New technology brings about a revolution in medical care
New technology brings about a revolution in medical care
DNA sequencing is revolutionising the diagnosis and treatment of everything from cancer to Down syndrome at breakneck speed, changing health care forever. Incredibly, only one company—Illumina—is making it all possible. It's just getting started
DNA dynamo: In the 14 years Jay Flatley has been Illumina’s CEO the cost of mapping a human genome has been cut from more than $100 million to just $1,000
When Renee Valint’s daughter Shelby was born in 2000, she seemed weak, like a rag doll. Shelby learnt to walk and talk, but she did so slowly, missing developmental milestones. By age four she was confined to a wheelchair, and she started using a computerised voice to communicate in the fifth grade. Desperate, Renee took her from Phoenix to the Mayo Clinic in Rochester, Minnesota, for one last week of tests and discussion with some of the country’s top doctors.
“They all put up their hands and said, ‘We have no idea what’s wrong with her,’” says Renee. “At that point she couldn’t even move. I bathed her, fed her. She couldn’t even swallow. I had to thicken her liquids so she could swallow without choking. It was like a nightmare. That was it. There was nowhere else to go.”
But then doctors at the Translational Genomics Research Institute in Phoenix used a new technology—DNA sequencing—to look at Shelby’s genes. Based in part on what they found, they guessed that she might respond to the same dopamine-boosting medicines that are given to Parkinson’s patients. Three months later Shelby got up out of her wheelchair. The next day she walked to school, and she hasn’t used the wheelchair since. Now she likes to dance.
Stories like this are creating an exploding market for DNA-sequencing machines. Major cancer centres are using them as a standard way to pick medicines for patients who have little other hope. DNA sequencers now allow disorders like Down syndrome and other conditions to be detected in a foetus using a vial of the mother’s blood. They are replacing older, more expensive methods of genetic testing.
And the change is coming at breakneck speed. How fast? In the 1980s and 1990s the PC revolution was driven by an insight that legendary Intel co-founder and chairman Gordon Moore had as a researcher in 1965: The number of transistors on an integrated circuit doubles every two years. This was not a law of science but of will: It was a target for engineers to hit.
But over the past 13 years, the cost of sequencing DNA has dropped 1,000 times more than Moore’s Law, from $100 million per human genome to only $1,000. The only thing more extraordinary than the growth rate of the sequencing revolution is that the beneficiary is a single company, Illumina of San Diego, and most of the credit for the rate of change can be laid at the feet of one entrepreneur, Chief Executive Jay Flatley. Thanks largely to Flatley’s leadership, Illumina emerged as the dominant maker of DNA sequencers eight years ago and has maintained 80 percent market share despite an assault by several well-funded competitors.
Since 2008, Illumina’s sales and profit have both increased 147 percent, to $1.42 billion and $125 million, respectively, as the stock increased 617 percent and the company’s market capitalisation reached $23 billion. “We have predictors of market sizes,” says Flatley, 61. “Anything we’ve done so far says that in our time horizon, which is five or 10 years, if we remain the leader in sequencing we can grow our company with a much more fantastic return on investment than anything else.”
Macquarie Securities forecasts that the DNA-sequencing market could become 10 times bigger, reaching $23 billion. Illumina itself is going on a hiring and manufacturing binge, bracing itself to create $5 billion to $10 billion of DNA-reading gear a year.
“It’s rare that you find a company that has 80 percent to 90 percent share of anything and is driving the technology so fast that nobody can catch up,” says Cathie Wood, the chief investment officer at ARK Investment Management. “This is a stock in its infancy. I know that sounds crazy, given that it’s over $20 billion, but it is true.”
The Illumina story isn’t one of a fundamentally better idea or a eureka moment no one else had. Instead, it’s a story of dogged, near-perfect execution that traces back entirely to the tone set by CEO Flatley, a Stanford-trained industrial engineer. “I’m not a scientist,” Flatley says. “I’m not at Illumina, frankly, for us to make a scientific breakthrough. I’m at Illumina for us to deliver great products and get them to the market as fast as we can.”
Flatley sits in a cubicle, because he doesn’t believe in offices, wearing a blue dress shirt open at the collar. He’s not prone to excited soliloquies about changing the world. Even his genome seemed boring when he first had it sequenced. The most interesting tidbit was that he had a gene for a disorder called familial cold autoinflammatory syndrome, which, for him, had one symptom: He got a rash in the cold as a child. But because of his focus on execution, he may be one of the most effective CEOs in the life sciences industry—or any industry.
