What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-06 · 161 added, 132 removed, 455 unchanged (39% of the section changed)

33 unchanged sentences

Authorized 1,000,000 shares;

issued and outstanding 198,340 shares and 192,294 shares at March 31, 2021 and December 31, 2020, respectively

issued and outstanding 198,917 shares and 192,294 shares at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Accumulated deficit

5 unchanged sentences

PACIFIC BIOSCIENCES OF CALIFORNIA, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended March 31,

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share amounts)

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Other income, net

Net income (loss)

Other comprehensive income:

Other comprehensive income (loss):

Unrealized income (loss) on investments

Comprehensive income (loss)

Net income (loss) per share:

Weighted average shares outstanding used in computing net income (loss) per share

Comprehensive loss

Net loss per share:

Weighted average shares outstanding used in computing net loss per share

See accompanying notes to the condensed consolidated financial statements.

5 unchanged sentences

Income (Loss)

For the three months ended March 31, 2021

Balance at December 31, 2020

For the three months ended June 30, 2021

Balance at March 31, 2021

( 1,124,304 )

2 unchanged sentences

Stock-based compensation expense

Balance at June 30, 2021

( 1,165,305 )

For the three months ended June 30, 2020

Balance at March 31, 2020

( 1,065,010 )

For the three months ended March 31, 2020

Other comprehensive income

Issuance of common stock in conjunction with equity plans

Stock-based compensation expense

Balance at June 30, 2020

( 1,088,096 )

For the six months ended June 30, 2021

Balance at December 31, 2020

( 1,036,869 )

Other comprehensive loss

Issuance of common stock in conjunction with equity plans

Stock-based compensation expense

Balance at June 30, 2021

( 1,165,305 )

For the six months ended June 30, 2020

Balance at December 31, 2019

( 1,066,240 )

Other comprehensive income

2 unchanged sentences

Stock-based compensation expense

Balance at March 31, 2020

Balance at June 30, 2020

( 1,088,096 )

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

Loss (gain) from Continuation Advances

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Maturities of investments

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities

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On January 12, 2021 we entered into a multi-year Development and Commercialization Agreement (the “Development Agreement”) with Invitae Corporation (“Invitae”).

Pursuant to the Development Agreement, Invitae is providing certain funding to PacBio to enable PacBio to develop products relating to production-scale high-throughput sequencing (“Program Products”).

Pursuant to the Development Agreement, Invitae is providing certain funding to us to develop products relating to production-scale high-throughput sequencing (“Program Products”).

If and when Program Products become commercially available for sale, Invitae may purchase the Program Products.

In addition to selling the Program Products to Invitae, we will have the right to broadly commercialize Program Products for sale to other customers.

The funding Invitae will provide to PacBio will equal certain development costs incurred by PacBio in connection with the Program Products (“Program Development Costs”).

The funding Invitae will provide to us will equal certain development costs we incur in connection with the Program Products (“Program Development Costs”).

Under the Development Agreement, we will be responsible for conducting a program to develop the Program Products, and subsequently for manufacturing the Program Products.

We will make general decisions regarding the development program jointly with Invitae but PacBio is responsible for all research and development activities.

We will make general decisions regarding the development program jointly with Invitae but we are responsible for all research and development activities.

The entire development program is expected to last approximately sixty months , but may be shorter or longer.

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We and Invitae may terminate the Development Agreement if the other party remains in material breach of the Development Agreement following a cure period to remedy the material breach.

In addition, the Development Agreement includes certain other circumstances for termination by each party, including circumstances where Invitae may terminate for delays, IP concerns, PacBio’s change in control, or without cause.

In certain termination circumstances, (i) we will be obligated to refund all or a portion of the development costs advanced by Invitae and/or (ii) we will owe Invitae a share of the revenue that may be generated from the sale of the Program Products to third parties if and when they are commercialized, until such time as Invitae has recouped the amounts reimbursed to us, and in certain circumstances, a mutually agreed return.

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We determined that the primary benefit from the arrangement to Invitae is the ability to procure the Program Products during the Preferential Pricing Period at substantial discounts.

