Pacific Biosciences of California (PACB) 2015年年度報告「NASDAQ」.pdf

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1、2015 Annual ReportUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549Form 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended December 31,2015Or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THESECURITIES EXC

2、HANGE ACT OF 1934For the transition period fromtoCommission File Number 001-34899Pacific Biosciences of California,Inc.(Exact name of registrant as specified in its charter)Delaware16-1590339(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)1380 Willow Ro

3、adMenlo Park,CA 9402594025(Address of principal executive offices)(Zip Code)(Registrants telephone number,including area code)(650)521-8000Securities registered pursuant to Section 12(b)of the Act:Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock,par value$0.001 per shareThe N

4、ASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known,seasoned issuer,as defined in Rule 405 of the SecuritiesAct.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section

5、 13 or Section 15(d)of theAct.Yes No Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of theSecurities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to filesuch reports),

6、and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,if any,everyInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(

7、232.405 of this chapter)duringthe preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,andwill not be contained to

8、 the best of registrants knowledge,in definitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K.Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or asmall

9、er reporting company.See the definitions of“large accelerated filer,”“accelerated filer”and“smaller reporting company”inRule 12b-2 of the Exchange Act.(Check one):Large accelerated filer Accelerated filerNon-accelerated filer(Do not check if a smaller reporting company)Smaller reporting company Indi

10、cate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the ExchangeAct).Yes No Aggregate market value of registrants common stock held by non-affiliates of the registrant on June 30,2015,based upon theclosing price of Common Stock on such date as reported by NASDAQ

11、Global Select Market,was approximately$354,484,000.Shares of voting stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates.Thisassumption regarding affiliate status is not necessarily a conclusive determination for other purposes.Number of shar

12、es outstanding of the issuers common stock as of March 7,2016:85,730,997DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrants definitive Proxy Statement relating to its 2015 Annual Meeting of Stockholders to be held onMay 17,2016 are incorporated by reference into Part III of this Form 10-

13、K where indicated.Such Proxy Statement will be filed withthe U.S.Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.Pacific Biosciences of California,Inc.Annual Report on Form 10-KPagePART IItem 1.Business2Item 1A.Risk Factors13Item 1B.Un

14、resolved Staff Comments32Item 2.Properties32Item 3.Legal Proceedings32Item 4.Mine Safety Disclosures32PART IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchasesof Equity Securities33Item 6.Selected Financial Data36Item 7.Managements Discussion and Analysis of

15、 Financial Condition and Results of Operations38Item 7A.Quantitative and Qualitative Disclosures about Market Risk55Item 8.Financial Statements and Supplementary Data56Item 9A.Controls and Procedures85PART IIIItem 10.Directors,Executive Officers and Corporate Governance87Item 11.Executive Compensati

16、on87Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters87Item 13.Certain Relationships and Related Transactions,and Director Independence87Item 14.Principal Accounting Fees and Services87PART IVItem 15.Exhibits,Financial Statement Schedules87Signatur

17、es88Exhibit Index90SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSDiscussions under the captions“Business”,“Risk Factors,”and“Managements Discussion and Analysis ofFinancial Condition and Results of Operations,”contain or may contain forward-looking statements that arebased on the beliefs and assu

18、mptions of the management of Pacific Biosciences of California,Inc.(the“Company,”“we,”“us,”or“our,”)and on information currently available to our management.The statementscontained in this Annual Report on Form 10-K that are not purely historical are forward-looking statementswithin the meaning of S

19、ection 27A of the Securities Act of 1933,as amended,and Section 21E of the SecuritiesExchange Act of 1934,as amended(the“Exchange Act”),and include,but are not limited to,our statementsregarding the attributes and sequencing advantages of SMRTtechnology and the Sequel System,marketopportunities,stra

20、tegic plans,including strategy for our business and related financing,expectations regardingthe conversion of backlog to revenue and the pricing and gross margin for products,expectations regarding ourcollaboration agreements including the expected benefits of the Companys agreement with Roche and t

21、heanticipated timing for Roche to release products,manufacturing plans including scaling of manufacturing ofSequel Systems and delivery of products,research and development plans,product development including,among other things,statements relating to future uses,quality or performance of,or benefits

22、 of using,products ortechnologies,updates or improvements of the companys products,competition,expectations regardingunrecognized income tax benefits,expectations regarding the impact of an increase in market rates on the valueof our investment portfolio,the sufficiency of cash,cash equivalents and

23、investments to fund projected operatingrequirements,and the effects of recent accounting pronouncements on our financial statements and other futureevents.Such statements may be signified by terms such as“anticipates,”“believes,”“could,”“estimates,”“expects,”“intends,”“may,”“plans,”“potential,”“pred

24、icts,”“projects,”“seeks,”“should,”“target,”“will,”“would”or similar expressions and the negatives of those terms.Forward-looking statements involve known andunknown risks,uncertainties and other factors that may cause our actual results,performance or achievements tobe materially different from any

25、future results,performance or achievements expressed or implied by theforward-looking statements.Factors that could cause or contribute to such differences include,but are not limitedto,those discussed under the heading“Risk Factors”in this report and in other documents we file with theSecurities an

26、d Exchange Commission(“SEC”).Given these risks and uncertainties,you should not place unduereliance on forward-looking statements.Also,forward-looking statements represent managements beliefs andassumptions as of the date of this report.Except as required by law,we assume no obligation to update for

27、ward-looking statements publicly,or to update the reasons actual results could differ materially from those anticipatedin these forward-looking statements,even if new information becomes available in the future.1ITEM 1.BUSINESSOverviewWe design,develop and manufacture sequencing systems to help scie

28、ntists resolve genetically complexproblems.Based on our novel Single Molecule,Real-Time(SMRT)Sequencing technology,our productsenable:de novo genome assembly to finish genomes in order to more fully identify,annotate and deciphergenomic structures;full-length transcript analysis to improve annotatio

29、ns in reference genomes,characterizealternatively spliced isoforms and find novel genes;targeted sequencing to more comprehensively characterizegenetic variations;and DNA base modification identification to help characterize epigenetic regulation and DNAdamage.Our technology combines very high conse

30、nsus accuracy and long read lengths with the ability to detectreal-time kinetic information.Our customers and our scientific collaborators have published numerous peer-reviewed articles in journalsincluding Nature,Science,Cell,PNAS and The New England Journal of Medicine highlighting the power andap

31、plications of SMRT sequencing in projects such as finishing genomes,structural variation discovery,isoformtranscriptome characterization,rare mutation discovery and the identification of chemical modifications of DNArelated to virulence and pathogenicity.Our research and development efforts are focu

32、sed on developing newproducts and further improving our existing products,including continuing chemistry and sample preparationimprovements to increase throughput and expand our supported applications.By providing access to geneticinformation that was previously inaccessible,we enable scientists to

33、confidently increase their understanding ofbiological systems.Pacific Biosciences of California,Inc.,formerly Nanofluidics,Inc.was incorporated in the State ofDelaware in 2000.Our executive offices are located at 1380 Willow Road,Menlo Park,California 94025,andour telephone number is(650)521-8000.Th

34、e Underlying ScienceGenetic inheritance in living systems is conveyed through a naturally occurring information storage systemknown as deoxyribonucleic acid,or DNA.DNA stores information in linear chains of the chemical basesadenine,cytosine,guanine and thymine,represented by the symbols A,C,G and T

35、 respectively.Inside livingcells,these chains usually exist in pairs bound together in a double helix by complementary bases,with A of onestrand always binding to a T of the other strand and C always binding to G.In humans,there are approximately three billion DNA base-pairs in the molecular bluepri

36、nt of life,calledthe genome.These three billion bases are divided into 23 chromosomes ranging in size from 50 million to250 million bases.Normally,there are two complete copies of the genome contained in each cell,one ofmaternal origin and the other of paternal origin.When cells divide,the genomes a

37、re replicated by an enzymecalled DNA polymerase,which visits each base in the sequence,creating a complementary copy of eachchromosome using building blocks called nucleotides.Contained within these chromosomes are approximately23,000 smaller regions,called genes,each one containing the recipe for a

38、 protein or group of related proteins.The natural process of protein production takes place in steps.In a simplified model,the first step istranscription,a process in which an enzyme called RNA polymerase uses DNA as a template to synthesize newstrands of messenger RNA,or mRNA.The mRNAs are then tra

39、nslated into proteins by ribosomes.The resultingproteins go on to play crucial roles in cellular structure and function and thus the operation of biological systems.Numerous scientific approaches have evolved to adapt to the emerging awareness of the magnitude ofcomplexity embedded in biological sys

40、tems.The field of genomics developed to study the interactions amongcomponents in the genome and the massive quantities of associated data.Subsequently,proteomics,transcriptomics and a number of other related fields emerged.Advances in biology over the next decade are expected to be shaped by a more

41、 detailed understanding of thefundamental complexity of biological systems.These systems vary among individuals in previouslyunrecognized ways and are influenced by factors including time,molecular interactions,and cell type.2Importantly for the future of genomics,the first few whole-genome sequenci

42、ng studies of disease haveshown that rare mutations play a critical role in human disease.These mutations would not have been detected inearlier studies because too few people,or perhaps only one person,carry the specific mutation.In addition,it isnow understood that structural changes to the genome

43、 in which whole sections are deleted,inverted,copied ormoved may be responsible for a significant fraction of variation among individuals.The scope of these structuralchanges challenges the very idea of a reference genome.Recent discoveries have highlighted additional complexities in the building bl

