[Updated 2:20 pm PT] Pacific Biosciences (NASDAQ: PACB), the Menlo Park, CA-based maker of a super-fast, super-cheap DNA sequencing instrument for medical, agricultural, and biofuels researchers, disclosed today that it’s laying off 130 employees, or 28 percent of its total workforce. The announcement came today in an 8-K report to the Securities and Exchange Commission.
The company explained that a slower-than-expected adoption rate for its sequencing machine, which it introduced to the market this April, has left it with more employees than it wants or needs. The workforce reduction “will allow the Company to continue support of its growing customer base with improved service and continued product enhancements, while at the same time conserving cash,” PacBio said in the disclosure.
The company says it’s cutting workers across the organization, but that its operations and R&D wings will be most affected. PacBio expects to incur $5.2 million in restructuring charges as a result of the layoffs—mainly compensation and benefits to terminated employees. Hugh Martin, PacBio’s CEO, said in a statement circulated by e-mail today that it has been “an extraordinarily difficult day” for the company given its tight-knit corporate culture. But he said the cuts were necessary to lower the company’s burn rate. Under its new structure, PacBio will have approximately $190 million in cash and investments by the end of the September (down from $217 million at the beginning of the third quarter).
Despite the successful introduction of its “RS” sequencer this spring, PacBio has taken a hammering in the public markets this year, especially after early a disappointing earnings report in early August, which sparked a rout that halved the stock’s value. The company has a backlog of orders for the sequencers, which cost $700,000 each, but there are concerns that dwindling government research budgets will cut into demand for next-generation sequencing devices.
PacBio cited “uncertainties associated with the economic environment” in its 8-K announcement, but said the cuts should “position the company for long-term success.” Martin said in the e-mail statement that “by taking action now, we have given ourselves both the time and flexibility to drive adoption of our product.”
Here’s the full statement from Martin:
Today, we reduced our workforce by approximately 130 employees, or 28%. Although the cuts were across the company, the groups most affected were Operations and R&D.
Given the uncertainties associated with the economic environment and our desire to position ourselves for long-term success, we have chosen to reorganize the company. Our current infrastructure was staffed to support a faster adoption rate for our products. These changes will allow us to continue to support our growing customer base with improved service and continued product enhancements, while at the same time conserving cash.
For all of us here at PacBio, this is an extraordinarily difficult day. We have always taken great pride in the talent we have been able to attract, and we value each and every one of our employees. We are known for our emphasis on tight-knit corporate culture, so it is particularly difficult to have to let any employees go.
PacBio is in the process of introducing a game changing, new generation of sequencing technology. Even in stable, high growth markets, adoption rates of such a disruptive platform can be difficult to predict. In today’s turbulent economy, it is even more difficult. We see many of the signs that customers are recognizing the value of our third generation paradigm. However, we had higher expectations as to the rate with which adoption would occur. Our internal infrastructure was therefore built to handle a faster generational transition. Consequently, our burn rate was not in line with the speed with which the business was evolving. In addition, we are refocusing our resources as we transition from developing and launching a product to establishing the technology in the market and supporting customers as they develop applications and make novel discoveries with the PacBio RS.
We have worked hard to size the company appropriately, while preserving our ability to expand globally and to support current and future customers. Customer satisfaction is our top priority. In addition, we will continue an aggressive program of both increasing the performance of our SMRT technology as well as bringing out new applications that are uniquely enabled by our third generation sequencing platform.
Our cash balance currently is approximately $190 million, and by taking action now, we have given ourselves both the time and flexibility to drive adoption of our product. Given the promise SMRT technology has to greatly impact the future of biology, it is incumbent on us to align and scale the business to enable our platform to have the time to realize its full potential
And here’s the full text of PacBio’s 8-K statement, minus the boilerplate about forward-looking statements.
On September 20, 2011, Pacific Biosciences of California, Inc. (the “Company”) implemented a reduction in its workforce of approximately 130 employees, or approximately 28% of its total workforce. The actions taken were in consideration of uncertainties associated with the economic environment and to position the Company for long-term success. The Company’s current infrastructure was staffed to support a faster adoption rate for its products. The reduction implemented will allow the Company to continue support of its growing customer base with improved service and continued product enhancements, while at the same time conserving cash.
The reduction in workforce was authorized by the Company’s Board of Directors on September 16, 2011 and the employees being terminated received notification on September 20, 2011. Although the cuts were across the organization, the Company’s operations and research and development functions were most effected. In lieu of notice required under the California Worker Adjustment and Retraining Notification Act (the “WARN Act”) and other federal and state law equivalents, as applicable, departing employees will receive salary and benefits for a period of 60 days. In addition, the Company has implemented a severance benefit program that will provide for benefits which are greater than the minimum requirements of the WARN Act, such as additional cash payments determined on the basis of the affected employee’s base salary and tenure with the Company, as well as outplacement services and Company-paid continuation of medical, dental and vision benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Payment of the termination benefits in excess of those provided for under the WARN Act is contingent on the departing employee entering into a separation agreement with the Company containing a general release of claims against the Company. As a result of the reductions, the Company expects to record a restructuring charge, comprised mainly of compensation and benefits afforded to terminated employees, of approximately $5.2 million during the third quarter of fiscal 2011. The Company anticipates that the actions associated with the reductions will be substantially completed during September 2011. All cash expenditures for restructuring related charges are expected to be substantially completed during 2011.
The Company’s cash and investments at June 30, 2011 totaled $217 million and the Company expects to end the third quarter with approximately $190 million.
The Company’s estimated restructuring charge is based on a number of assumptions. Actual results may differ materially and additional charges not currently expected may be incurred in connection with or as a result of the reductions.
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