—It wasn’t exactly news when the board at San Diego-based Illumina (NASDAQ: ILMN) said it had rejected the $5.7 billion hostile takeover offer from Swiss drug maker Roche. Now Wall Street’s arbitragers are placing their bets on whether Roche can prevail. The most intriguing news about the deal, however, came from The Wall Street Journal, which revealed potential conflicts of interests with Illumina’s key adviser, Goldman Sachs.

—A new molecular diagnostics startup stepped into the light in San Diego. Applied Proteomics named Peter Klemm as CEO, and disclosed it raised $22.5 million in venture capital last summer from Vulcan Capital and Domain Associates. Applied Proteomics also said it moved to San Diego last June from the Los Angeles area, and double its staffing over the next year.

—San Diego-based Tocagen and Siemens Healthcare Diagnostics disclosed a partnership that will begin with Siemens’ support of clinical trials Tocagen has planned for its viral gene therapy treatments for primary brain cancer. Siemens said it will help provide companion diagnostics that are intended to help doctors decide the best course of treatments for patients, based on their unique genetic characteristics.

—San Diego’s OncoSec Medical, which was created out of a reverse merger less than a year ago, is beginning mid-stage trials of a treatment that combines electroporation and immunotherapy in patients with three types of skin cancer. Electroporation is a technology that causes cancer cells to take up higher concentrations of anti-cancer drugs by administering pulses of electricity directly to the cancer cells. OncoSec is trying it on patients with metastatic melanoma, Merkel cell carcinoma, and cutaneous T-cell lymphoma.

—Brooks Life Science Systems, a Poway, CA-based division of Brooks Automation, (NASDAQ: BRKS), said it had established a development and commercialization partnership with The Scripps Research Institute (TSRI). Brooks plans to manufacture and commercialize a microplate imaging system under an exclusive licensing agreement with the biomedical research institute.

—San Diego-based Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostic company, said it signed a research and collaboration agreement that provides its proprietary cancer diagnostic technology to an unnamed global pharmaceutical. Financial terms were not disclosed. Prometheus said its technology can detect the activation of specific cancer pathways with high levels of sensitivity and specificity.

—San Diego-based Synthetic Genomics and Ipswich, MA-based New England Biolabs (NEB) said they signed a non-exclusive licensing agreement allowing NEB to commercialize the “Gibson Assembly Master Mix,” a one-step, isothermal approach to enable the rapid assembly of multiple DNA fragments. The companies said Daniel Gibson and colleagues at the J. Craig Venter Institute (JCVI) developed the technology as part of a program sponsored by SGI. Financial terms were not disclosed.

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Good morning from Mountain View, CA, and from the close of the 2012 Personalized Medicine World Conference, which brought together thought leaders of business, government, healthcare-delivery, research and technology. Four themes that emerged from this year’s program:

• Greater optimism, triggered by the 2011 approvals of two major oncologic agents paired with companion diagnostics: vemurafenib (Daiichi Sankyo and Roche / Genentech) for patients with metastatic melanoma with a mutant biological pathway known as BRAF V600E and crizotinib (Pfizer) for patients with non-small-cell lung cancer that overexpresses a protein called ALK. Walter Koch from Roche and Hakan Sakul from Pfizer proudly discussed their development processes and speedy approval timelines. Those approvals were also cited by several other talks as examples of major progress made in the quest to deliver the right drug to the right patient.

• Greater clarity from the FDA. Although the FDA was not able to meet its self-imposed deadline of year-end 2011 to finalize guidance to industry on the best practices for developing companion diagnostics, Elizabeth Mansfield reiterated Commissioner Hamburg’s commitment to personalized medicine and told the audience to expect final guidance before the end of June. Mansfield also said that the FDA would provide guidance on how to co-develop a drug & test in parallel, as well as how to “enrich” clinical trials through careful selection of patients, based on their genetics. Both of these important regulatory steps could happen in 2012. The most surprising revelation, though, was Mansfield’s staffing: her group has just four people to evaluate all personalized-medicine-related medical devices.

• More sequencing. Just a few weeks ago at the JP Morgan Healthcare Conference, 800-lb sequencing gorillas Illumina and Life Technologies / Ion Torrent announced that scientists can expect the $1,000 genome by the end of 2012. Piggybacking on that announcement, Mostafa Ronaghi, chief technology officer of Illumina, presented a thorough overview of his company’s progress to date, bragging that 90 percent of all sequences produced worldwide had been produced on an Illumina instrument. Among other projects, Ronaghi’s team is working on techniques to accurately cover the 8 percent of the genome that cannot be sequenced because of repetitive regions. (Ronaghi made his presentation just hours before news broke of Roche’s unsolicited $5.7 billion takeover bid for Illumina.)

• More translational bioinformatics. Given the implied data glut that whole genome sequencing will produce, last week’s conference revealed more accomplishments in the application of bioinformatics to the remedy of disease. One of the unsung heroes of this year’s conference was Elizabeth Worthey from the Medical College of Wisconsin, who walked the audience through a case study of a pediatric patient presenting with undefined inflammatory bowel disorder. Worthey’s whole exome sequencing and variant analysis of the patient revealed a key mutation in the XIAP gene. A cord blood transplant ultimately cured the child, who was eating, drinking and playing again within four months.

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The unsolicited $5.7 billion offer that Roche made for Illumina will no doubt dominate San Diego’s biotech news for weeks to come. We have it and more.

—Switzerland’s Roche offered $5.7 billion, or $44.50 a share, for San Diego-based Illumina (NASDAQ: ILMN in a hostile bid disclosed yesterday. Roche’s bid to stake a claim in genetic diagnostics by acquiring the market-leading maker of DNA sequencing instruments would be the Swiss pharma giant’s biggest deal since its $46.8 billion buyout of Genentech almost two years ago. Roche is the world’s biggest maker of cancer drugs, which suggests its quest for Illumina represents a significant move to base cancer treatments on each patient’s genome.

