Three months ago, Pacific Biosciences of California (NASDAQ:PACB) surpassed expectations with its third-quarter results. That good news wasn't enough to keep shares from continuing to fall, though. The genetic-sequencing company announced its fourth-quarter results after the market closed on Thursday. Here are the highlights.

DNA strands.

Image source: Getty Images.

Pacific Biosciences results: The raw numbers


Q4 2016 

Q4 2015 

Year-Over-Year Change


$25.7 million

$36.3 million


Net loss from continuing operations

($19.0 million)

($1.4 million)


Adjusted EPS




Data Source: Pacific Biosciences of California.

What happened with Pacific Biosciences this quarter?

The good news for Pacific Biosciences ("PacBio") was that product and services revenue soared 92% year over year in the fourth quarter. The bad news was that the increase wasn't enough to offset an even bigger decline in contracting revenue. This contracting revenue decline was due largely to a $20 million milestone payment from Roche (NASDAQOTH:RHHBY) in the fourth quarter of 2015.

Primarily because of the significantly lower revenue, PacBio's bottom line also took a big hit compared to the prior-year period. Higher research-and-development spending was another factor in the bigger net loss in the fourth quarter.

Things would have looked much better if the large milestone payment from Roche in the fourth quarter of 2015 was factored out. Gross profit and gross margin improved significantly year over year excluding the milestone revenue.

Pacific Biosciences ended the fourth quarter with cash, cash equivalents, and investments, excluding restricted cash, totaling $72 million. That figure was down from $82.3 million at the end of 2015.

PacBio's biggest news in the fourth quarter was the stunning decision by Roche in December to terminate a deal to develop diagnostic products based on PacBio's Single Molecule, Real-Time (SMRT) technology. The two companies began working together in 2013. 

Looking forward

Pacific Biosciences faces a much different future than it did with the Roche partnership intact. The resources Roche brought to the table could have opened many more doors for the company. Now, however, that's water under the bridge.

The company expects growth in its product and services revenue during 2017 of 40% to 60%. Total revenue is expected to be lower in the first quarter of 2017 compared to the fourth quarter of 2016, but higher year over year.

PacBio anticipates a larger net loss in 2017. However, the company expects gross margins will gradually improve during the year. Management also thinks that cash burn will be lower in 2017 than in 2016.

Probably the biggest risk for investors stems from the potential for dilution. PacBio announced its intention to raise up to $60 million in a stock offering using an existing at-the-market (ATM) facility. Although the company's management said there was no immediate need to raise capital, it would likely do so at some point in 2017.