Investment firm William Blair and Company began covering Pacific Biosciences this week with a "Market Perform" rating, but estimated that sales of the company's RS machine will be slightly below consensus estimates.
The firm predicted PacBio will ship 46 instruments in 2011, 125 in 2012, and 170 in 2013, which is 99 fewer total instruments than the 440 machines analysts previously predicted PacBio will ship by 2013.
William Blair analyst Amanda Murphy said in a research report that the "conservative" estimate was due to the fact that "current specifications of the RS somewhat limit the market opportunity," as well as "uncertainty about the adoption trajectory beyond early users."
Specifically, Murphy said that while the system's long read lengths are an advantage, the machine's low throughput would limit its use to "niche applications" for the time being. While PacBio plans to increase yields by as much as 45-fold, those improvements are not expected until 2014. Additionally, she wrote that the release of software to enable epigenetic profiling would help increase sales.
"In our view, the slope of instrument placement ramp-up will be determined by successful rollout of these improvements in system specifications and continued expansion in research and clinical applications," the firm wrote.
The firm projected that PacBio will garner a 10 percent share of the next-gen sequencing market by the end of 2012, assuming that the market is now about $1.2 billion, or 1,500 machines, and growing at a 20 percent compound annual rate.
PacBio has so far placed 11 beta instruments with early-access users and has an order backlog of 38. It expects to commercially launch the system this quarter for $695,000.
While PacBio is not expected to report any product revenue in the first quarter, Murphy estimated that it will post $5.9 million in revenue for the second quarter and $31.7 million for full-year 2011.
Initially, revenue will be dominated by instrument sales, but over time it will shift to consumables, which the firm expects will grow from around $100,000 per RS in 2011 to $250,000 per machine in 2013, due to increased usage of the instruments and overnight runs.
William Blair predicted that the company will reach profitability by the fourth quarter of 2014.
The investment firm has calculated the company's stock valuation to be $14.03 per share.