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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 130 added, 55 removed, 163 unchanged (53% of the section changed)

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You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q and those in our Annual Report on Form 10-K for the year ended December 31, 2020.

Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including statements related to our expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, and information with respect to our products, plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods.

Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including statements related to our expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, expectations regarding sales of products in future periods that reflect increased commercial presence and customer demand, expectations regarding the impact of the Circulomics acquisition and Omniome transaction, and information with respect to our products, plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods.

The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

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Barnes who retired on August 7, 2020.

Our Vice President and Chief Accounting Officer Eric E.

Schaefer was appointed effective May 26, 2020, and our Chairman of the Board Dr.

Our Chairman of the Board Dr.

Milligan was appointed effective September 14, 2020.

On December 31, 2020, the Board of Directors appointed Mark Van Oene to the role of Chief Operating Officer and designated him as the Company’s principal operating officer, and appointed Peter Fromen to the role of Chief Commercial Officer, effective in each case upon his commencement of employment with the Company on January 8, 2021.

Our Vice President and Chief Accounting Officer, Michele Farmer, was appointed effective May 17, 2021.

2021 Strategic Objectives

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In association with the collaboration we entered into with Invitae Corporation (“Invitae”) in January 2021, as described below, we plan to develop a new platform with production-scale high-throughput capability, which will be in addition to other new products we already have in development.

In order to develop these multiple products in parallel, we significantly increasing our Research and Development headcount.

In order to develop these multiple products in parallel, we are significantly increasing our Research and Development headcount.

In addition, we expect to increase our spending on outside development costs.

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We will continue to pursue additional partnerships to further drive the adoption of whole-genome clinical sequencing.

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.

Invitae Collaboration

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”).

If and when Program Products become commercially available for sale, Invitae may purchase the Program Products, which are expected to provide it with the ability to leverage the power of PacBio’s highly accurate HiFi sequencing to expand its whole genome testing capabilities.

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

Subject to completion of the Omniome Merger, we intend to expand the Development Agreement to include the sequencing technology developed by Omniome.

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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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.

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 and are expensed as incurred.

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There can be no assurances that the development program will be successful or that the Program Products will become ready for commercial sale.

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.

COVID-19 Update

The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide, including in the regions in which we sell our products and services and conduct our business operations.

A significant number of our customer sites that had shut down due to COVID-19 have now re-opened.

A significant number of customers had to delay purchases or had difficulties obtaining funding for capital expenditures due to the negative impact of the pandemic on their businesses.

A significant number of our customer sites that shut down due to COVID-19 have now re-opened.

A significant number of customers delayed purchases or had difficulties obtaining funding for capital expenditures due to the negative impact of the pandemic on their businesses.

Due to the uncertain scope and duration of the pandemic, we cannot reasonably estimate the future impact to our operations and financial results.

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To aid in containing the spread of COVID-19, we have implemented remote-work options and are limiting employee travel as much as possible.

We are monitoring this rapidly evolving situation.

We are monitoring this rapidly evolving situation, including regarding the Delta variant of COVID-19.

Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

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Results of Operations

Comparison of the three months ended March 31, 2021 and 2020

Three Months Ended March 31,

Comparison of the three months ended June 30, 2021 and 2020

Three Months Ended June 30,

(in thousands, except percentages)

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Operating loss

Gain (loss) from Continuation Advances

Interest expense

Other income, net

Net income (loss)

Total revenue for the three months ended March 31, 2021 was $29.0 million compared to $15.6 million for the same period during 2020.

Product revenue of $25.3 million for the three months ended March 31, 2021 consisted primarily of $14.9 million from instrument revenue and $10.4 million from consumables revenue, compared to total product revenue of $12.3 million for the same period during 2020, consisting of $4.0 million from instrument revenue and $8.3 million of consumables revenue.

The increase in instrument sales was primarily attributable to a higher number of instrument shipments and installations.

The increase in consumable sales was primarily attributable to higher Sequel II consumables sales as the installed base of Sequel II systems has grown.

Service and other revenue of $3.7 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively, was primarily derived from product maintenance agreements sold on our installed instruments.

Gross profit for the three months ended March 31, 2021 was $13.0 million, resulting in a gross margin of 44.8%, compared to gross profit of $7.5 million for the same period during 2020, resulting in a gross margin of 48.0%.

