Cantor Remains Confident on Pacific Biosciences of California (PACB) While Shares Crash 42%


Pacific Biosciences of California (NASDAQ:PACB) shares are on a 42% nosedive after announcing this morning before market open that Roche has terminated its collaboration agreement with PACB. In the agreement, Roche held exclusive distribution rights of the Sequel sequencing platform into the clinical market, and by terminating these rights, Roche will also no longer have access to PACB’s Single Molecule, Real-Time (SMRT) technology utilized for the development and supply of diagnostic products.

Though Cantor analyst Bryan Brokmeier views Roche’s termination of the collaboration agreement as a “significant negative,” he recognizes some silver lining in that the biotech firm can now sell into the clinical sequencing market. As such, the analyst reiterates an Overweight rating on PACB with a price target of $15, which represents a just under 277% increase from where the shares last closed.

Presently, the analyst notes, “We are currently modeling Roche-generated instrument revenues in 2017 and 2018 would have been $14.3M and $27.5M, respectively, but at a lower gross margin than PACB’s Sequel sales. PACB will now be able to sell into the clinical market or partner with another company so not all of that revenue should be lost, but it will require PACB to make further investments in their sales and marketing organization.”

Also worthy of note, the firm has maintained its 2016 product and service revenue growth of 55% to 65% and announced new 2017 guidance calling for 40% to 60% growth.

Moving forward, “We have an Overweight rating on PACB, as we believe that the company’s Sequel Platform is a game changer that has driven record bookings and is taking share from market leader ILMN. Capturing just 1% share of the $2.3B sequencing market each year would provide the company with a 20%+ revenue CAGR, which we believe would support a double-digit EV/Revenue multiple. We are highly confident in management’s ability to deliver on its reported strong pipeline and expectations of higher Sequel bookings in 2H16, following strong reported bookings in 1H16,” Brokmeier surmises.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Bryan Brokmeier is ranked #3,783 out of 4,274 analysts. Brokmeier has a 40% success rate and faces a loss of 3.4% in his yearly returns. However, when suggesting PACB, Brokmeier gains 4.3% in average profits on the stock.

TipRanks analytics demonstrate PACB as a Buy. Based on two analysts polled by TipRanks in the last 3 months, 1 rates a Buy on PACB stock while 1 remains sidelined. The 12-month average price target stands at $13.50, marking a nearly 233% upside from where the stock is currently trading.

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