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Summary Of Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2017
Summary Of Significant Accounting Policies [Abstract] |
Summary Of Significant Accounting Policies | NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, as set forth in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC. The consolidated financial statements include the accounts of Pacific Biosciences and our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. Translation adjustments resulting from translating foreign subsidiaries’ results of operations and assets and liabilities into U.S. dollars are immaterial for all periods presented. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements. Our estimates include, but are not limited to, the valuation of inventory, revenue valuation, the valuation of a financing derivative and long-term notes, the valuation and recognition of share-based compensation, the delivery period for collaboration agreements, the useful lives assigned to long-lived assets, and the computation provisions for income taxes. Actual results could differ materially from these estimates. During the first quarter of 2017, we recorded a charge to cost of revenue of $1.3 million relating to leased RS II instruments primarily due to a change in the estimated useful life of these instruments. Fair Value of Financial Instruments The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities, current, approximate fair value due to their short maturities. The carrying value of our other liabilities, non-current, approximates fair value due to the time to maturity and prevailing market rates. The fair value hierarchy established under U.S. GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:
| • |  | Level 1: quoted prices in active markets for identical assets or liabilities;
| • |  | Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
| • |  | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
We consider an active market as one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, we view an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our non-performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and assets, respectively. We classify our cash deposits and money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. We classify our investments as Level 2 instruments based on market pricing and other observable inputs. We did not classify any of our investments within Level 3 of the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of March 31, 2017 and December 31, 2016 respectively (in thousands): ﻿ ﻿
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﻿ | March 31, 2017 |  | December 31, 2016
﻿(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
﻿Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash and cash equivalents: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash and money market funds | $ | 27,183 |  | $ | — |  | $ | — |  | $ | 27,183 |  | $ | 14,516 |  | $ | — |  | $ | — |  | $ | 14,516
﻿Commercial paper |  | — |  |  | 1,799 |  |  | — |  |  | 1,799 |  |  | — |  |  | 2,249 |  |  | — |  |  | 2,249
﻿US government & agency securities |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
﻿Total cash and cash equivalents |  | 27,183 |  |  | 1,799 |  |  | — |  |  | 28,982 |  |  | 14,516 |  |  | 2,249 |  |  | — |  |  | 16,765
﻿Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Commercial paper |  | — |  |  | 18,691 |  |  | — |  |  | 18,691 |  |  | — |  |  | 23,583 |  |  | — |  |  | 23,583
﻿Corporate debt securities |  | — |  |  | 6,346 |  |  | — |  |  | 6,346 |  |  | — |  |  | 10,739 |  |  | — |  |  | 10,739
﻿US government & agency securities |  | — |  |  | 2,004 |  |  | — |  |  | 2,004 |  |  | — |  |  | 20,579 |  |  | — |  |  | 20,579
﻿Asset backed securities |  | — |  |  | 27 |  |  | — |  |  | 27 |  |  | — |  |  | 312 |  |  | — |  |  | 312
﻿Total investments |  | — |  |  | 27,068 |  |  | — |  |  | 27,068 |  |  | — |  |  | 55,213 |  |  | — |  |  | 55,213
﻿Long-term restricted cash: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash |  | 4,500 |  |  | — |  |  | — |  |  | 4,500 |  |  | 4,500 |  |  | — |  |  | — |  |  | 4,500
﻿Total assets measured at fair value | $ | 31,683 |  | $ | 28,867 |  | $ | — |  | $ | 60,550 |  | $ | 19,016 |  | $ | 57,462 |  | $ | — |  | $ | 76,478
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﻿Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Financing derivative | $ | — |  | $ | — |  | $ | 208 |  | $ | 208 |  | $ | — |  | $ | — |  | $ | 356 |  | $ | 356
﻿Total liabilities measured at fair value | $ | — |  | $ | — |  | $ | 208 |  | $ | 208 |  | $ | — |  | $ | — |  | $ | 356 |  | $ | 356
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﻿ The estimated fair value of the Financing Derivative liability (as defined in “Note 6. Notes Payable’) was determined using Level 3 inputs, or significant unobservable inputs. Refer to “Note 6. Notes Payable” for a detailed description and valuation approach. Changes to the estimated fair value of the Financing Derivative are recorded in “Other income (expense), net” in the condensed consolidated statements of operations and comprehensive loss. The following table provides the changes in the fair value of the Financial Derivative during the three-month period ended March 31, 2017 (in thousands): ﻿ ﻿ ﻿
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﻿Financing Derivative | Amount
﻿Balance as of December 31, 2016 | $ | 356
﻿Gain on change in estimated fair value |  | (148)
﻿Balance as of March 31, 2017 | $ | 208
﻿ During the three-month period ended March 31, 2017, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year. Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value due to their short maturities. The carrying value of our facility financing obligation approximates fair value due to the time to maturity and prevailing market rates. We determined the fair value of the Notes (as defined in “Note 6. Notes Payable”) from the debt facility we entered into during the first quarter of 2013 using Level 3 inputs, or significant unobservable inputs. The value of the Notes was determined by comparing the difference between the fair value of the Notes with and without the Financing Derivative by calculating the respective present values from future cash flows using a 10.1% and 10.6% weighted average market yield at March 31, 2017 and December 31, 2016, respectively. Refer to “Note 6. Notes Payable” for additional details regarding the Notes. The estimated fair value and carrying value of the Notes are as follows (in thousands): The estimated fair value and carrying value of the Notes are as follows (in thousands): ﻿ ﻿ ﻿
