Pacific Biosciences of California, Inc. (PACB) Q1 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Pacific Biosciences of California First Quarter 2016 Earnings Call. [Operator Instructions] As a reminder, this conference call 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 Pacific Biosciences First Quarter 2016 Conference Call. Earlier today, we issued a press release outlining the financial results we'll 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 functioned -- as furnished on Form 10-K available on the Securities and Exchange Commission website at www.sec.gov. With me today are Mike Hunkapiller, our Chief Executive Officer; Susan Barnes, our Chief Financial Officer; and Ben Gong, our Vice President of Finance and Treasurer. Before we begin, I'd like to remind you that on today's call, we'll be making forward-looking statements, including plans and expectations relating to our financial projections, products and other future events. You should not place undue reliance on forward-looking statements because they're 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 form -- report on Form 10-K. 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'd 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 first quarter results and our continued progress in driving growth in our business. Highlights of our Q1 financial results are as follows: We received orders for 30 Sequel systems and 3 RS II systems during the first quarter. The Sequel system orders came from a broad range of customers and were well distributed across the U.S., Europe and Asia. About half of the new systems ordered represent new PacBio customer sites. We shipped 18 Sequel instruments during the first quarter compared with 10 instruments shipped during Q4. Total revenue for the first quarter was $19.1 million, up 8% from Q1 2015. We are on target with the revenue forecast for this year. With a significant and growing backlog, we are well positioned to deliver sequential revenue growth throughout the year. Consumable revenue for the first quarter was $4.6 million, up 8% from Q1 2015. System utilization among RS II users has remained steady. Instrument revenue for the first quarter was $7.8 million, up 11% compared with Q1 2015. We installed a mixture of both RS II and Sequel instruments this past quarter. Going forward, we expect almost all of our new installs to be Sequel systems. Our gross margin improved from approximately 34% during Q1 last year, up to 50% this year -- this quarter. This largely reflects the higher margin we generate from selling Sequel systems compared to RS II systems. We are pleased to see that we are tracking toward profitability with improved product margins. Now I'd like to provide an update on our recent Sequel product launch. Demand for the new product continues to be robust. We are pleased with the flow of instrument orders coming in, and the pipeline for new orders is very strong. We are seeing a good mix of new and existing customers interested in acquiring Sequel systems. Beginning with our initial announcement of the Sequel system, we have said that we planned a controlled ramp-up of instrument system shipments as we deal with the usual issues arising during a complex new product introduction. We've also pointed out that when we're working with a limited supply of the Sequel SMRT Cells until we transition from our low-volume prototype production supplier to our long-term, high-volume supplier scheduled for this summer. While we have ramped up Sequel shipments modestly during Q1, compared to the previous quarter, we have held to our original controlled release plan, limiting both instruments and SMRT Cell shipments. Many of the customers in our backlog would like to get their systems installed earlier, and those with install units would prefer a less restricted supply of SMRT Cells, but in general they're understanding of the process we are employing. In summary, the Sequel product launch is moving along as we have planned. We have a major software upgrade release scheduled for mid-to late May, and we are on schedule for the summer SMRT Cell supplier transition. The first half of this year is a transition period as we've said before, and we believe we are on track to substantially step up the rate of Sequel instrument and consumable shipments in the second half of the year. Now turning to some other recent highlights. We were very pleased with the turn out and interest level of customers at the AGBT Conference in February in Florida. More than 40 talks and posters at the conference showcased PacBio sequencing data. We cohosted a workshop with Roche that was attended by over 500 people at the conference. The theme of the workshop was revealing the unknowns in medical research with long-read SMRT sequencing. Speakers from Stanford University; UC, San Diego; Uppsala University and the School of Medicine at Mount Sinai, all presented on how they are using PacBio data to further their research toward improving human health. In the hospitality suites, PacBio had a Sequel demonstration system on display, and Roche had a demo unit, the Sequel-based sequencer of theirs, expected to launch later this year. The plenary sessions were capped off by a presentation by our CSO, Jonas Korlach, who presented early data generated for Sequel system, demonstrating the power of the platform to produce similar long-read lengths and high accuracy achieved to PacBio RS II while generating significantly more data. On the publications front, we have seen a couple of high-profile papers published in recent issues of Science & Nature that highlight the value of PacBio SMRT sequencing. The Nature article entitled DNA methylation on N(6)-adenine in mammalian embryonic stem cells with lead authors from the Yale School of Medicine, describes how this research group used SMRT sequencing to identify the sites of N6-methyladenine from these cells. Numerous studies employing SMRT sequencing have shown that in bacteria, this epigenetic modification is important, both in regulation of gene expression, resistance to phage infection, and changes in bacterial virulence. Until recently, it had not been widely believed to be important in higher organisms. Last year, 3 studies confirmed its existence in an insect, nematode and green algae genome respectively, with hints that it was involved in gene activation in the species. The most definitive of these studies employed SMRT sequencing. The confirmation in this new Nature paper, this methylation pattern also appears in mammalian stem cells and appears to promote gene silencing, they have significant implications in the fields of epigenetics, stem cell research and developmental biology. The second publication I'll highlight, entitled Long-read sequence assembly of the gorilla genome, made the cover of the April 1 issue of Science Magazine. Scientists from the University of Washington, McDonnell Genome Institute at Washington University in St. Louis and other institutions use SMRT sequencing to generate a very high-quality assembly of the gorilla genome. An important reference that the gorilla is one of our closest relatives. Previous assemblies of the gorilla genome, created with the combination of short-read and Sanger sequencing still contained over 400,000 gaps with large stretches of missing sequence. The team was able to reduce the fragmentation by over 96% using PacBio long reads and PacBio software tools that have been designed for the assembly of large complex genomes. They also look the structural variation between gorilla and human genomes, finding that 86% of the INDELs and inversion variance detected with PacBio had never been seen before. Such dramatic results from this study led the authors to conclude, "the genome assembly that results from using the long-read data provides a more complete picture of gene content, structural variation and repeat biology, improving population genetic and evolutionary inferences. Long-read sequencing now makes it practical for individual laboratories to generate high-quality reference genomes for complex mammalian genomes." To conclude my opening remarks with a brief update on our Roche relationship. In addition to coordinating marketing activities with us at AGBT, Roche continues to develop assays in preparation for their Sequel-based product launch scheduled for later this year. Meanwhile, we are working on enhancing our manufacturing and service processes to meet the requirements of the Roche launch. That concludes my initial remarks. I'll turn it over to Susan to provide more details on our financial results.

