Pacific Biosciences of California Reports Q1 Loss Due to Higher Costs

By Keith Speights Markets Fool.com

Pacific Biosciences of California (NASDAQ: PACB) experienced a double-whammy in the fourth quarter of 2016: The genetic-sequencing company had lower revenue and a bigger loss than the prior year period.

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It wasn't quite as bad when the company reported its 2017 first-quarter results Wednesday evening: This time, there was only a single whammy. Here are the highlights.

Image source: Getty Images.

Pacific Biosciences results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$24.9 million

$19.1 million

30.3%

Net loss

($23.9 million)

($19.4 million)

N/A

Net loss per share

($0.26)

($0.23)

N/A

Data Source: Pacific Biosciences of California.

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What happened this quarter?

The good news for Pacific Biosciences was its top-line improvement. Revenue increased significantly compared to the prior year period thanks to a big jump in product revenue from $12.4 million to $21.3 million.

Service and other revenue also increased, although not nearly as dramatically. Pacific Biosciences reported service and other revenue for Q1 totaling $3.6 million, up nearly 15% year over year.However, the prior-year period comparisons suffered due to no contract revenue in the first quarter versus roughly $3.6 million in the same period last year.

The higher revenues weren't enough to make Pacific Biosciences' bottom line look better, though. The company's net loss worsened from the prior year period. The primary culprit was significantly higher product costs. Pacific Biosciences noted that cost of product revenue for the first quarter was $11.4 million, a 65% year-over-year increase. Part of this increase was due to a$1.3 millioncharge related toa change in the estimated useful life for its RS II instruments.

Another factor behind the larger net loss in the first quarter was an increased cost of service and other revenue. Pacific Biosciences announced that these costs totaled $4.6 million during the period, up 68% year over year.

On top of these higher product and service costs, Pacific Biosciences also spent more on operations. Research and development costs were up 3.7% from the prior year period to nearly $17 million. Sales, general, and administrative expenses rose 30.4% year over year to $15.3 million.

Pacific Biosciences ended the first quarter with cash,cash equivalents and investments, excluding restricted cash, totaling $56.1 million. That's down from the $72 million it reported at the end of 2016.

What management had to say

CEO MichaelHunkapiller said, "We are pleased with our first quarter results and our continued progress in driving growth in our business." He added, "Instrument revenue has grown steadily this past year as we have increased shipments of Sequel systems."

As for the future, Hunkapiller noted, "There's a lot for us to be excited about, but we are cautious about instrument sales growth in the near term due to the uncertainty around U.S. government funding, particularly for capital purchases."

Looking forward

Pacific Biosciences faces some of the challenges and opportunities that fellow genomic-sequencing company Illumina (NASDAQ: ILMN) does. There are serious question marks about U.S. government funding, for example. However, both companies also have significant opportunities, particularly in China.

Michael Hunkapiller noted that Pacific Biosciences has seen significant strength in its China business: More than 20% of the company's sales over the past two quarters came from China.

Illumina's launch of its NovaSeq system could cause Pacific Biosciences more headaches. The new system appears to have had a solid debut in the first quarter. Success for NovaSeq puts pressure on Pacific Biosciences' development efforts. The company is working on a new version of its Sequel sequencing system, but the product isn't scheduled to be released until late 2018.

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Keith Speights 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.