Here's Why Pacific Biosciences of California Is Sliding Today

By Cory Renauer Markets Fool.com

What happened

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Shares of Pacific Biosciences of California (NASDAQ: PACB)are getting battered today in response to a wider-than-expected first-quarter loss, announced after the market closed yesterday. Shares of the genetic analysis technology company have fallen 22.5% as of 11:26 a.m. EDT during Thursday's session.

So what

Wall Street was expecting Pacific Biosciences to report a net loss in line with the first quarter of last year, or $0.23 per share. Instead, the company reported a loss of $0.26 per share, inciting today's market beatdown.

Image source: Getty Images.

While the bottom-line earnings figures dominate the headlines, year-to-year results closer to the top line probably deserve more attention. Although product and service revenue rose 60%, costs associated with generating that revenue jumped 66%.

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Management was quick to suggest its first-quarter gross margin was roughly equal to the previous-year period if the impact of some one-time events is excluded. That wasn't too comforting for shareholders hoping to see margins widen as the company sells more of its DNA sequencing machines.

Now what

Although Pacific Biosciences' first quarter wasn't necessarily bad, it does come on the heels of the launch of a cost-barrier-breaking product from Illumina. Pac Bio's main rivalrecently launched a machine expected to lower the cost of sequencing an entire human genome down to just $100 in the years ahead.

While fundamental differences between Illumina's and Pac Bio's machines make the latter's better-suited to academic research, an ultra-low price point has made Illumina the go-to sequencer for drugmakers. Going even lower could help the product become popular among healthcare providers as well, which makes Illumina the bestgene-sequencing stock you can buy right now.

While Pacific Biosciences might be able to carve out a nice niche within the halls of academia, today's results suggest the company's profitability corner might be even further ahead than hoped.

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