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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-27 · 458 added, 267 removed, 398 unchanged (65% of the section changed)

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The following risks and uncertainties may have a material and adverse effect on our business, financial condition, or results of operations.

You should consider these risks and uncertainties carefully, together with all of the other information included or incorporated by reference in this Form 10-K.

You should consider these risks and uncertainties carefully, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K.

The risks described below are not the only ones we face.

Our business is also subject to the risks that affect many other companies, such as employment relations, general economic conditions, geopolitical events and international operations.

Our business is also subject to the risks that affect many other companies, such as employment relations, general economic conditions, global sociopolitical events and international operations.

Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price.

If any of the risks or uncertainties we face were to occur, the trading price of our securities could decline, and you may lose all or part of your investment.

Risks Related to Fluidigm’s Business and Strategy

Our financial results and revenue growth rates have varied significantly from quarter-to-quarter and year-to-year due to a number of factors, and a significant variance in our operating results or rates of growth, if any, could lead to substantial volatility in our stock price.

If any of these risks occur, our business, results of operations, or financial condition could suffer, the trading price of our securities could decline, and you may lose all or part of your investment.

Summary of Risk Factors

Risks Related to our Business, Industry, and Strategy

• The COVID-19 pandemic has significantly affected our business operations.

• Our financial results and revenue growth rates have varied significantly from quarter-to-quarter and year-to-year, and may not be consistent with market expectations.

• We have incurred losses since inception, and we may continue to incur substantial losses for the foreseeable future.

• The life science markets are highly competitive and subject to rapid technological change.

• If our research and product development efforts do not result in commercially viable products within anticipated timelines, if at all, our business and results of operations will be adversely affected.

• Market opportunities may not develop as quickly as we expect, limiting our ability to successfully sell our products.

• Our future success is dependent upon our ability to expand our customer base and introduce new applications.

• If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.

• We may not be able to develop new products or enhance the capabilities of our existing systems.

• Our business growth strategy involves the potential for significant acquisitions.

• Our efficiency and cost-savings initiatives could be disruptive to our operations.

• Implementation of a company-wide enterprise resource planning (ERP) system could adversely affect our business.

Risks Related to Operations and Reliance on Third Parties

• We may experience development or manufacturing problems or delays.

• Our business depends on research and development spending levels of our customers.

• If one or more of our manufacturing facilities become unavailable or inoperable, we will be unable to continue manufacturing our instruments, IFCs, assays and/or reagents.

• Disruption of our manufacturing facilities or other operations, or in the operations of our customers or business partners, could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers.

• Any disruption or delay in the shipping or off-loading of our products may have an adverse effect on our financial condition and results of operations.

• We are dependent on single and sole source suppliers for some of the components and materials used in our products.

• Our business operations depend upon the continuing efforts of our management team and other key employees.

• Security breaches, loss of data, cyberattacks, and other IT failures could adversely affect our business.

• To use our analytical systems, customers typically need to purchase specialized reagents.

• Our distribution capabilities and direct sales, field support, and marketing forces must be sufficient to meet our customers’ needs.

Risks Related to Quality and the Regulatory Environment

• Our products could have defects or errors.

• Although the FDA granted Emergency Use Authorization (EUA) for our Advanta Dx SARS-CoV-2 RT-PCR Assay in August 2020, this authorization is only valid during the COVID-19 public health emergency.

• Our contract with the National Institutes of Health (NIH) could expose us to risks and costs.

• To the extent we elect to label and promote any of our non-EUA products as medical devices, we would be required to obtain prior approval or clearance by the FDA or comparable foreign regulatory authority.

• Our products could become subject to regulation as medical devices by the FDA or other regulatory agencies.

• Compliance or the failure to comply with current and future regulations affecting our products and business operations worldwide could cause us significant expense and adversely impact our business.

Risks Related to Economic Conditions and Operating a Global Business

• We generate a substantial portion of our revenue internationally.

• Adverse conditions in the global economy may significantly harm our revenue, profitability, and results of operations.

• We are subject to fluctuations in the exchange rate of the U.S.

dollar and foreign currencies.

Financial, Tax, and Accounting Risks

• Our future capital needs are uncertain and we may need to raise additional funds in the future.

• Any failure to maintain effective internal control over financial reporting could adversely affect our business.

• We may not realize the value of our goodwill or other intangible assets.