Thank you, Mike, and good afternoon, everyone. I will begin my remarks today with a financial overview of our first quarter that ended March 31 2016. I will then provide details on our operating results for the quarter with a comparison to the same period last year. I will conclude my remarks with a brief discussion of our balance sheet. Starting with our first quarter 2016 financial highlights. During the first quarter, we recognized revenue of $19.1 million and incurred a net loss of $19.4 million. Q1 revenue of $19.1 million was up $1.5 million from $17.6 million recognized in Q1 of 2015. Instrument revenue in the quarter was up $800,000 from last year with $7.8 million recognized in Q1 2016 compared with $7 million recognized in Q1 of 2015. As Mike mentioned, most of the instrument revenue recognized in the first quarter stem from Sequel installations, and going forward, we expect almost all of our new installations to be Sequel systems. Consumable revenue remains steady and increased to $4.6 million in Q1, up from $4.3 million reported in the first quarter of 2015. Service and other revenue increased 15% to $3.1 million in the quarter compared to $2.7 million in Q1 of 2015. Contractual revenue recognized in the quarter was $3.6 million consistent with last year. Moving to gross profit and margin, we generated a gross profit of $9.5 million in Q1 2016, representing a gross margin of 50%. This was up from $5.9 million of gross profit and 34% gross margin recognized in Q1 of 2015. The increase in margin year-over-year was primarily a result of the introduction of the higher-margin Sequel instrument revenue into the product mix. Moving to operating expenses. Operating expenses in the first quarter of 2016 totaled $28.1 million, an increase of $2.8 million from the $25.3 million incurred in Q1 of 2015. $1.1 million of the $2.8 million increase is due to increased noncash stock-based compensation expense. Further breaking down our operating expenses, R&D expenses in the quarter were $16.4 million, $1.9 million higher than the $14.5 million of R&D expenses incurred in Q1 of 2015. Year-over-year increase in Q1 R&D expenses was largely due to higher compensation expenses in 2016. This expense increase resulted from a growth in R&D headcount required to continue the product development and enhancement of the Sequel product line. R&D expenses this quarter included $1.9 million of noncash stock-based compensation expense, a $600,000 increase over Q1 of 2015. Sales, general and administrative expenses for the quarter were up $900,000 from a year ago. In Q1 2016, we incurred $11.7 million of expenses compared to $10.8 million in Q1 of 2015. SG&A expense increase in Q1 2016 was also largely a result of year-over-year increase in compensation-related expenses, including noncash stock-based compensation expense. The increase in compensation was driven by a growth in the number of sales, marketing, field and office staff required to successfully support the growth of Sequel product. SG&A expense in the quarter include the $2.2 million of noncash stock-based compensation, up $500,000 from the $1.7 million recognized in Q1 of 2015. In the area of other income and expense, in Q1, we reported $800,000 of net interest and other expense. This is primarily related to interest on the debt we took on in Q1 of 2013. Ben will provide further guidance on our ongoing expense rates later in the call. Now turning to our balance sheet, in Q1, our cash investments increased by $9.2 million to a balance of $91.5 million from $82.3 million at 2015 year-end. The increase was primarily a result of $26.5 million of proceeds from our ATM in the quarter, and offset by our net loss in the quarter of $19.4 million. This quarter, accounts receivable increased $2.7 million to $8 million, up from $5.3 million at the end of 2015. This increase reflects higher product revenues in Q1 compared to Q4 and timing of collection. In Q1 of 2016, inventory balances increased $1.2 million to $22.2 million -- just I'm sorry, it's $12.2 million from $11 million at the end of 2015. This concludes my remarks on the financial results for the quarter, and I'd like to turn the call over to Ben.

