Biotech IPO Complete Genomics
I don't plan doing much in the way of news coverage in this blog (but who knows, I make this up as I go along). But IPOs just don't happen that often these days, let alone in an area of interest, so a few thoughts on Complete Genomics (GNOM).
First thought, the ticker. I get it, very clever G-NOM // Genome. Great. But who else thinks garden gnome when they read that (garden gnomes available in large, medium, and 'real' size -- uhmmm -- OK). And wasn't there a company Genomica that recently used this (Google check - it was 2001, well, that doesn't make me feel old much, Exelixis bought them).
Complete Genomics is a DNA sequencing service company that used proprietary ligation based sequencing tech to provide full genome sequencing and data management services. So this is a service business. As an investor, I am not often all that crazy about service businesses, though there are exceptions, like the CROs I own where the specialty project nature of the business makes it less prone to commoditization. Sequencing services are prone to this issue, but I do think there is a question with new technologies becoming practical where the enablement makes market expansion overrule the commoditization aspect. For a time anyway. DNA synthesis services were like that early on, but it doesn't often last a long time.
Sequencing services aren't new, but have been largely relegated to the core research laboratories. That is pretty limited access. I do not mean to imply that Complete Genomics will be making a business out of selling to the public, but at an acceptable price, markets like clinical trial services and other medical niches could open. The kicker is the cost per sequence (and data service). I don't know what that cost is here.
As a point of reference though, Illumina is offering full sequencing for groups (clinical sets) at under $10K per individual through its CLIA lab. In the last conference call (only skimmed transcript), Illumina didn't break out revenues of this service function from other service number (instrument service contracts for instance), but did seem to note growing interest. I note that Complete Genomics did have revenues over $4M in the past quarter.
The market didn't embrace the offering. The company originally wanted $12-14 per share, went public for $9, and the market decided to settle them in a $8 on this their first trading day. I'm not going to jump at this, but again do think there will indeed be a time where market expansion will overwhelm price reductions, and this could well be a company worth holding for a time. But probably not a long time (maybe a year or two?).
Luke Timmerman had a very good overview on Xconomy on the Complete Genomics IPO. He notes in the piece " 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" (note that I endorse Scientia, largely because a respected friend founded and runs it). Now that market size isn't just sequencing service piece (which is small outside of core labs), but the entire sequencing market, but that overall growth is something to really consider.
Stick it on the CAPS Watchlist.
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