Pacific Biosciences of California Inc (PACB) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pacific Biosciences of California, Inc., second-quarter 2014 earnings conference call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference, Ms. Trevin Rard. Ma'am, you may begin.

Thank you. Good afternoon and welcome to the Pacific Biosciences second-quarter 2014 conference call. Earlier today we issued a press release outlining the financial results we will 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 the Form 8-K available on the Securities and Exchange Commission website at www.SEC.gov.

With me today are Mike Hunkapiller, our Chairman and Chief Executive Officer; Susan Barnes, our Chief Financial Officer; and Ben Gong, our Vice President Finance and Treasurer.

Before we begin I would like to remind you that on today's call we will be making forward-looking statements, including plans and expectations relating to our financial projections and products, that are subject to assumptions, risks, and uncertainties and may differ materially from actual results. These risks and uncertainties are more fully described in our Securities and Exchange Commission filings, including our most recently filed quarterly report on Form 10-Q. Pacific Biosciences undertakes no obligation to update forward-looking statements.

In addition, please note that today's call is being recorded and will be available for audio replay on the Investors section of our website shortly after the call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today's call may differ or change materially after the completion of the live call.

I would now like to turn the call over to Mike.

Thanks, Trevin. Good afternoon and thank you for joining us today. We are pleased with our second-quarter 2014 results and the progress we are making in driving our overall business. Highlights of our second-quarter financial results are as follows.

We delivered eight systems during the quarter; and with over 100 systems in our installed base now, we are becoming a well-established player in the sequencing space. Instrument revenue for the second quarter was $4.7 million, up 73% from the prior Q2 instrument revenue of $2.7 million.

Consumable revenue for the second quarter was $3.0 million, up 62% from the prior-year Q2 consumable revenue of $1.9 million. This is being driven by strong utilization growth on an increasing installed base. We are now averaging over $120,000 of consumable revenue per year per installed system.

Total revenue for the second quarter was $11.4 million, up 89% from $6 million in Q2 2013. Year-to-date, our revenues for the first half of 2014 are up 98% from our first-half 2013 revenue.

On that note, it is clear from our revenue trend that PacBio is continuing to gain commercial traction. Our bookings in Q2 of five units were lower than the number in the previous quarter due to some customer logistical and tender delays that can cause our quarterly orders to fluctuate, but our pipeline continues to grow.

With our installed base growing and system utilization increasing, our business has never been in better shape. We continue to forecast 70% growth in our revenue this year compared to 2013.

Now I would like to provide some highlights from industry conferences we attended since our previous earnings call. At this year's American Society of Microbiology meeting in Boston, there was a very interesting presentation by Dr. Julie Segre from the National Human Genome Research Institute at NIH on hospital-acquired infections. Dr. Segre described a study of patients from the NIH clinical center that were infected by an antibiotic-resistant bacterium called Klebsiella, which she referred to as, quote, the nightmare bug, end quote.

A total of 18 patients in the hospital were infected with the bacterium in 2011, but it was not clear at the time whether these patients had infected each other or had acquired infection independently. With this study, Dr. Segre and her team decided that whole genome sequencing could help them build a phylogeny to recreate the history of these Klebsiella cases and determine how transmission was occurring.

The project was completed using the PacBio platform, because they needed to have high-quality genomic and plasma sequences for the best view of the microbes, which can get their drug resistance from a variety of plasmids. The team studied samples taken from various patients and used epidemiology skills to build a transition map of the outbreak.

Based on genome sequence and plasmid diversity, the team determined that there were two separate infection events: some transmission cases from the first patient, and an independent infection from another patient. They also found horizontal gene transfer from patient to environment, highlighting a path that could explain transmission within the hospital. In her talk, Dr. Segre noted that once sequencing technologies such as PacBio are ready for clinical use, it will be very useful in stopping this kind of outbreak, because they can identify critical infection elements much faster than existing technologies.

In June, we attended the 28th annual European Immunogenetics and Histocompatibility Conference in Stockholm. The European Federation of Immunogenetics, or EFI, hosts this meeting each year, bringing together delegates from around the world to discuss basic and clinical science topics in the area of immunogenetics.

