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For 454, Roche s Cash Came Just in Time; Solexa Considers Different Tack

NEW YORK, Nov. 14 (GenomeWeb News) - While the potential market for next-generation sequencing technologies is estimated to be at least $1 billion today, that doesn't mean companies developing products are having an easy time raising money to bring their product to market. 


Despite the buzz surrounding these tools, two companies at the front of the pack have experienced or are expecting to experience cash-crunches. One of these, 454 Life Sciences, had come dangerously close to running out of cash before a Swiss corporate enabler stepped in with a deal potentially worth $62 million. The other, Solexa, will have to raise additional capital if it wants to remain in business through 2006. Both shops have distinct strategies for remaining solvent and for launching their technologies.


Last May, 454 Life Sciences, the first company to release a next-generation sequencing machine, announced it was partnering with Roche. According to financial documents, this partnership seems to have come in the nick of time.


454, a subsidiary of publicly traded CuraGen, had around $7.8 million in cash and investments as of Dec. 31, 2004, according to US Securities and Exchange filings. Six months later --- shortly before Roche stepped in with its marketing and distribution deal --- the company had burned through almost 70 percent of that war chest, leaving itself around $2.4 million. According to SEC documents, Roche gave 454 $1 milllion as of June 30. It was not immedately clear whether that $1 million was part of the $2.4 million 454 had in cash and equivalents.


With a monthly burn rate of roughly $900,000 at the time, 454 was destined to run out of money as early as last month if it was unable to raise additional funds. The company found itself in this predicament just as it began launching its machine. It sold its first instrument in March, and has placed nine machines to date.


Solexa, second in line to release a sequencing platform, is also running low on cash as it readies its product for launch. The UK-based company burned through two-thirds of the $10.5 million in cash and equivalents between Dec. 31 and June 30. And while it received $23 million in July from selling stock to private investors, Solexa, which is publicly traded, will still have money woes in 2006 unless it receives another cash infusion, according CEO John West. "The company will need to raise additional funds to get through 2006 and maximally launch the product," West said at an investment conference last week.


The company has said it will introduce its sequencing machine by the end of the year and expects the platform to begin generating revenue in the first half of 2006.


Seeking 'Independent Financial Footing'


As it follows 454's lead into the market, Solexa will have the luxury of dissecting the steps its rival took to get to where it is today. West's recent comments suggest that the company will not be taking many pages from 454's play book.


Solexa was spun out of CambridgeUniversityin 1998. In March 2005, the company underwent a reverse merger with publicly owned Lynx Therapeutics, which is based in Delaware. Before the merger, Solexa had biochemistry that worked, but only had one engineer --- West --- on its staff. Lynx was not a commercially successful company, but brought to the table a long history of intellectual property in the area of highly parallel sequencing as well as instrument engineers.


Needing cash to survive through 2006, Solexa has the option to partner with another company or trying to attract additional investors. Will the company follow the same capitalization path as 454 and seek a large corporate enabler? Not likely.


Under their five-year worldwide agreement, Roche will sell 454's nanotechnology-based genome sequencing systems, including kits and reagents, through Roche Diagnostics' supply chain, and provide technical support. 454 will receive up to $62 million in license fees, milestones for instrument releases, and minimum royalty and research funding. By November, the CuraGen subsidiary had received $19 million from the Swiss giant.


454 will also receive a margin on products manufactured for Roche Diagnostics, as well as royalties on net sales of licensed products. Roche can sell the products to all markets except for regulated diagnostics, but has the option to negotiate to include this market within the next five years.


In West's opinion, 454's partnership with Roche isn't an ideal scenario for Solexa. "They are financially dependent on their distribution channel," West told GenomeWeb News over coffee during the Genomes, Medicine and the Environment Conference, held in Hilton Head, SC, last month. "I want Solexa to be on a firm independent financial footing, and then we'll talk about distribution to see what is best for Solexa, and not be in a sense driven into something because we need the money."


While Roche is a powerhouse with worldwide distribution channels, partnering with a company already involved in the sequencing market --- rather than one with great experience distributing drugs and diagnostics, but not to the research community --- might make better sense for Solexa, West said.   


Solexa is intent on spurring more investment interest. Last week, Solexa pitched itself at the Rodman & Renshaw Techvest 7th Annual Healthcare conference in New York(454 also made an appearance at the investor show). West has indicated that many of Solexa's investors have said that they are interested in putting additional money into the company. Partnerships may also be on the horizon.


"We are open to distribution partnerships, but have not agreed to any at this time," said West. "We are also working directly with quite a few smaller laboratories who have expressed interest in our technology and we value those relationships highly.  We actually see our technology as potentially quite broadly applicable, because it so dramatically reduces the amount of robotic sample prep automation previously needed for large scale sequencing. This makes genome scale sequencing potentially accessible to a much broader range of laboratories than in the past." 


Kate O'Rourke covers the next-generation genome-sequencing market for GenomeWeb News. E-mail her at [email protected].


Kirell Lakhman contributed to this article.

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