—Venture capital investors sank $4.73 billion into 446 biotechs nationwide in 2011, according to the MoneyTree report from the National Venture Capital Association, PwC, and Thomson Reuters. But as Luke pointed out in his BioBeat column, there is an alarming drop in support for early stage life sciences startups. Only 153 biotech and medical device startups got their first round of financing in 2011, the lowest amount of seed investment activity in 15 years.

—At an Xconomy dinner discussion, former Amira Pharmaceuticals CEO Bob Baltera said insufficient access to capital is the biggest driver for decision-makers on both sides of biotech-pharma partnerships. So what are some other key factors? We asked some of San Diego’s life sciences leaders to explore the question in an “on the record” dinner discussion late last year.

—San Diego’s Sequenom (NASDAQ: SQNM) completed its secondary public offering, raising roughly $62 million in gross proceeds (before underwriting costs) in the sale of 14.95 million shares, including additional allotments granted to underwriters. Sequenom said it plans to use the net proceeds for … Next Page »

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San Diego-based Illumina, the market leading maker of DNA sequencing instruments, has just made it through a rough year, and now it may be entering its final chapters as an independent company.

Illumina (NASDAQ: ILMN) said last night that it has gotten an unsolicited (that’s polite PR language for hostile) takeover bid from Switzerland-based Roche. The offer values Illumina at $44.50 a share, or about $5.7 billion. That represents about an 18 percent premium over Illumina’s closing stock price of $37.69 on Tuesday. Roche said it plans to run a “tender offer” in which shareholders are being asked to tender their shares at its price until Roche has corralled enough shares to take control. Illumina, in a brief statement, asked shareholders to do nothing until the board makes a recommendation.

The offer must look like a screaming low-ball offer to Illumina shareholders, given that the company traded as high as $79.40 a share in the last year. But Illumina has gone through a rough stretch of late, as it fell short of its quarterly sales goal last fall, and made layoffs, as customers worried about potential federal research budget cuts, and competitors like Life Technologies, Complete Genomics, and Pacific Biosciences all fought hard for their share of a fast-moving market for sequencing tools. Still, Illumina is the dominant player in the market, and the DNA sequencing market is expected to grow as machines get faster and cheaper, making them available to many more scientists. The market is expected to grow from $1.2 billion in 2009 to more than $3.6 billion by 2014, according to figures from Scientia Advisors.

Given the opportunity, I’ve got to imagine the Illumina board is seething at this unsolicited takeover bid. It sounded like it in last night’s terse, but diplomatic, statement.

“Consistent with its fiduciary duties and responsibilities, and in consultation with its financial and legal advisors, Illumina’s Board of Directors will thoroughly review Roche’s proposal and make a recommendation to stockholders in due course that the Board believes is in the best interests of Illumina stockholders. Illumina stockholders are advised to take no action at this time pending the Board’s recommendation.

Analysts at Bernstein, quoted by Dow Jones, didn’t sound so excited about the deal either. Roche has sought to become a diversified healthcare giant that makes drugs and diagnostics, and while high-powered genetic instruments like those from Illumina are primarily research tools today, many in the industry believe they will have more value in the future as diagnostic tools.

“Large scale genomics may, or may not, have an important role in clinical practice in the next 10 to 15 years, but Roche feels it needs to have the option to play just in case the hype eventually becomes reality,” is how analysts at Bernstein interpreted the Swiss company’s move Wednesday, according to Dow Jones.

Quintin Lai, an analyst with Robert W. Baird who covers Illumina, said he believes Roche is mostly interested in using Illumina tools for making products to diagnose cancer. “We think Roche covets the clinical diagnostics potential that ILMN’s technology provides,” Lai wrote today in a note to clients. “We have noted that next-generation sequencing is attracting strong interest in the area of cancer diagnostics and therapy selection.”

Illumina shares shot up 45 percent, all the way to $54.63, in speculation that takeover bids from Roche, or possibly another company, will run much higher. This will certainly be an interesting story to watch unfold over the coming weeks.

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There was a whole lot of life sciences news over the past week. Here’s my roundup.

—Carlsbad-based Life Technologies (NASDAQ: LIFE) said it’s taking orders for a benchtop genome sequencer that can to decode an individual’s DNA within 24 hours and at a cost of roughly $1,000. The company priced its new Ion Proton Sequencer at $100,000 to $150,000, which also represents a dramatic reduction compared with the cost of existing DNA sequencers, and might even entice some practicing physicians to buy into the idea of personalized medicine. A cross-town rival, San Diego-based Illumina, also introduced an improved version of its gene-sequencing machine capable of same-day service, although Forbes’ Matthew Herper says Illumina’s HiSeq 2500 is priced at $740,000.

—A $1 million gift to the Tech Coast Angels from the family of slain TCA member and life sciences investor John G. Watson has enabled the angel group to establish a nonprofit foundation to support entrepreneurism in the San Diego region. A financial adviser, who awaits sentencing following his conviction two months ago, murdered Watson in his La Jolla town home. Watson’s sister, Gillian Ison, told the TCA, “John loved investing, innovation, and the entrepreneurial spirit that he discovered when he arrived in San Diego. We believe that a foundation supporting entrepreneurism is the best way to honor his memory and his life.”

—San Diego’s AnaptysBio said it has established strategic alliances with Novartis and an undisclosed pharmaceutical company. The company plans to use its proprietary technology to discover and develop new therapeutic antibodies with multiple cancer-related therapeutic targets. AnaptysBio said the two deals provide global rights to develop and commercialize a limited number of antibodies against each cancer target that AnaptysBio generates.

—In his BioBeat column, Luke previewed the five myths likely to make the rounds at this week’s JP Morgan Healthcare Conference in San Francisco. You could say that Luke inoculated readers from excessive optimism by writing, “Hope and hype are a couple essential ingredients in this business, and every year both are on display at this conference. Sometimes the wishful thinking can congeal into conventional wisdom.” Is that good, or what?

