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Complete Genomics Files for IPO; Sequenced About 200 Human Genomes So Far this Year

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By Julia Karow

This article was originally published Aug. 2.

Complete Genomics plans to raise up to $86.25 million in an initial public offering of its common stock, according to documents filed with the US Securities and Exchange Commission last week.

The company plans to use the net proceeds from the offering to finance the further development and commercialization of its technology, sales and marketing activities, capital expenditures to expand its facilities and operations, working capital, and other general corporate purposes.

It intends to trade on the Nasdaq global market under the ticker symbol “GNOM,” according to a registration statement on form S-1, filed with the SEC on Friday, which is not yet effective.

UBS Investment Bank and Jefferies & Company will be joint book-running managers for the offering, and Baird as well as Cowen and Company will be co-managers.

In the filing, Complete Genomics also provided an updated on its business. The company began commercial operations in May, about a month later than anticipated earlier this year, following an early-access phase that began last year.

As of July 20, it had sequenced more than 200 complete human genomes in 2010, including more than 100 during the first three weeks of July, and had an order backlog of more than 500 genomes, according to the filing. As of March 31, it expected about $7 million in revenues from backlog orders received as of that date over the following 12 months.

The company currently has more than 30 past and current customers – about the same number as in February (IS 2/23/2010).

In May, it received an order from SAIC-Frederick, a contractor for the National Cancer Institute, to sequence 100 human genomes — 50 tumor-normal pairs — over a six-month period. The contract contains an option for SAIC-Frederick to have Complete Genomics sequence another 1,128 human genomes — 564 tumor-normal pairs — over the following 18 months. Also, the firm is sequencing 122 additional genomes for the Institute for Systems Biology, following the sequencing of a family of four to find the genetic mutation leading to Miller Syndrome.

By the end of 2010, Complete Genomics expects its facility to be able to sequence and analyze more than 400 complete human genomes per month, or 4,800 per year. “This capacity is significantly less than what would be required to achieve profitability, if demand for our sequencing services grows as anticipated,” according to the filing. The company did not provide details on its projected cost or price per genome by the end of the year.

These numbers indicate that the company’s commercial scale-up appears to be slower than expected: Even if the end-of-year capacity was already available today — and orders booked to utilize it — this would only enable the company to sequence up to 2,200 human genomes this year, about half the 5,000 human genomes it had said it would sequence in 2010. The 5,000 number was already a down-revision of an earlier target of 10,000 (IS 1/19/2010), which was cut from a prior target of 20,000 last summer (IS 8/25/2009). Both cuts were related to a delay in building and expanding the company’s sequencing facility in Mountain View, Calif. Recently for example, the company disclosed, there was “a significant delay in the delivery, from one of our suppliers, of certain components for our sequencing system.”

In 2011, Complete Genomics expects its capacity will grow “over threefold,” so it would be able to sequence at least 1,200 human genomes per month, or 14,400 per year.

It also plans to construct additional genome sequencing centers “in the United States and elsewhere” but gave no timeline for those.
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$1M Revenues, Almost $100M Losses

In its filing, the company also provided, for the first time, further insight into its financials.

As of the end of March, it had cumulative revenues of $959,000 from a total of 12 customers. The company booked its first revenue — $623,000 — during the last quarter of 2009, from seven customers: the University of Texas Southwestern Medical Center, Pfizer, the Broad Institute, the Flanders Institute for Biotechnology, Johns Hopkins University, the Institute for Systems Biology, and an unnamed customer. During the first quarter of 2010, it booked $336,000 in revenues from five customers, of which 90 percent came from the International Mesothelioma Program at Brigham and Women’s Hospital, Scripps Genomic Medicine, and the Ontario Institute for Cancer Research. It did not provide revenues for the quarter ended June 30.

Its cumulative net loss, as of March 31, was $95.5 million, including $66.3 million in R&D expenses, $14.1 million in general and administrative expenses, $4.1 million in sales and marketing expenses, and $9.1 million in start-up production costs. During the first quarter of 2010, it had a net loss of $14.3 million, following net losses of $35.9 million in 2009, $28.4 million in 2008, and $12.3 million in 2007.