As we expect the Program Products to be available for Invitae to purchase in the future, we concluded the arrangement is within the scope of ASC Topic 606, Revenue from Contracts with Customers.

As we expect the Program Products to be available for Invitae to purchase in the future, we concluded the arrangement is within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

In addition, Invitae is not expected to substantially benefit from the intellectual property developed under the arrangement, or benefit from other goods or services during the development period.

It is also not a collaboration in the scope of ASC Topic 808 Collaborative Arrangements, as PacBio is responsible for performing the research and development activities.

It is also not a collaboration in the scope of ASC Topic 808 Collaborative Arrangements, as we are responsible for performing the research and development activities.

Accordingly, the amounts received by the Company from Invitae during the development period represent significant discounts toward future supplies of the Program Products during the Preferential Pricing Period, and will be accounted as material rights in accordance with ASC Topic 606 .

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All amounts received from Invitae will be initially deferred and accumulated in non-current deferred revenue.

We determined that a significant financing component exists in relation to the amounts received by Invitae during the development period and until the development is complete.

The resulting financing costs will be recognized by the Company over that period, with corresponding increases in deferred revenues.

As a result, future revenue attributable to the material rights will be increased by the same amount.

Costs incurred to develop the Program Products are considered research and development and are expensed as incurred.

As of June 30, 2021, we have $ 8.7 million of non-current deferred revenue on the Condensed Consolidated Balance Sheet related to payments received from Invitae.

Costs incurred to develop the Program Products are considered research and development costs and are expensed as incurred.

There are no origination or fulfilment costs related to the arrangement with Invitae that are eligible to be capitalized.

As of March 31, 2021, cumulative payments received from Invitae amounted to $ 4.1 million, and are included in “Deferred revenue, non-current” on the Condensed Consolidated Balance Sheet.

TERMINATION OF MERGER WITH ILLUMINA

On November 1, 2018, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Illumina, Inc.

(“Illumina”) and FC Ops Corp., a wholly owned subsidiary of Illumina (“Merger Subsidiary”).

On January 2, 2020, we, Illumina and Merger Subsidiary, entered into an agreement to terminate the Merger Agreement (the “Termination Agreement”).

On November 1, 2018, we entered into an Agreement and Plan of Merger (as amended, the “Illumina Merger Agreement”) with Illumina, Inc.

(“Illumina”) and FC Ops Corp., a wholly owned subsidiary of Illumina (“Illumina Merger Sub”).

On January 2, 2020, we, Illumina and Illumina Merger Sub, entered into an agreement to terminate the Merger Agreement (the “Termination Agreement”).

Continuation Advances from Illumina

As part of the Termination Agreement, Illumina paid us cash payments (“Continuation Advances”) of $ 18.0 million during the fourth quarter of 2019 and $ 34.0 million during the first quarter of 2020.

We recorded the $ 34.0 million as part of other income in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2020.

We recorded the $ 34.0 million as part of other income in the condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2020.

Up to the full $ 52.0 million of Continuation Advances paid to us were repayable without interest to Illumina if, within two years of March 31, 2020, we entered into, or consummated a Change of Control Transaction or raised at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

Resulting from the issuance and sale of $ 900 million of 1.50 % Convertible Senior Notes due February 15, 2028 , $ 52.0 million of Continuation Advances were paid 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 three months ended March 31, 2021.

Please refer to Note 4.

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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 results of operations for the three and six months ended June 30, 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.

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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.

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 regarding the Delta variant of COVID-19.

We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of June 30, 2021.

Use of Estimates

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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

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of June 30, 2021 and December 31, 2020 respectively:

June 30, 2021

December 31, 2020

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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.

In accordance with the terms of the Illumina Merger Agreement, we received financing from Illumina in the form of Continuation Advances of $ 18.0 million and $ 34.0 million during the fourth quarter of 2019 and the first quarter of 2020, respectively.

Illumina provided the Continuation Advances to support our working capital needs in light of the continued negative cash flows we incurred during the extended regulatory approval period for the merger and our need for additional capital to meet our debt repayment obligations and to fund our 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.

