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having a fair price, and a price that we think puts an end to the upside our shareholders enjoy. To truncate that value at some fixed number requires a number that’s materially bigger than any number we’ve seen. When you look at $51, we were trading at $55 just a few weeks ago. A $51 per share offer just wasn’t in the ballpark.
X: When you look at the markets you can enter, how big do you think the opportunity is, and what kind of share price does that justify?
JF: The markets for sequencing are going to be enormous. Many, many, many billions of dollars when you look out 5-8 years from now. The cancer market will be enormous. The newborn screening market is going to be enormous. If you look just at NIPT (non-invasive prenatal genetic testing) alone, today there’s a $1 billion of value just in doing amniocentesis. This is going to be much bigger than that, because it will be done by more women in the high-risk group who avoid amnio because of the risk to the fetus (potential miscarriages). And it will expand into low-risk pregnancies, because this is a test you can do with virtually zero risk. That market alone has multiple billions of potential.
X: And you think Verinata has the IP advantage in a four-way dispute (with Sequenom, Ariosa Diagnostics, and Natera) the other entrants?
JF: We think so. Nobody’s certain about that until you get to the end of the process, but there’s a chance we can make something work here with the other players.
X: Why did you guys oppose the Complete Genomics merger with BGI-Shenzhen (for $118 million)?
JF: Oppose is maybe…we asked that CFIUS (Committee on Foreign Investment in the United States) get involved, and they did. We think BGI owning it has national security implications, and we thought it was bad that they’d get it. To our surprise, CFIUS let it go through. Yesterday, the Federal Trade Commission approved it too, so we withdrew our bid today (Tuesday Jan. 8).
X: Why is it bad for national security?
JF: Because we think there’s risk they could build very large databases, and get access to the genomes of lots of Americans. They could bring them back to China. There are lots of nefarious ways you could use the information. There are theoretical bad things you could do with those kind of databases if they aren’t regulated by the law of the United States. So we were concerned about BGI’s affliation with the Chinese government. We’ll have to see how it plays out.
X: Isn’t BGI one of Illumina’s biggest customers? They have bought a ton of your HiSeqs.
JF: Yes, they are a very significant customer of ours. We want to maintain a great relationship with them. But we’re not sure it’s in the U.S. national interest to sell the formula for Coke. It’s different when people just buy Coke.
X: Has there been tension in the relationship with BGI since you took this action?
JF: Until this sorted out, in terms of who was going to make the Complete Genomics acquisition, we haven’t had a lot of interaction with them. But I’m certain now that it looks like we know how it’s going to go, we’ll get re-engaged with them and have open discussions about how we can move the relationship forward.
X: How do you think you’re doing vis-à-vis the competition? It’s an extraordinarily competitive field, with Life Technologies, Complete Genomics, PacBio, Oxford Nanopore and others.
JF: I think we’re doing well. We just pre-announced $309 million in revenue in the fourth quarter, which was a record quarter for us. We think we’re continuing to add significant market share against our competitors. We take them seriously and think they are strong competitors.
X: Do you think Illumina still has the edge, technology-wise?
JF: Yes. We have a very rich pipeline of new products. We’re fortunate enough now to be big enough that we can invest in a broad way to improve things like sample prep, and bioinformatics. It’s not just for the sequencers. It’s enabled us to introduce new products like Basespace, which we think is a very important cloud-based add-on to our sequencing ecosystem.
X: I want to come back for a bit to the diagnostics world for a minute. I’ve heard some rumblings this week about people being unhappy with Illumina moving into this area, and trying to take over the world. I’ve heard about some moves to jack up prices of reagents for diagnostics company customers. They seem threatened. Are you threatening a lot of your customers, who are aspiring molecular diagnostics companies?
JF: Not at all. We do think in the diagnostics market, the requirements those companies appropriately place on us, in terms of having different products, better lot tracking, keeping longer inventories, giving them advance notice of changes—it all requires us to build a different infrastructure inside the company, a parallel infrastructure. That’s expensive for us. We’re putting all those capabilities and systems and duplicate part numbers in place. As a result of that, we think premium pricing is justified for diagnostic kits.
X: So there was a recent price increase for diagnostic customers, compared with standard academic research labs?
JF: Pricing for our RUO (research use only) kit is different than for diagnostic customers. They are separate market segments. The diagnostic group does their pricing based on whatever the cost is of the infrastructure.
X: But was there a price increase recently?
JF: Don’t think of it like that. It’s not like it was some price one day and it changed. It wasn’t an increase. But we’re starting to have new products we put in the market that have different capability. They have … Next Page »
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