44、ocks of DNA and RNA,including the presence of modified bases.It has long been known that in humans and many other organisms,thecytosine bases can be chemically modified through the addition of a methyl group in a process calledmethylation,resulting in modified bases such as 5-methylcytosine(5-mC)and

45、 N4-methylcytosine(4-mC).Thesechemical modifications have been shown to play a role in embryonic development,have important impacts ondiseases such as cancer and can even affect the characteristics of offspring for multiple generations.Morerecently,it has been discovered that other modified bases,su

46、ch as 5-hydroxymethylcytosine,8-oxoguanine andmany others,play important physiological roles.For example,in bacteria,N6-methyladenine(6-mA)has beenshown to play an important role in pathogenicity.Another source of complexity derives from the processing of RNA molecules after being transcribed fromth

47、e genome.The majority of all genes code for different forms of a protein that can be made depending on thestructure of the RNA molecule,referred to as splice variants.A detailed understanding of both the expressionpattern and regulation of these variants is believed to play an important role in a nu

48、mber of critical biologicalprocesses.Recent advances in our understanding of biological complexity have highlighted the need for advanced toolssuch as the PacBioRS II System and the Sequel System to study DNA,RNA and proteins.In the field ofDNA sequencing,incremental technological advances have prov

49、ided novel insights into the structure andfunction of the genome.Despite these advances,scientists have not been able to fully characterize the humangenome and the genomes of other living organisms because of inherent limitations in these tools.Evolution of SequencingIn order to understand the limit

50、ations of current DNA sequencing technologies,it is important to understandthe sequencing process.This consists of three phases:sample preparation,physical sequencing,and analysis.Thefirst step of sample preparation is to either break the target genome into multiple small fragments or,dependingon th

51、e amount of sample DNA available,amplify the target region using a variety of molecular methods.In thephysical sequencing phase,the individual bases in each fragment are identified in order,creating individualreads.The number of individual bases identified contiguously is defined as read length.In t

52、he analysis phase,bioinformatics software is used to align overlapping reads,which allows the original genome to be assembledinto contiguous sequence.The longer the read length,the easier it is to assemble the genome.Sanger SequencingThe first automated sequencing methodology,often referred to as“Sa

53、nger sequencing,”was developed byFrederick Sanger in 1977.With this technology,during sample preparation,scientists first make different sizedfragments of DNA each starting from the same location.Each fragment ends with a particular base that is labeledwith one of four fluorescent dyes corresponding

54、 to that particular base.Then all of the fragments are distributedin order of their length by driving them through a gel.Information regarding the last base is used to determine theoriginal sequence.Under standard conditions,this method results in a read length that is approximately 700 baseson aver

55、age,but may be extended to 1,000 bases.These are relatively long read lengths compared with manynext-generation sequencing methods.However,Sanger sequencing is limited by the small amounts of data thatcan be processed per unit of time,referred to as throughput.3Short-read SequencingSeveral commercia

56、l DNA sequencing tools emerged in 2005 in response to the low throughput of Sangersequencing.Now commonly referred to as“short-read sequencing”,these methods achieve much higherthroughput by sequencing a large number of DNA molecules in parallel,but with the tradeoff of shorter readlengths.In most s

57、hort-read sequencing methodologies,tens of thousands of identical strands are anchored to a givenlocation 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,inc

58、orporatingnucleotides into the DNA strands,stopping the incorporation reaction,washing out the excess reagent,scanningto identify the incorporated base and finally treating that base so that the strand is ready for the next“flush andscan”cycle.This cycle is repeated until the reaction is no longer v

59、iable.Due to the large number of flushing,scanning and washing cycles required,the time to result for short-readsequencing methods can be longer,sometimes taking days.This repetitive process also limits the average readlength produced by most of these systems under standard sequencing conditions to

60、approximately 35 to 400bases.The short-read sequencing technologies require a large number of DNA molecules during the sequencingprocess.To generate enough DNA molecules,a copying method called PCR amplification is required duringsample preparation.This amplification process can introduce errors kno

61、wn as amplification bias.The effect ofthis bias is that resulting copies are not uniformly representative of the original template DNA.In cases wherethe original template DNA contains regions of relatively high G-C content or relatively high A-T content,thePCR amplification process tends to under-re

62、present these regions.As a result,these regions,which may containentire genes,can be completely missed.In summary,while short-read sequencing methods can offer very high throughput and low cost peridentified base,their disadvantages can include limited read length,variation in sequence coverage with

63、 regard torepresentation bias and accuracy,dependence on amplification,long time to result,and/or a need for manysamples to justify machine operation.The PacBio Solution Single Molecule,Real-Time TechnologyWe have developed our SMRT technology,which enables single molecule,real-time detection of bio

64、logicalprocesses,to address many of the limitations of previous sequencing technologies.By providing long readlengths,elimination of the dependence on amplification during sample preparation(which can result inamplification bias),very high consensus accuracy,and the ability to detect DNA base modifi

65、cations,the PacBioRS II System and the Sequel System provide more comprehensive and higher quality information of DNA andRNA sequence as well as epigenetic regulation and DNA damage.Pacific Biosciences SMRT TechnologySMRT technology enables the observation of DNA synthesis as it occurs in real time

66、by harnessing thenatural process of DNA replication,which in nature is a highly efficient and accurate process actuated by theDNA polymerase.The DNA polymerase attaches itself to a strand of DNA to be replicated,examines theindividual base at the point it is attached,and then determines which of fou

67、r building blocks,or nucleotides,isrequired to complement that individual base.After determining which nucleotide is required,the polymeraseincorporates that nucleotide into the growing strand being produced.After incorporation,the enzyme advances tothe next base to be replicated and the process is

68、repeated.4To overcome the challenges inherent in real-time observation of the natural activity of the DNA polymerase,an enzyme measuring approximately 15 nanometers(nm)in diameter,we offer three key innovations:The SMRT CellPhospholinked nucleotidesThe PacBio RS II and Sequel instrumentsThe SMRT Cel

69、lOne of the fundamental challenges with observing a single DNA polymerase molecule working in real timeis 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,t

70、he zero-mode waveguide,or ZMW.The ZMWs in our SMRT Cells consist of holes in an opaque layer,measuring only tens of nanometers indiameter forming nanoscale wells.The small size of the ZMW causes the intensity of visible laser light,whichhas a wavelength of approximately 600nm,to decay exponentially

71、in the ZMW.Therefore,laser light shined intothe ZMW from below is blocked from reaching the sequencing solution above the ZMW,providing selectiveillumination of only the bottom portion of the nanoscale well.DNA polymerases are anchored to the bottom ofthe glass surface of the nanoscale wells using p

72、roprietary techniques.Nucleotides,each type labeled with adifferent colored fluorophore,are then flooded above an array of ZMWs at the required concentration.When thelabeled nucleotides diffuse into the bottom portion of the nanoscale wells,which contain the anchored DNApolymerases,their fluorescenc

73、e can be monitored.When the correct nucleotide is detected by the polymerase,itis incorporated into the growing DNA strand in a process that takes milliseconds in contrast to simple diffusionwhich takes microseconds.This difference in time results in higher signal intensity for incorporated versusun

74、incorporated nucleotides,which creates a high signal-to-noise ratio.Thus,the ZMW provides the ability todetect a single incorporation event against the background of fluorescently labeled nucleotides at biologicallyrelevant concentrations.Our DNA sequencing is performed on proprietary SMRT Cells,eac

75、h having an array ofZMWs.The SMRT Cells for the PacBio RS II System each contain approximately 150,000 ZMWs,whereas theSMRT Cells for the Sequel System each contain approximately one million ZMWs.Each ZMW is capable ofcontaining a DNA polymerase molecule bound to a single DNA template.Currently,our

76、immobilization processrandomly distributes polymerases into ZMWs across the SMRT Cell,resulting in approximately one-third of theZMWs having a single template.Phospholinked NucleotidesOur proprietary phospholinked nucleotides have a fluorescent dye attached to the phosphate chain of thenucleotide ra

77、ther than to the base.As a natural step in the synthesis process,the phosphate chain is cleaved whenthe nucleotide is incorporated into the DNA strand.Thus,upon incorporation of a phospholinked nucleotide,theDNA polymerase naturally frees the dye molecule from the nucleotide when it cleaves the phos

78、phate chain.Uponcleaving,the label quickly diffuses away,leaving a natural piece of DNA without evidence of labeling.The PacBio RS II and Sequel InstrumentsThe PacBio RS II and Sequel instruments conduct,monitor,and analyze single molecule biochemicalreactions in real time.The instruments use extrem

79、ely sensitive imaging systems to collect the light pulses emittedby fluorescent reagents allowing the observation of biological processes.Computer algorithms are used totranslate the information that is captured by the optics system.Using the recorded information,light pulses areconverted into eithe

80、r an A,C,G or T base call with associated quality metrics.Once sequencing is started,thereal-time data is delivered to the systems primary analysis pipeline,which outputs base identity and qualityvalues,or QVs.To generate a consensus sequence from the data,an assembly process assembles the different

81、fragments from each ZMW based on common sequences.5SMRT Sequencing AdvantagesSequencing based on our SMRT technology offers the following key benefits:Longer read lengths.SMRT technology has been demonstrated to produce read lengths that aresignificantly longer than those of previous sequencing tech

