With Or Without Grail, Illumina Worth Watching At These Levels

Illumina (ILMN) has built itself into the unquestioned leader in genetic sequencing, but that hasn’t done much for the stock over the last two years or so, as shares have been stuck in a roughly $100 band between $270 and $380. Not only has COVID-19 created new short-term headwinds for the company, but growth-hungry investors are increasingly questioning where the next leg of growth will come from for this company.

Illumina has made it clear that they see a significant opportunity in diagnostics, and liquid biopsies in particular, and the rumored pursuit of GRAIL (GRAL) fits with the company’s stated strategy of positioning itself for that opportunity. While GRAIL would be an expensive deal, I think it would be a sound one for the long term, and I see a lot of long-term opportunity in next-gen sequencing-based oncology diagnostics. While Illumina shares are not quite as cheap as I like, the stock is in a ballpark where I think it’s at least worth monitoring the name.

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With Or Without Grail, Illumina Worth Watching At These Levels

The PacBio-Illumina Deal Looks More Tenuous Than Ever, But There May Be Alternatives

It’s increasingly clear that regulatory clearance for Illumina’s (ILMN) proposed acquisition of Pacific Biosciences (PACB) is, at best, only going to come at the cost of major concessions and it may well ultimately be the case that regulators will only approve the deal on terms that Illumina cannot afford to accept. PacBio certainly continues to trade as though the deal is highly unlikely, though I believe within that valuation there may be some undervaluation of the financial support Illumina will continue to provide, not to mention the prospect of alternative arrangements that come short of an acquisition but would still answer some of the strategic and financial needs of both parties.

I don’t know what sort of R&D partnerships and/or distribution deal the two companies could work out, but that now seems like a more likely outcome than the proposed merger. As I said in past articles, I no longer value PacBio with the merger in mind, but I do believe that the combination of the Sequel II ramp, cash from Illumina, and some sort of commercial relationship between the two companies can put PacBio on a path to viability (short term) and success (long term).

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The PacBio-Illumina Deal Looks More Tenuous Than Ever, But There May Be Alternatives

The U.K.'S Antitrust Regulator Seems Bent On Blocking The Pacific Biosciences - Illumina Deal

In new Phase 2 filings made public today (October 24), it seems clear that the U.K.’s Competition and Markets Authority (or CMA) remains hellbent on blocking Illumina’s (ILMN) acquisition of Pacific Biosciences (PACB), even though the information provided by the CMA itself seems to refute many of its core findings/concerns. While these discrepancies do undermine the CMA’s case and support those who believe there is no credible objection to the merger (myself included), it’s unclear to me if Illumina would be willing to pursue legal remedies to push this acquisition through, and of course also unclear whether such an option would work.

Although Illumina has not yet abandoned the deal, I believe it makes more sense to value PacBio on the assumption of no deal. I still believe the standalone value of PacBio to be above $6, but the path forward without Illumina will be high-risk and suitable only for very aggressive investors who can accept the very real risk that PacBio ultimately goes bankrupt.

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The U.K.'S Antitrust Regulator Seems Bent On Blocking The Pacific Biosciences - Illumina Deal

The Latest Objections To The Illumina/Pacific Biosciences Tie-Up May Well Be Insurmountable

The United Kingdom's Competition and Markets Authority (that country's antitrust regulator, in essence) had already forwarded the Illumina (ILMN) - Pacific Biosciences (PACB) merger on to a Phase II review, but on July 19, investors got a look at the agency's reasoning, and it doesn't look good for the deal prospects. With the U.K.'s regulator insisting upon looking at short-read and long-read sequencing technology as effectively the same thing, the body has found that the deal would further consolidate a market already dominated by Illumina and potentially lock new entrants out of the market.

I do not agree with the CMA's assessment, but my opinion is beside the point. While the investigative process and hearings that are part of Phase 2 review will give Illumina and PacBio another chance to make their case that the two technologies are quite different, the tone of the report suggests an uphill climb. Consequently, while Illumina's $8/share offer to PacBio does still stand as a best-case near-term outcome, I believe it is more prudent to look at PacBio from a standalone perspective.

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The Latest Objections To The Illumina/Pacific Biosciences Tie-Up May Well Be Insurmountable

Pacific Biosciences Stumbles As The U.K. Raises Concerns About Illumina's Bid

While a quick look at their respective market caps would perhaps suggest that Illumina’s (ILMN) acquisition of Pacific Biosciences (PACB) (“PacBio”) is no big deal, regulators in the U.K. don’t seem to agree, as the country’s antitrust office (the Competition and Markets Authority, or CMA) has notified the companies that it will likely move to a Phase II review of the deal. At best, such an extension will delay the close of the deal. At worst, the deal will be rejected and PacBio will be forced to go it alone.