Thank you, Susan. I'll be providing updated forecast on our 2016 financial performance. First of all, as Mike mentioned earlier, we booked orders for 30 Sequel systems this past quarter. As a reminder, we do not provide a forecast for future instrument bookings. We reported our actual instrument bookings for Q1 because this differs materially from our instrument installs and revenues. Our plans to continue reporting bookings numbers during this transition period, therefore, we expect to also report our Q2 instrument bookings next quarter. Now moving on to revenue, our Q1 revenues are a little above our previous forecast, and therefore, we continue to expect our total revenue for the year to be at least $93 million. Excluding Roche contractual revenue, this represents at least a 70% increase in product and service revenue year-over-year. Looking at the near term, we expect Q2 revenue to grow sequentially over Q1. As a reminder, we do not have milestone revenue to recognize this year so quarterly comparisons of revenue from last year will vary. As an example, in Q2 last year, we reported a total of about $25 million of revenue, out of which $10 million represented milestone revenue. For Q2 this year, we expect our product and service revenue to increase significantly year-over-year. However, that growth will not likely make up for the $10 million decrease in milestone revenue. Therefore, we expect our total Q2 revenue to be less than the $25 million we reported for Q2 last year. As a side note, the quarterly amortization for gross contractual revenue in Q2 should remain the same as Q1 at roughly $30.6 million. Moving on to gross margin, we were pleased to see the improvement in gross margin, up to 50% this past quarter, which was largely driven by the change from RS II instrument shipments in Q1 last year to primarily Sequel instrument shipments in Q1 this year. We expect to see a similar gross margin in the near term. However, as a reminder, the $3.6 million in quarterly contractual revenue was just about go away after Q3 this year. And since this is recorded at 100% gross margin, our overall gross margin percentage will likely decrease in Q4 this year. For the year, we expect our average gross margin percent to be in the high 40%, which is up from our previous forecast of the low 40s. A further note on quarterly comparisons, as I just mentioned earlier, in Q2 last year, we reported $10 million of milestone revenue at 100% gross margin, which brought our total gross margin up to 58% for that quarter. We do not expect our gross margin to be as high in Q2 this year. Our operating expense in Q1 increased by 11% compared with Q1 of last year, but as Susan mentioned earlier, a large portion of the increase stem from increased noncash stock-compensation expense. We expect to continue to report stock-compensation expense at this higher level throughout the year. Taking this into account, we expect our total operating expense to grow by roughly 10% for the year. This comparison excludes the onetime $23 million gain we recognized in Q3 last year associated with the amendment of our property leases. We now estimate our combined noncash stock-compensation expense and depreciation expense to be between $5 million and $6 million per quarter this year. Regarding interest expense, we continue to expect to record approximately $3 million for the year. To sum up our forecast update, we expect to record a net loss of approximately $73 million for the year, which includes over $20 million of noncash expense. And with that, we'll open the call to your questions.

