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Piper Jaffray Upgrades PacBio Following Earnings Results

NEW YORK (GenomeWeb News) – Piper Jaffray today upgraded Pacific Biosciences to a Neutral rating after the next-generation sequencing company announced better than expected placements of its instruments.

The investment bank upgraded PacBio from its previous rating of Underweight, and raised the price target on its shares to $3.10 from $2.00.

After the close of the market on Thursday, PacBio said that in the second quarter, revenues dropped about 18 percent year over year, missing the average analyst estimate on the top line.

Regardless of the miss, the company said that it installed three PacBio RS II systems and booked seven instruments in the quarter and ended the quarter with a backlog of 10 platforms.

Additionally, the company took orders for 23 upgrades to the RS II system in the quarter, and completed upgrades to 34 systems. On a conference call, PacBio VP of finance and Treasurer Ben Gong said the firm anticipates installing "most, if not all" of the 20 upgrades in backlog during the current quarter.

For Piper Jaffray analyst William Quirk, the earnings results and business update was a reason for some optimism, and in a research note, he said, "With a second quarter in a row of better bookings suggesting a new level of stability (but not yet sustainability), we believe a Neutral rating is more appropriate."

PacBio management said that for full-year 2013, bookings are anticipated to at least double that of 2012, "suggesting at least 24 systems, higher than our initial expectations," Quirk said, adding, "Importantly, applications are expanding beyond the initial bacterial sequencing and genome finishing with management noting increased interest in large genome and targeted sequencing."

Another analyst, however, noted the present budget environment and was more cautious about PacBio's prospects moving ahead. Amanda Murphy of William Blair said the increased bookings in the second quarter were encouraging, but while "management appears increasingly confident in its guidance for 2013, with the high price tag of the instrument and current niche applications in a capital constrained environment, the adoption curve of the RS platform remains uncertain, in our view."

She kept a Market Perform rating on the company.

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