22 September 2014

How Illumina Accelerates the Genetic Revolution

Decipher DNA

Matthew Herper, ForbesIllumina, led by Jay Flatley, single-handedly revolutionized the production of DNA sequencing devices and reduced the cost of the procedure thousands of times in 15 years.

How does it manage to hold 90% of this market?

Baby Shelby was born in 2000 and at birth looked powerless, like a rag doll. The girl gradually learned to walk and talk, but she did it slowly and did not keep up with the standard stages of development. By the age of four, she was confined to a wheelchair, and in the fifth grade she began using a computerized voice to communicate with people. Her mother, Renee Valint, in desperation took Shelby to the Mayo Clinic in Rochester, Minnesota, so that the best doctors in the US country would examine her once again.

"They all threw up their hands and said, 'We have no idea what's going on with her,'" Renee recalls. – At that moment she couldn't move at all. I bathed her, fed her. She couldn't even swallow. I had to thicken the liquid so she could swallow and not choke. It was like a nightmare. That was the end. There was nowhere else to go."

But the decision came when it was least expected.

Doctors at the Transatlantic Genome Research Institute in Phoenix used new DNA sequencing technology to study Shelby's genes. Based on the study data, they suggested that she may have a positive reaction to drugs that increase dopamine levels – like those prescribed to patients with Parkinson's disease. Three months later, Shelby was able to get up. The next day she went to school herself and has been without a wheelchair ever since. Now she loves to dance.

Today, there is a rapid growth of the market for DNA sequencing devices. The largest cancer centers use them to correctly prescribe drugs to patients who have no other options left. DNA sequencers now make it possible to diagnose Down syndrome and other gene disorders at the embryo stage – a test tube with the mother's blood is enough. They are replacing outdated and expensive methods of DNA analysis.

Over the past 13 years, the cost of sequencing has decreased incredibly – from $100 million per human genome to just $1,000.

Another amazing fact: the beneficiary of the revolution in the field of DNA decoding is only one company – Illumina from San Diego.

And the main credit for this belongs to one entrepreneur – its CEO, 61-year-old Jay Flatley. It was under his leadership that Illumina took a leading position in the DNA sequencer market eight years ago, and since then its share has been about 80%. At the same time, the company is constantly besieged by competitors with wide pockets.

Jay Flatley, CEO of Illumina

Since 2008, Illumina's annual sales and profits have grown synchronously by 147% and today amount to $1.42 billion and $125 million, respectively. During the same period, the company's shares increased by 617%, and its market capitalization reached $ 23 billion.

"We have our own methods of calculating the market potential,– says Flatley. "If we don't slow down and remain leaders in the field of sequencing, then in the next 5-10 years we will be able to bring the company to a level of fantastic profitability."

According to the forecast of Macquarie Securities, the market of DNA decoders can grow tenfold, reaching $ 23 billion. Illumina is now actively expanding its staff and production and plans to reach sales of $5-10 billion per year.

"A company with a market share of 80% to 90%, which is developing technologies so rapidly that competitors cannot keep up with it, is a rarity," says Katie Wood, investment director at ARK Investment Management. I know that the valuation of this market at $20 billion sounds incredible, but it's true."

The success story of Illumina is not about a brilliant idea or a lucky guess that no one else came up with. Rather, it is a story about a pedantic, close to ideal implementation, which became possible solely thanks to the standards set by Flatley. "I'm not a scientist," says the CEO, who was educated as a technology engineer at Stanford. – My role at Illumina is not to help make a scientific breakthrough. I make sure that we make a great product and deliver it to the market as quickly as possible."

Flatley is a pleasant person to talk to, but a boring person. He is sitting in an office cell (because he dislikes separate offices) in a blue shirt with an unbuttoned collar. He is not inclined to give monologues about changing the world.

Even his own genome, when he first analyzed its sequence, turned out to be mediocre.

The most interesting detail turned out to be a mutation gene called "family cold autoinflammatory syndrome". In his case, this manifested itself in just one symptom: as a child, Flatley had skin irritation in the cold. But thanks to his focus on implementation, he is probably one of the most effective leaders in the biomedical industry. And, maybe, in any industry.

Illumina was founded in 1998, when there were no sequencers themselves, or even their prototypes. The founders of the company invited Flatley to work in 1999. Before that, he successfully sold his previous project, Molecular Dynamics, for $300 million. At that time, Illimina did not even think about making money on determining DNA sequences. By the way, then a one-time similar procedure cost $ 360 million for one person. The company planned to take snapshots of genes.

By that time, there was already a strong player on the market – Affymetrix, which produced DNA micro-matrices – tiny glass plates with specific gene patterns. This technology was based on the fact that the four–letter DNA code – A, G, T, C - is connected in two opposite strands in a certain way: A with T, G with C. That is, if the opposite sequence is present, say, in the blood, then it is attached to the gene matrix by the example of a Velcro tape. But Illumina came up with something better: to put DNA not on plates, but on microscopic balls. Thus, they increased the surface of the material under study, increased the signal-to-noise ratio, so they planned to get more accurate results.

