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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2021
Summary of Significant Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | NOTE 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements, which include the accounts of Pacific Biosciences and the accounts of our wholly-owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures typically included in our audited financial statements have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements have been prepared on a consistent basis with the December 31, 2020 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state our financial position, results of operations, comprehensive income (loss), and cash flows for the period, but are not necessarily indicative of the results to be expected for the entire year or any future periods. All intercompany transactions and balances have been eliminated.The financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. COVID-19We 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 continuing to evolve, including the effects of the Delta variant. We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of September 30, 2021. Use of Estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements. On an ongoing basis, management evaluates its significant estimates including, but not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the fair value of contingent consideration, the valuation of acquired intangible assets, the fair value of certain equity awards, 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, and the valuations related to our convertible senior notes. Actual results could differ materially from these estimates. Fair Value of Financial InstrumentsFair value is the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy established under 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. 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. Assets and Liabilities Measured at Fair Value on a Recurring BasisThe following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of September 30, 2021 and December 31, 2020 respectively: September 30, 2021 December 31, 2020(in thousands)Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalAssets Cash and cash equivalents: Cash and money market funds $ 364,020 $ — $ — $ 364,020 $ 43,040 $ — $ — $ 43,040 Commercial paper — 61,368 — 61,368 — 32,537 — 32,537 U.S. government & agency securities — — — — — 170 — 170 U.S. Treasury security — — — — — 5,864 — 5,864 Total cash and cash equivalents 364,020 61,368 — 425,388 43,040 38,571 — 81,611 Investments: Commercial paper — 255,817 — 255,817 — 112,644 — 112,644 Corporate debt securities — 13,595 — 13,595 — 17,456 — 17,456 U.S. government & agency securities — 385,090 — 385,090 — 107,103 — 107,103 Total investments — 654,502 — 654,502 — 237,203 — 237,203 Short-term restricted cash: Cash 500 — — 500 836 — — 836 Long-term restricted cash: Cash 4,560 — — 4,560 3,500 — — 3,500 Total assets measured at fair value $ 369,080 $ 715,870 $ — $ 1,084,950 $ 47,376 $ 275,774 $ — $ 323,150 Liabilities Continuation Advances $ — $ — $ — $ — $ — $ — $ — $ —Contingent consideration — — 168,574 168,574 — — — —Total liabilities measured at fair value $ — $ — $ 168,574 $ 168,574 $ — $ — $ — $ — We classify contingent consideration, which was incurred in connection with the acquisition of Omniome, within Level 3 as factors used to develop the estimate of fair value include unobservable inputs that are not supported by market activity and are significant to the fair value. We estimate the fair value of the contingent consideration liability by discounting the probability-weighted outcomes to present value using an estimate of our borrowing rate and the risk-free rate. The potential outcomes of milestone achievement dates are within the period from December 31, 2022 to June 30, 2025, with the highest probability of achieving the milestone in the middle of this period. The discount rates used are the sum of the U.S. risk-free rate and the estimated subordinated credit spread for CCC+ and B- credit rating, which ranges from 4.3% to 4.8%.As of December 31, 2020, we classified the Continuation Advances, which were incurred in connection with the Illumina Merger Agreement and were subject to repayment under certain circumstances, as a financial liability and were reported at fair value. The estimated fair value of the liability related to the Continuation Advances was determined using Level 3 inputs, or significant unobservable inputs. Management assessed the fair value of this financial instrument to be zero at December 31, 2020.We were 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 8. Convertible Senior Notes, in February 2021, we 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 nine months ended September 30, 2021. There was no further liability exposure for Continuation Advances as of September 30, 2021. For the quarter ended September 30, 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. As discussed above, we recorded a contingent consideration liability in connection with our acquisition of Omniome during the quarter ended September 30, 2021.Net Income (Loss) per ShareBasic 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 the basic and diluted net income (loss) per share amounts presented in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020Numerator: Net income (loss) $ 16,542 $ (23,708) $ (111,894) $ (45,532) Denominator: Basic Weighted average shares used in computing net income (loss) per share, basic 202,194 166,862 198,545 158,195Net income (loss) per share, basic $ 0.08 $ (0.14) $ (0.56) $ (0.29) Diluted Weighted average shares used in computing net income (loss) per share, basic 202,194 166,862 198,545 158,195Add: Weighted average stock options 7,754 — — —Add: Weighted average restricted stock units 3,598 — — —Add: Weighted average shares issuable pursuant to ESPP 1,581 — — —Weighted average shares used in computing net income (loss) per share, diluted 215,127 166,862 198,545 158,195Net income (loss) per share, diluted $ 0.08 $ (0.14) $ (0.56) $ (0.29) The following outstanding shares issuable upon conversion of the convertible senior notes, common stock options, restricted stock units (“RSUs”), with time-based vesting, RSUs with performance-based vesting and ESPP shares expected to be purchased, 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 10. Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting. Three Months Ended September 30, Nine Months Ended September 30,(in thousands) 2021 2020 2021 2020Shares issuable upon conversion of convertible senior notes 20,690 — 17,203 —Options to purchase common stock 2,326 19,921 12,703 19,921RSUs with time-based vesting 2,006 5,971 6,835 5,971RSUs with performance-based vesting — 94 — 94ESPP shares 126 2,890 1,564 2,890 Concentration and Other Risks For the three and nine months ended September 30, 2021, Gene Company Limited accounted for approximately 17% and 15%, respectively, of our total revenue during the period with no other customer exceeding 10% during those periods. For the three and nine months ended September 30, 2020, Gene Company Limited accounted for approximately 18% and 14%, respectively, of our total revenue with no other customer exceeding 10% during those periods. Gene Company Limited is our primary distributor in China.Recent Accounting Pronouncements Recently Adopted Accounting StandardsIn 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. In February 2021 we issued $900 million of 1.50% Convertible Senior Notes due February 15, 2028, as described in Note 8. 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 PoliciesExcept for the adoption of ASU 2020-06 as discussed above and in Note 8. Convertible Senior Notes and the accounting for the acquisition of Omniome and Circulomics as described in Note 2. Business Acquisitions and Note 7. Balance Sheet Components, 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.

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