DNA Sequencing Companies in Spotlight

The recent $5.7 billion hostile takeover bid by Swiss pharmaceutical giant Roche ADR (OTC: RHHBY) for U.S. based Illumina (Nasdaq: ILMN) has certainly shined the spotlight on the business of DNA sequencing. Illumina has sought to fend off Roche through the use of a 'poison pill' defense.

The takeover is just another indication of the drug company's desire to develop treatments in combination with accompanying diagnostics. This will better insure that its drugs are given to patients that will benefit the most from the drug in the proper dosage.

Roche already has vast experience with gene-targeted therapies. For example, it sells the breast cancer drug Herceptin which is aimed solely at breast cancer patients who happen to have a particular genetic mutation. It also has won approval for a melanoma drug, Zelboraf, that works on patients whose tumors have a specific gene mutation.

The company's diagnostics business has centered around DNA technology since 1991 when it bought the worldwide rights to polymerase chain reaction, the primary technology for manipulating genetic material.

Since then it has developed or acquired tests for detecting and decoding DNA, including the whole human genome (3 billion biochemical letters). The first human genome was decoded in 2003.

Roche's COO Daniel O'Day called the market for machines that map DNA as “fast-growing” over the last five years.

So it came as no surprise that the company targeted one of the leaders in large-scale DNA sequencing – Illumina. Other leading companies in the industry include Life Technologies (Nasdaq: LIFE) and Affymetrix (Nasdaq: AFFX).

The devices made by these companies search through DNA coding that contains the instructions for making all human cells. This helps scientists understand how mutations found by these machines contribute to disease. This is especially true with cancer, where mutations can contribute to uncontrolled cell growth. The goal for doctors is to someday use genetic data to help stop the growth of cancer cells.

Illumina is definitely the leader in this field but Life Technologies is running hard to catch up. Earlier in January, it announced a new sequencer that can read a whole human genome in less than a day for only $1,000.00. Illumina is expected to have similar machine sometime in the second half of 2012.

The key takeaway about this industry today for investors is that it is moving out of the laboratory and into the mainstream of medicine, clinical practice.

The stocks of these DNA sequencing companies have plummeted over the past year – Illumina was down 58% - because their target customers were mainly scientists dependent on grants in a tough economy. But as evidenced by Life Technologies' announcement, that is changing.

Thankfully so as currently it is only an $1 market. But now opportunities should expand rapidly – it is expected to be a $2 billion market by 2015. As Life Technologies CEO Greg Lucier stated, “This is going to be an enormous opportunity, and now you see it unfolding.”

Roche's bid for Illumina in effect confirms what Mr. Lucier said and that DNA mapping will be the key to the future of diagnostics.

Even though Illumina is the best in the sector, the bid should ignite interest in the other firms in the sector from companies which, like Roche, already have an interest in DNA technology. These may include the likes of Abbott Laboratories (NYSE: ABT).

If Illumina fights off the hostile takeover, Roche may buy one of these other companies in the space instead. Either way, with its expertise in diagnostic tests Roche is a perfect for these firms as it can get them in the door in the routine clinical medicine world with relative ease.

Roche will not stop until it has Illumina or another DNA sequencing firm in its grasp.

This article for originally written for the Motley Fool Blog Network. Check out my daily articles for Motley Fool at http://blogs.fool.com/tdalmoe/