At this year's conference, attended by over 1,100 delegates, HistoGenetics and Anthony Nolan, who are both world leaders in HLA typing, presented their planned approaches for using SMRT sequencing to improve the quality of their HLA typing services. As a reminder, HistoGenetics and Anthony Nolan have both recently purchased multiple PacBio RS II systems, and they are in the process of integrating them into the mainstream service businesses.

Dr. Nezih Cereb, CEO and cofounder of HistoGenetics, described how they have evolved in their use of sequencing technologies for registry typing. HistoGenetics was the first HLA typing service to adopt Sanger sequencing, and until recently it was their primary method of producing sequence-based typing information. Last year they incorporated sequence data from Illumina MiSeq systems, and now they are adding PacBio to the workflow to improve the accuracy of the results.

In his presentation Dr. Cereb give examples of how tandem repeat structures in HLA regions were misaligned with MiSeq data. With the full-length sequences from PacBio, these same regions were aligned correctly. For HLA typing, it is critical to find accurate matches for transplant candidates and, therefore, obtaining the highest quality information for HLA alleles in the registries is paramount.

Neema Mayor from Anthony Nolan Research Institute presented results of one of the experiments performed to validate the use of PacBio for their registry database. In this experiment seven samples from the UK containing commonly seen HLA class I alleles were sequenced. A total of 42 alleles were identified in these seven samples, 37 of which were previously characterized and accurately matched the database sequences.

The 38th allele first appeared to be an error when compared to the reference, but was later validated as correct by cloning and Sanger sequencing, leading to a correction in the registry database. The other four discrepant alleles were also validated by cloning and Sanger sequencing and added to the latest build of the IMGT/HLA database as new allelic variants by virtue of valid differences in the intronic regions of these genes.

This experiment has led Anthony Nolan to conclude that SMRT DNA sequencing enables definitive HLA allele typing, a single sequencing reaction, and allows for simultaneous genotyping as well as new allele discovery. They believe this will ultimately have a considerable impact on matching potential donors and recipients.

This past quarter, we also had two user group meetings, one in Asia and another on the East Coast US. We held our Asia group meeting on the heels of the Plant and Animal Genome, or PAG, Asia conference in Singapore. At the PAG conference and our user group meeting, a research team at Temasek Life Sciences Laboratory in Singapore presented very impressive data on their sequence of the seabass genome. As background, the Asian seabass is an important fish for aquaculture, and therefore there is great interest in better understanding its genome.

The Seabass genome is approximately 700 million bases, or roughly a quarter of the size of a human genome. Previously, the group at Temasek tried to sequence the seabass genome with the Illumina HiSeq, augmented with some Sanger sequencing, but the results were not satisfactory to them. They decided to sequence the genome with PacBio and obtained the following results.

The total assembly size was 671 million bases, compared to 622 million bases for the Illumina assembly, which suggests that at least roughly 7% of the genome was missing from the Illumina assembly. The number of contigs or pieces after assembly was 5,000 with PacBio compared to 122,000 with Illumina; this is a 24 times improvement.

The contig N50, which is a proxy for the average length of each contig, was 1.1 million base pairs for the PacBio assembly, compared to just 32,000 for the Illumina assembly, which translates to a 33 times improvement. The Temasek team is delighted with the high-quality results obtained using PacBio, and they are continuing to refine their assembly.

Our East Coast user group meeting is an annual event that has been growing significantly. This year's meeting was held at the University of Maryland, and attendance was up 25% over last year, with over 100 participants from various customer sites. There were nine customer presentations, with applications topics ranging from antibiotic-resistant bacteria, expanding reference databases in the microbial area, the structural variant analysis, and whole genome assembly in the human space. In addition, there were multiple presentations on software tools being developed for speeding up the assembly of large genomes.

We also hosted full day bioinformatics training sessions for users interested in taking full advantage of the latest tools available. These training sessions were very popular among our user base, with a total of 66 people attending the bioinformatics sessions. Providing efficient, easy-to-use software tools is a significant priority for us to drive further adoption of SMRT sequencing.

In a recap of our user group meeting, the trade journal Bio-IT World reported on their observations of PacBio's commercial progress including that, quote: The ability to sequence genomes and fragments thousands of base pairs long has opened up projects that would be monumentally difficult, if not impossible, with standard next-generation sequencing; end quote.

