Pacific Biosciences of California, Inc. (PACB) Earnings Call Transcript & Summary

Good morning. Welcome to Day 2 of the UBS Healthcare Conference. I'm Dan Brennan. I cover life science tools, diagnostics, pharma services. And really pleased to be joined with me here on the virtual stage with senior management of Pacific Biosciences. We have the CFO, Susan Kim, with Todd Friedman, Director of IR. Listen, I don't cover PacBio, but I've known the company for many years, obviously, doing terrifically well with some new product introductions, and the story has really evolved here under new management. I thought before we kick off with Susan in the Q&A, I think we're going to go first to a short slide presentation that Susan is going to walk through maybe some overview on PacBio, and then we'll get into it. So with that, Susan, welcome, and really pleased to have you here.

Thank you, Dan. It's very nice to see you. I'm very excited to be here to share the latest updates on Pacific Biosciences. [Technical Difficulty] to UBS for hosting us today. Before I get started, I've been asked to remind you that my comments could include forward-looking statements. You should refer to our SEC filings for a discussion of the risks and uncertainties that could cause results to differ materially from our current expectations. It's our intent that all forward-looking statements regarding our financial results and commercial activity made during today's discussion will be protected under the Private Securities Litigation Reform Act of 1995. And with that, we can get started on Slide 3. Pacific Biosciences is a global leader in the most complete and accurate sequencing technology. Today, we provide a long-read sequencing solution, that provides the most complete data, where our customers can see the entire genome with very high resolution. We serve a broad array of customers, including human biomedical research, plant and animal sciences and clinical molecular diagnostics. We sell an end-to-end solution, including a sample prep, sequencing and data analysis. We utilize what's called a SMRT sequencing methodology, a Single Molecule, Real-Time sequencing methodology, that allows our customers to get the most comprehensive data, high-quality data in a single run. As we continue to innovate on our platform, increase throughput and therefore, drive down costs, the total addressable market opportunity for us is over $20 billion. On Slide 4, you can see a review of our recent financial performance. We started 2021 very strong with record product and services revenue in the first quarter at $29 million. That represented a growth of 86% year-over-year. And this was due in part to a record Sequel IIe installations in the quarter, the Sequel II being our latest platform that we're currently selling into the market. We ended the quarter with an installed base of 244 Sequel IIes. We also saw record utilization on our installed base, which means that our customers are using their instruments way more than they have in the past. And that's very exciting. In the first quarter, we also announced the investment by SoftBank, and we're very fortunate to be in a very healthy cash position with over $1.1 billion of cash on our balance sheet, giving us the flexibility to make strategic investments in our business. On Slide 5, as I mentioned earlier, we're a leading provider of long-read sequencing solutions. If I take a moment to go back in time, when we introduced the Sequel II platform, we subsequently also introduced our HiFi chemistry. The combination of the Sequel II with our HiFi chemistry was game-changing for us. It enabled us to read longer pieces of DNA at the accuracy of short reads, and that's very exciting. We continue to innovate on our platform as well as our chemistry and -- to enhance our technology as well as pass those enhancements on to our customers. In April, we launched our updated HiFi sequencing workflow as well as Software v10.1. Our updated chemistry works faster, which further improves the data quality with more reads at high-quality levels of Q30 plus. The updated chemistry also enabled us to reduce the DNA input requirements by 3x. This opened up the applications as well as increasing the sample types, in which our customers can utilize our innovative HiFi technology. We introduced an adaptive loading feature, which also enables our customers to load more samples on our system with higher confidence. Our platform enables hundreds of thousands of genomes to be sequenced per year, and we're very excited that this introduction enables us to apply our HiFi technology to an expanded market opportunity. Going on to Slide 6, demonstrating value of HiFi sequencing in rare disease. We're actually very excited by all the innovative work all our partners are doing, utilizing HiFi technology. In particular, I'd like to mention Children's Mercy Research Institute. Children's Mercy expanded their install base of Sequel IIes to utilize our technology to diagnose thousands of rare