PacBio president and CEO Christian Henry

Pacific Biosciences of California (PacBio; PACB) shares plummeted 51% from $2.84 to $1.40 on Tuesday, after the long-read sequencing giant reversed its earlier “guidance” forecast to investors for 5% operating expense growth this year, revealing instead plans to cut its annual operating expense run rate by $50 million to $75 million.

That reduction would amount to between 86% and 128% of PacBio’s $58.4 million in 2023 revenue. So far this year, PacBio reported $38.8 million in preliminary, unaudited Q1 revenue, all but flat (down 0.3%) from the $38.9 million reported in the year-ago quarter.

PacBio said in a regulatory filing it could not yet estimate how much in charges it would incur to carry out the cost cutting.

However, the company did say it expects full-year revenues of between $170 million and $200 million, a share under the $200.5 million it generated in 2023 revenue. That changed the company’s guidance range to between virtually no growth and a 15% drop, compared with PacBio’s original 2024 guidance of revenues rising to between $230 million and $250 million, a 15% to 25% increase.

PacBio blames its about-face on a slowdown in customer spending. President and CEO Christian Henry said in a statement that the company entered 2024 feeling optimistic about its prospects for growth after having launched its Revio™ long-read sequencing system last October.

“As we reached the last couple of weeks of the first quarter,” Henry stated, “we saw an increasing number of customers delay instrument purchases and we experienced some unexpected softness in consumable shipments. As a result, the first quarter came in below our original expectations.”

“We expect these factors to have an impact on our 2024 performance,” Henry added—though investors and analysts will have to await PacBio’s next earnings call, scheduled for May 9, to learn how much of an impact, as well as additional details on the company’s revised full year outlook for 2024.

Susan Kim, PacBio’s CFO, told analysts February 16 on the Q4 earnings call that the company’s 2024 revenue forecasts had been tempered by several proverbial headwinds: “The funding environment in China is impacting our ability to further expand our Revio installed base in the country, specifically with smaller volume academic labs. Additionally, persistent inflation and high interest rates are lengthening sales cycles globally.”

Revio falls short

PacBio has counted on achieving its original growth projections through sales of Revio. Instead, the company placed 28 Revio instruments with customers during the first quarter, compared with the 37 projected by TD Cowen, while another 13 orders/deliveries expected during the quarter will be completed after Q1.

Of the 28 Revio systems placed, 16 were shipped to new customers, PacBio said. The Revio sales are included in PacBio’s $19 million in instrument revenue. Q1 activity brought PacBio’s installed base to 201 systems as of March 31.

PacBio also fell short in revenue from Revio consumables, generating only $11 million compared to the $14.1 million projected by TD Cowen, and a pull-through of ~$250,000 that fell short of the firm’s forecast of $330,000. Revio accounted for most of the $16 million in preliminary revenue from consumables reported by PacBio, up from $14 million in Q1 2023.

“We still believe in the long-read (LR) & Revio LT [long-term] outlook but clearly the ramp is slower/choppier,” Dan Brennan, managing director, research, health care-life science & diagnostic tools, and a senior analyst with TD Cowen, wrote in a research note Tuesday. “While we still believe (supported by extensive diligence) long-read sequencing should continue to gain share from short-read, it is clear that there are structural limitations for PACB near-term.”

These limitations, according to Brennan, include the ability of PacBio’s long-read customer base to digest a 15x increase in capacity, the company’s vulnerability to fluctuations in the volume of large projects by customers; longer customer adoption timelines from new-to-long-read; and a difficult academic funding environment in the United States and China.

Brennan slashed TD Cowen’s 12-month target price on PacBio shares by 79%, from $12 to $2.50.

At deadline, Brennan was one of two analysts who cut their PacBo price targets in response to the gloomy Q1 results and reduced guidance. The other was Kyle Mikson of Canaccord Genuity, who chopped his firm’s price target 65%, from $10 to $3.50 a share.

PacBio shares finished trading unchanged Wednesday.

“The worst news in the earnings [announcement] is that sales are essentially flat. Perhaps the most disturbing is that consumable sales are flat, even as Revio instruments keep being delivered,” genomics expert and blogger, Keith Robison, PhD, commented Wednesday on his blog Omics! Omics!

