Illumina Aims at Roche for Tests Seen Worth $25 Billion

With gene testing all the rage, the two biggest makers of DNA sequencing equipment are about to snap up smaller players in an attempt to stake out a market expected to reach $8 billion by 2014 and $25 billion within a decade.

Illumina Inc. (ILMN) and Life Technologies Corp. (LIFE)’s gene deciphering gear has helped revolutionize genetic testing. Now, the two companies are intent on entering the fast growing genetic diagnostics market on their own, putting them in direct competition with such giant players as Roche Holding AG (ROG) and Abbott Laboratories. Last week, Illumina bought BlueGnome Ltd. for an undisclosed sum, its first foray into the diagnostics market. Life Technologies, which has grown its gene-tool business through 9 acquisitions totaling $8.3 billion in the past 10 years, is also after small diagnostic businesses, most recently Navigenics Inc., which it acquired in July.

“You have this amazing amount of money being invested by pharmaceutical companies, billions of dollars, to find pathways that lead to cancer,” Ronnie Andrews, president of medical sciences at Carlsbad, California-based Life Technologies, said in a telephone interview. “We want to be the go-to companies for small biotech and academics that have content that matter. They can come to us. We have cash to invest,” he said.

Growth Market

Though it currently accounts for just $5.6 billion of the $44 billion diagnostics market, genetic testing grew at a 17 percent clip last year, the fastest growing segment of the market, according to Koncept Analytics, a market research firm based in Vaishali, India. UnitedHealth Group Inc., the largest U.S. health insurer, expects the genetic test market will grow to $25 billion within a decade. Already, there are about 1,800 DNA tests developed to identify or manage medical conditions, the health plan reported.

Advances in cancer genetics are spurring investment and acquisitions by companies looking to expand in molecular testing. The push to identify genes that cause cancer, such as recent findings in lung, breast and ovarian malignancies highlighted this month by the Cancer Genome Atlas Project, are fueling demand for DNA tests that doctors can use to predict risk and then diagnose and treat disease.

Life Technologies generates most of its $3.8 billion annual revenue from laboratory tools and related products, including gene sequencers, cell culture products, benchtop instruments, forensic testing and royalties. San Diego-based Illumina, the world’s biggest maker of gene sequencing machines which fought off a hostile takeover bid from Roche earlier this year, derives about 70 percent of its $1.1 billion in annual revenue from government-supported research.

More Value

While Illumina Chief Executive Officer Jay Flatley, in an interview with Bloomberg News, said his company has never taken “an entrenched position that we wanted to be independent,” he insisted the growing importance of its expanding testing technology demanded more value than Roche’s $51 a share bid.

“We’ve been moving very deliberately toward diagnostics and have announced a diagnostic strategy,” Flatley said. “There’s a couple areas that we’ve focused on and those are oncology and reproductive health.”

Illumina gained 2.6 percent to $48.19 as of 4 p.m. in New York trading, and has gained 58 percent this year. Life Technologies fell less than 1 percent to $48.86, and has increased 26 percent this year.

Andrews, in his interview, also pointed to the industry’s inherent value, saying advances in understanding the genetic triggers that cause cancer and the factors that spur its growth have created an “inflection point” in diagnostics not seen since researchers first focused on identifying and hobbling the virus that causes AIDS.

Targeted Drugs

After two decades of research, HIV can be treated like a chronic disease, with numerous medicines working in concert to slow the deadly progression to AIDS, he said. Researchers are now thinking about cancer in the same way.

The first medicines to target specific genetic mutations as the cause of disease were the blood-malignancy drug Rituxan, approved for sale in 1997, and Herceptin for breast cancer, cleared in 1998. Both were developed by California-based Genentech Inc., a biotechnology company acquired in 2009 by the Basel, Switzerland-based Roche.

Now more than 72 gene-based therapies are available, according to the Personalized Medicine Coalition, an industry advocacy group based in Washington. And every day, the targets are becoming more precise.

Genome Atlas

On Sept. 24, scientists at the Cancer Genome Atlas announced that genetic mapping of hundreds of breast cancer tumors identified different forms of the disease through the mutations linked to them. They also determined that one form closely resembles ovarian cancer, suggesting it may be attacked with similar therapies.

That report followed by 14 days their announcement that a form of lung cancer fatal to 400,000 people annually could be attacked by targeting newly discovered mutations.

At the same time, competition is building in the genetics space. Illumina’s Sept. 19 announcement that it was buying BlueGnome Ltd. to expand its capabilities followed by just two days a report by BGI-Shenzhen, a Chinese operator of genome- sequencing centers, that it would buy Complete Genomics Inc.

Life Technology is also seeking “tuck-ins along the way,” Andrews said. “We are going to build” from within.

$3,000 Tests

The company is focused on products like cancer tests, which can determine whether tumors will respond to treatment, according to Andrews. While the tests can cost $3,000, they may help patients avoid a $100,000 treatment that ultimately won’t work, he said.

While Life doesn’t seek to be acquired, it is looking for partnerships with pharmaceutical companies like those it has with Bristol-Myers Squibb Co. and GlaxoSmithKline Plc., Andrews said. The ventures allow them to work closely together on products in the earliest stages of development, crafting a companion test to go along with a new medicine to ensure the drug is hitting the right target, Andrews said.

For all the excitement, though, it’s still not clear which molecular-based tests will turn out to be winners, said Sven Borho, general partner of New York-based Orbimed Advisors LLC, which owned more than 2 million Life Technologies shares and 1.6 million Illumina shares as of June 30.

There is some uncertainty, both scientific and regulatory, built into the market, he said.

The U.S. Food and Drug Administration hasn’t established a clear path to approval for the tests, creating uncertainty about their development. Further, the systems for handling all the data they create aren’t fully developed, in some cases leading to medical errors that threatened rather than saved lives.

“The promise of this has been around for a very long time,” Borho said in a telephone interview. “But it’s a complicated story. The ultimate outcome everyone wants is really targeted drugs with genetic marker so you know exactly if the drugs are going to work. We are still in the early days.”

To contact the reporter on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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