March 17, 2011
Boom Times for Genomics Startups
Investment is picking as sales of gene sequencing machines surge
On Feb. 28, Japanese pharmaceutical maker Daiichi Sankyo agreed to pay $935 million for Plexxikon, a Berkeley (Calif.) biotech startup that has a new treatment for melanoma. Plexxikon's drug stops cancer cells from producing an enzyme that tells the nucleus to "divide, divide, divide," says Plexxikon Chief Executive Officer K. Peter Hirth. By inhibiting the enzyme, the drug can halt the division and keep the cancer from growing.
Plexxikon was able to develop the drug because researchers using a gene sequencing machine had mapped the genomes of melanoma cells and found a key mutation. The machine was made by Applied Biosystems, one of a slew of genomics pioneers that are reshaping the pharmaceutical industry. Drugmakers use sequencers from genomics companies to peek inside diseased cells to find aberrant genes that trigger illness or cause it to flourish. "We would not have this drug now without the sequencing efforts," Hirth says.
The mapping of the human genome, completed in 2003 using technology developed by Applied Biosystems and other companies, promised an era in which drug discovery might be based on a systematic analysis of human genes. That's finally starting to happen. On Mar. 9, U.S. regulators approved Benlysta, the first new drug for lupus in 52 years. Benlysta was developed by Human Genome Sciences using genetic analysis to find proteins that are a cause of lupus. And in September, Denmark's Santaris Pharma began a trial of a hepatitis C drug that blocks the activity of genetic material needed by the virus to grow in the liver.
Driving the new drug development are some 30 genomics companies, mostly in California, Massachusetts, and Britain. Sales for the industry were about $3 billion in 2010 and are likely to grow 10 percent annually for the next five years, Deutsche Bank (DB) estimates. Gene sequencing machines, typically costing anywhere from $80,000 to $700,000, help pharmaceutical companies, university research labs, and even agricultural companies analyze cells from blood, saliva, cancerous tumors, or bacteria. The sequencers read strings of chemical code that turn into proteins, enzymes, and other molecules, comparing billions of data points on the twisting, ladder-like structure of DNA to create a precise gene map and identify genetic mutations.
The sales growth has sparked an investment surge in genomics startups. Such companies have seen venture capital funding rise 23 percent since 2007, to $261 million, even as support for biotechs fell 31 percent, according to the National Venture Capital Assn. At least 40 genomics companies have been acquired in that time, according to data compiled by Bloomberg. "The genomics revolution is here now," says G. Steven Burrill, chief executive officer of Burrill & Co., a San Francisco life sciences venture capital firm.
The industry's biggest player is Life Technologies (LIFE), a Carlsbad (Calif.) company that has seen its sales more than quadruple over the past two years. Growth has been supercharged by the half-dozen acquisitions Life Technologies has made since 2008, including a $6.4 billion deal for Applied Biosystems, the company behind the machine that helped Plexxikon develop its melanoma treatment.
Life Technologies' chief rival is San Diego-based Illumina (ILMN). Its revenue jumped 34 percent last year, to $843 million. Illumina, too, has been on a buying spree, with five deals in the past five years, including the 2006 purchase of Solexa for $482 million. That startup from Britain's University of Cambridge created a new way to map DNA by adding fluorescent tags to each molecule, and its technology accounts for more than half of Illumina's revenues, the company says. Illumina has about two-thirds of the market in the most technologically advanced sequencers, says Deutsche Bank analyst Ross Muken. Illumina "is the preeminent company in the space, the clear technology leader," he says.
With so many companies piling into the market, analyzing genes is getting both cheaper and faster. The Human Genome Project took 13 years and $2.7 billion to complete the first map of the 3 billion pairs of gene bases found in every human cell. Using the latest machines from genomics companies, an entire human genome can now be sequenced in under a day for less than $3,000. "No one believes this market will slow down any time in the next 10 years," says Illumina CEO Jay Flatley. "There's an infinite number of things to get sequenced."
The efficiency gains in gene mapping are leading to new uses for the technology. Agricultural companies use genomics to help design genetically modified plants that are sturdier or more resistant to parasites. Cleantech entrepreneurs are splicing genes in the search for greener fuels. And the U.S. Food and Drug Administration is ordering a $695,000 sequencer from Pacific Biosciences of California to compare E. coli and other bacteria from across the country. The machine will help agency scientists determine the source of outbreaks. "If you're interested in food safety and you want answers quickly," says Hugh Martin, Pacific's CEO, "this technology is going to be key."
The bottom line: Genomics startups are helping to reshape the pharmaceutical sector and other industries from agriculture to energy.