Shifting now to publications, we are continuing to see a growing number of customer publications citing SMRT sequencing at a pace that is making it difficult to keep count. One publication appearing in the proceedings of the National Academy of Sciences and worth highlighting came from Dr. Michael Snyder's group at Stanford, entitled: Defining a personal, allele-specific, and single-molecule long-read transcriptome. As background for the study, the authors describe how RNA sequencing with short-read technology is fairly common, but there are significant drawbacks. They go on to say, quote: recent work has shown that reconstruction and quantification of transcript isoforms in short resequencing is insufficiently accurate; end quote.

In order to obtain what the authors described as a personal transcriptome, in which all of an individual's genetic variants and transcript isoforms are defined and quantified for full-length transcripts, they sequenced the transcriptomes of three family members, a child and both parents, by using a PacBio long-read approach complemented with Illumina short-reads.

The PacBio data enabled the researchers to characterize previously unidentified isoforms and to connect variants to RNA haplotypes. By assigning full-length RNA molecules to their transcribed allele, they could determine from which parent the molecule was inherited. Overall, the authors state that, quote: These results describe, to our knowledge, the first large-scale and full-length personal transcriptome; end quote.

Isoform sequencing with PacBio is still in its infancy, but we are very optimistic about the value it brings, as evidenced by the results described in this and other publications.

In summary, we were excited to see continuing momentum in several areas. Microbial area, there is growing excitement around the study of antibiotic-resistant bacteria. This is driving more interest and growth in SMRT sequencing from government agencies such as the NIH and the CDC.

The plant and animal area, we are seeing more de novo sequencing projects, as researchers have taken note of the success that early customers have had in creating high-quality reference genomes for plants such as spinach and melon. These are projects that have historically been taken on using Sanger sequencing because short-read sequencing technologies have been less effective in creating useful references for these large, complex genomes.

With our advances in throughput over the past 2 years, researchers are finding it is now more economical to approach these projects with PacBio. Many of our core lab and service provider customers have taken on large projects, such as sequencing the rice and cotton genomes.

In the human sequencing space, there is growing interest in sequencing clinically-relevant genes containing structural variation that is too difficult to sequence with short-read technology. In addition, there is significant momentum building around our solution to HLA typing.

Last month, we announced a comarketing arrangement with GenDx, who provide solutions for amplifying highly polymorphic HLA genes, so they sequence with the PacBio RS II. This is a great solution for customers who do not have their own assays for generating HLA samples.

Overall, we are seeing great interest across multiple applications, which is driving growth in our consumables business and building our pipeline for new system sales.

Lastly, I would like to note that our collaboration with Roche is going very well. We are expecting to complete our first project milestone with them later this year. This is consistent with the schedule we had set out with Roche when we entered into our agreement in September of last year.

That concludes my remarks, and I will now turn the call over to Susan.

Thank you, Mike, and good afternoon, everyone. I will begin my remarks today with a financial overview of our second quarter that ended June 30, 2014. I will then provide details on our operating results for both the quarter and year-to-date, with a comparison to the second quarter of 2013 and year-to-date comparison to the first half of 2013, respectively. I will conclude my remarks with a brief discussion of our balance sheet.

Starting with our second-quarter and year-to-date financial highlights, during the second quarter we recognized revenue of $11.4 million and incurred a net loss of $19.1 million. This brings our year-to-date total revenue to $23.1 million and our net loss to $38 million.

We ended the quarter with $105 million in cash and investments, $13.7 million lower than the $118.7 million reported at the end of Q1, and $7.5 million lower than the 2013 year-end balance of $112.5 million.

As a reminder, in the first quarter this year, we raised $20.6 million in equity funding from our at-the-market facility. We did not issue any equity under this ATM during the second quarter. Excluding these proceeds, cash use totaled $28.1 million year-to-date.

Turning to revenue, revenue increased substantially in Q2 year-over-year across all products and services. Total revenue for the quarter of $11.4 million was 89% greater than the $6 million recognized in Q2 of 2013. Year-to-date revenue in 2014 was $23.1 million, up 98% over revenue of $11.6 million recognized in the first half of 2013.

Instrument revenue increased 73% to $4.7 million in Q2 2014 from $2.7 million during the same period last year. Year-to-date instrument revenue increased 117% to $10 million in 2014, versus $4.6 million for the first half of 2013. The increase in revenue reflects eight instruments recognized during the second quarter and 17 year-to-date in 2014, compared to three instruments recognized in Q2 2013 and six total for the first half of the year in 2013.

