Pacific Biosciences of California Inc. ($PACB) is engaged in developing and manufacturing sequencing systems for solving genetic issues. The company recently developed a new sequencing system for the maize genome, which is expected to pave the way for complex crop as well as livestock genomes. The company used its proprietary SMART technology for this purpose as the technology allows for the real time observation of DNA synthesis. The new development is expected to offer strong boost to the company as it suffered a couple of setbacks in the recent past. The company faces rather tepid response to its new Sequel systems. However, Pacific Biosciences has taken several remedial steps to ensure that Sequel systems gain wider approval in the market. These steps included designing software and chemical updates for the systems. Another major point that goes in the favor of the company that its new sequencing system is mainly designed for plant and livestock segments, which are generally under-served by bigger players such as Thermo Fisher. This may enable Pacific Biosciences in carving a niche for itself in the largely ignored segment of the market.

The company stock has been battered down quite strongly in the market. The steep decline was mainly on account of Roche walking out of its 2013 agreement with Pacific Biosciences. While Roche’s ouster from the collaboration is likely to result in strained liquidity position as well as technological roadblocks, it seems like that Pacific Biosciences is now in position to sustain its position in the market as it continues to add new customers to its roster. The stock is currently trading close to its 52 weeks low as it lost over 55 percent of its value in the past 12 months. Pacific Biosciences is taking up new marketing initiatives to enhance the visibility of its SMART systems in the market. It has added a number of new customers this year, making the long term outlook for the company positive.

Risks

Pacific Biosciences recently announced the pricing of its underwritten public offering at $3.10 apiece. The announcement led to a dip in the stock price, which has recovered since then. The investors need to be careful about the dilutive effect of such offering since the company aims to use the net proceeds for general corporate purposes, instead of boosting its R&D or marketing efforts for any particular drug. However, the dilutive impact of this offering is likely to be limited and is expected to be overshadowed by the overall strength of corporate performance.

Catalysts

The company stock is currently trading close to its 52 weeks low. The company provides a risky yet lucrative medium to short term investment opportunity. Despite recent setbacks, Pacific Biosciences is picking up as its SMART technology gains wider following in the market. The stock’s beaten down price offers a good investment opportunity as the company recovers in the near future.

Management

Michael Hunkapiller, Ph.D.

Chairman, CEO & President

Michael Hunkapiller became President & CEO of Pacific Biosciences in 2012. He is Chairman of PacBio’s Board of Directors, and has served on the Board since 2005. Dr. Hunkapiller spent over 30 years of his career helping build Applied Biosystems (now part of Thermo Fisher Scientific Inc.) into a market leader in the life sciences industry. He received a B.S. in Chemistry from Oklahoma Baptist University and a Ph.D. in Chemical Biology from the Division of Chemistry and Chemical Engineering at Caltech.

Susan K. Barnes

Executive Vice President and CFO

Susan K. Barnes joined PacBio in February 2010 with nearly 30 years of experience in senior financial management. From 1997 to 2005, she was Senior Vice President, Finance and Chief Financial Officer of Intuitive Surgical, Inc. Ms. Barnes received an A.B. from Bryn Mawr College and an M.B.A from the Wharton School, University of Pennsylvania.

Investment strategy

Entry - Current price point and at any dip

Profit Point – Long term holding

Hold duration – Long Term

Price Target (consensus) - $8.00

Exit (Partial) - $6.50

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