Industry insiders have hinted at it. Analysts have alluded to it. Some experts may claim even to have predicted it. Now they’re finally proclaiming it: There’s no longer room in the market for pure-play SNP-genotyping instrument or services companies.
If you’re thinking about getting into the market you should reconsider. And if you’re a one-time SNP-only play and have courted other markets, congratulations, the clock on your company’s future has begun to tick more quickly.
Like the bioinformatics sector before it, the SNP-genotyping space, which is said to be worth between $200 million and $300 million, has reached a largely anticipated crossroads. Yet where bioinformatics’ big question was, ‘Is there a commercial market for my software and services?’ genotyping firms have begun asking, ‘How low can my prices go, and how long can my top line — not to mention my shareholders — endure it?’
No Pain …
Since the sequencing of the human genome, few researchers doubted that genotyping would be one of the new disciplines to take raw genomic data from the bench to the bedside. By and large they were right. But few anticipated the speed with which the market changed. A glance at the failures — Xanthon, Orchid Biosciences, Variagenics, and Intergen — underscores the challenge faced by the survivors: Just how deeply can I undercut my competitors’ prices, in the absence of new technology, before I begin losing too much money?
Considering that most big SNP companies have fewer than four years in cash on hand, the answer is not much more. The handful of big SNP shops remaining will be forced to hasten their diversification strategies a little faster. As SG Cowen Securities analyst Eric Schmidt put it in a recent interview: “I think over the next three or four years these companies are going to have to put up or shut up and show us that they can build a business” out of genotyping.
“If the technology at the remaining SNP-genotyping leaders can reduce the cost of SNPs to a penny or so per SNP while maintaining a good margin” then I think the demand will probably be there,” Schmidt said. “I don’t know which company will be the eventual winner here.”
For now the top shops will have to suffer severe price wars. “The tool side is probably not a good place to be, and you don’t want to be in the service side for sure,” one industry watcher said. “The biggest issue that drove the SNP market was ‘How cheap can you identify a polymorphism?’ And so the suppliers of the reagents, equipment, chemistries, and even services were fighting this battle of ‘I’m the cheapest! I’m the cheapest!’ And at the end of the day, none of them were making any money.”
This person, who spoke on the condition of anonymity, is an official at a well-known US-based nucleic acid-amplification firm that considered the SNP-identification market but decided against it because of eroding pricing.
“That’s why all of the players in this are chasing dwindling dollars and beating each other bloody and getting the cost down,” he said. “It was insane. In order to be successful you had to leapfrog your competition not based on technology but based on price. Then you’re dead.”
Schmidt agreed and pointed to poor technology as the reason why Orchid was forced to flee the space. “There was no real technology there,” he said. “The Orchid model was an off-the-shelf service that any PhD student could have offered.”
… No Gain
Illumina, Sequenom, and Applied Biosystems, for example, “are trying to be a little smarter than that,” Schmidt said. “Though it remains to be seen how successful [these companies] are, I think you can definitely criticize them because so far nobody has made a nice business” from their technologies.
Everyone interviewed for this article agreed that the big pure-play SNP shops will pick up the pace at which they reposition themselves in the market. The biggest of these instrument and services plays have already taken strides here. Months before selling its SNP-genotyping business to Beckman Coulter last December, for example, Orchid was finishing the ground work for its forensics and paternity-testing plays. These have now become the company’s new focus, and Orchid now said it expects to become profitable by the end of the year.
Meantime, Illumina has banked its success on its high-throughput oligo-synthesis business and its BeadArray genotyping instrumentation and services arm, which together generated $7.4 million last year. The firm also said it intends this year to sell three more genotyping systems, launch a whole-genome oligo set, and introduce a product for gene-expression profiling.
Another looming SNP player, ABI, has never been a pure-play genotyping shop, so it’s largely immune from the mercurial market.
Sequenom, for its part, had figured out in the late 1990s that it should not only market its MassArray for genotyping but it should also use the technology to collect validated SNPs. These days, Sequenom screens between 25,000 and 50,000 genetic markers from approximately 1,000 individuals each month.
“If you want to benefit longer term and to a larger extent … you need to do your own genetic discovery,” said Toni Schuh, the company’s president and CEO. Schuh said the goal for these markers is to lure big pharma into R&D collaborations rather than pull direct revenue.
Jorge Leon, president of Leomics Consulting, said this tack is one good way for SNP firms to diversify within their space, but suggested that selling the markers outright might also be a feasible option. “To my knowledge none of the existing [SNP-genotyping] firms have adopted that strategy,” Leon told SNPtech Reporter. They “have been trying to discover new markers and license them, but not put those into platforms to sell them as a whole package.”