Current efforts to understand the genome have centered around three principal techniques: SNP genotyping, gene expression profiling and proteomics.

SNP genotyping is a method of determining variation in genetic sequences; gene expression profiling is the analysis of which genes are active in a particular cell or group of cells; and proteomics is the process of determining which proteins are present in cells and how they interact.

Each gene is comprised of a string of four types of nucleotide bases, known as A (adenine), C (cytosine), G (guanine) and T (thymine). Human DNA has approximately 3 billion nucleotides and their precise order is known as the DNA sequence.

When a gene is expressed, a copy of its DNA sequence, called messenger RNA, or mRNA, is used as a template to direct the synthesis of a protein. Proteins direct cell function and ultimately the development of individual traits. Any variation in any part of a gene, called a polymorphism, may result in a change in cell function leading to disease.

Genetic variation can also have important medical consequences, affecting people's predisposition to diseases such as cancer, diabetes, cardiovascular disease and Alzheimer's disease. It may also cause different people to respond differently to the same drug. Some people may respond well, others may not respond at all and still others may experience adverse side effects.

The most common form of genetic variation is a Single Nucleotide Polymorphism, or SNP. An SNP is a variation in a single position in a DNA sequence. It is estimated that the human genome contains between three and six million SNPs. The importance of SNPs is illustrated by the recent formation of the SNP Consortium, which includes nine major pharmaceutical companies, whose charter is to discover an initial set of approximately 300,000 SNPs.

While in some cases a single SNP will be responsible for medically important effects, it is now believed that the genetic component of most major diseases is the result of the interaction of numerous SNPs. So it's important to investigate many SNPs together in order to discover medically valuable information.

For example, a single large clinical trial could involve genotyping 300,000 SNPs per patient in 1,000 patients, thus requiring 300 million assays. Using available technologies, this scale of SNP genotyping is both impractical and prohibitively expensive.

By comparing gene expression patterns between cells from different environments, such as normal tissue compared to diseased tissue or in the presence or absence of a drug, specific genes that play a role in these processes can be identified.

Studies of this type, used in drug discovery, require monitoring thousands, and preferably tens of thousands, of mRNAs in large numbers of samples. The high cost of large-scale gene expression profiling has limited the development of the gene expression profiling market.

Through proteomics, we may one day be able to fix malfunctioning genes and proteins. But the trick is to figure out the unique role of each of the 400,000 to 500,00 proteins — as well as the complex relationships they have with each other.

There are currently a variety of technologies available for analyzing genetic variation and function. But these technologies lack the combination of high throughput, cost effectiveness and flexibility necessary to adequately address the rapidly evolving markets of SNP genotyping, gene expression profiling and proteomics.

Thus, while numerous technologies and assay formats are currently being applied, growth in these markets is currently limited by the absence of a cost-effective technology that enables billions of assays to be carried out annually.

I first recommended Sangamo BioSciences, Inc. (SGMO-NASDAQ) in the April issue of Taipan, and then recommended an aftermarket buy in the May issue. Its Universal Gene Recognition technology platform enables the engineering of a class of transcription factors known as zinc finger DNA binding proteins, or ZFPs. By engineering ZFPs, Sangamo can selectively bind to and regulate a target gene, thereby creating ZFP transcription factors that can control gene expression and, consequently, cell function. Sangamo is up 116% from its IPO and up 182% in Taipan's aftermarket buy! In August, I'll be speaking at the annual Cutting Edge Biotech Symposium in Washington D.C. There's still space left, so click on the link above or call the Agora Conference Desk at (800) 926-6575. Until then, here's another play on the explosive biotech arena.

Illumina (ILMN:NASDAQ) has developed a proprietary array technology that enables the large-scale analysis of genetic variation and function. Its BeadArray technology combines fiber optic bundles and microscopic beads in a simple proprietary manufacturing process to produce array cassettes that can perform up to 3 million assays simultaneously. It offers a combination of high throughput, cost effectiveness and flexibility.

This information will correlate genetic variation and gene function with particular disease states, enhancing drug discovery, allowing diseases to be detected earlier and more specifically and permitting better choices of drugs for individual patients.

Genomic applications also require many different short pieces of DNA that can be made synthetically, called oligonucleotides. For example, SNP genotyping typically requires three to four different oligonucleotides per assay. An SNP genotyping experiment analyzing 10,000 SNPs may therefore require 30,000 to 40,000 different oligonucleotides, contributing significantly to the expense of the experiment.

In partnership with PE Biosystems, Illumina is developing its first products based on its Array of Arrays. These products will include disposable Array of Arrays units, reagent kits for SNP genotyping and instruments that automatically read data from the Array of Arrays.

The first SNP genotyping assay format that Illumina intends to commercialize based on the Array of Arrays will be PE Biosystems' proprietary OLA ZipCode assay format. This assay format enables the creation of a universal Array of Arrays that can be used to analyze any set of SNPs. Illumina expects to go commercial with this initial product in 2001.