From time to time, we may experience lower manufacturing yields and potential supply constraints which could have a material impact on our gross margins.

Cost of product revenue was $12.7 million for the three months ended March 31, 2021, compared to cost of product revenue of $5.4 million for the same period during 2020.

Total revenue for the three months ended June 30, 2021 was $30.6 million compared to $17.1 million for the same period during 2020.

Product revenue of $26.5 million for the three months ended June 30, 2021 consisted of approximately $14.3 million from instrument revenue and $12.2 million from consumables revenue, compared to total product revenue of $13.8 million for the same period during 2020, consisting of approximately $8.9 million from instrument revenue and $4.9 million of consumables revenue.

The increase in instrument sales was primarily attributable to a higher number of instrument shipments and installations, as we placed 38 Sequel II/IIe systems during the three months ended June 30, 2021 compared to 23 for the same period of 2020.

We expect the number of Sequel II/IIe placements to continue to grow during the second half of 2021 relative to the first half, reflecting our increased commercial presence and customer demand.

The increase in consumable sales was primarily attributable to higher Sequel II/IIe consumables sales as the installed base of Sequel II/IIe systems has grown, as well as lower utilization of the installed base of instruments due to the impact of the COVID-19 pandemic during the three months ended June 30, 2020.

Service and other revenue of $4.1 million and $3.3 million for the three months ended June 30, 2021 and 2020, respectively, was primarily derived from product maintenance agreements sold on our installed instruments.

Service revenue has grown as our installed base of Sequel II/IIe systems has grown.

Gross profit for the three months ended June 30, 2021 was $13.8 million, resulting in a gross margin of 44.9%, compared to gross profit of $6.6 million for the same period during 2020, resulting in a gross margin of 38.7%.

The improved gross margin percentage was primarily due to higher volumes and increased factory utilization during the three months ended June 30, 2021, compared to the same period of 2020.

Cost of product revenue was $13.2 million for the three months ended June 30, 2021, compared to $8.2 million for the same period during 2020.

The increase of $5.0 million in cost of product revenue was primarily due to increased product shipments as described above.

Cost of service and other revenue for the three months ended March 31, 2021 increased to $3.3 million, compared to $2.7 million for the same period during 2020, due primarily to higher service volumes and increased stock-based compensation expense.

Cost of service and other revenue for the three months ended June 30, 2021 increased to $3.6 million, compared to $2.2 million for the same period during 2020, due primarily to higher service volumes and increased stock-based compensation expense.

Research and Development Expense

During the three months ended March 31, 2021, research and development expense increased by $5.3 million, or 35%, compared to the same period during 2020.

The increase in research and development expense was primarily driven by an increase of $3.3 million in compensation expenses and an increase of $1.6 million in product development costs.

Research and development expense included stock-based compensation expense of $3.0 million and $1.8 million during the three months ended March 31, 2021 and 2020, respectively.

During the three months ended June 30, 2021, research and development expense increased by $7.3 million, or 48%, compared to the same period during 2020.

The increase in research and development expense was primarily driven by an increase of $4.0 million in compensation expenses due primarily to planned personnel additions during 2021, and an increase of $2.4 million in product development costs.

Research and development expense included stock-based compensation expense of $4.3 million and $1.4 million during the three months ended June 30, 2021 and 2020, respectively.

We expect research and development expenses to increase significantly in 2021, as we intend to hire a significant number of additional personnel in research and development.

We estimate costs associated with the Invitae collaboration to total between $20 million and $25 million for 2021.

Stock-based compensation included in research and development expense is expected to increase significantly in 2021.

Research and development costs will also significantly increase following the closing of the Omniome Merger.

Sales, General and Administrative Expense

During the three months ended March 31, 2021, sales, general and administrative expense increased by $1.2 million, or 5%, compared to the same period during 2020.

The increase in sales, general and administrative expense was primarily attributable to an $11.5 million increase in compensation expense for the three months ended March 31, 2021 compared to the same period of 2020, partially offset by a $6.0 million financial advisory fee during the three months ended March 31, 2020 related to the terminated merger with Illumina and $4.1 million in lower legal and other professional expenses during the three months ended March 31, 2021 compared to the same period of 2020.

The increase in compensation expense is primarily attributable to executive hiring related to our senior management transitions during the second half of 2020 and early 2021, as well as higher payroll tax expenses associated with stock option exercises and restricted stock units vesting during the three months ended March 31, 2021.

