Outside San Diego, Illumina Looks to Wisconsin for Key R&D

5/8/14Follow @XconomyWI

When an acquisition occurs, the worst-case scenario for the community of the purchased company usually occurs when the buyer gobbles up the pieces it wants and shutters the local operations.

But this situation doesn’t always play out, and Nick Caruccio is glad that’s not what happened to his company, Madison, WI-based Epicentre, after San Diego-based Illumina (NASDAQ: ILMN) bought it in 2011 for an undisclosed price. (SEC documents later showed it was $71.4 million.)

“I’ve seen some acquisitions where they would just come in and take the technology and shut you down,” says Caruccio, Epicentre’s general manager.

Illumina certainly could have done that, and skeptics who are unfamiliar with Madison’s biotech scene might wonder why the global leader in genomic sequencing continues to operate the small Midwest outpost. As things turned out, however, Illumina had some good reasons to keep Epicentre’s lights on in Madtown.

Epicentre, founded in 1987, was a privately held company that had built a solid but unsexy business, primarily selling specialty enzymes and reagents to molecular biology researchers. About five years ago, it started developing prep kits that convert DNA or RNA samples into “libraries” ready to be sequenced by machines made by Illumina and its competitors. Then came Epicentre’s big breakthrough—Nextera, a technology that simplified and shortened this front-end process from a couple days to less than 90 minutes. A year after Nextera hit the market, Illumina came knocking.

Nextera “took off like wildfire,” Caruccio says. “I think that was the hook [for Illumina].”

But instead of assimilating the technology and bailing, Illumina is now pouring “significant” but undisclosed dollars into its Madison operations, according to Kirk Malloy, senior vice president and general manager of Illumina’s San Diego-based life sciences division. Epicentre expects to add at least five employees this year to its staff of 57, Caruccio says. The company is also expanding its facilities in Madison’s University Research Park by nearly 50 percent to accommodate more enzyme manufacturing equipment.

Caruccio, who helped develop Nextera, says Illumina quickly realized after the acquisition that Epicentre had additional technologies and expertise that could help Illumina’s business in other areas, such as protein production.

“When they looked at everything we had, it was a great fit,” says Caruccio, who was promoted by Illumina to general manager of the Madison site last year.

Epicentre still sells research tools under its own name, which makes it one of only a handful of Illumina subsidiaries to continue selling their own branded products. Malloy says that’s a testament to Epicentre’s reputation and brand recognition among its customers.

But Epicentre’s expanded focus now will be on developing library prep kits for genomic sequencing, which spell a “much larger market opportunity,” Malloy says.

The list of substances being funneled into sequencing machines is growing longer and more complex, including DNA, RNA, viruses, bacteria, and more. Caruccio says that means the number of prep kits needed to support the diversity of experiments is also expanding.

“As the cost of sequencing goes down, more of the value is sitting here” in library prep kits, Caruccio says. “That’s driving a lot of that strategy to capture all the library prep that we can.”

As part of a recent corporate restructuring, Illumina recently moved Epicentre under its life sciences business, which is its largest division and generates more than $1 billion in annual revenue.

Illumina logoThe Madison site now serves as the dedicated R&D base for the division, which enables each Illumina business unit to have its own smaller, focused “tiger teams” that complement the work of the core R&D group based in San Diego, Malloy says.

Epicentre now has about 14 staffers focused on R&D, primarily in sequencing and informatics, Caruccio says.

“We’re looking at ways that we can take on things that will really impact Illumina’s position in sample prep, which is an increasingly competitive area,” Caruccio says. “Rather than looking at Madison as a site where maybe we can do these little niche things to fill gaps, it’s how can we really do things that are going to make a huge difference. We’re right now going through the planning processes to say what are those things, how can this development team be most effective.”

When Illumina scouted Epicentre, Malloy says, officials saw … Next Page »

Jeff Engel is the editor of Xconomy Wisconsin. Email: jengel@xconomy.com Follow @XconomyWI

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