PacBio Looks to Hang On, Pull a Turnaround With Genomics Tool

10/31/12Follow @xconomy

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before the reality of their limitations dawns on people. “The technologies, if they get good enough, and really address scientific problems that people want to address and they can’t get elsewhere, then they wind up getting funded. You just have to get it to that point,” Hunkapiller says. Essentially, it means hunker down in the lean times, conserve cash, and make the machines better. “It’s the only thing you can do,” Hunkapiller says.

Hunkapiller has a lot on the line in this bid to turn around PacBio. He was one of the early venture investors with Alloy Ventures who bet on the company, and lent it a lot of important scientific credibility in its early days. When PacBio’s early marketing stumbles became clear in October 2011, he stepped up from his board seat to take a more active role as executive chairman. He then took over from Hugh Martin as full-time CEO in January.

Hunkapiller’s turnaround plan is based heavily on a lot of behind the scenes execution. The machines that were delivered to customers in the first year had hardware and software bugs. Many of the new machines delivered to customers were spending a lot of time sitting around, not being used. The first version of the microchips used in the machines weren’t being manufactured consistently, causing problems for customers, and prompting PacBio to find a new supplier. Some employees were in need of training. Many customers needed help getting trained on how to use the machines efficiently. And word was getting around the industry about the snags the early adopters experienced, which prompted many other customers to wait for improvements before shelling out $700,000 for a hot new toy.

“We had to go back and really focus on robustness, reliability, training, teaching people how to do sample prep, and how to teach people to deal with an informatics data set that was different than the ones they were used to dealing with,” Hunkapiller says.

So PacBio focused on essentially making its existing customers a bit happier in the first half of 2012. For a couple months, it deprioritized efforts to secure new customers. The hope was that by solving some of the early problems, the company would have a more compelling pitch. “We wanted to lay the groundwork for expanded sales in the second half of the year,” Hunkapiller says. “You never perfect the technology internally. It really requires going through the crucible of fire out there in the real world.”

As it has from the start, PacBio is still attempting to differentiate itself from its competitors on its ability to analyze “long reads” or long stretches of DNA. Today’s standard technologies assemble genomes by essentially stitching together many short stretches of DNA. That approach enables the machines to process high volumes of DNA, improving speed and lowering cost, but it isn’t very good at spotting oddities in certain genomes like strange repeat sections in, certain genomes like that of rice. The PacBio instrument, by looking at longer and longer reads of DNA, is supposed to be able to better capture some of this information, Hunkapiller says.

Of course, PacBio needs people to get excited about a lot more than just using its machine for a few plant or bacterial genomes. Hunkapiller says he sees room for growth in plants and bacteria, but also in human sequencing, especially for complex targeted regions where it might be an advantage to look at longer stretches of DNA.

Hunkapiller isn’t going on the record with any forecasts for how many instruments PacBio might sell in the year ahead. The company announced on Oct. 25 it has a backlog of five orders. If Congress and the President can’t agree on a new round of budget talks, the National Institutes of Health could suffer major cuts as part of the “sequestration” showdown, which would greatly impact PacBio’s academic customer base in 2013.

That’s probably enough to make any sequencing company executive nervous, but the possibility has to be especially chilling for PacBio. The company has about 18 months of cash left in the bank, although it has filed paperwork with regulators to raise another $30 million in periodic stock offerings.

When I asked Hunkapiller if PacBio is headed down the same rocky road that led Complete Genomics to get acquired by BGI-Shenzhen, he insisted he has no plans to throw in the towel.

“We’re not seeking strategic alternatives,” Hunkapiller says. “We’ve still got a fair amount of cash in the bank. The cash takes us, at our current burn rate, through the middle of 2014. We are a public company with the ability to raise additional capital if we need it. We’ve got a substantial and growing installed base of customers that can do science with our technology that they can’t do otherwise. We’re still unique in the long-read space. As the technology gets better from a throughput perspective, we start encroaching on other technologies. We have to execute, but we are pretty confident we can do that.”

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