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Item 1. Business

2023-02-28 compared with 2022-02-28 · 116 added, 88 removed, 220 unchanged (48% of the section changed)

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.

We are a premier life science technology company that is designing, developing, and manufacturing advanced sequencing solutions that enable scientists and clinical researchers to improve their understanding of the genome and ultimately, 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 Sequencing by Binding (SBB ® ) short-read sequencing technology.

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

Long-read sequencing was recognized by the journal Nature Methods as its “method of the year” for 2022 for its contributions to biological understanding and future potential.

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.

Recent Developments

On October 25, 2022, we announced two new sequencing platforms, Revio TM and Onso TM .

Revio is a new long-read sequencing system designed to enable the use of HiFi sequencing for large studies in human genetics, cancer research, and agricultural genomics.

We began taking orders for Revio in the fourth quarter of 2022 and expect to commence commercial Revio shipments in March 2023.

Onso, a short-read DNA sequencing system, is designed to deliver industry-leading sensitivity and specificity for novel insights in oncology, disease research, and other applications.

We commenced the beta program for Onso in the fourth quarter of 2022.

We began taking orders for Onso during the first quarter of 2023 and remain on track for commercial shipment in the second quarter of 2023.

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.

Genomics is core to all biological processes, and our advanced genomics tools provide scientists and clinical researchers with 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 .

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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.

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

Our products also have enhanced multi-omic capabilities to look beyond the genome to the transcriptome and epigenome, which we believe is key to deep understanding.

The Underlying Science

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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.

A human carries two copies of the chromosomes, one inherited from each parent.

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

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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.

These discoveries include the presence of chemical modifications to the 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:

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

Human Genomics:

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.

These genetic diseases are DNA differences, called variants, in the affected individuals.

Variants range in size from single nucleotide substitutions to large losses or gains of entire chromosomes.

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.

In addition, the ability of PacBio’s long-read sequencing technology to detect 5-Methylcytosine DNA methylation, an epigenetic modification 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:

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

Our sequencing technology delivers highly comprehensive and complete genomes, enabling federal agencies, public health organizations, and healthcare providers 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;

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

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

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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.

however, other technologies miss critical information by only sequencing a portion of RNA.

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.

As novel discoveries continue to be made using our long-read 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.

Based on testing internally and at beta customer sites, 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:

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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.

We have developed HiFi long-read sequencing based on Single-Molecule Real-Time (SMRT) technology, which accurately detects the nucleotide sequence and epigenetic status of individual DNA molecules.

We are also expanding our genomic solutions with our short-read 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.

Our sales consist of sequencing instruments, nanofluidic chips (SMRT Cells), and reagents for preparing DNA and performing sequencing based on our SMRT technology;

reagents for DNA extraction based on our nanobind technology;

and the services we perform for customers.

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.

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

Our technology is also capable of detecting epigenetic markers simultaneously by analyzing the kinetics of DNA polymerization that is affected, and thereby detectable, by epigenetic markers such as 5-methylcytosine or N 6 -methyladenine.

SMRT Technology

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

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.

SMRT Sequencing is based on following the activity of DNA polymerase on individual DNA molecules in real time that occurs on our SMRT Cells that are monitored and analyzed within our HiFi long-read sequencing systems:

the Revio system, Sequel II system, Sequel IIe system, and Sequel system.

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 base calls from the serial observation of the molecule 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.

HiFi reads typically are 15-20 kilobases in size, depending on the input fragments, 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 in 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.

HiFi Long-Read Sequencing Instruments:

Revio system + Sequel systems

Our Revio, 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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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.

HiFi Consumables

Customers purchase proprietary consumable products to run their PacBio systems, including our 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.

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.

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

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

We have also developed and offer the Multiplexed Arrays Sequencing (MAS-Seq) 3’ kit to enable cost-effective long-read single-cell RNA sequencing for a more complete interrogation of the transcriptome.

The MAS-Seq kit takes single-cell cDNA as an input and outputs a sequencing-ready library, which enables researchers to move beyond gene counting to get full-length isoform information, characterize the full diversity of transcript isoforms at the single-cell level and ultimately reveal cell type-specific spliced isoforms and expressed variants.

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.

This solution uses a differentiated molecular inversion probe (MIPs) design that 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 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.

In contrast to SMRT sequencing, SBB reads short fragments of DNA (hundreds of bases instead of kilobases) in a massively parallel manner.

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

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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.

SBB Short-Read Sequencing Instrument:

Our Onso instrument, currently under development, conducts, monitors, and analyzes SBB biochemical reactions.

The instrument uses extremely sensitive imaging systems to collect the light emitted by fluorescent reagents allowing the observation of biological processes.

Computer algorithms are used to translate the information that is captured by the optics system.

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 imaging data is delivered to the system’s primary analysis pipeline, which outputs base identity and quality values.

SBB Consumables

After Onso’s anticipated launch in the second quarter of 2023, our SBB consumable products will be available for purchase, including flow cells, clustering, and sequencing reagent kits.

One flow cell and associated sequencing reagent pack is consumed per sequencing reaction.

Each flow cell contains two lanes and scientists can choose to sequence different samples in each lane while additionally combining any number of flow cells needed per experiment.

