Pacific Biosciences of California, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Figures below are in millions of dollars except per-share amounts and system counts. The company develops and sells the PacBio RS DNA sequencing platform, based on its single molecule, real-time (SMRT) technology. Commercial shipments began in April 2011, so the prior-year quarter preceded product sales.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $10.0 | $0.3 |
| Gross profit (loss) | $(0.2) | $0.3 |
| Operating expenses | $27.4 | $35.2 |
| Operating loss | $(27.5) | $(35.0) |
| Net loss | $(27.6) | $(34.8) |
| Basic and diluted net loss per share | $(0.50) | $(0.66) |
| Cash used in operating activities | $17.3 | $33.5 |
- Q1 2012 revenue comprised $8.7 product revenue, $1.1 service and other revenue, and $0.3 grant revenue. Product sales included approximately $7.8 from instruments and $0.9 from consumables. The company installed and obtained acceptance for 11 instruments.
- Gross loss was $0.2, approximately a negative 1.5% gross margin. Cost of revenue included $0.7 of C2 product-release costs, including inventory write-offs and field upgrades.
- Research and development expense fell 50% to $12.1; sales, general and administrative expense rose 37% to $15.3, largely due to higher legal costs.
- At March 31, cash and cash equivalents were $56.3 and investments were $105.1, for combined liquidity of $161.3, down $16.1 from year-end. Total current assets were $176.8 and current liabilities $19.8.
- Total liabilities were $26.8, including a $2.9 facility financing obligation. Stockholders’ equity was $167.9; accumulated deficit was $469.1. No off-balance-sheet arrangements were reported.
Changes, outlook and risks
- Revenue increased from $0.3 in Q1 2011, when it consisted solely of government grants, as commercial product sales began after that period. Net loss narrowed by $7.2, while operating cash use declined by $16.1 year over year.
- R&D expense declined primarily with lower headcount and reduced development-related spending. SG&A increased, including $1.8 in settlement charges for two intellectual-property matters. The company also cited a $3.6 increase in legal expenses overall.
- Backlog was approximately $4.7, representing seven systems; management expected to recognize most, if not all, as revenue in Q2 2012. This is an expectation, not a guarantee. No broader numerical revenue or earnings guidance was provided.
- Management said existing cash, cash equivalents and investments were expected to fund projected operating requirements for at least 12 months, subject to operating and financing plans that could change. Slower product adoption or other needs could require additional funding, potentially dilutive or unavailable on acceptable terms.
- The company remains loss-making and early in commercialization. Disclosed risks include uncertain customer adoption and capital budgets, instrument reliability and support costs, low consumable manufacturing yields and high costs, scaling and supplier constraints, competition, and intellectual-property exposure.
- Several putative securities class actions and a shareholder derivative action were pending; the company contested the allegations. Management could not estimate a possible loss range and recorded no liability. In April 2012, the company reported settlements of litigation with Life Technologies and Helicos/AzTE; Q1 SG&A included a $1.8 settlement charge. The Helicos/AzTE agreement included one-time payments, but the filing text does not provide a clear amount.
- Disclosure controls were assessed as effective at a reasonable-assurance level, and no material change in internal control over financial reporting during the quarter was reported.
Important facts for investors to verify
- Whether the seven-system backlog converted to Q2 revenue as expected, and whether subsequent orders and customer acceptance support sustained growth.
- Instrument reliability, SMRT Cell performance and manufacturing yields, and the resulting cost of revenue and service burden.
- Cash burn against the stated 12-month funding expectation, including whether additional financing is needed and its potential dilution.
- Final settlement payments and any remaining exposure or obligations from securities, derivative, and intellectual-property matters.
- Customer and receivables concentration: 66% of net receivables at quarter-end was attributable to two customers, each representing at least 10%.