82、nologies.Long read lengths are necessary tospan repetitive regions to efficiently assemble genomes.Long read lengths are an important factor inenabling a comprehensive view of the genome,as they can reveal multiple types of genetic variationsuch as structural variants.High consensus accuracy.Users o

83、f SMRT technology can achieve very high consensus accuracy dueto the attributes of SMRT sequencing,including long read lengths,lack of reliance on amplificationduring sample preparation(which can result in amplification bias),and lower systematic bias.Users ofshort-read sequencing technologies often

84、 cannot achieve comparable results due to their shorter readlengths and systematic bias.More uniformity and less systematic error.The sample preparation step for SMRT sequencing iscompatible with but does not require amplification;when amplification is not used during samplepreparation,the reads are

85、 not subject to amplification bias.Importantly,this allows for uniformidentification of all bases present in a DNA sample and uniform sequence coverage.As a result,SMRTsequencing can detect and identify regions and entire genes that may be missed by short-readsequencing technologies.Ability to obser

86、ve and capture kinetic information.The ability to observe the activity of a DNApolymerase in real time enables the PacBio RS II and Sequel Systems to collect,measure and assessthe dynamics and timing of nucleotides being added to a growing DNA strand,referred to as kinetics.Itis well established in

87、the scientific community that chemical modification of DNA such as the additionof a methyl group,known as methylation,can alter the biological activity of the affected nucleotide.The PacBio RS II and Sequel Systems detect changes in kinetics automatically by capturing andrecording changes in the dur

88、ation of,and time period between,each of the fluorescent pulses during atypical sequencing analysis.Integrated software can then translate these kinetic signatures intouniquely characterized modified bases such as 6-mA,4-mC and 5-mC.Other sequencing systems,which rely on a sample preparation amplifi

89、cation step or are limited by signal resolution,are unable todirectly measure this type of kinetic data.Flexibility.Our sequencing systems have the ability to scale the throughput and cost of sequencingacross a range of small to large projects.They can be used with a variety of sample types and cano

90、utput a range of DNA lengths.Our ProductsWe entered the market with our first commercial product,the PacBio RS System,during the second quarterof 2011 and launched the higher performance PacBio RS II System during the second quarter of 2013.InSeptember of 2015,we announced the Sequel System,which is

91、 based on the same underlying SMRT technologyas the PacBio RS II System,but can achieve up to approximately seven times the throughput with newly-designed SMRT Cells.Our sequencing systems provide access to a wide range of applications and are designedfor expandable improvements to performance capab

92、ility and new application capabilities through chemistry andsoftware enhancements without necessitating changes to instrument hardware.PacBio SystemsThe PacBio RS II and Sequel Systems conduct,monitor,and analyze biochemical sequencing reactions.ThePacBio RS II and Sequel instruments are integrated

93、units that include high performance optics,automated liquidhandling,a touchscreen control interface and computational hardware and software.Each instruments high6performance optics monitor the ZMWs in a SMRT Cell in real time.The automated liquid handling systemperforms reagent mixing and prepares S

94、MRT Cells.Each instruments touchscreen control interface is the usersprimary control center to design and monitor experiments.The computational hardware and software in eachinstrument is responsible for processing the sequencing data produced by the SMRT Cells.Both the PacBio RS IISystem and the Seq

95、uel System have been designed to allow for performance improvements to be easilyintegrated into the systems.ConsumablesCustomers must purchase proprietary consumable products to run either the PacBio RS II System or SequelSystem.Our consumable products include our proprietary SMRT Cells and reagent

96、kits.One SMRT Cell isconsumed per sequencing reaction,and scientists can choose the number of SMRT Cells they use perexperiment.For the PacBio RS II instrument,eight SMRT Cells containing approximately 150,000 ZMWs eachare individually and hermetically sealed then packaged together into a streamline

97、d 8Pac format.Sequel Systemcustomers purchase a similarly packaged,four SMRT Cell format with approximately one million ZMWs each.We offer several reagent kits,each designed to address a specific step in the workflow.A templatepreparation kit is used to convert DNA into SMRTbell double-stranded DNA

98、library formats and includestypical molecular biology reagents,such as ligase,buffers and exonucleases.Our binding kits include ourmodified DNA polymerase,and are used to bind SMRTbell libraries to the polymerase in preparation forsequencing.Our sequencing kits contain reagents required for on-instr

99、ument,real-time sequencing,including thephospholinked nucleotides.Product EnhancementsSince the introduction of our products in 2011,we have continued to significantly enhance the performanceof PacBio sequencing systems through a combination of sample preparation protocol enhancements,softwarereleas

100、es,and new sequencing reagent chemistries.By providing an increasing number of longer reads perinstrument run,the new chemistries have enabled users to assemble more genomes to a high quality.We havecontinually improved our software to expand the number of supported applications such as large genome

101、assembly,sequencing of transcript isoforms produced from genes,and phasing of haplotypes in large amplicons.During 2016,we plan to further improve our existing products,including chemistry and sample preparationimprovements to increase throughput and expand our supported applications,and to continue

102、 to develop newproducts.Market for Our ProductsOur customers use our products for sequencing genomes and transcriptomes across a wide range oforganisms.Initially,customers in research,government and commercial markets used the PacBio RS and RS IISystems to generate more complete assemblies of small

103、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 readlengths have increased,the complexity and size of genomes being resolved with SMRT sequencing have grown.Scientists now use SMRT sequencing to gene

104、rate genome assemblies of humans,plants&animals,characterizetranscriptomes through full-length isoform sequencing,and phase complex genomic regions like full-lengthhuman leukocyte antigen,or HLA,genes.With the introduction of the Sequel System,our new higher throughputand lower cost platform for SMR

105、T sequencing,we anticipate increasing both mindshare and market share withinresearch 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 molec

106、ular diagnostics,whichrepresent significant potential opportunities for our products.The development of these markets is subject tovariability driven by ongoing changes in the competitive landscape,evolving regulatory requirements,7government funding of research and development activities,and macroe

107、conomic conditions.Introductions ofnew technologies and products,while positive to the overall development of these markets,may result in greatercompetition for the limited financial resources available.As we continue to expand into these emerging markets,the development of our business will be impa

108、cted by the variability of the factors affecting the growth of thesemarkets.Pacific BiosciencesStrategyKey elements of our strategy include:Offer differentiated products based on our proprietary SMRT technology.Our SMRT technologyprovides a window into biological processes that has not previously be

109、en available.The combination ofour productsand underlying SMRT technologys ability to deliver long read lengths,high consensusaccuracy,low bias,and kinetic information affords the scientific community a new tool to conductresearch not possible with other sequencing technologies.Enhance product perfo

110、rmance and introduce new products to increase market share.The designof our sequencing systems allows for significant performance improvements.Our flexible platformsare designed to generate a recurring revenue stream through the sale of proprietary SMRT Cells andreagent kits.We plan to introduce add

111、itional product enhancements over time to further reduce DNAsequencing project costs and time to result while expanding application solutions.During 2015,weintroduced a new sequencing system called the Sequel System as well as a variety of samplepreparation improvements,and made significant enhancem

112、ents to our software analysis toolkit.Inaddition,software analysis tools have improved the ease of use of our products and have enabled ourcustomers to take greater advantage of their SMRT sequencing data.With the introduction of theSequel System,our new higher throughput and lower cost platform for

113、 SMRT sequencing,weanticipate increasing both market recognition and market share within the markets for our products.Weplan to continue introducing enhancements to our products over time and to develop new products.Create a global community of users to enhance informatics capabilities,develop sampl

114、epreparation solutions,and drive adoption of our products in new application and market areas.We work closely with our customers and collaborators to develop new applications and demonstrateSMRT sequencing capabilities on scientifically relevant projects.We partner with members of theinformatics com

115、munity to develop and define standards for working with single molecule,real-timesequence data.We maintain the PacBio DevNet site,a website on which we make available varioussoftware tools and information about our SMRT sequencing technology to support academicinformatics developers,scientists and i

116、ndependent software vendors interested in creating tools to workwith SMRT sequencing data.This gives the user flexibility to perform further analysis of thesequencing data through third-party software or share data with collaborators.To help maximize theflexibility and functionality for users,our se

117、condary analysis algorithms are made available under opensource licenses.We also make available on our main corporate website various methods developedinternally and externally for simplifying and enhancing sample preparation protocols.Leverage SMRT technology and community engagement to expand appl

118、ication capabilities andpenetrate new markets.We plan to leverage our customerssuccesses with SMRT sequencing toexpand the capabilities of our products for applications our customers have identified as high-valuebased on the differentiating attributes of our technology.Early applications identified

119、by our customersinclude:whole genome sequencing,targeted sequencing of complex regions,isoform discovery andcharacterization,resolution of complex populations,and epigenetic analysis.We plan to develop wholeproduct solutions around these applications,making it easier for customers who are not typica

120、lly earlyadopters of new technology to take advantage of SMRT sequencing.In the long term,we believe that our SMRT technology may also be adapted for RNA transcriptionmonitoring,direct RNA sequencing,protein translation and ligand binding.We believe theseapplications can create substantial new marke

121、ts for our technology.8Partner with Roche to sell to the in vitro diagnostics market.In 2013,we entered into acollaboration agreement with F.Hoffman-La Roche Ltd(“Roche”),to jointly develop products basedon our SMRT technology for the human in vitro diagnostics market.As a world leader in in vitrodi

122、agnostics,Roche brings valuable expertise in designing products for clinical use and obtainingregulatory approvals to sell clinical products in the U.S.and around the world.We believe thecombination of our SMRT sequencing technology with Roches market position and expertise in invitro diagnostics wi

