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Pacific Biosciences Unveils Sequel System, Boosts Portfolio

Pacific Biosciences of California Inc PACB recently launched Sequel system - a nucleic acid sequencing platform based on Single Molecule, Real-Time (SMRT) technology. The company expects to start shipping the product from the fourth quarter of 2015 in the U.S.

The Sequel system was developed under the company's partnership with Roche. Per the agreement, Pacific Biosciences is required to deliver a cohort of initial instruments to Roche for its internal assay development program.

Pacific Biosciences will also receive $20 million in the fourth quarter as a milestone payment from Roche. To date, Pacific Biosciences has received $20 million under the contract.

Sequel is a more powerful device as compared to the company's legacy PacBio RS II system. The new SMRT Cells in the device contain one million zero-mode waveguides (ZMWs), compared to 150,000 ZMWs in the PacBio RS II.

Sequel can read more per SMRT cell (seven times) than PacBio RS II. Its higher throughput, scalability, lower upfront capital investment and smaller size and weight will certainly attract cost-sensitive customers, in our view.

Further, Sequel system is more economical to develop than PacBio RS II, which will contribute to Pacific Biosciences' gross margin. In the last reported quarter, the company reported gross profit of $14.5 million, way higher than $3.1 million recorded a year ago. Pacific Biosciences expects gross margin in the mid-30 range for the third quarter of 2015.

We believe that Pacific Biosciences has significant growth prospects in plant and animal as well as human genome sequencing. The company's leading position in microbial sequencing also presents it a significant growth opportunity in the infectious disease market.

However, persistent losses and cash burn are the primary headwinds facing the company at present. Total operating expenses are also anticipated to increase approximately 15% over the 2014 figure, which will weigh on margins, in our view.

Zacks Rank & Key Picks

Currently, Pacific Biosciences has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space are Masimo MASI , Thoratec THOR and RTI Surgical RTIX . All the companies sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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