Sa les, general and administrative expense included stock-based compensation expense of $6.1 million and $1.7 million during the three months ended March 31, 2021 and 2020, respectively.

During the three months ended June 30, 2021, sales, general and administrative expense increased by $13.9 million, or 92%, compared to the same period during 2020.

The increase in sales, general and administrative expense was primarily attributable to a $12.1 million increase in compensation expense and a $0.9 million increase in legal and other professional expenses during the three months ended June 30, 2021 compared to the same period of 2020.

The increase in compensation expense is primarily attributable to executive hiring related to senior management transitions during the second half of 2020 and early 2021, as well as planned personnel additions as we execute on our plan to more than double quota-carrying sales representatives during 2021.

During the three months ended June 30, 2021, we added 11 quota-carrying sales representatives, bringing the total to 39.

Sa les, general and administrative expense included stock-based compensation expense of $9.6 million and $1.3 million during the three months ended June 30, 2021 and 2020, respectively.

Sales, general and administrative expense is planned to increase significantly in 2021, as we expect to more than double our quota-carrying sales representatives, increase headcount as part of our business expansion and incur incremental costs in connection with the planned acquisition of Omniome.

Stock-based compensation included in sales, general, and administrative expense is expected to increase significantly in 2021.

Interest Expense

Interest expense for the three months ended June 30, 2021 was $3.6 million compared to none in the same period in 2020, due to interest incurred on the $900 million of 1.50% Convertible Senior Notes that were issued on February 16, 2021.

Comparison of the six months ended June 30, 2021 and 2020

Six Months Ended June 30,

(in thousands, except percentages)

Product revenue

Service and other revenue

Total revenue

Cost of Revenue:

Cost of product revenue

Cost of service and other revenue

Total cost of revenue

Operating Expense:

Research and development

Sales, general and administrative

Total operating expense

Operating loss

Gain (loss) from Continuation Advances from Illumina

Interest expense

Other income, net

Total revenue for the six months ended June 30, 2021 was $59.6 million, compared to $32.7 million for the same period during 2020.

Product revenue of $51.8 million for the six months ended June 30, 2021 consisted of approximately $29.2 million from instrument revenue and $22.6 million from consumables revenue, compared to total product revenue of $26.0 million for the same period during 2020, consisting of approximately $13.0 million from instrument revenue and $13.0 million of consumables revenue.

The increase in instrument sales was primarily attributable to a higher number of instrument shipments and installations, as we placed 79 Sequel II/IIe systems during the six months ended June 30, 2021 compared to 34 for the same period of 2020.

We expect the number of Sequel II/IIe placements to continue to grow during the second half of 2021 relative to the first half, reflecting our increased commercial presence and customer demand.

Service and other revenue of $7.8 million and $6.6 million for the six months ended June 30, 2021 and 2020, respectively, was primarily derived from instrument maintenance agreements.

Gross profit for the six-month period ended June 30, 2021 was $26.7 million, resulting in a gross margin of 44.8%, compared to gross profit of $14.1 million, resulting in a gross margin of 43.2% for the same period during 2020.

The improved gross margin percentage was primarily due to higher volumes and increased factory utilization during the six months ended June 30, 2021, compared to the same period of 2020.

Cost of product revenue was $25.9 million for the six months ended June 30, 2021, compared to cost of product revenue of $13.6 million for the same period during 2020.

The increase of $12.2 million in cost of product revenue was primarily due to increased product shipments as described above.

Cost of service and other revenue for the six-month period ended June 30, 2021 increased to $7.0 million, compared to $4.9 million for the same period during 2020, due primarily to higher service volumes and increased stock-based compensation expense.

Research and Development Expense

During the six months ended June 30, 2021, research and development expense increased by $12.6 million, or 41%, compared to the same period during 2020.

The increase in research and development expense was primarily driven by an increase of $7.3 million in compensation expenses due primarily to planned personnel additions during 2021, and an increase of $4.0 million in product development costs.

Research and development expense included stock-based compensation expense of $7.4 million and $3.2 million during the six months ended June 30, 2021 and 2020, respectively.

We expect research and development expenses to increase significantly in 2021, as we intend to hire a significant number of additional personnel in research and development.

We estimate costs associated with the Invitae collaboration to total between $20 million and $25 million for 2021.

Stock-based compensation included in research and development expense is expected to increase significantly in 2021.