I highlighted this risk in my last article on PacBio, and I can’t say I’m that altogether surprised by it. The good news, such as it is, is that doubts about the deal reaching completion have already been priced in and the company does still have a worthwhile future on a standalone basis. While I believe that the CMA’s objections are off-base and that PacBio now trades below standalone fair value, this remains a situation with above-average risk and volatility.

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Pacific Biosciences Stumbles As The U.K. Raises Concerns About Illumina's Bid

PacBio Shares Reflect Some Ongoing Worries About The Illumina Deal

Although Illumina (ILMN) reiterated during its first-quarter conference call that it expects its acquisition of Pacific Biosciences (PACB) (“PacBio”) to close around midyear, clearly the market is not wholly sold on that outcome, with the shares trading below $7 as of this writing. While we know that the FTC had a second round of questions for the company on the deal (disclosed by Illumina in conjunction with Q4’18 earnings) and the end of the U.K.’s Competition and Markets Authority Phase I review is coming up, neither PacBio nor Illumina has expressed any real concern that the deal won’t go through, and due diligence has continued to support the idea that the two companies really aren’t competitive in any meaningful sense.

I still believe the deal goes through, but it is arguably prudent to address what happens if the deal doesn’t happen. Assuming that PacBio would be entitled to a full breakup fee, I believe PacBio’s cash would be just barely sufficient, though the launch of the Sequel II and SMRT Cell 8M chip complicates discussions of cash burn. Given that I believe PacBio would be worth around $6.50 on a standalone basis, it’s hard for me to reconcile today’s price with the likely Illumina buyout and even the worst-case scenario of the deal collapsing.

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PacBio Shares Reflect Some Ongoing Worries About The Illumina Deal

Pacific Biosciences Bows Out Gracefully

After many frustrating years of commercial execution lagging the potential of the technology, Pacific Biosciences (PACB) (“PacBio”) investors have a reason to be a little more cheerful this Friday. After the close on Thursday, the company and Illumina (ILMN) announced that Illumina would buy the company in a cash deal for $8/share, a roughly 75% premium to Thursday’s close and the highest price for the shares since late 2016.

I expect at least some PacBio shareholders to be disappointed with this sale, as there certainly are arguments supporting a much larger market down the road for long-read sequencing, and PacBio has been making progress on commercial execution. Even so, I think this is a decent exit valuation, but also a good opportunity for Illumina to add long-read sequencing technology to complement its very strong position in short-read sequencing.

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Pacific Biosciences Bows Out Gracefully

Battered Back Below $3, PacBio's Shares Offer High-Risk Upside

If you like to trade, Pacific Biosciences (or “PacBio”) (PACB) may be right up your alley. If you’re an investor looking to play the ongoing growth in sequencing with a company that has brought differentiated technology to lab, well, this stock may well give you grey hair and some sleepless nights. These shares were at $2.50 in the spring of 2013, over $6 in the spring of 2014, in the $5-$6 range in the spring of 2015, close to $10 in the spring of 2016, in the $5’s again in the spring of 2017, and now back in the $2’s (albeit with a higher share count than in 2013).

This volatility has not come without good reasons, as PacBio has yet to really break through with its technology and products. The installed base does continue to grow, as does usage, but the adoption curve has been very unpredictable due to company missteps, budget uncertainties, and competitive offerings. While this is a very high-risk stock, I continue to believe that there are legitimate, meaningful uses for PacBio’s technology and that ongoing improvements will help reliability and drive a more consistent adoption curve. With a fair value in the $5 range, this very speculative name is worth another look today.

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Battered Back Below $3, PacBio's Shares Offer High-Risk Upside

Seeking Alpha: Pacific Biosciences Looking More Interesting Once Again

If you're a fan of The Simpsons, the performance of Pacific Biosciences (NASDAQ:PACB) (or "PacBio") may at times remind you of the Homer Simpson "bed goes up, bed goes down" scene. While the company continues to make steady progress in improving its systems and adoption and usage are both increasing, the market has batted the stock around in response to anticipated launch numbers, rumors of a buyout, and concerns over competing systems.

My core thesis on PacBio remains the same. This company has developed a sequencing technology that is very good at doing a limited (but important and significant) number of things within the overall sequencing opportunity. PacBio will never be another Illumina (NASDAQ:ILMN) or Thermo Fisher/Ion Torrent (NYSE:TMO), but it can grow to over $1 billion in revenue over time on the strength of opportunities in areas like microbial/viral genetics, plant/animal genetics, and human genetics and diagnostics (particularly oncology). With that, I still believe a low double-digit fair value is reasonable. Given the pullback in the shares since my last write-up, this looks like it may be a good time for some due diligence on the name.

