Pacific Biosciences Of California, Inc. Q4 FY2020 Earnings Call

Thank you for standing by, and welcome to the Pacific Biosciences of California Inc. Fourth Quarter 2020 Earnings Conference Call. At this all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. I would now like to hand the conference over to Trevin Rard. Please go ahead.

Thank you. Good afternoon, and welcome to the Pacific Biosciences Fourth Quarter 2020 Earnings Conference Call. We hope that you're 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.

Thank you, Trevin. And good afternoon, and thank you for joining us today. Before we begin, I'd like everyone to know that Ben Gong, our Vice President of Finance, is retiring this quarter. As a result, this is his last earnings call. On behalf of all the employees at PacBio, Susan and I would like to thank him for his significant contributions to the company over the past decade. Before the market opened this morning, we announced that SoftBank is making an investment of $900 million in the company to support the acceleration of our growth initiatives. We are excited to partner with SoftBank as they can help us expand our reach on a global scale. We believe that this investment validates our leadership position in long read sequencing and will enable us to accelerate the expansion of our product portfolio, expand our commercial footprint, and ultimately to realize our vision that whole genome sequencing using our technology will become a fundamental tool for use in a broad range of both research and clinical applications. On our last earnings call, I described some of our key priorities and I am pleased to report that we're making progress on a number of fronts, including our ability to execute and grow the business. For my prepared remarks, I will briefly review our Q4 financial highlights, and then describe key business highlights and summarize our expansion efforts, including the addition of several key management hires. Susan will then walk us through the detailed financials for the fourth quarter and provide some thoughts around our outlook for 2021. So starting with an overview of our Q4 2020 financial results. Total revenue for the quarter was $27.1 million, up 41% sequentially from Q3 of 2020. We exceeded our internal Q4 target for revenue, and we did not see a significant negative impact from the COVID-19 pandemic during the quarter. Instrument revenue was $13.6 million, up 76% compared to Q3 of 2020. Our newly launched Sequel IIe was well received by our customers, which drove an increase in orders. Additionally, we received several multi-system orders from customers like the Wellcome Sanger Institute and Berry Genomics. We delivered and installed 35 new Sequel II and IIe systems during the fourth quarter and ended the year with an install base of 203 Sequel II and IIe systems.

