Why Pacific Biosciences of California Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Pacific Biosciences of California , a developer of genetic analysis technology, sank like a stone today, losing as much as 17% after the company reported third-quarter earnings results.

So what: For the quarter, Pacific Biosciences reported revenue of $7.4 million, a 164% increase from the $2.8 million it delivered in the year-ago period and even a nice bump up from the $6 million it reported in the sequential quarter. Loss per share came in at $0.31, which was $0.02 worse than Wall Street had expected. Operating expenses were essentially flat with the sequential second quarter, but gross margin fell 1% to 17%. What seems to be really hurting the share price today -- EPS miss aside -- is the fact that Pacific installed only six PacBio RS II DNA sequencing units in the third quarter compared to the seven it installed in the second quarter. Also, management announced during the earnings conference call that it sees the government shutdown negatively impacting its consumable sales operations in the fourth quarter.

Now what: As I've noted previously, genetic analysis tools are getting more sophisticated, and the push toward personalized medical treatments, especially for treating cancer, should make systems like the PacBio RS II a potential winner down the road. In the present, though, Pacific Biosciences has little recurring revenue and, even with its recently announced partnership with Roche Diagnostics, is burning cash at an annual rate of $50 million to $60 million. Until we see more consistency from unit sales or a major jump in recurring revenue, I would suggest keeping to the sidelines.

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The article Why Pacific Biosciences of California Shares Sank originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends Pacific Biosciences of California. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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