He compared flowcell consumption rate of Revio to PacBio’s previous generation Sequel system: “A well-fed Revio should be consuming flowcells at about four times the rate of a similarly well-fed Sequel, so the flat consumables pull indicates that users are just running slightly larger experiments and not the grand campaigns that PacBio was banking on. And that’s on average: there are labs pushing Revio’s hard and that means there are others that rarely use them at all.”

Strategic priorities

Cutting costs is one of PacBio’s four strategic priorities, Henry stated. The other three are driving adoption of both Revio and the Onso short-read platform; continuing the development of benchtop long-read and high throughput short-read platforms; and implementing measures to improve gross margin and drive manufacturing efficiencies.

Alex Dickinson, a former Illumina (ILMN) senior vice president who is now chair of Ryght.AI, noted on a LinkedIn post that since Revio accounted for practically all of PacBio’s revenue, “I think it’s going to be very hard for them to continue to support both Revio (LR) and Onso (SR) platforms.”

Onso is a benchtop short-read DNA sequencing platform that uses PacBio sequencing by binding (SBB) technology to deliver what the company says is high accuracy.

This week’s stock plunge reduced PacBio’s market capitalization—the product of the share price and the number of outstanding shares—to $418.675 million. That brings PacBio to less than half the market cap of another sequencing company whose offerings range from short to ultra long reads, Oxford Nanopore Technologies (ONT.L), which stands at $861.679 million.

“Life sciences companies are feeling the effect of macroeconomic headwinds and depressed valuations across the board reflect that,” the stock portfolio manager Nanalyze explained in an article delving into PacBio’s woes. “Depressed valuations often make investors wonder if we’ll see some consolidation, especially since PacBio is now valued at a fraction of what Illumina was willing to pay six years ago.”

In November 2018, then-struggling PacBio accepted Illumina’s offer to acquire the company for $1.2 billion. But both companies scrapped the deal 14 months later following opposition from the U.S. Federal Trade Commission and the U.K.’s Competition and Markets Authority (CMA). At that time, Nanalyze recalled, PACB was a much leaner operation with no long-term debt and no intangible assets: “Today we see a balance sheet that’s far less attractive.”

PacBio recorded $1.746 billion in assets (as of December 31, 2023). But as the portfolio manager noted, nearly $1 billion of that reflects intangible assets and goodwill that arose from acquiring Omniome for up to about $800 million, followed a month later by snapping up sample prep firm Circulomics for an undisclosed sum. Subtract $631.416 million in cash and investments, and PacBio has just $150 million in assets remaining.

That number is likely even smaller now, since PacBio’s preliminary cash, cash equivalents, and investments balance has fallen to approximately $562 million as of March 31.

“Contrast this to the $890 million in debt the company holds and we’re left thinking the odds of an acquisition that’s favorable to shareholders seem low. Potential suitors could include Illumina, but what’s the likelihood of succeeding the second time around?” Nanalyze not-so-rhetorically asked, citing recent scrutiny by regulators of Thermo Fisher Scientific’s planned $3.1 billion acquisition of Olink, a deal designed to expand the buyer’s presence in proteomics. The deal is being investigated by the U.K. CMA and Germany’s Federal Cartel Office.

“Be very careful assuming there is some support level for PACB that involves being acquired. What they need is a plan to move towards self-sufficiency quickly because raising capital is going to be tough.”

Down 90% since July

Indeed since July 18, 2023, when PacBio reached its 2023 high of $14.55 a share, the company’s shares have cratered 90%.

“What on earth happened to this stock? It is at all time lows,” investor Theresa Perrin posted Wednesday on X, formerly Twitter. “Is this an opportunity or a dumpster fire to avoid[?]”

“Unlikely this stays as a stand alone company by the end of the year,” market watcher DeepValue predicted Tuesday, also on X. “Maybe a fire sale in the best case outcome. Perhaps this is positive for $ILMN.”

That wasn’t apparent on Tuesday. As PacBio’s stock plummeted, Illumina shares dipped 3%, from $121.16 to $117.69—though the longtime sequencing leader reversed the slide the following day, bouncing back 0.5% to $118.29.

Nearly a year after Illumina CEO Francis deSouza resigned following a convulsive proxy battle waged by activist investor Carl C. Icahn—in part through an exclusive GEN interview—the sequencing leader has embraced a much lower profile under deSouza’s successor Jacob Thaysen, PhD. Thaysen became CEO last September after more than a decade at Agilent Technologies, during which he advanced to senior vice president and president of its largest division, the Life Sciences and Applied Markets Group.

