Take Long View

What: Shares of Pacific Biosciences of California (NASDAQ:PACB), a company focused on DNA sequencing, were down more than 15% as of 1:15 p.m. EST after the company provided investors with a an update related to the launch of its new DNA sequencing system.

So what: Pacific Biosciences of California announced that it has received 49 orders for its new Sequel System since they became available for sale in October. Ten of those 49 orders have already been shipped to customers and a total of six of those systems were installed during the fourth quarter. The company plans to install the remaining four systems later this month.

PacBio stated that these new systems were shipped with an early software and chemistry version and it has plans to provide updates for both during the first quarter.

While those results look encouraging, the reason for the sell-off appears to be related to a sourcing issue for the company's new SMRT Cells that work in the Sequel Systems. The cells are currently being sourced from one of the company's prototype chip vendors and they are expected to be in a limited supply through the first half of year. PacBio plans to restrict the pace of new Sequel Systems shipments during the first half of the year until it can secure an increase in its supply SMRT Cells. The company is currently working to increase the supply of the new SMRT Cells to a high-volume manufacture and anticipates the issue should be resolved by mid-year.

Now what: While the slower than hoped for ramp in system shipments is bummer news, I think these results provide reasons to be optimistic. PacBio said that more than 40% of its 49 systems orders came from new customer sites, which is a good sign that the company's new system is competing well with Illumina's (NASDAQ:ILMN) offerings. That's important, as PacBio has longed been overshadowed by Illumina as its previous system -- the RS II -- was too expensive to effectively grab market share. However, its new Sequel System is smaller, cheaper, and more capable than its previous models so, which will allow it to better compete with Illumina.

Michael Hunkapiller, the CEO of Pacific Biosciences, will be providing investors with more details about its launch Tuesday during a presentation at the JP Morgan Healthcare Conference.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends Illumina and Pacific Biosciences of California. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.