[Operator Instructions] Our first question comes from the line of Amanda Murphy with William Blair.

So I had a question on the software side of -- that the commentary that you made. So you had talked about making iterations at early access customers and obviously, the upgrade coming in May. So I was just curious what can maybe summarize the sort of issues that have come up or kind of what you're kind of working on now? And then also just kind of give us a sense of how customers are thinking about the May upgrade. Do you think in other words, people might be waiting for that to come out before ordering the platform?

Well, I don't think that people who are not yet customers know about the software release we have planned in May. So I don't think that, that's an issue. We've had a series of sort of interim minor bug fixes and things over the last 2, 3 months since we started doing installs. This is the first major one, where we've got a -- the continuing bug fix type software changes, but it's mostly ones that had to do with increasing performance and adding support for some of the applications that weren't initially supported with the first software release. So it's tailored along with some minor chemistry changes as well. So it's the first big change that we will have had in the software since we went out there.

Got it. Okay and then. Yes, I guess, I would ask, I mean, maybe just a broader question then. So obviously, given guidance and commentary around revenue throughout the year, but from our perspective, and maybe it's too early to answer this, but how do you think about the trajectory of bookings over time? So within our group -- beginnings of the launch, you have Roche coming online in the back half of the year. So we think about acceleration over a period of time or how do we think about that relative to what you have put up in the past couple of quarters?

I'll take a first shot at that one. We're not trying to give a forecast from the Sequel orders, but the revenue forecast is at least as strong as what we were giving from before. So a combination of our Q1 performance and the order flow and the pipeline that we have, gives us the confidence that at least seeing that same sort of revenue growth. Hope that helps.

And we did comment back we think we have a pretty strong pipeline of potential new orders, and we're seeing continued, very strong interest in the technology. So that's why we were able to kind of reaffirm what we thought we would do for the year from a revenue perspective. And as stated, a little bit by how fast we can ramp-up things, but we feel that we're pretty much on track with what we initially planned for that. So as long as the SMRT Cell shipments, supplies come in, we'll be in pretty good shape.

And sometimes, we hesitate on quarter-to-quarter fluctuations on orders because they are cut up along the way. So if you over interpret that number, it could be in status loss.

We're very pleased with where we came in, in the quarter. And the other way to look at it is we have now have 79 bookings in 2 quarters, first 2 quarters introduction. That represents half of what we sold for the RS over a 5-plus year period.

Okay, cool. And then I just had a quick one on applications that you're seeing or maybe, and it is hard to answer. But you did -- I think you said that half the orders were for non-PacBio customers? Is that correct?

