The Real Winners of $1,000 Exomes

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The $1000 genome is almost here. 23andMe, the personalized genetics start-up backed by Google, announced this week that it'll offer exome sequencing for $999.

Your genome is the sequence of all your DNA; your exome is a subset of your genome that contains the part of the DNA that codes for the genes. The other part might be important, especially for regulating the expression of the genes, but most important genetic variations are contained in the exome, so you can get a lot of information from just the sequence of the exome.

I don't know which company's sequencers 23andMe are using. The company uses Illumina's (Nasdaq: ILMN  ) gene chips for its cheaper genotyping service that looks a 1 million different known variations in the genome, but I don't know if they're tied at the hip. The service will compete with Illumina's whole genome sequencing, which starts at $7,500 for medically relevant sequencing.

DNA seqeuencers are also sold by Illumina's competitors: Pacific Biosciences of California (Nasdaq: PACB  ) , Life Technologies (Nasdaq: LIFE  ) , and Roche. And Complete Genomics (Nasdaq: GNOM  ) recently popped up as an outsourcing sequencing facility for researchers.

While I love that they're pushing the envelope on technology and pricing -- when Illumina launched its service in 2009, the cost was $48,000 -- I worry that this is a simple case of the-company-with-the-cheapest-sequence-wins. While that's great for people who want their genome sequenced, it'll surely cut into margins.

Diminishing volume
Low-margin business models can work well; unfortunately, unlike Wal-Mart and Costco, where customers visit the store again and again, most customers will only need their genome sequenced once, perhaps twice if they get cancer since the genetic makeup of the cells in the tumor may be helpful for determining what drugs will work best to treat it.

Sure, it might not matter until years from now, when the number of potential customers in a given year matches the number of babies born plus the number of cancers diagnosed, but I'm still not convinced this is the best business model.

If you'd like an alternative view, Illumina and PacBio are active picks of the Stock Advisor and Rule Breakers newsletters, respectfully. You can get the analysts' opinions, which vary from mine -- we're a motley bunch -- by grabbing a free trial of either service.

The value is in the data
While I have a hard time seeing long-term value in getting paid to sequence genomes, there's clearly value in the data itself. 23andMe is using its customer base to make associations between observed genetic differences and known traits. For instance the company is currently doing a study on Parkinson's patients in the hopes of finding generic variations that Parkinson's patients have in common.

The real winners of the genetic sequencing revolution will be drug companies. The new genetic associations that are discovered today will help them make more efficacious therapies in the not-to-distant future.

There are plenty of examples already of personalized drug treatments: Pfizer's (NYSE: PFE  ) Xalkori is designed to work on patients that are ALK-positive and mutations in a gene called K-ras affect whether Amgen's (Nasdaq: AMGN  ) Vectibix or Bristol-Myers Squibb's and Eli Lilly's (NYSE: LLY  ) Erbitux help cancer patients.

But those are obvious results that could be predicted by what we know about the pathways and how the drugs were designed. The real breakthroughs will come from what we didn't know.

As the price of sequencing comes down, all patients in clinical trials will get their genome sequenced in the hopes of finding associations between patients that respond well to treatments and those that don't.

Personalized medicine, not the companies doing the sequencing, will be the ultimate winners here.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google, Costco Wholesale, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, Pacific Biosciences of California, Pfizer, Illumina, Costco Wholesale, and Google. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 30, 2011, at 7:35 PM, scbaker813 wrote:

    Your statement that "most customers will only need their genome sequenced once, perhaps twice" is a bit shortsighted. Cancer genomes are actually quite dynamic. Ideally several individual cells would be sequenced from each tumor and each (unfortunate) reoccurrence would also need to be sequenced multiple times.

    Then you can move on to the even more dynamic aspects of the cell. The epigenome (esp methylation) changes throughout your lifetime (probably on the order of every few weeks or months) while the transcriptome changes constantly (minute to minute).

    Once sequencing becomes truly cheap and easy, people will likely be sequenced with some regularity (at least on the order of every physical exam, and possibly even more frequently).

    The sequencing landscape will likely change dramatically over the next several years, but it is very unlikely to go away.

  • Report this Comment On October 03, 2011, at 9:57 AM, Stillable2think wrote:

    This article fails to mention the necessity of DNA sequencing the various bacterial and viral threats.

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