Termination of Merger with Illumina , the Illumina 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.

The fair value option was elected for the financial liability because management believes that among all measurement methods allowed by ASC Topic 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.

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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.

There was no further liability exposure for Continuation Advances as of June 30, 2021.

For the quarter ended June 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.

Net Income (Loss) per Share

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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,

Net income (loss)

Weighted average shares used in computing basic net income (loss) per share

Basic net income (loss) per share

Weighted average shares used in computing basic net income (loss) per share

weighted average stock options

weighted average restricted stock units

Weighted average shares used in computing diluted net income (loss) per share

Diluted net income (loss) per share

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.

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.

Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting.

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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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.

For the three and six months ended June 30, 2021, Gene Company Limited accounted for approximately 17 % and 14 %, respectively, of our total revenue during the period with no other customer exceeding 10% during those periods.

For the three and six months ended June 30, 2020, Gene Company Limited accounted for approximately 15 % and 11 %, 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

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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.

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.

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CASH, CASH EQUIVALENTS AND INVESTMENTS

The following tables summarize our cash, cash equivalents and investments as of March 31, 2021 and December 31, 2020 (in thousands):

As of March 31, 2021

The following tables summarize our cash, cash equivalents and investments as of June 30, 2021 and December 31, 2020 (in thousands):

As of June 30, 2021

Cash and cash equivalents:

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Commercial paper

government & agency securities

Total cash and cash equivalents

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Long-term restricted cash:

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of March 31, 2021 (in thousands):

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of June 30, 2021 (in thousands):

Due in one year or less

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Short-term restricted cash

As of March 31, 2021 and December 31, 2020, the short-term restricted cash balance of $ 0.8 million was comprised of $ 0.5 million of a customer deposit and $ 0.3 million of the security deposit for the credit cards for employees.

As of March 31, 2021 and December 31, 2020, our inventory consisted of the following components:

As of June 30, 2021, the short-term restricted cash balance of $ 0.3 million was comprised of a security deposit for the credit cards of employees.

As of December 31, 2020, the short-term restricted cash balance of $ 0.8 million was comprised of $ 0.5 million for a customer deposit and $ 0.3 million for the security deposit for the credit cards of employees.

As of June 30, 2021 and December 31, 2020, our inventory consisted of the following components:

(in thousands)

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For our facility located at 1305 O’Brien Drive, Menlo Park, California (the “O’Brien Lease”), we were required to establish a letter of credit for the benefit of the landlord and to submit $ 4.5 million as a deposit for the letter of credit in October 2015.

Subsequently, pursuant to the terms of the O’Brien Lease, on May 1, 2019, the amount of the letter of credit was reduced from $ 4.5 million to $ 4.0 million and in May 2020 was reduced to $ 3.5 million.

As such, $ 3.5 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020.

Subsequently, pursuant to the terms of the O’Brien Lease, beginning on May 1, 2019, the amount of the letter of credit was reduced by $ 0.5 million each year thereafter on May 1.

As such, $ 3.0 million and $ 3.5 million was recorded in long-term restricted cash in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, respectively.

Deferred revenue

As of March 31, 2021, we had a total of $ 15.3 million of deferred revenue, $ 9.6 million of which was recorded as “Deferred revenue, current” and primarily relates to our service contracts to be recognized over the next year and the remaining $ 5.7 million was recorded as “Deferred revenue, non-current.” Of the “Deferred revenue, non-current” balance, $ 1.6 million primarily relates to our service contracts and is scheduled to be recognized in the next 5 years, while $ 4.1 million relates to payments received under the Invitae collaboration described in Note 2.

Revenue recorded in the three months ended March 31, 2021 includes $ 3.1 million of previously deferred revenue that was included in “Deferred revenue, current” as of December 31, 2020.

Contract assets as of March 31, 2021 and December 31, 2020 were not material.

As of March 31, 2021, we had a total of $ 0.7 million of deferred commissions included in “Prepaid expenses and other current assets” which is recognized as the related revenue is recognized.

