NanoString Technologies, a Seattle-based maker of genetic analysis tools, has nailed down $30 million in a third-round venture financing to boost sales of its first product, just as it was running low on cash while it tries to prove itself in the marketplace.
The round was led by Clarus Ventures, and was joined by NanoString’s two founding investors, OVP Venture Partners and Draper Fisher Jurvetson. NanoString, founded in 2004 from the lab of biotech pioneer Leroy Hood at the Institute for Systems Biology, has now raised $47 million since its beginning. This round ties NanoString with Calistoga Pharmaceuticals as the second-biggest fundraiser in the Seattle life sciences industry this year, behind the $42 million round raised by Kirkland, WA-based Pathway Medical Technologies.
NanoString’s new money will be used to help the company boost U.S. and international sales of nCounter, an instrument that’s supposed to give biologists a digital readout that says to what extent a given gene is dialed on or off in a tissue sample. The technology had a coming-out party in the pages of the journal Nature Biotechnology a year ago, and booked its first commercial sale last July. It is now competing against some heavyweights in the market for gene expression tools—Santa Clara, CA-based Affymetrix (NASDAQ: AFFX), Carlsbad, CA-based Life Technologies (NASDAQ: LIFE), and San Diego-based Illumina (NASDAQ: ILMN).
Machines that usually do this sort of precise gene expression analysis, known as real-time PCR, make up a market worth $1 billion a year that’s growing at a 20 percent annual rate, NanoString’s top executive at the time, Perry Fell, told me in this feature story last July. It’s the sort of technology that’s supposed to help researchers do a new kind of large-scale genetic experiment, where they might compare 100 genes from 100 different patients with diabetes to see how they respond to certain therapies.
“It’s a great company, the product is terrific, it answers a lot of important questions and gives you better results than competing technologies,” says Chad Waite, a managing director with OVP Venture Partners, who helped seed the company. But he’s quick to add, “We’ve still got work to do.”
Nanostring isn’t profitable, and it ran into bad timing when it introduced its first commercial product just a couple months before the economic meltdown. It’s trying to drum up demand for a new product for pharmaceutical companies and academic labs that costs $250,000. It’s obviously not easy to sell those labs something that expensive, especially something unfamiliar. When I asked Waite if NanoString was running out of money before it got the new cash infusion, he said, “Pretty darn close.”
Still, Waite says NanoString has met its internal plans in terms of revenue, and sales unit volume, although he wouldn’t disclose numbers for either. The investors intend for this to be the company’s last financing, he says. The plan is for NanoString to build up domestic and international sales, and develop a second application for its technology, with an eye toward reaching break even on its cash-flow statement, Waite says.
Investors will want to see NanoString generate $50 million to $60 million a year in revenue, and develop a second application for its instrument, which isn’t being disclosed to keep competitors in the dark, Waite says. The existing product has been getting positive reviews from customers, which played a part in capturing the attention of Clarus Ventures, Waite says.
“We believe that NanoString Technologies has the best-in-class platform for expression profiling. Their uniquely user-friendly technology that does not require sample purification or use of PCR constitutes a breakthrough in the field, as evidenced by the excitement of the scientific community towards their products. We are delighted to be part of the success of this emerging leader,” Nicholas Galakatos, co-founder and managing director at Clarus Ventures, said in a company statement.
Nanostring has been without a permanent CEO since March, when Fell was replaced on an acting basis by Wayne Burns, the chief financial officer. Fell, a co-founder of Bothell, WA-based Seattle Genetics, stayed on as non-executive chairman of the board. The company is still searching for a permanent CEO, Waite says.
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