diseases that have otherwise gone undiagnosed with other sequencing technologies. They saw the power of HiFi to reduce the diagnostic odyssey for thousands of families and so we're very excited to enable such an outcome. On Slide 7, I highlight here that we're building a best-in-class solution for COVID-19 surveillance, which grew out of a partnership with LabCorp to look at SARS-CoV-2. Our workflow enables LabCorp to sequence thousands of viruses each week and capture all variants as well as understand how the virus is changing. Our platform is cost effective. We have flexible batch sizes. But more importantly, our workflow allows our customers to get higher accuracy and a tight distribution around that accuracy. We have fewer amplicon dropouts and better primary balancing, which enables more even coverage. The success of the LabCorp partnership also has us building a fully kitted COVID surveillance kit that we will introduce to the market at the end of the year. This kit will enable our customers to get up and running faster on our platform. And then also, it will enable us to eventually build out a pan-viral surveillance kit, where we believe our technology has a sustainable advantage given the level of accuracy that we have. So it's a very important area for us as a company. Again, because of the high-quality of data and the more complete data that we provide our customers, HiFi has also established us as a leader in plant and animal genomics. So looking at Slide 8, I'd like to point out 2 notable projects in this area. Vertebrate Genomes Project as well as the Darwin Tree of Life. Now the Vertebrate Genomes Project has the goal of sequencing all known vertebrates. The consortium recently published a flagship paper in nature magazine, highlighting long-read sequencing and, in particular, HiFi sequencing as necessary to maximize genome quality and eliminate assembler. The Darwin Tree of Life has the goal of cataloging 70,000 species found in the U.K., so the entire diversity of life. And we're very proud to be able to support Sanger in this initiative by continuing to expand their install base of Sequel II systems. On Slide 9, at the beginning of this year, we announced the most transformative customer collaboration in the history of PacBio. Within Invitae, we are collaborating to accelerate long-read whole genome sequencing into routine clinical care. This is a vision that really can only be enabled by our technology, and we're very excited to have this partnership. We are jointly developing a production scale, high throughput platform. We're introducing our technologies, our innovative technologies into this collaboration. And Invitae is giving us the know-how in terms of the workflow as well as funding the development side of this program. Once the platform is introduced, it will enable Invitae to dramatically scale their whole genome testing capability and deliver clinically relevant whole genomes at costs significantly less than $1,000. This collaboration is not only transformative for the 2 companies, but also for the entire world because it enables clinical whole genome sequencing at scale. Slide 10, our strategic objectives for 2021. Expand our commercial reach. We've been relatively underpenetrated with respect to our go-to-market organization. And so we are making the necessary investments to accelerate growth in our business. We are accelerating also our product development pipeline with exciting R&D programs in our pipeline and then we are continuing to demonstrate our leadership in whole genome clinical sequencing through the strategic partners that we have. We've made great strides in all these areas for 2021, and we're still continuing to do more. And finally, on Slide 11. In summary, we continue to innovate on our leading long-read sequencing capability. Our new HiFi sequencing workload that we introduced in April will further drive adoption as it opens up more market opportunities in which our customers can apply the HiFi technology. We've made significant progress toward our strategic objectives, in which first quarter of this year, we had record revenue and record Sequel IIe placements. And so we started out the year very strong. And then, of course, we have $1.1 billion of cash on our balance sheet to enable us to have the flexibility to invest in our business as well as accelerate strategic investments. And with that, I'll turn it back to you, Dan, for questions.

Great. Thanks, Susan. Great overview. Let me get back to the video bridge here, sorry, 1 sec. Okay, terrific.

I mean, you hit a part on some of the points there. Maybe just as kind of an introductory question. Obviously, you go with the company a little less than a year. Christian, obviously, and other members of the senior management team have joined. What would you say is -- how would you characterize the biggest strategic operational changes that the management team has undertaken to date with PacBio? Yes, just maybe as an overview, just kind of an intro question there.

