XML 21 R10.htm IDEA: XBRL DOCUMENT
v3.21.1

Summary of Significant Accounting Policies | 3 Months Ended
--- | ---
Mar. 31, 2021
Summary of Significant Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation In the opinion of management, our accompanying unaudited condensed consolidated financial statements (“Financial Statements”) have been prepared on a consistent basis with our December 31, 2020 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, as permitted by such rules and regulations, omit certain information and footnote disclosures necessary to present the statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the entire year or any future periods. The condensed consolidated financial statements include the accounts of Pacific Biosciences and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. COVID-19 We are subject to risks and uncertainties as a result of the novel coronavirus pandemic (“COVID-19”). The extent of the impact of the COVID-19 pandemic on our business is highly uncertain as responses to the pandemic can change quickly and information is rapidly evolving. We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of March 31, 2021. 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, the determination of stand-alone selling prices for revenue recognition, the probability of repaying the Continuation Advances and Reverse Termination Fee to Illumina, the valuation and recognition of share-based compensation, the expected renewal period for service contracts to derive the amortization period for capitalized commissions, the useful lives assigned to long-lived assets, the computation of provisions for income taxes, the borrowing rate used in calculating the operating lease right-of-use assets and operating lease liabilities, the borrowing rate used in calculating the financing component of the Invitae collaboration and valuations related to our convertible senior notes. Actual results could differ materially from these estimates. 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 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. 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, 2021 and December 31, 2020 respectively:
| March 31, 2021 |  | December 31, 2020
(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 | $ | 906,453 |  | $ | — |  | $ | — |  | $ | 906,453 |  | $ | 43,040 |  | $ | — |  | $ | — |  | $ | 43,040
Commercial paper |  | — |  |  | 25,945 |  |  | — |  |  | 25,945 |  |  | — |  |  | 32,537 |  |  | — |  |  | 32,537
U.S. government & agency securities |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 170 |  |  | — |  |  | 170
U.S. Treasury security |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,864 |  |  | — |  |  | 5,864
Total cash and cash equivalents |  | 906,453 |  |  | 25,945 |  |  | — |  |  | 932,398 |  |  | 43,040 |  |  | 38,571 |  |  | — |  |  | 81,611
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial paper |  | — |  |  | 75,465 |  |  | — |  |  | 75,465 |  |  | — |  |  | 112,644 |  |  | — |  |  | 112,644
Corporate debt securities |  | — |  |  | 15,548 |  |  | — |  |  | 15,548 |  |  | — |  |  | 17,456 |  |  | — |  |  | 17,456
U.S. government & agency securities |  | — |  |  | 136,908 |  |  | — |  |  | 136,908 |  |  | — |  |  | 107,103 |  |  | — |  |  | 107,103
Total investments |  | — |  |  | 227,921 |  |  | — |  |  | 227,921 |  |  | — |  |  | 237,203 |  |  | — |  |  | 237,203
Short-term restricted cash: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | 836 |  |  | — |  |  | — |  |  | 836 |  |  | 836 |  |  | — |  |  | — |  |  | 836
Long-term restricted cash: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | 3,500 |  |  | — |  |  | — |  |  | 3,500 |  |  | 3,500 |  |  | — |  |  | — |  |  | 3,500
Total assets measured at fair value | $ | 910,789 |  | $ | 253,866 |  | $ | — |  | $ | 1,164,655 |  | $ | 47,376 |  | $ | 275,774 |  | $ | — |  | $ | 323,150
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Continuation Advances | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | —
Total liabilities measured at fair value | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | —
Estimated fair value of the Continuation Advances liability In accordance with the terms of the Merger Agreement, we received financing from Illumina in the form of Continuation Advances of $18.0 million and $34.0 million from Illumina during the fourth quarter of 2019 and the first quarter of 2020, respectively. The Continuation Advances were provided to the Company to support the Company’s working capital needs in light of the continued negative cash flows incurred by the Company during the extended regulatory approval period for the merger and the Company’s need for additional capital to meet its debt repayment obligations and to fund its operations. As discussed in Note 3. Termination of Merger with Illumina, the Merger Agreement was entered into in November 2018 and was ultimately terminated in January 2020. We determined that the Continuation Advances, which are subject to repayment under certain circumstances as discussed below, constitute a financial liability. The fair value option was elected for the financial liability because management believes that among all measurement methods allowed by Accounting Standards Codification, or ASC, 825, Financial Instruments, the fair value option would most fairly represent the value of such a financial liability. Management applied the income approach to estimate the fair value of this financial liability. The estimated fair value of the liability related to the Continuation Advances was determined using Level 3 inputs, or significant unobservable inputs. Management estimated that the fair value of this financial instrument was immaterial because of the low