Harnessing Genomics with PacBio

Speaker 1:
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Dan Brennan:
Christian, it's great to be sitting here with you. I remember meeting you the first time back in Illumina's headquarters when I was working on initiation back in I think 2011. You've been in the life science genomics space now for over 20 years. What interested you in science and genomics growing up?
Christian Henry:
Well, I think the first thing, first of all, Dan, this is great. It's so fun to spend a few minutes together. But when you think about why people get involved in life sciences, I think it's really the curiosity of understanding how we can improve our situation, how we can improve healthcare. And for me in particular, my undergrad was in biochemistry and cell biology, and I realized I didn't want to sit at a bench, lab bench, but I really wanted to be in this space, because it was one of the few spaces that you could transform all of humanity. And so that's how I started on the journey. And I ended up in genomics because it was really the frontier at the time. The human genome was being sequenced and the possibilities of trying to unravel the mysteries of DNA really kind of sparked that curiosity and has quite frankly kept me passionate about it even to today, 20 gosh, 25, 30 years later.
Dan Brennan:
So you started with Affy I think back in like 1999. That was near the peak of the internet bubble. I was living through it when mapping the human genome I think was expected to cure all disease. What was it like working in Affy and having a front row seat to that boom and bust period for genomics?
Christian Henry:
Affymetrix was amazing, and I'll tell you why. It was the perfect marriage between high-tech and life sciences. The technology was, hey, we can use photolithography to print oligonucleotides on a substrate that allows us to look at thousands of gene expression markers. I mean, as a kid, you're like, oh my God, we've got photolithography, we've got biology and you've got incredible characters like Steve Fodor, the founder of the company, thinking about this bright future. I remember in the interview, he actually brings me into his office and gets on this whiteboard in an animated way, is mapping out how the technology works and why photolithography is going to solve every problem because it's going to enable scaled science.
And then you had Sue Siegel, who was really one of my mentors and really gave me so much opportunity way beyond my years. And then you had guys in commercial like Greg Fergus who really took me under his wing and showed me how to be professional with customers. And so in a finance function, which is what I was in at the time, I got all of this exposure and it was just so incredibly exciting, 1999, 2000. 2001, it got a little tough, but it was really interesting.
Dan Brennan:
So then after Affy, I think you joined Illumina, maybe around '05. I looked back and the stock was around $5 then. And then you're there for I think over 10 years. You leave in, I think early 2017. The stock's at 125, so it's, I think, whatever, like a 2025 bagger. What made Illumina so successful during that period?
Christian Henry:
I think probably a couple of fundamental things. The first was the management team that Jay built. He was able to get a team built around him that interacted so well strategically, that was operationally focused, focused on the details and focused on the process. Yesterday at the conference here, Jay talked about how the processes and the things that he put in place really were the drivers of the success of the company. And I completely agree, but it started with the team he built and then a maniacal focus on execution, a maniacal focus on creating great products.
One of our core values was we create great products and that really mattered a lot, and we were never afraid to make our own products obsolete. If you look at the history of Illumina, we had generation after generation where investors would be saying, "Gosh, you're going to obsolete your market." The Celexa acquisition was a perfect example. In late 2006 when we acquired Celexa, our array business was taking off and our stock, our market cap had gone up a lot. We were really beating up on Affymetrix at the time, and yet we said, "We believe the future is in next generation sequencing."
So I think what was great about it was the ability to think about build a great team, and with that great team leverage their gifts to be maniacally focused on strategy, on cashflow. Jay used to brag to me, "I ran my previous company with $5 million of cash in the bank for years." And so that focus on the discipline of being cashflow positive and spending the money like it's your own, really, all of that contributed to this. It was remarkable. And then the company is still a juggernaut today, right?
Dan Brennan:
For sure. So then I think subsequent to that, I think you joined the PacBio board in 2018 and then a few years after that you get promoted to CEO. So what drew you to PacBio?
Christian Henry:
I think the biggest thing that drew me to PacBio was the technology fundamentally helped scientists answer new questions. Short read sequencing has been transformational in how we think about biology, how we think about medicine, how we think about diagnostics. It really has, but it only tells part of the story. And when you start to really think about the world becoming multiomic, which is something when I joined the company, really when I put on my glasses said, "The future is multiomic. The future is a more comprehensive genome," and I fundamentally believed PacBio had the technical capability to achieve that, and also the ability to achieve that with a gross margin, a fundamental gross margin that would create value for shareholders. And so that's really what propelled me to say, look, the company needed a new strategy, needed to really build the culture, and from that, we embarked on this. And it's been highs and lows for sure, but I wouldn't have traded it.