Research and development costs will also significantly increase following the closing of the Omniome Merger.

Sales, General and Administrative Expense

During the six months ended June 30, 2021, sales, general and administrative expense increased by $15.1 million, or 38%, compared to the same period during 2020.

The increase in sales, general and administrative expense was primarily attributable to an increase of $23.6 million in compensation expense, partially offset by a $6.0 million financial advisory fee during the six months ended June 30, 2020 related to the terminated merger with Illumina and $3.1 million in lower legal and other professional expenses during the six months ended June 30, 2021 compared to the same period of 2020.

During the six months ended June 30, 2021, we added 17 quota-carrying sales representatives, bringing the total to 39.

Sales, general and administrative expense included stock-based compensation expense of $15.7 million and $3.1 million during the six-month periods ended June 30, 2021 and 2020, respectively.

Stock-based compensation included in sales, general, and administrative expense is expected to increase significantly in 2021.

Gain (loss) from Continuation Advances from Illumina

As part of the Termination Agreement, Illumina paid us 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.

Interest Expense

Interest expense for the three months ended March 31, 2021 increased $1.5 million compared to the same period in 2020, primarily due to interest incurred on the $900 million of 1.50% Convertible Senior Notes that were issued February 16, 2021.

Interest expense for the six m onths ended June 30, 2021 increased by $5.1 million compared to the same period in 2020, primarily due to interest incurred on the $900 million of 1.50% Convertible Senior Notes that were issued February 16, 2021.

Liquidity and Capital Resources

Cash, cash equivalents and investments at March 31, 2021 totaled $1.16 billion, compared to $318.8 million at December 31, 2020.

Cash, cash equivalents and investments at June 30, 2021 totaled $1.14 billion, compared to $318.8 million at December 31, 2020.

The increase was attributable to the net proceeds from our issuance of $900 million of 1.50% Convertible Senior Notes on February 16, 2021, partially offset by the repayment of $52 million of Continuation Advances to Illumina in the first quarter of 2021.

We have historically incurred, and expect to continue to incur, operating losses and generate negative cash flows from operations on an annual basis due to the investments we intend to make as described above, and as a result, we may require additional capital resources to execute on our strategic initiatives to grow our business.

We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements for at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.

For example, on July 19, 2021, we entered into a purchase agreement for approximately $300 million of shares of our common stock, conditioned upon, among other customary closing conditions, the closing of the Omniome Merger.

Factors that may affect our capital needs include, but are not limited to, the pace of adoption of our products which affects the sales of our products and services;

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costs of developing new and enhanced products;

acquisitions of complementary businesses, technologies or assets;

and other factors.

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Our primary uses of cash in operating activities are for the development of ongoing product enhancements and future products, manufacturing, and support functions related to our sales, general and administrative activities.

We had $23.1 million of cash used in operating activities for the three months ended March 31, 2021, compared to cash provided by operating activities of $75.4 million for the same period in 2020.

Cash used in operating activities for the three months ended March 31, 2021 was due primarily to $87.4 million net loss, partially offset by a loss of $52.0 million from Continuation Advances repaid to Illumina that is considered a financing activity and non-cash items such as stock-based compensation of $10.2 million and depreciation of $1.6 million.

The change in net operating assets and liabilities was primarily attributable to decreases of $3.0 million in other liabilities and $2.7 million in accrued expenses and an increase of $2.6 million in inventory, partially offset by a decrease of $3.9 million in accounts receivable and an increase of $5.0 million in deferred revenue.

Cash provided by operating activities for the three months ended March 31, 2020 was due to the $98.0 million Reverse Termination Fee received from Illumina and a net income of $1.3 million plus changes in net operating assets and liabilities, offset by a gain from Continuation Advances from Illumina of $34.0 million that is considered to be a financing activity, and non-cash items such as stock-based compensation of $4.0 million and depreciation of $1.7 million.

The change in net operating assets and liabilities was primarily attributable to a decrease of $7.9 million in accounts receivable and an increase of accrued liabilities of $4.7 million, partially offset by a decrease of $4.1 million in accounts payable and an increase of $3.3 million in inventory.

We had $38.8 million of cash used in operating activities for the six months ended June 30, 2021, compared to cash provided by operating activities of $51.6 million for the same period in 2020.

