Pacific Biosciences of California, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The company develops and sells genetic sequencing instruments, consumables, and services, based on HiFi long-read and emerging SBB short-read technologies.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $32.3 million | $34.9 million | $101.0 million | $94.5 million |
| Gross profit / margin | $13.5 million / 41.9% | $15.4 million / 44.0% | $43.9 million / 43.5% | $42.1 million / 44.5% |
| Operating loss | $74.6 million | $74.5 million | $220.1 million | $145.8 million |
| Net loss (income) | $77.0 million | $16.5 million income | $229.9 million | $111.9 million |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $(202.6) million | $(79.5) million |
Q3 revenue fell 7% year over year, as instrument revenue declined 28% to $11.4 million; consumables rose 10% to $16.1 million and service revenue rose 10% to $4.8 million. For the first nine months, revenue grew 7%, led by consumables (+16%) and service (+24%), while instrument revenue declined 6%. The Sequel II/IIe installed base reached 494 systems, versus 326 a year earlier.
Cash, cash equivalents, and investments totaled $834.3 million at September 30, down from $1.044 billion at December 31, 2021. Cash, cash equivalents, and restricted cash declined $158.2 million over the first nine months. Current assets were $913.9 million and current liabilities were $81.6 million. Management said existing cash, cash equivalents, and investments should fund projected operating requirements beyond 12 months from the filing date.
Convertible senior notes had $900 million principal outstanding, with a 1.50% coupon and February 2028 maturity; their net carrying value was $896.5 million. The balance sheet also included a $167.5 million contingent consideration liability related to Omniome. Stockholders’ equity was $626.6 million. Shares outstanding were 225.9 million at quarter-end and 226.1 million at October 31, 2022.
Changes versus the prior comparable period
- Nine-month gross profit increased 4%, but gross margin declined one percentage point, reflecting lower instrument volume and average selling prices and higher product costs.
- Nine-month operating loss widened by $74.4 million. Research and development expense increased $80.1 million, primarily due to Omniome-related personnel, product development, and expanded operations; sales, general and administrative expense increased $29.0 million. These increases were partly offset by the absence of $30.7 million in prior-year merger-related costs and a $2.2 million nine-month gain from revaluing contingent consideration.
- The prior-year nine-month net loss included a $52.0 million expense for repayment of Illumina continuation advances and a $94.8 million income-tax benefit associated with acquired deferred tax liabilities. Neither item recurred in 2022, complicating net-loss comparisons.
Outlook, commentary, and material risks
- Product plans: PacBio announced Revio, its new HiFi long-read system, in October 2022; it expected to take orders in Q4 2022 and begin shipments in Q1 2023. Onso, its SBB short-read platform, was expected to begin shipping in the first half of 2023. Management anticipated that Revio’s launch could weigh on Sequel IIe sales.
- Near-term costs and margins: Management expected gross margin to trend slightly lower in the remainder of 2022 because of product transitions, inflation, and supply-chain costs. It expected full-year 2022 R&D expense to increase year over year, while R&D spending in the remainder of the year was expected to decline due to product transitions. SG&A was expected to increase with commercialization efforts. The filing gives no specific revenue or earnings guidance.
- Demand and execution: Management cited longer sales cycles and customer purchasing delays, including customers waiting for Revio. It also noted that annualized consumables pull-through declined despite growth in the installed base.
- Operating risks: Semiconductor shortages, inflation, COVID-19 restrictions in China, foreign-exchange movements, and geopolitical or trade restrictions could affect supply, costs, customer demand, and margins. One customer represented approximately 13% of Q3 revenue and 11% of nine-month revenue; customer concentration and international exposure add volatility.
- Development collaboration: Under the amended Invitae agreement, Invitae was no longer contractually required to fund development or participate in development decisions. PacBio will provide credits against specified purchases using prior non-refundable payments; unused credits are recognized when they expire.
- Contingencies: The Omniome milestone could require $100 million in cash and $100 million in shares upon the first commercial shipment of an SBB instrument and related consumables. A Q3 remeasurement increased the liability by $4.3 million, while the nine-month remeasurement reduced it by $2.2 million. The PGI U.S. patent case remained stayed pending a Federal Circuit appeal; a related China infringement action was dismissed after the relevant patent claims were invalidated, while an appeal of that invalidation decision remained pending.
Key facts for investors to verify
- Whether Revio and Onso launch, shipment, performance, and customer-adoption timelines are achieved, and how transitions affect Sequel sales.
- Whether consumables growth and instrument placements translate into improving pull-through, revenue, and gross margin.
- Cash burn, liquidity relative to management’s stated runway, and the funding required to support product development and commercialization.
- Supply-chain availability and costs, customer concentration, and the effects of China-related demand, trade, and currency risks.
- Progress toward the Omniome SBB milestone, the resulting contingent consideration, and developments in the PGI litigation and appeal.