Illumina CEO Flatley To Step Aside, deSouza To Take Reins in July

Xconomy San Diego — 

Illumina helped usher in the genomic age. Now the company has a new leader. Illumina (NASDAQ: ILMN) today said CEO Jay Flatley would step aside in July after 17 years at the helm, but he will stay active as executive chairman. His successor is president Francis deSouza (pictured), who joined the San Diego-based company in 2013.

Biotech investor Bob Nelsen of Arch Venture Partners, who cofounded Illumina and has collaborated with Flatley on other efforts, called the transition “smooth, expected, and partial,” given Flatley will remain chairman of the board.

DeSouza was previously a top executive at Symantec, a computer security company. Illumina is at heart a maker of sophisticated DNA sequencing machines that drive the company’s revenues, which have spiked in recent years from just over $1 billion in 2011 to $2.2 billion in 2015. That rapid growth, also reflected in a stock price that has topped $200 per share at times, has come in large part after Flatley beat back a hostile takeover attempt by Swiss drug and diagnostics giant Roche in 2012. Roche offered $44.50 a share.

Now Illumina is moving into clinical applications, something akin to Apple making not just computers and devices but the software and online services that make those machines attractive. Based on revenues, the shift to applications has only just begun. In 2013, 89 percent came from its machines and the chemicals and materials needed to run them, and 11 percent from services. In 2015, the split was 85 to 15 percent. The uptick in services is primarily based on Illumina’s prenatal testing business, Verinata Health, which it acquired three years ago.

Work from that group has led Illumina into another clinical business: The detection of cancer. As described here, Illumina scientists noted several years ago that the Verinata noninvasive blood test was picking up advanced and previously undetected cancer in pregnant women.

That led the company to do more research into so-called liquid biopsies, a field that already has several competitors whose products aim to help doctors classify and treat tumors once they’ve been detected through other means. But Illumina’s effort, spun out recently as Grail, is more ambitious. The company wants to produce a test that detects cancers at their earliest stage in seemingly healthy people. Pouring $40 million into it, Illumina is majority owner and Flatley is chairman. Grail recently named veteran Google executive Jeff Huber as CEO. (Bill Gates, Arch Venture Partners, Jeff Bezos, and others are also Grail investors.)

Illumina executives told investors in January that the Grail investment, which includes subsidized sequencing hardware, will shave 15 cents off Illumina’s earnings per share this year, a 3 or 4 percent drop.

Flatley is also chairman of Helix, another Illumina spinout, which wants to build an online “app” store, like Apple’s iTunes, that will lure consumers with health, wellness, and ancestry apps—a very different product than genetic tests that need to be ordered by a doctor.

While it moves into new businesses, Illumina continues to protect its core through product upgrades—like the HiSeq X Ten system that Illumina says can churn out 18,000 human genomes in a year for $1,000 each—and lawsuits. It recently sued Oxford Nanopore, a British maker of a cell-phone-sized sequencer that is proving popular among field researchers, for patent infringement.

Illumina announced the CEO changeover after the market closed. Shares are down 1.6 percent in after-hours trading to $159 per share.