costs are higher than short-read approaches. However, there are customers and partnerships that are looking to figure out if they can create a PacBio workflow that as we increase our technology and capability, increase our throughput, can they derive more benefits from the long-read sequencing. So I think today, we have to look at it as a complementary technology, but there are a lot of cases where customers are interested in whether this is a technology that we could eventually bring more into high throughput practice. We have some work to do on our side on driving the cost and throughput of our machines, but I'm really excited about the prospect of being able to do that over the next few years.

We have your next question from Tejas Savant from Morgan Stanley.

Just a couple of quick ones here. Christian, can you talk about just early customer feedback to the IIe announcement? And specifically, should we expect to see customers perform more long-read sequencing given the time, data storage, and compute savings you've spoken about? And also, over time, what traction of the user base do you expect will upgrade here to the IIe? Is it sort of essentially 100% of your existing Sequel user base?

Yes. Tejas, thank you for the questions. I think the early customer feedback has been overwhelmingly positive; they have stated, 'Thank you. This is a great advancement.' Being able to do the secondary analysis on the instrument really simplifies our lives. I think what you're going to see is customers that have significant compute infrastructure already in place may not upgrade, but they still may upgrade just because of the money they can save on the storage side. What I find the most exciting aspect of the IIe launch is that it's an instrument that can penetrate into a core lab; maybe not necessarily the first-tier core lab, but a second-tier core lab can actually create an accessible workable solution for them. Because if you have to buy the instrument and then buy another $100,000 of compute on top of it, that represents a pretty significant budget. Now we've eliminated that additional compute cost. It gives us an opportunity to access places we haven't been able to penetrate before due to excessive costs. Regarding how many customers will actually upgrade, I believe there will probably be a reasonable percentage, and I think new customers and machines will predominantly buy the IIe. It's a great value for just a little bit more money.

Got it. And then just following up on Doug's question earlier on the clinical side, Christian, your work in Children's Mercy and the Invitae program. How do you expect pediatric samples to ramp over time? And what do the economics look like for PACB? I mean are you initially giving a discount on these samples to enable clinical adoption down the road? Or is it a full-price sample for PACB as it otherwise would be?

Well, in general, I think the pricing is consistent with our discounting methodologies that we use for these customers. We may be more aggressive in specific situations, particularly where we are trying to collaborate on workflow benefits or the ability to try new things with the customers that we could then standardize throughout the market. So I believe that in the short term, the pricing is somewhat discounted, but not heavily so that it deviates from what we typically do. In the long run, I think it will be interesting for us as we drive our throughput up; we can share the benefits of those gains with the customer. As for how that sharing will look, that will depend on market conditions and the customers' needs. Given our R&D pipeline, we expect to create a business where overall gross margins improve because we will have products priced favorably for the company.

Got it. And then a two-parter on the sales force expansion here, Christian. I know you spoke about sort of a dozen open positions. How large do you envision the sales force being in steady state down the road? And have you had early conversations with some of the core labs and the large genome centers, perhaps in the U.S., where you don't essentially have them as your marquee customers but they could become marquee customers over the next 12 months or so? And then secondly, just a little bit of a fuzzy question, if you will, on culture. Regarding your push to a more aggressive customer-centric culture here, what are you doing internally to ensure that the core DNA of the company around R&D and innovation stays intact?

That's such a great question. Let me see if I can unpack all of these. With respect to sales force expansion, I do believe you'll see us dramatically increase the sales force from here. I'm probably not ready to say we're at 20 now, should be 120 at some point. However, I think it will be unpacked in phases, particularly while we still have the headwind of the pandemic. It's important that we build aggressively but do so responsibly on the P&L side of the expense equation. One equally essential component is that we want to hire the highest quality people. Building some infrastructure to support this is critical as well. Once we have that in place, we can accelerate hiring. In 2021, hopefully, we will double our sales force if not more, but it really depends on how the pandemic plays out. With respect to conversations with customers, I've had many opportunities to reconnect with customers worldwide and rekindle those relationships. I see significant opportunities in major customer sites globally, particularly with HiFi sequencing. HiFi sequencing has changed the game for the company. With the launch of the IIe and what we have coming down the road, I believe we have an excellent opportunity to build market share in those customer segments. Regarding culture, you are correct; we want to cultivate a customer-centric culture. Improving execution and creating a disciplined approach for prioritizing our products is essential. But one of the company's most significant aspects is its innovation, and the level of talent is second to none. As we navigate our strategic planning process, we're reevaluating our mission and core values. Everyone is becoming engaged in this process. My goal is to be inclusive and to show how vital customer-centricity is while not losing sight of innovation. We will continue to invest in R&D as needed, so we have the right opportunities. It's a multifaceted approach to maintain that culture.

We have your next question from Tycho Peterson from JPMorgan.

Christian, good to have you back. I know one of the things you're committed to is narrowing the cost curve with short-read. And I didn't hear a lot about that. You talked about product development being one of the three core objectives, but it might be helpful to just level set how you're thinking about the path to a $1,000 platinum-grade genome? And are there things you could do to accelerate that that you've maybe identified at this point?

Yes, Tycho, it's great to hear from you. The acceleration to reach competitive pricing is our R&D central focus. We need to increase throughput, which drives costs down, and as we develop new platforms, we must consider how to drive platform costs down as well. There are a couple of short-term focuses here. We still have many opportunities on the chemistry front, even on the Sequel II platform. We'll work on chemistry improvements that increase throughput and lower costs. You'll also see us prioritize work on the sample preparation process so our customers have robust, fully automated protocols that require less starting materials. We're also exploring how to automate the sample prep process fully to minimize loss of deals caused by lack of automation. We’re simultaneously leveraging advancements in the semiconductor industry, allowing us to push technological boundaries. I feel confident that we can be very competitive in the short-read sequencing market at a large population scale.

