PacBio Plummets

PacBio announced preliminary earnings yesterday, and the nearly immediate result was a 50% plunge in their share price.  Along with the earnings, the company announced significant cost cutting.  The details of those cuts were not made available, but some clever tea leave parsers noted a significant omission from what the company said it would continue.  The ASeq Discord channel on PacBio absolutely blew up, with opinions ranging from PacBio is in a death spiral to PacBio must be for sale, with significant numbers of "Christian Henry won't be CEO by year's end".  

The worst news in the earnings is that sales are essentially flat.  Perhaps the most disturbing is that consumable sales are flat, even as Revio instruments keep being delivered.  A well-fed Revio should be consuming flowcells at about four times the rate of a similarly well-fed Sequel, so the flat consumables pull indicates that users are just running slightly larger experiments and not the grand campaigns that PacBio was banking on.  And that's on average: there are labs pushing Revio's hard and that means there are others that rarely use them at all.

The notable omission from the continued plans note is the ultra-high throughput long read sequencer, originally mentioned as a partnership with Invitae - a company with similar investors as PacBio that is now in bankruptcy.  Parking/axing this project makes sense; if a Revio with 4X capacity wasn't finding purchase, then a successor with perhaps another 4-8X doesn't make sense in this market.

On the other hand, the press release did call out the benchtop long read sequencer for continued development.  That instrument might be unveiled late this year (perhaps at ASHG?), though the company hasn't made any committments.  If it is sufficiently simpler and less expensive than a Revio, perhaps with one flowcell slot and less powerful compute and less extensive robotics, then hope would be a lower capital cost would enable more labs to get their own PacBio.  But the risk is that labs currently on the fence for a Revio will all go to the lesser unit, locking into the lower possible consumable use.

Also called out for continuation is the ultrahigh throughput short read sequencer, which will marry the Onso (ex-Omniome) chemistry with the Apton hardware.  I continue to be skeptical that PacBio will make significant inroads with the Onso platform; if I were in charge (complete fantasy for sure) I'd be exiting the short read side to completely focus on long reads.  As murky as the long read market is, the market for "not NovaSeq X" population-scale sequencers seems even dicier, with Ultima and Complete Genomics already in position.  PacBio's argument has been that the higher accuracy of Onso chemistry will win customers, but there hasn't been strong evidence that the market feels the same way.

Can PacBio ride out the storm?  Under the old cash burn they had about two years cash runway, assuming flat revenue.  They also have $1B in debt, though none of it is due for several years.  

But the real challenge is identifying markets for the long read tech and elbowing some space in short reads.  PacBio and its collaborators have done well identifying several potentially important applications, but none have quite caught fire - and Oxford Nanopore is always nipping at their heels.  For example, it was 2014 when I declared that PacBio had become the standard for microbial genome assembly - but people still publish lots of short read microbe genomes despite the cost per genome of running that on PacBio being a fraction of what it was.  HiFi data has clear advantages for metagenomics work.  I have an embryonic piece arguing that PacBio should be the standard for rare disease sequencing.  There's papers showing HiFi's utility for quality control of gene therapy vectors such as AAV.  PacBio 16S resolves species far better than short read 16S.  Iso-Seq reveals key details on splicing, 5' and 3' end variation.  

PacBio has tried to help many of these applications along.  Buying Circulomics and continuing its sample prep technology development has enabled higher quality HiFi libraries; linking with automation partners makes practical building more libraries in short order. The Kinnex payload multimerization kits enable more data per flowcell for applications such as 16S or IsoSeq. There's some loose ends - bringing their bacterial methylation analysis fully into the HiFi world would have some knock-on benefits for eukaryotic chromatin analysis methods such as Fiber-Seq. There's probably some more Kinnex kits worth launching.  But in general on the technical side, PacBio has done many things well - yet it hasn't translated to consistently growing sales.

On the non-technical side, PacBio cut a very bold marketing course with their name-act music concerts, something I in which expressed skepticism in the past. More recently, there was a very hard sell marketing campaign last month going aggressively for Oxford Nanopore users - a move that smacks of desperation now that we can see that PacBio was having trouble closing Revio sales (does anyone have an inside track on steak knife purchases by PacBio?) The acquisitions  were paid for with stock (correction from a commenter: Omniome was half cash, half stock), which preserved cash.  Perhaps the decisions that look the worst is taking on the debt rather than issuing more stock when the price was twenty fold higher than the aftermath of yesterday's plunge.

So where next?  One speculation is that PacBio is up for sale, whether management likes it or not. Illumina clearly isn't a player here! There's the persistant fantastical idea of Nvidia buying it by diluting its stock by about 1/5000th - but why would Nvidia bother?

} Rumors keep popping up that Roche - a one time PacBio partner who dumped them abruptly - will finally unveil a nanopore sequencer at the SFAF meeting in Santa Fe at the end of May - which perversely will be coincident with Oxford Nanopore's London Calling.  ThermoFisher is a routine candidate.  Taking PacBio private - as is happening with nanoString, might be an option as well.  Sadly for the company, the days of SoftBank throwing money wildly are probably never coming back - that free-spending helping stoke PacBio's fires but also gave us the embarassing spectacle of WeWork

And would an acquirer swallow PacBio whole or break it up?  The Circulomics business could easily fit within any of the major reagent houses - ThermoFisher, Agilent, QIAGEN, Danaher, etc. Thermo has a short read platform and it is in better financial shape than you might think (another inchoate piece); perhaps they'd only want the long read part.  Dismembering the company might be a way to get the best parts while leaving the investors holding the bag on the $1B debt - not a polite strategy but who expects Wall Street to be polite?

CEO Christian Henry is clearly under great pressure to perform, but I doubt the Board of Directors is eager to jettison him.  Not only is that always expensive in terms of golden parachutes, but firing a CEO is not a way to raise confidence and share price, plus it would mean a potential period of uncertainty around direction (conversely, GE fired two CEOs in quick succession and seems to be climbing phoenix-like out of the ashes). But Henry probably will be on a short leash.

One way to look at things is the cost savings gives PacBio management two years to turn things around or sell itself - you don't wait until the money runs out to shop the company.  Each of the next earnings will be tightly scrutinized, and the rollout of the benchtop instrument will as well -- what sort of performance will it have (particularly on the compute side)? What capital cost? When will it hit the streets?  Analysts will also be watching for Jr cannibalizing Revio sales - or perhaps worse, anticipation of Jr delaying Revio sales.

It's also worth noting again that we understand the fraught nature of companies such as PacBio, BioNano Genomics and Singular Genomics because they are public companies; we can also peer into the stalling at Illumina.   Private companies such as Element Biosciences and Ultima Genomics may also be looking at dwindling cash but we can't get the details on that.  Biotech in general is struggling with financial issues largely around the current high interest rate environment - why invest in a risky venture when you can get solid, boring returns from a bank account?  Many companies will weather the storm - the value of genomics is clearly there - but how many current names will be only memories when the biotech sun appears again?  Check back in this space a few years from now to see.

[2024-04-17 11:34EST - as pointed out by an Anonymous commenter, Omniome was half cash, half stock]