Additionally, as a practical expedient, we expense costs to obtain a contract as incurred if the amortization period would have been a year or less.

As of June 30, 2021, we had a total of $ 19.7 million of deferred revenue, $ 9.5 million of which was recorded as deferred revenue, current and primarily relates to our service contracts to be recognized over the next year and the remaining $ 10.2 million was recorded as deferred revenue, non-current.

Of the deferred revenue, non-current balance, $ 1.5 million primarily relates to our service contracts and is scheduled to be recognized in the next 5 years and $ 8.7 million relates to payments received under the Invitae collaboration described in Note 2.

Revenue recorded in the six months ended June 30, 2021 includes $ 5.5 million of previously deferred revenue that was included in deferred revenue, current as of December 31, 2020.

Contract assets as of June 30, 2021 and December 31, 2020 were not material.

As of June 30, 2021, we had a total of $ 0.7 million of deferred commissions included in prepaid expenses and other current assets which is recognized as sales, general and administrative expense as the related revenue is recognized.

Costs to obtain a contract are expensed as incurred if the amortization period would have been a year or less.

CONVERTIBLE SENIOR NOTES

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However, due to the nature and terms of the reporting obligations, the value of the embedded derivative is immaterial.

We incurred issuance costs related to the Notes of approximately $ 4.4 million, which were recorded as debt issuance cost and are presented as a reduction to the Notes on our Condensed Consolidated Balance Sheet and are amortized to interest expense using the effective interest method over the term of the Notes, resulting in an effective interest rate of 1.6 %.

As of March 31, 2021, the net carrying amount of the liability for the Notes is classified as a long-term liability in the “Convertible senior notes, net” line item in the Company’s Condensed Consolidated Balance Sheet as follows (in thousands):

We incurred issuance costs related to the Notes of approximately $ 4.5 million, which were recorded as debt issuance cost and are presented as a reduction to the Notes on our Condensed Consolidated Balance Sheets and are amortized to interest expense using the effective interest method over the term of the Notes, resulting in an effective interest rate of 1.6 %.

As of June 30, 2021, the net carrying amount of the liability for the Notes is recorded as convertible senior notes, net in the Condensed Consolidated Balance Sheets as follows (in thousands):

Principal amount

1 unchanged sentence

Net carrying amount

For the three months ended March 31, 2021, interest expense for the Notes was as follows (in thousands):

For the three and six months ended June 30, 2021, interest expense for the Notes was as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 2021

Contractual interest expense

1 unchanged sentence

Total interest expense

As of March 31, 2021, the estimated fair value (Level 2) of the Notes was $ 975.6 million.

As of June 30, 2021, the estimated fair value (Level 2) of the Notes was $ 1,014.3 million.

The fair value of the Notes is estimated using a pricing model that is primarily affected by the trading price of the Company’s common stock and market interest rates.

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On July 22, 2015, we entered into a lease agreement with respect to our facility located at 1305 O’Brien Drive, Menlo Park, California.

The term of the O’Brien Lease is one hundred thirty-two ( 132 ) months.

The term of the O’Brien Lease is 11 years.

In December 2016, we entered into an amendment to the O’Brien Lease which defined the commencement date of the lease to be October 25, 2016, notwithstanding that such substantial completion did not occur until the first quarter of 2017.

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We were required to establish a letter of credit for the benefit of the landlord and to submit $ 4.5 million as a deposit for the letter of credit in October 2015.

Subsequently, pursuant to the terms of the O’Brien Lease, on May 1, 2019 the $ 4.5 million in restricted cash was reduced to $ 4.0 million and on May 1, 2020 the $ 4.0 million in restricted cash was reduced to $ 3.5 million.

All of our leases are operating leases.

Operating lease assets and liabilities are reflected within “Operating lease right-of-use assets, net”, “Operating lease liabilities, current” and “Operating lease liabilities, non-current” on the condensed consolidated balance sheets.

These assets and liabilities are recognized at the commencement date based on the present value of remaining minimum lease payments over the lease term using our estimated secured incremental borrowing rates.

