Over 7,500 of Illumina Corp's (NASDAQ:ILMN) gene sequencing machines are already being used by researchers globally to advance our understanding of DNA and DNA's relationship with disease. Discoveries stemming from this research are leading to advances in personalized medicine that could change patient treatment, and next-generation technology could soon result in a brand new way to detect cancer when it's still in its earliest stages. Can Illumina's future opportunity be even bigger than it is already? Find out in this clip of The Motley Fool's Industry Focus: Healthcare podcast.
A full transcript follows the video.
This podcast was recorded on April 13, 2016. Illumina released preliminary financial results on April 18, 2016, and resulted in a substantial drop to Illumina's stock price.
Kristine Harjes: We've covered robots and how they're removing humans and all their flaws from surgery, it's totally sci-fi, it's awesome. Our next topic is kind of the opposite of this concept. It is taking the most fundamental part of our human selves to improve health outcomes. I'm talking about DNA and DNA sequencing. Todd, broad view, what is going on in this space?
Todd Campbell: We've got science fiction all over the place that's reality. The whole concept of being able to rewrite the parts of our genetic code that are malfunctioning, and cure disease at the very base cause, is absolutely fascinating. And what we're dealing with here are technologies that are known as gene sequencers. They're made by a company called Illumina. There are some others that do it as well. These sequencing machines allow you to basically dive deep into the DNA of living things. Maybe plants, maybe people, maybe food, whatever. You're able to dive into this, find problems within those genes, and theoretically come up with solutions to those problems.
Harjes: This is so, so cool! I mean, I just absolutely loved doing research about this this morning. Just thinking about the beginning of the Human Genome Project which was completed 13 years ago, and how far we've come to today, is incredible. This is something that -- sequencing the first human genome took 10 years, and now it takes a couple of hours. It cost $3 billion to do the first one, depending on who you ask; now it's about $1,000.
Campbell: Yeah! It's amazing! And, what's happening is, technology in this space is growing so quickly that they're able to build smaller and faster and better machines, and come up with machines that are either targeting the high-end, where you need a lot of throughput and a lot of deep-dive, deep sequencing; and then, they're also targeting smaller markets, small labs, that would be able to explore maybe one particular aspect that they wanted to do research on. That's the new mini-version that Illumina just rolled out in January that only costs $50,000.
Harjes: And this totally makes sense with the direction you see healthcare taking now, where medicine is increasingly personalized.
Campbell: Yeah. There's a huge push toward personalized medicine, and rightfully so, because we're finding that so many diseases are tied to some mutation of a gene, or an absence of a gene, or a problem with a protein, or something like that. Being able to go through and actually find them is step one of being able to then go back and say, "Okay, now that we have found the problem, how do we create a medicine," whether it's an RNA-type medicine, a gene-editing, immunotherapy, whatever, "and how do we now go without repairing that DNA, the genetic code?" So, the future of gene sequencing is quickly and rapidly evolving toward pairing up gene sequencing with the clinical research that's being done to develop drugs.
Harjes: Indeed. So, right now, Illumina controls about 90% of this gene sequencing market. What do potential investors need to know about this company?
Campbell: You pretty much just summed it up. 90% of the market! They're the dominant player. There are other companies out there that make sequencing machines. You've got Life Technologies, which is owned by Thermo Fisher (NYSE: TMO), that participate. You've also got Pacific Biosciences (NASDAQ: PACB), that just rolled out their latest model at the end of the fourth quarter. But they're small bit players. Illumina has 7,500+ machines installed throughout the world. For comparison, Pacific Biosciences has about 160 machines. Illumina does $2.2 billion a year in sales. For comparison, Pacific Biosciences does less than $100 million. So, they are the Goliath in the space. And being the Goliath in the space means they've got the resources and the financial firepower to really move this whole DNA sequencing thing into new realms.
Harjes: Yeah. I think what you're leading into right now is their new GRAIL initiative, which could be by far the most important thing they've done yet.
Campbell: It's fascinating. You think about cancer, cancer is always evolving, it mutates, and that's what makes it so hard to treat. Well, if you are able to detect cancer early on, then you know you're going to be able to treat it more effectively. Most cancers, unfortunately half of them, are discovered in stage 3 or stage 4 levels. That makes it extremely difficult to treat them. You have to use more and more toxic chemicals and medicines to try and treat them. What Illumina's doing with GRAIL is taking all of its experience in analyzing the genome and leveraging that to be able to identify biomarkers that are kicked off by cancer cells. So, theoretically, GRAIL would allow you to detect cancer far sooner than you would be able to detect it otherwise.
Harjes: Yeah, maybe before you even have symptoms, is the ideal. What it's doing is, instead of scanning for the effects of cancer, it's actually a direct measurement of cancer DNA. So, your chances of finding something early are much greater. And that means that your chances of survival are much greater.
Campbell: Yeah, and this is a big market. If you look at Illumina's presentation, it's available on their website, I encourage everybody to go to their website and check it out, they talk about a base case where this could be a $20 billion a year opportunity. And that's just if you're detecting stage 2 or higher cancers in patients who are at high risk. If they evolve this technology to a point where they're able to detect stage one, and be able to evaluate most patients and tell doctors where that tumor actually is located, then they think ... the sky's the limit, basically.
Harjes: Yeah, this bull case has a $200 billion market opportunity, in theory.
Campbell: Yeah, in theory. We won't get the cart too far in front of any of the horses. Let's just assume this is going to be a diagnostic tool that we should see over the course of the next few years start to get rolled out in high-risk patients. And know that this, eventually, could be more of a meaningful revenue contributor for investors than the sequencing machines themselves.
Harjes: Yeah, Illumina has a greater-than 50% ownership in this venture. It also has investors like Bill Gates, Jeff Bezos from Amazon. Really interesting part of this company to take a look at and follow as they make progress.