deCODE CEO Predicts Downswing in Personal Genomics Market

deCODE CEO Predicts Downswing in Personal Genomics Market

by Dr. Hsien-Hsien Lei
Posted March 5, 2008 in Business of DNA, DNA Testing

pink slip cakeWith the many genomics and genetics companies launching left, right, and center in recent months, you’d think the market is pretty robust. Not so, says deCODE CEO Kari Stefansson whose company is laying off 60 employees out of a total of 390 or about 15% of its workforce.

It is natural for us to operate the company in such a way that we can make the money that we have last longer than what we had expected to begin with. These are very simple and clear operational standpoints and it would even be wise for other companies in our community to follow our example. [emphasis added]

If what Stefansson says is true, then others like 23andMe, Navigenics, and DNATraits might be looking to tighten operations as well. Although it appears that most personal genomics companies operate with small staffs of less then 50-100, downturns in the market could mean that work is outsourced to independent contractors rather than being performed by full-time employees. (So if you’re looking for a job in the genomics industry, you know how to approach it.) However, not all companies suffer from as much pessimism as deCODE. bizjournals reported last week that Family Tree DNA led by Bennett Greenspan and Max Blankfeld saw a profit gross revenue of around $12.2 million in 2006.

deCODE is behind several genetics products available direct to consumers including:

  • deCODEme – A whole genome scan using Affymetrix DNA chips to analyzing over one million single nucleotide polymorphisms (SNPs) per customer.
  • deCODE T2 – A genetic test for type 2 diabetes that detects a variation in the TCF7L2 gene.
  • deCODE MI – A genetic test for myocardial infarction (aka heart attack, coronary artery thrombosis, or coronary artery occlusion).
  • deCODE Glaucoma – A genetic test for exfoliation glaucoma that detects SNPs located in the LOXL1 gene on chromosome 15. (For more, see this Eye on DNA post.)
  • deCODE ProCa (previously named deCODE PrCa) – A genetic test for prostate cancer.

Given their wide range of products, it’s surprising that deCODE is suffering from cash flow problems in which earnings, balance sheet, and profits from markets are not enough for them to continue growing. Perhaps this is an indication that the market is starting to experience saturation in the number of companies and services being offered yet has not seen a concomitant rise in the number of consumers willing to pay for personal genomic services.

What’s more interesting is that the price of technology continues to drop. BusinessWeek surveyed the DNA sequencing market and found that new technologies are faster and cheaper. Soon we will even have the coveted $1,000 genome. This means that companies should have to spend less to earn more. For example, Illumina’s margins are declining and their revenues are expected to rise 35% in 2008. And production costs will continue drop as labs open up in countries with lower overhead, e.g., China. So shouldn’t it be easier to make a profit now off of personal genomics than ever before?

In any case, while 23andMe and Knome focus on the rich, famous, and elite, there is a great need to show the general public how genetic testing of all types is relevant to their everyday lives. There aren’t enough millionaires like Dan Stoicescu to fund the entire personal genomics market. Until genetic testing is widely adopted for a variety of commercial uses by a greater segment of the consumer population, the pot of profits will not be big enough to share. In 2008, we will surely see companies drop out and others consolidate.

HT: The Genetic Genealogist, GENEALOGY-DNA

(14 comments)


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14 Comments

Comment by NA Subscribed to comments via email

Quote: “With the many genomics and genetics companies launching left, right, and center in recent months, you’d think the market is pretty robust. Not so, says deCODE CEO Kari Stefansson whose company is laying off 60 employees out of a total of 390 or about 15% of its workforce.”

Translation: We know that having a personalized genomics company is important for society, but we have over anticipated how much of an impact our services would have on society. There are to many of us personalized genomic companies and most of us personalized genomic companies were poorly structured. We hired to many people! We apologize for our false promises.