Yes. So it's a good question. There's a lot of activity happening in Pacific Biosciences right now. I think the theme is really around the -- really introducing a lot of energy and momentum in all the initiatives that we had. Previously, the company was very focused on developing the best technology but not necessarily making the commensurate investment in commercializing that technology. So our first focus was really around how do we build our go-to-market organization to be able to commercialize that technology. And a lot of momentum in having that presence and reach with customers to be able to tell our story. The other thing, too, in terms of introducing more momentum with respect to our product portfolio is we're accelerating our product road map, having more overlapping R&D programs so that we can introduce new products with a rapid -- more rapid cadence than we have in the past. So we're having a lot of good momentum. But I think really, at the end of the day, what we're doing is we are looking towards the longer term opportunity. The biggest opportunity for us is in clinical whole genome sequencing, and we're putting in place the foundation to be able to really expand and grow that market.

Great. Well, thank you for that. Maybe as another kind of high-level question would be there's a line between short read and long read, maybe it's blurring today, maybe to be blurring more in the future. I apologize for my voice, I've a bit of a cold. But how should we think about the kind of the -- those 2 kind of markets? Are they distinctly separate? Are they coming together in the future, obviously, as you continue to evolve your product and kind of drive performance enhancements? Will long read and short we really compete with each other because your product capabilities will be competitive on a cost basis? So any thoughts on the kind of 2 segments and where we are?

Yes. So the market opportunity is very large. It definitely has room for both long-read sequencing and short-read sequencing. Our long-read technology, in particular, our HiFi chemistry has -- is basically differentiated in the market, with the high quality of data we provide, the most comprehensive view that we can provide with our technology. And so therefore, especially for human applications and clinical whole genome sequencing, as I mentioned, we have a huge market opportunity to really establish that market and grow that opportunity. There are also places where, like you said, lines are starting to get more blurred, where I would argue that long-read sequencing is being utilized in markets that have historically been considered more short read. For example, counting applications. What we're learning and discovering is that there are more longer strands of DNA floating in the blood. And so there's an opportunity to use long-read sequencing to sequence those longer strands. And so market opportunities such as liquid biopsy, prenatal diagnostics, oncology and the like opens up to us for long-read sequencing as well.

Great. Okay. And then maybe before we get into some of the trends in the quarter. From a competitive standpoint, obviously, it's Illumina, it's Oxford Nanopore. There's a host of private companies that are out there as well, probably making some traction. How do you think about the competitive dynamics out there today for PacBio?

Yes. So there's certainly a lot of companies. There are some upstarts that are introducing new short-read technologies into the market. And as I mentioned, I believe that the market is big enough for multiple technology providers. If anything, the market is wanting more vendors to choose from to reduce the supply chain risk. So certainly very exciting with all that's happening. But I think the area to focus really for us is particularly around long reads and the applications in which long read is differentiated is our high quality and the level of accuracy we have and the tight distribution around that accuracy. The way our process works as well is we take a DNA strand and then we attach a SMRTbell to the end of it, allowing us to have a polymerase that does a circular consensus read and therefore, read each phase over and over again, which eliminates random error, we also eliminate amplification bias. And so for that, that's how we get the higher quality data, which is unmatched in the industry.

Got it. Okay. Maybe talk a little bit about -- you put up the slides in terms of the strong first quarter that you had. Just maybe a little bit more color on in terms of the placements that you had in 1Q and kind of what the outlook is for the year? Just give us some color about how much of the strength in 1Q was driven by maybe pent-up demand coming out of COVID and new sweetness last year and that's how we think about the progression through the rest of the year?

