What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 303 added, 183 removed, 433 unchanged (53% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(in thousands, except per share amounts)

8 unchanged sentences

Long-term restricted cash

Intangible assets, net

Other long-term assets

8 unchanged sentences

Deferred revenue, non-current

Contingent consideration liability, non-current

Operating lease liabilities, non-current

Convertible senior notes, net

Convertible senior notes, net, non-current

Other liabilities, non-current

7 unchanged sentences

Authorized 1,000,000 shares;

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

issued and outstanding 220,547 shares and 192,294 shares at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated deficit

5 unchanged sentences

PACIFIC BIOSCIENCES OF CALIFORNIA, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended June 30,

Six Months Ended June 30,

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

5 unchanged sentences

Cost of service and other revenue

Amortization of intangible assets

Total cost of revenue

2 unchanged sentences

Sales, general and administrative

Merger-related expenses

Total operating expense

2 unchanged sentences

Interest expense

Other income, net

Other income (expense), net

Loss before benefit from income taxes

Benefit from income taxes

Net income (loss)

Other comprehensive income (loss):

Unrealized income (loss) on investments

Comprehensive loss

Net loss per share:

Weighted average shares outstanding used in computing net loss per share

Comprehensive income (loss)

Net income (loss) per share:

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

See accompanying notes to the condensed consolidated financial statements.

5 unchanged sentences

Income (Loss)

For the three months ended June 30, 2021

Balance at March 31, 2021

For the three months ended September 30, 2021

Balance at June 30, 2021

( 1,165,305 )

Other comprehensive loss

Other comprehensive income

Issuance of common stock in conjunction with equity plans

Issuance of common stock in Private Placement, net of issuance costs

Issuance of common stock in acquisition of Omniome

Stock-based compensation expense

Balance at June 30, 2021

Balance at September 30, 2021

( 1,148,763 )

For the three months ended June 30, 2020

Balance at March 31, 2020

For the three months ended September 30, 2020

Balance at June 30, 2020

( 1,088,096 )

Other comprehensive income

Other comprehensive loss

Issuance of common stock in conjunction with equity plans

Issuance of common stock from underwritten public equity offering, net of issuance costs

Stock-based compensation expense

Balance at June 30, 2020

Balance at September 30, 2020

( 1,111,804 )

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Balance at December 31, 2020

2 unchanged sentences

Issuance of common stock in conjunction with equity plans

Issuance of common stock in Private Placement, net of issuance costs

Issuance of common stock in acquisition of Omniome

Stock-based compensation expense

Balance at June 30, 2021

Balance at September 30, 2021

( 1,148,763 )

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Balance at December 31, 2019

3 unchanged sentences

Issuance of common stock in conjunction with equity plans

Issuance of common stock from underwritten public equity offering, net of issuance costs

Stock-based compensation expense

Balance at June 30, 2020

Balance at September 30, 2020

( 1,111,804 )

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Loss (gain) from Continuation Advances

Amortization of intangible assets

Amortization of operating lease right-of-use assets

2 unchanged sentences

Amortization (accretion) from investment premium (discount)

Deferred income taxes

Changes in assets and liabilities

10 unchanged sentences

Purchase of property and equipment

Cash paid for purchase of Circulomics, net of cash acquired

Cash paid for purchase of Omniome, net of cash acquired

Purchase of investments

6 unchanged sentences

Proceeds from issuance of Convertible Senior Notes, net of issuance costs

Issuance costs paid for underwritten public equity offering

Proceeds from issuance of common stock under equity offerings, net of issuance costs

Proceeds from issuance of common stock from equity plans

6 unchanged sentences

Cash and cash equivalents and restricted cash at end of period

Supplemental disclosure of non-cash investing and financing activities

Issuance of common stock in acquisition of Omniome

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

We design, develop and manufacture sequencing systems to help scientists resolve genetically complex problems.

Based on our novel Single Molecule, Real-Time (SMRT®) sequencing technology, our products enable:

de novo genome assembly to finish genomes in order to more fully identify, annotate and decipher genomic structures;

full-length transcript analysis to improve annotations in reference genomes, characterize alternatively spliced isoforms in important gene families, and find novel genes;

targeted sequencing to more comprehensively characterize genetic variations;

and real-time kinetic information for epigenome characterization.

Our technology provides high accuracy, ultra-long reads, uniform coverage and the ability to simultaneously detect epigenetic changes.

