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Item 1. Business

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We develop solutions that allow scientists to fundamentally transform how data from living systems are acquired, processed, and interpreted.

Our products provide the most accurate and complete views of the genetic code of all living things, empowering scientists to improve the human condition – from curing diseases, to feeding a hungry world, to conserving our planet’s ecosystems.

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 highly accurate, long reads, otherwise referred to as HiFi reads, with uniform coverage and the ability to simultaneously detect epigenetic changes.

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

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

Our customers and our scientific collaborators have published over 8000 peer-reviewed articles in journals including Nature, Science, Cell, PNAS and The New England Journal of Medicine highlighting the power and applications of SMRT sequencing in projects such as finishing genomes, structural variation discovery, isoform transcriptome characterization, rare mutation discovery and the identification of chemical modifications of DNA related to virulence and pathogenicity.

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.

Pacific Biosciences of California, Inc., formerly Nanofluidics, Inc., was incorporated in the State of Delaware in 2000.

Our executive offices are located at 1305 O’Brien Drive, Menlo Park, California 94025, and our telephone number is (650) 521-8000.

We are a premier life science technology company that is designing, developing and manufacturing advanced sequencing solutions to help scientists and clinical researchers resolve genetically complex problems.

Our products and technology under development stem from two highly differentiated core technologies focused on accuracy, quality and completeness which include our existing HiFi long read sequencing technology and our emerging short read Sequencing by Binding (SBB ® ) technology.

Our products address solutions across a broad set of applications including human germline sequencing, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Our focus is on providing our customers with advanced sequencing technologies with higher throughput and improved workflows that we believe will enable dramatic advancements in routine healthcare.

Our customers include academic and governmental research institutions, commercial testing and service laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research organizations (CROs), pharmaceutical companies and agricultural companies.

Our Mission and Impact

Our mission is to enable the promise of genomics to better human health.

Genomics is core to all biological processes, and our advanced genomics tools provide scientists and clinical researchers the insights to better understand biology and health.

The “promise of genomics” postulates that medicine, agriculture, public health, drug development, and other disciplines will be fundamentally transformed with the incorporation of routine genomic information over the coming decades .

We see early progress toward this transformation in the applied use of genomics in areas such as genetic disease, oncology, and sustainable food production.

However, legacy genomics technologies have fundamental limitations in progressing these fields toward the promise of genomics.

We believe that unleashing the full potential of genomics will require a level of accuracy and completeness that is inaccessible to legacy technologies.

Accuracy and completeness are central to our product development strategy, and thus we have created some of the most innovative, high-quality, genomics solutions on the market.

The Underlying Science

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DNA stores information in linear chains of the chemical bases adenine, cytosine, guanine and thymine, represented by the symbols A, C, G and T respectively.

In humans, the human genome is comprised of approximately three billion DNA base-pairs, which, are divided into 23 chromosomes ranging in size from 50 million to 250 million bases.

Within these chromosomes are approximately 23,000 smaller regions, called genes, which contain the blueprints for protein production.

In humans, the genome is comprised of approximately three billion DNA base-pairs, which are divided into 23 chromosomes ranging in size from 50 million to 250 million bases.

There are approximately 23,000 smaller regions within these chromosomes, called genes, which contain the blueprints for protein production.

The proteins synthesized from these blueprints essentially underlie the operation of all biological systems.

The first few whole-genome sequencing studies of disease have shown that rare mutations play a critical role in human disease, which has contributed to the burgeoning field of genomics.

Since then, recent discoveries have highlighted additional complexities in the building blocks of DNA and ribonucleic acid, or RNA, including the presence of modified bases, the discovery of new modified bases, and the processing of RNA, molecules after such molecules are transcribed from the genome, thereby affecting the synthesis of proteins.

Recent advances in our understanding of biological complexity have highlighted the need for advanced tools, such as our Sequel® System, Sequel II System, and Sequel IIe System, to study DNA, RNA, and proteins.

Incremental technological advances in nucleic acid sequencing have provided novel insights into the structure and function of the genome.

With our technology, we hope to help scientists to one day fully characterize genomes in both humans and other living organisms.

Evolution of Sequencing

In order to understand the limitations of current nucleic acid sequencing technologies, it is important to understand the sequencing process.

This process consists of three phases:

sample preparation, physical sequencing, and analysis.

In the sample preparation phase, the target genome is broken into multiple small fragments and, depending on the amount of sample DNA available, these fragments may be copied multiple times through a process known as amplification, using a variety of molecular methods.

In the physical sequencing phase, the individual bases in each fragment are identified in order, creating individual reads.

The number of individual bases identified contiguously is defined as read length.

In the analysis phase, bioinformatics software is used to align overlapping reads, which allows the original genome to be assembled into contiguous sequence.

The longer the read length, the easier it is to accurately assemble the genome.

Sanger Sequencing

The first automated sequencing methodology, often referred to as “Sanger sequencing,” was developed by Frederick Sanger in 1977.

With this technology, during sample preparation, scientists first make different sized fragments of DNA each starting from the same location.

Each fragment ends with a particular base that is labeled with one of four fluorescent dyes corresponding to that particular

Then all of the fragments are distributed in order of their length by driving them through a gel.

Information regarding the last base is used to determine the original sequence.

Under standard conditions, this method results in a read length that is approximately 700 bases on average, but may be extended to 1,000 bases.

These are relatively long read lengths compared with many next-generation sequencing methods.

However, Sanger sequencing is limited by the small amounts of data that can be processed per unit of time, referred to as throughput.

Short-read Sequencing

Several commercial DNA sequencing tools emerged in 2005 in response to the low throughput of Sanger sequencing.

Now commonly referred to as “short-read sequencing”, these methods achieve much higher throughput by sequencing a large number of DNA molecules in parallel, but with the tradeoff of shorter read lengths.

In most short-read sequencing methodologies, tens of thousands of identical strands are anchored to a given location to be read in a process consisting of successive flushing and scanning operations.

The “flush and scan” sequencing process involves sequentially flushing in reagents, such as labeled nucleotides, incorporating nucleotides into the DNA strands, stopping the incorporation reaction, washing out the excess reagent, scanning to identify the incorporated base and finally treating that base so that the strand is ready for the next “flush and scan” cycle.

This cycle is repeated until the reaction is no longer viable.

Due to the large number of flushing, scanning and washing cycles required, the time to result for short-read sequencing methods can be longer, sometimes taking days.

This repetitive process also limits the average read length produced by most of these systems under standard sequencing conditions to approximately 35 to 600 bases.

The short-read sequencing technologies require a large number of DNA molecules during the sequencing process.

To generate enough DNA molecules, a copying method called PCR amplification is required during the sample preparation phase.

This amplification process can introduce errors known as amplification bias.

The effect of this bias is that resulting copies are not uniformly representative of the original template DNA.