Illumina was founded in 1998 without a product or even a prototype. Flatley was recruited by the founders in 1999 because he’d successfully sold his last outfit, Molecular Dynamics, for $300 million. At the time, Illumina’s goal wasn’t to sequence every letter of a person’s DNA—back then it cost $360 million per person—but to take snapshots of individual genes quickly. Another company, Affymetrix, had that market locked up with its DNA microarrays, tiny glass slides with specific genetic patterns on them. The tech took advantage of the fact that DNA’s four-letter code—A, G, T, C—matches up in a specific way, A to T, G to C, in two opposing strands. If an opposing sequence were present, say, in blood, it would stick to the gene chip like velcro. But Illumina had a better way: By putting the DNA on beads instead of flat slides, there was more surface area, a better signal-to-noise ratio and, it hoped, more accurate results.
Flatley was able to raise $100 million while genetics stocks were hot. He made sure Illumina had backup plans when its partner, the then-dominant DNA sequencer maker, Applied Biosystems, flaked out. And he kept the personal touch, writing birthday cards to every employee until Illumina hired employee 500 in 2006.
He was also obsessive about making sure he recruited the right people to work with him, at one point even firing one of the co-founders, chief scientific officer Anthony Czarnik. Czarnik said Flatley fired him because of his clinical depression; he sued and won a $7.2 million judgement (20 percent of Illumina’s annual net loss at the time) in 2002. Flatley says the ruling was the lowest moment of his career.
Investors were losing faith in DNA stocks after the hype bubble that surrounded the human genome project. In 2003, Illumina shares, which had traded as high as a split-adjusted $22, fell below $1. But that moment was when Illumina improved its device to the point where its chips were more accurate than Affy’s by refining the chemistry and optics of the devices. In 2006, Illumina notched $184 million in sales to Affymetrix’s $355 million; the next year it was the biggest maker of microarrays. Today Illumina’s chips are used by everyone from cattle ranchers (for breeding purposes) to 23andMe, the genetic ancestry company in Mountain View, California. Affy is a money-losing company with a market cap of $650 million.
But Flatley was already having doubts about the future of microarrays. They would always be mere snapshots that could look only for one specific variant of a gene. What if the cost of spelling out all the letters of a gene, or even of a person, was about to drop? An outfit in Branford, Connecticut, called 454 Life Sciences had developed a DNA sequencer that promised to read a human genome for not $100 million but $250,000. Flatley told his board that Illumina could sit on its laurels and count its cash, but obsolescence would come, eventually.
His solution: A big acquisition. In early 2007, Flatley spent $600 million in stock—three times Illumina’s annual sales—to buy Solexa, which had an experimental DNA sequencer that worked by splitting apart and reassembling DNA in tiny pieces at a massive scale, then deciphering the results with computers. The deal was a breakthrough. By 2008, Illumina machines incorporating the new technology could sequence a human genome at a cost of only $100,000.
Meanwhile, a host of well-funded competitors, including Life Technologies, a $4 billion (sales) company, and Pacific Biosciences, a startup that raised $570 million from private investors and the public markets, tried to catch Illumina but failed to even come close. Life’s original technology was competitive for a while but didn’t keep pace. PacBio promised to use lasers to sequence DNA, but the technology ended up having a high error rate and couldn’t match Illumina’s throughput.
“It’s hard to see anything at the moment that comes even close to assailing their dominance,” says Daniel MacArthur, a geneticist at Massachusetts General Hospital. “Almost every transformative advance in my field has come from using Illumina technology. It is an astonishing achievement.”
Illumina’s progress was so fast it often caught its opponents entirely off guard. Flatley remembers meeting in 2010 with Jonathan Rothberg, the founder of 454, who showed him a desktop DNA sequencer based on semiconductor technology that was smaller and cost $50,000, a tenth of Illumina’s unit price. Flatley asked him who his competition was. “We have no competition,” Rothberg told him. “This is the product that’s going to make the world realise that this architecture is for real.”
That sounded great, except Illumina announced its own competitively priced machine just weeks after Rothberg’s launched in 2010. Flatley’s team had been working on it since 2008, and though Life Technologies bought Rothberg’s startup for $725 million, it still could not keep pace with Illumina’s advance. “Execution was more important than anything else,” says Mostafa Ronaghi, an inventor of key DNA sequencing technology and now Illumina’s chief technology officer.
Roche, the swiss drug giant, noticed Illumina’s unassailability as its own DNA sequencing efforts dwindled to irrelevance. In December 2011, Chief Executive Franz Humer met with Flatley and told him, in no uncertain terms, that he was going to buy Illumina. He’d prefer, he said, to make the bid friendly.
Flatley was taken aback. Eventually he and his board said Roche’s offer, $5.7 billion, was too low. Roche went hostile on the first day of work for Marc Stapley, Illumina’s chief financial officer. “I saw somebody who had grown a company up over 10 years saying all the while through, ‘We’ll do what’s best for the shareholders,’” Stapley says.