PacBio® sequencing systems, including consumables and software, provide a simple and fast end-to-end workflow for SMRT sequencing.

Our current products include the Sequel II and Sequel IIe instruments and SMRT Cell 8M, which together are capable of sequencing up to approximately eight million DNA molecules simultaneously, and the previous generation Sequel instrument and Sequel SMRT Cell 1M, which together are capable of sequencing up to approximately one million DNA molecules simultaneously.

In October 2020, we launched the Sequel IIe System, which has increased computational capacity, and is designed to enable customers to generate PacBio HiFi reads more efficiently.

Our research and development efforts are focused on developing new products and further improving our existing products including continuing chemistry and sample preparation improvements to increase throughput and expand our supported applications.

By providing access to genetic information that was previously inaccessible, we enable scientists to confidently increase their understanding of biological systems.

The names “Pacific Biosciences,” “PacBio,” “SMRT,” “SMRTbell,” “Sequel” and our logo are our trademarks.

We design, develop and manufacture sequencing systems to help scientists and clinical researchers resolve genetically complex problems.

Our products address several applications based on our novel Single Molecule, Real-Time (SMRT®) sequencing technology, including human germline sequencing, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Across these applications, customers use our technology in a wide range of sequencing methods, including whole genome sequencing and de novo genome assembly, long-range phasing, targeted sequencing, full-length RNA and single-cell sequencing, methylation and epigenetic characterization, and others.

Our technology provides high accuracy, long reads, uniform coverage, and the ability to detect epigenetic changes simultaneously.

PacBio® sequencing systems, including consumables and software, offer a simple and fast end-to-end workflow for SMRT sequencing.

In addition to our SMRT sequencing technology, we are developing a highly accurate short-read sequencing platform based on the novel Sequencing by Binding (SBB®) technology.

Upon launch, we expect SBB to address adjacent applications and complement our existing long-read sequencing technology.

References in this report to “PacBio,” “we,” “us,” the “Company,” and “our” refer to Pacific Biosciences of California, Inc.

and its consolidated subsidiaries.

BUSINESS ACQUISITIONS

Omniome, Inc.

On September 20, 2021, we completed our acquisition of Omniome, Inc.

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

In connection with the acquisition, all outstanding equity securities of Omniome were cancelled in exchange for consideration of $ 714.8 million, which consisted of approximately $ 315.7 million in cash, 8,911,580 shares of our common stock with a fair value of $ 249.4 million and contingent consideration with a fair value of $ 168.6 million.

The fair value of the 8,911,580 common shares issued was determined based on the closing market price of PacBio’s common shares on the acquisition date.

Out of the total consideration, approximately $ 18.9 million, comprised of $ 7.4 million of cash, 226,811 shares of our common stock with a fair value of $ 6.3 million, and $ 5.2 million related to contingent consideration, was accounted for as a one-time post acquisition stock-based compensation expense.

This stock-based compensation expense was due to accelerated vesting of Omniome stock awards in connection with the acquisition.

The contingent consideration of $ 200 million (composed of $ 100 million in cash and $ 100 million in shares of our common stock) is due upon the achievement of a milestone, defined as the first commercial shipment to a customer of a nucleotide sequencing platform, comprising both an instrument and related consumables, that utilizes Omniome’s sequencing by binding technology.

The number of shares of stock to be issued will be determined using the volume-weighted average of the trading prices of our common stock for the twenty trading days ending with and including the trading day that is two days immediately prior to the achievement of the milestone.

Of the $100 million in shares of our common stock to be issued as part of the milestone, $ 4.1 million is attributable to stock options issued by PacBio in replacement of Omniome’s unvested options as part of the transaction.

The total consideration transferred for the acquisition is as follows (in thousands):

Total cash paid

Fair value of share consideration

Fair value of contingent consideration

Stock-based compensation expense excluded from consideration transferred

Total consideration transferred

The contingent consideration is accounted for as a liability at fair value, with changes during each reporting period recognized in our consolidated statements of operations and comprehensive income (loss).

The fair value of the contingent consideration liability is based on a scenario-based method which considers a range of possible outcomes and their assigned probabilities of occurrence.

The potential outcomes are discounted to present value at a discount rate equal to the sum of the term-matched risk-free-interest rate plus PacBio’s credit spread.

The acquisition was accounted for as a business combination and, accordingly, the total fair value of the consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date.