Subsequently, pursuant to the terms of the O’Brien Lease, the $ 4.5 million in restricted cash has gradually been reduced to $ 3.0 million.

Operating lease right-of-use assets and liabilities on our Condensed Consolidated Balance Sheets represent the present value of remaining minimum lease payments over the remaining lease term using our estimated secured incremental borrowing rates at the commencement date.

Lease payments included in the measurement of the lease liability comprise the base rent per the term of the Lease.

Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments, such as common area maintenance fees, recognized in the period those payments are incurred.

Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments, such as common area maintenance fees, recognized in the period incurred.

We often have options to renew lease terms for buildings.

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We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors.

The weighted average remaining lease term for our operating leases as of March 31, 2021 was 6.6 years.

The discount rate implicit within our leases is generally not determinable and therefore we determine the discount rate based on our incremental borrowing rate.

The incremental borrowing rate for our leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral.

The weighted average discount rate used to measure our operating lease liabilities as of March 31, 2021 was 7.9 %.

The following table presents information as to the amount and timing of cash flows arising from our operating leases as of March 31, 2021:

The weighted average remaining lease term for our operating leases as of June 30, 2021 was 6.3 years.

We use our incremental borrowing rate to determine the present value of lease payments, as the implicit rates in our leases are not readily determinable.

The weighted average discount rate used to measure our operating lease liabilities was 7.8 %.

The following table presents information as to the amount and timing of cash flows arising from our operating leases as of June 30, 2021:

Maturity of Lease Liabilities

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Total operating lease liabilities

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million for the three months ended March 31, 2021 and included in operating cash flow.

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million and $ 3.7 million, respectively, for the three and six months ended June 30, 2021 and included in operating cash flow.

Operating Lease Costs

Operating lease costs were $ 1.6 million for both the three months ended March 31, 2021 and 2020, primarily related to our operating leases, but also included immaterial amounts for variable leases.

Operating lease costs were $ 1.6 million and $ 3.1 million, respectively, for the three and six months ended June 30 of both 2021 and 2020.

Contingencies

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The jury declined to find valid or infringed U.S.

We are pursuing an appeal of the decision at the U.S.

Court of Appeals for the Federal Circuit.

Our appeal of the decision to the U.S.

Court of Appeals for the Federal Circuit was denied on May 11, 2021.

Unrelated to the preceding matters, on September 26, 2019, Personal Genomics of Taiwan, Inc.

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On November 20, 2019, we filed our answer to the complaint, denying infringement and seeking a declaratory judgement of invalidity of the ‘441 Patent.

On June 22, 2020, we filed a petition requesting institution of an inter-partes review (IPR) to the Patent Trial and Appeals Board (the “Board”) at the United States Patent Office requesting the Board to find a set of claims in the ‘441 invalid.

On June 27, 2020, we filed a second petition requesting institution of an IPR requesting the Board to find another set of claims in the ‘441 invalid.

On June 27, 2020, we filed a second petition requesting institution of an IPR requesting the Board to find another set of claims in the ‘441 Patent invalid.

The two petitions (the “PacBio IPR Petitions”) requesting IPRs assert that all of the claims relevant to the PGI complaint are invalid.

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A hearing in the invalidation proceeding at the CNIPA was held on April 29, 2021.

The CNIPA has not yet issued a ruling on the Invalidation Petition.

Other Proceedings

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To the extent that any such indemnification obligations apply to the lawsuits described above, any associated expenses incurred are included within the related accrued litigation expense amounts.

No additional liability associated with such indemnification obligations has been recorded as of March 31, 2021.

No additional liability associated with such indemnification obligations has been recorded as of June 30, 2021.

STOCKHOLDERS’ EQUITY

At March 31, 2020, in total, we had three active equity compensation plans:

At March 31, 2020, we had three active equity compensation plans:

the 2010 Equity Incentive Plan (“2010 Plan”), the 2010 Outside Director Equity Incentive Plan (“2010 Director Plan”) and the 2010 Employee Stock Purchase Plan (“ESPP”).