Dan Brennan:
So maybe building on that, I was there when PacBio came public. I was working at a bank when the IPO happened. There was a lot of promise, obviously. And like you said, there were highs and lows. Always promise, but the scalability just wasn't there. They were trying to scale, trying to scale. What are some of the key strategy changes you made? I mean, talk a little bit more about what it was like when you got there and what are some of the key decisions that you made to really propel the company to move forward?
Christian Henry:
Yeah. When I got to the company, the company's focus was, "We create incredible technology and if we create this incredible technology, customers will flock to us at the most fundamental level," and so we didn't really need big marketing or go-to-market strategies because our technology would speak for itself. The company was also very academically focused, focused on the nuance of one genetic change that you couldn't see with other technologies. And really it was almost like an academic institute, the pursuit of this science.
And so when I came in, I said, "Okay, what we need to do is we have great technology, but what we need to do is first create end-to-end solutions." At the time when I joined the company, I think it took roughly 15 micrograms of DNA to sequence one genome. You can't build a business with that. When I joined the company, there was no automation, there was no vision for multiple platforms sitting in the portfolio so you could reach different kinds of customers, and there was certainly no informatics vision. And so the first thing I did is I came in and I said, "Look, we need to be focused on the end-end solution."
And so we made a couple of really important acquisitions at the beginning, thinking about, for example, when we did Circulomics and acquired the nanobind technology to allow us to lower DNA input, that wasn't a big acquisition, but it was profoundly important to kind of thinking about, how do you make this technology accessible? Well, you need to be able to see all the samples. For example, we came in and said, "We need to have a product portfolio that has both high throughput as well as low throughput," because the low throughput part of the market or the desktop market that we launched with Vega this year is really critical to expanding the use of hi-fi sequencing, which drives the data type into the consciousness of the scientific community, as well as creates all these new applications which then get put into high throughput.
And so we embarked upon a strategy to go from end-to-sample sample to answer with a multitude of platforms. And with that strategy coupled with rebranding, driving a new emphasis on building a commercial infrastructure, we were able to raise substantial amounts of money, and with that money we were able to grow. And although 2024 wasn't a hallmark year by any stretch, if you look at where the company was, we were doing $75 million in revenue and now we're more than double that, I think the strategy is working and the promise is actually just at the beginning.
Dan Brennan:
So Wall Street sees results every quarter. We see when new products are launched, we see the numbers, but we typically don't see or probably appreciate the human side of things, like the culture aspect and what role that plays in the company's performance. So speak a little bit about the type of culture you sought to build when you got to PacBio. Was this a lot different than what was there previously?
Christian Henry:
Yeah, I think the culture, part of any successful enterprise, the culture is the glue that really does make the enterprise successful. It goes beyond the technology. It goes beyond the CEO or the COO or any individual. And the culture before I came to the company was very academic and science-driven, which was needed because the technology is so complex. However, when I got there, we needed to create a culture of curiosity, of really being mission-driven, driving to a specific mission so that we can galvanize a growing employee base on a global basis, because this is a global market, and as you build the company, trying to create an integrated culture in different time zones with different ways of working and thinking, you have to have kind of a central rally cry or mission.
And so when I came in, the first thing we did was, as I hired a few of the key management folks, is we crafted a new mission. We crafted a set of values that we said, "This is how we are going to describe how we work together and how we make decisions." And the other thing I started with is this whole notion of decentralizing decision-making so that you can move fast. And the way you do that is you start with crafting a mission, a north star, and then you have a very detailed strategic plan. The company didn't really have a strategic plan when I got to the company, so now I can pull up a written strategic plan and say, "Is this is what we're going to do and when? What does it mean?", revenue and profits and all that kind of thing.
And that plan is well-communicated, and then the third part of the triangle is your values. And so if an employee is at the center and they understand where we're going, they understand our strategies, you want to empower them to make decisions based on the values, and we've done that and that allows us to, I believe, move faster, be much more customer-centric, and move towards our mission.
Dan Brennan:
So I want to touch upon the technology again because you've made some tremendous headroom there and how you've been able to do it. But let me just jump on some big picture stuff first. So the Human Genome Project I think was back in around 2000, right? Took three years, I think it was like $3 billion. How would you rate the progress the US has made since leveraging the knowledge of the genome towards creating better drugs, discovering diseases early, things like that? Has it been fast or slower? How would you rate us?
