Complete Genomics Stock Falls on Sales Decline, as Sequencing Gets Cheaper
[Updated: 2:24 pm PT] Complete Genomics picked a bad day to have a bad day. The Mountain View, CA-based company that sequences entire human genomes lost more than one-fourth of its value today after it reported a decline in second-quarter revenue, partly driven by price decreases in its service, and a delay in getting enough all the DNA samples it needs from the Seattle-based Institute for Systems Biology.
The sell-off in Complete Genomics (NASDAQ: GNOM) happened during a down day for biotech stocks and the market in general. Complete Genomics stock fell $3.11 a share, or 27 percent, to $8.14 at 2 pm Eastern Time, while the broader market indexes were down about 3 percent.
A few key disclosures from Complete Genomics in today’s report rattled investors. Revenues in the quarter ended June 30 were $5.9 million. That figure was down from $6.8 million in the immediate prior quarter, and less than the roughly $7.2 million to $7.7 million that Wall Street was expecting, according to Quintin Lai, an analyst with Robert W. Baird. Part of the problem, Complete Genomics said, is that it didn’t receive as many biological samples as it expected from one of its biggest customers, the Institute for Systems Biology, which ordered 615 complete genome sequences in January. And while Complete Genomics scored a couple of big new contracts to deliver 2,700 new genomes over the next year, those new contracts are less lucrative than they would have been months ago, as the price of sequencing each genome continues to drop below $5,000.
“We were disappointed that lumpy DNA shipments to Complete Genomics caused a revenue shortfall in Q2 and an expected shortfall in Q3,” Lai wrote in a note to clients today. “However, we are encouraged that GNOM signed more orders in July than it received in all of [the first half of 2011]. We think the services-based whole human genome sequencing market is still in its infancy, and these large orders reaffirm our belief that GNOM is retaining its leadership position.”
Complete Genomics said revenues declined in the quarter, even though it was able to recognize revenue from sequencing 950 genomes in the quarter, up from 690 in the prior three-month period. The company said it still expects to reach its goal of shipping 4,000 completed human genomes back to customers this calendar year, although the delays from the ISB mean it will need to deliver a majority (2,400 genomes) in the second half to reach that goal.
CEO Cliff Reid said the company can still do that, because it believes it will get the samples it needs to get the work done. The Institute for Systems Biology has run into delays gathering enough human samples, partly because it’s not a medical center with direct control over its own patient samples—meaning it needs to corral a far-flung group of researchers to contribute their samples. “It just took longer to pull together,” Reid said on a conference call with analysts. “It’s the normal ebb and flow of the research process.” The ISB has enough money to pay for the sequencing jobs, Reid added.
Complete Genomics, which went public last November, is being watched closely as one of emerging competitors in the sequencing business, particularly as one with the ambitious goal of being the first company to sequence 1 million complete human genomes. It is seeking to take advantage of extreme leaps forward in speed and cost-efficiency of sequencing, while also carving out a new business model to perform sequencing as a service, rather than selling instruments to researchers who do the work themselves—the model followed by competitors like San Diego-based Illumina (NASDAQ: ILMN) and Carlsbad, CA-based Life Technologies (NASDAQ: LIFE).
[Updated and corrected with number of genomes needed for discount pricing. It's 50 genomes, not 15.] Complete Genomics started the year offering its service for about $10,000 per genome. It now has brought the price down to $5,000 on orders of less than 50 genomes, $4,000 per genome for orders of more than 50 genomes, and it offers further significant discounts for bigger orders, chief financial officer Ajay Bansal said on today’s conference call.
The two new orders reported on today were “hotly competitive,” and price was an important factor, along with quality of the data, Reid said. The orders came from the National Cancer Institute’s SAIC-Frederick operation, and Inova Health System, a Virginia-based hospital network. The NCI contract is designed to look for differences in the genomes of tumor samples and normal biological samples, while Inova is using the technique for a long-term study to look at the genomes of premature infants and their parents. The Inova contract is particularly significant, Reid said, because it’s one of the early adopters seeking to incorporate genome sequencing into medical practice, not just basic laboratory research.
More new customers will become interested in complete human genome sequencing as the price comes down, Reid said. The company expects the price of the average sequence to stabilize over the coming year, and that complete genomes will cost about $3,000 by the end of 2012.