Pacific Biosciences of California, Inc. — Q1 2023 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2023. PacBio develops and sells genetic sequencing systems and consumables, including HiFi long-read technology and its developing SBB short-read technology. Revio shipments began in Q1; the company began taking Onso orders and expected commercial shipments in Q2 2023.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $38.9 million | $33.2 million |
| Gross profit / margin | $9.8 million / 25% | $14.2 million / 43% |
| Operating loss | $91.3 million | $77.5 million |
| Net loss | $88.0 million | $81.5 million |
| Basic and diluted loss per share | $0.36 | $0.37 |
| Cash used in operating activities | $94.7 million | $79.0 million |
Product revenue rose 23% to $34.7 million: instrument revenue increased 33% to $20.7 million and consumables revenue increased 10% to $14.0 million. Service and other revenue fell 14% to $4.2 million. Revenue growth was primarily attributed to sales of 32 Revio systems; PacBio also shipped six Sequel IIe systems.
At March 31, 2023, cash and cash equivalents were $353.8 million and investments were $521.1 million, totaling $874.9 million. Total assets were $1.896 billion, total liabilities $1.204 billion, and stockholders’ equity $692.1 million. The company had $900 million principal amount of 1.5% convertible senior notes due 2028, carried at $896.8 million net. It also reported a $184.4 million current contingent-consideration liability.
Cash, cash equivalents and restricted cash increased $28.7 million during the quarter, including $195.989 million of financing cash inflows, mainly from the January stock offering. Investing activities used $72.6 million, largely reflecting net investment purchases; capital expenditures were $3.7 million.
Changes, outlook and notable items
- Revenue increased 17% year over year, but gross profit declined 31% and gross margin fell from 43% to 25%. Management cited lower initial Revio margins, loyalty discounts, higher initial manufacturing costs and approximately $3.5 million of adjustments, primarily for excess Sequel II/IIe consumables inventory amid the product transition.
- Operating loss widened by $13.7 million. Operating expenses rose $9.3 million, including a $12.3 million expense from remeasuring contingent consideration; lower R&D expense partly offset these increases. Other income improved to $6.9 million, primarily due to investment income.
- Management expected Revio sales and installed base to grow, Sequel II/IIe volumes to decline, and gross margin to expand during the remainder of 2023, while noting margin depends on product transition pace and Revio manufacturing scale. Onso commercial shipments were expected in Q2. The filing provides no specific revenue, earnings or margin guidance.
- PacBio stated that its existing cash, cash equivalents and investments were expected to fund projected operating requirements beyond the 12 months following the filing date. It also expected continued operating losses and negative operating cash flow for the foreseeable future and noted that additional capital could be needed depending on business needs.
- The January 2023 public offering sold 20.125 million shares at $10 per share, generating approximately $189.2 million in net proceeds. Shares outstanding were 249.8 million at quarter-end, versus 226.5 million at December 31, 2022.
- Key risks include successful adoption and manufacturing scale-up of Revio and Onso, product-transition inventory and margin pressures, reliance on suppliers (including sole-source components), customer spending and lengthy sales cycles, competition, macroeconomic and supply-chain conditions, and U.S.–China and China–Taiwan tensions. The filing describes patent disputes with Personal Genomics of Taiwan and a newly filed Take2 Technologies/Chinese University of Hong Kong case; management said it intended to defend the matters and did not consider the outcomes probable or reasonably estimable at that time.
Important facts for investors to verify
- Whether Revio placements convert into sustained instrument utilization and recurring consumables revenue, and whether the installed base expands as anticipated.
- Whether gross margin improves as Revio manufacturing scales and Sequel II/IIe demand declines, including any further inventory adjustments.
- Operating cash burn and liquidity relative to management’s stated runway; the $874.9 million cash-and-investment balance should be assessed alongside the $900 million notes principal and contingent consideration.
- Onso shipment timing, technical validation and customer adoption, as well as any development or commercialization delays.
- Progress and potential financial exposure in the patent proceedings and the contingent-consideration milestone, which may require $100 million in cash and $100 million in shares upon achievement.