Complete Genomics has an audacious goal to make DNA sequencing super-fast and super-cheap, but this bold vision hasn’t ginned up the enthusiasm on Wall Street that the company was hoping for.
The Mountain View, CA-based company said in a regulatory filing on Monday that it was planning to sell 6 million shares in its initial public offering at a price of $12 to $14, which could have raised as much as $84 million. Today, the company backed off, saying it now expects to sell 6 million shares at $9 apiece, which would fetch about $54 million. If the deal underwriters purchase all the shares they are entitled to, this means Complete Genomics will start trading with a market capitalization of about $240 million—about 36 percent lower than the $373.9 million market cap it would have created if it had coaxed investors to buy shares at the high end of the range.
Venture investors in San Francisco, Seattle, and San Diego have a lot riding on this deal, as does the broader field of innovation in DNA sequencing. Based on my reading of the latest investor prospectus, Palo Alto, CA-based Essex Woodlands Health Ventures has 3.8 million shares that would be worth $34.6 million; while San Diego-based Enterprise Partners Venture Capital and Kirkland, WA-based OVP Venture Partners would each have 2.9 million shares with an initial value of about $26 million after the offering closes. For a closer look at what the VCs were betting on, check this Xconomy feature story from October 2008, and a follow-up in August 2009. (You’ll notice that the aspiration in the fall of 2008 was to start the commercial sequencing service in the second quarter of 2009—which didn’t happen on time).
Complete Genomics isn’t the only company to scale back its IPO ambitions this week. Clinton, NJ-based Ikaria, which has some futuristic “hibernation-on-demand” technology combined with a profitable drug on the market, also pared back its IPO plans earlier today by 38 percent. Stock markets were down earlier in the day after Chinese central bankers tightened up lending, but U.S. indexes ended up in positive territory by the end of trading, as the Associated Press reported today.
Complete Genomics clearly had a tough act to follow after one of its competitors, Menlo Park, CA-based Pacific Biosciences (NASDAQ: PACB), broke out with a $200 million IPO that established a beginning market capitalization of $800 million. The two companies have distinctly different business models—PacBio aims to sell instruments to researchers, while Complete Genomics is asking researchers to send samples to a central lab where it hopes to do efficient sequencing in-house. Both of the companies aspire to carve out niches in a field currently led by San Diego-based Illumina (NASDAQ: ILMN), Carlsbad, CA-based Life Technologies (NASDAQ: LIFE), and Switzerland-based Roche.
As the price comes down in the future to possibly as little as $1,000 per genome, more scientists should be able to gain access to the technology, so all the companies are hoping the market for sequencing will grow. The DNA sequencing market is expected to grow from $1.2 billion in 2009 to more than $3.6 billion by 2014, according to figures from Scientia Advisors, which PacBio cited in its IPO filings.
Founded in June 2005, Complete Genomics is in the very earliest stage of commercialization. The company said it has sequenced more than 400 complete human genomes from January 1 through September 30, with more than 300 of them in the third quarter. The company said it has an order backlog of over 800 genomes.
All this activity takes money, which Complete Genomics is burning fast. The company said it generated $1.4 million in revenue, while tallying a net loss of $27 million, in the first six months of 2010. The company has accumulated a deficit of $108 million in the development stage, according to the filing. Complete Genomics said it had $10.5 million in cash and investments left at the end of September, and that its order backlog over the next 12 months ought to generate $9 million.
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