Pacific Biosciences of California, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied text does not provide standalone fourth-quarter financial results. Amounts below are in U.S. dollars.
Business context
PacBio develops and sells genomic sequencing instruments, consumables, and services, centered on HiFi long-read sequencing and its developing Sequencing by Binding (SBB) short-read technology. Its customer base includes research institutions, laboratories, hospitals, pharmaceutical companies, and agricultural businesses.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $128.3 million | $130.5 million |
| Gross profit / gross margin | $49.0 million / 38.2% | $58.9 million / 45.1% |
| Operating loss | $307.2 million | $210.4 million |
| Net loss | $314.2 million | $181.2 million |
| Cash used in operating activities | $263.2 million | $111.2 million |
- Revenue declined 2%. Product revenue fell 4% to $108.7 million; service and other revenue rose 15% to $19.6 million. Instrument revenue decreased $12.6 million to $48.7 million, while consumables revenue increased $7.8 million to $60.0 million.
- Gross margin contracted by 6.9 percentage points. Management attributed the decline mainly to excess inventory and product-transition costs associated with faster-than-expected Revio demand and weaker Sequel II/IIe demand, as well as lower instrument volume and higher product costs. A $3.7 million purchase-commitment loss was recorded.
- Research and development expense rose 71% to $193.0 million; sales, general and administrative expense rose 30% to $160.9 million. Operating expenses increased overall by 32% to $356.2 million.
- Cash, cash equivalents, and short-term investments totaled $772.3 million at year-end, down 26% from 2021. Total current assets were $852.1 million and current liabilities were $263.3 million. Inventory increased to $50.4 million from $24.6 million.
- Debt included $900 million principal of 1.50% convertible senior notes due 2028, carried at $896.7 million net of issuance costs, and $2.3 million of acquired term loans. Interest expense was $14.7 million.
- Capital expenditures were $16.8 million. Year-end stockholders’ equity was $562.9 million, down from $791.0 million.
Material changes and notable items
- FY2021 included a $93.6 million income-tax benefit related to acquisitions; FY2022 had no income-tax benefit. FY2021 also included a $52.0 million expense for repayment of Illumina continuation advances and $31.1 million of merger-related expenses.
- Revenue mix shifted toward consumables and services, while instrument revenue fell. The installed base of Sequel II/IIe systems grew to 512 from 374.
- Instrument backlog rose to approximately $45.4 million from $2.0 million. PacBio said it expected to convert the backlog to revenue in 2023, but customers may cancel or delay orders.
- In January 2023, the company sold 20.125 million shares at $10 per share, generating approximately $201.3 million in gross proceeds. This subsequent financing is not included in FY2022 year-end cash.
Outlook, risks, and contingencies
- PacBio expected commercial Revio shipments to begin in March 2023; it reported 76 Revio orders for delivery in 2023. Onso orders began in January 2023, with commercial shipments targeted for the second quarter of 2023.
- Management expected gross margin to trend slightly lower in the first half of 2023 because of product transitions, inflation, and supply-chain costs. It expected R&D expense and capital expenditures to decline slightly in 2023, while sales and marketing expense was expected to rise with commercialization efforts. The filing provides no specific revenue or earnings guidance.
- Management stated existing cash, cash equivalents, and investments were expected to fund projected operating and capital requirements for at least 12 months from the filing date. It also expected continued operating losses and negative operating cash flow for the foreseeable future and identified potential need for additional capital.
- Key operating risks include launch and adoption of Revio and Onso, manufacturing scale and product quality, sole- or single-source suppliers, semiconductor shortages, inflation, customer budget constraints, long sales cycles, and competition. One customer, PacBio’s primary China distributor, represented approximately 12% of FY2022 revenue.
- International trade restrictions and geopolitical tensions could affect China sales and component supply, including components sourced from Taiwan. Foreign exchange strength, COVID-19-related disruption, and reduced research funding are also cited as risks.
- PacBio recorded a $172.1 million current contingent-consideration liability tied to the Omniome SBB milestone, which requires first commercial shipment of an instrument and related consumables. The potential payment is $200 million, split between cash and stock.
- Pending matters include patent litigation brought by Personal Genomics of Taiwan and a December 2022 patent complaint by Take2 Technologies and the Chinese University of Hong Kong. The company said outcomes were not probable or reasonably estimable and did not record additional related liabilities; litigation outcomes remain uncertain.
- The company reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls; revenue recognition was identified as a critical audit matter because bundled contracts require judgment in identifying performance obligations and allocating consideration.
Most important facts for investors to verify
- Whether the $45.4 million instrument backlog converts to 2023 revenue, and how many of the 76 Revio orders ship and are accepted.
- Actual Revio and Onso launch timing, customer adoption, product performance, and impact on Sequel II/IIe sales and inventory.
- Gross-margin progression, inventory levels, and the effects of supply costs, product mix, and purchase commitments.
- Operating cash burn and liquidity after the January 2023 equity offering, against the company’s stated 12-month funding assessment.
- Timing and accounting impact of the $200 million SBB milestone payment, along with developments in the pending patent cases.