Consumable revenue was also strong during the quarter, increasing 62% to $3 million for the current quarter, up from $1.9 million reported during the second quarter of 2013. Year-to-date consumable revenue increased 46% to $5.6 million in 2014, compared to $3.8 million in the first half of 2013.

Service and other revenue increased 37% to $2 million in the quarter, compared to $1.4 million in Q2 of 2013, and up 27% year-to-date to $4.1 million in 2014 from $3.2 million in 2013. Finally, we continue to recognize $1.7 million of revenue per quarter associated with the $35 million upfront payment that we received from Roche in Q3 2013.

Gross profit was $3.1 million in Q2 of 2014, representing a gross margin of 27%. Year-to-date gross margin recognized in 2014 was $5.8 million, corresponding to a gross margin of 25%. In Q2 of 2013 we recognized $1.1 million of gross profit with a gross margin of 18%, and year-to-date gross profit in 2013 was $2 million with a gross margin of 17%.

As a reminder, gross profit in 2014 includes $1.7 million of margin per quarter relating to the Roche revenue. The increase in gross margin in 2014 has been tempered by a change in product mix.

We recorded a larger number of instrument revenue for both Q1 and Q2 of 2014 in comparison to the first half of 2013. Since instrument revenue has lower margins than our consumables, the mix of instruments to consumables affects the gross margin percentage results.

While revenues for the quarter and year were up significantly year-over-year, operating expenses were relatively flat. Operating expenses in the second quarter of 2014 totaled $21.4 million, compared to $21.1 million incurred in Q2 of 2013. Year-to-date total operating expenses were $42.3 million, compared to $42.6 million in the first half of 2013.

Breaking down our operating expenses, R&D expenses in the quarter were $12.4 million, up slightly from the $11.7 million of expenses in Q2 of 2013. Year-to-date expenses in R&D were $24.2 million, also up from the first half of 2013 expenses of $23.7 million.

In both comparisons, R&D expense increases were primarily a result of higher product development expenses incurred in 2014 versus 2013. R&D expenses this quarter include $800,000 of non-cash stock-based compensation expense.

SG&A expenses for the quarter were down in Q2 2014. We had $9 million in SG&A expenses, compared to $9.4 million incurred in Q2 of 2013. We have incurred $18.1 million so far this year, compared to $18.9 million incurred in the first half of 2013.

SG&A expenses in 2014 have come down across many categories, as we continue to pursue SG&A-related cost efficiencies. SG&A expense for this quarter included $1.3 million of non-cash stock-based compensation expense.

Also, in the area of other income and expense, in Q2 we reported $800,000 of other expense, primarily related to the interest expense associated with debt that we took on in Q2 of 2013. Year-to-date, we have incurred $1.5 million of other expense. Ben will provide further guidance on our ongoing expense rate later in the call.

Now turning to our balance sheet, as I mentioned at the beginning of my comments, cash and investments decreased $13.7 million to $105 million at the end of the second quarter, primarily reflecting our second-quarter net loss of $19.1 million, less $3.3 million of non-cash expenses from stock-based compensation expense and depreciation. Balance sheet changes also contributed to lower cash use in the quarter.

Inventory balances rose $1.1 million in Q2 to $9.4 million from $8.3 million at the end of Q1. This increase is necessary to ensure the timely fulfillment in product orders being generated in 2014. Accounts receivable increased to $4.3 million at the end of Q2 compared to $3.4 million at the end of Q1.

This concludes my remarks on the financial results for the quarter. I would like to turn the call over to Ben.

Thank you, Susan. I will be providing an update to our 2014 financial forecast. Starting with revenue, we were pleased with the continued growth we saw in Q2, and we are maintaining our forecast of 70% growth in revenue for the year. This translates to a total annual revenue estimate of $47 million to $48 million for 2014.

With regard to the third quarter, we had 10 instruments in backlog at the end of Q2, and we expect to deliver a majority of those systems in Q3.

Moving on to gross margin, as we have seen in the past three quarters, $1.7 million quarterly amortization of the Roche payment from last September continues to result in favorable year-over-year gross margin comparisons. Our gross margin of 27% for the second quarter was in line with our expectations, and our forecast for the year remains similar to what we communicated last quarter, with a slightly tighter range.