Thank you, Christian, and good afternoon, everyone. Despite Q4 still being impacted by COVID-19 headwinds, the PacBio team delivered a very solid quarter that included sequential growth in booking revenues and gross margins. As Christian mentioned, the Sequel IIe launch was stronger than anticipated, which resulted in orders in the fourth quarter exceeding our internal expectations, including a number of multi-instrument orders from key customers. Total fourth quarter revenue was $27.1 million, an increase of 42% from $19.1 million in Q3 of 2020, but a decrease of 3% from $27.9 million in Q4 of 2019. The revenue breakdown was as follows: instrument revenue recognized in Q4 was $13.6 million, an increase of 76% from $7.7 million recognized in Q3 and down from $15.3 million recognized in Q4 of 2019. We installed 35 Sequel II and IIe systems during the fourth quarter, growing the install base of Sequel II and IIe Systems to 203 as of December 31. As the consumables are the same and customer usage patterns are expected to be similar across the Sequel IIe and IIe systems, we will continue to report a combined install base going forward. Consumable revenue for the fourth quarter of 2020 was $10 million, up 25% sequentially from $8 million sold in Q3 of 2020, and up 8% from $9.3 million sold in Q4 of 2019. The sequential growth in consumable revenue reflects increased utilization of our growing install base of Sequel II and IIe systems, as well as the usual end-of-year stocking of consumables inventory. Since the start of the COVID-19 pandemic that resulted in our customer labs being shut down, we have since continued to see meaningful increases in our Sequel I and Sequel IIe utilization such that we have recently crossed a cumulative five petabases sequenced on our install base of Sequel II systems. Sequel II consumables represented approximately 78% of our total shipments in the fourth quarter, and roughly 20% of our consumable shipments were purchased for the older Sequel systems, with the remaining for the RS II systems. We expect the proportion of consumable sales from Sequel II systems to continue to grow as the install base of these systems continues to expand. Service and other revenue was $3.5 million in Q4 2020, compared to $3.3 million in Q3 and $3.3 million in Q4 2019. 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 and Sequel systems. Moving on to gross profit and gross margin. In Q4 of 2020, we generated a gross profit of $11.4 million, representing a gross margin of 42%, compared to a gross profit of $7.1 million representing a gross margin of 37% in Q3 of 2020. There are three key reasons why gross margin improved sequentially. First, ASPs on instrument sales were higher; second, we had improved product mix over Q3; and finally, higher volume in manufacturing improved factory utilization. Year-over-year, our gross profit and gross margin declined from $12.9 million and 46% generated in Q4 of 2019 as a result of lower revenue and factory utilization, partially offset by higher ASPs on instrument sales. Moving on to operating expenses. Operating expenses in the fourth quarter of 2020 totaled $35.4 million, up 13% compared with $31.2 million in Q3 of 2020 and up 15% compared with $30.8 million in Q4 of 2019. The increase in operating expenses compared to the previous quarter and last year was a result of increased R&D expense related to new product development and an increase in SG&A expense as a result of the growth in our commercial team, and the addition of several new executives and higher noncash stock-based compensation expense. Noncash stock-based compensation included in operating expenses was $4.8 million in Q4 of 2020, up from $4.3 million in Q3 of 2020, and up from $3.4 million in Q4 of 2019. Net income in Q4 2020 was $74.9 million, and net income per share on a fully diluted basis was $0.37, compared to a net loss of $23.7 million and a net loss per share of $0.14 in Q3 2020, and a net loss of $100,000, which rounds to a net loss per share of $0 in Q4 2019. The large increase in income was primarily related to the $98 million one-time gain we recorded, associated with the reverse termination fee we received from Illumina back in January of last year and recognized in Q4 of 2020. Turning to our balance sheet. We ended the fourth quarter with a balance of $318.8 million in unrestricted cash and investments, compared with $208.6 million at the end of the third quarter of 2020. The increase in cash and investments was primarily a function of our follow-on offering in November that netted proceeds of approximately $94 million, plus approximately $32 million in proceeds associated with employee stock option exercises, partially offset by approximately $16 million of cash used for operations. Inventory balances decreased in Q4 2020 to $14.2 million, representing a 4.2 inventory turns, compared with $15.9 million at the end of Q3 2020, which represented 2.9 inventory turns, due to the ramp in customer installations in Q4. Accounts receivable increased in Q4 to $16.8 million, reflecting a DSO of 49 days, compared with $11.8 million at the end of Q3 2020, reflecting a DSO of 56 days. As we look out into 2021, the impact of the pandemic on our revenue growth is still somewhat uncertain. However, with that said, I would like to provide a framework on how we see revenue growing during the year. We believe that revenue will grow significantly in the second half of the year, as we start to realize the benefit of our expanded commercial investment and infrastructure. In the short term, we expect Q1 revenues to be slightly lower than Q4 levels. While we expect the strength we saw in instrument sales last quarter to carry over into this quarter, we also foresee some softening in consumables sales in APAC, largely due to the Lunar New Year holiday. This is consistent with the seasonal revenue pattern we have seen over the past several years. Although we anticipate slightly lower revenue in Q1, we do anticipate gross margin will improve slightly compared to Q4, as our factory utilization continues to improve. For Q1 we estimate non-cash stock-based compensation expense will increase materially to between $10 million to $11 million, up from $4.8 million in Q4, due to new higher employee equity grants accounted for in our operating expenses. We are forecasting our total Q1 operating expenses to grow and to be in the mid-to-high $40 million. I would like to take a moment to provide additional context regarding the investments we intend to make in 2021. We plan to make significant investments in our business as we push forward with our key objectives. Our first objective, expanding our commercial reach, includes a significant expansion of our commercial organization. We ended the year with 22 quota-carrying sales representatives, and we are targeting to more than double that number by the end of the year. Our second objective, driving the product development pipeline, will entail the development of multiple new products simultaneously. We ended the year with 158 people in our research and development organization, and we are targeting to hire more than 50 additional people in R&D this year. Our third objective, market leadership in whole genome clinical sequencing, is off to an accelerated start with our collaboration with Invitae. As Christian mentioned earlier, we are working with Invitae to develop an ultra-high throughput system and workflow designed to enable Invitae to sequence hundreds of thousands of samples per year. For the year 2021 alone, we are targeting to spend $20 million to $25 million on this project. While we expect Invitae to fund this project, we will likely recognize all or a substantial amount of this expense in the R&D expense line of our income statement, in the period in which it has occurred. The funding we received from Invitae is likely to be recorded as a liability on our balance sheet, and may be amortized into revenue in later periods, as we sell the developed products to Invitae in accordance with our agreement or released when other performance obligations are delivered or contingencies lapse. Please be advised, that we are still analyzing the proper accounting treatment for these activities, and we do not expect to finalize how it will appear on our financial statements until we report our first quarter 2021 results. Lastly, as we announced earlier today, we are thrilled to welcome SoftBank as a new long-term investor. The $900 million convertible note will provide the financial foundation for us to capitalize on the significant growth opportunities ahead. The transaction is scheduled to close next week. As a result of this financing, $52 million of expense will be recognized on our P&L in Q1 to account for the expected repayment of the continuation advances due to Illumina as a result of the merger termination. In summary, we ended the year with nearly $319 million of cash on our balance sheet, and now with the significant investment by SoftBank that is expected to close next week, we will have well over $1 billion in capital, giving us a strong foundation to drive growth over the long term.

