2023 ANNUAL REPORT
Fellow Stockholders,
Reflecting on the milestones achieved in 2023 and the opportunities in 2024 and beyond, I’d like to share some thoughts
on our progress, challenges, and strategic direction for the coming year.
Positioned for Long-Term, Sustainable Growth
In 2023, we achieved record revenues surpassing $200 million and 56% top-line growth, driven by the successful launch
of Revio, our revolutionary long-read sequencer. With Revio, customers were empowered to break the $1,000 long-read
genome barrier and make significant progress in transforming how researchers analyze the genome. We shipped 173
Revio systems during the year, a significant milestone that underscores the interest and impact of our platforms and the
value of our differentiated technologies in providing deeper insights into biology. Nearly 40% of our Revio system orders in
2023 were from new customers, further demonstrating Revio’s ability to take market share from existing sequencing
technologies.
We also began shipping Onso, our short-read sequencer, which has set new standards for accuracy and performance in
the industry. With the successful launch of these two platforms, we can now address a multibillion-dollar short-read
sequencing market. As we enter 2024, we’re focused on continuing to drive the adoption of both the Revio and Onso
platforms and are encouraged by the significant traction we have seen with large-scale projects thus far.
We ended the year with over $631 million in cash and investments, a testament to our robust financial position and ability
to fund future growth initiatives. Additionally, we exchanged $441 million of our Convertible Senior Notes due 2028 for
Convertible Senior Notes due 2030, further improving our capital structure.
Customers Love Our Technology and Continue to Move Toward Long-Read Sequencing
Revio has enabled customers to scale with PacBio and long reads like never before. Earlier this year, we shared that
Revio will be used for large-scale programs like the Estonia Biobank initiative to sequence 10,000 whole human genomes
using Revio exclusively and The GREGoR Consortium’s project to sequence thousands of samples for rare disease
research and by customers such as Children’s Mercy Kansas City and Bioscientia who intend to use long reads as first-
line analysis in rare disease cases and replace multiple genetic tests with one HiFi whole genome.
Today, we believe the sequencing market represents an opportunity of over $7 billion and growing and that PacBio long-
read sequencing, which provides a different level of insight than other available genomic technologies, will enable us to
secure a large share of the available market opportunity. As we continue to grow and enhance our short-read technology,
including Onso and our in-development high-throughput sequencer, we believe PacBio is positioned to meet demand
across all segments of the sequencing market.
Refocusing Efforts to Address Macro Challenges
Although we successfully executed our goals for 2023, we have not been immune to the persistent macroeconomic
challenges that have impacted our entire industry. Preliminary results for the first quarter of 2024 came in below
expectations.
While these results and expectations are lower than our initial projections, we remain optimistic about PacBio's long-term
growth potential. Notably, approximately 57% of Revio placements in the quarter were from new customers, and
continued adoption in large-scale, multi-thousand sample projects signaled ongoing interest in our platform despite near-
term headwinds. PacBio has some of the world's most advanced sequencing technology, and we are confident in our
ability to unlock new insights into the genome that will benefit human health and scientific discovery.
With our revised growth expectations, we are centering around four key strategic priorities:
Improving commercial execution to drive adoption of both the Revio and Onso platforms.
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2. Continuing the development of our benchtop long-read and high throughput short-read platforms.
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4. Reducing certain annualized run-rate operating expenses.
Implementing projects to improve our gross margin and drive manufacturing efficiencies.
Looking Ahead
Our performance in 2023 and our ability to capture the opportunities ahead are based on our differentiated sequencing
technologies and our people. We are grateful for the hard work and dedication of the PacBio team, who continue to
innovate and develop new products and technologies that provide scientists and researchers with even greater insights to
better understand biology and health. Together, we are realizing our mission to enable the promise of genomics to better
human health.
Thank you for your continued support and trust in PacBio. I look forward to updating you on our progress over the course
of the year.
Sincerely,
Christian Henry
This letter contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of
historical fact are forward-looking statements, including our expectations for future operating results, revenue and
guidance; our cost-saving plans and initiatives as well as the expected financial impact and timing of these plans and
initiatives; and our potential market opportunity and total addressable market. You should not place undue reliance on
forward-looking statements because they are subject to assumptions, risks, and uncertainties that could cause actual
outcomes and results to differ materially from currently anticipated results. These risks include, but are not limited to,
challenges inherent in developing, manufacturing, launching, marketing and selling new products, and achieving
anticipated new sales; potential cancellation of existing instrument orders; assumptions, risks and uncertainties related to
the ability to attract new customers and retain and grow sales from existing customers; risks related to lengthening sales
cycles; risks related to PacBio’s ability to successfully execute and realize the benefits of acquisitions; the estimated size
and estimated growth for the markets for PacBio’s products may be smaller than expected; the impact of U.S. export
restrictions on the shipment of PacBio products to certain countries; rapidly changing technologies and extensive
competition in genomic sequencing; unanticipated increases in costs or expenses; interruptions or delays in the supply of
components or materials for, or manufacturing of, PacBio products and products under development; potential product
performance and quality issues and potential delays in development and commercialization timelines; the possible loss of
key employees, customers, or suppliers; customers and prospective customers curtailing or suspending activities using
PacBio’s products; third-party claims alleging infringement of patents and proprietary rights or seeking to invalidate
PacBio’s patents or proprietary rights; risks associated with international operations; and other risks associated with
general macroeconomic conditions and geopolitical instability. Additional factors that could materially affect actual
results can be found in PacBio’s most recent filings with the Securities and Exchange Commission, including PacBio’s most
recent reports on Forms 8-K, 10-K, and 10-Q, and include those listed under the caption "Risk Factors." These forward-
looking statements are based on current expectations and speak only as of the date hereof; except as required by law, we
disclaim any obligation to revise or update these forward-looking statements to reflect events or circumstances in the
future, even if new information becomes available.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
Form 10-K
________________________________________________________________________________
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2023
Or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 001-34899
________________________________________________________________________________
Pacific Biosciences of California, Inc.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
1305 O’Brien Drive
Menlo Park, CA 94025
(Address of principal executive offices)
16-1590339
(I.R.S. Employer
Identification No.)
94025
(Zip Code)
(Registrant’s telephone number, including area code)
(650) 521-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
PACB
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No
x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes x No o
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
x
o
Accelerated filer
Smaller reporting company
Emerging growth company
o
o
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report. Yes x No o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Aggregate market value of registrant’s common stock held by non-affiliates of the registrant on June 30, 2023, based upon the
closing price of Common Stock on such date as reported by NASDAQ Global Select Market, was approximately $3,323,701,933. Shares
of voting stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This
assumption regarding affiliate status is not necessarily a conclusive determination for other purposes.
Number of shares outstanding of the registrant’s common stock as of January 31, 2024: 267,951,880
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement relating to its 2024 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on Form 10-K where indicated. Such Proxy Statement will be filed with the U.S. Securities
and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
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Pacific Biosciences of California, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2023
Table of Contents
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections titled “Business,” “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” contain or may contain forward-
looking statements that are based on the beliefs and assumptions of the management of Pacific Biosciences of
California, Inc. (the “Company,” “we,” “us,” or “our”) and on information currently available to our management.
The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and include, but are not limited to:
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the availability, uses, accuracy, sensitivity, advantages, compatibility, pricing, specifications, quality, or
performance of, or benefits or expected benefits or using, our products or technologies, including the
RevioTM and OnsoTM systems;
our current and future products;
our strategic and commercial plans, including our expectations for Revio and Onso systems;
our market opportunity, including market size and expected market growth;
our expectations regarding the conversion of backlog to revenue and the pricing and gross margin for
products;
our manufacturing plans including developing and scaling of manufacturing and delivery of our
products;
our research and development plans;
the anticipated impact of catastrophic events, including health epidemics or pandemics and military or
other armed conflicts, on our business, business plans and results of operations;
our product development plans, roadmaps, and objectives, including, among other things, statements
relating to future uses, quality, or performance of, or benefits of using, products or technologies,
updates, or improvements of our products;
our intentions regarding seeking regulatory approval for our products;
our competitive landscape, including competition in the short- and long-read sequencing technologies
markets;
our expectations regarding collaborations and partnerships;
our expectations regarding unrecognized income tax benefits;
our expectations regarding market risk, including interest rate changes and general macroeconomic
conditions;
the sufficiency of cash, cash equivalents, and investments to fund projected operating requirements;
the effects of recent accounting pronouncements on our financial statements; and
other future events.
Forward-looking statements can be identified by words such as: “anticipates,” “believes,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or
similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be
materially different from any future results, performance, or achievements expressed or implied by the forward-
looking statements.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed under
the heading “Risk Factors” in this report and in other documents we file with the Securities and Exchange
Commission (SEC). Given these risks and uncertainties, you should not place undue reliance on forward-looking
statements. Also, forward-looking statements represent management’s beliefs and assumptions as of the date
of this report. Except as required by law, we assume no obligation to update forward-looking statements
publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-
looking statements, even if new information becomes available in the future.
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This Annual Report on Form 10-K also contains estimates, projections, and other information concerning our
industry, our business, and the markets for our products, including data regarding the estimated size and
estimated growth for those markets. Information that is based on estimates, forecasts, projections, market
research, or similar methodologies is inherently subject to uncertainties and actual events or circumstances
may differ materially from events and circumstances reflected in this information. Unless otherwise expressly
stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and
similar data prepared by market research firms and other third parties, industry, medical and general
publications, government data, and similar sources.
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ITEM 1. BUSINESS
Overview
PART I
We are a premier life science technology company that is designing, developing, and manufacturing advanced
sequencing solutions that enable scientists and clinical researchers to improve their understanding of the
genome and ultimately, resolve genetically complex problems.
Our products and technology under development stem from two highly differentiated core technologies focused
on accuracy, quality, and completeness, which include our HiFi long-read sequencing technology and our
Sequencing by Binding (SBB®) short-read sequencing technology. Our products address solutions across a
broad set of applications including human genetics, plant and animal sciences, infectious disease and
microbiology, oncology, and other emerging applications. Long-read sequencing was recognized by the journal
Nature Methods as its “method of the year” for 2022 for its contributions to biological understanding and future
potential.
Our focus is on creating some of the world`s most advanced sequencing systems to provide our customers the
most complete and accurate view of genomes, transcriptomes, and epigenomes.
Our customers include academic and governmental research institutions, commercial testing and service
laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research
organizations (CROs), pharmaceutical companies, and agricultural companies.
Recent Developments
In 2023, we commercially released two new sequencing platforms, RevioTM and OnsoTM.
Revio is a new long-read sequencing system designed to enable the use of HiFi sequencing for large studies in
human genetics, cancer research, and agricultural genomics. Commercial shipments for Revio commenced in
the first quarter of 2023, and 173 systems have since been shipped to more than twenty countries as of
December 31, 2023. We released SMRT Link 13.0 software on the Revio system which includes the adaptive
loading feature for consistent run performance, run preview for improved lab efficiency, and expanded
application support with functionality to sequence shorter and longer fragments of DNA.
Onso, a short-read DNA sequencing system, is designed to deliver industry-leading sensitivity and specificity for
novel insights in oncology, disease research, and other applications. We commenced customer shipments of
Onso in the third quarter of 2023.
In August 2023, we acquired Apton Biosystems to accelerate the development of a high-throughput platform
based on the SBB chemistry utilized by Onso. Through acquiring Apton, we obtained expertise in state-of-the-art
optics and image processing and a novel clustering method and chemistry designed to enable the sequencing
of billions of clusters of DNA on one flow cell.
We also develop products used to prepare molecules for sequencing on our platforms. In the fourth quarter of
2023, we commenced commercial shipments for a new KinnexTM line of products used to concatenate small
molecules into larger fragments to optimize the output on HiFi sequencing systems like Revio. The Kinnex
products are designed for various applications in RNA and amplicon sequencing. As of December 31, 2023, we
received orders from over 70 customers.
Our Mission and Impact
Our mission is to enable the promise of genomics to better human health. Genomics is core to all biological
processes, and our advanced genomics tools provide scientists and clinical researchers with the insights to
better understand biology and health. The “promise of genomics” postulates that medicine, agriculture, public
health, drug development, and other disciplines will be transformed by incorporating routine genomic
information over the coming decades. We see early progress toward this transformation in the applied use of
genomics in areas such as genetic disease, oncology, and sustainable food production. However, legacy
genomics technologies have fundamental limitations in progressing these fields toward the promise of
genomics. We believe that unleashing the full potential of genomics will require a level of accuracy and
completeness inaccessible to legacy technologies. Accuracy and completeness are central to our product
development strategy; thus, we have created some of the most innovative and high-quality genomics solutions
on the market. Our products also have enhanced multi-omic capabilities to look beyond the genome to the
transcriptome and epigenome, which we believe is key to understanding a full picture of biology.
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The Underlying Science
Genetic inheritance in living organisms is conveyed through a naturally occurring information storage system
known as deoxyribonucleic acid, or DNA. DNA stores information in linear chains of the chemical bases
adenine, cytosine, guanine, and thymine, represented by the symbols A, C, G, and T respectively.
In humans, the genome is comprised of approximately three billion DNA base pairs, which are divided into 23
chromosomes ranging in size from 50 million to 250 million bases. A human carries two copies of the
inherited from each parent. Approximately 23,000 smaller regions within these
chromosomes, one
chromosomes, called genes, contain the blueprints for protein production. The proteins synthesized from these
blueprints essentially underlie the operation of all biological systems.
Genome sequencing reads the bases of long fragments of nucleic acids. Initial genome sequencing studies
have shown that mutations in these DNA base pairs play a critical role in human disease, contributing to the
burgeoning field of genomics. Since then, recent discoveries have highlighted additional complexities of DNA
and RNA. These discoveries include the presence of chemical modifications to the bases, such as methylation,
and post-translational modification, or the processing of RNA molecules after they are transcribed from the
genome, both of which can affect protein synthesis.
Our Principal Markets
Researchers utilize our solutions in human genomics, plant and animal sciences, infectious disease and
microbiology, oncology, and other emerging applications.
Human Genomics: Improving rare disease research and understanding
According to a World Health Organization publication, it is estimated that 400 million people worldwide are
affected by up to 8,000 distinct rare diseases, with 80% of these believed to be genetic in nature. These genetic
diseases are DNA differences, called variants, in the affected individuals. Variants range in size from single
nucleotide substitutions to large losses or gains of entire chromosomes. Other sequencing technologies
applied to rare disease diagnosis are technologically limited to interrogating small variants, representing only a
subset of possible genomic variation. Consequently, most genetic disease cases are undiagnosed, leaving
families on multi-year diagnostic odysseys. Sequencing the human genome with long and accurate reads
enables the potential detection of all known classes of disease-causing variation. In addition, the ability of
PacBio’s long-read sequencing technology to detect 5-Methylcytosine DNA methylation, an epigenetic
modification shown to alter gene behavior, may enable further advances in research and development in
genetic disease diagnosis.
Infectious Disease and Microbiology: Understanding and tracking microbes and pathogens in support of global
public health
Our technology has increased the scientific community’s understanding of microorganisms and viruses and
their malignancy, transmission, and potential resistance to antibiotics or vaccines. Our sequencing technology
delivers highly comprehensive and complete genomes, enabling federal agencies, public health organizations,
and healthcare providers to conduct wide-ranging research and surveillance activities to:
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generate high quality, complete genome assemblies, revealing variants of all known types, to gain a
deeper understanding of community-acquired and hospital-associated infections and transmissions;
identify and characterize pathogens to inform regional, national, and global public health agencies for
preparation and response to rapidly evolving microorganisms; and
characterize complex microbial communities to understand their role in human, animal, and
environmental health.
Oncology: Enable the discoveries of underlying causes of cancer, progression, and relapse
Understanding tumor cells` cellular and molecular complexity is critical in developing more effective targeted
cancer therapies. Single-cell transcriptomics is particularly impactful in defining cellular identity and function;
however, other technologies miss critical information by only sequencing a portion of RNA. Our long-read RNA
sequencing method, single-cell Iso-Seq (scIso-Seq), accurately detects molecular events such as RNA isoforms
and expressed mutations and provides gene expression information at the single-cell level. We believe scIso-
Seq is uniquely positioned to enable discoveries by researchers of the underlying causes of cancer initiation,
progression, and relapse, as well as the discovery by researchers of novel diagnostic, prognostic, and predictive
biomarkers that may inform future clinical tests.
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As novel discoveries continue to be made using our long-read sequencing technology, we believe our SBB short-
read sequencing technology will enable us to meet customers` demands in the expanding non-invasive testing
market in oncology. Due to the small amounts of circulating tumor DNA (ctDNA) present in the blood of early-
stage cancer patients and those with minimal residual disease (MRD), the presence of cancer often goes
undetected, and a more sensitive assay will be required. Based on testing internally and at beta customer sites,
we believe our SBB technology has the potential to offer higher accuracy than competitor sequencing
technologies, which may in the future support our customers’ development of more sensitive tests for the
purpose of earlier detection and more robust monitoring of cancer.
Plant and Animal Sciences: Helping scientists answer biological questions for a healthier world
In Plant and Animal Sciences, academic, government and corporate researchers are using our technology to
explore and catalog the genetic and biological diversity of organisms for the breeding, propagation, and
production of crops and livestock while conserving the planet’s natural resources. PacBio HiFi sequencing
enables researchers to build high quality de novo reference genomes and transcriptomes to study variations
across species enabling improvements to global conservation initiatives and support the breeding and
production of resilient and higher yielding crops to meet the world's growing population and demand.
Our Technology, Products, and Solutions
We have developed HiFi long-read sequencing based on Single-Molecule Real-Time (SMRT) technology, which
accurately detects the nucleotide sequence and epigenetic status of individual DNA molecules. We are also
expanding our genomic solutions with our short-read SBB chemistry, which offers sensitive sequencing for
short-read applications.
Our sales consist of sequencing instruments, nanofluidic chips (SMRT Cells), and reagents for preparing DNA
and performing sequencing based on our SMRT technology; flow cells and reagents for preparing DNA and
performing sequencing based on our SBB technology, reagents for DNA extraction based on our Nanobind
technology; and the services we perform for customers.
HiFi Long-Read Sequencing
Our HiFi long-read sequencing protocol was built upon our SMRT sequencing systems, including consumables
and software, and offers customized end-to-end workflows for different sequencing applications. Highly
accurate, long sequence reads simplify and accelerate data analysis algorithms, reducing the need for error
correction steps and/or assembly aspects, depending on the application.
Customers use our HiFi long-read sequencing platforms in a wide range of sequencing applications, including
whole genome sequencing and de novo genome assembly, long-range phasing, targeted sequencing, full-length
RNA and single-cell sequencing, characterization of metagenomic communities and other mixed DNA samples,
viral genome sequencing, and others. Our technology is also capable of detecting epigenetic markers
simultaneously by analyzing the kinetics of DNA polymerization that is affected, and thereby detectable, by
epigenetic markers such as 5-methylcytosine or N6-methyladenine.
SMRT Technology
Our proprietary SMRT Technology enables the observation of DNA synthesis as it occurs in real-time by
harnessing the natural process of DNA replication, which in nature is a highly efficient and accurate process
actuated by DNA polymerases. DNA polymerases attach to a strand of DNA to be replicated, examine the
individual base at the point it is attached, and then determine which of the four building blocks, or nucleotides
(A, C, G, or T), is required to complement that individual base. After determining which nucleotide is required, the
polymerases incorporate that nucleotide into the growing strand being produced.
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SMRT Sequencing is based on following the activity of DNA polymerase on individual DNA molecules in real
time that occurs on our SMRT Cells that are monitored and analyzed within our HiFi long-read sequencing
systems: the Revio system, Sequel II system, Sequel IIe system, and Sequel system. Carried out on SMRTbell®
templates, which attach hairpin adapters to the ends of double-stranded DNA molecules to be sequenced,
SMRT sequencing allows for the successive sequencing of both the forward and reverse strands of the
individual DNA molecule occurring multiple times, thereby allowing for the same base of the same molecule to
be sequenced more than once in a sequencing run. The base calls from the serial observation of the molecule
can be processed to generate the final base call in an analytical procedure called circular consensus
sequencing, leading to what we have defined as our HiFi sequence reads, which have high accuracy typically
being defined as having greater than 99% read accuracy, but often exceeding greater than 99.9% accuracy,
according to research we performed in collaboration with other researchers, subsequently published in Nature
Biotechnology in 2019. HiFi reads typically are 15-20 kilobases in size, depending on the input fragments,
providing sufficient read length with our accuracy to support a multitude of applications across human health,
plant and animal, and microbiology, according to research we performed in collaboration with other researchers,
subsequently published in Scientific Data in 2020. The ability to generate single-DNA molecule sequence reads
that are both long and highly accurate allows researchers to obtain more contiguous, complete, and accurate
genomic data, thereby allowing for greater insights into the complexity of biological systems.
HiFi Long-Read Sequencing Instruments: Revio system + Sequel systems
Our Revio, Sequel, Sequel II, and Sequel IIe instruments conduct, monitor, and analyze single-molecule
biochemical reactions in real time. The instruments use extremely sensitive imaging systems to collect the light
pulses emitted by fluorescent reagents allowing the observation of biological processes. Computer algorithms
are used to translate the information that is captured by the optics system. Using the recorded information, light
pulses are converted into either an A, C, G, or T base call with associated quality metrics. Once sequencing is
started, the real-time data is delivered to the system’s primary analysis pipeline, which outputs base identity and
quality values.
HiFi Consumables
Customers purchase proprietary consumable products to run their PacBio systems, including our SMRT Cells
and reagent kits. One SMRT Cell is consumed per sequencing reaction, and scientists can choose the number
of SMRT Cells they use per experiment.
We offer several reagent kits, each designed to address a specific step in the core sequencing workflow. A
library preparation kit is used to convert DNA into SMRTbell double-stranded DNA library formats and includes
typical molecular biology reagents, such as ligase, buffers, and exonucleases. Our binding/polymerase kits
include our modified DNA polymerase and are used to bind SMRTbell libraries to the polymerase in preparation
for sequencing. Our core sequencing kits contain reagents required for on-instrument, real-time sequencing,
including phospholinked nucleotides.
We have developed and offered a new line of Kinnex kits with companion SMRT Link software to enable high-
throughput, scalable, cost-effective RNA applications including bulk RNA, single-cell RNA, and 16S rRNA
sequencing. The Kinnex kits are built upon the Multiplexed Array Sequencing (MAS-Seq) method for
concatenating smaller amplicons into larger fragments to sequence on PacBio's long read sequencers,
increasing the molecular yield by up to 16-fold. Throughput increase in these key RNA applications where the
dynamic range of different RNA isoforms (bulk and single-cell) or microbial species (16S) can vary by orders of
magnitude, enables characterization of these complex RNA samples while drastically reducing sequencing
need.
SBB Short-Read Sequencing
In contrast to SMRT sequencing, SBB reads short fragments of DNA (hundreds of bases instead of kilobases) in
a massively parallel manner. Current short-read next generation sequencing technologies available in the
market incur various rates of errors in results. Researchers deploy multiple tactics to try to mitigate these
effects, including oversampling or implementing complex library preparation methods, yet still face challenges,
including missing rare variants.
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We believe our proprietary SBB approach will enable researchers to address the gap in detecting rare variants,
especially in complex heterogenous samples. Employing a two-phase sequencing chemistry, the SBB approach
binds a dye-labeled nucleotide without incorporation into the DNA chain, then removes that base, then blocks
and extends with a terminated nucleotide. Using nucleotides with single modifications, we incorporate more
native bases, avoiding potential scarring due to fluorescent linker presence. This design helps avoid raw errors
and we believe can help us develop a product with substantially greater accuracy than currently marketed short-
read sequencing products. SBB enables simplified upfront library preparation, redefines coverage requirements,
and reduces bioinformatic workload for downstream analysis. The accuracy of our novel sequencing approach
has the potential to advance translational cancer research, drive higher fidelity single-cell applications, and
broadly enable clinical sequencing—even in regions of the genome prone to sequencing errors with other short-
read sequencing technologies.
SBB Short-Read Sequencing Instrument: Onso system
Our Onso instrument conducts, monitors, and analyzes SBB biochemical reactions. The instrument uses
extremely sensitive imaging systems to collect the light emitted by fluorescent reagents allowing the
observation of biological processes. Computer algorithms are used to translate the information that is captured
by the optics system. Using the recorded information, light pulses are converted into either an A, C, G, or T base
call with associated quality metrics. Once sequencing is started, the imaging data is delivered to the system’s
primary analysis pipeline, which outputs base identity and quality values.
SBB Consumables
To complement our Onso instrument, we also sell a range of SBB consumable products including flow cells,
clustering, and sequencing reagent kits. One flow cell and associated sequencing reagent pack is consumed
per sequencing reaction. Each flow cell contains two lanes and scientists can choose to sequence different
samples in each lane while additionally combining any number of flow cells needed per experiment.
We offer several reagent kits, each designed to address a specific step in the core sequencing workflow. A
library preparation kit is used to convert DNA into SBB compatible, double-stranded DNA library formats and
includes typical molecular biology reagents, such as ligase, buffers, and exonucleases. Additionally for library
preparation, our conversion kits include reagents to enable scientists to convert existing sequencing libraries
into an SBB compatible format. Finally, our clustering and sequencing kits contain all reagents required for
generating sequence ready clusters on flow cell and performing SBB sequencing reactions on instrument,
respectively.
Our Strategy for Growth
To enable the promise of genomics, our strategy includes the following key elements:
•
•
•
•
Increase technology adoption by increasing market share via new customer acquisition, continue
Sequel II conversions to Revio, and scale Onso production;
Leverage innovation to complete development of new sequencing platforms and launch on-market
system improvements;
Build upon clinical momentum by expanding HiFi usage in large-scale programs and translational
research projects; and
Drive towards positive cash flow through gross margin expansion, disciplined operating expense
management, and a focus on working capital.
Marketing, Sales, Service, and Support
We market our products through a global sales force and through distribution partners in Asia and Australia,
certain parts of Europe, the Middle East and Africa, and Latin America. We plan to continue to invest in growing
our marketing, sales, service, and support resources as we drive continued adoption of products, launch new
products, and expand our customer base.
Our business is subject to seasonal trends. See the Risk Factors section, specifically the risk factor titled Our
operating results fluctuate from quarter to quarter and year over year, which makes our future results difficult to
predict and could negatively impact the market price of our common stock, for additional information.
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Customers
Our customers include academic and governmental research institutions, commercial testing and service
laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research
organizations (CROs), pharmaceutical companies, and agricultural companies. In general, our customers will
isolate, prepare, and analyze genetic samples using PacBio sequencing systems in their own laboratories, or
they will send their genetic samples to third-party service providers who in turn will sequence the samples with
PacBio systems and provide the sequence data back to the customer for further analysis. For example,
customers in academic research institutions may have bacteria, animal, or human DNA samples isolated from
various sources while agricultural biology companies may have DNA samples isolated from different strains of
rice, corn, or other crops. For the year ended December 31, 2023, no single customer accounted for 10% or more
of our total revenue. For the years ended December 31, 2022, and 2021, one customer accounted for
approximately 12% and 13% of our total revenue, respectively.
We believe that the majority of our current customers are early adopters of sequencing technology. By focusing
our efforts on high-value applications, and developing whole product solutions around these applications, we
seek to drive the adoption of our products across a broader customer base and into numerous large-scale
projects. In general, the broader adoption of new technologies by mainstream customers can take a number of
years.
Backlog
As of December 31, 2023, our product backlog was approximately $18.7 million, compared to $51.5 million as
of December 31, 2022. We define backlog as purchase orders or signed contracts from our customers, which
we believe are firm and for which we have not yet recognized revenue. We expect to convert the majority of this
backlog to revenue during 2024; however, our ability to do so is subject to customers who may seek to cancel or
delay their orders even if we are prepared to fulfill them.
Manufacturing
We manufacture sequencing instruments, SMRT Cells, and reagents. Our key manufacturing and service facility
in Menlo Park, California has received ISO 13485 and ISO 9001 certifications for the design, development,
manufacture, distribution, installation, and servicing of its nucleic acid sequencing platforms. We utilize
subcontract manufacturers for components of the manufacturing process. We purchase both custom and off-
the-shelf components from a large number of suppliers and subject them to significant quality specifications.
We periodically conduct quality audits of most of our critical suppliers and have established a supplier
qualification program. Some of the components required in our products are currently either sole sourced or
single sourced.
Research and Development
We have historically made and plan to continue to make significant investments in research and development.
Our research and development efforts focus on programs to develop new and existing platforms, as well as
increasing throughput and decreasing costs on behalf of our customers. We are currently developing higher
throughput platforms that utilize our HiFi long-read sequencing and SBB short-read sequencing technologies.
We also are developing a benchtop HiFi platform intended to improve accessibility for smaller laboratories, and
we continue to extend our on-market platforms, Revio and Onso. In addition to platform development, we also
innovate across end-to-end workflows to improve usability, as well as develop new applications for the
advancement of human health.
Intellectual Property
Developing and maintaining a strong intellectual property portfolio is an important element of our business. We
have sought, and will continue to seek, patent protection for our SMRT and SBB technology, for improvements
to our SMRT kit and SBB technology, as well as for any of our other technologies where we believe such
protection will be advantageous.
Our current patent portfolio, including patents exclusively licensed to us, is directed to various technologies,
including SMRT nucleic acid sequencing and other methods for analyzing biological samples, zero-mode
waveguide (ZMW) arrays, surface treatments, phospholinked nucleotides and other reagents for use in nucleic
acid sequencing, optical short-read nucleic acid sequencing, nucleic acid preparation, and purification
components and systems, processes for identifying nucleotides within nucleic acid sequences, and processes
for analysis and comparison of nucleic acid sequence data. Some of the patents and applications that we own,
as well as some of the patents and applications that we have licensed from other parties, are subject to U.S.
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government march-in rights, whereby the U.S. government may disregard our exclusive patent rights on its own
behalf or on behalf of third parties by imposing licenses in certain circumstances, such as if we fail to achieve
practical application of the U.S. government funded technology, because action is necessary to alleviate health
or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition,
U.S. government funded inventions must be reported to the government and U.S. government funding must be
disclosed in any resulting patent applications.
As of December 31, 2023, we own or hold exclusive licenses to 437 issued U.S. patents, 89 pending U.S. patent
applications, 6 pending Patent Cooperation Treaty ("PCT") patent applications, 441 issued foreign patents, and
166 pending foreign patent applications. The full term of the issued U.S. patents will expire between 2024 and
2041. We also have non-exclusive patent licenses with various third parties to supplement our own large and
robust patent portfolio.
Other Sequencing Solutions
There are a significant number of companies offering nucleic acid sequencing equipment or consumables.
These include, but are not limited to, Illumina, Inc. (“Illumina”), BGI Genomics (also known as MGI or Complete
Genomics), Thermo Fisher Scientific Inc. (“Thermo”), Oxford Nanopore Technologies Ltd. (“ONT Ltd.”), Roche
Holding AG (“Roche”), Qiagen N.V. (“Qiagen”), Element Biosciences, Inc. (“Element”), Bionano Genomics, Inc.
(“Bionano”), Ultima Genomics, Inc. (“Ultima”) and Singular Genomics Systems, Inc. (“Singular”). These
companies may have different levels of financial, technical, manufacturing, administrative, and support
resources available to them. We expect the competition to intensify within the overall nucleic acid sequencing
market as there are also several companies developing new sequencing technologies, products and/or
services. Increased competition may result in pricing pressures, which could harm our sales, profitability, or
share of supply.
In order for us to maintain and increase our sales, we will need to demonstrate that our products deliver
superior performance and value as a result of our key differentiators. Our HiFi long-read sequencing will need to
continue to deliver very high consensus accuracy and long-read lengths and include single-molecule, real-time
resolution, with the ability to detect real-time kinetic information, fast time-to-result and flexibility, as well as
support the breadth and depth of current and future applications.
Government Regulation
The development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising, and
labeling of certain medical devices, including in vitro diagnostic products and laboratory-developed tests, are
subject to regulation in the United States by the Center for Devices and Radiological Health of the U.S. Food and
Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FDCA) and comparable state and
foreign regulatory agencies. FDA defines a medical device as an instrument, apparatus, implement, machine,
contrivance, implant, in vitro reagent, or other similar or related article, including any component part or
accessory, which is (i) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment, or prevention of disease, in man or other animals, or (ii) intended to affect the structure or any
function of the body of man or other animals and which does not achieve any of its primary intended purposes
through chemical action within or on the body of man or other animals and which is not dependent upon being
metabolized for the achievement of any of its primary intended purposes. Medical devices to be commercially
distributed in the United States must receive from the FDA either clearance of a pre-market notification, known
as 510(k), or pre-market approval pursuant to the FDC Act prior to marketing, unless subject to an exemption.
We intend to label and sell our products for research use only (“RUO”) and expect to sell them to research
customers in various settings, including academic institutions, life sciences and research laboratories that
conduct research, and biopharmaceutical and biotechnology companies for non-diagnostic and non-clinical
purposes. Our current RUO products are not intended or promoted for use in clinical practice in the diagnosis of
disease or other conditions, and they are labeled for research use only, not for use in diagnostic procedures.
Accordingly, we believe our products, as we intend to market them, are not subject to regulation by the FDA.
Rather, while FDA regulations require that RUO products be labeled for research use only and to market and
distribute RUO products in accordance with the FDA RUO guidance, the regulations do not subject RUO products
to the FDA’s jurisdiction or the broader pre- and post-market controls for medical devices. However, in the
future, certain of our products or related applications, such as those that may be developed for clinical uses,
could be subject to FDA regulation, or the FDA’s regulatory jurisdiction could be expanded to include our
products. If we wish to label and expand product lines to address the diagnosis of disease, regulation by
governmental authorities in the United States and other countries will become an increasingly significant factor
in development, testing, production, and marketing. In the future, products that we may develop in the molecular
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diagnostic markets, depending on their intended use, may be regulated as medical devices or in vitro diagnostic
products (“IVDs”) by the FDA and comparable agencies in other countries. In the U.S., if we market our products
for use in performing clinical diagnostics, such products would be subject to regulation by the FDA under pre-
market and post-market control as medical devices, unless an exemption applies, and we would be required to
obtain either prior 510(k) clearance or prior pre-market approval from the FDA before commercializing the
product. Obtaining the requisite regulatory approvals can be expensive and may involve considerable delay.
Some countries have regulatory review processes that are substantially longer than U.S. processes. Failure to
obtain regulatory approval in a timely manner and meet all of the local regulatory requirements including
language and specific safety standards in any foreign country in which we plan to market our products could
prevent us from marketing products in such countries or subject us to sanctions and fines. Changes to the
current regulatory framework, including the imposition of additional or new regulations, could arise at any time
during the development or marketing of our products.
In November 2013, the FDA issued a final guidance on products labeled for research use only, which, among
other things, reaffirmed that a company may not make any clinical or diagnostic claims about an RUO product,
stating that merely including a labeling statement that the product is for research purposes only will not
necessarily render the device exempt from the FDA’s clearance, approval, or other regulatory requirements if the
totality of circumstances surrounding the distribution of the product indicates that the manufacturer knows its
product is being used by customers for diagnostic uses or the manufacturer intends such a use. These
circumstances may include, among other things, written or verbal marketing claims regarding a product’s
performance in clinical diagnostic applications and a manufacturer’s provision of technical support for such
activities. If FDA were to determine, based on the totality of circumstances, that our products labeled and
marketed for RUO are intended for diagnostic purposes, they would be considered medical devices that will
require clearance or approval prior to commercialization. Further, sales of devices for diagnostic purposes may
subject us to additional healthcare regulation. We continue to monitor the changing legal and regulatory
landscape to ensure our compliance with any applicable rules, laws and regulations.
The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risk to the patient
are placed in either class I or II, which, unless an exemption applies, requires the manufacturer to submit a pre-
market notification requesting FDA clearance for commercial distribution pursuant to Section 510(k) of the
FDCA. This process, known as 510(k) clearance, requires that the manufacturer demonstrate that the device is
substantially equivalent to a previously cleared and legally marketed 510(k) device or a “pre-amendment” class
III device for which pre-market approval applications (“PMAs”) have not been required by the FDA. This FDA
review process typically takes from four to twelve months, although it can take longer. Most Class I devices are
exempted from this 510(k) pre-market submission requirement. If no legally marketed predicate can be
identified for a new device to enable the use of the 510(k) pathway, the device is automatically classified under
the FDCA as Class III, which generally requires pre-market approval, or PMA approval. However, the FDA can
reclassify or use “de novo classification” for a device that meets the FDCA standards for a Class II device,
permitting the device to be marketed without PMA approval. To grant such a reclassification, FDA must
determine that the FDCA’s general controls alone, or general controls and special controls together, are
sufficient to provide a reasonable assurance of the device’s safety and effectiveness. The de novo
classification route is generally less burdensome than the PMA approval process.
Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting, or implantable
devices, or those deemed not substantially equivalent to a legally marketed predicate device, are placed in class
III. Class III devices typically require PMA approval. To obtain PMA approval, an applicant must demonstrate the
reasonable safety and effectiveness of the device based, in part, on data obtained in clinical studies. All clinical
studies of investigational medical devices to determine safety and effectiveness must be conducted in
accordance with FDA’s investigational device exemption (“IDE”) regulations, including the requirement for the
study sponsor to submit an IDE application to FDA, unless exempt, which must become effective prior to
commencing human clinical studies. PMA reviews generally last between one and two years, although they can
take longer. Both the 510(k) and the PMA processes can be expensive and lengthy and may not result in
clearance or approval. If we are required to submit our products for pre-market review by the FDA, we may be
required to delay marketing and commercialization while we obtain pre-market clearance or approval from the
FDA. There would be no assurance that we could ever obtain such clearance or approval.
All medical devices, including IVDs, that are regulated by the FDA are also subject to the quality system
regulation. Obtaining the requisite regulatory approvals, including the FDA quality system inspections that are
required for PMA approval, can be expensive and may involve considerable delay. The regulatory approval
process for such products may be significantly delayed, may be significantly more expensive than anticipated,
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and may conclude without such products being approved by the FDA. Without timely regulatory approval, we
will not be able to launch or successfully commercialize such diagnostic products. Changes to the current
regulatory framework, including the imposition of additional or new regulations, could arise at any time during
the development or marketing of our products. This may negatively affect our ability to obtain or maintain FDA
or comparable regulatory clearance or approval of our products in the future. In addition, regulatory agencies
may introduce new requirements that may change the regulatory requirements for us or our customers, or both.
As noted above, although our products are currently labeled and sold for research purposes only, the regulatory
requirements related to marketing, selling, and supporting such products could be uncertain and depend on the
totality of circumstances. This uncertainty exists even if such use by our customers occurs without our consent.
If the FDA or other regulatory authorities assert that any of our RUO products are subject to regulatory clearance
or approval, our business, financial condition, or results of operations could be adversely affected.
For example, in some cases, our customers, including laboratories that offer services as part of our certified
service provider program, may use our RUO products in their own laboratory-developed tests (“LDTs”) or in other
FDA-regulated products for clinical diagnostic use. The FDA has historically exercised enforcement discretion in
not enforcing the medical device regulations against LDTs and LDT manufacturers. However, on October 3,
2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for
regulating LDTs, which are designed, manufactured, and used within a single laboratory. In January 2017, the
FDA announced that it would not issue final guidance on the oversight of LDTs and LDT manufacturers but
would seek further public discussion on an appropriate oversight approach and give Congress an opportunity to
develop a legislative solution. The FDA has issued warning letters to genomics labs for illegally marketing
genetic tests that claim to predict patients’ responses to specific medications, noting that the FDA has not
created a legal “carve-out” for LDTs and retains discretion to take action when appropriate, such as when
certain genomic tests raise significant public health concerns. As laboratories and manufacturers develop more
complex genetic tests and diagnostic software, the FDA may increase its regulation of LDTs. Legislative and
administrative proposals to amend the FDA's oversight of LDTs have been introduced in recent years, including
the Verifying Accurate Leading-edge IVCT Development Act of 2021 (the “VALID Act”). In September 2022,
Congress passed the FDA user fee reauthorization legislation without substantive FDA policy riders, including
the VALID Act, but Congress may revisit the policy riders and enact other FDA programmatic reforms in the
future. In October 2023, through rulemaking, the FDA proposed to amend the definition of “in vitro diagnostic
products” in FDA regulations to include laboratories that manufacture such products and to phase out the FDA’s
general enforcement discretion approach for LDTs so that IVDs manufactured by a laboratory would be
regulated similarly to IVDs. It is unclear when the FDA will finalize and begin enforcing such rule. Any future
legislative or administrative rule making or oversight of LDTs and LDT manufacturers, if and when finalized, may
impact the sales of our products and how customers use our products, and may require us to change our
business model in order to maintain compliance with these laws. We would become subject to additional FDA
requirements if our products are determined to be medical devices or if we elect to seek 510(k) clearance or
pre-market approval. If our products become subject to FDA regulation as medical devices, we would need to
invest significant time and resources to ensure ongoing compliance with FDA quality system regulations and
other post-market regulatory requirements.
