Pacific Biosciences of California, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited. PacBio develops and sells HiFi long-read sequencing products and is commercializing its SBB short-read platform.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $55.7m | $32.3m | $142.2m | $101.0m |
| Gross profit / margin | $17.9m / 32% | $13.5m / 42% | $43.2m / 30% | $43.9m / 43% |
| Operating loss | $82.5m | $74.6m | $246.9m | $220.1m |
| Net loss | $66.9m | $77.0m | $224.7m | $229.9m |
| Basic and diluted loss per share | $0.26 | $0.34 | $0.90 | $1.03 |
For the nine months, operating cash flow was negative $201.6m, versus negative $202.6m a year earlier. Investing activities provided $71.2m, mainly from investment maturities, and financing provided $190.5m, including $189.2m net proceeds from a public equity offering. Cash, cash equivalents and investments totaled $767.8m at September 30, 2023, compared with $772.3m at December 31, 2022. Cash and cash equivalents alone were $385.6m.
At September 30, total liabilities were $1.13bn, including $892.0m net carrying value of convertible senior notes ($459m principal due 2028 and $441m due 2030). Current liabilities were $184.0m and current assets were $882.3m. Management said existing cash, cash equivalents and investments should fund projected operating requirements beyond 12 months from filing, while noting continued expected operating losses and negative operating cash flow.
Material changes and business developments
- Revenue rose 72% in Q3 and 41% year to date, driven chiefly by Revio instrument placements and its higher average selling price. PacBio reported 129 Revio systems in its installed base at quarter-end; Q3 placements were 52. Onso customer shipments began in August.
- Gross margin fell to 32% for Q3 and 30% year to date. Management cited Revio’s initial manufacturing and warranty costs, loyalty discounts, scrap, and about $3.5m of first-quarter inventory adjustments related primarily to faster-than-expected declines in Sequel II/IIe consumables during the transition to Revio.
- Service and other revenue declined 14% in Q3 and 18% year to date, reflecting warranty accounting changes and customers shifting platforms or not renewing older service plans. Consumables revenue grew modestly as Revio growth partly offset declining Sequel consumables.
- PacBio acquired Apton Biosystems on August 2 for approximately 6.3m shares, $0.2m cash and contingent consideration. The preliminary allocation included $53.0m of in-process research and development and $53.9m of goodwill. A further $25m may be payable if Apton-related technology reaches $50m in revenue within five years. The acquisition generated $9.0m of merger-related expenses in the first nine months.
- The Omniome commercial milestone was achieved in September. Former Omniome securityholders became entitled to approximately $100.9m cash and about 9.0m shares; the remaining cash payment was made in October. The milestone and related contingent-consideration remeasurement contributed to a $14.0m year-to-date expense from changes in fair value of contingent consideration.
- In June, PacBio exchanged $441m principal amount of 2028 notes for $441m of 2030 notes, leaving $459m principal of 2028 notes outstanding. The exchange produced a $2.0m extinguishment loss and $7.3m of 2030-note issuance costs. In January, the company raised approximately $189.2m net through an equity offering.
Outlook, risks and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management expects Revio adoption and its installed base to grow, with related consumables sales increasing; it also expects older Sequel II/IIe placements and consumables, and service revenue, to decline as customers transition. Onso placements are expected to grow. Management aims to use existing infrastructure to move toward positive cash flow, but says losses and negative operating cash flow are expected to continue.
Management said inflation, supply-chain constraints, volatile capital markets, competition and foreign-exchange movements have adversely affected customers and lengthened sales cycles; the scale and duration of those effects remain uncertain. Principal risks include successful commercialization and manufacturing of new platforms, product quality and warranty costs, customer capital spending and unpredictable sales cycles, sole-source and international supply dependencies, competition, continued cash burn and potential financing dilution, convertible-note repayment or conversion obligations, and intellectual-property litigation. The company reported pending U.S. patent disputes involving Personal Genomics of Taiwan and Take2 Technologies/Chinese University of Hong Kong; it intends to defend the claims and said outcomes were not considered probable or reasonably estimable as of the filing. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether Revio and Onso placements translate into recurring consumables revenue and improved manufacturing economics and gross margins.
- The pace of Sequel II/IIe revenue and service declines, and any further obsolete or excess-inventory charges.
- Cash burn relative to the $767.8m cash-and-investment balance, including the October Omniome cash payment and future Apton milestone exposure.
- Potential dilution from equity issuance, acquisition consideration, employee awards and conversion of the $900m principal amount of convertible notes.
- Updates on customer demand and sales cycles, supply-chain constraints, and the PGI and Take2 patent proceedings.