— Wylie Vale, a Salk Institute scientist, renowned expert on brain hormones, and founder of San Diego’s Neurocrine Biosciences (NASDAQ: NBIX), died on Jan. 3 while vacationing in … Next Page »

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Pacific Biosciences is bringing in an industry pioneer, Michael Hunkapiller, as its new CEO after a disappointing first year on the market with its new breed of DNA sequencing instrument.

The Menlo Park, CA-based company (NASDAQ: PACB) said today that CEO Hugh Martin has resigned effectively immediately, and is being replaced by Mike Hunkapiller, who helped build Applied Biosystems (now part of Life Technologies) into one of the DNA sequencing industry leaders over the past two decades.

Martin will get a severance package that includes a one-year lump sum equal to his base salary, a six-month consulting contract at $20,000 a month, and accelerated vesting of his PacBio stock options, according to a regulatory filing. Hunkapiller will start with a base salary of $400,000, and will get an option grant to buy as many as 1 million shares of PacBio stock, according to the filing.

The writing could have been interpreted as being on the wall back in October, when Hunkapiller, 63, a member of the board since 2005, stepped up his involvement to become full-time executive chairman of the PacBio board. The company introduced its new $700,000 sequencing machine to the market in April, and hit its first quarter sales goal. But then PacBio, and other rival sequencing companies, ran into challenges as scientists worried about federal research budget cuts that are curbing their ability to buy expensive new scientific tools. PacBio cut 130 jobs in September—28 percent of its workforce—and said it generated $10.6 million of sales in its second quarter on the market. That was a slight drop from its debut quarter.

Hugh Martin

Investors have punished the company for its performance, driving the stock down from a high of $16.85 a share all the way to $2.96 at the opening of today’s trading. The company, which has raised more than $580 million from investors, now has a market valuation of about $160 million. The company went public at about an $800 million valuation in October 2010.

“We are thankful for Hugh’s dedication and efforts in transforming PacBio from an early stage R&D company to a leader in single molecule technology,” said Bill Ericson, a general partner at Mohr Davidow Ventures and PacBio’s lead independent director, in a statement. “Mike brings unmatched expertise, experience and relationships with customers in the life science tools market and is uniquely qualified to lead the company through its next stage of growth.”

Martin added in the statement that, “I am in support of this decision and am looking forward to identifying my next exciting career venture.”

The PacBio instrument uses a different technology than other sequencers made by San Diego-based Illumina (NASDAQ: ILMN) and Carlsbad, CA-based Life Technologies (NASDAQ: LIFE). PacBio’s instrument has been used by scientists in high-profile investigations, providing fast answers to help scientists understand the Haitian cholera outbreak and the German E.coli scare of the past couple years. The instrument in its current form isn’t ideal for sequencing human genomes, and its larger competitors, as well as Mountain View, CA-based Complete Genomics (NASDAQ: GNOM) have made that more of a focus.

Hunkapiller also has another gig with Alloy Ventures, and he said he will continue to represent Alloy on the boards of a trio of small companies—NuGen, Verinata Health Systems, and RainDance Technologies.

Martin, who was listed as 57 in the company’s last proxy statement, has been public about his diagnosis with multiple myeloma, a serious cancer of the bone marrow, although he said back in October he was feeling fine physically, and he appeared to be fine when he appeared at an Xconomy genomics event that month in San Francisco. The disease was considered a death sentence a decade ago, but 5-year survival rates have dramatically increased with the introduction of new therapies from Millennium: The Takeda Oncology Company and Celgene.

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A decade ago, when newspaper and magazine editors prepared their rundown of the year’s most important news stories, they really were just choosing the articles that they thought had the most impact. That was old media.

Today, everything is measured and anything can be quantified—at least on the Internet. In cyberspace, people vote with their clicks, and my list of the top 10 stories of 2011 is based on the stories posted on the Xconomy San Diego website (from Jan. 3 through Dec. 23) that attracted the most traffic. That’s new media.

And a new year is beckoning, so it’s out with the old and in with the new.

Believe it or not, some stories published before 2011 still pulled in a lot of interest over the past year. For example, one of the top stories of 2011 was a post I wrote two years earlier about the pervasive skepticism voiced by biofuels industry leaders during the 2009 Algae Biomass Summit in San Diego. It also is noteworthy, although perhaps no surprise, that a 2009 post I wrote about the first human trial of San Diego-based Histogen’s hair regrowth treatment continues to attract readers who are Googling for news about baldness and hair restoration.

The No. 1 story of 2011, however, was surprising—at least to me. It was a commentary about the dramatic changes underway in new treatments for hepatitis C by San Diego Xconomist Steve Worland, the CEO of San Diego-based Anadys Pharmaceuticals. Worland alludes to the spate of new product introductions by Merck and Vertex, and predicts an increasing number of direct acting, cocktail-type antiviral drugs. It’s a hot topic, although Wall Street’s interest might have been piqued as analysts and traders searched to understand why Roche acquired Anadys for $230 million about five weeks after we published Worland’s op-ed.

It’s also worth noting that these high-traffic stories tend to occur in … Next Page »

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Fate Therapeutics has been quiet during a down time for the stem cell business, but now it’s making news by luring a big name into its inner management circle.

Bill Rastetter, the CEO of Idec Pharmaceuticals during its long journey to develop the blockbuster lymphoma drug rituximab (Rituxan), has agreed to become the chairman and interim CEO at San Diego-based Fate Therapeutics. Besides being CEO of Fate, Rastetter will remain busy wearing his other hats as a partner at Venrock Associates (an investor in Fate), and through his work as chairman of Illumina (NASDAQ: ILMN), Neurocrine Biosciences (NASDAQ: NBIX), and Receptos.