If our products become subject to FDA regulation as medical devices, the regulatory clearance or approval and
the maintenance of continued and post-market regulatory compliance for such products will be expensive, time-
consuming, and uncertain both in timing and in outcome. Commercialization of such regulated medical devices
can increase our exposure under additional laws. For example, medical device companies are subject to
additional healthcare regulation and enforcement by the federal government and by authorities in the states and
foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and
relationships through which we research, as well as sell, market and distribute any medical products for which
we obtain marketing authorization. Such laws include, without limitation, state and federal anti-kickback, fraud
and abuse, false claims, data privacy and security, and transparency laws and regulations related to payments
and other transfers of value made to physicians and other healthcare providers. If our operations are found to
be in violation of any of such laws or any other governmental regulations that apply, we may be subject to
penalties,
limitation, administrative, civil, and criminal penalties, damages, fines,
disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations,
exclusion from participation in federal and state healthcare programs and imprisonment.
including, without
In the future, to the extent we develop any clinical diagnostic assays, we may pursue payment for such products
through a diverse and broad range of channels and seek coverage and reimbursement by government health
insurance programs and commercial third-party payors for such products. In the United States, there is no
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uniform coverage for clinical laboratory tests. The extent of coverage and rate of payment for covered services
or items vary from payor to payor. Obtaining coverage and reimbursement for such products can be uncertain,
time-consuming, and expensive, and, even if favorable coverage and reimbursement status were attained for
our tests, to the extent applicable, less favorable coverage policies and reimbursement rates may be
implemented in the future. Changes in healthcare regulatory policies could also increase our costs and subject
us to additional regulatory requirements that may interrupt commercialization of our products, decrease our
revenue and adversely impact sales of, and pricing of and reimbursement for, our products.
International sales of medical devices are subject to foreign government regulations, which vary substantially
from country to country. In the future, if we decide to distribute or market our diagnostic products as IVDs in
Europe, such products are subject to regulation under the European Union (“EU”) IVD Medical Device Regulation
(“IVDR”) EU 2017/746. Outside of the EU, regulatory approval needs to be sought on a country-by-country basis
in order to market medical devices. Although there is a trend towards harmonization of a quality system,
standards and regulations in each country may vary substantially, which can affect timelines of introduction.
We are committed to the protection of our employees and the environment. Our operations require the use of
hazardous materials that subject us to various federal, state, and local environmental and safety laws and
regulations. We believe that we are in material compliance with current applicable laws and regulations.
However, we could be held liable for damages and fines should contamination of the environment or individual
exposures to hazardous substances occur. In addition, we cannot predict how changes in these laws and
regulations, or the development of new laws and regulations, will affect our business operations or the cost of
compliance.
Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S. Foreign
Corrupt Practices Act, the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental
officials, anti-competition regulations and sanctions imposed by the U.S. Office of Foreign Assets Control, and
other similar laws and regulations. Violations of these laws and regulations could result in fines and penalties,
criminal sanctions, restrictions on our business conduct, and on our ability to offer our products in one or more
countries, and could also materially affect our brand, our ability to attract and retain employees, our
international operations, our business, and our operating results. Although we have implemented policies and
procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our
employees, contractors, or agents will not violate our policies.
As we continue to expand our business into multiple international markets, our success will depend, in large
part, on our ability to anticipate and effectively manage these and other risks associated with our international
operations. Any of these risks could harm our international operations and negatively impact our sales,
adversely affecting our business, results of operations, financial condition, and growth prospects.
Human Capital
As of December 31, 2023, we had 796 full-time employees. Of these employees, 317 were in research and
development, 91 were in operations, 45 were in service, 226 were in marketing, sales, and customer support,
and 117 were in general and administration. With the exception of our field-based sales, marketing, and service
teams, the majority of our employees are in California. None of our employees are represented by labor unions
or are covered by a collective bargaining agreement with respect to their employment. We have not experienced
any work stoppages, and we consider our relationship with our employees to be good.
Talent Acquisition and Retention
We recognize that our employees largely contribute to our success. To this end, we support business growth by
seeking to attract and retain best-in-class talent. Our talent acquisition team uses internal and external
resources to recruit highly skilled candidates globally.
Total Rewards
Our total rewards philosophy has been to invest in our workforce by offering competitive and fair compensation
and benefits packages. We provide employees with compensation packages that include base salary, short-
term incentives such as annual bonuses and commissions, and long-term equity awards. We also offer
comprehensive employee benefits, which vary by country and region, such as life, disability, and health
insurance, health savings and flexible spending accounts, time off benefits, paid parental leave, Employee Stock
Purchase Program, and a 401(k) plan. It is our expressed intent to be an employer of choice in our industry by
providing market-competitive compensation and benefits packages.
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Health, Safety, and Wellness
The health, safety, and wellness of our employees is a priority in which we have always invested and will
continue to do so. We provide our employees and their families with access to a variety of innovative, flexible,
and convenient health and wellness programs. Program benefits are intended to provide protection and
security, so employees can have peace of mind concerning events that may require time away from work or that
may impact their financial well-being. These programs are highlighted and updated regularly on our internal
benefits platform.
Diversity, Equity, and Inclusion
We believe a diverse workforce is critical to our success. Our mission is to value differences in races,
ethnicities, religions, nationalities, genders, ages, sexual orientations, as well as education, skill sets and
experience. We offer training programs on diversity awareness to help employees understand, recognize,
respond, and prevent bias throughout the employee lifecycle. We are focused on inclusive hiring practices, fair
and equitable treatment, organizational flexibility, and training and resources.
Training and Development
We believe in encouraging employees to becoming lifelong learners by providing ongoing learning and
leadership training opportunities. We provide a scaled learning platform of on-demand and virtual classroom
learning focused on personal and professional development. While we strive to provide real-time recognition of
employee performance, we have a formal annual review process not only to determine pay and equity
adjustments tied to individual contributions, but to identify areas where training and development may be
needed.
Available Information
Our website is located at www.pacb.com. The information posted on, or that can be accessed through, our
website is not incorporated by reference into this Annual Report on Form 10-K, and the inclusion of our website
address is an inactive textual reference only. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through the “Investor
Relations” section of our website as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. The SEC also maintains a website that contains our SEC filings. The address of the
site is www.sec.gov.
Additionally, we use our website (including the blog section of our website) as well as our X (formerly Twitter)
account (@pacbio) as a channel of distribution for important company information and to comply with our
disclosure obligations under Regulation FD.
including press releases, analyst
Important
presentations, and financial information regarding us, as well as corporate governance information, is routinely
posted and accessible on the “Investor Relations” section of the website, which is accessible by clicking on the
tab labeled “Company - Investors” on our website home page. In addition, important information is routinely
posted and accessible on the blog section of our website, which is accessible through our website at
www.pacb.com/blog, as well as our X account (@pacbio). The contents of our website and our X account are
not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file
with the SEC, and any references to our website or X account are intended to be inactive textual references only.
information,
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ITEM 1A.
RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with all of the other
information in our public filings with the SEC, which could materially affect our business, financial condition,
results of operations and prospects. The risks described below are not the only risks facing us. Risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our
business, financial condition, results of operations and prospects. In addition, any worsening of the economic
environment may exacerbate the risks described below, any of which could have a material impact on us. This
situation is changing rapidly, and additional impacts may arise that we are not aware of currently.
Summary Risk Factors
The following is a summary of the principal risks that could adversely affect our business, operations, and
financial results. Such risks are discussed more fully below and include, but are not limited to, risks related to:
•
•
•
•
•
our ability to successfully market, commercialize, and sell current and future products and related
maintenance services;
our ability to achieve profitability for our business;
our ability to repay our debt and fund our long-term operations;
our ability to successfully leverage and integrate our acquisitions and future acquisitions;
our ability to successfully research, develop and timely manufacture our current and future products;
• management of new product introductions and transitions, resultant costs, and ability of new products
to generate promised performance;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
recent significant changes to our leadership team and resultant disruptions to our business;
retention, recruitment, and training of senior management, key personnel, scientists and engineers;
our ability to further penetrate nucleic acid sequencing applications, as well as grow product demand;
our reliance on outsourcing to other companies for manufacturing certain components and sub-
assemblies, some of which are sole-sourced;
our ability to consistently manufacture our instruments and consumables to meet customers’
specifications, quantity, cost, or performance requirements;
the high amount of competition we face in our industry;
our ability to attract customers and increase sales of current and future products;
reliance on a limited number of customers for a significant portion of our revenues, including academic,
research and government institutions;
the complexity of our products giving rise to defects or errors;
our unpredictable and lengthy sales cycles;
adverse effects resulting from political and economic tensions between the United States and other
countries, including China and Russia, and other geopolitical uncertainties;
securing and maintaining patent or other intellectual property protection for our products and related
improvements;
current and future legal proceedings filed against us claiming intellectual property infringement;
the potential adverse impact of health epidemics, including any resurgence of COVID-19 cases or other
similar outbreaks;
governmental regulations that burden operations or narrow the market for our products;
evolving ethical, legal, privacy, social, and regulatory concerns regarding genetic testing;
volatility of the price of our common stock; and
our stock price falling as a result of future offerings or sales of securities.
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Our risk factors are not guarantees that no such conditions exist as of the date hereof and should not be
interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
Risks Related to Our Business
The commercialization and sales of our current or future products may be unsuccessful or less successful than
anticipated. While we plan to continue pursuing new products and expand into adjacent markets, we have
limited experience in managing and selling multiple products and, as a result, may face challenges selling in
new markets and fail to successfully carry out these initiatives, which may adversely impact our business,
financial condition or results of operation.
We have made and expect to continue making substantial investments to develop new products and enhance
our existing products through our acquisitions and research and development efforts. For example, we
commenced commercial shipments of Revio, our new long-read sequencing system in the first quarter of 2023,
and commenced commercial shipments of Onso, our new SBB short-read platform, in the third quarter of 2023.
Our future success is substantially dependent on our ability to successfully develop and commercialize our
products, including Revio and Onso, as well as acquired technologies, which are anticipated to be used in
demanding scientific research that requires substantial levels of accuracy and precision. In addition, we may
not be successful in transitioning our prior generation products to our Revio product, or transitioning users of
other third party short-read sequencing platforms to Onso, and could incur related obsolete inventory charges
and losses on firm purchase commitments. Customers may also be slower than we anticipate in making new
capital equipment acquisitions, especially in the current economic environment. Due to challenges we may
experience in developing and marketing our existing products and launching new products, we may not be able
to effectively:
• manage the timeliness of our new product introductions and the rate at which sales of our new
products may cannibalize sales of our older products or manage sales and marketing of multiple
sequencing platforms;
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drive adoption of our current and future products, including the Sequel II/IIe, Revio and Onso systems,
and products under development;
• maintain our competitive position by continuing to attract and retain customers for our products;
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provide appropriate levels of customer training and support for our products;
implement an effective marketing strategy to promote awareness of our products;
develop and implement an effective sales and distribution strategy for our current and future products;
develop, manufacture and commercialize new products or achieve an acceptable return on our
manufacturing or research and development efforts and expenses;
comply with regulatory requirements applicable to our products;
anticipate and adapt to changes in our market;
accommodate customer expectations and demands with respect to our products, increase product
adoption by our existing customers or develop new customer relationships;
deliver our beta systems to our external beta testing sites or complete our external beta testing
program on our currently expected timelines;
overcome unexpected challenges discovered during beta testing;
complete the scientific and technical validation of new products on our currently expected timeline or at
all;
deliver our future products in a timely manner to our customers;
grow our market share by marketing and selling our products for new and additional applications;
• manage the significant burdens that expanding our existing or future products into current and new
markets may impose on marketing, compliance, and other administrative and managerial resources;
• maintain and develop strategic relationships with vendors, manufacturers, and other industry partners
to acquire necessary materials for the production of, and to develop, manufacture and commercialize,
our existing or future products;
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adapt or scale our manufacturing activities to meet performance specifications and potential demand
at a reasonable cost;
avoid infringement and misappropriation of third-party intellectual property;
obtain and maintain any necessary licenses to third-party intellectual property on commercially
reasonable terms;
obtain valid and enforceable patents that give us a competitive advantage or enforce existing patents;
protect our proprietary technology; and
attract, retain, and motivate qualified personnel.
The risks noted above, especially with respect to the marketing, sales, and commercialization of our products,
may be heightened by the impact of current uncertain market and other conditions. In addition, a high
percentage of our expenses is and will continue to be fixed. Accordingly, if we do not generate revenue as and
when anticipated, we could suffer a material adverse effect on our business, financial conditions, results of
operations and prospects.
We have incurred losses to date, and we expect to continue to incur significant losses as we develop our
business and may never achieve profitability.
We have generally incurred net losses each quarter since inception, and we cannot be certain if or when we will
produce sufficient revenue from our operations to support our costs. Even if profitability is achieved in the
future, we may not be able to sustain profitability on a consistent basis. We expect to continue to incur
substantial losses and negative cash flow from operations for the foreseeable future.
Our net losses since inception and our expectation of incurring substantial losses and negative cash flow for
the foreseeable future could:
• make it more difficult for us to satisfy our obligations;
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increase our vulnerability to general adverse economic and industry conditions;
limit our ability to fund future working capital, capital expenditures, research and development and other
business opportunities;
increase the volatility of the price of our common stock;
limit our flexibility to react to changes in our business and the industry in which we operate;
place us at a disadvantage to other companies that offer nucleic acid sequencing equipment or
consumables; and
limit our ability to borrow additional funds.
In addition, inflationary pressure, including as a result of supply shortages, has adversely impacted and could
continue to adversely impact our financial results, and our operating costs may increase. We may not fully
offset these cost increases by raising prices for our products and services, which could result in downward
pressure on our margins. Further, our customers may choose to reduce their business with us if we increase our
pricing.
Any or all of the foregoing may have a material adverse effect on our business, operations, financial condition,
and prospects. An impairment in value of our tangible or intangible assets could also be recorded as a result of
weaker economic conditions.
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We are not cash flow positive and may not have sufficient cash to make required payments under the terms of
our debt or fund our long-term planned operations.
Our operations have consumed substantial amounts of cash since inception, and we expect to continue to incur
substantial losses and negative cash flow from operations for the foreseeable future. Additional funds may not
be available on terms acceptable to us or at all. We have incurred significant debt, and we may incur additional
debt, in the future. As of December 31, 2023, we had outstanding approximately $459.0 million aggregate
principal amount of 1.50% convertible senior notes due 2028 (the “2028 Notes”) and $441.0 million aggregate
principal amount of our 1.375% convertible senior notes due 2030 (the “2030 Notes” and, together with the
2028 Notes, the “Notes”). We may not have sufficient cash to make required payments under the terms of this
debt, and should this occur, debt holders have rights senior to common stockholders to make claims on our
assets. We may not be able to issue equity securities due to unacceptable terms and conditions to us in the
capital markets. To the extent that we intend to raise additional funds through the sale of our common stock,
downward fluctuations in our stock price could adversely affect such fundraising efforts. Furthermore, equity
financings normally involve shares sold at a discount to the current market price and fundraising through sales
of additional shares of common stock or other equity securities will have a dilutive effect on our existing
investors. We may be required to seek equity financing at a time when the market price for our common stock is
low, which will further contribute to dilution for existing holders.
We believe that our growth will depend, in part, on our ability to fund our commercialization efforts and our
efforts to develop new products, including any improvements to our existing products. To the extent our
existing resources are not sufficient, it may require us to delay, or even not allow us to conduct any or all of
these activities that we believe would be beneficial for our future growth. We may need to raise additional funds
through public or private debt or equity financing or alternative financing arrangements, which may include
collaborations or licensing arrangements. If we are unable to raise funds on favorable terms, or at all, we may
have to reduce our cash burn rate and may not be able to support our commercialization efforts, launching of
new products, or operations, or to increase or maintain the level of our research and development activities.
If we are unable to generate sufficient cash flows or to raise adequate funds to finance our forecasted
expenditures, we may have to make significant changes to our operations, including delaying or reducing the
scope of, or eliminating some or all of, our development programs. We also may have to reduce sales,
marketing, engineering, customer support or other resources devoted to our existing or new products, or we
may need to cease operations. Any of these actions could materially impede our ability to achieve our business
objectives and could materially harm our operating results. If our cash, cash equivalents and investments are
insufficient to fund our projected operating requirements and we are unable to raise capital, it could have a
material adverse effect on our business, financial condition and results of operations and prospects.
We have made acquisitions and, in the future, may continue to acquire businesses, technologies or assets, form
joint ventures or make other strategic investments with companies that could adversely affect our operating
results, dilute our stockholders’ ownership, or cause us to incur debt or significant expense.
As part of our business strategy, we have acquired and expect to continue to pursue acquisitions of
complementary businesses, technologies, or assets. We may also pursue technology license arrangements,
strategic alliances or investments that complement our business as we have previously with our acquisitions of
Circulomics, Omniome and Apton in July 2021, September 2021 and August 2023, respectively.
Acquisitions and strategic transactions involve numerous risks, any of which could harm our business and
negatively affect our financial condition and results of operations, including:
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intense competition for suitable acquisition targets, which could increase prices and adversely affect
our ability to consummate deals on favorable or acceptable terms;
failure or material delay in closing a transaction;
transaction-related lawsuits or claims;
difficulties in integrating the technologies, operations, existing contracts, and personnel of an acquired
company;
difficulties in retaining key employees or business partners of an acquired company;
difficulties in retaining suppliers, partners, or customers of an acquired company;
challenges with integrating the brand identity of an acquired company with our own;
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diversion of financial and management resources from existing operations or alternative acquisition
opportunities;
failure to realize the anticipated benefits or synergies of a transaction;
difficulties in developing technology post-acquisition;
failure to identify the problems, liabilities, or other shortcomings or challenges of an acquired company
or technology, including issues related to intellectual property, regulatory compliance practices,
litigation, revenue recognition or other accounting practices, or employee or user issues;
risks that regulatory bodies may enact new laws or promulgate new regulations that are adverse to an
acquired company or business;
risks that regulatory bodies do not approve our acquisitions or business combinations or delay such
approvals;
theft of our trade secrets or confidential information that we share with potential acquisition candidates
or other potential strategic partners;
risk that an acquired company or investment in new services cannibalizes a portion of our existing
business; and
adverse market reaction to an acquisition or other strategic transaction.
To finance any acquisitions or other strategic investments, we may raise additional funds, which could
adversely affect our existing stockholders and our business. If the price of our common stock is low or volatile,
we may not be able to acquire other companies for stock. In addition, our stockholders may experience
substantial dilution as a result of additional securities we may issue for acquisitions. Open market sales of
substantial amounts of our common stock issued to stockholders of companies we acquire could also depress
our stock price. Additional funds may not be available on terms that are favorable to us, or at all.
If we fail to address the foregoing risks or other problems encountered in connection with past or future
acquisitions of businesses, new technologies, services, and other assets and strategic investments, or if we fail
to successfully integrate such acquisitions or investments, our business, financial condition, and results of
operations could be adversely affected, including potential impairments of goodwill and intangible assets.
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If we are unable to successfully develop and timely manufacture our current and future products, including with
respect to SMRT Cells, Sequel II/IIe Systems, Revio, Onso, and other SMRT Cell, HiFi, and SBB products under
development, and related products, our business may be adversely affected.
In light of the highly complex technologies involved in our products, there can be no assurance that we will be
able to manufacture and commercialize our current and future products on a timely basis or continue providing
adequate support for our existing products. The commercial success of our products, including the Sequel,
Sequel II/IIe, Revio and Onso Systems, and the products under development, including acquired technologies,
depends on a number of factors, including performance and reliability of the systems, our anticipating and
effectively addressing customer preferences and demands, the success of our sales and marketing efforts,
effective forecasting and management of product demand, purchase commitments and inventory levels,
effective management of manufacturing and supply costs, and the quality of our products, including
consumables such as SMRT Cells and reagents. Should we face delays in or discover unexpected defects
during the further development or manufacturing process of instruments or consumables related to our
products, including with respect to SMRT Cells, reagents, Sequel II/IIe Systems, Revio, Onso, and other SMRT
Cell, HiFi, and SBB products under development, including acquired technologies, and including any delays or
defects in software development or product functionality, the timing and success of the continued rollout and
scaling of our products may be significantly impacted, which may materially and negatively impact our revenue
and gross margin. The ability of our customers to successfully utilize our products will also depend on our
ability to deliver high quality SMRT Cells and reagents. We have designed SMRT Cells and other consumables
specifically for the Sequel, Sequel II/IIe, and Revio Systems, and may need to develop in the future, other
customized SMRT Cells and consumables for our future products. Our production of the SMRT Cells for the
Sequel and Sequel II/IIe Systems has been and may in the future, including with respect to the Revio system, be
below desired levels and yields, and we have experienced and may experience in the future manufacturing
delays, product or quality defects, SMRT Cell variability, and other issues. For example, the COVID–19 pandemic
has impacted and, any resurgence of COVID-19, or the outbreak of other similar health epidemics could result in
more pronounced impacts to our manufacturing and our ability to supply products. The performance of our
consumables is critical to our customers’ successful utilization of our products, and any defects or
performance issues with our consumables would adversely affect our business. All of the foregoing could have
a material adverse effect on our ability to sell our products or result in other material adverse effects on our
business, operations, financial condition, operations and prospects.
The development of our products is complex and costly. Problems in the design or quality of our products may
have a material and adverse effect on our brand, business, financial condition, and operating results, and could
result in us losing our certifications from the International Organization for Standardization (“ISO”). If we were to
lose ISO certification, then our customers might choose not to purchase products from us and this could
adversely impact our ability to develop products approved for clinical uses. Unanticipated problems with our
products could divert substantial resources, which may impair our ability to support our new and existing
products and could substantially increase our costs. If we encounter development challenges or discover errors
in our products late in our development cycle, including during external beta testing, we may be forced to
undertake design and/or production changes, delay product shipments or the scaling of manufacturing or
supply. The completion of the production and external testing of our beta systems may also take longer than
currently planned, cost more than currently expected and the scientific and technical validation may not be
completed on our currently expected timelines or at all. Such testing may also expose fundamental flaws in our
products that may cause us to abandon the further development of such products.
If the continued rollout of our current and future products, including with respect to the SMRT Cell, the Sequel II/
IIe, Revio, and Onso Systems, is delayed or is not successful or less successful than anticipated, then we may
not be able to achieve an acceptable return, if any, on our substantial research and development efforts, and our
business may be materially and adversely affected. The expenses or losses associated with delayed or
unsuccessful product development or lack of market acceptance of our existing and new products, including
the SMRT Cell, Sequel II/IIe Systems, Revio, and Onso, could materially and adversely affect our business,
operations, financial condition, and prospects.
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Our research and development efforts may not result in the benefits that we anticipate, and our failure to
successfully market, sell, and commercialize our current and future products could have a material adverse
effect on our business, financial condition and results of operations.
We have dedicated significant resources to developing our current products, including sequencing systems and
consumables based on our proprietary SMRT sequencing technology and our Sequel and Sequel II/IIe Systems.
We are also engaged in substantial and complex research and development efforts, which, if successful, may
result in the introduction of new products in the future, including in connection with the SMRT Cell, the Sequel II/
IIe Systems, Revio and Onso, in addition to other products currently under development, including acquired
technologies. Our research and development efforts are complex and require us to incur substantial expenses
and we may not be able to develop, manufacture and commercialize new products or obtain regulatory approval
if necessary. We may divert significant resources to research and development initiatives that do not result in
commercialized products, and even if these efforts do result in commercialized products, there can be no
assurance that such products will compete successfully in the market or achieve an acceptable return, if any, on
our research and development efforts and expenses. Moreover, our joint research and development efforts with
partners require significant management attention and operational resources. If we are unable to successfully
manage such joint research and development efforts, our future results may be adversely impacted.
Furthermore, we will need to continue to expand our internal capabilities or seek new partnerships or
collaborations, or both, in order to successfully develop, market, sell and commercialize our products for and in
the markets we seek to reach. If we are unable to do so or are delayed, then this could materially and adversely
affect our business, operations, financial condition, and prospects.
We must successfully manage new product introductions and transitions, including with respect to the Revio
and Onso Systems and each of their related consumables, and the development of acquired technologies, and
we may incur significant costs during these transitions and development, and these efforts may not result in the
benefits we anticipate.
If our products and services fail to deliver the performance, scalability or results expected by our current and
future customers, or are not delivered on a timely basis, our reputation and credibility may suffer, our current
and future sales and revenue may be materially harmed and our business may not succeed. For instance, if we
are not able to successfully execute on the commercialization of the Revio HiFi long-read sequencing system,
and the Onso SBB short-read sequencing system, and each of their related consumables, and any future
products that may be developed for research, medical and clinical uses, including acquired technologies, it
could have a material adverse effect on our business, financial condition and results of operations. In addition,
the introduction of future products, including with respect to future long-read and short-read products, and
related consumables, has and may in the future lead to our limiting or ceasing development of further
enhancements to our existing products as we focus our resources on new products, and has resulted and could
in the future result in reduced marketplace acceptance and loss of sales of our existing products, materially
adversely affecting our revenue and operating results. The introduction of new products, including the recent
commercialization of our Revio and Onso systems, has had and may in the future also have a negative impact
on our revenue in the near-term as our current and future customers have delayed or cancelled and may in the
future delay or cancel orders of existing products in anticipation of new products and we may also be pressured
to decrease prices for our existing products. Our experience in managing product transitions is limited, and we
have experienced, and may in the future experience, difficulty in managing or forecasting customer reactions,
purchasing decisions or transition requirements with respect to newly launched products. We have incurred and
may continue to incur significant costs in completing these transitions, including costs of write-downs of our
products, as current or future customers transition to new products. If we do not successfully manage these
product transitions, including with respect to the Revio and Onso Systems and each of their related
consumables, and any future long-read and short-read products, our business, operations, financial condition,
and prospects may be materially and adversely affected.
Our business may be adversely affected by health epidemics, including any resurgence of COVID-19 cases or
other similar outbreaks.
Our business has been and could be further adversely impacted by the effects of COVID-19 or other epidemics
or pandemics. Although it is not possible at this time to estimate the impact that health epidemics, including the
results of the COVID-19 pandemic and any future resurgence of COVID-19 cases or other similar outbreaks,
could have on our business, any pandemic or public health outbreaks or related disruptions and the measures
taken by the governments of countries affected could disrupt the supply chain and the manufacture of our
products.
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Our manufacturing partners and suppliers have been and could continue to be disrupted by conditions related to
COVID-19 or other epidemics or pandemics, possibly resulting in disruption to the production of our products. If
our manufacturing partners or suppliers are unable or fail to fulfill their obligations to us for any reason, we may
not be able to manufacture our products and satisfy customer demand or our obligations under sales
agreements in a timely manner, and our business could be harmed as a result. There is significant uncertainty
relating to the long-term effect of COVID-19 or other epidemics or pandemics on our business. Infections may
resurge or become more widespread and any ensuing disruptions to business activities or supply chains could
have a negative impact on our business, financial condition, and operating results. Because our semiconductor
manufacturers are located in a region where immunization rates in certain communities may be low, new and
emerging variants of COVID-19 or other epidemics or pandemics could impact workforce availability at those
locations and disrupt supply. For example, the Chinese government may re-impose lockdowns or similar
measures to combat the spread of health epidemics such as COVID-19 or other similar outbreaks and such
measures have had, and may continue to have in the future, a negative impact on manufacturing and/or supply
chains, as well as customer demand for our products and demand through certain distributors.
For example, the COVID-19 pandemic caused us to modify our business practices, including limiting certain of
our commercial operations and limiting certain employees from working in the office. We offered, and if there is
a resurgence of COVID-19 or other similar outbreaks, we may again offer a significant percentage of our
employees flexibility in the amount of time they work in an office, which could adversely impact the productivity
of certain employees and harm our business, including our future operating results. This may also present risks
for our strategy and may present operational, cybersecurity, and workplace culture challenges that may
adversely affect our business.
Even after the COVID-19 pandemic has further subsided, we may continue to experience an adverse impact to
our business as a result of its global economic impact, including recessionary effects and inflationary
pressures. Specifically, difficult macroeconomic conditions, such as decreases in discretionary capital
expenditure spending, changes to the government funding environment, a reduction in or the lapsing of
COVID-19-related governmental stimulus measures, increased and prolonged unemployment or a decline in
consumer confidence as a result of the COVID-19 pandemic or other epidemics or pandemics, as well as limited
or significantly reduced points of access of our products, could have a continuing adverse effect on the demand
for some of our products and, consequently, related maintenance and support services. The degree of impact of
COVID-19 or other epidemics or pandemics on our business will depend on several factors, such as the duration
and the extent of the pandemic, the risk of waning immunity among persons already vaccinated and an increase
in fatigue or skepticism with respect to initial or booster vaccinations, as well as actions taken by governments,
businesses, and consumers in response to the pandemic, all of which continue to evolve and remain uncertain
at this time.
Significant changes to our leadership team and the resulting management transitions might harm our future
operating results.
We have experienced significant changes to our leadership team since 2020, including the appointment of our
current President and Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Commercial
Officer, Vice President and Chief Accounting Officer, and Chair of the Board.
Although we believe these leadership transitions are in the best interest of our stakeholders, these transitions
may result in the loss of personnel with deep institutional or technical knowledge. Further, the transition could
potentially disrupt our operations and relationships with employees, suppliers, partners, and customers due to
added costs, operational inefficiencies, decreased employee morale and productivity and increased turnover.
We must successfully recruit and integrate our new leadership team members within our organization to
achieve our operating objectives; as such, the leadership transition may temporarily affect our business
performance and results of operations while the new members of our leadership team become familiar with our
business. In addition, our competitors may seek to use this transition and the related potential disruptions to
gain a competitive advantage over us. Furthermore, these changes may increase our dependency on the other
members of our leadership team that remain with us, who are not contractually obligated to remain employed
with us and may leave at any time. Any such departure could be particularly disruptive given that we are already
experiencing leadership transitions and, to the extent we experience additional management turnover,
competition for top management is high such that it may take some time to find a candidate that meets our
requirements. Our future operating results depend substantially upon the continued service of our key personnel
and in significant part upon our ability to attract and retain qualified management personnel. If we are unable to
mitigate these or other similar risks, our business, results of operations and financial condition may be
materially and adversely affected.
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We depend on the continuing efforts of our senior management team and other key personnel. If we lose
members of our senior management team or other key personnel or are unable to successfully retain, recruit
and train qualified scientists, engineers, sales personnel and other employees, our ability to maintain, develop
and commercialize our products could be harmed and we may be unable to achieve our goals.
Our success depends upon the continuing services of members of our senior management team and scientific
and engineering personnel. In particular, our scientists and engineers are critical to our technological and
product innovations, and we will need to hire additional qualified personnel. Our industry, is characterized by
high demand and intense competition for talent, and the turnover rate has been and may continue to be high.
We compete for qualified management and scientific personnel with other life science companies, academic
institutions and research institutions, particularly those focusing on genomics. This competition had been
exacerbated by the increase in employee resignations in 2021 and 2022 that had been experienced by us and
reported by employers nationwide. In addition, we have experienced significant turnover in our senior
management team in recent periods. To induce valuable employees to remain at our company, in addition to
salary and cash incentives, we have issued stock options and restricted stock units that vest over time. The
value to employees of stock options and restricted stock units that vest over time may be significantly affected
by movements in our stock price that are beyond our control and may at any time be insufficient to counteract
more lucrative offers from other companies. We may face challenges in retaining and recruiting such
individuals due to sustained declines in our stock price that could reduce the retention value of equity awards.
The loss of qualified employees, or an inability to attract, retain, and motivate employees, could prevent us from
pursuing collaborations and materially and adversely affect our support of existing products, product
development and launches, business growth prospects, results of operations and financial condition. In
addition, we will need to continue to recruit, hire and retain sales personnel to support the commercialization of
our existing and new products. Our employees could leave our company with little or no prior notice and would
be free to work for a competitor. In addition, changes to U.S. immigration policies, particularly to H-1B and other
visa programs, could restrain the flow of technical and professional talent into the U.S. and may inhibit our
ability to hire qualified personnel. If one or more of our senior executives or other key personnel were unable or
unwilling to continue in their present positions, we may not be able to replace them easily or at all, and other
senior management may be required to divert attention from other aspects of the business. In addition, we do
not have “key person” life insurance policies covering any member of our management team or other key
personnel. Further, our vaccination and return to office protocols related to COVID-19 or other epidemics or
pandemics may also impact the recruitment and retention of key employees. The loss of any of these
individuals or any inability to attract or retain qualified personnel, including scientists, engineers, sales
personnel and others, could prevent us from pursuing collaborations and materially and adversely affect our
support of existing products, product development and introductions, business growth prospects, results of
operations and financial condition.
Our success is highly dependent on our ability to further penetrate nucleic acid sequencing applications as well
as on the growth and expansion of the demand for our products. If our products fail to achieve and sustain
sufficient market acceptance, we will not generate expected revenue and our business may not succeed.
Although nucleic acid sequencing technology is well-established, our SMRT Sequencing technology is relatively
new and evolving. We cannot be sure that our current or future products will gain acceptance in the marketplace
at levels sufficient to support our costs. Our success depends, in part, on our ability to expand overall demand
for nucleic acid sequencing to include new applications that are not practicable with other current technologies
and to introduce new products that capture a larger share of growing overall demand for sequencing. To
accomplish this, we must successfully commercialize, and continue development of, our proprietary SMRT
Sequencing technology for use in a variety of life science and other research applications, including uses by
academic, government and clinical laboratories, as well as pharmaceutical, diagnostic, biotechnology, and
agriculture companies, among others. However, we may be unsuccessful in these efforts and the sale and
commercialization of the SMRT Cell, Sequel II/IIe, Revio and Onso Systems, and related products may not grow
sufficiently to cover our costs.
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There can be no assurance that we will be successful in adding new products or securing additional customers
for our current and future products, including with respect to the SMRT Cell, Sequel II/IIe Systems, Revio and
Onso. If we are unable to successfully develop acquired technologies and sell acquired technology products, we
may fail to achieve our strategic commercial initiatives in connection with the planned release of new products
and anticipated entry into new markets. Our ability to further penetrate existing applications and any new
applications depends on a number of factors, including the cost, performance and perceived value associated
with our products, as well as customers’ willingness to adopt a different approach to nucleic acid sequencing.
Potential customers may have already made significant investments in other sequencing technologies and may
be unwilling to invest in new technologies. We are experiencing pricing pressures caused by industry
competition and increased demand for lower-priced instruments and lower operational costs. We have limited
experience commercializing and selling products outside of the academic and research settings, and we cannot
guarantee success in acquiring additional customers. Furthermore, we cannot guarantee that our products will
be satisfactory to potential customers or that our products will perform in accordance with customer
expectations.
Nucleic acid sequencing applications are new and dynamic, and there can be no assurance that they will
develop as quickly as we anticipate, that they will reach their full potential or that our products will be
appropriate or competitive for these applications. As a result, we may be required to refocus our marketing
efforts, and we may have to make changes to the specifications of our products to enhance our ability to enter
particular applications more quickly. We may also need to delay full-scale commercial deployment of new
products as we develop them in order to perform quality control and early access user testing. We also need to
maintain reliable supply chains for the various components in our new products and consumables to support
large-scale commercial production. Even if we are able to implement our technology successfully, we and/or
our sales and distribution partners may fail to achieve or sustain market acceptance of our current or future
products across the full range of our intended life science and other applications. We need to continue to
expand and update our internal capabilities or to collaborate with other partners, or both, in order to
successfully expand sales of our products in the applications that we seek to reach, which we may be unable to
do at the scale required to support our business.
If the demand for our products grows more slowly than anticipated, if we are unable to successfully scale or
otherwise ensure sufficient manufacturing capacity for new products to meet demand, if we are not able to
successfully market and sell our products, if competitors develop better or more cost-effective products, if our
product launches and commercialization are not successful, or if we are unable to further grow our customer
base or do not realize the growth with existing customers that we are expecting, our current and future sales
and revenue may be materially and adversely harmed, or we may recognize an impairment loss, and our
business may not succeed.
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We rely on other companies for the manufacture of certain components and sub-assemblies and intend to
outsource additional sub-assemblies in the future, some of which are sole sources. We may not be able to
successfully scale the manufacturing process necessary to build and test multiple products on a full
commercial basis, which could materially harm our business.
Our products are complex and involve a large number of unique components, many of which require precise
manufacturing. The nature of our products requires customized components that are currently available only
from a limited number of sources, and in some cases, single sources. We have chosen to source certain critical
components from a single source, including suppliers for our SMRT Cells, reagents, and instruments. We cannot
assure you that product supplies will not be limited or interrupted, especially with respect to our sole source
third-party manufacturing and supply collaborators, or that product supplies will be of satisfactory quality or
continue to be available at acceptable prices. In particular, any replacement of our manufacturers could require
significant effort and expertise because there may be a limited number of qualified replacements. We may be
unable to negotiate binding agreements with our current and future sole source third-party manufacturing and
supply collaborators or, in the event that such collaborators’ services become interrupted for any reason, find
replacement manufacturers to support our development and commercial activities at commercially reasonable
terms. We do not always have arrangements in place for a redundant or second-source supply for our sole
source vendors in the event they cease to provide their products or services to us or fail to provide sufficient
quantities in a timely manner. If we are required to purchase these components from alternative sources, it
could take several months or longer to qualify the alternative sources. If we are unable to source these product
components from sole-source third-party manufacturing and supply collaborators for any reason, including in
connection with acts of terrorism, hostilities, military conflict and acts of war, including between China and
Taiwan, or secure a sufficient supply of these product components on a timely basis, or if these components do
not meet our expectations or specifications for quality and functionality, our operations and manufacturing
would be materially and adversely affected, we could be unable to meet customer demand and our business
and results of operations may be materially and adversely affected.
The operations of our third-party manufacturing partners and suppliers have had and may in the future be
disrupted by conditions unrelated to our business or operations or that are beyond our control, including but not
limited to international trade restrictions, inflation, supply chain disruptions, and conditions related to COVID-19
or other epidemics or pandemics. If our manufacturing partners or suppliers are unable or fail to fulfill their
obligations to us for any reason, we may not be able to manufacture our products and satisfy customer demand
or our obligations under sales agreements in a timely manner, and our business could be harmed as a result.
For example, the global shortage of semiconductors, which has been reported since early 2021, has caused
challenges for us in our supply chain and resulted in some cost increases that have and may continue to
adversely impact margins. During these periods of shortages or delays, the price of components may increase,
or the components may not be available at all. Our suppliers have raised their prices and may continue to raise
prices that we may not be able to pass on to our customers, which could adversely affect our business,
including our competitive position, market share, revenues, and profit margins in material ways. We may not be
able to secure enough components at reasonable prices or of acceptable quality to build new products in a
timely manner in the quantities or configurations needed. For example, the Chinese government may re-impose
lockdowns or similar measures to combat the spread of COVID-19 or other similar outbreaks and these
measures have had, and may continue to have in the future, a negative impact on manufacturing and/or supply
chains, in addition to customer demand for our products and demand through certain distributors. If as a result
of global economic or political instability, such as the political uncertainty in the Middle East associated with the
Israel and Hamas conflict, an escalation of the war in Ukraine, potential uncertainty related to Taiwan and its
relationship with China, other disease outbreaks, or supply issues, we or our contractors could experience
shortages, business disruptions or delays for materials sourced or manufactured in the affected countries, and
their ability to supply us with instruments or product components may be affected. From time to time, certain
components of our systems and reagents may reach the end of their life cycles or become obsoleted by our
suppliers, and we would have to procure alternative sources for these end-of-life products. If we encounter
delays or difficulties in securing the quality and quantity of materials we require for our products, our supply
chain would be interrupted, which would adversely affect sales. If any of these events occur, our business and
operating results could be harmed. Accordingly, if any of the foregoing occurs, our ability to commercialize our
products, revenue and gross margins could suffer until lockdowns from COVID-19 or other epidemics or
pandemics infections are reduced, supply issues or business disruptions are resolved and/or other sources can
be developed.
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In addition, because our semiconductor suppliers are in regions that may have communities with low
vaccination rates, any variants of COVID-19 that evolve in the future or other outbreaks could lead to increased
infections among workers that could further disrupt the supply chain. Our current manufacturing process is
characterized by long lead times between the placement of orders for and delivery of our products. If we do not
accurately anticipate our needs or if we receive insufficient components to manufacture our products on a
timely basis to meet customer demand, our sales and our gross margin may be adversely affected, and our
business could be materially harmed. If we are unable to reduce our manufacturing costs and establish and
maintain reliable, high-volume manufacturing suppliers as we scale our operations and expand our product
offerings, our business, operations, financial condition, and prospects could be materially and adversely
harmed.
We may be unable to consistently manufacture our instruments and consumables, including SMRT Cells and
reagents, to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at
an acceptable performance level.
In order to successfully generate revenue from our products, we need to supply our customers with products
that meet their expectations for quality and functionality in accordance with established specifications. Our
customers have experienced variability in the performance of our products. We have experienced and may
continue to experience delays, quality issues or other difficulties leading to customer dissatisfaction with our
products. Our production of SMRT Cells, flow cells and of reagents for both our-long and short-read
technologies, involve a long and complex manufacturing process and has been and may in the future be below
desired yields and resulting output levels. We have experienced and may experience in the future manufacturing
delays, product defects, variability in the performance of SMRT Cells, flow cells and other products, inadequate
reserves for inventory, or other issues.
There is no assurance that we will be able to manufacture our products so that they consistently achieve the
product specifications and quality that our customers expect, including any products developed for clinical
uses. Problems in the design or quality of our products, including low manufacturing yields of SMRT Cells, flow
cells, or sub-performing reagent lots may have a material adverse effect on our brand, business, financial
condition, and operating results, and could result in us losing our ISO certifications. If we were to lose our ISO
certifications, then our customers might choose not to purchase products from us. There is also no assurance
that we will be able to increase manufacturing yields and decrease costs, particularly if high rates of inflation
continue, or that we will be successful in forecasting customer demand or manufacturing and supply costs, or
that product supplies, including reagents or integrated chips, will not be limited or interrupted, or will be of
satisfactory quality or continue to be available at acceptable prices. Furthermore, while we are undertaking
efforts to increase our manufacturing scale and capability, we may not be able to increase manufacturing to
meet anticipated demand or may experience downtime in our manufacturing facilities, including, for example, if
our suppliers are unable to meet our increased demand at a time when the supply chain is under duress due to
potential dislocations and disruptions in product and employee availability (whether due to health epidemics or
pandemics or otherwise). An inability to manufacture products and components that consistently meet
specifications, in necessary quantities and at commercially acceptable costs, will have a negative impact, and
may have a material adverse effect on our business, product development timelines, financial condition and
results of operations.
