The Next-Gen Sequencing Pot Keeps Bubbling

By Stephen D. Simpson, CFA | August 23, 2010 AAA

Last week was a busy one for the advanced life sciences world. Not only did much-heralded Pacific Biosciences file its initial S-1 for an IPO, but established player Life Technologies (Nasdaq:LIFE) announced the acquisition of up-and-coming Ion Torrent for up to $725 million. As Ferris Bueller famously said, "life moves pretty fast," and there is seldom a dull moment in life sciences these days.

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Lust for Life
Life Technologies announced that it would acquire Ion Torrent for $375 million in cash and stock, as well as up to $350 million in future cash and stock milestones. That may sound like a rich valuation for a company that is mostly just IP and demonstration models, but that would understate the potential for Ion Torrent's technology.

Ion Torrent has developed its PostLight sequencing technology around a rather different idea than most other sequencing companies. This technology measures the flow of hydrogen ions produced when nucleotides are added to a DNA strand. More significantly, it takes place on a semiconductor chip and that offers at least the possibility that ongoing advances in semiconductor design will make this technology even more sensitive and effective in the future.

The first iteration of this technology, the Personal Genome Machine, will be bench-top size (as opposed to the rather large machines sold by Illumina (Nasdaq:ILMN) and PacBio) and list for less than $100,000. Although I do not believe it will be a shoulder-to-shoulder player in large-scale sequencing right away (the PGM is positioned as a mid-scale product), its size, speed, and price could make it pretty popular right out of the gates.

For Life Technologies, this gives them another bite at the next-gen cherry. LIFE has talked about some really intriguing technology, including a single-molecule sequencing platform with theoretically unlimited read-lengths (emphasis on theoretical, please), but has frankly struggled in head-to-head battles with Illumina with existing systems.

PacBio to go Public
It is no surprise that Pacific Biosciences is going public, just as Complete Genomics filed its initial S-1 less than a month ago. PacBio is a big player in third-gen sequencing chatter, as its equipment appears to be very accurate, with long read lengths and short run times. It also appears to offer pretty appealing ease-of-use and interesting features like "strobe sequencing". Keep in mind, too, that PacBio has gone on record promising that someday we will have full genomes in 15 minutes and for $100 - a massive boast given the current state of technology. With all of the hype around PacBio, I would expect this IPO to be a hot one, but I also expect sky-high expectations on the Street - a lot of money has gone into this company and a lot of words have been written about the technology, so the company will have to deliver excellent shipment numbers.

The Bottom Line
This is a battle that will most likely never end. There will always be a "next gen" on the horizon and it is difficult to imagine a time when the work is "done". In other words, genomics and proteomics are going to be high-priority areas of research for decades to come. That, in turn, will likely translate into billions of dollars spent on equipment and consumables.

With so much dynamism and development, though, investors need to approach the space with caution. Today's winner could be tomorrow's Atari or Sega. While Illumina is certainly a leading light today, only time will tell how they hold out against the likes of Roche, GE (NYSE:GE), IBM (NYSE:IBM), Life Technologies, PacBio, Complete Genomics and whomever else may choose to join the fray in the years to come.

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