In cases where the original template DNA contains regions of relatively high G-C content or relatively high A-T content, the PCR amplification process tends to under-represent these regions.

As a result, these regions, which may contain entire genes, can be completely missed.

In summary, while short-read sequencing methods can offer very high throughput and low cost per identified base, their disadvantages can include limited read length, variation in sequence coverage with regard to representation bias and accuracy, dependence on amplification, long time to result, and/or a need for many samples to justify machine operation .

The PacBio Solution — Single Molecule, Real-Time Technology

We have developed our SMRT technology, which enables single molecule, real-time detection of nucleic acid sequences, to address many of the limitations of previous sequencing technologies.

By providing long read lengths, elimination of the dependence on amplification during sample preparation (which can result in amplification bias), very high consensus accuracy, and the ability to detect DNA base modifications, PacBio’s systems can provide more comprehensive and higher quality information of DNA and RNA sequence as well as epigenetic regulation and DNA damage.

Pacific Biosciences’ SMRT Technology

SMRT technology enables the observation of DNA synthesis as it occurs in real time by harnessing the natural process of DNA replication, which in nature is a highly efficient and accurate process actuated by DNA polymerases, enzymes measuring approximately 15 nanometers (nm) in diameter.

DNA polymerases attach themselves to a strand of DNA to be replicated, examines the individual base at the point it is attached, and then determines which of four building blocks, or nucleotides, is required to complement that individual base.

Genome sequencing reads the bases of long fragments of nucleic acids.

Initial genome sequencing studies have shown that mutations in these DNA base pairs play a critical role in human disease, contributing to the burgeoning field of genomics.

Since then, recent discoveries have highlighted additional complexities of DNA and ribonucleic acid, or RNA.

These include the presence of modified bases such as methylation, and post-translational modification or the processing of RNA molecules after they are transcribed from the genome, both of which can affect protein synthesis.

Our Principal Markets

Researchers utilize our solutions in human germline sequencing, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications.

Human Germline Sequencing:

Improving rare disease research and understanding

According to a World Health Organization publication, it is estimated that 400 million people worldwide are affected by up to 8,000 distinct rare diseases, with 80% of these believed to be genetic in nature.

Other sequencing technologies applied

to rare disease diagnosis are technologically limited to interrogating small variants, representing only a subset of possible genomic variation.

Consequently, most genetic disease cases are undiagnosed, leaving families on multi-year diagnostic odysseys.

Sequencing the human genome with long and accurate reads enables the potential detection of all known classes of disease-causing variation.

In addition, the ability of PacBio’s long-read sequencing technology to detect 5-Methylcytosine, an epigenetic factor shown to alter gene behavior, may enable further advances in research and development in genetic disease diagnosis.

Infectious Disease and Microbiology:

Understanding and tracking microbes and pathogens in support of global public health

Our technology has increased the scientific community’s understanding of microorganism and viruses and their malignancy, transmission, and potential resistance to antibiotics or vaccines.

Our sequencing technology delivers some of the most comprehensive and complete genomes available, enabling federal agencies, public health organizations, and healthcare providers the ability to conduct wide-ranging research and surveillance activities to:

 Generate high quality, complete genome assemblies, revealing variants of all known types, to gain a deeper understanding of community-acquired and hospital-associated infections and transmissions;

 Identify and characterize pathogens to inform regional, national and global public health agencies for preparation and response to rapidly evolving microorganism;

 Characterize complex microbial communities to understand their role in human, animal, and environmental health.

Enable the discoveries of underlying causes of cancer, progression and relapse

Understanding the cellular and molecular complexity of tumor cells is critical in developing more effective targeted cancer therapies.

Advancements in single-cell analyses have previously been recognized by Nature Methods magazine as the “method of the year” in 2019.

Single-cell transcriptomics is particularly impactful in defining cellular identity and function;

however, other technologies only sequence a portion of RNAs, missing critical information.

Our long-read RNA sequencing method, single-cell Iso-Seq (scIso-Seq), accurately detects molecular events such as RNA isoforms and expressed mutations and provides gene expression information at the single-cell level.

We believe scIso-Seq is uniquely positioned to enable discoveries by researchers of the underlying causes of cancer initiation, progression, and relapse, as well as the discovery by researchers of novel diagnostic, prognostic and predictive biomarkers that may inform future clinical tests.

As novel discoveries continue to be made using our long sequencing technology, we believe our SBB short-read sequencing technology will enable us to meet the demands of customers in the expanding non-invasive testing market in oncology.

Due to the small amounts of circulating tumor DNA (ctDNA) present in the blood of early-stage cancer patients and those with minimal residual disease (MRD), the presence of cancer often goes undetected and a more sensitive assay will be required.

Based on internal testing, we believe our SBB technology has the potential to offer higher accuracy than competitor sequencing technologies, which may in the future support our customers’ development of more sensitive tests for the purpose of earlier detection and more robust monitoring of cancer.

Plant and Animal Sciences:

Helping scientists answer biological questions across a broad range of plant and animal sciences

There are hundreds of thousands of distinct plant and animal species.

Our technology is used to build de novo reference genomes for these organisms across several global initiatives which are dedicated to preserving, monitoring and cataloging biodiversity with actionable and accurate genomic data.

Our Technology, Products and Solutions

We have developed HiFi long-read sequencing combined with highly accurate Single Molecule Real-Time (SMRT) technology, which enables single-molecule, real-time detection of nucleic acid sequences for long-read applications.

We are also expanding our genomic solutions with our short read Sequencing by Binding (SBB ® ) chemistry which offers sensitive sequencing for short read applications.

Upon launch of the SBB platform, we believe we will be the only company offering both native long read and native short read technologies into the market.

Our sales consist of sales of instruments, chips and reagents based on our SMRT technology as well as services we perform for customers and we are developing products based on our nanobind technology.

HiFi Long- read Sequencing

Our HiFi long-read sequencing protocol was built upon our HiFi sequencing systems, including consumables and software, and offers customized end-to-end workflows for different SMRT sequencing applications.

Highly accurate, long sequence reads simplify and accelerate data analysis algorithms, reducing the needs for error correction steps and/or assembly aspects, depending on the application.

Customers use our HiFi long read sequencing platforms in a wide range of sequencing applications, including whole genome sequencing and de novo genome assembly, long-range phasing, targeted sequencing, full-length RNA and single-cell sequencing, characterization of metagenomic communities and other mixed DNA samples, viral genome sequencing, and others.

Our technology is also capable of detecting epigenetic markers simultaneously by analyzing the kinetics of DNA polymerization which is affected, and thereby detectable, by epigenetic markers such as 5-methylcytosine or N 6 -methyladenine, and we anticipate such capability to become commercially available in April 2022.