Rapidly changing technology in life sciences and research diagnostics could make our products obsolete unless
we continue to develop, manufacture and commercialize new and improved products and pursue new
opportunities.
industry
Our
is characterized by rapid and significant technological changes, frequent new product
introductions and enhancements and evolving industry standards. These new and evolving technologies may be
superior to, impair, or render obsolete the products we currently offer or the technologies currently underlying
our products. Our future success depends on our ability to continually improve our products, to develop and
introduce new products that address the evolving needs of our customers on a timely and cost-effective basis
and to pursue new opportunities. These new opportunities may be outside the scope of our proven expertise or
in areas where demand is unproven, and new products and services developed by us may not gain market
acceptance or may not adequately perform to capture market share. Our inability to develop and introduce new
products and to gain market acceptance of our existing and new products could harm our future operating
results. Unanticipated difficulties or delays
in
commercializing our existing or new products in sufficient quantities and of acceptable quality to meet
customer demand, including with respect to the SMRT Cell, Sequel II/IIe Systems, Revio and Onso, could
diminish future demand for our products and may materially and adversely harm our future operating results.
in replacing existing products with new products or
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The size of the markets for our products, including our Revio and Onso instruments, may be smaller than
estimated, and new market opportunities may not develop as quickly as we expect, or at all, limiting our ability
to successfully sell our products.
The market for sequencing systems and consumables products is evolving, making it difficult to accurately
predict the size of the markets for our current and future products, including our Revio and Onso instruments.
Our estimates of the total addressable market for our current and future products are based on a number of
internal and third-party estimates and assumptions that may be incorrect, including the assumptions that
academic, governmental, corporate, or other sources of funding will continue to be available to life sciences
researchers at times and in amounts necessary to allow them to purchase our products. In addition, sales of
new products may take time to develop and mature and we cannot be certain that these market opportunities
will develop as we expect. While we believe our assumptions and the data underlying our estimates of the total
addressable market for our products are reasonable, these assumptions and estimates may not be correct and
the conditions supporting our assumptions or estimates, or those underlying the third-party data we have used,
may change at any time, thereby reducing the accuracy of our estimates. As a result, our estimates of the total
addressable market and growth opportunities for our products may be incorrect.
The future growth of the market for our current and future products depends on many factors beyond our
control, including recognition and acceptance of our products by the research and scientific communities, the
growth, prevalence and costs of competing products and solutions and the development of robust ecosystems
supporting our products and their methodologies. For example, the market acceptance and growth of long-read
sequencing technologies, like our Revio system, depends on a variety of factors, including the availability and
cost-effectiveness of related tools for high quality sample collection and preparation and advanced
bioinformatic tools to process results; as well as the perceived advantages and disadvantages of long-read
sequencing compared to short-read or other sequencing technologies: consequently, if potential customers
conclude the costs of adopting long-read sequencing technologies outweigh the benefits, the market for our
Revio systems may be negatively impaired. There can be no assurance that our current or future products will
gain traction in the market. If the markets for our current and future products are smaller than estimated or do
not develop as we expect, our growth may be limited, and it could materially and adversely affect our business,
operations, financial condition and prospects.
Increased market adoption of our products by customers may depend on the availability of sample preparation
and informatics tools, some of which may be developed by third parties.
Our commercial success may depend in part upon the development of sample preparation and software and
informatics tools by third parties for use with our products. We cannot guarantee that product supplies,
including reagents, will not be limited or interrupted, or will be of satisfactory quality or continue to be available
at acceptable prices, or that third parties will develop tools that our current and future customers will find useful
with our products, or that customers will adopt such third-party tools on a timely basis or at all. A lack of
complementary sample preparation and informatics tools, or delayed updates of such tools, may impede the
adoption of our products and may materially and adversely impact our business.
We operate in a highly competitive industry and if we are not able to compete effectively, our business and
operating results will likely be harmed.
There are a significant number of companies offering nucleic acid sequencing products and/or services,
including Illumina, BGI Genomics (also known as MGI or Complete Genomics), Thermo, ONT Ltd., Roche,
Bionano, and Qiagen. Other companies recently entering the market include Ultima, Element and Singular. Many
of these companies currently have greater name recognition, more substantial intellectual property portfolios,
longer operating histories, significantly greater financial, technical, research and/or other resources, more
experience in new product development, larger and more established manufacturing capabilities and marketing,
sales, and support functions, and/or more established distribution channels to deliver products to customers
than we do. These companies may be able to respond more quickly and effectively than we can to new or
changing opportunities, technologies, standards, or customer requirements.
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There are also several companies that are in the process of developing or have already developed and
commercialized new, competing or potentially competing technologies, products and/or services, including
ONT Ltd. and its subsidiaries, against whom we have filed complaints for patent infringement in the U.S. District
Court for the District of Delaware and, previously, with the U.S. International Trade Commission, in the High
Court of England and Wales and in the District Court of Mannheim, Germany. ONT Ltd. previously filed claims
against us in the High Court of England and Wales and the District Court of Mannheim, Germany, also for patent
infringement, and its subsidiary, Oxford Nanopore Technologies, Inc. (“ONT Inc.”), filed counterclaims against us
in the U.S. District Court for the District of Delaware seeking declaratory judgements of non-infringement,
invalidity and unenforceability of the asserted patents, as well as antitrust, false advertising and unfair
competition counterclaims that were subsequently dismissed by that court. Roche is developing potentially
competing sequencing products. Increased competition may result in pricing pressures, which could harm our
sales, profitability or market share. Our failure to further enhance our existing products and to introduce new
products to compete effectively could materially and adversely affect our business, operations, financial
condition, and prospects.
We may be unable to successfully increase sales of our current products or market and sell our future products.
Our ability to achieve profitability depends, in part, on our ability to attract customers for our current and future
products including Revio and Onso, and we may be unable to effectively market or sell our products or find
appropriate partners to do so. To perform sales, marketing, distribution, and customer support functions
successfully, we face a number of risks, including:
•
•
•
•
•
our ability to attract, retain and manage qualified sales, marketing, and service personnel necessary to
expand market acceptance for our technologies;
the performance and commercial availability expectations of our existing and potential customers with
respect to new and existing products;
availability of potential sales and distribution partners to sell our technologies, and our ability to attract
and retain such sales and distribution partners;
the time and cost of maintaining and growing a specialized sales, marketing and service force for a
particular application, which may be difficult to justify in light of the revenue generated; and
our sales, marketing and service force may be unable to execute successful commercial activities.
We have enlisted and may continue to enlist third parties to assist with sales, distribution and customer
support. There is no guarantee that we will be successful in attracting desirable sales and distribution partners,
that we will be able to enter into arrangements with such partners on terms favorable to us or that we will be
able to retain such partners on a going-forward basis. If our sales and marketing efforts, or those of any of our
third-party sales and distribution partners, are not successful, or our products do not perform in accordance
with customer expectations, our technologies and products may not gain market acceptance, which could
materially and adversely impact our business, operations, financial condition, and prospects.
Large purchases by a limited number of customers represent a significant portion of our revenue, and any loss
or delay of expected purchases has resulted, and in the future could result, in material quarter-to-quarter
fluctuations of our revenue or otherwise adversely affect our results of operations.
We receive a significant portion of our revenue from a limited number of customers. For example, for the years
ended December 31, 2022 and 2021, one of our customers, who is our primary distributor in China, accounted
for approximately 12% and 13% of our total revenue, respectively. For the year ended December 31, 2023, no
single customer accounted for 10% or greater of our total revenue. Many of these customers make large
purchases on a purchase-order basis rather than pursuant to long-term contracts. As a consequence of the
concentrated nature of our customer base and their purchasing behavior, our quarterly revenue and results of
operations have fluctuated, and may fluctuate in the future, from quarter to quarter and are difficult to forecast.
For example, the cancellation of orders or acceleration or delay in anticipated product purchases or the
acceptance of shipped products by our larger customers has materially affected, and in the future could
materially affect, our revenue and results of operations in any quarterly period. We have been, and may in the
future be, unable to sustain or increase our revenue from our larger customers, or offset any discontinuation or
decrease of purchases by our larger customers with purchases by new or other existing customers. To the
extent one or more of our larger customers experience significant financial difficulty, bankruptcy or insolvency,
this could have a material adverse effect on our sales and our ability to collect on receivables, which could
materially and adversely harm our financial condition and results of operations.
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In addition, many of our customers, including some of our larger customers, have negotiated, or may in the
future negotiate, volume-based discounts or other more favorable terms from us or our sales and distribution
partners, which can and have had a negative effect on our gross margins or revenue.
We expect that such concentrated purchases will continue to contribute materially to our revenue for the
foreseeable future and that our results of operations may fluctuate materially as a result of such larger
customers’ buying patterns. In addition, we may see consolidation of our customer base. The loss of one of our
larger customers, a significant delay or reduction in its purchases, or any volume-based discount or other more
favorable terms that we or our sales and distribution partner(s) may agree to provide, in light of the aggregated
purchase volume or buying power resulting from such consolidation, has harmed, and in the future could harm,
our business, financial condition, results of operations and prospects.
Our products are highly complex, have recurring support requirements and could have unknown defects or
errors, which may give rise to claims against us or divert application of our resources from other purposes.
Products using our SMRT sequencing and SBB technology are highly complex and may develop or contain
undetected defects or errors. Our customers have previously experienced reliability issues with our existing
products, including the Sequel System and the Sequel II/IIe Systems. In addition, it is possible our customers
could experience reliability issues with current or future products, including the Sequel II/IIe, Revio and Onso
Systems. Despite internal and external testing, defects, or errors may arise in our products, which could result in
a failure to obtain, maintain, or increase market acceptance of our products, diversion of development
resources, injury to our reputation and increased warranty, service, and maintenance costs. New products,
including Revio and Onso, or enhancements to our existing products, including the SMRT Cell and Sequel II/IIe
Systems, in particular may contain undetected errors or performance problems that are discovered only after
delivery to customers. If our products have reliability or other quality issues or require unexpected levels of
support in the future, the market acceptance and utilization of our products may not grow to levels sufficient to
support our costs and our reputation and business could be harmed. Low utilization rates of our products could
cause our revenue and gross margins to be adversely affected. We provide a warranty for our sequencing
instruments and consumables, which is generally limited to replacing, repairing, or at our option, giving credit for
any sequencing instrument or consumable with defects in material or workmanship. Service contracts for our
sequencing instruments may be separately purchased. Defects or errors in our products may also discourage
customers from purchasing our products. The costs incurred in correcting any defects or errors may be
substantial and could materially and adversely affect our operating margins. If our service and support costs
increase, our business and operations may be materially and adversely affected.
In addition, such defects or errors could lead to the filing of product liability claims against us or against third
parties whom we may have an obligation to indemnify against such claims, which could be costly and time-
consuming to defend and result in substantial damages. Although we have product liability insurance, any
product liability insurance that we have or procure in the future may not protect our business from the financial
impact of a product liability claim. Moreover, we may not be able to obtain adequate insurance coverage on
acceptable terms. Any insurance that we have or obtain will be subject to deductibles and coverage limits. A
product liability claim could have a material adverse effect on our business, financial condition, and results of
operations.
A significant portion of our sales depends on customers’ spending budgets that may be subject to significant
and unexpected variation which could have a negative effect on the demand for our products.
Our instruments represent significant capital expenditures for our customers in research applications. Current
and potential customers for our current or future products include academic and government institutions,
genome centers, medical research institutions, clinical laboratories, pharmaceutical, agricultural, biotechnology,
diagnostic and chemical companies. Their spending budgets can have a significant effect on the demand for
our products. Spending budgets are based on a wide variety of factors, including the allocation of available
resources to make purchases, funding from government sources which is highly uncertain and subject to
change, the spending priorities among various types of research equipment, policies regarding capital
expenditures during economically uncertain periods and the potential impacts from health epidemics or
pandemics. Any decrease in capital spending or change in spending priorities of our current and potential
customers could significantly reduce the demand for our products. Any delay or reduction in purchases by
current or potential customers or our inability to forecast fluctuations in demand could materially and adversely
harm our future operating results.
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We may not be able to convert our orders in backlog into revenue.
Our backlog represents product orders from our customers that we have confirmed but have not been able to
fulfill, and, accordingly, for which we have not yet recognized revenue. We may not receive revenue from these
orders, and any order backlog we report may not be indicative of our future revenue.
Many events can cause an order to be delayed or not completed at all, some of which may be out of our control,
including the potential impacts from health epidemics or pandemics and our suppliers, especially our sole
source suppliers, not being able to provide us with products or components. If we delay fulfilling customer
orders or if customers reconsider their orders, those customers may seek to cancel or modify their orders with
us. Customers may otherwise seek to cancel or delay their orders even if we are prepared to fulfill them. If our
orders in backlog do not result in sales, our operating results may suffer.
Our sales cycles are unpredictable and lengthy, which makes it difficult to forecast revenue and may increase
the magnitude of quarterly or annual fluctuations in our operating results.
The sales cycles for our sequencing instruments are lengthy because they represent a major capital expenditure
and generally require the approval of our customers’ senior management. This may contribute to substantial
fluctuations in our quarterly or annual operating results, particularly during periods in which our sales volume is
low. Because of these fluctuations, it is likely that in some future quarters our operating results will fall below
the expectations of securities analysts or investors. If that happens, the market price of our stock would likely
decrease. Past fluctuations in our quarterly and annual operating results have resulted in decreases in our stock
price. Such fluctuations also mean that investors may not be able to rely on our operating results in any
particular period as an indication of future performance. Sales to existing customers and the establishment of a
business relationship with other potential customers is a lengthy process, generally taking several months and
sometimes longer. Following the establishment of the relationship, the negotiation of purchase terms can be
time-consuming, including as a result of seasonal factors, as discussed below, and a potential customer may
require an extended evaluation and testing period. Our sales cycles may also lengthen, and those sales cycles
may result in lower units sold per cycle, as we continue to introduce our Revio and Onso instruments and their
associated consumables to the market, as our customers may have additional administrative, technical or other
requirements associated with transitioning to new products and technologies. In anticipation of product orders,
we may incur substantial costs before the sales cycle is complete and before we receive any customer
payments. As a result, if a sale is not completed or is canceled or delayed, we may have incurred substantial
expenses, making it more difficult for us to become profitable or otherwise negatively impacting our financial
results. Even if our selling efforts are successful, the realization of revenue may be substantially delayed, our
ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from
quarter to quarter and year over year. For more information on the impact of these fluctuations on our results
and stock price, see “—Our operating results fluctuate from quarter to quarter and year over year, which makes
our future results difficult to predict and could negatively impact the market price of our common stock,” below.
Because some of our customers and suppliers are based in China, our business, financial condition and results
of operations could be adversely affected by the political and economic tensions between the United States and
China.
We are subject to risks associated with political conflicts between the U.S. and China. A significant portion of
our revenue is generated from China. For example, for the years ended December 31, 2022 and 2021, one of our
customers, who is our primary distributor in China, accounted for approximately 12% and 13% of our total
revenue, respectively. For the year ended December 31, 2023, no single customer accounted for 10% or greater
of our total revenue. In addition, certain components, some of which are critical components, of our products
are manufactured in China. These components are either sourced directly from companies in China or indirectly
from third parties that source from companies in China.
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Consequently, we are subject to significant risks associated with the trading relationship between the U.S. and
China, which is currently characterized by significant uncertainty. Tariffs imposed by the U.S. and China have
increased, and may continue to increase, our costs. Additionally, export restrictions imposed by the U.S. may
impact our ability to export certain products to customers or distributors in China and restrict our ability to use
certain integrated circuits in our products, and it is possible that additional restrictions will be put in place that
could impact our ability to provide our products to customers or distributors in China or source components
from China. Moreover, the Chinese government may retaliate against U.S. trade restrictions in ways that could
impact our business. Given the relatively fluid regulatory environment in China and the United States and
uncertainty how the U.S. or foreign governments will act with respect to export controls, tariffs, international
trade agreements and policies, there could be additional import, export, tax, or other regulatory changes in the
future. Any such changes could directly and adversely impact our financial results and results of operations. For
more information, see “—Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or
other trade barriers may materially harm our business.”
Other risks could include:
•
•
•
interruptions to operations in China as a result of potential disease outbreaks, including any further
COVID-19 related outbreaks, and natural catastrophic events, which have in the past and can result in
the future in business closures, transportation restrictions, import and export complications and cause
shortages in the supply of raw materials or disruptions in manufacturing;
product supply disruptions and increased costs as a result of heightened exposure to changes in the
policies of the Chinese government, political unrest or unstable economic conditions in China; and
the nationalization or other expropriation of private enterprises or intellectual property by the Chinese
government.
Difficulties in this relationship may require us to take actions adverse to our business to comply with
governmental restrictions on business and trade with China.
We face significant risks associated with doing business with Taiwanese suppliers and manufacturers due to
the tense relationship between Taiwan and mainland China.
Substantially all of our consumable chips are partly manufactured by a company based in Taiwan. Our supply of
consumables chips and other critical components may be materially and adversely affected by diplomatic,
geopolitical, military and other developments affecting the relationship between China and Taiwan. Recent
military exercises in the Taiwan Strait have contributed to geopolitical uncertainty regarding the future of the
relationship between China and Taiwan. Current or future diplomatic, geopolitical, military or other tensions
between China and Taiwan may lead to circumstances that negatively affect the availability of such
consumable chips and other critical components to us, which could limit or prohibit our ability to manufacture
consumable chips and other critical components or lead to an increase in our supply costs if we cannot find a
similar cost alternative supplier, which could materially and adversely impact our business, operations,
prospects, financial condition and results, and results of operations.
Our operating results fluctuate from quarter to quarter and year over year, which makes our future results
difficult to predict and could negatively impact the market price of our common stock.
We operate on a December 31st year-end and believe that there are significant seasonal factors which may
cause sales of our products, and particularly our sequencing instruments, to vary on a quarterly or yearly basis,
contribute to lengthy sales cycles for our sequencing instruments, and increase the magnitude of quarterly or
annual fluctuations in our operating results. We believe that this seasonality results from a number of factors,
including the procurement and budgeting cycles of many of our customers, especially government-funded
customers, which often coincide with government fiscal year ends. For example, the U.S. government’s fiscal
year-end occurs in our third quarter and may result in increased sales of our products during this quarter if
government-funded customers have unused funds that may be forfeited, or future budgets that may be reduced
if funds remain unspent at fiscal year-end. Furthermore, Lunar New Year celebrations, which occur during our
first quarter, and may last for a week or longer, resulting in closure of many of our customers’ offices in China
and across the Asia-Pacific region have caused, and may in the future cause, decreased sales of our
consumables during our first quarter. These factors have contributed, and in the future may contribute, to
substantial fluctuations in our quarterly operating results.
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Our operating results during any given period can also be impacted by numerous other factors, including the
following:
• market acceptance for our products;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to attract new customers;
the length of our sales cycles, as discussed above;
our ability to achieve economies of scale and other manufacturing efficiencies at the rate we anticipate;
publications of studies by us, our competitors or third parties;
the timing and success of new product introductions by us or our competitors or other changes in the
competitive dynamics of our industry, such as consolidation;
the amount and timing of our costs and expenses;
changes in our pricing policies or those of our competitors;
general economic, industry and market conditions;
the impact of catastrophic events, including health epidemics or pandemics and military or other armed
conflicts;
the regulatory environment in which we operate;
expenses associated with warranty obligations or unforeseen product quality issues;
the hiring, training, and retention of key employees, including our ability to grow our sales organization;
litigation or other claims against us for intellectual property infringement or otherwise;
our ability to obtain additional financing as necessary; and
changes or trends in new technologies and industry standards.
Consequently, it is possible that in some quarters our operating results will fall below the expectations of
securities analysts or investors. If that happens, the market price of our common stock would likely decrease.
These fluctuations, among other factors, also mean that our operating results in any particular period may not
be relied upon as an indication of future performance. Seasonal or cyclical variations in our sales have in the
past, and may in the future, become more or less pronounced over time, and have in the past materially
affected, and may in the future materially affect, our business, financial condition, results of operations, and
prospects.
Our ability to use net operating losses to offset future taxable income may be subject to substantial limitations,
and changes to U.S. tax laws may cause us to make adjustments to our financial statements.
Under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject
to limitations on its ability to utilize its pre-change net operating losses (“NOLs”) to offset future taxable income.
We believe that we have had one or more ownership changes, and as a result our existing NOLs are currently
subject to limitation. Future changes in our stock ownership could result in additional ownership changes,
including potentially material changes, under Section 382. Consequently, we may not be able to utilize some or
all of our NOLs even if we attain profitability.
Our facilities in California are located near earthquake faults, and the occurrence of an earthquake or other
catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or
curtail operations.
Our facilities in California are located near earthquake fault zones and are vulnerable to damage from
earthquakes. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss,
communications failures and similar events. If any disaster were to occur, our ability to operate our business at
our facilities would be seriously, or potentially completely, impaired. In addition, the nature of our activities could
cause significant delays in our research programs and commercial activities and make it difficult for us to
recover from a disaster. The insurance we maintain may not be adequate to cover our losses resulting from
disasters or other business interruptions. Accordingly, an earthquake or other disaster could materially and
adversely harm our ability to conduct business.
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Risks Related to Our Intellectual Property
Failure to secure patent or other intellectual property protection for our products and improvements to our
products may reduce our ability to maintain any technological or competitive advantage over our current and
potential competitors.
Our ability to protect and enforce our intellectual property rights is uncertain and depends on complex legal and
factual questions. Our ability to establish or maintain a technological or competitive advantage over our
competitors may be diminished because of these uncertainties. For example:
• we or our licensors might not have been the first to make the inventions covered by each of our pending
patent applications or issued patents;
• we or our licensors might not have been the first to file patent applications for these inventions;
•
•
•
•
it is possible that neither our pending patent applications nor the pending patent applications of our
licensors will result in issued patents;
the scope of the patent protection we or our licensors obtain may not be sufficiently broad to prevent
others from practicing our technologies, developing competing products, designing around our
patented technologies or independently developing similar or alternative technologies;
our and our licensors’ patent applications or patents have been, are and may in the future be, subject to
interference, opposition or similar administrative proceedings, which could result in those patent
applications failing to issue as patents, those patents being held invalid or the scope of those patents
being substantially reduced;
our enforcement of patents and proprietary rights in other countries may be problematic or
unpredictable;
• we may not be able to prevent third parties from practicing our inventions in all countries outside the
United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions;
• we or our partners may not adequately protect our trade secrets;
• we may not develop additional proprietary technologies that are patentable; or
•
the patents of others may limit our freedom to operate and prevent us from commercializing our
technology in accordance with our plans.
The occurrence of any of these events could impair our ability to operate without infringing upon the proprietary
rights of others or prevent us from establishing or maintaining a competitive advantage over our competitors.
Variability in intellectual property laws may adversely affect our intellectual property position.
Intellectual property laws, and patent laws and regulations in particular, have been subject to significant
variability either through administrative or legislative changes to such laws or regulations or changes or
differences in judicial interpretation, and it is expected that such variability will continue to occur. Additionally,
intellectual property laws and regulations differ by country. Variations in the patent laws and regulations or in
interpretations of patent laws and regulations in the United States and other countries may diminish the value of
our intellectual property and may change the impact of third-party intellectual property on us. Accordingly, we
cannot predict the scope of the patents that may be granted to us with certainty, the extent to which we will be
able to enforce our patents against third parties or the extent to which third parties may be able to enforce their
patents against us.
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Some of the intellectual property that is important to our business is owned by other companies or institutions
and licensed to us, and changes to the rights we have licensed may adversely impact our business.
We license from third parties some of the intellectual property that is important to our business. If the third
parties who license intellectual property to us fail to maintain the intellectual property that we have licensed, or
lose rights to that intellectual property, the rights we have licensed may be reduced or eliminated, which would
eliminate barriers against our competition. Termination of these licenses or reduction or elimination of our
licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, or
could subject us to claims of intellectual property infringement or contract breach in litigation or other
administrative proceedings that could result in damage awards against us and injunctions that could prohibit us
from selling our products. In addition, some of our licenses from third parties limit the field in which we can use
the licensed technology. Therefore, in order for us to use such licensed technology in potential future
applications that are outside the licensed field of use, we may be required to negotiate new licenses with our
licensors or expand our rights under our existing licenses. We cannot be certain that we will be able to obtain
such licenses or expanded rights on reasonable terms or at all. In the event a dispute with our licensors were to
occur, our licensors may seek to renegotiate the terms of our licenses, increase the royalty rates that we pay to
obtain and maintain those licenses, limit the field or scope of the licenses, or terminate the license agreements.
In addition, we have limited rights to participate in the prosecution and enforcement of the patents and patent
applications that we have licensed. If we fail to meet our obligations under these licenses, or if we have a
dispute regarding the terms of the licenses, these third parties could terminate the licenses, which could subject
us to claims of intellectual property infringement. As a result, we cannot be certain that these patents and
applications will be prosecuted and enforced in a manner consistent with the best interests of our business.
Further, because of the rapid pace of technological change in our industry, we may need to rely on key
technologies developed or licensed by third parties, and we may not be able to obtain licenses and technologies
from these third parties at all or on reasonable terms. The occurrence of these events may have a material
adverse effect on our business, financial condition or results of operations.
The measures that we use to protect the security of and enforce our intellectual property and other proprietary
rights may not be adequate, which could result in the loss of legal protection for, and thereby diminish the value
of, such intellectual property and other rights.
In addition to patents, we also rely upon trademarks, trade secrets, copyrights, and unfair competition laws, as
well as license agreements and other contractual provisions, to protect our intellectual property and other
proprietary rights. Despite these measures, any of our intellectual property rights could be challenged,
invalidated, circumvented, or misappropriated. In addition, we attempt to protect our intellectual property and
proprietary information by requiring our employees and consultants to enter into confidentiality and assignment
of inventions agreements, and by entering into confidentiality agreements with our third-party development,
manufacturing, sales, and distribution partners, who may also acquire, develop and/or commercialize
alternative or competing products or provide services to our competitors. For example, Roche had certain
access to our trade secrets and other proprietary information pursuant to an agreement we had entered into
with Roche, subject to the confidentiality provisions thereof (certain of which provisions survive the termination
of the agreement); however, Roche is developing potentially competing sequencing products. There can be no
assurance that our measures have provided or will provide adequate protection for our intellectual property and
proprietary information. These agreements may be breached, and we may not have adequate remedies for any
such breach. In addition, our trade secrets and other proprietary information may be disclosed to others, or
others may gain access to or disclose our trade secrets and other proprietary information. Enforcing a claim
that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the
outcome is unpredictable. Additionally, others may independently develop proprietary information and
techniques that are substantially equivalent to ours. The occurrence of these events may have a material
adverse effect on our business, financial condition, or results of operations.
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Our intellectual property may be subject to challenges in the United States or foreign jurisdictions that could
adversely affect our intellectual property position.
Our pending, issued and granted U.S. and foreign patents and patent applications have been, are and may in the
future be, subject to challenges by ONT Ltd., ONT Inc. and Metrichor, Ltd. (“Metrichor” and, together with ONT
Ltd. and ONT Inc., “ONT”) in addition to other parties asserting prior invention by others or invalidity on various
grounds, through proceedings, such as interferences, reexaminations, or opposition proceedings. Addressing
these challenges to our intellectual property has been, and any future challenges can be, costly and distract
management’s attention and resources. For example, we previously incurred significant legal expenses to
litigate and settle a complaint seeking review of a patent interference decision of the U.S. Patent and Trademark
Office. Additionally, ONT previously requested that the U.S. Patent and Trademark Office institute inter partes
reviews of certain patents that we have asserted against ONT Inc. and ONT Ltd. in litigation proceedings for
patent infringement. While none of the inter partes reviews requested by ONT were instituted by the U.S. Patent
and Trademark Office, challenges of this nature before the Patent Trial and Appeal Board (“PTAB”) in the future
could result in determinations that our patents or pending patent applications are unpatentable to us, or are
invalidated or unenforceable in whole or in part and could require us to expend significant time, funds, and other
resources in litigating such challenges. Accordingly, adverse rulings in such proceedings could negatively
impact the scope of our intellectual property protection for our products and technology and could materially
and adversely affect our business. Similar mechanisms for challenging the validity and enforceability of a
patent exist in foreign patent offices and courts and may result in the revocation, cancellation, or amendment of
any foreign patents we hold now or in the future. The outcome following legal assertions of invalidity and
unenforceability is unpredictable, and prior art could render our patents invalid. If a defendant were to prevail on
a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent
protection on such products. Such a loss of patent protection would have a material adverse impact on our
business.
Some of our technology is subject to “march-in” rights by the U.S. government.
Some of our patented technology was developed with U.S. federal government funding. When new technologies
are developed with U.S. government funding, the government obtains certain rights in any resulting patents,
including a nonexclusive license authorizing the government to use the invention for non-commercial purposes.
These rights may permit the government to disclose our confidential information to third parties and to exercise
“march-in” rights to use or allow third parties to use our patented technology. The government can exercise its
march-in rights if it determines that such action is necessary to (i) achieve practical application of the U.S.
government-funded technology, (ii) alleviate health or safety needs, (iii) meet requirements of federal
regulations, or (iv) give preference to U.S. industry. In addition, U.S. government-funded inventions must be
reported to the government and such government funding must be disclosed in any resulting patent
applications. Furthermore, our rights in such inventions are subject to government license rights and foreign
manufacturing restrictions. The U.S. government has generally denied requests to exercise its march-in rights,
even to provide access to potentially life-saving medications; however, if the U.S. government were to exercise
its march-in rights to our patent technologies funded by the U.S. government, particularly for the benefit of one
of more of our competitors, that may have a material adverse effect on our business.
We are involved in legal proceedings to enforce our intellectual property rights.
Our intellectual property rights involve complex factual, scientific, and legal questions. We operate in an industry
characterized by significant intellectual property litigation. Even though we may believe that we have a valid
patent on a particular technology, other companies have from time to time taken, and may in the future take,
actions that we believe violate our patent rights. For example, we were previously involved in legal proceedings
with ONT and Harvard University in several United States and European jurisdictions. We have in the past
received adverse rulings against us with respect to our complaint with the United States International Trade
Commission for one of these proceedings. Legal actions to enforce our patent rights have been, and will
continue to be, expensive, and may divert significant management time and resources. Adverse parties from
previous legal actions have brought, and they and others may in the future bring, claims against us and/or our
intellectual property. Litigation is a significant ongoing expense, recognized in sales, general and administrative
expense, with an uncertain outcome, and has been, and may in the future be, a material expense for us. Our
enforcement actions may not be successful, have given rise to legal claims against us and could result in some
of our intellectual property rights being determined to be invalid or not enforceable. Furthermore, an adverse
determination or judgement could lead to an award of damages against us, or the issuance of an injunction
against us or our products that could prevent us from selling any products found to be infringing the intellectual
property rights of another party.
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We have been, are currently, and could in the future be, subject to legal proceedings with third parties who may
claim that our products infringe or misappropriate their intellectual property rights.
Our products are based on complex, rapidly developing technologies. We may not be aware of issued or
previously filed patent applications that belong to third parties that mature into issued patents that cover some
aspect of our products or their use. In addition, because patent litigation is complex and the outcome inherently
uncertain, our belief that our products do not infringe third-party patents of which we are aware or that such
third-party patents are invalid and unenforceable may be determined to be incorrect. As a result, third parties
have claimed, and may in the future claim, that we infringe their patent rights and have filed, and may in the
future file lawsuits or engage in other proceedings against us to enforce their patent rights. For example, we are
involved in legal proceedings for alleged patent infringement and related matters in the United States with
Personal Genomics of Taiwan, Inc. (“PGI”), Take2 Technologies, Ltd., and the Chinese University of Hong Kong.
In addition, ONT Ltd. and Harvard University have, in the past, filed claims against us in the High Court of
England and Wales and the District Court of Mannheim, Germany for patent infringement, and PGI has filed
claims against us in the U.S. District Court for the District of Delaware and in the Wuhan People’s Court in China.
We are aware of other issued patents and patent applications owned by third parties that could be construed to
read on our products, and related maintenance and support services. Although we do not believe that our
products or services infringe any valid issued patents, the third-party owners of these patents and applications
may in the future claim that we infringe their patent rights and file lawsuits against us. In addition, as we enter
new markets, our competitors and other third parties may claim that our products infringe their intellectual
property rights as part of a business strategy to impede our successful entry into those markets. Furthermore,
parties making claims against us may be able to obtain injunctive or other relief, which effectively could block
our ability to further develop or commercialize products or services and could result in the award of substantial
damages against us. Patent litigation between competitors in our industry is common. Additionally, we have
certain obligations to many of our customers and suppliers to indemnify and defend them against claims by
third parties that our products or their use infringe any intellectual property of these third parties. In defending
ourselves against any of these claims, we have in the past incurred, and could in the future incur, to defend
ourselves or our customers, substantial costs, and the attention of our management and technical personnel
could be diverted. For example, we previously incurred significant legal expenses to litigate and settle a
complaint alleging patent infringement. Even if we have an agreement that indemnifies us against such costs,
the indemnifying party may be unable to uphold its contractual obligations. To avoid or settle legal claims, it
may be necessary or desirable in the future to obtain licenses relating to one or more products or relating to
current or future technologies, which could negatively affect our gross margins. We may not be able to obtain
these licenses on commercially reasonable terms, or at all. We may be unable to modify our products so that
they do not infringe the intellectual property rights of third parties. In some situations, the results of litigation or
settlement of claims may require us to cease allegedly infringing activities which could prevent us from selling
some or all of our products. The occurrence of these events may have a material adverse effect on our
business, financial condition, or results of operations.
In addition, in the course of our business, we may from time to time have access or be alleged to have access to
confidential or proprietary information of others, which, though not patented, may be protected as trade secrets.
Others could bring claims against us asserting that we improperly used their confidential or proprietary
information, or that we misappropriated their technologies and incorporated those technologies into our
products. A determination that we illegally used the confidential or proprietary information or misappropriated
technologies of others in our products could result in us paying substantial damage awards or being prevented
from further developing or selling some or all of our products, which could materially and adversely affect our
business.
We have not yet registered some of our trademarks in all of our potential markets, and failure to secure those
registrations could adversely affect our business.
Some of our trademark applications may not be allowed for registration, and our registered trademarks may not
be maintained or enforced. In addition, in the U.S. Patent and Trademark Office and in comparable agencies in
many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and
to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our
trademarks, and our trademarks may not survive such proceedings.
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Our use of “open source” software could adversely affect our ability to sell our products and subject us to
possible litigation.
A portion of the products or technologies developed and/or distributed by us incorporate “open source”
software, and we may incorporate open source software into other products or technologies in the future. Some
open source software licenses require that we disclose the source code for any modifications to such open
source software that we make and distribute to one or more third parties, and that we license the source code
for such modifications to third parties, including our competitors, at no cost. We monitor the use of open source
software in our products to avoid uses in a manner that would require us to disclose or grant licenses under our
source code that we wish to maintain as proprietary; however, there can be no assurance that such efforts have
been or will be successful. In some circumstances, distribution of our software that includes or is linked with
open source software could require that we disclose and license some or all of our proprietary source code in
that software, which could include permitting the use of such software and source code at no cost to the user.
Open source license terms are often ambiguous and there is little legal precedent governing the interpretation
of these licenses. Successful claims made by the licensors of open source software that we have violated the
terms of these licenses could result in unanticipated obligations, including being subject to significant
damages, being enjoined from distributing products that incorporate open source software and being required
to make available our proprietary source code pursuant to an open source license, which could substantially
help our competitors develop products that are similar to or better than ours or otherwise materially and
adversely affect our business.
Risks Related to Regulation
We are, and may become, subject to governmental regulations that may impose burdens on our operations, and
the markets for our products may be narrowed.
We are subject, both directly and indirectly, to the adverse impact of government regulation of our operations
and markets. For example, export of our instruments may be subject to strict regulatory control in a number of
jurisdictions, and we could experience disruption in our supply chain as a result of certain geopolitical events
and conflicts and any related political or economic responses and counter-responses or otherwise by various
global actors. Following Russia’s invasion of Ukraine in February 2022, the United States and other countries
imposed certain economic sanctions and severe export control restrictions against Russia and Belarus as well
as certain Russian nationals and individuals and entities with ties to Russia, Belarus, and this conflict. These
sanctions and restrictions have continued to increase as the conflict has further escalated and now cover the
export of our products to Russia, and the United States and other countries could impose even wider sanctions
and export restrictions and take other actions in the future that could further limit our ability to provide products
in certain locations. Additionally, restrictions on the ability to send certain products and technology related to
semiconductors, semiconductor manufacturing, and supercomputing to China without an export license may
impact our ability to provide products to customers or distributors in China. We have expanded and are
continuing to expand the international jurisdictions into which we supply products, which increases the risks
surrounding governmental regulations relating to our business. The need to or failure to satisfy export control
criteria or to obtain necessary clearances could delay or prevent shipment of products, which could materially
and adversely affect our revenue and profitability. Moreover, the life sciences industry, which is expected to
continue to be one of the primary markets for our technology, has historically been heavily regulated. There are,
for example, laws in several jurisdictions restricting research in genetic engineering, which may narrow our
markets. Given the evolving nature of this industry, legislative bodies or regulatory authorities may adopt
additional regulations that may adversely affect our market opportunities. Additionally, if ethical and other
concerns surrounding the use of genetic information, diagnostics or therapies become widespread, there may
be less demand for our products.
Our business is also directly affected by a wide variety of government regulations applicable to business
enterprises generally and to companies operating in the life science industry in particular. Failure to comply with
government regulations or obtain or maintain necessary permits and licenses could result in a variety of fines or
other censures or an interruption in our business operations which may have a negative impact on our ability to
generate revenue and the cost of operating our business. In addition, changes to laws and government
regulations could cause a material adverse effect on our business as we will need to adapt our business to
comply with such changes. For example, a governmental prohibition on the use of human in vitro diagnostics or
other regulations that negatively impact the research and development activities of our customers would
adversely impact our commercialization of products on which we have expended significant research and
development resources, which would in turn have a material adverse impact on our business and prospects.
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Our products could become subject to government regulation as medical devices by the U.S. Food and Drug
Administration or other domestic and international regulatory agencies even if we do not elect to seek
regulatory clearance or approval to market our products for diagnostic purposes, which could increase our costs
and impede or delay our commercialization efforts, thereby materially and adversely affecting our business and
results of operations.
Our products are currently labeled and promoted as research use only (“RUO”) products, and are not currently
designed, or intended to be used, for clinical diagnostic tests or as medical devices. However, in the future,
certain of our products or related applications, such as those that may be developed for clinical uses, could be
subject to regulation by the U.S. Food and Drug Administration (“FDA”), or the FDA’s regulatory jurisdiction could
be expanded to include our products. Also, even if our products are labeled, promoted, and intended as RUO, the
FDA or comparable agencies of other countries could disagree with our conclusion that our products are
intended for research use only or deem our sales, marketing and promotional efforts as being inconsistent with
the FDA’s guidance on RUO products. For example, our customers may independently elect to use our RUO
labeled products in their own laboratory developed tests (“LDTs”) for clinical diagnostic use, which could
subject our products to government regulation, and the regulatory clearance or approval and maintenance
process for such products may be uncertain, expensive, and time-consuming. Regulatory requirements related
to marketing, selling, and distribution of RUO products could change or be uncertain, even if clinical uses of our
RUO products by our customers were done without our consent. If the FDA or other regulatory authorities assert
that any of our RUO products are subject to regulatory clearance or approval, our business, financial condition,
or results of operations could be adversely affected. In the event that we fail to obtain and maintain necessary
regulatory clearances or approvals for products that we develop for clinical uses, or if clearances or approvals
for future products and indications are delayed or not issued, our commercial operations may be materially
harmed. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant
limitations on the indicated uses for the product, which may limit the market for the product. We do not have
experience in obtaining FDA approvals and no assurance can be given that we will be able to obtain or to
maintain such approvals. Furthermore, any approvals that we may obtain can be revoked if safety or efficacy
problems develop.
The FDA has historically exercised enforcement discretion in not enforcing the medical device regulations
against laboratories developing and offering LDTs. In 2017, the FDA announced that it would not issue final
guidance on the oversight of LDTs, and manufacturers of products used for LDTs, but would seek further public
discussion on an appropriate oversight approach, and give Congress an opportunity to develop a legislative
solution. The FDA has issued warning letters to certain genomics labs for illegally marketing genetic tests that
claim to predict patients’ responses to specific medications, noting that the FDA has not created a legal “carve-
out” for LDTs and retains discretion to take action when appropriate, such as when certain genomic tests raise
significant public health concerns.
As manufacturers develop more complex diagnostic tests and diagnostic software, the FDA may increase its
regulation of LDTs. Any future legislative or administrative rule making or oversight of LDTs, if and when
finalized, may impact the sales of our products and how customers use our products, and may require us to
change our business model in order to maintain compliance with these laws. We cannot predict how these
various efforts will be resolved, how Congress or the FDA will regulate LDTs in the future, or how that regulatory
system will impact our business. Changes to the current regulatory framework, including the imposition of
additional or new regulations, including regulation of our products, could arise at any time during the
development or marketing of our products, which may negatively affect our ability to obtain or maintain FDA or
comparable regulatory approval of our products, if required. Further, sales of devices for diagnostic purposes
may subject us to additional healthcare regulation and enforcement by the applicable government agencies.
Such laws include, without limitation, state and federal anti-kickback or anti-referral laws, healthcare fraud and
abuse laws, false claims laws, privacy and security laws, Physician Payments Sunshine Act and related
transparency and manufacturer reporting laws, and other laws and regulations applicable to medical device
manufacturers.
