The Promise and Peril of the Mass-Market Genome

The relentless march of genome sequencing technology continued this week, right on target. When I wrote about the race to the $1,000 genome late last year, I had no idea that the two largest sequencing companies would so soon unveil machines capable of offering just that, but I knew it was coming. Now that it's here, what does it mean for the future of medicine -- and the future of the planet? More than you might think.

The day the walls came down
Jan. 10, 2012, is an interesting day in medical history -- Life Technologies (Nasdaq: LIFE  ) announced that $1,000 sequencing is finally coming. Life Tech's planned release date for a full-genome sequencing version of its new machine is around the end of this year. Less noticed was rival Illumina's (Nasdaq: ILMN  ) newest sequencer, which didn't grab similar headlines because it failed to name its sequencing price. However, Illumina's model is projected to put the $1,000 mark "within reach," and could make up some ground with raw processing power.

Since Life Tech's announcement so closely conforms to my earlier projections, let's revisit them, and this time I'll stretch the cost curve out all the way to the end of the decade:

Sources: National Human Genome Research Institute and author's calculations.

Race to the bottom
Life Tech's price point, should it hold up, will maintain the rapid decline in sequencing costs that began at the end of 2007. If that trajectory continues, the $100 genome won't come in 2016, as I originally predicted by conservatively tracking the orange line. It'll get here by mid-2014. By 2016, the faster pace Life Tech's now staked itself to will bring full-genome sequencing down to a cost of just $3. By then, a real medical revolution should be under way.

The positive picture
The thought of buying your decoded genome for the price of a half-decent hamburger seems absurd in its optimism, but there's yet to be a significant slowdown in this breakneck progress. At this point, it seems far more important to prepare for the inevitability of the "everyday genome" than to continue dismissing it as the expensive curiosity it will soon cease to be. And that means accounting for the promise -- and also the peril -- of mass-market sequencing.

One clear benefit to broader understanding is better drug targeting. Amgen and Pfizer's (NYSE: PFE  ) Enbrel costs $26,000 a year, yet only benefits half the arthritis sufferers taking it. Knowing a patient's unique genomic variations could help identify why they don't respond to certain drugs, leading to smarter prescriptions. It's also likely to lead to more efficient drug research and development, but this is more contingent on the availability of large genomic databases. That would help companies like Pfizer that face a looming patent cliff.

Incredible implications
Understanding how individuals differ on a genetic level would very likely aid doctors in diagnostics, particularly in the discovery of genetic diseases. Today, many such diseases are often diagnosed individually through a hodgepodge of different tests. Sequenom's (Nasdaq: SQNM  ) Down syndrome test, which is processed on Illumina's machines, is one example. Looking forward, an ambitious National Institutes of Health prediction for the year 2020 anticipates that all fetuses will be screened by seven weeks for more than 200 genetic disorders, which can then be repaired by the necessary gene therapy.

The NIH's 2020 predictions reference genetic analysis at nearly every possible opportunity. On the back of better genetic knowledge, they claim, we'll be able to:

  • Repair abnormalities of the eye.
  • Develop individualized drug treatments for diseases (both chronic and acute).
  • Better understand aging and diseases caused by it.
  • Control or cure alcoholism.
  • Identify and treat hereditary deafness.
  • Control or treat drug addiction, including treating the effects of drug addiction.

All this, incredibly, was predicted in 1999. The directors responsible for these predictions would have known only a very immature technology -- the first full, individual human genome wasn't sequenced by J. Craig Venter's Human Genome project until 2007. Now, the numbers say that a full genome sequenced in 2020 will cost somewhere between nothing and the price of a convenience store hot dog. Will sequencing become that cheap? I don't think so -- but it will be cheap enough to force us to answer some difficult questions.

The measure of a man
What can we do with the genome today? Beyond a few screens, not much. Genetic information gives rise to an astounding variety of individual differences. The differences between two siblings -- or the spread of biometric scanners based on unique, minute differences in the human eye and fingerprint -- offer straightforward lessons in the seemingly limitless capacity for genetic variance.

We can sequence one person's genome and identify risk factors that may make him more likely to get cancer or heart disease, but still can't deal with these problems much past healthy-living preventive measures. Say your prayers and eat your vitamins, so to speak. If you got a full genome screening today, it would probably reveal 200,000 individualized variations that have never been seen before. A Life Tech sequencing of one person turned up almost 4 million single-base (half of a base pair) variations. That's a lot of unknowns.

Exponentially exponential
There may be ways to overcome the variance challenge, but it won't be easy. Comprehending and interpreting so much variety adds layers of costs that aren't likely to drop quite as quickly. One of the biggest attractions of Life Tech's new machine, besides its low cost, is a purported ability to shrink processing time to a day from the week-plus times required by current Illumina machines. But after processing comes analysis. Current algorithms add days of extra time to the process. After analysis, the results need to be interpreted by genetic counselors, who may need hours to explain to patients what those results mean.

