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Solexa Cuts Staff By 17 Percent, Readies Sequencing Platform for 06 Launch

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Solexa last week announced that it is restructuring to prepare for the launch of its Sequencing-by-Synthesis (SBS)-Cluster genetic analysis service by the end of the year, and will make the system available as a standalone platform in early 2006.

According to officials from the Hayward, Calif.-based company, Solexa slashed its workforce by 17 percent, or by approximately 25 employees, bringing its headcount to 116 and incurring a one-time $350,000 charge in severance payments in the second quarter of this year. Solexa said it will begin growing its sales force to prepare for the full commercial launch of the SBS-Cluster platform.

John West, Solexa's CEO, told BioArray News last week that the bulk of the layoffs were from the genomic services unit inherited from Lynx Technologies, which merged with Solexa in March (See BAN 3/2/2005).

Solexa continues to offer Lynx's Massively Parallel Signature Sequencing technology to existing customers, but West said that the genomics services business unit that handles MPSS was reduced to cut costs in anticipation of the upcoming product launch.

"We will operate [the MPSS unit] in a more efficient way that will help us break down costs," West said. "We needed to scale the headcount to be commensurate with what the level of that service business is."

Linda Rubinstein, the company's chief financial officer, told BioArray News that the company currently did not have a sales force for the SBS-Cluster system and that it would be filling senior-level marketing, sales, and manufacturing positions before the end of the year.

"We clearly have areas that we are building [within] the company," West said. "Going forward, as we move forward to launching the SBS system, we will need to have more sales people, manufacturing people, field service people, and we wanted to have as low a cost base as possible."

Investors reacted positively to the news of the restructuring, sending shares of Solexa up 9 percent to a mid-day trading price of $6.50 on May 24 from a closing price of $5.96 on May 19, the day the layoffs were announced.

West said that Solexa will continue to offer MPSS through the launch of the SBS-Cluster analysis system, and that the company will encourage MPSS customers to switch over time.

"[W]e will offer both for a period of time and customers will be able to choose from both," he said. Rubinstein later said that there was no timeline for phasing out MPSS.

"[SBS] is really dramatically more cost effective though and [it] will … offer a higher-quality result, so we expect that most customers will transition to SBS fairly quickly," said West.

In the meantime, MPSS remains Solexa's only source of product-derived revenue until the SBS-Cluster service launches. However, MPSS is not paying the company's bills.

After the company's accountants, Ernst & Young, expressed "substantial doubt" in a March SEC filing that Solexa could remain solvent "through the end of the year," the company authorized a private stock sale that secured $32.5 million in private-equity financing led by ValueAct Capital of San Francisco in April (See BAN 4/27/2005).

Other venture capital investors, including funds affiliated with Abingworth Management, Amadeus Capital Partners, Oxford Bioscience Partners, and SV Life Sciences, will be investing a total of approximately $10.8 million in the second closing of the financing.

According to Rubinstein, "the $32.5 million is fully committed."

"We received a portion of it in April right after the announcement, and we will receive the balance in July after our shareholder meeting," Rubinstein said.

West called the funding "sufficient" and said he anticipates that the amount "will let [Solexa] get through the market launch."

West also said that he believes the firm's SBS-Cluster system will generate significant revenues based on the quality of the data it provides combined with its competitive pricing.

The system uses a sequencing-based approach, rather than hybridization, to create gene expression profiles, and West said that it will be a new contender in the expression market dominated by Affymetrix, Agilent Technologies, GE Healthcare's CodeLink unit, and Applied Biosystems.

"We have indicated that the sequencing portion of the assay could wind up coming to a cost as low as $50 a sample, whereas you might think about running a hybridization rate today — whether you get it from Affymetrix, or Agilent, or Applied Biosystems, or whoever — being $350-$400 per array, so we are pretty competitive with that," he said.

Rubinstein said that the gene expression service that will launch by the end of the year would probably dominate the company's service unit, while she said that "thought leaders in the space" had expressed interest in acquiring the $350,000 system for resequencing.

West touted the reliability of the results produced by SBS, saying that it would eliminate "traditional questions associated with hybridization."

"It's a much more positive identification of each piece of the signal," he said.

West said that Solexa would target university and government laboratory researchers as its key customers for the initial rollout of the service and platform. Rubinstein said that the company currently has no beta customers.

— Justin Petrone ([email protected])

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