The major classes of assets and liabilities to which we have allocated the total fair value of the consideration transferred were as follows (in thousands):

Cash and cash equivalents

Property and equipment, net

Operating lease right-of-use assets, net

In-process research and development ("IPR&D")

Deferred income tax liability

Liabilities assumed

Total consideration transferred

The purchase price allocation is preliminary.

We continue to collect information with regard to certain estimates and assumptions, including potential liabilities and contingencies.

We will record adjustments to the fair value of the assets acquired, liabilities assumed and goodwill within the twelve months measurement period, if necessary.

The goodwill recognized was primarily attributable to the assembled workforce and synergies that are expected to occur from the integration of Omniome and is not deductible for income tax purposes.

We have allocated $ 400 million of the purchase price to acquired in-process research and development.

The fair value of the IPR&D was determined, with the assistance of a third-party valuation firm, using an income approach based on a forecast of expected future cash flows.

The IPR&D will remain on our consolidated balance sheet as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development activities.

During the development period following the acquisition, IPR&D will not be amortized, but instead will be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

We incurred costs related to the Omniome acquisition of approximately $ 11.6 million during the nine months ended September 30, 2021, which are included in merger-related costs on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

Separately, in connection with the Omniome acquisition, on September 20, 2021, we issued and sold 11,214,953 shares of common stock in a private placement transaction at a price of $ 26.75 per share, for aggregate proceeds of approximately $ 294.8 million, net of issuance costs of approximately $ 5.2 million.

We were also required to register the private placement shares for resale with the SEC following the closing of the merger.

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented as if Omniome had been acquired as of the beginning of the comparable fiscal year prior to the year of acquisition, giving effect on a pro forma basis to the purchase accounting adjustments such as $ 11.6 million of PacBio acquisition-related costs, $ 18.9 million of stock-based compensation expense related to acceleration of certain Omniome stock options not attributable to pre-combination service, and a $ 92.2 million one-time income tax benefit from the reduction of our deferred tax asset valuation allowance resulting from the Omniome acquisition, as well as a pro forma adjustment to reflect $ 16.7 million of Omniome’s acquisition-related costs.

The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of the consolidated results of the combined business had the acquisition actually occurred at the beginning of the fiscal year 2020 or the results of future operations of the combined business.

The following table summarizes the unaudited pro forma financial information for the periods presented (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

Pro forma total revenue

Pro forma net loss

Pro forma net loss per share - basic and diluted

Our condensed consolidated financial statements include the results of operations for Omniome beginning September 20, 2021.

Since the date of acquisition, revenues of $ 0 and a net loss of $ 1.6 million from the acquired Omniome business have been included in our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2021.

Circulomics, Inc.

On July 20, 2021, we acquired Circulomics Inc.

(“Circulomics”), a Maryland-based biotechnology company focused on delivering highly differentiated sample preparation products that enable genomic workflows.

We paid $ 29.5 million in cash in exchange for all outstanding shares of common stock of Circulomics.

We allocated the consideration transferred to the identifiable assets acquired and liabilities assumed based on their respective fair values at the date of the completion of the acquisition.

The major classes of assets and liabilities to which we have allocated the total fair value of the consideration transferred were as follows (in thousands):

Cash and cash equivalents

Property and equipment, net

Intangible assets

Deferred income tax liability

Liabilities assumed

Total consideration transferred

The excess of the value of consideration paid over the aggregate fair value of those net assets has been recorded as goodwill.

We recognized goodwill of $ 19.3 million, which is primarily attributable to the synergies expected from capabilities in extraction and sample preparation and is not deductible for income tax purposes.

We recorded $ 11.4 million for the fair value of acquired intangible assets, which consist of developed technology and customer relationships.

The purchase price allocation is preliminary as we continue to collect information with regard to certain estimates and assumptions.

We will record adjustments to the fair value of the assets acquired, liabilities assumed and goodwill within the twelve month measurement period, if necessary.

Deferred income taxes

A benefit for income taxes of $ 94.8 million for the three and nine months ended September 30, 2021, is related to the release of the valuation allowance for deferred tax assets due to the recognition of deferred tax liabilities in connection with the Omniome and Circulomics acquisitions.

We maintain a full valuation allowance on the net deferred tax assets of our U.S.

entities as we have concluded that it is more likely than not that we will not utilize our deferred tax assets.