• If we fail to comply with the covenants and other obligations under our Revolving Credit Facility, the lenders may be able to accelerate amounts owed under the facilities and may foreclose upon the assets securing our obligations.

• We are subject to risks related to taxation in multiple jurisdictions.

• Changes in accounting principles, or interpretations thereof, could impact our financial position and results of operations.

• We have a significant amount of outstanding indebtedness.

Risks Related to Intellectual Property

• Our ability to protect our intellectual property and proprietary technology is uncertain.

• We may be involved in lawsuits to protect or enforce our patents and proprietary rights.

• We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets.

• We depend on certain technologies that are licensed to us.

• We are subject to certain manufacturing restrictions related to licensed technologies that were developed with the financial assistance of U.S.

governmental grants.

• We are subject to certain obligations and restrictions relating to technologies developed in cooperation with Canadian government agencies.

Risks Related to Our Common Stock

• Our stock price is volatile.

• Future sales of our common stock in the public market could cause our stock price to fall.

• We will have broad discretion over the use of the proceeds to us from our ATM equity offering program.

• If securities or industry analysts publish unfavorable research about us or cease to cover our business, our stock price and/or trading volume could decline.

• Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult.

• Any conversions of our 2014 Notes or 2019 Notes will dilute the ownership interest of our existing stockholders.

RISKS RELATED TO OUR BUSINESS, INDUSTRY, AND STRATEGY

The global COVID-19 pandemic has significantly affected our business operations and could adversely impact our financial position and cash flows to an extent that is unknown and difficult to predict.

The pandemic and international public health emergency caused by SARS-CoV-2, the novel strain of coronavirus that causes the disease commonly known as COVID-19, has spread throughout all the countries in which we and our customers, suppliers, and other business partners operate, causing significant disruption and volatility in global financial markets and raising the prospect of an extended global recession.

Public health problems resulting from COVID-19 and precautionary measures instituted by governments and businesses to mitigate its spread, including travel restrictions and quarantines, could continue to contribute to a general slowdown in the global economy, cause increasingly adverse impacts on our customers, suppliers, and other business partners, and further disrupt our operations.

Changes in our operations as a result of the COVID-19 pandemic have resulted in inefficiencies and delays, including in sales and product development efforts, and additional costs related to business continuity initiatives that cannot be fully mitigated through succession planning, employees working remotely, or teleconferencing technologies.

The COVID-19 pandemic and related governmental reactions have had, and may continue to have, a negative impact on our business, liquidity, results of operations, and stock price due to the occurrence of some or all of the following events or circumstances among others:

• reduced demand for some of our products and services due to the impact of COVID-19 on our customers, including in the global academic research community;

• diminished business productivity due to inefficiencies in employees working from home or increasing physical distancing and other pandemic response protocols in our production facilities;

• increased susceptibility to the risk of information technology security breaches and other disruptions due to increased volumes of remote access to our information systems from our employees working at home;

• the negative impact of travel restrictions and social distancing policies on our sales operations, marketing efforts, and customer field support;

• impaired ability to hire and effectively train new personnel due to travel restrictions and physical distancing protocols;

• increased operating costs if one of our facilities were to experience a COVID-19 outbreak;

• disruption of the operations of our contract manufacturers, suppliers, and other business partners;

• increased volatility in our stock price due to financial market instability.

The extent to which the COVID-19 pandemic will continue to adversely impact our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the continued spread of the disease, the duration of the public health emergency, and actions taken in the United States and elsewhere to contain the virus and prevent new outbreaks, such as social distancing and quarantines, business closures or business disruptions.

Because the severity, magnitude, and duration of the COVID-19 pandemic and its economic consequences are uncertain and rapidly changing, we are unable to predict the impact of COVID-19 on our operations, our financial performance, and our ability to successfully execute our business strategies and initiatives.

The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to:

governmental, business, and individual actions that have been and continue to be taken in response to the pandemic (including restrictions on travel, transport and workforce pressures);

the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity;

the availability of federal, state, local or non-U.S.

funding programs;

general economic uncertainty in key global markets and financial market volatility;

global economic conditions and levels of economic growth;

and the pace of recovery when the COVID-19 pandemic subsides.

As the COVID-19 crisis continues to adversely affect our operating and financial results, it may also have the effect of heightening many of the other risks described in our other risk factors below.

COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results, particularly if the pandemic and its associated impacts reoccur in the coming months.

