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Pacific Biosciences Gears Up For Commercial, R&D Push With Eye Toward Collaborations

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NEW YORK – Pacific Biosciences has big plans for the next year, despite increasing uncertainty and headwinds related to the COVID-19 pandemic.

On a conference call following the release of PacBio's third quarter financial results, new CEO Christian Henry and new CFO Susan Kim provided details on how the firm is pursuing three "core objectives" for 2021: expanding commercial reach, primarily by expanding the sales team; pushing product development by improving Sequel II sample preparation and sequencing chemistries; and driving PacBio's sequencing into more clinical diagnostic applications.

Menlo Park, California-based PacBio "made meaningful progress on all three fronts of its strategic priorities during the quarter," JP Morgan analyst Tycho Peterson wrote in a research note. And Henry explained how the firm would continue. It is already hiring for "more than a dozen new sales positions," Henry said. "We're at 20 now, we should be at 120 at some point."

The firm is also testing out sales promotions, including a trade-in program where researchers can get credit towards a Sequel IIe system in exchange for their Oxford Nanopore Technologies' PromethIon and GridIon instruments or unspecified selected Illumina or Applied Biosystems sequencing instruments. The offer is only available in North America and Europe, Middle East, and Africa.

On the product development front, Henry said, "we're pushing on a lot of different balls at the same time here with the goal that we believe is achievable of being very competitive with short-read sequencing at the whole-genome, large-population scale."

"Our SMRT technology has headroom to improve and we have several programs underway to significantly increase the throughput of our sequencing system," he said. "This will be critically important as we engage in the large-scale whole genome sequencing market." For sample prep, PacBio is aiming to have fully automated protocols that require less starting material.

And for the push into clinical diagnostics, PacBio is continuing to pursue partnerships that it has already made this year, including with Invitae and Children's Mercy Kansas City. The firm is considering whether to push for clearance from the US Food and Drug Administration for a clinical sequencing platform, Henry noted.

This is the new path forward for PacBio following the collapse of Illumina's acquisition bid, abandoned in January. The plan comes as Q3 2020 revenues have fallen 13 percent year over year, due to lower instrument revenue attributable to the COVID-19 pandemic business environment.

The pandemic is also delaying ramp-up of some large sequencing projects that feature PacBio sequencing, such as the US's All of Us project and the Darwin Tree of Life plant and animal sequencing project in the UK. "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," Henry said.

But on the bright side, customers are buying into the new HiFi data type obtainable from the Sequel II instruments, based on the circular consensus sequencing protocol.

"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," Henry said, highlighting the collaboration with Children's Mercy Kansas City on sequencing-based rare disease diagnosis and with Invitae on the genomics of epilepsy.

"I think the core strategy today is to really focus on partnerships," Henry explained. "That said there may be opportunities that make more sense for us to develop internally and I do think we have to be thinking through whether we should have FDA-cleared instruments and how that would help us in the market… we're working on a strategic planning process right now." Henry said that the firm had no updates to provide on its partnership with Berry Genomics to pursue regulatory clearance for clinical applications in China.

Henry said PacBio is still undecided about whether to pursue targeted sequencing panels for particular diagnostic applications. "I believe that we are moving to a world of whole-genome sequencing in the clinic. And I really want to make sure that we're moving to where the puck is going as opposed to where it's been," Henry said. "That said, there still may be opportunities on panels that might make sense."

PacBio has been investing in R&D, officials said. Third quarter R&D spending was higher than the previous quarter, both year-over-year and sequentially. Kim said the firm expects operating expenses to grow in the fourth quarter of 2020 as well.

Currently PacBio remains a complementary technology to short-read sequencing, owing to lower throughput and higher costs, Henry said. Increasing throughput, would help address both, and will be a focus in new platform development, as will sample prep chemistry. "As our systems become higher throughput, we [will] lower the input requirements of DNA so that we can access more samples than ever before. We'll also look at how [to] fully automate the sample prep process," Henry said.

In a form 10-Q filed Tuesday with the US Securities and Exchange Commission, PacBio noted that it has filed two inter partes review petitions with the US Patent Office Patent Trial and Appeals Board (PTAB), requesting that it invalidate claims of a patent held by Personal Genomics, a Taiwan-based firm that has sued PacBio, alleging patent infringement in the US District Court for the District of Delaware. The district court case has been stayed, pending the outcome of the PTAB decisions, expected January 2021. Personal Genomics has also sued PacBio in a Chinese court.

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