INVITAE COLLABORATION

5 unchanged sentences

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 we are 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.

12 unchanged sentences

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 we are responsible for performing the research and development activities.

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 .

2 unchanged sentences

Any remaining unused discounts will be recognized when they expire.

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

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.

All amounts received from Invitae are initially deferred and accumulated in deferred revenue, non-current.

As of September 30, 2021, we have recognized payments received from Invitae of $ 16.8 million of deferred revenue, non-current, on the Condensed Consolidated Balance Sheet.

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

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

TERMINATION OF MERGER WITH ILLUMINA

4 unchanged sentences

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 loss for the six months ended June 30, 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 nine months ended September 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 loss for the six months ended June 30, 2021.

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 nine months ended September 30, 2021.

Please refer to Note 5.

8 unchanged sentences

Basis of Presentation and Consolidation

In the opinion of management, our accompanying unaudited condensed consolidated financial statements (“Financial Statements”) have been prepared on a consistent basis with our December 31, 2020 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein.

The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, as permitted by such rules and regulations, omit certain information and footnote disclosures necessary to present the statements in accordance with accounting principles generally accepted in the United States (“U.S.

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 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.

The accompanying unaudited condensed consolidated financial statements, which include the accounts of Pacific Biosciences and the accounts of our wholly-owned subsidiaries, have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

Certain information and footnote disclosures typically included in our audited financial statements have been condensed or omitted.

The accompanying unaudited condensed consolidated financial statements have been prepared on a consistent basis with the December 31, 2020 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state our financial position, results of operations, comprehensive income (loss), and cash flows for the period, but are not necessarily indicative of the results to be expected for the entire year or any future periods.

All intercompany transactions and balances have been eliminated.

The financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 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.

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

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements.

Our estimates include, but are not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the probability of repaying the Continuation Advances and Reverse Termination Fee to Illumina, the valuation and recognition of share-based compensation, the expected renewal period for service contracts to derive the amortization period for capitalized commissions, the useful lives assigned to long-lived assets, the computation of provisions for income taxes, the borrowing rate used in calculating the operating lease right-of-use assets and operating lease liabilities, the borrowing rate used in calculating the financing component of the Invitae collaboration and valuations related to our convertible senior notes.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements.

On an ongoing basis, management evaluates its significant estimates including, but not limited to, the valuation of inventory, the determination of stand-alone selling prices for revenue recognition, the fair value of contingent consideration, the valuation of acquired intangible assets, the fair value of certain equity awards, the useful lives assigned to long-lived assets, the computation of provisions for income taxes, the borrowing rate used in calculating the operating lease right-of-use assets and operating lease liabilities, and the valuations related to our convertible senior notes.

Actual results could differ materially from these estimates.

Fair Value of Financial Instruments

The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities, current, approximate fair value due to their short maturities.

The fair value hierarchy established under U.S.

GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value hierarchy established under GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The three levels of inputs that may be used to measure fair value are as follows:

10 unchanged sentences

Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability.

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 June 30, 2021 and December 31, 2020 respectively:

June 30, 2021

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

September 30, 2021

December 31, 2020

14 unchanged sentences

Continuation Advances

Contingent consideration

Total liabilities measured at fair value

Estimated fair value of the Continuation Advances liability

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 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 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.

We classify contingent consideration, which was incurred in connection with the acquisition of Omniome, within Level 3 as factors used to develop the estimate of fair value include unobservable inputs that are not supported by market activity and are significant to the fair value.

We estimate the fair value of the contingent consideration liability by discounting the probability-weighted outcomes to present value using an estimate of our borrowing rate and the risk-free rate.

The potential outcomes of milestone achievement dates are within the period from December 31, 2022 to June 30, 2025, with the highest probability of achieving the milestone in the middle of this period.

The discount rates used are the sum of the U.S.

risk-free rate and the estimated subordinated credit spread for CCC+ and B- credit rating, which ranges from 4.3 % to 4.8 %.

As of December 31, 2020, we classified the Continuation Advances, which were incurred in connection with the Illumina Merger Agreement and were subject to repayment under certain circumstances, as a financial liability and were reported at fair value.

The estimated fair value of the liability related to the Continuation Advances was determined using Level 3 inputs, or significant unobservable inputs.