Flatley managed to raise $100 million while the shares of gene companies were on the rise. He did his best to save Illumina when their partner company Applied Biosystems, then a key manufacturer of DNA sequencers, went down. Flatley was attentive to his employees and personally signed birthday greeting cards to each of them, until in 2006 the staff of Illumina exceeded 500 people.

In addition, he was obsessed with the idea that only the right people should work with him. Once he even fired one of the founders of the company – Director of science Anthony Charnik. He claimed that Flatley decided to part with him because of his clinical depression; in 2002, he filed a lawsuit against the company and won $7.2 million by court decision (then it was 20% of the company's loss for the year).

Flatley says the decision was the hardest moment of his career.

But soon, after the bubble that arose around gene companies, investors began to lose faith in this market. In 2003, Illumina shares, which had been trading at $22 before, collapsed to $1. But it was at this moment that Illumina improved its device, improving optics and chemical elements. As a result, it became more accurate than Affymetrix sliders. In 2006, the sales volume of Illumina was $184 million with $355 million from Affymetrix. And a year later, Illumina was already the largest manufacturer of DNA micro-matrices. Now, Illumina chips are used by everyone – from farmers (for the purpose of breeding livestock) to the California company 23andMe, which advises its customers about their genetic predispositions. Affymetrix is now rapidly losing profits with a market capitalization of $ 650 million.

But Flatley is already thinking ahead and is not going to rely on micro-matrices alone. They are capable of instant fixation, which determines only one specific variant of genes. And what happens if the cost of decoding a gene or even the human genome decreases? Startup 454 Life Sciences from Connecticut recently developed a DNA sequencer that can decode the human genome not for $100 million, but for $250,000.

Flatley told the board of directors that Illumina can still rest on its laurels and count the profits, but sooner or later any technology becomes obsolete.

Flatley offered his solution: to make a major acquisition. At the beginning of 2007, he spent $600 million in shares (this is three times the annual sales volume of Illumina) to buy Solexa, which developed an experimental DNA sequencer that split and reassembled the molecule into small elements on a large scale, after which computer decryption of the results was performed. This deal helped to make a breakthrough in the industry. By 2008, Illumina devices with new technologies could sequence the human genome for as little as $100,000.

Meanwhile, competitors, including LifeTechnologies (with sales of $4 billion) and PacificBiosciences (a startup that attracted $ 570 million in investments), are trying to win back positions from Illumina, but so far without success. LifeTechnologies quite confidently entered the market some time ago with its original technology, but could not maintain the sales dynamics.

PacBio planned to use lasers for DNA sequencing, but it turned out that this technology had too high a percentage of errors, besides the speed of information processing did not allow it to compete with the developments of Illumina.

"Today it is difficult to find something or someone who could displace them in the market," says Daniel MacArthur, a geneticist from the Central Massachusetts Clinic. "Almost all revolutionary breakthroughs in this area have been made with the help of Illumina technologies. This is an amazing achievement."

The success of Illumina caught competitors by surprise.

Flatley recalls how in 2010 he met with Jonathan Rothberg, the founder of the startup "454". He showed him a DNA sequencer based on semiconductor technology, which was smaller than analogues and cost $50,000 – ten times less than Illumina devices. Flatley squinted and asked who Rothberg considered his competitors. "The world will soon realize that there is nothing better than this model."

It sounded ambitious, but only Illumina announced its own novelty at a comparable price just a few weeks after the Rotberg company started work. Flatley's team has been working on their device since 2008, and although LifeTechnologies eventually bought Rothberg's startup for $725 million, they still couldn't keep up with Illumina. "Implementation is more important than anything else," says Mustafa Ronagi, inventor of the key DNA sequencing technology, who now manages technology at Illumina.

The Swiss pharmaceutical giant Roche realized that Illumina was out of reach at the moment when its own attempts to enter this market failed. In December 2011, the company's CEO Franz Humer met with Flatley and announced to him that he planned to buy Illumina. And it's better if it's a friendly takeover, Humer warned.

But Humer didn't know who he was dealing with yet.

The board of directors of Illumina, led by Flatley, rejected the $5.7 billion offered by Roche – they decided that they were underestimated. Roche went on the offensive – it happened on the first day of the work of Illumina CFO Mark Stapley. "I watched as a man who has grown a company from scratch in ten years says: "We will do what is best for the shareholders."