So we launched our latest enhancement to our Sequel II platform, the Sequel IIe in November. That helped us to have a lot of demand for our instruments, which helped our Q4 as well as our Q1. There was a little bit of instruments that could have been placed in 2020, that got pushed into Q1 because of COVID, but it wasn't a material driver in the quarter. We also were very fortunate to have multi-instrument orders from strategic customers, such as Children's Mercy, Sanger and LabCorp, which also helped us achieve a record product and services revenue for the quarter. So very exciting. In terms of the outlook, well, we haven't given guidance for the year, but given the investment we're making in the commercial organization, we do believe that the second half will grow faster than the first half. There's a lot of activities. One of the reasons that we're not providing guidance for the year is because for one, right now, we're still growing. Our installed base is relatively smaller. And so a lot of times, these multi-instrument orders that are very strategic for us can create some lumpiness in our revenue quarter-to-quarter. And so therefore, for now, we're applying some level of caution, especially given the fact that the new leadership team has been here, one, some 2 quarters, and so we're still ramping in terms of building out that infrastructure.

Got it. So maybe taking like a high-level view on the Sequel II and the IIe, like in terms of your current installed base and kind of the opportunity going forward, how do you discuss kind of, obviously, you mentioned whole genome sequencing in the clinic is potentially the biggest opportunity. How do we think about like the opportunity from the current installed base looking out? Like have you given any color on what that TAM is and maybe we could dig down a little bit into some of the key end markets that the sequels are going into?

Yes. So for those of you that are listening on the call that are not familiar with the Sequel IIe, the Sequel IIe is our latest enhancement on the Sequel II instrument. And what it does is it brought the data processing on instrument, helping to reduce the data processing cost by 90% and speed up the data processing by 70% to 85%. What this enabled was for customers that didn't have the compute infrastructure or the budget necessary to support the compute power required to run on our instruments could now access our technology. And so that has been very important for a lot of our customers. And so we've gotten very positive reception since our Sequel IIe launch. The Sequel IIe is our principal instrument that we are selling today. But if I think about the total instrument placements, we had 41 in Q1. In 2020, we had almost 90 instruments across the entire year. So Q1 was very strong from that perspective, and we will certainly grow more this year relative to last year. Lots of positive feedback from customers on the Sequel II, IIe platform. For example, customers who get their first Sequel II instantly say that they want another. Because of all the good data that they get. They get very excited by the potential to have more of that. And so feedback like that, which has really given us a lot of momentum and certainly has helped us to have such a strong start to the year.

When you think about like the current mix today between plant, animal and human and academic and biopharma and even clinical. How do you break down kind of the -- or how should investors think about the opportunity set as we look out this year and into the next couple of years for new placements?

Yes. So plant and animal, certainly, with the technology that we've had, we've had -- we've established ourselves as a leader in plant and animal. We're the only ones that can do de novo assembly, a plant and animal with our long-read sequencing technology. And so certainly established ourselves as a leader, and it's a growing market opportunity, especially in China, for example. Having said that, we're also seeing more and more where customers are looking to our HiFi technology for human applications, again, given the differentiated technology. And so going forward, our growth opportunity really is on human. We will enable whole genome sequencing at scale. And again, something that only we can do because of the technology that we have, and we don't have the limitations that some of the other technology has. So certainly making a lot of progress. But the key part of really expanding the human market is around the cost to sequence the whole genome. The -- and a key driver for bringing down that cost is increasing throughput. So while we have the core technologies in place, we are doing more engineering work to dramatically increase the throughput, which will, therefore, bring down the cost. And we have plans in place. I talked a little bit about it through the Invitae partnership, but we also have other programs in place to introduce other platforms into the market besides the ultra-high throughput platform through Invitae. So the mix of different products enables us to have a platform at different throughputs with different costs for different applications across the market. And that's an important focus area for us right now to drive down that cost by increasing throughput. And so that's what we're working on.

Got it. And kind of have you -- right. So right. So maybe jumping to the Invitae kind of partnership, right? You've talked about, what, substantially below $1,000 per genome over the next 5 years. Just what have you highlighted about the key development areas in order to kind of enable this improvement that you're looking for with this new highly accurate kind of long read, low-cost platform?