Cash used in operating activities for the six months ended June 30, 2021 was due primarily to a $128.4 million net loss, partially offset by a loss of $52.0 million from Continuation Advances repaid to Illumina that is considered a financing activity, non-cash items such as stock-based compensation of $26.0 million and depreciation of $3.2 million and a net change in operating assets and liabilities of $4.9 million.

The change in net operating assets and liabilities was primarily attributable to increases of $9.4 million in deferred revenue and $5.6 million in accrued expenses, partially offset by increases of $5.0 million in inventory and $3.1 million in accounts receivable and a decrease of $2.1 million in operating lease liabilities.

Cash provided by operating activities for the six months ended June 30, 2020 was due to the $98.0 million Reverse Termination Fee received from Illumina, non-cash items such as stock-based compensation of $7.3 million and depreciation of $3.2 million, partially offset by a net loss of $21.8 million and a gain from Continuation Advances from Illumina of $34.0 million, which is considered to be a financing activity.

The change in net operating assets and liabilities was primarily attributed to a decrease of $3.9 million in accounts receivable, an increase of other liabilities of 2.0 million primarily relating to employee contributions for the Employee Stock Purchase Plan, partially offset by an increase of $3.8 million in inventory.

Investing Activities

Our investing activities consist primarily of capital expenditures and investment purchases, sales and maturities.

We received $8.2 million of cash from investing activities for the three months ended March 31, 2021, compared to using cash of $54.3 million for investing activities for the same period in 2020.

Cash provided by investing activities for the three months ended March 31, 2021 was due primarily to net sales and maturities of investments of $8.6 million, partially offset by purchases of property and equipment of $0.4 million.

Cash used in investing activities for the three months ended March 31, 2020 was due primarily to net purchases of investments of $54.2 million and purchases of property and equipment of $0.1 million.

We used $452.6 million of cash for investing activities for the six months ended June 30, 2021, compared to $57.2 million for the same period in 2020.

Cash used in investing activities for the six months ended June 30, 2021 was due primarily to net purchases of investments of $450.7 million and purchases of property and equipment of $2.0 million.

Cash used in investing activities for the six months ended June 30, 2020 was due primarily to net purchases of investments of $56.8 million and purchases of property and equipment of $0.4 million.

Financing Activities

Cash provided from financing activities was $865.7 million and $18.2 million for the three months ended March 31, 2021 and 2020, respectively.

Cash provided by financing activities during the three months ended March 31, 2021 resulted from the net proceeds of $895.6 million from our February 2021 issuance of $900 million of 1.50% Convertible Senior Notes after deducting debt issuance costs and proceeds of $22.3 million from the issuance of common stock through our equity compensation plans, partially offset by $52.0 million of Continuation Advances repaid to Illumina.

Cash provided by financing activities during the three months ended March 31, 2020 was due to $34.0 million of Continuation Advances from Illumina and proceeds of $0.2 million from the issuance of common stock through our equity compensation plans, partially offset by $16.0 million we repaid for the remaining outstanding principal upon the maturity of a credit facility agreement.

Cash provided by financing activities was $868.6 million and $18.8 million for the six months ended June 30, 2021 and 2020, respectively.

Cash provided by financing activities during the six months ended June 30, 2021 resulted from the net proceeds of $895.5 million from our February 2021 issuance of $900 million of 1.50% Convertible Senior Notes after deducting debt issuance costs and proceeds of $25.3 million from the issuance of common stock through our equity compensation plans, partially offset by $52.0 million of Continuation Advances repaid to Illumina.

Cash provided by financing activities during the six months ended June 30, 2020 was due to $34.0 million of Continuation Advances received from Illumina and proceeds of $0.8 million from the issuance of common stock through our equity compensation plans, partially offset by $16.0 million we repaid for the remaining outstanding principal upon the maturity of a credit facility agreement.

Private Placement of Common Stock

On July 19, 2021, 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 closing is conditioned upon, among other customary closing conditions, the closing of the Omniome Merger.

Issuance and Sale of 1.50% Convertible Senior Notes due February 15, 2028

14 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet arrangements.

As of June 30, 2021, we did not have any off-balance sheet arrangements.

In the ordinary course of business, we enter into standard indemnification arrangements.

7 unchanged sentences

Commitments and Contingencies in Part I, Item 1 of this Form 10-Q, any associated expenses incurred are included within the related accrued litigation expense amounts.

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

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

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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 2. Management’s Discussion and Analysis