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Pacific Biosciences Looking More Interesting Once Again

Seeking Alpha: Pacific Biosciences Has Taken Some Big Steps Forward

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.

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Pacific Biosciences Has Taken Some Big Steps Forward

Seeking Alpha: Pacific Biosciences Still Trying To Claw Out Its Own Niche

When it comes to sequencing, it's still pretty much Illumina (NASDAQ:ILMN) and then everybody else. Illumina has earned this place of prominence through consistent R&D productivity and opportunistic M&A, and it makes life difficult for would-be challengers to the throne like Pacific Biosciences (NASDAQ:PACB). That said, PacBio has continued to make solid progress, with the shares up more than 100% from when I first wrote on them as a Top Idea and up about 20% from my last update.

The challenge for PacBio remains what it has been for some time - build upon what is currently the best available technology for long DNA sequences and make it faster, cheaper, and easier to use. Wrapped within that, the company needs to continue to develop new systems and new technologies, as well as develop opportunities in areas like plant genomics, clinical diagnostics, and epigenetics where its technology can really stand out.

As a stock, PacBio remains highly speculative. It's partner Roche (OTCQX:RHHBY) has continued to pursue its own alternatives in sequencing (while remaining at least outwardly committed to its PacBio partnership) and major rivals like Illumina, Thermo Fisher (NYSE:TMO), Oxford Nanopore, and 10X Genomics continue to work on technologies and systems that could ultimately capture some or all of PacBio's targeted markets. Still, 10% of the sequencing market and success with its Roche partnership could still support close to $1 billion in revenue well down the road and an $8 fair value today.

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Pacific Biosciences Still Trying To Claw Out Its Own Niche

Seeking Alpha: Volatile Pacific Biosciences Continues To Make Progress

Early-stage next-gen sequencing company Pacific Biosciences (NASDAQ:PACB) continues to make progress both with its system specs and its end-market development, but the path is not smooth or easy. The shares are still up about 80% from my initial Top Idea write-up, but down about a quarter from my last piece as investors fret over the progress and competitive risks of Illumina (NASDAQ:ILMN), Thermo Fisher (NYSE:TMO), and Oxford Nanopore, as well as questions as to whether the company's development partnership with Roche (OTCQX:RHHBY) will deliver the hoped-for revenue and profits.

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Volatile Pacific Biosciences Continues To Make Progress

The Motley Fool: Illumina Inc's Seemingly Endless Victory Lap

It gets harder and harder to criticize a company's valuation when that company continues to surpass expectations and build its lead on its rivals. That is the basic story for Illumina (NASDAQ: ILMN  ) , as this company continues to distance itself from Thermo Fisher (NYSE: TMO  ) and other would-be sequencing competitors and build up its bona fides in the diagnostics market. With a diagnostics opportunity at least twice as large as the $2 billion sequencing market (and growing at a double-digit rate), there seems to be enough growth potential to keep investors keenly interested in this name.

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Illumina Inc's Seemingly Endless Victory Lap

Seeking Alpha: Pacific Biosciences Looking To Carve Out Its Niche

High-end sequencing company Pacific Biosciences (PACB) still has much left to prove. The company has done a good job of improving system performance and reliability, but the 800lb gorilla in the sequencing space, Illumina (ILMN), books more orders for both its HiSeq and MiSeq platforms in a quarter than PacBio has installed in the field. PacBio's alliance with Roche (OTCQX:RHHBY) provided a significant boost to the stock, but it has yet to be established that the company can develop systems and tests that will work in the clinical diagnostics setting.

I continue to believe that PacBio has a worthwhile future, as I believe the company can address a multibillion-dollar opportunity by targeting applications where Illumina's technology does not work as well. Microbial and plant genetics, so-called "platinum genomes", and epigenetics are all areas where PacBio's technology can play a long-term role. This is by no means a stock for the nervous or impatient investor, but I believe opportunity remains even after the large move in 2013.

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Pacific Biosciences Looking To Carve Out Its Niche

The Motley Fool: Can Anything Stop Illumina?

There aren't many companies that have done what Illumina, (NASDAQ: ILMN  ) has done. Illumina does not have monopoly share, but it also doesn't have much to worry about today in terms of competition. I have my doubts as to whether Thermo Fisher Scientific (NYSE: TMO  ) is truly prepared to invest the sort of sums into R&D that it will take to make Life Technologies Corp.  (NASDAQ: LIFE  ) a true neck-and-neck long-term rival, and Oxford Nanopore has struggled to deliver its systems to market on time.