Our financial results and revenue growth rates have varied significantly from quarter-to-quarter and year-to-year due to a number of factors, and a significant variance in our operating results or rates of growth from market expectations, if any, could lead to substantial volatility in our stock price.

Our revenue, results of operations, and revenue growth rates have varied in the past and may continue to vary significantly from quarter-to-quarter or year-to-year.

We may experience substantial variability in our product mix from period-to-period as revenue from sales of our instruments relative to sales of our consumables may fluctuate or deviate significantly from expectations.

For example, our revenue declined year-over-year in 2017 compared to 2016, but increased year-over-year in 2018 compared to 2017.

Our revenue continued to increase year-over-year in 2019 compared to 2018, but we may not be able to achieve similar revenue growth in future periods.

We are also increasingly dependent on our mass cytometry business, which is very capital intensive.

Variability in our quarterly or annual results of operations, mix of product revenue, including any decline in our mass cytometry revenue, or variability in rates of revenue growth, if any, may lead to volatility in our stock price as research analysts and investors respond to these fluctuations.

Our revenue increased year-over-year in 2019 compared to 2018, and again in 2020 compared to 2019, but we may not be able to achieve similar revenue growth in future periods.

Variability in our quarterly or annual results of operations, mix of product revenue, including any decline in our revenue related to the COVID-19 pandemic, or variability in rates of revenue growth, if any, may lead to volatility in our stock price as research analysts and investors respond to these fluctuations.

These fluctuations are due to numerous factors that are difficult to forecast, including:

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• global economic conditions;

and fluctuations in foreign currency exchange rates.

• fluctuations in foreign currency exchange rates.

Additionally, we have certain customers who have historically placed large orders in multiple quarters during a calendar year.

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To date, we have funded our operations primarily through equity offerings, the issuance of debt instruments, and from sales of our products.

Until we are able to generate additional revenue to support our level of operating expenses, we will continue to incur operating and net losses and negative cash flow from operations.

we are able to generate additional revenue to support our level of operating expenses, we will continue to incur operating and net losses and negative cash flow from operations.

We believe that our continued investment in research and development, sales, and marketing is essential to our long-term competitive position and future revenue growth and, as a result, we may incur operating losses for the foreseeable future and may never achieve profitability.

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The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition, new product introductions, and strong price competition.

We compete with both established and development stage life science research companies that design, manufacture, and market instruments and consumables for gene expression analysis, single-cell targeted gene expression and protein expression analysis, SNP genotyping, quantitative polymerase chain reaction (qPCR), digital PCR, flow cytometry, cell imaging, and additional applications using well established laboratory techniques, as well as newer technologies such as bead encoded arrays, microfluidics, next generation DNA sequencing, microdroplets, spatial protein expression, and photolithographic arrays.

We compete with both established and development stage life science research companies that design, manufacture, and market instruments and consumables for gene expression analysis, single-cell targeted gene expression and protein expression analysis, SNP genotyping, quantitative polymerase chain reaction (qPCR), digital PCR, flow cytometry, cell imaging, and additional applications using well established laboratory techniques, as well as newer technologies such as bead encoded arrays, microfluidics, next-generation DNA sequencing (NGS), microdroplets, spatial protein expression, and photolithographic arrays.

Most of our current competitors have significantly greater name recognition, greater financial and human resources, broader product lines and product packages, larger sales forces, larger existing installed bases, larger intellectual property portfolios, and greater experience and scale in research and development, manufacturing, and marketing than we do.

We consider Illumina, Inc., Agilent Technologies, Inc., Thermo Fisher Scientific Inc.

We consider Agilent Technologies, Inc., Thermo Fisher Scientific Inc.

(Thermo), Bio-Rad Laboratories, Inc., NanoString Technologies, Inc.

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We believe that Cytek Biosciences, Inc.

and Becton, Dickinson and Company are currently our principal competitors in the mass cytometry markets, and that IonPath Inc., Akoya Biosciences, Inc., and NanoString are our principal competitors in imaging mass cytometry.

and Becton, Dickinson and Company are currently our principal competitors for our mass cytometry market share, and that IonPath Inc., Akoya Biosciences, Inc., NanoString, and 10x Genomics, Inc.

are our principal competitors for our Imaging Mass Cytometry™ market share.

While the aforementioned principal competitors are the largest and most prevalent in their representative technology areas, the combined markets in which we compete have an additional 10 to 20 smaller competitors with competing approaches and technologies that we routinely face in selling situations.