Management estimated that the fair value of this financial instrument was immaterial because of the low probability of either of the following events occurring and requiring repayment to Illumina as of December 31, 2020:

 we enter into a Change of Control Transaction within two years following March 31, 2020;

 we raise $ 100 million or more in a single equity or debt financing (that may have multiple closings) within two years following March 31, 2020, with the amount repayable dependent on the amount raised by us.

As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances was assessed to be zero as of March 31, 2020 and December 31, 2020, with a resulting non-operating gain of $ 34.0 million recorded as “Gain from Continuation Advances from Illumina” for the quarter ended March 31, 2020.

We recorded a similar gain of $ 18.0 million in 2019 for the Continuation Advances received during the fourth quarter of 2019.

The Company was first approached by SB Northstar LP during the quarter ended March 31, 2021 regarding a potential convertible debt transaction.

Management assessed the fair value of this financial instrument to be zero at December 31, 2020.

We were first approached by SB Northstar LP during the quarter ended March 31, 2021 regarding a potential convertible debt transaction.

As discussed further below in Note 8.

Convertible Senior Notes , in February 2021, 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 loss for the six months ended June 30, 2021.

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.

Convertible Senior Notes , in February 2021, we entered into an investment agreement with SB Northstar LP for the issuance and sale of $ 900 million of 1.50 % Convertible Senior Notes due February 15, 2028.

As a result, $ 52.0 million of Continuation Advances were repaid without interest to Illumina in February 2021 and recorded as other expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2021.

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

For the quarter ended September 30, 2021, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

As discussed above, we recorded a contingent consideration liability in connection with our acquisition of Omniome during the quarter ended September 30, 2021.

Net Income (Loss) per Share

1 unchanged sentence

Diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and potential shares assuming the dilutive effect of the convertible senior notes, using the if-converted method, and outstanding stock options, restricted stock units and common stock issuable pursuant to our employee stock purchase plan, or ESPP, using the treasury stock method.

The following table presents the calculation of the basic and diluted net income (loss) per share amounts presented in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

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

Net income (loss) per share, basic

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

Weighted average stock options

Weighted average restricted stock units

Weighted average shares issuable pursuant to ESPP

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

Net income (loss) per share, diluted

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.

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Concentration and Other Risks

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.

For the three and nine months ended September 30, 2021, Gene Company Limited accounted for approximately 17 % and 15 %, respectively, of our total revenue during the period with no other customer exceeding 10% during those periods.

For the three and nine months ended September 30, 2020, Gene Company Limited accounted for approximately 18 % and 14 %, respectively, of our total revenue with no other customer exceeding 10% during those periods.

Gene Company Limited is our primary distributor in China.

20 unchanged sentences

Except for the adoption of ASU 2020-06 as discussed above and in Note 8 .

Convertible Senior Notes , there have been no new or material changes to the significant accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Convertible Senior Notes and the accounting for the acquisition of Omniome and Circulomics as described in Note 2.

Business Acquisitions and Note 7.

Balance Sheet Components , there have been no new or material changes to the significant accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

CASH, CASH EQUIVALENTS AND INVESTMENTS

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

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

As of September 30, 2021

Cash and cash equivalents:

24 unchanged sentences

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 June 30, 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 September 30, 2021 (in thousands):

Due in one year or less

4 unchanged sentences

Short-term restricted cash

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:

As of September 30, 2021, the short-term restricted cash balance of $ 0.5 million was comprised of security deposits 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 a security deposit for the credit cards of employees.

In connection with the acquisition of Omniome in September 2021, we acquired $ 0.2 million of short-term restricted cash consisting of a security deposit for credit cards of Omniome employees.

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

September 30,

(in thousands)

5 unchanged sentences

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.

As such, $ 3.0 million and $ 3.5 million was recorded in long-term restricted cash related to the O’Brien Lease in the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, respectively.

In connection with the acquisition of Omniome in September 2021, we acquired $ 1.6 million of long-term restricted cash related to a letter of credit established for a facility lease.

Intangible assets and goodwill

Intangible assets include acquired in-process research and development (IPR&D) of $400 million as a result of the Omniome acquisition in September 2021.

We capitalize IPR&D as an indefinite-lived intangible asset and either begin to amortize it over the life of the product upon commercialization or record an impairment charge if the project is abandoned.

In addition to IPR&D, we had the following definite-lived intangible assets from business acquisitions as of September 30, 2021 (in thousands, except years):

Developed technology

Customer relationships

The estimated future amortization expense of acquisition-related intangible assets with definite lives is estimated as follows:

(in thousands)

2026 and thereafter

We review definite-lived intangible assets for impairment on an annual basis or when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment.