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Stock Options

The following table summarizes stock option activity for all our stock option plans for the three months ended March 31, 2021 (in thousands, except per share amounts):

The following table summarizes stock option activity for all our stock option plans for the six months ended June 30, 2021 (in thousands, except per share amounts):

Stock Options Outstanding

1 unchanged sentence

exercise price

Balances, December 31, 2020

Options granted

Outstanding at December 31, 2020

23.39 – 46.37

Options exercised

Options canceled

Balances, March 31, 2021

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 2.5 million related to options.

Outstanding at June 30, 2021

For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of $ 3.4 million and $ 5.9 million, respectively, related to options.

Restricted Stock Units (“RSUs”)

Time-based RSUs

The following table summarizes the time-based RSUs activity for the three months ended March 31, 2021 (in thousands, except per share amounts):

The following table summarizes the time-based RSUs activity for the six months ended June 30, 2021 (in thousands, except per share amounts):

Weighted average

RSUs outstanding at December 31, 2020

RSUs released

RSUs forfeited

Unvested RSUs outstanding at March 31, 2021

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 5.0 million related to time-based RSUs.

Outstanding at December 31, 2020

Outstanding at June 30, 2021

For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of $ 6.8 million and $ 11.9 million, respectively, for time-based RSUs.

Performance-based RSUs

The following table summarizes the performance-based RSUs (“PSUs”) activity for the three months ended March 31, 2021 (in thousands, except per share amounts):

The following table summarizes the performance-based RSUs (“PSUs”) activity for the six months ended June 30, 2021 (in thousands, except per share amounts):

Weighted average

PSUs outstanding at December 31, 2020

PSUs released

PSUs forfeited

Unvested PSUs outstanding at March 31, 2021

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 0 related to the performance-based RSUs.

As of March 31, 2021, we had a total of 6.7 million shares of common stock available for future issuance under the 2020 Plan and the Inducement Plan.

Shares issued under our ESPP were 983,180 and none during the three months ended March 31, 2021 and 2020, respectively.

Outstanding at December 31, 2020

Outstanding at June 30, 2021

For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of $ 0 for the performance-based RSUs.

As of June 30, 2021, we had a total of 5.8 million shares of common stock available for future issuance under the 2020 Plan and the Inducement Plan.

Employee Stock Purchase Plan (“ESPP”)

Shares issued under our ESPP were 983,180 and none during the six months ended June 30, 2021 and 2020, respectively.

In January 2021, an additional 3.8 million shares were reserved under the ESPP.

As of March 31, 2021, 8,741,461 shares of our common stock remain available for issuance under our ESPP.

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 2.5 million related to the ESPP shares.

As of June 30, 2021, 8,741,461 shares of our common stock remain available for issuance under our ESPP.

For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of $ 5.5 million and $ 8.0 million, respectively, for the ESPP.

Stock-Based Compensation

The following table summarizes the stock-based compensation expense for the three months ended March 31, 2021 and 2020, respectively (in thousands):

Three Months Ended March 31,

The following table summarizes stock-based compensation expense (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue

2 unchanged sentences

Total stock-based compensation expense

W e estimated the fair value of employee stock options on the grant date using the Black-Scholes option pricing model.

W e estimate the fair value of employee stock options on the grant date using the Black-Scholes option pricing model.

The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards.

The fair value of shares to be purchased under our stock options was estimated using the following assumptions:

Three Months Ended March 31,

The assumptions used for the specified periods and the resulting estimates of weighted-average fair value per share for shares to be issued upon exercise of our stock options were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Expected term in years

1 unchanged sentence

Risk-free interest rate

0.50 % - 0.74 %

Dividend yield

Weighted average grant date fair value per share

We estimate the value of employee stock purchase rights on the grant date using the Black-Scholes option pricing model.

