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Pacific Biosciences Stock Upgraded by Piper Jaffray

NEW YORK – Investment bank Piper Jaffray today upgraded shares of Pacific Biosciences to Overweight after conducting checks on placements of the firm's Sequel II single-molecule sequencing instrument.

Piper Jaffray analyst William Quirk wrote in a note to investors that the bank's channel checks imply 36 to 42 placements of the Sequel II, which launched earlier this year, in the third quarter. He noted that PacBio had placed 41 Sequel II instruments through the second quarter of 2019, which was above his expectations of around 25.

Quirk said that he believes the market has been "preoccupied with concerns about the Illumina deal falling through, and the valuation does not reflect the Sequel II launch."

Illumina inked the $1.2 billion deal to acquire PacBio nearly a year ago. At the time, the firms said they expected the transaction to close mid-2019. But, the deal has been held up by an antitrust investigation in the UK, and in June Illumina said it expected to close the acquisition in the fourth quarter of 2019.

It has since agreed to make monthly payments to PacBio through the rest of this year so it can sustain its operations, and it may make payments through the first three months of 2020 if it extends the agreement. Illumina may be required to pay PacBio a reverse termination fee of $98 million if the deal is terminated under certain circumstances.

"Based on PacBio's current valuation, we believe the market continues to expect the Illumina/PacBio deal will not close," Quirk wrote. He added that he believes PacBio as a standalone company "is worth more now given their commercial achievements and system performance."

He maintained the bank's $8 price target on PacBio's stock.

In Tuesday morning trade on the Nasdaq, shares of PacBio were up 4 percent at $5.33.