123、ll allow accelerated commercial success for both companies.Marketing,Sales,Service and SupportWe market our products through a direct sales force in North America and Europe and primarily throughdistributors in Asia.Our sales strategy involves the use of a combination of sales personnel and field ap

124、plicationscientists.The role of our sales personnel is to educate customers on the advantages of SMRT technology and theapplications that our technology makes possible.The role of our field application scientists is to provide on-sitetraining and scientific technical support to prospective and exist

125、ing customers.Our field application scientists aretechnical experts,often with advanced degrees,and generally have extensive experience in academic researchand core sequencing lab experience.Service for our instruments is performed by field service engineers.These field service engineers are trained

126、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 expertswho can transfer knowledge from the research and development team to the field application scient

127、ists.Theapplications lab team also runs foundational scientific collaborations and proof of principle studies,which helpdemonstrate the value of our product offering to prospective customers.CustomersOur customers include research institutions,commercial laboratories,genome centers,clinical,governme

128、ntand academic institutions,genomics service providers,pharmaceutical companies and agricultural companies.Ingeneral,our customers will isolate,prepare and analyze genetic samples using PacBio sequencing systems intheir own research labs to address their specific applications and scientific question

129、s.For example,customers inacademic research institutions may have bacteria,animal,or human DNA samples isolated from various sourceswhile agricultural biology companies may have DNA samples isolated from different strains of rice,corn orother crops.For the year ended December 31,2015,2014 and 2013,e

130、xcluding contractual revenue,no single endcustomer accounted for more than 10%of our total revenue,respectively.We believe that the majority of our current customers are early adopters of sequencing technology.Byfocusing our efforts on high-value applications,and developing whole product solutions a

131、round theseapplications,we seek to drive the adoption of our products across a broader customer base and into numerouslarge-scale projects.In general,the broader adoption of new technologies by mainstream customers can take anumber of years.We currently sell our products to a number of customers out

132、side the United States,including customers inother areas of North America,Europe,and Asia.Roche related contractual revenue is classified as revenue fromthe United States.Revenue from customers outside the United States totaled$24.9 million,or 27%of our totalrevenue during fiscal 2015,compared to$26

133、.2 million,or 43%of our total revenue,during fiscal 2014,andcompared to$14.6 million,or 52%of our total revenue,during fiscal 2013.BacklogAs of December 31,2015,our instrument backlog was approximately$16.7 million,compared to$8.4million as of December 31,2014.We define backlog as purchase orders or

134、 signed contracts from our customers9which we believe are firm and for which we have not yet recognized revenue.We expect to convert this backlogto revenue during 2016;however,our ability to do so is subject to customers who may seek to cancel or delaytheir orders even if we are prepared to fulfill

135、them.ManufacturingOur principal manufacturing facilities are located at our headquarters in Menlo Park,California.Wecurrently perform some of the manufacturing and all of the final integration of our instruments in-house,whileoutsourcing most sub-assemblies to third-party manufacturers.With respect

136、to the manufacture of SMRT Cells,we subcontract wafer fabrication and processing to semiconductor processing facilities,but conduct criticalsurface treatment processes internally.In addition,we currently manufacture critical reagents in-house,includingour phospholinked nucleotides and our DNA polyme

137、rase.We purchase both custom and off-the-shelf components from a large number of suppliers and subject themto significant quality specifications.We periodically conduct quality audits of most critical suppliers and haveestablished a supplier certification program.We purchase components through purch

138、ase orders.Some of thecomponents required in our products are currently either sole sourced or single sourced.Research and DevelopmentOur SMRT technology requires the blending of a number of unique disciplines,namely nanofabrication,physics,photonics,optics,molecular biology,engineering,signal proce

139、ssing,high performance computing,andbioinformatics.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 industryleaders,as well as leading academic centers,to augm

140、ent and complement our internal research and developmentefforts.Research and development expenses incurred were$60.4 million,$48.2 million and$45.2 million during2015,2014 and 2013,respectively.We plan to continue our investment in research and development to enhancethe performance and expand the ap

141、plication of our current products,and introduce additional products based onour SMRT technology.Our goals include further improvements in sequencing read length and mappable data perSMRT Cell,chemistry and software enhancements,and enhancements in sample preparation and bioinformaticstools that take

142、 advantage of the capabilities of our products.In addition,our engineering teams will continue theirfocus on increasing instrument component and system reliability,reducing costs,and implementing additionalsystem flexibility and versatility through the enhancement of existing products and developmen

143、t of newproducts.Intellectual PropertyDeveloping 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 ourSMRT technology,as well as for any of our other t

144、echnologies where we believe such protection will beadvantageous.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,phosp

145、holinked nucleotides and other reagents for use in nucleic acid sequencing,opticalcomponents and systems,processes for identifying nucleotides within nucleic acid sequences and processes foranalysis and comparison of nucleic acid sequence data.Some of the patents and applications that we own,as well

146、as some of the patents and applications that we have licensed from other parties,are subject to U.S.governmentmarch-in rights,whereby the U.S.government may disregard our exclusive patent rights on its own behalf or onbehalf of third parties by imposing licenses in certain circumstances,such as if w

147、e fail to achieve practicalapplication of the U.S.government funded technology,because action is necessary to alleviate health or safetyneeds,to meet requirements of federal regulations,or to give preference to U.S.industry.In addition,U.S.government funded inventions must be reported to the governm

148、ent and U.S.government funding must bedisclosed in any resulting patent applications.10As of December 31,2015,we own or hold exclusive licenses to 203 issued U.S.patents,113 pending U.S.patent applications,91 granted foreign patents and 85 pending foreign patent applications,including foreigncounter

149、parts of U.S.patent and patent applications.The full term of the issued U.S.patents will expire between2016 and 2033.We also have non-exclusive patent licenses with various third parties to supplement our ownlarge and robust patent portfolio.Of our exclusively licensed patent applications,22 issued

150、U.S.patents,one pending U.S.patent application,14 granted foreign patents and one pending foreign patent application are licensed to us by the Cornell ResearchFoundation,which manages technology transfers on behalf of Cornell University.We have also entered into alicense agreement with Indiana Unive

151、rsity Research and Technology Corporation,or IURTC,for U.S.PatentNo.6,399,335,which relates to nucleoside triphosphates that include a labeling group attached through theterminal phosphate group in the triphosphate chain.We have also entered into a license agreement with GEHealthcare Bio-Sciences Co

152、rp,or GE Healthcare,for several U.S.and foreign patents and pending patentapplications related to labeled nucleoside polyphosphate compounds.In September 2013,we entered into a Development,Commercialization and License Agreement(the“Roche Agreement”)with Roche,pursuant to which we:(i)will develop di

153、agnostic products for clinical useincluding sequencing systems and consumables based on our proprietary SMRT technology;(ii)granted toRoche an exclusive right to commercialize,and an exclusive license to sell,the developed diagnostic products forclinical use;and(iii)will manufacture and supply certa

154、in products intended for clinical use as the exclusivesupplier to Roche.We received a non-refundable up-front payment of$35.0 million in 2013,and milestonepayments totaling$40.0 million in 2014 and 2015 pursuant to the Roche Agreement.No further milestonepayments are expected under the Roche Agreeme

155、nt.The Roche Agreement has an initial term of thirteen yearsand provisions allowing Roche five-year renewals.Where patent protection is difficult to obtain or difficult to enforce for a particular technologicaldevelopment or the technological development derives greater value from being maintained a

156、s confidentialinformation,we seek to protect such information as trade secrets.CompetitionGiven the market opportunity,there are a significant number of competing companies offering DNAsequencing equipment or consumables.These include Illumina,Inc.and Thermo Fisher Scientific,Inc.Thesecompanies curr

157、ently have greater financial,technical,research and/or other resources than we do.They also havelarger and more established manufacturing capabilities and marketing,sales and support functions.We expect thecompetition to intensify within this market as there are also several companies in the process

158、 of developing new,potentially competing technologies,products and/or services,including Oxford Nanopore Technologies Ltd.Increased competition may result in pricing pressures,which could harm our sales,profitability or market share.In order for us to successfully compete against these companies,we

159、will need to demonstrate that ourproducts 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 todetect real-time kinetic information,fast ti

160、me to result and flexibility,as well as the breadth and depth of currentand future products and applications.EmployeesAs of December 31,2015,we had 394 full-time employees.Of these employees,146 were in research anddevelopment,81 were in operations,113 were in marketing,sales,service and support,and

161、 54 were in generaland administration.With the exception of our field-based sales and service teams,substantially all of ouremployees are located at our headquarters in Menlo Park,California.None of our employees are represented bylabor unions or are covered by a collective bargaining agreement with

162、 respect to their employment.We have notexperienced any work stoppages,and we consider our relationship with our employees to be good.11Available InformationOur website is located at .The information posted on our website is not incorporated intothis Annual Report on Form 10-K.Our Annual Report on F

163、orm 10-K,Quarterly Reports on Form 10-Q,CurrentReports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a)and 15(d)of theSecurities Exchange Act of 1934,as amended,are available free of charge through the“Investors”section of ourwebsite as soon as reasonably practicab

164、le after we electronically file such material with,or furnish it to,the SEC.Additionally,we use our website as a channel of distribution for important company information.Importantinformation,including press releases,analyst presentations and financial information regarding us,as well ascorporate go

