The Incredible Shrinking Genome Test

When will the $1 genome get here? It seems like just last month we were talking about the imminent arrival of $1,000 sequencing, thanks to a desktop machine Life Technologies (Nasdaq: LIFE  ) unveiled at this year's CES. Though sequencing leader Illumina (Nasdaq: ILMN  ) also demoed a competing machine at the conference, it's not the only challenger. Privately held sequencing start-up Oxford Nanopore, backed and part-owned by Illumina, offered a device that fits on a USB memory stick, costs less than $1,000, and sticks right into a laptop to work its magic.

Is it game over for the big players? Perhaps not. But this portable sequence-on-a-stick shows just how incredibly fast the industry moves. Investors in this segment should accept that there's no way they can ever really relax when sequencing technology seems to leave Moore's Law in the dust.

Dizzying pace
There's no reason to immediately sell your shares and run screaming into the night. Oxford Nanopore also presented a desktop sequencer that it claims can be daisy-chained to 19 others of its ilk to sequence a genome in 15 minutes for $1,500. The only problem is that this daisy-chained setup has a different price structure than other machines, and currently sports an error rate too high to accurately diagnose genetic disorders. Rapid progress from Life Tech, Illumina, or both could sweep the company's still-theoretical cost advantage out of the way in a hurry. The size and cost of the thumb-drive-sized sequencer turned plenty of heads, but it's yet to show viability in the real world.

Impacting an industry
It can be a little dizzying to keep up with all the big news coming from the sequencing sector. I wouldn't have expected big news so soon after the CES reveals, but this just drives home the point I made earlier. You can't relax! Not for a day.

This is especially true of smaller sequencing companies, such as Pacific Biosciences (Nasdaq: PACB  ) , which is still running losses as the two big players keep progressing. Sequenom (Nasdaq: SQNM  ) , which uses Illumina machines to process its tests, is bleeding cash enough to plan capital raises this year. Competing tests on Oxford Nanopore machines could undercut its delicately built position in an industry still far from maturity.

Supersized companies aren't any less immune either. You don't hear much about General Electric's (NYSE: GE  ) genomic offerings lately, although the company touted "faster, low-cost DNA sequencing" in 2009. Failing to capitalize on genomics could come back to haunt the company if sequencing becomes as common -- or more common, perhaps -- than the MRI, one of GE Healthcare's dominant niches.

While it's almost impossible to predict the ultimate winners of this sequencing standoff, savvy investors can still find great opportunities in medical technology. One of Fool co-founder David Gardner's favorite multibaggers fits this description. It's got the tools, patents, and proven success to succeed for years to come. Find out more about this explosive opportunity, and request a copy of the brand-new free report that tells you everything you need to know.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. Motley Fool newsletter services have recommended buying shares of Pacific Biosciences of California and Illumina. 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.


Read/Post Comments (9) | Recommend This Article (2)

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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 February 21, 2012, at 4:22 PM, unkownuser wrote:

    Do you even do BASIC RESEARCH on a company before you make off the cuff remarks?

    1) Sequenom is expanding operations, leasing thousands of sq ft of additional space on both coasts in order to meet demand. The MaterniT21 test was launched in Oct 2011, so even the early sales results have yet to be made public, but indications are that demand is strong and growing rapidly.

    2) Sequenom is not "bleeding cash", and they did a secondary offering [for expansion] that was well telegraphed to investors, and has already been completed. Additionally, demand for the secondary was SO STRONG that an additional over-allotment provision was also fully sold.

    3) Sequenom insiders have been BIG BUYERS of their own stock before and after the secondary; a VERY POSITIVE indicator coming into the earnings report (due early March).

    I really expect more of you guys writing these articles, like a little bit of diligence. Just blindly vomiting out old or incorrect information to fill a web page makes your "informative articles" appear dubious at best, and possibly even suspect.

  • Report this Comment On February 21, 2012, at 4:54 PM, bigwalleye27 wrote:

    I have to say that I share some of the sentiment of unknownuser who commented above. However, instead of questioning your knowledge of the company Sequenom, I respectfully, yet strongly, question the logic you used to arrive at your conclusion about the "delicacy" of its situation.

    You state that "Competing tests on Oxford Nanopore machines could undercut its delicately built position in an industry still far from maturity."

    Yet only a few sentences earlier you wrote that "Buying a single $30,000 Oxford Nanopore machine might save money, but not time or accuracy -- it won't be out till next year, and currently sports an error rate too high to accurately diagnose genetic disorders."

    Combining your own statements and those of unknownuser leads me to understand that not only has Sequenom arleady begun selling tests in this space, but that it will be a year before a machine will be available that is not even accurrate enough to diagnosis genetic disorders. That's using your own words and arriving at a very different conclusion than the one that could be interpreted at the end of your article.

