Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Pacific Biosciences of California (NASDAQ:PACB) plunged by more than 20% on unusually high volume Wednesday morning, reflecting the next-generation DNA sequence maker's disappointing fourth-quarter earnings report, released after the bell Tuesday night.
Per the report, Pacific relied heavily on at-the-market, or ATM, offerings during the quarter to fund its operations ($17.3 million worth, to be exact), and the company's net loss continued to grow by double-digits (10.4%), year over year.
Although quarterly sales of its PacBio RS II sequencing instruments more than doubled and total revenue climbed by a stately 85% to $16.9 million, Pacific's cash burn of nearly $19 million per quarter means the company only has about a little over a year's worth of cash remaining -- excluding any further ATM activity.
So what: Pacific has been a leader in the next-generation gene sequencing industry, but Big Pharma hasn't quite figured out how to harness the power of this technology yet. The net result has been that most of these companies have struggled mightily to turn a profit, with some former industry leaders even going belly up.
Pacific's management believes the company won't ultimately follow in those footsteps, and that 2015 could be a transformative year for the tiny biotech. Specifically, management estimates cash burn should shrink by more than 30% in 2015 while revenue grows by 20%.
Now what: The world's largest cancer-drug maker, Roche, has taken a keen interest in next-generation sequencing technology as a possible way to detect tumors earlier and to develop personalized therapies. In 2013, the pharma giant partnered with Pacific to further this endeavor.
If Pacific continues to struggle and cannot control expenses, I suspect Roche might simply buy the company out. After all, Roche has already signaled, through its billion-dollar stake in Foundation Medicine earlier this year, that it is prepared to invest heavily in this technology.