Pacific Biosciences of California, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. PacBio develops and sells genetic sequencing instruments, consumables, software, and services, primarily for research use.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $200.5 million | $128.3 million |
| Product revenue | $183.9 million | $108.7 million |
| Service and other revenue | $16.6 million | $19.6 million |
| Gross profit / gross margin | $52.8 million / 26.3% | $49.0 million / 38.2% |
| Operating loss | $334.5 million | $307.2 million |
| Net loss | $306.7 million | $314.2 million |
| Net loss per share, basic and diluted | $1.21 | $1.40 |
| Cash used in operating activities | $259.2 million | $263.2 million |
| Capital expenditures | $8.8 million | $16.8 million |
- Revenue rose 56%, led by instrument revenue, which increased to $120.5 million from $48.7 million. PacBio shipped 173 Revio systems during 2023. Consumables revenue was $63.4 million, up from $60.0 million; service and other revenue declined.
- Gross margin fell 11.9 percentage points. Management attributed the decline primarily to lower-margin Revio placements, including loyalty discounts, higher initial manufacturing and warranty costs, scrap inventory, and inventory adjustments as customers shifted from Sequel II/IIe to Revio.
- Operating expenses increased 9% to $387.2 million. Drivers included higher contingent-consideration remeasurement and $9.0 million of Apton acquisition-related costs; research and development expense declined 3%.
- Other income was $32.7 million, primarily reflecting investment income. The company recorded an $11.4 million income-tax benefit related to deferred tax liabilities from the Apton acquisition; it continues to maintain a valuation allowance against its U.S. net deferred tax assets.
Liquidity, debt, and balance sheet
- Cash, cash equivalents, and investments totaled $631.4 million at year-end, down from $772.3 million. Cash and cash equivalents alone were $179.9 million; short-term investments were $451.5 million.
- Operating cash outflow remained substantial at $259.2 million. Financing activities provided $108.9 million, including $189.2 million of net proceeds from a January 2023 equity offering, partly offset by $86.4 million of contingent-consideration payments.
- Convertible notes totaled approximately $900 million principal: $459 million of 1.50% notes due 2028 and $441 million of 1.375% notes due 2030. The 2030 notes were issued in exchange for $441 million of 2028 notes; the exchange generated a $2.0 million extinguishment loss. Both note series are convertible and may require cash settlement or repurchase in specified circumstances.
- Current assets were $742.0 million and current liabilities were $95.0 million. The balance sheet also included $41.2 million of operating lease liabilities and $19.6 million of Apton contingent consideration.
- 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. The company is not cash-flow positive and expects continuing losses and negative operating cash flow for the foreseeable future.
Material changes, outlook, and risks
- Products and strategy: Revio shipments began in Q1 2023; Onso short-read system shipments began in Q3. PacBio acquired Apton in August 2023 to advance a high-throughput SBB platform, and began commercial shipments of Kinnex products in Q4. Year-end product backlog was $18.7 million, down from $51.5 million; most was expected to convert to revenue in 2024, subject to cancellation or delay.
- 2024 priorities: Management aims to expand adoption and market share, convert Sequel II customers to Revio, scale Onso, develop new platforms, and move toward positive cash flow through gross-margin expansion, expense discipline, and working-capital management. No numeric revenue or profitability guidance is provided. Management expects R&D expense to decline slightly and capital expenditures to increase slightly in 2024 versus 2023.
- Demand and macro conditions: Management reported longer sales cycles as some customers manage capital more conservatively, and deferred capital-equipment purchases in China. These factors could continue to affect 2024 results, but their extent and duration are uncertain. Instrument demand is also exposed to research funding, customer budgets, seasonality, and lengthy sales cycles.
- Execution and supply risks: Profitability depends on successful commercialization and scaling of Revio and Onso, improved manufacturing yields and margins, and customer adoption. The filing cites product-quality and warranty risks, potential inventory obsolescence during product transitions, and dependence on limited or sole-source suppliers, including exposure to geopolitical and trade disruptions involving China and Taiwan.
- Legal and regulatory matters: Pending patent disputes include claims by Personal Genomics of Taiwan and Take2 Technologies/Chinese University of Hong Kong. PacBio says it intends to defend the matters; it did not consider the outcomes probable or reasonably estimable at year-end. Its products are marketed for research use only, but evolving FDA oversight of laboratory-developed tests could affect customers’ uses and the company’s business.
- Other notable items: The Omniome commercial milestone was achieved in September 2023, triggering approximately $100.9 million in cash and approximately 9.0 million shares for former securityholders. The Apton acquisition included $55.0 million of in-process R&D and a potential $25.0 million contingent payment tied to a revenue milestone. No off-balance-sheet arrangements were reported.
- Audit and controls: Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management concluded disclosure controls and internal controls were effective as of year-end.
Most important facts for investors to verify
- Whether Revio placements and consumables growth can offset declining Sequel II/IIe demand, while improving gross margin.
- Whether the $631.4 million liquidity balance can support the company’s cash burn, planned investment, and convertible-note obligations without additional financing or dilution.
- Progress in scaling Onso and Apton-derived technology, including timing, customer adoption, and any milestone-related costs or share issuance.
- Conversion of the $18.7 million backlog into recognized revenue, and the effects of customer cancellations, delayed purchases, and China-related conditions.
- Developments in the disclosed patent litigation, FDA/LDT rulemaking, and sole-source supply risks.