Thank you, Susan. To wrap up our prepared remarks, I'd like to reiterate our three core objectives for 2021. First, we plan to dramatically expand our commercial footprint so that we can serve more customers around the globe. Secondly, we plan to accelerate our product development pipeline with a focus on increasing throughput, lowering costs, and developing end-to-end workflows; and finally, developing a multi-product portfolio so that customers have access to the right long read sequencer for their scale and applications. And thirdly, we're focused on moving our smart technology deeper into the clinical diagnostic market where we believe we have unique advantages over other sequencing technologies. This will be done through the execution of high-quality partnerships, such as the one with Invitae that we announced in January. My opening remarks touched on a number of specific accomplishments the team made toward executing these strategies. Moving forward, we expect to increase our engagement in the global fight against COVID, as we believe that HiFi reads can make a significant positive impact. You'll see us work to expand our global network of collaborators in rare and inherited diseases who seek to leverage PacBio HiFi reads to solve 50% of the cases that elude diagnoses with other technologies today. In closing, we have a strong finish to a challenging 2020 and although headwinds associated with the pandemic still exist, I believe our core strategies, expanded leadership team, and improved execution will drive growth in 2021 and beyond. Finally, SoftBank's investment of $900 million provides us with the financial resources to work towards achieving our objectives. I believe we have a significant opportunity in front of us and I'm excited about our future. That concludes our prepared remarks and with that, we'd like to now open it up for some Q&A.

Your first question comes from Doug Schenkel with Cowen. Your line is now open.

Hey good afternoon everyone and thank you for taking my questions. First off thanks Ben for all your help over the years and good luck on the next chapter. Christian, I want to just talk about kind of I guess a high-level strategic question. Illumina in attempting to acquire Pacific Biosciences was essentially attempting to go from being just a short read sequencing company to being both short and long read. It's been asserted that PacBio could almost reverse that playbook essentially going from being the dominant long-read sequencing company to being both long-read and short-read. With that in mind, how are you thinking about the best way to achieve that? Is it organic or is it inorganic? And part of the reason I start with this question is with the investment from SoftBank, does it change how you think about that question of organic versus inorganic?

Well, Doug, first of all, it's good to hear from you and thank you for the question. When you think about this question, I'm going to first start and address what does the SoftBank capital do for us. There's no question that it gives us a lot more flexibility to think about how we can create scale, how we can create a multiproduct portfolio, and how we could drive our business forward faster. And I think one of the things I'm very interested in is a combination of organic and inorganic opportunities, and I think the inorganic opportunities are more accessible to us, of course, now that we have some more capital to work with. In terms of our strategy regarding short and long reads, if we look at the bigger picture for our company, our aim is to become the leading biological solutions provider with a diverse range of products. This includes long reads, where we are positioned as leaders and are focused on accelerated product development. Additionally, there are significant markets available for short reads at present. We are also exploring adjacent markets and complementary technologies, which allow us to enhance both the beginning and end of our workflows, ultimately creating comprehensive solutions for our customers. We are excited about our partnership with SoftBank, as it provides us with the necessary capital to envision larger objectives. With our leadership team and our advanced HiFi sequencing capabilities in long reads, we see numerous opportunities ahead.