My word of advice to all of the current personalized genomic companies and future entrepreneurs: It’s important to keep in mind that a personalized genomics company will only be marketable to around 3-10 percent of the general public. There are about 6.6 billion people on Earth, and only 3-10 percent of the 6.6 billion people will find a personalized genomics company useful.

Take some time to analyze the carrier rates in various population groups for the most common genetic disorders. Then take a look at the incidence rate of the disorder. Then take a look at the age-on-onset. Then take a look at how useful would a genetic test be for that condition. Then take a look at the false positive rate. Then take into account the lifestyle change and/or current available treatment options.

How many people really care to have a genetic test done for a mutation and find out they have a certain mutation when there is no treatment available.

How many people in this world do you think actually have $1,000 sitting in their bank account ready to be spent on a genetic test that ISN’T EVEN INTEREPRETED BY A HEALTH CARE PROFESSIONAL.

NA, You make some interesting points but I also think that genetic services are varied enough to the extent that there will eventually be something for everyone whether on a recreational or medical level.

 
 
Comment by Eric

Hey Dr. Lee!

Great post. It’s almost a certainty that as the US moves further into tough economic times, “luxury” services such as those you mentioned will suffer greatly.

I would guess that $1000 approaches the mortgage payment for a large fraction of the US. These companies have mostly priced themselves out of the real market (at least for now).

The last thing I need right now is to spend a ton of money to find out that I’m at risk for cancers and diabetes, etc. The “return” on investment from an emotional perspective ain’t great! ;)

-=E

Eric, I can think of a lot of uses for $1,000 although I sometimes think $1,000 isn’t worth much of anything anymore. You’ve given me a good idea to write a post about all the things one can buy for $1,000, including various personal genomic services.

 
 
Comment by Abdul Saleh

Great post, Hsien.

I’m glad to see someone writing about the market place. As for your prediction about companies falling by the wayside in 2008 – you may want to score another notch on your belt:

http://finance.google.com/finance?q=OTC:DNAG

PS The figures FTDNA provided are their sales, not their profit. They seem to be run like a business unlike many of their competitors so my guess is that they probably do make money but who knows.

Oops. Thanks for the correction on FTDNA, Abdul. I just changed profit to gross revenue.

As for DNA Print Genomics, I’ve never been able to figure them out. They keep expanding and seem to be quite active but their publicly available financials look dreadful!

 
 
Comment by Barry Starr Subscribed to comments via email

Do you know if they are just laying off personal genomics folks? Or is the layoff tied to their more traditional biotech research as well?

Not sure, Barry. I’ve hopefully got a podcast interview lined up with Dr. Stefansson next week and will ask him.

 
 
Comment by Daniel MacArthur Subscribed to comments via email

Hsien,

I’m not sure how much these lay-offs reflect problems with the market – surely a big part is the broader financial problems of deCODE, a company that hasn’t actually had a profitable quarter since its inception, and has instead bled away $600 million.

I discuss this a little bit here.

Daniel, I’m not sure what’s going on with deCODE but it sure is interesting to speculate on what’s going on, isn’t it? :P

 
 

[...] What’s the forecast for the personal genomics market? Here are some reactions to my post expounding on deCODE’s recent layoffs: [...]

 

[...] deCODE CEO Predicts Downswing in Personal Genomics Market (Eye on DNA): Hsien-Hsien Lei tells you the biggest truth! In any case, while 23andMe and Knome focus on the rich, famous, and elite, there is a great need to show the general public how genetic testing of all types is relevant to their everyday lives. [...]

 

[...] in Business of DNA Here’s one more sign that companies involved with personal genomics may be tightening their belts. Gene chip makers Affymetrix and Illumina are both outsourcing manufacturing from the U.S. to [...]

 

[...] with Smoking and Lung Cancer by Dr. Hsien-Hsien Lei Posted April 3, 2008 in DNA and Disease Despite recent downsizing, deCODE Genetics has published a new study in Nature on the genetics of smoking and lung cancer. [...]

 

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