SMRT Technology

Our proprietary SMRT Technology enables the observation of DNA synthesis as it occurs in real time by harnessing the natural process of DNA replication, which in nature is a highly efficient and accurate process actuated by DNA polymerases.

DNA polymerases attach to a strand of DNA to be replicated, examine the individual base at the point it is attached, and then determine which of the four building blocks, or nucleotides (A, C, G, or T), is required to complement that individual base.

After determining which nucleotide is required, the polymerases incorporate that nucleotide into the growing strand being produced.

After incorporation, the enzyme advances to the next base to be replicated and the process is repeated.

To overcome the challenges inherent in real-time observation of the natural activity of the DNA polymerase, we offer and support four key innovations:

 The SMRT Cell

 Phospholinked nucleotides

 The Sequel, Sequel II, or Sequel IIe instruments

 Circular Consensus Sequencing or “HiFi Reads”

The SMRT Cell

One of the fundamental challenges with observing a single DNA polymerase molecule working in real time is the ability to detect the incorporation of a single nucleotide, taken from a large pool of potential nucleotides, during DNA synthesis.

To resolve this problem, we utilize our nanoscale innovation, the zero-mode waveguide, or ZMW.

The ZMWs in our SMRT Cells consist of holes in an opaque layer, measuring only tens of nanometers in diameter forming nanoscale wells.

The small size of the ZMW causes the intensity of visible laser light, which has a wavelength of approximately 600nm, to decay exponentially in the ZMW.

Therefore, laser light shined into the ZMW from below is blocked from reaching the sequencing

solution above the ZMW, providing selective illumination of only the bottom portion of the nanoscale well.

DNA polymerases are anchored to the bottom of the glass surface of the nanoscale wells using proprietary techniques.

Nucleotides, each type labeled with a different colored fluorophore, are then flooded above an array of ZMWs at the required concentration.

When the labeled nucleotides diffuse into the bottom portion of the nanoscale wells, which contain the anchored DNA polymerases, their fluorescence can be monitored.

When the correct nucleotide is detected by the polymerase, it is incorporated into the growing DNA strand in a process that takes milliseconds in contrast to simple diffusion which takes microseconds.

This difference in time results in higher signal intensity for incorporated versus unincorporated nucleotides, which creates a high signal-to-noise ratio.

Thus, the ZMW provides the ability to detect a single incorporation event against the background of fluorescently labeled nucleotides at biologically relevant concentrations.

Our DNA sequencing is performed on proprietary SMRT Cells, each having an array of ZMWs.

The SMRT Cells for the Sequel System each contain approximately one million ZMWs and the SMRT Cells for the Sequel II or IIe System contain approximately eight million ZMWs.

Each ZMW is capable of containing a DNA polymerase molecule bound to a single DNA template.

Currently, our immobilization process randomly distributes polymerases into ZMWs across the SMRT Cell, typically resulting in approximately one-third to two-thirds of the ZMWs having a single template.

Phospholinked Nucleotides

Our proprietary phospholinked nucleotides have a fluorescent dye attached to the phosphate chain of the nucleotide rather than to the base.

As a natural step in the synthesis process, the phosphate chain is cleaved when the nucleotide is incorporated into the DNA strand.

Thus, upon incorporation of a phospholinked nucleotide, the DNA polymerase naturally frees the dye molecule from the nucleotide when it cleaves the phosphate chain.

Upon cleaving, the label quickly diffuses away, leaving a natural piece of DNA without evidence of labeling.

The Sequel, Sequel II and Sequel IIe Instruments

The Sequel, Sequel II and Sequel IIe instruments conduct, monitor, and analyze single molecule biochemical reactions in real time.

SMRT Sequencing is based on following the activity of DNA polymerase on individual DNA molecules in real time which occurs on our SMRT cells that are monitored and analyzed within our Sequel I, II, and IIe systems.

Carried out on SMRTbell templates, which attach hairpin adapters to the ends of double-stranded DNA molecules to be sequenced, SMRT sequencing allows for the successive sequencing of both the forward and reverse strands of the individual DNA molecule occurring multiple times, thereby allowing for the same base of the same molecule to be sequenced more than once in a sequencing run.

According to research we performed in collaboration with other researchers subsequently published in Nature Biotechnology in 2019, the base calls from the resulting subreads can be processed to generate the final base call in an analytical procedure called circular consensus sequencing, leading to what we have defined as our HiFi sequence reads which have high accuracy typically being defined as having greater than 99% read accuracy, but often exceeding greater than 99.9% accuracy according to research we performed in collaboration with other researchers, subsequently published in Nature Biotechnology in 2019.

While HiFi reads have been utilized routinely for DNA inserts in the kilobase (1000 bases) range for applications such as full-length RNA sequencing or amplicon sequencing, advancements made a few years ago to increase the number of bases covered by the polymerase to greater than ~50,000 bases has allowed us to routinely increase the size of DNA fragments that can be subjected to HiFi sequencing, ranging currently to up to 25 kilobases in size providing sufficient read length with our accuracy to support a multitude of applications across human health, plant and animal, and microbiology, according to research we performed in collaboration with other researchers, subsequently published by Scientific Data in 2020.

The ability to generate single-DNA molecule sequence reads that are both long and highly accurate allows researchers to obtain more contiguous, complete and accurate genomic data, thereby allowing for greater insights into the complexity of biological systems.

Sequel, Sequel II and Sequel IIe Instruments

Our Sequel, Sequel II and Sequel IIe instruments conduct, monitor, and analyze single molecule biochemical reactions in real time.

The instruments use extremely sensitive imaging systems to collect the light pulses emitted by fluorescent reagents allowing the observation of biological processes.

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Using the recorded information, light pulses are converted into either an A, C, G or T base call with associated quality metrics.

Once sequencing is started, the real-time data is delivered to the system’s primary analysis pipeline, which outputs base identity and quality values, or QVs.

We enable our customers to achieve very high accuracy on long, individual DNA fragments using our Circular Consensus Sequencing method, whereby the same DNA fragment is repetitively read to overcome random errors that can occur on each pass.

This proprietary method of producing what we call “HiFi reads” differentiates PacBio sequencing from other long-read technologies.

Users who generate HiFi reads with PacBio systems can sequence single molecule DNA fragments up to 25,000 base pairs in length with an average accuracy of 99.9%.

SMRT Sequencing Advantages

Sequencing based on our SMRT technology offers the following key benefits:

 Longer read lengths

SMRT technology has been demonstrated to produce read lengths that are significantly longer than those of previous sequencing technologies .

With reads of tens of kilobases in length, users can assemble complete genomes and sequence full-length transcripts.

Long read lengths are an important factor in enabling a comprehensive view of the genome, as they can reveal multiple types of genetic variation such as structural variants.

