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should put that notion to rest. Illumina spent a whopping $507 million on R&D in the past two years combined, and didn’t waste it. The company developed the super-versatile NextSeq and the boundary-pushing HiSeq X 10 through internal R&D the past two to three years that was all hush-hush to the outside world until the big announcements last month, Henry says.
For the geeks out there, here’s what’s new. The Illumina team, inspired by advanced cameras in smartphones, developed better cameras for taking pictures of the fluorescent tags that tell its machine when it’s looking at an A, C, G, or T base unit of DNA. It also developed a new surface chemistry that makes it possible to take a picture of just two of the base molecules, not all four, in a sequencing run. That reduces the number of pictures taken by 50 percent, which improves speed, lowers cost, and doesn’t sacrifice accuracy, Henry says. Not content to stop there, Illumina created a new fluidics system to handle the mixture of chemical reagents for a sequencing run. The new fluidics reduce the liquid volume going through the system, which reduces the volume of reagents, and reduces the chance of the machine breaking down with a clogged or disconnected tube. The company has even come up with a new kind of flow cell for sequencing runs that can be shipped and stored in dry form instead of in liquid. When I asked Shendure about this, he shrugged about its importance, but Henry said this move addressed a top customer complaint.
While no one of those technologies is glamorous enough to grab a headline, all those efficiency and cost improvements count when taken together, Shendure says. Customers love it when you come out with a small, fast, cheap, reliable box with that much oomph. “For many groups, it’s reasonable to think about going and getting [a NextSeq]. It’s much harder to drum up resources for a $600,000 to $700,000 instrument,” he says.
—The company has segmented its markets carefully. Just like BMW has a 3-series, a 5-series, and a 7-series for different types of buyers, Illumina has thought carefully about how to come up with new products that will expand its markets, not cannibalize its existing products. The MiSeq, now priced at $99,000 (marked down from $125,000), is aimed at entry-level, occasional sequencing users, such as scientists who might want to look at the occasional exome (the 1-2 percent of the genome that codes for proteins in the body), or lower organisms like bacteria. The NextSeq is a step up at a list price of $250,000, with enough power to sequence whole human genomes on a desktop, in a simple enough format for everyday users like Shendure and newer folks like hospital pathology labs. The HiSeq 2500 ($740,000 list price) is still the high-end workhorse that crank through the high volumes that the NextSeq can’t quite handle. And the Hiseq X 10 ($10 million for a group of 10 instruments), on the top end, is for the relatively few customers that can spend big bucks on factory-scale genome sequencing. Importantly, Illumina always works to extend the innovations it makes in one product to the rest of its lineup.
—Management talent, management focus, management depth. Illumina, as I’ve said before, often strikes people as having an exceptionally focused and disciplined management team. Flatley has been around since 1999, almost the beginning, which gives him a ton of institutional knowledge of the company, the sequencing industry, and the needs of his customer base. But there’s more than just one visionary leader at work. Henry, who joined in 2005, switched from chief financial officer a couple years ago to general manager of the life sciences business, and recently was trusted with the important role of chief commercial officer, a move not many finance people could make. Rick Klausner, the former director of the National Cancer Institute, recently joined as chief medical officer, giving the company a lot of insight and connections into the vast oncology market. And Illumina recently recruited Francis deSouza, the former president of computer security giant Symantec (NASDAQ: SYMC), as president. These are the kinds of people that can provide fresh thinking for the challenges ahead, like how to best integrate bioinformatics into Illumina’s machines, and capture the vast opportunity in cancer diagnostics.
—Illumina is playing the long game. Illumina doesn’t resort to gimmicks to boost its numbers for a quarter or two. If you listen to its quarterly earnings calls, you hear things about how the company is constantly working to diversify its customer mix, so that it’s not overly dependent on any one set of buyers—like, say, NIH-funded researchers who live at the mercy of Tea Party wingnuts in Congress.
For example, Illumina showed its long-range thinking last year when it started work on a new San Francisco satellite headquarters in the heart of the action in the Mission Bay district. Not only can Illumina bring some recent acquisitions all under one roof here, but it’s also setting up an attractive recruiting beachhead in the middle of one of the top two biotech neighborhoods in the world. Not every Illumina recruit wants to move to San Diego, and getting this setup will make it easier to lure in some top Bay Area talent.
—It’s too disciplined to fall for the shiny new thing. When Ion Torrent came along with a hot DNA sequencing platform a couple years ago (semiconductor based technology on a desktop, at a low price), Life Technologies acquired it and essentially gave up on its traditional product. Instead of losing faith in its own product line and rushing out to buy its own shiny new thing, Illumina instead raced through a 15-month development cycle to churn out the MiSeq, Henry says. That low-cost, desktop offering built on Illumina’s strength with the high-end HiSeq. Partly because Illumina already had such strong customer relationships, it ended up successfully fending off the Ion Torrent challenge, especially when the new entrant failed to hit some key product improvement deadlines.
—It will buy things when it sees a commercial advantage. Illumina made three acquisitions in the past year in the San Francisco Bay Area, all of which provide some insight into its thinking. It bought Moleculo to gain technology for reading longer stretches of DNA at a time, as a way to offset one of the technical advantages of Pacific Biosciences’ (NASDAQ: PACB) instrument. It bought Verinata Health to make its way into the noninvasive prenatal testing business, one of the important early markets emerging for genomic diagnostics. And it bought NextBio to help it gain strength in the software/interpretation side of genomics.
—A customer-centered culture. Illumina sees itself being successful if it can make its customers successful, Shendure says. It listens to customers, incorporates their ideas, and then comes back to the customers with suggestions of its own in a dynamic feedback loop. “You can imagine a more passive company that may just want to be a provider of instruments and let the markets develop as they would,” Shendure says. “Their growth requires [that] they find new markets beyond research. They’re not going to be passive about catalyzing these new markets. They do [listen]. They do workshops, and bring in academics. I’ve never gotten the feeling they are just trying to pitch us on something.”
So there are some of the key elements I see to Illumina’s success. Technology certainly moves fast in DNA sequencing, and markets can be quite unpredictable. At any point, Illumina could get arrogant or complacent or lose its edge some other way. But I don’t see it happening. The age of the $1,000 genome is the age of Illumina.