1、L I F E S C I E N C E T O O L S&D I A G N O S T I C S Two Steps Forward,One Step Back:A Closer Look at the Consumer Genomics Market&Results From Our Proprietary Survey See the end pages of this presentation for analyst certification and important disclosures,including non-US analyst disclosures.J.P.
2、Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be awarethat the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their invest
3、ment decision.North America Equity ResearchMay 2019Life Science Tools&Diagnostics,SMid Medical TechnologyTycho Peterson AC+1 212 622 6568TJ.P.Morgan Securities LLCBloomberg JPMA PETERSON Tejas Savant +1 212 622 5650TJ.P.Morgan Securities LLCJulia Qin+1 212 622 9253JJ.P.Morgan Securities LLCEleni Apo
4、stolatos+1 212 622 0136EJ.P.Morgan Securities LLCTable of ContentsPage2CONSUMER GENOMICS DEEP DIVETycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253Portfolio Manager SummaryConsumer Genomics Market OverviewRecent Trends in Consumer GenomicsR
5、esults from Our Proprietary Consumer Genomics Survey(N=1,500)Thoughts on the Market and Implications for Our Coverage36192438Disclosures453Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS DEEP DIVEPORTFOLIO MANAGER SUMMARY
6、4Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS DEEP DIVE0K5K10K15K20K1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19Why are we doing this?PORTFOLIO MANAGERS SUMMARY In light of the 2019 consumer genomic
7、s market slowdown(following three years of extremely robust growth),we believe it is an ideal time to reexamine market fundamentals and evaluate the sustainability of growth driversNumber of genotyped individuals has grown exponentiallyIn 2H18,the consumer genomics market saw tepid growth Why now?Wh
8、y now?Whats includedWhats includedThe last three years have seen significant growth in DTC genomics testing,with ILMN noting that consumer samples of 12M in 2018 were almost double those in 2017(7M,which was greater than the prior 10 years combined)That said,several industry participants are guiding
9、 for muted 2019 DTC genomics market growth,calling out near-term headwinds including softer U.S.genealogy volumes,while health-related testing and OUS volumes remain in the nascent stages of penetrationTo better understand both the short-and long-term dynamics at play,we conducted a proprietary surv
10、ey of 1,500 consumers who have undergone DTC testing and paired it up with a web scraping analysis of key vendors and social media trendsComprehensive overview of the consumer genomics industry,including rapidly-evolving use cases and business models,competitive landscape,growth drivers by geography
11、,biopharma discovery collaborations,and the growing pushback around data privacy Examination of consumer sentiment and trends in the DTC genomics market drawn from our proprietary survey results of 1,500 U.S.DTC consumers as well as our data scraping analysisReview of recent trends,namely,the 2019 s
12、lowdownOur perspective on drivers of future growth,along with implications for our coverage universeSources:Company disclosures,market research,US National Institutes of Health,Sprinklr,J.P.Morgan estimates“The market definitely slowed last year.My hypothesis is that you have some of the effect from
13、 Facebook,people concerned about privacy,you had Golden State killer and so people pause.”23andMe(Feb 2019)“Although we continue to see growth in DTC outside the U.S.,we are factoring in even greater caution around the DTC business for the rest of 2019.”Illumina(April 2019)Mentions of consumer genom
14、ics on social media posts(e.g.,Twitter,Facebook,etc.)0M5M10M15M20M25M30MGenotyped individuals across the top three vendors5Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS DEEP DIVEPortfolio Manager SummaryPORTFOLIO MANAGE
15、RS SUMMARY Our proprietary consumergenomics survey&web scraping resultsThe last three years have seen significant growth in DTC genomic testing,driven by advances in technology(lower cost and proliferation of genomic insights),a growing appreciation of the benefits of genomics(i.e.,by the“geneticall
16、y curious”),and the availability of cost-effective consumer genotyping kits,combined with a heavy marketing push.These factors have resulted in the creation of large genomic databases and greater statistical power to detect genome-wide associations across a wide range of applications:Genealogy:The f
17、irst breakout app for DTC testing,the U.S.market has recently taken a breather(privacy concerns,degree of saturation),but low minority/OUS penetration levels offer opportunities for growthHealth:U.S.DTC testing has begun to inflect in recent years supported by an open-minded FDA coupled with vendors
