This article, originally published Feb. 15, has been updated with additional information from Pacific Biosciences' earnings call.
Pacific Biosciences added six orders for its PacBio RS system during the fourth quarter of 2010, increasing its order backlog to 38, as it continues to upgrade beta systems at early-access customer sites to commercial specs, prepares for the commercial release of its instrument in the second quarter, and further improves the system's performance.
During a conference call to discuss fourth-quarter earnings last week, PacBio CEO Hugh Martin said that the firm saw a "noticeable" increase in interest in its platform after it published a paper detailing the rapid sequencing of the Haitian cholera strain last year (IS 12/14/2010), especially for microbial sequencing. That paper, he said, highlighted microbial sequencing as a "very near-term application" of the system, for example for pathogen detection and quality control.
He said that part of the firm's sales force is focusing on potential customers other than early-access genome centers, for instance in the area of food safety, "where the number of units and the applications could be quite large."
Like the existing orders, the new orders are for systems that will be sold at the list price of $695,000. Asked about delivery times for orders placed today, Martin said that the firm plans to ship them "roughly" in the fourth quarter.
At the Advances in Genome Biology and Technology conference this month, several early-access customers talked about their initial experience with the PacBio technology, and the company provided performance data for seven of its 11 early-access user sites (IS 2/8/2011). During the call, Martin mentioned additional customer projects that were presented during two day-long closed user group meetings at the conference.
Researchers at Washington University, he said, have used the PacBio platform to sequence the 100-megabase C. elegans genome, covering 99 percent of it with a million reads. According to Martin, they reported "little or no coverage bias" and were able to align reads to repeat regions of the genome "for the first time." The researchers also cited average read lengths of 1,200 to 1,500 bases, he said.
In addition, Monsanto researchers have sequenced the "heavily methylated" Arabidopsis genome on the PacBio platform and, according to Martin, found that methylation, which results in kinetic differences during the real-time sequencing process, did not affect the base-calling accuracy. He also said that Monsanto reported being able to sequence the ends of chromosomes, which were previously inaccessible because of their high GC content.
The Ontario Institute of Cancer Research, meantime, has run a total of 285 SMRT cells, Martin said, for projects that included the verification of translocations in leukemia, sequencing of oncolytic viruses and familial pancreatic cancer samples, SNP validation in pancreatic cancer, and clinical resequencing.
At AGBT, PacBio also released expected performance specifications for its commercial instrument — an average read length of 1,500 base pairs, a raw read accuracy of 85 percent, and an output of 35 to 45 megabases per SMRT cell — and Martin provided an update this week of how close its beta customers are coming to these specs.
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While the beta sites "have already achieved" the specified read length and accuracy, he said, the increased output requires a hardware change that enables customers to use bigger SMRT cells with 150,000 zero-mode waveguides.
So far, only one unidentified beta customer has completed the upgrade, which typically takes 8 to 10 days, Martin said. As a result of the upgrade, this customer has seen improved reliability, stability, and output as well as lower run-to-run variability in throughput..
New base-calling software will be part of a "subsequent upgrade," he said.
Only two beta sites so far have been able to use "strobe sequencing" on their systems, which generates several reads connected by stretches of "dark" regions of known length on the same molecule. Those customers are "very enthusiastic about it," achieving "effective" reads of between 10,000 and 12,000 bases, Martin said. The other beta customers will gain access to this feature as they complete their upgrade, he added.
While the firm is upgrading its beta sites, it is in the midst of an "intensive validation and verification phase" for the commercial product that will take several months. During that time, it will "try and really bang on the product," Martin said, for example, running 24 SMRT consecutive cells and seeing how the system deals with a power failure in the middle of the run. Beta customers will also participate in these test runs, he said.
Martin also commented on future improvements to the platform. Increasing the read length further will be "the low-hanging fruit" because the company now has a good understanding of what terminates reads, he said.
Improving the raw read accuracy, on the other hand, is "going to be a lot of work," though the company has "a number of areas that we are going after." He said there is a trade-off between read length and accuracy: accuracy increases with more intense light, but the read length decreases due to increased photo damage. "It is possible that in the future, we may offer a read-length mode and an accuracy mode," he said.
According to Martin, customers have said that for de novo sequencing of mammalian genomes, they require an accuracy of 90 percent or more. He said he is confident that "with time, we will absolutely be able to get there."
Regarding increases in throughput, he said those will initially rely mainly on longer reads, since the number of ZMWs will remain fixed, "at least for a while." The firm also "remains excited" about a technology it has been working on that will increase the number of ZMWs in active use beyond the current limit of about 30 percent, but it does not yet have a timeline for commercializing this.
More Orders, Net Losses in Q4
PacBio's fourth-quarter 2010 revenue, derived entirely from government grants, totaled $280,000. The firm did not report financials for the fourth quarter of 2009.
Research and development expenses totaled $26.5 million during the fourth quarter, a decrease of $6.9 million from the previous quarter that reflects the capitalization of inventory, "which approximates the amount of similar costs expensed as research and development costs during the third quarter," the company said.
The company began commercial production of the RS during the quarter, and as a result capitalized $6.9 million in component and manufacturing costs as inventory. It also reported a deferred revenue balance of $3.2 million from beta customers. Under its beta testing program, the company can bill and collect 50 percent of the instrument price at the time of the sale, and then collect the full selling price after the instrument has been upgraded and accepted by customers, which it is now in the process of doing.
Sales and general administration expenses for the fourth quarter totaled $10.3 million.
The firm realized a net loss of $36.4 million during the fourth quarter.
For the full year, PacBio reported $1.7 million in grant revenue, compared to $135,000 in 2009.
R&D expenses increased to $111.8 million in 2010, from $76 million in 2009. SG&A expenses climbed to $30.1 million, from $12.3 million during the previous year.
For 2010, PacBio's net loss increased to $140.2 million, from $87.7 million in 2009. The company attributed the widening loss to purchases of material and manufacturing operations as it prepares to launch the RS.
As of the end of 2010, the company had an order backlog of $24 million.
The company's cash and investments as of the end of 2010 totaled $283.7 million, compared to $92.7 million at the end of 2009, mainly due to its IPO.
PacBio is not providing a financial forecast at the moment but plans to do so once it has launched its commercial system and has gained "better visibility," according to Ben Gong, the firm's vice president of finance and treasurer.
PacBio added 25 staff members during the fourth quarter — among them six for its field organization — for a total of 431 employees at the end of 2010.
Right now, its field staff includes twice as many employees in customer support as in sales, according to Gong. "It's not so critical at the moment to be adding more systems to the backlog, but making sure that when we do launch, that all of these systems are brought up and those customers are successful," he said.
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