A Long-Read Sequencing Technology Could Help This Biotech Gain 50%

As Pacific Biosciences of California's growth story turns positive, it is time to take another look at the company, according to TD Cowen as its growth story is turning around.

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He said the Menlo Park, Calif.-based firm is expected to benefit from what he claims will be a growing importance of long-read sequencing technology that he believes will increase its market value in the future, and he raised his price target on the biotech stock to outperform from market perform.

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According to Brennan, PACB has undergone a growth transformation under CEO [Christian] Henry, and investor bias has shifted positively, but high expectations and multiples keep many investors away. “A bullish customer survey indicates upside for placements, pull through, as well as a shift to long reads in material budget. Picking the right entry point can be tricky, but we think it's time to get involved."

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Until Thursday, Pacific Biosciences had been up more than 19% for the year. The biotech stock had plunged 60% in 2022 and was down by 21% in 2021, but that turned around in 2022, and Pacific Biosciences has been up over 19% for the year.

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There is a chance that shares could jump another 53% from Thursday's closing price. PacBio's shares rose 9% in early Friday trade, as Brennan raised its price target to $15 from $13.

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There is no doubt that the Revio system is at the heart of the upgrade. This system was launched last year by Pacific Biosciences and is designed to sequence whole human genomes. The analyst believes that it can also lead to an inflection in revenue growth. According to the analyst, it will be used to study human genetics and cancer research.

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In our opinion, PACB is well on its way to attracting the adoption of its Revio platform, which is approximately 15 times faster than its predecessor, and will penetrate new end markets with long-read (subsume a few short-read applications). As a result, we do not doubt that the system will receive significant adoption and generate a compounded inflection in revenue growth. In addition, Brennan wrote that new portfolio launches (benchtop and ultra-high throughput versions of Revio) have further upside potential.