The fair value of shares to be purchased under our ESPP was estimated using the following assumptions:

Three Months Ended March 31,

The assumptions used for the specified reporting periods and the resulting estimates of weighted-average fair value per share for stock to be issued under the ESPP were as follows:

Six Months Ended June 30,

Expected term in years

4 unchanged sentences

Dividend yield

A summary of our revenue by geographic location for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

Three Months Ended March 31,

Weighted average fair value per share

A summary of our revenue by geographic location for the three and six months ended June 30, 2021 and 2020 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

North America

Europe (including the Middle East and Africa)

A summary of our revenue by category for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

Three Months Ended March 31,

A summary of our revenue by category for the three and six months ended June 30, 2021 and 2020 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

4 unchanged sentences

Total revenue

SUBSEQUENT EVENTS

Acquisition of Omniome, Inc.

On July 19, 2021, we entered into an Agreement and Plan of Merger and Plan of Reorganization (the “Omniome Merger Agreement”) with Omniome, Inc.

(“Omniome”), Apollo Acquisition Corp, a wholly owned subsidiary of ours (“Omniome Merger Sub I”), Apollo Acquisition Sub, LLC, a wholly owned subsidiary of ours (“Omniome Merger Sub II” and together with Omniome Merger Sub I, the “Omniome Merger Subs”), and Shareholder Representative Services, LLC, as securityholder representative.

Omniome is a San Diego-based company developing a highly differentiated, proprietary short-read DNA sequencing platform capable of delivering high accuracy.

Pursuant to the Omniome Merger Agreement, we agreed to acquire all of the outstanding equity interests of Omniome, with Omniome becoming a wholly owned subsidiary of ours (the “Omniome Merger”).

Omniome’s stockholders approved the Omniome Merger.

No approval of our stockholders is required to consummate the Omniome Merger.

Subject to the terms and conditions of the Omniome Merger Agreement, at the effective time of the Omniome Merger, holders of Omniome’s outstanding equity interests will be entitled to receive approximately $ 600 million (composed of approximately 9.4 million shares of our common stock and $ 300 million in cash).

Subject to the terms of the Omniome Merger Agreement and the achievement of a specified milestone, holders of Omniome’s outstanding equity interests will also be entitled to receive $ 200 million (composed of $ 100 million in cash and the rest in shares of our common stock).

All amounts are subject to adjustment as specified in the Omniome Merger Agreement.

As part of the Merger, we will assume certain of Omniome’s unvested stock options.

Pursuant to the Omniome Merger Agreement, we will be required to register the equity portion of the merger consideration for resale with the SEC following the closing of the Merger.

The closing of the Omniome Merger is subject to the satisfaction of customary conditions, including, among others:

(1) the accuracy of representations and warranties of, and performance of covenants by, the other party (in each case, subject to certain qualifications, if applicable), (2) the absence of a continuing material adverse effect, (3) the absence of any law or order restraining, enjoining or otherwise prohibiting the Omniome Merger;

and (4) the expiration or termination of the waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The Company, Omniome, and the Omniome Merger Subs have made customary representations, warranties, and covenants in the Omniome Merger Agreement, including, among other things, covenants with respect to the conduct of Omniome’s business during the period between the execution of the Omniome Merger Agreement and consummation of the Omniome Merger.

The Omniome Merger Agreement contains customary termination rights for both the Company and Omniome including, but not limited to, (1) in the event that the Omniome Merger has not been consummated on or prior to December 16, 2021, (2) the parties’ mutual written agreement to terminate the Omniome Merger Agreement, or (3) a material breach by one party, which breach cannot be cured within 20 calendar days, entitling the non-breaching party to not consummate its closing conditions under the Omniome Merger Agreement.

Private Placement

On July 19, 2021, we entered into a securities purchase agreement with certain qualified institutional buyers and institutional accredited investors, pursuant to which we agreed to sell to the investors an aggregate of 11,214,953 shares of our common stock, at a price of $ 26.75 per share, for aggregate gross proceeds of approximately $ 300 million (the “Private Placement”).

The closing of the Private Placement is conditioned upon, among other customary closing conditions, the closing of the Omniome Merger.

In connection with the Private Placement, on July 19, 2021, we entered into a Registration Rights Agreement with the Private Placement investors, providing them, among other things, certain registration rights, including our obligation to register the Private Placement shares for resale with the SEC within 30 days following the closing of the Private Placement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements