Pacific Biosciences Loss Wider than Expected, View Raised

Zacks

Pacific Biosciences of California Inc. PACB reported loss of 16 cents per share in the second quarter 2015, which was wider than the Zacks Consensus Estimate of a loss of 14 cents per share. However, the figure was narrower than 27 cents of loss reported in the year-ago quarter.

Quarter Details

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.

Revenues of roughly $25 million lagged the Zacks Consensus Estimate of $26 million, but surged an astounding 118.3% on a year-over-year basis. The upside was driven by a massive surge in contractual revenues that increased from $1.7 million in the year-ago quarter to $13.6 million in the said quarter.

Notably, the company has a distribution agreement with Roche. In April, Pacific Biosciences achieved the second development milestone under the Roche agreement, for which it received $10 million in contractual revenues. The company also recognized $3.6 million of amortized revenues associated with the $35 million upfront payment that was received from Roche in 2013.

Product revenues increased almost 14% to $8.8 million. Service revenues grew 27.2% from the year-ago quarter to $2.5 million.

Instrument revenues decreased 8.5% year over year to $4.3 million in the quarter. Consumable revenues in the quarter totaled $4.5 million, up 58% 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 profit stood at $14.5 million as compared with $3.1 million in the year-ago quarter due to higher revenues from Roche.

Research & development (R&D) expenses increased almost 21% year over year to $15 million, while selling, general & administrative (SG&A) expenses were up 20.3% to $10.8 million. The increase in expenses can be primarily attributed to higher compensation.

Operating loss narrowed to $11.4 million from $18.3 million in the year-ago quarter, primarily due to higher gross margin.

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 another development milestone in the fourth quarter of fiscal 2015. Including this figure, revenues are forecasted to grow at least 40% (up from at least 25%) over $60.6 million reported in 2014.

Pacific Biosciences expects gross margin in the mid-30 range for the third quarter. However, this is likely to increase in the fourth quarter due to the expected Roche milestone payment. Pacific Biosciences expects to deliver the sequencing products to Roche as per the agreed upon schedule (second half of 2016).

Total operating expenses are anticipated to increase approximately 15% over the 2014 figure.

Pacific Biosciences 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 as well as 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 burn 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 Abiomed ABMD, LDR Holding LDRH and RTI Surgical RTIX. All the companies sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Be the first to comment

Leave a Reply