Thursday, June 7, 2012

Positive DNA sequencing news, and a bio-rock star.

To balance out the bad news on GNOM, there are two exciting stories of DNA sequencing beginning to generate a revenue stream AND a clinical impact.

Both Foundation Medicine and Verinata announced the commercial availability of broad diagnostic tests based on DNA sequencing. (FoundationOne for cancer, Verinata for prenatal health.)

These tests are exciting because they represent the first commercial adoption of NGS for diagnostic purposes. (Also exciting: neither company is seeking FDA approval for the tests, using the "homebrew" exception to bring them to market, but that's a story for another day.)

Verinata's news is particularly exciting because the technology requires only a maternal blood sample. This simple blood draw makes possible a number of fetal genetic tests that would otherwise require a risky fetal sample. (Think BIG needle and a chance of long term damage.)

Verinata is one of the brain children of Dr. Stephen Quake, a Stanford bioengineering researcher, founder of two public biotechs (Helicos and Fluidigm), and as of this week, recipient of the very impressive Lemelson-MIT Prize.

Biotech lacks "rock stars," which are seemingly so abundant in other industries, particularly computers and the internet, where CEOs like Steve Jobs or Mark Zuckerberg are widely known, and even VCs are get cover stories (like Reid Huffman.) I'd like to see the day where a prolific medicinal chemist is as well-known for his/her efforts as Jonny Ive is for his design of Apple products.

(Note: I'm focusing narrowly on biotech people with a commercial impact. Academic scientists like James Watson, Sydney Brenner, and others of course have had HUGE impact, and many have been so honored with Nobel prizes (and the like.) I don't know of any organized honors for commercial success.)

It'll take some time and a lot more success before the pantheon of biotech rock stars intakes root, but Dr. Quake is a great, if singular example of a biotech rock star.

(A few other nominees as biotech rockstars: Jonathan Rothberg, RJ Kirk, Henri Termeer, Alejandro Zaffaroni, Dr. Brian Druker, Arthur Levinson, and Susan Desmond-Hellman. Got any other nominees? Please nominate other names in the comments section.)

GNOM: molecular future casualty

Complete Genomics (GNOM) just announced large layoffs. This isn't in any way a reflection of diminished interest in DNA sequencing, but rather a change of generations.

GNOM was built to offer genome sequencing in bulk for between $5k and $25k. Their pricing as of today is still competitive, but with innovators like Oxford Nanopore likely to drive per genome prices around $1,000, GNOM's days are numbered.

There's been some talk that the layoffs will cure what ails GNOM, that GNOM is interesting because it is trading for roughly the amount of cash on hand, and that the company could still be an attractive acquisition target. Don't believe it. Last quarter GNOM burned $15M in cash on ongoing operations. Best case scenario is that the layoffs reduce the operating cash burn by ~$6M/yr, meaning that there's still a long ways to go to being cash flow positive.

In addition, while there's some chatter that GNOM's best pricing really reflects only variable costs (i.e. no sunk/fixed costs), if this is the case, the company is losing money on each order but making it up in volume - there's no revenue upside.

Disclosure: at the time of writing, I held no shares in GNOM, or its' competitors for that matter.