So far in 2017, Pacific Biosciences of California (NASDAQ:PACB), also known as PacBio, has yet to report impressive quarterly results. In August, the genetic-sequencing company reported big losses for the second quarter as it had done in the first quarter.

Despite the dismal financial results, PacBio stock has had an up-and-down year. By early September, the company's share price was up more than 45% year to date. However, since then PacBio stock has fallen quite a bit. 

PacBio announced its third-quarter results after the market closed on Thursday. The losses continued, but there were some bright spots. Here are the highlights from the company's quarterly update. 

Hand holding test tube with chemical structures and DNA sequences in background.

Image source: Getty Images.

PacBio results: The raw numbers

Metric 

Q3 2017 

Q3 2016 

Year-Over-Year Change

Sales

 $23.5 million  $25.1 million

(6.3%)

Net income (loss) from continuing operations

 ($22.0 million)  ($17.5 million) N/A

Net income (loss) per share

 ($0.19)  ($0.19)

N/A

Data Source: Pacific Biosciences of California. 

What happened with PacBio this quarter?

Although PacBio's revenue fell from the prior-year period, most of the decline stemmed from the loss of contract revenue from Roche that went away in 2016. Product revenue increased 12.7% year over year to $20.3 million. However, the company reported service and other revenue in the third quarter of $3.2 million, down 7.8% from the prior-year period.

PacBio's bottom line worsened in the third quarter from the same period in 2016 for several reasons. Cost of revenue jumped 22.7% year over year, which lowered the company's gross profit significantly. The loss of the contract revenue was a key factor in this change, because this revenue had a 100% gross margin.

Also, PacBio reported total operating expenses of $29.8 million, up 1.4% from the prior-year period. Although the company reduced research and development costs, higher sales, general, and administrative costs more than offset the decrease in R&D spending.

Net loss per share in the third quarter was the same as the prior-year period. While PacBio lost more money, it also issued additional shares through a public stock offering in June.

The company ended the third quarter with cash, cash equivalents and investments (excluding restricted cash) of $84.0 million. At the end of the second quarter, PacBio's cash stockpile stood at $102.6 million.

Looking forward

PacBio's best chances of becoming profitable in the future probably lie in the Asian market. China generates roughly 30% of the company's total sales, thanks primarily to its largest customer, Novagene. In August, Novagene purchased 10 Sequel gene-sequencing systems. South Korea is another attractive Asian market for PacBio. In the last quarter, South Korean biotech Macrogen ordered several instruments.

Another important thing to watch in the near term with PacBio is its efforts to strengthen its commercial team. The company announced on Thursday that it had hired Kathy Ordonez as its chief commercial officer. Ordonez has over 30 years of industry experience with Roche, Celera, Quest Diagnostics, and RainDance Technologies. She is currently on PacBio's board of directors and will continue to be a board member.

Over the longer run, PacBio's success hinges on its technology. The company is shooting for a 30-fold improvement in throughput over the next two years. A big step in achieving that goal will be a new version of its Sequel SMRT (Single Molecule, Real-Time) cell, which is targeted for release by the end of 2018.

 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. The Motley Fool has a disclosure policy.