That's right. So just to give you an indication of, let's say, orders from new sites versus existing sites.

Right, did you talk about the customer base in terms of human versus plant and animal recognizing that, obviously not every center is dedicated to human, but I think there's a decent amount of consternation out there around human and platforms that might be leveraged given the existing technologies. So it would be -- I think it might be helpful to kind of talk about what you're seeing from an adoption perspective in terms of you are ordering the platform.

There may be a slight increase as we saw in the first quarter, the Sequel introduction, in terms of a tilt towards the human side as we had seen, even with the RS last year. But it's really, as we try to kind of mention briefly, pretty much across the board in terms of the application space between the microbial world, the plant and animal world and the human space. We're seeing pretty good uptake in all of those areas and all the geographies.

Our next question comes from the line of Joe Munda with First Analysis.

I just wanted to touch a little bit on geographies there. I just wanted to get a sense of the demand you're seeing. I know competitors have been talking about a little bit of softness in Europe. I was hoping to get a little bit of color there from you guys and seeing as far as breakout of geographies and demand, any help there would be great.

Well, I assume you're specifically talking about Europe.

Yes, I am specifically talking about Europe.

Actually we had a very good quarter in Europe, both in Q1 as well as in Q4 on Sequel Systems. So we've not seen that issue arising.

And then the pipeline looks strong for Europe as well.

Okay, that's definitely helpful. As far as Roche goes, I know you a touched a little bit here. You gave us a little bit color on AGBT. I was just wondering, last quarter you gave us some idea of how many systems went to Roche. Is there any chance to give us some sort of color there as far as this quarter is concerned?

We shipped an additional few instruments to Roche at this point, as I think we tried to highlight, most of those shipments were -- all the shipments to them so far have been for their internal development efforts on assays and the beginning of their training program for some of their field people. We don't expect the substantial ramp-up until they get closer to their product introduction.

So very similar to the handful you shipped in last quarter.

Pretty close.

Okay. And then my final question on the transition of the headquarters, how, in your mind, how is that going as far as on schedule, on point? Any color would be great.

Yes, it's going along just fine. So over the next year, we expect to be transitioning to that new location. But we have overlapped in terms of our leases here. So it will be a pretty orderly move from this location to the next location which is a quarter mile away.

Our next question comes from the line of Bryan Brokmeier with Cantor Fitzgerald.

Are you producing SMRT Cells in line with your expectations?

Yes, but we expect it to be very constrained in the first part of the year.

Great. Is there any variability in the rate of production of the SMRT Cells at the current manufacturer. Do you have any ability to ramp a little bit over the next quarter?

While there would be -- they will ramp a little bit as we sort of compress some of the development efforts that we've had going on there, to coalesce to the sort of final design. But they have long term limited supply capabilities to us, but they are predominately an R&D development house. They will do low level manufacturing, but they won't devote a substantial portion of their fab capacity to one supply effort. Which is why we said early part of summer of last year, we've been working with one of their partners to convert over to a high volume fab that would be dedicated to us. While we expected that, we just knew that we were going to be limited by them.

And those -- the 30 orders, that's really strong, were they all research platforms?

Other than the, well, if you can cap them once. The few that we ship to Roche as -- or we got orders from Roche, as research because that's what they're using them for, yes.

Okay, and if customers place orders today, are they still able to receive them in 2016? Are you now starting to work on 2017 placements?

More than likely if you're placing it today, we'll still be able to deliver in 2016.

And then just lastly, was there a shift of some overhead costs to R&D from cost of goods, which also positively impacted the gross margin?

No.

I think you meant the opposite, you meant whether a shift of overhead into operating expense, which will make gross margin.

[indiscernible] into R&D.

The answer is no.

Our next question comes from the line of Bill Quirk with Piper Jaffray.

Quick question, I'm just trying to foot the model here between shipments and installs, because obviously, we had more shipments last quarter than we had installed recognized revenue. Did we have a little bit of that phenomena going on for this quarter as well?

