Guest Commentary
Why has Illumina stock lost one third of its value in the 12 months from August 1, 2023 to August 1, 2024? Why are some scientists, such as those I have heard at genomics conferences, discussing the potential end of the Illumina era?
I wish I knew. In this commentary, I will outline the reasons I do not share this skepticism. After all, Illumina has dominated the next-gen sequencing (NGS) space for close to 15 years, has incredibly strong fundamentals and still controls a decisive majority of the NGS market, despite facing much stiffer competition over the past couple of years.
Illumina is so large that it was able to spend $1.3 billion on research and development in 2023 and still reported a gross profit of $2.7 billion in 2024. None of Illumina’s competitors are close to having this level of assets to spend on R&D even as gross revenues. (A new competitor, Element Biosciences, recently reported a $277-million Series D round.) Even accounting for the GRAIL debacle, Illumina has excellent cash flow and is well positioned compared to its competition. So why do some observers keep predicting the downfall of Illumina?
Rising to the top
Since I started working in genomics back in 2006, Illumina has been the driving force in the sequencing space. They have beaten back a string of competitors including 454, SOLiD, Helicos, Complete Genomics and Ion Torrent. Each of these companies introduced alternative methods of NGS, yet none of them emerged as an equal competitor. Ion Torrent (which was acquired by Life Technologies/Thermo Fisher Scientific in 2010) remains a niche player in clinical testing with a small group of dedicated users. This provides some consistent revenue for Thermo, but is a small fraction of the company. As such, Ion Torrent receives little investment and development.
Complete Genomics is now a subsidiary of Chinese company MGI. Due to patent and geopolitical concerns, some customers in the United States are reportedly reluctant to purchase instruments from Complete. There have been numerous patent infringement cases between Illumina and MGI. Even though these cases have been resolved, many genomics professionals are still mindful of potential IP issues.
According to a recent DeciBio report, Illumina has more than 90% market share of clinical genomics testing and its platforms have become deeply embedded in many clinical companies. For example, the assays that Foundation Medicine, a leading provider of genomic cancer tests, uses have been run on the Illumina platform for more than a decade. The variant database, error-correction software and annotation tools have all been developed based on Illumina sequencing. Additionally, all of the molecular biology reagents that the company uses have been specifically designed to optimize DNA samples for Illumina sequencing.
Any lab or organization switching to an alternative sequencing platform would require an almost complete revalidation and reinvention of the product. Even switching an assay from the NovaSeq to the NovaSeq X to accommodate a minor upgrade from Illumina requires extensive validation and approval from the U.S. Food and Drug Administration (FDA). This same reasoning applies to the newly public Tempus, Caris, Invitae or any other clinical sequencing company.
Unless you are able to get into the clinical market, it is very difficult to make real money and impress shareholders in genomics. If you stay in the research market, revenues are basically dependent upon what percentage of the NIH budget you can get. In contrast, if you get a test that is run on all people (early cancer screening), non-invasive prenatal testing (NIPT—most pregnancies) or precision oncology (most cancer patients), the market is huge. For now and the foreseeable future, the majority of these population tests will be run on Illumina.
Critics will argue that there is a strong group of competitors nipping at Illumina’s heels from all angles. I don’t dispute that: On the medium-throughput level, Element’s AVITI instrument is selling strongly. On the high-throughput level, the Ultima Genomics UG100 promises to greatly reduce the cost of sequencing. Meanwhile, Oxford Nanopore and Pacific Biosciences continue to push long-read sequencing and stress their superiority over short reads.
Three reasons
While these companies are all worthy competitors, I would argue that none of them will be able to make a significant dent in Illumina’s market in the foreseeable future, for at least three reasons:
- The genomics industry has become strongly integrated and users are looking for a complete solution from DNA to report. Using Illumina, a researcher can easily obtain commercial products for every piece of the wet-lab and informatics pipeline. These competitors lack the full ecosystem and require customization and development. Illumina and its partners have worked for a decade to integrate all aspects of the pipeline to produce an optimal output.
- Scientists are reluctant to develop a clinical test of a new and experimental technology. Suppose I develop a full clinical test on a new platform, spending millions of dollars to perfect the assay and get everything approved by CLIA and the FDA. Then, the instrument stops being supported, either because the manufacturer is acquired for patents or it goes bankrupt. Much of the funding that was sunk into this development and validation will be lost. A percentage of the product development can be salvaged for a different sequencing platform, but the adaptation to the new platform will be extremely costly. Failures and killer acquisitions have happened throughout the technology industry including in genomics.
- Scientists are reluctant to develop a clinical test of a new and experimental technology. Suppose I develop a full clinical test on a new platform, spending millions of dollars to perfect the assay and get everything approved by CLIA and the FDA. Then, the instrument stops being supported, either because the manufacturer is acquired for patents or it goes bankrupt. Much of the funding that was sunk into this development and validation will be lost. A percentage of the product development can be salvaged for a different sequencing platform, but the adaptation to the new platform will be extremely costly. Failures and killer acquisitions have happened throughout the technology industry including in genomics.
- The market remains lukewarm to long reads. Long reads allow for alignment to these regions and give a more complex understanding of sequence-level human variation. They are also important for identifying structural variants throughout the genome. But the shortcomings of short reads have been well known for a long time. (I even had a whole analysis of them in my dissertation that I defended back in 2009!)
For about a decade, long reads were too expensive to be used on a large scale. The cost of an Oxford Nanopore or PacBio genome was many times that of an Illumina genome, making long-read sequencing difficult to justify in a clinical or research context. The costs of short and long reads have now converged (although long reads are still slightly more expensive). Even so, the market hasn’t taken notice. Clinical labs at hospitals and service providers are still primarily focused on Illumina short reads while long reads remain a niche category. Clinicians have not found a reason to make a large-scale switch to long reads.
Final thoughts
As I see it, Illumina is poised to maintain its NGS lead for at least the next 5 or 10 years. The company has a completely integrated workflow and an established leadership position in the genomics world. In contrast to their competitors, they have been profitable for many years and have substantial free cash flow that can be used for R&D.
A substantial benefit for the genomics community is that the emerging competition is pushing Illumina to innovate and not sit on its laurels. For many years when there was limited competition, Illumina appeared to restrain its development teams and capitalized on its leadership in the market. Rather than rushing new advances to market, it favored incremental improvements that were typically announced at the annual J.P. Morgan Healthcare Conference. This is no longer the case given the increased competition. Similarly, Ultima’s promise of a sub-$100 genome has caused price cutting across the industry.
While Wall Street investors might not recognize it, Illumina is still the top genomics company and has a substantial head start on its competitors. Clinical sequencing for cancer, fertility and Mendelian diseases will continue to grow. As the main supplier of sequencing hardware, any increase in sequencing demand will still be a win for Illumina.
Jeffrey Rosenfeld, PhD, has more than 15 years of experience in precision medicine, genomics and bioinformatics. Most recently, he was executive director of genomics and bioinformatics at Tonix Pharmaceuticals. Previously he was an associate professor of pathology and laboratory medicine, manager of the bioinformatics core and technical director of the genomics service at the Rutgers Cancer Institute. He has been a long-time research associate at the American Museum of Natural History. Email: [email protected]
