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DNA Analysis Behind Illumina’s Growth

When Illumina Inc. entered the local life sciences scene 10 years ago, the fledgling equipment provider had seven employees and 10,000 square feet of office space.

Nearly a decade later, Illumina counts almost 1,000 employees worldwide with commercial operations in San Diego, Hayward, China, Japan, England and The Netherlands with plans to add 90,000 square feet of manufacturing, research and development and commercial space directly across from its UTC headquarters.

The company estimates it will reach a net income between $69 million and $71 million for the year on revenues between $354 million and $358 million. In 2006, the company reported a net income of $40 million on revenues of $185 million.

Its five-year growth spurt , 250 percent , was enough to earn the No. 1 spot on Forbes magazine’s 25 Fastest-Growing Tech Companies index published this year, a rate even surpassing Internet search engine phenomenon Google.

Just what has fueled its tremendous expansion?

Chalk it up to genetics. Or, more precisely, the need for cheaper and faster tools to conduct genetic analysis.

Illumina makes tools that allow commercial scientists, academic researchers and government agencies to study genetic variation. Besides differences in eye and hair color, genetic variation gives researchers clues to help them better understand complex diseases. Researchers have employed Illumina’s technology to discover significant genetic variations in adult-onset diabetes, Crohn’s and Parkinson’s diseases and prostate cancer. Additionally, genetic makeup is thought to cause different reactions in people to the same drug. That information is being developed to cater medicines to individuals, known in the industry as personalized medicine.

“I think it’s fair to say they’ve exceeded expectations although it’s a very dynamic and ever-evolving space,” said Doug Schenkel, vice president and medical supplies and devices research analyst with Cowen and Co.

The market for genetic analysis tools has experienced rapid growth since the late 1990s, leading up to the Human Genome Project. Completed in 2003, the 13-year international scientific research project, coordinated by the U.S. Department of Energy and the National Institutes of Health, set out to identify as many as 25,000 genes that make up the human genome.

Illumina has captured a piece of the analysis market by offering a technology that uses miniature beads and fiber optics to conduct large-scale experiments that allow researchers to analyze genetic makeup.

And its purchase of DNA-sequencing company Solexa for $600 million in January gave it access to a market worth an estimated $1 billion or more. It also created the only life sciences company with genome-wide technologies for genotyping, gene expression and sequencing, considered the three cornerstones of modern genetic analysis.

“This is, of course, like the darling of the research community because genetic sequencing is much quicker and less expensive,” said Eric Topol, director of the Scripps Translational Science Institute and whose work on the genomics of coronary disease led to the discovery of the first coronary disease and heart attack mutation of its kind.

Besides its many services, Illumina also sells low-cost oligonucleotides, or short sequences of DNA or RNA, through a partnership with Carlsbad-based Invitrogen Corp.

More recently, Illumina began partnering with Google and Genentech-financed 23andMe and Iceland’s deCode Genetics, services that allow a person a peek into their own genetic makeup for about $1,000.

Companies involved in the discovery of an individual’s genetic makeup are expected to generate additional investor interest next year, according to analysts.

“What we’re trying to move toward is more precise diagnosis and using genetic information to pursue better treatment options,” Schenkel said.

Jay Flatley, who has served as president and chief executive of Illumina since 1999, said the business has positioned itself to offer genotyping services to other companies besides 23andMe and deCode.

One day, he predicted, “everybody will get genotyped.”

“We think it’ll be an increasing factor in our business,” he said.

Scientists worry, however, that technological advances have outpaced knowledge in the area. And genetic counselors are concerned that patients might have trouble dealing with information about their risk for disease.

“Perhaps the biggest concern is the medical community doesn’t know how to use this information yet,” Topol said.

As Illumina prepares to grow its capacity and expand its offerings, it also faces increased pressure from the competition.

A jury awarded Santa Clara-based Affymetrix, a dominant player in the area of gene expression that also supplies chips to companies involved in genetic decoding, $16 million in March after it was successful in proving allegations Illumina had infringed on five patents.

The companies head to court again in February on new charges made by Affymetrix in October. The patent infringement claims involve Solexa technology and Illumina’s BeadArray products. Affymetrix also filed lawsuits in Germany and the United Kingdom alleging Illumina’s acts of infringement extend beyond the U.S. market.

“The real risk in the eyes of investors is that the jury does not rule in their favor and the judge issues an injunction against Illumina selling their products,” Schenkel said. “The belief is Illumina should hopefully be able to get a couple of these (patents) knocked out and that they will be successful in getting a re-examination with the (Patent and Trademark Office).”

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