Changes to goodwill during the nine months ended September 30, 2021 were as follows (in thousands):

Balance as of December 31, 2020

Acquisition of Omniome

Acquisition of Circulomics

Balance as of September 30, 2021

Deferred revenue

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.

As of September 30, 2021, we had a total of $ 28.2 million of deferred revenue, $ 9.8 million of which was recorded as deferred revenue, current and primarily relates to deferred service contract revenues to be recognized over the next year and the remaining $ 18.4 million was recorded as deferred revenue, non-current.

Of the deferred revenue, non-current balance, $ 16.8 million relates to payments received under the Invitae collaboration described in Note 3 and $ 1.6 million primarily relates to deferred service contract revenues and is scheduled to be recognized in the next 5 years.

Revenue recorded in the nine months ended September 30, 2021 includes $ 7.4 million of previously deferred revenue that was included in deferred revenue, current as of December 31, 2020.

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

As of September 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.

In connection with the acquisition of Omniome, we acquired $1.3 million in short-term debt and $3.0 million in long-term debt relating to a term loan facility that Omniome obtained in April 2020.

Borrowings on the term loan facility were used to fund Omniome’s purchases of equipment, which serves as collateral.

Each term loan has a term of 43 months and bears a fixed interest rate of approximately 17% annually.

The fee for the elective option to prepay all, but not less than all, of the borrowed amounts at any time after the 24 th month and before the 43 rd month after the commencement date, is 4% of the outstanding loan balance.

Payments are made in equal monthly installments including principal and interest.

The following table presents the future principal payments on the term loans (in thousands):

Remainder of 2021

CONVERTIBLE SENIOR NOTES

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of $ 900 million in aggregate principal amount of the Company’s 1.50 % Convertible Senior Notes due February 15, 2028 (the “Notes”).

On February 9, 2021, we entered into an investment agreement (the “Investment Agreement”) with SB Northstar LP (the “Purchaser”), a subsidiary of SoftBank Group Corp., relating to the issuance and sale to the Purchaser of $ 900 million in aggregate principal amount of our 1.50 % Convertible Senior Notes due February 15, 2028 (the “Notes”).

The Notes were issued on February 16, 2021 .

2 unchanged sentences

The Notes bear interest at a rate of 1.50 % per annum.

Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 commencing on August 15, 2021.

Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 and commenced on August 15, 2021.

The Notes will mature on February 15, 2028 , subject to earlier conversion, redemption or repurchase.

The Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company.

The Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 22.9885 shares of common stock per $ 1,000 principal amount of the Notes (which is equal to an initial conversion price of $ 43.50 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

The Notes are convertible into shares of our common stock based on an initial conversion rate of 22.9885 shares of common stock per $ 1,000 principal amount of the Notes (which is equal to an initial conversion price of $ 43.50 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.

Upon conversion of the Notes, we may elect to settle such conversion obligation in shares, cash or a combination of shares and cash.

On or after February 20, 2026, the Notes will be redeemable by the Company in the event that the closing sale price of the Company’s common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides the redemption notice at a redemption price of 100 % of the principal amount of such Notes, plus accrued and unpaid interest to, but excluding, the redemption date.

With certain exceptions, upon a change of control of the Company or the failure of the Company’s common stock to be listed on certain stock exchanges (a “Fundamental Change”), the holders of the Notes may require that the Company repurchase all or part of the principal amount of the Notes at a purchase price of par plus unpaid interest to, but excluding, the maturity date.

On or after February 20, 2026, the Notes will be redeemable by the Company in the event that the closing sale price of our common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100 % of the principal amount of such Notes, plus accrued and unpaid interest up to, but excluding, the redemption date.

With certain exceptions, upon a change of control of the Company or the failure of our common stock to be listed on certain stock exchanges (a “Fundamental Change”), the holders of the Notes may require that we repurchase all or part of the principal amount of the Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date.

The Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the Notes under the Indenture.

The Indenture also includes customary covenants for convertible notes of this type.

To the extent the Company elects, the sole remedy for an event of default relating to the Company’s failure to comply with certain of its reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the Notes outstanding for each day during the first 180 calendar days of the 360-day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the Notes outstanding for each day from, and including, the 181st calendar day to, and including, the 360th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the Indenture).

