STANDARD BIOTOOLS INC. annual report, FY2012

Business context and reporting period

The filing is Fluidigm Corporation’s Form 10-K for the fiscal year ended December 31, 2012, with unaudited quarterly results for Q4 2012. Although the request identifies Standard BioTools Inc., the filing names Fluidigm Corporation as the registrant.

Fluidigm developed and sold microfluidic instruments and consumables for life-science research, agricultural biotechnology and related applications. Its portfolio included BioMark HD, C1, EP1 and Access Array systems. The company reported approximately 685 systems sold across more than 30 countries.

Financial performance and liquidity

Revenue grew 22% year over year. Product revenue rose 27%; instrument revenue increased 16% to $29.2 million, and consumables revenue increased 45% to $22.3 million. Product margin improved to 70% from 67%. Operating expenses were $55.1 million, including $16.6 million of research and development and $38.5 million of selling, general and administrative expense.

At year-end, cash and cash equivalents were $58.6 million, short- and long-term investments totaled $25.0 million, working capital was $89.6 million, and stockholders’ equity was $100.7 million. Long-term debt was fully repaid in 2012; the company had no balance outstanding on its $10 million credit line. Financing cash flow included approximately $56.0 million in net proceeds from an August public offering. The filing states that available cash and investments were expected to fund working-capital and capital needs for at least 18 months.

For Q4 2012, revenue was $15.7 million and net loss attributable to common stockholders was $3.6 million, or $0.14 per share. Q4 2011 revenue was $13.0 million and the corresponding net loss was $3.5 million, or $0.17 per share.

Material changes versus the prior comparable period

• Growth was led by consumables, supported by a larger installed instrument base and increased chip pull-through. Instrument revenue benefited from the C1 system launch, partly offset by lower Access Array and analytical-system unit sales.
• Product margin rose three percentage points, attributed to product mix, manufacturing volume and yield improvements, and lower material costs, partly offset by higher freight and distribution costs.
• Research and development expense rose 19% and selling, general and administrative expense rose 23%, reflecting product development, commercial expansion, compensation and public-company costs.
• Net loss narrowed from 2011, when common-stockholder loss included a $9.9 million deemed dividend and results included a $3.0 million litigation-settlement expense. Interest expense also declined as debt was repaid.
• Cash and investments increased from $55.0 million at year-end 2011 to $83.7 million at year-end 2012, principally reflecting the 2012 equity offering.

Outlook, commentary and risks

Management expected instrument and consumables unit sales to continue growing as it expanded its customer base and geographic reach, while noting that instrument average selling prices could vary with product mix. It expected 2013 grant revenue to be consistent with 2012, research and development and selling, general and administrative expenses to increase, and capital expenditures to be higher. No specific revenue or earnings guidance was provided.

• The company continued to incur substantial losses and negative operating cash flow; management could not predict when profitability would be achieved and cautioned that it might never be achieved.
• Emerging markets for single-cell genomics, digital PCR and sequencing sample preparation may develop more slowly than expected. Customer adoption, research budgets, long sales cycles and quarterly demand variability create uncertainty.
• Manufacturing is concentrated in Singapore, and certain components and materials have limited or single sources. Production interruptions, supplier issues, yield problems or facility changes could constrain sales or margins.
• Products were labeled for research use only, not FDA-cleared or approved for diagnostic use. Regulatory changes, including oversight of laboratory-developed tests, could affect the company or its customers.
• Intellectual-property exposure includes license and royalty obligations and the risk of third-party infringement claims. A lawsuit Fluidigm filed against NanoString in November 2012 alleging false advertising and unfair competition was in its preliminary stages; NanoString denied the allegations. The filing reported no accrued loss contingency at year-end.
• Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2012.

Important facts for investors to verify

• Confirm the issuer identity and period: this is Fluidigm Corporation’s FY 2012 10-K, not a filing under the Standard BioTools Inc. name.
• Track whether consumables growth and improved product margin persist, and whether instrument placements generate recurring consumables sales.
• Assess the pace of operating-expense growth against revenue growth, continuing losses and operating cash use.
• Monitor cash runway, planned capital spending, and any future use of the credit line or need for additional financing.
• Review progress on manufacturing capacity and supplier diversification, and developments in the NanoString litigation and applicable regulatory oversight.