Pacific Biosciences of California, Inc. engages in the development, manufacture and sale of an integrated platform for genetic analysis. Its products and services include PacBio sequel system, consumables, analytical software, and single molecule real-time (SMRT) compatible products. It operates through the following geographical segments: North America, Europe, and Asia Pacific. The company was founded by Stephen Turner and Joseph Vincent Bonventre on July 14, 2000 and is headquartered in Menlo Park, CA.
The announcement and pendency of our agreement to be acquired by Illumina could adversely affect our business.
The parties must obtain certain regulatory approvals in order to complete the transactions contemplated by the Merger Agreement; if such approvals are not obtained or are obtained with conditions, the acquisition may be prevented or delayed or the anticipated benefits of the acquisition may be reduced.
The failure to complete the acquisition by Illumina could adversely affect our business.
The Merger Agreement limits our ability to pursue alternatives to the proposed acquisition.
Litigation may arise in connection with the proposed acquisition by Illumina, which could be costly and divert management’s attention and otherwise materially harm our business.
Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.
We have incurred losses to date, and we expect to continue to incur significant losses as we develop our business and may never achieve profitability.
We are not cash flow positive and may not have sufficient cash to fund our current and planned operations.
If we are unable to successfully develop and timely manufacture our current and future products, including with respect to the Sequel System, the new SMRT Cell 8M and Sequel II System and related products, our business may be adversely affected.
Our research and development efforts may not result in the benefits that we anticipate, and our failure to successfully market, sell, and commercialize our current and future products could have a material adverse effect on our business, financial condition and results of operations.
Our success is highly dependent on our ability to further penetrate the existing market for nucleic acid sequencing as well as the growth and expansion of the market for our products. If our products fail to achieve and sustain sufficient market acceptance, we will not generate expected revenue and our business may not succeed.
We rely on other companies for the manufacture of certain components and sub-assemblies and intend to outsource additional sub-assemblies in the future. We may not be able to successfully scale the manufacturing process necessary to build and test multiple products on a full commercial basis, which could materially harm our business.
We may be unable to consistently manufacture our instruments and consumable kits, including SMRT Cells, to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance level.
Rapidly changing technology in life sciences and diagnostics could make our products obsolete unless we continue to develop, manufacture and commercialize new and improved products and pursue new opportunities.
Increased market adoption of our products by customers may depend on the availability of sample preparation and informatics tools, some of which may be developed by third parties.
We operate in a highly competitive industry and if we are not able to compete effectively, our business and operating results will likely be harmed.
Large purchases by a limited number of customers represent a significant portion of our revenue, and any loss or delay of expected purchases has resulted, and in the future could result, in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations.
Our indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations.
Our existing debt contains covenants which may adversely impact our business and our failure to comply with such covenants could cause our outstanding indebtedness to become immediately payable.
Our products are highly complex, have recurring support requirements and could have unknown defects or errors, which may give rise to claims against us or divert application of our resources from other purposes.
We depend on the continuing efforts of our senior management team and other key personnel. If we lose members of our senior management team or other key personnel or are unable to successfully retain, recruit and train qualified scientists, engineers and other personnel, our ability to maintain and develop our products could be harmed and we may be unable to achieve our goals.
A significant portion of our sales depends on customers’ spending budgets that may be subject to significant and unexpected variation which could have a negative effect on the demand for our products.
We may not be able to convert our orders in backlog into revenue.
Delivery of our products could be delayed or disrupted by factors beyond our control, and we could lose customers as a result.
We are, and may become, subject to governmental regulations that may impose burdens on our operations, and the markets for our products may be narrowed.
Our products could become subject to regulation by the U.S. Food and Drug Administration or other domestic and international regulatory agencies, which could increase our costs and impede or delay our commercialization efforts, thereby materially and adversely affecting our business and results of operations.
Doing business internationally creates operational and financial risks for our business.
Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
Our business could be negatively impacted by changes in the United States political environment.
Our sales cycle is unpredictable and lengthy, which makes it difficult to forecast revenue and may increase the magnitude of quarterly or annual fluctuations in our operating results.
Seasonality may cause fluctuations in our revenue and results of operations.
If we fail to comply with healthcare and other governmental regulations, we could face substantial penalties and our business, results of operations and financial condition could be adversely affected.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business and our stock price.
Our ability to use net operating losses to offset future taxable income may be subject to substantial limitations, and changes to U.S. tax laws may cause us to make adjustments to our financial statements.
Our operations involve the use of hazardous materials, and we must comply with environmental, health and safety laws, which can be expensive and may adversely affect our business, operating results and financial condition.
Our facilities in California are located near earthquake faults, and the occurrence of an earthquake or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations.
Ethical, legal, privacy and social concerns or governmental restrictions surrounding the use of genetic information could reduce demand for our technology.
Disruption of critical information technology systems or material breaches in the security of our systems could harm our business, customer relations and financial condition.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
Regulations related to conflict minerals has caused us to incur, and will continue to cause us to incur, additional expenses and could limit the supply and increase the costs of certain materials used in the manufacture of our products.
Failure to secure patent or other intellectual property protection for our products and improvements to our products may reduce our ability to maintain any technological or competitive advantage over our current and potential competitors.
Variability in intellectual property laws may adversely affect our intellectual property position.
Some of the intellectual property that is important to our business is owned by other companies or institutions and licensed to us, and changes to the rights we have licensed may adversely impact our business.
The measures that we use to protect the security of and enforce our intellectual property and other proprietary rights may not be adequate, which could result in the loss of legal protection for, and thereby diminish the value of, such intellectual property and other rights.
Our intellectual property may be subject to challenges in the United States or foreign jurisdictions that could adversely affect our intellectual property position.
Some of our technology is subject to “march-in” rights by the U.S. government.
We are involved in legal proceedings to enforce our intellectual property rights.
We have been, are currently, and could in the future be, subject to legal proceedings with third parties who may claim that our products infringe or misappropriate their intellectual property rights.
We have not yet registered some of our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.
Our use of “open source” software could adversely affect our ability to sell our products and subject us to possible litigation.
The price of our common stock has been, is, and may continue to be, highly volatile, and you may be unable to sell your shares at or above the price you paid to acquire them.
Future sales of our common stock could cause our stock price to fall.
Concentration of ownership by our principal stockholders may result in control by such stockholders of the composition of our board of directors.
Although we have entered into a definitive agreement to be acquired by Illumina, if the proposed acquisition is not completed, anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Our large number of authorized but unissued shares of common stock may potentially dilute existing stockholders’ stockholdings.
We do not intend to pay dividends for the foreseeable future.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q and those in our Annual Report on Form 10-K for the year ended December 31, 2018. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our products, plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods and the consummation and timing of the proposed acquisition of us by Illumina, Inc. (“Illumina”). The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. You should read the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not assume any obligation to update any forward-looking statements.