Let's say we cut total processing time to a few minutes. It's certainly possible. Algorithmic performance is in many cases far outpacing the advance of its underlying technology. One model that could have been solved in 82 years beginning in 1988 was later solvable, in 2003, in one minute. This 43-million-fold improvement was attributed to a thousand-fold increase in processing power and a 43,000-fold improvement in the algorithms used. An algorithmic performance explosion, paired with rapidly dropping costs and faster machines, might give us millions of quickly completed genomes and the ability to cross-reference each to discover previously unknown genetic secrets. This explosion would also give rise to a huge growth market for genetic counselors. Looking for a new career? There ought to be plenty of demand -- only 2,500 counselors work in the U.S. today.

Infinite variety
Would you get your genes tweaked, even then? Our knowledge of genomic modification's long-term effects, on ourselves and our environment, is minimal at best and dangerously absent at worst. We already deal with genetically modified life on a regular basis -- just look at the food supply.

Monsanto (NYSE: MON  ) has taken flack about its modified seeds for years, but has responded to all accusations with a firm stand against any sort of human safety testing. But a recent Chinese study, outlined in The Atlantic earlier this month, casts doubt on the company's claims that modified products are harmless. A clear line between food and body function, formed by structures known as microRNA, implies that genomic interactions, both internal and external, may be far more complex than we once suspected.

If something as straightforward as a tweaked corn kernel can affect the way our bodies work, can we be remotely certain that direct manipulation will have the desired effect? The possibility will always exist that tweaking genes might make things worse, at least until science masters the atomic scale at which the genome operates.

The end is the beginning is the end
I doubt any of this will stop the march of genome sequencing toward widespread medical adoption. This technology has incredible diagnostic potential, but could also pose great problems if not shepherded with care toward the future. Don't blame Life Tech or Illumina if something strange happens -- but keep an eye on genomics as it moves toward mass acceptance. Changing the structures that make us who we are is a lot different than simply figuring out what they mean.

Both sequencing companies might be good buys today, but if you're looking for another explosive opportunity in medical technology, there's a brand-new free report that you have to see. In it, you'll find out everything you need to know about one of Fool co-founder David Gardner's favorite Rule Breakers, a multibagger already with major growth ahead of it. Grab your free copy now while it's available.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. Motley Fool newsletter services have recommended buying shares of Illumina and Pfizer. Motley Fool newsletter services have recommended creating a synthetic long position in Monsanto. 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 (6)

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  • Report this Comment On January 11, 2012, at 7:34 PM, unkownuser wrote:

    Sequenom (SQNM) is the first to market with prenatal genetic screening for T21 (Down Syndrome), T18, & T13. Sequenom also owns the CRITICAL patents in the space, which covers ANY interrogation of the fetal DNA through maternal blood sampling. There are a few Johnny-come-latelys in the space (Verinata, Aria, et.al.), who are challenging the Sequenom patent; ultimately they will all have to license the technology from Sequenom (if Sequenom chooses to let them play). None of the wannabes have a product on the market, Sequenom is already marketing its MaterniT21 prenatal screen, the demand is through the ROOF, and insurance companies are LINING UP TO PAY (a blood draw is just plain cheaper and carries infinitely less liability than the alternative, amniocentesis - a miscarriage generating invasive procedure).

    At today's price, Sequenom is a gift... shorts have been hoping that Sequenom would fail and have built a relatively LARGE short position (21 mil shrs/13 days to cover), which is just BEGGING TO BE SQUEEZED!

    THIS STOCK WILL POP AND SOON. Climb aboard, or look back in a couple of months and say to yourself, "I thought that UNKOWNUSER on Motley Fool was just some stupid pumper... who knew... well, I guess HE DID."

  • Report this Comment On January 11, 2012, at 8:38 PM, prudenttrader7 wrote:

    I would be very cautious in this sector especially with SQNM. They have never ever turned a profit in the history of the company. Give them credit for reinventing themselves a couple of times to stay afloat and raise more capital. On the other hand management has had major issues with the SEC including convictions in the insider trading, and fraudulent presentation of data scandals that rocked the company a couple of years ago.

    Is their technology sound? It appears to be that way for the time being. They also own some interesting patents which have revenue potential. The problem with this company is they are down to their last dollars and they only have one dilution bullet left. After the next round of dilution which they already said is coming they won’t be able to go to that well anymore because there won’t be any equity left to dilute. They burn cash at an alarming rate and they are going to need even more on two fronts. First the massive costs to fend off the law suits which challenge the patents. Their competition could sink them by running them dry even before a judgment is made. Second, in order to make the kind of profit they are desperate to have on their t21 detection test they must invest heavily in infrastructure which is cash intensive.