Yes. So great question. So the partnership, as I mentioned, we are introducing our technologies into the collaboration. And that's an important aspect of understanding the collaboration in what it entails to achieve success in the future. The core technology, the advanced research has already taken place. Invitae, actually, in fact, is and has been a customer of PacBio and saw the power of HiFi sequencing. And so therefore, got excited by the collaboration, and therefore, we're working together. So going forward, how do we get to the production scale throughput platform? Well, that's more around the engineering. Engineering in terms of the instrument to increase throughput. We also have our SMRT cell, increasing density on the SMRT cell to also increase throughput, looking at better optics to be able to do the sequencing and do more of the sequencing. Improve the data processing using off-the-shelf technology, for example, moving from CPUs to GPUs. So all of that work needs to -- all that engineering work is coming together to enable the ultra-high throughput platform. But again, using existing technologies that we've already developed.

And have you discussed at all kind of where you think ultimately -- I guess it's a journey, it's a never-ending journey, right? So it's not like you hit a time point and the development of productivity enhancement stops. But have you laid out kind of a target kind of price that you'd be able to get to on a price per gig or price per genome within the next 5 years for this platform to be deemed successful? Or just is it just below $1,000 that you've outlined? Just any color on that front.

Yes. So what we've announced is that this is a 5-year collaboration. We will -- the platform, the first iteration of the platform will be introduced well before the 5 years. And that platform will have -- our customers, including Invitae, will be able to sequence a whole genome at substantially below $1,000. And -- but we also have started and put in place the next-generation platform development as well to continue to drive down costs. So you'll see certainly over the 5 years that we will be substantially below that $1,000 mark for a whole genome sequencing.

And the platform, obviously, working with Invitae, does that limit you at all on the ability to take that product beyond Invitae? I presumably, it doesn't, but I'm sure there are some restrictions given the partnership. So just speak about how this product could enable PacBio to become a big player in clinical? And just any thoughts on that.

Yes. So actually, this collaboration is transformative for PacBio because we actually will own the IP and the rights to broadly commercialize the platform. So Invitae will be the first to receive the platform and actually receive preferential pricing to recoup their investment in the collaboration, but we have the rights to broadly commercialize the platform to other customers, other labs that need a platform at this higher throughput. So it really does open up the market opportunity to bring whole genome sequencing, clinical whole genome sequencing at scale that otherwise really doesn't exist today. So really enabling that market because of the collaboration. But again, we have no restrictions in terms of who we can sell the platform to.

And then have you discussed at all whether or not like you'd be -- I understand we develop a really high-quality long-read genome for a low price. But is that the potential the product comes out with like a $2 million price tag because it costs so much to engineers. So have you discussed at all, how to think about kind of the economics or the pricing of what this platform could look like?

So we haven't publicly disclosed what Invitae will, like I mentioned, will get preferential pricing. So a cost plus in terms of pricing just given the fact that they've put in funds for the development side of the program. So certainly, there will be an ASP that makes sense. And ultimately, at the end of the day, when we think about pricing in this market, we are trying to value price for the higher quality data that we provide. So will the ASP be different? Certainly. If there is more value for the customer, then the ASP may be different. But at the end of the day, the economics will marry the value that the higher quality data provides our customers.

Got it. Let's talk about our current mix of business today. So obviously, this could be a tremendous opportunity in clinical as you develop this new product. But how about today you discuss some of the benefits of your chemistry for liquid biopsy. But what's the mix of customers back to that question I asked earlier, just to level set things in terms of customers doing research, customer is actually deploying your products for clinical uses and then, obviously, the non-human side. Can you give us a snapshot?

Yes. So we -- the human side is emerging for us, and it's growing. We are certainly trying to do more than what we could do as a stand-alone company by ourselves through the strategic partnerships we have, the ones that I talked about in the presentation as well as others that I haven't mentioned today. But these partnerships are important for us to really prove out the higher diagnostic yield, for example, in certain applications, certain human applications using our technology. Quality mantra has been the bread and butter of the company. It's certainly a big portion of our overall market, research, academic labs, core labs, all areas in which we are selling our instruments into translational research. But we are trying to get more awareness in terms of the differentiation that we can provide with our technology through some of these strategic partnerships. And that's important for us, especially as we continue to develop our next-generation platform and introduce those into the market.