165、vernance information,is routinely posted and accessible on the“Investor Relations”section of thewebsite,which is accessible by clicking on the tab labeled“About UsInvestors”on our website home page.Inaddition,important information is routinely posted and accessible on the blog section of our website

166、,which isaccessible by clicking on the tab labeled“Blog”on our website home page,as well as our Twitter account(pacbio).Information on or that can be accessed through our website or our Twitter account is not part of thisAnnual Report on Form 10-K,and the inclusion of our website address is an inact

167、ive textual reference only.12ITEM 1A.RISK FACTORSYou should consider carefully the risks and uncertainties described below,together with all of the otherinformation in this Annual Report on Form 10-K,which could materially affect our business,financial condition,results of operations and prospects.T

168、he risks described below are not the only risks facing us.Risks anduncertainties not currently known to us or that we currently deem to be immaterial also may materially affect ourbusiness,financial condition,results of operations and prospects.Risks Related to Our BusinessWe have limited experience

169、 as a commercial company.Our first commercial product launched in 2011 and we have limited sales to date.As such,we have limitedhistorical financial data upon which to base our projected revenue,planned operating expenses or upon which toevaluate our company and our commercial prospects.Furthermore,

170、we recently launched a new nucleic acidsequencing platform,the Sequel System but have made only limited deliveries of the Sequel System to-date.Based on our limited experience in developing and marketing new products,we may not be able to effectively:drive adoption of our current and future products

171、,including the Sequel System;attract and retain customers for our products;provide appropriate levels of customer training and support for our products;implement an effective marketing strategy to promote awareness of our products;develop,manufacture and commercialize new products or achieve an acce

172、ptable return on our researchand development efforts and expenses;comply with regulatory requirements applicable to our products;anticipate and adapt to changes in our market;maintain and develop strategic relationships with vendors and manufacturers to acquire necessarymaterials for the production

173、of our existing or future products;scale our manufacturing activities to meet potential demand at a reasonable cost;avoid infringement and misappropriation of third-party intellectual property;obtain any necessary licenses to third-party intellectual property on commercially reasonable terms;obtain

174、valid and enforceable patents that give us a competitive advantage;protect our proprietary technology;andattract,retain and motivate qualified personnel.In addition,a high percentage of our expenses is and will continue to be fixed.Accordingly,if we do notgenerate revenue as and when anticipated,our

175、 losses may be greater than expected and our operating results willsuffer.We have incurred losses to date,and we expect to continue to incur significant losses as we develop ourbusiness and may never achieve profitability.We have incurred net losses since inception and we cannot be certain if or whe

176、n we will produce sufficientrevenue from our operations to support our costs.While we achieved profitability for the fiscal quarter endedSeptember 30,2015,this result was largely due to a one-time gain on lease amendments,we incurred a net lossfor fiscal 2015,and,even if profitability is achieved in

177、 the future,we may not be able to sustain profitability on a13consistent basis.We expect to continue to incur substantial losses and negative cash flow from operations for theforeseeable future.If our products fail to achieve and sustain sufficient market acceptance,we will not generate expected rev

178、enueand our business may not succeed.We cannot be sure that our current or future products will gain acceptance in the marketplace at levelssufficient to support our costs.Our success depends,in part,on our ability to expand the market for geneticanalysis to include new applications that are not pra

179、cticable with other current technologies.To accomplish this,we must successfully commercialize,and continue development of,our proprietary Single Molecule,Real-Time(SMRT)technology for use in a variety of life science and other applications,including uses by academic,government and clinical laborato

180、ries,as well as pharmaceutical,diagnostic,biotechnology and agriculturecompanies,among others.There can be no assurance that we will be successful in securing additional customersfor our products.Furthermore,we cannot guarantee that our products will be satisfactory to potential customersin the mark

181、ets we seek to reach.These markets are new and dynamic,and there can be no assurance that theywill develop as quickly as we anticipate,that they will reach their full potential or that they will be receptive toour recently-launched Sequel System.As a result,we may be required to refocus our marketin

182、g efforts,and wemay have to make changes to the specifications of our products to enhance our ability to enter particular marketsmore quickly.Even if we are able to implement our technology successfully,we and/or our sales and distributionpartners may fail to achieve or sustain market acceptance of

183、our current or future products across the full range ofour intended life science and other applications.If the market for our products grows more slowly thananticipated,if we are unable to successfully scale the manufacturing of new products to meet demand,ifcompetitors develop better or more cost-e

184、ffective products or if we are unable to further grow our customer base,our current and future sales and revenue would be materially harmed and our business may not succeed.If we are unable to successfully develop and timely manufacture our products,including Sequel Systems andrelated consumables,ou

185、r business may be adversely affected.In light of the highly complex technologies involved in our products,there can be no assurance that we willbe able to manufacture and commercialize our new products on a timely basis or continue providing adequatesupport for our existing products.The commercial s

186、uccess of the Sequel System depends on a number of factors,including performance and reliability of the system,our anticipating and effectively addressing customerpreferences and demands,the success of our sales and marketing efforts,effective forecasting and managementof product demand,purchase com

187、mitments and inventory levels,effective management of manufacturing andsupply costs,and the quality of the Sequel System,including related consumables such as SMRT Cells andreagents.Should we face delays in or discover unexpected defects during the further development ormanufacturing process of Sequ

188、el instruments or consumables,including any delays or defects in softwaredevelopment or product functionality,the timing and success of the rollout of the Sequel System may besignificantly impacted,which may materially and negatively impact our revenue and gross margin.The ability ofour customers to

189、 successfully utilize the Sequel System will also depend on our ability to deliver high qualitySMRT Cells and reagents.We have designed new SMRT Cells and other consumables for the Sequel System,which are being sourced from a prototype chip vendor,and we are in the process of transferring production

190、 to ahigh-volume manufacturer and may experience unanticipated delays or other issues.We anticipate that our yieldson the manufacturing of the new SMRT Cells may initially be below desired levels and we may also experiencemanufacturing delays,product defects,or SMRT Cell variability,any of which cou

191、ld negatively impact ourability to sell Sequel Systems or result in other material adverse effects on our business,financial condition andresults of operations.The development of our products is complex and costly.Problems in the design or quality of our productsmay have a material and adverse effec

192、t on our brand,business,financial condition,and operating results,andcould result is us losing our recently received certifications from the International Organization forStandardization(ISO).If we were to lose ISO certification,then our customers,including Roche,might choose14not to purchase produc

193、ts from us.Unanticipated problems with our products could divert substantial resources,which may impair our ability to support our new and existing products,and could substantially increase ourcosts.If we encounter development challenges or discover errors in our products late in our development cyc

194、le,we may be forced to delay product shipments or the scaling of manufacturing or supply.In particular,if therollout of the Sequel System is delayed or is not successful,we may not be able to achieve an acceptable return,if any,on our substantial research and development efforts,and our business may

195、 be materially and adverselyaffected.The expenses or losses associated with delayed or unsuccessful product development or lack of marketacceptance of our new products could materially and adversely affect our business,financial condition andresults of operations.The development and commercializatio

196、n of our current and future products,including those related to ourarrangement with Roche,may not result in the benefits we anticipate,and any dispute with Roche could havea material adverse effect on our business,financial condition and results of operations.We entered into the Roche Agreement with

197、 Roche in September 2013,pursuant to which we are developingand expect to manufacture products for certain clinical research uses and,ultimately,for use in human in vitrodiagnostics,including sequencing systems and consumables based on our proprietary SMRT technology and ourSequel System.We are enga

198、ged in substantial and complex research and development efforts,which,ifsuccessful,may result in the introduction of new products in the future.Our research and development efforts arecomplex and require us to incur substantial expenses.We may not be able to develop and commercialize newproducts or

199、achieve an acceptable return,if any,on our research and development efforts and expenses.Therecan also be no assurance that we will be able to develop and manufacture future products as provided by theterms of the Roche Agreement or that Roche will be able to commercialize and sell the products we d

200、evelop orsupply under the Roche agreement.We could also be involved in disputes with Roche,which could lead todelays in or termination of our development and manufacture of products under the Roche Agreement and resultin time-consuming and expensive litigation or arbitration.In addition,any such dis

201、pute could diminish Rochescommitment to us and reduce the resources they devote to commercializing the products developed or suppliedunder the Roche Agreement.If Roche terminates or breaches the Roche Agreement,or otherwise acquires,develops and/or commercializes alternative or competing products or

202、 services,the successful commercializationof our products for clinical uses would be materially and adversely affected.Furthermore,we anticipate that Roche may account for a significant percentage of our total revenue in thefuture if they commercialize products developed or supplied under the Roche

203、Agreement.As a consequence,wewould see a concentration of our customer base,and Roches purchasing behavior could cause our quarterlyrevenue and results of operations to fluctuate from quarter to quarter.For example,any cancellation of orders orany acceleration or delay in anticipated product purchas

204、es or the acceptance of shipped products by Roche couldmaterially affect our revenue and results of operations in any quarterly period.In such circumstances,the loss ofRoche as customer,or a significant delay or reduction in their purchases,could materially harm our business,financial condition,resu

205、lts of operations and prospects.We must successfully manage new product introductions and transitions,we may incur significant costsduring these transitions,and they may not result in the benefits we anticipate.If our products and services are not able to deliver the performance or results expected

206、by our customers orpotential customers,or are not delivered on a timely basis,our reputation and credibility may suffer,our currentand future sales and revenue may be materially harmed and our business may not succeed.For instance,if we arenot able to realize the benefits we anticipate from the deve