On the 361st day after such event of default (if the event of default relating to the Company’s failure to comply with its obligations is not cured or waived prior to such 361st day), the Notes shall be subject to acceleration as provided for in the Indenture.

Accounting Treatment

Under ASU 2020-06, a debt with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature unless the conversion feature is required to be accounted for separately as an embedded derivative or the conversion feature results in a substantial premium.

The conversion feature of the Notes is not required to be accounted for as an embedded derivative because it is considered to be indexed to the Company’s stock, and the Notes were not issued at a premium;

To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of our reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the Notes outstanding for each day during the first 180 calendar days of the 360-day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the Notes outstanding for each day from, and including, the 181st calendar day to, and including, the 360th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the Indenture).

On the 361st day after such event of default (if the event of default relating to our failure to comply with its obligations is not cured or waived prior to such 361st day), the Notes shall be subject to acceleration as provided for in the Indenture.

The notes are accounted for in accordance with the authoritative guidance for convertible debt instruments that may be settled in cash upon conversion.

Under ASU 2020-06, the guidance requires that debt with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature unless the conversion feature is required to be accounted for separately as an embedded derivative or the conversion feature results in a substantial premium.

The conversion feature of the Notes is not accounted for as an embedded derivative because it is considered to be indexed to our common stock, and the Notes were not issued at a premium;

therefore, the Notes are accounted for in their entirety as a liability.

2 unchanged sentences

However, given the low probability of a Fundamental Change occurring during the applicable periods, the value of the embedded derivative is immaterial.

The additional interest feature in the event of the Company’s failure to comply with certain reporting obligations is also considered an embedded derivative requiring bifurcation under ASC 815.

The additional interest feature in the event of our failure to comply with certain reporting obligations is also considered an embedded derivative requiring bifurcation under ASC 815.

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 $ 4.5 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):

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

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

Three Months Ended

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Contractual interest expense

1 unchanged sentence

Total interest expense

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.

As of September 30, 2021, the estimated fair value (Level 2) of the Notes was $ 886.5 million.

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

COMMITMENTS AND CONTINGENCIES

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 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.

Base monthly rent was abated for the first six (6) months of the lease term and thereafter was $ 540,000 per month during the first year of the lease term, with specified annual increases thereafter until reaching $ 711,000 per month during the last twelve (12) months of the lease term.

If the rent is not received within five days of the due date, there will be an additional sum equal to 5 % of the amount overdue as a late charge.

Any amount not paid within 10 days after receipt of the landlord’s written notice will bear interest from the date due until paid, at the lesser rate of (1) the prime rate of interest as published in the Wall Street Journal, plus 2 % or (2) the maximum rate allowed by law, in addition to the late payment charge.

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, 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.

We record an operating lease right-of-use assets and liabilities on our Condensed Consolidated Balance Sheets for all leases with a term of more than 12 months.

In connection with the acquisition of Omniome, we acquired $ 18.1 million in right-of-use assets and liabilities on our Condensed Consolidated Balance Sheets.

The operating lease right-of-use assets and liabilities are calculated as 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 incurred.

We often have options to renew lease terms for buildings.

For the O’Brien Lease, the renewal option is 5 years and the rent will be based on fair market value at the time of renewal and was not included in the lease term.

In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion.

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 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:

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

Maturity of Lease Liabilities

9 unchanged sentences

Total operating lease liabilities

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.

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 6.8 %.

The weighted average remaining lease term for our operating leases as of September 30, 2021 was 6.0 years.

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million and $ 5.5 million, respectively, for the three and nine months ended September 30, 2021 and included in operating cash flow.

Operating Lease Costs

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.

Operating lease costs were $ 1.6 million and $ 4.7 million, respectively, for the three and nine months ended September 30 of both 2021 and 2020.

Contingencies

49 unchanged sentences

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.

On September 2, 2021, the CNIPA issued its decision on the Invalidation Petition and determined that all claims (1-61) of the CN321 patent were invalid.

We have filed a petition with the Wuhan Intermediate People’s court requesting dismissal of the infringement action, which we anticipate will be granted.

Other Proceedings

10 unchanged sentences

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 June 30, 2021.

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

STOCKHOLDERS’ EQUITY

2 unchanged sentences

Our 2010 Plan and 2010 Director Plan expired on July 29, 2020.