Got it. Okay. Maybe a question just on academic labs, just kind of what you're seeing there. What type of impact have you discussed? As we look back last year, obviously, they were severely handicapped. Obviously, things are opening up today. But just to -- your kind of business in academic labs, just kind of what are you seeing real-time in terms of the ability for these labs to accept products and beginning new research? Are we back to normal? Do we still have a ways to go?

Yes. So what we saw in Q1 was that academic labs, the utilization on our instruments has returned to pre-COVID levels. It started to return to pre-COVID levels in Q3 and then has continued to increase from there. So certainly lots of activity there. Lots of academic labs that want to have access to grant funds to do innovative research and therefore, very excited to utilize our platform to enable that research.

Geographically, PacBio, maybe under a new management team, has that been a focus as well in terms of this commercial effort? Just give us a sense of where the -- kind of where the products lie from a geographic standpoint and whether or not you really feel you're underpenetrated than maybe some of the OUS markets?

Yes. So it's been very exciting for us in terms of the hiring that we've had, the momentum we've had. The leadership now at PacBio, we have the deepest bench in terms of sequencing knowledge in the market given the hires that we've made. And so that's very exciting for us. We are investing in the commercial organization in a number of different places in Americas, but also outside of the U.S., as you had mentioned. Europe, for example, we are -- we hired a Country Manager in Europe, and we're really establishing our presence in Europe. And then as well as in APAC, we have a Country Manager in Japan that we recently hired. So lots of investment. What we're trying to do is we're trying to move from using distributors for our international markets to more of a direct sales force. We believe it's important, especially given the complexity of our technology to have that relationship with the customer and be part of the journey with the customer. We're also moving more towards a TAM model, in which our sales reps not only are making that first instrument sale, but also being there for the journey of the customer in terms of utilization of the instrument, and therefore, the subsequent consumable revenue sale. A lot of times, we've been very underpenetrated from a go-to-market perspective. And so there are lots out there where they don't know who their PacBio rep is, and we're changing all of that. We're having the conversations. We're showing the power of HiFi chemistry and really starting to have some momentum. And so that's very exciting.

Great. Maybe just jumping back we don't mind back to like the Sequel and kind of the installed base. So in terms of the new customers or the new placements that you're generating, what percent of those are just kind of upgrades to existing PacBio instruments versus kind of brand new customers? Can you give us a sense?

Yes. So it's a bit of both, to be honest. The Sequel IIe was really going to enable us to go deeper into the core lab space for the smaller labs that couldn't afford the compute infrastructure, didn't have the budgets for the computing power necessary to run a Sequel II. So therefore, the Sequel II enabled that, and there's certainly more labs that are buying their first instrument a Sequel IIe. But there are also labs that are cranking away on their instrument that incrementally also could save on their operating costs by having a Sequel IIe. And so we are seeing upgrades from the Sequel II to the IIe as well, given that dynamic. It's kind of a bimodal distribution in terms of the utilization and the sales that we're making with our Sequel II platform.

And kind of have you tried to quantify, I'm sure investors want to know for the IIe, given those benefits, it could open up like a large potential customer base that wasn't really a target for PacBio today. So have you sized the opportunity set specifically for the IIe versus kind of the limited number of placements you've done to date, just wondering how big that opportunity could be?

Yes. I think the way to think about it is the fact that we want to carry the Sequel II as well as enhancements to the Sequel II platform for quite some time. Think of the Sequel II as our mid-throughput platform, we are also putting in place the development efforts to introduce a high throughput platform. And then, of course, the Invitae collaboration, the ultra-high throughput platform. And we'd like to have a multiproduct portfolio that we're selling into the market, which is different than PacBio in the past. PacBio in the past has been kind of a single platform company. And now we're going to have the multi-product portfolios that we can sell into the market. And therefore, our customers can figure out which is the right platform for them at the stage of growth for the customer. By the Sequel IIe and then eventually potentially, we can move them up to our high throughput or ultra-high throughput platform, if it makes sense. So we're certainly making a lot of traction. The Sequel IIe was well received, given some of the benefits I described, and it's our principal instrument that we're selling. And we do plan to continue to leverage this platform, increased enhancements, but then also have it be complemented with other platforms as well.

