PacBio soars in wake of $75M Dx deal with Roche

Struggling gene sequencer Pacific Biosciences ($PACB) saw its stock rocket nearly 73% higher in the wake of a diagnostics product-development deal with industry giant Roche ($RHHBY) that's worth as much as $75 million.

The Menlo Park, CA, company's stock closed at $5.98 on Sept. 25, a jump of more than 72.8%. It's a massive gain, representing investor delight in the fact that Pacific Biosciences will be partnering with a company that is the global Goliath of in vitro diagnostics.

Right off the bat, Roche will pay Pacific Biosciences $35 million. The company stands to gain up to $40 million more if it can meet agreed-upon developmental milestones. As part of the deal, Pacific Biosciences will develop and make gene sequencing and other clinical products, and license them exclusively to Roche's diagnostics arm. Roche, in turn, gains exclusive global rights to distribute the products for human in vitro diagnostics. Pacific Biosciences can keep marketing current and future products in every field outside of human in vitro diagnostics. That includes plant and animal studies, among other fields.

There's more: Pacific Biosciences will also earn additional income from making and supplying instruments, software and other items that Roche plans to market for clinical use combined with its assay-specific reagents, the companies said.

Not bad. But Pacific Biosciences has a long way to go. The company booked $6 million in revenue during its 2013 quarter but lost $20.4 million. Two years ago, executives slashed 130 jobs from the payroll in order to reduce spending. The company has searched for new market avenues to boost lab adoption of its sequencing machines ever since. Pacific Biosciences' PacBio RS II DNA sequencing system uses cutting-edge technology to quickly and cheaply decode DNA.

Mike Hunkapiller, president and CEO of Pacific Biosciences, noted in a statement that the deal should "allow accelerated commercial success for both companies." For Pacific Biosciences, that goal just got slightly more attainable.

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