 High accuracy

Users of SMRT technology can achieve very high accuracy due to the attributes of SMRT sequencing, including accurate mapping of long reads, lack of reliance on amplification during sample preparation (which can result in amplification bias), and lower systematic bias.

In addition, using PacBio’s proprietary Circular Consensus Sequencing method, our customers can generate HiFi reads on single molecule DNA fragments up to 25,000 base pairs in length with an average accuracy of 99.9%.

This accuracy provides the information users need to confidently call and detect all types of variants.

 More uniformity and less systematic error

The sample preparation step for SMRT sequencing is compatible with but does not require amplification;

when amplification is not used during sample preparation, the reads are not subject to amplification bias.

Importantly, this allows for uniform identification of all bases present in a DNA sample and uniform sequence coverage.

As a result, SMRT sequencing can detect and identify regions and entire genes that may be missed by short-read sequencing technologies.

In addition, SMRT sequencing can achieve high accuracy when sequencing through complex and highly repetitive regions, whereas other sequencing methods are unable to resolve such regions, which can often result in poor accuracy.

 Ability to observe and capture kinetic information

The ability to observe the activity of a DNA polymerase in real time enables the PacBio RS II, Sequel, and Sequel II Systems to collect, measure and assess the dynamics and timing of nucleotides being added to a growing DNA strand, referred to as kinetics.

It is well established in the scientific community that chemical modification of DNA such as the addition of a methyl group, known as methylation, can alter the biological activity of the affected nucleotide.

The Sequel and Sequel II Systems detect changes in kinetics automatically by capturing and recording changes in the duration of, and time period between, each of the fluorescent pulses during a typical sequencing analysis.

Integrated software can then translate these kinetic signatures into uniquely characterized modified bases such as 6-mA, 4-mC and 5-mC.

Other sequencing systems, which rely on a sample preparation amplification step or are limited by signal resolution, are unable to directly measure this type of kinetic data.

 Flexibility

Our sequencing systems have the ability to scale the throughput and cost of sequencing across a range of small to large projects.

They can be used with a variety of sample types and can output a range of DNA lengths.

We entered the market with our first commercial product, the PacBio RS System, during the second quarter of 2011 and launched the higher performance PacBio RS II System during the second quarter of 2013.

In September 2015, we announced the Sequel System, which is based on the same underlying SMRT technology as the PacBio RS II System, but the Sequel System can achieve up to approximately seven times the throughput using the SMRT Cell 1M chip.

In April 2019, we introduced the Sequel II System, which can achieve approximately eight times the throughput of the Sequel System, utilizing our new SMRT Cell 8M chip.

Coupled with chemistry and software improvements for the Sequel II System released during the fourth quarter of 2019, customers commonly generate up to 15 times as much throughput on Sequel II Systems, compared with the throughput generated on Sequel systems.

Our sequencing systems provide access to a wide range of applications and are designed for expandable improvements to performance capability and new application capabilities through chemistry and software enhancements without necessitating changes to instrument hardware.

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.

PacBio’s Systems

The PacBio RS II, Sequel, Sequel II and Sequel IIe Systems conduct, monitor, and analyze biochemical sequencing reactions.

PacBio systems are integrated units that include high performance optics, automated liquid handling, a touchscreen control interface and computational hardware and software.

Each instrument’s high performance optics monitor the ZMWs in a SMRT Cell in real time.

The automated liquid handling system performs reagent mixing and prepares SMRT Cells.

Each instrument’s touchscreen control interface is the user’s primary control center to design and monitor experiments.

The computational hardware and software in each instrument is responsible for processing the sequencing data produced by the SMRT Cells.

The PacBio Systems have been designed to allow for performance improvements to be easily integrated into the systems.

We no longer manufacture the PacBio RS II instrument.

Customers must purchase proprietary consumable products to run their PacBio Systems.

Once sequencing is started, the real-time data is delivered to the system’s primary analysis pipeline, which outputs base identity and quality values.

Customers purchase proprietary consumable products to run their PacBio systems.

Our consumable products include our proprietary SMRT Cells and reagent kits.

One SMRT Cell is consumed per sequencing reaction, and scientists can choose the number of SMRT Cells they use per experiment.

SMRT Cells are individually and hermetically sealed, then packaged together into a streamlined four-pack tray.

We offer several reagent kits, each designed to address a specific step in the workflow.

We offer several reagent kits, each designed to address a specific step in the core sequencing workflow.

A template preparation kit is used to convert DNA into SMRTbell ® double-stranded DNA library formats and includes typical molecular biology reagents, such as ligase, buffers and exonucleases.

Our binding kits include our modified DNA polymerase, and are used to bind SMRTbell libraries to the polymerase in preparation for sequencing.

Our sequencing kits contain reagents required for on-instrument, real-time sequencing, including the phospholinked nucleotides.

Product Enhancements

Since the introduction of our products in 2011, we have continued to significantly enhance the performance of PacBio sequencing systems through a combination of sample preparation protocol enhancements, software releases, and new sequencing reagent chemistries.

By providing an increasing number of longer reads per instrument run, the new chemistries have enabled users to assemble more genomes to a high quality.

We have continually improved our software to expand the number of supported applications such as large genome assembly, structural variant analysis, variant detection, sequencing of transcript isoforms produced from genes, metagenomics, and phasing of haplotypes in large amplicons.

Market for Our Products

Our customers use our products for sequencing genomes and transcriptomes across a wide range of organisms.

Initially, customers in research, government and commercial markets used PacBio Systems to generate more complete assemblies of small and medium size genomes, such as bacteria and fungi, and for sequencing targeted regions of larger genomes such as humans and plants.

As throughput and read lengths have increased, the complexity and size of genomes being resolved with SMRT sequencing have grown.

Scientists now use SMRT sequencing to generate genome assemblies of numerous plant, human and other animal genes, including characterization of

transcriptomes through full-length isoform sequencing, and phase complex genomic regions like full-length human leukocyte antigen, or HLA, genes.

With continued performance improvements of our products, we anticipate increasing both mindshare and market share within research, government and commercial markets such as human biomedical research, plant and animal sciences, microbiology & infectious disease, and immunogenomics.

There are a number of emerging markets for sequencing-based tests, including molecular diagnostics, which represent significant potential opportunities for our products.

The development of these markets is subject to variability driven by ongoing changes in the competitive landscape, evolving regulatory requirements, government funding of research and development activities, and macroeconomic conditions.

Introductions of new technologies and products, while positive to the overall development of these markets, may result in greater competition for the limited financial resources available.

As we continue to expand into these emerging markets, the development of our business will be impacted by the variability of the factors affecting the growth of these markets.

Our core sequencing kits contain reagents required for on-instrument, real-time sequencing, including the phospholinked nucleotides.

In addition, we offer HiFiViral for SARS-CoV-2, our first fit-for-purpose, end-to-end solution for COVID-19 genome sequencing.

