Pacific Biosciences of California(PACB) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Pacific Biosciences of California, Inc. as of March 31, 2025, and for the three months ended March 31, 2025 and 2024, covering balance sheets, operations, cash flows, and notes Condensed Consolidated Balance Sheets Total assets decreased to $860.8 million from $1.26 billion due to reduced intangible assets, while total liabilities slightly increased and stockholders' equity sharply declined to $91.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $58,507 | $55,370 | | Investments | $284,603 | $334,561 | | Total current assets | $444,923 | $495,681 | | Intangible assets, net | $18,182 | $389,572 | | Goodwill | $317,761 | $317,761 | | Total assets | $860,789 | $1,260,447 | | Liabilities & Equity | | | | Total current liabilities | $66,602 | $66,299 | | Convertible senior notes, net | $646,214 | $647,494 | | Total liabilities | $769,151 | $753,853 | | Total stockholders' equity | $91,638 | $506,594 | Condensed Consolidated Statements of Operations and Comprehensive Loss Total revenue slightly decreased to $37.2 million, while a significant increase in operating expenses, driven by $362.0 million amortization and $15.0 million impairment, led to a net loss of $426.1 million, or ($1.44) per share Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenue | $37,153 | $38,810 | | Gross (loss) profit | $(1,371) | $11,282 | | Research and development | $29,053 | $43,455 | | Sales, general and administrative | $40,168 | $43,753 | | Impairment charges | $15,000 | $— | | Amortization of acquired intangible assets (Operating) | $362,042 | $5,506 | | Operating loss | $(428,934) | $(81,362) | | Net loss | $(426,075) | $(78,178) | | Net loss per share (Basic & Diluted) | $(1.44) | $(0.29) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $44.1 million, while investing activities provided $45.2 million and financing activities provided $2.0 million, resulting in a quarter-end cash balance of $60.7 million Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(44,056) | $(75,682) | | Net cash provided by (used in) investing activities | $45,234 | $(34,136) | | Net cash provided by financing activities | $1,959 | $6,553 | | Net increase (decrease) in cash | $3,137 | $(103,265) | | Cash, cash equivalents, and restricted cash at end of period | $60,729 | $79,368 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies and financial results, including a $15.0 million IPR&D impairment, $359.3 million accelerated amortization due to strategic shift, $4.6 million restructuring costs, and disclosures on convertible notes, leases, and legal proceedings - The company designs, develops, and manufactures advanced sequencing solutions, including HiFi long-read sequencing technology, for academic institutions, commercial labs, and pharmaceutical companies[15][16][17] - Due to ceasing development of its high-throughput short-read sequencing platform, the company recorded a $15.0 million impairment charge on the related In-Process R&D (IPR&D) asset, writing its value down to zero[54][56] - Reflecting a strategic shift to prioritize HiFi sequencing, the company revised the useful life of developed technology from the 2021 Omniome acquisition, resulting in $359.3 million of accelerated amortization in Q1 2025[59] - In Q1 2025, the company initiated a restructuring plan with workforce reductions, incurring $4.6 million in employee separation costs, contributing to $388.2 million in total strategic shift-related costs[98][99] - On March 7, 2025, the company amended its Menlo Park headquarters lease, extending the term to April 2034 and increasing operating lease assets and liabilities by $29.6 million[108] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, noting a 4% revenue decrease to $37.2 million, a gross loss of $1.4 million, and an operating loss of $428.9 million due to significant restructuring charges, while believing existing cash of $343.1 million is sufficient for over 12 months of operations Overview and Outlook The company's 2025 strategic objectives include launching the Vega benchtop platform, accelerating Revio sample adoption, investing in future products, and advancing its clinical strategy, while Q1 2025 saw $37.2 million revenue, a $1.4 million gross loss, and a $428.9 million operating loss, with Revio sales cycles elongated by funding and sample volume uncertainties - The company's 2025 strategic objectives are to grow revenue and expand gross margins by focusing on four key activities: full-scale release of the Vega benchtop platform, accelerating sample throughput on the Revio platform with SPRQ chemistry, investing in future product launches, and progressing the clinical strategy[140][143] Q1 2025 Financial Highlights | Metric | Value | Comparison | | :--- | :--- | :--- | | Revenue | $37.2 M | vs. $38.8 M in Q1 2024 | | Gross Loss | $1.4 M | vs. Gross Profit of $11.3 M in Q1 2024 | | Operating Loss | $428.9 M | vs. $81.4 M in Q1 2024 | | Cash, cash equivalents, and investments | $343.1 M | vs. $389.9 M at Dec 31, 2024 | - The sales cycle for Revio