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Complete Genomics Posts Q2 Revenue Gains But Misses Estimates

This article has been updated with comments from a conference call.

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Complete Genomics reported after the close of the market Wednesday that its second-quarter revenues were up sharply year over year, but the firm missed Wall Street estimates.

The Mountain View, Calif.-based whole human genome sequencing services firm reported total revenues of $5.9 million for the three months ended June 30, compared to $1.1 million in revenues for the second quarter of 2010. Analysts, on average, had expected revenues of $7.7 million.

In early Thursday trade on the Nasdaq, Complete Genomics' shares tumbled 24 percent to $8.52.

"We continue to anticipate shipment of genomic data for over 4,000 genomes in 2011," Clifford Reid, chairman, president and CEO of Complete Genomics, said in a statement. "We also continue to expect variability in our quarterly shipments as a result of the timing of receipt of DNA samples from our customers."

He also announced today that the firm has signed contracts with the National Cancer Institute/SAIC-Frederick and the Inova Translational Medicine Institute worth approximately $14 million. The contracts call for the delivery of 2,700 genomes. Including these two contracts, Complete Genomics has booked orders for approximately $30 million and 5,700 genomes from the beginning of this year through July 31, Reid said.

The firm's backlog as of June 30 was around $12 million and 2,200 genomes. In the second half of the year it expects to ship more than 2,400 genomes.

"Over the last few months we did not receive as many samples as we would have liked, due to slower-than-expected sample arrivals from one of our large current orders with the Institute for Systems Biology," Reid said during a conference call Thursday morning. "This has had a direct impact on our projected genome shipments in Q3. We now expect to ship over 600 genomes in Q3. However, we're anticipating the arrival of a significant number of samples over the next three months, which should enable us to deliver over 4,000 genomes to our customers for the full-year 2011, as forecasted."

Reid said the he expects the variability from quarter to quarter to decline as its customer base grows.

The firm can currently sequence more than 600 genomes per month, but by the end of the year it expects to be able to process between 800 and 1,200 genomes per month.

Complete Genomics also is developing its next-generation of sequencers and expects to use the new sequencers for commercial purposes in the first half of 2012. The new machines will initially be able to run approximately six genomes per day, said Reid.

In addition to the variability in receiving samples, the firm also noted that the price per genome has dropped substantially, which is the primary reason its revenues were lower than some might have expected. "These price reductions were instrumental in landing the Innova contract and remain a key element of our mission to be the first company to sequence a million human genomes," said Reid.

He said that prices would continue to decline, but at a slower rate over the next 18 months. By the end of 2012, Complete Genomics expects the average price per genome to be $3,000 or less, said Reid. "We think that's going to be a driving dynamic of the industry — that prices will start to stabilize as the price gets low enough so that these large projects find it economically attractive to do complete human genome sequencing."

Complete Genomics also is working toward CLIA certification and has hired a consultant to help with that, Reid said. "The burden on us for doing CLIA certification is in some sense smaller than … for many other laboratories because we're already a manufacturing facility that runs with a high degree of automation and standard processes, controls, and metrics, and all those other things," said Reid.

The firm expects to be CLIA-certified by the middle of next year. Reid said he expects this to open up a variety of new projects from healthcare providers that it can't currently undertake.

Complete Genomics posted a net loss of $16 million, or $.56 per share, for the quarter, compared to a net loss of $12.6 million, or $13.93 per share, for Q2 2010. The firm was privately held during last year's second quarter. It missed Wall Street's consensus estimate of a loss of $.49 per share.

Complete Genomics spent $8 million on R&D during the quarter, up 63 percent from $4.9 million in the second quarter of 2010. Its SG&A spending more than doubled to $6.6 million from $3.1 million.

The company finished the quarter with $126.4 million in cash, cash equivalents, and short-term investments.

Reid noted that the firm is still not prepared to give top-line guidance. "We think that there are both pricing variability in the system and revenue-recognition complexity," but the firm will continue to give genome guidance, he said.

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