Additionally, in 2013, the FDA issued Final Guidance “Distribution of In Vitro Diagnostic Products Labeled for
Research Use Only.” The guidance emphasizes that the FDA will review the totality of the circumstances when it
comes to evaluating whether equipment and testing components are properly labeled as RUO. The final
guidance states that merely including a labeling statement that the product is for research purposes only will
not necessarily render the device exempt from the FDA’s clearance, approval, and other regulatory requirements
if the circumstances surrounding the distribution, marketing and promotional practices indicate that the
manufacturer knows its products are, or intends for its products to be, used for clinical diagnostic purposes.
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These circumstances may include written or verbal sales and marketing claims or links to articles regarding a
product’s performance in clinical applications and a manufacturer’s provision of technical support for clinical
applications.
In August 2020, the Department of Health and Human Services ("HHS") announced rescission of guidance and
other informal issuances of FDA regarding pre-market review of LDT absent notice-and-comment rulemaking,
stating that, absent notice-and-comment rulemaking LDTs are not required to obtain FDA pre-market
authorization. In November 2021, HHS under the Biden administration issued a statement that withdrew the
August 2020 policy announcement stating that HHS does not have a policy on LDTs that is separate from FDA’s
longstanding approach.
Legislative and administrative proposals to amend the FDA's oversight of LDTs have been introduced in recent
years, including the Verifying Accurate Leading-edge IVCT Development Act of 2021 (the "VALID Act"), which
aims to create a new category of medical products separate from medical devices called “in vitro clinical tests,”
or IVCTs, and bring all such products within the scope of the FDA’s oversight. To date, Congress has not passed
the VALID Act, but may revisit the VALID Act or similar policy riders and enact other FDA programmatic reforms
in the future. In October 2023, through rulemaking, the FDA proposed to amend the definition of "in vitro
diagnostic products" in FDA regulations to include laboratories that manufacture such products and to phase
out the FDA's general enforcement discretion approach for LDTs so that IVDs manufactured by a laboratory
would be regulated similarly to IVDs. It is unclear when the FDA will finalize and begin enforcing such rule and
how future legislation by federal and state governments and FDA regulation will impact the industry, including
our business and that of our customers.
If the FDA determines our products or related applications should be subject to additional regulation as in vitro
diagnostic devices based upon customers’ use of our products for clinical diagnostic or therapeutic decision-
making purposes, our ability to market and sell our products could be impeded and our business, prospects,
results of operations and financial condition may be adversely affected. In addition, the FDA could consider our
products to be misbranded or adulterated under the Federal Food, Drug, and Cosmetic Act and subject to recall
and/or other enforcement action.
To the extent we elect to label and promote any of our products as medical devices, we would be required to
obtain prior approval or clearance by the FDA or comparable foreign regulatory authority, which could take
significant time and expense and could fail to result in a marketing authorization for the intended uses we
believe are commercially attractive. Obtaining marketing authorization in one jurisdiction does not mean that we
will be successful in obtaining marketing authorization in other jurisdictions where we conduct business.
If we elect to label and market our products for use as, or in the performance of, clinical diagnostics in the
United States, thereby subjecting them to FDA regulation as medical devices, we would be required to obtain
pre-market 510(k) clearance or pre-market approval from the FDA, unless an exception applies. It is possible, in
the event we elect to submit 510(k) applications for certain of our products, that the FDA would take the
position that a more burdensome pre-market application, such as a PMA or a de novo application is required for
some of our products. If such applications were required, greater time and investment would be required to
obtain FDA approval. Even if the FDA agreed that a 510(k) was appropriate, FDA clearance can be expensive
and time consuming. It generally takes a significant amount of time to prepare a 510(k), including conducting
appropriate testing on our products, and several months to years for the FDA to review a submission.
Notwithstanding the effort and expense, FDA clearance or approval could be denied for some or all of our
products for which we choose to market as a medical device or a clinical diagnostic device. Even if we were to
seek and obtain regulatory approval or clearance, it may not be for the intended uses we request or that we
believe are important or commercially attractive. There can be no assurance that future products for which we
may seek pre-market clearance or approval will be approved or cleared by FDA or a comparable foreign
regulatory authority on a timely basis, if at all, nor can there be assurance that labeling claims will be consistent
with our anticipated claims or adequate to support continued adoption of such products. Compliance with FDA
or comparable foreign regulatory authority regulations will require substantial costs, and subject us to
heightened scrutiny by regulators and substantial penalties for failure to comply with such requirements or the
inability to market our products. The lengthy and unpredictable pre-market clearance or approval process, as
well as the unpredictability of the results of any required clinical studies, may result in our failing to obtain
regulatory clearance or approval to market such products, which would significantly harm our business, results
of operations, reputation, and prospects.
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If we sought and received regulatory clearance or approval for certain of our products, we would be subject to
ongoing FDA obligations and continued regulatory oversight and review, including the general controls listed
above and the FDA’s QSRs for our development and manufacturing operations. In addition, we would be
required to obtain a new 510(k) clearance before we could introduce subsequent material modifications or
improvements to such products. We could also be subject to additional FDA post-marketing obligations for
such products, any or all of which would increase our costs and divert resources away from other projects. If we
sought and received regulatory clearance or approval and are not able to maintain regulatory compliance with
applicable laws, we could be prohibited from marketing our products for use as, or in the performance of,
clinical diagnostics and/or could be subject to enforcement actions, including warning letters and adverse
publicity, fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions; and criminal
prosecution.
Further, if we decide to seek regulatory clearance or approval for certain of our products in countries outside of
the United States or if a foreign regulatory authority determines that our products are regulated as medical
devices, we would be subject to extensive medical device laws and regulations outside of the United States.
Sales of such products outside the United States will likely be subject to foreign regulatory requirements, which
can vary greatly from country to country. As a result, the time required to obtain clearances or approvals outside
the United States may differ from that required to obtain FDA clearance or approval and we may not be able to
obtain foreign regulatory approvals on a timely basis or at all. In Europe, we would need to comply with the
Medical Device Regulation 2017/745 and In Vitro Diagnostic Regulation 2017/746, which became effective May
26, 2017, with application dates of May 26, 2021 (postponed from 2020) and May 26, 2022, respectively. This
will increase the difficulty of regulatory approvals in Europe in the future. In addition, the FDA regulates exports
of medical devices. The number and scope of these requirements are increasing. Unlike many of the other
companies offering nucleic acid sequencing equipment or consumables, this is an area where we do not have
expertise. We, or our other third-party sales and distribution partners, may not be able to obtain regulatory
approvals in such countries or may incur significant costs in obtaining or maintaining our foreign regulatory
approvals. In addition, the export by us of certain of our products, which have not yet been cleared for domestic
commercial distribution, may be subject to FDA or other export restrictions. Failure to comply with these
regulatory requirements or obtain and maintain required approvals, clearances and certifications could impair
our ability to commercialize our products for diagnostic use outside of the United States. Any action brought
against us for violations of these laws or regulations, even if successfully defended, could cause us to incur
significant legal expenses and divert our management’s attention from the operation of our business.
Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations, or other trade barriers may
materially harm our business.
We are continuing to expand our international operations as part of our growth strategy and have experienced
an increasing concentration of sales in certain regions outside the United States, especially the Asia-Pacific
region, as discussed above. There is currently significant uncertainty about the future relationship between the
United States and various other countries, most significantly China, with respect to trade policies, treaties,
government regulations and tariffs. Starting in September 2018, the U.S. Trade Representative (the “USTR”)
enacted various tariffs of 7.5%, 10%, 15%, and 25% on the import of Chinese products, including non-U.S.
components and materials that may be used in our products. Additionally, China also has imposed tariffs on
imports into China from the United States. These tariffs have and could continue to raise our costs.
Furthermore, tariffs, trade restrictions, or trade barriers that have been, and may in the future be, placed on
products such as ours by foreign governments, especially China, have raised, and could further raise, amounts
paid for some or all of our products, which may result in the loss of customers and our business, and our
financial condition and results of operations may be harmed. Further tariffs may be imposed that could cover
imports of additional components and materials used in our products, or our business may be adversely
impacted by retaliatory trade measures taken by China or other countries, including restricted access to
components or materials used in our products or increased amounts that must be paid for our products, which
could materially harm our business, financial condition, and results of operations.
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Additionally, the U.S. government imposed controls restricting the ability to send certain products and
technology related to semiconductors, semiconductor manufacturing, and supercomputing to China without an
export license. These controls also apply to certain hardware containing these specified integrated circuits. In
many cases, these licenses are subject to a policy of denial and will not be issued. It is possible that additional
restrictions will be put in place. These existing and future controls may impact our ability to export certain
products to customers or distributors in China or other locations and restrict our ability to use certain integrated
circuits in our products. The U.S. government also continues to add additional entities in China to restricted
party lists impacting the ability of U.S. companies to provide items to these entities. Moreover, in November
2018, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) released an advance notice of
proposed rulemaking to control the export of emerging technologies. This notice included “[b]iotechnology,
including nanobiology; synthetic biology; genomic and genetic engineering; or neurotech” as possible areas of
increased export controls. The Biden Administration has continued to provide updated lists of emerging
technologies subject to national security consents. These lists continue to include biotechnologies including
“[g]enome and protein engineering including design tools” and “[b]iomanufacturing and bioprocessing
technologies.” Therefore, it is possible that our ability to export our products to customers or distributors may
be further restricted in the future.
It is possible that the Chinese government will retaliate in response to existing or future U.S. export controls or
trade restrictions in ways that could impact our business. It also is possible that additional restrictions will be
put in place that could impact our ability to provide our products to customers or distributors in China or source
components from China. The continued threats of tariffs, trade restrictions and trade barriers could have a
generally disruptive impact on the global economy and, therefore, negatively impact our sales. Given the
relatively fluid regulatory environment in China and the United States and uncertainty how the U.S. or foreign
governments will act with respect to export controls, tariffs, international trade agreements and policies, there
could be additional tax or other regulatory changes in the future. Any such changes could directly and adversely
impact our financial results and results of operations.
Our international business could expose us to business, regulatory, political, operational, financial, and
economic risks associated with doing business outside of the United States.
Engaging in international business inherently involves a number of difficulties and risks, including:
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required compliance with existing and changing foreign regulatory requirements and laws that are or
may be applicable to our business in the future, such as the European Union’s General Data Protection
Regulation (“GDPR”) and other data privacy requirements, labor and employment regulations, anti-
competition regulations, the U.K. Bribery Act of 2010 and other anti-corruption laws, regulations relating
to the use of certain hazardous substances or chemicals in commercial products, and require the
collection, reuse, and recycling of waste from products we manufacture;
required compliance with U.S. laws such as the Foreign Corrupt Practices Act, and other U.S. federal
laws and trade and economic sanctions and other regulations established by the Office of Foreign
Asset Control;
export requirements and import or trade restrictions;
laws and business practices favoring local companies;
restrictions on both inbound and outbound cross-border investment;
foreign currency exchange, longer payment cycles and difficulties in enforcing agreements and
collecting receivables through certain foreign legal systems;
changes in social, economic, and political conditions or in laws, regulations and policies governing
foreign trade, manufacturing, research and development, and investment both domestically as well as
in the other countries and jurisdictions in which we operate and into which we may sell our products
including as a result of the separation of the United Kingdom from the European Union (“Brexit”) and
ongoing geopolitical tensions related to the political uncertainty and military actions associated with
the war in Ukraine, resulting sanctions imposed by the U.S. and other countries, and retaliatory actions
taken by Russia in response to such sanctions;
potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other
trade barriers;
difficulties and costs of staffing and managing foreign operations; and
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difficulties protecting, maintaining, enforcing, or procuring intellectual property rights and defending
against intellectual property claims under the law and judicial systems of other countries.
If one or more of these risks occurs, it could require us to dedicate significant resources to remedy such
occurrence, and if we are unsuccessful in finding a solution, our financial results will suffer.
Our operations involve the use of hazardous materials, and we must comply with environmental, health and
safety laws, which can be expensive and may adversely affect our business, operating results and financial
condition.
Our research and development and manufacturing activities involve the use of hazardous materials, including
chemicals and biological materials, and some of our products include hazardous materials. Accordingly, we are
subject to federal, state, local and foreign laws, regulations, and permits relating to environmental, health and
safety matters, including, among others, those governing the use, storage, handling, exposure to and disposal of
hazardous materials and wastes, the health and safety of our employees, and the shipment, labeling, collection,
recycling, treatment, and disposal of products containing hazardous materials. Liability under environmental
laws and regulations can be joint and several and without regard to fault or negligence. For example, under
certain circumstances and under certain environmental laws, we could be held liable for costs relating to
contamination at our or our predecessors’ past or present facilities and at third-party waste disposal sites. We
could also be held liable for damages arising out of human exposure to hazardous materials. There can be no
assurance that violations of environmental, health and safety laws will not occur as a result of human error,
accident, equipment failure or other causes. The failure to comply with past, present or future laws could result
in the imposition of substantial fines and penalties, remediation costs, property damage and personal injury
claims, investigations, the suspension of production or product sales, loss of permits or a cessation of
operations. Any of these events could harm our business, operating results, and financial condition. We also
expect that our operations will be affected by new environmental, health and safety laws and regulations on an
ongoing basis, or more stringent enforcement of existing laws and regulations. New laws or changes to existing
laws may result in additional costs and may increase penalties associated with violations or require us to
change the content of our products or how we manufacture them, which could have a material adverse effect
on our business, operating results, and financial condition.
Ethical, legal, privacy, data protection and social concerns or governmental restrictions surrounding the use of
genetic information could reduce demand for our technology.
Our products may be used to provide genetic information about humans, agricultural crops and other living
organisms. The information obtained from our products could be used in a variety of applications which may
have underlying ethical, legal, privacy, data protection and social concerns, including the genetic engineering or
modification of agricultural products or testing for genetic predisposition for certain medical conditions.
Governmental authorities could, for safety, social or other purposes, call for limits on or regulation of the use of
genetic testing, and may consider or adopt such regulations or other restrictions. Such concerns or
governmental restrictions could limit the use of our products or be costly and burdensome to comply with, and
actual or perceived violations of any such restrictions may lead to the imposition of substantial fines and
penalties, remediation costs, claims and litigation, regulatory investigations and proceedings, and other liability,
any of which could have a material adverse effect on our business, financial condition, and results of
operations.
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Regulations related to conflict minerals has caused us to incur, and will continue to cause us to incur, additional
expenses and could limit the supply and increase the costs of certain materials used in the manufacture of our
products.
We are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
that require us to conduct diligence and report on whether or not our products contain conflict minerals. The
implementation of these requirements could adversely affect the sourcing, availability and pricing of the
materials used in the manufacture of components used in our products. Furthermore, the complex nature of our
products requires components and materials that may be available only from a limited number of sources and,
in some cases, from only a single source. We have incurred, and will continue to incur, additional costs to
comply with the disclosure requirements, including costs related to conducting diligence procedures to
determine the sources of conflict minerals that may be used or necessary to the production of our products
and, if applicable, potential changes to components, processes, or sources of supply as a consequence of such
verification activities. We may face reputational harm if we determine that certain of our products contain
minerals that are not determined to be conflict free or if we are unable to alter our processes or sources of
supply to avoid using such materials. In such circumstances, the reputational harm could materially and
adversely affect our business, financial condition, or results of operations.
Risks Related to Owning Our Common Stock
The price of our common stock has been, is, and may continue to be, highly volatile, and you may be unable to
sell your shares at or above the price you paid to acquire them.
The market price of our common stock is highly volatile, and we expect it to continue to be volatile for the
foreseeable future in response to many risk factors listed in this section, and others beyond our control,
including:
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actual or anticipated fluctuations in our financial condition and operating results;
announcements of new products, technological innovations or strategic partnerships by us or our
competitors;
announcements by us, our customers, partners, or suppliers relating directly or indirectly to our
products, services or technologies;
overall conditions in our industry and market;
addition or loss of significant customers;
changes in laws or regulations applicable to our products;
actual or anticipated changes in our growth rate relative to our competitors;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures, capital commitments or achievement of significant milestones;
additions or departures of key personnel;
competition from existing products or new products that may emerge;
issuance of new or updated research or reports by securities analysts;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
disputes or other developments related to proprietary rights, including patents, litigation matters or our
ability to obtain intellectual property protection for our technologies;
announcement or expectation of additional financing efforts;
sales of our common stock by us or our stockholders;
stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
reports, guidance and ratings issued by securities or industry analysts;
operating results below the expectations of securities analysts or investors; and
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general economic and market conditions, which could be impacted by various events including health
epidemics or pandemics, interest rate fluctuations, increases in fuel prices, foreign currency
fluctuations, international tariffs, acts of terrorism, hostilities or the perception that hostilities may be
imminent, military conflict and acts of war, including further political uncertainty and military actions
associated with the war in Ukraine and the related response, including sanctions or other restrictive
actions, by the United States and/or other countries.
If any of the forgoing occurs, it would cause our stock price or trading volume to decline. Stock markets in
general and the market for companies in our industry in particular have experienced price and volume
fluctuations, which were exacerbated by the COVID-19 pandemic, and current macroeconomic trends and
geopolitical events, and have affected and continue to affect the market prices of equity securities of many
companies. These fluctuations often have been unrelated or disproportionate to the operating performance of
those companies. These broad market and industry fluctuations, as well as general economic, political and
market conditions such as recessions, interest rate changes or international currency fluctuations, may
negatively impact the market price of our common stock. You may not realize any return on your investment in
us and may lose some or all of your investment. In the past, companies that have experienced volatility in the
market price of their stock have been subject to securities class action litigation. We have been a party to this
type of litigation in the past and may be the target of this type of litigation again in the future. Securities
litigation against us could result in substantial costs and divert our management’s attention from other
business concerns, which could seriously harm our business.
Sales of substantial amounts of our common stock in the public markets, or the perception that such sales
might occur, could reduce the market price that our common stock might otherwise attain and may dilute your
voting power and your ownership interest in us.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such
sales could occur, could adversely affect the market price of our common stock and may make it more difficult
for existing stockholders to sell their common stock at a time and price that they deem appropriate and may
dilute their voting power and ownership interest in us.
In addition, if our stockholders sell, or indicate an intent to sell, a large number of shares of our common stock
in the public market, it could cause our stock price to fall, particularly if such sales occur over a short period
time (for example, following delivery of shares upon achievement of milestones in our acquisition agreements).
We may also issue shares of common stock or securities convertible into our common stock in connection with
a financing, acquisition, our equity incentive plans, or otherwise. Any such issuances would result in dilution to
our existing stockholders and the market price of our common stock may be adversely affected.
Concentration of ownership by our principal stockholders may result in control by such stockholders of the
composition of our board of directors.
Our existing principal stockholders, executive officers, directors, and their affiliates beneficially own a
significant number of our outstanding shares of common stock. In addition, such parties may acquire additional
control by purchasing stock that we issue in connection with our future fundraising efforts. These parties may
now and in the future be able to exercise a significant level of control over all matters requiring stockholder
approval, including the election of directors. This control could have the effect of delaying or preventing a
change of control of our company or changes in management and will make the approval of certain
transactions difficult or impossible without the support of these stockholders.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us,
which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to
replace or remove our current management and limit the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may
have the effect of delaying or preventing a change of control or changes in our management. Our amended and
restated certificate of incorporation and amended and restated bylaws include provisions that:
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authorize our board of directors to issue, without further action by the stockholders, up to 50,000,000
shares of undesignated preferred stock and up to approximately 1,000,000,000 shares of authorized but
unissued shares of common stock;
require that any action to be taken by our stockholders be effected at a duly called annual or special
meeting and not by written consent;
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specify that special meetings of our stockholders can be called only by our board of directors, the Chair
of the Board, the Chief Executive Officer or the President;
establish advance notice procedures for stockholder approvals to be brought before an annual meeting
of our stockholders, including proposed nominations of persons for election to our board of directors;
establish that our board of directors is divided into three classes, Class I, Class II and Class III, with
each class serving staggered terms;
provide that our directors may be removed only for cause; and
provide that vacancies on our board of directors may be filled only by a majority of directors then in
office, even though less than a quorum.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of our board of directors, which is
responsible for appointing the members of our management. In addition, because we are incorporated in
Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which
limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine
with us.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the
exclusive forum for certain stockholder litigation matters, and also provide that the federal district courts will be
the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of
1933, as amended, each of which could limit our stockholders’ ability to choose the judicial forum for disputes
with us or our directors, officers, stockholders, or employees.
Our amended and restated bylaws provide that unless we consent in writing to the selection of an alternative
forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction,
another State court in Delaware or the federal district court for the District of Delaware) will, to the fullest extent
permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our
behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former
directors, stockholders, officers, or other employees to us or our stockholders; (iii) any action arising pursuant
to any provision of the Delaware General Corporation Law; (iv) any action to interpret, apply, enforce or
determine the validity of our amended and restated certificate of incorporation or our amended and restated
bylaws; or (v) any action asserting a claim governed by the internal affairs doctrine, except as to each of (i)
through (v) above, for any claim as to which such court determines that there is an indispensable party not
subject to the jurisdiction of such court.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such
Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To
prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by
different courts, among other considerations, our amended and restated bylaws also provide that, unless we
consent in writing to the selection of an alternative forum, the federal district courts of the United States of
America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the
Securities Act including, without limitation and for the avoidance of doubt, any auditor, underwriter, expert,
control person or other defendant.
Any person or entity purchasing, holding or otherwise acquiring any interest in any of our securities shall be
deemed to have notice of and consented to the foregoing bylaw provisions. Although we believe these exclusive
forum provisions benefit us by providing increased consistency in the application of Delaware law and federal
securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a
stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our
directors, stockholders, officers or other employees, which may discourage lawsuits with respect to such claims
against us and our current and former directors, stockholders, officers or other employees. In addition, a
stockholder that is unable to bring a claim in the judicial forum of its choosing may be required to incur
additional costs in the pursuit of actions which are subject to the exclusive forum provisions described above.
Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the
rules and regulations thereunder as a result of our exclusive forum provisions. Further, in the event a court finds
either exclusive forum provision contained in our bylaws to be unenforceable or inapplicable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions, which could harm our
results of operations.
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Our large number of authorized but unissued shares of common stock may potentially dilute existing
stockholders’ stockholdings.
We have a significant number of authorized but unissued shares of common stock. Our board of directors may
issue shares of common stock from this authorized but unissued pool from time to time without stockholder
approval, resulting in the dilution of our existing stockholders.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock and do not intend to pay any dividends in
the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our
business and for general corporate purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize any future gains on their investments.
Risks Related to Our Notes
We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to
repurchase the Notes upon a fundamental change, and our future debt may contain limitations on our ability to
pay cash upon conversion or repurchase of the Notes.
As of December 31, 2023, we had outstanding approximately $459.0 million aggregate principal amount of our
2028 Notes and $441.0 million aggregate principal amount of our 2030 Notes. The 2028 Notes will mature on
February 15, 2028, subject to earlier conversion, redemption or repurchase, including upon a fundamental
change. The 2030 Notes will mature on December 15, 2030, subject to earlier conversion, redemption or
repurchase, including upon a fundamental change. The 2030 Notes and 2028 Notes are collectively referred to
as the Notes.
Holders of the Notes will have the right to require us to repurchase all or a portion of their Notes upon the
occurrence of a fundamental change before the maturity date at a repurchase price equal to 100% of the
principal amount of the Notes to be repurchased, plus unpaid interest to, but excluding, the maturity date. In
addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle
such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to settle a
portion or all of our conversion obligation in cash in respect of the Notes being converted. Moreover, we will be
required to repay the Notes in cash at their maturity unless earlier converted, redeemed, or repurchased.
However, we may not have enough available cash or be able to obtain financing at the time we are required to
make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted or at their
maturity.
In addition, our ability to repurchase Notes or to pay cash upon conversions of Notes or at their maturity may be
limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase
Notes at a time when the repurchase is required by the indenture or to pay cash upon conversions of Notes or
at their maturity as required by the indenture would constitute a default under the indenture. A default under the
indenture or the fundamental change itself could also lead to a default under agreements governing our future
indebtedness. Moreover, the occurrence of a fundamental change under the indenture could constitute an event
of default under any such agreement. If the payment of the related indebtedness were to be accelerated after
any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness or to pay
cash amounts due upon conversion, upon required repurchase or at maturity of the Notes.
If the Notes are converted, it may adversely affect our financial condition and operating results.
Holders of the Notes are entitled to convert their Notes at any time at their option. If one or more holders elect
to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our
common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle
a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition,
issuances of shares of common stock upon conversion of our Notes could depress the market price of our
common stock and impair our ability to raise capital through the sale of additional equity securities. The
existence of the Notes may encourage short selling by market participants because the conversion of the Notes
could depress the price of our common stock.
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General Risk Factors
Unfavorable global economic or political conditions could adversely affect our business, financial condition or
results of operations.
General conditions in the global economy and in the global financial markets could adversely affect our results
of operations, including the potential effects from the COVID-19 pandemic or other similar outbreaks as
discussed above, and the overall demand for nucleic acid sequencing products may be particularly vulnerable to
unfavorable economic conditions. A global financial crisis, inflation or a global or regional political disruption, as
well as acts of terrorism, hostilities, military conflict and acts of war, including any further political uncertainty
and military actions in the Middle East associated with the Israel and Hamas conflict and the war in Ukraine, as
well as the related responses, could cause extreme volatility in the capital and credit markets. A severe or
prolonged economic downturn or political disruption could result in a variety of risks to our business, including
weakened demand for our products and our ability to raise additional capital when needed on acceptable terms,
if at all. A weak or declining economy or political disruption could also strain our manufacturers or suppliers,
possibly resulting in supply disruption, or cause our customers to delay making payments for our product and
services. An impairment in value of our tangible or intangible assets could also be recorded as a result of
weaker economic conditions. Any of the foregoing could harm our business and we cannot anticipate all of the
ways in which the political or economic climate and financial market conditions could adversely impact our
business.
Delivery of our products could be delayed or disrupted by factors beyond our control, and we could lose
customers as a result.
We rely on third-party carriers for the timely delivery of our products. As a result, we are subject to carrier
disruptions and increased costs that are beyond our control. Any failure to deliver products to our customers in
a safe and timely manner may damage our reputation and brand and could cause us to lose customers. If our
relationship with any of these third-party carriers is terminated or impaired or if any of these carriers are unable
to deliver our products, the delivery of our products by our customers may be delayed, which could harm our
business and financial results. The failure to deliver our products in a safe and timely manner may harm our
relationship with our customers, increase our costs and otherwise disrupt our operations.
Doing business internationally creates operational and financial risks for our business.
We currently conduct operations in various countries and jurisdictions, and continue to expand to new
international jurisdictions as part of our growth strategy and have experienced an increasing concentration of
sales in certain regions outside the U.S. We sell directly and through distribution partners throughout Europe,
the Asia-Pacific region, Mexico, Brazil, and South Africa and have a significant portion of our sales and
customer support personnel in Europe and the Asia-Pacific region. As a result, we or our distribution partners
may be subject to additional regulations and increased diversion of management time and efforts. Conducting
and launching operations on an international scale requires close coordination of activities across multiple
jurisdictions and time zones and consumes significant management resources. If we fail to coordinate and
manage these activities effectively, our business, financial condition or results of operations could be materially
and adversely affected and failure to comply with laws and regulations applicable to business operations in
foreign jurisdictions may also subject us to significant liabilities and other penalties. International operations
entail a variety of other risks, including, without limitation:
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potential limits to travel as a result of COVID-19 or other epidemics or pandemics;
challenges in staffing and managing foreign operations;
potentially longer sales cycles and more time required to engage and educate customers on the
benefits of our platform outside of the United States;
the potential need for localized software and documentation;
reduced protection for intellectual property rights in some countries and practical difficulties of
enforcing intellectual property and contract rights abroad;
defending against intellectual property claims in other countries;
restrictions on both inbound and outbound cross-border investment, including enhanced oversight by
the Committee on Foreign Investment in the United States (“CFIUS”) and substantial restrictions on
investment from China;
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U.S. and foreign government trade restrictions, including those which may impose restrictions on the
importation, exportation, re-exportation, sale, shipment or other transfer of programming, technology,
components, and/or services to foreign persons;
changes in diplomatic and trade relationships, including new tariffs, trade protection measures, import
or export licensing requirements, trade embargoes, sanctions, and other trade barriers;
tariffs imposed by the U.S. on goods from other countries and tariffs imposed by other countries on
U.S. goods, including the tariffs by the U.S. government on various imports from China, Canada, Mexico,
and the European Union (“E.U.”) and by the governments of these jurisdictions on certain U.S. goods,
and any other possible tariffs that may be imposed on products such as ours, the scope and duration of
which, if implemented, remains uncertain;
deterioration of political relations between the U.S. and Russia, China, Japan, Korea, Canada, the United
Kingdom (“U.K.”), and the E.U., which could have a material adverse effect on our sales and operations
in these countries;
changes in social, political, and economic conditions or in laws, regulations and policies governing
foreign trade, manufacturing, development, and investment both domestically as well as in the other
countries and jurisdictions into which we sell our products, including as a result of the withdrawal of the
U.K. from the E.U.;
difficulties in obtaining export licenses or in overcoming other trade barriers and restrictions resulting in
delivery delays;
fluctuations in currency exchange rates and the related effect on our results of operations;
increased financial accounting and reporting burdens and complexities;
disruptions to global trade due to disease outbreaks or conflicts;
potential increases on tariffs or restrictions on trade generally; and
significant taxes or other burdens of complying with a variety of foreign laws and regulations, including
laws and regulations relating to privacy and data protection such as the E.U. General Data Protection
Regulation which took effect in the E.U. in 2018.
In conducting our international operations, we are subject to U.S. laws relating to our international activities,
such as the Foreign Corrupt Practices Act of 1977, as well as foreign laws relating to our activities in other
countries, such as the United Kingdom Bribery Act of 2010. Additionally, the inclusion of one of our foreign
customers on any U.S. Government sanctioned persons list, including but not limited to the U.S. Department of
Commerce’s List of Denied Persons and the U.S. Department of Treasury’s List of Specially Designated
Nationals and Blocked Persons List, could be material to our earnings. Failure to comply with these laws may
subject us to claims or financial and/or other penalties in the United States and/or foreign countries that could
materially and adversely impact our operations or financial condition. These risks have become increasingly
prevalent as we have expanded our sales into countries that are generally recognized as having a higher risk of
corruption.
We face risks related to the current global economic environment, which could delay or prevent our customers
from purchasing our products, which could in turn harm our business, financial condition, and results of
operations. The state of the global economy continues to be uncertain. The current global economic conditions
and uncertain credit markets and concerns regarding the availability of credit pose a risk that could impact
customer demand for our products, as well as our ability to manage normal commercial relationships with our
customers, suppliers, and creditors, including financial institutions. If the current global economic environment
deteriorates, our business could be negatively affected.
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Moreover, changes in the value of the relevant currencies may affect the cost of certain items required in our
operations. Changes in currency exchange rates may also affect the relative prices at which we are able to sell
products in the same market. Our revenue from international customers may be negatively impacted as
increases in the U.S. dollar relative to our international customers’ local currencies could make our products
more expensive, impacting our ability to compete or as a result of financial or other instability in such locations
which could result in decreased sales of our products. Our costs of materials from international suppliers may
also increase as the value of the U.S. dollar decreases relative to their local currency. Foreign policies and
actions regarding currency valuation could result in actions by the United States and other countries to offset
the effects of such fluctuations. Such actions may materially and adversely impact our financial condition and
results of operations.
Violations of complex foreign and U.S. laws and regulations could result in fines and penalties, criminal
sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our
ability to offer our products and services in one or more countries, and could also materially affect our brand,
our international growth efforts, our ability to attract and retain employees, our business, and our operating
results. Even if we implement policies or procedures designed to ensure compliance with these laws and
regulations, there can be no assurance that our distribution partners, our employees, contractors, or agents will
not violate our policies and subject us to potential claims or penalties.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements
on a timely basis could be impaired, which would adversely affect our business and our stock price.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce
accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be
evaluated frequently. We may in the future discover areas of our internal financial and accounting controls and
procedures that need improvement. Operating as a public company requires sufficient resources within the
accounting and finance functions in order to produce timely financial information, ensure the level of
segregation of duties, and maintain adequate internal control over financial reporting customary for a U.S.
public company.
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect
that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within our company will have been detected.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we perform periodic evaluations of our internal control over
financial reporting. While we have in the past performed this evaluation and concluded that our internal control
over financial reporting was operating effectively, there can be no assurance that in the future material
weaknesses or significant deficiencies will not exist or otherwise be discovered. In addition, if we are unable to
produce accurate financial statements on a timely basis, investors could lose confidence in the reliability of our
financial statements, which could cause the market price of our common stock to decline and make it more
difficult for us to finance our operations and growth.
Our business could be negatively impacted by changes in the United States political environment.
There is significant ongoing uncertainty with respect to potential legislation, regulation and government policy
at the federal level, as well as the state and local levels. Any such changes could significantly impact our
business as well as the markets in which we compete. Specific legislative and regulatory proposals discussed
during election campaigns and more recently that might materially impact us include, but are not limited to,
changes to spending priorities and potential reductions in research funding. Uncertainty about U.S. government
funding has posed, and may continue to pose, a risk as customers may choose to postpone or reduce spending
in response to actual or anticipated restraints on funding. To the extent changes in the political environment
have a negative impact on us or on our markets, our business, results of operation and financial condition could
be materially and adversely impacted in the future.
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Disruption of critical information technology systems or material breaches in the security of our systems could
harm our business, customer relations and financial condition.
in our products, may be vulnerable to damage from a variety of sources,
Information technology (“IT”) helps us to operate efficiently, interface with customers, maintain financial
accuracy and efficiently and accurately produce our financial statements. IT systems are used extensively in
virtually all aspects of our business, including in our products, sales forecast, order fulfillment and billing,
customer service, logistics, and management of data from running samples on our products. Our success
depends, in part, on the continued and uninterrupted performance of our IT systems. Our IT systems, including
those used
including
telecommunications or network failures, power loss, natural disasters, human acts, computer viruses,
ransomware, computer denial-of-service attacks, unauthorized access to customer or employee data or
company trade secrets, and other attempts to harm our systems. Furthermore, there may be a heightened risk
of potential cybersecurity incidents and security breaches to which we could be vulnerable by state-sponsored
or affiliated actors or others in connection with the political uncertainty and military actions in the Middle East
associated with the Israel and Hamas conflict and the war in Ukraine. Certain of our systems are not redundant,
and our disaster recovery planning is not sufficient for every eventuality. Despite any precautions we may take,
such problems could result in, among other consequences, disruption of our operations, which could harm our
reputation and financial results.
If we do not allocate and effectively manage the resources necessary to build and sustain the proper IT
infrastructure, including those used in our products, we could be subject to transaction errors, processing
inefficiencies, loss of customers, business disruptions or loss of or damage to intellectual property. If our data
management systems do not effectively collect, store, process and report relevant data for the operation of our
business, whether due to equipment malfunction or constraints, software deficiencies or human error, our
ability to effectively plan, forecast and execute our business plan and comply with applicable laws and
regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our
reputation, financial condition, results of operations, cash flows and the timeliness with which we report our
internal and external operating results.
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Security breaches and other disruptions could compromise our information and expose us to liability, which
would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our
proprietary business information and that of our customers, suppliers and business partners, and personal
information of our customers and employees, in our data centers and on our networks. The secure processing,
maintenance and transmission of this information is critical to our operations. Despite our security measures,
our IT infrastructure may be vulnerable to attacks by hackers, computer viruses, malicious codes, ransomware,
unauthorized access attempts, and cyber- or phishing-attacks, or breached or otherwise disrupted due to
employee error, malfeasance, faulty password management or other disruptions. Third parties may attempt to
fraudulently induce employees or other persons into disclosing usernames, passwords or other sensitive
information, which may in turn be used to access our IT systems, commit identity theft or carry out other
unauthorized or illegal activities. Any such breach or incident could compromise our systems and networks and
the information stored or otherwise processed there could be accessed, publicly disclosed, lost, stolen or
otherwise processed in an unauthorized manner. We engage third-party vendors and service providers to store
and otherwise process some of our data, including sensitive and personal information. Our vendors and service
providers may also be the targets of the risks described above, including cyber-attacks, malicious software,
ransomware, phishing schemes, and fraud. Our ability to monitor our vendors and service providers’ data
security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting
in the unauthorized access to, misuse, disclosure, loss or destruction of our data, including sensitive and
personal information, and disruption of our or third-party service providers’ systems. We and our third-party
service providers may face difficulties in identifying, or promptly responding to, potential security breaches and
other instances of unauthorized access to, or disclosure, other processing, or loss or unavailability of,
information. Any hacking or other attack on our or our third-party service providers’ or vendors’ systems, and
any unauthorized access to, or disclosure, other processing, or loss or unavailability of, information suffered by
us or our third-party service providers or vendors, or the perception that any of these have occurred, could result
in legal claims or proceedings, loss of intellectual property, liability under laws that protect the privacy of
personal information, negative publicity, disruption of our operations and damage to our reputation, and data
integrity issues, which could divert our management’s attention from the operation of our business and
materially and adversely affect our business, revenues and competitive position. Moreover, we may need to
increase our efforts to train our personnel to detect and defend against cyber- or phishing-attacks, which are
becoming more sophisticated and frequent, and we may need to implement additional protective measures to
reduce the risk of potential security breaches and security incidents, which could cause us to incur significant
additional expenses. Retaliatory acts by Russia in response to Western sanctions or otherwise in connection
with the war in Ukraine could include cyber-attacks that could disrupt the economy generally or that may either
directly or indirectly impact our operations specifically.
In addition, our insurance may be insufficient to cover our losses resulting from cyber-attacks, breaches, or
other interruptions, and any incidents may result in loss of, or increased costs of, such insurance. The
successful assertion of one or more large claims against us that exceed available insurance coverage, the
occurrence of changes in our insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, or denials of coverage, could have a material adverse effect on our
business, including our financial condition, results of operations and reputation.
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Our use of artificial intelligence and machine learning technologies may result in reputational harm or liability.
We have incorporated and may continue to incorporate additional artificial intelligence and machine learning, or
AIML, technologies into our sequencing platforms, marketing programs, and analysis software, including Revio
and otherwise within our business, and these solutions and features are advantageous to describing, enhancing,
and maximizing the capabilities of our differentiated technologies and to our future growth over time. We rely
and expect to rely on AIML technologies such as basecalling, variant calling, epigenetic analysis and tertiary
analysis, but there can be no assurance that we will realize the desired or anticipated benefits from AIML or any
at all. We may also fail to properly implement or utilize AIML technologies. Our competitors or other third parties
may incorporate AIML into their products, platforms, software and services or otherwise within their business
more quickly or more successfully than us, which could impair our ability to compete effectively and adversely
affect our results of operations. Additionally, our use of AIML technologies may expose us to additional claims,
demands and proceedings by private parties and regulatory authorities and subject us to legal liability as well as
brand and reputational harm. For example, if output from AIML technologies or that they assist in producing are
or are alleged to be deficient, inaccurate, or biased, or for such output, or such technologies or their
development or deployment, including the collection, use, or other processing of data used to train or create
such AIML technologies, to alleged to infringe upon or to have misappropriated third-party intellectual property
rights or to violate applicable laws, regulations, or other actual or asserted legal obligations to which we are or
may become subject, then our business, financial condition, and results of operations may be adversely
affected. The legal, regulatory, and policy environments around AIML are evolving rapidly, and we may become
subject to new and evolving legal and other obligations. These and other developments may require us to make
significant changes to our use of AIML, including by limiting or restricting our use of AIML, and may require us
to make significant changes to our policies and practices, which may necessitate expenditure of significant
time, expense, and other resources, AIML also presents emerging ethical issues, and if our use of AIML
becomes controversial, we may experience brand or reputational harm.
We are currently subject to, and may in the future become subject to additional, U.S. federal and state laws and
regulations imposing obligations on how we collect, store and process personal information. Our actual or
perceived failure to comply with such obligations could harm our business. Ensuring compliance with such laws
could also impair our efforts to maintain and expand our future customer base, and thereby decrease our
revenue.
In the ordinary course of our business, we currently, and in the future will, collect, store, transfer, use or process
sensitive data, including personal information of employees, and intellectual property and proprietary business
information owned or controlled by ourselves and other parties. The secure processing, storage, maintenance,
and transmission of this critical information are vital to our operations and business strategy. We are, and may
increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data
privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy
and security is increasingly rigorous, with new and constantly changing requirements applicable to our
business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and
regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is
possible that they will be interpreted and applied in ways that may have a material adverse effect on our
business, financial condition, results of operations and prospects.
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In the United States, various federal and state regulators, including governmental agencies like the Consumer
Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting,
laws and regulations concerning personal information and data security. Certain state laws may be more
stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal,
international or other state laws, and such laws may differ from each other, all of which may complicate
compliance efforts. For example, the California Consumer Privacy Act (“CCPA”), which increases privacy rights
for California residents and imposes obligations on companies that process their personal information, came
into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new
disclosures to California consumers and provide such consumers new data protection and privacy rights,
including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for
violations, as well as a private right of action for certain data breaches that result in the loss of personal
information. This private right of action may increase the likelihood of, and risks associated with, data breach
litigation. In November 2020, California also passed the California Privacy Rights Act, or (“CPRA”), which
significantly expanded the CCPA as of January 1, 2023, including by introducing additional obligations such as
data minimization and storage limitations and granting additional rights to consumers, among others. The
enactment of the CCPA has prompted similar legislative developments in other states, and numerous other
states have proposed, and in certain cases enacted, legislation relating to privacy and data security, many of
which are similar to the CCPA and CPRA. Similar laws are being considered by other state legislatures. In
addition, laws in all 50 U.S. states require businesses to provide notice to consumers whose personal
information has been disclosed as a result of a data breach. State laws are changing rapidly and there is
discussion in the U.S. Congress of a new comprehensive federal data privacy law. These and future laws and
regulations may increase our compliance costs and potential liability.