Christian Henry:
I think there's no question it's ultimately been slower than I think any of us expected, and same with me. I mean, I thought that we would be much further along in that diagnostic odyssey, in the transformation of leveraging the genome for healthcare outcomes. But I think that the reason behind that is that we were so naive. We thought the four letters of the genome told us the whole story. And what we've learned is that far from it. First it was the four letters and then it was how the letters are inserted and deleted, and then it was structural variation, and now we're moving into paradigms of thinking about not only do you need to understand the four letters in a composite sort of way, the three billion base pairs, you need to understand the mother's contribution and the father's contribution, and now we're just really starting to push and we see a tremendous opportunity in understanding how the genes are actually regulated, how the DNA is regulated, so the epigenetic signatures.
And so it's been slower than we've expected because quite frankly, we only uncovered the first puzzle piece, and now we're uncovering all these other puzzle pieces and you're seeing the pace continue to accelerate. And with advanced information technologies like AI, I think you're going to see it further accelerate. And so I actually think today, what, less than 10% of the genome is used in healthcare. I actually think over the next couple of decades, you're going to see a much greater percentage. The reason for that and the reason why I joined PacBio is that we have will have much more comprehensive views of millions of genomes, and that will push us and we will continue to get better at understanding the phenotypic ontology so that we can marry what's marry the genetics with the actual disease or the actual characteristic or the trait we're measuring. And so yeah, it's frustrating, but it also keeps us fully employed.
Dan Brennan:
Totally. So obviously touching upon the state of funding right now is a challenge, to say the least. I'm just wondering how you feel about the US position to remain the leader in science with this funding headwind. China's trying to pull ahead. Should we be concerned? Do you think US is going to remain the leader as we look ahead for the next 10, 20 years?
Christian Henry:
Yeah. I mean, I don't have a crystal ball of course, but I do think the US is creating some real structural problems for itself with respect to science funding. Let's face it, post-World War II, one of the hallmarks of US strength has been our ability to fund science and all the advancements, and that's particularly true in the biological sciences. And as we kind of sit here in 2025 with a push away from that with respect to funding in particular and with respect to how we're managing academic institutions and the sources of where the work really gets done, whether that's HB1 visa programs or quite frankly the 15% reduction in university overhead, managing all those challenges really puts us on our back foot.
And countries like China are advancing at incredibly fast rates and they have incredibly large capability in terms of the ability to drive innovation in the tools, but also to drive samples and the appetite to do the research that needs to be done. So I think over the next 20 years, unless we really think carefully and make the right steps moving forward, we do run a significant risk of getting not just behind, but dare I say so far behind that it would be difficult to catch up. And I do think that's a national security challenge that we're going to face actually.
Dan Brennan:
Interesting. Well, let's shift back to PacBio then. I know you've been excited over the last year or two about the role that technology can play, a bigger role, if you will, in powering large POP-seq studies and certainly making more significant inroads in the clinical. Why is this so and do you think the pieces are in place for more meaningful traction to occur in these areas?
Christian Henry:
Yeah, I think what's happening is that, I mean, the first thing, the reason why PacBio is at this inflection point is because we've now been able to create technology that gets us very close to price parity with other technologies, short-read sequencing, for example, number one. Two, we have also developed and driven innovation to really take ultimate advantage of the semiconductor industry such that you get incredible scaling benefits as we advance to next generations of chips, and those next generations of products are deep in development. You can see the end zone, so to speak. And what that really does is it enables the technology to be operated at the scale required for really truly getting genomics, whether that's population scale or quite frankly clinical scale because these large diagnostic companies, the way they're successful is by operating at scale.
You combine that with the fact that we can provide a much more comprehensive answer for the same price, it gives us a unique opportunity in areas of the market that I think are important. And while I'll step back there for a minute, if you look at the genomics market today, about three and a half billion dollars, or you can pick your number, is really focused on somatic and cancer and about $3.1 billion is focused on germline genetics. And I think as price parity gets closer and closer, as scale becomes equivalent, customers will have the opportunity to pick the best technology for their particular area of focus. And I would argue that long-read sequencing will give you perhaps the most comprehensive view of the genome in germline-driven exploration, and that gives PacBio a unique opportunity to significantly penetrate a multi-multi-billion-dollar market, which relative to today, we're one or 2% penetrated. The opportunity to get to 40, 50% penetration, say, over the next five years is a pretty compelling opportunity for the company.
