NEW YORK – Element Biosciences is poised to cash in on the sequencing technology business it has built over the last several years following a $277 million Series D financing round last month. However, whether that would be through an initial public offering or a strategic sale remains to be seen.
"This is pretty much the hottest tools company that could go public at this point; its resume is almost unblemished," said Kyle Mikson, a life science tools analyst at Canaccord Genuity. "It's 'all systems go' in terms of being a public company, and an initial public offering is probably the most likely option." If the US Federal Reserve cuts interest rates in the near future, that could make stocks a more attractive investment, he said, opening an IPO window for Element that could be "well received."
Moreover, the recent funding round includes "some of the top-tier crossover investors" including Wellington Management, according to Doug Schenkel, a life science tools analyst at Wolfe Research. This type of institutional investor is known for getting involved with companies making the transition from a private company to a public one, he said, and they are a potential confidence instiller when it comes time to pitch new investors on an IPO roadshow. "Presumably, [those crossover investors] would be supportive, at least based on precedent, in participating in an IPO," he said.
But an IPO is not the only path the firm is considering, according to Logan Zinser, Element's senior VP of finance. "We don't have a singular path that we're tracking right now," he said. "One of our significant responsibilities is creating optionality for the business. Certainly, one of the paths is an IPO. I can also argue [for] keeping the company private as long as possible for a number of reasons." He noted that the firm plans to distribute the Series D funds equally among operations, commercial expansion, and R&D.
How Element proceeds after this recent raise could make it a bellwether for other potential IPOs in the life science tools and diagnostics space. "With the recent exception of Tempus, you have not seen really any IPO activity for the better part of two or three years," Schenkel said, referring to Tempus AI's recent $410.7 million offering. "The question for Element — and really for any other company contemplating a public financing or otherwise — is what kind of environment we're in."
"Tempus makes it feel like we're starting to improve, but it remains unclear exactly what criteria need to be fulfilled to satisfy demands of public market investors," he said.
Founded in 2018, San Diego-based Element revealed its Aviti sequencer and proprietary sequencing chemistry in 2022, one of several companies to challenge Illumina in the mid-throughput sequencing market. As of the end of 2023, the firm had placed 112 instruments and grown yearly revenues to at least $25 million.
To date, the firm has raised at least $648 million, including a $276 million Series C round in 2021.
"What we had before was significant," Zinser said. "This allows us to focus back on the business and drive additional adoption." He suggested that reaching a breakeven point is "certainly within our grasp, and it's a significant goal of ours," though he declined to disclose when the firm thinks that will come.
The Series D financing will help the firm bring Aviti24, technology that would turn its sequencing flow cells into a platform for multiomic cell analysis, to market, Zinser said. It is also looking to expand its commercial, operations, and manufacturing teams, "while being thoughtful about expansion," he said.
Aviti24 brings Element closer into competition with the growing and converging fields of spatial and single-cell analysis. Moreover, Singular Genomics, which also entered the mid-throughput sequencing market around the same time as Element, has said it is pivoting to address this market, and Illumina recently purchased single-cell sample prep firm Fluent BioSciences — following up on promises from new Illumina CEO Jacob Thaysen to address the multiomics market.
The biggest question about Element is its cash burn rate, Mikson said, noting that "margins are tough when you're first launching." Also, public investors may be less willing to accept high revenue growth at the expense of profitability than they have in the past. Should Element find itself in need of cash and not yet be ready to go public, it could do another private round, Schenkel noted.
Zinser, Mikson, and Schenkel all pointed to Tempus' IPO last month as a measuring stick. Tempus has hundreds of millions of dollars of revenues, Schenkel pointed out, as well as a strong investor group and differentiated business model. "Not many companies in the [life science tools and diagnostics] space have that profile right now, which is in part why you're still not seeing a ton of IPO activity," he said.
"Just talking to [Element], they're ready for prime time," Mikson said. He estimated that the firm is approaching 200 placements and $50 million in yearly revenues. "They're competing against Illumina, which has been stagnant the last three years," he said, while other public sequencing technology companies Pacific Biosciences, Singular Genomics, and Oxford Nanopore Technologies have underwhelmed investors. "Element probably has a lot to gain with mediocrity [elsewhere] in the sequencing world," he said, from an investor's standpoint.
One possibility is that a larger company could seek to acquire it even after a hypothetical filing for an IPO, Mikson noted. Large consolidators such as Thermo Fisher Scientific, Danaher, and even Agilent come to mind, he said, though there's no indication they're pursuing Element, specifically.
"Element has very promising tech and a tremendous amount of early momentum, and it's in a growth market," Schenkel said. "You could see where there are a number of potential acquirers."