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Pacific Biosciences of California, Inc. Message Board

  • calacowboy calacowboy Feb 27, 2014 11:55 PM Flag

    life science report with Byron Brokmeier

    Pac Bio), on the other hand, is largely focused on the academic research and agriculture biomarkets. But through its partnership with Roche Holding AG (RHHBY:OTCQX), which it announced in September 2013, it will develop a diagnostic version of its single-molecule, real-time (SMRT) technology system. Roche, one of the largest diagnostic companies in the world, will have the exclusive rights to develop diagnostic tests that it will then market.

    Companies are taking different approaches to penetrating the diagnostic market, whether they're doing it on their own or selling tools to the diagnostic companies that develop the tests. Over time I expect more integration, but I think that larger tools companies will always have their own diagnostic businesses, selling directly to the markets, as well as have partners that are more nimble and better able to identify opportunities in the market.

    TLSR: You mentioned Pacific Biosciences and its deal with Roche. Currently you have a Buy on Pacific Biosciences, with a target of $9. Is this company in a position to begin receiving milestone payments for its SMRT technology partnership with Roche? I know that it got an upfront payment, but what about the milestones?

    BB: Based on comments the company has made and conversations I've had, it's possible Pacific Biosciences could receive a milestone payment in 2014, but that is not currently in my model. I think it's more likely that the company will receive a milestone in 2015. That would be a significant catalyst for the company—not just receiving the payment, but also actually achieving a milestone. Many investors do not understand how quickly Pac Bio could achieve FDA approval for its instruments, and any steps in that direction will be a positive catalyst for the stock.

    This is part of the reason that Pac Bio is our top pick for 2014. The company is much smaller and less flashy than its key competitor, Illumina, which is the industry darling. Management has done a great job of improving the performance of Pac Bio's instruments, expanding research applications and proving to the market that it can deliver. The CEO has been a consistent buyer of shares, which demonstrates his confidence in the company's opportunities as well.

    TLSR: Pac Bio is up about 83% the past 12 weeks, and it's up 3.5x over the past 12 months. Are you anticipating that you could up your target price from $9?

    BB: It could go higher. A number of catalysts are upcoming in 2014. Pac Bio presented at the Advances in Genome Biology & Technology (AGBT) meeting in mid-February, and the stock has had a really nice run since then. The company didn't have any huge, flashy announcements, but it certainly was positive that Pac Bio produced data for the first full assembly of the human genome using its SMRT sequencing technology. It was a big positive, and is getting a lot of attention from researchers. But the Street is still not giving Pac Bio enough credit for what it is accomplishing.

    TLSR: After phenomenal appreciation, this stock has settled down some. Do you see this as a good buying opportunity?

    BB: I think it is. As I've said, it's my top pick for 2014, after a really strong 2013, and these shares are still well below the IPO price, even after the strong share price appreciation. A lot of sellside analysts still aren't paying enough attention to it, and neither are many of the buyside firms. Once Pac Bio starts to get upgrades from other analysts, the buyside will pay more attention and start getting into the stock. This company is primed for takeout in 18–24 months. More investors will pay attention to that opportunity, on top of the improving fundamentals, as well as to when the company hits its milestones with Roche.

    Sentiment: Buy

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