We are forecasting our gross margins to be between 25% and 27% for the year. As a continuing reminder, at our current revenue levels, small changes in gross profit dollars can cause fluctuations in our quarterly gross margin percentage.

Our operating expense for Q2 of $21.4 million was a little higher than the previous few quarters due to slightly higher research and development expenses. We plan on maintaining our quarterly operating expense at around this level for the rest of the year.

Our operating expenses include non-cash stock compensation expense and depreciation expense that together amounts to between $3 million and $4 million per quarter. Net interest expense of $800,000 for the second quarter was a little higher than our previous estimate due to a revaluation of the non-cash derivative component of our debt.

Excluding the revaluation which amounted to $150,000, our net interest expense was in line with our previous estimate. We expect to continue to record approximately $650,000 in net interest expense per quarter this year.

With regard to cash use, $14 million this past quarter and $28 million year-to-date, excluding ATM proceeds, puts us right on target to meet or beat our previous forecast of $60 million for the year. Taking into account the $21 million in additional cash we raised in Q1 from the ATM, we expect to use less than $40 million for the year. Therefore, we should end the year with at last $73 million in cash and investments.

With that, we will open the call to your questions.

(Operator Instructions) Bryan Brokmeier, Maxim Group.

Hi, thanks for taking the questions. You started off talking about the bookings, and that it declined sequentially. I was wondering if you could provide a little bit more color.

And also in terms of the different conferences that you mentioned that you attended during the quarter, were any of those bigger drivers of your pipeline for future bookings? And what sort of research the customers are doing within your pipeline?

Okay. I will try to get through a lot of that. The issue with orders was driven by a few cases, as we tried to point out, of customer logistical and tender delays, which took longer for them to get through the process than we and they would have hoped. So we see that as hopefully a temporary blip in that.

It wasn't a lack of order prospects in our pipeline at all. That actually has continued to increase.

But given that, and we tried to emphasize this before, we are still at a relatively small total order number per quarter. And a couple of those sites having a logistical issue, either because their tender process is slow or because they are having to wait on some other event, a lab being secured and so forth, can cause quarter-to-quarter blips in that. Though it didn't concern us greatly.

Relative to the conferences, I think we certainly saw a really healthy interest in the HLA community. This was really the first time that we had had much of a public presence at an international conference at this level in the immunogenetics space. And it was the first time that our early customers, two of the largest typing centers in the world, have had a chance to present their experience with the PacBio RS II system.

We even had some relatively [BlueBoard] presentations by some of our other customers in the academic world who were doing substantial HLA typing that we didn't know about really until -- that they were going to do the presentation until the conference. So we had a lot of interest from a lot of different kinds of laboratories interested in the whole HLA space. Not just in the major typing centers, but in a lot of the other labs that may be engaged with pharmaceutical companies who were very interested in having high-resolution HLA typing and done in conjunction with clinical trials and other large genomic projects. So I think we rated that conference as a real success from a prospect perspective.

In the Asia conference, I think it was a continuation of the interest we are seeing within the plant and animal world to reengage with genomic sequencing in order to come up with much better reference genomes for a whole variety of organisms than they have been able to successfully generate with the combination of short-read and old Sanger methodologies, which are both slow and expensive, but also just don't give you the kind of results that they really want and need within that space.

So I think we saw both of those conferences as very successful marketing opportunities for us.

Have you seen some of those opportunities in your pipeline turn into bookings since the end of the quarter?

Well, we're not talking about the results for this quarter, but we certainly have seen a fair interest of those turning into proof-of-principle type runs with people, particularly in the -- the relatively new, in the HLA space. Within the plant and animal ones, we have had an ongoing buildup in our pipeline there.

Ben, just a last question on --

(multiple speakers) across the world.

All right. Just lastly on your Roche collaboration, you said that you expect to achieve the first milestone later this year. Any more color on what that milestone is? Is it completing an instrument? Or any details about what you have accomplished so far?

No. What we have said and what Roche has said publicly from the beginning is that we assume that getting a diagnostic-level device created would be at least a 3-year project. And we set out with them at the beginning a series of milestones as part of that development process.

But we have been unwilling for competitive reasons to go through the details of what those milestones were going to be and what the specifications associated with that system were. And I think we are going to stick with that.

Okay. Thanks a lot.

Bill Quirk, Piper Jaffray.

