On Wednesday, Pacific Biosciences (PacBio) announced the release of new chemistry and software that increases output by 45%. The new P6-C4 generates average read lengths between 10,000 and 15,000 bases, with the longest reads exceeding 40,000 bases. Continued advances in read length should help PacBio gain traction in long-read-length applications, and the improved throughput increasingly positions PacBio for human applications, although shear instrument size is still a hindrance to rapid adoption.
The company is scheduled to report third-quarter earnings on Thursday, October 30, after the markets close; we expect a positive quarter, particularly in bookings following weaker second-quarter bookings. In late September and early October, PacBio announced that Macrogen and Human Longevity Inc. will each purchase two RS II systems, pointing to continued traction of the platform. Also, in our view, it is important to note that both Macrogen and Human Longevity have purchased Illumina’s X Ten platform, highlighting the derivative effect of Illumina’s X Ten platform and importance of PacBio’s long-read technology in whole human genome sequencing. In our opinion, as more whole human genomes are sequenced, there may be an increase in use for refining human reference genomes.
The stock is trading at an enterprise value of 4.5 projected 2015 sales and has pulled back 38% from its 52-week high. In late August, PacBio announced that it had reached a milestone agreement with Roche, which will boost third-quarter revenue by $10 million and growth by 135% (our updated model is shown on the following page). We are encouraged by the derivative effect of Illumina’s X Ten platform and continued enhancements in PacBio’s chemistry resulting in increased read lengths and accuracy. Still, given the company’s instrument size and Illumina’s dominant position in the high-throughput space, we continue to view the RS II as a niche product .