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Illumina Leads Race for Gene-Sequencing Payday

This market could explode to $100 billion a year


You might be wondering what happened to the health revolution that was supposed to be kicked off by the mapping of the human genome a decade ago.   Not much — the promise of conquering disease by targeting bad genes has fallen flatter than Charlie Sheen’s “My Violent Torpedo of Truth/Defeat is Not an Option” tour.

The problem is the technology, or lack of it. Up to now, the equipment simply hasn’t been powerful enough to decode the genes that cause diseases like cancer, lupus and autism. After all, there are 6 billion chemical letters that make up the DNA double helix at the center of every cell. And compounding the challenge are 20,000 genes that tell the body how to make nearly everything in our bodies.

Several companies are laboring to help gene sequencing realize its potential by driving down its cost and complexity.  If successful, they could reap the rewards of a market that is expected to grow from more than $1 billion currently to $3.6 billion in just a few years. One industry observer predicts that If gene scanning ever becomes a mainstream technology like radiology, the market could explode to $100 billion annually.

 Illumina (Nasdaq:ILMN) is leading the way.  One analyst likened the company to Apple (Nasdaq:AAPL) for its ability to replace its products even before they become stale.  Earlier this year, Illumina said it plans a summer rollout of a compact, less costly personal sequencing system, known as MiSeq.  Costing about $125,000, MiSeq will be the most affordable next-generation sequencing platform available, according to the company.

Even with introduction of MiSeq, the majority of company sales for the near term will continue to be generated by its large machines, particularly the HiSeq 200, which is a favorite of academics. Business obviously has been brisk. In 2010, Illumina sales climbed 45% to more than $261 million and its operating profit rose more than 36%. In 2011, the company expects sales to grow 20%.

With results like these, it’s little wonder that investors have flocked to Illumina. In the past year, the company’s shares have just about doubled to $70, far outpacing both the Dow and Nasdaq. However, investors might want to proceed with caution given that now Illumina trades at a stratospheric price-to-earnings ratio of more than 80.

 Life Technologies (Nasdaq:LIFE) actually beat its San Diego neighbor to the market with a compact device last December when it launched its Personal Genome Machine sequencer. The system was developed by the company’s Ion Torrent unit, which Life Technologies acquired earlier in 2010 for $375 million.

 Investors haven’t been jumping for joy since the launch. Life Technologies’ shares are down this year, even though the company said it expects the impact of the Ion Torrent acquisition to have no impact on 2011 earnings.

Others seeking to unseat Illumina at the top of the gene sequencing ladder include Roche and Pacific Biosciences (Nasdaq:PABC), which is about to commercialize its first sequencing product. Since going public late last year, Pacific Biosciences shares are off more than 30%.

Still hanging in there is Affymetrix (Nasdaq:AFFX), which has been around since 1992. Once the poster boy for gene sequencing, Affymetrix has fallen on hard times. Just over a decade ago, the company’s shares hit $160, a far cry from the sub-$6 it trades for today.

Article printed from InvestorPlace Media,

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