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All right. Thank you very much for joining us today. My name is Mike Piddle. I lead Morgan Stanley's U.S. Life Science Tools and Diagnostics coverage in the Healthcare Investment Banking Group. It's my pleasure to introduce Mark Van Owen, Chief Executive Officer of Pacific Biosciences. So, Mark, welcome. Thanks, Mike. Thanks for having me today. Absolutely. And so, congratulations again on stepping into the new CEO role. So as you gotten settled into the company, from your vantage point, where do you see kind of the clearest opportunities, you know, to enhance the company's strategy or execution? Yeah, well, fortunately, I've been here for a little over five years. And, you know, Christian and I work hand in hand on really defining where we can build out the portfolio and the strategy for PacBio. So, you know, this is not me making a wholesale change on the strategy. It really is what you asked about is the execution. And so, you know, I think really making sure that we're really focused on driving into some of these clinical markets where our technology is differentiated, and that's really around germline genomics right now. So think about carrier screening, newborn screening, rare disease. So how do we better execute there? And, you know, a piece of this is just bringing the commercial organization together to properly drive and go after those markets and seize the momentum that we are starting to see both in Europe and now starting in the rest of the world. And so to me, it's very execution-focused change, more so than a big strategic shift for the organization. And what should your customers or investors expect to be different? Obviously, execution is a big part of this. But if you think about your two or three biggest priorities for the next 12 to 18 months, what are those and you know what kind of evidence should investors look for um uh that you know you're driving you know that execution the way that that you hope to yeah so first we did just go through some restructuring and reduce some cash burn and so you know look for me to land the restructurings for the organization and you'll settle the rest of the commercial and r&d groups back down that have been impacted and so that's top of mind for me is making sure that we're fully focused on on moving forward from the rest structuring and you guys should look for the cash savings next year. We're talking about a $40 million savings between headcount and non-recurring expenses. And so you should be looking for me over the next year to make sure that we deliver those savings on the operating expenses. From an overall product perspective, we just started shipping our Spark Next reagents. And for those of you that don't follow us closely, these are reagents that let us reuse the chip up to three times. Andso this multi-use chip really gives us the economics to think about how we can drive gross margin and drive some price elasticity in the market by lowering the price. And so this Spark Next transition that started in May is really important for us to execute on this year so that we exit 2026, you know, with consumable growth, margin growth, setting ourselves up on Revio for 2027. The other big product, obviously, to execute On over the next 18 months is the high throughput platform. You know, Spark Next is giving us the economics to have conversations for large deals that we haven't been involved with in the past and now people do on higher throughput platform and so you know continuing to make sure that we're focused and you know this piece of the company was was not impacted through the restructuring but focused on driving that high throughput platform through through development to execute on later on next year and you Know maybe just uh you know looking ahead maybe you know three to five years longer term you know type of time horizon anything else um that you'd like investors to understand about you know the broader vision for for pac bio and um how you see pac bio within the broader genomics uh ecosystem that you know i think as we all know is an ever changing environment yeah it's um it's been fun for life science tools companies the last two years, haven't it? I'm joking. It's been tough. And I think because of that, we're starting to see some new opportunities emerge that aren't the traditional funding sources for us. And the first is PacBio has been built in the most part from plant, animal, non-human, and some more recently growing human academic research. I think we're here to catch and support that as much as we can. And we will, because those are important customers and markets for us. But this drive into clinical is just critically important. And I think we have an opportunity in the longer term, you know, three to five years with higher throughput technologies, with even more affordable pricing per genome, to really cement ourselves in the rare disease clinical diagnostics. And, I say that because, you now, in the Rare Disease Odyssey, it's a bunch of different technologies that are used that we can consolidate onto our test. And so, being able to change the economics of the labs that can consolidate tests, to be able to change the academics of health systems that are deploying those tests and drive up the clinical evidence and clinical utility of combining those is a real opportunity and publications are coming out regularly now to show the increased diagnostic yield and benefits of using HiFi as frontline. And so if I think about three to five years, it's making HiFi a frontline genetic test using whole genome sequencing not just a reflex or not just a subset, but a frontline test for rare disease diagnostics. I also see a big opportunity emerging. And you're seeing it in the tools companies in our space as well. There's this intersection of AI and healthcare. And it's data hungry. It's data. The comprehensiveness of our data is meaningful for them. And so I do think over the next three to five years, you'll see us get funding from more of these AI therapeutic companies and non-traditional customers. And so I think of this as a new category of customers to start to drive the understanding of multimodal data into different models of biology and healthcare and therapeutics and diagnostics. And so, I think that will likely replace academic and government in many ways as a real opportunity for us given the quality of the data that we have. And, you know, you mentioned Spark