Based on its current operating plans and assumptions, the company does not expect to become profitable on an annual basis “in the near future.”

It also expects its expenses to increase “significantly” in the near term, including for the expansion of its Mountain View, Calif., sequencing facility and “the development of additional sequencing centers, research and development, sales and marketing, and general and administrative expenses.” In order to continue operations, it “must obtain additional debt or equity financing.”

The company expects that the net proceeds from its IPO, together with its existing cash, will meet its requirements for “at least” the next 12 months.

As of March 31, Complete Genomics had $2.4 million in actual and $24.5 million in pro forma cash and cash equivalents. The approximately $22.1 million in outstanding cash is from convertible notes the company issued and sold in April, May, and June of this year, which will become due upon closing of the IPO. Alternatively, if it issues and sells a new series of preferred stock before the closing of the IPO that results in cash proceeds of at least $17 million, these convertible notes will instead convert into shares of that series, which will convert into shares of common stock immediately prior to the IPO.

A year ago, the company raised $45 million in private equity from a Series D round, and previously, it had raised $46 million from three prior funding rounds (IS 8/25/2009). Its VC investors include Enterprise Partners Venture Capital, OVP Venture Partners, Prospect Venture Partners, Highland Capital Management, Essex Woodlands Health Ventures, and OrbiMed Advisors.

As of June 30, the company had 159 employees, among them 75 in R&D, and 40 with PhD degrees.

The firm licenses its “key patent rights” from Callida Genomics, a company owned by Complete Genomics’ co-founder and chief scientific officer Rade Drmanac and his wife. In 2006, Complete exclusively licensed from Callida patent filings relating to the use of its sequencing technology in random arrays and probe anchor ligation, and non-exclusively licensed the use of the technology on non-random arrays. As of July 17, the company had licensed from Callida six issued US patents and six issued international patents that expire between 2014 and 2027. It also owns, or licenses, 97 pending patent applications, including 54 in the US, 30 international ones, and 13 filed under the Patent Cooperation Treaty.

The company leases about 67,000 square feet of office and lab space in Mountain View, Calif., under a lease that expires in August 2016, and an additional 11,000 square feet of office and lab space in Sunnyvale, Calif., under a lease that expires in December. Those spaces are “adequate for our first genome center over the next two years,” according to the firm. In addition, it leases approximately 2,200 square feet of data center space in Santa Clara, Calif., under a contract that expires in May 2011, which holds most of its computing capabilities.

Complete Genomics purchases most components for its sequencing systems — including silicon wafers, optical microscopes and other imaging components, cameras, chemicals, and reagents — from third-party suppliers. In particular, it relies on SVTC Technologies for silicon chips for its sequencing flow slides, and on Hamamatsu for cameras in its sequencing instruments.

Complete’s Competitors

The company believes its human-genome sequencing service provides “unprecedented quality, cost, and scale without requiring [researchers] to invest in in-house instruments, high-performance computing resources and specialized personnel,” according to the preliminary prospectus.

In particular, it believes it will be “the first company to sequence and analyze high-quality complete human genomes, at scale, for a total cost of under $1,000 per genome.”

The company is already looking beyond lowering the cost of genome sequencing, predicting that “the basis of competition in our industry will shift from the cost of sequencing to the value of the entire solution” and that its “integrated, advanced informatics and data management services will emerge as a key competitive advantage as this shift occurs.”

It is not alone, however, in its mission to provide comprehensive human genome sequencing services to researchers. Last week, for example, Illumina said it will start offering such a service through a network of subcontractors, all customers of its own sequencing platform (see other story, this issue).

Also, China’s BGI recently founded two branches, BGI Americas and BGI Europe, and plans to open additional ones in Southeast Asia and Australia, in order to provide a variety of sequencing services — including whole-genome resequencing ¬— to researchers around the world.

Complete Genomics also expects competition from new companies that may enter the market either by providing sequencing services or by selling “less expensive and more powerful sequencing instruments.” Future competitors may include Ion Torrent Systems, Nabsys, Oxford Nanopore Technologies, Pacific Biosciences, and Helicos BioSciences, according to the filing, “which have developed or are developing sequencing technologies that may compete with ours in the future” and which may be acquired by larger players that have extensive resources to invest in them.

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