SAN FRANCISCO (GenomeWeb) – Following a quarter that saw lower-than-expected sales of Pacific Biosciences' Sequel instrument, CEO Mike Hunkapiller said this week that planned improvements that will increase the system's throughput should help drive future growth. In addition, the firm recently hired board member Kathy Ordoñez as chief commercial officer, who will harness her previous experience in commercializing genomics technology for the clinical market to take advantage of diagnostic opportunities for the Sequel.
In a conference call this week discussing the firm's second quarter earnings, Hunkapiller said that customers who had early versions of the Sequel instrument were experiencing reduced performance because of a part that had degraded faster than anticipated. He said that one of the optical components that takes the output from the lasers and directs it into the SMRT cells was causing problems for users. The problem affected only older instruments because the firm has since changed the process causing the problem. Hunkapiller said that the firm has replaced the component at sites where it was becoming a problem and is continuing to proactively replace the part in the remaining older instruments. The issue affected primarily customers in Europe and the US, he said, since they were some of the earliest adopters of Sequel.
Customers will also see performance improvements from planned software upgrades and new chemistry to increase throughput and read length, Hunkapiller said. The company began making those upgrades earlier this year, which has helped customers using Sequel for targeted sequencing and amplicon-based Iso-Seq to "more than double the throughput" they were previously getting, to more than 10 gigabases per SMRT cell. In addition, average read lengths are now greater than 20 kilobases in some cases, Hunkapiller said.
Later this year, PacBio plans to launch a new sample prep kit that will improve the quality of long-insert libraries and reduce hands-on time, as well as a new sequencing chemistry protocol and software enhancements for specific applications, he said. As previously discussed, the company is also on track to release by the end of 2018 a new version of its SMRT cell that will have eight times the capacity of the existing SMRT cell.
Amanda Murphy, an analyst with William Blair, wrote in a note following the conference call that although 2017 has so far been a "somewhat disappointing year, as momentum in Sequel adoption seems to have stalled," the investment bank sees the "potential for a resurgence in instrument orders" with the planned improvements in performance and throughput. In addition, Murphy said, the company will now have to fight the perception that "the technology serves a niche market."
Hunkapiller noted that the firm would see its biggest market expansion opportunity when it can enable human whole-genome sequencing on the Sequel at the $1,000 price point.
"At our current cost structure, we can legitimately compete in 10 percent of the market," Hunkapiller said, which includes targeted sequencing and transcriptome sequencing. "But the biggest market is whole-genome sequencing in humans, and we don't compete in that until we get to the $1,000 cost."
To get to that price point, PacBio is working on developing a new SMRT cell that can deliver 150 gigabases of sequence data. That would enable high-quality de novo genomes for $1,000 and low-coverage genomes to identify structural variants for "substantially less," he said.
Bill Quirk, senior research analyst at Piper Jaffray, wrote in a note that its surveys have found there is interest in long-read sequencing. Despite that, "we are unsure what PacBio needs to do to re-kick start Sequel sales," he wrote, adding that although the new product launches "may provide the spark," that might not help until 2019 or 2020.
Although PacBio may not yet compete in the human whole-genome sequencing market, Hunkapiller noted that some of its customers are already looking to the technology for specific clinical applications, and with recent hire Kathy Ordoñez, the company seems poised to further push into the clinical market. Ordoñez was most recently CEO of RainDance Technologies and also oversaw the establishment of clinical sequencing at Celera. She said during the call that she is particularly "excited about the diagnostic opportunities" of Sequel.
Customers themselves are also looking to develop clinical tests based on the Sequel. For instance, Han Brunner, head of clinical genetics at Radboud University Nijmegen Medical Center, is looking to use the Sequel to detect clinically relevant structural variants, Hunkapiller said. Other researchers are looking to develop targeted sequencing panels using the CRISPR/Cas9 technology, including a group from the University of Florida and the Parkinson's Institute and Clinical Center, who reported on their work using CRISPR/Cas9 technology to target repeat expansions responsible for spinocerebellar ataxia and Parkinson's disease and the Sequel to sequence through those repeats. PacBio previously said that it planned to develop the protocol into a commercial product that would be available next year.
Also, South Korean sequencing service provider Macrogen is interested in developing diagnostic tests based on structural variant information, Hunkapiller said. As a partner of the Genome Asia 100K project to sequence 100,000 genomes that represent the diversity found in Asian subpopulations, the firm has been building up a database of Asian-specific structural variants.
In general, PacBio has done well in Asia, and sales to China now make up around 30 percent of its sales. Its largest customer is Chinese service provider Novogene, with 20 Sequel systems. PacBio is also eyeing the clinical market in China. To tap into that market, it would likely need to have a distribution partner in China because of China Food and Drug Administration regulations, Hunkapiller said.
He added that the firm is considering different types of partnerships that could be local or with firms that have broad reach, like its previous deal with Roche. However, he noted that the company is proceeding cautiously with these discussions because it wants to find the "right partner who really is willing to invest in the technology long term and is interested in the kinds of diagnostic tests that are suitable for long-range sequencing."