How Illumina Plans to Change Medicine Forever

By Todd Campbell Markets Fool.com

The more than 7,500 gene sequencing machines deployed at its clients are already reshaping drug discovery, but Illumina's (NASDAQ: ILMN) latest advance in gene sequencing could lead to explosive growth in personalized medicine. At J.P. Morgan's annual healthcare conference this week, Illumina reported plans to launch new machines that could reduce the cost of gene sequencing to as little as $100 -- an amount unthinkable a decade ago. Will these new machines accelerate the shift to personalized medicine?

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Image source: Getty Images.

Innovating our way to cures

Illumina pioneered genetic sequencing, and it's the largest maker of gene sequencing machines on the planet.

Its HiSeq X gene sequencing machine, which costs $10 million, was applauded for reducing the cost of gene sequencing below $1,000 earlier this decade, and now the potential to drop these costs to $100 someday may lead to a tidal wave of precision medicine research and development.

According to the company, its new NovaSeq series will begin shipping to clients this year, and these machines are its most powerful yet. NovaSeq cansequence from three to 48 human whole genomes per run. It can beused to conduct ultra-deep sequencing of matched tumor-normal pairs. It can also do large-scale variant discovery studies associated with complex diseases, and low-pass sequencing of seed banks to select for specific traits.

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In short, NovaSeq is a major advance in gene research that cuts costs, while boosting speed and accuracy.

"We believe that future systems derived from the NovaSeq architecture we are launching today one day will enable the $100 genome and propel discoveries that will enable a deeper understanding and better treatments for complex disease," said Francis deSouza, president and CEO of Illumina. "The NovaSeq Systems enable the study of genetic links between health and disease at an unprecedented scale by making it possible to sequence more samples at greater depth and take on projects that would otherwise be cost-prohibitive. By accelerating the trajectory of genomics with these systems, Illumina is making it possible to envision a future in which all people can benefit from precision medicine."

Image source: Illumina.

Capitalizing on innovative research

Illumina has priced the NovaSeq 5000 at $850,000 and the NovaSeq 6000 at $985,000, but while sales of the machines themselves could help drive the company's revenue higher, it's the demand for high-margin consumables used in sequencing that could make Illumina's top and bottom lines really shine.

Demand for gene sequencing hit a soft patch last year when uncertainty in Europe led to a slowing in sales in the first half of the year, and changes to research budgets slowed U.S. sales in the third quarter.

That slowing, however, could transform into growth again in 2017, as NovaSeq's cost and scale advantages prompt labs to open their budgets up a bit wider this year. If so, we could be about to witness a rapid increase in sequencing activity.

In the past, new systems that have lowered the cost of genome sequencing has resulted in researchers flocking to conduct new research and build upon new discoveries, which, in turn, has driven significant success for Illumina and its investors.

For perspective, since the launch of the HiSeq X, Illumina's trailing-12-month revenue has tripled to $2.37 billion. If genome sequencing costs fall from $1,000 to $100, that revenue could be the tip of the iceberg.

Looking ahead

While there's a lot of uncertainty surrounding the cost of medicine, there's little dispute over the importance of funding researchthat could lead to medical breakthroughs.

For example, Congress last year passed the 21st Century Cures Act, which provides an additional $4.8 billion for the National Institutes of Health, a major source for research dollars supporting next-generation medicine for cancer and dementia.

Gene sequencing alone won't cure cancer or Alzheimer's disease, but it can lead to a better understanding of these diseases and how to treat them. In my opinion, delivering on the potential of personalized medicine could be so disruptive that Illumina will go down as one of the most impactful companies of our generation.

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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.

The Motley Fool owns shares of and recommends Illumina. The Motley Fool has a disclosure policy.