But the new job at Fate, Rastetter says, will be “my major time commitment.” Fate’s executive chairman, John Mendlein, will now become the vice chairman of the board, and will oversee “scientific excellence” at the company as the chairman of the scientific advisory board, Rastetter says. Mendlein is also executive chairman and CEO of San Diego-based aTyr Pharma. Mendlein replaced Fate’s previous CEO, Paul Grayson, who left the company in February.

“We snagged an industry legend to take Fate that much closer to patient reality,” Mendlein said via e-mail. “Bill has done what few have done before – start and create a biotech to deliver one of the most important medicines today.”

Stem cells have excited scientists for years because of their ability to morph into virtually any type of cell in the body, raising the potential for regenerative medicines against a wide variety of today’s untreatable diseases. Still, no pharmaceutical company has brought forward an FDA-approved medicine based on embryonic stem cells, and drug companies haven’t shelled out big bucks to form alliances with startups working on these types of therapies, or to use the technology to improve the drug discovery process. Last month, a bellwether of the field, Menlo Park, CA-based Geron (NASDAQ: GERN) said it was getting out of the stem cell business altogether so it could focus on cancer drug development.

None of that seemed to deter Rastetter.

“Fate reminds me a lot of Idec back in the early antibody days,” Rastetter says. “I’ve always been very intrigued by new technologies deployed at the right time. I think stem cells are here to stay, and now is the time to invest in them. I’m very excited about the scientific and commercial opportunity here. There’s a passion and cohesion here with the team. I feel energized when I sit down with these guys.”

Bill Rastetter

Fate was founded in 2007 to capitalize on leading-edge stem cell science at Harvard University, Stanford University, the University of Washington, and The Scripps Research Institute. It has raised more than $50 million in venture capital from a group of VCs that includes Arch Venture Partners, Polaris Venture Partners, OVP Venture Partners, and Venrock, as well as Takeda Ventures, Astellas Venture Management, Genzyme Ventures, and one more unnamed company.

Fate announced the addition of Rastetter a day after it released some preliminary clinical trial results from its lead drug candidate, Prohema, formerly known as FT-1050. Instead of injecting embryonic stem cells into the body and hoping they will morph properly into a desired cell type, this program is designed to be much less risky, by operating in a controlled lab environment. The company uses a small molecule to treat umbilical cord blood in a laboratory, in order to coax it to produce more blood-forming stem cells that can then be transplanted into leukemia and lymphoma patients. Many patients with those blood cancers get intense chemotherapy or radiation that wipes out both their cancer and their blood cells, so researchers are constantly looking for safe and effective ways to reconstitute a patient’s bone marrow and immune system.

The data is from a small study, although it suggests … Next Page »

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DNA data is piling up on servers and hard drives near you, and scientists are struggling to sort through it all as genome sequencing keeps getting faster and cheaper. Seattle-based Spiral Genetics is the latest startup in town with ambitions to help relieve some of the IT pain that biomedical scientists are feeling.

Spiral was founded in 2009 by a couple of students in a University of Washington-Bothell entrepreneurship class. Two years later, the company has introduced its first couple of commercial software programs, lined up critical support from Amazon’s cloud computing infrastructure, and signed up a handful of paying customers, including the BC Cancer Agency in Vancouver, BC.

It isn’t radically reinventing how researchers find the precious needles in the haystacks—disease-related genes. But the company is getting its start by bundling open-source programs that are currently available, and leveraging distributed computing power, in a way that can take genome analysis jobs down from several days to several hours. After toying with the idea of a consumer genetics-type of company like Mountain View, CA-based 23andMe, Spiral is now aspiring to compete with another big-idea Google Ventures-backed company in Mountain View—DNAnexus.

“It might sound cheesy, but I want to do something to heavily impact the world. We want to help reach that elusive goal of personalized medicine,” says co-founder and CEO Adina Mangubat.

The company is still very much in its infancy. Spiral Genetics got its start when Mangubat met with a classmate, Becky Drees, in a University of Washington-Bothell entrepreneurship class taught by Alan Leong. Drees, an experienced research scientist at the UW and the Institute for Systems Biology, had the idea of creating some kind of genetics analysis business. Mangubat was an undergraduate psychology major who realized she didn’t want to go to grad school in psychology, and needed to figure out what was next.

Spiral Genetics CEO Adina Mangubat

She was taken with the idea of a genetic analysis business, and helped flesh it out through their classwork. They had their eye on competing in a business plan competition. “I said, ‘If we’re going to do this, we better win,’” Mangubat says.

They won, but that didn’t mean they had a real company yet. But by the time Mangubat graduated in June 2009, the recession was going strong. If starting a company was risky, Mangubat says she figured entering the job market was probably just as risky.

The idea for Spiral Genetics evolved from the original consumer-genetics play into something that helps address the DNA data pile-up that is vexing so many researchers. The new plan was put in place by about March 2010, and Mangubat and Drees enlisted support in crafting their algorithms from Jeremy Bruestle.

You can say the market terrain in this field is tough. Plenty of companies have tried and failed to get much traction in bioinformatics—including big players like Microsoft. Much of DNA analysis is … Next Page »

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NanoString Technologies has pulled in another $20 million to capitalize on its genetic analysis instrument for researchers, and to pursue the lofty goal of creating a workhorse diagnostic tool that enables more personalized medicines.

The Seattle-based company is announcing today it has raised $20 million in its Series D venture financing, which includes new investors GE Healthcare, BioMed Ventures, and Henri Termeer, the former CEO of Cambridge, MA-based Genzyme. NanoString’s existing investors, Clarus Ventures, Draper Fisher Jurvetson, and OVP Venture Partners, also participated. Founded in 2003 with a technology license from the Institute for Systems Biology in Seattle, NanoString has now raised a total of $67 million in its history.