The biggest problem with Illumina is the price. I realize growth investors are famously ambivalent about valuation, but it looks to me as though the market is pricing in over 20% long-term free cash flow growth for Illumina. At that pace, the company would have well over $5 billion in revenue in 2022 and the sort of free cash flow margins that even the best med-tech, pharmaceutical, diagnostics, and life sciences companies struggle to match.

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Can Anything Stop Illumina?

The Motley Fool: Thermo Fisher Scientific May Be Hard Pressed To Outperform

To be clear from the outset, I'm a fan of Thermo Fisher Scientific Inc. (NYSE: TMO  ) , and I believe the company's impending acquisition of Life Technologies Corp. (NASDAQ: LIFE  ) will be a transformative deal for a company with a long history of strong M&A moves. With this deal, Thermo Fisher will operate on a scale that the likes of VWR, Merck KGaA, Agilent, and Waters cannot match, and the company will have the resources to challenge companies like Illumina (NASDAQ: ILMN  ) , Becton Dickinson, and Danaher in their growth markets to the extent management wishes to invest.

The question is price. This has been a good year for anything "bio", but Themo Fisher has outperformed almost everybody else in the sector with a 70% jump in the last twelve months. Even with a double-digit multiple to EBITDA and/or strong long-term mid-single digit free cash flow growth, it is hard to call these shares a bargain. Thermo Fisher has a good history of drawing more value than expected from its M&A transactions, but that seems to be the base case assumption here rather than the upside.

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Seeking Alpha: Did PacBio Just Sorta Sell Itself To Roche?

As a Roche (RHHBY.OB) shareholder, I've been waiting for a while for the company to do something with its life sciences research business, and its sequencing business in particular. The company took a well-known run at Illumina (ILMN) and made a lesser-publicized joint bid for Life Technologies (LIFE). With the options getting narrower, particularly with respect to systems that could be commercialized on a near-term basis, Roche made its move - signing a development and marketing agreement with Pacific Biosciences (PACB) covering sequencing, consumables, and related diagnostics products for the in vitro market.

I'd be curious to know if Roche has made any overtures toward Oxford Nanopore, but that's neither here nor there at this point. For Pacific Biosciences, this is a major public affirmation of the progress the company has made to recover from system performance and reliability problems that took a once-ballyhooed story to almost flirting with bankruptcy. PacBio has already been a great pick for me (having recommended the stock in an Alpha-Rich piece here), but I wouldn't assume that there is all there is left in the story.

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Did PacBio Just Sorta Sell Itself To Roche?

Seeking Alpha: Pacific Biosciences Will Go Checkers Or Wreckers

I live in NASCAR country and it's not that rare to hear the expression "going checkers or wreckers" - meaning throwing caution to the wind and going all-out, with the idea that you either win or end up in a smoking heap.

That notion would seem to apply to Pacific Biosciences (PACB) today, as this once-promising innovator in single-molecule sequencing has been battered by concerns about the accuracy and value of its systems. With intriguing accuracy-improvement technology and techniques now available, though, PacBio may have its last best chance to achieve the success that many once thought was near-certain. If PacBio can recover its reputation and drive system and consumables sales, this stock could be undervalued by 50% or more. On the other hand, failure to markedly accelerate customer adoption over the next three years could have this company in bankruptcy and the share price in tatters.

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Pacific Biosciences Will Go Checkers Or Wreckers

Seeking Alpha: Illumina Flexes Its Muscles A Bit

The strong revenue growth and lucrative margins of Illumina's (ILMN) core sequencing business has attracted ample competition over the years. It's testament to the quality of Illumina's technology (both acquired and internally-developed), though that a lot of these competitive attempts have only served to highlight the attributes and advantages of the company's approach.

I certainly have my questions and doubts about Illumina. I do think the company was caught a little flat-footed by the success of Life Technologies' (LIFE) Ion Torrent products, and my talks with several people in academic/research labs do lead me to believe they rushed their high-throughput products to market (leading to some unhappy customers). Last and not least, I think that Street expectations for sequencing-driven clinical diagnostics could be ambitious. All of that said, though, it's hard not to acknowledge and appreciate the business that Illumina is building here.

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Illumina Flexes Its Muscles A Bit

Investopedia: Thermo Steps Up And Seals A Deal For Life Technologies

After months of speculation, Thermo Fisher (NYSE:TMO) has brought its rumored pursuit of diversified lab equipment and supply manufacturer Life Technologies (Nasdaq:LIFE) to a successful close. The two companies announced on Monday that they had reached an agreement whereby Thermo would acquire the company in an all-cash deal. While Life Tech's share price after the deal seems to show a little larger-than-normal discount, the bigger question may be whether Thermo anticipates another deal down the line.

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