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﻿ | March 31, 2017 |  | December 31, 2016
﻿ | Fair Value |  | Carrying Value |  | Fair Value |  | Carrying Value
﻿Notes payable | $ | 20,083 |  | $ | 16,425 |  | $ | 19,788 |  | $ | 16,106
﻿ Net L oss per Share The following outstanding common stock options and warrants to purchase common stock were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect: ﻿ ﻿
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﻿ |  | Three Months Ended March 31, |  |
﻿(in thousands) |  | 2017 |  | 2016 |  |  |  |
﻿Options outstanding |  | 26,656 |  | 22,542 |  |  |  |
﻿Warrants to purchase common stock |  | — |  | 1,682 |  |  |  |
﻿ ﻿ Recent Accounting Pronouncements ﻿ Recently Adopted Accounting Standards In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which amends the current stock compensation guidance. The amendments simplify the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. Furthermore, the amendments allow the entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. If an election is made, the change to recognize forfeitures as they occur must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to opening retained earnings. The standard is effective for fiscal periods beginning after December 15, 2016, with early adoption permitted. We adopted this guidance as of January 1, 2017. Prior to adoption, the excluded windfall deductions for federal and state purposes were $6.0 million and $0.6 million, respectively. Upon adoption of ASU 2016-09, we recognized the excluded windfall deductions as a deferred tax asset with a corresponding offset to valuation allowance. The total deferred tax assets were $321.5 million as of January 1, 2017, which was fully offset by a valuation allowance. Further, we did not elect an accounting policy change to record forfeitures as they occur and thus we continue to estimate forfeitures at each period. During 2016, we adopted ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires companies to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. Management performed such an assessment and concluded there was not substantial doubt about our ability to continue as a going concern. Since our inception, we have financed our operations primarily through product sales, issuance of common stock and convertible preferred stock, in addition to our debt facility and payments from Roche pursuant to the terms of the Roche Agreement. Cash, cash equivalents and investments at March 31, 2017 totaled $56.1 million, compared to $72.0 million at December 31, 2016. We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements for at least 12 months; however, we plan to raise additional capital in the future. Our view regarding sufficiency of cash and liquidity is primarily based on our financial forecast for 2017 and into the first quarters of 2018, which is impacted by various assumptions regarding demand for our products. Generally, we expect demand for our products to increase for the remainder of 2017 and into 2018 as compared to 2016, and this expectation is included in forecasts of future cash and liquidity availability. These expectations are based on our current operating and financing plans, which are subject to change. Factors that may affect our capital needs include, but are not limited to, slower than expected adoption of our products resulting in lower sales of our products and services; future acquisitions; our ability to obtain new collaboration and customer arrangements; the progress of our research and development programs; initiation or expansion of research programs and collaborations; litigation costs, including the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; the purchase of patent licenses; the costs associated with the ongoing transition to our new facilities in Menlo Park, California; and other factors. To the extent we raise additional funds through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to our stockholders. There can be no assurance that such funds will be available on favorable terms, or at all. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into collaboration or debt agreements on unattractive terms. Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations. ﻿ Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases. The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or the cumulative effect transition method. ASU 2014-09 is effective for periods beginning after December 15, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for us in the first quarter of 2018. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements. While we are continuing to assess all potential impacts of the new accounting standard, we currently believe the most significant impact relates to our accounting for the incremental cost of obtaining a contract with a customer (i.e., sales commission). Under current GAAP, the cost incurred to obtain a contract is recognized in the period the expense is incurred while under the new standard, the incremental costs to obtain the contract will be allocated to the performance obligations using the relative fair value of these obligations, recognized as an asset and amortized over the useful life of that asset. We are still in the process of evaluating the impact of this new standard on these arrangements. Due to the complexity of certain of our contracts, the actual revenue recognition treatment required under the new standard for these arrangements may be dependent on contract-specific terms and vary in some instances. ﻿

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