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

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

Additionally for library preparation, our conversion kits include reagents to enable scientists to convert existing sequencing libraries into an SBB compatible format.

Finally, our clustering and sequencing kits contain all reagents required for generating sequence ready clusters on flow cell and performing SBB sequencing reactions on instrument, respectively.

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

 drive rapid adoption of Revio by converting existing Sequel II/IIe customers and attracting new PacBio customers

 demonstrate Onso’s extraordinary level of accuracy in the field and show how it can transform research in needle-in-haystack applications

 progress development of ultra-high-throughput and bench top long-read sequencers and next generation SBB short-read sequencer

 leverage current infrastructure to drive toward positive cash flow

 expand partnerships across ecosystem and workflow to drive customer adoption of SBB short-read sequencing and HiFi long-read sequencing

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.

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

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

See the Risk Fact ors section, specifically the risk factor titled Our operating results fluctuate from quarter to quarter and year over year, which makes our future results difficult to predict and could negatively impact the market price of our common stock for additional information.

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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.

For the years ended December 31, 2021, 2020 and 2019, one customer, Gene Company Limited, our primary distributor for China and Hong Kong, accounted for approximately 13%, 14% and 17% of our total revenue, respectively.

For the years ended December 31, 2022, 2021, and 2020, one customer accounted for approximately 12%, 13%, and 14% of our total revenue, respectively.

We believe that the majority of our current customers are early adopters of sequencing technology.

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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 of our 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.

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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.

Our research and development efforts focus on programs to develop new and existing platforms, as well as increasing throughput and decreasing 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.

Our mid-throughput short-read Sequencing by Binding platform, Onso, 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

Developing and maintaining a strong intellectual property position is an important element of our business.

We have sought, and will continue to seek, patent protection for our SMRT technology, for improvements to our SMRT technology, as well as for any of our other technologies where we believe such protection will be advantageous.

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.

Developing and maintaining a strong intellectual property portfolio is an important element of our business.

We have sought, and will continue to seek, patent protection for our SMRT and SBB technology, for improvements to our SMRT and SBB technology, as well as for any of our other technologies where we believe such protection will be advantageous.

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 short-read nucleic acid sequencing, nucleic acid preparation, and purification components and systems, processes for identifying nucleotides within nucleic acid sequences, and processes for analysis and comparison of nucleic acid sequence data.

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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We also have non-exclusive patent licenses with various third parties to supplement our own large and robust patent portfolio.

Of our exclusively licensed patent applications, 6 issued U.S.

Of our exclusively licensed patent applications, two issued U.S.

patents are licensed to us by the Cornell Research Foundation, which manages technology transfers on behalf of Cornell University.

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These include, but are not limited to, Illumina, Inc.

(“Illumina”), BGI Genomics, Thermo Fisher Scientific Inc.

(“Illumina”), BGI Genomics (also known as MGI or Complete Genomics), Thermo Fisher Scientific Inc.

(“Thermo”), Oxford Nanopore Technologies Ltd.

(“ONT Ltd.”) , Roche, Qiagen N.V.

(“ONT Ltd.”) , Roche Holding AG (“Roche”), Qiagen N.V.

(“Qiagen”), Element Biosciences, Inc.

(“Element”), Bionano Genomics, Inc.

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

(“Bionano”), Ultima Genomics, Inc.

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

(“Singular”).

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Government Regulation

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.

The development, testing, manufacturing, marketing, post-market 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.

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 pre-market notification, known as 510(k), or pre-market 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 .

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

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.

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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.

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 pre-market and post-market control as medical devices, unless an exemption applies, and we would be required to obtain either prior 510(k) clearance or prior pre-market approval from the FDA before commercializing the product.

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

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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.

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.

In November 2013, the FDA issued a final guidance on products labeled for research use only, 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.

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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.

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 pre-market 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 pre-market 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.

Most Class I devices are exempted from this 510(k) pre-market submission requirement.

However, the 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 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.

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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.

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.

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

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

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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.

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, the FDA may increase its regulation of LDTs.

Legislative and administrative proposals to amend the FDA's oversight of LDTs have been introduced in recent years, including the Verifying Accurate Leading-edge IVCT Development Act of 2021 (the “VALID Act”).

In September 2022, Congress passed the FDA user fee reauthorization legislation without substantive FDA policy riders, including the VALID Act, but Congress may revisit the policy riders and enact other FDA programmatic reforms in the future.

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.

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 pre-market approval.

If our products become subject to FDA regulation as medical devices, the regulatory clearance or approval and the maintenance of continued and post-market 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.

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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.

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.

In the future, if we decide to distribute or market our diagnostic products as IVDs in Europe, such products are 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.

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As of December 31, 2022, we had 769 full-time employees.

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.

Of these employees, 352 were in research and development, 64 were in operations, 36 were in service, 204 were in marketing, sales, and customer support, and 113 were in general and administration.

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

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

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

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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.

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Training and Development

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 believe in encouraging employees to 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.

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 information posted on, or that can be accessed through, our website 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 .

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 10-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through the “Investors” section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through the “Investor Relations” section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

The SEC also maintains a website that contains our SEC filings.

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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.

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 “Company - 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 ).

1 unchanged sentence

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

What changed 10-K

Item 1. Business