This solution uses a differentiated molecular inversion probe (MIPs) design which is robust to the emergence of new variants in the COVID-19 genome and allows for detection of all known classes of variation across the entire viral genome.

Both of these characteristics are required for efficient and effective public health surveillance programs battling the COVID-19 pandemic.

The solution also includes fit-for-purpose software that enables automated variant calling and preparation of files for submission into public databases tracking the evolution of the COVID-19 genome.

S BB Short-read Sequencing

In contrast to SMRT sequencing, Sequencing by Binding (SBB®) reads short fragments of DNA (hundreds of bases instead of kilobases) in a massively parallel manner, thereby achieving higher throughput and lower price per datapoint relative to long read solutions.

Current short-read next generation sequencing technologies available in the market incur various rates of errors in results.

Researchers deploy multiple tactics to try to mitigate these effects, including oversampling or implementing complex library preparation methods, yet still face challenges, including missing rare variants.

We believe our proprietary SBB approach will enable researchers to address the gap in detecting rare variants, especially in complex heterogenous samples.

Employing a two-phase sequencing chemistry, the SBB approach binds a dye-labeled nucleotide without incorporation into the DNA chain, then removes that base, then blocks and extends with a terminated nucleotide.

Using nucleotides with single modifications, we incorporate more native bases, avoiding potential scarring due to fluorescent linker presence.

This design helps avoid raw errors and we believe can help us develop a product with substantially greater accuracy than currently marketed short read sequencing products.

SBB enables simplified upfront library preparation, redefines coverage requirements and reduces bioinformatic workload for downstream analysis.

The accuracy of our novel sequencing approach has the potential to advance translational cancer research, drive higher fidelity single-cell applications, and broadly enable clinical sequencing—even in regions of the genome prone to sequencing errors with other short-read sequencing technologies.

Our Strategy for Growth

To enable the promise of genomics, our strategy includes the following key elements:

 Continue to drive commercial adoption and utilization of our current generation Sequel II/IIe platform

 Drive clinical utility of HiFi long-read sequencing by completing development of our next generation higher throughput HiFi long-read sequencing platform

 Complete development of our SBB short-read sequencing platform

 Develop applications that expand existing applications for our sequencing solutions

 Create an ecosystem of customers, partners and collaborators whose expertise and offerings complement and enhance the capabilities and utility of our technology and increase genomic data available on our platforms

Marketing, Sales, Service and Support

We market our products through a direct sales force in North America and parts of Europe and through distribution partners in Asia, certain other parts of Europe, the Middle East and Africa, and Latin America.

Our sales strategy involves the use of a combination of sales personnel and field application scientists.

The role of our sales personnel is to educate customers on the advantages of SMRT technology and the applications that our technology makes possible.

The role of our field application scientists is to provide on-site training and scientific technical support to prospective and existing customers and to encourage customer utilization of our SMRT sequencing technology.

Our field application scientists are technical experts, often with advanced degrees, and generally have extensive experience in academic research and core sequencing lab experience.

Service for our instruments is performed by field service engineers.

These field service engineers are trained by experienced personnel to test, trouble-shoot, and service instruments installed at customer sites.

In addition, we maintain an applications lab team in Menlo Park, California composed of scientific experts who can transfer knowledge from the research and development team to the field application scientists.

The applications lab team also runs foundational scientific collaborations and proof of principle studies, which help demonstrate the value of our product offering to prospective customers.

We plan to continue to invest in growing our marketing, sales, service and support resources as we drive continued adoption of products, launch new products and expand our customer base.

Our business is subject to seasonal trends.

See “Risk Factors— Seasonality may cause fluctuations in our revenue and results of operations ” for additional information.

Our customers include research institutions, commercial laboratories, genome centers, clinical, government and academic institutions, genomics service providers, pharmaceutical companies and agricultural companies.

In general, our customers will isolate, prepare and analyze genetic samples using PacBio sequencing systems in their own research labs, or they will send their genetic samples to third party service providers who in turn will sequence the samples with PacBio systems and provide the sequence data back to the customer for further analysis.

See the Risk Fact ors section, specifically the risk factor titled Seasonality may cause fluctuations in our revenue and results of operations for additional information.

In general, our customers will isolate, prepare and analyze genetic samples using PacBio sequencing systems in their own laboratories, or they will send their genetic samples to third party service providers who in turn will sequence the samples with PacBio systems and provide the sequence data back to the customer for further analysis.

For example, customers in academic research institutions may have bacteria, animal, or human DNA samples isolated from various sources while agricultural biology companies may have DNA samples isolated from different strains of rice, corn or other crops.

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In general, the broader adoption of new technologies by mainstream customers can take a number of years.

We currently sell our products to a number of customers outside the United States, including customers in other areas of North America, Europe, Middle East, Africa, Asia Pacific and South America.

Revenue from customers outside the United States totaled $43.1 million, or 55% of our total revenue during fiscal 2020, compared to $48.1 million, or 53% of our total revenue during fiscal 2019 and $44.7 million, or 57% of our total revenue during fiscal 2018.

As of December 31, 2021, our instrument backlog was approximately $2.0 million, compared to $10.1 million as of December 31, 2020.

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Manufacturing

Our principal manufacturing activities are performed at our headquarters in Menlo Park, California.

We currently perform some of the manufacturing and all of the final integration of our instruments in-house, while outsourcing most sub-assemblies to third-party manufacturers.

With respect to the manufacture of SMRT Cells, we subcontract wafer fabrication and processing to semiconductor processing facilities, but conduct critical surface treatment processes internally.

We also subcontract the packaging of SMRT Cells, and bring them back in-house for final testing.

In addition, we manufacture critical reagents in-house, including our phospholinked nucleotides and our DNA polymerase.

We manufacture sequencing instruments, SMRT cells and reagents.

Our key manufacturing and service facility in Menlo Park, California has received ISO 13485 and ISO 9001 certifications for the design, development, manufacture, distribution, installation, and servicing of its nucleic acid sequencing platforms.

We utilize subcontract manufacturers for components of the manufacturing process.

We purchase both custom and off-the-shelf components from a large number of suppliers and subject them to significant quality specifications.

We periodically conduct quality audits of most critical suppliers and have established a supplier certification program.

We periodically conduct quality audits of most critical suppliers and

have established a supplier certification program.

Some of the components required in our products are currently either sole sourced or single sourced.

If the capabilities of our suppliers and component manufacturers are limited or stopped, due to disasters, quality, regulatory, or other reasons, it could negatively impact our ability to manufacture our products.

Research and Development

Our SMRT technology requires the blending of a number of unique disciplines, namely nanofabrication, physics, photonics, optics, molecular biology, engineering, signal processing, high performance computing, and bioinformatics.

