San Diego Most major cities have their landmark technology companies. Cupertino has Apple Inc., Seattle has Amazon, and San Diego has Qualcomm Inc.
But when it comes to the city’s life science industry, another company takes the limelight as San Diego’s golden child: Illumina Inc., the world’s largest maker of DNA sequencing machines.
The company, founded in 1998, is often praised for being “the one that stuck” in a city brimming with small and transient biotechs. These companies get acquired more often than Mayor Kevin Faulconer cuts ribbons, and yet Illumina has grown to employ nearly 3,000 people in San Diego over the last two decades.
The scientific instrument company, valued at a cool $24 billion, draws talent, capital and (perhaps most importantly) global attention to San Diego.
This is why, of course, last year’s executive shuffle inspired the curiosity — and occasional wariness — of many.
In March of last year, Illumina’s longtime CEO Jay Flatley stepped aside from his role, handing the reins to the company’s then-president Francis deSouza.
During his 17-year tenure as CEO, Flatley led remarkable growth, bringing Illumina from less than $1 million in revenue in 1999 to $2.2 billion in 2015. He stayed on as the company’s executive chairman, but his shoes were quite big to fill.
DeSouza’s resume looks very different than Flatley’s, striking a bit of confusion (if not concern) among the old guard. Instead of biotechs and medical devices, deSouza’s background was in startups, software, and telecom — an unusual background for a company on the leading edge of the genomics industry.
But deSouza’s appointment to CEO says much more about Illumina’s direction moving forward rather than where it’s been.
For those who aren’t familiar, Illumina makes an instrument called a DNA sequencer, a boxy-looking instrument about the size of a printer or copy machine. These instruments are largely used by scientists researching medicine and disease. With a small DNA sample, one of these machines can spell out the “genetic code” assigned to a specific person or cancer, which can then be read and interpreted by computers.
Since DNA is biology’s operations manual, influencing everything from a person’s hair color to their susceptibility to disease, unlocking the code within DNA is an invaluable pursuit.
Illumina is providing the technology researchers need to follow that pursuit. To date, some 90 percent of all human genomes ever sequenced were sequenced on Illumina’s machines.
But deSouza’s ambitions reach far beyond the research world. He’s embarking on an aggressive five-year plan to extend genomics from research labs into doctors’ offices and as consumer products. That’s because Illumina needs to create new markets (and new customers) for its technology if it wants to continue to grow.
“One of the things that became clear to us was that we would have to take the leadership role when it came to creating genomics markets,” deSouza said.
The company’s new strategy involves breaking down barriers for the technology to enter the clinic, and investing in startups and technology companies that accelerate the overall space. The more companies that find applications for DNA sequencing, the more instruments Illumina will sell.
That’s where deSouza’s background comes in rather handy.
“I’m an entrepreneur at heart,” deSouza said. “That’s what I’m passionate about.”
After attending the Massachusetts Institute of Technology (MIT) at 16, deSouza was already launching his own venture capital firm by 25. One of the first startups he led was sold to Verizon for $250 million.
In his late 20s and early 30s, deSouza founded two startups: a messaging app called Flash Communications (bought by Microsoft) and a cybersecurity company called IMlogic (acquired by Symantec).
Before joining Illumina, deSouza spent over a decade at Symantec, climbing the ranks of leadership until he was president of products and services.
Now, at 46, deSouza is charged with leading Illumina through a new growth era. The company just launched NovaSeq, a new high-end sequencer architecture intended to ultimately replace all of Illumina’s HiSeq instruments. With new technology in place — and new markets to tackle — deSouza is putting on his entrepreneur hat to accelerate the company’s growth.
DeSouza sat down with the San Diego Business Journal to discuss where he sees Illumina heading, and how he intends to get there.
Here are some excerpts:
Help me understand the transition in your career, from being a technology guy more focused on the software side of things to taking up a position as Illumina’s president a few years ago?
When I first got called by Illumina about the role, I spent a lot of time with Jay and the leadership team, trying to understand where Illumina was going and what my role at the company would be.
As I learned more about what Illumina was up to, it became clear that genomics would be one of the most transformational things I would witness in my lifetime. Now, that’s in terms of the impact it would have on the lives of hundreds of millions of people, but also in the opportunity it would create for businesses.
It was clear that software capability was going to play a bigger part in Illumina’s future. While there was a learning curve associated with learning the biology, there were things I could bring from the software side of the world that would be helpful to the company.
It’s rumored that you were considered Flatley’s “heir apparent” from the start. As a software guy, did they originally bring you on with the intention of ramping up that side of Illumina’s business?
I was brought in, but I definitely had to earn the CEO spot. The intent was to bring me in as an executive to grow the company, which was equally important as my software experience. One of the things the company was looking for was someone who had experience in the entrepreneurial environment, as well as in big companies. Illumina is one of those interesting companies that is really entrepreneurial, but has also grown really quickly to a large company.
What happened in your first few years at Illumina that earned you the role of CEO?
My goal in the first couple of years was to make sure I spent a lot of time on the innovation side of the house — in product development, operations, engineering, and quality — because in the end this is a company driven by innovation.
So you spent a lot of time on the innovation side of the house. What was the result of your time there?
We shipped a couple of big products over the course of a couple of years. In 2014, we shipped the HiSeqX and the NextSeq. Then in following years we shipped HiSeq 3000 and 4000, and the MiniSeq.
I’ve read that you have a five-year plan to bring genomics out of research labs and into doctors’ offices. Can you tell me more about that?
At Illumina, we probably have the most thorough strategic planning process of any company I’ve ever been in. It’s a process that lasts 11 months out of the year. The outcome of that process is a three- to five-year strategic plan.
