Marc Vidal has nothing against his core lab. But back in 1998 when he first needed serious sequencing capacity, it was clear to him that the relatively low-throughput environment of university facilities wouldn't do. "What I've been interested in from a biological point of view is how proteins interact with each other and how they form networks and what biology can tell us about those networks," says Vidal, an associate professor of genetics at Harvard Medical School. "I realized very early on that I would have to, for one thing, clone a great number of genes — hopefully at some point all the genes — and that each one of those constructs would have to be sequenced."
With thousands of clones in mind, Vidal says, "if I wanted to set up every step of the protocol along the way in my own lab I just would never get there." The core lab — then at Massachusetts General Hospital and now at the Dana-Farber Cancer Institute — just wasn't built to accommodate that kind of volume.
So Vidal contacted Genome Therapeutics. Lynn Doucette-Stamm ran the sequencing lab there and expressed interest in Vidal's proposal: a sort of collaboration in which Doucette-Stamm's team would handle high-throughput sequencing and informatics. In exchange, Vidal, who could only afford to pay NIH-market rates for the work, would add the key sequencing people's names as authors on his group's papers.
That model was so successful that Vidal has continued working with Doucette-Stamm and her team through their transition to Agencourt Bioscience, which bought the sequencing services business from Genome Therapeutics in early 2003. Vidal's group and the Agencourt crew both see it as a team effort: Agencourt handles the sequencing, and Vidal works with the scientists there to help them set up their research efforts in protein-protein interaction mapping.
Vidal is one of many scientists who have turned to outsourcing. As more and more sequencing shops have sprouted in the last few years, vendors agree that demand for the service has gone nowhere but up. Agencourt Bioscience co-CSO Kevin McKernan points out that sequence data is entered into GenBank so fast "it's exceeding the rate of Moore's law.
The way Vidal sees it, the more sequence there is, the more sequencing will be needed. "Just take yeast geneticists," he says. "Since all the genes are sequenced and most of them are predicted, you get to these genes very quickly. But then they can make mutations like crazy — you can learn a lot from having 30 different alleles. Instead of sequencing it once, now you're going to sequence it 100 times."
There are myriad reasons for the shift to outsourcing. For one, the cost of sequencing has plummeted in recent years — thanks in large part to the cost-cutting efforts of the Human Genome Project centers — and promises to keep dropping. Carl Balezentis, CEO of sequencing giant Lark Technologies (recently acquired by Genaissance Pharmaceuticals), says an internal study of the sequencing market a year ago showed that prices had dropped 18 percent in the prior year and a half. "You will continue to see that," he predicts. McKernan says that high-throughput sequencing costs at his company are around $1 per reaction, including indirect expenses such as payroll.
With a high barrier to entry — top-of-the-line sequencers run about $350,000 plus all reagent costs — vendors' dropping prices are an increasingly attractive alternative to the significant and time-consuming investment of a personal sequencing facility.
Meanwhile, technology has improved so much that the actual process of sequencing has gone from what many considered an art to a far more technically precise and routine procedure, a crucial development in the path toward an outsourced service. And the universality of it — who doesn't need something sequenced? — means a market that could very well be big enough to support an entire service industry.
The old standby core facilities can't very well absorb the demand. In addition to the usual budget troubles, these labs face a growing backlog of projects, according to people who work there or are familiar with them. Last year, the Howard Hughes Medical Institute cut off funding to employees at various core labs around the US. CSO David Clayton explained at the time that many of the typical core lab activities were being performed just as well or better at private companies.
Industry watchers say that sequencing now is where primer synthesis was 10 years ago: formerly a staple of core and even individual labs, oligo synthesis today is almost impossible to accomplish without using a vendor.
In another few years, outsourcing could be just about the only option for sequencing. Before the dust settles, Genome Technology spoke with leaders at the biggest sequencing vendors — including Lark, Agencourt, SeqWright, and MWG Biotech — as well as the smaller shops to examine the state of the industry. Read on to find out who's outsourcing and why, the challenges facing vendors, what you should consider before you choose, and what's next in the outsource pipeline.
The primary reason for outsourcing is the most obvious: money. Though people who run their own sequencing centers arguably get a better cost per reaction than they would by paying another company, building up the center in the first place can be prohibitively expensive.
That's true even for major companies with sizable coffers, says McKernan at Agencourt. "The cost of equipment in DNA sequencing or any sort of genetic evaluation turns over every two years. Most of the pharmaceutical companies are thinking twice about reinvesting in core labs" when they can outsource and not have to shell out the money for new instruments and staff, McKernan says. And for smaller biotech companies or academic labs, the resources to build up even a small genome center often aren't available.
Money investment isn't the only consideration: people time is a huge factor as well. Richard Ingram, a senior scientist at Schering-Plough who uses GeneWiz for his sequencing needs, says his protein engineering and biochemistry group looked into outfitting its own facilities because of all the sequence verification needed before a protein can be sent to a crystallographer. "The main problem was not only was the instrument fairly expensive — a basic sequencer is $100,000 to $150,000 — but we really didn't want to be in the position where we had to spend our time sequencing," Ingram says. "We need the sequence, we don't want to do the sequence."
Meanwhile, scientists seem to be growing less enamored of their core facilities, according to vendors whose customers include former core-lab users. Sequetech clients are a good example, according to VP Neil Chin. "Customers … have come to us because they've had to wait for more than a week for their [results]," he says. Unlike core labs, which might run sequencers twice a week, his company can do same-day or overnight sequencing. Of course, the service comes with a price: losing the time delay means higher prices than at a grant-subsidized core. But as more and more people migrate from their cores to outside vendors, it's clear that turnaround time is a key factor for researchers.
The premium of using a vendor also means better customer service and informatics than many cores are able to offer. Ingram, who spent some $50,000 last year on sequencing, has the option of using a Schering-Plough core, but he still prefers GeneWiz. The in-house facility was "expecting a lot of intellectual input from us," he says. "We would have to design the primers and send them" — services that GeneWiz takes care of for him, freeing up time and lab resources. "It's so fundamentally important" to get the data exactly right that "it's a place to spend an extra couple of bucks" for superior service, he says.
In some instances, outsourcing is not the end goal. People thinking about setting up their own sequencing facilities will often perform pilot projects through vendors to make sure they're going to get the kind of data they need. "Especially with the higher-technology, riskier areas, [this] gives them a way to validate their contribution before they make a large investment," says Michael Liebman, CSO of the Windber Research Institute, which is currently developing quality- control procedures so the institute can sell its excess research capacity to outsourcing customers.
Everybody's Doing It
Outsourcing to vendors was once the purview of wealthier researchers, such as those at big pharma. Academic researchers who didn't have their own sequencers were far more likely to send samples to a core lab, and scientists at very small companies were, well, up a creek.
But with prices falling and big vendors offering services for low-throughput projects (Agencourt, which used to only accept projects that could fill a 384-well plate, can now take a single tube), everyone's getting in on the action.
Just about every vendor Genome Technology interviewed has a customer list that runs the gamut from individual researchers at small labs to top-20 pharmaceutical firms to government research. Since Agencourt started working with customers needing only one or two samples sequenced, "the number of clients is actually skyrocketing," McKernan says.
To be fair, there are still plenty of researchers performing sequencing in-house. Andrew Carmen, genomic operations manager at the La Jolla, Calif., branch of Johnson & Johnson's Pharmaceutical Research and Development, says that's still the first choice for his company. "If we have a very quick turnaround need we'll go to some other vendor for sequencing," he says, but the preference is always to use the local core lab, or even to ship a sample to another J&J facility. "It's still quite a bit cheaper for us to sequence internally," he explains.
But Carmen seems to be in the minority, and it sure looks like sequencing core labs are going the way of their oligo-making predecessors. Some of them are being outsourced lock, stock, and barrel to vendors like Lark: "We have a number of core labs that we've filled in for," says CEO Balezentis — some occasionally, some permanently. That goes for labs in biotech and pharma companies as well as the academic ones.
McKernan notes that as core labs are outsourced, institutions can take that money from their budgets and build other core labs for newer technologies, such as mass spec.
Meet the Vendors
Like their customers, vendors are as varied as you'd imagine. Because most companies are privately held, it's impossible to get information on how much market share each commands. Most companies are even cagey about revealing data on throughput or capacity, so it's hard to tell exactly how they stack up.
Of the better-known players, Houston's Lark started 17 years ago as a Baylor College of Medicine spinout; SeqWright, also in Houston, has been around for nearly a decade; and Agencourt's the relative newbie, founded in June 2000 in a Boston suburb. All use the ABI 3730 — up to 50 of them — as their primary workhorse and offer services from small, custom projects all the way up to high-throughput efforts. Agencourt runs some 20 million lanes per year for its NHGRI contract, and says its commercial effort is slightly smaller but growing.
Germany's MWG Biotech is following closely. To achieve the best economies of scale, all high-throughput sequencing is done in its facility near Munich, while custom sequencing can also be done in MWG's shop in Greensboro, NC, according to Marcus Droege, international product manager. MWG kicked off its sequencing service in 2000 as a way to get more out of the capacity it had built up four years earlier when it established an in-house sequencing center with Li-Cor Biosciences, Droege says. Capacity runs at 7 million bases per day, he adds, "and if we participate in larger projects we have the opportunity to expand."
The smaller players and boutique vendors are a different story. Erik Avaniss-Aghajani, former director of the UCLA sequencing facility, saw demand growing like crazy and started Laragen as a sequencing shop in 1999. His Los Angeles-based company handles volumes from 300 to as many as a couple of thousand reactions a day with gel-based ABI 377 and capillary MegaBace instruments. Still, he says, "we can accommodate everything from one or two samples to a genome project."
There are plenty more. GeneWiz in North Brunswick, NJ, has been a sequencing vendor for five years; President Steve Sun says his lab uses ABI 3730s and 3100s. Competitor Sequetech in Mountain View, Calif., was formed in 1989 and uses ABI 377s as well as the 3730. A basic Google search for sequencing vendors turns up several others (see box below), mostly boutique shops.
'Competition is Fierce'
With all those players in the market, no wonder vendors are experimenting with new ways to woo customers. Shops offer all sorts of services to get people to sign on — same-day service, pick-up options for your samples, and facilities that run around the clock so you can get results in the morning after dropping off samples late the day before are just a few examples of how vendors try to be extra-attentive
"Competition is fierce," says MWG's Droege. Many vendors try to distinguish themselves from their peers by offering niche services. Lark, for instance, is both GLP and GMP compliant, meaning that data from its shop can be used in cases such as manufacturing where highly stringent quality control is imperative. SeqWright is also approved for GLP-quality data.
A number of companies are increasing their internal quality-control measures to lure customers with data that could wind up in the hands of the FDA. "As more and more of this data's being used in the drug development process and pharmacogenomics ... there's much more rigorous demands on the reporting of the data and the tracking of the data," says Paul McEwan, co-CSO of Agencourt, which started its line of FDA sequencing in the past year. Part of those demands mean a very sophisticated LIMS — at Agencourt, that entails an Oracle database with a customized software package and tracking that starts from sample acquisition to barcoding all the way through to spitting out final results.
With the premium pricing vendors can charge for such carefully processed data, this kind of sequencing is making a considerable difference to the vendors' bottom line. Fei Lu, CEO of SeqWright, says that less than one percent of her company's sample capacity is taken up by sequencing that requires GLP standards — but that same work makes up 10 percent of the company's revenue.
Sequencing shops also try to differentiate themselves with the scientific background of their staff and advanced bioinformatics options. Agencourt's 10 resident PhDs give customers expertise in everything from libraries to assembly, and then results can be sent off to a number of groups the company has bioinformatics alliances with if a customer wants in-depth analysis.
"Bioinformatics is a very important point," Droege says. "Our customers don't want sequence information. They would like information on what genes are expressed in what organisms. Without having bioinformatics it's rather difficult to sell a high-throughput sequencing service."
Oligo or Telecom?
As vendors struggle to outdo each other, the real question is, in another five years, will sequencing still be compared to the successful oligo synthesis model — or will the massive volume that's been built up mean sequencing follows the telecom debacle, where too much capacity paired with cutthroat pricing killed an industry?
Clearly, with vendors eagerly jumping into the field, no one's anticipating a major collapse. SeqWright's Lu and Agencourt's McKernan both say their shops are always running near full capacity, and that most spare cycles are deliberately planned to accommodate customers with emergency projects.
MWG's Droege believes there is more sequencing capacity than demand calls for at the moment, but expects that demand will catch up to remedy the situation. "Everybody's aware that sequencing is the basis for biotechnology," he says. "These overcapacities will somewhat decrease."
But McKernan believes that overcapacity isn't a real problem. "If there is any excess capacity out there it's only because of price, not demand," he says. As prices keep falling, he predicts that demand will continue to explode — making sequencing more accessible than ever.
Pricing is indeed a key factor for this market. The boutique shops in particular resent having to compete with grant-subsidized, nonprofit core labs for their customers. Neil Chin at Sequetech believes that even for-profit competitors "are pricing services below their cost." That could put the price-cutter out of business — or force other vendors to set prices too low to pay their own costs.
Either way, there's consolidation afoot in the field. No matter how high demand may be, it's likely that many of these smaller shops will be bought up or put out of business by their bigger brethren as the sequencing outsource market matures. Even now, says Ken Paynter at SeqWright, "a lot of the companies are really having to fight to stay around. You'll see a lot of them closing down." Droege concurs, giving it "two or three years" to see significant changes in the players in the market.
That sequencing is fast becoming a commodity is not the only reason outsourcing is gaining popularity, according to the Windber Research Institute's Michael Liebman. There's also the need for cleaner-cut IP. "In one sense it's sort of like what you used to do in a kind of academic collaboration" — for instance, a pharmaceutical company teaming up with a genome center to sequence various genes of interest — "except now by outsourcing, you own the results as opposed to share the results," he says. "That makes it somewhat cleaner in some people's minds in terms of IP."
It's certainly true that intellectual property is becoming a thornier issue in the genomics arena. Going forward, clear ownership of patents and other IP will be even more critical than it is today, especially as the legal landscape continues to evolve with new biotech challenges. That's why people like Kevin McKernan at Agencourt Bioscience point out that "we have no strings attached to the data."
SHOULD YOU OUTSOURCE?
According to admittedly biased vendors, scientists deciding whether to outsource or keep working in-house often forget to take all the costs into account. For your tally, here's a list of the most common costs associated with keeping it in-house:
Equipment: In addition to initial outlay, you'll have the expense of depreciation over time, as well as the ongoing reagent costs.
LIMS: If you're going to have any volume of work, you'll need to account for a system to track samples, data, and anything else that has to be associated with your project. Informatics: In many cases, you can't use the raw data. Expect to pay for analysis software, and possibly someone to run it.
Salary: For technicians, LIMS writers, and anyone else whose time will be invested into keeping the facility running.
Opportunity cost: What else could you have bought with the money if you didn't invest it in the infrastructure, and how much would that be worth to you?
HOW TO CHOOSE A VENDOR
Top tips from vendors and customers on how to choose who's right for you:
Reputation: Many of the smaller vendors rely on word of mouth to get customers. Find out which vendors your colleagues use, and why. It's easy, free, and provides better feedback than trying to pick a vendor based on a website.
Years in business: It's no guarantee of quality, but the longer a vendor has been around, the more chance it's had to fail miserably if its services are poor. As the theory goes, a survivor must be doing something right.
Staff background: You might think any lab tech can run a sequencer, but just wait till you have a problem with your data. Some customers prefer to patronize vendors whose employees have scientific, rather than technical, expertise because they'll be better able to understand data, trouble-shoot, and make any tweaks a customer might need for particular experiments.
Special services: Depending on the kind of work you're doing, perks such as overnight sequencing, pick-up service at your front door, or same-day sequencing might help you choose a vendor who's willing to go the extra mile for you.
Quality, time, and money: In that order, says Dalia Cohen, Novartis' global head of functional genomics — that's how she benchmarks vendors looking to get a piece of her pharma's outsourcing needs.
SEQUENCING SHOP SAMPLER
A simple Google search for "DNA sequencing service" turns up any number of vendors, large and small, that perform sequencing for customers. What follows is a list of some of the shops that came up in our search, as well as the companies' locations. For vendors that offer services in addition to sequencing, we highlighted a few examples based on information from their websites — but this list is not meant to be comprehensive, nor should the services shown here for various vendors be considered exhaustive.
Agencourt Bioscience, Beverly, Mass.
SNP discovery, library construction, protein interaction mapping
Agowa, Berlin, Germany
Library construction, clone picking, mapping
BaseClear Lab Services, Leiden, Netherlands
Cloning, mutagenesis, gene synthesis, library screening, genotyping
Bio S&T, Montreal, Canada
BAC library construction, mutagenesis
Elim Biopharmaceuticals, Hayward, Calif.
DNA purification, oligo synthesis
GeneWiz, North Brunswick, NJ
Genotyping, cDNA libraries
Genome Express, Grenoble, France
Library construction, SNP discovery, gene profiling, genotyping
Laragen, Los Angeles, Calif.
Genotyping, quantitative and real-time PCR, bacterial/fungal identification
MWG Biotech, Ebersberg, Germany; Greensboro, NC
Library construction, annotation
Northwoods DNA, Bemidji, Minn.
Qiagen, Hilden, Germany; Tokyo, Japan
Sequegen, Worcester, Mass.
Sequetech, Mountain View, Calif.