That's super helpful. Thanks for that Christian. And then maybe if I could just ask a second question on another recent development. You shared some additional details on the agreement with Invitae which of course was a really exciting development over the last several weeks. Regarding the five-year duration that you outlined, I just want to clarify does that mean that this is an exclusive with Invitae over this period? And does that mean that's the expectation in terms of when there would actually be an instrument commercialized? I just want to maybe unpack a little bit about what happens during those five years and what comes after. And you also talked about the concept of essentially being able to have an industrialized PacBio instrument that would be well suited for larger central labs like Invitae, but not limited to Invitae. Is there a scenario where this agreement also leads to the development of instruments that are more well suited for clinical applications in a more decentralized approach? Thank you.

Yes, there's a lot to address, Doug. First, the agreement with Invitae is not exclusive and is part of a long-term collaboration to develop multiple products. The first product is closer than five years away and will be an ultra-high throughput sequencer that allows Invitae to perform whole genome sequencing at production scale for under $1000. What the unique feature is of course is that we will be giving Invitae preferential pricing, but we will also be free to market that product and that sequence broadly to a number of different customers. And as you could imagine, we will leverage that technology to develop potentially offshoots of that product for more decentralized situations or different levels of throughput or capability so that we can meet the needs of the market. I think this is one of the core strategies that I've been talking about since I joined the company was developing a product portfolio that reaches each customer in the way they want to do sequencing. And it does start at the high end with Invitae. But you can imagine that the technology will be applicable across a broad spectrum of customer types and applications. And so that's where we'll go from there. We will have products beyond this first product with Invitae, but those will impact themselves over time of course. So hopefully that helps a little bit for you Doug?

Yes, nicely done Christian. That's sort of a lot. So thanks for all that color. I’ll get back in the queue.

Great. Thank you, Doug.

Your next question comes from Tejas Savant from Morgan Stanley. Your line is open.

Hey, guys. Thanks for the timing this evening. Christian, can you share a little bit more color on sort of your early conversations here? For the existing projects you're participating in including all of us in Darwin Tree of Life. How should we think about sort of the consumable pull-through on the Sequel in 2021 and beyond?

Yes. Thank you for the question. My expectation is that as these projects ramp, they would be optimizing their Sequel II platforms and therefore be running likely at the higher end of our pull-through metrics. And so that's how I would be thinking about it. And in some cases, if they want to accelerate, maybe they'd be expanding their infrastructure. Now interestingly these are large projects and there's a lot more to the story than just doing the sequencing. It's getting the samples. And the reality is that's a slow process. It takes a while for these customers to get the process get them ready for sampling and then ultimately get them on the sequencer. And so we would expect them to be scaling up. COVID has not been our friend in this area. But as the world starts to open back up, we would expect them to be ramping up accordingly and then likely operating at the higher ends of our pull-through metrics to be sure.

Got it. Regarding the instrument side, how much did the order push-outs mentioned last quarter affect the 35 installations in the fourth quarter? It seems like you anticipate instrument revenue momentum to continue into the first quarter. I'm trying to understand how much of that is simply catch-up versus the strength in the order book and new orders that were received in the fourth quarter.

Yes, I believe there was certainly some strength in the order book for the fourth quarter. As I mentioned, there were installations we couldn't complete because we were unable to travel. Hopefully, those will be installed in the first quarter. The Sequel IIe is a very powerful instrument as it enables us to connect with customers who lack the necessary computing infrastructure. Additionally, the enthusiasm surrounding COVID surveillance, along with the accuracy of HiFi and the precision FDA studies that have demonstrated the capabilities of our system, is generally driving increased demand and generating excitement among many customers about the potential of our technology.

I believe that in the fourth quarter, the launch of the Sequel IIe contributed positively, and this momentum will likely carry into the first quarter and be a common trend throughout the year. Got it. And one final one for me here on the IIe actually are you starting to see early adopters of the platform perform more long read sequencing given the time data storage and compute cost savings generated by the enhancements?

It's a little too early to tell. Usually when you launch a new system, it takes a quarter to two to really kind of see where the metrics might settle out. And so why don't we try to update everyone on that as we get a little bit deeper into the year here.

Got it. Fair enough. Thanks.

Yes. Thank you.

Your next question comes from Tycho Peterson with JPMorgan. Your line is now open.

