Pacific Biosciences said this week that it has raised $100 million in new venture funding, designed to help it develop and begin selling its single-molecule real-time sequencing technology.
The size of the Series E private equity round — the firm originally thought it would close $80 million — reflects the high expectations the investors have for the company, according to industry observers. The funding, led by Deerfield Management and Intel Capital, is expected to provide Pacific Biosciences with sufficient capital to develop a product and ship it to customers, a goal the firm wants to reach in 2010.
“Given the current economic environment, $100 million is a fantastic round,” said Panna Sharma, CEO and managing partner of TSG Partners, a life sciences advisory firm.
But because the sequencing space is crowded with large, public, well-funded potential rivals like Illumina, Applied Biosystems, and Roche, a large funding round might not come as a surprise because it gives a smaller company a chance to compete. “If there is something out there that [investors] like, [they] put more behind it rather than less behind it,” Sharma said.
The funding amount shows investors have “lots of expectation in this company,” Harry Glorikian, managing partner of Scientia Advisors, a consultancy for life sciences and environmental science firms, said by e-mail. “To raise this much, there needs to be a showing that they can deliver what they say, especially in a Series E.”
The company’s technology might give it an edge in an already crowded market, Dan Poscover, also a partner of Scientia, said in an e-mail. “The real question is, what are the right applications for the resolution and data overload?” he said. “If Pacific develops software that can simplify the data output, combined with their high-speed, long read length technology, the sky is the limit.”
According to Steve Eichenlaub of co-lead investor Intel Capital, a unit of microprocessor giant Intel, his company is interested in life-sciences firms dealing with large amounts of biological data that can ultimately be applied to healthcare. In the case of Pacific Biosciences, Intel also has an interest in the zero-mode waveguide technology, essentially a silicon chip.
“It’s a very different chip than what we are used to to do calculations, but it is fundamentally a monolithic piece of silicon with the ability to do very fine geometry manipulation of the surface. And, distinctively, it also brings in all the wet chemistry aspects,” Eichenlaub told In Sequence this week. He is managing director for emerging platform technologies and cleantech at Intel Capital.
“A little bit of what we know might actually be able to help a company like Pacific Biosciences to deal with high-volume manufacturing issues” he said, though the companies are currently not collaborating.
He did not disclose how much Intel Capital contributed to the funding round, or whether the company considered investing in other DNA sequencing technology companies.
According to PacBio CEO Hugh Martin, the company might also profit from Intel’s processors. For example, “in the first [sequencing] system, the data will come off so fast that we cannot write to a hard disk fast enough,” he said, and the firm will have to use a computing pipeline to reduce the data flow. “That compute requirement is extremely intensive, and Intel has some new processors that are going to be coming [out], which could be very applicable to the highest performance parts of our system.”
On to Market
Pacific Biosciences’ aim in this latest fundraising round was to generate sufficient cash to help it develop and begin shipping a product.
“It’s very distracting for a company to have to go out and go through this money-raising process,” according to Martin. Designing a product, building manufacturing operations, and establishing sales channels will require the management’s full attention, and “we wanted to raise enough money so we would not have to focus on raising money again until we were shipping a product,” he said.
To reach that goal, the company estimated it would need $100 million, more than the $80 million it had said earlier this year it was going to raise (see In Sequence 2/12/2008).
This year and early next year, most of the funding will go towards R&D. In the second half of next year, “we are going to start preparing the company for commercial operations,” including building manufacturing and service operations, setting up sales channels, and buying material for building systems, he said.
“To raise this much, there needs to be a showing that they can deliver what they say, especially in a Series E.”
Most likely, PacBio is going to stay put at its current location, the Menlo Business Park, though it might expand into additional buildings.
The head count, which has swelled to 185 from just over 100 in February, will continue to grow, said Martin.
Later this year, he said, PacBio wants to finalize the initial performance specifications for its system and provide a more detailed timeline for its commercialization. For now, what is known is that “sometime in 2010, we will ship a system to a customer that is a supportable system,” Martin said. “What level it is, and how much revenue we will have, all that is going to depend on the timing,” which has yet to be determined.
The company has already visited more than 25 of the “top customers in the industry worldwide” and asked them about their expectations and requirements. Based on that information, it is now “trying to figure out how close we can come to what everyone would like to see,” according to Martin.
At the moment, PacBio has 12 systems in-house that are “capable of generating data” for internal testing and evaluation purposes. Though the machines are not prototypes, they are “fully enclosed” and contain automated fluidics systems, he said, adding that early collaborations with a small number of customers will likely involve these systems, which will not leave the company.
Further in-house collaborations on alpha-systems, which have yet to be developed, will probably be next, followed by shipments of instruments to customers, “but we have not decided who, and we have not decided the timing of that,” Martin said.
Initial sales will be focused on the research and academic market, he said, the large genome centers being “very attractive” customers because they generally purchase multiple units and have internal R&D groups that could help develop aspects of the system.
In terms of applications, the company believes that its system’s anticipated long sequence reads — expected to be as least as long as Sanger reads — and high speed will make it most useful for de novo sequencing and resequencing.
Competing for Cash
The company’s latest funding, which adds to $71.5 million in earlier VC financing, “says something about what people think this technology will be capable of,” said Martin, noting that “we raised, right now, more money than Helicos [BioSciences’] entire market cap.”
Helicos, a competitor developing a short-read, high-throughput sequencing technology, raised approximately $43 million in an initial public offering last year, after taking in about $67 million in private equity funding since 2003 (see In Sequence 5/29/2007). The company has also received $20 million in loans from General Electric Capital Corporation. Helicos’ current market capitalization is just under $100 million.
Also last year, Complete Genomics, a startup developing an undisclosed sequencing technology, raised more than $6 million in venture capital in a second funding round, adding to $6 million in VC seed funding in 2006 (see In Sequence 10/2/2007).
Earlier this year, UK-based Oxford Nanopore Technologies, a startup company developing a nanopore-based sequencing technology, raised £10 million ($20 million) in a second financing round from non-VC institutional and private investors, adding to an £7.5 million ($15 million) round in 2006 (see In Sequence 4/8/2008).
New investors in Pacific’s latest round, besides Deerfield and Intel, include Morgan Stanley, Redmile Group, T. Rowe Price, and a large unnamed financial institution. In addition, all previous investors, including Mohr Davidow Ventures, Kleiner Perkins Caulfield and Byers, Alloy Ventures, Maverick Capital, AllianceBernstein, DAG Ventures, and Teachers’ Private Capital, participated in the financing.