Next and the role out there. what are you kind of hearing from your early customers and how should investors kind of understand what successful adoption might look like? Yeah, so the early data has been really encouraging with the Sparknext rollout. Again, it's only been end of May we started shipping, so it's только been a few months of getting really meaningful feedback. But the customers are experiencing really good first and second runs, a little bit less yield in the third runs, And so a lot of it is just working through the workflow and the timing and how that will play out in the customer's hands. And, you know, our team is fully equipped to have those conversations. And I think the customers are understanding that dynamic a little bit better now. But what they do love is the economics. And so this, you Know, we've been able to lower our list price by 30%. You know, that is driving new conversations. That is driving New Projects for us and higher-scale projects. It's leading to some fleet expansion in cases where now they're getting enough interest that they need to add some revios to their fleet. And so it is doing what we'd expect it to do, both with current customers and then driving new projects and growth. I think for investors, you should really look at how long does this transition take. You saw an impact in the second quarter. Our utilization and the average, not the utilization, but the pull-through per instrument per year came down closer to $200,000. in the second quarter, you should expect that to continue through this quarter. But by the end of this year, I do think this is a two-quarter transition. And by the End of this Year, we should be getting the revenues from the consumable product line back up again and start to drive that annual pull-through back up. Again, setting ourselves up for 2027. The other thing you should start to look for is this is the first product that's going to help us start to increase the gross margin for the company again more meaningfully. And so we have the margin that as we drive adoption and drive utilization of this, you're going to start to see us recover some of the gross margin that we had to hit on last quarter. Got it. And, you know, any particular barriers that you want investors to be just aware of as you go through the earlier phases of this new adoption? No, I don't think it's a barrier to me. The slowness has just been getting people to put testing into clinical production. And so it's not a barrier. It's more of just getting through that process. You know, just like we have a product development process for making and commercializing our products, you know, these labs have a commercialization process of taking the testing that are validated in R&D, you know transfer that to their production or manufacturing sites and training their commercial teams. And so to me, it's just, you know let's pay attention to the process of getting this going at scale with the Sparknext and the clinic. But they're on board, they're validating, they'RE working with us, and now I just think we can do a better job of supporting them as a customer segment overall. And, you know, as you look across the different clinical applications, what do you think is most likely to become, you Know, the most meaningful, you Now, beachhead, you Know, for HiFi? Or how do you kNw about that? So it's germline genomics initially, And it depends on where in the world you are. You know, right now we're seeing great growth and success with whole genome sequencing in Europe. And the revio and the sample volumes in the academic and medical centers in Europe are of the thousands of samples, not of the tens or hundreds of thousands of examples. And so we're, we're seen great success with rare disease, whole genome sequencing in Europe, and I expect that to continue and expand across different hospitals within the countries that are supporting that as a frontline test. And I think the nuance here is Europe has already started to transition this to frontline, not reflex, not a subset, but let's make this a frontline test for these different rare disease conditions. And, you know, when I talk about transitioning that success in Europe to the rest of the world, it's about getting it to frontline. You know, the fragmented U.S. system and the centralized testing in the U.K. does not afford itself to the same ways of thinking about deploying this as it is in Europe. And so in the U.S., I think the earlier clinical test adoption will likely be carrier screening. You know, we've already seen Quest launch ataxia panels. I expect, you know, others to launch, you Know, ataxial carrier screening panels, more targeted panels in advance of going fully into the whole genome sequencing for rare or undiagnosed disease. And I only say that because of the volumes. You know? We can do hundreds of thousands of samples on Revio for targeted approaches. We can't yet do hundreds of thousands of samples well on Revio for whole genome sequencing in the U.S. And so it's getting them started. And so the activity in the US is let's get them started on subsets or reflex testing so that they're scaled and ready. Because I do think, you know, longer term, the higher throughput platform in economics will give us a real opportunity to drive into whole genome sequencing here in the USA and Asian markets as well. Maybe just shifting gears for a moment, if you think about the U.S. academic or government research funding markets, based on where we are today, recognizing there's been a massive amount of volatility here over the last couple of years, how would you characterize the funding environment today from your vantage point? Yeah, it's been a tough few years. Even before this administration, it was hard with the NIH funding for us as grants got smaller and more decentralized and supported the smaller researchers. And so I think we had challenges even before this demonstration, but it's continued. And it's the uncertainty. It's the uncertainly of the timing of the funding. It'sthe uncertainty of the next round of funding. It's middle of September. I was hoping there might be a flush. I haven't seen a budget flush. I don't know if others in our industry are yet, but I haven't seen, you know, traditionally we would never count on it or never bake it into our forecast, but love the upside of a budget flush. I'm not seeing that this September either. And so I think it's just the uncertainty. And so we're not