Pacific Biosciences of California, Inc. (NASDAQ: PACB) offers sequencing systems to help scientists resolve genetically complex problems.

 

The Company designs, develops and manufactures sequencing systems to help scientists resolve genetically complex problems. Based on its  novel Single Molecule, Real-Time (SMRT®) sequencing technology, the company’ products enable: de novo genome assembly to finish genomes in order to more fully identify, annotate and decipher genomic structures; full-length transcript analysis to improve annotations in reference genomes, characterize alternatively spliced isoforms in important gene families, and find novel genes; targeted sequencing to more comprehensively characterize genetic variations; and real-time kinetic information for epigenome characterization.

 

The company’ technology provides high accuracy, ultra-long reads, uniform coverage and the ability to detect epigenetic changes simultaneously. PacBio® sequencing systems, including consumables and software, provide a simple and fast end-to-end workflow for SMRT sequencing.

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PACB’ most advanced products offered today include the Sequel instrument and the Sequel SMRT Cell 1M, which together are capable of sequencing up to approximately one million DNA molecules simultaneously. The company is continuously developing new products including what it refers to as the SMRT Cell 8M, which is designed to have up to eight times as much throughput capability as the current Sequel SMRT Cell 1M. Management anticipates starting beta testing of the SMRT Cell 8M in early 2019 and launching this new product more broadly some months thereafter.

 

Product upgrades over the last six years:

 

Recent announcements:

On Nov. 01, 2018, Pacific Biosciences of California, Inc., announced financial results for its third quarter ended September 30, 2018.

 

Highlights of the third quarter results:

• Total revenue for the third quarter of 2018 was $18.2 million, compared to $23.5 million for the third quarter of 2017, primarily driven by lower instrument shipments and consumables sales.  Lower consumable sales were due to lower demand of PacBio RS II consumables and variation in customer ordering patterns.  Despite lower consumable sales, usage of installed Sequel instruments increased significantly during the third quarter of 2018 compared with the third quarter of 2017.
• Some of the company customers held back in purchasing products during the third quarter in anticipation of the new products PACB recently launched or have announced it is planning to launch early next year.
• Notwithstanding muted business performance, the company’ business and market profile, continues to leverage on the enthusiastic response from its customers on the launch of its new 3.0 chemistry and 6.0 software in October.
• The management is looking forward to the launch of its new 8M SMRT Cell and platform, with early access scheduled to begin during the first quarter of 2019.

 

Proposed Merger with Illumina, Inc.: On November 1, 2018, the Company announced they had signed an agreement for Illumina to acquire Pacific Biosciences at a price of $8.00 per Pacific Biosciences share in an all-cash transaction. This price represents a premium of 71% to Pacific Biosciences’ 30 trading day volume weighted average share price as of the market close on October 31st, 2018, and a total enterprise value of approximately $1.2 billion on a fully diluted basis. As a result of the Merger, Pacific Biosciences will cease to be a publicly traded company.

 

Key synergies of the merger:

• Brings Together Highly Accurate Short- and Long-Read Sequencing Technologies, Paving the Path to a Perfect View of a Genome
• Pacific Biosciences’ Recent Advances with its Sequel SMRT® Technology, combined with Illumina’s Infrastructure, will Expand Biological Discovery and Clinical Insight
• Long-Read Sequencing Market Opportunity Expected to Grow to $2.5B by 2022

 

Analyst tracking the stock believes that the company is in a critical inflection point and is having a favorable risk-reward position. Thus, value investors should consider exposure in this sector as the backdrop remains favorable. Per www.marketbeat.com, the high price target for PACB is $8.00, and the low-price target for PACB is $3.80.

Below are the excerpts of recent ratings by brokerage house:

 

 

About the Products:

 

 

Financial Results –

 

Revenue: Total revenue for the three months ended September 30, 2018, was $ 18.2 million, compared to $2 3.5million for the same period during 2017.

Product revenue of $1 5.2 million for the three months ended September 30, 2018 consisted of $ 6.3million from sales of Sequel instruments and $ 8.9 million from sales of consumables, compared to total product revenue of $ 20.3 million for the same period during 2017, consisting of $ 9.7 million from sales of Sequel instruments and $ 10.6 million from sales of consumables. The decrease in instrument sales was primarily attributable to a lower number of instrument shipments and installations. The decrease in consumable sales was primarily attributable to a decrease in RSII consumables and variation in customer ordering patterns.

Service and other revenue of $3. 0 million and $3. 2 million for the three months ended September 30, 2018, and 2017, respectively, was primarily derived from product maintenance agreements sold on the installed instruments. Service revenue was relatively flat as increases in Sequel service revenue were offset by a decrease in RSII service revenue.

 

Profitability:  Gross profit for the three months ended September 30, 2018, was $ 3.2 million, resulting in a gross margin of 17.6 %, compared to gross profit of $8. 2 million, resulting in a gross margin of 3 4 .9% for the same period during 2017. Gross profit for the three months ended September 30, 2018, was negatively impacted by $2.4 million of product transition costs including an inventory reserve taken on older consumables as new products were introduced in 2018. In addition, lower manufacturing output during the three months s   ended September 30, 2018, also negatively impacted gross profit as a larger portion of manufacturing fixed costs was reflected in cost of sales for the period.

 

Liquidity and financial flexibility: Cash, cash equivalents and investments, excluding restricted cash, on September 30, 2018, totaled $115.7million, compared to $62.9 million at December 31, 2017.

 

The company believes that the existing cash, cash equivalents, and investments will be sufficient to fund the projected operating requirements for at least twelve months; however, it may need to raise additional capital in the future.

 

Key risk factors and potential stock drivers:

• The Company have not yet received significant revenues from sales of products or services and have recurring losses as well. Therefore, its ability to maintain liquidity and financial flexibility to fund its incremental capital requirements will remain a challenge for the company.
• Furthermore, PACB has limited experience as a commercial company, and the commercialization and sales of its current or future products may be unsuccessful or less successful than anticipated.
• The company’ business is exposed to risk related to competitive pressure, and its revenues may suffer from competitive pressure.
• The company’s business is also exposed to regulatory risk and its adverse impact on the overall business risk profile.
• The failure to complete the acquisition by Illumina could adversely affect the business.
• PACB must successfully manage new product introductions and transitions, including with respect to the new SMRT Cell 8M PACB is developing, the company may incur significant costs during these transitions, and they may not result in the benefits as anticipated.

 

Stock Performance

Comments:

• On Friday, November 9th, 2018, PACB closed at $7.74, on an above average volume of 3.8 million shares exchanging hands. Market capitalization is $1.13 billion. The current RSI is 81.66
• In the past 52 weeks, shares of PACB have traded as low as $2.02 and as high as $7.84
• At $7.84, shares of PACB are trading above its 50-day moving average (MA) at $5.00 & above its 200-day moving average (MA) at $3.54
• The present support and resistance levels for the stock are at $7.63 & $7.81 respectively.

 

 

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