Our research and development team is a blend of these disciplines creating a single, cross-functional /operating unit.

We have also established productive working relationships with technology industry leaders, as well as leading academic centers, to augment and complement our internal research and development efforts.

We plan to continue our investment in research and development to enhance the performance and expand the application of our current products, and introduce additional products based on our SMRT technology.

Our goals include further improvements in sequencing read length and mappable data per SMRT Cell, chemistry and software enhancements, and enhancements in sample preparation and bioinformatics tools that take advantage of the capabilities of our products.

In addition, our engineering teams will continue their focus on increasing instrument component and system reliability, reducing costs, and implementing additional system flexibility and versatility through the enhancement of existing products and development of new products.

We have historically made and plan to continue to make significant investments in research and development.

Our research and development efforts focus on programs to develop new and existing platforms, as well as increase throughput and decrease costs on behalf of our customers.

We are currently developing higher throughput platforms that encompass our HiFI long read sequencing.

We also have a mid-throughput short read Sequencing by Binding platform that is currently under development.

In addition to platform development, we also innovate across end-to-end workflows to improve usability, as well as develop new applications for the advancement of human health.

Intellectual Property

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Our current patent portfolio, including patents exclusively licensed to us, is directed to various technologies, including SMRT nucleic acid sequencing and other methods for analyzing biological samples, ZMW arrays, surface treatments, phospholinked nucleotides and other reagents for use in nucleic acid sequencing, optical components and systems, processes for identifying nucleotides within nucleic acid sequences and processes for analysis and comparison of nucleic acid sequence data.

With the acquisition of Omniome and Circulomics, we have further obtained patent applications related to short read nucleic acid sequencing and nucleic acid preparation and purification.

Some of the patents and applications that we own, as well as some of the patents and applications that we have licensed from other parties, are subject to U.S.

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(“Thermo”), Oxford Nanopore Technologies Ltd.

(“ONT Ltd.”) , Roche, and Qiagen N.V.

Many of these companies currently have greater financial, technical, research and/or other resources than we do.

They also have larger and more established manufacturing capabilities and marketing, sales and support functions.

(“ONT Ltd.”) , Roche, Qiagen N.V.

(“Qiagen”), Element Biosciences, Inc.

(“Element”), Bionano Genomics, Inc.

(“Bionano”), and Singular Genomics Systems, Inc.

(“Singular”).

These companies may have different levels of financial, technical, manufacturing, administrative and support resources available to them.

We expect the competition to intensify within the overall nucleic acid sequencing market as there are also several companies developing new sequencing technologies, products and/or services.

Increased competition may result in pricing pressures, which could harm our sales, profitability or share of supply.

In order for us to maintain and increase our sales, we will need to demonstrate that our products deliver superior performance and value as a result of our key differentiators, including single molecule, real-time resolution, the combination of very high consensus accuracy and long read lengths with the ability to detect real-time kinetic information, fast time to result and flexibility, as well as the breadth and depth of current and future products and applications.

In order for us to maintain and increase our sales, we will need to demonstrate that our products deliver superior performance and value as a result of our key differentiators.

Our HiFi long-read sequencing will need to continue to deliver very high consensus accuracy and long read lengths and include single molecule, real-time resolution, with the ability to detect real-time kinetic information, fast time to result and flexibility, as well as support the breadth and depth of current and future applications.

Government Regulation

Our products are not currently subject to U.S.

Food and Drug Administration (FDA) clearance or approval since they are not intended or labeled for use in the diagnosis, prevention, or treatment of any disease, and are labeled and promoted as “For Research Use Only” (RUO) products.

The development, testing, manufacturing, marketing, postmarket surveillance, distribution, advertising and labeling of certain medical devices, including in vitro diagnostic products and laboratory-developed tests, are subject to regulation in the United States by the Center for Devices and Radiological Health of the U.S.

Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FDCA) and comparable state and foreign regulatory agencies.

FDA defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related article, including any component part or accessory, which is (i) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (ii) intended to affect the structure or any function of the body of man or other animals and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.

Medical devices to be commercially distributed in the United States must receive from the FDA either clearance of a premarket notification, known as 510(k), or premarket approval pursuant to the FDC Act prior to marketing, unless subject to an exemption.

We intend to label and sell our products for research use only (“RUO”) and expect to sell them to research customers in various settings, including academic institutions, life sciences and research laboratories that conduct research, and biopharmaceutical and biotechnology companies for non-diagnostic and non-clinical purposes.

Our current RUO products are not intended or promoted for use in clinical practice in the diagnosis of disease or other conditions, and they are labeled for research use only, not for use in diagnostic procedures.

Accordingly, we believe our products, as we intend to market them, are not subject to regulation by FDA.

Rather, while FDA regulations require that RUO products be labeled for research use only and to market and distribute RUO products in accordance with the FDA RUO guidance, the regulations do not subject RUO products to the FDA’s jurisdiction or the broader pre- and postmarket controls for medical devices .

However, in the future, certain of our products or related applications , such as those that may be developed for clinical uses, could be subject to FDA regulation, or the FDA’s regulatory jurisdiction could be expanded to include our products.

As we expand product lines to potentially address clinical applications including the diagnosis of disease, regulation by governmental authorities in the United States and other countries may become an increasingly significant factor in development, testing,

production, and marketing.

In the future, products that we develop in the molecular diagnostic markets, depending on their intended use, may be regulated as medical devices or in vitro diagnostic products (IVDs) by the FDA and comparable agencies in other countries.

If we wish to label and expand product lines to address the diagnosis of disease, regulation by governmental authorities in the United States and other countries will become an increasingly significant factor in development, testing, production, and marketing.

In the future, products that we may develop in the molecular diagnostic markets, depending on their intended use, may be regulated as medical devices or in vitro diagnostic products (“IVDs”) by the FDA and comparable agencies in other countries.

In the U.S., if we market our products for use in performing clinical diagnostics, such products would be subject to regulation by the FDA under premarket and postmarket control as medical devices, unless an exemption applies, and we would be required to obtain either prior 510(k) clearance or prior premarket approval from the FDA before commercializing the product.

Obtaining the requisite regulatory approvals can be expensive and may involve considerable delay.

Some countries have regulatory review processes that are substantially longer than U.S.

Failure to obtain regulatory approval in a timely manner and meet all of the local requirements including language and specific safety standards in any foreign country in which we plan to market our products could prevent us from marketing products in such countries or subject us to sanctions and fines.

Failure to obtain regulatory approval in a timely manner and meet all of the local regulatory requirements including language and specific safety standards in any foreign country in which we plan to market our products could prevent us from marketing products in such countries or subject us to sanctions and fines.

Changes to the current regulatory framework, including the imposition of additional or new regulations, could arise at any time during the development or marketing of our products.

