Illumina (NASDAQ:ILMN) sequencing machines have opened the door for genomics unlike any other company today. Investors who bought shares of ILMN 10 years ago would have enjoyed a share price appreciation so far of over +1100%. With the stock price down -37% from their all time high of $242 per share seen in mid-2015, it may make sense to start accumulating a position in this $22 billion company as a “picks and shovels” play on genomics. With all the success they’ve seen so far, Illumina isn’t just sitting on their laurels. They’re also investing in startups like the $100 million venture called Grail which is developing a liquid biopsy for cancer testing. One other interesting startup we came across while researching our new position in Illumina is Helix.
Founded in August of 2015, Helix has financing commitments in excess of $100 million from Illumina, Warburg Pincus, and Sutter Hill Ventures. Illumina wants to have a strong say on the direction of this startup with Jay Flatley, CEO of Illumina, serving as Chairman of the Board. Helix plans to build one of the world’s largest next-generation sequencing labs which will serve as a neutral platform for other companies to build applications on. Remember we talked about “the cloud”? This mystical sounding term simply refers to “pay as you go” software (also called software as a service or SaaS) that is stored on someone else’s servers instead of your desktop and accessed via the Internet. That’s the direction that Helix wants to take here, and they plan to get there by using a very unique “sequence once, query often” business model.
Let’s say there’s an app built based on the Helix platform that will tell you just one piece of genetic information; your genetic predisposition to colon cancer. The app is free so you think why not and send in a spit sample. Now Helix has your DNA and can upsell you any number of other information apps from other vendors in areas such as the ones seen below:
You would then willingly expose your DNA to commercial apps in the same way that you give other apps permission to access your information on Facebook. The key is getting you to send in that DNA sample for the very first time. So why would any vendor offer a colon cancer app for free? Because Helix will pay that vendor a commission each time your genome is accessed again by any other vendor. This affiliate relationship incents app providers to get as many people onto the Helix platform as possible.
While companies like 23andMe and AncestryDNA have had to shell out millions of dollars to build their own sequencing labs, now anyone with decent coding skills can develop an app that plugs into potentially millions of already sequenced genomes in the Helix database. Illumina wants to see Helix as the genome database that you feel secure about storing your data with and then authorize other vendors to use your data to provide insights. Should this database gain momentum, how long will it be before exiting DNA testing companies like AncestryDNa or 23andMe capitulate and offer an app that supports Helix?
How can retail investors get involved here? Well unfortunately unless you’re a client of the VCs who backed Helix, you don’t have many options but to invest in Illumina (NASDAQ:ILMN). Sure, it will take a while before their startup ventures like Grail and Helix have an impact on their bottom line, but what’s not to like about a company that has a ~70% market share for genome-sequencing machines and has a share price ~37% off of their all time high? If you are going to buy ILMN, don’t try to time the market. Buy 1/12 of your position every month over a period of a year.