Genomic Health, Taking a Hit on Bottom Line, Bets Next-Gen Sequencing Will Yield Next-Gen Diagnostics

2/15/11Follow @xconomy

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from San Diego-based Illumina, Carlsbad, CA-based Life Technologies and its interesting new Ion Torrent machine, and a new instrument in the works from Menlo Park, CA-based Pacific Biosciences. Different machines are good at different tasks, and Genomic Health is testing them all out, Scott says. “We’re agnostic on the technology,” he says.

There are a number of reasons to make the switch, Scott says. The company often gets tiny tissue samples to work with, from, say, prostate biopsies, and wants to analyze as much of the genetics of that sample as possible in a single run of a machine, he says. Looking at a much broader swath of the genome, including parts that scientists previously thought didn’t do anything important, actually yields new insights based on correlations between genetics and the clinical state of the tumor, Scott says. And when sequencing is dirt cheap—on pace to become essentially free over time, he says—that enables scientists to perform repeated sequencing runs over hundreds of genes to basically ask multiple variations of questions that couldn’t be asked in a cost-effective way before.

“It’s an incredibly exciting time,” Scott says. “Every time you think you’ve seen it all in DNA sequencing, somebody shows you a new technology that takes it a leap forward. It’s amazing how fast the technology is moving.” He adds: “The Moore’s Law effect is going to drive the cost of sequencing into the ground. What it means is we can use it for discovery, and have a much higher probability of actually understanding disease at a molecular level, at a level of detail we never could before.”

All this sequencing might sound exciting to a scientist, but I get asked all the time what we’re actually going to do with this data, so I asked Scott too. Getting a genome sequenced will eventually be the easy part, leaving lots of hard questions for software engineers about how to store, analyze, and visualize this data effectively. Genomic Health is focusing its R&D on these kind of questions, and is working on iPhone, iPad, and Android-based mobile apps to help various consumers of genomic data get meaningful answers from the samples of DNA they sent in, Scott says.

Even when a nifty app shows something happening in a visual way, someone will need to explain in a clear way to physicians, and insurers, Scott says.

That’s the part where Genomic Health is betting its experience with Oncotype DX will really pay off in the future, Scott says. As the sequencing technology moves ahead, Genomic Health hopes to be one of the few companies with a broad and deep network of contacts with all the key constituencies that need to buy into the idea of genomic-based personalized medicine—physicians, patients, and payers. While startup companies might discover novel diagnostic tests using the same instruments as everybody else, they won’t be in as strong a position to commercialize those innovations as a company like Genomic Health, which has been selling its molecular diagnostic since 2004, Scott says.

“We want to be at the customer interface. It’s about how do you translate this information, how do you use it in the context of your healthcare?” Scott says. “While we are best known for developing our own tests, we also see a day when we commercialize tests developed by a wide variety of other groups that may never touch our R&D labs. But they will need an interface to bring that data to the customer.”

Wall Street doesn’t appear to like it, and Scott certainly knows that, but he’s unabashed about saying the company needs to invest now if it wants to prosper later. It will be fascinating to see how long investors are willing to sit tight for this, before getting really antsy about seeing this investment pay off.

“Our plan is actually not to grow profits aggressively over the next two years, but to invest heavily back into the business, and the development pipeline, because frankly we don’t see much competition there,” Scott says. “We think this is the time to be investing before the rest of the world sees what we believe will be a very large opportunity.”

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