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Wall Street Analysts Leave ABI Event With Positive Feelings About Next-Gen Sequencing

NEW YORK (GenomeWeb News) — DNA sequencing featured high on the agenda of Applied Biosystems’ Analyst Day last week, an event that invited equity analysts to learn about the company’s business and plans for the future.
 
As part of ABI’s three-hour presentation, held in Boston, CSO Dennis Gilbert filled in participants on the Agencourt Personal Genomics technology, while a lunchtime panel discussion with Cornell University’s George Grills and ABI Senior Director of Advanced Genetic Analysis and former APG chief Kevin McKernan featured DNA sequencing.
 
But it’s the capital markets that will help enable ABI to fulfill its next-gen sequencing goals, and GenomeWeb News caught up with a number of participating equity analysts after the event, which was webcast.
 
“I think [the Agencourt technology is] a key part of the business going forward because sequencing has been a drag on the company since 2001 or so,” Peter McDonald, who covers ABI for American Technology Research, told GenomeWeb News. “You cannot have 30 percent of your business dragging.”
 
In fiscal year 2004, DNA sequencing contributed 33 percent to ABI’s overall revenues, while in fiscal year 2006, it was down to 29 percent.

“When you look across [ABI’s] business, certainly they have diversified their interest and focus, but sequencing remains a core technology, and next-generation is definitely a major part of what will be a revitalization of that molecular biology business for the company.”

 
“Given ABI’s historical success in the sequencing market, and the fact that they have dominated that area for quite a long time, both from a technology and commercial perspective, remaining at the forefront of next-generation is clearly a crucial part to their strategy,” said Ross Muken, a research analyst for Deutsche Bank Securities who covers ABI.
 
“When you look across their business, certainly they have diversified their interest and focus, but sequencing remains a core technology, and next-generation is definitely a major part of what will be a revitalization of that molecular biology business for the company.”
 
But analysts are also aware of the mounting competition for next-generation sequencing that ABI faces from 454, Solexa, and others, and believe it is important for ABI to move the Agencourt technology quickly out into the market. “If it slips farther than what their current launch date is then they might have to worry,” McDonald said. “I think they are close enough so they are not behind the curve by too far.”
 
None of this has been lost on ABI, for which new DNA sequencing technologies and applications “is an area where obviously we renewed our focus in the last couple of years, both with internal efforts and external efforts,” Gilbert said during his talk.
 
Specifically, he mentioned the APG acquisition, as well as waveguide chemistry, nanopore technology, ABI’s investment in VisiGen, and improvements to Sanger capillary electrophoresis.
 
Defending the APG technology’s short reads, Gilbert said they are the price users pay for obtaining large amounts of data in parallel. “That’s just one of the hallmarks of it,” he said. “You are not getting 1,000 bases of high-quality sequencing. You are getting shorter reads, but you are getting lots of them.”
 
But short reads need not be a drawback, he suggested. In fact, he said, sequencing small snippets of around 20 base pairs per gene, an approach he labeled “tag sequencing,” could enable new applications, among them gene-expression analysis and mutation discovery in tumors.
 
Another way to make short reads more useful, he said, is to use them as “landmarks” of a larger stretch of DNA in paired-end sequencing. He likened this approach to simply mentioning the Washington Monument and the Empire State Building to describe the four-hour trip from Washington, DC, to New York City.
 
On the technical side, Gilbert said he believes the APG technology has a leg up on rivals. “One of the real reasons we believe this technology is going to win in the marketplace comes down to accuracy,” he said.
 
What makes the technology more accurate than others, he claimed, is its use of ligation instead of polymerization, the chemistry most other technologies use. “Ligation is a good thing; it’s very specific, it’s very demanding of both sequence context specificity as well as positional information,” said Gilbert.
 
Another way the technology can boost accuracy is to read the signal at some distance from the base that is interrogated, he added.
 
He suggested ABI’s experience selling sequencers will also come in handy. “We believe the 25 years experience that we have commercializing sequencing technology, servicing our customers, our global support, is really going be advantageous as we will roll out this technology,” he said.
 
Some analysts agree. “You have a company that knows this market probably better than anyone else,” said Deutsche Bank’s Muken. “If I were to look at the space, and say who I think may have the best advantage, I would stick with the company that knows the sequencing market and has the brand name and has been the only company that has really successfully commercialized sequencers for the research market.”
 
However, not everyone at the conference agreed with Gilbert’s assertion that ABI will be the de facto leader when its technology launches. “It’s going to take a while for this to settle out,” George Grills, director of operations of core facilities at Cornell University’s Institute for Biotechnology and Life Science Technologies, told GenomeWeb News after the event. “It’s very similar to the way things were when automated sequencers first came out. At that time, there were a number of players in the field — Amersham and ABI being the main ones — and a bunch of others like Li-Cor also had instruments. And it took a while for the dust to settle down” with ABI emerging as the winner.
 
454, Solexa, ABI, and Helicos are still rivals in the race for succeeding with next-gen sequencers, he said. “Each of these have tremendous potential and each of them has its particular strengths and weaknesses” in areas such as read length or sequencing homopolymer regions or repeat regions.
 
“There is a sweet spot for these different instruments when you look at these differences between the lengths of reads and the amount of reads that you can do with any particular instrument, plus any strength or weaknesses reading through particular types of difficult sequence areas,” he said.
 
Customers will judge the platforms by several technical and non-technical measures, Grills predicted. “The types of parameters that folks are going to be looking at are how accurate these are, how easy they lend themselves to assembly studies, how cost-effective they are for particular projects of different sizes, and I think support is going to be a parameter as well.”

Julia Karow covers the next-generation genome-sequencing market for GenomeWeb News. E-mail her at [email protected]

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