Furthermore, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of
1996 (“HIPAA”), establish privacy and security standards that limit the use and disclosure of individually
identifiable health information (known as “protected health information”) and require the implementation of
administrative, physical and technological safeguards to protect the privacy of protected health information and
ensure the confidentiality, integrity and availability of electronic protected health information. Determining
whether protected health information has been handled in compliance with applicable privacy standards and
our contractual obligations can require complex factual and statistical analyses and may be subject to changing
interpretation. Although we take measures to protect sensitive data from unauthorized access, use or
disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or
disrupted, breached or otherwise compromised due to employee error, malfeasance or other malicious or
inadvertent disruptions. Any such breach or disruption could compromise our networks and the information
stored there could be accessed, manipulated, publicly disclosed, lost, stolen, made unavailable, or otherwise
processed without authorization. Any such disruption, access, breach, unavailability, theft, loss or other
unauthorized processing of information, or the perception that any of these has occurred could result in legal
claims or proceedings, and liability under federal or state laws that protect the privacy of personal information,
such as the HIPAA, the Health Information Technology for Economic and Clinical Health Act, and regulatory
penalties. Notice of breaches must be made to affected individuals, the Secretary of the Department of Health
and Human Services, and for extensive breaches, notice may need to be made to the media or state attorneys
general. Such a notice could harm our reputation and our ability to compete.
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While we have in place formal policies and procedures related to the storage, collection, and processing of
information, and have conducted data privacy audits, we continue to evaluate our compliance needs, including
the need to conduct additional internal and external data privacy audits or adopt additional policies and
procedures, to ensure our compliance with all applicable data protection laws and regulations. Additionally, we
do not currently have policies and procedures in place for assessing our third-party vendors’ compliance with
applicable data protection laws and regulations. All of these evolving compliance and operational requirements
impose significant costs, such as costs related to organizational changes, implementing additional protection
technologies, training employees and engaging consultants, which are likely to increase over time. In addition,
such requirements may require us to modify our data processing practices and policies, distract management
or divert resources from other initiatives and projects, all of which could have a material adverse effect on our
business, financial condition, results of operations and prospects. Any failure or perceived failure by us or our
third-party vendors, collaborators, contractors and consultants to comply with any applicable federal, state or
similar foreign laws and regulations relating to data privacy and security, could result in damage to our
reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class
action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards,
penalties or judgments, all of which could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Increased scrutiny of our environmental, social or governance responsibilities may result in additional costs and
risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers
to do business with us.
Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and
customers are increasingly focused on environmental, social, and governance (“ESG”) practices of companies.
Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to
grow. If our ESG practices fail to meet regulatory requirements or investor or other industry stakeholders'
evolving expectations and standards for responsible corporate citizenship in areas including environmental
stewardship, support for local communities, board and employee diversity, human capital management,
employee health and safety practices, product quality, supply chain management, corporate governance and
transparency, and employing ESG strategies in our operations, our brand, reputation and employee retention
may be negatively impacted and customers and suppliers may be unwilling to do business with us. In addition,
as we work to align our ESG practices with industry standards, we will likely continue to expand our disclosures
in these areas and doing so may result in additional costs and require additional resources to monitor, report,
and comply with our various ESG practices. If we fail to adopt ESG standards or practices as quickly as
stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the expectations of
stakeholders, our reputation, business, financial performance, and growth may be adversely impacted.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.
CYBERSECURITY
Risk Management and Strategy
We have established policies and processes for assessing, identifying, and managing material risk from
cybersecurity threats, and have integrated these processes into our overall risk management systems and
processes. We routinely assess material risks from cybersecurity threats, including any potential unauthorized
occurrence on or conducted through our information systems that may result in adverse effects on the
confidentiality, integrity, or availability of our information systems or any information residing therein.
We conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of
a material change in our business practices that may affect information systems that are vulnerable to such
cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and
external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of
existing policies, procedures, systems, and safeguards in place to manage such risks.
Following these risk assessments, we evaluate whether and how to re-design, implement, and maintain
reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing
safeguards; and regularly monitor the effectiveness of our safeguards. We devote significant resources and
designate high-level personnel, including our Senior Director and Head of Information Technology who reports
to our Chief Operating Officer, to manage the risk assessment and mitigation process.
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As part of our overall risk management system, we monitor and test our safeguards, including through annual
third-party vulnerability assessments. We train our employees on these safeguards, in collaboration with human
resources, IT, and departmental management. Personnel at all levels and departments are made aware of our
cybersecurity policies through trainings.
We engage assessors, consultants, auditors, or other third parties in connection with our risk assessment
processes. These service providers assist us to design and implement our cybersecurity policies and
procedures, as well as to monitor and test our safeguards.
We require each third-party infrastructure and applications service provider that has access to our system to
certify that it has the ability to implement and maintain appropriate security measures, consistent with all
applicable laws, to implement and maintain reasonable security measures in connection with their work with us,
and to promptly report any suspected breach of its security measures that may affect our company.
We have not previously experienced a cybersecurity incident that was determined to be material. For additional
information regarding whether any risks from cybersecurity threats are reasonably likely to materially affect our
company, including our business strategy, results of operations, or financial condition, please refer to Item 1A,
“Risk Factors,” in this annual report on Form 10-K.
Governance
One of the key functions of our board of directors is informed oversight of our risk management process,
including risks from cybersecurity threats. Our board of directors is responsible for monitoring and assessing
strategic risk exposure, and our executive officers are responsible for the day-to-day management of the
material risks we face. Our board of directors administers its cybersecurity risk oversight function directly as a
whole, as well as through the audit committee.
Our Senior Director and Head of Information Technology and our management committee on cybersecurity,
which includes Facilities, HR, IT, Legal, and Management, are primarily responsible to assess and manage our
material risks from cybersecurity threats. Our cybersecurity team and IT management have years of
cybersecurity experience and expertise including holding numerous applicable cybersecurity certifications, such
as ISC2 Certified Information Systems Security Professional (CISSP).
Our Senior Director and Head of Information Technology and our management committee on cybersecurity
oversee our cybersecurity policies and processes, including those described in “Risk Management and Strategy”
above. Our Senior Director and Head of Information Technology is informed about and monitors the prevention,
detection, mitigation, and remediation of cybersecurity
implantation of the
cybersecurity risk management program and working directly with our security team. The Senior Director and
Head of Information Technology also provides appropriate information and updates to our management
committee on cybersecurity.
incidents by
leading the
Our Senior Director and Head of Information Technology and representatives from our management committee
on cybersecurity provide annual briefings to the audit committee regarding our company’s cybersecurity risks
and activities, including any recent cybersecurity incidents and related responses, cybersecurity systems
testing, activities of third parties, and the like. Our audit committee provides regular updates to the board of
directors on such reports.
ITEM 2. PROPERTIES
Our corporate headquarters, research and development facilities, and manufacturing and distribution centers
are located in Menlo Park, California, where we lease approximately 180,200 square feet under a lease expiring
on October 31, 2027. We operate additional research, development, and support functions in San Diego, where
we lease approximately 73,500 square feet under a lease expiring on September 30, 2027. Additionally, our
European headquarters is located in London, where we lease approximately 7,300 square feet under a lease
expiring November 30, 2026. Including these leases, we lease approximately 270,000 square feet globally.
We believe that our existing facilities, together with suitable additional or alternative space available on
commercially reasonable terms, will be sufficient to meet our needs.
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ITEM 3. LEGAL PROCEEDINGS
U.S. District Court Proceedings
On September 26, 2019, Personal Genomics of Taiwan, Inc. (“PGI”) filed a complaint in the U.S. District Court for
the District of Delaware against us for patent infringement (C.A. No. 19-cv-1810) (the “PGI District Court
matter”). The matter from this complaint is based on PGI’s U.S. Patent No. 7,767,441 (the “‘441 Patent”). We
plan to vigorously defend in this matter. On November 20, 2019, we filed our answer to the complaint, denying
infringement and seeking a declaratory judgement of invalidity of the ‘441 Patent.
On June 22, 2020, we filed a petition requesting institution of an inter-partes review ("IPR") to the Patent Trial
and Appeals Board (the “Board”) at the United States Patent Office requesting the Board to find a set of claims
in the ‘441 Patent invalid. On June 27, 2020, we filed a second petition requesting institution of an IPR
requesting the Board to find another set of claims in the ‘441 Patent invalid. The two petitions (the “PacBio IPR
Petitions”) requesting IPRs assert that all of the claims relevant to the PGI complaint are invalid. On January 19,
2021, the Board ordered that both PacBio IPR Petitions be instituted on all grounds presented. On January 18,
2022, the Board issued decisions on the two IPRs. In one IPR, all challenged claims were found unpatentable,
including PGI’s core device claims. In the second IPR, the Board did not find the disputed claims unpatentable.
We appealed the decision in the second IPR to the U.S. Court of Appeals for the Federal Circuit, which held a
hearing on December 7, 2023. On January 9, 2024, the U.S. Court of Appeals for the Federal Circuit affirmed the
decisions of the Board.
On August 19, 2020, the court ordered a stay of the PGI District Court matter based on a joint stipulation by the
parties pending a final written decision on the IPRs. Following the final decision on the IPRs described above, on
February 2, 2022, the judge ordered that the PGI District Court matter be reopened. However, in a subsequent
order dated September 15, 2022, the judge stayed the PGI District Court matter pending a final decision by the
U.S. Court of Appeals for the Federal Circuit regarding the appeal described above. We plan to vigorously
defend against the remaining claims.
In December 2022, Take2 Technologies, Ltd. (“Take2”) and the Chinese University of Hong Kong filed a
complaint in the U.S. District Court for Delaware against us alleging infringement of U.S. Patent No. 11,091,794
(the “’794 Patent”) (C.A. No. 22- cv-01595). The complaint alleges that our SequelTM II systems, Sequel IIe
Systems, and RevioTM Systems that operate version 11.0 or later of the SMRTTM Link software, infringe the ‘794
Patent. The complaint seeks unspecified monetary damages and an order enjoining us from infringing the ’794
Patent. We believe the infringement allegations in the complaint lack merit and we intend to vigorously defend
in this matter. We filed a motion to dismiss on February 14, 2023. We also filed a motion to transfer the case to
the Northern District of California which was granted on August 2, 2023 and the case was transferred on August
16, 2023 (C.A. No. 5:23-cv-04166). A hearing occurred on February 22, 2024 on the motion to dismiss the case
and the motion was taken under submission for future decision. Take2 filed a motion to disqualify our in-house
legal department from representing PacBio in the district court action on September 20, 2023. We opposed
Take2’s disqualification motion on October 4, 2023. An oral hearing on the disqualification motion was held on
October 26, 2023 and the court issued orders November 6 and December 4 of 2023 partially granting the
motion. While some members of the in-house legal department were disqualified, General Counsel for PacBio
was not disqualified and continues to represent PacBio in the district court action. On October 17, 2023, we filed
a petition requesting institution of an IPR requesting the Board to find all claims of the ’794 patent invalid. We
anticipate a decision by the United States Patent and Trademark Office on whether to institute a trial on the
validity of the claims of the '794 patent on or before April 26, 2024.
Proceedings in China
On May 12, 2020, PGI filed a complaint in the Wuhan Intermediate People’s Court in China alleging infringement
of one or more claims of China patent No. CN101743321B (the “CN321 Patent”), which is related to the ‘441
Patent. On November 23, 2020, we filed an Invalidation Petition at the China National Intellectual Property
Administration (CNIPA) demonstrating the invalidity of the claims in the CN321 Patent on grounds of
insufficient disclosure, and the lack of support, essential technical features, clarity, novelty, and inventiveness. A
hearing in the invalidation proceeding at the CNIPA was held on April 29, 2021. On September 2, 2021, the
CNIPA issued its decision on the Invalidation Petition and determined that all claims (1-61) of the CN321 patent
were invalid. On December 1, 2021, PGI filed an appeal with the Beijing IP Court, contesting the CNIPA decision.
We filed a petition with the Wuhan Intermediate People’s court requesting dismissal of the infringement action
based on the CNIPA invalidation decision, and PGI filed a petition to withdraw its complaint. The Wuhan
Intermediate People’s court granted PGI’s petition and dismissed the infringement action in May 2022.
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Other Proceedings
From time to time, we may also be involved in a variety of other claims, lawsuits, investigations, and
proceedings relating to securities laws, product liability, patent infringement, contract disputes, employment,
and other matters that arise in the normal course of our business. In addition, third parties may, from time to
time, assert claims against us in the form of letters and other communications.
We record a provision for contingent losses when it is both probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. We currently do not believe that the ultimate outcome of any
of the matters described above is probable or reasonably estimable, or that these matters will have a material
adverse effect on our business; however, the results of litigation and claims are inherently unpredictable.
Regardless of the outcome, litigation can have an adverse impact on us because of litigation and settlement
costs, diversion of management resources, and other factors.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on The Nasdaq Global Select Market under the symbol “PACB.”
Holders of Record
As of January 31, 2024, there were approximately 76 stockholders of record of our common stock, although we
believe that there are a significantly larger number of beneficial owners of our common stock.
Dividend Policy
We have never declared or paid any cash dividend on our common stock and have no present plans to do so.
We intend to retain earnings for use in the operation and expansion of our business.
Performance Graph
The performance graph included in this Annual Report on Form 10-K shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by
reference into any filing of Pacific Biosciences under the Securities Act of 1933, as amended, or the Exchange
Act, except as shall be expressly set forth by specific reference in such filing.
The following graph shows a comparison from December 31, 2018 through December 31, 2023 of the
cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq Biotechnology
Index. Such returns are based on historical results and are not intended to suggest future performance. Data for
The Nasdaq Composite Index and the Nasdaq Biotechnology Index assume reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Pacific Biosciences, Inc, the NASDAQ Composite Index
and the NASDAQ Biotechnology Index
*$100 invested on 12/31/2018 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Recent Sales of Unregistered Securities
Other than as previously reported on our Current Reports on Form 8-K filed with the SEC on June 26, 2023 and
August 2, 2023, there were no unregistered sales of equity securities by us during 2023.
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ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations
together with our consolidated financial statements and the related notes included in this Annual Report on Form
10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual
Report on Form 10-K, including information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk
Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking statements contained in
the following discussion and analysis.
Our Management’s Discussion and Analysis (MD&A) is organized in the following sections:
•
•
•
•
•
•
•
•
Overview and Outlook
Results of Operations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
Quantitative and Qualitative Disclosure of Market Risk
Recent Accounting Pronouncements
Contractual Obligations
Off Balance Sheet Arrangements
Overview and Outlook
About PacBio
We are a premier life science technology company that is designing, developing, and manufacturing advanced
sequencing solutions that enable scientists and clinical researchers to improve their understanding of the
genome and ultimately, resolve genetically complex problems.
Our products and technology under development stem from two highly differentiated core technologies focused
on accuracy, quality, and completeness, which include our HiFi long-read sequencing technology and our
Sequencing by Binding (SBB®) short-read sequencing technology. Our products address solutions across a
broad set of research applications including human genetics, plant and animal sciences, infectious disease and
microbiology, oncology, and other emerging applications.
Our focus is on creating some of the world’s most advanced sequencing systems to provide our customers the
most complete and accurate view of genomes, transcriptomes, and epigenomes.
Our customers include academic and governmental research institutions, commercial testing and service
laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research
organizations (CROs), pharmaceutical companies, and agricultural companies.
As of December 31, 2023, our commercial team is comprised of approximately 215 employees, including 71
quota-carrying representatives, many with advanced degrees in biology and significant experience in the
genomics industry.
Strategic Objectives
2023 exceeded our expectations as we drove adoption of our advanced sequencing technologies,
demonstrated short-read accuracy with our Onso platform, and progressed development of our pipeline
technologies and products.
Our 2024 strategic objectives are to:
•
•
Increase technology adoption by increasing market share via new customer acquisition, continue
Sequel II conversions to Revio, and scale Onso production;
Leverage innovation to complete development of new sequencing platforms and launch on-market
system improvements;
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•
•
Build upon clinical momentum by expanding HiFi usage in large-scale programs and translational
research projects; and
Drive towards positive cash flow through gross margin expansion, disciplined operating expense
management, and a focus on working capital.
We will continue to leverage our commercial organization and make significant improvements in the efficiency
and usability of our products in pursuit of a broader customer base. We believe the commercial investments we
have recently made will further help drive growth in our business.
To increase the adoption of HiFi sequencing, we have various development programs in progress to expand our
product portfolio as well as increase the throughput and improve the usability of our existing sequencing
technologies. We continue to focus on programs to accelerate new platform launches in the near to mid-term
as well as increase applications for our technologies.
We continue to believe that with the capabilities of our HiFi chemistry and SMRT technology, we can be a
market leader in whole-genome clinical sequencing. Leading institutions have adopted our products to study
rare and inherited disease. We believe the market opportunity for clinical sequencing is significant and could
drive substantial revenue growth for the company. We plan to continue to pursue partner collaborations where
the technologies being developed or applications being considered extend beyond whole-genome clinical
sequencing. Collaborative arrangements add to the awareness of our products and service offerings and may
drive new applications for use of our technology.
Financial Overview
Key highlights of our 2023 consolidated financial results include the following:
•
•
•
•
Revenue increased $72.2 million, or 56%, to $200.5 million for the year ended December 31, 2023, as
compared to $128.3 million for the year ended December 31, 2022. Revenue was comprised of $120.5
million in instrument revenue, $63.4 million in consumables revenue and $16.6 million in service and
other revenue for the year ended December 31, 2023. The increase was primarily driven by the launch of
Revio in the first quarter of 2023, which is sold at a higher average selling price than our previous
Sequel II and IIe platforms. We ended the year with an installed base of 173 Revio systems.
Gross profit as a percentage of revenue (gross margin) was 26.3% for the year ended December 31,
2023, compared to 38.2% for the year ended December 31, 2022. Gross margin declined due primarily
to the instrument mix, as Revio instruments sold during the period had a lower margin than the Sequel
II/IIe system, primarily due to loyalty discounts provided and higher initial manufacturing costs,
including warranty costs as well as charges for scrap inventory. In addition, we recognized an
adjustment during the year ended December 31, 2023 primarily related to excess instrument and
consumables inventory. The excess instrument adjustment was primarily due to a change in the Sequel
II demand primarily from one customer. The consumables inventory adjustment was primarily resulting
from a faster-than-expected decline in demand of Sequel II/IIe consumables due primarily to a faster
than expected ramp on the Revio system.
Loss from operations increased $27.3 million or 9%, to $334.5 million for the year ended December 31,
2023, as compared to $307.2 million for the year ended December 31, 2022, driven primarily by an
increase of $31.0 million of operating expenses, including a $12.7 million increase in the change in the
fair value of the contingent consideration, a $9.0 million increase in non-recurring merger-related costs
incurred, and a $9.0 million increase in sales, general, and administrative expenses, partially offset by a
$5.8 million decrease in research and development expenses. See Note 2. Business Acquisitions for
further details.
Cash, cash equivalents, and short-term investments were $631.4 million at December 31, 2023, which
represents an 18% decrease compared to the balance at December 31, 2022.
Macroeconomic dynamics including inflation, exchange rates and concerns about an economic downturn, have
impacted both the Company and our customers’ behavior. For example, some customers and potential
customers are managing capital more conservatively, resulting in lengthened sales cycles, and capital funding
in China is being deferred, resulting in less capital equipment purchases. These factors could continue to
impact our revenues and results of operations in 2024; however, as the size and duration of these impacts is
uncertain, we cannot reasonably estimate the future impact to our operations and financial results.
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See the Risk Factors section for further discussion of the possible impact of macroeconomic factors on our
business.
Results of Operations
A detailed discussion of our consolidated financial results comparison between 2023 and 2022 is presented
below. A discussion of the changes in our results of operations between the years ended December 31, 2022
and December 31, 2021, has been omitted from this Annual Report on Form 10-K but may be found in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on
Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on
February 28, 2023, which is incorporated herein by reference, and is available free of charge on the SEC’s
website at www.sec.gov and our corporate website (www.pacb.com).
Comparison of the Years Ended December 31, 2023 and 2022
(in thousands, except per share amounts)
2023
2022
$ Change
% Change
Years Ended December 31,
Revenue:
Product revenue
Service and other revenue
Total revenue
Cost of Revenue:
Cost of product revenue
Cost of service and other revenue
Amortization of acquired intangible assets
Loss on purchase commitment
Total cost of revenue
Gross profit
Operating Expense:
Research and development
Sales, general and administrative
Merger-related expenses
Amortization of acquired intangible assets
Change in fair value of contingent consideration
Total operating expense
$
183,872 $
108,699 $
75,173
16,649
200,521
127,568
14,754
1,983
3,436
147,741
52,780
187,170
169,818
9,042
6,157
15,060
387,247
19,605
128,304
60,932
13,899
733
3,705
79,269
49,035
193,000
160,854
—
—
2,377
356,231
(2,956)
72,217
66,636
855
1,250
(269)
68,472
3,745
(5,830)
8,964
9,042
6,157
12,683
31,016
Operating loss
(334,467)
(307,196)
(27,271)
Loss on extinguishment of debt
Interest expense
Other income, net
Loss before benefit from income taxes
Benefit from income taxes
Net loss
Revenue
(2,033)
—
(14,343)
(14,690)
32,684
7,638
(318,159)
(314,248)
(11,424)
—
(2,033)
347
25,046
(3,911)
(11,424)
$
(306,735) $
(314,248) $
7,513
69%
(15%)
56%
109%
6%
171%
(7%)
86%
8%
(3%)
6%
—
—
534%
9%
9%
—
(2%)
328%
1%
—
(2%)
The increase in product revenue resulted primarily from an increase of $71.7 million in instrument revenue, as
well as an increase of $3.4 million in consumable revenue.
The increase in instrument revenue was primarily due to the sale of 173 Revio systems that have a higher
average selling price as compared to the Sequel II/IIe platform. We expect the installed base of Revio
instruments to grow, reflecting customer demand for the new product. As a result of this new product launch,
we anticipate the installed base and sales volumes of Sequel II/IIe to continue to decline compared to recent
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quarters. Additionally, we commenced the shipment of Onso products during the year ended December 31,
2023 and expect the installed base to continue to grow.
The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the
growth in the Revio instrument installed base, partially offset by a decline in Sequel consumables as customers
transition to the new platform. As the Revio installed base continues to grow, we anticipate the related
consumable sales to continue to increase.
The decrease in service and other revenue was primarily due to the change in our terms of the warranty
provided with the instrument during the first quarter of 2022 to remove the service component. As a result, the
warranty is no longer a separate performance obligation and, accordingly, we accrue for the cost of the
assurance warranty when revenue of the instrument is recognized, and no longer recognize a component of the
instrument revenue in service and other revenue over the warranty period. Service revenue also declined as
customers transition to Revio, which includes a first-year warranty, and opt to not renew their Sequel II/IIe plans.
As the Revio installed base begins to surpass the warranty period in 2024 and customers transition to service
plans, we expect the retrospective decline in growth trend to reverse within the year and service revenues to
potentially exceed 2023 levels.
Cost of Revenue, Gross Profit, and Gross Margin
The increase in the cost of product revenue was driven primarily by an increase in system placements and
higher overall product costs on the Revio platform, including warranty costs, as well as an increase in
adjustments of approximately $4.6 million as compared to the prior year primarily relating to excess
consumables inventory resulting from faster-than-expected decline in demand of Sequel II/IIe consumables due
primarily to a faster than expected ramp on the Revio system. Cost of revenue included share-based
compensation expense of $5.4 million and $4.8 million during the years ended December 31, 2023 and 2022
respectively.
The loss on purchase commitment was $3.4 million and $3.7 million for the years ended December 31, 2023
and 2022, respectively. The purchase commitment loss is based on an estimate of future excess inventory
related to supply agreements, for which we do not expect to have related sales.
Gross profit increased $3.7 million, or 8%. Gross margin was 26.3% for the year ended December 31, 2023
compared to 38.2% for the year ended December 31, 2022. The decrease in gross margin percentage was
primarily due to instrument mix, in addition to charges for scrap inventory and an increase in adjustments
primarily relating to excess consumables inventory resulting from a faster-than-expected decline in demand of
Sequel II/IIe consumables due primarily to a faster than expected ramp on the Revio system. Revio instruments
sold during the period had a lower margin primarily due to loyalty discounts provided and higher initial
manufacturing costs, including warranty costs. Gross margin could fluctuate depending on the pace at which
Sequel II/IIe revenue declines, Revio consumable revenue ramps, manufacturing efficiencies and warranty costs
improve, as well as fluctuation in average selling prices.
Research and Development Expense
The decrease in research and development expense was primarily driven by the transition of Revio from
development to commercialization. Research and development expense included share-based compensation of
$22.4 million and $30.7 million during the years ended December 31, 2023 and 2022, respectively.
Sales, General, and Administrative Expense
The increase in sales, general, and administrative expense was primarily driven by an increase in sales and
marketing headcount as we continue to grow our commercial footprint. Sales, general, and administrative
expense included share-based compensation expenses of $44.3 million and $43.1 million during the years
ended December 31, 2023 and 2022, respectively.
Merger-Related Expenses
Merger-related expenses of $9.0 million during the year ended December 31, 2023, consist of $4.9 million of
transaction costs arising from the acquisition of Apton, $2.8 million of compensation expense resulting from
the liquidity event bonus plan in connection with the Apton acquisition, and $1.3 million of share-based
compensation expense resulting from the acceleration of certain equity awards in connection with the Apton
acquisition. We recognized $1.3 million of share-based compensation expense for the acceleration that was not
attributable to pre-combination services.
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Amortization of Acquired Intangible Assets
Amortization of acquired intangible assets of $6.2 million during the year ended December 31, 2023 consists of
amortization expense attributable to acquired intangible assets that are not directly related to sales generating
activities.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration during the year ended December 31, 2023, represents the
remeasurement impact of the Omniome and Apton contingent consideration due upon the achievement of the
respective milestone. The increase in the change in fair value of contingent consideration during the year was
primarily due to the Omniome contingent consideration and was primarily attributable to the passage of time,
changes in the discount rates and probabilities of milestone achievement.
The contingent consideration milestone for the Omniome acquisition was defined as the first commercial
shipment to a customer of both an instrument and related consumables, utilizing SBB technology. As a result of
the milestone achievement in September 2023, former Omniome securityholders received as milestone
consideration, among other things, an aggregate of approximately $100.9 million in cash and approximately 9.0
million shares of our common stock.
Loss on Extinguishment of Debt
Loss on extinguishment of debt of $2.0 million during the year ended December 31, 2023, represents the loss
resulting from the difference in the fair value of the 2030 Notes and the principal, in addition to the write-off of
the unamortized debt issuance costs on the portion of the 2028 Notes that were exchanged as part of the debt
modification during the year ended December 31, 2023.
Interest Expense
Interest expense for the year ended December 31, 2023 was $14.3 million compared to $14.7 million for the
year ended December 31, 2022 and was primarily comprised of interest on the Convertible Senior Notes.
Other Income, Net
The increase in other income, net was primarily driven by investment income.
Benefit from Income Taxes
A deferred income tax benefit of $11.4 million for the year ended December 31, 2023, is related to the release of
the valuation allowance for deferred tax assets due to the recognition of deferred tax liabilities in connection
with the Apton acquisition. We maintain a valuation allowance on the net deferred tax assets of our U.S. entities
as we have concluded that it is more likely than not that we will not realize our deferred tax assets. Accordingly,
this benefit from income taxes is reflected on our consolidated statements of operations and comprehensive
loss for the year ended December 31, 2023.
Liquidity and Capital Resources
Our primary sources of liquidity, other than our holdings of cash, cash equivalents, and investments, has
primarily been through the issuance of debt or equity securities, together with cash flow from operating
activities. For example, in January 2023, as discussed above, we issued and sold an aggregate of 20,125,000
shares of our common stock in a follow-on public offering for aggregate gross proceeds of approximately
$201.3 million. We have historically incurred, and expect to continue to incur, operating losses and generate
negative cash flows from operations on an annual basis due to the investments we intend to make as described
in Results of Operations above, and as a result, we may require additional capital resources to execute our
strategic initiatives to grow our business.
Cash, Cash Equivalents, and Investments
As of December 31, 2023, we had $631.4 million in cash, cash equivalents, and investments, compared to
$772.3 million at December 31, 2022. The decrease was primarily attributable to $259.2 million cash used in
operating activities for the twelve months ended December 31, 2023.
Convertible Senior Notes
At December 31, 2022, we had $900 million of principal Convertible Senior Notes outstanding resulting from our
February 9, 2021, issuance of convertible notes due 2028 (the “2028 Notes”) with an aggregate principal of
$900 million. The Notes bear interest at a rate of 1.50% per annum. Interest on the 2028 Notes is payable semi-
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annually in arrears on February 15 and August 15 commencing on August 15, 2021. The 2028 Notes will mature
on February 15, 2028, subject to earlier conversion, redemption, or repurchase. The proceeds from the issuance
of the convertible notes are being used to fund operations, strategic investments, and capital requirements.
The 2028 Notes are convertible at the option of the holder at any time until the second scheduled trading day
prior to the maturity date, including in connection with a redemption by us. The 2028 Notes are convertible into
shares of our common stock based on an initial conversion rate of 22.9885 shares of common stock per $1,000
principal amount of the 2028 Notes (which is equal to an initial conversion price of $43.50 per share), in each
case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.
Upon conversion of the 2028 Notes, we may elect to settle such conversion obligation in shares, cash or a
combination of shares and cash.
In June 2023, we entered into a privately negotiated exchange agreement with the holder of our outstanding
2028 Notes, pursuant to which we issued $441.0 million in aggregate principal amount of our 1.375%
Convertible Senior Notes due in 2030 (the "2030 Notes") in exchange for $441.0 million principal amount of the
2028 Notes. Interest on the 2030 Notes is payable semi-annually in arrears on June 15 and December 15
commencing on December 15, 2023. The 2030 Notes will mature on December 15, 2030, subject to earlier
conversion, redemption, or repurchase.
The 2030 Notes are convertible at the option of the holder at any time until the second scheduled trading day
prior to the maturity date, including in connection with a redemption by the Company. The 2030 Notes are
convertible into shares of our common stock based on an initial conversion rate of 46.5116 shares of common
stock per $1,000 principal amount of the 2030 Notes (which is equal to an initial conversion price of $21.50 per
share), in each case subject to customary anti-dilution and other adjustments as a result of certain
extraordinary transactions. Upon conversion of the 2030 Notes, we may elect to settle such conversion
obligation in shares, cash or a combination of shares and cash.
With certain exceptions, upon a change of control of our company or the failure of our common stock to be
listed on certain stock exchanges, the holders of the 2028 Notes and 2030 notes may require that we
repurchase all or part of the principal amount of those Notes at a purchase price of par plus unpaid interest up
to, but excluding, the maturity date.
The Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the
Notes under the Indenture. The Indenture also includes customary covenants for convertible notes of this type.
See Note 7. Convertible Senior Notes for further details.
Additional Capital Requirements
We believe that our existing cash, cash equivalents, and investments will be sufficient to fund our projected
operating and capital requirements for at least the next 12 months from the date of filing of this Annual Report
on Form 10-K for the year ended December 31, 2023. Operating needs include planned costs to operate our
business, including costs to fund working capital and capital expenditures. Recent and expected working and
other capital requirements, in addition to the above matters, include:
•
•
Our purchase orders and contractual obligations of approximately $109.9 million as of December 31,
2023, which consist of open purchase orders and contractual obligations in the ordinary course of
business, including commitments with contract manufacturers and suppliers for which we have not
received the goods or services. A majority of these purchase obligations are due within a year. Although
open purchase orders are considered enforceable and legally binding, the terms generally allow us the
option to cancel, reschedule and adjust our requirements based on our business needs prior to the
delivery of goods or performance of services.
As described in more detail in Note 8 - Commitments and Contingencies in the Notes to the
Consolidated Financial Statements, we signed a Supply Agreement, which was amended in October
2022, with a supplier for the purchase of certain products over the period of 2023 through 2026. As part
of the Supply Agreement, we made a $9.0 million deposit during the year ended December 31, 2022,
and an additional deposit of $6.0 million in 2023, to secure the supply of certain products through the
term of the contract. If we breach the minimum volume purchase commitment during any applicable
year, the supplier is entitled to retain a portion or all of the deposit corresponding to that year. If we
terminate the Supply Agreement before January 15, 2027, Supplier will refund the remaining balance of
the Deposit. If the supplier breaches its minimum volume supply commitment during any applicable
year or portions thereof, our remedies include termination, pursuit of damages, or pursuit of specific
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performance. If, on or before October 31, 2024, we commit to purchasing a set amount of additional
products during the calendar year 2026, Supplier will increase its maximum capacity guarantee to meet
the additional demand. Should we exercise this option, we will be required to make an additional
deposit of $5.0 million to Supplier within 30 days of the exercise.
Our research and development expenditures of $187.2 million in 2023 and $193.0 million in 2022. While
we expect to continue our investment in research and development in 2024, including enhancements of
our existing products, and continued development of other new technology and products, we expect
research and development expenses to decline slightly in 2024 as compared to the year ended
December 31, 2023 due to recent product transitions.
Cash outflows for capital expenditures of $8.8 million in 2023 and $16.8 million in 2022. We expect to
continue to invest in capital expenditures in fiscal 2024 to continue to support manufacturing and
expansion of our business, and anticipate a slight increase in 2024 as compared to the year ended
December 31, 2023.
Amounts related to future lease payments for operating lease obligations at December 31, 2023,
totaling $46.7 million, with $12.1 million expected to be paid within the next 12 months.
Amounts due under the term loan acquired in connection with Omniome at December 31, 2023, totaling
$0.5 million, the remainder of which is expected to be paid within the next 12 months. Please see Note
6. Balance Sheet Components for additional information.
Payments made to third party collaborators to help advance our technologies and the capabilities of our
products. We may also choose to drive investments to help create an ecosystem of customers,
partners, and collaborators whose expertise and offerings complement and enhance the capabilities
and utility of our technology and increase genomic data available on our platforms.
Payments related to licensing and other arrangements, which are cancellable license agreements with
third parties for certain patent rights and technology. Under the terms of these agreements, we may be
obligated to pay royalties based on revenue from the sales of licensed products, or minimum royalties,
whichever is greater, and license maintenance fees. The future license maintenance fees and minimum
royalty payments under the license agreements are not deemed to be material.
•
•
•
•
•
•
Our future capital requirements and the adequacy of our available funds will depend on many factors, including:
•
•
•
•
•
our ability to successfully commercialize and develop products and solutions that address customer
needs;
the pace of adoption of our products and our ability to obtain new customers in markets;
the progress of our research and development programs and our ability to initiate or expand research
programs;
our ability to manage manufacturing and production costs, including purchase obligations, and
litigation costs, including the costs involved in preparing, filing, prosecuting, defending and enforcing
intellectual property rights; and
the extent to which we engage in collaborations with partners and acquire other businesses or
technologies.
If economic, financial, business, or other factors adversely affect our ability to fund our projected operating
cash requirements, we may be required to obtain funding through traditional or alternative sources of financing.
We cannot be certain that funds will be available on favorable terms, or at all. If we are required and unable to
raise additional capital when desired, our business, operating results, and financial condition may be adversely
affected. See our risk factor captioned “We are not cash flow positive and may not have sufficient cash to make
required payments under the terms of our debt or fund our long-term planned operations” for more information.
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Cash Flow Summary
(in thousands)
Cash used in operating activities
Cash provided by investing activities
Cash provided by financing activities
Years Ended December 31,
2023
2022
$
(259,173) $
(263,211)
4,604
108,891
116,083
9,622
Net decrease in cash, cash equivalents and restricted cash
$
(145,678) $
(137,506)
Operating Activities
Our primary uses of cash in operating activities include the development of future products and product
enhancements, manufacturing, and support functions related to our sales, general, and administrative activities.
Cash used in operating activities for the year ended December 31, 2023, of $259.2 million was due primarily to a
$306.7 million net loss that was partially offset by non-cash items such as share-based compensation of $72.1
million, a change in the estimated fair value of contingent consideration of $15.1 million, depreciation of $11.5
million, inventory provision of $10.6 million, amortization of intangible assets of $8.3 million, and amortization
of right-of-use assets of $6.8 million, offset by accretion of discount and amortization of premium on
marketable securities, net of $12.8 million, and deferred income taxes of $11.4 million. Cash flow impact from
changes in net operating assets and liabilities of $59.0 million, was primarily attributable to increases of $17.8
million in accounts receivable, net, $13.8 million in inventory, net, $9.0 million in prepaid expenses and other
assets, and decreases of $14.9 million in contingent consideration liability, $10.4 million in deferred revenue,
and $8.8 million in operating lease liabilities, partially offset by increases of $13.1 million in accrued expenses,
and $2.4 million in other liabilities.
Cash used in operating activities for the year ended December 31, 2022, of $263.2 million was due primarily to a
$314.2 million net loss that was partially offset by non-cash items such as share-based compensation of $78.6
million, depreciation of $9.5 million, amortization of right-of-use assets of $6.9 million, inventory provision of
$6.0 million, and a change in the estimated fair value of contingent consideration of $2.4 million. Cash flow
impact from changes in net operating assets and liabilities of $54.0 million, was primarily attributable to
increases of $33.9 million in inventory, net, $12.3 million in prepaid expenses and other assets, and decreases
of $7.7 million in operating lease liabilities, $3.7 million in accrued expenses, and $3.7 million in deferred
revenue, partially offset by a decrease of $5.5 million in accounts receivable, net, an increase of $1.0 million in
accounts payable, and $0.9 million in other liabilities.
Investing Activities
Our investing activities consist primarily of capital expenditures and investment purchases and maturities. Cash
provided by investing activities for the year ended December 31, 2023, was due primarily to capital expenditures
of $8.8 million and purchases of investments of $756.6 million offset by maturities of investments of $769.5
million.
Cash used in investing activities for the year ended December 31, 2022, was due primarily to capital
expenditures of $16.8 million and purchases of investments of $442.8 million offset by maturities of
investments of $575.8 million.
Financing Activities
Cash provided by financing activities during the year ended December 31, 2023, resulted from net proceeds
from issuance of common stock under equity offerings of $189.2 million, net proceeds of $15.3 million from the
issuance of common stock through our equity compensation plans, partially offset by $86.4 million due to the
payment of contingent consideration, $7.4 million due to the payment of debt issuance costs, and $1.8 million
due to the payment of notes payable.
Cash provided by financing activities during the year ended December 31, 2022, resulted from net proceeds of
$11.2 million from the issuance of common stock through our equity compensation plans, partially offset by
$1.6 million due to the payment of notes payable.
Off-Balance Sheet Arrangements
As of December 31, 2023, we did not have any off-balance sheet arrangements.
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In the ordinary course of business, we enter into standard indemnification arrangements. Pursuant to these
arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered
or incurred by the indemnified party in connection with any trade secret, copyright, patent or other intellectual
property infringement claim by any third party with respect to its technology, or from claims relating to our
performance or non-performance under a contract, any defective products supplied by us, or any acts or
omissions, or willful misconduct, committed by us or any of our employees, agents or representatives. The term
of these indemnification agreements is generally perpetual after the execution of the agreement. The maximum
potential amount of future payments we could be required to make under these agreements is not determinable
because it involves claims that may be made against us in future periods but have not yet been made. To date,
we have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
We also enter and have entered into indemnification agreements with our directors and officers that may
require us to indemnify them against liabilities that arise by reason of their status or service as directors or
officers, except as prohibited by applicable law. In addition, we may have obligations to hold harmless and
indemnify third parties involved with our fundraising efforts and their respective affiliates, directors, officers,
employees, agents or other representatives against any and all losses, claims, damages and liabilities related to
claims arising against such parties pursuant to the terms of agreements entered into between us and such third
parties in connection with such fundraising efforts. To the extent that such indemnification obligations apply to
the lawsuits described in Legal Proceedings in Part I, Item 3 of this Annual Report on Form 10-K, any associated
expenses incurred are included within the related accrued litigation expense amounts. No additional liability
associated with such indemnification agreements has been recorded as of December 31, 2023.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our
Consolidated Financial Statements, which we have prepared in accordance with U.S. GAAP. The preparation of
these financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, cost of revenue, and operating expenses, and related disclosure of
contingent assets and liabilities. Management based its estimates on historical experience and on various other
assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ materially from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates
reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could
materially impact the financial statements.
Revenue Recognition
Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of
sales of our instruments and related consumables; service and other revenue consist primarily of revenue
earned from product maintenance agreements.
We account for a contract with a customer when there is a legally enforceable contract between us and the
customer, the rights of the parties are identified, the contract has commercial substance, and collectability of
the contract consideration is probable. Revenues are recognized when control of the promised goods are
transferred to our customers, or services are performed, in an amount that reflects the consideration we expect
to be entitled to in exchange for those goods or services.
We may enter into contracts with customers that include a combination of promised products and services,
resulting in arrangements containing multiple performance obligations. We determine whether each product or
service is distinct, in order to identify the performance obligations in the contract and allocate the contract
transaction price among the distinct performance obligations. A performance obligation is considered distinct
from other obligations in a contract when it provides a benefit to the customer either on its own or together with
other resources that are readily available to the customer and is separately identified in the contract. We
consider a performance obligation satisfied once we have transferred control of a good or service to the
customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Therefore,
instrument revenue is recognized upon transfer of control of the asset to the customer, which is generally upon
delivery for sales made to our non-distributor customers and upon shipment for sales made to our distributor
customers.
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The consideration for contracts with multiple performance obligations is allocated between separate
performance obligations based on their individual standalone selling price. We determine the best estimate of
standalone selling price using average selling prices over a 12-month period combined with an assessment of
current market conditions. If the standalone selling price is not directly observable, we rely on estimates by
considering multiple factors including, but not limited to, overall market conditions, including geographic or
regional specific factors, internal costs, profit objectives, pricing practices, and other observable inputs. We
recognize revenues as performance obligations are satisfied by transferring control of the product or service to
the customer or over the term of a product maintenance agreement with a customer. Our revenue
arrangements generally do not provide a right of return.
