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Helicos Lowers Order Outlook for ’08; May End Year With $5M in Unrestricted Cash

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Helicos BioSciences said last week that the unfavorable economic climate means it will not likely place more than five orders for its HeliScope sequencer this year, which is the low end of guidance it issued in September saying it expected to take orders for between five and 10 units.
 
The company made those comments as it reported that net loss for the third quarter widened 15 percent over last year’s period and product revenues remained elusive.
 
Based on projected spending, the company is on track to be left with less than $5 million in unrestricted cash by the end of the year unless it can raise additional capital or book revenues from sales.
 
“We are actively pursuing fundraising opportunities, and we will balance our cash requirements in the best interest of the company and our shareholders,” said Helicos CFO Stephen Hall during a conference call to discuss the third-quarter results. He said he could not give specifics “but we believe we can be successful in raising our funds.”
 
The company last week also updated the initial commercial performance specifications for its platform: The system is capable of generating 10 gigabases of sequence data in an eight-day run, based on at least 400 million reads per run with a length of at least 25 base pairs. Two flow cells, each with 25 channels, generate 8 million reads, with read lengths varying between 20 and 50 base pairs, with an average of 30 to 33 base pairs.
 
The error rate is less than 5 percent, including a substitution error rate of 0.5 percent, and errors are independent of read length and template size. Generating a megabase of sequence data costs $1.80.
 
By the third quarter of next year, the company expects to increase the instrument’s throughput by 50 to 100 percent, bringing its output to up to 20 gigabases of data per run, and to commercialize paired-end reads.
 
New Outlook
 
In late September, Helicos said at an investor meeting that it expects to book between five and 10 orders for its Helicos Genetic Analysis system by year’s end, and between 15 and 30 orders in total by mid-2009 (see In Sequence 9/30/2008).
 
“Since then, the economic conditions, especially those of a small-cap company like ours, have been tough,” said Lombardi during the firm’s call last week. As a result, “although our platform is very compelling as a scientific tool, the sales cycle is lengthening.
 
“Our best estimates today put us at the lower side of the guidance for the full year 2008,” he said, adding that the company plans to update its outlook for orders in 2009 at its year-end conference call.
 
Lombardi said that Helicos has now provided data generated on its in-house instruments to the large academic health centers it has been courting as potential customers for the last year. However, these centers are hesitating to purchase the instrument, “taking a really hard look at the large capital equipment that our system represents.”
 
“You combine that with where we fit from an economic perspective, and we are just seeing an increase of time” before those customers commit to an order, he added.
 

“We are actively pursuing fundraising opportunities, and we will balance our cash requirements in the best interest of the company and our shareholders.”

Responding to a question from an analyst, Lombardi acknowledged that prospective users might be concerned about Helicos’ ability to support its instrument in the future. “I think that’s got to be coming into their thought process,” he said.
 
The company’s financial situation is dire: During the third quarter, Helicos had a net loss of $11.5 million and ended the quarter with $12.3 million in unrestricted cash and $10.5 million in restricted cash.
 
Of the restricted cash, $10 million is related to the $20 million loan that Helicos obtained from GE Healthcare Financial Services, and “is in an account where we need to maintain a minimum balance of $10 million,” according to Hall. The remaining $500,000 relates to a deposit on the company’s lease, he added.
 
Revenues for the quarter, from Helicos’ National Institutes of Health grant, totaled $202,000. The company has not yet booked revenue for its first HeliScope sequencer, which it shipped to its first customer, Expression Analysis, in March (see In Sequence 3/11/2008). Helicos did not say last week when it expects to obtain this revenue.
 
Expression Analysis is “in the final stages of testing, running digital gene-expression samples,” according to Lombardi.
 
EA did not respond to a request for comment before deadline about when it plans to offer services on the instrument to its customers.
 
Helicos shipped a second instrument to Stanford University in early October. A Helicos official told In Sequence recently that the instrument will be used by Mike Clarke, associate director of the Stanford Institute for Stem Cell and Regenerative Medicine at the Stanford Cancer Center.
 
Clarke told In Sequence by e-mail this week that he and his colleagues intend to use the instrument to sequence cancer cell genomes, analyze epigenetic changes in normal and cancer stem cells, and perform gene expression studies of normal and cancer stem cells.
 
For the remainder of the year, Helicos expects operating expenses of approximately $2.5 million per month, or $7.5 million in total, leaving it with $4.8 million in unrestricted cash by the end of the year if no additional revenue or financing comes in.
 
Depending on additional capital expenditure and inventory costs, expenses “could be higher than that,” according to Hall, though the current instrument inventory is sufficient for now.
 
During the third quarter, he said, the company reduced its total expenses to $12 million from $13.6 million in the second quarter, by cutting operating expenses, slowing down inventory purchases, and reducing capital expenditures, which were offset by “changes in other balance sheet items.”
 
So far this year, the company has spent $6.1 million on inventory. It currently has six instruments in-house that have been “validated to the initial performance specifications” and are used to generate customer data, according to Lombardi. Three more systems are in testing, and three are in production.

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