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Last Year's Production Delays Cause Slip in Complete Genomics' Q1 Revenues

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Complete Genomics recognized revenue for 900 genomes in the first quarter of 2012 for $3.9 million — a slide of 43 percent over $6.8 million in the first quarter of 2011.

The company's Q1 revenues also fell short of Wall Street's consensus estimate of $4.8 million.

Officials attributed the decline to production delays in the third and fourth quarters of last year, which impacted reorder rates moving into 2012 (IS 12/20/2011).

The company added about 1,000 genomes to its backlog in the first quarter, representing $4 million in revenue potential. As of the end of the quarter it had about 5,700 genomes total in its backlog representing revenue potential of $27 million.

Additionally, CEO Cliff Reid said that turnaround times for delivery have increased, although he said he expected those to begin declining again.

The company's customer base has expanded to about 150, he said, and more than half of customers re-order.

Complete Genomics also plans to submit its application for CLIA certification in the third quarter and to launch its long fragment read technology commercially in 2013.

Complete Genomics shipped 1,200 genomes during the first quarter but only recognized revenue for 900. Of the total, 100 were non-revenue-generating genomes for projects such as its cancer grant program and the Wellderly study it is conducting in partnership with Scripps Science Translational Medicine. An additional 200 genomes were part of the company's 1,000-genome National Cancer Institute order, which Reid said has a "protracted acceptance protocol." The company expects to recognize revenue from the 200 NCI genomes during the second quarter.

Reid said that the first-quarter revenue slide was a result of the production delays the company experienced late last year.

"The revenue dynamic of our business is that customers start small and then go larger," Reid said. "By delaying delivery of data, it has a very detrimental effect on our business because customers who are waiting for small projects to come in before they turn around and place a larger order are delayed.

"We saw significant numbers of examples of that, where some large transactions that we expected to get done in Q1 and early Q2 have been delayed due to our delays in delivering data back to our customers," he added.

The company's turnaround time has increased to 80 days, up from a low of 62 days in the third quarter of 2011. Reid said that the company is "disappointed in this result," and said that the turnaround time will decrease over the next few quarters, first back down to 60 days, and then to a 30- to 35-day time frame.

Reid said that Complete Genomics expects to ramp up shipments to 2,000 genomes in the second quarter, but did not provide guidance beyond the second quarter.

Currently, the company has a capacity of about 1,000 genomes per month, Reid said. However, some of that capacity is taken up by its internal research and development projects, as well as its higher-coverage genomes of 80x or higher, each of which "uses up two genomes of capacity."

The company is operating 24 of its current-generation instruments, but plans to begin using its second-generation instruments in production toward the end of the second quarter. Reid did not provide further details, but he previously said that the company planned to bring six second-generation instruments online this year (IS 3/13/2012).

The new instruments are expected to initially generate a terabase of data per day, equivalent to six human genomes, and to increase the company's overall sequencing capacity to 2,000 genomes per month.

Reid said that he expects the market for whole-genome sequencing to be bifurcated between research and clinical applications. While price pressures will continue to drive the cost of research-grade genomes down, he said that clinical-grade genomes will demand premium prices.

Already, customers are increasingly requesting the higher coverage genomes, he said.

In addition, he expects that the upcoming long fragment read technology will "command a premium price."

Financials

Complete Genomics' first-quarter revenue fell nearly 43 percent to $3.9 million in the first quarter of 2012, missing analyst targets of between $4.8 million and $5.8 million.

As a result, some analysts lowered their targets for the year. Jeffries lowered its 2012 forecast to $30 million from $33 million, estimating the company would ship around 8,000 genomes this year, compared to its previous estimate of 9,850. It lowered its 2013 forecast to $55 million from $72 million.

Oppenheimer, meantime, projected that Complete would ship around 1,500 genomes in the second quarter, below the company's own predictions of 2,000 genomes, and lowered its full-year projection to $24.2 million from $29.8 million.

Complete's costs and operating expenses increased 24 percent to $23.4 million from $18.9 million in the year-ago quarter. Costs of services accounted for $5.3 million, compared to $6.6 million in 2011, while research and development expenses increased to $8.7 million in the first quarter of 2012, compared to $6.8 million in the first quarter of 2011.

Sales and marketing expenses rose to $5.3 million from $2.7 million in the first quarter of 2011. General and administrative expenses increased to $4.1 million during the first quarter of 2012 from $2.8 million in the prior-year period.

Net loss for the quarter was $20.2 million, or $.60 per share, compared to a net loss of $12.5 million, or $.48 per share, in the first quarter of 2011.

The company ended the quarter with $63.1 million in cash, cash equivalents, and short-term investments and $500,000 in restricted cash.

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