By Joseph Walker
With its $13.6 billion acquisition of Life Technologies Corp.
(LIFE), Thermo Fisher Scientific Inc. (TMO) is expected to enter
the competitive but growing market for genetic sequencing--the one
area of laboratory equipment it has shied away from while growing
into the world's largest maker of life sciences tools.
The addition makes strategic sense for Thermo Fisher as it looks
to broaden its array of product offerings, giving the company
greater purchasing power and scale to take market share from
competitors. As sequencing technology becomes cheaper and more
accurate, it will increasingly become used to diagnose and treat
diseases like cancer, and could eventually grow to become a $3.6
billion market in the U.S., according to Jonathan Groberg, an
analyst at Macquarie Capital Inc.
"We're very enthusiastic about the potential of Life
Technologies' next-generation sequencing platform," said Thermo
Fisher Chief Executive Marc Casper during a conference call with
analysts. "We like the prospects of the next-gen[eration]
sequencing business and understand that it's a No. 2 player, but
that it has been gaining share recently and has a very exciting
technology pipeline."
But the new business also carries risks, including the need for
continual and large investments in research and development to keep
up with market leader Illumina Inc. (ILMN). In addition, the dream
of personalized medicine fueled by genetic analysis is still years
away, many observers said, adding uncertainty for investors.
"Since the technology is still in its early stages, it's very
hard to predict who will win among the existing players," said Alex
Morozov, analyst with Morningstar Inc. (MORN).
Thermo Fisher's Mr. Casper, who became chief executive in 2009,
is known for his focus on spending discipline and operational
efficiency. Life's next-generation sequencing business, by
contrast, is estimated to comprise a third of the company's
research and development budget but less than 10% of sales and is
not yet profitable.
Life's sequencing technology, which it acquired through the 2010
acquisition of Ion Torrent Systems Inc., has had setbacks in
meeting expectations for accuracy and cost, but it is also
considered among the most promising in so-called next-generation
sequencing. With its computer chip technology, the company has said
its machines will benefit from Moore's law, the theory that the
processing power of semiconductors doubles roughly every two
years.
Meanwhile, sequencing also could be a hedge against threats to
Thermo Fisher's more traditional diagnostics and biomarkers
business, which use biochemical analyses of substances like urine
to test for susceptibility to disease and responsiveness to
different drugs. Advocates of sequencing believe that genetic
testing will eventually supplant many of the tests that Thermo now
makes.
"Thermo has a lot of technologies today in diagnostics that over
the years could end up being cannibalized by sequencing,"
Macquarie's Mr. Groberg said. "So it's always better to have a
product yourself than to have someone else take that share from
you."
In an interview, Thermo Fisher's Karen Kirkwood, vice president
of communications, said the company hoped to add sequencing to its
clinical services division. The division, which assists in
early-stage studies of new drugs for pharmaceutical and
biotechnology companies, comprises roughly a quarter of the
company's $12.5 billion in annual revenue.
Genetic analysis could help make drug development more effective
and efficient by pinpointing which patients have genetic mutations
that are likely to respond to experimental drugs. The tests, known
as companion diagnostics, also could be used once the drugs go to
market.
"We think it could really have a profound impact on healthcare
in the long-term, in areas like companion diagnostics" and others,
Ms. Kirkwood said. "Those are future ideas, but next-generation
sequencing is a huge step for us to go in that direction."
Just how quickly sequencing will deliver "personalized medicine"
is still unclear. Many physicians and analysts predict it could be
as many as five to 15 years before the tools are used effectively
in clinical settings. Part of the problem is that sequencing
machines are capable of mapping a whole genome, the entirety of a
person's genetic code, but are still too expensive to be done a
regular basis.
Meanwhile, scientists are still unable to make sense of the
majority of data produced by genome analysis. While there has been
progress in sequencing technology, it hasn't been as rapid as many
predicted when the first human genome was sequenced more than a
decade ago.
"We haven't sequenced enough genomes yet, and we don't know what
to do with the data we've already got," said Les Funtleyder, a
health-care strategist at Poliwogg Holdings, Inc. "It hasn't lived
up to the very high hopes people had in 2000, and everyone's a
little gun shy about predicting when the next big thing will
happen."
Write to Joseph Walker at Joseph.Walker@dowjones.com
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