Great, thanks, and good afternoon, everybody. A first question for me is just I want to talk a little bit about consumables. It seems to bounce around: a little bit up in the fourth, off a little bit in the first, and then back up here in the second. So just trying to get a little better sense, I guess from your perspective.

How do you see this bouncing around? Obviously it is moving generally in the right direction. Are we at a level now where we consider this to be sustainable, with upside to come? Help us think a little bit about this. Thank you.

Well, yes, I mean there it is like anything else, they bounce around a little bit. We are still a relatively small total number, so that a few big orders can change one quarter. Some people will order on a 6-month basis, some on a 6-day basis, so it does matter when you get big orders in chunks.

I would say that we are quite happy with the overall increase. If you step back and look at it, it tends to -- in some cases it has gone up, and then it has leveled off a quarter, then it has gone back up. Draw a line through more than two data points, you get a pretty good trend, I think. And that is kind of where we are gauging our ability to forecast that.

Okay.

It was a good uptick this year in -- across the world I think. We are seeing, as we pointed out, an increase in per-customer usage. I think the last guidance we had given you was somewhere between $100,000 to $120,000, and we are now saying it is north of $120,000 (multiple speakers) average for the year.

Very good. Mike, just going back to the earlier question around bookings, there wasn't any effect from any of the competitive dynamics in the market? You're still -- your funnel, your sales funnel seems to be in pretty good shape.

Is that the message you are trying to tell us? No issues around competition?

Well, I wouldn't say there's no issues around competition, but I don't think that was a substantial issue for us in the quarter. We compete in a select set of applications in the marketplace very well. We are not a head-to-head competitor with any of the short-read technologies, either Illumina or Ion Torrent, for most things.

We tend to focus on those areas that our customers do where those technologies don't perform so well at this point. So that is where we go. And I don't think the competitive landscape in that space has really changed very much.

Okay, great. Then just lastly for me, you typically highlight it on the call; but just any update with respect to some of the planned system upgrades?

Yes. We do plan on putting out more system enhancements during the course of this year. Not hardware ones, but we actually kind of lined this out in an investor presentation earlier, where at least a couple times a year we put out software enhancements. We put one out I think around April this year; so we are going to be on schedule to do another one in the latter part of this year.

We also typically put out some sort of chemistry enhancement, and we are also on target to put one of those out later on this year. We haven't given specifics as to what the improvements are going to be on those, on that release. But it is not too far in the future, so you should keep an eye out for that.

Yes, what we have talked about is generally that they will represent an increase in average read length and throughput, improvements in sample prep, that give again a higher utilization of the system. And we will be rolling out actually a series of those in the last half of the year.

Okay, got it. Thanks, guys.

Amanda Murphy, William Blair.

Hi, everyone, it's actually J.P. in for Amanda. I just had a couple questions around consumables usage. Do you guys see a large chunk of customers running at full capacity and maybe others not so much? And then can you just remind me what the theoretical max pull-through per just one machine is?

Yes, I will take a first shot at that. It is not an 80/20, meaning it is not so concentrated that 20% of our customers are doing 80% of the consumables. It is actually more spread out than that.

I think with any capital, you might expect that there is going to be some customers that are not as productive as others. We certainly have that. But I would have to say that the overall usage is spread across a large number of users.

And to answer the question on the high end, we definitely see multiple customers who have been able to do a run rate of over $300,000 per year. So we think there is adequate run rate in terms of that increase in average pull-through. As Mike said, it is now greater than $120,000, but that means there is still a lot of capacity left out there for improvement.

Okay, thank you. Then just one more. Can you provide additional detail on the size of the HLA market? Have you guys looked at a total addressable market there?

Well, yes, but it's -- let me give a caveat at the end of that. So, I think the general estimates are that available market in the traditional HLA registry typing market is on the order of $200 million to $300 million a year worldwide.

However, I think that the larger potential market there is actually not in the traditional registry type work, but in association with clinical trials, being able to do HLA typing at high resolution for big trial projects. We have seen a fair amount of interest from the pharmaceutical world as have several of the labs that traditionally do typing for registry purposes there, as soon as the technology is appropriate to handle that high-resolution and high-throughput requirement that they have.

And that is potentially, from my perspective, maybe several times bigger than the traditional market, which is not trivial for us. But it has been on task because just the technology has not been there.

