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Pacific Biosciences of California, Inc. Message Board

  • deepanalyst1 deepanalyst1 Nov 5, 2010 12:50 AM Flag

    the bear case against PACB

    I believe that the recent selling is due to a logical assessment of the company's prospects in light of the competition. Here are the main reasons to sell this company.

    1. PACB's machine is expensive -- over $800K, while competitors like Illumina are much more reasonably priced. Illumina goes for $300-500K, and Life's SOLiD sequencer is similar. Note that Ion Torrent (acquired by Life) will be releasing their system next month at $50K. Why would anyone buy a PACB machine for 10x the cost?

    2. The DNA reads are buggy. Accuracy appears to be in the 75-80% range. Companies like Illumina and Life are more like 99% accuracy.

    3. Single molecule detection is hard, very hard. They are bumping into limitations of physics at these levels. Helicos tried this and failed despite lots of money, time, and smart people. Yes, zero mode waveguides are different in someways, but single molecule detection is hard.

    4. Helicos' stock fell 10-fold in about a year. This was because it couldn't really compete with Life, Roche 454, or Illumina. These are much worse now for PACB because the market is already much more penetrated.

    5. Illumina is best in class and pretty much everyone knows it. They have a great reputation. I personally wouldn't want to go toe-to-toe with them.

    6. Their IPO market cap of $800M was pretty ridiculous considering they had basically zero revenues. The premier companies with better technologies are valued at max 6x trailing sales. How in the world they got this valuation is beyond me.

    7. They burn cash fast. They've got $200M+ in cash, but that won't last long at all at their current spend. I seriously question whether they will ever get to profitability, even with $200M.

    On a positive note, the Helicos suit is a red herring and is immaterial to the company. Helicos is a washed up company that is gasping for air and trying to squeeze cash from someone as they go down. 90% of the time when companies due this, it's because they can't innovate or compete. (Remember SCO suing Red Hat?)

    Bottom line, I believe PACB is an overvalued company that faces numerous, serious headwinds.

    Caveat emptor and best wishes to all.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Ploppy, Just to be clear I'm not long either GNOM or PACB -- I share your same concerns about PACB. I think both are going to go down. But I think that PACB has much further to fall. I will post on a separate thread more about this.

    • CADX. IV acetaminophen. Just got FDA approval. Blue sky future. Carrently shorts are holding upper hands.....

    • dr_ploppy,
      Check out BSD Medical (BSDM), it has really promising technology, but the pumpers have got a hold of it right now sending it into PPS it has no business being in. In my opinion it is the best prospect for medical devices right now.

    • Hi deep, you have a good try, but don't panic, I will give you a bull case.

      Read this paper on the most prestigious journal Science before you go on: http://www.sciencemag.org/products/lst_20090410.dtl

      Here my specifics to your bear case:

      1. the difference between the quality and speed determines the price of the machines. PACB has already an order of a dozen of machines that will be delivered by the end of this year; and more customers are queuing for their order. Expensive machine means longer read, faster and very easy sample preparation, and seamless integration with existing bioinformatics tools. To PACB, it means better margin, and higher price premium.

      2) you are either a liar or ignorant. PACB's single molecule sequencing by DNA polymerase is 99.99% accurate. Any sequencing method with an accuracy less than 99% is a junk! Please educate yourself.

      3) single molecule detection is hard? if you have PACB's innovative, asynchronous detection system, it is easy!

      4) the key is labeling and detection technology. You have acknowledged at the end "the Helicos suit is a red herring ", you should know that PACB and HLCS share little except the idea/goal to sequencing a single molecule, thus avoid the cloning and/or amplification step which may introduce bias, time, and expense. Just like all sequencing companies wanting to sequence whole genome at $1000 a piece doesn't mean their technologies are the same, PACB uses totally different method from HLCS. PACB sequencing is asynchronous, and HLCS is still the old fashioned synchronous (artificially) process. Nature means asynchronous process. ILMN is using old synchronous method.

