Sunday, September 16, 2018

Pacific Biosciences Inching Closer To A Key Event

The summer has been good to Pacific Biosciences (PACB) (or "PacBio"), as the shares have risen from $2.50 in late May to a recent high of just over $5 a share. I attribute some of this positive momentum to a strong market overall for more speculative med-tech stocks, but also to the approaching launch of PacBio's ZMW 8M cell - a major step forward for the productivity of the company's systems that should drive a significant step-up in the utility and popularity of the system, particularly for more advanced applications like structural variant analysis.

PacBio's just announced financing is unlikely to get the company through to cash flow breakeven, but it takes liquidity off the table as a risk through the launch of the ZMW 8M - long enough, I believe, to see the start of a meaningful inflection in demand that could allow for a "top off" financing on better terms ahead of cash flow breakeven (which I estimate in 2022). Valuation is complicated by the sluggish recent pace of revenue growth, but if PacBio can scale up towards $125 million in revenue in 2019 and $160 million in 2020, forward revenue multiples north of 6x could (if not should) come into play and drive further gains, but executing on the ZMW 8M opportunity is absolutely critical.

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Pacific Biosciences Inching Closer To A Key Event

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