207、lopment and commercialization of the Sequel Systemor our future products,including the expected benefits from the Roche Agreement,it could have a materialadverse effect on our business,financial condition and results of operations.In addition,the introduction of theSequel System and other future pro

208、ducts may lead to our limiting or ceasing development of furtherenhancements to our existing products,as we focus our resources on the new products,and could result inreduced marketplace acceptance and loss of sales of our existing products,materially adversely affecting our15revenue and operating r

209、esults.The introduction of new products,such as the Sequel System,may also have anegative impact on our revenue in the near-term as customers or potential customers may delay or cancel ordersof existing products in anticipation of new products and we may also be required to decrease prices for ourex

210、isting products.We may also experience difficulty in managing or forecasting customer reactions,purchasingdecisions or transition requirements with respect to newly-launched products,such as the Sequel System.Wecould incur significant costs in completing the transition,including costs of inventory w

211、rite-downs of RS IIproducts,as customers or potential customers transition to the new Sequel System.If we do not successfullymanage this product transition,our business,reputation and financial condition may be materially adverselyharmed.We rely on other companies for the manufacture of certain comp

212、onents and sub-assemblies and intend tooutsource additional sub-assemblies in the future.We may not be able to successfully scale the manufacturingprocess necessary to build and test multiple products on a full commercial basis,which could materially harmour business.Our products are complex and inv

213、olve a large number of unique components,many of which requireprecision manufacturing.The nature of the products requires customized components that are currently availableonly from a limited number of sources,and in some cases,single sources.We have chosen to source certaincritical components from

214、a single source,including suppliers for our SMRT Cells,reagents and instruments.Furthermore,we are in the process of transferring production of the SMRT Cells for our Sequel System to ahigh-volume manufacturer and may experience unanticipated delays or other issues in connection with suchtransition.

215、If we are required to purchase these components from alternative sources,it could take several monthsor longer to qualify the alternative sources.If we are unable to secure a sufficient supply of these productcomponents on a timely basis,or if these components do not meet our expectations or specifi

216、cations for qualityand functionality,our operations and manufacturing will be adversely affected,we could be unable to meetcustomer demand and our business and results of operations may be adversely affected.The operations of our third-party manufacturing partners and suppliers could be disrupted by

217、 conditionsunrelated to our business or operations or that are beyond our control.If our manufacturing partners or suppliersare unable or fail to fulfill their obligations to us for any reason,we may not be able to manufacture our productsand satisfy customer demand or our obligations under sales ag

218、reements,including the Roche Agreement,in atimely manner,and our business could be harmed as a result.Our current manufacturing process is characterizedby long lead times between the ordering and delivery of our products.If we have ordered insufficientcomponents to manufacture our products on a time

219、ly basis to meet customer demand,our sales and our grossmargin may be adversely affected and our business could be materially harmed.If we are unable to reduce ourmanufacturing costs and establish and maintain reliable high volume manufacturing suppliers as we scale ouroperations,our business could

220、be materially harmed.We may be unable to consistently manufacture our instruments and consumable kits,including SMRT Cells,to the necessary specifications or in quantities necessary to meet demand at an acceptable cost.In order to successfully derive revenue from our products,we need to supply our c

221、ustomers with productsthat meet their expectations for quality and functionality in accordance with established specifications.Ourcustomers have previously experienced variability in the performance of our instruments and SMRT Cells andwe will be manufacturing a new version of our SMRT Cells for the

222、 Sequel System.We anticipate that our yieldson the manufacturing of the new SMRT Cells may initially be below desired levels and we may also experiencemanufacturing delays,product defects,or SMRT Cell variability,especially as we transfer production of ourSMRT Cells to a high-volume manufacturer.The

223、re is no assurance that we will be able to manufacture ourproducts so that they consistently achieve the product specifications and quality that our customers expect,including those products and specifications that may be developed pursuant to the Roche Agreement.Problemsin the design or quality of

224、our products may have a material adverse effect on our brand,business,financialcondition,and operating results,and could result is us losing our recently received ISO certifications.If we wereto lose ISO certification,then our customers,including Roche,might choose not to purchase products from us.1

225、6There is also no assurance that we will be able to increase manufacturing yields and decrease costs,or that wewill be successful in forecasting customer demand or manufacturing and supply costs.Furthermore,we may notbe able to increase manufacturing to meet anticipated demand.An inability to manufa

226、cture products andcomponents that consistently meet specifications,in necessary quantities and at commercially acceptable costs,will have a negative material impact on our business,financial condition and results of operations.Rapidly changing technology in life sciences and diagnostics could make o

227、ur products obsolete unless wecontinue to develop and commercialize new and improved products and pursue new market opportunities.Our industry is characterized by rapid and significant technological changes,frequent new productintroductions and enhancements and evolving industry standards.Our future

228、 success will depend on our ability tocontinually improve our products,to develop and introduce new products that address the evolving needs of ourcustomers on a timely and cost-effective basis and to pursue new market opportunities.These new marketopportunities may be outside the scope of our prove

229、n expertise or in areas where the market demand is unproven,and new products and services developed by us may not gain market acceptance.Our inability to develop andintroduce new products and to gain market acceptance of the Sequel System and other new products could harmour future operating results

230、.Unanticipated difficulties or delays in replacing existing products with new productsor in commercializing the Sequel System or other new or improved products in sufficient quantities to meetcustomer demand could diminish future demand for our products and harm our future operating results.Increase

231、d market adoption of our products by customers may depend on the availability of sample preparationand informatics tools,some of which may be developed by third parties.Our commercial success may depend in part upon the development of sample preparation and software andinformatics tools by third par

232、ties for use with our products.We cannot guarantee that third parties will developtools that our customers or potential customers will find useful with our products.A lack of additional availablecomplementary sample preparation and informatics tools may impede the adoption of our products and maymat

233、erially and adversely impact our business.We operate in a highly competitive industry and if we are not able to compete effectively,our business andoperating results will likely be harmed.Some of our current competitors,including Illumina,Inc.and Thermo Fisher Scientific Inc.,as well as otherpotenti

234、al competitors,have greater name recognition,more substantial intellectual property portfolios,longeroperating histories,significantly greater financial,technical,research and/or other resources,more substantialexperience in new product development,larger and more established manufacturing capabilit

235、ies and marketing,sales and support functions,and/or more established distribution channels to deliver products to customers thanwe do.These competitors may be able to respond more quickly and effectively than we can to new or changingopportunities,technologies,standards or customer requirements.In

236、light of these advantages,even if ourtechnology is more effective than the products or service offerings of our competitors,current or potentialcustomers might purchase competitive products and services instead of our products.There are also severalcompanies in the process of developing new,potentia

237、lly competing technologies,products and/or services,including Oxford Nanopore Technologies Ltd.Increased competition may result in pricing pressures,whichcould harm our sales,profitability or market share.Our failure to further enhance our existing products and tointroduce new products to compete ef

238、fectively could materially and adversely affect our business,financialcondition or results of operations.We may be unable to successfully increase sales of our products.Our ability to achieve profitability depends on our ability to attract customers for our current and futureproducts,and we may be u

239、nable to effectively market our products.To perform sales,marketing,distribution andcustomer support functions successfully,we face a number of risks,including:our ability to attract,retain and manage the sales,marketing and service personnel necessary to expandmarket acceptance for our technologies

240、;17the time and cost of maintaining and growing a specialized sales,marketing and service force for aparticular application,which may be difficult to justify in light of the revenue generated;andour sales,marketing and service force may be unable to execute successful commercial activities.We have e

241、nlisted and may continue to enlist third parties to assist with sales,distribution and customersupport.There is no guarantee that we will be successful in attracting desirable sales and distribution partners orthat we will be able to enter into arrangements with such partners on terms favorable to u

242、s.If our sales andmarketing efforts,or those of any of our third-party sales and distribution partners,are not successful,ourtechnologies and products may not gain market acceptance,which could materially impact our businessoperations.We intend to raise additional financing to fund our existing oper

243、ations.Equity and debt securities we issuemay have rights senior to common stockholders.We intend to raise additional funds through public or private debt or equity financing.Additional funds maynot be available on terms acceptable to us or at all,particularly in light of restrictions under our debt

244、 agreement.We have incurred and may further incur additional debt.Debt holders have rights senior to common stockholdersto make claims on our assets and the terms of our existing debt agreement restrict certain activities,including ourability to pay dividends on our common stock.Our indebtedness cou

245、ld adversely affect our financial condition and prevent us from fulfilling our obligations.Our net losses since inception and our expectation of incurring substantial losses and negative cash flow forthe foreseeable future,combined with our existing indebtedness,could:make it more difficult for us t

246、o satisfy our obligations,including under our existing debt agreement;increase our vulnerability to general adverse economic and industry conditions;limit our ability to fund future working capital,capital expenditures,research and development andother business opportunities;require us to dedicate a

247、 substantial portion of our cash flow from operations to service payments on ourindebtedness;increase the volatility of the price of our common stock;limit our flexibility to react to changes in our business and the industry in which we operate;place us at a competitive disadvantage to our competito

248、rs that have less or no indebtedness;andlimit,along with the financial and other restrictive covenants in our indebtedness,among other things,our ability to borrow additional funds.Our existing debt contains covenants which may adversely impact our business and our failure to comply withsuch covenan