On August 4, 2020, stockholders approved our new 2020 Equity Incentive Plan (the “2020 Plan”) and reserved 11,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the 2020 Plan.

On December 2, 2020, the Board of Directors (the “Board”) adopted the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 2,500,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan.

On April 18, 2021, the Board amended the Inducement Plan to reserve an additional 750,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan.

On August 4, 2020, stockholders approved our new 2020 Equity Incentive Plan (the “2020 Plan”) and reserved 11,000,000 shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan.

On December 2, 2020, the Board of Directors (the “Board”) adopted the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 2,500,000 shares of our common stock for issuance pursuant to equity awards granted under the Inducement Plan.

On April 18, 2021, the Board amended the Inducement Plan to reserve an additional 750,000 shares of our common stock for issuance pursuant to equity awards granted under the Inducement Plan.

On September 20, 2021, in connection with the acquisition of Omniome, we adopted the Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc.

(the “Omniome Plan”).

Under the Omniome Merger Agreement, each unvested option to purchase Omniome common stock, granted under the Omniome Plan held by employees continuing with us, were assumed by PacBio and converted into an option to purchase shares of our common stock.

The terms and conditions of the converted options are substantially the same (including vesting and exercisability), except that (A) the assumed options cover shares of PacBio’s common stock;

(B) the number of shares of our common stock subject to the assumed option is equal to the product of (i) the number of shares of Omniome common stock subject to the corresponding unvested option, multiplied by (ii) the exchange ratio (as defined below), with any resulting fractional share rounded down to the nearest whole share;

and (C) the exercise price per share of the assumed options is equal to the quotient of (i) the exercise price per share of the corresponding unvested option to purchase shares of Omniome common stock, divided by (ii) the exchange ratio (as defined below), with any resulting fractional cent rounded up to the nearest whole cent.

The exchange ratio was equal to 0.259204639 .

We reserved 2,494,128 shares of our common stock for issuance pursuant to equity awards under the Omniome Plan.

Stock Options

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):

Time-based stock options

The following table summarizes stock option activity for time-based awards under all our stock option plans for the nine months ended September 30, 2021 (in thousands, except per share amounts):

Stock Options Outstanding

3 unchanged sentences

23.39 – 46.37

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.

Assumed Omniome options

Outstanding at September 30, 2021

Performance-based stock options

The following table summarizes stock option activity for performance-based awards under all our stock option plans for the nine months ended September 30, 2021 (in thousands, except per share amounts):

Stock Options Outstanding

Exercise price

exercise price

Outstanding at December 31, 2020

Assumed Omniome options

Outstanding at September 30, 2021

For the three and nine months ended September 30, 2021, we recognized stock-based compensation expense of $ 23.0 million and $ 29.0 million, respectively, related to options.

Restricted Stock Units (“RSUs”)

Time-based RSUs

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

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

Weighted average

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.

Outstanding at September 30, 2021

For the three and nine months ended September 30, 2021, we recognized stock-based compensation expense of $ 7.7 million and $ 19.6 million, respectively, for time-based RSUs.

Performance-based RSUs

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

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

Weighted average

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.

Outstanding at September 30, 2021

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

As of September 30, 2021, we had a total of 7.1 million shares of common stock available for future issuance under the 2020 Plan, the Inducement Plan and the Omniome 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.

Shares issued under our ESPP were 1,913,968 and 834,677 during the nine months ended September 30, 2021 and 2020, respectively.

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

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.

As of September 30, 2021, 7,810,673 shares of our common stock remain available for issuance under our ESPP.

For the three and nine months ended September 30, 2021, we recognized stock-based compensation expense of $ 5.1 million and $ 13.1 million, respectively, for the ESPP.

Stock-Based Compensation

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

1 unchanged sentence

Sales, general and administrative

Total stock-based compensation expense

Merger-related expenses - stock-settled

Merger-related expenses - milestone

Stock-based compensation

Merger-related expenses - cash-settled

Total stock-based compensation

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

1 unchanged sentence

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,

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term in years

2 unchanged sentences

0.05 % – 0.71 %

0.05 % – 0.74 %

0.3 % - 1.2 %

Dividend yield

2 unchanged sentences

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,

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term in years

3 unchanged sentences

0.06 % - 0.20 %

0.1 % - 1.0 %

Dividend yield

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

North America

Europe (including the Middle East and Africa)

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,

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

Three Months Ended September 30,

Nine Months Ended September 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