Hey, thanks. I'll add my congrats to Ben as well. It's been great working with you over the years. Christian, I want to go back to the $900 million infusion from SoftBank and I understand it's early days looking at organic and potentially inorganic investments. But one of the questions we got today is whether this can help accelerate the timeline to the $1,000 platinum grade genome. You've been marching down this path for a while. To what degree do you think it can help accelerate some of those developments?

I think it can clearly help, because we will be aggressive in investing. I think what it probably does more than maybe it shaves a little bit of time off, but it also helps improve the certainty by which the time goes. And so when you get into these complex development projects, as you can imagine, you're trying to manage to a goal line to get a product out to market, but you're also trying to make sure you stay focused and get the right product out on time. So, although we may be able to bring the timeline in some, it's more likely that what it will do is help us prevent the timeline from getting pushed out too much, if that makes any sense Tycho.

It does, yes. And then on Invitae, I know you said no revenues here in the near term. I just want to make sure there's no milestones that could be triggered as part of the program. And then to what degree do you think payers are ready for whole genome in the clinic? Or are you going to have to do some heavy lifting on that front?

Yes, that's a good question, Tycho. Regarding revenue, Invitae is already a customer, and we discussed our collaboration on the epilepsy project, which will generate revenue. This partnership is genuine, and we have established a joint steering committee. Our first significant meeting of this committee is scheduled for next week. So there's planning, and we're already starting down the development pathway. And so Invitae will be reimbursing us for that. So we'll see cash flows, but not revenue as kind of Susan outlined. And we'll see that sooner rather than later. And I'm sorry, I forgot the other part of your question there Tycho.

Payers or are payers ready for whole genome sequencing?

Yes. The key question is the value of the genome and its pricing. I believe that with Invitae, we can set competitive prices for genomes compared to other tests, like exomes. If we keep proving the increased diagnostic yield through our collaborations, payers will likely be more willing to support these tests. However, each payer in the U.S. operates independently, so we'll need to engage with them individually. This is one of the main reasons for our partnerships, as the Invitae team has significant expertise in this area. While we will develop our own knowledge, we prefer to leverage our partners' expertise when it makes sense.

Yes. That's helpful. And then last one on the COVID front. I'm just curious how you're sizing the viral surveillance opportunity? And how much of the variance sequencing do you think ends up being done on short read versus long read?

I don't have an answer in terms of absolute sizing at this point. I know there's a lot of funding coming into this area, and there's an appropriation of over $1 billion trying to get through Congress right now, which I think is beneficial for us. We're seeing this on a global scale in places like Germany and the UK. However, I believe the distinction between long and short will depend on how quickly we can enter the market. One thing I would say is that our long read sequencing capability is priced very competitively with short reads, and the information received is fundamentally superior. For instance, you obtain all the phasing information, enabling a much deeper understanding of the data. Therefore, we are indeed competitive on price. The LabCorp protocol we have discussed allows for multiplexing up to 900 samples per run, presenting a highly attractive value proposition. Ultimately, the speed at which we can advance and engage with the right stakeholders is crucial, and we are already making significant strides in that area.

Okay. Thank you.

Your next question comes from Rachel Vatnsdal with Piper Sandler. Your line is now open.

Hi. This is Rachel on for Steve. Thanks for taking the questions tonight. So in the clinical space, you guys have announced a number of impressive partnerships with the likes of Asuragen and Children's Mercy and others. What else can we expect to see from PacBio in the partnership segment? And how should we think about the cadence of these new clinical partnerships? And then also, given your new capital influx, will you guys be pursuing clinical applications on your own, or will you stick with partnerships in the near term?

I appreciate the questions. We have ambitious internal objectives for launching additional clinical partnerships. I expect these will resemble our current initiatives, such as our collaboration with Children's Mercy, which is focused on rare and undiagnosed diseases. This will help us demonstrate the significance of PacBio's HiFi genome in clinical settings. Therefore, I anticipate that we will establish several partnerships this year. It's a bit aperiodic as each deal takes its own life of its own to get them across the goal line. I think one of the things that the capital does is it allows us to think much more creatively about how we get into these partnerships, how big they can become because we have the financial wherewithal to help really drive and build this market out. With respect to pursuing clinical applications on our own, we're still of the belief that our core competencies are creating great technology and partnering with others. And so our general preference is to be partnering with others with that core expertise, and possibly in certain situations developing our own clinical product or capability. But we really want to be known as the company that's willing to partner with all of these clinical providers and build our business that way because we think that will make more sense for us over the long term.

