Why Pacific Biosciences Shares Are Falling 15.4% Today

By MarketsFool.com

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What happened

Following third-quarter results that raised questions over whether the company will meet its full-year target for orders for its next-generation gene-sequencing machine, the Sequel, shares inPacific Biosciences(NASDAQ: PACB)are down 15.4% at 11:30 a.m. EDT on Thursday.

So what

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Demand for Pacific Biosciences' Sequel remains strong; however, during the company's third-quarter conference call, VP of finance Ben Gong said:

Management also reminded investors during the conference call that the fourth quarter of 2015 offers a tough comparable this year because of a $20 million milestone payment received last year from Roche Holdings,the exclusive distributor of the Sequel system to the diagnostic market. The absence of a similar payment from Roche in this year's Q4 will cause gross margin to decline sequentially to 40% from 50% last quarter.

Now what

Management's cautious commentary took attention away from what was an otherwise dramatic year-over-year increase in sales. Revenue grew 80%, to $25.1 million, in Q3 from a year ago, and after excluding contract revenue from Roche, sales increasedby more than 100%. In total, 30 Sequel instruments were put in place in the quarter, bringing the total installed base of Sequel systems to 75, and those placements resulted in instrument revenue of $11.5 million, up 400% from last year.

Consumable revenue also increased by 22%, to$6.5 million, in the quarter. However, that increase was primarily tied to legacy RS II systems, not the Sequel. Management thinks Sequel consumable revenue will improve from here, now that delays in Sequel's supply chain have been resolved.

Overall, Pacific Biosciences' management estimatestotal revenue will be between $86 million and $90 million this year, and that momentum will increase in the coming quarters. Gong also expects growth in 2017, though he didn't mention a specific number:

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Todd Campbellhas no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool recommends Pacific Biosciences of California. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.