Pacific Biosciences of California's Recovery Continues

By Cory Renauer Markets Fool.com

What happened

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Shares of Pacific Biosciences of California (NASDAQ: PACB), an as-yet-unprofitablepurveyor of genome sequencing systems, jumped 14.8% as of 12:17 p.m. EDT during Wednesday's session. It seems investor confidence is returning despite the loss of a major contract with Rochelate last year.

So what

Last December, Pacific Biosciences stock took a 44% beating in a single day after revealing the termination of an agreement to supply Roche, a pharma and diagnostics giant, products based on its proprietary genome sequencing technology.The tie-up was perceived as a way for PacBio to increase its presence in the fast-growing space for clinical diagnostics, and its abrupt end stoked fear that the company's products might remain confined to research labs.

Image source: Getty Images.

After today's gain, the stock has recovered most of the loss sustained in December, as investors have had time to digest a relatively positive fourth-quarter earnings report. Management claimed that demand for its products was on the rise, and fourth-quarter product and service revenue popped 92% higher than the prior-year periodwhile operating expenses were just 6.5% higher.

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Now what

The reported gain in non-Roche-related revenue was encouraging, but PacBio needs to continue to report stellar growth to reach profitability. Product and service revenue of$11.7 million in the fourth quarter is a long way from the $29.3 million the company recorded in operating expenses during the same period.

Luckily, PacBio isn't the only company predicting strong uptake of next-generation genome sequencing equipment. A recent survey of laboratories conducted by Cowen and Company suggest the strong uptake of next-generation sequencing systems, such as PacBio's Sequel recently, will probably keep growing throughout 2017.

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Cory Renauer has no position in any stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. The Motley Fool has a disclosure policy.