If our products that are labeled as RUO are or could be used for the diagnosis of disease, the regulatory requirements related to marketing, selling, and supporting such products could be uncertain.

This is true even if such use by our customers occurs without our consent.

In November 2013, the FDA issued a final guidance on products labeled RUO, which, among other things, reaffirmed that a company may not make any clinical or diagnostic claims about an RUO product, stating that merely including a labeling statement that the product is for research purposes only will not necessarily render the device exempt from the FDA’s clearance, approval, or other regulatory requirements if the totality of circumstances surrounding the distribution of the product indicates that the manufacturer knows its product is being used by customers for diagnostic uses or the manufacturer intends such a use.

These circumstances may include, among other things, written or verbal marketing claims regarding a product’s performance in clinical diagnostic applications and a manufacturer’s provision of technical support for such activities.

If FDA were to determine, based on the totality of circumstances, that our products labeled and marketed for RUO are intended for diagnostic purposes, they would be considered medical devices that will require clearance or approval prior to commercialization.

Further, sales of devices for diagnostic purposes may subject us to additional healthcare regulation.

We continue to monitor the changing legal and regulatory landscape to ensure our compliance with any applicable rules, laws and regulations.

The FDA classifies medical devices into one of three classes.

Devices deemed to pose lower risk to the patient are placed in either class I or II, which, unless an exemption applies, requires the manufacturer to submit a premarket notification requesting FDA clearance for commercial distribution pursuant to Section 510(k) of the FDCA.

This process, known as

510(k) clearance, requires that the manufacturer demonstrate that the device is substantially equivalent to a previously cleared and legally marketed 510(k) device or a “pre-amendment” class III device for which premarket approval applications (“PMAs”) have not been required by the FDA.

This FDA review process typically takes from four to twelve months, although it can take longer.

Most Class I devices are exempted from this 510(k) premarket submission requirement.

If no legally marketed predicate can be identified for a new device to enable the use of the 510(k) pathway, the device is automatically classified under the FDCA as Class III, which generally requires premarket approval, or PMA approval.

However, FDA can reclassify or use “de novo classification” for a device that meets the FDCA standards for a Class II device, permitting the device to be marketed without a PMA approval.

To grant such a reclassification, FDA must determine that the FDCA’s general controls alone, or general controls and special controls together, are sufficient to provide a reasonable assurance of the device’s safety and effectiveness.

The de novo classification route is generally less burdensome than the PMA approval process.

Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or those deemed not substantially equivalent to a legally marketed predicate device, are placed in class III.

Class III devices typically require PMA approval.

To obtain PMA approval, an applicant must demonstrate the reasonable safety and effectiveness of the device based, in part, on data obtained in clinical studies.

All clinical studies of investigational medical devices to determine safety and effectiveness must be conducted in accordance with FDA’s investigational device exemption (“IDE”) regulations, including the requirement for the study sponsor to submit an IDE application to FDA, unless exempt, which must become effective prior to commencing human clinical studies.

PMA reviews generally last between one and two years, although they can take longer.

Both the 510(k) and the PMA processes can be expensive and lengthy and may not result in clearance or approval.

If we are required to submit our products for premarket review by the FDA, we may be required to delay marketing and commercialization while we obtain premarket clearance or approval from the FDA.

There would be no assurance that we could ever obtain such clearance or approval.

All medical devices, including IVDs, that are regulated by the FDA are also subject to the quality system regulation.

Obtaining the requisite regulatory approvals, including the FDA quality system inspections that are required for PMA approval, can be expensive and may involve considerable delay.

The regulatory approval process for such products may be significantly delayed, may be significantly more expensive than anticipated, and may conclude without such products being approved by the FDA.

Without timely regulatory approval, we will not be able to launch or successfully commercialize such diagnostic products.

Changes to the current regulatory framework, including the imposition of additional or new regulations, could arise at any time during the development or marketing of our products.

This may negatively affect our ability to obtain or maintain FDA or comparable regulatory clearance or approval of our products in the future.

In addition, regulatory agencies may introduce new requirements that may change the regulatory requirements for us or our customers, or both.

As noted above, although our products are currently labeled and sold for research purposes only, the regulatory requirements related to marketing, selling, and supporting such products could be uncertain and depend on the totality of circumstances.

This uncertainty exists even if such use by our customers occurs without our consent.

If the FDA or other regulatory authorities assert that any of our RUO products are subject to regulatory clearance or approval, our business, financial condition , or results of operations could be adversely affected.

Certain of our products are currently available through laboratories that are certified under the Clinical Laboratory Improvements Amendments (CLIA) of 1988.

These products are commonly called “laboratory developed tests” (LDTs).

For a number of years, the FDA has exercised its regulatory enforcement discretion not to regulate LDTs as medical devices if created and used within a single laboratory.

However, the FDA is continually reexamining this regulatory approach and changes to the agency’s handling of LDTs could impact our business in ways that we cannot predict at this time.

We cannot predict the nature or extent of the FDA's final guidance or regulation of LDTs, in general, or with respect to our or our customers’ LDTs, in particular.

Certification of CLIA laboratories includes standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management, and quality control procedures.

CLIA also mandates that, for high complexity labs such as ours, to operate as a lab, we must have an accreditation by an organization recognized by CLIA such as the College of American Pathologists (CAP), which we have obtained and must maintain .

If we were to lose our CLIA certification or CAP accreditation, our business, financial condition, or results of operations could be adversely affected.

In addition, state laboratory licensing and inspection requirements may also apply to our products, which, in some cases, are more stringent than CLIA requirements.

For example, in some cases, our customers, including laboratories that offer services as part of our certified service provider program, may use our RUO products in their own laboratory-developed tests (“LDTs”) or in other FDA-regulated products for clinical diagnostic use.

The FDA has historically exercised enforcement discretion in not enforcing the medical device regulations against LDTs and LDT manufacturers.

However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used within a single laboratory.

In January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and LDT manufacturers, but would seek further public discussion on an appropriate oversight approach and give Congress an opportunity to develop a legislative solution.

More recently, the FDA has issued warning letters to genomics labs for illegally marketing genetic tests that claim to predict patients’ responses to specific medications, noting that the FDA has not created a legal “carve-out” for LDTs and retains discretion to take action when appropriate, such as when certain genomic tests raise significant public health concerns.

As laboratories and manufacturers develop more complex genetic tests and diagnostic software, FDA may increase its regulation of LDTs.

Any future legislative or administrative rule making or oversight of LDTs and LDT manufacturers, if and when finalized, may impact the sales of our products and how customers use our products, and may require us to change our business model in order to maintain compliance with these laws.

We would become subject to additional FDA requirements if our products are determined to

be medical devices or if we elect to seek 510(k) clearance or premarket approval.

