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Chasing IPO, Helicos Hints at Acquisitions; Revenue Could Start Flowing in 1H of '08

This article has been updated from a previous version to correct the spelling of Bill Efcavitch's name.
Helicos BioSciences last week filed documents with the US Securities and Exchange Commission that aim to take the company public on the Nasdaq exchange.
The filing for an IPO, which would make Helicos the only publicly traded pure-play DNA sequencing company, comes less than a year before it plans to commercialize its first product, the HeliScope DNA sequencer, and more than a year before it anticipates generating revenue.
Helicos still needs to decide how many shares it wants to float in its IPO, and at what price, although it said it hopes the proceeds will meet its needs for at least two years.
The firm’s ability to reach its financing goals will hinge on convincing investors that its single-molecule sequencing technology can outperform its competitors — even though it has not yet publicly shown data from a sequencing project that prove the instrument’s performance.
Also, the company hinted that it “may acquire technologies, products, or companies that we feel could accelerate our ability to compete in our core markets.”
Helicos claims that the HeliScope will do away with costly and error-prone amplification and have a much higher data output and lower price point than its competitors. Also the firm hinted that the HeliScope will initially be able to yield between 25 million and 90 million bases per hour for sequencing applications and 90 million bases per hour for gene-expression applications.
“If [the technology] is able to shorten various analytical processes, or it opens up a whole new area that wasn’t available beforehand, the novelty of it, the efficiency of it, the cost-effectiveness of it, these are all considerations [for the IPO pricing],” said David Menlow, president and CEO of, an IPO research service based in Millburn, NJ.
But since the company is not the first in the next-generation sequencing space, “that’s already a problem” that gives competitors the chance to “be the first one ringing the doorbell at all these companies that might be able to utilize the process,” Menlow said.
So far, Helicos’ rivals include 454 Life Sciences, which has had its Genome Sequencer on the market for two years, and is part of CuraGen; Illumina, which recently bought Solexa for $615 million and has begun selling the Genetic Analyzer broadly; and Applied Biosystems, which acquired Agencourt Personal Genomics last July for $120 million and plans to sell its first SOLiD sequencers this summer.
454 might be the next candidate to file for an IPO: CuraGen said last summer it has engaged an investment bank to determine its “strategic options” for the unit. Although the company did not say what these options might be, industry observers have said that an IPO is one possibility (see In Sequence’s sister publication, GenomeWeb News, 08/01/2006).
UBS Investment Bank will underwrite the Helicos offering and will be the sole book-running manager. JP Morgan will be the joint lead manager and Pacific Growth Equities and Leerink Swann will be co-managers.
Menlow pointed out that Leerink Swann’s participation is a good sign “because they have a very good name in the biopharmaceutical space. If they are involved in the deal, they bring a different type of client to the table.”
Helicos management, investors, and scientific advisory board declined to comment for this article because the company is in a quiet period as the SEC reviews the registration statement. But in the preliminary prospectus, the company for the first time revealed some financial information, facts about its technology, and strategic plans.
Helicos plans to trade on the Nasdaq global market under the ticker symbol “HLCS.” The SEC is currently reviewing the filing, which has not yet become effective.
Full Disclosure
Helicos was founded in May 2003 as RareEvent Medical by Stephen Quake, then a professor at the California Institute of Technology; Noubar Afeyan, CEO of Flagship Ventures; and Stanley Lapidus, then a partner at Flagship Ventures who is now Helicos’ CEO. The company was created one month after Quake published his groundbreaking PNAS paper on single-molecule sequencing.
After changing its name to Newco LS6, the company became Helicos BioSciences in November of 2003. As of last month, Helicos had 71 full-time employees: 55 working in R&D and engineering, 32 of whom have PhDs.
So far, Helicos has been a successful fundraiser. In December 2003, the company raised approximately $27 million in a Series A round from five venture capital firms and Lapidus. In March 2006, Helicos received another $20 million in the first closing of a Series B financing, and an additional $20 million in January this year in the second closing of that series.
The principal owners, which hold almost 87 percent of the company, are the VC firms Flagship Ventures, Atlas Venture, Highland Capital Partners, MPM Capital, and Versant Ventures.
Up until now, Helicos has not generated any product revenue. Since it was founded, the company has accumulated $39.1 million in net losses and has spent $27 million on research and development, according to the filing.
As it grew over the years, the company’s annual R&D expenses and net loss have steadily climbed, reaching $14.38 million and $20.58 million, respectively, last year (see chart below).