Certain of our agreements provide options to customers which can be exercised at a future date, such as the
option to purchase our product at discounted prices, among others. In accounting for customer options, we
determine whether an option is a material right and this requires us to exercise significant judgment. If a
contract provides the customer an option to acquire additional goods or services at a discount that exceeds the
range of discounts that we typically give for that product or service for the same class of customer, or if the
option provides the customer certain additional goods or services for free, the option may be considered a
material right. If the contract gives the customer the option to acquire additional goods or services at their
normal standalone selling prices, we would likely determine that the option is not a material right and, therefore,
account for it when the customer exercises the option. If the standalone selling price of the option is not directly
observable, an estimated standalone selling price is utilized which considers adjustments for discounts that the
customer could receive without exercising the option and the likelihood that the option will be exercised. We
may also utilize the alternative approach to estimate the standalone selling price, available pursuant to the
applicable accounting guidance, to the extent we conclude the applicable criteria for using the alternative
approach has been met. We update the transaction price for expected consideration, subject to constraint, each
reporting period if our estimate of future goods to be ordered by customers change.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out
(“FIFO”) method. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for
estimated excess or obsolete balances. Cost includes depreciation, labor, material, and overhead costs,
including product and process technology costs. Determining net realizable value of inventories involves
numerous judgements, including projecting future average selling prices, sales volumes, and costs to complete
products in work in process inventories.
We make inventory purchases and commitments to meet future shipment schedules based on forecasted
demand for our products. The business environment in which we operate is subject to rapid changes in
technology and customer demand. We perform a detailed assessment of inventory each period, which includes
a review of, among other factors, demand requirements, product life cycle and development plans, component
cost trends, product pricing, product expiration, and quality issues. Based on our analysis, we record
adjustments to inventory for potentially excess, obsolete, or impaired goods, when appropriate, to report
inventory at net realizable value. Inventory adjustments may be required if actual demand, component costs,
supplier arrangements, or product life cycles differ from our estimates. Any such adjustments would result in a
charge to our results of operations.
Business Combinations
Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to
the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. The fair values assigned, defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on
estimates and assumptions determined by management. These valuations require us to make estimates and
assumptions, especially with respect to intangible assets. We record the excess consideration over the
aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill. Costs that we
incur to complete the business combination, such as legal and other professional fees, are expensed as they
are incurred.
In connection with certain acquisitions, contingent consideration can be earned by the sellers upon completion
of certain future performance milestones. In these cases, a liability is recorded on the acquisition date for an
estimate of the acquisition date fair value of the contingent consideration. Changes in the fair value of
contingent consideration subsequent to the acquisition date are recognized in operating expenses in our
consolidated statements of operations and comprehensive loss.
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We typically use the discounted cash flow method to value our acquired intangible assets. This method requires
significant management judgment to forecast future operating results and utilizes significant assumptions such
as assumed revenue projections, discount rates and obsolescence factors. The estimates we use to value and
amortize intangible assets are consistent with the plans and estimates that we use to manage our business and
are based on available historical information and industry estimates and averages. If the subsequent actual
results and updated projections of the underlying business activity change compared with the assumptions and
projections used to develop these values, we could experience impairment charges. In addition, we have
estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and
amortization expense. If our estimates of the economic lives change, depreciation or amortization expense
could be accelerated or extended. We capitalize in-process research and development (IPR&D), which is
considered indefinite lived until the completion or abandonment of the associated research and development
efforts. Upon reaching the end of the relevant research and development project (i.e., upon commercialization),
the IPR&D asset is amortized over its estimated useful life. If the relevant research and development project is
abandoned, the IPR&D asset is expensed in the period of abandonment.
If the initial accounting for a business combination is incomplete by the end of a reporting period that falls
within the measurement period, we report provisional amounts in our financial statements. During the
measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the measurement of the amounts recognized as of that date. We record these adjustments
to the provisional amounts with a corresponding offset to goodwill. Any adjustments identified after the
measurement period are recorded in the consolidated statements of operations and comprehensive loss.
We acquired $55.0 million of IPR&D, and $52.3 million of goodwill in connection with the acquisition of Apton
Biosystems, Inc. in the third quarter of 2023.
Goodwill and Intangible Assets with Indefinite Lives — Impairment Assessment
Goodwill and other intangible assets with indefinite useful lives (i.e., IPR&D) are not amortized, however they are
tested annually for impairment, in the second and fourth quarter of our fiscal year, respectively, and whenever
events or changes in circumstances indicate that it is more likely than not that the fair value is less than the
carrying value. Events that would indicate impairment and trigger an interim impairment test include, but are not
limited to, unexpected adverse business conditions, economic factors, unanticipated technological changes or
competitive activities, loss of key personnel and acts by governments or courts.
We perform our goodwill impairment analysis at the reporting unit level. We have one reporting unit, which
aligns with our reporting structure and availability of discrete financial information. During the goodwill
impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair
value of our reporting unit is less than the carrying amount, including goodwill. The qualitative factors include,
but are not limited to, macroeconomic conditions, industry and market considerations, and our overall financial
performance. If, after assessing the totality of these qualitative factors, we determine that it is not more likely
than not that the fair value of our reporting unit is less than the carrying amount, then no additional assessment
is deemed necessary. Otherwise, we proceed to compare the estimated fair value of the reporting unit with the
carrying value, including goodwill. If the carrying amount of the reporting unit exceeds the fair value, we record
an impairment loss based on the difference. If a quantitative assessment is performed, the evaluation includes
management estimates of cash flow projections based on internal future projections and/or use of a market
approach by looking at market values of comparable companies. Key assumptions include, but are not limited
to, revenue and operating income growth rates, discount rates and other factors. We consider peer revenues
and earnings trading multiples from companies that have operational and financial characteristics that are
similar to the asset under measurement and estimated weighted-average costs of capital. Different
assumptions from those made in our analysis could materially affect projected cash flows and the evaluation of
assets for impairment. We also consider our market capitalization as a part of our analysis. We may elect to
bypass the qualitative assessment in a period and proceed to perform the quantitative goodwill impairment
test.
During the IPR&D impairment review, we assess qualitative factors to determine whether it is more likely than
not that the fair value of the IPR&D is less than the carrying amount. The qualitative factors include, but are not
limited to, macroeconomic conditions, industry-specific conditions, and company-specific conditions. If, after
assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair
value of the IPR&D is less than the carrying amount, then no additional assessment is deemed necessary.
Otherwise, we proceed to compare the estimated fair value of the IPR&D with the carrying value. If the carrying
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amount of the IPR&D exceeds the fair value, we record an impairment loss based on the difference. If a
quantitative assessment is performed, the evaluation includes management estimates of cash flow projections
based on internal future projections. Key assumptions include, but are not limited to, revenue projections,
revenue growth rates, discount rates and other factors. We consider peer revenues and earnings trading
multiples from companies that have operational and financial characteristics that are similar to the asset under
measurement and estimated weighted-average costs of capital. Different assumptions from those made in our
analysis could materially affect projected cash flows and the evaluation of assets for impairment. We may elect
to bypass the qualitative assessment in a period and proceed to perform the quantitative impairment test.
Intangible Assets and Other Long-Lived Assets — Impairment Assessment
We perform regular reviews to determine if any event has occurred that may indicate that the carrying values of
our intangible assets with finite lives and other long-lived assets are impaired. If indicators of impairment exist,
we assess the recoverability of the affected assets by determining whether their carrying amounts exceed their
undiscounted expected future cash flows. If the affected assets are not recoverable, we estimate the fair value
of the assets and record an impairment loss if the carrying value exceeds the fair value. Factors that may
indicate potential impairment include a significant decline in our stock price and market capitalization
compared to net book value, significant changes in the ability of an asset to generate positive cash flows and
the pattern of utilization of a particular asset.
In order to estimate the fair values of identifiable intangible assets with finite lives and other long-lived assets,
we estimate the present value of future cash flows from those assets. The key assumptions that we use in our
discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the
asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash
flows, the time value of money, and other factors that a willing market participant would consider. Significant
judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving
those cash flows.
Assumptions and estimates about future values and remaining useful lives are complex and often subjective.
They can be affected by a variety of factors, including external factors such as industry and economic trends,
and internal factors such as changes in our business strategy and our internal forecasts.
Contingent Consideration
In connection with the acquisition of Omniome in the third quarter of 2021, we entered into an arrangement
where we were obligated to pay $200 million in cash and equity dependent upon the achievement of a
milestone event upon the first commercial shipment of products developed from our acquired sequencing
technology. In the third quarter of 2023, we commenced customer shipments of the Onso short-read
sequencing instrument. The milestone payment associated with PacBio’s acquisition of Omniome was
triggered in September 2023 once both the Onso instrument and related consumables had been shipped to one
customer. Consequently, we paid the former Omniome security holders milestone consideration of an
aggregate of approximately $100.9 million in cash and approximately 9.0 million shares of our common stock in
October 2023.
In connection with the acquisition of Apton, we entered into an arrangement where we are obligated to pay
former holders of Apton's outstanding equity interests $25.0 million upon the achievement of $50 million in
revenue associated with a high throughput sequencer using Apton's technology, provided that the milestone
event occurs prior to the 5-year anniversary of the closing date of the acquisition, which we may elect to pay in
cash, shares of our common stock or a combination of cash and shares of our common stock. See Note 2.
Business Acquisitions for further information.
The contingent consideration liability was measured at fair value as of the acquisition date and is remeasured
periodically at each reporting date, with changes in fair value recorded as change in fair value of contingent
consideration in the consolidated statements of operations and comprehensive loss. For the Omniome
contingent consideration, the initial measurement and post-acquisition remeasurement required estimates and
assumptions using a scenario-based method that considers a range of potential outcomes of milestone
achievement dates and assigned probabilities of occurrence for each outcome. Outcomes were discounted to
present value, which was then weighted by the probability of each scenario to determine the total fair value of
the contingent consideration payment as of each reporting period. This method requires significant
management judgment, including the probability of achieving certain future milestones and discount rates. For
the Apton contingent consideration, the initial measurement and post-acquisition remeasurement required
estimates and assumptions using a Monte Carlo Simulation to estimate the volatility and systematic relative
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risk of revenues subject to sales milestone payments and discounting the associated cash payment amounts to
their present values using a credit-risk-adjusted interest rate to determine the total fair value of the contingent
consideration payment as of each reporting period. This method requires significant management judgment,
including risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an
estimated credit spread. Future changes in our estimates could result in expenses or gains. Refer to Note 5.
Financial Instruments for further discussion on valuation assumptions.
Recent Accounting Pronouncements
Please see Note 1. Organization and Significant Accounting Policies, subsection titled “Recent Accounting
Pronouncements”, in Part II, Item 8 of this Annual Report on Form 10-K for information regarding applicable
recent accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Market Risk
Our investment portfolio is exposed to market risk from changes in interest rates. The goals of our investment
policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and cash
equivalents and investments. We also seek to maximize income from our investments without assuming
significant risk. To achieve our goals, we maintain a portfolio of cash equivalents and investments in a variety of
securities of high credit quality. The securities in our investment portfolio are not leveraged, are classified as
available for sale and are, due to their short-term nature, subject to minimal interest rate risk. The fair market
value of our fixed rate securities may be adversely impacted by increases in interest rates while income earned
may decline as a result of decreases in interest rates. A hypothetical 100 basis-point (one percentage point)
increase or decrease in interest rates compared to rates on December 31, 2023 would have affected the fair
value of our investment portfolio by approximately $2.7 million.
The 2030 Notes were recorded at fair value as of the closing date of the Exchange Transaction, less debt
issuance costs, on our consolidated balance sheets. We carry our remaining 2028 Notes at the principal
amount, less unamortized debt issuance costs, on our consolidated balance sheets. Because the 2030 Notes
and 2028 Notes have fixed annual interest rates of 1.375% and 1.50%, respectively, we do not have any
economic interest rate exposure or financial statement risk associated with changes in interest rates. The fair
value of the notes, however, may fluctuate when interest rates and the market price of our stock changes. See
Note 7. Convertible Senior Notes in Part II, Item 8 of this Annual Form 10-K for additional information.
Foreign Exchange Risk
Our revenue, expense, and capital purchasing activities are primarily transacted in U.S. dollars; however, a
portion of our operations is conducted in foreign currencies. As a result, we have foreign exchange exposures
relating to non-U.S. dollar denominated cash flows and monetary assets and liabilities that are denominated in
currencies other than U.S. dollars. The value of the amounts is exposed to changes in currency exchange rates
from the time the transactions are originated, until the time the cash settlement is converted into U.S. dollars.
Our foreign currency exposure is primarily concentrated in the Euro. A 10% strengthening of the U.S. dollar
exchange rate against all currencies with which we have exposure, after taking into account offsetting positions
at December 31, 2023 would have resulted in a $0.9 million decrease in the carrying amounts of those net
assets. Actual gains and losses in the future may differ materially from these hypothetical gains and losses
based on changes in the timing and amount of foreign currency exchange rate movements and our actual
exposure. Our international operations are subject to risks typical of international operations, including, but not
limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations
and restrictions, and foreign exchange rate volatility.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page(s)
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76
77
78
79
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To the Stockholders and the Board of Directors of Pacific Biosciences of California, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pacific Biosciences of California, Inc. (the
Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and
comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023,
based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2024,
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any
way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
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Description
Matter
of
the
Revenue recognition - Identification of performance obligations and
allocation of contract consideration
For the year ended December 31, 2023, the Company recognized
revenue of $200.5 million, including $183.9 million of product
revenue, which consists primarily of instrument sales and related
consumables. As described in Note 1 to the consolidated financial
statements, the Company may enter into contracts with customers
that includes a combination of promised products and services,
resulting
in arrangements containing multiple performance
obligations. The Company identifies a performance obligation for
each promise to transfer to the customer, a product or service that is
distinct. The consideration is allocated between each performance
obligation based on its individual standalone selling price, which is
estimated by the Company, using historical sales data, as well as
management judgment.
The Company enters into, or periodically modifies, revenue contracts
with non-standard terms, requiring management to evaluate whether
these non-standard terms represent a performance obligation. For
example, the Company may offer specified discounts on current
products within an arrangement and on future purchase options, for
which historical information may not be available. As part of the
Company's
identification of performance obligations and the
resulting determination of the allocation of contract consideration,
the Company considers if these specified discounts represent a
material right when compared to the estimated standalone selling
price and, therefore, a performance obligation to be included in the
allocation of the contract value.
identification of
Auditing management’s
the performance
obligations and the resulting determination of the allocation of
contract consideration in certain contracts involved a higher degree
of judgment due to the subjective nature of identifying certain
related determination of
performance obligations and
standalone selling price when
is not based on historical
information.
the
it
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of
internal controls
addressing management’s identification of performance obligations
including standalone
and allocation of contract consideration,
selling price determination.
the Company’s
Our audit procedures included, among others, reading executed
contracts for a sample of arrangements and evaluating whether
terms of the contracts (including specified discounts on current and
future purchase options) resulted
in additional performance
obligations. Additionally, we tested the completeness and accuracy
of the information used in management’s allocation of contract
consideration,
in underlying
calculations to determine standalone selling price.
incorporated
the data
including
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Description
Matter
of
the
How We Addressed the
Matter in Our Audit
Business combination - Valuation of intangible asset
As described in Note 2 to the consolidated financial statements, the
Company completed its acquisition of Apton Biosystems, Inc. during
for as a business
2023. The
combination, and
indefinite-lived
intangible asset of $55.0 million.
transaction was accounted
the Company
recorded an
Auditing the Company’s accounting for the acquisition was
challenging because the determination of the fair value of the
identified intangible asset, which consisted of in-process research
and development (IPR&D), required management to make certain
subjective estimates and assumptions. The Company used an
income approach to measure the intangible asset. The valuation of
the intangible asset is subject to higher estimation uncertainty due
to management’s judgments in determining significant assumptions,
which included certain components of the revenue projection and
the discount rate. A change in these significant assumptions could
have a significant effect on the fair value of the intangible asset.
We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls addressing the identified audit
risk. For example, we tested controls over management’s review of
the significant assumptions used to develop the fair value estimate
of the intangible asset. We also tested management’s controls to
validate that data used in the fair value estimate was complete and
accurate.
To test the estimated fair value of the intangible asset, we
performed audit procedures that included, among others, evaluating
the Company’s valuation model with the assistance of valuation
specialists, performing sensitivity analyses to determine which
assumptions had the greatest impact on the overall determination of
value, and testing the completeness and accuracy of the underlying
data used to develop the assumptions. We also evaluated the
assumptions by comparing them to market and economic trends,
historical results of the Company’s business and other guideline
companies within the same industry.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
San Mateo, California
February 28, 2024
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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
Consolidated Balance Sheets
(in thousands, except per share amounts)
Assets
Current assets
Cash and cash equivalents
Investments
Accounts receivable, net
Inventory, net
Prepaid expenses and other current assets
Short-term restricted cash
Total current assets
Property and equipment, net
Operating lease right-of-use assets, net
Long-term restricted cash
Intangible assets, net
Goodwill
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
Accrued expenses
Deferred revenue, current
Operating lease liabilities, current
Other liabilities, current
Contingent consideration liability, current
Total current liabilities
Deferred revenue, non-current
Contingent consideration liability, non-current
Operating lease liabilities, non-current
Convertible senior notes, net, non-current
Other liabilities, non-current
Total liabilities
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.001 par value:
December 31,
2023
2022
$
179,911 $
451,505
36,615
56,676
17,040
300
325,089
447,229
18,786
50,381
10,289
300
742,047
852,074
36,432
32,593
2,422
456,984
462,261
13,274
41,580
39,763
2,922
410,245
409,974
10,528
$
1,746,013 $
1,767,086
$
15,062 $
45,708
16,342
9,591
8,326
—
95,029
5,530
19,550
31,606
892,243
751
12,028
32,596
30,498
8,886
7,233
172,094
263,335
1,794
—
41,070
896,683
1,300
1,044,709
1,204,182
Authorized 50,000 shares; No shares issued or outstanding
—
—
Common stock, $0.001 par value:
Authorized 1,000,000 shares; issued and outstanding 267,744 and 226,505 shares at December 31,
2023 and December 31, 2022, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
268
227
2,539,892
2,099,782
219
(4,765)
(1,839,075)
(1,532,340)
701,304
562,904
Total liabilities and stockholders’ equity
$
1,746,013 $
1,767,086
See accompanying notes to the consolidated financial statements.
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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share amounts)
Revenue:
Product revenue
Service and other revenue
Total revenue
Cost of Revenue:
Cost of product revenue
Cost of service and other revenue
Amortization of acquired intangible assets
Loss on purchase commitment
Total cost of revenue
Gross profit
Operating Expense:
Research and development
Sales, general and administrative
Merger-related expenses
Change in fair value of contingent consideration
Amortization of acquired intangible assets
Total operating expense
Operating loss
Loss from Continuation Advances from Illumina
Loss on extinguishment of debt
Interest expense
Other income, net
Loss before benefit from income taxes
Benefit from income taxes
Net loss
Other comprehensive income (loss):
Unrealized gain (loss) on investments
Comprehensive loss
Net loss per share:
Basic
Diluted
Years Ended December 31,
2023
2022
2021
$
183,872 $
108,699 $
113,505
16,649
200,521
127,568
14,754
1,983
3,436
147,741
52,780
187,170
169,818
9,042
15,060
6,157
19,605
128,304
17,008
130,513
60,932
13,899
733
3,705
79,269
49,035
193,000
160,854
—
2,377
—
56,358
14,989
306
—
71,653
58,860
112,899
124,124
31,129
1,143
—
387,247
356,231
269,295
(334,467)
(307,196)
(210,435)
—
(2,033)
(14,343)
32,684
—
—
(14,690)
7,638
(52,000)
—
(12,530)
93
(318,159)
(314,248)
(274,872)
(11,424)
—
(93,649)
(306,735)
(314,248)
(181,223)
4,984
(3,678)
(1,172)
(301,751) $
(317,926) $
(182,395)
(1.21) $
(1.21) $
(1.40) $
(1.40) $
(0.89)
(0.89)
$
$
$
Weighted average shares outstanding used in calculating ͏net loss per share
Basic
Diluted
253,629
253,629
224,550
224,550
204,136
204,136
See accompanying notes to the consolidated financial statements.
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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands)
Shares
Amount
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
Balance at December 31, 2020
192,294 $
192 $
1,372,083 $
85 $
(1,036,869) $
335,491
Net loss
Other comprehensive loss
Issuance of common stock in
conjunction with equity plans
Issuance of common stock in
Private Placement, net of
issuance costs
Issuance of common stock in
acquisition of Omniome
Share-based compensation
expense
—
—
8,557
11,215
8,912
—
—
—
9
11
9
—
—
—
31,797
294,834
237,876
73,355
—
(181,223)
(181,223)
(1,172)
—
—
—
—
—
—
—
—
—
(1,172)
31,806
294,845
237,885
73,355
Balance at December 31, 2021
220,978 $
221 $
2,009,945 $
(1,087) $
(1,218,092) $
790,987
Net loss
Other comprehensive loss
Issuance of common stock in
conjunction with equity plans
Share-based compensation
expense
—
—
5,527
—
—
—
6
—
—
—
11,224
78,613
—
(314,248)
(314,248)
(3,678)
—
—
—
—
—
(3,678)
11,230
78,613
Balance at December 31, 2022
226,505 $
227 $
2,099,782 $
(4,765) $
(1,532,340) $
562,904
Net loss
Other comprehensive income
Issuance of common stock
following milestone achievement
Issuance of common stock in
acquisition of Apton
Issuance of common stock in
connection with Apton liquidity
event bonus plan
Issuance of common stock from
Underwritten Public Equity
Offering, net of issuance costs
Issuance of common stock in
conjunction with equity plans
Share-based compensation
expense
—
—
8,988
6,121
169
20,125
5,836
—
—
—
9
6
—
20
6
—
—
—
84,752
76,636
2,111
189,180
15,313
72,118
—
(306,735)
(306,735)
4,984
—
—
—
—
—
—
—
—
—
—
—
—
—
4,984
84,761
76,642
2,111
189,200
15,319
72,118
Balance at December 31, 2023
267,744 $
268 $
2,539,892 $
219 $
(1,839,075) $
701,304
See accompanying notes to the consolidated financial statements.
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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Loss (gain) from Continuation Advances
Depreciation
Amortization of intangible assets
Amortization of right-of-use assets
Share-based compensation
Merger-related compensation expense
Loss on extinguishment of debt
Amortization of premium and accretion of discount on marketable securities, net
Change in the estimated fair value of contingent consideration
Inventory provision
Deferred income taxes
Other
Changes in assets and liabilities
Accounts receivable, net
Inventory, net
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Deferred revenue
Operating lease liabilities
Contingent consideration liability
Other liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible assets
Cash paid for purchases of acquired entities, net of cash acquired
Purchase of investments
Sales of investments
Maturities of investments
Net cash provided by (used in) in investing activities
Cash flows from financing activities
Continuation Advances
Proceeds from issuance of Convertible Senior Notes, net of issuance costs
Proceeds from issuance of common stock under equity offerings, net of issuance costs
Proceeds from issuance of common stock from equity plans
Payment of debt issuance costs
Payment of contingent consideration
Notes payable principal payoff
Other
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents at end of period
Restricted cash at end of period
Cash, cash equivalents, and restricted cash at end of period
Supplemental disclosure of cash flow information
Interest paid
Supplemental disclosure of non-cash investing and financing activities
Inventory transferred to property and equipment
Property and equipment transferred to inventory
Right-of-use asset and liability additions and modifications
Issuance of common stock in acquisition of Apton and Omniome
Issuance of common stock in connection with Apton liquidity event bonus plan
Convertible Senior Notes exchange
Issuance of common stock following milestone achievement
$
$
$
$
$
$
$
$
$
$
Years Ended December 31,
2022
2021
2023
$
(306,735) $
(314,248) $
(181,223)
—
11,463
8,261
6,810
72,118
3,395
2,033
(12,840)
15,060
10,584
(11,424)
1,059
(17,829)
(13,841)
(8,984)
206
13,103
(10,420)
(8,759)
(14,882)
2,449
(259,173)
(8,843)
—
(102)
(756,567)
595
769,521
4,604
—
9,480
913
6,925
78,613
—
—
(244)
2,377
6,027
—
918
5,455
(33,906)
(12,324)
1,025
(3,651)
(3,734)
(7,724)
—
887
(263,211)
(16,750)
(179)
—
(442,788)
—
575,800
116,083
—
—
189,200
15,319
(7,375)
(86,411)
(1,842)
—
108,891
(145,678)
328,311
182,633 $
179,911
2,722
182,633 $
—
—
—
11,230
—
—
(1,608)
—
9,622
(137,506)
465,817
328,311 $
325,089
3,222
328,311 $
52,000
7,199
381
4,005
73,355
—
—
4,011
1,143
678
(93,649)
593
(7,166)
(13,109)
(1,024)
6,363
15,320
25,736
(4,990)
—
(803)
(111,180)
(5,931)
—
(319,793)
(988,046)
212,734
422,505
(678,531)
(52,000)
895,536
294,845
31,806
—
—
(361)
(245)
1,169,581
379,870
85,947
465,817
460,725
5,092
465,817
15,687 $
14,049 $
6,928
3,984 $
(7,022) $
— $
76,642 $
2,111 $
441,000 $
84,761 $
2,812 $
(715) $
— $
— $
— $
— $
— $
2,586
(383)
2,576
237,885
—
—
—
See accompanying notes to the consolidated financial statements.
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PACIFIC BIOSCIENCES OF CALIFORNIA, INC.
Notes to Consolidated Financial Statements
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Overview
We are a life science technology company that is designing, developing, and manufacturing advanced
sequencing solutions that enable scientists and clinical researchers to improve their understanding of the
genome and ultimately, resolve genetically complex problems. Our products and technology under development
stem from two highly differentiated core technologies focused on accuracy, quality, and completeness, which
include our HiFi long-read sequencing technology and our Sequencing by Binding (SBB®) technology. Our
products address solutions across a broad set of applications including human genetics, plant and animal
sciences, infectious disease and microbiology, oncology, and other emerging applications. Our focus is on
creating some of the world's most advanced sequencing systems to provide our customers the most complete
and accurate view of genomes, transcriptomes, and epigenomes. Our customers include academic and
governmental research institutions, commercial testing and service laboratories, genome centers, public health
labs, hospitals and clinical research institutes, contract research organizations (CROs), pharmaceutical
companies, and agricultural companies.
References in this report to “PacBio,” “we,” “us,” the “Company,” and “our” refer to Pacific Biosciences of
California, Inc. and its consolidated subsidiaries.
Basis of Presentation and Consolidation
Our consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States, or U.S. GAAP, as set forth in the Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC. The consolidated financial statements include the accounts of
Pacific Biosciences and our wholly owned subsidiaries. All intercompany transactions and balances have been
eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes to the
financial statements. On an ongoing basis, we evaluate our significant estimates including, but not limited to,
the valuation of inventory, the fair value of contingent consideration, the valuation of acquired intangible assets,
the useful lives assigned to long-lived assets, the computation of provisions for income taxes, and the
valuations related to our convertible senior notes. While the extent of the potential impact of the current
macroeconomic conditions on our business is highly uncertain, we considered information available related to
assumptions and estimates used to determine the results reported and asset valuations as of December 31,
2023. Actual results could differ materially from these estimates.
Functional Currency
The U.S. dollar is the functional currency of our international operations. We remeasure foreign subsidiaries
monetary assets and liabilities to the U.S. dollar and record net gains or losses from remeasurement in other
income, net, in the consolidated statements of operations and comprehensive loss.
Cash, Cash Equivalents, Restricted Cash, and Investments
We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash
equivalents. Cash equivalents may be comprised of money market funds, certificates of deposit, commercial
paper, corporate bonds and notes, and government agencies’ securities.
We classify our investments in debt securities as available-for-sale and report the investments at fair value in
current assets. We evaluate our available-for-sale investments in unrealized loss positions and assess whether
the unrealized loss is credit-related. Unrealized gains and losses that are not credit-related are recognized in
accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses, expected
credit losses, as well as interest income, on available-for-sale securities are also reported in other income, net.
The cost used in the determination of gains and losses of securities sold is based on the specific identification
method. The cost of marketable securities is adjusted for the amortization of premiums and discounts to
expected maturity. Premium and discount amortization is recorded in other income, net.
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Our investment portfolio at any point in time contains investments in cash deposits, money market funds,
commercial paper, corporate debt securities, and U.S. government and agency securities with high credit
ratings. We have established guidelines regarding diversification and maturities of investments with the
objectives of maintaining safety and liquidity, while maximizing yield.
Restricted cash includes cash that is not readily available for use in the Company’s operating activities.
Restricted cash is primarily comprised of cash pledged under letters of credit.
Concentration and Other Risks
Financial instruments that potentially subject us to credit risk consist principally of interest-bearing investments
and trade receivables. We maintain cash, cash equivalents, and investments with various major financial
institutions. The counterparties to the agreements relating to our investment securities consist of various major
corporations, financial institutions, municipalities, and government agencies of high credit standing. At
December 31, 2023, most of our cash was deposited with U.S. financial institutions. Our investment policy
generally restricts the amount of credit exposure to any one issuer. There is no limit to the percentage of the
portfolio that may be maintained in securities issued by the U.S. Treasury and U.S. Government Agencies, or
other securities fully backed by U.S. Treasury or Government agencies. We have not experienced significant
credit losses from financial institutions.
Our trade receivables are derived from revenue to customers and distributors located in the United States and
other countries. We perform credit evaluations of our customers’ financial condition and, generally, require no
collateral from our customers. The allowance for credit losses is based on our assessment of the collectability
of customer accounts. We regularly review our trade receivables including consideration of factors such as
historical experience, the age of the accounts receivable balances, customer creditworthiness, customer
industry, and current and forecasted economic conditions that may affect a customer’s ability to pay. We have
not experienced any significant credit losses to date.
Although we have historically not experienced significant credit losses, our exposure to credit losses may
increase if our customers are adversely affected by changes in economic pressures or uncertainty associated
with local or global economic recessions, or other customer-specific factors.
For the year ended December 31, 2023, no single customer accounted for 10% or greater of our total revenue.
For the years ended December 31, 2022 and 2021, one customer accounted for approximately 12%, and 13% of
our total revenue, respectively.
As of December 31, 2023 and 2022, 49% and 57% of our accounts receivable were from domestic customers,
respectively. As of December 31, 2023, one customer represented approximately 10% of our net accounts
receivable. As of December 31, 2022, one customer represented approximately 10% of our net accounts
receivable.
We currently purchase several key parts and components used in the manufacture of our products from a
limited number of suppliers. Generally, we have been able to obtain an adequate supply of such parts and
components but in certain instances have incurred additional costs to secure a supply of constrained material.
An extended interruption in the supply of parts and components currently obtained from our suppliers could
adversely affect our business and consolidated financial statements.
Inventory, Net
Inventories are stated at the lower of cost or net realizable value on a first-in, first-out (“FIFO”) method.
Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated
excess or obsolete balances. Cost includes depreciation, labor, material, and overhead costs, including product
and process technology costs. Determining net realizable value of inventories involves numerous judgements,
including projecting future average selling prices, sales volumes, and costs to complete products in work in
process inventories.
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We make inventory purchases and commitments to meet future shipment schedules based on forecasted
demand for our products. The business environment in which we operate is subject to rapid changes in
technology and customer demand. We perform a detailed assessment of inventory each period, which includes
a review of, among other factors, demand requirements, product life cycle and development plans, component
cost trends, product pricing, product expiration, and quality issues. Based on our analysis, we record
adjustments to inventory for potentially excess, obsolete, or impaired goods, when appropriate, to report
inventory at net realizable value. Inventory adjustments may be required if actual demand, component costs,
supplier arrangements, or product life cycles differ from our estimates. Any such adjustments would result in a
charge to our results of operations.
Property and Equipment, Net
Property and equipment are stated at cost, reviewed regularly for impairment, and depreciated over the
estimated useful lives of the assets, using the straight-line method. Leasehold improvements are depreciated
over the shorter of the lease term or the estimated useful life of the related asset. Major improvements are
capitalized, while maintenance and repairs are expensed as incurred. Transfers of assets between property and
equipment, net, and inventory are transferred at standard cost and recognized at carrying value.
Estimated useful lives of the major classes of property and equipment are as follows:
Leasehold improvements
Lab equipment
Computer equipment
Computer software
Furniture and fixtures
Operating Leases
Estimated Useful
Lives
3 to 10 years
3 to 5 years
3 to 5 years
3 years
3 to 5 years
We record operating lease right-of-use assets and liabilities on our consolidated balance sheets for all leases
with a term of more than 12 months. The operating lease right-of-use assets and liabilities are calculated as the
present value of remaining minimum lease payments over the remaining lease term using our estimated
in the
secured
measurement of the lease liability comprise the fixed rent per the term of the Lease. Operating lease expense is
recognized on a straight-line basis over the lease term, with variable lease payments, such as common area
maintenance fees, recognized in the period incurred.
incremental borrowing rates at the commencement date. Lease payments
included
Business Combinations
Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to
the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values on the date of acquisition. These valuations require us to make estimates and assumptions, especially
with respect to intangible assets. We record the excess consideration over the aggregate fair value of tangible
and intangible assets, net of liabilities assumed, as goodwill. Costs that we incur to complete the business
combination, such as legal and other professional fees, are expensed as they are incurred.
In connection with certain acquisitions, contingent consideration can be earned by the sellers upon completion
of certain future performance milestones. In these cases, a liability is recorded on the acquisition date for an
estimate of the acquisition date fair value of the contingent consideration. These estimates require significant
management judgment, including probabilities of achieving certain future milestones. Changes in the fair value
of the contingent consideration subsequent to the acquisition date are recognized in operating expense in our
consolidated statements of operations and comprehensive loss.
If the initial accounting for a business combination is incomplete by the end of a reporting period that falls
within the measurement period, we report provisional amounts in our financial statements. During the
measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the measurement of the amounts recognized as of that date. We record these adjustments
to the provisional amounts with a corresponding offset to goodwill. Any adjustments identified after the
measurement period are recorded in the consolidated statements of operations and comprehensive loss.
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Goodwill, Intangible Assets, and Other Long-Lived Assets
Assets acquired, including intangible assets and capitalized in-process research and development (“IPR&D”),
and liabilities assumed are measured at fair value as of the acquisition date. Goodwill, which has an indefinite
useful life, represents the excess of cost over fair value of the net assets acquired. Intangible assets acquired in
a business combination that are used for IPR&D activities are considered indefinite lived until the completion or
abandonment of the associated research and development efforts. Upon reaching the end of the relevant
research and development project (i.e., upon commercialization), the IPR&D asset is assessed for impairment
and then amortized over its estimated useful life. If the relevant research and development project is
abandoned, the IPR&D asset is expensed in the period of abandonment.
Goodwill and IPR&D are not amortized; however, they are reviewed for impairment at least annually. We perform
annual impairment testing of goodwill in the second quarter of each year, or more frequently if indicators of
potential impairment exist. We generally perform annual impairment testing of IPR&D in the fourth quarter of
each year, or more frequently if indicators of potential impairment exist.
We perform our goodwill impairment analysis at the reporting unit level. We have one reporting unit, which
aligns with our reporting structure and availability of discrete financial information. During the goodwill
impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair
values of our reporting unit is less than the carrying amount, including goodwill. The qualitative factors include,
but are not limited to, macroeconomic conditions, industry and market considerations, and our overall financial
performance. If, after assessing the totality of these qualitative factors, we determine that it is not more likely
than not that the fair value of our reporting unit is less than the carrying amount, then no additional assessment
is deemed necessary. Otherwise, we proceed to compare the estimated fair value of the reporting unit with the
carrying value, including goodwill. If the carrying amount of the reporting unit exceeds the fair value, we record
an impairment loss based on the difference. We may elect to bypass the qualitative assessment in a period and
proceed to perform the quantitative goodwill impairment test.
During the IPR&D impairment review, we assess qualitative factors to determine whether it is more likely than
not that the fair value of the IPR&D is less than the carrying amount. The qualitative factors include, but are not
limited to, macroeconomic conditions, industry-specific conditions, and company-specific conditions. If, after
assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair
value of the IPR&D is less than the carrying amount, then no additional assessment is deemed necessary.
Otherwise, we proceed to compare the estimated fair value of the IPR&D with the carrying value. If the carrying
amount of the IPR&D exceeds the fair value, we record an impairment loss based on the difference. We may
elect to bypass the qualitative assessment in a period and proceed to perform the quantitative impairment test.
Finite-lived intangibles assets include our acquired developed technology and customer relationships. We
capitalize finite-lived intangibles assets and generally amortize them on a straight-line basis over the estimated
useful lives. We regularly review the carrying amount and useful lives of our finite-lived assets to determine
whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful
lives. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the
affected assets by determining whether the carrying amount of such assets exceeds the undiscounted
expected future cash flows. If the affected assets are not recoverable, we estimate the fair value of the assets
and record an impairment loss if the carrying value of the assets exceeds the fair value. Factors that may
indicate potential impairment include a significant decline in our stock price and market capitalization
compared to the net book value, significant changes in the ability of a particular asset to generate positive cash
flows for our strategic business objectives, and the pattern of utilization of a particular asset.
Revenue Recognition
Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of
sales of our instruments and related consumables; service and other revenue consist primarily of revenue
earned from product maintenance agreements.
We account for a contract with a customer when there is a legally enforceable contract between us and the
customer, the rights of the parties are identified, the contract has commercial substance, and collectability of
the contract consideration is probable. Revenues are recognized when control of the promised goods are
transferred to our customers, or services are performed, in an amount that reflects the consideration we expect
to be entitled to in exchange for those goods or services.
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We may enter into contracts with customers that include a combination of promised products and services,
resulting in arrangements containing multiple performance obligations. We determine whether each product or
service is distinct, in order to identify the performance obligations in the contract and allocate the contract
transaction price among the distinct performance obligations. A performance obligation is considered distinct
from other obligations in a contract when it provides a benefit to the customer either on its own or together with
other resources that are readily available to the customer and is separately identified in the contract. We
consider a performance obligation satisfied once we have transferred control of a good or service to the
customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Therefore,
instrument revenue is recognized upon transfer of control of the asset to the customer, which is generally upon
delivery for sales made to our non-distributor customers and upon shipment for sales made to our distributor
customers.
The consideration for contracts with multiple performance obligations is allocated between separate
performance obligations based on their individual standalone selling price. We determine the best estimate of
standalone selling price using average selling prices over a 12-month period combined with an assessment of
current market conditions. If the standalone selling price is not directly observable, we rely on estimates by
considering multiple factors including, but not limited to, overall market conditions, including geographic or
regional specific factors, internal costs, profit objectives, pricing practices, and other observable inputs. We
recognize revenues as performance obligations are satisfied by transferring control of the product or service to
the customer or over the term of a product maintenance agreement with a customer. Our revenue
arrangements generally do not provide a right of return. Revenue is recorded net of discounts and sales taxes
collected on behalf of governmental authorities.
Certain of our agreements provide options to customers which can be exercised at a future date, such as the
option to purchase our product at discounted prices, among others. In accounting for customer options, we
determine whether an option is a material right and this requires us to exercise significant judgment. If a
contract provides the customer an option to acquire additional goods or services at a discount that exceeds the
range of discounts that we typically give for that product or service for the same class of customer, or if the
option provides the customer certain additional goods or services for free, the option may be considered a
material right. If the contract gives the customer the option to acquire additional goods or services at their
normal standalone selling prices, we would likely determine that the option is not a material right and, therefore,
account for it when the customer exercises the option. If the standalone selling price of the option is not directly
observable, an estimated standalone selling price is utilized which considers adjustments for discounts that the
customer could receive without exercising the option and the likelihood that the option will be exercised. We
may also utilize the alternative approach to estimate the standalone selling price, available pursuant to the
applicable accounting guidance, to the extent we conclude the applicable criteria for using the alternative
approach has been met. We update the transaction price for expected consideration, subject to constraint, each
reporting period if our estimate of future goods to be ordered by customers change.
Additionally, we generally provide a one-year warranty on instruments. We accrue the cost of the assurance
warranty when revenue of the instrument is recognized. Employee sales commissions are generally recorded as
selling, general, and administrative expense when incurred as the amortization period for such costs, if
capitalized, would have been one year or less.
Cost of Revenue
Cost of revenue reflects the direct cost of product components, third-party manufacturing services, and our
internal manufacturing overhead and customer service infrastructure costs incurred to produce, deliver,
maintain, and support our instruments, consumables, and services.
Manufacturing overhead is predominantly comprised of labor and facility costs. We capitalize manufacturing
overhead into inventory based on a standard cost model that approximates actual costs.
Service costs include the direct costs of components used in support, repair and maintenance of customer
instruments as well as the cost of personnel, materials, shipping and support infrastructure necessary to
support our installed customer base.
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Research and Development
Research and development expense consists primarily of expenses for personnel engaged in the development
of our core technology, the design and development of our future products and current product enhancements.
These expenses also include prototype-related expenditures, development equipment and supplies, partner
development costs, facilities costs, and other related overhead. We expense research and development costs
during the period in which the costs are incurred. We defer and capitalize non-refundable advance payments
made for research and development activities until the related goods are received or the related services are
rendered.
Credit Losses
Trade accounts receivable
The allowance for credit losses is based on our assessment of the collectability of customer accounts. We
regularly review the allowance by considering factors such as the age of the accounts receivable balances,
customer creditworthiness, customer industry, and current and forecasted economic conditions that may affect
a customer’s ability to pay. Credit loss expense was immaterial for the years ended December 31, 2023, 2022,
and 2021.
