The MX Q&A: Hugh Martin, Pacific Biosciences

For Hugh Martin, chairman and CEO of Pacific Biosciences in Menlo Park, CA, February also marks a major step on the company’s journey toward the commercial launch of its PacBio RS system, a multifaceted biotech device that builds on research conducted at Cornell University and the 2001 accomplishment by the Human Genome Project.

At the 12th annual Advances in Genome Biology and Technology Conference in early February, Martin told the gathering of industry leaders in Marco Island, FL, that Pacific Biosciences had begun final upgrades of its beta site instruments. These late-stage improvements in the chemistry, performance verification, and software area big milestone in the company’s “limited production release” program. As a result, Pacific Biosciences is on track to ship the first commercial version of the third-generation DNA sequencing system by June 2011, Martin said at the meeting. The company’s development strategy includes the beta program involving corporate partners across a range of disciplines, and Martin also announced the addition of new team members at the genome conference.

The centerpiece of the PacBio RS system is its single molecule real-time (SMRT) technology, which represents a “revolutionary” improvement on first- and second-generation DNA sequencing in terms of throughput, accuracy, and cost, according to the company. SMRT combines developments in areas such as nanofabrication, biochemistry, and molecular biology to enable real-time analysis of biomolecules in applications such as molecular diagnostics, drug development, and biofuels.

The concept was developed by Watt Webb and Harold Craighead at Cornell University as part of their nanotechnology lab research. Having conducted research with Craighead, Stephen Turner, CTO, founded the company as Nanofluidics in 2004 and helped secure the first round of financing. Mohr Davidow Ventures of Menlo Park acted as the lead investor for Pacific Biosciences, which had received a total of $370 million in VC funds before its IPO in October 2010.

Looking for a seasoned executive with high-tech expertise, Mohr Davidow approached Martin in 2004 with the “exciting” opportunity, the CEO says. The VC firm had been an investor in ONI Systems, a high-speed optical telecom that Martin founded in 1998 and took public in 2000. Martin sold ONI to Ciena in 2002 and served as a consultant to the company, CEO in residence at the VC firm Kleiner Perkins Caufield and Byers, and director at Cloudshield Technologies.  A graduate of Rutgers University with a BS in electrical engineering, Martin also served as president and director of an interactive gaming company, 3DO, before founding ONI. In addition to his executive positions, Martin is also a board member of Pacific Biosciences.

The growth of Pacific Biosciences and the imminent commercial launch of the company’s sequencing system holds some personal significance for Martin beyond just a CEO’s satisfaction. Martin was diagnosed with multiple myeloma in late summer 2009, had immediate back surgery in September 2009 to repair vertebrae damage caused by the blood cancer, and after recovery continued to talk up the company and its technology to investors while running day-to-day operations. With an IPO upcoming, Martin consulted with trusted advisors and eventually decided to disclose his diagnosis to Pacific Biosciences employees—and the world at large—at a company-wide meeting in January 2010. Martin was responding well to drug therapy, and the company’s board had voted unanimously to allow him to continue as chairman and CEO with a plan to have other executives on standby to step in if needed.

Martin, who gets tested regularly and says the cancer is in remission, says his love for his job is one big reason he continues working. The other is the potential of the sequencing system itself, which eventually could be used to develop a cure for cancers such as the one that inflicts Martin himself.

In this MX conversation Martin discusses the recent genome conference, the partnership program’s role in the company’s development, his early hands-on approach to hiring, and his good fortune to be heading up a company that could eventually help others like him.

MX: How was your update about 3G DNA sequencing received at the Advances in Genome Biology and Technology Conference this month?

Hugh Martin: I think it actually far exceeded our expectations. Since July we have had a number of beta sites—there are total of 11 of them out there—and one of the things that we wanted to do was to highlight their data and what their experiences have been with our system. We had a total of 11 poster [presentations] with data and three major presentations, and I think all of it was very, very favorable. Not only were we there and had a good presence, but our customers were also there talking about the system and what it could do.

Did you learn anything in particular from the presentation responses that could prove advantageous going forward?

One of the parameters that’s extremely important in decoding DNA is readlength, or how long a piece of DNA you can actually read. Today the standard is around 100 bases of readlength. When we started our beta program we were running about 500 bases, and then we did an upgrade to those customers in November that brought them up to 1500, which is 15 times greater than the average standard that’s out there. I think it was very exciting to see the customers’ reactions, and that was the strongest message—that we’re out there right now with a system dramatically changing its performance….

