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PacBio Looks to Raise up to $200M in IPO; Reports $15M Order Backlog

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By Bernadette Toner

This story was originally published August 16.

Pacific Biosciences plans to raise up to $200 million in an initial public offering of its common stock, according to documents filed last week with the US Securities and Exchange Commission.

The company said in its S-1 filing that it expects to use the net proceeds from the offering to support ongoing research and development of its Single Molecule Real Time sequencing technology; increase its sales and marketing efforts for the commercial launch of the PacBio RS sequencing system in early 2011; scale up its manufacturing operations; and for general corporate purposes.

In addition, the company said it may also use some of the proceeds "to acquire complementary products, services, technologies or businesses," though it noted that it has no agreements or commitments for any M&A activity at this time.

PacBio said that the net proceeds from the offering, combined with its existing cash and investments, will be sufficient to fund its operations for at least 12 months. "Until we can generate a sufficient amount of product revenue, we expect to finance future cash needs through public or private equity offerings, debt financings, or corporate collaboration and licensing arrangements," the company said in the filing.

PacBio plans to list its common stock on the Nasdaq exchange under the symbol "PACB."

Underwriters for the offering include JP Morgan, Morgan Stanley, Deutsche Bank, and Piper Jaffray.

The filing comes less than a month after PacBio raised $109 million in a Series F round of financing, which brought its total capital raised to date to approximately $370 million (IS 7/20/2010). As of June 30, the company had approximately $138.8 million in cash, cash equivalents, and investments on hand, according to the S-1 filing.

PacBio is the second sequencing company to file for an IPO recently, following Complete Genomics, which filed an S-1 with the SEC on July 30. Complete Genomics plans to raise up to $86.25 million in its IPO (IS 8/3/2010).

PacBio disclosed in the filing that it has generated revenue of $1.2 million — all from government grants — for the first six months of 2010.

As of June 30, it had an order backlog of approximately $15 million, which represents "firm" orders that it has received from customers but for which it has not yet recognized revenue.

According to the filing, PacBio generated $135,000 in revenues for full-year 2009, $901,000 in 2008, and $2.2 million in 2007. All of its revenues to date have been from government grants.

PacBio said that it has so far received 11 orders for "limited production release instruments" under an early-access program designed to help it gain feedback for the instrument prior to its full commercial launch. These customers are Baylor College of Medicine, the Broad Institute, Cold Spring Harbor Laboratory, the US Department of Energy's Joint Genome Institute, the Genome Center at Washington University, Monsanto, the National Cancer Institute/SAIC-Frederick, the National Center for Genome Resources, the Ontario Institute for Cancer Research, Stanford University, and the Wellcome Trust Sanger Institute.

As of Aug. 15, it had shipped a total of five early-access PacBio RS instruments, with the remaining six scheduled for shipment later this year. One customer had already accepted its instrument, so presumably, the company will record revenue for that unit soon.

"Following the conclusion of a test period and after full commercial release, each recipient of a limited production release unit is entitled to receive an upgrade to a commercial release version of the PacBio RS," the company said.

The full commercial release is now scheduled for early 2011, later than originally planned. PacBio previously said it wanted to launch the platform commercially during the second half of this year.

For the first six months of 2010, the company spent $52.4 million on R&D — a 74 percent increase over the $30.1 million that it spent on R&D in the first six months of 2009.

The increase was "driven primarily by a $12.3 million increase to laboratory and equipment expense, including prototypes, a $6.7 million increase in personnel-related expense from increased headcount, and an increase in facility and information technology expense of $1.1 million," PacBio said.

The company spent $75.9 million on R&D for full-year 2009; $38 million in 2008, and $19 million in 2007. Since inception, PacBio has incurred around $206.7 million in R&D expenses. The company said that it expects its R&D spending to decline in 2011 as it transitions into commercial operations.

As of June 30, PacBio had 369 full-time employees, including 208 in R&D, 105 with PhDs; 88 in operations and program management; 43 in sales and marketing; and 30 in general and administration.