249、ts could cause our outstanding indebtedness to become immediately payable.Our existing debt contains various affirmative and negative covenants,including restrictions on our and oursubsidiariesability to incur additional indebtedness or liens on our assets.These covenants impose significantoperating

250、 and financial restrictions on us,including restrictions on our ability to take certain actions that may bein our best interests.A breach of any of the covenants contained in our debt could result in an event of default.If an event ofdefault exists,debt holders could elect to declare all amounts out

251、standing under the debt to be immediately dueand payable.If we are unable to repay our indebtedness when due and payable,debt holders could proceedagainst the collateral granted to them to secure such indebtedness.We have pledged substantially all of ourproperty and interests in property,including o

252、ur intellectual property,as collateral under our existing debt.If thedebt holders accelerate the repayment of our indebtedness,we may not have sufficient funds to make suchrepayment,which could have a material adverse effect on our liquidity and ability to conduct our business.18In addition,at the e

253、lection of the holders representing a majority of the aggregate principal amount of theoutstanding notes issued pursuant to our existing debt agreement,the holders may elect to receive 25%of the netproceeds from any financing that includes an equity component,including without limitation,the sale or

254、 issuanceof our common stock,options,warrants or other securities convertible or exchangeable for shares of our commonstock,as partial payment of the notes.This right is subject to certain exceptions set forth in our existing debtagreement.To the extent we raise additional capital in the future thro

255、ugh the sale of common stock under our“at-the-market”offering or through other financing activities,we may be obligated,at the election of the holders ofthe notes,to pay 25%of the net proceeds from any such financing activities as partial payment of the notes.Our products are highly complex,have rec

256、urring support requirements and could have unknown defects orerrors,which may give rise to claims against us or divert application of our resources from other purposes.Products using our SMRT technology are highly complex and may develop or contain undetected defects orerrors.Our customers have in t

257、he past experienced reliability issues with our existing products,and we have onlyrecently launched the Sequel System,so support costs are difficult to predict.Despite testing,defects or errorsmay arise in our products,which could result in a failure to maintain or increase market acceptance of ourp

258、roducts,diversion of development resources,injury to our reputation and increased warranty,service andmaintenance costs.New products or enhancements to our existing products in particular may contain undetectederrors or performance problems that are discovered only after delivery to customers.If our

259、 products havereliability or other quality issues or require unexpected levels of support in the future,the market acceptance andutilization of our products may not grow to levels sufficient to support our costs and our reputation and businesscould be harmed.We generally ship our sequencing instrume

260、nts with one year of service included in thepurchase price with an option to purchase one or more additional years of service.We also provide a warranty forour consumables,which is generally limited to replacing,or at our option,giving credit for,any consumable withdefects in material or workmanship

261、.Defects or errors in our products may also discourage customers frompurchasing our products.The costs incurred in correcting any defects or errors may be substantial and couldmaterially and adversely affect our operating margins.If our service and support costs increase,our business andoperations m

262、ay be materially and adversely affected.In addition,such defects or errors could lead to the filing of product liability claims against us or againstthird parties who we may have an obligation to indemnify against such claims,which could be costly and time-consuming to defend and result in substanti

263、al damages.Although we have product liability insurance,anyproduct liability insurance that we have or procure in the future may not protect our business from the financialimpact of a product liability claim.Moreover,we may not be able to obtain adequate insurance coverage onacceptable terms.Any ins

264、urance that we have or obtain will be subject to deductibles and coverage limits.Aproduct liability claim could have a serious adverse effect on our business,financial condition and results ofoperations.We depend on the continuing efforts of our senior management team and other key personnel.If we l

265、osemembers of our senior management team or other key personnel or are unable to successfully retain,recruitand train qualified scientists,engineering and other personnel,our ability to develop our products could beharmed,and we may be unable to achieve our goals.Our future success depends upon the

266、continuing services of members of our senior management team andscientific and engineering personnel.In particular,our scientists and engineers are critical to our futuretechnological and product innovations and we will need to hire additional qualified personnel.Our industry,particularly in the San

267、 Francisco Bay Area,is characterized by high demand and intense competition for talent,and the turnover rate can be high.We compete for qualified management and scientific personnel with other lifescience companies,academic institutions and research institutions,particularly those focusing on genomi

268、cs.Ouremployees could leave our company with little or no prior notice and would be free to work for a competitor.Ifone or more of our senior executives or other key personnel were unable or unwilling to continue in their presentpositions,we may not be able to replace them easily or at all,and other

269、 senior management may be required to19divert attention from other aspects of the business.In addition,we do not have“key person”life insurancepolicies covering any member of our management team or other key personnel.The loss of any of theseindividuals or any inability to attract or retain qualifie

270、d personnel,including scientists,engineers and others,could prevent us from pursuing collaborations and materially and adversely affect our product development andintroductions,business growth prospects,results of operations and financial condition.A significant portion of our potential sales depend

271、s on customers spending budgets that may be subject tosignificant and unexpected variation which could have a negative effect on the demand for our products.Our instruments represent significant capital expenditures for our customers.Potential customers for ourcurrent or future products include acad

272、emic and government institutions,genome centers,medical researchinstitutions,clinical laboratories,pharmaceutical,agricultural,biotechnology,diagnostic and chemicalcompanies.Their spending budgets can have a significant effect on the demand for our products.Spendingbudgets are based on a wide variet

273、y of factors,including the allocation of available resources to make purchases,funding from government sources which is highly uncertain,the spending priorities among various types ofresearch equipment and policies regarding capital expenditures during economically uncertain periods.Anydecrease in c

274、apital spending or change in spending priorities of our customers and potential customers couldsignificantly reduce the demand for our products.Any delay or reduction in purchases by potential customers orour inability to forecast fluctuations in demand could harm our future operating results.We may

275、 not be able to convert our orders in backlog into revenue.Our backlog represents product orders from our customers that we have confirmed and for which we havenot yet recognized revenue.We may not receive revenue from these orders,and the order backlog we report maynot be indicative of our future r

276、evenue.Many events can cause an order to be delayed or not completed at all,some of which may be out of ourcontrol.If we delay fulfilling customer orders or if customers reconsider their orders,those customers may seekto cancel or modify their orders with us.Customers may otherwise seek to cancel or

277、 delay their orders even if weare prepared to fulfill them.If our orders in backlog do not result in sales,our operating results may suffer.Delivery of our products could be delayed or disrupted by factors beyond our control,and we could losecustomers as a result.We rely on third-party carriers for

278、the timely delivery of our products.As a result,we are subject to carrierdisruptions and increased costs that are beyond our control.Any failure to deliver products to our customers in asafe and timely manner may damage our reputation and brand and could cause us to lose customers.If ourrelationship

279、 with any of these third-party carriers is terminated or impaired or if any of these third parties areunable to deliver our products,the delivery and acceptance of our products by our customers may be delayed,which could harm our business and financial results.The failure to deliver our products in

280、a safe and timelymanner may harm our relationship with our customers,increase our costs and otherwise disrupt our operations.We are,and may become,subject to governmental regulations that may impose burdens on our operations,and the markets for our products may be narrowed.We are subject,both direct

281、ly and indirectly,to the adverse impact of government regulation of ouroperations and markets.For example,export of our instruments may be subject to strict regulatory control in anumber of jurisdictions.The failure to satisfy export control criteria or to obtain necessary clearances could delayor p

282、revent shipment of products,which could materially and adversely affect our revenue and profitability.Moreover,the life sciences industry,which is expected to be one of the primary markets for our technology,hashistorically been heavily regulated.There are,for example,laws in several jurisdictions r

283、estricting research ingenetic engineering,which may narrow our markets.Given the evolving nature of this industry,legislative20bodies or regulatory authorities may adopt additional regulations that may adversely affect our marketopportunities.Additionally,if ethical and other concerns surrounding th

284、e use of genetic information,diagnosticsor therapies become widespread,there may be less demand for our products.Our business is also directly affected by a wide variety of government regulations applicable to businessenterprises generally and to companies operating in the life science industry in p

285、articular.Failure to comply withgovernment regulations or obtain or maintain necessary permits and licenses could result in a variety of fines orother censures or an interruption in our business operations which may have a negative impact on our ability togenerate revenue and could increase the cost

286、 of operating our business.Our products could in the future be subject to regulation by the U.S.Food and Drug Administration or otherdomestic and international regulatory agencies,which could increase our costs and delay ourcommercialization efforts,thereby materially and adversely affecting our bus

287、iness and results of operations.Our products are not currently subject to U.S.Food and Drug Administration,or FDA,clearance orapproval since they are not intended for use in the diagnosis or treatment of disease.However,in the future,certain of our products or related applications,or those developed

288、 or supplied pursuant to our agreement withRoche,could be subject to FDA regulation,or the FDAs regulatory jurisdiction could be expanded to includeour products.Even where a product is exempted from FDA clearance or approval,the FDA may imposerestrictions as to the types of customers to which we or

289、our partners can market and sell our products.Suchregulation and restrictions may materially and adversely affect our business,financial condition and results ofoperations.Many countries have laws and regulations that could affect our products.The number and scope of theserequirements are increasing

290、.Unlike many of our competitors,this is an area where we do not have expertise.We,or our other third-party sales and distribution partners,may not be able to obtain regulatory approvals in suchcountries or may incur significant costs in obtaining or maintaining our foreign regulatory approvals.In ad

291、dition,the export by us of certain of our products,which have not yet been cleared for domestic commercialdistribution,may be subject to FDA or other export restrictions.Doing business internationally creates operational and financial risks for our business.We currently conduct operations in various