The investment from GE is the industrial heavyweight’s first as part of a new five-year, $1 billion R&D initiative to beef up its cancer diagnostic and molecular imaging capabilities. The technology it’s betting on provides scientists with a digital readout on the extent to which genes are dialed on or off in a sample-what’s known as gene expression analysis. The tool has gained popularity the past couple years with academic customers, especially those at The Broad Institute of MIT and Harvard, because of its ability to help spot patterns in complex diseases like cancer where 50 or 100 genes might be perturbed instead of just one.

Once researchers identify more of these complex signatures, and learn what they mean to various types of cancer, NanoString says its machine could help physicians craft individualized strategies about what types of drugs to use, and how aggressive to be, with individual patients.

“I think we could end up being as big a molecular diagnostic company as there is, and will be,” says CEO Brad Gray. “Our technology is perfectly tuned to where medicine, in particular, cancer, is going.”

NanoString CEO Brad Gray

The investment by Termeer is the second big check he has written in the past couple months to support R&D in personalized cancer medicine, after he and his wife Belinda donated $10 million to start a new program at Massachusetts General Hospital. Gray, a former vice president of Genzyme Genetics, says he re-connected with his former boss over the summer to tell him about the potential applications of NanoString’s tool for personalized medicine.

“Henri is incredibly passionate about personalized medicine. He was a leader in genetic medicine, before it was in fashion,” Gray says. From a business standpoint, Gray says Termeer was drawn to the idea of NanoString selling its machine around the world as a diagnostic tool used by physicians and technicians in clinical settings, instead of the traditional model in which diagnostic firms set up centralized labs and have physicians ship in their samples.

“Henri immediately became intrigued with the potential of nCounter to enable a distributed version of personalized medicine,” Gray says. “We’re talking about taking very high complexity molecular diagnostics out of the central lab, and into a globally scalable business, where these tests can be run in any lab in the world.”

NanoString introduced the first commercial version of this tool, called nCounter, in the summer of 2008, for research purposes only. Last month it rolled out a second-generation product that’s supposed to have 50 percent higher bandwidth (known as throughput in the genetics business); more flexible software for analyzing the data from the instrument; and hardware that can be used by basic researchers, but that is manufactured in sync with more rigorous, consistent diagnostic industry standards.

Major life science tool companies like San Diego-based Illumina (NASDAQ: ILMN) and Carlsbad, CA-based Life Technologies (NASDAQ: LIFE) and others have struggled this year amid uncertainty about cuts to federal research budgets that are the lifeblood of their customer base. NanoString is privately held and doesn’t disclose its financials, but Gray did say the company has … Next Page »

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Today marked the official launch of the New York Genome Center, a collaboration among 11 top academic institutions that’s designed to accelerate genomic research. The initiative—supported by the City of New York and private and public institutions—is being guided by two of our Xconomists: Rockefeller University’s Marc Tessier-Lavigne, who will serve on the center’s board of directors, and Columbia University’s Tom Maniatis, who will chair its scientific advisory board.

Tessier-Lavigne and Maniatis both spoke at today’s opening event, and emphasized the importance of the center’s mission to foster cooperation between academic institutions that might normally consider themselves to be rivals. Columbia and Rockefeller University are both participating, along with such big-name institutions as Memorial Sloan-Kettering Cancer Center, Cold Spring Harbor Laboratory, and New York University. Representatives from all the participants began working together to plan the initiative in mid-2010. “If we can maintain this level of team effort, the New York Genome Center will be a huge success,” Maniatis said at the beginning of his remarks today.

The idea behind the Genome Center is for the participating institutions to share discoveries, so scientists can identify the molecular causes of disease and, in so doing, accelerate the development of drugs that can be targeted to specific patient populations. It will include … Next Page »

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Drug approvals and advances in new cancer therapies were the prevailing themes in San Diego’s life sciences news over the past week. Our briefing begins now.

—TEDMED, the exclusive medical and healthcare symposium that died in 2004 and was resurrected in 2009, is now the walking TEDMED. The entertaining show with a mix of big ideas, celebrity presentations, humor, and music that played at the Hotel del Coronado for the past three years said it is moving to Washington DC. Playing at the John F. Kennedy Center for the Performing Arts in the nation’s capital will give the $4,000-a-person symposium a bigger stage and a more influential audience, according to Priceline.com founder Jay Walker, who led an investor group that acquired the show in April. About 850 attended last week’s four-day symposium in the San Diego area.

—Federal regulators approved a new pain-killing drug intended to put off the post-surgical need for opioids that was developed by Pacira Pharmaceuticals (NASDAQ: PCRX), the Parsippany, NJ-based drug developer with operations in San Diego. The FDA’s approval marked the end to a protracted drug-development saga for the long-acting form of a pain drug called bupivacaine. Pacira plans to begin marketing the drug, branded as Exparel, in January.

—The FDA approved a new diagnostic test that was developed by San Diego-based Gen-Probe (NASDAQ: GPRO) to detect strains of the human papillomavirus (HPV) that pose a higher risk for cervical cancer and precancerous legions. Gen-Probe said regulators approved its Aptima HPV test to run on TIGRIS, a fully automated, high-throughput molecular diagnostic system. Using a Pap smear sample, the company says its test detects 14 high-risk types of HPV, giving patients and doctors information earlier and more accurately.

—Luke’s BioBeat column focused on several cancer drugs the FDA approved in August, which he suggested could be a turning point in the decades-long battle against cancer. Instead of broad-based anti-cancer drugs, Luke says regulatory approval of vemurafenib (Zelboraf), brentuximab vedotin (Adcetris), and crizotinib (Xalkori) signals the … Next Page »

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Pacific Biosciences saw its sales flatten in its second quarter on the market with a new breed of DNA sequencing instrument, and now it’s shuffling things around a bit on the org chart to see if it can kickstart its growth.

The Menlo Park, CA-based company (NASDAQ: PACB) said today it generated $10.5 million in total revenue in the quarter ended Sept. 30, just a smidge lower than the $10.6 million in revenues it reported in the prior three-month period, which was its commercial debut. PacBio’s net loss widened to $29.3 million in the most recent quarter, up from $22.5 million in the prior quarter.