Great. It's hard for jumping around a bit, just back to Invitae for a moment. So when -- so obviously, it's a 5-year kind of target -- within the next 5 years, but you did say they wouldn't -- it's not going to be waiting for 5 years. You'll have something out before that. Is there a time period at which investors should expect to see the first product or update coming out of this Invitae partnership? Is it this year or next year? Just any sense on when we'd get that update?

What we've said is that the work -- while the work has started, and we're making a lot of good progress, it is still a couple of years away for the first iteration of the platform, the first time we can introduce our ultra-high throughput platform. And then over the course of the 5 years, there will be continual development to introduce also a higher throughput and therefore, lower cost platform as well.

Got it. Got it. And then sorry to jump around a bit, too, back to the commercial. So have you quantified like the number of salespeople that you've added in terms of this key focus to drive a more commercial execution story with PacBio, like where we were in 2020, '21, '22? Is there like any color about the magnitude of the increase in the commercial organization, if you will, that PacBio is deploying under new management?

Yes. So in 2020, as an example, our direct sales force, we had a headcount ranging from anywhere from 20 to 22. We ended the year with 22. We have a goal at a minimum to double that sales force. We've made good traction in Q1. We ended the quarter with 28. We're in the mid-30s today in terms of our sales force headcount. But it's not just about adding the direct sales force. We are making investments in our commercial operations organization, in our marketing organization, building the infrastructure to enable our sales reps to be efficient and effective. We announced in Q1 that we had a record number of leads at the top of the funnel. And so that's a start. We need to continue to generate and increase the number of leads at the top of the funnel, which then convert into marketing qualified needs as well as handed off to sales to, therefore, then be able to close those deals for us and grow our revenue. And we're building out all of that infrastructure. We've also reorganized our marketing organization to be aligned with our end applications and really bring the voice of the customer into the company and more importantly, into our product development pipeline and bring that voice and have that customer-centric focus into the culture of PacBio.

Maybe switching over to COVID. COVID has a drag on to business, but that's opening up. But at the same time, it does create new opportunities with surveillance. I think 1Q was a couple of million dollars or somewhere that did COVID for you. You discussed the LabCorp relationship. Just how do we think about this COVID surveillance opportunity? Illumina has been very constructive on it. I don't know if they've sized it, but net-net, just how do we think about that opportunity for you?

Yes. So COVID did have an impact on our business as it did for everyone in 2020, purchasing delays, budgets being pushed out. But we've seen that, that is materially less in '21. But in its place, we're very excited by the COVID surveillance opportunity. The partnership we've had with LabCorp. We announced that we had low single-digit revenue in the quarter. That low single-digit of revenue coming just from last quarter was actually a decent percentage of our overall revenue. So therefore, promising, but that quarter was also the quarter in which LabCorp was building out its infrastructure. So there were the instrument purchases and then, of course, the consumable revenue. We are trying to build a fully kitted COVID surveillance kit, which is important. It's important because it enables our customers to get up and running faster. For example, right now, it's -- there's a lead time to get the oligos necessary to be able to do the COVID-19 surveillance. And so what we want to do is we want to enable and have some of that inventory in-house, so we can help our customers get up and running faster. The other thing that's important to note is COVID surveillance, having the kitted solution is a start for us. It's a start for us to also move towards pan-viral surveillance and introduce a pan-viral surveillance kit where our technology, we believe, does have a sustainable advantage. If you think of the flu virus, HIV, others, in terms of the mutations that happen. And so the accuracy and the comprehensive data that we can provide can really help researchers understand how the virus is transforming. And so we see a huge opportunity for us in that field as well.

