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Helicos, Preparing for $68M IPO, Updates Financials, Specifies Early Apps for HeliScope

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Helicos BioSciences last week updated its financials and specified early applications for its HeliScope sequencer in an amended filing with the US Securities and Exchange Commission for its proposed initial public offering.
 
As In Sequence reported last week, the company also disclosed the offering price for its IPO in the filing, noting that it will offer 5.4 million shares of its common stock at a price of $13 to $15 per share (see In Sequence 8/5/2007).
 
Following the IPO, Helicos, which hopes to gain almost $68 million in net proceeds, will have approximately 20.52 million shares of common stock outstanding.
 
Depending on the offering price, this would give the company, which implemented a 1-for-4.5 reverse stock split of its common stock last week, a market capitalization of around $300 million.
 
What remains unknown is how investors will value the company when it floats its shares on the Nasdaq Global Market, where it plans to trade under the ticker symbol “HLCS.”
 
“Lately, Wall Street has been giving increased value to revenue-producing companies,” Harry Glorikian, a managing partner at Scientia Advisors, told In Sequence in an e-mail message last week. Tool and diagnostic companies like Helicos “are currently being viewed more favorably since their investment risk is deemed to be lower than therapeutic companies.”
 
Based on his firm’s research, tool companies have recently shown a “fairly consistent” growth of 7 percent on average, and “this rate is desirable by investors looking for long-term stable growth,” he said.
 
Helicos, of course, does not yet have any product revenues but plans to launch its HeliScope sequencing system later this year. In last week’s filing, the company gave an update of its financials, adding results from the first quarter of this year.
 
Helicos had $92,000 in grant revenues in the first quarter compared with none in the first quarter of 2006. These revenues stem from a $2 million, three-year “$1,000 Genome Grant” from the National Human Genome Research Institute that the company won last fall.
 
Research and development costs more than doubled in the first quarter to $5.4 million from $2.6 million year over year. According to the company, $1.1 million of this increase was the result of an increase in headcount.
 
During the quarter, Helicos increased its staff by more than 10 percent: As of the end of March, Helicos employed 79 full-time staffers, eight more than in mid-February. Five of these hires were in R&D and engineering, while three were for marketing and general and administrative functions.
 
The remaining $1.2 million increase in R&D expenses came from product-development costs, including lab expenses, materials, supplies, and equipment-depreciation expenses. Facility-related expenses increased by $170,000 due to a relocation of the company last summer.
 
R&D costs will likely grow further in the future “as we expand our start-up manufacturing efforts this year prior to commercialization and as we continue to invest in future versions of our system,” according to the filing.
 
Helicos said its net loss attributable to common stockholders for the three months ended March 31 swelled to $26.5 million from $3.5 million during the first quarter of 2006. This included an $18.1 million “beneficial conversion feature related to Series B redeemable convertible preferred stock.”
 
As of March 31, Helicos had $22.8 million in cash and cash equivalents, and no short-term investments. The company said in the filing that it expects to receive about $67.8 million in net proceeds from the IPO, based on an offering price of $14 per share.
 
It has not changed its plans for how it will use the money. As it first disclosed in an earlier SEC filing, Helicos plans to spend $20 million on ongoing R&D, $10 million on marketing, and $10 million on startup manufacturing, while the remainder will be used for general corporate purposes.
 
“The IPO market is not what can be considered a true exit for these companies,” said Scientia Advisors’ Glorikian, referring to tool companies like Helicos, NimbleGen Systems, and Rosetta Genomics, which have all recently filed for IPOs. “It is actually a means to raise cheaper financing to finish what they started.”
 
Indeed, following the offering, Helicos directors, executive officers, and their affiliates will still collectively control almost 67 percent of the outstanding common stock, according to the filing. This will give them control over all matters requiring stockholder approval, including the election of directors.
 

On Wall Street, tool companies like Helicos “are currently being viewed more favorably since their investment risk is deemed to be lower than [that of] therapeutic companies.”

To determine the offering price for its shares, Helicos had its common stock valuated earlier this year. At the same time, it also retrospectively analyzed the fair value of its common stock for two dates in 2006. Interestingly, the reason why Helicos did not obtain a valuation of its stock in 2006 but analyzed its stock retrospectively is “because prior to November 2006, we deemed it unlikely that an initial public offering would occur in the near term,” according to the filing. Helicos did not explain why it thought an IPO unlikely up until then.
 
The filing also added some information on the company’s initial platform and its applications. Early on, the company plans to market its HeliScope system for two applications: DNA sequencing of specific regions of the genome, and gene-expression analysis of known genes of interest. 
 
For DNA sequencing applications, the initial HeliScope will have an average throughput of approximately 25 million “analyzable” bases per hour. “At this expected throughput, we intend to focus our marketing efforts on customers interested in sequencing specific regions of the genome on large numbers of samples,” according to the filing. “These customers are primarily involved in the conduct of disease association studies, cancer research and pharmaceutical development.”
 
For gene expression, the company expects the instrument to initially have an average throughput of 90 million “analyzable” bases per hour. Helicos plans to market this application to customers “interested in applying gene expression analysis to drug discovery and to the identification of prognostic indicators of disease.”
 
Helicos said it had not yet determined the selling price for its HeliScope system, but said the price “is likely to be significantly greater than the instrument cost of current market-leading sequencers.”
 
For comparison, ABI’s 3730XL capillary high-end sequencer lists at approximately $370,000, and other next-generation DNA sequencing platforms list for between $400,000 and $600,000.
 
A Helicos spokesperson declined to comment for this article, citing the SEC’s quiet-period rules.

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