Separately, the company announced that board member Mike Hunkapiller is taking on a more active role as executive chairman of the board. Hunkapiller, a general partner with Alloy Ventures, is best known as the co-founder and former president of Foster City, CA-based Applied Biosystems during that company’s rise to prominence in the sequencing instrument market. Hunkapiller will come in to work three days a week, and work with president and CEO Hugh Martin, according to PacBio spokeswoman Nicole Litchfield. Martin will not scale back his duties at the company, and is “doing fine” physically, Litchfield says. (Martin has multiple myeloma, a cancer of the bone marrow. He looked fine when I saw him Monday at an Xconomy genomics event.)

PacBio’s slowing sales performance shouldn’t come as a surprise. The company is selling a new $700,000 DNA sequencing instrument during a shaky economy, at a time when scientists are nervous about potential cuts to the National Institutes of Health—the principal agency that allows researchers to buy fancy new tools. The company cut 130 jobs, about 28 percent of its staff, in September when it became more clear that sales were going to be slower than hoped. PacBio is also slugging it out in a fast-moving, competitive field with Illumina (NASDAQ: ILMN), Life Technologies (NASDAQ: LIFE), and Complete Genomics (NASDAQ: GNOM) all pushing for a growing piece of mindshare and revenue in this new wave of sequencing.

Hugh Martin

“I have spent much of my career on the leading edge of sequencing technology and I believe PacBio’s single molecule, real-time technology will disrupt the sequencing market,” Hunkapiller said in a PacBio statement. “I am delighted that Hugh and the Board asked me to take on this newly created role and look forward to devoting more time to advising the company on how to accelerate adoption of their products in important applications.”

The company, which went public a year ago at $16 a share, began life as a public entity with an $800 million valuation. Today its stock closed at $4.07, giving it a valuation of about $207 million.

PacBio’s valuation suggests that Wall Street is assigning almost zero value to its technology. The company closed September with about $193.7 million in cash reserves, down from $216.6 million in cash it had at the end of June.

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It was another big week for life sciences news in San Diego, with interesting developments in agricultural biotech, industrial biotech, and genomic sequencing. This is our wrap up of what you need to know.

—San Diego’s Synthetic Genomics spun out a new San Diego-based agricultural biotech, Agradis, with $20 million in Series A financing and proprietary technology that can be used to develop improved hybrid crops such as castor and sweet sorghum. Mexican investor and businessman Alfonso Romo is a co-founder of Agradis, along with J. Craig Venter, Synthetic Genomics’ chairman and CEO.

—TedMed is underway this week at the Hotel del Coronado. Peter Diamandis, the chairman and co-founder of the X Prize Foundation, took the stage yesterday to announce some changes in its $10 million competition in genomic sequencing. The foundation, based near Los Angeles, says the $10 million Archon Genomics X Prize presented by Medco will be awarded to the first team that accurately sequences the whole genome of 100 people within 30 days for $1,000 or less per genome, and at an error rate no greater than one per million base pairs. The prize is intended to open the way to new era of personalized medicine with unprecedented accuracy.

—San Diego’s Illumina, (NASDAQ: ILMN), the market-leading maker of DNA sequencing equipment, said it’s eliminating 200 jobs, or about 8 percent of its workforce. Illumina said a restructuring of its business is expected to add a $15 million to $17 million charge on the company’s income statement, mostly in the fourth quarter.

—In a separate announcement, GenoLogics of Victoria, BC, said it has raised $8 million through a strategic financing in the company by San Diego’s Illumina. GenoLogics said it plans to develop genomics software tailored for cheaper desktop sequencers, to build up its sales and marketing efforts, and develop new applications.

—The MoneyTree Report on third-quarter venture capital activity found … Next Page »

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[Updated: 6:45 am, 10/26] San Diego-based Illumina is doing some restructuring to make up for third-quarter sales that fell way short of investors’ expectations.

The market-leading maker of DNA sequencing instruments (NASDAQ: ILMN) said today it is going to restructure (i.e., make job cuts) that will add up to a $15 million to $17 million charge on the company’s income statement, mostly in the fourth quarter. The disclosure was part of the company’s third-quarter financial report, in which Illumina said it generated $235.5 million in revenue—a 1 percent drop compared with the same period a year ago. The company’s quarterly profits plunged to $20.2 million, a 43 percent decline from $35.4 million a year earlier.

[Updated layoff numbers] Illumina didn’t provide details of its restructuring plan in today’s financial release, although it did say in a subsequent filing it is eliminating 200 jobs, or about 8 percent of its workforce. It also declined to offer a specific revenue forecast, although the company did say it expects sales to be higher this quarter than last quarter because of the commercial rollout of a new desktop sequencing instrument called MiSeq.

News of cutbacks shouldn’t come as a surprise. The company first reported that its sales were falling short—about $40 million short of Wall Street expectations—in an announcement on Oct. 7. Researchers who buy Illumina products are still uncertain about how they will be affected by the possibility of budget cutbacks at the National Institutes of Health.

“We view the move as likely prudent, although the expectation points to a bearish outlook on HiSeq,” said Tycho Peterson, an analyst with JP Morgan, in a note to clients this morning, that referred to the company’s flagship instrument.

Illumina had 2,100 employees as of January 2, according to its annual report filed with the Securities & Exchange Commission.

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Illumina has long been about hardware, hardware, hardware. The San Diego-based company became the market leader in DNA sequencing instruments by focusing on the hardware and the consumable chemicals to run the machines. Its scientific customers were basically on their own when it came to finding software to analyze all the DNA data Illumina machines could pump out.

But things have changed this year. Now Illumina (NASDAQ: ILMN), driven to fend off hungry rivals like Life Technologies (NASDAQ: LIFE), Complete Genomics (NASDAQ: GNOM), and Pacific Biosciences (NASDAQ: PACB), is looking to take a page out of the Apple playbook. The Illumina strategy is becoming more about combining hardware and software in a simple way that works well together.