Dan Brennan:
That would be awesome. Maybe shifting over to AI, to say it's accelerating in society is kind of a crazy understatement. The volumes, the usage is staggering on ChatGPT. I think I use it like 20 times a day, seriously, yeah. So what role is AI playing at PacBio today? And you think it's going to be a big tailwind to PacBio in the genomics industry, or are there hurdles that it could pose?
Christian Henry:
I think there's two things that we are doing specifically today. The first is maybe perhaps the simpler, more, how do you make your operations more efficient, more effective? And we are broadly utilizing AI and LLMs to drive our marketing efforts. We're starting to work on supply chain, managing supply chain through AI. And I mean, in 2025, if you're a public company and you're not working on this, you're falling way behind. And so that's one area.
But on the more exciting side is how do we productize AI? We perhaps have one of the most unique data types in the entire life science tools industry where we have the level of comprehensiveness of the genome that no one else does, quite frankly. We have the most accurate genome, the most complete genomes, more accurate than even our other [inaudible 00:22:42] competitor. But the fact of the matter is we are now getting to a point where we can scale the data sets to create the training models that truly create a business opportunity for the company.
And when I look at the future of PacBio, PacBio is a data company. It's not a cool sequencing company anymore. We will morph over the next five to 10 years into being truly a data company because the data we have is so unique and it can answer questions that no one else can, and so we're working on strategies and partnerships to kind of really leverage that. We're at the very beginning stages, but I do think in the long run it will create moats and competitive advantages.
One thing people do say sometimes is that as the better the models get, the less data is actually required to generate new. I don't believe that. And it's not just because I'm the CEO of PacBio and I get paid for generating data. It's because if you look at the last 30 years of genomics and biology in general, it's always been a scaling challenge and it's always been answering the next question and data will be required to integrate new ideas in biology. And so I don't think that that's going to change over the next couple of decades. Maybe one day when we have a compendium of all of the information all integrated, but that sounds a little Star Trek for me. I think we're a long, long, long way from that.
Dan Brennan:
So we're coming closely at the end of the podcast. I'll ask kind of a generic question, but one that... You've touched upon a lot of these, but I'm interested kind of what you would pick if we think about the next five, 10 years. You've thrown out a lot of interesting growth trends and opportunities for PacBio, so whether PacBio or the industry in general, what is that that really excites you most?
Christian Henry:
Well, I think what excites me most is the integration of multiple omics technologies, and that can be everything from what we think about today, proteomics and single cell sequencing, but also the integration of imaging data, coupling that and creating those models that allow us to try to understand the biology. We finally are making enough progress on the electronic health medical record side where the EMRs are now powerful enough, I'm sure you dial up and you see your test results in realtime now. That's a major leap forward. The genetics is right behind that.
That paves the way for what we've been talking about for 20 years, every baby born being sequenced. And why does that matter? Think about this. Every baby born being sequenced gives us a record at birth simply for the epigenetic status and gives us the ability to start to understand the mysteries of aging over time, for example, starts to help us understand predispositions for disease over time. We have to have the bins to store that information. We have to have the tools to extract that information, and we have to have the tools to interpret that information. All of those things are now finally coming into place and we're at a scale and a cost profile where it starts to become feasible.
What I think the challenge will still be is the regulatory hurdles, the privacy hurdles, things we have been talking about, but it's becoming within our power. And PacBio, for example, we are in significant pilots, tens of thousands of sample pilots to look at newborn screening. That's super exciting to me, understanding that, having that at birth. And it's something we talked about at Illumina starting in 2010 probably. And I do think that's an area that's really intriguing to me.
The other area, of course, is early cancer detection is pretty mind-blowing when you think about it. And we will improve those tests over time to be able to say with a good level of precision, "This is what you have, this is where it is," and we can have some sort of intervention. I mean, that's transformative too. So there's so many exciting things. We just can't lose sight of that as an industry. We are making the changes. The economic and world environment over the last 24 months has been nothing short of probably the most challenging environment certainly in my career, but the progress we are making gets me fired up. It really does.
Dan Brennan:
That's awesome. Well, Christian, this has been amazing speech, or conversation, excuse me. And even though the environment doesn't feel good, I think the future is still really bright. So thanks for being here and thanks for sharing all your insights about PacBio, your background and what you vision for the future is.
Christian Henry:
Yeah, Dan, thanks for the opportunity. It was a lot of fun. And I look forward for us continuing on.
Dan Brennan:
Totally. Thank you.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.