    Its one thing for SQNM to develop the technology which brought us the MaterniT21 test. It’s a completely different ability to have the depth and business savvy to execute the business side of things successfully. SQNM has never ever been able to achieve the kind of significant success it’s going to take to save this company with any of their ventures. There may also be new FDA hurdles in the near future.

    That brings us to the massive shorts in this stock. Their speculation is that they won’t ever have to cover since at the current cash burn rate and with this being the final round of dilution available to management they won’t be able to achieve enough profit quickly enough to save the company. I don’t particularly see a good RR in shorting 4 dollar stocks so I would not do that, but your high risk capital, and this is a high risk stock would be better allocated elsewhere.

  • Report this Comment On January 11, 2012, at 10:22 PM, unkownuser wrote:

    Prudenttrader7, your comments are way off base. I would ask that you provide verification for your negative talking points, but we both know they don't exist.

    This company stated in no uncertain terms that they have cash to last through 2013. Also, despite the fact that they told investors there would be an additional capital raise in 2012, you are only telling HALF the story.

    Demand for MaterniT21 is going ganbgbusters, and Sequenom is being forced EARLIER rather than LATER to open additional processing facilities to handle this increased demand. This is why they recently signed a lease for space in North Carolina (Google it), and also why they are raising capital (they have to build out the new facility).

    I think that you are being disingenuous when you state that you have no vested interest in this company. You are here on Motley Fool Caps and have no stock picks, a user ID that was created only a month or so ago, and you only make comments about Sequenom (and only negative comments at that).

    Hmmmmmm... if only there were a pattern here.

  • Report this Comment On January 11, 2012, at 10:54 PM, unkownuser wrote:

    When a company is floundering and burning through their cash, and heading toward bankruptcy, does the following happen?

    1) They lease additional space and build out a new facility (this is what is happening at Sequenom).

    2) Analysts upgrade the stock (again, happening with Sequenom).

    3) Insiders start buying the stock like crazy (see Seeking Alpha article; also happening at Sequenom).

    4) After December tax loss selling ends, stock goes up 16% in the new year (again, Sequenom Dec 20 - Jan 11, +16%).

    5) Call option buying going crazy (Sequenom again, probably shorts trying to buy protection).

    6) Several wannabes trying to get into the space because THEY KNOW HOW HUGE THIS UNTAPPED MARKET IS; Sequenom is first to market, and holds ALL the patents, NONE of the wannabes has a test on the market, or even close to coming to market even if they could defend themselves against the blatant patent infringement.

    I could on with several more talking points, and all of this information is easily verifiable. The bottom line here is that shorts are toast, they know it, and they are hitting all the message boards in a last ditch effort to cover before the big news is released.

  • Report this Comment On January 12, 2012, at 9:53 AM, hollandjoey11 wrote:

    Sorry but there are no reports of the test selling like “gang busters” in fact even during several public conferences they have refused to give any numbers at all.

    They have confirmed several times they will need to raise cash in 2012, despite the claim they have enough operating capital only till the end of 2012

    1) They have no choice they have to lease space in order to try and give this test a chance to save the company

    2) Analysts reaffirmed their ratings and none of them upper their target

    3) Insiders did buy some shares but they also bought several dollars higher big deal, non of them plunked down serious investments

    4) So at 3.50 the stock was a bit low it had a disaserious year in 2011 and they are hanging on by a thread in 2012

    5) Call selling has been going crazy. You simply don’t get to know which side of the options trade initiated the trade.

    6) Your “talking points” are more like your biased opinions supported by nothing at all

    As far as a trend here… Looking at your posts here they are all basically the same thing, you pump this stock and you attack anyone whose opinion is different. You have had several posts removed too. Who has the agenda?

  • Report this Comment On January 12, 2012, at 2:51 PM, unkownuser wrote:

    Ah yes, hollandjoey... another pseudo-yahoo username account created TODAY on Motley Fool Caps, solely for the purpose of bashing sequenom (hello again prudenttrader7). Git along little shorty... git along...

  • Report this Comment On January 12, 2012, at 4:28 PM, unkownuser wrote:

    hollandjoey/prudenttrader i put my long against your short ANY day of the week in this stock, and i win

    you are a fool, you got 4 bucks here at most, though in reality you got nothing. you post here and on yahoo (where i have you on ignore anyway), you come to fool.com and impersonate (i been here on fool for 6 yrs, you 1-day and no stock picks, NO CRED), me right, you wrong... i KNOW you wont give it up, and i appreciate that because your suffering is my salvation; i own you and your family, i am your god... bring it on

  • Report this Comment On January 12, 2012, at 4:34 PM, DJDynamicNC wrote:

    Please keep posting, this is great.

    </popcorn>

  • Report this Comment On January 12, 2012, at 4:41 PM, TMFBiggles wrote:

    All I wanted to do was talk about cost curves and bioethics, geez.

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