Most significantly under Thaysen, Illumina agreed to divest itself of Grail, the cancer blood developer whose $7.1 billion acquisition by Illumina sparked opposition from U.S. and European regulators.

Thaysen has also been placing his stamp on Illumina’s C-suite, naming a former colleague at Agilent, Ankur Dhingra, as CFO. Dhingra succeeded Joydeep Goswami, who departed the company after 14 years, including nearly two years as interim, then permanent CFO (Goswami remains in an advisory role through June 30). Dhingra spent 18+ years at Agilent, advancing to VP, investor relations before serving as CFO of CareDx and more recently Summit Therapeutics.

During his proxy campaign, Icahn nominated to Illumina’s board three allies—one of whom, Andrew J. Teno, was elected. In February, Teno became president and CEO of Icahn’s Nasdaq-listed holding company Icahn Enterprises, which is engaged in businesses that include investment, energy, automotive, real estate, food packaging, home fashion, and pharma.

Icahn will not wage a proxy battle for more seats on Illumina’s board this year, Reuters and Bloomberg News reported in March, citing unnamed sources.

Leaders and laggards

  • Longeveron (LGVN) shares soared 73% from $1.69 to $2.93 on Monday, after the company said it will present results from its Phase IIa CLEAR MINDtrial (NCT05233774) assessing Lomecel-BTM in mild Alzheimer’s disease at the 2024 Alzheimer’s Association International Conference (AAIC), to be held July 28–August 1 in Philadelphia and online. Longeveron announced positive topline results from CLEAR MIND last October, stating that Lomecel-B met the study’s primary endpoint of safety, as well as the secondary endpoint of change from baseline to week 39 in Composite Alzheimer’s Disease Score (CADS) for the study’s low dose of Lomecel-B as well as for the pooled Lomecel-B treatment group compared with placebo.
  • Marinus Pharmaceuticals (MRNS) shares plunged 83% from $7.52 to $1.30 on Monday after the company said it will consider cost-cutting measures following the failure of intravenous (IV) ganaxolone in the Phase III RAISE trial (NCT04391569), assessing the drug to treat refractory status epilepticus (RSE). IV ganaxolone did not meet predefined stopping criteria at the interim analysis. Marinus said it will complete enrollment in RAISE at approximately 100 patients, with topline results expected this summer. The results will determine whether Marinus continues development of IV ganaxolone. The cost-cutting is intended to ensure Marinus has the resources to complete its Phase III TrustTSC trial (NCT05323734) investigating ZTALMY® (ganaxolone) oral suspension CV in TSC-related epilepsy. Marinus expects topline results from TrustTSC early in Q4. If positive, the company plans to file a supplemental New Drug Application to the FDA in the first half of 2025 with a request for Priority Review.
  • Mustang Bio (MBIO) shares slid 26% from 51 cents to 38 cents on Monday, the first trading day after the company disclosed late Friday in a regulatory filing that its board agreed to slash its workforce by approximately 81%—about 65 people, based on the 80 full-time employees employed as of December 31, 2023, according to its latest Form 10-K annual report, filed March 11. Mustang said it acted to reduce costs, preserve capital, and due to uncertainty regarding the U.S. Committee on Foreign Investment in the United States (CFIUS) review of the company’s sale of its leasehold interest in its cell processing facility located in Worcester, MA, and associated assets to uBriGene (Boston) Biosciences, the U.S. subsidiary of UBriGene (Jiangsu) Biosciences, a Chinese contract development and manufacturing organization.
  • Sage Therapeutics (SAGE) shares skidded 20% from $15.63 to $12.57 on Wednesday after the company halted development of dalzanemdor (SAGE-718) in Parkinson’s disease (PD) following its failure in the 86-participant, Phase II PRECEDENT trial (NCT05318937), assessing the oral treatment in people with mild cognitive impairment (MCI) in PD. Sage acknowledged that dalzanemdor did not show statistically significant differences from baseline in participants treated with once-daily dalzanemdor versus placebo on the Wechsler Adult Intelligence Scale Fourth Edition-IV (WAIS-IV) Coding Test score at Day 42. Dalzanemdor remains under development for cognitive disorders associated with NMDA receptor dysfunction, including Huntington’s disease and Alzheimer’s disease.
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