The Pacific Biosciences IPO was an important deal yesterday for more reasons than one.
The Menlo Park, CA-based company (NASDAQ: PACB) not only was able to raise $200 million yesterday through an initial public offering in the middle of its expected range, but it established a lofty $800 million market valuation by life sciences industry standards. The stock traded up a smidge in its first day, from $16 to $16.44.
This is certainly nothing like the 2010 equivalent of the famous “Netscape moment”—the 1995 IPO of Netscape that rocketed from an initial price of $28 to $75 on its first day of trading and which some say lit the fire for the original Internet bubble. But in today’s more subdued environment, the PacBio IPO sends a clear statement that investors see big opportunity in life sciences tools. PacBio is developing instruments that seek to sequence entire genomes for as little as a few hundred dollars and in as little as 15 minutes.
If PacBio can deliver its machines to the marketplace next year, it could push the frontier out even further on speed and price, after a couple years of frenetic advances from the top two players in the field today—San Diego-based Illumina (NASDAQ: ILMN) and Carlsbad, CA-based Life Technologies (NASDAQ: LIFE). 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.
If nothing else, PacBio’s successful IPO will fuel competitive fire and drive more innovation from other toolmakers.
“There’s an inexorable quest for greater understanding of biology and its application in health care,” says Bill Ericson, managing partner at Mohr Davidow Ventures in Menlo Park, CA. “It takes a long time, and it takes tools like PacBio’s.”
Mohr Davidow has the single biggest position in the PacBio IPO with more than an 11 percent ownership stake, having placed its bet on the company as part of its personalized medicine strategy back in 2004. So yesterday, it’s safe to say, was a little happier than the usual day around his office.
Good as the news was, Ericson wasn’t willing to go so far as to say this will send a major ripple effect through the life science tool industry. Another deal to watch involves a rival of PacBio’s in the fast/cheap sequencing field—Mountain View, CA-based Complete Genomics—which is on deck for its IPO the week of November 8.
The ripple effect from the PacBio IPO will clearly be felt in San Diego, home of Illumina and Life Technologies. Ericson noted that those are both “great companies” but the emergence of PacBio represents “the entrance of what we think will be a third significant company in a competitive and fast growing marketplace. We think it will drive better performance for customers.”
Faster and cheaper sequencing is going to find its first main applications in the research lab, but because of the improving economics, it will move more and more toward medical diagnostics, Ericson says. These kind of lab and diagnostic applications don’t make headlines like, say, a new drug for breast cancer or multiple sclerosis, but they can make a lot of money for entrepreneurs and investors. The PacBio instruments sells at a full list price of $695,000.
“If you were to look at the performance of tool companies over a 20-year period, you might be surprised what good investments they have been,” Ericson says. “These companies are hard to build, they do complex biological measurements, and when they work and are successful, they build quite interesting businesses. While they have never been the favorite or gotten as much publicity as pharmaceutical companies, they are very interesting.”
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