Drivers

• Accelerating adoption in clinical settings (both in clinical trial and routine testing) now representing about half of the market, especially for clinical oncology where liquid biopsies are utilized across the patient journey from early (asymptomatic) detection (in trial stages at GRAIL, Freenome, etc) to therapy selection (e.g., Guardant Health, Foundation Medicine), or therapy monitoring and cancer recurrence testing (e.g., Natera); many of these tests have now received FDA approval
• Increased reagent usage on an expanding instrument installed base across applications, especially for higher throughput instruments (i.e., NovaSeq)
• Increased adoption of the technology by new customers (e.g., Forensics, AgBio, Biopharma for patient stratification during clinical trials)
• Increased usage for new scientific applications built upon sequencing detection (e.g., [single cell] RNA-Seq, ChIP-Seq, methylation studies, spatial profiling on NanoString GeoMx, microbiome analysis)
• Overall, we believe that a silver lining of the COVID-19 pandemic will be the acceleration of NGS adoption for personalized medicine purposes, beyond oncology applications (e.g., infectious diseases, women’s health) as tools and diagnostics took centerstage in the public discourse in 2020; despite being discussed, NGS-based SARS-Cov-2 testing won’t contribute meaningfully to this market in the long term

Moderators

• Excess capacity, with some installed (primarily low throughput) instruments operating at only 20-30% of capacity
• Pricing pressure has decreased cost per Gb moderating overall revenue growth, due to competitive pressure (particularly from MGI), and the availability of more affordable instrument options (e.g., Illumina’s iSeq, Oxford Nanopore’s Flongle)
• Reimbursement uncertainty and pushback in clinical settings (due in part to lack of education even in some cases where tests are covered by insurance companies) limiting access to the vast majority of clinical samples in the U.S.
• Out-of-pocket pay for some tests (60-80%) in China limiting adoption
• Continued bioinformatics and data analysis challenges, especially for structural variants or translational and clinical applications (e.g., clinical variant interpretation), gating access to most potentially addressable samples
• Low growth in research funding in established markets

Other Trends

• Increased use of native long read technologies, most notably Oxford Nanopore
• Increased number (and scale) of population sequencing programs (e.g., Korea planning to sequence 1M genomes by 2029)
• Diversification of sequencing options driven by the launch of multiple new platforms by new players (e.g., MGI’s T7, Oxford Nanopore’s PromethION, Genapsys GENIUS), and many additional companies with novel sequencers
• Consolidation of applications on increasingly differentiated platforms, based on their workflow, turnaround time and cost (e.g., human WGS on NovaSeq, field-based pathogen sequencing on the MinION)
• Simplification of the overall workflow, with the launch of more automated instruments (e.g., Genexus) or automated sample preparation instruments (e.g., Ion Chef, NeoPrep, VolTRAX), saving time, and increasing reproducibility
• Continued decentralization of sequencing runs driven by the availability of low cost desktop sequencers (e.g., MiSeq), but in turn a centralization of sequencing volumes as high throughput platforms can cost-effectively run 10,000’s of samples
• Increasing use of service providers, particularly in the US, offering an alternative to in-house platform adoption, as many customers don’t have the budget for large capital expenditures, and many such service providers offer unique applications
• Increasing number of players participating in this fast growing market, typically offering front end (sample preparation) or backend (bioinformatics) solutions, with most targeting (clinical) oncology
• Increasing competitive intensity on dimensions others than cost per base pair (e.g., workflow, portability, clinical content)

Overall, our analysis suggest that over the next 3 years, the spotlight will be on three NGS manufacturers:

• Illumina, given its high reliability and the existence of an entire ecosystem to support “Illumina sequencing”; the company will there fore remain dominant
• MGI, given the equivalent quality of data output at a lower cost, but limited by its commercial reach, especially in the U.S.
• Oxford Nanopore, given the value of long reads, form factor, and additional information “for free” (e.g., methylation) but gated by the need for expertise in order to obtain high level of accuracy

While a battery of small players are expected to enter the field, our expert feedback indicates that all appear to face an uphill battle –as has been the case for a dozen established and emerging players by now (e.g., 454, SOLiD, Helios, Lasergen, QIAGEN)– to avoid becoming the next “Illumina roadkill”.