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What's Next for Helicos (HLCS)?

Helicos made a timely entrance  in the race for genetic analysis systems with their HeliScope "true single molecule sequencer"  (tSMS), "the first DNA microscope". The technology was positioned as an alternative to DNA amplification, requiring less starting material while eliminating  biases, complexity and errors.In addition,SMS technologies supposedly have the advantage of ultra long reads.An IPO was completed in mid-2007 at about $9/share with net proceeds of about $50M, prior to the market meltdown The stock soared with investor enthusiasm to $15 range before the cold realities of the 2008 bear market set in.The stock is trading near the $1.00 level lately.

Recently Isaac Ro of Leerink Swann (LS)  announced dropped coverage of Helicos Biosciences (HLCS) saying that "the company's  technology faces long term challenges."The recent departure on 2/12 of the CEO Steve Lombardi punctuated the issues because he had 30 years experience with biotechnology tools companies. LS estimated 14 placements of the Helicos systems at a price point of $800k. As of last quarter the Company reported about $11.4M in cash with annual revenues in the $4M range.The Company announced a  Direct Registered Offering in Dec. of 2009 priced at $1.00 per unit with one warrant and one share per unit and gross proceeds of $6.4M. Cash burn is not exactly known at this time but could be as much as $5MM per quarter.

In February Helicos also announced new installations at the Turku Center in Finland,Stanford University and the St.Laurent Institute. Watch for more sales this month.

Without going into in-depth product comparisons the plight of Helicos is strong competition. Market leaders with strong marketing and huge cash coffers such as Illumina (NASDAQ:ILMN), Roche (RO.S) and Life Technologies (NASDAQ:LIFE) immediately pounced on the upstart and sales success of the HeliScope was slowed. Even Affymetrix (NASDAQ:AFFX) with revenues of about $325M and cash of about $250M has technology and cash for the nexgen product round.Affymetrix (AFFX) owned the microarray market until Illumina came along in 2001.Although the Helicos tSMS technology was presented as revolutionary and well differentiated from DNA amplification offerings of Illumina and Life Technologies the product did not translate well in the marketplace.

In the Tuesday March 9 issue of the WSJ on page B6 there was a review of venture capital funding:"Venture Firms Struggle to Raise New Cash" , "Sizing Up Promising Young Firms "(see also our 2009 article  VC Lock-Down Mode Paralyzes Bioindustry ). A WSJ affiliate publication VentureSource provided their list of "The Top 50 Venture Capital-Backed Firms"  and among the Top Ten were two genomic analysis firms Pacific Biosciences with $238M raised and CompleteGenomics with $85.5 M in funding. Although the business models of these new companies are different than existing players in the DNA sequencing market it clearly signals stiffer competition ahead. And we recently reviewed the Daily News from reading about more niche competitors  such Eureka GenomicsIonTorrent and  Oxford Nanophore.

We are in still at a very early stage of genomics applications and niche products will be developed. It is interesting to note that many of the founders and financiers of Helicos are saavy, successful players in biotechnology beginning with collaborations and licenses with MIT, Stanford and Harvard: Highland Capital, Versant Ventures, Atlas Ventures, Sam Collella, Noubar Afeyan, Steve Quake, Stan Lapidus et al. Now that team surely can come up with Plan B. The Company recently stated that it is not for sale and with a modest market cap of about $65M the technology and IP it would appear to have partnering value. But the ante is up in the genomics space and further stock dilution is not a realistic alternative. Look for this management team  to regroup and come up with a new strategy that can leverage the tSMS core technology. Thomas Weisel Partners was hired in September 2009 to explore strategic alternatives so they'd better have options by Q2 . Financial resources are limited  for reconfiguring a niche, lower priced product but selling services or data may be an option. One plus for Helicos is that there is a long term growth market for genomic analysis with huge potential in clinical diagnostics, pharmacogenomics and personalized medicine.

Disclosure: No positions