18、 learning to work within the regulatory framework,with China representing an emerging growth driverOther:Wellness,nutrition,traits,animal health,and entertainment offer avenues for growth in genetic info,piquing user curiosity Gating factors:Low non-Caucasian representation in databases,regulatory r
19、estrictions for DTC tests in healthcare,limited utility/actionability,societal concerns around data privacy and securityJPM view&implicationsfor our coverage Our website and social media scraping analysis confirmed that while consumers are engaging increasingly more with DTC testing and vendor websi
20、tes,the market slowed noticeably in 2H18Our proprietary survey of 1,500 DTC customers revealed the following:Perceived utility and actionability of DTC results:While 60%trust the quality/accuracy of results and believe DTC testing is worth the upfront price,only 30%believe the health-related info re
21、ceived will influence how they manage their healthLevel of interest across applications:Survey respondents noted the most interest in ancestry and disease risk(including for diseases with no cure),with least interest in drug response,traits,and carrier statusParticipation in research:70%consumers ar
22、e willing to participate in pharma research(especially given the right incentives such as updates on relevant research progress and monetary compensation)Network effects:50%customers are open to repeat testing(to get new info),trying new vendors,receiving info updates(although for free),and are will
23、ing to recommend DTC testing to friends and familyMarket snapshotIn gauging drivers of the recent slowdown,our channel checks confirm near-term softness in the DTC market driven by a combination of factors a degree of saturation among the“genetically curious”in the U.S.,limited utility of genealogy
24、panels for non-Caucasians,a recent surge in data privacy concernsWe remain confident in the long-term growth prospects of the market driven by the health testing segment in the U.S.as well as ramping international market penetration in 2020 and beyondIllumina(ILMN):While muted DTC growth will hamstr
25、ing array revenues in 2019,this is fully reflected in managements forecast.Looking ahead,we expect a pickup in array growth in 2020 off an end market recovery,with ILMN uniquely positioned to benefit from its dominant position in arrays and longer term,the shift to NGS Invitae(NVTA):Patient-initiate
26、d testing offers a competing clinical-grade offering to DTC-based healthcare tests,but it remains to be seen to what extent this model could scale across health applications6Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS
27、 DEEP DIVECONSUMER GENOMICS MARKET OVERVIEW7Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS DEEP DIVEConsumer genomics holds the promise of democratizing the benefits of our growing understanding of the genome to all indi
28、vidualsGenealogyCarrier ScreeningDisease/Cancer RiskPharmacogenomicsPaternity TestingFitness/SportsNutrigenomicsInherited TraitsDescriptionTracking ancestry and ethnicityDetermining carrier status in couples for disorders that could be passed on to offspringDetermining risk for cancer and various di
29、seasesDetermining how a persons genes affectthe response to drugsDetermining paternity/maternityInformation on unique athletic traitsInformation on unique responses to dietInformation on unique inherited traitsExamples of ApplicationsBreakdown of ethnicity by geographical regionCystic FibrosisBreast
30、 cancerInflammatory bowel diseaseIdentification of biological fatherHeightLactose intoleranceCheek dimplesBloom SyndromeEarlobe typeFamilial DysautonomiaOvarian cancerHIV infectionMuscle fiber typesAlcohol flush reactionEye colorFanconi AnemiaEarwax typeIdentification of potential relativesNiemann-P
31、ick DiseaseProstate cancerRheumatoid arthritisIdentification of biological motherReflex capabilities Caffeine consumptionHair curlinessSickle Cell AnemiaHair lossTay-Sachs DiseaseColon cancerDeep vein thrombosisMetabolic efficiencySweet/bitter taste perceptionFrecklesHereditary hearing lossUnibrowCo
32、nsumer genomics,also known as direct-to-consumer(DTC)or personal genomics,allows consumers to directly sequence their DNA without having to go through a health provider,with advantages including:Affordable and accessible through public marketing channels(internet,television,etc.)Sample collection ki
33、t mailed directly to the consumer(usually saliva sample)and returned to lab Costs range 20M users within five years)That said,there has been growing global backlash following reports that the Chinese government is using genetic technology to engage in ethnic profiling and surveillance against certai
34、n minorities(TMO announced it would no longer sell sequencers in the Xinjiang region)Opportunities for future growth in China:CEO of Veritas Genetics:“In China you have the benefit of jumping quickly to the newest technology because of a lack of existing alternatives,”with the“the goal to have every