It had five field service engineers at that time and said it plans to hire additional ones as the business grows.

PacBio's net loss for 2010 was $63 million as of June 30 and its accumulated deficit was $255 million.

Targeting a $3.6B Market

The company said in its S-1 filing that it plans to initially focus on the DNA sequencing market — which it said is expected to grow from $1.2 billion in 2009 to more than $3.6 billion by 2014, according to strategy consulting firm Scientia Advisors — but will later on move into additional applications for its technology.

"We will initially sell our products into the rapidly growing DNA sequencing market, addressing many of the limitations in current sequencing technologies and enabling a wide range of experiments and applications that were previously not feasible for researchers," the company said in the filing, adding that it expects the SMRT technology "to address a broad range of expanded markets, including drug development, diagnostics, food, forensics, biosecurity and bio-fuels."

While it did not provide a timeline for future development, PacBio said that it expects to eventually launch additional applications for the platform in areas such as kinetic detection, RNA transcription monitoring, RNA sequencing, protein translation, and ligand binding.

Citing Scientia's numbers, PacBio said that the "primary areas" of market growth for sequencing are expected to be genomics, which is expected to increase from approximately $700 million in 2009 to $1.9 billion by 2014; and agricultural biotech, which will increase from approximately $200 million in 2009 to $1.3 billion by 2014.

In addition, the company said that molecular diagnostics poses another promising market for its technology, and noted that Scientia projects the market for sequence-based molecular diagnostics to reach $1.6 billion in 2014.

The US list price for the PacBio RS — which includes optics, automated liquid handling, a touchscreen control interface, and informatics hardware and software — will be $695,000.

The PacBio RS will consume one SMRT Cell per sample, each with 75,000 zero-mode waveguides, in which the sequencing reactions take place. The company said that a single SMRT Cell will be priced at $99, but it will package them only as eight-packs that will sell for $800. As many as twelve eight-packs can be placed in a tray and experiments can be designed to run 96 SMRT Cells, PacBio said.

The instrument is designed to generate average read lengths of 1,000 base pairs, and a small fraction of reads of more than 10,000 base pairs. A typical sequencing run can take 30 minutes of instrument time, and a sample can be prepared and sequenced in less than a day.

PacBio will also offer three reagent kits: the Template Preparation Kit, used to convert DNA into the SMRTbell library format; the Binding Kit, which binds the library to the polymerase in preparation for sequencing; and the Sequencing Kit, which contains reagents required for on-instrument, real-time sequencing, including phospholinked nucleotides.

The company said that it owns or holds exclusive licenses to 47 issued US patents, 118 pending US patent applications, six granted foreign patents, and 138 pending foreign patent applications, including foreign counterparts of US patent and patent applications. The issued US patents will expire between April 17, 2016, and May 9, 2028.

The company's key IP — comprising 18 issued US patents, six pending US patent applications, one granted foreign patent, and five pending foreign patent applications — is licensed from the Cornell Research Foundation, the tech transfer arm of Cornell University. These patents cover the core SMRT sequencing methods and systems and other analysis methods.

The company said that it has also licensed a patent from Indiana University regarding terminally labeled nucleoside triphosphates; a patent from Stanford University relating to the use of immobilized ribosomes to analyze ribosomal activity, and several patents and patent applications from GE Healthcare relating to labeled nucleoside polyphosphate compounds.

PacBio noted that it is also involved in a patent interference with Life Technologies related to US Patent No. 7,329,492, which Life acquired via Visigen Biotechnologies (IS 3/31/2009).

PacBio has been named the senior party in the interference, but the company noted that as of July 31, the US Patent and Trademark Office's Board of Patent Appeals and Interferences had not yet made its final decision on the case.

Among the risk factors that PacBio included in its filing was the disclosure that CEO Hugh Martin has been diagnosed with multiple myeloma. Martin's condition has "not had any impact" on his performance so far, but the company warned that his ability to manage the firm in the future is "uncertain."

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