Great. And going off of that, so as you guys continue to lower the cost, what new markets do you think will be the first to consider shifting to a long read platform in the clinical space really like beyond the clinical partnerships that you have, like rare diseases for example? And could you talk about the sizes of those opportunities and what you guys need to do to start to capture those markets? And that's all for me. Thanks.

That's a mouthful for sure. Mark Van Oene is on the line. Maybe Mark wants to talk a little bit about some of the areas where we think long reads can penetrate. Mark, do you want to try that one? Sorry, we're remote too. So it makes it a little trickier.

Yes. Happy to take that one on for you. So, I do think there's a big opportunity still for longer sequencing. And Christian talked about segmenting the portfolio. And I'm going to just reiterate there's nothing more important than delivering on this product and the entire workflow for the Invitae collaboration and getting into the clinical whole genome sequencing opportunity. But I do see a big opportunity for us to deepen penetration into labs with the Sequel IIe or extensions of that Sequel IIe to thousands of Tier 2 core labs or the thousands of clinical testing labs that will require the partner and build out the workflows and automation and reporting in ways that we just haven't up until now. So I think expanding our commercial efforts is critical for us to get into that new segment of lab. So think of that as just lab penetration for long read sequencing. There are also a number of extensions of markets that long reads already will benefit. And when I think about clinical applications here, it's differentiation with HLA testing for transplants or pharmacogenomics or No-Amp regions. And so, it's not just clinical whole genome sequencing. I do think there's a big clinical targeted market opportunity for long reads. I also think we're way underpenetrated in transcriptomes. And so the ISO-Seq type applications to look at full-length isoforms. And look at the isoforms that exist and spring pull those in with either single cell or bulk RNA studies is a great opportunity for us to start to explore, especially if you think about clinical oncology. And then, what I always say to people is we just don't know yet what the next applications are going to emerge, because not enough people have been using the technology. And so as we scale our customer base, I expect it to be a series of new applications that are going to emerge for us to take on and commercialize and get to the market.

Perfect. Thank you.

We have a question from Kyle Mikson with Cantor Fitzgerald. Your line is now open.

Hi, everyone, thank you for the questions. I want to congratulate Ben for the excellent work over the past year. Congratulations also on the investment from SoftBank. I know this has been asked several times during the call, but could you help us understand how you plan to use the cash over the next few years, particularly concerning this investment? There are many ways to allocate capital, but in the short term, how are you prioritizing areas like the sales force and product development, backend technology, and possibly some acquisitions? I'm interested in your perspective on prioritizing these areas with the incoming cash. Thank you.

Thank you for the question. When considering prioritization, we first need to return to our core strategies and what we aim to achieve in the coming years. One area where we see immediate potential for revenue growth is through expanding our commercial infrastructure. As Mark mentioned, we have numerous applications where our current presence is minimal despite having strong technology and capabilities. There are thousands of laboratories we have not yet engaged with. Therefore, you can expect us to speed up our initiatives, and the funding from SoftBank will aid in accelerating this opportunity. For example, in Europe, although we were budgeting a significant growth in headcount, because we really are underpenetrated there. Now we can think bigger about how do we fully build out that team and how do we take advantage of this incredible opportunity with, for example, COVID surveillance sequencing to build out our capability across the board. So I would say commercial scaling is still going to be front and center. On the R&D front, the ability to take on multiple projects simultaneously is a core competency that we are building. That requires more infrastructure around the R&D team, not just the R&D personnel. This involves project management and strategic planning, and we will be investing additional resources to ensure our success in developing multiple products at the same time. I believe that is central to our technology and strategies because if we can accelerate the multiproduct portfolio and bring it to the market, we can reach more customers and leverage our investments in the sales force, especially if we can drive the end-to-end workflow. We see opportunities in sample preparation and ways to monetize our informatics. However, to achieve this, we need to invest in highly automated, production line capabilities. Additionally, there are significant opportunities for inorganic growth, including mergers and acquisitions or partnerships, that could be very complementary to our company. The first consideration when exploring new opportunities is whether they exist in markets where we can add value. Next, it is crucial to have a management team capable of executing plans and ensuring that our investments yield maximum returns. During my initial period as CEO, we focused on developing our management team and capabilities, and I am pleased to say that we have assembled a strong team and are just beginning our journey. There remains significant potential for us to attract exceptional talent. With these elements in place, we can now think strategically, seek individuals who align with our vision, and effectively utilize our resources to grow our business and achieve scale. There is much to consider, but it's essential to approach it in that sequence.

