By Kevin Davies
August 24, 2009 | In the turbulent world of venture funding, Complete Genomics (CGI), a Bay Area company offering next-generation human genome sequencing to clients in pharma and academia, has raised $45 million in a Series D funding round. While it is overshadowed by the $68 million declared by Pacific Biosciences earlier this month, the injection of funds, albeit six months later than anticipated, puts Complete Genomics back on course to building what it says will be the world’s largest commercial human genome sequencing center in Silicon Valley.
Clifford Reid, Complete Genomics chairman, CEO and president, acknowledged that the Series D round was delayed six months, but said the new capital will assist in scaling up the firm’s facilities in readiness for large customer projects. “Everything is pushed six months,” Reid told Bio-IT World. “We were planning to launch the center in June  and scale up to 20,000 genomes in 2010. Instead, what we’ve done is pushed out six months the launch of the commercial genome center until January  and, because of the delay, we anticipate we’ll sequence about 10,000 human genomes in 2010.”
“Compare that to the number of genomes sequenced in the world today -- maybe a dozen? 10,000 is still an industry changer.”
Reid said the financing would allow CGI to scale up its commercial operations. “We’re not investing in science and technology, we’re investing in commercial-scale sequencing center,” he said. The funds should see CGI comfortably through the launch of the center and into 2010, when it anticipates a ramp up in revenue. “Companies that grow very fast in revenue do indeed tend to use up cash in the process. At that point, we’ll decide how fast we want to grow,” and whether further financings will be required.
Complete’s early clients are the Broad Institute, the Institute of Systems Biology, and the Hudson Alpha Institute. Reid said there are around a dozen customer projects currently running. Further details on some of those customers will be announced next month.
Six Months Later
CGI had intended to close the Series D round back in February 2009. “Fortunately, we have terrific investors in Prospect, Enterprise, OVP, and Highland, who enabled the company to continue operations while we were working in these very difficult capital markets.”
CGI’s experience differs from that of next-gen sequencing rivals Pacific Biosciences. “Our timing was impeccable,” Reid said facetiously. “We could not have timed it any worse! PacBio raised [funds] last summer and this summer. We started our raise on the day that Lehman Brothers failed.”
“It was practically nuclear winter for fund raising,” agreed Alex Barkas, managing director of Prospect Venture Partners, a CGI investor. The silver lining, as Barkas sees it, is that “this is one of the very few venture financings in this period with a new set of investors coming on board.” Those new investors – Essex Woodlands Health Ventures and OrbiMed Advisors – join existing investors Enterprise Partners Venture Capital, OVP Venture Partners, Prospect and Highland Capital Management, which all reinvested in Complete Genomics.
Barkas offered some insight into why his fund decided to reinvest in CGI. “Any time you can do something orders of magnitude faster or cheaper than someone else, it’s an interesting investment opportunity,” he said. “There is no requirement that there be a step somewhere along the way that would be tagged as “Then a miracle occurs!”
Barkas said GGI has a far more profitable business model than selling instruments and reagents. “One reason is, you don’t have to build up the service and support infrastructure you have to have selling instruments.” The other reason boils down to IT infrastructure. “I don’t think you’ll be able to enable people to do the analytics that are necessary for assembly and analysis of the genomes on site. The compute power required for that is really astonishingly large. There are only going to be a few places in the world that will be in a position to do that. While it’s not impossible to clone that capability, it’s not something that you would try to do at every single laboratory or every single genome center.
“In the future, people won’t be that interested in the actual mechanics of how to do this. They’re really going to be interested in the information that comes back to them. We’re in a transition period right now where people had to do this themselves, and in the future they won’t. They’ll be able to come to us and get it done. We’ll be able to do it at a price that’s falling extraordinarily rapidly for us. As a result, we think we can build in a very significant margin even at the prices Cliff is talking about.”
Reid reiterated that CGI has set a target price of $5000 /genome for large customers. Orders that do not enjoy economies of scale will be priced at $20,000/genome. “That’s not $20,000 of reagents, that’s $20,000 of price – reagents, equipment, materials, overhead, computing, everything.” That “fully-burdened cost of goods” is considerably less than the $50,000 genome announced earlier this month.
A Data Business
Reid also took issue with the idea that CGI is a services business. “It’s not a services business -- you can’t call us up and ask for services – we have a data business. This business is enabled by a dramatic new development in this industry. There is finally, for the first time, one organism, one type of data that can be produced in a standardized mechanism -- it’s called a human genome.”
Reid draws a strong analogy to Google. “Google has one type of data called web documents, and produces one type of report called sorted list of documents, based on your query. We’re doing that for genomic data, taking the one type of data – the human genome -- building a huge Google-like proprietary back end, that can take one input – human DNA – and produce on standardized output, a human genome report, a sorted list of variants. That is all about economies of scale.”
Whereas the instrument vendors were producing platforms for multiple organisms and applications, CGI is concentrating on “one dominant data type for which the entire research community needs one thing, these standardized genome reports.”
Would CGI ever contemplate switching its own internal sequencing platform if a better alternative came along? Reid went back to his Google analogy.
“What would happen to Google today if someone came up with a better search algorithm? Nothing,” he said, because the business has grown so dramatically. “By the time one of these nanopore or electron microscopy or other physics-based technologies are commercially available – in the 3-5 year time frame -- we will have sequenced and delivered over 100,000 genome reports out to the scientific community. At that point, we’ll be the industry standard, we’ll be the safe buy, the trusted data format. Somebody starting up a new technology won’t be important, we don’t believe at that point, in the research community.
“If it would make sense to incorporate the technology or offer a different report based on a different technology, sure, we could do that. But I don’t think that’s either a strategic opportunity or a strategic threat to us at this point.”
In addition, Complete Genomics announced the appointment of two new directors associated with its new investors, Tom Caskey and Carl Gordon. Caskey was a leading figure in the human genetics world in the 1980’s and early ‘90s, when he was at Baylor College of Medicine, and also served as president of the American Society of Human Genetics and HUGO (the Human Genome Organization). Caskey is an adjunct partner at Essex Woodlands Health Ventures and CEO of the Brown Foundation Institute of Molecular Medicine at the University of Texas Health Science Center. Gordon is a founding general partner of OrbiMed and co-head of private equity, and a former fellow at The Rockefeller University.