It has been a while since I've written about next-gen sequencing company Pacific Biosciences (NASDAQ:PACB), but this is definitely a case where absence has made the heart grow fonder. The shares are up more than 75% from that last piece in March of this year, and up a solid 260% from my June 2013 Top Idea call.
What
has changed? Well, for starters, PacBio has done a very good job of
addressing the prior shortcomings (both real and perceived) of its
technology, rolling out a series of improvements that have made the
system more useful and economical for researchers. That has, in turn,
supported management's goal of significant improvements in system
utilization as measured by consumable sales relative to the installed
base. The company also scored a significant deal with Roche (OTCQX:RHHBY), a major player in clinical diagnostics, to develop a platform suitable for human in vitro diagnostics.
More
recently, PacBio launched a new platform called Sequel. The underlying
technology has remained the same, but the company now offers a smaller,
cheaper machine with a significantly improved throughput. While PacBio
is never going to threaten Illumina (NASDAQ:ILMN)
for rulership in next-gen sequencing, PacBio has strengthened its case
that it has a very particular set of skills that ought not be
underestimated.
I believe Sequel can take PacBio to a new level of
system placement, utilization, and revenue, but then so too does the
market. I had already expected a lot from this company and while there
have been some aspects of outperformance, my refreshed fair value range
of $10 to $11 doesn't leave huge obvious upside. I may yet be
underestimating PacBio, but this currently looks more like a "consider
on a pullback" opportunity than a "buy it all you can today" situation.
Read more here:
Pacific Biosciences Has Taken Some Big Steps Forward
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