Why Pacific Biosciences of California Inc. Plunged Today

What happened

Shares of Pacific Biosciences of California Inc. (NASDAQ: PACB) dropped 9.7% as of 3 p.m. EDT Monday on worries of an escalating trade war between the U.S. and China. The Wall Street Journal reported earlier that President Trump plans to prevent many Chinese companies from investing in U.S. technology companies and wants to limit U.S. technology exports to China.

So what

Any disruption in technology exports to China presents a serious concern for PacBio. The company sells gene-sequencing systems throughout the world, but has been strongest in Asia, especially China. In 2017, over 30% of PacBio's total revenue was made in China -- up from less than 10% the prior year.

Boxing gloves with Chinese and U.S. flags

Image source: Getty Images.

The best news for PacBio so far this year has been new orders from major Chinese customers. In January, PacBio announced that Chinese company BGI Genomics ordered 10 new next-generation Sequel gene-sequencing systems. Beijing-based life sciences company Annoroad also ordered 10 Sequel systems in March.

Delays in shipping these new systems have already taken a toll on PacBio. The stock fell after the company reported in its Q1 results that it had not shipped the systems -- and therefore hadn't been able to record revenue -- because BGI Genomics and Annoroad weren't ready yet.

However, delays could be the least of PacBio's worries if the Trump administration moves forward with its reported plans. The new trade actions are expected to be announced by the end of this week.

Now what

So far, the White House has not officially commented on the reported plans regarding technology trade with China. It's not known yet exactly what types of technology will be included in the measures. However, it won't be surprising if gene-sequencing systems are on the list of U.S. exports to be blocked from shipping to China.

China has made no secret of its plans to become the leading superpower in precision medicine, which involves the treatment of diseases using personal genetic information. To achieve that goal, the country will require more high-processing gene-sequencing technology -- like PacBio provides.

It's possible that a deal could be reached between the U.S. and China that works well for both sides and prevents further escalation of what could become a full-blown trade war. But there's no guarantee. In the meantime, PacBio could be caught in the middle.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. The Motley Fool has a disclosure policy.