Gene-Sequencing Warrior Illumina C.E.O. Jay Flatley is moving fast to outmaneuver rivals in a futuristic industry that stands to make billions of dollars off your DNA.

By David Ewing Duncan

entrepreneur daily

Jay Flatley wants your DNA. In fact, he wants everyone's DNA. He would love to sequence the genes of everyone on earth.

Short and scrappy with closely cut white hair and laser-blue eyes, Flatley has been making some bold tactical moves to position his San Diego-based company, Illumina, at the top of an industry that he says should have total revenue of more than $3 billion by 2012. He reckons DNA sequencing generates about $200 million today.

DNA sequencing could be worth far more to the pharmaceutical industry if the promised genomics revolution finally takes hold and the development of drugs based on intracellular molecular mechanisms begins to produce rafts of new therapies.

Tools to sequence DNA have been evolving rapidly of late, growing according to a sort of mega-Moore's Law. In less than a decade, Illumina and its competitors have moved from chips that identified a few dozen genetic markers to microarrays that scan for more than 1 million markers in a matter of hours. And this type of sequencing now costs only a few hundred dollars.

Microarrays and other technologies have recently been augmented by next-generation sequencers-so-called next-gens-that use novel approaches to speed up the much more complex task of sequencing whole sections of the human genome.

Arrays sequence only the small sections of DNA-single pairs of nucleotides, in most cases-that differ among people and which give clues to whether or not someone is at risk of contracting cancer or some other malady. (For more detail, read "Welcome to the Future" from the November 2007 issue of Cond� Nast Portfolio.)

Full sequencing of a person's genes and genome-all 6 billion nucleotides that make each of us who we are-yields a much more thorough picture of the proclivities hidden our DNA. The cost, however, was so high that only four people have had their entire genome scanned: geneticists James Watson and Craig Venter and an anonymous Chinese man sequenced at the Beijing Genomics Institute; and an anonymous African sequenced by Illumina.

Sequencing the genomes of James Watson and the Chinese man took about two months to complete and cost about $1 million, down from $3 billion and more than a decade for the human genome project completed in 2003.

Knome, a startup based in Cambridge, Massachusetts, is charging $350,000 for sequencing and analysis, while Illumina this week claimed to have sequenced a complete genome for about $100,000, taking only about a month.

A year ago, Illumina purchased a next-gen sequencing company, Solexa, for $600 million. This transformed Illumina from an array company to one with a platform that can test both genetic markers and entire genes and genomes. "We are merging arrays with sequencing, which allows us to fine-map sections of the genome," Flatley explains.

The company has already sold 200 Genome Analyzer sequencers, which are based on Solexa technology, to research labs and pharmaceutical companies.

A month ago, Illumina said it was reorganizing into two divisions-a life-sciences unit that will develop and market machines and tools, and a new diagnostic-business unit that will develop tests to find cancer, diabetes, and heart disease.

The diagnostic unit has developed a partnership with DeCode Genetics in Iceland, a leading gene-hunting company that has discovered markers linked to heart attacks, restless legs syndrome, and other medical problems. Many of these genes were discovered using an Illumina system that fills a large room in DeCode's Reykjav�k headquarters.

Flatley is supplying the gene-reading arrays for 23andMe, the new online-genetic-testing company funded in part with Google money-which bestows Web 2.0 buzz on Illumina and makes the company stand out in the rather stodgy biotech industry. Illumina technology is also the backbone of DeCodeMe, DeCode's online answer to 23andMe.

In addition, Illumina announced the settlement, in January, of a patent-infringement suit with archrival Affymetrix. That company had sued Illumina in 2004 and won the first round at trial in March 2007, the jury awarding Affymetrix $16.7 million. Illumina appealed and was facing a second round of trials this month that might have cost it tens of millions of dollars or more, but opted to settle for $90 million, admitting no liability.

"This is a one-time payment that covers the past, present, and future," Flatley says. Illumina did not admit liability. "We wanted this to go away and not be a distraction," Flatley says.

While Illumina is poised to compete in three markets-arrays, diagnostics, and next-gen sequencing-it is also taking on a host of feisty competitors in what is promising to be a wild ride during the next three or four years. These competitors include, besides Affymetrix, Applied Biosystems Group, Celera Group, Helicos BioSciences, and Roche Diagnostics.

Over the past two years, investors have responded to Illumina's expansion by more than doubling the value of the stock, giving the company a market cap of just more than $3 billion.

The stock shot up $13 in January on news of the lawsuit settlement and company reorganization, and has been dipping and bobbing near this high during the past month.

"Genomics is coming of age, and we're the first to fully integrate the different technologies," Flatley says. "We are in the best position to lead this industry."

Visit Portfolio.com for the latest business news and opinion, executive profiles and careers. Portfolio.com© 2007 Condé Nast Inc. All rights reserved.

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