expecting any major changes in the U.S. NIH academic environment for us, which is why you're seeing us focus on different sources of funding, biopharma, philanthropy, you know different types of clinical opportunities. I think the U.S. business was relatively flat because we're growing the clinical business to offset the NIH shortfalls, but it's the reason why we're not growing. Now, that being said, we are absolutely poised to take full advantage of that if the money starts flowing again. And, I mean, are there particular areas where you're seeing, you know, any resilient demand, or how do you think about, you Know, more in the kind of near-term or medium-term, if the funding environment remains more uncertain, you Now, does that change how you think about, You know, different priorities within the company? Well, that's part of why the new focus on better supporting the clinical markets. And when I say that, we have really good workflows for academics right now, but we kind of stop, right? So we've invested in all of the DNA prep and the library prep and the automation around that. So we're invested to feed the revios. We've invested it in computational biology tools to get to variant calls across a number of different pipelines. Great for the academics or the really sophisticated clinical labs. We haven't really invested in the end of the workflow through interpretation and clinical reporting. And so thinking about how we partner into that becomes really important and driving the recurring revenue then from those clinical customers in a more decentralized way. So I think we're going to be able to rely on more routine sample volumes and more routine revenue in the clinic in general as one. We're also seeing renewed interest from biopharma and not just for access to data, but larger data sets for enrichment of their data sets, you know, for their own target discovery work. And so I do think biopharma is a really important other segment for us to spend some resources and time on it. Outside of just clinical, you known, preclinical trial recruitment, I think it is, it is still, you know, discovery work for biopharm through enrichment with HIFI. Got it. And, you know, with the recent restructuring, obviously, we've talked a little bit about, you know, the focus now on clinical. Any other changes in kind of the product roadmap or your capital allocation priorities or anything else that, you know, you think is important for investors to understand? I think we've done the hard work. You know, it's, you know, we've had to go through three restructurings in three years. And, you know, that we thought was going to help us get the piece of oncology that long reads can't really go after very well. And so we've done a lot of the hard works from a capital deployment and are very focused on Menlo Park. I would say we've started insourcing all of our Vega manufacturing. And so we look for me to even better utilize the space we have in Menlo park and better absorb that manufacturing footprint. So think of it as just optimizing and further enhancing the capital deployment there. You know, the biggest expense right now is the R&D program around the high throughput platform and that's not going to change we're we're committed to getting that out and that's that's the priority and so i so to me it's stopping all the distractions of other things and really focusing on that i don't want to add a bunch of new stuff to the development pipeline i want us to be successful in launching creating and launching our complete portfolio of of the three different uh hi-fi sequencing technologies got it anything else within the r&d pipeline that still remains a focus, or is it pretty well-focused, as you mentioned? Yeah, we have some updates to the Kinect's RNA. We have some smaller updates to some improved automation around library prep. But I see a lot of these efforts now, whether it's in front of the sequencer or in the back end, because we are still making big investments in the data and the use of the data in the backend, I see those still as extensions of our high-throughput. You know, you can't launch a high-throughput platform in the market and not fully enable people to access and utilize that data. And so when I talk about the R&D programs run high-thruput, it is end-to-end. I don't want you to confuse that for just making another sequencing box. It really does encompass the utility of the data on the back end. And that includes things like building a software stack and partnering to a software rack. I think of it as precision health intelligence. Other people will call it an AI platform. To me, it's creating the accessibility of the data for customers that are generating it or other people that just want to access the data as a product. And so how do we productize our software in a better way so that people can come and through data exchange get access to what we have and better leverage the information that we're generating? That's maybe a helpful topic to just double-click on. What are you seeing today? How should investors think about, or even customers, think about your capabilities there on the software side? What does that look like a year or two from now? Yeah, we've made big investments in all of the secondary analysis pipelines. And so looking at phasing and structural variations and copy number and all the unique stuff that hasn't really been built out, paralogs I could go on, methylation, there's all these different things that our data encompasses that hasn't been built out because it's not really a native short read set of information. And so we've built and created the pipelines for that, and now we've done a lot to really integrate those and streamline those so that they're more useful. We've also started incorporating those into some of the interfaces that our partners have, and a good example of this is what we call HiFi Solves. And so this is a federated network of hospital systems around the world that can run their HiFi data, that can share their HiFI data, and now they can actually run the secondary analysis and some new tertiary analysis pipelines within that federated network. They can query it to look for low frequencies. And so we're starting to build up the sovereign data infrastructure and the federated Network for people to go and learn from other labs that are generating the data. And so I think the way we have to build the infrastructure and the software and make it more seamless for