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Stockholders' Equity | 12 Months Ended
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Dec. 31, 2023
Share-Based Payment Arrangement [Abstract] |
STOCKHOLDERS’ EQUITY | STOCKHOLDERS’ EQUITY Preferred Stock Our Certificate of Incorporation, as amended and restated in October 2010 in connection with the closing of our initial public offering, authorizes us to issue 1,000,000,000 shares of $0.001 par value common stock and 50,000,000 shares of $0.001 par value preferred stock. As of December 31, 2023 and 2022, there were no shares of preferred stock issued or outstanding. Common Stock Common stockholders are entitled to dividends when and if declared by our board of directors. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote. Underwritten Public Equity Offerings In August 2020, we entered into an underwriting agreement, relating to the public offering of 19,430,000 shares of our common stock, $0.001 par value per share, at a price to the public of $4.47 per share. Under the terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an additional 2,914,500 shares of our common stock, which was subsequently exercised in full, and the offering including the sale of shares of common stock subject to the underwriters’ option, closed in August 2020. In total, we sold 22.3 million shares of our common stock. We paid a commission equal to 6% of the gross proceeds from the sale of shares of our common stock. The total net proceeds to us from the offering after deducting the underwriting discount were approximately $93.9 million, excluding approximately $0.3 million of offering expenses. In November 2020, we entered into an underwriting agreement, relating to the public offering of 6,096,112 shares of our common stock, $0.001 par value per share, at a price to the public of $14.25 per share. Under the terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an additional 914,416 shares of our common stock, which was subsequently exercised in full, and the offering including the sale of shares of common stock subject to the underwriters’ option, closed in November 2020. In total, we sold 7.0 million shares of our common stock. We paid a commission equal to 6% of the gross proceeds from the sale of shares of our common stock. The total net proceeds to us from the offering after deducting the underwriting discount were approximately $93.9 million, excluding approximately $0.3 million of offering expenses. In total, for the year ended December 31, 2021, we issued 29.4 million shares of our common stock through our two underwritten public offerings with an average offering price of $6.40. The total net proceeds to us from the two offerings, after deducting the underwriting commission and offering expenses, were approximately $187.2 million. In January 2023, we entered into an underwriting agreement, relating to the public offering of 17.5 million shares of our common stock, $0.001 par value per share, at a price to the public of $10.00 per share. Under the terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an additional 2.6 million shares of our common stock, which was subsequently exercised in full, and the offering, including the sale of shares of common stock subject to the underwriters' option, closed in January 2023. In total, we sold 20.1 million shares of our common stock. We paid a commission equal to 5.75% of the gross proceeds from the sale of shares of our common stock. The total net proceeds to us from the offering after deducting the underwriting discount were approximately $189.7 million, excluding approximately $0.5 million of offering expenses. Private Placement of Common Stock On July 19, 2021, in connection with the Omniome acquisition, we entered into a purchase agreement with certain qualified institutional buyers and institutional accredited investors, pursuant to which we agreed to sell an aggregate of 11,214,953 shares of common stock, at a price of $26.75 per share, for aggregate gross proceeds of approximately $300 million. The transaction closed on September 20, 2021. We registered the private placement shares for resale following the closing of the merger. Equity Plans The 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”), and the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc. (the “Omniome Plan”) allow for the issuance of stock options, restricted units and awards, and performance-based awards. On December 2, 2020, the Board of Directors (the “Board”) adopted the Inducement Plan and reserved 2,500,000 shares of our common stock for issuance pursuant to equity awards granted under the Inducement Plan. On April 18, 2021 and November 22, 2021, the Board amended the Inducement Plan to reserve an additional 750,000 and 360,000 shares, respectively. On September 20, 2021, in connection with the acquisition of Omniome, we adopted the Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc. (the “Omniome Plan”). Under the Omniome Merger Agreement, each unvested option to purchase Omniome common stock, granted under the Omniome Plan held by employees continuing with us, was assumed by PacBio and converted into an option to purchase shares of our common stock. The terms and conditions of the converted options are substantially the same (including vesting and exercisability), except that (A) the assumed options cover shares of PacBio’s common stock; (B) the number of shares of our common stock subject to the assumed option is equal to the product of (i) the number of shares of Omniome common stock subject to the corresponding unvested option, multiplied by (ii) the