“A lot of people here are inspired by Apple,” says Alex Dickinson, an Illumina senior vice president. “The amazing thing about Apple is the seamless integration between hardware they provide, and software and services. Look at the iPhone and iTunes. They stepped that up, introducing iCloud, which offers extraordinary seamless integration.” (I’m sure my colleague Wade will disagree with that last statement about iCloud, but that’s another story).

Dickinson will be on hand at our next big Xconomy event “Computing in the Age of the $1,000 Genome” on Monday, Oct. 24 in San Francisco, to elaborate more on where Illumina is going with this.

Illumina is being driven in this combined hardware/software direction by customers, who are telling the company that sequencing itself has gotten so fast and cheap that they can’t really analyze and interpret the data fast enough to keep up anymore. Since whole genomes can be sequenced now for $4,000, it doesn’t take a genius to see the interpretation and analysis getting even more overwhelming when the price of sequencing drops to a highly-accessible $1,000 per genome, as many observers predict it will within a couple years.

Alex Dickinson

Illumina’s newest version of its MiSeq desktop sequencer reflects the Apple-inspired integration. The MiSeq, which costs about $125,000, is now supported by a cloud-computing program called BaseSpace, which is supported by Amazon Web Services. Illumina touted this new offering as the “Most Intuitive and Fully Integrated Personal Sequencer Experience” when the product was announced earlier this month at the American Society of Human Genetics conference in Montreal.

Here’s how Dickinson described the new tool:

“We built a graphical interface into the instrument itself,” Dickinson says. “You check a box on instrument, and it can start streaming your data into BaseSpace. The user gets a Mozy or Dropbox-like ability to get automated off-site data backup. And once that data is up in the cloud, the next step is for us to offer tools for bioinformatics. Borrowing from Apple, we are building an open app store. We have five apps that are Illumina-made apps to start with, and we are working with other companies to bring them in. Just like with Facebook and iPhone app, people have access to develop on this platform.”

Getting this right will be easier said than done. Sequencing is just now starting … Next Page »

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Between the formation of the new $100 million West Health Investment Fund and the new wet-lab space Johnson & Johnson is hosting for as many as 20 startups, you’d have to say it’s been a good week for life sciences innovation in San Diego. Get briefed here or get left behind.

—San Diego’s Gary and Mary West, who provided $90 million to establish the West Wireless Health Institute, established the $100 million West Health Investment Fund to invest solely in startups that promise to drive down the cost of health care. Don Casey, the fund manager and West Wireless CEO, vowed that the fund would not cause a “balloon squeeze,” where innovation moves the cost from one part of the health system to another.

—Johnson & Johnson has refurbished part of its Pharmaceutical Research & Development facility in San Diego to provide lab and office space for as many 20 life sciences startups. Each startup will have to make monthly payments to stay at the Janssen Labs at San Diego, but J&J says there is no “quid pro quo,” and each tenant will get office space and access to a common area with wet lab research equipment that would be difficult for a company to afford on its own.

—Anadys Pharmaceuticals (NASDAQ: ANDS), the San Diego-based biotech developing antiviral drugs for treating hepatitis, agreed to an all-cash buyout offer worth $230 million from Roche, the Swiss pharmaceutical giant. Roche’s offer to pay $3.70 for each Anadys share was a 256 percent premium over the previous trading day’s close of $1.04. Anadys had just released encouraging results from a mid-stage clinical trial of its lead hepatitis C drug.

—Venture capital firms invested $6.95 billion in 876 deals throughout the United States—including $202 million in 21 venture deals in the San Diego area—during the three months that ended Sept. 30, according to the MoneyTree Report. The third-quarter survey from PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters also highlighted a shift in VC activity, with a pullback in funding for life sciences. That was also true in San Diego, where nine life sciences companies got $26 million, or 13 percent of total VC investments here.

—Following a two-year setback, San Diego’s Sequenom (NASDAQ: SQNM) rolled out a laboratory-developed blood test that can determine with … Next Page »

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San Diego-based Illumina, the world’s leading maker of gene sequencing instruments, is getting more serious about software as its customers continue to drown in a sea of cheap DNA data.

Victoria, BC-based GenoLogics is announcing today it has raised $8 million in what it called a “strategic financing” led by Illumina (NASDAQ: ILMN), the world’s leading maker of DNA sequencing instruments. GenoLogics plans to use the money to develop genomics software tailored for cheaper desktop sequencers, to build up its sales and marketing efforts, and develop new applications that can go beyond the research bench and be used in the clinical setting. Illumina’s chief commercial officer Tristan Orpin will join GenoLogics board in connection with the deal.

“The strategic investment by Illumina illustrates our companies’ collective commitment to helping our customers overcome some of the most challenging barriers to next-generation sequencing adoption, namely data management,” GenoLogics CEO Michael Ball said in a statement. “Illumina provides important insights to these challenges and we look forward to working jointly with them.”

GenoLogics was founded in 2002, and has now raised at least $26.5 million since 2005 from a syndicate that includes Illumina, as well as Kirkland, WA-based OVP Venture Partners, GrowthWorks Capital, and Yaletown Venture Partners. The company’s big idea is to create a centralized system that keeps track of data from biological experiments across multiple instruments and applications.

Demand for genomics software has traditionally been thin, as researchers have opted in many cases for custom-made, open source programs. But genomics researchers have been struggling with information overload the past couple years, as companies like Illumina, Life Technologies, Complete Genomics and others have driven the cost of sequencing entire human genomes down to $4,000 or less—creating huge new demand to sequence large volumes of biological samples that need to be analyzed and interpreted.

While scientists may be crying for help with their data, there are limits to the amount they can spend on this type of software. Illumina missed its third-quarter sales forecast by about $40 million after reporting that scientists were skittish about purchasing its tools and chemical reagents as the U.S. National Institutes of Health is facing the threat of budget cuts.

