Forget the white lab coats and the quiet demeanors. In biology labs across the country, and in corporate R&D labs, there is an all-out war going on. Researchers are pushing themselves and their gear in an effort to understand human disease and find new pathways for treatment, while companies are pushing each other on a relentless drive to build better, faster, and cheaper research equipment. (Learn more about the importance of Research and Development, see: Buying Into Corporate Research & Development (R&D).)
We are now on the cusp of a new battle - the sequencing wars to be fought with third-generation sequencing equipment. Third-gen systems promise more accuracy, faster results, better economics, and a new round of sales for major corporations. The combatants will include some of the better-known names in life sciences research, while the victors will almost certainly include all of us, as these technology innovations should ultimately lead directly to better healthcare treatments.
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The major players in next-gen sequencing will include names that many investors know, along with some private companies known mostly within the industry.
Illumina (Nasdaq:ILMN) is the leader in the sequencing market and while the company is not generally discussed as one of the players in the upcoming third-generation, the reality is that its new HiSeq 2000 is a cutting-edge second-gen system that may end up being better (and more popular) than some of the newest technologies.
Life Technologies (Nasdaq:LIFE) has fallen behind Illumina in market share, but its SOLiD platform is not out of the running. Life Technologies has been targeting more of the medical apps for sequencing, but has an interesting third-generation system coming out this year. This third-gen system looks to be faster, more accurate, and cheaper on a per-base level, but is limited by the current state of CCD technology (the system cannot go faster than the imaging equipment allows).
Oxford Nanopore is a private company with a different approach. Without going into the nitty-gritty details, Oxford's different method (using modified nanopores over a microwell containing electrodes) suggests lower equipment and reagent costs, and should allow the system to be useful for direct RNA sequencing and epigenetics. On the downside, it may not be as accurate initially. There is a lot of buzz about Oxford and Illumina is an investor in the company; suggesting to some that Illumina may take this company out if this third-gen system proves itself in the market.
Two other private companies also bear close watching - Pacific Biosciences and Ion Torrent. PacBio's approach is conceptually similar to Life Technologies and likewise has a speed limit imposed by the CCD imaging equipment. Because of this limitation, the throughput probably will not be much higher than that of Illumina's current machines or LIFE's SOLiD platform. Still, PacBio appears to have a very accurate system with longer read lengths and short run times. Looking further ahead, PacBio has boasted of producing systems in 2014 that will sequence the entire human genome in 15 minutes.
Ion Torrent is definitely "different". The technology is semiconductor-based and almost works like a pH meter in some respects. Although Ion Torrent's system does not seem to be as fast, the fabrication costs should be low and the company may be able to offer a sub-$50,000 machine the size of a microwave oven (current systems cost more than $250,000 and are quite large).
These are not the only companies to watch, though. Sequencing is not just about the sequencers; it also takes supporting equipment like Agilent's (NYSE: A) SureSelect or Caliper Life Sciences' (Nasdaq:CALP) LabChip XT to improve steps like sample prep and overall productivity. Here is where Illumina has a big advantage; many companies have developed follow-on equipment for Illumina's systems and the absence of similar products for third-gen systems might slow their adoption.
Last and not least, do not forget that other players may get into the game. General Electric (NYSE:GE) is working on single molecule sequencing-based technology, and Roche (Nasdaq:RHHBY) has not given up on the market either. By comparison, Helicos (Nasdaq:HLCS) may find its time running out and could be destined for a buyout bid.
No matter who wins the third-gen battles, there will be widespread benefits. Investors who correctly handicap the race will certainly stand to benefit from the growth of their chosen players. More broadly, though, there should be large-scale human benefits. Advanced sequencing will help the drive towards the $1,000 genome and impact healthcare in a variety of ways. Scientists should find disease-causing genes and mutations faster, and sequencing can point to better approaches to treating disease (like optimizing cancer treatments based on the genetic nature of the cancer). That, in turn, could lead to a host of new targets and leads for biotechnology, pharmaceutical, and diagnostic companies for years to come.
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