And then following up on some of the discussion on clinical opportunities earlier. I think this is something investors have always struggled with a little bit—what are the right opportunities for long-read, and you've obviously been entrenched in transplant diagnostics. You mentioned epilepsy with Invitae and the Darwin Tree of Life project. Are there other opportunities you've identified early on? You've only been there a few weeks, but from your perspective that you think are particularly underappreciated from the clinical side for you guys?

Well, I think those are probably in the sweet spot right now. Opportunities will emerge more as people see our technology can deliver competitive costs. The only applications that aren't very accessible right now are liquid biopsy type applications, where you're looking at small pieces of cell-free DNA. However, you can envision a future where every sequence is effectively a high-quality de novo human sequence because the cost is reasonable. We do have that vision, and some of our clinical partners share that vision as well.

Okay. And then one or two, hopefully, quick ones on the model before I hop off. On the Children's Mercy project, 100,000 genomes over seven years at around $3,000 per genome could be a pretty meaningful opportunity. Can you help us think about how that volume ramps over the next couple of years?

I don't think all 100,000 genomes will be sequenced with PacBio right away. It wouldn’t be accurate to assume that. We're collaborating with Children's Mercy, and their current volume is much lower. I’m not sure of the exact number of samples they're processing now, but we can check in with Tycho about that.

Yes, Tycho, I would just add that they have two Sequel II systems right now, which is a pretty good start. As you mentioned, it's a seven-year program. If you consider the capabilities to run through those genomes over that period, our goal is to continue increasing throughput so that we can help them achieve a larger proportion of those genomes over the course of the program.

Okay. And then just lastly, on the launch of the IIe, you mentioned the dynamic and upgrading some of the Sequel IIs that are out there. I know you still have some RS IIs out in the field. Do you think this is enough to convert some of those older platforms that never upgraded to Sequel II?

I believe that this is a compelling opportunity. To the extent there are RS instruments out there, I'll encourage our field force to ensure we present the Sequel IIe opportunity to those customers; it would be beneficial for us if we can move everyone onto the Sequel II and IIe platform.

Welcome, Christian and Susan. I appreciate the color on the new bookings and the government orders being under pressure recently, but I was wondering if you had any expectations that the lost revenue opportunities could be recaptured in the next year or so. I just wanted to gauge your thoughts there, maybe the customers, these opportunities were a little more concrete than what you might have heard?

That's a great question. My belief, based on discussions with our sales force and management, is that while some of those opportunities may be lost due to budget allocations to COVID projects, I view most of them as delays. I expect to aggressively pursue those opportunities to convert them into either new customers or additional sales as quickly as possible. The positive news is our sales execution processes have improved over the past year significantly, and now with a focused commercial approach, I think we'll have great opportunities to convert those potential sales into actual sales, likely in '21.

So just unlike the, I guess, sales force expansion is kind of all systems go. But just was wondering if any of these recent international lockdowns or the increases in COVID cases both domestically and internationally are going to really potentially pressure that sales force expansion as it relates to maybe countries outside of the U.S., if at all?

Yes. We started recruiting, we've opened up for acquisitions, and we are beginning the recruiting process. Lockdowns can undoubtedly impact the speed of recruitment and hiring. It wouldn’t be wise to state otherwise. The good news is that everyone is on Zoom, enabling us to conduct interviews, so it's not as challenging as it could have been in previous times. However, it has some impact. I believe we should see positive momentum over the course of the year. There’s been significant interest in PacBio during this transition, and I hope we can leverage that into successful hiring.

Turning to the Sequel IIe rollout. I know it's early, and there's a lot of uncertainty, but are you expecting any substantial cannibalization of Sequel II consumable revenue earlier in 2021? Also, I was wondering if you could comment on the feedback you've received on this new trade-up program. I'm curious because it's the first time you’re offering credit to customers looking to switch their instrument from a competitor rather than just a PacBio instrument. As I understand, it's just for North America in this program. Are you going to roll out similar programs or promotions in other regions?

I don't believe we'll see significant cannibalization of consumable revenue because the consumables work on both systems. For the IIe launch, the driving aspect is the improved computing. In terms of new promos, these are fresh ideas that the PacBio team is initiating. We've received early interest, but it’s too early to predict its overall effectiveness. One reason we start in the Americas is the other regions have much longer sales cycles, and we want to achieve quick wins. However, as we grow our commercial footprint, we’ll focus on tailoring approaches for each geography to drive sales effectively.

Just mostly follow-up questions because we've covered a lot of ground. But as your long-read costs go down, and there's more of a focus on clinical applications, is there going to be internal clinical development at PacBio where you kind of own your own clinical development programs? Or will it be strictly partnerships going forward?

Currently, our core strategy focuses on partnerships. Although there may be opportunities that seem more suitable for internal development, we must evaluate the potential for FDA-cleared instruments and how that could provide market benefits. At the beginning of my prepared remarks, I mentioned we're undergoing a strategic planning process, and this is a key consideration. Common strategies like building panels may or may not make sense since I believe we are moving toward a world of whole-genome sequencing in the clinic.

Okay. Great. And then one more quick one before we hop. On the Sequel II and the China regulatory process with Berry Genomics, can you give us any updates on that?

As for Berry, I don't have a significant update today other than they're working hard on getting the system through the process. I hope to have more information for you at another time.

There are no further questions at this time. Presenters, please continue.

Well, we'd like to thank everyone for attending today's call, and we look forward to speaking with everyone after our next quarterly earnings call. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.