Pacific Biosciences of California, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; comparisons are with Q1 2021 unless noted. PacBio develops and sells genomic sequencing instruments, consumables and services, based on its HiFi long-read technology and developing SBB short-read technology.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $33.2 million | $29.0 million; up 14% |
| Product revenue | $28.2 million | $25.3 million; up 12% |
| Service and other revenue | $4.9 million | $3.7 million; up 33% |
| Gross profit / gross margin | $14.2 million / 42.7% | $13.0 million / 44.8% |
| Operating expenses | $91.7 million | $46.7 million; up 96% |
| Operating loss | $77.5 million | $33.7 million |
| Net loss / diluted loss per share | $81.5 million / $0.37 | $87.4 million / $0.45 |
| Cash used in operations | $79.0 million | $23.1 million |
| Cash, cash equivalents and investments | $962.8 million | $1.044 billion at December 31, 2021 |
Cash and cash equivalents were $428.6 million at March 31, 2022; investments were $534.2 million. Total assets were $1.937 billion and stockholders’ equity was $734.6 million. The company reported $900 million principal amount of 1.50% convertible senior notes due February 2028, with a net carrying amount of $896.2 million. Current liabilities were $61.0 million; the filing reports no separate current portion of the convertible notes.
Operating cash use increased year over year, in part reflecting the operating loss and working-capital movements, including lower accrued expenses and higher inventory and receivables. Investing activities provided $42.1 million, primarily from investment maturities net of purchases; financing activities provided $5.2 million, mainly from equity-plan share issuance. Cash, cash equivalents and restricted cash declined $31.8 million during the quarter.
Changes versus the prior comparable period
- Revenue rose $4.2 million, driven by consumables, instruments and service revenue. Consumables revenue increased 21% to $12.7 million; instrument revenue increased 4% to $15.6 million.
- The installed base of Sequel II/IIe systems was 424 at March 31, 2022, compared with 244 at March 31, 2021.
- Gross margin declined 2.1 percentage points. Management attributed the decline to lower instrument average selling prices, including volume discounts, and higher product costs; semiconductor shortages also pressured costs.
- Research and development expense increased $32.4 million to $52.9 million, principally reflecting the Omniome acquisition, an advanced research organization, higher product-development costs and increased personnel. Sales, general and administrative expense rose $13.7 million to $39.8 million, including higher stock compensation and headcount.
- Operating loss widened by $43.8 million. Net loss nevertheless improved by $5.9 million because Q1 2021 included a $52.0 million expense for repayment of Illumina continuation advances; Q1 2022 also had higher interest expense on the convertible notes.
- Stock-based compensation increased to $22.7 million from $10.2 million.
Outlook, risks and unusual items
- Management expects revenue to grow during the remainder of 2022 versus 2021 and expects continued growth in Sequel II/IIe placements. It cautioned that consumables utilization could ramp more slowly because of COVID-related project delays and lockdowns in China.
- PacBio plans to launch its SBB short-read platform in the first half of 2023. It expects R&D expense to increase in 2022 due to product development, a full year of Omniome-related costs and additional hiring; SG&A is also planned to increase. The filing provides no quantified full-year revenue, profit or cash-flow guidance.
- Management said current cash, cash equivalents and investments should fund projected operating requirements for at least 12 months from the filing date, while noting expected continuing operating losses and negative operating cash flow and the potential need for additional capital.
- Key operating risks include COVID-19 effects on customer demand and operations, China lockdowns, semiconductor and other supply constraints, inflation and rising input costs, sole-source suppliers, execution and adoption of new products, and customer and geographic concentration. Two customers represented approximately 14% and 11% of Q1 2022 revenue; one customer represented 17% of accounts receivable at quarter-end.
- The $200 million Omniome contingent consideration is payable upon the first commercial shipment to a customer of an instrument and related consumables using SBB technology. Its fair-value liability was $168.7 million at quarter-end; the quarter’s $1.1 million fair-value decrease was primarily attributed to higher discount rates.
- The Invitae development and commercialization agreement is being renegotiated. PacBio does not anticipate further Invitae funding for future development under the agreement; $23.5 million remained recorded as non-current deferred revenue.
- PacBio disclosed ongoing patent litigation with Personal Genomics of Taiwan in the United States and China. A U.S. patent-review decision found challenged claims unpatentable in one proceeding, while another did not; PacBio is appealing the latter decision. In China, the patent authority found all claims of the asserted patent invalid, and PGI appealed. The company said outcomes were not considered probable or reasonably estimable and did not record an additional liability.
- Instrument revenue recognition terms changed during the quarter: for qualifying non-distributor sales, control generally transfers and revenue is recognized upon delivery; installation is treated as distinct, and the assurance warranty is no longer a separate performance obligation.
Important facts for investors to verify
- Whether instrument placements convert into sustained customer utilization and consumables growth, particularly amid COVID-related delays and China restrictions.
- Whether gross margin stabilizes as pricing, product mix, component costs and supply constraints evolve.
- Progress, cost and timing of the planned first-half 2023 SBB launch, including the milestone that triggers Omniome contingent consideration.
- Operating cash burn and liquidity relative to management’s stated 12-month funding assessment and continued investment plans.
- Developments in the Invitae renegotiation and any implications for funding, deferred revenue or development obligations.
- Material developments in PGI litigation, convertible-note obligations and customer concentration.