Financiers told Flatley that it was only a matter of time, nothing would stop the Swiss: shortly before that, Roche bought the leader of biotechnology Genentech and was going to expand further. However, the shareholders stood up for Flatley. Jason Young of Morgan Stanley (Illumina's third largest shareholder) said he would not sell his shares at any price. Investor companies have also demonstrated solidarity with Illumina. As a result, Roche had to back down. "We've had fantastic support,– says Flatley. "We were lucky: despite the fact that their hands are long, Roche's pockets were not deep enough." Now Illumina costs four times more than Roche offered two years ago.

Roche retreated, and Flatley moved on to new markets.

Scientists have found that the analysis of DNA markers in the blood of a pregnant woman can detect various abnormalities, including Down syndrome. In January 2013, Illumina acquired Verinata Health, whose developments were the most advanced in this field. Already, the revenue from sales of perinatal tests is about $ 300 million, and worldwide, according to analysts, it can reach $ 3 billion.

A year later, Illumina overcame the long–awaited milestone: it launched X10, a system that can sequence the human genome with high accuracy for just $1,000. Today, the company sells these sequencers exclusively in batches of 10 or more pieces for $1 million per year. In fact, scientists are no longer limited in their capabilities and can study the genomes of any number of patients. "The tools are now good enough for us to analyze the genes of 10, 20, 30,000 people," says Eric Lander, director of the Broad Institute of MIT & Harvard, which acquired 14 devices from Illumina. Craig Venter of Human Longevity has purchased 20 X10 devices to solve the mystery of aging. Billionaire Patrick Xingxian (No. 101 in the global list of billionaires, worth $12 billion) and his Providence Health System (an American network of 34 hospitals) purchased 10 devices to analyze the genes of 22,000 cancer patients who turn to them annually.

Illumina technologies and devices are used by companies that have specialized in genetic testing for many years – Myriad Genetics and Genomic Health. Plus there are a lot of newcomers who are eager to blow up this market. For example, Invitae, founded by GenomicHealth founder Randy Scott, offers patients any of 3,000 genetic tests for a fixed price of $1,500. San Francisco-based Counsyl uses technology to determine genetic predisposition to cancer and to test expectant parents.

Huge opportunities are opening up in the field of cancer research, the market of which can reach $ 11 billion.

The story of 60-year-old Heather Folweiler is indicative. While on vacation in Vietnam and Cambodia, she began to have headaches, and then problems with motor functions in the left half of her body. When she got home, she had a seizure. Paramedics who arrived at 2 a.m. with the help of computed tomography found an education in her brain. The tumor was removed. However, a little later, Folweiler was found to have another tumor in her intestines. The doctors decided that the tumor was too big to be removed, and sent her home. "I almost gave up," she says.

But one of the doctors sent a tumor sample for genetic analysis to Foundation Medicine, a company created with the support of Bill Gates and Google Ventures, which uses Illumina sequencers to identify mutations in 236 genes in order to select drugs for treatment as efficiently as possible. According to the results of the study, she was prescribed the drug Xalkori from Pfizer, thanks to which the tumor in the intestine became indistinguishable and did not change in size for more than a year. "I feel the same as I did two and a half years ago," Folweiler says.

The direction of oncological research for the company is one of the key ones. Flatley spent several months persuading Richard Klausner, the former director of the National Cancer Institute (USA), to take the position of chief medical officer at Illumina. One day at lunch, Klausner had the imprudence, as a friendly advice, to propose a scheme for the development of Illumina for the future. As a result, Flatley told him, "This is the direction we want to move in. But I can't take the company there. And you can."

The next breakthrough, Klausner says, will be DNA sequencing in cancer cells or in blood without the use of computed tomography. The condition of cancer patients can be monitored using blood tests, and in the future – to detect the disease at an early stage. In the meantime, Klausner is seeking to engage insurance companies to prove that, unlike most other medical technologies, improving the quality of diagnosis with DNA sequencing will lead to a reduction in health care costs, not to their growth. Diagnostics often becomes a commercial service, but Klausner is confident that this will not happen with sequencing.

Other competitors, meanwhile, are breathing down their necks. The British Oxford Nanopore, a former partner of Illumina, says it is working on creating sequencers the size of a flash drive; Roche does not give up trying and recently bought a startup Genia Technologies for $ 350 million. But Flatley is confident that no one will be able to invade the sphere of influence of Illumina, which covers not only devices, but also software for working with genetic research data, in the near future.

It's hard to disagree with him. The cost of sequencing human DNA is now less than one thousandth of the level of 14 years ago, when Flatley took over the leadership of Illumina.

But the company is not going to stop there.

Illumina expects to lower the price even more.

Ronagi, the director of Technology, recalls that every time the cost of sequencing was reduced by five to ten times with the new Illumina devices, there was a shock in the market. He predicts the emergence of DNA sequencers at a price of $10,000 (the mid-segment models from Illumina cost $250,000), which will open up new markets and new opportunities for treatment. "We have pretty staggering plans for the next three to five years," Flatley says.

Portal "Eternal youth" http://vechnayamolodost.ru22.09.2014

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