    It would be nice to get some more insight into your line of thought was at the end of this article if you could or would be willing to comment further. I am being sincere when I say this.

  • Report this Comment On February 21, 2012, at 5:20 PM, TMFBiggles wrote:

    @ bigwalleye27 -

    Granted, the direct reference to a machine that isn't as accurate as the current standards was not the best choice. My intent was more to show the rapid pace of progress. You could delete "Oxford Nanopore" and replace those words with "soon-to-be-developed" and it would convey the same sense of upheaval.

    The Oxford machine might not have the same precision as an Illumina machine today, but 1. it's not the only other company developing technology in this space and 2. talking about today's specifications is short-sighted when discussing an industry that was selling the same process at ten times the cost a very short time ago.

    I never said Sequenom had no test out, just that it is currently in the red and plans to raise more cash, which are both true statements that can be verified by viewing the related link in the article and checking the company's filings.

    In my view, any company that's dependent on technology undergoing this much upheaval has a delicate position. That includes every company listed here. Until sequencing becomes a mass-market phenomenon with well-established technology standards it would be hard to say otherwise.

    Hope that cleared things up a bit.

    - Alex

  • Report this Comment On February 21, 2012, at 7:15 PM, unkownuser wrote:

    Alex Said: "I never said Sequenom had no test out, just that it is currently in the red and plans to raise more cash, which are both true statements that can be verified by viewing the related link in the article and checking the company's filings."

    You referenced a December MF article. Sequenom told investors in Nov about the coming secondary, and completed it along with the full exercise of the over-allotment provision in January. Sequenom also said in Nov that (without the secondary) they had enough cash to last through 2013.

    By stating that the company is "bleeding cash" and planning on a secondary ... you imply that this is a company in trouble, when such a statement could not be further from the truth.

    -First to market with a maternal T21, T18, & T13 blood test

    -Own all of the critical patents related to interrogation of fetal DNA via maternal blood sampling (wide moat)

    -Insiders buying shares like crazy

    -New facility being built in North Carolina

    -Huge space just leased in Torrey Pines

    -Hiring, hiring, hiring (sqnm job offerings have been through the roof over the past few months)

    I can't expect that you know ALL the details of the companies you mention offhandedly in an article... but when you say, "bleeding cash and secondary offering coming..." the little bit that you remember from the December MF article you refer to really does a disservice to your readers. There is a huge short position in sqnm, and when the earnings report comes in early March, there is the potential for this one to easily double overnight on positive news.

  • Report this Comment On February 21, 2012, at 8:35 PM, bigwalleye27 wrote:

    Alex,

    Thank you for the clarification. I appreciate your response and I can also appreciate the perspective that you are giving readers when it comes to the rapid pace of change technologically in this environment. It really will be interesting, as things move forward, to see who will emerge as the dominant players in this space and, more importantly, how the accessibility of this technology forever changes the ways in which we live our lives. Unknownuser, you listed a plethora of reasons for being bullish on Sequenom and I truly hope that they are successful in the launch of a product that should dramatically change the way that prenatal testing is conducted. Thanks again Alex for responding and best of luck to all.

    BigWalleye27

  • Report this Comment On February 21, 2012, at 9:15 PM, TMFBiggles wrote:

    @ unknownuser -

    I won't quibble with the timeliness of my link. But what do you call negative $59 million free cash flow on $54 million in revenue? Or a decade-long streak of negative free cash flow? That's bleeding cash. Things might turn around with the next earnings, but that doesn't negate the fact that the company has until now had no positive cash flow to speak of.

    - Alex

  • Report this Comment On February 21, 2012, at 10:15 PM, unkownuser wrote:

    What do I call it? I call it ancient history when I look at the facts TODAY.

    Everything changed when Sequenom launched MaterniT21 in October.

    Sequenom is on the cusp of realizing the potential that was promised to investors years ago, that was derailed by a few bad apples.

    NOW under the careful guidance of Harry Hixson, the succesful former president of Amgen, Sequenom has carefully and methodically executed its business plan step by step.

    If all you do is look to the PAST, you will never see the FUTURE.

  • Report this Comment On February 21, 2012, at 10:34 PM, allen95677 wrote:

    SQNM already raised cash this year; I'm not aware of any more plans to raise cash this year. That statement is false and misleading, but I guess you can twist a few words around in order to get paid by the hedge funds shorting the crap out of this stock.

    Don't worry, Hixson is going to drop the bomb in the next CC.

    If you build it, they will come............

  • Report this Comment On February 21, 2012, at 11:06 PM, unkownuser wrote:

    For those really interested in Sequenom, here is an article from the Feb 15th, 2012 San Diego Union Tribune newspaper that does a very good unbiased job of summarizing Sequenom's history through the present.

    http://www.utsandiego.com/news/2012/feb/15/tp-prenatal-game-...

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