Will $28M in Debt Financing Push Good Start Genetics to Big Finish?

Xconomy Boston — 

Six years ago, Good Start Genetics was just an idea in the genetics research labs of Harvard. Today, it is a full-fledged company with more than 85 employees, a diagnostic testing system on the market, and now another $28 million in its pocket to continue growing.

Capital Royalty, a Houston, TX-based investment firm that works with biopharmaceutical and medical technology companies, has given Cambridge, MA-based Good Start a $28 million loan that will help the company continue to roll out GoodStart Select, a system that couples can use to get screened for genetic diseases before they decide to have children.

The financing brings the total Good Start has raised to date to $60 million since its inception in 2007. It raised $18 million through a Series A round in 2010 backed by OrbiMed Advisors, Safeguard Scientifics, and SV Life Sciences, and followed that up with a $14 million Series B round from the same group in April 2012, the same month it officially began selling GoodStart Select to fertility clinics in the U.S.

Good Start CEO Don Hardison says that the company hasn’t worked its way through all of its venture cash just yet, but was able to go the debt route this time because the company now has a track record of selling products, expects to be profitable around August or September, and to break even on operating cash flow before the end of 2013—roughly three years after raising its first round. Good Start is on a run rate this year of about $25 million, he says.

“Because we were on a good path to profitability, some of the debt providers came to us and said we’d be interested in this and we can offer very flexible terms for a company such as your own,” Hardison says of choosing a loan over an equity financing package. “We would not have been in a position to do something like this a year ago.”

Good Start will use the cash for three key initiatives: to continue research projects that could ultimately expand the number of diseases it can screen for; to get its foot in the door in other settings such as OB/GYN offices, as well as select international markets (likely through partnerships); and to use its system for other applications, such as pre-natal or newborn screenings.

Part of that process of scaling up the business will be hiring people for its R&D staff, boosting its sales force as it makes its way into New York (Good Start has applied for a license to sell its tests in New York, but hasn’t received clearance as of yet), and adding genetic counselors as its client base increases.

What happens after that—including finding a finish line for Good Start’s investors—isn’t what Hardison is focused on.

“I think companies can get themselves in trouble focusing too much on how they’re going to exit a business,” he says. “If we take care of our customers and take care of each other, and really do this well and really ramp this company, we’ll have all kinds of opportunities for realizing the value of [it].”

Should such opportunities ultimately present themselves, it would serve as validation for an idea that began at Harvard, where two students at Harvard Business School—Eric Boutin and Paris Wallace—worked with scientists at the lab of genetics professor George Church to find a way to use next-generation sequencing to support a profitable business model.

The group decided on carrier testing—screening people’s genes for disease-causing mutations that could be passed along to their children. For recessive genetic disorders such as Tay-Sachs disease and cystic fibrosis, it’s possible to have such a mutation and not even know it, but if two carriers of the same mutation have a baby together there’s a one-in-four chance the child will get two copies of the mutation—and so, the disease itself.

Carrier testing has been around a long time, and it is a crowded market containing heavyweights such as LabCorp (NASDAQ: LH), Quest Diagnostics (NYSE: DGX), and others. But by pairing a next-generation sequencing system with a vast library of genetic and health information, Good Start believes that it has created a product that stands out. According to Hardison, Good Start’s system can efficiently run several patient samples on a sequencer at once, and can provide more detailed and accurate results than the competition, while charging the same price.

Hardison explains, for example, that in a typical screening test for cystic fibrosis, a pre-programmed chip or array will look for a specific set of mutations in a gene associated with the disease.

“But if it’s something outside [that set of] of mutations, it won’t be able to see them because the chip hasn’t been built to do that,” Hardison says.

Good Start’s selling point is that its system allows researchers to look at the entire gene and report on anything abnormal. The company claims on its website, for example, that its test can detect roughly 550 mutations for cystic fibrosis, while other tests can detect about 100.

Good Start used its initial round of cash to set up an array of tests to prove that the process worked and that its computer systems could handle the depth of information it was providing, putting studies together and presenting them at industry meetings such as the American Society for Reproductive Medicine’s annual gathering in 2011. It also explored ways to perform tests that the market was demanding but that weren’t commercially available at the time. By the time September 2012 rolled around, Good Start had tests for 23 genetic diseases—among them cystic fibrosis, fragile X syndrome, and spinal muscular atrophy.

With a new supply of cash, Good Start hopes there’s more growth to be had.

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4 responses to “Will $28M in Debt Financing Push Good Start Genetics to Big Finish?”

  1. Klay Timba says:

    Counsyl is systematically crushing Good Start. Good Start will be toast inside of 18 months because they are unable to get traction with physicians. GSG’s testing is being offered by 100 physicians. Counsyl’s test is already being offered by over 12,000.

    • Equally Ridic says:

      This is an inaccurate statement posted under a false name by a Counsyl staffer.

      • Health Ventures associate says:

        We actually met with the GSG team when they were raising this new round of capital (I’m an associate at a VC firm). The first commenter is actually pretty accurate – the big concern we had was that Counsyl was so entrenched in the market that GSG has no shot. One of Hardison’s big selling points was GSG’s sequencing test vs. Counsyl’s genotyping test. The problem with this is that Counsyl just launched a sequencing test and it’s coverage is so much better than what GSG is offering that we equated making this investment in GSG to throwing money down a hole. Smart guys, just two years too late, and they just don’t have the CS chops that the Stanford guys do.

      • Bing Bong Kong says:

        Is Goodstart Genetics currently under bankruptcy protection? I heard they filed Chapter 11.