Pacific Biosciences represents one of the big dreams in genomics of the past decade. It rallied big money and prominent people around a one-of-a-kind sequencing technology. The Menlo Park, CA-based company (NASDAQ: [[ticker:PACB]]) ended up reaching the market, and has helped researchers make some high-profile discoveries, like the origin of the 2010 cholera outbreak in Haiti.
But in its first couple years as a public company, the numbers tell a business story scary enough to send shivers down the spine of the average investor.
Consider PacBio’s profile from two years ago: The company went public amid great fanfare, buoyed by an excited base of researchers that eagerly awaited its $700,000 machine. It raised $200 million, and debuted on the NASDAQ with a market valuation of $800 million. It delivered its first product to the market about nine months later, in late April 2011.
Now look at the picture two years later: PacBio has now burned through more than $500 million of investors’ money through the end of most recent quarter. The company generated $2.8 million in revenue in the three-month period that ended Sept. 30—a 73 percent decline from the previous quarter. The once-loaded company expects to burn through roughly $80 million in cash this year, and end the year with about $100 million of cash left in the bank. It has an installed base of 70 machines around the world, and its once-fat backlog of orders now has just five customers on it, as of its last quarterly report on Oct. 25. Worst of all, this one-time highflier has a market capitalization of less than $70 million. Not only does that mean PacBio’s early investors have lost their shirts, it says current investors essentially think the technology is worthless.
To be sure, PacBio isn’t the only company that has struggled to get a foothold in the fast-moving genome sequencing world. While scientists are excited about the research that’s now enabled by fast/cheap sequencing with instruments from Illumina (NASDAQ: [[ticker:ILMN]]), Life Technologies (NASDAQ: [[ticker:LIFE]]) and PacBio, many have seen their purchasing power weaken because of cutbacks and future uncertainty in federal research funding. Tough new competition from Oxford Nanopore and Genia Technologies is threatening to make many of today’s genomic instruments obsolete.
Tycho Peterson, a genomics industry analyst with JP Morgan, rates PacBio stock “underweight” which is one way of essentially saying beware. After the company’s earnings report on Oct. 25, he wrote in a note to clients that “we remain cautious on PACB given limited visibility on demand and more importantly continuing cash burn. We reiterate our Underweight rating, pending dramatic improvements to the PacBio RS platform or a material shift in the strategy.” When I checked with a few good genomics researchers around the world and asked them about the PacBio machine, several said they couldn’t comment because they don’t use it.
Grim as the situation may look from the outside, new PacBio CEO Mike Hunkapiller gives off the sense that he’s seen this movie a couple times before, it’s no big surprise, and all his company needs to do is work hard on executing behind the scenes to get things going in the right direction. Hunkapiller, a gene sequencing pioneer who started working in the field at Caltech and Applied Biosystems in the 1980s, is known for his understated, just-the-facts style. His body language, on a visit to his office Oct. 15, practically screamed, “I’m not a hypemaster.” And while he did nothing to hype PacBio’s technology, he insists he still believes in it, and it just needs a few adjustments to get the company back on track.
When I joked that maybe it’s time to prepare the PacBio obituary, he laughed. “It’s a little early,” he said, before offering up a little historical perspective. “I remember back in the original ABI (Applied Biosystem) sequencing days, about the second year in, we were doing our planning, and the sales force said ‘Well, we’ve now identified all the high-throughput sequencing labs that are ever going to need an automated sequencer.’ That was about 1987. At that point, we had sold maybe 120 units at the time. We ended up selling 200 more than year. And we got up to a couple thousand in the glory days of the original genome work.”
The point of this little anecdote, Hunkapiller says, is that the technology in this business improves fast, the market demand is hard to predict, and essentially all genome technologies are evaluated at first on their promise