292、 countries and jurisdictions.Conducting and launchingoperations on an international scale requires close coordination of activities across multiple jurisdictions and timezones and consumes significant management resources.If we fail to coordinate and manage these activitieseffectively,our business,f

293、inancial condition or results of operations could be materially and adversely affected.International operations entail a variety of risks,including challenges in staffing and managing foreignoperations,tariffs and other trade barriers,unexpected changes in legislative or regulatory requirements offo

294、reign countries into which we sell our products,difficulties in obtaining export licenses or in overcoming othertrade barriers and restrictions resulting in delivery delays and significant taxes or other burdens of complyingwith a variety of foreign laws.In conducting our international operations,we

295、 will be subject to U.S.laws relatingto our international activities,such as the Foreign Corrupt Practices Act of 1977,as well as foreign laws relatingto our activities in other countries,such as the United Kingdom Bribery Act of 2010.Failure to comply withthese laws may subject us to financial and/

296、or other penalties in the U.S.and/or foreign countries that couldmaterially and adversely impact our operations or financial condition.Changes in the value of the relevant currencies may affect the cost of certain items required in ouroperations.Changes in currency exchange rates may also affect the

297、 relative prices at which we are able sellproducts in the same market.Our revenue from international customers may be negatively impacted as increasesin the U.S.dollar relative to our international customerslocal currencies could make our products moreexpensive,impacting our ability to compete or as

298、 a result of financial or other instability in such locations whichcould result in decreased sales of our products.Our costs of materials from international suppliers may increase21as the value of the U.S.dollar decreases relative to their local currency.Foreign policies and actions regardingcurrenc

299、y valuation could result in actions by the United States and other countries to offset the effects of suchfluctuations.Such actions may materially and adversely impact our financial condition and results of operations.If we fail to maintain proper and effective internal controls,our ability to produ

300、ce accurate financialstatements on a timely basis could be impaired,which would adversely affect our business and our stock price.Ensuring that we have adequate internal financial and accounting controls and procedures in place toproduce accurate financial statements on a timely basis is a costly an

301、d time-consuming effort that needs to be re-evaluated frequently.We may in the future discover areas of our internal financial and accounting controls andprocedures that need improvement.Operating as a public company requires sufficient resources within theaccounting and finance functions in order t

302、o produce timely financial information,ensure the level of segregationof duties,and maintain adequate internal control over financial reporting customary for a U.S.public company.Our management is responsible for establishing and maintaining adequate internal control over financialreporting to provi

303、de reasonable assurance regarding the reliability of our financial reporting and the preparationof financial statements for external purposes in accordance with U.S.generally accepted accounting principles.Our management does not expect that our internal control over financial reporting will prevent

304、 or detect all errorsand all fraud.A control system,no matter how well designed and operated,can provide only reasonable,notabsolute,assurance that the control systems objectives will be met.Because of the inherent limitations in allcontrol systems,no evaluation of controls can provide absolute assu

305、rance that misstatements due to error or fraudwill not occur or that all control issues and instances of fraud,if any,within our company will have beendetected.Pursuant to Section 404 of the Sarbanes-Oxley Act,we perform periodic evaluations of our internal controlover financial reporting.While we h

306、ave in the past performed this evaluation and concluded that our internalcontrol over financial reporting was operating effectively,there can be no assurance that in the future materialweaknesses or significant deficiencies will not exist or otherwise be discovered.In addition,if we are unable topro

307、duce accurate financial statements on a timely basis,investors could lose confidence in the reliability of ourfinancial statements,which could cause the market price of our common stock to decline and make it moredifficult for us to finance our operations and growth.Our ability to use net operating

308、losses to offset future taxable income may be subject to substantial limitations.Under Section 382 of the Internal Revenue Code,a corporation that undergoes an“ownership change”issubject to limitations on its ability to utilize its pre-change net operating losses,or NOLs,to offset future taxableinco

309、me.We believe that we have had one or more ownership changes,as a result of which our existing NOLs arecurrently subject to limitation.Future changes in our stock ownership could result in additional ownershipchanges under Section 382.We may not be able to utilize a material portion of our NOLs,even

310、 if we attainprofitability.Our sales cycle is unpredictable and lengthy,which makes it difficult to forecast revenue and may increase themagnitude of quarterly fluctuations in our operating results.The sales cycle for our sequencing instruments is lengthy because they represent a major capital expen

311、ditureand generally require the approval of our customerssenior management.This may contribute to substantialfluctuations in our quarterly operating results,particularly during the periods in which our sales volume is low.Because of these fluctuations,it is likely that in some future quarters our op

312、erating results will fall below theexpectations of securities analysts or investors.If that happens,the market price of our stock would likelydecrease.Past fluctuations in our quarterly operating results have resulted in decreases in our stock price.Suchfluctuations also mean that investors may not

313、be able to rely upon our operating results in any particular period asan indication of future performance.Sales to existing customers and the establishment of a business relationshipwith other potential customers is a lengthy process,generally taking several months and sometimes longer.22Following t

314、he establishment of the relationship,the negotiation of purchase terms can be time-consuming,and apotential customer may require an extended evaluation and testing period.We cannot be sure what the sales cyclewill be for the Sequel System.In anticipation of product orders,we may incur substantial co

315、sts before the salescycle is complete and before we receive any customer payments.As a result,in the event that a sale is notcompleted or is canceled or delayed,we may have incurred substantial expenses,making it more difficult for usto become profitable or otherwise negatively impacting our financi

316、al results.Furthermore,because of our lengthysales cycle,the realization of revenue from our selling efforts may be substantially delayed,our ability to forecastour future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.Moreover,in previous quarters,we

317、 recognized substantial revenue derived from milestone payments underthe Roche Agreement.All of the milestones under the Roche Agreement have now been achieved,however,which may significantly affect our quarterly operating results in fiscal 2016,particularly during the periods inwhich our sales volu

318、me is low.Because of this,it is possible that in some future quarters our operating resultswill fall below the expectations of securities analysts or investors,which may negatively impact the market priceof our common stock.Our operations involve the use of hazardous materials,and we must comply wit

319、h environmental,health andsafety laws,which can be expensive and may adversely affect our business,operating results and financialcondition.Our research and development and manufacturing activities involve the use of hazardous materials,including chemicals and biological materials,and some of our pr

320、oducts include hazardous materials.Accordingly,we are subject to federal,state,local and foreign laws,regulations and permits relating toenvironmental,health and safety matters,including,among others,those governing the use,storage,handling,exposure to and disposal of hazardous materials and wastes,

321、the health and safety of our employees,and theshipment,labeling,collection,recycling,treatment and disposal of products containing hazardous materials.Liability under environmental laws and regulations can be joint and several and without regard to fault ornegligence.For example,under certain circum

322、stances and under certain environmental laws,we could be heldliable for costs relating to contamination at our or our predecessorspast or present facilities and at third-partywaste disposal sites.We could also be held liable for damages arising out of human exposure to hazardousmaterials.There can b

323、e no assurance that violations of environmental,health and safety laws will not occur as aresult of human error,accident,equipment failure or other causes.The failure to comply with past,present orfuture laws could result in the imposition of substantial fines and penalties,remediation costs,propert

324、y damageand personal injury claims,investigations,the suspension of production or product sales,loss of permits or acessation of operations.Any of these events could harm our business,operating results and financial condition.We also expect that our operations will be affected by new environmental,h

325、ealth and safety laws and regulationson an ongoing basis,or more stringent enforcement of existing laws and regulations.New laws or changes toexisting laws may result in additional costs and may increase penalties associated with violations or require us tochange the content of our products or how w

326、e manufacture them,which could have a material adverse effect onour business,operating results and financial condition.Our facilities in California are located near known earthquake faults,and the occurrence of an earthquake orother catastrophic disaster could cause damage to our facilities and equi

327、pment,which could require us tocease or curtail operations.Our facilities in the San Francisco Bay Area are located near known earthquake fault zones and arevulnerable to damage from earthquakes.We are also vulnerable to damage from other types of disasters,including fire,floods,power loss,communica

328、tions failures and similar events.If any disaster were to occur,ourability to operate our business at our facilities would be seriously,or potentially completely,impaired.Inaddition,the nature of our activities could cause significant delays in our research programs and commercialactivities and make

329、 it difficult for us to recover from a disaster.The insurance we maintain may not be adequateto cover our losses resulting from disasters or other business interruptions.Accordingly,an earthquake or otherdisaster could materially and adversely harm our ability to conduct business.23Our ability to su

330、ccessfully manage our transition to our new headquarters could result in a material adverseeffect on our business or operations if we underestimate the costs of the transition,experience delays orquality issues with our manufacturing,or if internal measures to mitigate these risks are not effective.

331、We are in the process of transitioning to our new headquarters in Menlo Park,California.The successfultransition of our headquarters,including the transition of our manufacturing facilities,is largely dependent uponthe cooperation and continued performance of both our current and future landlords,as

332、 well as third-partycontractors who are preparing certain shell improvements and tenant improvements.During the transition period,we must establish procedures to ensure that our current and future manufacturing facilities meet our qualitystandards while maintaining a reasonable cost structure.In add

333、ition,after our new manufacturing facilities havebeen qualified,it may take a considerable period of time to commence volume production.We have alreadydevoted significant expenses and resources in connection with the transition,and there is no assurance that wecan manage the transition successfully.If the transition does not go as expected,in addition to other issues notedabove,we could experience