And kind of have you sized anything on the surveillance opportunity or just a way to think about how meaningful this could be for you over the next couple of years?

We're having internal discussions in terms of the size of the opportunity. With all the government dollars that are coming into COVID surveillance, it could potentially be a big opportunity but there's some work that we have to do, such as the kitted solution. And so over time, it could be a meaningful revenue driver, but we haven't disclosed the size of the opportunity.

Got it. Maybe just switching to population sequencing for a moment. Just give us an update on to what extent PacBio is being deployed in some of these global POPSEQ efforts? And how do we think about the opportunity for you in that?

COVID's certainly put some delay into POPSEQ projects across the world. But we're super excited by the fact that DLS is ramping to sequence through the All of Us program using long-read sequencing our technology to sequence the samples that they already have in-house. So we're excited to support them in that effort. We're also having conversations. We've been hiring across the management team that has experience with POPSEQ projects. And so we're having conversations starting pilot projects to show the power of HiFi sequencing for a number of POPSEQ projects all across the world.

Right. Is it -- as a percentage of revenues, have you ever disclosed like what it is? It sounds like it's fairly modest today. But similarly, given the number of programs that are up and running and going to be ramping. Just any sense of whether this should be on the list of focal points for investors given its impact?

In the future, for sure. This can be a meaningful revenue contribution for the company. Again, we have to have the conversation. These conversations take a long time. And so we're starting to have the conversation and really demonstrating the power of HiFi. But also as increasing the throughput and driving down the cost will be an important aspect of really getting the traction as well in POPSEQ projects.

Got it. Maybe 2 more. Just on the balance sheet. Obviously, you're flushed with cash right now. This management team seems to be pretty aggressive, wanting to like move quickly. Just how do we think about your kind of use of cash, externally cap deployment, maybe M&A internally reinvestment. Just walk us through how you think about the cap deployment?

Yes. So with the new management team in place, we are very focused, first and foremost, on making the necessary investments to accelerate growth in our business. We see a huge market opportunity, a market opportunity in which we can add a lot of value. And so therefore, we're making those investments to develop our product pipeline and really make the investments in some of the exciting R&D projects that we have in our pipeline. So that's first and foremost. But like you said, we're in a very fortunate position to have over $1 billion of cash on our balance sheet. So that has opened up the door to have the initial corporate development conversations. We are building out a corporate development function, which is new for PacBio. But also, it enables us to have conversations with partners as well. For us, it's important to be the partner of choice, really enable a vibrant ecosystem, if you will, in terms of innovation around our HiFi technology, which will also further enable us to continue to grow and really make an impact in terms of human health all across the world.

And in terms of like if we look out 2 years from now and PacBio had made a series of, I don't know, tuck-in deals, bigger deals. Just give us a sense of maybe areas that you might look to target from an acquisition standpoint? Are there other key technologies that you'd like to have internally? You mentioned that, obviously, the go-to-market could be another opportunity maybe where I don't know, maybe geographical expansion. But just any flavor about the types of deals that you could look to do? And then, b, is there a size limit to an acquisition that you would do?

Well, we're really in an exploratory mode right now. But I would say, with our differentiated technology, one of the things I mentioned on this call is having more of an end-to-end workflow, helping it be easier for our customers to get up and running on our platform. So that's an important area for us to focus other adjacent markets, other adjacent technologies. In terms of the long term, our view -- what we'd like to become for PacBio, given our sustainable technology advantage is how do we leverage that to become an advanced biology solutions provider into the market. And what that looks like and how we grow into that, it's all -- we're in the early stages of discussion today.

Great. Well, with that, I think we're out of time, Susan. Thanks for bearing with me popping around. You had the question list a little bit, but that was a great discussion, and I really appreciate you and the management team for coming to the conference. Hopefully, it's a good one. And thanks for everyone on the line.

Thank you very much.

Okay. Take care.