Illumina’s bankers told Flatley it was just a matter of time: The recent purchase of biotech bellwether Genentech showed that Roche never backed off. But shareholders had Flatley’s back. Jason Young at Morgan Stanley, Illumina’s third-biggest shareholder, said he wouldn’t sell at any price. Institutional shareholder services backed Illumina. Eventually Roche walked away. “Thank God we had fantastic supporters,” says Flatley. “In some ways it’s a good thing that even though they had deep pockets that they had short arms, so they gave up early.” Illumina now trades at quadruple what Roche offered.
As Roche backed off, Flatley pushed into new markets. Scientists discovered that by counting DNA markers in a pregnant woman’s blood they could detect abnormalities, including Down syndrome. In January 2013, Illumina bought Verinata Health, the company in its view that had the best intellectual property in the space. Already sales of pre-natal blood tests are about $300 million, but globally they could reach $3 billion, analysts say.
A year later, Illumina passed a long-awaited milestone: It launched the X10, a product that can sequence a human genome with high accuracy for $1,000, including depreciation—once again through hard-won, incremental improvements in chemistry that simply added up to a big leap. Illumina sells the $1 million units only in groups of 10 or more, but this means that scientists are no longer limited to looking at the genomes of only a few thousand patients. “The tools have gotten good enough to say, sure, we’re going to sequence 10,000, 20,000, 30,000 people,” says Eric Lander, the director of the Broad Institute of MIT & Harvard, which bought 14. At a new company, Human Longevity, Craig Venter bought 20 X10s to plumb the mysteries of ageing. The billionaire Patrick Soon-Shiong and Providence Health System, a West Coast chain of 34 hospitals, bought 10 to analyse the genes of the 22,000 new cancer patients they see each year.
Older genetic-testing companies such as Myriad Genetics and Genomic Health have switched to using Illumina machines. Newer upstarts are looking to disrupt those markets. Invitae, formed by Genomic Health founder Randy Scott, will offer patients any (or all) of 3,000 genetic tests for a flat rate of $1,500. Counsyl, based in San Francisco, is using the technology to offer tests for hereditary cancer genes and tests for would-be parents.
The biggest opportunities are in cancer, which could become an $11 billion global market. Take the story of Heather Follweiler, 60. She started having headaches and then had difficulty moving her left side while on vacation in Vietnam and Cambodia. When she returned home she had a seizure. A 2 am, emergency CAT scan found a tumour in her brain that had spread there from somewhere else. Doctors removed it.
But then Follweiler, a retired financial services professional, found she had another tumour in her bowel. Her doctors opened her up, found it was too big to remove and sent her home. “I was basically throwing in the towel,” she said. But one of her physicians sent a tumour sample to Foundation Medicine, a startup backed by Bill Gates and Google Ventures that used Illumina’s sequencers to locate 236 mutations that could help direct drug treatment. As a result of the test she was given Pfizer’s Xalkori, which has made the bowel tumour undetectable and has kept it that way for more than a year. “I feel no different than I felt two and a half years ago,” she says.
Cancer is so big, in fact, that Flatley spent months convincing Richard Klausner, the former director of the National Cancer Institute, to be Illumina’s chief medical officer. At a dinner, Klausner, thinking he was just giving advice, outlined a plan for Illumina’s future. At the end Flatley told him, “That’s exactly where we want to go, but I can’t lead us there. But you could.”
The next big opportunity, Klausner says, will be to identify DNA on tumour cells or in bits of blood so that cancer patients can be monitored with blood tests, not CAT scans. (One of Illumina’s customers, Sequenta, does this for some blood cancers.) In the future it might be possible to screen patients for cancer with blood tests that would catch the disease early. In the meantime, Klausner is looking to work with health insurers to prove that, unlike most medical technologies, the improved rates of diagnosis from DNA sequencing may actually cut health care costs, not increase them. Diagnostics often become commodities, but Klausner is confident that sequencing will not.
There are more competitors in the wings: Oxford, UK’s Oxford Nanopore, a former Illumina partner, has been talking about sequencers as small as a thumb drive; Roche bought Mountain View’s Genia Technologies, another startup, for up to $350 million. But Flatley is confident that Illumina’s footprint, which includes not just machines but also the software to handle genomic data, will make the company hard to unseat.
It’s hard to disagree with him. The cost of sequencing a human being’s DNA is less than one-hundred-thousandth of what it was when Flatley started running Illumina 14 years ago. Illumina is hoping to lower the price further. Ronaghi, the CTO, says the market has been disrupted every time the cost of sequencing has dropped by five to 10 times. He foresees DNA sequencers that might cost $10,000, as compared with $250,000 for Illumina’s midline models, opening up whole new markets—and cures. Says Flatley: “The road maps that we have are pretty breathtaking as far as where the technology can move in the next three to five years.”