Conversely, did you learn anything that you might need to work on?

I would say no. There’s a tremendous demand for our systems. We’ve got units in backlog, and we’ve got many, many customers who are waiting and anxious to see the system at work so that they can put in a purchase order to buy one. You know, we’ve got to ship the thing.

On that note, what process do you use to find your collaborators and customers?

Well, in this marketplace the gatekeepers to the whole market are these very large genome centers. They are the gatekeepers because they, one, potentially buy large numbers of machines, but more important, because they’re so large they have built-in bioinformatics teams and other researchers and actually help you, in a sense, evaluate and finish the machine. So even though we think we’re done, there’s lot of polishing that needs to be done. So these guys are very, very important because they set the tone for what the market’s going to think about the product, and they could potentially buy more [of it.]

So, there’s a heavy bias toward the genome centers, and the second category is what are called “core labs.” These are smaller shops that usually service academic institutions, [and] we went after them. And then the last one…is one commercial data site, Monsanto. We wanted them because our system is going to be uniquely usable in the ag-bio marketplace.

Your product development has been quite rapid in contrast to what I understand to be the typical biotech company’s development for this type of product. Is there something beyond the technology or is it just the technology that’s made the development relatively quick?

I would actually break that down into two components. This technology is extremely—I would say technically—both difficult and very interdisciplinary. We have hardware designers, optics designers, semiconductor engineers alongside enzymologists and chemists and so forth. It’s actually been an incredibly difficult project to do. Our founders started working on it, actually, back at Cornell University over 10 years ago. They worked on it for three years, and then seven years ago we started the company formally out here in California. On that time scale it’s extraordinarily long. Essentially, it took us 10 years….

But, literally in 2009 we figured out that system was going to work, and so from late-2009 to mid-2011 to go from there to a product is just phenomenal.

We spent a bit of time on systems and really thinking about how we get this cross-functional team to work together to be able to get a product of this complexity done so quickly.

Right, so the foundation needed to be there as well as the cross-disciplinary approach; this isn’t just about the latest Intel microprocessor. The company was founded at Cornell back in New York State. That leads to me to ask whether you could have gathered the team of cross-disciplinary talent anywhere else but in Silicon Valley. It seems to me that’s a good spot to be for your company.

You know, I don’t think it could have happened anywhere but in Silicon Valley. The founders got financing from Mohr Davidow Ventures out here in 2004. And Mohr Davidow said there’re only two places this company can be: Boston or Silicon Valley. But certainly not Ithaca, NY. I think the founders wisely said those two will take Silicon Valley.

The best way to think about that is where we’re located. We’re in Menlo Park. I would say half of our company came from south of us, because that part of us is all about hardware, software, optics, and technology. Half our company came from South San Francisco and that’s the biotech portion. And then many of our newest employees who haven’t been in Silicon Valley live in the East Bay because the housing costs are so much lower.

So geographically, we’re perfectly centered in that we’ve got the venture guys to the west, we’ve got our employees living to the east, and then we pull from the north and the south. [It’s] like we’re in the epicenter.

Speaking of employees, I’ve read that you’ve personally hired at least 100 of Pacific Biosciences’ employees. That’s pretty hands-on. Isn’t that an inordinate level of involvement for a chief executive?

I’m a firm believer that a company is only as good as the employees that it hires. Especially in the early days, it’s so important that you get the best and the brightest. And many times those people are happily employed somewhere else, so in order to get them to understand the opportunity, you need someone who can really paint the vision and talk about the culture and represent the company in a global way. Of course, I think I’m probably pretty good at doing that. Because I recognize we’re only going to be as good as who we hire, and I’m uniquely suited to help in closing or evaluating employees, I get involved.

I probably won’t, going forward, be able to be that involved, but if there were a set of people for me to get hands-on with, it’s the set of people that I have, because they in turn will be then hiring people, and to the extent they can model the behavior we went through in hiring them, that’ll be a good thing.

You’re approaching a product launch for your first commercial third-generation DNA sequencing system in the first half of this year. Have you narrowed the date down?

Yeah, I would say specifically Q2.

You called the rollout a “limited production release” program. Can you elaborate?