Okay. Then are you guys able to provide a bookings outlook for the remainder of the year? Like, should we think about the logistical delays as just pushing into the next quarter? Or is it just going to push things down the line in general?

Hey, J.P., we have not traditionally given a specific on bookings outlook. But embedded in our revenue outlook of 70% growth, it suggests that there is going to be higher bookings than what we just saw in the second quarter. Because in order to achieve those revenues we obviously need to have systems to install; and even with the growth we have in consumables, we probably need to continue to see some pretty healthy bookings in order to get to the 70% revenue growth. So that is on purpose that we've maintained that revenue forecast.

Okay, great. Thank you.

(Operator Instructions) Tycho Peterson. JPMorgan.

Hey, guys; it's Tejas in for Tycho. Can you share some color on the backlog in terms of new versus existing customers?

Yes, for the backlog of the 10 systems, we definitely have in that backlog additional systems for existing customers. In fact, one of the bookings we did have this past quarter was also for an existing customer.

Related to a previous question about utilization, when people get to a certain utilization they do look at buying additional systems. And then we have mentioned before that we have had multiple orders in the past, and usually it takes a little bit of a while to get everybody installed on those multiple orders.

Okay. Then you guys have highlighted the ag opportunity in sequencing cash crops. Has that translated into any orders yet, or is it still too early for that?

Yes, several of our existing customers are doing that. In Europe, as an example, KeyGene is one of the premier genomics/agricultural companies. They are one of our highest-capacity users of our systems, as an example.

But a lot -- we have a system with the USDA which is focused on plant and animal ones. A lot of the core labs do projects that are in that. Several of the service providers in our Asia customers are doing large plant and animal -- mostly plant -- genomes.

So that is already a good part of our business. And as people get out the results of some of the bigger projects they have done, in comparison to their other attempts with other technologies with shorter-read capacity, then that is making a lot more people aware of the advantages of the PacBio platform.

Okay. Now just quickly turning to Roche, does your guidance for this year of $47 million to $48 million include the milestone payment? Or will that be separate?

That's separate. So the $47 million to $48 million is based off of just the same kind of revenues that are in the revenues today from Q1 and Q2.

Okay. In terms of --

(multiple speakers) what the size of the payment might be. (laughter)

All right. Any thoughts on their acquisition of Genia in terms of the nanopore sequencing effort inhouse in Roche, and how that changes things for you, if it does it all?

I think we commented on that before. From our perspective, it doesn't; and from what we understand from Roche, it doesn't change our relationship with Roche at all. They view this as another long-term opportunity for them to potentially come up with a technology that they can sell in more areas than the diagnostic arena, which is where our agreement with them is limited to.

But they also recognize it is a very, very early technology with a high risk associated with it. So, to them it is another bed in the space, but one that they realize is fairly far from commercializable.

Okay, great. Thanks.

Zarak Khurshid, Wedbush Securities.

Yes, Zarak Khurshid at Wedbush. Thanks for taking the questions, guys. Good afternoon.

Can you tell us what the gross margins are on the consumables currently? And taking it a step further, what revenue run rate is required for you to break into the 50% gross margin range? Thanks.

Yes, Zarak, this is Ben. We don't give the breakout of the gross margins, but we do let people know that from a mix perspective the consumable margins are definitely higher than they are for the systems and the service. Sometimes you are subject to just the overall revenue being not high enough to cover amount of fixed costs.

So I think your question has more to do with at what revenue levels can you get to perhaps breakeven. What we have said in the past is somewhere between $100 million and $150 million in revenues on the top line we probably get to breakeven. And from that you could probably start to think about what margin that means to cover all of the operating expenses.

Got you. Thanks.

Thank you. I am showing no further questions at this time. I would now like to turn the call back over to Mr. Mike Hunkapiller for any closing remarks.

Okay. So, in closing, we remain steadfast in our commitment to bringing the unique advantages of our SMRT technology and products to our customers and the scientific community in general. We believe that SMRT sequencing provides the industry's most complete and accurate picture of genomes, due to its superior performance and sequencing accuracy, uniformity of coverage, extremely long read links, and the ability to characterize DNA-based modifications. We continue to make progress in driving the adoption of our products, and it is rewarding to see momentum building in our business.

We look forward to talking again in 3 months' time.

Ladies and gentlemen, this does conclude today's program. Thank you for your participation. You may all disconnect. Have a great day, everyone.