If our products become subject to FDA regulation as medical devices, we would need to invest significant time and resources to ensure ongoing compliance with FDA quality system regulations and other postmarket regulatory requirements.

If our products become subject to FDA regulation as medical devices, the regulatory clearance or approval and the maintenance of continued and postmarket regulatory compliance for such products will be expensive, time-consuming, and uncertain both in timing and in outcome.

Commercialization of such regulated medical devices can increase our exposure under additional laws.

For example, medical device companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research, as well as sell, market and distribute any medical products for which we obtain marketing authorization.

Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, data privacy and security, and transparency laws and regulations related to payments and other transfers of value made to physicians and other healthcare providers.

If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment.

In the future, to the extent we develop any clinical diagnostic assays, we may pursue payment for such products through a diverse and broad range of channels and seek coverage and reimbursement by government health insurance programs and commercial third-party payors for such products.

In the United States, there is no uniform coverage for clinical laboratory tests.

The extent of coverage and rate of payment for covered services or items vary from payor to payor.

Obtaining coverage and reimbursement for such products can be uncertain, time-consuming, and expensive, and, even if favorable coverage and reimbursement status were attained for our tests, to the extent applicable, less favorable coverage policies and reimbursement rates may be implemented in the future.

Changes in healthcare regulatory policies could also increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our products, decrease our revenue and adversely impact sales of, and pricing of and reimbursement for, our products.

International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country.

In the future, if we decide to distribute or market our diagnostic products as IVDs in Europe, such products will be subject to regulation under the European Union (“EU”) IVD Medical Device Regulation (“IVDR”) EU 2017/746.

Outside of the EU, regulatory approval needs to be sought on a country-by-country basis in order to market medical devices.

Although there is a trend towards harmonization of a quality system, standards and regulations in each country may vary substantially which can affect timelines of introduction.

We are committed to the protection of our employees and the environment.

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Of these employees, 342 were in research and development, 101 were in operations and service, 178 were in marketing, sales and customer support, and 107 were in general and administration.

With the exception of our field-based sales, marketing and service teams, the majority of our employees are based out of our headquarters in Menlo Park, California.

With the exception of our field-based sales, marketing and service teams, the majority of our employees are in California.

None of our employees are represented by labor unions or are covered by a collective bargaining agreement with respect to their employment.

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Our talent acquisition team uses internal and external resources to recruit highly skilled candidates globally.

In 2020, we have been successful in hiring key positions throughout the organization that will help advance the company’s growth.

This includes an appointment of a new Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and Chief Commercial Officer.

In 2021, we were successful in hiring key positions throughout the organization that will help advance our growth.

This includes an appointment of a new Chief Commercial Officer, Chief Operating Officer, and Chief Accounting Officer.

We continue to attract and retain superior talent as measured by our minimal turnover rate and high employee service tenure.

Total Rewards

Our total rewards philosophy has been to create investment in our workforce by offering competitive compensation and benefits package.

We provide employees with compensation packages that include base salary, annual incentive bonuses, and long-term equity

Our total rewards philosophy has been to invest in our workforce by offering competitive and fair compensation and benefits packages.

We provide employees with compensation packages that include base salary, short-term incentives such as annual bonuses and commissions, and long-term equity awards.

We also offer comprehensive employee benefits, which vary by country and region, such as life, disability, and health insurance, health savings and flexible spending accounts, paid time off, paid parental leave, Employee Stock Purchase Program, and a 401(k) plan.

It is our expressed intent to be an employer of choice in our industry by providing market-competitive compensation and benefits package.

It is our expressed intent to be an employer of choice in our industry by providing market-competitive compensation and benefits packages.

Health, Safety, and Wellness

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These programs are highlighted regularly in our monthly human resources newsletters.

These investments and the prioritization of employee health, safety, and wellness took on particular significance in 2020 in light of COVID-19.

To protect and support our essential team members, we have implemented health and safety measures that included maximizing personal workspaces, changing shift schedules, providing personal protective equipment (PPE), instituting mandatory screening before accessing buildings and performing asymptomatic COVID-19 testing regularly for employees who work on site.

We continue our investments in and the prioritization of employee health, safety, and wellness in light of the COVID-19 pandemic.

To protect and support our essential team members, we have implemented health and safety measures that included a mandatory vaccination policy for our U.S.-based employees, maximizing personal workspaces, changing shift schedules, providing personal protective equipment (PPE), instituting mandatory screening before accessing buildings and performing asymptomatic COVID-19 testing regularly for employees who work on site.

We have also supported access to testing by holding on-site testing clinics available to employees and their family members.

In response to local stay-at-home orders and in alignment with CDC recommendations, we have limited our manufacturing and commercial operations based in Menlo Park, California.

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

We are monitoring this rapidly evolving situation and will continue to seek programs to educate and assist employees whenever possible.

We continue to monitor this evolving situation and will continue to seek programs to educate and assist employees whenever possible.

Diversity, Equity, and Inclusion

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Our mission is to value differences in races, ethnicities, religions, nationalities, genders, ages, sexual orientations, as well as education, skill sets and experience.

In 2020, we implemented a global training program on diversity awareness to help employees understand, recognize, respond, and prevent bias at all levels of our organization.

This is the first of our multi-pronged approach in building an inclusive culture.

We offer training programs on diversity awareness to help employees understand, recognize, respond, and prevent bias throughout the employee lifecycle.

We are focused on inclusive hiring practices, fair and equitable treatment, organizational flexibility, and training and resources.

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We believe in encouraging employees in becoming lifelong learners by providing ongoing learning and leadership training opportunities.

We provide a scaled learning platform of on-demand and virtual classroom learning focused on personal and professional development.

We provide a scaled learning platform of on-demand and virtual classroom learning focused on personal and

professional development.

While we strive to provide real-time recognition of employee performance, we have a formal annual review process not only to determine pay and equity adjustments tied to individual contributions, but to identify areas where training and development may be needed.

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The address of the site is www.sec.gov .

Additionally, we use our website as a channel of distribution for important company information.

Additionally, we use our website (including the blog section of our website) as well as our Twitter account ( @pacbio ) as a channel of distribution for important company information and to comply with our disclosure obligations under Regulation FD.

Important information, including press releases, analyst presentations and financial information regarding us, as well as corporate governance information, is routinely posted and accessible on the “Investor Relations” section of the website, which is accessible by clicking on the tab labeled “About Us - Investors” on our website home page.

In addition, important information is routinely posted and accessible on the blog section of our website, which is accessible through our website at www.pacb.com/blog , as well as our Twitter account ( @pacbio ).

Information on or that can be accessed through our website or our Twitter account is not incorporated by reference into this Annual Report on Form 10-K, and the inclusion of our website address is an inactive textual reference only .

The contents of our website and our Twitter account are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website or Twitter account are intended to be inactive textual references only.

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-K

Item 1. Business