Available-for-sale debt securities
Our investment portfolio contains investments in cash deposits, money market funds, commercial paper,
corporate debt securities and U.S. government and agency securities. We regularly assess whether our
securities in an unrealized loss position are credit related. The credit-related portion of unrealized losses, and
any subsequent improvements, are recorded in interest income. Unrealized losses that are not credit related are
included in accumulated other comprehensive income (loss). The unrealized losses on our investments are
mainly attributable to government securities, including U.S. government and U.S. agency bond securities,
impacted by movements in market rates and not due to issuer credit risk. We have the ability to hold and do not
intend to sell the investments in unrealized loss positions before the recovery of their amortized cost bases.
Although we have historically not experienced significant credit losses, our exposure to credit losses may
increase if our customers are adversely affected by changes in economic pressures or uncertainty associated
with local or global economic recessions, disruptions associated with the evolution of COVID-19 or other
epidemics or pandemics, or other customer-specific factors.
Income Taxes
We account for income taxes under the asset and liability method, which requires, among other things, that
deferred income taxes be provided for temporary differences between the tax bases of our assets and liabilities
and the amounts reported in the financial statements. In addition, deferred tax assets are recorded for the
future benefit of utilizing net operating losses and research and development credit carryforwards. The effect of
a change in tax rates on the deferred tax assets and liabilities is recognized in the provision for income taxes in
the period that includes the enactment date. A full valuation allowance is provided against our net deferred tax
assets as it is more likely than not that the deferred tax assets will not be fully realized.
We regularly review our positions taken relative to income taxes. To the extent our tax positions are more likely
than not going to result in additional taxes, we accrue the estimated amount of tax related to such uncertain
positions.
Share-based Compensation
We recognize share-based compensation expense for share-based payments, including stock options,
restricted stock units, performance stock units and stock issued under our employee stock purchase plan
("ESPP") based on the grant-date fair value. We estimate the fair value of stock options and ESPP using an
option-pricing model. See Note 10. Stockholders’ Equity for further information regarding share-based
compensation.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is comprised of unrealized gains (losses) on our investment securities.
Shipping and Handling
Costs related to shipping and handling are included in cost of revenues for all periods presented.
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Earnings per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of
common stock outstanding during the period. Diluted net loss per share is computed using the weighted-
average number of shares of common stock outstanding and potential shares assuming the dilutive effect of
outstanding stock options, restricted stock units, and common stock issuable pursuant to our ESPP, using the
treasury stock method.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In October 2021, the FASB issued Accounting Standards Update ("ASU") No. 2021-08, Business Combinations
(Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU
provides specific guidance on how to recognize contract assets and contract liabilities related to revenue
contracts with customers acquired in a business combination. This amendment improves comparability for
both the recognition and measurement of acquired revenue contracts with customers at the date of and after a
business combination. We adopted this ASU on January 1, 2023. The adoption of this guidance did not have a
material effect on our consolidated financial statements.
Accounting Pronouncements Pending Adoption
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax
Disclosures. This ASU requires entities to expand its existing income tax disclosures, specifically related to the
rate reconciliation and income taxes paid. This authoritative guidance will be effective for us in fiscal year 2025,
with early adoption permitted. The Company is currently evaluating the impact of the ASU but does not expect
any material impacts upon adoption.
NOTE 2. BUSINESS ACQUISITIONS
Apton Biosystems
On August 2, 2023, we acquired Apton Biosystems, Inc. (“Apton”), a California-based genomics company
focused on developing a high throughput short-read sequencer using highly differentiated optics and image
processing, paired with novel clustering and chemistry (the “Apton acquisition”).
In connection with the Apton acquisition, all outstanding equity securities of Apton were cancelled in exchange
for shares of our common stock with a fair value of $76.6 million, cash of $0.2 million, and contingent
consideration with a preliminary estimated fair value of $18.5 million. Excluded from consideration transferred
was $1.3 million attributable to accelerated share-based compensation expense. The fair value of the 6,121,571
common shares issued was determined based on the closing market price of our common stock on the
acquisition date.
In connection with the Apton acquisition, contingent consideration of $25.0 million, which we may elect to pay
in cash, shares of our common stock or a combination of cash and shares of our common stock, is due upon
the achievement of a milestone, defined as the achievement of $50.0 million in revenue associated with Apton's
technology, provided that the milestone event occurs prior to the 5-year anniversary of the closing date of the
acquisition. At this time, the number of shares, if any, to be issued in connection with the achievement of the
specified milestone is not known and will be calculated based on the daily volume-weighted average price of
our common stock for the twenty trading days ending on and including the fifth trading day immediately prior to
the occurrence of the specified milestone. Upon achievement of the milestone, we may pay cash in lieu of our
common stock to ensure that the issuance of our common stock does not exceed 19.9% of our outstanding
shares of common stock then outstanding.
The contingent consideration is accounted for as a liability at fair value, with changes during each reporting
period recognized in our consolidated statements of operations and comprehensive loss. The fair value of the
contingent consideration liability is calculated, with the assistance from a third-party valuation firm, using a
Monte Carlo Simulation to estimate the volatility and systematic relative risk of revenues subject to sales
milestone payments and discounting the associated cash payment amounts to their present values using a
credit-risk-adjusted interest rate.
We allocated the consideration transferred to the identifiable assets acquired and liabilities assumed based on
preliminary estimates of their respective fair values at the date of the completion of the Apton acquisition, and
such allocation is subject to adjustment for up to one year after the close of the acquisition as additional
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information is obtained. The major classes of assets and liabilities to which we have allocated the total fair
value of the consideration transferred, based on the preliminary estimated fair values were as follows (in
thousands):
Cash and cash equivalents
In-process research and development
Goodwill
Other assets, current
Deferred income tax liability
Liabilities assumed
Total consideration transferred
$
97
55,000
52,287
153
(11,338)
(2,191)
$
94,008
The purchase price allocation is preliminary, primarily due to the pending finalization of review of various tax
attributes. We continue to collect information regarding certain estimates and assumptions, including potential
liabilities and contingencies. We will record adjustments to the fair value of the assets acquired, liabilities
assumed and goodwill within the twelve months measurement period, if necessary. During the year ended
December 31, 2023, we recorded a measurement period adjustment of $1.6 million to decrease goodwill, and a
corresponding $2.0 million increase in intangible assets and $0.4 million decrease in the deferred tax liability on
the consolidated balance sheets, and a $0.7 million increase to our benefit from income taxes on the
consolidated statements of operations and comprehensive loss. The measurement period adjustment was due
to new information that became available to us upon the completion of the valuation assessment of the in-
process research and development and the tax provision.
We incurred costs related to the Apton acquisition of approximately $9.0 million during the year ended
December 31, 2023, which are included in merger-related expenses on the consolidated statement of
operations and comprehensive loss. Merger-related expenses include $2.8 million relating to a liquidity event
bonus plan that was treated as a separate transaction and included the issuance of 168,621 shares of common
stock that were issued with a fair value of $2.1 million based on the closing market price of our common stock
on the acquisition date. As a result, the total shares issued in connection with the Apton acquisition were
6.3 million shares of common stock.
The excess of the value of consideration paid over the aggregate fair value of those net assets has been
recorded as goodwill. We recognized goodwill of $52.3 million, based on preliminary estimates, which is
primarily attributable to the synergies expected to occur from the integration of Apton and is not deductible for
income tax purposes. We preliminarily allocated $55.0 million of the purchase price to acquired in-process
research and development ("IPR&D"). The fair value of the IPR&D was determined, with the assistance of a third-
party valuation firm, using an income approach based on a forecast of expected future cash flows. Expected
future cash flows utilize significant assumptions such as assumed revenue projections and discount rate.
Omniome, Inc.
On September 20, 2021, we completed our acquisition of Omniome, Inc. (“Omniome”), a San Diego-based
company, to obtain their proprietary short-read DNA sequencing platform capable of delivering high accuracy
(the “Omniome acquisition”).
In connection with the Omniome acquisition, all outstanding equity securities of Omniome were cancelled in
exchange for approximately $315.7 million in cash, 8,911,580 shares of our common stock with a fair value of
$249.4 million and contingent consideration with a fair value of $168.6 million. The fair value of the 8,911,580
common shares issued was determined based on the closing market price of PacBio’s common shares on the
acquisition date.
In addition, approximately $18.9 million, comprised of $7.4 million of cash, 226,811 shares of our common
stock with a fair value of $6.3 million, and $5.2 million related to contingent consideration, was accounted for as
a one-time post-acquisition share-based compensation expense. This share-based compensation expense was
due to accelerated vesting of Omniome stock awards in connection with the acquisition.
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In connection with the acquisition the contingent consideration of $200 million (composed of $100 million in
cash and $100 million in shares of our common stock) is due upon the achievement of a milestone, defined as
the first commercial shipment to a customer of a nucleotide sequencing platform, comprising both an
instrument and related consumables, that utilizes SBB technology. The number of shares of stock to be issued
will be determined using the volume-weighted average of the trading prices of our common stock for the twenty
trading days ending with and including the trading day that is two days immediately prior to the achievement of
the milestone. Of the $100 million in shares of our common stock to be issued as part of the milestone,
$4.1 million was attributable to stock options issued by PacBio in replacement of Omniome’s unvested options
as part of the transaction. Upon achievement of the milestone, shares will be issued not in excess of an amount
equal to 19.9% of our outstanding shares of common stock on the date of closing (prior to the issuance of any
shares issued in connection with the transaction or the related private placement), less 11,500,000 shares.
The contingent consideration is accounted for as a liability at fair value, with changes during each reporting
period recognized in our Consolidated Statements of Operations and Comprehensive Loss. The fair value of the
contingent consideration liability is calculated, with the assistance from a third-party valuation firm, using a
scenario-based method that considers a range of possible outcomes and their assigned probabilities of
occurrence. The potential outcomes are discounted to present value at a discount rate equal to the sum of the
term-matched risk-free-interest rate plus PacBio’s credit spread. On September 20, 2023, we achieved the
commercial milestone in connection with the acquisition of Omniome. See Note 5. Financial Instruments for
additional information on amounts paid and shares issued to former Omniome securityholders during the year
ended December 31, 2023.
Total consideration transferred for the acquisition is as follows (in thousands):
Total cash paid
Fair value of share consideration
Fair value of contingent consideration
Less: Share-based compensation expense excluded from consideration transferred
Total consideration transferred
$
315,703
249,435
168,574
(18,923)
$
714,789
The acquisition was accounted for as a business combination and, accordingly, the total fair value of the
consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed
based on their fair values on the acquisition date. As of December 31, 2021, the major classes of assets and
liabilities to which we have allocated the total fair value of the consideration transferred were as follows (in
thousands):
Cash and cash equivalents
Property and equipment, net
Operating lease right-of-use assets, net
In-process research and development
Goodwill
Other assets, non-current
Deferred income tax liability
Liabilities assumed
Total consideration transferred
$
15,338
6,123
18,095
400,000
390,665
3,203
(91,814)
(26,821)
$
714,789
During the year ended December 31, 2021, we recorded a measurement period adjustment of $1.6 million to
decrease goodwill and a corresponding $0.4 million to decrease the deferred tax liability on the Consolidated
Balance Sheet, and a $1.2 million decrease to our benefit from income taxes on the Consolidated Statements of
Operations and Comprehensive (Loss) Income. The measurement period adjustment was due to new
information that became available to us upon the completion of the IRC Section 382 Tax Study, where we
identified additional net operating losses that are available to us from acquired assets. Refer to Note 9 –
Income Taxes, in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2021 for
more information. There were no measurement period adjustments recorded in the year ended December 31,
2022.
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The goodwill recognized was primarily attributable to the assembled workforce and synergies that are expected
to occur from the integration of Omniome and is not deductible for income tax purposes.
We incurred costs related to the Omniome acquisition of approximately $12.0 million during the twelve months
ended December 31, 2021, which are included in merger-related costs on the Consolidated Statement of
Operations and Comprehensive (Loss) Income. No significant merger-related costs were incurred during the
twelve months ended December 31, 2022.
The following unaudited pro forma financial information presents combined results of operations for each of
the periods presented as if Omniome had been acquired as of the beginning of 2020, giving effect on a pro
forma basis to the purchase accounting adjustments such as $12.0 million of PacBio acquisition-related costs,
$18.9 million of share-based compensation expense related to acceleration of certain Omniome stock options
not attributable to pre-combination service, and a $91.0 million one-time income tax benefit from the reduction
of our deferred tax asset valuation allowance resulting from the Omniome acquisition, as well as a pro forma
adjustment to reflect $16.7 million of Omniome’s acquisition-related costs.
The unaudited pro forma information presented below is for informational purposes only and is not necessarily
indicative of the consolidated results of the combined business had the acquisition actually occurred at the
beginning of 2020 or the results of future operations of the combined business.
The following table summarizes the unaudited pro forma financial information:
(in thousands, except per share amounts)
Pro forma total revenue
Pro forma net (loss) income
Pro forma net (loss) income per share - basic and diluted
Years Ended December 31,
2021
2020
$
$
$
130,513 $
(278,451) $
(1.27) $
78,893
17,510
0.09
Our consolidated financial statements include the results of operations for Omniome beginning September 20,
2021. Revenues of $0 and a net loss of $15.6 million from the acquired Omniome business have been included
in our Consolidated Statement of Operations and Comprehensive (Loss) Income for the twelve months ended
December 31, 2021.
Circulomics, Inc.
On July 20, 2021, we acquired Circulomics Inc. (“Circulomics”), a Maryland-based biotechnology company
focused on delivering highly differentiated sample preparation products that enable genomic workflows (the
“Circulomics acquisition”).
We paid $29.5 million in cash in exchange for all outstanding shares of common stock of Circulomics. We
allocated the consideration transferred to the identifiable assets acquired and liabilities assumed based on their
respective fair values at the date of the completion of the Circulomics acquisition. The major classes of assets
and liabilities to which we have allocated the total fair value of the consideration transferred were as follows (in
thousands):
Cash and cash equivalents
Property and equipment, net
Intangible assets
Goodwill
Other assets, non-current
Deferred income tax liability
Liabilities assumed
Total consideration transferred
$
987
214
11,360
19,309
467
(2,672)
(118)
$
29,547
The excess of the value of consideration paid over the aggregate fair value of those net assets has been
recorded as goodwill. We recognized goodwill of $19.3 million, which is primarily attributable to the synergies
expected from capabilities in extraction and sample preparation and is not deductible for income tax purposes.
We recorded $11.4 million for the fair value of acquired intangible assets, which consists of developed
technology and customer relationships.
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NOTE 3. INVITAE COLLABORATION
On June 24, 2022, we entered into an Amended and Restated Development and Commercialization Agreement
(the “Amended and Restated Agreement”) with Invitae Corporation (“Invitae”). The Amended and Restated
Agreement amended and restated the existing Development and Commercialization Agreement, effective as of
January 12, 2021, as amended by Amendment No. 1 to Development and Commercialization Agreement,
entered into on June 3, 2021, by and between us and Invitae (together, the “Original Agreement”). Unless
otherwise agreed in writing or terminated in accordance with the Amended and Restated Agreement, the term
of the Amended and Restated Agreement shall continue until June 30, 2028 (“Term”).
Pursuant to the Original Agreement, Invitae provided certain funding to us to develop products relating to
production-scale high-throughput sequencing (“Program Products”). If Program Products were to become
commercially available, Invitae had the right to purchase the Program Products at preferred pricing.
Under the Amended and Restated Agreement, we will continue to receive feedback, input and insight from
Invitae in connection with the intended development of our new sequencing systems; however, such feedback
will not be contractually required, and Invitae has no contractual right to participate in decisions regarding the
development program for such new sequencing systems. Our development plans for such new sequencing
systems will be at our discretion and pursuant to our own internal processes and programs. Invitae will not be
contractually obligated to reimburse us for development costs under the Amended and Restated Agreement.
There can be no assurances that the in-development sequencing systems will continue to be developed, be
successfully developed or become available for commercial sale.
In consideration of the non-refundable payments received from Invitae pursuant to the Original Agreement of
$23.5 million, we will provide Invitae with credits in connection with Invitae’s anticipated purchase of certain
currently sequencing systems (instruments, consumables and service contracts). The credits will expire on
June 30, 2025 (“Credit Expiration Date”). Subject to certain conditions, Invitae will also be entitled to most
favored pricing for the Company’s Sequel IIe systems and certain in-development systems through the Term.
We and Invitae may terminate the Amended and Restated Agreement if the other party remains in material
breach of the Amended and Restated Agreement following a cure period to remedy the material breach.
The Amended and Restated Agreement was deemed a contract modification and accounted for on a
prospective basis in accordance with ASC Topic 606. We will recognize proportionate amounts of the
transaction price, including payments made by Invitae to us pursuant to the Original Agreement, in revenue as
the remaining performance obligations are satisfied, which is when Invitae places purchase orders for certain
sequencing platforms and the associated goods or services are delivered. Any remaining unused credits will be
recognized when they expire.
Invitae purchased certain instruments and consumables under the terms of the Amended and Restated
Agreement, for which $10.5 million and $3.7 million of revenue was recognized as product revenue during the
years ended December 31, 2023 and 2022, respectively, on the consolidated statements of operations and
comprehensive loss.
As of December 31, 2023, $8.0 million of deferred revenue, current, and $2.9 million of deferred revenue, non-
current, is recorded on the consolidated balance sheet relating to all future performance obligations under the
Amended and Restated Agreement.
NOTE 4. TERMINATION OF MERGER WITH ILLUMINA
On November 1, 2018, we entered into an Agreement and Plan of Merger (as amended, the “Illumina Merger
Agreement”) with Illumina, Inc. (“Illumina”) and FC Ops Corp., a wholly owned subsidiary of Illumina (“Illumina
Merger Sub”). On January 2, 2020, we, Illumina and Illumina Merger Sub, entered into an agreement to terminate
the Merger Agreement (the “Termination Agreement”).
Continuation Advances from Illumina
As part of the Termination Agreement, Illumina paid us cash payments (“Continuation Advances”) totaling $52
million. Up to the full $52.0 million of Continuation Advances paid to us were repayable without interest to
Illumina if, within two years of March 31, 2020, we entered into, or consummated a Change of Control
Transaction or raised at least $100 million in a single equity or debt financing (that may have multiple closings),
with the amount repayable dependent on the amount raised by us.
Resulting from the issuance and sale of $900 million of 1.50% Convertible Senior Notes due February 15, 2028,
$52.0 million of Continuation Advances were paid without interest to Illumina in February 2021 and recorded a
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non-operating expense in the consolidated statements of operations and comprehensive loss for the year
ended December 31, 2021.
NOTE 5. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy established under GAAP requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be
used to measure fair value are as follows:
•
•
•
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices
in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities
in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities; and
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
We consider an active market as one in which transactions for the asset or liability occurs with sufficient
frequency and volume to provide pricing information on an ongoing basis. Conversely, we view an inactive
market as one in which there are few transactions for the asset or liability, the prices are not current, or price
quotations vary substantially either over time or among market makers. Where appropriate, our non-
performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and
assets, respectively.
We classify our cash deposits and money market funds within Level 1 of the fair value hierarchy because they
are valued using bank balances or quoted market prices. We classify our investments as Level 2 instruments
based on market pricing and other observable inputs. We did not classify any of our investments within Level 3
of the fair value hierarchy.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the entire
fair value measurement requires management to make judgments and consider factors specific to the asset or
liability.
The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable,
accrued expenses and other liabilities, current, approximate fair value due to their short maturities.
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U.S. government & agency
securities
Total cash and cash
equivalents
Investments:
Commercial paper
Corporate debt securities
U.S. government & agency
securities
Total investments
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table sets forth the fair value of our financial assets and liabilities that were measured on a
recurring basis as of December 31, 2023 and December 31, 2022, respectively:
(in thousands)
Assets
Cash and cash
equivalents:
Cash and money market
funds
December 31, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 70,172 $
— $
— $ 70,172 $ 137,636 $
— $
— $ 137,636
Commercial paper
—
—
—
—
—
166,453
—
166,453
—
109,739
—
109,739
—
21,000
—
21,000
70,172
109,739
—
179,911
137,636
187,453
—
325,089
—
—
—
—
9,947
88,579
352,979
451,505
—
—
—
—
—
—
9,947
88,579
352,979
451,505
—
—
—
—
127,302
49,491
270,436
447,229
300
2,422
300
2,922
—
—
—
—
—
—
—
—
127,302
49,491
270,436
447,229
300
2,922
Short-term restricted cash
300
Long-term restricted cash
2,422
—
—
Total assets measured at
fair value
$ 72,894 $ 561,244 $
— $ 634,138 $ 140,858 $ 634,682 $
— $ 775,540
Liabilities
Contingent consideration
- Omniome acquisition
Contingent consideration
- Apton acquisition
Total liabilities measured
at fair value
$
$
$
— $
— $
— $
— $
— $
— $ 172,094 $ 172,094
— $
— $ 19,550 $ 19,550 $
— $
— $
— $
—
— $
— $ 19,550 $ 19,550 $
— $
— $ 172,094 $ 172,094
We classify contingent consideration, which was incurred in connection with the acquisition of Apton, within
Level 3 as factors used to develop the estimate of fair value include unobservable inputs that are not supported
by market activity and are significant to the fair value. Estimates and assumptions used in the Monte Carlo
simulation include risk-adjusted forecasted revenues for products and services leveraging Apton's technology
and an estimated credit spread.
We estimate the fair value of the contingent consideration liability based on the simulated revenue of the
Company through the 5-year anniversary of the closing date of the acquisition. As of December 31, 2023, the
key input used in the determination of the fair value included projected revenues of the Company relating to the
high-throughput short-read products and services leveraging Apton's technology. A decrease in the projected
revenues would result in a decrease in the fair value of the liability. The discount rates used are the sum of the
U.S. risk-free rate and the estimated subordinated credit spread for B- credit rating, which ranges from 7.8% to
8.2%. Changes in our estimated subordinated credit spread can result in changes in the fair value of the
contingent consideration liability, where a lower credit spread may result in an increased liability valuation.
On September 20, 2023, we achieved the commercial milestone in connection with the acquisition of Omniome.
Consequently, former Omniome securityholders were entitled to receive as milestone consideration, among
other things, an aggregate of approximately $100.9 million in cash and approximately 9.0 million shares of our
common stock, representing $95.9 million divided by the volume-weighted average of the trading prices of our
common stock for the twenty trading days ending with and including the trading day that was two days
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immediately prior to the achievement of the milestone. The $95.9 million represents the $100.0 million that was
to be paid in shares of our common stock offset by $4.1 million attributable to stock options issued by PacBio
in replacement of Omniome’s unvested options as part of the transaction, pursuant to the terms of the
Omniome merger agreement.
Following the achievement of the commercial milestone, $101.3 million of the contingent consideration, which
includes certain payroll taxes, was paid during the year ended December 31, 2023. Additionally, 8,988,391
shares were issued at a value of $84.8 million to the former Omniome securityholders.
As a result of the achievement of the milestone, the contingent consideration liability incurred in connection
with the acquisition of Omniome was no longer considered a Level 3 liability at December 31, 2023. There were
no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis
for the year ended December 31, 2023, and our valuation techniques did not change compared to the prior year.
Changes in the estimated fair value of the contingent consideration liability for the year ended December 31,
2023 were as follows:
(in thousands)
Beginning balance as of December 31, 2022
Additions
Change in estimated fair value
Achievement of milestone
Ending balance as of December 31, 2023
Level 3
$
172,094
18,450
15,060
(186,054)
$
19,550
Changes to the fair value are recorded as the Change in fair value of contingent consideration in the
consolidated statement of operations and comprehensive loss.
For the year ended December 31, 2023, there were no transfers between Level 1, Level 2, or Level 3 assets or
liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to
the prior year.
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Cash, Cash Equivalents, Restricted Cash, and Investments
The following table summarizes our cash, cash equivalents, restricted cash, and investments:
(in thousands)
Cash and cash equivalents:
Cash and money market funds
U.S. government & agency securities
Total cash and cash equivalents
Investments:
Commercial paper
Corporate debt securities
U.S. government & agency securities
Total investments
Total cash, cash equivalents, and investments
Short-term restricted cash
Long-term restricted cash
(in thousands)
Cash and cash equivalents:
Cash and money market funds
Commercial paper
U.S. government & agency securities
Total cash and cash equivalents
Investments:
Commercial paper
Corporate debt securities
U.S. government & agency securities
Total investments
Total cash, cash equivalents, and investments
Short-term restricted cash
Long-term restricted cash
December 31, 2023
Gross
unrealized
gains
Gross
unrealized
losses
Fair
Value
Amortized
Cost
$
70,172 $
— $
— $
70,172
109,786
179,958
9,947
88,263
353,029
451,239
13
13
—
373
478
851
(60)
(60)
109,739
179,911
—
(57)
(528)
(585)
9,947
88,579
352,979
451,505
631,197 $
864 $
(645) $
631,416
300 $
2,422 $
— $
— $
— $
— $
300
2,422
$
$
$
December 31, 2022
Gross
unrealized
gains
Gross
unrealized
losses
Fair
Value
Amortized
Cost
$
137,636 $
— $
— $
137,636
166,514
20,994
325,144
127,626
49,998
274,315
451,939
—
6
6
9
—
1
10
(61)
166,453
—
21,000
(61)
325,089
(333)
(507)
(3,880)
(4,720)
127,302
49,491
270,436
447,229
$
$
$
777,083 $
16 $
(4,781) $
772,318
300 $
2,922 $
— $
— $
— $
— $
300
2,922
The following table summarizes the contractual maturities of our cash equivalents and available-for-sale
investments, excluding money market funds, as of December 31, 2023:
(in thousands)
Due in one year or less
Due after one year through 5 years
Total investments
Fair Value
$
$
465,181
96,063
561,244
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay
obligations without call or prepayment penalties.
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Investment income included in other income, net on the consolidated statement of operations and
comprehensive loss was $32.8 million and $9.2 million for the years ended December 31, 2023 and 2022,
respectively.
NOTE 6. BALANCE SHEET COMPONENTS
Inventory, Net
Inventory, net, consisted of the following components:
(in thousands)
Purchased materials
Work in process
Finished goods
Inventory, net
Property and Equipment, Net
Property and equipment, net, consisted of the following components:
(in thousands)
Laboratory equipment and machinery
Leasehold improvements
Computer equipment
Software
Furniture and fixtures
Construction in progress
Total
Less: Accumulated depreciation
Property and equipment, net
December 31,
2023
2022
$
20,168 $
23,436
13,072
$
56,676 $
24,139
14,062
12,180
50,381
December 31,
2023
2022
$
44,907 $
35,226
19,528
6,628
3,594
1,343
38,998
34,129
18,438
6,879
3,426
4,698
111,226
106,568
(74,794)
(64,988)
$
36,432 $
41,580
Construction in progress consists of capitalizable costs that have been incurred for the construction of long-
lived assets and is primarily comprised of amounts that will be classified as lab equipment.
Depreciation expense during the years ended December 31, 2023, 2022, and 2021 was $11.5 million, $9.5
million, and $7.2 million, respectively.
Goodwill and intangible Assets
Goodwill
As of December 31, 2023 and 2022, the goodwill balance was $462.3 million and $410.0 million, respectively.
Goodwill preliminarily increased by $52.3 million, due to the Apton acquisition, of which $11.3 million relates to
a deferred income tax liability. Goodwill is reviewed for impairment at least annually during the second quarter,
or more frequently if an event occurs indicating the potential for impairment. We performed our annual
assessment for goodwill impairment in the second quarter of 2023, noting no impairment.
Acquired Intangible Assets
Intangible assets include acquired IPR&D of $55.0 million as a result of the Apton acquisition in August 2023.
As of December 31, 2023, the research and development project had not been completed or abandoned and,
therefore, the IPR&D intangible asset is not currently subject to amortization. During the year ended
December 31, 2023, acquired IPR&D of $400.0 million as a result of the Omniome acquisition in September
2021 was completed and became subject to amortization. IPR&D is reviewed for impairment at least annually,
or more frequently if an event occurs indicating the potential for impairment. We performed our annual
assessment for IPR&D impairment in the third quarter of 2023, noting no impairment.
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In addition to IPR&D, we had the following acquired definite-lived intangible assets as of December 31, 2023 (in
thousands, except years):
Developed technology
Customer relationships
Total
Estimated
Useful Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
15
2
$
$
411,179 $
(9,195) $
401,984
360
(360)
—
411,539 $
(9,555) $
401,984
Amortization expense of intangibles was $8.3 million, $0.9 million and $0.4 million for the years ended
December 31, 2023, 2022, and 2021, respectively. For the years ended December 31, 2023, 2022, and 2021
amortization expense of intangibles in cost of revenue was $2.0 million, $0.7 million, and $0.3 million,
respectively. For the years ended December 31, 2023, 2022, and 2021, amortization expense of intangibles in
operating expenses was $6.3 million, $0.2 million, and $0.1 million, respectively.
Amortization of intangible assets is included within our cost of revenue if the costs and expenses related to the
intangible assets are attributable to revenue generating activities. Amortization expense for intangible assets
that are not directly related to sales generating activities are amortized to operating expenses. For developed
technology intangible assets that are utilized in both revenue generating activities and in research and
development activities, we allocate the amortization expense between cost of revenue and operating expenses.
The definite-lived intangible assets are amortized using the straight-line method over their estimated useful
lives.
The estimated future amortization expense of acquisition-related intangible assets with definite lives is
estimated as follows (in thousands):
2024
2025
2026
2027
2028
2029 and thereafter
Total
Accrued Expenses
Accrued expenses consisted of the following components:
(in thousands)
Salaries and benefits
Accrued interest payable
Accrued purchase commitments
Accrued product development costs
Accrued professional services and legal fees
Inventory accrual
Warranty accrual
Other
Accrued expenses
Product Warranties
$
27,412
27,412
27,412
27,412
27,412
264,924
$
401,984
December 31,
2023
2022
$
29,337 $
17,432
2,834
2,613
1,033
2,641
353
4,681
2,216
5,100
3,705
2,326
1,005
332
1,651
1,045
$
45,708 $
32,596
We generally provide a one-year warranty on instruments. In addition, we provide a limited warranty on
consumables. At the time revenue is recognized, an accrual is established for estimated warranty costs based
on historical experience as well as anticipated product performance. We periodically review the warranty
reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated
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costs to be incurred. Warranty expense is recorded as a component of cost of product revenue. There were no
material changes in estimates for the periods presented below.
Changes in the reserve for product warranties were as follows:
(in thousands)
Balance at beginning of period
Additions charged to cost of product revenue
Repairs and replacements
Balance at end of period
Deferred Revenue
Years Ended December 31,
2023
2022
$
$
1,651 $
8,227
(5,197)
4,681 $
594
3,199
(2,142)
1,651
As of December 31, 2023, we had a total of $21.9 million of deferred revenue, $16.3 million of which was
recorded as deferred revenue, current and primarily relates to future performance obligations under the
Amended and Restated Agreement with Invitae, as described in Note 3. Invitae Collaboration, as well as deferred
service contract revenues. The deferred revenue, non-current balance of $5.6 million primarily relates to future
performance obligations under the Amended and Restated Agreement with Invitae and deferred service
contract revenues and is scheduled to be recognized in the next 5 years. The deferred revenue, non-current
balance includes $2.9 million that was reclassified from deferred revenue, current to deferred revenue, non-
current following receipt of a non-cancellable order from Invitae during the year ended December 31, 2023 for
partial utilization of the available credits, which is expected to be recognized in revenue after 12 months from
December 31, 2023. Revenue recorded in the year ended December 31, 2023 includes $18.9 million of
previously deferred revenue that was included in deferred revenue, current as of December 31, 2022.
Term Loans
In connection with the acquisition of Omniome, we acquired $1.3 million in short-term debt and $3.0 million in
long-term debt relating to a term loan facility that Omniome obtained in April 2020. Borrowings on the term loan
facility were used to fund Omniome’s purchases of equipment, which serves as collateral. Each term loan has a
term of 43 months and bears a fixed interest rate of approximately 17% annually. The fee for the elective option
to prepay all, but not less than all, of the borrowed amounts at any time after the 24th month and before the 43rd
month after the commencement date, is 4% of the outstanding loan balance. Payments are made in equal
monthly installments including principal and interest.
As of December 31, 2023, the carrying value of term loans outstanding was $0.5 million, recorded as part of
other liabilities, current on the consolidated balance sheet. The interest expense was $0.3 million for the year
ended December 31, 2023, which was included as part of interest expense in the consolidated statements of
operations and comprehensive loss.
As of December 31, 2023, the future principal payments remaining on term loans was the following:
(in thousands)
2024
Total
Other Liabilities, Current
Other liabilities, current, consisted of the following components:
(in thousands)
Accrued Employee Stock Purchase Plan
Short-term loan
Other
Other liabilities, current
$
$
490
490
December 31,
2023
2022
$
$
3,715 $
490
4,121
8,326 $
3,638
1,842
1,753
7,233
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NOTE 7. CONVERTIBLE SENIOR NOTES
2030 Convertible Senior Notes
In June 2023, we entered into a privately negotiated exchange agreement with a holder of our outstanding
1.50% Convertible Senior Notes due 2028 (the “2028 Notes”), pursuant to which we issued $441.0 million in
aggregate principal amount of our 1.375% Convertible Senior Notes due 2030 (the “2030 Notes”) in exchange
for $441.0 million principal amount of the 2028 Notes (the “Exchange Transaction”), pursuant to exemptions
from registration under the Securities Act of 1933, as amended, and the rules and regulations thereunder. The
2030 Notes were issued on June 30, 2023.
The 2030 Notes are governed by an indenture (the “2030 Indenture”) between the Company and U.S. Bank Trust
Company, National Association, as trustee. The 2030 Notes bear interest at a rate of 1.375% per annum.
Interest on the 2030 Notes is payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 2023. The 2030 Notes will mature on December 15, 2030, subject to earlier conversion,
redemption or repurchase.
The 2030 Notes are convertible at the option of the holder at any time until the second scheduled trading day
prior to the maturity date, including in connection with a redemption by the Company. The 2030 Notes are
convertible into shares of our common stock based on an initial conversion rate of 46.5116 shares of common
stock per $1,000 principal amount of the 2030 Notes (which is equal to an initial conversion price of $21.50 per
share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of
certain extraordinary transactions. Upon conversion of the 2030 Notes, we may elect to settle such conversion
obligation in shares of our common stock, cash or a combination of shares of our common stock and cash.
On or after June 20, 2028, the 2030 Notes will be redeemable by the Company in the event that the closing sale
price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading
days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day
of such period) ending on, and including, the trading day immediately preceding the date on which we provide
the redemption notice at a redemption price of 100% of the principal amount of such 2030 Notes, plus accrued
and unpaid interest up to, but excluding, the redemption date.
Upon the occurrence of a Fundamental Change (as defined in the 2030 Indenture), the holders of the 2030
Notes may require that we repurchase all or part of the principal amount of the 2030 Notes at a purchase price
equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest up
to, but excluding, the fundamental change repurchase date, and all unpaid interest from the fundamental
change repurchase date thereon, but excluding, the maturity date.
The 2030 Indenture includes customary “events of default,” which may result in the acceleration of the maturity
of the 2030 Notes under the 2030 Indenture. The 2030 Indenture also includes customary covenants for
convertible notes of this type.
To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of
our reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default,
consist exclusively of the right to receive additional interest on the 2030 Notes at a rate equal to (i) 0.25% per
annum of the principal amount of the 2030 Notes outstanding for each day during the first 180 calendar days of
the 360-day period after the occurrence of such an event of default during which such event of default is
continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50% per annum of
the principal amount of the 2030 Notes outstanding for each day from, and including, the 181st calendar day to,
and including, the 360th calendar day after the occurrence of such an event of default during which such event
of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for
in the 2030 Indenture). On the 361st day after such event of default (if the event of default relating to our failure
to comply with its obligations is not cured or waived prior to such 361st day), the 2030 Notes shall be subject to
acceleration as provided for in the 2030 Indenture.
The 2030 Notes are accounted for in accordance with the authoritative guidance for convertible debt
instruments that may be settled in cash upon conversion. Under ASU 2020-06, the guidance requires that debt
with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds
from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature
unless the conversion feature is required to be accounted for separately as an embedded derivative or the
conversion feature results in a substantial premium. The conversion feature of the 2030 Notes is not accounted
for as an embedded derivative because it is considered to be indexed to our common stock, and the 2030 Notes
were not issued at a substantial premium; therefore, the 2030 Notes are accounted for in their entirety as a
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liability. Because we may elect to settle any conversions entirely in shares, and because settlement in shares is
the default settlement method, the liability is classified as non-current.
The requirement to repurchase the 2030 Notes, including unpaid interest to the maturity date in the event of a
Fundamental Change, is considered a put option for certain periods requiring bifurcation under ASC 815 –
Derivatives and Hedging. However, given the low probability of such a Fundamental Change occurring during the
applicable periods, the value of the embedded derivative is immaterial.
The additional interest feature in the event of our failure to comply with certain reporting obligations is also
considered an embedded derivative requiring bifurcation under ASC 815. However, due to the nature and terms
of the reporting obligations, the value of the embedded derivative is immaterial.
The Exchange Transaction was accounted for as an extinguishment driven by the change in fair value of the
embedded conversion option. We recorded a loss on extinguishment of debt of approximately $2.0 million in
connection with the Exchange Transaction during the year ended December 31, 2023, which represents the
difference between the fair value and the principal amount of the 2030 Notes of the debt at the modification
date, plus unamortized debt issuance costs of $1.5 million related to the respective portion of the 2028 Notes.
We incurred issuance costs related to the 2030 Notes of approximately $7.3 million, which were recorded as
debt issuance costs and are presented as a reduction to the 2030 Notes on our consolidated balance sheets
and are amortized to interest expense using the effective interest method over the term of the 2030 Notes,
resulting in an effective interest rate of 1.6%. We also paid accrued but unpaid interest of $2.5 million on the
2028 Notes in connection with the Exchange Transaction on June 30, 2023.
We did not receive any cash proceeds from the Exchange Transaction. In exchange for issuing the 2030 Notes
pursuant to the Exchange Transaction, we received and cancelled the exchanged 2028 Notes. Following the
closing of the Exchange Transaction, $459.0 million in aggregate principal amount of 2028 Notes remained
outstanding with terms unchanged.
The net carrying amount of the liability for the 2030 Notes is included as convertible senior notes, net, non-
current in the consolidated balance sheets as follows (in thousands):
Principal amount
Unamortized debt premium
Unamortized debt issuance costs
Net carrying amount
December 31,
2023
2022
$
$
$
$
441,000 $
524 $
(6,907) $
434,617 $
Interest expense for the 2030 Notes for the years ended December 31, 2023, 2022, and 2021 was as follows:
(in thousands)
Contractual interest expense
Amortization of debt issuance costs
Total interest expense
Years Ended December 31,
2023
2022
2021
$
$
3,032 $
463
3,495 $
— $
—
— $
—
—
—
—
—
—
—
As of December 31, 2023, the estimated fair value (Level 2) of the 2030 Notes was $410.5 million. The fair value
of the 2030 Notes is estimated using a binomial lattice model that is primarily affected by the trading price of
our common stock, market interest rates and volatility.
2028 Convertible Senior Notes
On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar
LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of
$900.0 million in aggregate principal amount of the 2028 Notes. The 2028 Notes were issued on February 16,
2021. As discussed above, in June 2023 we completed an exchange of $441.0 million in aggregate principal
amount of our 2028 Notes for $441.0 million aggregate principal amount of the 2030 Notes, leaving
approximately $459.0 million in aggregate principal amount of 2028 Notes outstanding.
The 2028 Notes are governed by an indenture (the “2028 Indenture”) between the Company and U.S. Bank
National Association, as trustee. The 2028 Notes bear interest at a rate of 1.50% per annum. Interest on the
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2028 Notes is payable semi-annually in arrears on February 15 and August 15 and commenced on August 15,
2021. The 2028 Notes will mature on February 15, 2028, subject to earlier conversion, redemption, or
repurchase.
The 2028 Notes are convertible at the option of the holder at any time until the second scheduled trading day
prior to the maturity date, including in connection with a redemption by the Company. The 2028 Notes are
convertible into shares of our common stock based on an initial conversion rate of 22.9885 shares of common
stock per $1,000 principal amount of the 2028 Notes (which is equal to an initial conversion price of $43.50 per
share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of
certain extraordinary transactions. Upon conversion of the 2028 Notes, we may elect to settle such conversion
obligation in shares of our common stock, cash or a combination of shares of our common stock and cash.
On or after February 20, 2026, the 2028 Notes will be redeemable by the Company in the event that the closing
sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20
trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last
trading day of such period) ending on, and including, the trading day immediately preceding the date on which
we provide the redemption notice at a redemption price of 100% of the principal amount of such 2028 Notes,
plus accrued and unpaid interest up to, but excluding, the redemption date.
Upon the occurrence of a Fundamental Change (as defined in the 2028 Indenture), the holders of the 2028
Notes may require that we repurchase all or part of the principal amount of the 2028 Notes at a purchase price
of par plus unpaid interest up to, but excluding, the maturity date.
The 2028 Indenture includes customary “events of default,” which may result in the acceleration of the maturity
of the 2028 Notes under the 2028 Indenture. The 2028 Indenture also includes customary covenants for
convertible notes of this type.
To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of
our reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default,
consist exclusively of the right to receive additional interest on the 2028 Notes at a rate equal to (i) 0.25% per
annum of the principal amount of the 2028 Notes outstanding for each day during the first 180 calendar days of
the 360-day period after the occurrence of such an event of default during which such event of default is
continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50% per annum of
the principal amount of the 2028 Notes outstanding for each day from, and including, the 181st calendar day to,
and including, the 360th calendar day after the occurrence of such an event of default during which such event
of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for
in the 2028 Indenture). On the 361st day after such event of default (if the event of default relating to our failure
to comply with its obligations is not cured or waived prior to such 361st day), the 2028 Notes shall be subject to
acceleration as provided for in the 2028 Indenture.