A few years ago, we identified that genomics was starting to enter into the clinic. In certain key markets (like non-invasive prenatal testing), we were going to start seeing genomic tests become a standard of care.
So we laid out a path, identifying everything that we needed to do — and what we needed the industry to do — to make genomic testing a standard of care.
And what did you identify needed to happen?
We knew we needed to create products that were tailored for the clinical market. We knew they needed to be cleared by regulatory bodies in the different countries in which we operate. We needed to work with the payor systems and insurance companies to make sure there was a reimbursement schedule in place. We had to create physician education programs so they understand what these genomic tests were and how they could be used, as well as patient education programs.
Where are you in that plan?
In some areas, we’re pretty far along. Non-invasive prenatal testing (NIPT) in the United States, for example. In high-risk pregnancies, it’s more common than not to see the couple have an NIPT test. But in some markets, like oncology, we’re still very early on. Today, less than 5 percent of patients with cancer have a genomic test done to identify a course of therapy. So in those markets, we’re still very early stage.
I know that Illumina has spinouts (such as Grail and Helix) that are accelerating some of these new applications of Illumina’s technology. What role will Illumina play directly when it comes to these new applications?
One of the things that became clear to us was that we would have to take the leadership role when it came to creating these genomics markets. And there are a number of ways we do it. One way is a program in which we invest in early-stage companies that are targeting these applications. Another is an accelerator program where we bring in promising entrepreneurs and help them create companies around their ideas.
Another thing we do is incubate an idea, and then spin it out. We want to make sure we’re providing the sequencers for all the genomics markets. And what our spinouts like Grail and Helix do is they will run the genomic tests for their markets. Helix will run tests for consumer markets, and Grail will run tests for oncology screening.
We at Illumina don’t run the tests ourselves.
Grail and Helix are both based out of San Francisco, and Illumina has a huge campus in Foster City (expected to open in 2017). The Illumina Accelerator is also up north. I also noticed that your personal LinkedIn and Twitter pages both still say home base is San Francisco. What relationship do you see Illumina having with San Diego looking forward?
We are expanding in almost every market we’re in. We have new buildings opening in San Diego, Foster City, Wisconsin, the U.K., in Singapore, and Australia. San Diego will continue to be our largest site, and our headquarters.
You move a lot between the two cities — what would you like to see more of/less of in San Diego’s business/life science community?
I would like to see more of everything in San Diego. We love it here. There’s a really talented employee base that we can tap into, there’s a strong biotech hub, a good academic community here. Compared to the Bay Area, the cost of living is better. So I’d love to see more of everything in San Diego. We’re hiring, so I’d love to see more employees.
When you say you’re hiring, do you mean you’d like to see more of a certain kind of talent in San Diego?
Yes, I’d like to see more investment in STEM education in San Diego, continued expansion of our academic communities, and continued housing being built to accommodate the talent that’s coming here.
The revenue performance last year was a little spotty when considering analyst expectations. In earnings reports instrument sales saw a decrease. What’s behind the decrease in instrument sales, and how does the company plan to counteract that moving forward?
There are two important drivers for our market. One is the continued growth in the research market, and the continued adoption of sequencing in the clinical markets. The second important driver is the upgrade cycle. As we release new instruments and customers buy those new instruments.
In 2016, we didn’t have any new instruments that were launched, so we didn’t see that upgrade cycle. Coming into 2017, we just launched NovaSeq, the most powerful sequencer ever launched into the market. So that should catalyze and upgrade cycle and drive growth in instrument sales.
What changes, if any, have you brought to Illumina when it comes to the company’s culture — internally?
Illumina has a very strong culture, and that’s part of the secret sauce of our success. We want to work hard to keep it as we scale. As we look forward, though, we’re hoping to be a more global and more diverse company than before. We’ll be a more digital company, so you’ll see more people show up with technology backgrounds. And we’ll be a more clinical company, so you’ll see more people that have clinical backgrounds. Those three things will evolve our culture.
You’ve mentioned that you intend Illumina to be a “more global” company many times. What’s changed there, and why the emphasis on being a global company?
We expect more of our revenues to come from outside the United States. China is already our second-largest market.
When it comes to the regulatory environment, is it that the FDA hasn’t approved a lot of genetic testing for treatment, and so you’re looking to serve countries where it has been approved?
Countries have different requirements. For example, the requirements you have to pass to get approval in China are different than the FDA requirements in the United States.
You’ve stepped in behind a legend (Jay Flatley) and also at a time when excitement around genetic sequencing is starting to come down. People are realizing that you have to do more than sequence the DNA — we have to now interpret our findings. So, in my eyes, that’s two hurdles. Stepping in behind someone who left a legacy and also at a time when the industry is starting to face some difficult realities. From a leadership standpoint, how are you handling those challenges?
As you look out over the next decade or two, we’re at the very, very beginning of what genomics is going to accomplish. For the vast majority of medical conditions, genomics is nowhere near the standard of care.
Internally, as we think about the opportunity, it’s hugely exciting and inspiring. It creates a sense of urgency in this company. And that’s what brought me here and keeps me deeply motivated.
Someone in the executive search space here in San Diego told me that— 2 months ago — Illumina had over 20 open executive-level positions. The person said that this was quite a high number, and thought it was the result of the CEO transition at the top. What’s the status of those openings, and what do you attribute to the leadership shuffle?
We always have a lot of open headcount. We have 140 open positions right now, and we’re always expanding our leadership team, too. That’s what happens when you’re growing as quickly as we are.
As you know — there’s been a lot of gossip about takeover bids from ThermoFisherScientific. What do you think is responsible for the takeover talks?
We are fortunate to be in a very high-growth space, and have a really good market position. I can see why people would think we’d be attractive for a number of companies. We are getting pretty large, and at this point I think we’re likely to be an acquirer than an acquiree.