exchange ratio (as defined below), with any resulting fractional share rounded down to the nearest whole share; and (C) the exercise price per share of the assumed options is equal to the quotient of (i) the exercise price per share of the corresponding unvested option to purchase shares of Omniome common stock, divided by (ii) the exchange ratio (as defined below), with any resulting fractional cent rounded up to the nearest whole cent. The exchange ratio was equal to 0.259204639. We reserved 2,494,128 shares of our common stock for issuance pursuant to equity awards under the Omniome Plan. On May 25, 2022, stockholders approved an amendment to the 2020 Plan, and we reserved an additional 18,000,000 shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan. As of December 31, 2023, we had 12.8 million shares remaining and available for future issuance under the 2020 Plan, Inducement Plan, and the Omniome Plan. Stock Options Time-based stock options The following table summarizes time-based stock option activity for all of our equity compensation plans for the year ended December 31, 2023 (in thousands, except per share amounts):
| Number of shares |  | Weighted-average exercise price
Outstanding at December 31, 2022 | 14,618 |  | $ | 10.60 |
Granted | 419 |  | $ | 11.26 |
Exercised | (1,119) |  | $ | 4.74 |
Canceled | (910) |  | $ | 17.71 |
Outstanding at December 31, 2023 | 13,008 |  | $ | 10.63 |
Performance-based stock options The following table summarizes performance-based stock option activity for all of our equity compensation plans for the year ended December 31, 2023 (in thousands, except per share amounts):
| Number of shares |  | Weighted-average exercise price
Outstanding at December 31, 2022 | 258 |  | $ | 4.71 |
Granted | — |  | $ | — |
Exercised | (251) |  | $ | 4.71 |
Canceled | (4) |  | $ | 4.71 |
Outstanding at December 31, 2023 | 3 |  | $ | 4.74 |
The performance condition was achieved during the year ended December 31, 2023. The aggregate intrinsic value of the outstanding options presented in the tables above as of December 31, 2023, totaled $31.8 million, and had a weighted-average remaining contractual life of 5.9 years. The aggregate intrinsic value of outstanding options represents the total pre-tax intrinsic value (i.e. the difference between $9.81, our closing stock price on the last trading day of our fourth quarter of 2023 and the option exercise price multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2023. The aggregate intrinsic value changes at each reporting date based on the fair market value of our common stock. The vested and exercisable options as of December 31, 2023, totaled 10,039,742 shares, had an aggregate intrinsic value of $30.0 million, a weighted-average exercise price per share of $9.70, and a weighted-average remaining contractual life of 5.2 years. The vested and expected to vest options as of December 31, 2023, totaled 13,026,464 shares, had an aggregate intrinsic value of $31.6 million, a weighted-average exercise price per share of $10.81, and a weighted-average remaining contractual life of 5.8 years. The total intrinsic value of stock options exercised during the years ended December 31, 2023, 2022, and 2021 was $8.8 million, $5.0 million, and $146.1 million, respectively. The total intrinsic value of options exercised represents the difference between our closing stock price on the exercise date and the option exercise price, multiplied by the number of in-the-money options exercised. The weighted-average grant-date fair value of all options granted was $7.32 in 2023, $5.93 in 2022, and $18.36 in 2021, each determined by the Black-Scholes option valuation method. Restricted Stock Units ("RSU") and Performance Stock Units ("PSU") Each Restricted Stock Unit (RSU) represents one equivalent share of our common stock to be issued after satisfying the applicable continued service-based vesting criteria over a specified period. These RSUs are time-based and vest over four years at a rate of 25% annually. The RSUs do not entitle participants to the rights of holders of common stock, such as voting rights, until the shares are issued. The fair value of these RSUs is based on the closing price of our common stock on the date of grant. We measure compensation expense for these RSUs at fair value on the date of grant and recognize the expense over the expected vesting period on a straight-line basis. RSUs that are expected to vest are net of estimated future forfeitures. We issue PSUs for which the number of shares issuable in the third year of the performance period is based on performance relative to specified revenue targets and continued employment through the vesting period. Maximum achievement of the revenue goal under the PSUs will result in up to 200% of the target number of shares subject to the PSUs to become eligible to vest, while not meeting the minimum achievement of the revenue goal under PSUs will result in no shares subject to the PSUs becoming eligible to vest. The following table summarizes the time-based RSUs and PSUs activity for the year ended December 31, 2023 (shares in thousands):
|  |  |  |  | Weighted-average grant date fair value
| Restricted Stock Units (RSUs) |  | Performance Stock Units (PSUs) |  | RSU |  | PSU
Outstanding at December 31, 2022 | 8,535 |  | — |  | $ | 15.16 |  |  | $ | — |
Granted | 7,141 |  | 564 |  | 9.67 |  |  | 9.43 |
Vested | (2,730) |  | — |  | 14.41 |  |  | — |
Forfeited | (1,638) |  | (23) |  | 13.86 |  |  | 9.43 |
Outstanding at December 31, 2023 | 11,308 |  | 541 |  | $ | 12.06 |  |  | $ | 9.43 |