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In addition, mergers, consolidations, or other strategic transactions between two or more of our competitors, or between our competitor and one of our key customers, could change the competitive landscape and weaken our competitive position, adversely affecting our business.

If our research and product development efforts do not result in commercially viable products within anticipated timelines, if at all, our business and results of operations will be adversely affected.

Our business is dependent on the improvement of our existing products, our development of new products to serve existing markets, and our development of new products to create new markets and applications that were previously not practical with existing systems.

We intend to devote significant personnel and financial resources to research and development activities designed to advance the capabilities of our technology.

We have developed design rules for the implementation of our technology that are frequently revised to reflect new insights we have gained about the technology.

In addition, we have discovered that biological or chemical reactions sometimes behave differently when implemented on our systems rather than in a standard laboratory environment.

Furthermore, many such reactions take place within the confines of single cells, which have also demonstrated unexpected behavior when grown and manipulated within microfluidic environments.

As a result, research and development efforts may be required to transfer certain reactions and cell handling techniques to our systems.

In the past, product development projects have been significantly delayed when we encountered unanticipated difficulties in implementing a process on our systems.

We may have similar delays in the future, and we may not obtain any benefits from our research and development activities.

Any delay or failure by us to develop and release new products or product enhancements would have a substantial adverse effect on our business and results of operations.

Market opportunities may not develop as quickly as we expect, limiting our ability to successfully sell our products, or our product development and strategic plans may change and our entry into certain markets may be delayed, if it occurs at all.

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In addition, our product development and strategic plans may change, which could delay or impede our entry into these markets.

Our future success is dependent upon our ability to expand our customer base and introduce new applications.

Our customer base is primarily composed of academic research institutions, translational research and medicine centers, cancer centers, clinical research laboratories, biopharmaceutical, biotechnology, and plant and animal research companies, and contract research organizations that perform analyses for research and commercial purposes.

Our success will depend, in part, upon our ability to increase our market share among these customers, attract additional customers outside of these markets, and market new applications to existing and new customers as we develop such applications.

Attracting new customers and introducing new applications require substantial time and expense.

For example, it may be difficult to identify, engage, and market to customers who are unfamiliar with the current applications of our systems.

Any failure to expand our existing customer base or launch new applications would adversely affect our ability to increase our revenue.

If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.

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Compared to some competing technologies, our technology is relatively new, and most potential customers have limited knowledge of, or experience with, our products.

Prior to adopting our systems, some potential customers may need to devote time and effort to

testing and validating our systems.

Prior to adopting our systems, some potential customers may need to devote time and effort to testing and validating our systems.

Any failure of our systems to meet these customer benchmarks could result in customers choosing to retain their existing systems or to purchase systems other than ours, and revenue from the sale of legacy instruments that may have contributed significant revenue in prior periods may decrease.

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If we are unable to continue to induce leading researchers to use our systems, or if such researchers are unable to achieve and publish or present significant experimental results using our systems, acceptance and adoption of our systems will be slowed and our ability to increase our revenue would be adversely affected.

We may not be able to develop new products or enhance the capabilities of our existing systems to keep pace with rapidly changing technology and customer requirements, which could have a material adverse effect on our business, revenue, financial condition, and operating results.

Our success depends on our ability to develop new products and applications for our technology in existing and new markets, while improving the performance and cost-effectiveness of our systems.

New technologies, techniques, or products could emerge that might offer better combinations of price and performance than our current or future product lines and systems.

Existing markets for our products, including high-throughput genomics, single-cell genomics and mass cytometry, as well as potential markets for our products such as high-throughput NGS and molecular applications, are characterized by rapid technological change and innovation.

It is critical to our success for us to anticipate changes in technology and customer requirements and to successfully introduce new, enhanced, and competitive technology to meet our customers’ and prospective customers’ needs on a timely and cost-effective basis.

Developing and implementing new technologies will require us to incur substantial development costs and we may not have adequate resources available to be able to successfully introduce new applications of, or enhancements to, our systems.

We cannot guarantee that we will be able to maintain technological advantages over emerging technologies in the future.

While we typically plan improvements to our systems, we may not be able to successfully implement these improvements.

If we fail to keep pace with emerging technologies, demand for our systems

will not grow and may decline, and our business, revenue, financial condition, and operating results could suffer materially.