And, Kyle, this is Susan. I'll just add just a couple of comments with respect to this year. In terms of our organic investment, I had talked a little bit about it during my prepared remarks. But to put it into perspective, in terms of the investments that we're making to drive for long-term growth, we are adding over 100 headcount across the company, whether or not they all come on board, it still remains to be seen but we are pushing, hiring quite a bit and so you'll see us ramp and our operating expenses will ramp accordingly.

Okay. Thanks, guys. I really appreciate that. And I guess just sticking with this theme I don't keep kind of light. But Chris, you referenced the $20 billion TAM last month. I just wanted to hear your view if this investment kind of accelerates your ability to penetrate deeper or expand I guess in that market? And then you were talking about which markets could be accessible in the near-term. But just as it relates to both accelerating the push into those markets, is this tailwind to headwind? Just wanted to hear your thoughts there. I appreciate your comments. Thanks.

Yes. No, it's a good question. And the truth is we wouldn't have taken this investment if we didn't think there were opportunities for us to accelerate our potential into these large TAMs. The sequencing market is only getting larger. We have a clear opportunity to lead at the whole genome level of sequencing. And we have a clear opportunity to create a great business around other aspects of the market, like Mark outlined earlier. And so this investment really brings an incredible partner to the table in SoftBank, and their reach and their resources I think will help us expand our business straight away. But then over the long run here we will be able to take advantage of having this capital to accelerate our opportunity into these TAMs and drive growth. And that's really at the end of the day my core strategy is how do we drive scale and growth as quickly as possible. We have an incredibly powerful set of technologies already, but what can we do to go even faster. And that's what we're going to be working on.

Got it. That's perfect. I appreciate your answer. I wanted to discuss the Invitae agreement a bit more. It's clearly very promising, and congratulations on that. You mentioned expenses of around $20 million to $25 million for 2021. Will that be more concentrated in the latter half of the year? I just want to understand that better. Also, regarding the sequencer, I understand it will be level II Invitae for better pricing. For broader commercial adoption by other customers, when do you anticipate that could happen within the five-year timeline? I wasn't quite clear on that. Thanks.

Yes. So I'll give you an indication Kyle of just in terms of how that investment will ramp over time. So as Christian mentioned, we are ramping in terms of hiring as well as the expenses associated with the development of the new platform. We have our joint steering committee kick-off that is happening next week. And so I would think of it as Q1 because we're here in February, Q1 will be lighter. But then for the most part, the rest of the year will be pretty linear. Q4 is probably slightly more than obviously Q1, just given the nature of ramping a whole new program within the company.

Yes. Regarding the products, there is no specific timeline involved. Once we complete the new sequencer, we will be able to commercialize it widely and scale it as needed. Naturally, we will prioritize Invitae during this process. When developing a new product, our initial focus will be solely on Invitae during the scale-up phase. This prioritization is not due to any exclusive rights, but rather because they are a partner and collaborator, and we want to ensure their success. But we will be able to quickly commercialize that product as we ramp up accordingly.

Thank you for that information regarding the non-exclusivity. I have one final question. I know your team has released some pediatric and rare disease data related to the partnership with Children's Mercy Kansas City. When can we expect to see new diagnostic proof statements in the near future? I also noticed they are presenting at AGBT and was curious if there could be any updates regarding new data. Thank you.

Yes. I think we'll let our collaborators handle that as we don't want to take credit for their work. However, there is a lot of impressive activity happening. We are on the path towards developing several new partnerships. Additionally, HudsonAlpha recently published some data over the past few days, so you should definitely take a look at their release as it serves as a strong proof point.

Okay. Congrats on the progress and all the updates, guys. Thank you.

Thank you.

Thank you very much. Thanks for the support.

There are no further questions at this time. I will now turn the call back to Christian Henry for closing remarks.

Well, thank you everyone for joining us today. And we look forward to speaking with you on our next call. And if you have questions in the future, please feel free to reach out. So thank you very much.

This concludes today's conference call. Thank you for joining. You may now disconnect.