Ariosa Takes Pre-Natal Genetic Test to Wall Street, Eyes $69M IPO

Xconomy San Francisco — 

San Jose, CA-based startup Ariosa Diagnostics has grown to become one of the key players in an emerging industry battle to market pre-natal genetic tests, where parents can figure out whether the child they’re about to have is likely to have a chromosomal abnormality such as Down Syndrome. Now, however, it’s about to seek Wall Street’s help to finance the effort.

Ariosa plans to raise up to $69 million through an IPO and trade on the Nasdaq under the ticker symbol “AROS.” JP Morgan Securities, Leerink Partners, Citigroup Global Markets, and William Blair & Co. are underwriting the IPO, which Ariosa wants to pull off largely to ramp up its sales force and help market its diagnostic test, known as “Harmony.”

Venrock (39.1 percent) and Domain Associates (24.0 percent) are by far Ariosa’s largest stockholders, followed by Meritech Capital Partners (9.4 percent) and FMR LLC (6.5 percent). The company has raised just over $70 million in equity financing since its inception in 2008.

Ariosa sells a blood-based DNA test pregnant women can take to see if they are at risk for prevalent fetal chromosome abnormalities, and tell which sex the baby will be. Ariosa says its test is much more accurate than traditional blood-based screening tests, which look at protein markers for abnormalities, and detect Down syndrome 60 to 80 percent of the time when combined with ultrasound. Expectant mothers then have to undergo more invasive tests like amniocentesis or Chorionic villus sampling to get a definitive answers, which come with some risk of miscarriage. By comparison, Ariosa says that its test has proven greater than 99 percent accurate with 0.1 percent false positives in the clinical studies of more than 8,000 women that it has run so far.

Ariosa sells its test to both general or “high risk” pregnancies—deemed as such because of the mother’s age, or other factors. There are about 500,000 high-risk pregnancies, and 4 million live births overall in the U.S. each year. Ariosa began selling the test in May 2012 through a partnership with LabCorp, which has helped Ariosa get its test covered by “most” third-party payers for high risk pregnancies through the larger company’s existing relationships. Expanding that coverage universe into general pregnancies, however, is critical for Ariosa—it specifically called it “a necessary element of achieving material commercial success” in its IPO prospectus.

The company is currently running a trial of about 19,000 women from the general pregnancy group and expects to publish the results in the first half of the year to prove its value in the broader population to payers.

The test is now available in some 90 countries, and generated $12 million in revenue for Ariosa in 2012 and $53.3 million in 2013. Ariosa, however, suffered net losses of $21.9 million in 2012 and $2.4 million the following year.

While reimbursement is a key issue for Ariosa, so is the competition. As the innovation in DNA sequencing has increased, and its cost has plummeted, other companies have sought to capitalize. San Carlos, CA-based startup Natera, San Diego’s Sequenom (NASDAQ: SQNM), and Illumina (NASDAQ: ILMN)—through a buyout of Verinata Health—have all charged into the field with different DNA tests.