Yes.

Okay, got it. And then in terms of Roche's development plans, can you help share with us a little bit kind of what the menu development looks like so that we can obviously better have a handle on what that trajectory might look like?

Well, the answer is no. As we said before, we're leaving it up to Roche to make announcements when they decide to as to what their panels are going to be initially, and what their longer term plans are as well. So it's not up to us to reveal their plans. It's up to them. In a sense of what they are, but it's just -- it's their business, so we have to be careful about that.

Okay, Mike, maybe asking the question in another way. At what point would you anticipate that we get a bigger update on that so that, obviously, the Roche analysts and also us can have a better handle on what their side of the trajectory might look like.

Again that's a question you -- that's better addressed to Roche. They gave some hint of what some of their plans were back at AGBT, but they have a large organization to go through in order to go through their validation process for diagnostic market as well as training their people. And they don't want to get too far ahead until they're ready to do that in great detail, even just so they don't confuse their own sales affiliates. So I would prefer that you address that question to them.

[Operator Instructions] Our next question comes from the line of Tycho Peterson with JPMorgan.

Mike, can you maybe just touch on what the funding environment is like for projects that include long reads? In the other words, is it easier to get grants through -- in the past couple of months if project includes a long-read component?

We're talking about in the academic world? Or...

Yes, yes, and [indiscernible]. Are you seeing a shift towards more long-read projects?

Well, I think yes, in a sense that we're seeing more activity in the academic sector in the U.S. than we had for a while Whether those are all in [indiscernible] grants or other kinds of grants, I'm not quite so up on the details, but I think for the last year, we certainly have seen a bigger interest in understanding the importance of structural variation in particular, and how much of the genome in certain areas is just completely missed in the short-read technologies, all the short-read technologies. And even in SGRI had a specific grant proposal mid-last year that was directed towards really improved genome assemblies for references using longer read technologies. But I think in general, it's mostly not so much because NIH is driving it as because the scientists who are applying for money are realizing how much more they can learn using long reads and getting really good quality sequences. And I think the gorilla publication in Science is a really good indication of that value. And the genome had been looked at a lot over a 10-year plus period, and when you realize how much was missed despite the various generations of medium and short-term read approaches that were applied to it, it certainly helps in that regard of bringing it that issue to a wider audience.

Okay, and then wondering if maybe you can touch on the competitive landscape to the degree in which how often you're doing head-to-head with 10x. And maybe just talk a little bit about your own path to bring down the sample input requirement with RainDance collaboration. That still seems to be something your customers are looking forward to.

Well, occasionally people will raise questions about 10x or molecule levels which kind of dropped off the charts or a similar kind of length or synthetic reason or whatever you call them. I don't think this point has been a major issue in more than handful, or tiny handful of sales situations. Not dissimilar from -- you still get the occasional question from a customer about how we compare to the nanopore-based technologies, but I don't think at this point, either of them is a major competitive issue for us. I'm not saying that stays that way forever, but that's kind of the history that we've had over the last 6 months.

Okay, and then in terms of reducing sample input requirements with RainDance, can you maybe just touch on the time line there?

Well, the issue isn't so much reducing the sample input requirements with RainDance. It's being able to do -- I would just correct at least maybe the wrong word, but more efficiently how you take advantage of being able to look at really long pieces of DNA, but not breaking them down in the end to 200 base pair of sequence reads, but breaking them down into 5 to 10 kb base sequence reads to really not lose your ability to get at structural variation information. And so it's not fundamentally different from the 10x approach or the micro [ph] approach or the old complete genomics approach. It just doesn't get stuck with the issues of PCR bias and the impact of doing 200 base pair sequence reads. It's not geared per se to using less material. It may require less material in the start, but that's not been the primary goal for the project.

