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Pocketing $68M, PacBio Remains on Track for Commercial Launch — and Possible IPO — in 2010

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By Bernadette Toner

This article has been updated from a version posted on Aug. 13 to include additional information about the current financing environment for sequencing technology startups.

Pacific Biosciences said last week that it has raised $68 million in financing from a combination of new and existing investors, bringing its total VC financing to more than $260 million since it was founded in 2004.

Hugh Martin, PacBio CEO, told In Sequence that the funding will support the company's efforts to commercialize its single molecule real time, or SMRT, sequencing system in the second half of 2010.

Perhaps more importantly, however, the company views the additional money as a financial safety net as it looks to pursue an initial public offering or other large-scale financing effort some time in 2010.

"Our plan has been that there would be a significant financing event in 2010. We hope that it can be an IPO," Martin said.

"And if, in fact, we want it to be an IPO, we'd like to have as much flexibility as possible about the timing of when that IPO would occur," he added. "By raising this additional $68 million, we can now have an IPO anywhere in 2010 and be just fine. So it's essentially a buffer."

The funding will come in handy as PacBio builds out its commercial operations to support the upcoming launch of the SMRT platform. "We have now just started … implementing those parts of the company that will put us into commercialization — manufacturing operations, building out a sales force, service, and so on," Martin said. "That is going to, of course, increase our burn."

Martin declined to provide specifics on the company's plans for increasing its staff, but said that the current headcount is 280 people.

New investors in the current round included Monsanto, the Wellcome Trust, and Sutter Hill Ventures, an institutional investor. They join existing investors Deerfield Management, Intel Capital, Morgan Stanley, Redmile Group, T. Rowe Price, Mohr Davidow Ventures, Kleiner Perkins Caufield and Byers, Alloy Ventures, Maverick Capital, AllianceBernstein, DAG Ventures, Teachers' Private Capital, and Blackstone Cleantech Venture Partners.

Blackstone joined as an investor in November, when it contributed $20 million in financing. At the time, Pacific Biosciences said it had raised a total of $193 since it was founded (see In Sequence 12/2/2008).

Martin cited the fact that the company has raised $188 million since last summer, during "an extremely difficult" financial environment, as validation of its technology.

Indeed, some other companies developing next-generation sequencing systems have not found the capital markets to be overly generous in recent months. Complete Genomics has been struggling to close a Series D round (see In Sequence 4/14/2009) and Genome Corp shut its doors earlier this year after losing a prospective Series A investor (see In Sequence 1/20/2009).

Complete Genomics previously said that it planned to provide an update on its fundraising activities in July (see In Sequence 6/16/2009), but a company spokesperson said this week that the date for the announcement has "slipped a bit" and that the firm is still "in the midst of securing financing."

Likewise, Helicos BioSciences said in a filing with the Securities and Exchange Commission last week that it has had trouble raising new funding, citing the turmoil of the worldwide financial markets that has "materially and adversely impacted the availability of financing to a wide variety of companies, particularly early-stage companies such as Helicos."

Oxford Nanopore Technologies, on the other hand, which is developing a label-free single-molecule sequencing technology, said it is not affected by fundraising issues. "We have been in the lucky position of turning away offers of investment for a while, until we are ready. I can't comment on when that might be," said Oxford Nanopore CEO Gordon Sanghera in an e-mail this week. Earlier this year, Illumina made an $18 million equity investment in the company that is part of a strategic alliance, and existing investors provided another $3.1 million (see In Sequence 1/13/2009).

Sanghera added that because Oxford Nanopore's technology is label-free, it will not have to develop a new camera, "so it's likely to take much less money [than PacBio] to get us to a market-ready instrument."

"For us to be able to pull this off is a very strong statement of both our business model and the belief people have in this technology," PacBio's Martin said.

All Systems Go

Martin said that the company has 12 prototype SMRT systems in house running "around the clock," and reiterated previously disclosed plans to launch a beta version of the platform to early-access customers in the first half of 2010, and the full commercial system in the second half of the year.

"We're now to the point where we have invited in key potential customers to collaborate with us, and they're working on experiments that help us understand more about the technology or illustrate its uniqueness," Martin said. As part of this effort, the company earlier this year hired Eric Schadt as CSO to work with these potential customers and get a better feel for the platform's strengths (see In Sequence 5/28/2009).

"We are right now assembling and in the final development phase of the real system, which will have the commercial specifications that will be shipping in the back half of 2010," Martin said.

So far, he said the company is on track to meet all the specifications it has promised for the commercial system.

"We said we'd have a read length greater to or equal to Sanger," or in the range of 800 to 900 bases. "Internally now we are running significantly longer than that already, so I'm quite comfortable that we're going to be able to exceed our goal for read length," he said.

Martin added that the company's prototypes are "roughly" delivering sequence at the rate of three bases per second per well, as expected, and that the firm is also on track to meet its goal of a minimum cycle time of 15 minutes.

In addition, the company has integrated into the system the "strobe sequencing" method that it presented in a poster at this year's Biology of Genomes conference, which can generate gapped reads that are twice as long as uninterrupted reads — in the range of thousands of bases (see In Sequence 5/12/2009).

"There's already going to be tremendous amounts of parallelism so that you can batch jobs and it will take care of all of the intermediate steps up to sequencing, and then sequencing and delivering the data," he said. "And we've now integrated much more tightly this application of strobe sequencing so that we can also do that in a very pipelined way."

Martin said that the company is not yet disclosing the expected throughput or pricing for the commercial system.

Likewise, the firm is not providing a timeline for when the SMRT platform will be capable of sequencing a human genome, though Martin noted that the technology will allow researchers to perform both resequencing and de novo sequencing of human genomes.

"Both of those would be high priorities for us, but we haven't talked about when," he said.

As for the publication in Nature Biotechnology this week of Stephen Quake's genome, which was sequenced with the Helicos technology (see other story, this issue), Martin said the paper is "validation that single-molecule is a coming piece of technology," but stressed that PacBio is developing "a completely different generation — from the point of view of cycle time, cost, throughput, and read length — from that single-molecule technology because we are real time."

He did acknowledge that the Quake paper may end up having a positive effect at PacBio, however. "I would say that internally it spurs people on because we have a lot of pride about this technology and we view it as very significant, so there may be a little bit of self-induced motivation to get a human genome done."

— Julia Karow contributed to this article.

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