The Next Few Years in DNA Sequencing

Some was asking on Twitter about the effect of Illumina’s IP expiring on the sequencing industry. I figured I’d summarize my thoughts here. I’m not a patent lawyer, so you should consider that when evaluating my thoughts.

As of right now, it seems that Illumina’s original cluster generation IP has expired (from Manteia) has expired. The reversible terminator IP has not they’re currently using this IP to block the sale of some MGI instruments. The latest of these patents is due to expire in 2024.

These two patents appear to be the fundamental IP required to build an “Illumina-style” DNA sequencer. Illumina have a number of polymerase patents. But my understanding is that the 9ºN (9 degrees North) and related polymerases incorporate modified nucleotides pretty well.

So the cluster and nucleotide IP are really the key to producing an “Illumina-style” DNA sequencer. As I understand it with that IP alone you could make something that looks very much like a genome analyzer 2.

I therefore would expect at the very least for “genome analyzer 2” style instruments to start appearing. The Singular platform looks like this to me, probably using alternate nucleotides until 2024… that is if they actually launch before 2024.

But they probably won’t be the only player to take this approach. At the very least MGI will be unblocked from selling instruments in the US. And I suspect companies like Element are working on something similar.

The question is, in what way does that fundamentally change the market. Well, for a start I expect it to put downward pressure on Illumina’s consumable pricing. At the moment there doesn’t seem to be any effective competition to Illumina. With these players appearing, with a similar data quality, and a similar error profile, I expect that many users will be able to switch platforms if they want.

Illumina makes ~10x on consumables. So… if these new players provide effective competition (which they should as the technology is basically the same) I expect there to be general downward pressure on consumable pricing, and we’ll see margins go down from 10x COGS.

This broadening of the market sucks for Illumina. And I suspect is why they’re shopping around for acquisitions. Pushing into other sequencing approaches (PacBio) and downstream into applications (GRAIL).

But how else will they respond? Well, I expect prices to do down, but I wouldn’t expect Illumina to solely compete on price. They’re iterated over the original IP pretty well and have a number of other advantages over new players specifically:

  • TDI Imaging
  • Two channel nucleotides/imaging
  • Patterned Flowcells
  • ExAmp
  • Super resolution
  • Better polymerases

This is all technology was developed for Hiseq’s and later instruments. It helps push throughout, reduce error rates, and increase read length.

So I expect Illumina to maintain a quality advantage. So one option they have is to push pricing as low as they can and have slightly better data quality (lets say, maxing out read length at 300bp as opposed to competitors being at ~100bp and having 90% >Q30 versus say 70%). Then everyone buys Illumina sequencers because they have the lowest cost and highest quality! Great! Except Illumina don’t make much money that way….

So I imagine what they’ll do is reduce pricing so that they’re competitive but not the cheapest option. Then they’ll let other players take the low end of the market and try and keep the high end where margins are higher (and users are willing to pay for slightly better data quality).

The above analysis relies on the fact that the COGS of competitors is probably going to be similar to Illumina. Of course there are other approaches on the market or in development. I’ve looked at most of these. Essentially for everything else available or on the horizon the data quality is not as good and COGS is higher than the Illumina approach. So I don’t expect some huge shake up here. As always there are niches to play in (base modifications, long reads etc.) and it’s possible those markets might grow.

But I think what’s really more interesting to me are approaches that reduce the COGS. In particular it’s been disappointing to see the limited impact of sequencing on SARS-CoV2 diagnostics. qPCR dominates here because the COGS for qPCR is essentially $1 and the COGS or instruments a few hundred. Even with multiplexing sequencing can’t yet approach this. So if you’d be interest in investing in (or codeveloping) such a platform, get in touch.