We’ve called our beta sites the “limited production release” program. There are four critical elements to the system. The first is obviously the hardware, the second is the software, the third is the semiconductor chips that we use as a consumable, and the fourth is all of the chemistry and reagents that run on the machine. We have had a set of those four things out with the LPR customers for the last five months, and now we’ve just announced that we’re upgrading them. We’re changing their hardware to the new final-release version of the hardware; we’re giving them the latest chemistries and chips. At the end of that upgrade process, which will be going on for the next month, they’ll all be running at the full commercial release specification at those 11 sites. Simultaneously, we’ll begin shipping new systems that have all the latest changes in them to new customers.

Right now, all of the design work is complete, all of the hardware is in, and the upgrades are happening. What we’re doing right now is going through an extensive validation and verification period where we’ll spend literally months running thousands of test cases on the hardware, software, chips, and chemistry to make sure that we’ve got it right.

Of those four elements, which one makes you the most nervous?

(Laughs.) I would say probably the chemistry because we have to do some of the most advanced enzymology that’s been done on the planet. We watched this little enzyme DNA [polymerase] sequence in real time. It wasn’t designed to do that in nature, so we’ve had to mutate it and modify it. So much of our performance actually isn’t dependent on memory or a microprocessor, it’s dependent on this little enzyme. So we actually treat it as a nanomachine, and we’ve mutated it to get the performance that we want. That’s always a tricky thing. But the good news is that part of the program was really frozen in amber; we really achieved all our milestones, and so that’s no longer the thing I’m most worried about.

All your VC investors haven’t cashed out after the IPO in October of last year. I guess that’s a tribute to the upside they see.

The best way to think about that is typically what happens in the transition from private to public any of the VCs will get off the board, because even more important than their money is their time. There are stepped-up liability levels and workload and so on. None of our private board members got off the board as we transitioned, and we expanded the board, but that’s going to be with new people, not replacing current people.

So it’s a remarkable statement about their belief in not only the eventual success of the company but in wanting to be part of something that’s as transformative as this is.

Your background is in electrical engineering at Rutgers. How did you find your way into biotech? The tech side there, I get that.

I’d been out doing tech stuff at the time for 28 years when Mohr Davidow Ventures approached me. They were an investor and board member of my last company, which was a successful telecom company called ONI Systems. They were a board member, and I think had what I’ll call a healthy respect for me. They came to me and said we found this technology out at Cornell University, we’re very excited about, but it is probably the most complex startup and probably will be one of the most expensive startups that’s ever been done. And we need someone who has a proven track record, who manages big teams, can raise a lot of money. And, yes, you’re a tech guy, but half of what goes on in the machine is technology, the other half is biotech, and we think we’re actually better off having you learn the biotech than having a biotech guy learn all the hardware stuff, so we think you’d be ideal. I took a look at it, and I decided this was going to be tremendous fun.

Wrapping up, I do want to ask you how you’re feeling.

I feel great. I get all my blood work and everything looked at once a month. I just had it all done, and it looks like I’m going to be around for a while.

From a business standpoint is there anything you would have done differently in the way that you handled your medical diagnosis and the announcement?

You know, I don’t think so. I did wait a couple of months once I got my diagnosis. I had talked to Larry Sonsini, the head of Wilson Sonsini [and Pacific Biosciences’ lawyer.] I said, “Hey, Larry, how should I handle this from a fiduciary responsibility point of view?” And he said, “Until you actually know the prognosis I really wouldn’t be talking about this.” It took a couple months to actually figure out [what to do.] It turned out I was a very strong responder to these new drug therapies. It could have been a very different outcome. Instead of just saying, “Hey, I have no idea how this is going to end or go,” I waited till I did know and then I informed the board and then I informed the employees and all of our investors. I don’t think I would do it any differently.

Based on your experience, do you believe a CEO should disclose a serious illness in all cases?

I think it’s completely personal and specific to the situation. In my case I thought it was very important as we were going through a money-raising phase and eventually an IPO, I felt the only way we could do this was for me to be transparent. But I could easily imagine a different scenario where transparency would not be the right idea. And then it also depends on the personality of the CEO. Sometimes [he or she] is just a very private person, and I think in the end the most important thing is the health and happiness of the person.

Is it true that the development of the sequencing system could help in figuring out the myeloma genome? There’s a certain irony there, too.

Oh, absolutely. In fact, everybody wants to pick up a hammer and start doing something when they get a diagnosis like I did. I couldn’t be luckier that the one thing I could do that would probably have the best chance of impacting my disease outcome is exactly what I do every day in the very best [way] I could do it.

Plus the benefits for everybody else obviously down the line.

Yep.