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PacBio Books Five Systems as Revenues Climb 164 Percent

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This article was originally published Oct. 23.

Pacific Biosciences booked orders for five of its PacBio RS II systems in the third quarter of 2013, bringing in $7.4 million in revenues and beating the consensus Wall Street estimate of $7.1 million in revenues for the quarter.

PacBio CEO Mike Hunkapiller attributed the recent uptick to customers' published studies demonstrating the system's ability to generate long, accurate reads for de novo assembly applications and to sequence hard to sequence regions of complex genomes.

The firm's five bookings were two fewer than the previous quarter, and Hunkapiller said during a conference call discussing the company's third quarter earnings that while the company is "a bit disappointed with the sequential decrease, we continue to have a healthy pipeline, and for the year we continue to target a doubling of total 2013 bookings compared with our bookings for last year."

During the third quarter, PacBio installed six machines, bringing its backlog to nine and its total installed base to 83. It also took orders for seven upgrades to the RS II, bringing its total upgrades to 61 out of a possible 74 that were installed prior to the release of the RS II.

Earlier this month, PacBio launched its latest chemistry — P5/C3 — which features photoprotected dyes that enable even longer read lengths. According to Hunkapiller, customers using the new chemistry are achieving N50 read lengths of 10,000 bases with the longest reads over 30,000 bases.

Hunkapiller also highlighted several recent publications that he said illustrate the PacBio RS's potential, including a study published in BMC Genomics, in which researchers compared de novo assembly of the chloroplast genome on the PacBio RS to assembly on the HiSeq.

The chloroplast is a 155-kilobase genome with 37 percent GC content and "several long and almost identical repeat structures," said Hunkapiller, making it difficult to assemble with other technologies.

Using only PacBio data at 35x coverage, the researchers were able to assemble the chloroplast genome into one contig. By contrast, sequencing the genome to 9,100x on the HiSeq produced seven contigs with 10 percent of it missed entirely.

Additionally, said Hunkapiller, a recent PacBio user group meeting drew 85 attendees with 12 customers presenting on the use of the system for a range of applications. For example, researchers at the Salk Institute presented on work sequencing and assembling the 120 megabase Arabidopsis genome. Previous assemblies using short read technologies and Sanger sequencing have produced contigs no longer than 460,000 bases with an N50 of 6,000 bases. The Salk team's de novo assembly on the PacBio system meantime, was able to generate contigs with an N50 of 6 million bases with contigs as long 13 million bases.

Additionally, researchers at Mount Sinai, who were early access testers of the P5/C3 chemistry, reported achieving N50 read lengths of 12,500 bases with the longest reads over 34,000 bases, Hunkapiller said.

Impact from government shutdown

Despite these positive reviews from customers, Hunkapiller said that the firm will feel the effects of the US federal government shutdown because a large proportion of its customers are federal agencies, such as the US Food and Drug Administration, or are reliant on federal funding for research.

Looking ahead, Ben Gong, PacBio's VP of finance and treasurer, said that while the firm continues to target an annual doubling of instrument sales over 2012, "with ongoing uncertainty surrounding government funding, we may incur delays that could impact our fourth quarter bookings."

While the shutdown may have a slight impact on system purchases, the main impact will be on consumable sales.

"A number of our US customers were forced to temporarily shut down their systems while their labs were closed," Hunkapiller said. The shutdown "has impacted our current quarter consumable sales and has disrupted the dialog we were having with certain government agencies concerning future instrument business," he added.

According to Gong, the firm would normally forecast sequential growth in consumable revenue for the fourth quarter, but the shutdown may cause those revenues to be flat.

"Unfortunately, the government shutdown has had an impact on our consumable sales and several of our busier customers were not permitted to run their systems during that time and have spent some additional time bringing their systems back up," he said.

New customers from 454?

Earlier this month, Roche announced that it will shut down its 454 sequencing business, phasing out its GS FLX, GS FLX+, and GS Junior instruments by mid-2016.

Hunkapiller said that while it is still early, there is the potential of gaining new customers from 454's installed base, particularly given that a lot of 454 users chose the technology because of the system's longer reads. "We've got a good position relative to 454," including reads that surpass those of the GS FLX+ and throughput that is "pretty much equivalent," he said. "For people that need longer reads, we think we have a pretty strong argument."

He said he did not know exactly how many systems Roche had installed, but said that he had seen estimates of 500 to 600 installed units, with a larger presence in Europe than in the US. Already, current 454 customers are making plans to switch to other platforms (IS/22/2013).

Financials

The company's third quarter revenues were up 164 percent year over year to $7.4 million from $2.8 million and were up 23 percent sequentially from $6 million.

Product revenue for Q3 was $5.8 million, up from $1.3 million in the year-ago quarter, and also up sequentially from $4.6 million. Total product revenue included $3.7 million in instrument revenue compared to none in the prior year's third quarter, and $2.1 million in consumable revenue, a 64 percent increase year over year.

Service and other revenue was up year over year to $1.6 million from $1.3 million, and up sequentially from $1.4 million.

PacBio's R&D costs were $10.4 million, down 17 percent year over year from $12.6 million, while SG&A costs were $10.8 million, up 7 percent from $10.1 million in Q3 2012.

Its operating expenses included $2.0 million in advisory and professional fees connected to the company's development, commercialization, and license agreement with Roche Diagnostics announced in September (IS 10/1/2013).

With regards to the Roche deal, Hunkapiller did not provide many additional details but said that it "accelerates our ability to participate in the large and growing molecular diagnostic market."

PacBio posted a net loss of $20.5 million, or $.31 per share, down from $22.7 million, or $.41 per share, in the prior year's quarter. It fell just shy of the average analyst estimate for a loss of $.30 per share.

The company ended the quarter with cash and investments of $126.9 million compared to $107.0 million at June 30, 2013. This increase reflects an up-front, non-refundable $35.0 million payment received from Roche.

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