Until recently, research in genomics focused entirely on single genetic defects that cause rare, inherited diseases. In 2007, however, some of the most fascinating advances in the field involved an entirely different approach: large population studies of the human genome that aim to identify genetic variations and then link them to common diseases.

People are 99.9% genetically identical, but that 0.1% difference is the reason why some are vulnerable to disease while others are not. Prominent papers published in 2007 found new information linking genetic variations to prostate, breast, and colon cancers, obesity, type 2 diabetes, and coronary heart disease.

A massive scan of the genome is possible only because of advances in genomics. Many of these studies rely on a powerful new method for identifying genetic variations, called genome-wide association studies [GWAS]. It uses state-of-the-art technologies to identify genetic variations in thousands of samples simultaneously and links those variations with the presence or absence of a disease or condition.

In 2007, Science magazine named human genetic variation as the breakthrough technology of the year, highlighting three major scientific studies: the Encode project, organized by the National Human Genome Research Institute; the Wellcome Trust Case Control Consortium project; and the International HapMap Consortium project, results of all of which were published in 2007. In January, 2008, an international consortium of scientists announced the 1000 Genomes project, a three-year plan to sequence the entire genomes of 1,000 people to create a detailed reference map of human genetic variation. It is the largest project of its kind to date and will be used to hone in on disease-related variations.

The Next Generation

These studies are fueled by the introduction of next-generation DNA sequencers [NGSs], which are helping to create a mini-revolution in large-scale genomic analysis. Older DNA sequencers relied heavily on capillary electrophoresis, a commonly used technique for separating substances from fluids, but NGSs take several different approaches. In all cases, they are faster and cheaper than older technologies. The 1000 Genomes project, for example, is expected to cost $30 million to $50 million, or 10 times less than it would have cost using old technologies, such as those applied to the Human Genome Project, according to the National Institutes of Health [NIH].

The rapid pace of innovation is shaking up the DNA sequencing market and allowing the entry of new players into a field dominated in recent years by a few companies. Applera's Applied Biosystems (ABI) subsidiary introduced the first DNA sequencer two decades ago and is by far the market leader, though its grip is slipping.

Standard & Poor's Equity Research notes that younger companies, such as Illumina (ILMN), have been faster to introduce breakthrough technologies. ABI recently launched an NGS, the SOLiD, based on technology it gained when it acquired Agencourt Personal Genomics from Beckman Coulter in 2006. Early feedback from scientists regarding SOLiD has been positive. Although the company expects to book some revenues from it this quarter, the product launch is still in the early stages.

Gaining Traction

Illumina's NGS, the Genome Analyzer, introduced in May, 2007, is gaining traction in the market at a faster rate than expected. Chief Executive Officer Jay Flatley emphasizes the industry's opportunity, arguing that the emergence of programs of unprecedented scale means sequencing demand will be insatiable for at least the next decade. The Genome Analyzer, for example, allows individual researchers to generate high-quality data in single runs, a process that previously took large research teams months to complete.

Illumina's 2007 sales rose 99% over 2006, driven in part by the Genome Analyzer's "remarkable uptake," Flatley notes. Illumina revenues are expected to rise 35% in 2008, according to estimates by S&P Equity Research, which has a two-STARS ranking on the stock. The recommendation is based on the company's declining margins, the result of an increase in sales personnel, huge stock option expense, and a high price-earnings ratio of 62.6.

Roche, the Swiss drug company, also offers an NGS, the Genome Sequencer FLX System, which it gained when it acquired 454 Life Sciences in May, 2007. Roche has noted it is one of the fastest-growing products within its applied-sciences business unit, which sells instruments to researchers. Sales of that business increased 11% in 2007, to $630 million.

In addition, Affymetrix (AFFX), Helicos BioSciences (HLCS), and others are angling to get involved in GWAS work. Affymetrix introduced a new gene chip, the SNP 6.0, in May, 2007, with capabilities that may overlap some NGS functions and are applicable to GWAS. It has become one of the company's best-selling products, said President Kevin King in January.

Helicos, a startup that went public in 2007, is on the verge of launching an NGS that it claims takes an entirely different approach from existing technologies, making it more powerful and easier to use. Another venture-backed company, Pacific Biosciences, is developing what it says will be the fastest and most accurate NGS.

NGSs, which can list for as much as $600,000, generally incorporate an analyzer and reagents, as well as software and data management capabilities. S&P believes companies with sizable installed systems hold a competitive advantage over emerging companies because the installed systems typically drive sales of the consumables, which generate recurring revenues.

Winners Take All

For now, customers are concentrated among large genomic centers -- six exist globally -- that buy large numbers of these systems, as well as leading academic research centers and private genomic analysis vendors. Other academic centers and pharmaceutical companies also are interested, according to Jason Liu, director of ABI's SOLiD system product line. The genome centers are evaluating each system's strengths -- some are better at certain applications -- and aren't wedded to one, although that may shift over time. The 1000 Genomes project, for example, is using all three current vendors' systems. Thus, a winner-take-all situation isn't likely to emerge near-term, although as users get more familiar with the technologies, they may gravitate towards one.

While interest is enormous, NGSs still face challenges. The systems generate massive volumes of data, but informatics and data management tools have yet to catch up, say industry executives, although that is likely temporary. In addition, S&P Equity Research analyst Jeffrey Loo points out that, as always in life sciences, the R&D funding outlook is difficult to gauge. The budget for the NIH is flat for 2008, which could mean some struggle for academic and government labs, he points out, although private funding appears healthy.

Of greater concern are structural challenges. Companies are competitively lowering prices, which undercuts sales growth efforts, although the potential for higher volume could offset that decline, Loo believes. In addition, while extremely rapid innovation is critical, it leaves little room for stumbles and guarantees openings for new competitors -- the genomics tools industry is littered with companies that started off with magnificent technology, only to falter because they didn't have enough resources or wherewithal to keep up with innovation.

Last update : 04-03-2008 23:21

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