Okay. And then lastly, one of the things you talked about at AGBT was the Sweden pathway to sequencing effort. And is it fair to assume that most of these [indiscernible] efforts that are going to come forward will have a long-read component to it?

Well, that would be our plan, it's up to the customers decide what they're going to do. But we've done a pretty decent job of piggybacking on even with the RS, on a lot of those big population studies, where we're going to do, obviously more than certainly an RS would do in the number of samples and even more than a handful of Sequel systems at this point could do. But that said, they all recognize that they need far better, definitive reference genomes within their population subgroups to make sense out of a larger base of data that they generate. And we try to participate in all of those programs.

And we have a follow up from the line of Joe Munda with First Analysis.

Just really two quick questions, Mike. There's been a lot of noise coming out of Genia had published proof of principle study. Any thoughts there, they were talking about serving the clinical market? And how does that, I guess, how does that relationship with Roche, how does that coalesce with what you guys are doing with them? And then my second question for Ben, on the last conference call, you talked about $60 million in funding for the year. Is that $60 million in addition to what you just did at the ATM or $60 million for the full year?

Well, the Genia paper is a proof of principle. I will point out that the first proof of principle paper describing SMRT sequencing came out around 2001, I believe. It takes a long time to go from proof of principle to a commercial product. So I wouldn't expect that system to be ready to be released shortly. What's Roche's long-term interest in that, should they get it to a commercializable perspective again you best address to them. They seem fully committed to the launch of our system. If you read that paper somewhat closely, they're dealing with all the kind of problems that we were fighting 10 years ago and then some. And in many respects, the data that showed in that paper are worse than the ones we were fighting, relaying but much worse. And so the read lengths are very, very short. Their problem was a stutter in the -- where the enzyme treats these compounds is really, really striking. But what they're doing internally, we had no direct window in. We can only go by what they've shown publicly, both in this paper and some of the presentations at meetings. But I think they made it clear in the paper it was a very early proof of principle approach. There's a lots of proof of principles on the nanopore technology from a host of groups that's come out over the last 30 years, and that's still being a struggle by Oxford and other companies to turn into a full-blown commercial entity. So there's just a lot of technical issues with that technology. And they're likely to suffer from all those as everybody else has. So we'll see.

And Joe, just to follow up on that, I think part of your question was, how does that relate with our partnership with Roche and we said this in the past that our agreement with Roche is such they have exclusive rights to distribute our products so long as does they do not commercialize the competitive sequencing technology for clinical diagnostics. And so whether it's Genia or any other sequencing technology, that would compete, then if Roche chooses to commercialize that and they would lose exclusivity with us.

In the last one, and just I think Ben was trying to give a broad brush guidance on cash burned, not cash raised. So just wanted to be a little careful about the only way in order to -- if you are talking about raising $60 million, we would then be talking about having somewhere near that kind of number that we ended last year, with still in the bank at the end of the year. So we will -- we're very prudent with our capital raises and try to do it when we need to, but not be cavalier about diluting shareholders. So we just -- we'll approach that market very carefully.

Yes, if it helps clarify at all, Joe. That the context was that we ended the year with $82 million in cash and we said that we estimate that operations would consume roughly $60 million in cash during the course of the year. And so in order to not end up with that little of a cash balance, our intention was to raise additional capital during the course of the year. You fast forward and see that we in fact did raise capital in the first quarter to the tune of about $26.5 million.

And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Hunkapiller for closing remarks.

Thank you. 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 the SMRT sequencing provides the industry's most complete and accurate picture of genome due to a superior performance in sequencing accuracy, uniformity of coverage, extremely long-read lengths and ability to characterize DNA-based modifications. Furthermore, by providing scientists with an ability to obtain a comprehensive set of sequence information with a single experiment, SMRT sequencing is often the lowest cost and only research tool available to meet their needs. We are very excited about our new Sequel system and the opportunity it presents for us to deliver SMRT sequencing to a much broader set of customers. Thank you for joining us, and we look forward to talking again in 3 months time.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.