On Friday, shares of Pacific Biosciences of California (PACB) soared over 16% intraday during the morning's trading session. The company develops, manufactures, and markets the PacBio RS II, a next-generation sequencing system expanding the field of science. The system utilizes Single Molecule, Real-Time DNA sequencing technology which provides the highest consensus accuracy and longest read lengths in the gene sequencing industry.
Yet as seen in the chart below, Pacific Biosciences has been in a steady decline over the last two months. Since September 25, the company has fallen more than 40% from $5.98 to $3.58. However, this decline was abruptly halted on Friday despite the lack of a news catalyst coming from the company itself. Indeed, what appears to have spurred the sudden rise comes from a rather large insider purchase conducted by CEO Michael Hunkapiller, Ph.D.
The Conviction Of A Leader
According to the Form 4 found here, Hunkapiller purchased 200,000 shares of Pacific Biosciences of California on November 21. The average share price of the transaction was $3.61 for a total value of $721,680. Altogether, the latest transaction raises Hunkapiller's holdings in the company 13.3% to exactly 1.7 million shares. This increases Hunkapiller's stake in the company to a little under 2.6% of the total shares outstanding.
The large insider purchase made by the head officer of this innovative company was not the first that he has ever conducted. However, the transaction stands to be rather symbolic in itself. First of all, the total value is the largest he's ever committed in a single reported transaction. Additionally, it also comes at a price level more than double that of his prior purchases. Last of all, it represents a continued conviction in a company in which he has taken on increasing responsibility.
Hunkapiller's dedication to Pacific Biosciences expands beyond mere ownership in the company. In the Form 8-K filed here, it notes that he also voluntarily opted to receive a $1 base salary from January 1 through December 31 of this year. This was conducted along with a similar action from CFO Susan Barnes, and it appears to have been done in order to preserve the cash reserves of the developing company.
Hunkapiller's entire stake in the company was purchased directly through the open market. His first purchase was made 2011 while he still served as a Director, a position he held since 2005. However, the bulk of his purchases since were bought at the company's lowest price levels. The CEO purchased 1.4 million shares when the company was trading between $1 - $2. It is largely believed that these transactions helped to reverse a falling investor sentiment.
A Look At The Company Now
Based on the intraday price of $4.07, Pacific Biosciences now trades with a market capitalization of $266.7 million. As of September, the company held total current assets of $141.8 million and total current liabilities of $22.5 million. This results in a working capital of $119.3 million. The company continues to spend more than it is taking in. However, over the last 3 years the company has sequentially reduced its cash outflow from $121.9 million in 2010, to $103.0 million in 2011, and ultimately to $76.8 million in 2012.
Pacific Biosciences continues to burn through its cash reserves as the company's ramps up its product sales. As of the last quarter, the company experienced a net loss of $20.5 million based on revenue of $7.4 million. Nevertheless, $10.4 million of this was spent on ongoing research and development. It is possible that this additional expense may be further reduced should the company face a tighter cash situation.
Despite the continued losses, the company has seen increasing traction over the past few quarters. Industry acceptance has largely improved and it is now recognized that Pacific Biosciences has some of the best system performance metrics currently available. Most recently, Pacific Biosciences announced an agreement with Roche (RHHBY) in a deal that provided the company a near-term cash payment and long-term market channel. The deal helped to further delay Pacific Biosciences' cash burn while also establishing a long-term partner going forward.
It remains an encouraging sign that the company's CEO continues to see a strong investment future in Pacific Biosciences. The latest purchase remains another measure of his ongoing conviction that investors have come to respect. These purchases remain secondary to the personal effort to stem the company's losses as it ramps up its commercial sales. This continues to be witnessed by his willingness to reduce his base salary to $1 for the year.
At the same time, Pacific Biosciences continues to gain increasing traction as witnessed by its growing industry acceptance. The company continues to experience net losses, but also remains an active developer of its PacBio RS II system. Cash remains an ongoing concern for the company, and further dilution may be necessary down the road. Nevertheless, Pacific Biosciences remains well positioned for a growing market when one looks out from a long-term perspective.