PacBio’s Financial Performance: Navigating Challenges and Charting a Path Forward

Pacific Biosciences, or PacBio, is a leading life science technology company that designs, develops, and manufactures advanced sequencing solutions. The company’s products and technologies, including its HiFi long-read sequencing and Sequencing by Binding (SBB) short-read sequencing, enable scientists and researchers to gain a more comprehensive understanding of the genome.

Financial Overview

In 2024, PacBio faced a challenging year, with revenue decreasing by 23% to $154 million compared to the prior year. This decline was primarily due to lower Revio instrument sales and lower average selling prices, which was partially offset by higher consumable sales. Gross profit also decreased, falling to $37 million, or 24% of gross margin, compared to $52.8 million, or 26% of gross margin, in the previous year.

The company’s operating loss increased by 42% to $474.3 million, driven by several factors:

• $184.5 million in impairment charges
• $20.8 million in restructuring charges
• $11.8 million increase in amortization of acquired intangible assets

These increases were partially offset by a $15.9 million decrease in the change in the fair value of contingent consideration and a $9 million decrease in non-recurring merger-related costs.

PacBio’s cash, cash equivalents, and investments decreased by 38% to $389.9 million at the end of 2024, compared to $631.4 million at the end of 2023. This decrease was primarily due to $206.1 million in cash used in operating activities and $50.2 million in payments made in conjunction with the convertible notes exchange transaction.

Factors Impacting Performance

The company’s financial performance was influenced by several factors, including:

1. Slower-than-expected Revio instrument sales: The median sales cycle for Revio instrument purchases continued to be elongated, which PacBio believes was caused by factors such as uncertainty surrounding funding for new capital equipment, procurement delays, and slower-than-expected sample volume ramp-up for some potential Revio customers.

2. Slower consumables revenue growth: Consumables revenue was impacted by slower-than-expected ramp-up in sequencing by small- to mid-sized customers, sample delays impacting sequencing volume at certain large customers, and lower utilization by some service providers in China.

3. Macroeconomic dynamics: Factors such as rising inflation, geopolitical tensions, volatile capital markets, tariffs, uncertainty in U.S. funding for research, and fluctuating exchange rates could continue to impact the company’s revenues and results of operations in future periods.

4. Impairment charges: PacBio recorded $184.5 million in impairment charges during 2024, primarily related to goodwill and in-process research and development (IPR&D) assets. These charges were driven by factors such as significant declines in the company’s stock price and market capitalization, as well as changes in the amount and timing of expected future cash flows.

Strategic Objectives and Outlook

Despite the challenges faced in 2024, PacBio remains focused on several key strategic objectives to drive growth and improve its financial performance:

1. Enabling the full-scale release of the Vega benchtop platform: The company believes this platform will broaden its market reach and expand the long-read sequencing market opportunity.

2. Accelerating samples onto the Revio platform: The company’s SPRQ chemistry and application kits are expected to enable the sub-$500 HiFi genome, improve methylation detection capabilities, and reduce DNA input requirements, which could drive more samples onto HiFi sequencing.

3. Investing in future product launches: PacBio continues to develop sequencing systems designed to increase throughput and lower the cost of genome sequencing, as well as kitted-solutions and enhancements to its existing products, to diversify its offerings and address a larger part of the market.

4. Progressing its clinical strategy: The company plans to continue pursuing partner collaborations and leveraging its technologies, such as Revio, in clinical research and laboratory-developed test (LDT) settings to improve outcomes and create durability.

Looking ahead, PacBio believes it can be a market leader in whole-genome clinical sequencing, given the capabilities of its HiFi chemistry and SMRT technology. The company sees significant market opportunity in clinical sequencing and plans to continue investing in this area.

Liquidity and Capital Resources

As of December 31, 2024, PacBio had $389.9 million in cash, cash equivalents, and investments, a decrease of 38% compared to the prior year. The company’s primary sources of liquidity have been the issuance of debt or equity securities, as well as cash flow from operating activities.

In November 2024, PacBio entered into an exchange agreement with SB Northstar LP, a subsidiary of SoftBank Group Corp., to exchange the remaining $459 million in aggregate principal amount of its 2028 Notes for $200 million in aggregate principal amount of new 2029 Notes, 20.5 million shares of common stock, and $50 million in cash. This transaction resulted in a gain on debt restructuring of $154.4 million.

PacBio believes its existing cash, cash equivalents, and investments will be sufficient to fund its projected operating and capital requirements for at least the next 12 months. However, the company may require additional capital resources in the future to execute its strategic initiatives and grow its business, particularly if it experiences continued operating losses and negative cash flows from operations.

Critical Accounting Policies and Estimates

PacBio’s financial reporting relies on several critical accounting policies and estimates, including:

1. Revenue Recognition: The company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration it expects to be entitled to in exchange.

2. Inventories: PacBio states inventories at the lower of cost or net realizable value and makes adjustments to reduce the cost of inventory to its net realizable value based on estimates of excess or obsolete balances.

3. Business Combinations: The company allocates the fair value of the total consideration transferred in a business combination to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.

4. Goodwill and Intangible Assets with Indefinite Lives – Impairment Assessment: PacBio tests goodwill and indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that the fair value may be less than the carrying value. The company uses a combination of income and market approaches to determine the fair value of these assets.

5. Intangible Assets and Other Finite-Lived Assets – Impairment Assessment: The company reviews intangible assets with finite lives and other finite-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

6. Contingent Consideration: In connection with certain acquisitions, PacBio records a liability for the estimated fair value of contingent consideration, which is remeasured at each reporting date with changes in fair value recorded in the statement of operations.

These critical accounting policies and estimates involve complex judgments and assumptions, and changes in these assumptions could materially impact the company’s financial statements.

Conclusion

PacBio faced a challenging year in 2024, with declines in revenue, gross profit, and operating income. The company’s financial performance was impacted by slower-than-expected Revio instrument sales, slower consumables revenue growth, and macroeconomic factors. However, PacBio remains focused on its strategic objectives, including the launch of the Vega platform, accelerating samples onto the Revio platform, investing in future product launches, and progressing its clinical strategy.

The company’s liquidity position remains strong, with $389.9 million in cash, cash equivalents, and investments as of the end of 2024. PacBio believes this will be sufficient to fund its projected operating and capital requirements for the next 12 months, but the company may need to seek additional capital resources in the future to execute its growth plans.

Overall, PacBio is navigating a challenging environment, but the company’s focus on innovation, diversifying its product offerings, and expanding its clinical applications could position it for long-term success in the rapidly evolving life sciences technology market.