      5. yes, ILMN is the best known. See my previous post: http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_P/threadview?m=tm&bn=113946&tid=3&mid=50&tof=5&rt=2&frt=2&off=1

      PACB will beat ILMN just like the history will repeat. I have full faith in it.

      6. IPO was subscribed well, telling me that investors understand the potential of PACB.

      7. I have not yet analyzed its financial model well, so I leave this to you. I'd rather model its financial capability in a few years when PACB is making real revenues.

      At end, you are right. PACB is laughing at HLCS's law suit. Just shrug my shoulder and feel sorry to desperate HLCS CEO who is searching for another job. In today's biotech world, valuation is low, and investors are skeptical (if you have been a biotech investor during 2000 boom, you will easily agree with me). High PACB price vs. low HLCS price confirms that the history of sequencing war is repeating. Next: High PACB price vs. low ILMN price.

      I have followed this trend since the human genome project, and I will do in next decade.

      good luck.

      • 3 Replies to pick1998_2
      • "you are either a liar or ignorant. PACB's single molecule sequencing by DNA polymerase is 99.99% accurate. Any sequencing method with an accuracy less than 99% is a junk! Please educate yourself."

        PACB pulled the wool over your eyes my friend. I did see the Science paper the week it came out. They way they achieve that supposed 99.99% accuracy is by resequencing the same DNA thousands of times and averaging out the errors. Slight of hand -- not true accuracy. You should read the methods section of the paper where this is exposed.

        ILMN and LIFE don't have this problem.

        Here is an expert commenting on PACB's problem:
        http://scienceblogs.com/geneticfuture/2010/02/pacific_biosciences_session_at.php

        Talk to any expert in the field and you'll haar the same thing.

        PACB unfortunately has been a lot of hype to date. I remember several years ago people talking about how their box would be the size of a microwave. As it turned out, you need a forklift for this thing.

        Also, be careful about these early access beta orders. HLCS trumped theirs up as well. They heavily discounted them or gave them away -- in the end, those were meaningless. What counts are sales, paid in cash, of the final commercial system -- which isn't even ready yet. Yikes.

        Caveat emptor. Best wishes to all.

      • A good read of balanced article on sequencing frontier: http://stocks.investopedia.com/stock-analysis/2010/The-Next-Gen-Sequencing-Pot-Keeps-Bubbling-PACB-LIFE-ILMN-GE-RHHBY0823.aspx

        "PacBio is a big player in third-gen sequencing chatter, as its equipment appears to be very accurate, with long read lengths and short run times. "

        "Today's winner could be tomorrow's Atari or Sega. While Illumina is certainly a leading light today, only time will tell how they hold out against the likes of Roche, GE (NYSE:GE), IBM (NYSE:IBM), Life Technologies, PacBio, Complete Genomics and whomever else may choose to join the fray in the years to come."

      • 1. "The difference between the quality and speed determines the price of the machines.". No it does not, there is no relationship.

        2. The data does not integrate with existing bioinformatics tools.

        3. in fact errors are very high, around 10%, due to photo damage of the polymerase caused by the fluorophores and by the erratic bahviour of the polymerase itself. The system cannot be refreshed once a set of well have processed their strands so output per run is also very very low. What is the point of single molecule when you have high error ? in other words when you need to aggregate other copies of the same molecule to average out your errors, why not just use an amplification based method in the first place ?

        4. The required optics to do real time fluorescence, as with helicos, makes the machine a behemoth. The low output necessitates trying to shove multiple samples through it and that then requires a robotised system. one inefficiency generates another.

        5. the machine is very hard to manufacture and maintain. i doubt 12 will sip year end and i doubt they can scale beyond that before cash is depleted.

    • Thanks for the analysis. Do you have a bull case as well, understanding that you are in the bear camp?
      Does their ability to do longer reads give them greater potential than the competition? TIA
      M2K

 
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