instruments continues to be elongated due to customer funding uncertainty (especially NIH), procurement delays, and slower-than-expected sample volume growth for some potential customers[145] Results of Operations Total revenue decreased by 4% to $37.2 million in Q1 2025, driven by fewer Revio sales but partially offset by increased consumable and service revenue, while cost of revenue rose 40% due to restructuring charges, and operating expenses surged 362% from accelerated amortization and impairment charges, leading to a significant operating loss Revenue Breakdown (in thousands) | Revenue Type | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $31,113 | $35,009 | $(3,896) | (11%) | | Service and other revenue | $6,040 | $3,801 | $2,239 | 59% | | Total revenue | $37,153 | $38,810 | $(1,657) | (4%) | - Instrument revenue decreased primarily due to the sale of 12 Revio systems in Q1 2025 compared to 28 in Q1 2024, partially offset by the sale of 28 new Vega systems[152][154] - The gross loss of $1.4 million was primarily driven by $12.0 million in restructuring charges within cost of revenue, including $7.7 million in inventory adjustments and $3.8 million in losses on purchase commitments[144][157] - Operating expenses included a $362.0 million amortization charge, of which $359.3 million was accelerated amortization for technology from the 2021 Omniome acquisition, as the asset is no longer expected to generate economic benefit beyond March 31, 2025[161] - A gain of $18.7 million was recognized from the change in fair value of contingent consideration, as the liability was reduced to $0 due to the decision to cease development of the high-throughput short-read system[162][163] Liquidity and Capital Resources As of March 31, 2025, the company had $343.1 million in cash, cash equivalents, and investments, which management believes is sufficient to fund operations for over 12 months, while net cash used in operating activities for Q1 2025 improved to $44.1 million, and expense reduction initiatives continue - The company believes its existing cash, cash equivalents, and investments of $343.1 million as of March 31, 2025, will be sufficient to fund projected operating requirements for more than 12 months[166] - The company has implemented and continues to implement expense reduction initiatives, including workforce reductions and facility downsizing, to lower its annualized run-rate operating expenses[168] Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(44,056) | $(75,682) | | Net cash provided by (used in) investing activities | $45,234 | $(34,136) | | Net cash provided by financing activities | $1,959 | $6,553 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate changes affecting its investment portfolio, while convertible notes have fixed rates, and a hypothetical 100 basis-point interest rate change would impact the investment portfolio's fair value by approximately $1.8 million - The company's main market risk is interest rate risk on its investment portfolio, which consists of cash equivalents, U.S. government and agency securities, and corporate debt securities[189] - A hypothetical 100 basis-point (1%) increase or decrease in interest rates would impact the fair value of the investment portfolio by approximately $1.8 million as of March 31, 2025[189] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the first quarter of 2025 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[191] - There were no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2025[193] PART II. OTHER INFORMATION Legal Proceedings The company updated on legal matters, including the PGI patent infringement case transferred to Northern California with an October 2026 trial, and the resolution of the Take2 Technologies and CUHK patent case through patent acquisition - In the patent infringement case filed by Personal Genomics of Taiwan, Inc. (PGI), the case was transferred to the Northern District of California, and a trial date has been set for October 5, 2026[196] - The patent infringement lawsuit filed by Take2 Technologies and the Chinese University of Hong Kong (CUHK) was resolved, as on March 7, 2025, the company purchased the patent ('794 patent) from CUHK, and all related litigation claims have been discharged[197][198] Risk Factors The company faces significant risks including commercialization, profitability, expense management, debt repayment, acquisition integration, new product transitions, competition, supply chain reliance, goodwill impairment, geopolitical tensions, IP protection, and regulatory challenges Summary Risk Factors Principal risks include product commercialization, profitability, expense management, debt repayment, acquisition integration, new product introductions, leadership changes, competition, supply chain reliance, IP disputes, and regulatory hurdles - Key business risks include the ability to successfully commercialize products, achieve profitability, implement expense reductions, and repay debt[204] - Operational risks involve managing new product introductions, reliance on sole-sourced components, manufacturing