35、 newborn have their genome sequenced at birth”Easier to persuade doctors to adopt new technologies in China than in the U.S.,where the patient-doctor relationship is more paternalistic and establishedPilot phase product called“myBabyGenome”which decodes the complete genomes of newborns for$1,500,pro
36、vides 950 serious early-and later-life disease risks,200 genes connected to drug reactions and 100 physical traitsSouth Korea and Japan:Patients in South Korea are able to buy genetic testing kits at stores and on the internet,making DTC genomic testing possible(announced by the Trade ministry,effec
37、tive January 18,2019).Previously,only simpler tests,such as blood sugar and blood pressure,were available outside hospital GeneLife,subsidiary of Genesis Healthcare,creates DTC DNA kits for Japan and holds 70%of the market share(650K participants)DTC genomic testing is mostly used for obesity and al
38、coholism,but usage for disease prediction and carrier status is increasingIn Japan,there are 112 DTC genomic testing companies(72 genomic testing companies,21 clinics,12 beauty salons,5 fitness gyms,2 cosmetics companies),with the number of DTC genomic testing companies increasing due to a lack of l
39、egal regulations Australia:While the Australian Medical Association recommends against DTC genetic testing and suggests any person considering DTC genetic testing discuss it first with a GP,there is nothing to prevent a salivary swab being mailed to the U.S.for analysis and interpretation The TGA do
40、es its best to inform would-be users of mail-order genetic tests about the risks of DTCGT products from companies based overseas and outside the jurisdiction of TGA surveillanceSources:Company disclosures,market research,J.P.Morgan16Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolato
41、s +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS DEEP DIVEDTC vendors are also increasingly open to sharing data with biopharma companies to“democratize drug discovery”Pharmaceutical collaborationsSources:Company disclosures,market research,TIME,The Atlantic,The Scientist,J.P.MorganConsum
42、er genomics vendorBiopharmaCollaboration Date entered Payment received by vendor23andMeGSK23andMe and GSK entered a four-year collaboration where 23andMes large-scale genetic resources and advanced data science skills is combined with the scientific and medical knowledge as well as commercialisation
43、 expertise of GSK,to gather insights and discover novel drug targets driving disease progression and develop therapies for unmet medical needs.The partnership is exclusive:23andMe isnt be able to enter into any new partnerships focused on drug target discovery2018GSK made a$300M equity investment in
44、 23andMe23andMeRoche/Genentech23andMe and Genentech entered a partnership where Genentech gained access to genomic data of 3K people from 23andMes Parkinsons disease community,while 23andMe performed whole genome sequencing,with the ultimate goal of helping Genentech identify new drugs for Parkinson
45、s disease,and provide additional information and evidence for existing investigational therapies in the Genentech pipeline201523andMe received an upfront payment from Genentech of$10M,with further milestones of as much as$50M23andMePfizer23andMe and Pfizer entered a partnership for access to 23andMe
46、s research platform,including services and Research Portal analysis of 23andMes genotyped population of over 800,000 individuals2015Not disclosed23andMeOthers:Lundbeck,Janssen,Biogen,Alynlam Partnerships where 23andMe shares genetic analyses run on de-identified customer data2015-2017Not disclosedAn
47、cestryCalico Ancestry and Calico anounced they would work together to analyze and investigate the role of genetics and its influences in families experiencing unusual longevity using Ancestrys proprietary databases,tools and algorithms.Calico will then focus its efforts to develop and commercialize
48、any potential therapeutics that emerge from the analysis2015Not disclosed17Tycho P +1 212 622 6568Tejas Savant +1 212 622 5650Eleni Apostolatos +1 212 622 0136Julia Qin +1 212 622 9253CONSUMER GENOMICS DEEP DIVEDespite mixed press,we believe the DTC/biopharma partnership model is here to stay Backgr
49、ound:23andMe has mimicked the strategy of diagnostic companies to leverage its database for drug discovery(both internally and in partnership with biopharma companies),with other vendors looking to do the same,although some customers(and the press)have expressed privacy concerns around the use of cu
50、stomer DNA for drug discovery(especially,in the absence of any profit sharing)Case study:Concerns around DNA data privacy arose following the announcement of GSKs$300M investment in 23andMe,which allowed it to use 23andMes database to develop drugs(23andmes policy specifies that individuals“acquire