probability of either of the following events occurring and requiring repayment to Illumina as of December 31, 2020: we enter into a Change of Control Transaction within two years following March 31, 2020; or we raise $100 million or more in a single equity or debt financing (that may have multiple closings) within two years following March 31, 2020, with the amount repayable dependent on the amount raised by us. As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances was assessed to be zero as of March 31, 2020 and December 31, 2020, with a resulting non-operating gain of $34.0 million recorded as “Gain from Continuation Advances from Illumina” for the quarter ended March 31, 2020. We recorded a similar gain of $18.0 million in 2019 for the Continuation Advances received during the fourth quarter of 2019. The Company was first approached by SB Northstar LP during the quarter ended March 31, 2021 regarding a potential convertible debt transaction. As discussed further below in Note 7. Convertible Senior Notes, in February 2021, the Company entered into an investment agreement with SB Northstar LP for the issuance and sale of $900 million of 1.50% Convertible Senior Notes due February 15, 2028. As a result, $52.0 million of Continuation Advances were repaid without interest to Illumina in February 2021 and recorded as other expense in the condensed consolidated statements of operations and comprehensive income (loss) for the quarter ended March 31, 2021. There was no further liability exposure for Continuation Advances as of March 31, 2021. For the quarter ended March 31, 2021, 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. Net Income (Loss) per Share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and potential shares assuming the dilutive effect of the convertible senior notes, using the if-converted method, and outstanding stock options, restricted stock units and common stock issuable pursuant to our employee stock purchase plan, or ESPP, using the treasury stock method. The following table presents the calculation of weighted average shares of common stock used in the computations of basic and diluted net income (loss) per share amounts presented in the accompanying condensed consolidated statements of operations and comprehensive income (loss) (in thousands, except per share amounts):
|  | Three Months Ended March 31,
|  | 2021 |  | 2020
Net income (loss) |  | $ | (87,435) |  | $ | 1,262
Basic |  |  |  |  |  |
Weighted average shares used in computing basic net income (loss) per share |  |  | 194,790 |  |  | 153,453
Basic net income (loss) per share |  | $ | (0.45) |  | $ | 0.01
Diluted |  |  |  |  |  |
Weighted average shares used in computing basic net income (loss) per share |  |  | 194,790 |  |  | 153,453
Add: weighted average stock options |  |  | — |  |  | 1,926
Add: weighted average restricted stock units |  |  | — |  |  | 476
Weighted average shares used in computing diluted net income (loss) per share |  |  | 194,790 |  |  | 155,855
Diluted net income (loss) per share |  | $ | (0.45) |  | $ | 0.01
The following outstanding shares issuable upon conversion of the convertible senior notes, common stock options, restricted stock units (“RSUs”), with time-based vesting and RSUs with performance-based vesting, 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. See Note 9. Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting.
|  | Three Months Ended March 31,
(in thousands) |  | 2021 |  | 2020
Shares issuable upon conversion of convertible senior notes |  | 20,690 |  | —
Options to purchase common stock |  | 12,332 |  | 14,265
RSUs with time-based vesting |  | 6,527 |  | 2,208
RSUs with performance-based vesting |  | — |  | 138
ESPP shares |  | — |  | 1,346
Concentration and Other Risks For the three months ended March 31, 2021, Gene Company Limited accounted for approximately 12% of our total revenue during the period with no other customer exceeding 10% during the period. For the three months ended March 31, 2020, TOMY Digital Biology Co. accounted for approximately 11% of our total revenue with no other customer exceeding 10% during the period. Gene Company Limited is our primary distributor in China and TOMY Digital Biology Co. is our distributor in Japan. Recent Accounting Pronouncements Recently Adopted Accounting Standards In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the debt host. The guidance also amends and simplifies the calculation of earnings per share relating to convertible instruments. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that reporting period, excluding smaller reporting companies. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within that reporting period, using either a full or modified retrospective approach. We adopted ASU 2020-06 on January 1, 2021. Because we had no convertible instruments within the scope of ASU 2020-06 at the time of adoption, there was no impact of adoption on our condensed consolidated financial statements. However, in February 2021 we issued $900 million of 1.50% Convertible Senior Notes due February 15, 2028, as described in Note 7. Convertible Senior Notes, which are accounted for under ASU 2020-06. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The standard is effective for our annual reporting periods beginning after December 15, 2020, including interim reporting periods within those fiscal years. We adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on our condensed consolidated financial statements. Significant Accounting Policies Except for the adoption of ASU 2020-06 as discussed above and in Note 7. Convertible Senior Notes, there have been no new or material changes to the significant accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration