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In Distribution Deal with 454, Roche Shrewdly Gains Diagnostics Option

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Update: In an e-mail, ABI spokesperson Lori Murray said ABI believes capillary electrophoresis will be the “gold standard” in DNA sequencing for “several years,” not the two- to three-year range previously cited.

In a recent distribution deal with 454 Life Sciences, Roche Diagnostics has aligned itself with the developer of a next-generation gene-sequencing technology. But besides diving into the genome-sequencing market — an unorthodox arena for Roche to play in — the Swiss giant has hedged its bets and obtained an option to create diagnostics using 454's pyrosequencing technology.

By allying itself with 454, in other words, Roche now has the option to pounce on the sequencing platform if and when the technology is shown to have a diagnostic application. Equally important, the deal also frees Roche to look for other revenue and application streams once guaranteed by its dominance in the PCR sector.

Roche must "move out of PCR — it has finite applications, and molecular testing is evolving into miniaturization, into more sequencing, more patterns, more of that type of thing that PCR can't do," said Shara Rosen, an analyst with Kalorama Information, an industry consultancy based in New York.

According to its agreement with 454, Roche has exclusive worldwide distribution rights in all application markets — with the exception of diagnostics. However, during the first five years of the agreement, Roche has exclusive rights to negotiate its distributions allowances to include the regulated diagnostics market.

Last week, 454 named Christopher McLeod, an executive vice president of CuraGen, as its president and CEO. Jonathan Rothberg has stepped down as CEO of CuraGen to become chairman of the board of 454 Life Sciences. He is replaced by Patrick Zenner, a CuraGen board member, on an interim basis until a new CEO has been found.

Yet "since Roche is holding an option to negotiate diagnostics rights, rather than taking those rights up front — something of an unusual move — Roche itself is probably uncertain of the clinical diagnostic potential of the technology," cautioned Kenneth Krul, a colleague of Rosen's at Kalorama, in an e-mail to Pharmacogenomics Reporter.

454, a subsidiary of CuraGen, will manufacture instruments and reagent kits, and Roche will possibly take over reagents if sales ramp up, the companies said in a statement.

Changing Markets, Hedging Bets

As the market for traditional Sanger-sequencing platforms cools down, several companies, including 454, have been busily striving to develop faster, cheaper technologies to replace them. However, most of these emerging technologies are largely untested; only 454 has produced a working platform. Some rivals are expected to follow suit later this year, and each will likely have to pass through a research-market gauntlet before they are considered for molecular diagnostics applications.

Roche is probably putting off licensing diagnostics applications from 454 "because the market for sequencing diagnostics is far from being established," said Krul. "They don't want to pay for something that may not materialize or will materialize only in the long term," he said.

Roche will probably see how the technology pans out in research-only situations before committing to diagnostics, he added.

Lori LeRoy, a Roche Diagnostics spokesperson, said Roche envisions "possible new applications" for 454's technology. These include: comparative sequencing of microorganisms; sequencing environmental samples; large-scale human exon sequencing in cancer research; and deep sequencing.

Despite the deal with Roche, 454 is still very much a start-up. Since it was founded in 2000, the company placed just one of its platforms with the Broad Institute in late March. That instrument is "very new," and Broad researchers have only "played around with it" without fully evaluating its performance yet, according to a spokesperson for the institute. 454 claims its instrument will sequence 5 million bases per hour.

Multiple calls seeking comment from 454 Life Sciences and its parent company were not returned.

Diagnostics in High Speed

Initially, Roche and other companies that embrace new sequencing technologies early on will probably focus on diagnostics in the field of drug pharmacogenomics such as cardiovascular, cancer, and psychotropic therapies, said Krul. The next step might be identifying drug-resistant microorganisms, especially in public health and bioterrorism settings, he said.

"The new technologies fit in where you've got a more complicated story — where you want to analyze a very large number of different sequences all at once," including situations in which several genetic regions predispose disease, while others protect against it, such as in oncology, said Tony Smith, CEO of Solexa, a potential 454 rival.

Roche Diagnostics has become the exclusive distributor of Exiqon's expression analysis ProbeLibrary Kits, the companies said in a statement this week.

The real-time PCR-based kits are intended for gene expression analysis and target validation of microarray experiments with the "potential for the design of [more than] 2.5 million assays in seven organisms," said the companies.

Financial details of the agreement were not disclosed.

Other applications might involve examining several genes in a single individual or a small number of genes in several individuals, he said. Solexa is also working on a high-speed, low-cost sequencing technology with an approach called "sequencing by synthesis" that will be "about 100-fold" faster than conventional technology, Smith said. The system should be ready for launch "by the end of this year," he added.

Theoretically, with one of these new sequencing technologies in hand, diagnostics companies will probably develop tests that run on a partner's platform in much the same way that Roche had partnered with Affymetrix, said Stan Lapidus, CEO of Helicos, a potential Solexa rival. His company, which is also working on a sequencing-by-synthesis platform, will probably not create its own diagnostics, although it would "no doubt" partner with a diagnostics company, a tool company, or a pharma, he said.

Helicos' system, which "will be placed with a laboratory in Boston-Cambridge area by the end of 2005," will achieve a sequencing rate of 42 million nucleotides per hour at 1 million bases per dollar, said Lapidus.

Until the technology is appropriate for diagnostics — and it's unlikely that very many people will guarantee this happens sometime soon — it will probably be employed in research contexts, such as clinical trials, biomarker association studies, and academic studies, said Smith, echoing several sources interviewed for this article. "A very important thing to do with technology like this is to sequence the cancer genome," said Helicos' Lapidus.

Citing a report by IBC Life Sciences, Solexa's Smith estimated that decreasing the cost or increasing the throughput of sequencing 10-fold would marginally expand the sequencing market. A large expansion of the market might require techniques that reduce sequencing costs to about one-hundredth of that of current technologies, he said. "It goes from being something that probably isn't worth doing to being something where you have the power to do something fundamental," partly due to the need to have large sample sizes for powerful statistical associations, Smith said.

What Sorts of Dx Markets Await
New Sequencing Technologies?

Eventually, new sequencing concerns may play in large markets, according to Kalorama Information's Kenneth Krul. He estimates that, after "long market development," the size of the sequencing market in pharmacogenetics, infectious diseases, and cancer (outside of pharmacogenetics) may reach $1.5 billion, $4 billion, and $500 million, respectively.

But there are caveats. "These are market potentials," said Krul in an email to Pharmacogenomics Reporter. "Frankly, I can't tell you when or if sales will ever reach the market potential. Because of new advances in genomics, demographics and certain epidemiologies, the market potential actually increases each year. At their [current] potential, these markets will consist of many more types of assays than just the 454 technology. The question is whether the 454-technology will actually serve to accelerate the market development. I haven't enough information to make that assessment. However, since Roche is holding an option to negotiate diagnostics rights, rather than taking those rights up front — something of an unusual move — Roche itself is probably uncertain of the clinical diagnostic potential of the technology," he said.

"So — look for a long market development rather than a short one, and keep looking at Roche as the indicator of when the 454-technology is considered 'clinical diagnostics-worthy,'" Krul added.

Sequencing-service firms currently charge between $5 and $15 per reaction, depending on the number of reactions, sample preparation, and other factors, according to several companies contacted for this article. Each reaction typically reads between 500 and 800 nucleotides. It costs high-throughput laboratories about $.75 to $1 per reaction from sample prep through analysis using ABI's flagship sequencer, Lori Murray, a spokesperson for the company, told Pharmacogenomics Reporter this week.

Sales of sequencing instruments have been leveling off in the past few years. Since December 2002, sequencing-instrument revenues for market leader ABI have been declining, with the company's first-quarter 2005 earnings reporting a 17-percent decline year over year to $141 million [see BioCommerce Week, 10/28/2004].

Revenues from ABI's sequencing segment represented about 30 percent of its $463 million in total revenue for the quarter. However, ABI posted a 3-percent increase in sequencing instrument revenues for the most recent quarter, a development that should not be interpreted as a sign that the market is turning around, according to ABI President Cathy Burzik [see BioCommerce Week, 4/28/2005].

The Contenders

Last September, 454 Life Sciences said it won a $2 million grant over two years and a $5 million award over three years to develop its pyrosequencing method as part of the US National Human Genome Research Institute program to fund companies and academic centers developing technologies that can enable the "$100,000 Genome" and the "$1,000 Genome."

The NHGRI awarded a total of $38 million to 18 organizations for this program. Other companies receiving the grants for the $100,000 Genome are Agencourt, Li-Cor, and Microchip Biotechnologies, which will get $5.4 million over three years, $2.5 million over three years, and $6.1 million over three years, respectively. Each of the companies received $100,000 Genome grants. Funding in support of $1,000 Genome projects went entirely to seven academic groups.

Other firms pursuing next-generation sequencing include planned Beckman spinoff Agencourt Personal Genomics, Nanofluidics, AQI Sciences, VisiGen Biotechnologies, and GenoVoxx.

ABI has identified 35 companies with "alternative" sequencing technologies, though it did not provide any names or say whether ABI was interested in acquiring any of them [see BioCommerce Week, 5/5/2005].

"We see capillary electrophoresis as being the gold standard for the next two to three years," said ABI's Lori Murray. "We have a number of internal development programs and we are evaluating external technologies" for possible acquisitions or other agreements, she said. The company also continues to invest in capillary electrophoresis technologies, she added.

— Chris Womack ([email protected])

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