In addition, if we introduce enhanced systems but fail to manage product transitions effectively, customers may delay or forgo purchases of our systems and our operating results may be adversely affected by product obsolescence and excess inventory.

Even if we successfully implement some or all of these planned improvements, we cannot guarantee that our current and potential customers will find our enhanced systems to be an attractive alternative to existing technologies, including our current products.

Our business growth strategy involves the potential for significant acquisitions, and our operating results and prospects could be harmed if we are unable to integrate future acquisitions successfully.

We may acquire other businesses to improve our product offerings or expand into new markets.

Our future acquisition strategy will depend on our ability to identify, negotiate, complete, and integrate acquisitions and, if necessary, to obtain satisfactory debt or equity financing to fund those acquisitions.

Mergers and acquisitions are inherently risky, and any transaction we complete may not be successful.

Any merger or acquisition we may pursue would involve numerous risks, including but not limited to the following:

• difficulties in integrating and managing the operations, technologies, and products of the companies we acquire;

• diversion of our management’s attention from normal daily operation of our business;

• our inability to maintain the key business relationships and the reputations of the businesses we acquire;

• our inability to retain key personnel of the acquired company;

• uncertainty of entry into markets in which we have limited or no prior experience and in which competitors have stronger market positions;

• our dependence on unfamiliar affiliates and customers of the companies we acquire;

• insufficient revenue to offset our increased expenses associated with acquisitions;

• our responsibility for the liabilities of the businesses we acquire, including those which we may not anticipate;

• the possibility that we may not realize the value of acquired assets recorded as goodwill or intangible assets, and would be required to incur material charges relating to the impairment of those assets;

• our inability to maintain internal standards, controls, procedures, and policies.

We may be unable to secure the equity or debt funding necessary to finance future acquisitions on terms that are acceptable to us.

If we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders will likely experience dilution, and if we finance future acquisitions with debt funding, we will incur interest expense and may have to comply with financial covenants and secure that debt obligation with our assets.

Our efficiency and cost-savings initiatives could be disruptive to our operations and adversely affect our results of operations and financial condition.

From time to time, we have implemented efficiency and cost-savings initiatives intended to stabilize our business operations.

These efficiency initiatives have included targeted workforce reductions, optimizing our facilities, and reducing excess space.

In 2020, in response to the uncertainty arising from the COVID-19 pandemic, we initiated a range of additional actions aimed at temporarily reducing our operating expenses and preserving liquidity.

These actions included implementing temporary enterprise-wide salary reductions of 20% for employees at or above the ‘director’ level and 10% for all others, temporarily reducing our board members’ cash retainers by 20%, and constraining hiring.

Although we have discontinued our hiring constraints and pandemic-related pay reductions, actions such as these may be required in the future to preserve liquidity and optimize our organization.

For example, we may need to decrease or defer capital expenditures and development activities or implement further operating expense reduction measures.

The implementation of further efficiency and cost-savings initiatives could impair our ability to invest in developing, marketing and selling new and existing products, be disruptive to our operations, make it difficult to attract or retain employees, result in higher than anticipated charges, divert the attention of management, result in a loss of accumulated knowledge, impact our customer and supplier relationships, and otherwise adversely affect our results of operations and financial condition.

If we seek to implement a company-wide enterprise resource planning (ERP) system, such implementation could adversely affect our business and results of operations or the effectiveness of internal control over financial reporting.

We have considered implementing a company-wide ERP system to handle the business and financial processes within our operations and corporate functions.

ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities that can continue for several years.

ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system.

If we decide to implement a company-wide ERP system, our business and results of operations could be adversely affected if we experience operating problems and/or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that we expect.

If we do not effectively implement the ERP system as planned or if the system does not operate as intended, our business, results of operations, and internal controls over financial reporting could be adversely affected.

RISKS RELATED TO OPERATIONS AND RELIANCE ON THIRD PARTIES

We may experience development or manufacturing problems or delays that could limit the potential growth of our revenue or increase our losses.

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While all of our IFCs are produced using the same basic processes, significant variations may be required to ensure adequate yield of any particular type of IFC.

Developing such a process can be very time consuming, and any unexpected difficulty in doing so can delay the introduction of a product.

Developing such a process can be time consuming, and any unexpected difficulty in doing so can delay the introduction of a product.

If our manufacturing activities are adversely impacted, or if we are otherwise unable to keep up with demand for our products by successfully manufacturing, assembling, testing, and shipping our products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products.