PacBio Hits Goal in Debut Quarter With New DNA Sequencer, Stock Tanks Anyway

Xconomy San Francisco — 

[Updated: 8:15 am PT] Pacific Biosciences’ investors could have been excused for chewing on their pencils, waiting for more bad news at the end of a horrible day for stocks. But that would have been overdoing it, as the Menlo Park, CA-based company met expectations in its maiden quarter with its new DNA sequencing instrument.

PacBio (NASDAQ: PACB) said today that it generated $10.6 million in the quarter that ended June 30, by commercializing 16 of its new gene sequencing machines since they were first officially introduced to the market on April 27. The company added seven new orders, bringing its backlog to 35 machines, which retail for about $700,000 apiece. PacBio’s debut has gone so “smoothly” in the words of CEO Hugh Martin, that the company says it expects to deliver those 35 machines by year end, and that its net loss will be about $2.25 a share this year, down from its previous forecast of $2.50.

[Updated share movement] Still, shares of PacBio took a beating, falling $2.29, or 23 percent, to $7.61 at 11:15 am Eastern time this morning. The sell-off came as investor nerves were frayed, following a day when major stock indexes fell the most in any day since 2008. One DNA sequencing competitor, Mountain View, CA-based Complete Genomics (NASDAQ: GNOM), lost more than 30 percent of its value yesterday on a modestly negative—but not disastrous—earnings report.

“Thanks for providing a bit of a reprieve here from the tape,” said William Quirk, an analyst with Piper Jaffray, before asking Martin a question on today’s earnings conference call.

There is still plenty of uncertainty around PacBio, like when any new product gets introduced. Government budgets everywhere are under pressure, meaning that scientists are going to find it hard to get grant requests funded to help them buy fancy new scientific tools. PacBio, noting that this “headwind” is affecting all companies in the sequencing business, declined to offer a financial forecast beyond the one that extends through this calendar year. Still, Martin was quite bullish in his prepared remarks, noting that all 11 beta testers of the PacBio machine are now full-fledged commercial customers, and many of them—like the Sanger Institute in the U.K and the Broad Institute in Cambridge, MA—are running them around the clock to see what they can do.

Hugh Martin

“We are operating as a rapidly growing commercial business,” Martin said.

PacBio’s commercial rollout is attracting special attention because PacBio is seeking to become a disruptive player by introducing a completely different method for super-fast, super-cheap DNA sequencing than what exists in the market today. PacBio has raised more than $580 million for this undertaking, made a big splash with a $200 million IPO last October, and had a lot of people holding their breath over the past year as it ironed out bugs in beta versions of its machines. “Our reliability and performance variability were significantly improved with final release software,” Martin said.

Now that the company has 16 of its machines installed, Martin said, it can expect to make more money from consumable products, such as the chemicals needed to operate the instruments (known as reagents).

The inconsistency of semiconductor components, and software, has been largely resolved, and the beta testers are starting to learn what the machine is best for, Martin said. Scientists are learning that the machine can be used to identify certain new pathogens in the midst of an outbreak (like with last year’s cholera outbreak in Haiti, and in the German E.coli scare earlier this year.) The company is also going after various applications in agricultural markets, and in cancer research, Martin said.

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