PE Biosystems will also provide partial funding for developing the initial products from the partnership. It will develop the detection instrument and reagent kits required for use with these products and will provide sales and marketing support.

PE Corporation has invested $5 million to purchase shares of Illumina's preferred stock and agreed to provide Illumina with substantial research and development support over two years. Illumina and PE Biosystems will divide the profits from all partnership products, including instruments, array cassettes and reagent kits, after both parties have received repayment for cost-of-goods, sales and marketing expenses, and ongoing research and development expenses.

In June 1999, Illumina entered into a research collaboration with Dow Chemical to develop a BeadArray designed for the identification of chemical solvents used in Dow Chemical's manufacturing facilities. If successful, Dow Chemical could use Illumina's technology as a rapid and reliable method for performing a quality control check on incoming raw materials. Illumina retains all rights to commercialize any resulting products.

In December 1999, Illumina entered into a research collaboration with Third Wave Technologies to adapt their proprietary assay format, called Invader, to its BeadArray platform. If the research collaboration is successful, Illumina and Third Wave Technologies may negotiate a commercialization agreement.

In November 1999, Illumina entered into a research collaboration with PyroSequencing to adapt their proprietary assay format, called PyroSequencing, to its BeadArray platform. PyroSequencing provides instrumentation and chemistry to perform DNA sequencing and SNP genotyping. If the research collaboration is successful, Illumina and PyroSequencing may negotiate a commercialization agreement.

Illumina has also entered into collaborations with Tufts University, the Australian National University, Stanford University and the University of California, San Diego, to develop new applications for its BeadArray technology.

Illumina's revenues for the year ended December 31, 1999, were from research funding — primarily from government grants, which accounted for 92% of total revenues for the year ended December 31, 1999.

Don't expect huge revenues at the beginning. The big payoff comes when Illumina's technology participates in the discoveries that will eventually help bring a drug to market. When everybody in genomics makes the transition to protein research, Illumina will be well positioned to play a big role.

Illumina intends to use the net proceeds of this offering for general corporate purposes, including commercialization of its BeadArray and Oligator technologies, research and development, working capital, funding operating losses, capital expenditures and possible acquisitions.

The vice president and chief scientific officer has served since March 2000. He was formerly vice president and chief science advisor at Amersham Pharmacia Biotech, a life sciences company. Prior to that, he was the vice president of research and business development of Molecular Dynamics.

The vice president and CFO was formerly CFO at Biogen, Inc., a biopharmaceutical company. He has also served as the director of finance at Allied Health Scientific Products Co.

One of Illumina's founders serves as the vice president of business development and has been a director since April 1998. He has also served as Illumina's acting president, CEO and CFO. While founding Illumina, he was an associate with CW Group, a venture capital firm.

Another founder has served as the vice president of genomics since June 1998. He was formerly director of genetics research at Affymetrix, a life sciences company.

The vice president of engineering has served since December 1999. He was formerly senior director of engineering at Molecular Devices and a director of microarray engineering at Molecular Dynamics.

There's a good mix of venture capitalists and industry experience among the directors. One of the founders is a general partner of CW Group, a medical venture capital fund. He is also the founder and director of FastTrack Systems, Inc.

Illumina's other director is a general partner of CW Group and also a director of Caliper Technologies Corp. He's worked at Johnson & Johnson, where he was responsible for identification, evaluation and negotiation of situations ranging from single product opportunities to company acquisitions, both domestically and internationally. He is a director of The Hastings Center, a non-profit organization devoted to the study of bioethical issues in medicine and the life sciences.

Illumina has a director who serves as a senior principal of venture capital funds associated with ARCH Venture Partners. He was formerly a senior manager at ARCH Development Corporation, a company affiliated with the University of Chicago, where he was responsible for new company formation. He is a director of Caliper Technologies Corp.

Also on staff at Illumina is a former chief science and technology officer at SmithKline Beecham, the international biopharmaceutical company. He is a director of SmithKline Beecham and Maxygen. He is also a research professor at the University of Pennsylvania and holds the William Pitt Fellowship at Pembroke College, Cambridge University, England.

Another director includes the president and CEO of IDEC Pharmaceuticals, a biopharmaceutical company. He is also a director of Spiros Development. He has served in various positions at Genentech and previously was a professor at the Massachusetts Institute of Technology.

A director and chairman of the scientific advisory board has been the Robinson Professor of Chemistry at Tufts University since September 1995. He has published over 100 papers and holds over 20 patents.

Most of these positions have been filled recently, but considering that this is a young company, I'm not too worried. Illumina is tapping into a fairly new market, and it has gathered enough talent and experience to help lead it into the new millennium.

Goldman, Sachs & Co. is the lead underwriter, and others include SG Cowen and Chase H&Q. Illumina plans to trade under the ticker symbol ILMN and will trade on NASDAQ.