Illumina CEO Jay Flatley downplayed the importance of software in an Xconomy interview in April 2010, but the company has changed its views more recently about the need to integrate its hardware with software. Illumina struck a co-selling partnership with GenoLogics earlier this year. Alex Dickinson, an Illumina senior vice president, will be able to talk some more about the company’s evolving strategy about DNA data analysis at the next Xconomy event in San Francisco on Monday Oct. 24, titled “Computing in the Age of the $1,000 Genome.”

GenoLogics has about 60 employees, according to a company fact sheet. Its customers include the University of Washington, the University of Southern California, Jackson Laboratory, Pfizer, and Sanofi.

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If there’s anybody in the world of genomic computing with dreams of world domination, like a Bill Gates or a Mark Zuckerberg, it might be Andreas Sundquist. Others may have similar ambitions, but the co-founder of Mountain View, CA-based DNAnexus is one of the few with the chutzpah to say that he thinks a cottage industry of today, which measures its revenue in tens of millions, will soon count its money in the tens of billions.

“When you look at DNA sequencing and what’s happening, the sequencing itself is commoditizing. What’s not commoditizing is what you do with the data downstream,” Sundquist says. “We are building a new industry here. Within the next three years, I think we’ll see upwards of 1 million sequenced genomes. I really think that’s going to happen.”

And the long-term market opportunity for computing systems that analyze/visualize/interpret all that data, as full genome prices plummet from $4,000 to $1,000 and below? “It’s easily a $100 billion market.” And yes, I did ask him to clarify over the phone that he meant billion, with a “b.”

Sundquist, one of the speakers at Xconomy’s “$1,000 Genome” event next Monday at UCSF Mission Bay, has reason to be bold these days. He raised $15 million last week in a second-round financing led by Google Ventures and TPG Biotech, with classic tech investors like First Round Capital, SoftTech VC, K9 Ventures, and Felicis Ventures also on board. The company, which Sundquist co-founded with colleagues from Stanford University in 2009, isn’t saying yet how much revenue it generates, how many customers it has, or who they all are. But as part of the financing, DNAnexus and Google said they have agreed to collaborate on a free public site that will be a mirror image of one of the deepest and most valuable datasets in genomics today—which the National Center for Biotechnology Information is phasing out because of federal budget cuts.

Andreas Sundquist

Providing that valuable resource to customers is just one step in the process, Sundquist says. The bigger vision is for DNAnexus to prove, through its relatively low-cost, easy-to-use, Web-based interface, that it can serve as a default plug-and-play genomic analysis system for biologists. These are people who don’t typically have much math training, and often have limited access to the bioinformatics experts who have traditionally helped them play around with the data.

It’s not uncommon today for researchers to run a sequencing instrument to get the data, and then spend months “playing around with the data,” as Sundquist said in an Xconomy feature in July 2010. The goal is to minimize the amount of time a scientist has to spend fiddling around to find out what tools are available, downloading them, and figuring out how to make formats compatible with their instrument,

The pressure to come up with simple interpretation tools is going to be immense in the future, Sundquist says. One analyst, Isaac Ro of Goldman Sachs, noted in a recent report to clients that current sequencing labs spend just 2 percent of their budgets on computing, but that is fast climbing … Next Page »

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San Diego-based Sequenom (NASDAQ: SQNM) says today it’s making a prenatal test for fetal Down syndrome available in 20 U.S. cities, 2 1/2 years after the company shelved the debut of an earlier Down syndrome test due to “mishandled” research data.

The proprietary test announced today is a laboratory-developed test (LDT) that detects an abnormal chromosome for Down syndrome in the fetal DNA fragments found in a maternal blood sample. A Sequenom-funded study that confirms that the technique is 99.1 percent accurate also is being published in the journal Genetics in Medicine by an independent group of researchers.

A spokeswoman for Sequenom says the test announced today is a “completely new” diagnostic approach that analyzes fetal DNA circulating in the mother’s bloodstream, using next-generation genetic “shotgun” sequencing technology developed by Illumina (NASDAQ: ILMN), the San Diego maker of genetic-analysis equipment.

The diagnostic technology that Sequenom shelved in 2009 was based on detecting fetal RNA in maternal blood samples. Following an internal investigation into the mishandled clinical data, Sequenom ousted CEO Harry Stylli, former R&D chief Elizabeth Dragon, and three other employees.

Sequenom says the 20 cities where its MaterniT21 test is now available are part of a phased rollout of the new test, which is intended for pregnant women who are at higher risk for Down syndrome (roughly half of the mental retardation cases in the United States). Out of 4.2 million births in the U.S. each year, about 750,000 are considered high-risk (based mostly on pre-screening or because the mother is 35 or older). Only about one out of five of these high-risk cases, however, undergo amniocentesis or chorionic villus sampling, two invasive procedures that can accurately determine Down syndrome but carry a slightly higher risk of miscarriage.

Sequenom is offering a different approach. A doctor would first send a maternal blood sample for the MaterniT21 test to the Sequenom Center for Molecular Medicine in San Diego, a lab certified under federal CLIA regulations just over a year ago.  (The company announced last week it is planning a similar CLIA-certified lab in North Carolina). The physician would receive the results in 8-10 business days, and determine if a higher-risk procedure is warranted. Andy Pollock of The New York Times wrote a thorough account of the technology here.

On Sept. 2, Sequenom said it had agreed to a SEC “cease and desist” order arising from an investigation into Sequenom’s misconduct, which securities regulators began in 2009. That order was focused on claims the company had made about its prior RNA technology, and included no monetary penalties.

The U.S. Attorney filed a criminal charge against Dragon in mid-2010 that alleged she had disseminated materially false information and had made misleading statements concerning tests of Sequenom’s RNA technology. She pleaded guilty, but died in February, before sentencing, according to the company’s last earnings filing.

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