The total fair value of shares vested related to RSUs and PSUs during the years ended December 31, 2023, 2022, and 2021 was $39.3 million, $39.2 million, and $9.2 million, respectively. The weighted-average grant-date fair value of all RSUs and PSUs granted was $9.65 in 2023, $10.15 in 2022, and $35.33 in 2021. Employee Stock Purchase Plan As of December 31, 2023, a total of 29.5 million shares of our common stock have been reserved for issuance under our 2010 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Each offering period will generally consist of four purchase periods, each purchase period being approximately six months. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or at the end of a purchase period. If the stock price at the end of the purchase period is lower than the stock price at the beginning of the offering period, that offering period will be terminated and a new offering period will come into place. The ESPP provides for an annual increase to the shares available for issuance at the beginning of each fiscal year equal to the lesser of 2% of the common shares then outstanding, 4,000,000 shares, or an amount determined by the ESPP’s administrator. For the years ended December 31, 2023, 2022, and 2021, 1,735,058 shares, 1,878,168 shares, and 1,913,968 shares of common stock were purchased under the ESPP, respectivel y. As of December 31, 2023, 12,197,447 sh ares of our common stock remain available for issuance under our ESPP. Share-based Compensation Total share-based compensation expense consists of the following (in thousands):
| Years Ended December 31,
| 2023 |  | 2022 |  | 2021
Cost of revenue | $ | 5,399 |  |  | $ | 4,802 |  |  | $ | 6,126 |
Research and development | 22,435 |  |  | 30,676 |  |  | 20,275 |
Sales, general and administrative | 44,284 |  |  | 43,135 |  |  | 35,403 |
Merger-related expenses - stock-settled | — |  |  | — |  |  | 6,349 |
Merger-related expenses - milestone | — |  |  | — |  |  | 5,202 |
Share-based compensation | 72,118 |  |  | 78,613 |  |  | 73,355 |
Merger-related expenses - cash-settled | — |  |  | — |  |  | 7,373 |
Total share-based compensation expense | $ | 72,118 |  |  | $ | 78,613 |  |  | $ | 80,728 |
As of December 31, 2023 and 2022, $0.6 million and $0.7 million of share-based compensation cost was capitalized in inventory, net, on our consolidated balance sheets, respectively. The tax benefit of share-based compensation expense was immaterial for the years ended December 31, 2023, 2022, and 2021. Determining Fair Value We estimate the fair value of share options granted using the Black-Scholes valuation method and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair market value of RSU awards granted is the closing price of our shares on the date of grant and is generally recognized as compensation expense on a straight-line basis over the respective vesting period. For shares purchased under our Employee Stock Purchase Plan, or ESPP, we estimate the grant-date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. Expected Term – The expected term used in the Black-Scholes valuation method represents the period that the stock options are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock options and vesting schedules. Expected Volatility – The expected volatility used in the Black-Scholes valuation method is derived from the implied volatility related to our share price over the expected term. Expected Dividend – We have never paid dividends on our shares and, accordingly, the dividend yield percentage is zero for all periods. Risk-Free Interest Rate – The risk-free interest rate used in the Black-Scholes valuation method is the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected terms. Stock Options We estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards. When determining the current share prices underlying the stock options for calculating the grant-date fair value, we reference observable market prices of similar or identical instruments in active markets. The fair value of employee stock options was estimated using the following weighted-average assumptions:
| Years Ended December 31,
| 2023 |  | 2022 |  | 2021
Expected term in years | 4.9 |  | 4.6 |  | 2.1 - 4.6
Expected volatility | 77% - 78% |  | 70% - 76% |  | 67% - 80%
Risk-free interest rate | 3.73% – 4.60% |  | 0.41% – 3.66% |  | 0.05% – 1.10%
Dividend yield | — |  | — |  | —
Weighted-average grant date fair value per share | $ | 7.32 |  |  | $ | 5.93 |  |  | $ | 15.53 |
Cash received from option exercises for the years ended December 31, 2023, 2022, and 2021 was $6.5 million, $3.4 million and $25.4 million, respectively. ESPP We estimate the fair value of shares to be issued under the ESPP using the Black-Scholes option pricing model. The fair value of shares to be issued under the ESPP was estimated using the following assumptions:
| Years Ended December 31,
| 2023 |  | 2022 |  | 2021
Expected term in years | 0.5 - 2.0 |  | 0.5 - 2.0 |  | 0.5 - 2.0
Expected volatility | 79% - 97% |  | 70% - 97% |  | 67% - 68%
Risk-free interest rate | 4.9% - 5.5% |  | 0.6% - 3.5% |  | 0.1% - 0.2%
Dividend yield | — |  | — |  | —
Weighted-average grant date fair value per share | $ | 5.34 |  |  | $ | 4.28 |  |  | $ | 25.07 |
Cash received through the ESPP for the years ended December 31, 2023, 2022, and 2021 was $8.8 million, $7.8 million, and $6.4 million, respectively. As of December 31, 2023, $101.9 million of total unrecognized compensation expense related to stock options, restricted stock, and ESPP shares was expected to be recognized over a weighted-average period of 2.2 years.

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