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According to Menlow, $20.6 million in losses last year “is not going to make people excited about the immediate prospects” for the company. On the other hand, he said, “the accumulated losses for this company … are very typical of a company that has a product that has been in development for a long period of time.”
Helicos expects spending to continue to rise in the foreseeable future, and does not believe it will have “any recognizable revenue from the sales of our instruments until at least the first half of 2008.”
Also, operating losses will likely continue “for at least the next two years” and the company believes it will “continue to incur substantial net losses for the next several years.” It declined to predict in the filing when it might become profitable.
As of the end of 2006, the company had $11.4 million in cash, cash equivalents, and short-term investments. However, on Jan. 19, it obtained an additional $20 million from the second closing of its Series B financing, incressing its balance sheet to around $30 million.
Helicos did not say how much cash it hopes to raise in the IPO, but said it anticipates it “will be sufficient to meet our current needs … for at least the next two years.”
It also did not specify how it plans to spend the proceeds from the offering, saying it will use them “for working capital and other general corporate purposes,” including R&D, and sales and marketing.
However, for the first time, Helicos raised the prospect of making an acquisition: “We may acquire technologies, products, or companies that we feel could accelerate our ability to compete in our core markets,” the company said in its filing. It added that it does not have specific plans for acquisitions at the moment.
A Page From Solexa’s Playbook?
Helicos also provided an update on its commercialization plans. Reiterating earlier statements, the company said in the filing it wants to launch the HeliScope by the end of 2007. At a conference last month, Bill Efcavitch, the company’s senior vice president of product research and development, told In Sequence that these first instruments will be beta-versions sold to early-access customers (see In Sequence 02/13/2007).
According to last week’s filing, these instruments will be “subject to various customer evaluation periods with acceptance criteria, and we expect the customer evaluation period to extend beyond the end of the year.”
The strategy appears similar to the steps Solexa took to get its sequencer on the market, a lengthy process that took more than six months to generate revenues. Solexa shipped its first instruments to early-access customers in mid-2006 but said in January that it will only start recording revenue from the placements this quarter.

Since Helicos is not the first in this space, “that’s already a problem” that gives competitors the chance to “be the first one ringing the doorbell at all these companies that might be able to utilize the process.”

In its filing, Helicos mentioned who it thinks its customers will be. Initially, the company wants to target “early adopters who routinely purchase cutting-edge technologies,” such as genome sequencing centers, pharmaceutical companies, and translational clinical research institutions.  
Rather than selling its instrument to customers large and small, it plans to focus on customers specializing in large-scale sequencing such as genome centers, major biotechnology and pharma companies, and major academic medical centers and research institutions.
In order to serve these customers, “we expect to initially hire a field force of approximately 20 marketing, sales, and support personnel to launch the HeliScope,” the company said.
Helicos is initially banking on recurring revenues from reagents, hoping that “high utilization of the system will generate substantial ongoing revenue from the sale of proprietary reagents and supplies.” The company said it plans to devote part of its sales force entirely to this.
In the longer term, the firm also sees diagnostic applications as a valuable market. “Although this is not our initial focus, we believe that a very large market opportunity awaits those who can deliver patient-specific genomic information to clinicians at the required price point.” As part of this, the company said it may form partnerships with established clinical diagnostic companies.
Finally, Helicos sees potential use of its instrument for applications other than DNA sequencing: Its fundamental design principles, the company said, allow the instrument to analyze protein-protein interactions, antibody-antigen binding, and single-molecule protein identification and detection.
On technical performance, Helicos made some concrete promises in the filing. Initially, the HeliScope is scheduled to churn out between 25 million and 90 million bases per hour for sequencing applications, and 90 million bases per hour for gene-expression applications. Over the next three years, improvements in chemistry, microfluidics, strand density, image acquisition, and the use of the flow cells will increase this throughput “substantially.”
Also, the first version of the instrument will deliver at least the $100,000 genome, while future versions will make the system “the first genetic analysis platform that can approach the $1,000 genome goal without requiring major modifications or a new generation of technology.”
Helicos also provided some instrument specs: the system will have a similar footprint to other sequencers but will be taller and floor-mounted. It will perform sequencing reactions inside two flow cells that have a combined active area of about 32 square centimeters, enough to hold up to 3.2 billion strands of DNA. The flow cells are illuminated by two lasers and imaged by an electronic camera through a microscope objective lens.
The company also disclosed that its sole disclosed collaborator, the Institute for Systems Biology, currently has a proof-of-principle version of the instrument in-house. Lee Hood, ISB’s president, is a member of Helicos’ scientific advisory board (see Q&A last week). The document did not mention other collaborations.
In its filing, Helicos also said that Eric Lander, director of the Broad Institute, “provided helpful guidance and advice during the founding stages of the company.” Elsewhere in the document, the company disclosed that 1.25 million shares of Helicos common stock will be “reserved for future issuance as a charitable contribution” to the Broad.

Helicos holds 10 issued patents and 83 pending patent applications, a mix of IP it owns directly and licenses exclusively or “semi-exclusively.”

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