What happened

Shares of Fluidigm (NASDAQ:FLDM) fell more than 54% on Wednesday after the company reported third-quarter 2019 operating results. The lab instrument developer, supposedly in the midst of a growth spurt, reported that revenue declined compared with the year-ago period. Worse yet, the segment leading its growth trajectory saw declining sales as well. 

The disappointing results shocked investors -- and for good reason. While the year-over-year decline in revenue serves as a reminder of the difficulty in building a successful lab instrument business, it also suggests that Fluidigm may be losing out to a rising tide of competition. Could that prove to be an existential threat to the company?

As of 10:31 a.m. EST today, the small-cap stock had settled to a 51.1% loss.

A paper airplane representing the arrow on a line graph that's heading down.

Image source: Getty Images.

So what

Third-quarter 2019 revenue was $26.5 million, a decline of 8.5% from the year-ago period. The slide was entirely explained by a slowdown in instrument sales, including mass-cytometry machines used to glean volumes of high-quality data from tissue samples. The silver lining is that the company grew sales of consumables -- the chemical reagents and sequencing kits needed to run each instrument -- 11% from the year-ago period.

On the one hand, consumables revenue is the single most important metric for Fluidigm, so the growth in that area is encouraging. Unlike the one-time revenue bump received from selling an instrument, consumables offer a recurring revenue stream. The most successful lab hardware businesses generate most of their revenue from consumables, not instruments.

On the other hand, Fluidigm still needs to increase its installed base of machines for the foreseeable future to increase the total consumables opportunity and achieve profitable operations. The decline in instrument revenue versus the year-ago period suggests the rate of instrument sales is slowing, which in turn suggests the company could be losing out to competitors such as 10x Genomics or Bio-Rad that offer researchers other ways to get similar information from their experiments.

Now what

The field of biopharmaceuticals moves quickly. The tools that researchers need and crave today could be an afterthought in a few short years. It's a little too early to claim that Fluidigm or mass cytometry are obsolete, but the money-losing business certainly took a worrisome turn in the third quarter. Investors will need to watch for instrument sales to pick up in future quarters and see if recently launched consumables products -- nearly 10 in all -- can supercharge growth.