NEW YORK (GenomeWeb News) – RW Baird today downgraded Complete Genomics to Neutral from Outperform on Illumina's introduction of its rapid Individual Genome Sequencing service with a turnaround time of as little as two weeks.
In a research note, analyst Jeffrey Elliot said that given Complete Genomics' capital position, its recent restructuring, and the potential for distraction from other internal matters, the Mountain View, Calif.-based company's ability to respond to Illumina's new service will be limited.
Elliott said that Illumina's IGS service "raises the bar on whole genome turnaround time" and noted that Complete Genomics' turnaround time is currently about 60 days with a goal of 30 to 45 days by the end of the year. He added that IGS is being offered through Illumina's CLIA-certified laboratory, which could give the company a leg up on Complete Genomics, which is awaiting CLIA certification. It filed for a CLIA license at the end of July and anticipates approval within the next few months.
San Diego-based Illumina expects to offer focused clinical interpretation later this year, and "[w]e view rapid turnaround time and CLIA certification as necessary for increasing clinical adoption of sequencing services."
Meanwhile, Complete Genomics is in the midst of a reorganization, which included the elimination of 55 jobs. The restructuring includes the possibility of being acquired or a business combination. Given the firm's cash burn, which Elliott estimated at $20 million in the second quarter, and cash position — the company had $39.3 million in cash and cash equivalents at the end of the second quarter — Elliot said that Compete Genomics' strategic alternatives search will need to be finished by early 2013.
That process, he added, may already be scaring some customers away. The company finished the second quarter with a backlog of 4,600 revenue-generating genomes, translating to about $22 million in revenues, less than what Elliott had hoped for.
He added that recent departures from Complete Genomics' board — two board members have left since June — further adds to the uncertainty swirling around the company.
"With shares up [about] 50 percent since the strategic search was announced and [Complete Genomics'] window of opportunity closing, upside potential has become less clear to us," Elliott said.
Potential positives that could lift the company would be a favorable outcome from the strategic search and accelerated backlog growth, he noted. Also, a recent study in Nature described a new technology from Complete Genomics called Long Fragment Read that it says substantially improves the accuracy of whole-genome sequencing, enables fully phased genomes, and reduces the amount of DNA needed for testing. The company has said that it plans to incorporate the technology into its offerings early next year.
In Tuesday morning trading on the Nasdaq, shares of Complete Genomics were down 12 percent at $2.67.