Shares of Pacific Biosciences of California Inc. PACB fell 3% (18 cents) to $5.83 in after-hours trading on the heels of the company’s disappointing first-quarter 2015 results.
Despite a 51.6% year-over-year surge in revenues, the company reported net loss of 27 cents per share, which was in line with the Zacks Consensus Estimate and a penny narrower than the year-ago quarter’s loss figure.
Quarter Details
Revenues of $17.6 million comfortably beat the Zacks Consensus Estimate of $14 million. The strong year-over-year growth was driven by a 43.8% jump in product revenues to $11.3 million. Service revenues increased 31.7% from the year-ago quarter to $2.7 million. Contractual revenues surged 112% to $3.6 million primarily owing to higher upfront payment from Roche.
Pacific Biosciences develops, manufactures and markets PacBio RS II Sequencing systems, which help in studying synthesis, composition, structure, and regulation of deoxyribonucleic acid, popularly known as DNA.
The company has a distribution agreement with Roche. Pacific Biosciences recently achieved the second development milestone under the Roche agreement, which entitles the company to roughly $10 million revenues for the second quarter ending Jun 30, 2015. Pacific Biosciences expects to deliver the sequencing products to Roche as per the agreed upon schedule.
During the quarter, Beijing Genome Institute (BGI) purchased the company’s PacBio RS II instrument. BGI also agreed to purchase additional units in order to integrate SMRT Sequencing into their global sequencing service business.
Instrument revenues jumped 30% year over year to $7 million in the quarter. Consumable revenues in the quarter were $4.3 million, up 69% on a year-over-year basis. Consumable comprises proprietary single molecule, real-time (SMRT) Cells and reagent kits, which consumers are required to use in combination with the PacBio RS II instrument to get the desired results.
Gross margin stood at 33.6%, which surged from 23% from the year-ago quarter owing to favorable product mix and higher revenues from Roche.
Research & development (R&D) expenses increased 23% year over year to $14.5 million, while selling, general & administrative (SG&A) expenses were up 17.7% to $10.8 million. The increase in expenses can be primarily attributed to higher compensation in the form of marketing & commercial expenses.
As a result, operating loss widened to $19.3 million from $18.2 million in the year-ago quarter.
As of Mar 31, 2015, the company’s cash and cash equivalents totaled $79.1 million as compared with $101.3 million at the end of Dec 31, 2014.
Guidance
Pacific Biosciences expects to gain significant market traction. Meanwhile, the higher adoption rate of its technology across multiple application areas will drive the top line in 2015. Also, the company expects to earn $10 million from the Roche contract. Including this figure, revenues are forecasted to grow at least 25% (up from at least 20%) over $60.6 million reported in 2014.
Pacific Biosciences expects quarterly gross margin in the mid-30 range owing to higher contractual revenues. Total operating expenses are expected to increase approximately 10% to 15% over the 2014 figure.
The company targets to achieve at least $50 million in cash for full-year 2015.
Our Take
We believe that Pacific Biosciences has significant growth prospects in plant & animal sequencing and human genome sequencing. The company’s leading position in microbial sequencing also presents it a significant growth opportunity in the infectious disease market.
New products like the barcode sample prep kits continue to expand the company’s product portfolio. Additionally, development and distribution collaborations with the likes of Roche NimbleGen and RainDance Technologies will drive market penetration going forward.
However, persistent losses and cash burning are the primary headwinds facing the company at present.
Stocks to Consider
Currently, Pacific Biosciences has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space are Inogen INGN, Natus Medical BABY and RTI Surgical RTIX. All the companies carry a Zacks Rank #2 (Buy).
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