consistency, and intense industry competition[204] - External risks include the impact of trade tariffs, geopolitical tensions (especially with China), securing intellectual property, and potential cybersecurity incidents[204][208] Risks Related to Our Business Business risks include a history of losses, dependence on new product commercialization, lengthy sales cycles, product defects, reliance on single-source suppliers, intense competition, and concentration of sales among limited customers - The company has a history of net losses and expects to continue incurring significant losses, with no certainty of achieving or sustaining profitability[212] - Future success is highly dependent on the successful commercialization of the Revio and Vega systems, but the company may not be successful in transitioning customers from older products or competing platforms[207] - The company relies on single-source suppliers for critical components, including SMRT Cells and reagents, which exposes it to significant supply chain risks[243] - The company faces a highly competitive industry with numerous companies that have greater resources, brand recognition, and more established manufacturing and sales capabilities[253] Risks Related to Our Intellectual Property IP risks include uncertainty in securing and enforcing patents, ongoing legal proceedings for infringement claims, reliance on potentially terminable licensed IP, and obligations from open-source software usage - The company's ability to protect its technology is uncertain, and it may not be able to maintain a competitive advantage if it fails to secure or enforce its intellectual property rights[282][283] - The company is currently and could in the future be subject to costly legal proceedings from third parties claiming its products infringe on their intellectual property rights, which is common in the industry[294] - Some important intellectual property is licensed from third parties, and the termination or reduction of these licensed rights could adversely impact the business[286] Risks Related to Regulation Regulatory risks include potential FDA oversight for RUO products, exposure to export controls and trade tariffs, complex international laws, and ethical/privacy concerns impacting demand for genetic technology - The company's products are currently for Research Use Only (RUO), but they could become subject to regulation as medical devices by the FDA, which would increase costs and delay commercialization[301][302] - The business is subject to enhanced trade tariffs, import/export restrictions, and other trade barriers, particularly due to geopolitical tensions between the U.S. and China, which could increase costs and harm operations[314] - The U.S. government has implemented and may expand export controls on emerging technologies, including biotechnology and AI-related computing resources, which could restrict the company's ability to sell products in certain markets like China[316][317] Risks Related to Owning Our Common Stock Stock ownership risks include high stock price volatility, potential market price depression from substantial stock sales, anti-takeover provisions hindering acquisitions, and no foreseeable dividend payments - The market price of the company's common stock has been and is expected to continue to be highly volatile due to a variety of factors, including financial results, competitor announcements, and general market conditions[326] - Sales of a substantial number of shares in the public market, or the perception of such sales, could adversely affect the stock price and dilute existing stockholders[328] - Anti-takeover provisions in the company's charter documents and under Delaware law may delay or prevent a change of control, potentially limiting the market price of the common stock[332][333] Risks Related to Our Notes Risks for convertible senior notes include inability to fund cash settlements or repurchases upon fundamental change, and restrictive covenants on additional debt and liens impacting financial flexibility - The company may not have sufficient cash or be able to obtain financing to repurchase its convertible notes upon a fundamental change or to pay cash upon conversion, which would constitute a default[342][343] - A letter agreement related to the 2029 Notes imposes negative covenants that restrict the company's ability to incur additional debt and create liens, potentially affecting its ability to finance operations[344][346] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[381] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[382] Mine Safety Disclosures This item is not applicable to the company - Not applicable[383] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the last fiscal quarter - During the last fiscal quarter, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[385] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, CEO/CFO certifications, an employment letter, and the outside director compensation policy - The report lists all exhibits filed, including certifications from the CEO and CFO, and XBRL data files[387]