Pacific Biosciences of California, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. PacBio develops and sells genomic sequencing instruments, consumables and related services, principally using its HiFi long-read technology, while developing short-read Sequencing by Binding (SBB) technology.
Financial performance and position
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $130.5 million | $78.9 million |
| Gross profit / margin | $58.9 million / 45.1% | $32.6 million / 41.3% |
| Operating loss | $210.4 million | $104.4 million |
| Net income (loss) | $(181.2) million | $29.4 million |
| Cash used in operating activities | $111.2 million | Cash provided: $19.5 million |
- Revenue rose 65%. Product revenue increased 73% to $113.5 million, including instrument revenue of $61.3 million and consumables revenue of $52.2 million. Service and other revenue was $17.0 million, up 26%.
- Management attributed stronger gross margin to higher sales volume and factory utilization. Semiconductor shortages increased costs and could pressure future margins.
- Operating expenses rose 97% to $269.3 million, including $31.1 million of merger-related expenses. Research and development expense was $112.9 million; sales, general and administrative expense was $124.1 million.
- The 2021 net loss included a $52.0 million repayment of Illumina continuation advances and was partly offset by a $93.6 million deferred income tax benefit related to acquired deferred tax liabilities. The company continued to maintain a valuation allowance on its U.S. net deferred tax assets.
- At year-end, cash and cash equivalents were $460.7 million and short-term investments were $583.7 million, totaling $1.044 billion. Current assets were $1.101 billion and current liabilities were $71.7 million.
- Operating cash use was $111.2 million; investing cash use was $678.5 million, including $319.8 million net cash paid for acquisitions and $352.8 million of net investment purchases. Financing provided $1.170 billion, principally from debt and equity issuance.
- Debt included $900 million of 1.50% convertible senior notes due February 2028, carried at $896.1 million net of issuance costs, plus $3.9 million of acquired term loans. The notes have an initial conversion price of $43.50 per share. Total liabilities were $1.216 billion.
Changes, outlook and notable items
- Sequel II/IIe system placements increased to 374 in 2021 from 203 in 2020, supporting growth in instrument and consumables revenue. Instrument backlog declined to approximately $2.0 million from $10.1 million; the company expected to convert it to revenue during 2022, subject to cancellation or delay.
- PacBio acquired Circulomics in July and Omniome in September 2021. The Omniome acquisition added short-read SBB technology and included a potential additional $200 million payment—$100 million in cash and $100 million in stock—upon the first commercial shipment of an SBB-based platform. The recorded contingent consideration liability was $169.7 million at year-end.
- The company raised $900 million in convertible notes and approximately $300 million gross through a September private placement. It repaid the $52 million Illumina continuation advances after the debt financing.
- Management expects revenue to grow in 2022, while operating losses and research and development and SG&A expenses are expected to increase. It plans to continue expanding commercial capacity and developing higher-throughput HiFi products; its stated target for launching the SBB short-read platform was the first half of 2023.
- The multi-year Invitae collaboration funds development of production-scale, high-throughput sequencing products. PacBio had received $23.5 million, recorded as non-current deferred revenue. Certain termination circumstances may require refunds or revenue sharing; commercial readiness is not assured.
- Important risks include ongoing operating losses and negative operating cash flow, dependence on continued financing and successful product adoption, customer concentration (Gene Company Limited accounted for 13% of 2021 revenue), COVID-19 and supply-chain disruption, competition, product-manufacturing and yield challenges, and exposure to China-related trade and geopolitical risks.
- Patent litigation with Personal Genomics of Taiwan remained unresolved: a U.S. review invalidated some challenged claims, while PacBio appealed a decision on other claims; related U.S. proceedings reopened. The company said outcomes were unpredictable and did not consider the matters probable or reasonably estimable at filing.
- Auditors issued unqualified opinions on the financial statements and internal controls. The internal-control assessment excluded Omniome and Circulomics, which represented approximately 2% of year-end assets and 1% of 2021 revenue.
Investor verification priorities
- Track cash burn, future financing needs and the ability to service or settle the convertible notes, including potential conversion dilution.
- Verify that revenue growth converts into recurring consumables sales and that system placements, utilization and margins meet management expectations.
- Monitor SBB development, launch timing, commercialization costs and the $200 million milestone payment exposure.
- Assess acquisition integration, the valuation and impairment risk of $400 million of acquired in-process research and development, and the realization of expected benefits.
- Follow semiconductor and other supplier availability, customer concentration, backlog conversion, Invitae collaboration terms and the outcomes of outstanding litigation.