The 2028 Notes are accounted for in accordance with the authoritative guidance for convertible debt
instruments that may be settled in cash upon conversion. Under ASU 2020-06, the guidance requires that debt
with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds
from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature
unless the conversion feature is required to be accounted for separately as an embedded derivative or the
conversion feature results in a substantial premium. The conversion feature of the 2028 Notes is not accounted
for as an embedded derivative because it is considered to be indexed to our common stock, and the 2028 Notes
were not issued at a premium; therefore, the 2028 Notes are accounted for in their entirety as a liability.
Because we may elect to settle any conversions entirely in shares, and because settlement in shares is the
default settlement method, the liability is classified as non-current.
The requirement to repurchase the 2028 Notes including unpaid interest to the maturity date in the event of a
Fundamental Change is considered a put option for certain periods requiring bifurcation under ASC 815 –
Derivatives and Hedging. However, given the low probability of a Fundamental Change occurring during the
applicable periods, the value of the embedded derivative is immaterial.
The additional interest feature in the event of our failure to comply with certain reporting obligations is also
considered an embedded derivative requiring bifurcation under ASC 815. However, due to the nature and terms
of the reporting obligations, the value of the embedded derivative is immaterial.
We incurred issuance costs related to the 2028 Notes of approximately $4.5 million, which were recorded as
debt issuance cost and are presented as a reduction to the 2028 Notes on our consolidated balance sheets and
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are amortized to interest expense using the effective interest method over the term of the 2028 Notes, resulting
in an effective interest rate of 1.6%.
The net carrying amount of the liability for the 2028 Notes is included as convertible senior notes, net, non-
current in the consolidated balance sheets as follows (in thousands):
Principal amount
Unamortized debt issuance costs
Net carrying amount
December 31,
2023
2022
$
$
459,000 $
900,000
(1,374)
(3,317)
457,626 $
896,683
Interest expense for the 2028 Notes was as follows for the years ended December 31, 2023, 2022, and 2021:
(in thousands)
Contractual interest expense
Amortization of debt issuance costs
Total interest expense
Years Ended December 31,
2023
2022
2021
$
$
10,133 $
13,500 $
11,812
472
617
532
10,605 $
14,117 $
12,344
As of December 31, 2023, the estimated fair value (Level 2) of the 2028 Notes was $395.4 million. The fair value
of the Notes is estimated using a pricing model that is primarily affected by the trading price of our common
stock and market interest rates.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Leases
We record operating lease right-of-use assets and liabilities on our consolidated balance sheets for all leases
with a term of more than 12 months. In connection with the acquisition of Omniome, we acquired $18.1 million
in right-of-use assets and liabilities on our consolidated balance sheets. The operating lease right-of-use assets
and liabilities are calculated as the present value of remaining minimum lease payments over the remaining
lease term using our estimated secured incremental borrowing rates at the commencement date. Lease
payments included in the measurement of the lease liability comprise the fixed rent per the term of the Lease.
All of our leases are operating leases. Lease payments comprise the base rent per the term of the Lease. Lease
expense for these leases is recognized on a straight-line basis over the lease term, with variable lease
payments, such as common area maintenance fees, recognized in the period those payments are incurred.
We often have options to renew lease terms for buildings. In addition, certain lease arrangements may be
terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options
at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis
of economic factors.
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As of December 31, 2023, the maturities of our operating lease liabilities were as follows:
(in thousands)
2024
2025
2026
2027
2028
Thereafter
Total undiscounted operating lease payments
Less: imputed interest
Present value of operating lease liabilities
Balance Sheet Classification
Operating lease liabilities, current
Operating lease liabilities, non-current
Total operating lease liabilities
$
12,082
12,307
12,412
9,930
—
—
46,731
(5,534)
$
41,197
$
$
9,591
31,606
41,197
We use our incremental borrowing rate to determine the present value of lease payments, as the implicit rates in
our leases are not readily determinable. The weighted-average discount rate used to measure our operating
lease liabilities was 6.8%. The weighted-average remaining lease term for our operating leases as of
December 31, 2023 was 3.8 years.
Cash Flows
Cash paid for amounts included in the present value of operating lease liabilities was $12.1 million and
$11.2 million for the years ended December 31, 2023 and 2022, respectively, and were included in operating
cash flows.
Operating Lease Costs
Operating lease costs were $10.4 million and $10.5 million for the years ended December 31, 2023 and 2022,
respectively.
Contingencies
We may become involved in legal proceedings, claims and assessments from time to time in the ordinary
course of business. We accrue liabilities for such matters when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated.
We do not believe that the ultimate outcome of any such pending matters is probable or reasonably estimable,
or that these matters will have a material adverse effect on our business; however, the results of litigation and
claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us
because of litigation and settlement costs, diversion of management resources, and other factors.
Please see subsection titled Legal Proceedings, in Part I, Item 3 of this Annual Report on Form 10-K.
Indemnification
Pursuant to Delaware law and agreements entered into with each of our directors and officers, we may have
obligations, under certain circumstances, to hold harmless and indemnify each of our directors and officers
against losses suffered or incurred by the indemnified party in connection with their service to us, and
judgements, fines, settlements and expenses related to claims arising against such directors and officers to the
fullest extent permitted under Delaware law, our bylaws and our certificate of incorporation. We also enter and
have entered into indemnification agreements with our directors and officers that may require us to indemnify
them against liabilities that arise by reason of their status or service as directors or officers, except as
prohibited by applicable law. In addition, we may have obligations to hold harmless and indemnify third parties
involved with our fundraising efforts and their respective affiliates, directors, officers, employees, agents or
other representatives against any and all losses, claims, damages and liabilities related to claims arising
against such parties pursuant to the terms of agreements entered into between such third parties and us in
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connection with such fundraising efforts. To the extent that any such indemnification obligations apply to the
lawsuits described above, any associated expenses incurred are included within the related accrued litigation
expense amounts. No additional liability associated with such indemnification obligations has been recorded as
of December 31, 2023.
Purchase Commitments
In the normal course of business, we enter into agreements to purchase goods or services or license intellectual
property, certain of which are not cancellable without penalty. For those agreements with variable terms, we do
not estimate the total obligation beyond any minimum quantities or pricing as of the reporting date. Licensing
agreements under which we commit to ongoing minimum royalty payments, some of which are subject to
adjustment, may be terminated under certain circumstances.
Our purchase orders and contractual obligations are approximately $109.9 million as of December 31, 2023,
which consist of open purchase orders and contractual obligations in the ordinary course of business, including
commitments with contract manufacturers and suppliers for which we have not received the goods or services.
A majority of these purchase obligations are due within a year. Although open purchase orders are considered
enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and adjust our
requirements based on our business needs prior to the delivery of goods or performance of services.
We recognized a loss on purchase commitment of $3.4 million for the year ended December 31, 2023, which
was recorded as part of accrued expenses on the consolidated balance sheet and is included in the
aforementioned purchase orders and contractual obligations amount. The purchase commitment loss is based
on an estimate of future excess inventory related to a supply agreement with a third-party vendor, for which we
do not expect to have related sales.
We have a long-term supply agreement, which was amended in October 2022 (the “Supply Agreement”), for the
purchase of certain products with a semiconductor manufacturer (“Supplier”). The Supply Agreement provides
for minimum purchase commitments through 2026 on our part in exchange for guaranteed capacity at Supplier.
We are responsible for providing certain materials to allow our Supplier to perform its obligations under the
contract.
We paid our Supplier a deposit of $9.0 million in November 2022 and an additional deposit of $6.0 million in
2023, for a total of $15.0 million (the “Deposit”). The Deposit is fully refundable to us, in accordance with the
Supply Agreement, if we meet the minimum volume purchase commitment for the applicable year. As of
December 31, 2023, $3.0 million related to the Deposit was included in prepaid expenses and other current
assets in the consolidated balance sheets and $12.0 million related to the Deposit was included in other long-
term assets in the consolidated balance sheets, as we believe it is probable the minimum volume purchase
commitment level will be achieved.
NOTE 9. INCOME TAXES
We are subject to income taxes both in the United States and certain foreign jurisdictions in which we operate,
and we use estimates in determining our provisions for income taxes. Significant management judgement is
required in determining our provision for income taxes, deferred tax assets and liabilities, and valuation
allowances recorded against net deferred tax assets in accordance with U.S. GAAP. These estimates and
judgements occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax
assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax
and financial statement purposes, as well as the interest and penalties related to uncertain tax positions.
Significant changes to these estimates may result in an increase or decrease to our tax provision in the current
or subsequent period.
We assess all material positions taken in any income tax return, including all significant uncertain positions, in
all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an
uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the
largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As of each
balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether the
factors underlying the sustainability assertion have changed and the amount of the recognized tax benefit is
still appropriate.
We account for Global Intangible Low-taxed Income as a period cost.
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During the years ended December 31, 2023, 2022, and 2021 income/(loss) before taxes from U.S. operations
were ($318.9) million, ($315.7) million, and ($275.4) million, respectively, and income/(loss) before taxes from
foreign operations was $0.7 million, $1.8 million, and $0.8 million, respectively.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes consists of the following (in thousands):
Total Current
Deferred:
Federal
State
Foreign
Total Deferred
Years ended December 31,
2023
2022
2021
$
— $
— $
—
(9,956)
(1,468)
—
(11,424)
—
—
—
—
(83,742)
(9,907)
—
(93,649)
(Benefit) Provision for Income Taxes
$
(11,424) $
— $
(93,649)
Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying
the statutory income tax rate of 21% to pretax loss as follows:
Statutory tax rate
State tax rate, net of federal benefit
Change in valuation allowance
Tax credits
Share-based compensation
Merger Expenses
Other
Total
Years ended December 31,
2023
2022
2021
21.0 %
3.0
(20.0)
2.0
(2.1)
(0.1)
(0.2)
3.6 %
21.0 %
4.4
(25.1)
2.2
(2.2)
—
(0.4)
(0.1) %
21.0 %
5.5
(4.9)
2.5
10.9
(0.9)
(0.1)
34.0 %
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Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of our deferred tax assets for federal and state income taxes
are as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Research and development credits
Capitalized research and experimental expenses
Accruals and reserves
Cancellation of indebtedness income and interest expense
Share-based compensation
Operating lease liability
Total deferred tax assets
Less: Valuation allowance
Total deferred tax assets:
Intangibles
Fixed assets
Operating lease right-of-use assets
Total deferred tax liabilities
Deferred tax liabilities, net
December 31,
2023
2022
$
435,488 $
400,629
83,922
63,196
16,872
14,907
18,584
9,510
71,526
34,863
13,830
4,587
17,117
11,537
642,479
554,089
(525,703)
(445,574)
116,776
108,515
(109,488)
(98,931)
(548)
(7,491)
(1,262)
(9,157)
(117,527)
(109,350)
$
(751) $
(835)
At December 31, 2023, we maintained a valuation allowance against our net deferred tax assets which totaled
$525.7 million, including net operating loss carryforwards and research and development credits of $435.5
million and $83.9 million, respectively.
A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred income
tax assets will not be realized. We regularly assess the need for a valuation allowance against our deferred
income tax assets by considering both positive and negative evidence related to whether it is more likely than
not that our deferred income tax assets will be realized. In evaluating our ability to recover our deferred income
tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence,
including scheduled reversals of deferred income tax liabilities, projected future taxable income, tax-planning
strategies, and results of recent operations. A deferred income tax benefit of $11.4 million for the year ended
December 31, 2023, is related to the release of the valuation allowance for deferred tax assets due to the
recognition of deferred tax liabilities in connection with the Apton acquisition. We maintain a valuation
allowance on the net deferred tax assets of our U.S. entities as we have concluded that it is more likely than not
that we will not realize our deferred tax assets. Accordingly, this benefit from income taxes is reflected on our
consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.
For the year ended December 31, 2023, the Company's valuation allowance increased to $525.7 million,
primarily because of an increase in our net operating losses, credits, and capitalized research and experimental
expenses that were fully offset by a valuation allowance. For the year ended December 31, 2022, the Company's
valuation allowance increased to $445.6 million, primarily because of an increase in our net operating losses,
credits, and capitalized research and experimental expenses that were fully offset by a valuation allowance.
As of December 31, 2023, we had a net operating loss carryforward for federal income tax purposes of
approximately $1,709.3 million, of which $788.1 million is subject to expiration beginning in 2024. We had a
total state net operating loss carryforward of approximately $1,171.8 million, which are subject to annual
expirations. Utilization of some of the federal and state net operating loss and credit carryforwards are subject
to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitations may result in the expiration of net operating losses and credits
before utilization.
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We have federal credits of approximately $57.7 million, which will begin to expire in 2024 if not utilized and
state research credits of approximately $49.8 million, which have no expiration date. These tax credits are
subject to the same limitations discussed above.
As of December 31, 2023, our total unrecognized tax benefit was $14.6 million. A reconciliation of the beginning
and ending unrecognized tax benefit balance is as follows (in thousands):
Balance as of December 31, 2020
$
Increase in balance related to tax positions taken in prior year
Increase in balance related to tax positions taken during current year
Balance as of December 31, 2021
Decrease in balance related to tax positions taken in prior year
Increase in balance related to tax positions taken during current year
Balance as of December 31, 2022
Increase in balance related to tax positions taken in prior year
Increase in balance related to tax positions taken during current year
5,954
189
2,192
8,335
(10)
2,085
10,410
2,044
2,100
Balance as of December 31, 2023
$
14,554
Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As
of December 31, 2023 and 2022, we had no accrued interest or penalties due to our net operating losses
available to offset any tax adjustment. If total unrecognized tax benefits were realized in the future, it would not
result in any tax benefit as we currently have a full valuation allowance. We file U.S. federal and various state
income tax returns. For U.S. federal and state income tax purposes, the statute of limitations currently remains
open for the years ending December 31, 2020 to present and December 31, 2019 to present, respectively. In
addition, all the net operating losses and research and development credit carryforwards that may be utilized in
future years may be subject to examination. We are not currently under examination by income tax authorities in
any jurisdiction.
NOTE 10. STOCKHOLDERS’ EQUITY
Preferred Stock
Our Certificate of Incorporation, as amended and restated in October 2010 in connection with the closing of our
initial public offering, authorizes us to issue 1,000,000,000 shares of $0.001 par value common stock and
50,000,000 shares of $0.001 par value preferred stock. As of December 31, 2023 and 2022, there were no
shares of preferred stock issued or outstanding.
Common Stock
Common stockholders are entitled to dividends when and if declared by our board of directors. There have been
no dividends declared to date. The holder of each share of common stock is entitled to one vote.
Underwritten Public Equity Offerings
In August 2020, we entered into an underwriting agreement, relating to the public offering of 19,430,000 shares
of our common stock, $0.001 par value per share, at a price to the public of $4.47 per share. Under the terms of
the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an additional
2,914,500 shares of our common stock, which was subsequently exercised in full, and the offering including the
sale of shares of common stock subject to the underwriters’ option, closed in August 2020. In total, we sold
22.3 million shares of our common stock. We paid a commission equal to 6% of the gross proceeds from the
sale of shares of our common stock. The total net proceeds to us from the offering after deducting the
underwriting discount were approximately $93.9 million, excluding approximately $0.3 million of offering
expenses.
In November 2020, we entered into an underwriting agreement, relating to the public offering of 6,096,112
shares of our common stock, $0.001 par value per share, at a price to the public of $14.25 per share. Under the
terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an
additional 914,416 shares of our common stock, which was subsequently exercised in full, and the offering
including the sale of shares of common stock subject to the underwriters’ option, closed in November 2020. In
total, we sold 7.0 million shares of our common stock. We paid a commission equal to 6% of the gross
proceeds from the sale of shares of our common stock. The total net proceeds to us from the offering after
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deducting the underwriting discount were approximately $93.9 million, excluding approximately $0.3 million of
offering expenses.
In total, for the year ended December 31, 2021, we issued 29.4 million shares of our common stock through our
two underwritten public offerings with an average offering price of $6.40. The total net proceeds to us from the
two offerings, after deducting the underwriting commission and offering expenses, were approximately $187.2
million.
In January 2023, we entered into an underwriting agreement, relating to the public offering of 17.5 million
shares of our common stock, $0.001 par value per share, at a price to the public of $10.00 per share. Under the
terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an
additional 2.6 million shares of our common stock, which was subsequently exercised in full, and the offering,
including the sale of shares of common stock subject to the underwriters' option, closed in January 2023. In
total, we sold 20.1 million shares of our common stock. We paid a commission equal to 5.75% of the gross
proceeds from the sale of shares of our common stock. The total net proceeds to us from the offering after
deducting the underwriting discount were approximately $189.7 million, excluding approximately $0.5 million of
offering expenses.
Private Placement of Common Stock
On July 19, 2021, in connection with the Omniome acquisition, we entered into a purchase agreement with
certain qualified institutional buyers and institutional accredited investors, pursuant to which we agreed to sell
an aggregate of 11,214,953 shares of common stock, at a price of $26.75 per share, for aggregate gross
proceeds of approximately $300 million. The transaction closed on September 20, 2021. We registered the
private placement shares for resale following the closing of the merger.
Equity Plans
The 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement
Plan”), and the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc. (the
“Omniome Plan”) allow for the issuance of stock options, restricted units and awards, and performance-based
awards.
On December 2, 2020, the Board of Directors (the “Board”) adopted the Inducement Plan and reserved 2,500,000
shares of our common stock for issuance pursuant to equity awards granted under the Inducement Plan. On
April 18, 2021 and November 22, 2021, the Board amended the Inducement Plan to reserve an additional
750,000 and 360,000 shares, respectively.
On September 20, 2021, in connection with the acquisition of Omniome, we adopted the Omniome Equity
Incentive Plan of Pacific Biosciences of California, Inc. (the “Omniome Plan”). Under the Omniome Merger
Agreement, each unvested option to purchase Omniome common stock, granted under the Omniome Plan held
by employees continuing with us, was assumed by PacBio and converted into an option to purchase shares of
our common stock. The terms and conditions of the converted options are substantially the same (including
vesting and exercisability), except that (A) the assumed options cover shares of PacBio’s common stock; (B)
the number of shares of our common stock subject to the assumed option is equal to the product of (i) the
number of shares of Omniome common stock subject to the corresponding unvested option, multiplied by (ii)
the exchange ratio (as defined below), with any resulting fractional share rounded down to the nearest whole
share; and (C) the exercise price per share of the assumed options is equal to the quotient of (i) the exercise
price per share of the corresponding unvested option to purchase shares of Omniome common stock, divided
by (ii) the exchange ratio (as defined below), with any resulting fractional cent rounded up to the nearest whole
cent. The exchange ratio was equal to 0.259204639. We reserved 2,494,128 shares of our common stock for
issuance pursuant to equity awards under the Omniome Plan.
On May 25, 2022, stockholders approved an amendment to the 2020 Plan, and we reserved an additional
18,000,000 shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan.
As of December 31, 2023, we had 12.8 million shares remaining and available for future issuance under the
2020 Plan, Inducement Plan, and the Omniome Plan.
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Stock Options
Time-based stock options
The following table summarizes time-based stock option activity for all of our equity compensation plans for
the year ended December 31, 2023 (in thousands, except per share amounts):
Outstanding at December 31, 2022
Granted
Exercised
Canceled
Outstanding at December 31, 2023
Performance-based stock options
Number
of shares
Weighted-
average
exercise price
14,618 $
419 $
(1,119) $
(910) $
13,008 $
10.60
11.26
4.74
17.71
10.63
The following table summarizes performance-based stock option activity for all of our equity compensation
plans for the year ended December 31, 2023 (in thousands, except per share amounts):
Outstanding at December 31, 2022
Granted
Exercised
Canceled
Outstanding at December 31, 2023
Number
of shares
Weighted-
average
exercise price
258 $
— $
(251) $
(4) $
3 $
4.71
—
4.71
4.71
4.74
The performance condition was achieved during the year ended December 31, 2023.
The aggregate intrinsic value of the outstanding options presented in the tables above as of December 31,
2023, totaled $31.8 million, and had a weighted-average remaining contractual life of 5.9 years.
The aggregate intrinsic value of outstanding options represents the total pre-tax intrinsic value (i.e. the
difference between $9.81, our closing stock price on the last trading day of our fourth quarter of 2023 and the
option exercise price multiplied by the number of in-the-money options) that would have been received by the
option holders had all option holders exercised their options on December 31, 2023. The aggregate intrinsic
value changes at each reporting date based on the fair market value of our common stock.
The vested and exercisable options as of December 31, 2023, totaled 10,039,742 shares, had an aggregate
intrinsic value of $30.0 million, a weighted-average exercise price per share of $9.70, and a weighted-average
remaining contractual life of 5.2 years.
The vested and expected to vest options as of December 31, 2023, totaled 13,026,464 shares, had an aggregate
intrinsic value of $31.6 million, a weighted-average exercise price per share of $10.81, and a weighted-average
remaining contractual life of 5.8 years.
The total intrinsic value of stock options exercised during the years ended December 31, 2023, 2022, and 2021
was $8.8 million, $5.0 million, and $146.1 million, respectively. The total intrinsic value of options exercised
represents the difference between our closing stock price on the exercise date and the option exercise price,
multiplied by the number of in-the-money options exercised.
The weighted-average grant-date fair value of all options granted was $7.32 in 2023, $5.93 in 2022, and $18.36
in 2021, each determined by the Black-Scholes option valuation method.
Restricted Stock Units ("RSU") and Performance Stock Units ("PSU")
Each Restricted Stock Unit (RSU) represents one equivalent share of our common stock to be issued after
satisfying the applicable continued service-based vesting criteria over a specified period. These RSUs are time-
based and vest over four years at a rate of 25% annually. The RSUs do not entitle participants to the rights of
holders of common stock, such as voting rights, until the shares are issued. The fair value of these RSUs is
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based on the closing price of our common stock on the date of grant. We measure compensation expense for
these RSUs at fair value on the date of grant and recognize the expense over the expected vesting period on a
straight-line basis. RSUs that are expected to vest are net of estimated future forfeitures.
We issue PSUs for which the number of shares issuable in the third year of the performance period is based on
performance relative to specified revenue targets and continued employment through the vesting period.
Maximum achievement of the revenue goal under the PSUs will result in up to 200% of the target number of
shares subject to the PSUs to become eligible to vest, while not meeting the minimum achievement of the
revenue goal under PSUs will result in no shares subject to the PSUs becoming eligible to vest.
The following table summarizes the time-based RSUs and PSUs activity for the year ended December 31, 2023
(shares in thousands):
Outstanding at December 31, 2022
Granted
Vested
Forfeited
Outstanding at December 31, 2023
Weighted-average grant date fair
value
Restricted
Stock Units
(RSUs)
Performance
Stock Units
(PSUs)
RSU
PSU
8,535
7,141
(2,730)
(1,638)
11,308
— $
15.16 $
564
—
(23)
9.67
14.41
13.86
541 $
12.06 $
—
9.43
—
9.43
9.43
The total fair value of shares vested related to RSUs and PSUs during the years ended December 31, 2023,
2022, and 2021 was $39.3 million, $39.2 million, and $9.2 million, respectively.
The weighted-average grant-date fair value of all RSUs and PSUs granted was $9.65 in 2023, $10.15 in 2022,
and $35.33 in 2021.
Employee Stock Purchase Plan
As of December 31, 2023, a total of 29.5 million shares of our common stock have been reserved for issuance
under our 2010 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees to purchase
common stock at a discount through payroll deductions during defined offering periods. Each offering period
will generally consist of four purchase periods, each purchase period being approximately six months. The price
at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the
beginning of an offering period or at the end of a purchase period. If the stock price at the end of the purchase
period is lower than the stock price at the beginning of the offering period, that offering period will be
terminated and a new offering period will come into place. The ESPP provides for an annual increase to the
shares available for issuance at the beginning of each fiscal year equal to the lesser of 2% of the common
shares then outstanding, 4,000,000 shares, or an amount determined by the ESPP’s administrator.
For the years ended December 31, 2023, 2022, and 2021, 1,735,058 shares, 1,878,168 shares, and 1,913,968
shares of common stock were purchased under the ESPP, respectively. As of December 31, 2023, 12,197,447
shares of our common stock remain available for issuance under our ESPP.
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Share-based Compensation
Total share-based compensation expense consists of the following (in thousands):
Cost of revenue
Research and development
Sales, general and administrative
Merger-related expenses - stock-settled
Merger-related expenses - milestone
Share-based compensation
Merger-related expenses - cash-settled
Years Ended December 31,
2023
2022
2021
$
5,399 $
4,802 $
22,435
44,284
—
—
30,676
43,135
—
—
72,118
78,613
—
—
6,126
20,275
35,403
6,349
5,202
73,355
7,373
Total share-based compensation expense
$
72,118 $
78,613 $
80,728
As of December 31, 2023 and 2022, $0.6 million and $0.7 million of share-based compensation cost was
capitalized in inventory, net, on our consolidated balance sheets, respectively.
The tax benefit of share-based compensation expense was immaterial for the years ended December 31, 2023,
2022, and 2021.
Determining Fair Value
We estimate the fair value of share options granted using the Black-Scholes valuation method and a single
option award approach. This fair value is then amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period. The fair market value of RSU awards granted is the
closing price of our shares on the date of grant and is generally recognized as compensation expense on a
straight-line basis over the respective vesting period. For shares purchased under our Employee Stock Purchase
Plan, or ESPP, we estimate the grant-date fair value, and the resulting share-based compensation expense,
using the Black-Scholes option-pricing model.
Expected Term – The expected term used in the Black-Scholes valuation method represents the period that the
stock options are expected to be outstanding and is determined based on historical experience of similar
awards, giving consideration to the contractual terms of the stock options and vesting schedules.
Expected Volatility – The expected volatility used in the Black-Scholes valuation method is derived from the
implied volatility related to our share price over the expected term.
Expected Dividend – We have never paid dividends on our shares and, accordingly, the dividend yield
percentage is zero for all periods.
Risk-Free Interest Rate – The risk-free interest rate used in the Black-Scholes valuation method is the implied
yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected
terms.
Stock Options
We estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair
value of employee stock options is amortized on a straight-line basis over the requisite service period of the
awards.
When determining the current share prices underlying the stock options for calculating the grant-date fair value,
we reference observable market prices of similar or identical instruments in active markets.
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The fair value of employee stock options was estimated using the following weighted-average assumptions:
Expected term in years
Expected volatility
Risk-free interest rate
Dividend yield
Years Ended December 31,
2023
4.9
2022
4.6
2021
2.1 - 4.6
77% - 78%
70% - 76%
67% - 80%
3.73% – 4.60% 0.41% – 3.66% 0.05% – 1.10%
—
—
—
Weighted-average grant date fair value per share
$
7.32 $
5.93 $
15.53
Cash received from option exercises for the years ended December 31, 2023, 2022, and 2021 was $6.5 million,
$3.4 million and $25.4 million, respectively.
ESPP
We estimate the fair value of shares to be issued under the ESPP using the Black-Scholes option pricing model.
The fair value of shares to be issued under the ESPP was estimated using the following assumptions:
Expected term in years
Expected volatility
Risk-free interest rate
Dividend yield
Years Ended December 31,
2023
0.5 - 2.0
2022
0.5 - 2.0
2021
0.5 - 2.0
79% - 97%
70% - 97%
67% - 68%
4.9% - 5.5%
0.6% - 3.5%
0.1% - 0.2%
—
—
—
Weighted-average grant date fair value per share
$
5.34 $
4.28 $
25.07
Cash received through the ESPP for the years ended December 31, 2023, 2022, and 2021 was $8.8 million, $7.8
million, and $6.4 million, respectively.
As of December 31, 2023, $101.9 million of total unrecognized compensation expense related to stock options,
restricted stock, and ESPP shares was expected to be recognized over a weighted-average period of 2.2 years.
NOTE 11. NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number
of shares of common stock outstanding and potential shares assuming the dilutive effect of the convertible
senior notes, using the if-converted method, and outstanding equity awards using the treasury stock method.
The following table presents the calculation of the basic and diluted net loss per share amounts presented in
the consolidated statements of operations and comprehensive loss (in thousands, except per share amounts):
Numerator:
Net loss
Denominator:
Basic
Years Ended December 31,
2023
2022
2021
$
(306,735) $
(314,248) $
(181,223)
Weighted-average shares used in computing basic net loss per share
253,629
224,550
204,136
Basic net loss per share
Diluted
$
(1.21) $
(1.40) $
(0.89)
Weighted-average shares used in computing diluted net loss per
share
Diluted net loss per share
253,629
224,550
204,136
$
(1.21) $
(1.40) $
(0.89)
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The following shares issuable upon conversion of the convertible senior notes and outstanding equity awards
were excluded from the computation of diluted net loss per share for the periods presented because the effect
of including such shares would have been antidilutive (in thousands):
(in thousands)
Shares issuable upon conversion of convertible senior notes
Equity awards
Years Ended December 31,
2023
2022
2021
31,063
27,246
20,690
27,291
20,690
21,419
As described in Note 2. Business Acquisitions, the contingently issuable shares would be due upon the
achievement of a milestone. See Note 10. Stockholders’ Equity for detailed information on RSUs with time-based
vesting and RSUs with performance-based vesting.
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION
We are organized as, and operate in, one reportable segment: the development, manufacturing, and marketing
of an integrated platform for genetic analysis. Our chief operating decision-maker is our Chief Executive Officer.
The Chief Executive Officer reviews financial information presented on a consolidated basis for the purposes of
evaluating financial performance and allocating resources, accompanied by information about revenue by
geographic regions. Our assets are primarily located in the United States of America and not allocated to any
specific region, and we do not measure the performance of geographic regions based upon asset-based
metrics. Therefore, geographic information is presented only for revenue.
A summary of our revenue by geographic location is as follows:
(in thousands)
Americas
Europe, Middle East, and Africa
Asia-Pacific
Total
A summary of our revenue by category is as follows:
(in thousands)
Instrument revenue
Consumable revenue
Product revenue
Service and other revenue
Total revenue
Years Ended December 31,
2023
2022
2021
$
105,410 $
69,561 $
40,658
54,453
22,598
36,145
64,521
30,271
35,721
$
200,521 $
128,304 $
130,513
Years Ended December 31,
2023
2022
2021
$
120,451 $
48,719 $
63,421
183,872
16,649
59,980
108,699
19,605
61,324
52,181
113,505
17,008
$
200,521 $
128,304 $
130,513
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer, our chief financial officer, and our
principal accounting officer, evaluated the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a–15(e) and 15d–15(e) of the Exchange Act) as of the end of the period covered by this Annual
Report on Form 10–K. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to our management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives, and management necessarily applies its
judgement in evaluating the cost-benefit relationship of possible controls and procedures. Based on this
evaluation, our chief executive officer, chief financial officer and our principal accounting officer concluded that
our disclosure controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f). Pacific Biosciences of California, Inc’s
internal control over financial reporting is designed to provide reasonable assurance to the Company’s
management and board of directors regarding the preparation and fair presentation of published financial
statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Management assessed the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). Based on our assessment, we concluded that, as
of December 31, 2023, the Company’s internal control over financial reporting was effective based on those
criteria.
The Company’s internal control over financial reporting as of December 31, 2023 has been audited by Ernst &
Young LLP, the independent registered public accounting firm who also audited the Company’s financial
statements. Ernst & Young’s attestation report on the Company’s internal control over financial reporting
appears on page 113 hereof.
Changes in Internal Control Over Financial Reporting
There were no material changes in our internal control over financial reporting identified in connection with the
evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended
December 31, 2023, that have materially affected, or were reasonably likely to materially affect, our internal
control over financial reporting.
112
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To the Stockholders and the Board of Directors of Pacific Biosciences of California, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control over Financial Reporting
We have audited Pacific Biosciences of California, Inc.’s internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In
our opinion, Pacific Biosciences of California, Inc. (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated
February 28, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Mateo, California
February 28, 2024
113
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ITEM 9B.
OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers.
During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule
10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of
Regulation S-K.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with
respect to our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
ITEM 11.
EXECUTIVE COMPENSATION
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with
respect to our 2024 Annual Meeting of Stockholder to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with
respect to our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with
respect to our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with
respect to our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
PART IV
(a)
The following documents are filed as part of, or incorporated by reference into, this Annual
Report on Form 10-K:
1. Financial Statements: See Index to Consolidated Financial Statements under Item 8 of this
Annual Report on Form 10-K.
2. Financial Statement Schedules: All schedules are omitted because they are not required, are
not applicable or the information is included in the consolidated financial statements or
notes thereto.
3. Exhibits: We have filed or incorporated by reference into this Annual Report on Form 10-K,
the exhibits listed on the accompanying Exhibit Index immediately below.
(b)
(c)
Financial Statement Schedules: See Item 15(a)(2), above.
Exhibits: Refer to the Exhibit Index that follows.
114
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Exhibit Index
Exhibit
͏Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18†
10.19
10.20††
10.21+
Description
Amended and Restated Certificate of Incorporation
Third Amended and Restated Bylaws of Pacific Biosciences of
California, Inc.
Specimen Common Stock Certificate
Incorporated by reference herein
Form
10-K
8-K
S-1/A
Exhibit
No.
Filing Date
3.1
March 23, 2011
3.1
4.1
November 7, 2022
October 1, 2010
Description of Registrant’s securities registered under Section 12 of the
Exchange Act
10-K
4.2
February 28, 2020
Indenture, dated February 16, 2021, between Pacific Biosciences of
California, Inc., and U.S. Bank National Association, as Trustee
10-Q
4.1
August 4, 2023
Form of 1.50% Convertible Senior Notes due 2028 (included in Exhibit
4.3)
10-Q
4.1
August 4, 2023
Indenture, dated as of June 30, 2023, by and between Pacific
Biosciences of California, Inc. and U.S. Bank Trust Company, National
Association, as Trustee
Form of 1.375% Convertible Senior Note due 2030
Form of Director and Executive Officer Indemnification Agreement
2010 Equity Incentive Plan
8-K
8-K
S-1
S-1
4.1
4.2
10.1
10.4
June 30, 2023
June 30, 2023
August 16, 2010
August 16, 2010
2010 Equity Incentive Plan forms of agreement
10-Q
10.1 May 2, 2018
2010 Employee Stock Purchase Plan and forms of agreement
thereunder
2010 Outside Director Equity Incentive Plan
2010 Outside Director Equity Incentive Plan forms of agreement
2020 Equity Incentive Plan, as amended
Form of Global Stock Option Agreement under the Pacific Biosciences
of California, Inc., 2020 Equity Incentive Plan, as amended
Form of Global Restricted Stock Unit Agreement under the Pacific
Biosciences of California, Inc. 2020 Equity Incentive Plan, as amended
S-1
S-1
10-Q
8-K
8-K
8-K
10.5
10.6
August 16, 2010
August 16, 2010
10.2 May 2, 2018
10.1 May 26, 2022
10.2 May 26, 2022
10.3 May 26, 2022
Omniome Equity Incentive Plan of Pacific Biosciences of California,
Inc., and related forms of agreement thereunder
10-Q
10.4
November 5, 2021
Pacific Biosciences of California, Inc. 2020 Inducement Equity Incentive
Plan, as amended, and forms of agreement thereunder
8-K
10.1
November 19,
2021
Letter Relating to Employment Terms by and between the Registrant
and Susan G. Kim effective September 28, 2020
10-Q
10.2
November 3, 2020
Form of Change in Control and Severance Agreement for executive
officers
10-K
10.14
February 26, 2021
Letter Relating to Employment Terms by and between the Registrant
and Christian O. Henry effective September 14, 2020
10-K
10.15
February 26, 2021
Amended Change in Control and Severance Agreement by and between
the Registrant and Christian O. Henry dated February 3, 2021
10-K
10.17
February 26, 2021
Letter Relating to Employment Terms by and between the Registrant
and Mark Van Oene effective January 8, 2021
10-K
10.18
February 26, 2021
Lease Agreement by and between the Registrant and Menlo Park
Portfolio II, LLC, dated July 22, 2015
10-Q
10.2
August 5, 2015
First Amendment to Lease Agreement by and between the Registrant
and Menlo Park Portfolio II, LLC, dated December 23, 2016
10-K
10.50 March 6, 2017
Investment Agreement, dated as of February 9, 2021, between Pacific
Biosciences of California, Inc. and SB Northstar LP.
8-K
10.1
February 10, 2021
Exclusive License Agreement by and between the Registrant and
Cornell Research Foundation, Inc., dated as of February 1, 2004
S-1/A
10.8
October 22, 2010
Letter Relating to Employment Terms by and between the Registrant
and Michele Farmer effective May 17, 2021
10-Q
10.2
August 6, 2021
115
Table of Contents
10.22
10.23
10.24
10.25+
10.26+
10.27
10.28+
21.1
23.1
31.1
31.2
32.1*
32.2*
97.1
101.INS
Agreement and Plan of Merger of Reorganization among Pacific
Biosciences of California, Inc., Apollo Acquisition Corp., Apollo
Acquisition Sub, LLC, Omniome, Inc. and Shareholder Representative
Services, LLC, as securityholder representative, dated as of July 19,
2021
Securities Purchase Agreement, dated as of July 19, 2021, by and
between Pacific Biosciences of California, Inc., and each of the
Investors
Registration Rights Agreement, dated as of July 19, 2021, by and
between Pacific Biosciences of California, Inc., and each of the
Investors
Letter Relating to Employment Terms by and between the Registrant
and Jeff Eidel effective August 16, 2022
Change in Control and Severance Agreement by and between the
Registrant and Susan G. Kim effective February 3, 2021
Letter Agreement, dated June 23, 2023, between the Company and
Chimera Investment LLC
Form of Performance-Based Restricted Stock Unit Award Agreement
under the Pacific Biosciences of California, Inc. 2020 Equity Incentive
Plan, as amended
List of Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Compensation Recovery Policy
XBRL Instance Document (the instance document does not appear in
the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document)
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive File (formatted as inline XBRL and contained in
Exhibit 101)
_____________________
+
Indicates management contract or compensatory plan.
8-K
10.1
July 20, 2021
8-K
10.2
July 20, 2021
8-K
8-K
8-K
8-K
10.3
July 20, 2021
99.3
January 24, 2023
99.4
January 24, 2023
10.1
June 23, 2023
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished
herewith
Furnished
herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and have been filed
separately with the Securities and Exchange Commission.
†† Certain confidential information contained in this Exhibit was omitted by means of marking such portions with brackets because the
identified confidential information (i) is not material and (ii) would be competitively harmful if publicly disclosed.
*
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are deemed furnished and not
filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Pacific Biosciences
of California, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made
before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
116
Table of Contents
ITEM 16.
FORM 10-K SUMMARY
None.
117
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
Signatures
Date: February 28, 2024
Pacific Biosciences of California, Inc.
By:
/s/ Christian O. Henry
Christian O. Henry
President and Chief Executive Officer
Date: February 28, 2024
By:
/s/ Susan G. Kim
Susan G. Kim
Chief Financial Officer
Date: February 28, 2024
By:
/s/ Michele Farmer
Michele Farmer
Vice President and Chief Accounting
Officer
118
Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Christian O. Henry, Susan G. Kim, Brett Atkins, and Michele Farmer, and each of them,
as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for
each individual in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or the individual’s substitute, may lawfully
do or cause to be done by virtue hereof.
119
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed
by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Christian O. Henry Director, President and Chief Executive
February 28, 2024
Christian O. Henry
Officer
(Principal Executive Officer)
/s/ Susan G. Kim
Susan G. Kim
Chief Financial Officer
(Principal Financial Officer)
February 28, 2024
/s/ Michele Farmer
Michele Farmer
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
February 28, 2024
/s/ John F. Milligan
Chairman of the Board of Directors
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
John F. Milligan
/s/ William W. Ericson Director
William W. Ericson
/s/ Hannah A.
Valantine
Director
Hannah A. Valantine
/s/ Randall S.
Livingston
Director
Randall S. Livingston
/s/ Marshall L. Mohr Director
Marshall L. Mohr
/s/ Kathy Ordoñez
Director
Kathy Ordoñez
/s/ Lucy Shapiro
Director
Lucy Shapiro
/s/ David Meline
Director
David Meline
120
EXECUTIVE OFFICERS
Christian Henry
President and Chief Executive Officer
Jeff Eidel
Chief Commercial Officer
BOARD OF DIRECTORS
Mark Van Oene
Chief Operating Officer
Susan G. Kim
Chief Financial Officer
Christian Henry
President and Chief Executive
Officer
John Milligan, PhD (chair)
Chairman of the Board of
Directors
William Ericson
Founding Partner at Wildcat
Venture Partners
Randy Livingston
VP for Business Affairs and
Chief Financial Officer at
Stanford University
Kathy Ordoñez
Director and former Chief
Commercial Officer
David Meline
Former Chief Financial Officer
at Moderna, Inc.
Marshall Mohr
EVP, Global Business Services
at Intuitive Surgical, Inc.
Lucy Shapiro, PhD
Professor of Cancer Research
and Director of Molecular and
Genetic Medicine at Stanford
University’s School of Medicine
Hannah A. Valantine, MD
Professor of Medicine
(Cardiovascular) at the Stanford
University Medical Center
For additional biographical information on our directors and executive officers, see the sections of our
proxy statement captioned “Corporate Governance — Board of Directors and Committees of the Board” and
“Executive Officers.” A copy of our proxy statement is included with this annual report to stockholders.
CORPORATE COUNSEL
TRANSFER AGENT AND REGISTRAR
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
COMMON STOCK LISTING
The Nasdaq Global Select Market
Ticker symbol: PACB
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By mail:
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P.O. Box 43078
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By courier:
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150 Royall Street, Suite 101
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Phone: 866.401.4874
Foreign shareholders: 201.680.6578
www.computershare.com/investor
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Research use only. Not for use in diagnostic procedures. © 2024 Pacific Biosciences of California, Inc.
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