people to access is a really important part of this next phase of PacBio. And, you know, maybe at a higher level, how do you want investors to think about, you know, what has to go right for PacBio to kind of re-accelerate growth, you know, well into next year and beyond? And I guess what are some of the indicators that you're paying attention to that'll be good kind of evidence that you'RE getting the traction that, you know, you've set out to execute on? Yeah, I'll start with Spark Next because it's the most immediate. We need a successful transition to Spark Next through 2027 to start to drive the gross margin above the 40% threshold that we're under right now. And so we need, and you should be watching Spark Next and the gross-margin inflection that can come from that. It's also a really important stepping stone. A lot of the deals and multisystems we're doing around Spark Next right now, multi-system Revio deals, are customers that fully have the demand for the high throughput. And we've figured out how to price these deals to get them ready and scaled for the high throughput when we launch it later next year. And so I do think watching the utilization of Revios over the course of 2027 in setup for higher throughput is an important part because that's going to mean a more seamless transition in the community for embracing higher throughput technologies with us because Not many labs have ever run 10,000 genomes in a year, and so they have to prepare for that. And so I think SPARCnext is a really important first indicator. The second to me is the clinical growth, especially around consumables. If you take out the lumpiness of when they add infrastructure or don't from reviews, I would look at the clinical consumable growth as a real indicator of getting into that routine testing. You talked about the recurring revenue, the routine testing, you know, that to me is how do we keep growing our clinical consumables 50 plus percent over the course of the next couple of years. And then the third thing I'll say is, you know the real growth starts to happen from the high throughput platform. You know, high throughput technologies and sequencing is where the majority of the revenues are made. It's where the maturity of the margin comes from. And so for us to really inflect both revenue and margin as a company it's making sure we execute on the high through put platform next year. build a pipeline of sales for that, execute on getting it out there, and then drive the utilization. Because in my mind, that's what sets up 2028 with the gross margin and the higher utilization of a high throughput technology to get cash flow break even. You mentioned AI being something of an emerging theme. How should investors think about the relative value of kind of long read sequencing versus short read and the type of data that you all generate and why that could be so valuable in this ecosystem. Yeah, I've been really excited by some of the learnings of the first deal we've done in and around this AI world of healthcare. And that was with the Basecamp Research Group in England. And for those of you who don't know, they're building a foundation model of biology based on a trillion gene atlas of genes found in soil samples. And so these are metagenomic samples, bacteria, the diversity of the of the genes and biology there they believe is going to help them build a better model for looking at antibiotics and vaccines and other and other therapeutics. And so, you know, we we started a deal with them where they're now, you Know, sending us the soil samples and the DNA from the soil examples around the world to see because of hi fi to help improve their model. And the early indicators are just really encouraging that higher quality data is what they've been looking for, and I expect this to continue. And so Basecamp has been a real example of a large deal for PacBio to get involved in using its data to build a model of biology for therapeutics and therapeutic development. And so I expect us to have more of those over time. And the differentiator to me is the comprehensiveness and the quality of the data. if you're going to go and build these models let's enrich and use the most comprehensive genome or transcriptome and I don't think this will just be genomics we're having conversations around using connects and transcriptomics for this as well and build the most comprehensive model that we can and that's future proof because you're going to want to go back to those samples and that data set over time and retrain and re-look at your model and you know we have the most complete genome which I think gives us a really good opportunity to make this a meaningful part of our business over time. Now, that being said, I'm not putting any of this in our base case model. And so when we talk about gross margin and we talk about times to cash flow break-even, that is outside of anything that I think would be a unique category and a new category of customers here for us. Right. Maybe just to round it out, what's one thing that you think is maybe most underappreciated or most misunderstood about PacBio? I think the biggest breakthrough internally I think that we recognize it but I don't think externally people realize how big a breakthrough being able to use our smart cell more than once was. It is the majority of the cost of our sequencing and it's what's held us back from being able to be economical at large scale programs because we were throwing away this really expensive chip every time we sequenced and so being able to amortize that over two or three or over time four or five uses of sequencing really starts to change the way we think about not just the price that we can do to the market but the gross margin as a company and and so for the first time i'm staring at a product line that will have the gross origin that will actually make us a sustainable company and and one of the biggest questions i had you know in advance of even joining pack by i'll forget about, you know, this recent transition, but even joint buy was, do they have a technology that will give them the gross margin to be successful? And so I don't think people appreciate how big a breakthrough that multi-use of the smart cell was to really start to inflect the revenue through elasticity of pricing and inflectthe company through the gross margin it affords us. All right. Thank you very much for joining us. It's been a pleasure to have you here. Great. Thanks, Mike.