FEATURES April 28, 2011, 5:00PM EST

Pacific Biosciences' $600 Million Decoder Ring

Its technology may finally fulfill the dream of gene sequencing

By Ashlee Vance
On Apr. 28, in a factory in Menlo Park, Calif., a few black and white machines were being assembled and prepped to go
into shipping crates. The machines looked like fancier-than-usual copier equipment. Each was about half the size of a
MINI Cooper and adorned with some design flourishes—oversized, glowing power buttons, a slick touchscreen monitor
on the side. Still, to look at them you wouldn't know they cost $700,000 a pop, that they're the result of a 14-year, nearly
$600 million quest, or that their creators believe these machines may change the scientific understanding of life itself.

These are the first production models of the PacBio RS, gene sequencers made by a startup called Pacific Biosciences,
and they're heading to research laboratories around the U.S., including several national defense labs and the Howard
Hughes Medical Institute. Move past its smooth exterior and the RS reveals an interwoven collection of lasers, chemical
mixing stations, cameras, robotic arms, and special chips. It's essentially a superpowerful microscope that records, in
real time, biological processes on a molecular scale. That means it can see the creation of the tiniest of things—
including, most crucially, DNA—in rapid-fire action. Soon enough, the RS may well do something that's never been done
before: Take an entire strand of human DNA, with its 3 billion bits of information, and map it out in minutes.

The RS has already achieved something of a mythic status in the genetics world, which has had a spectacular run of
hype and disappointment ever since a draft of the human genome was first mapped in 2000. The hope then was that the
genetic basis for disease would be identified, and cures would pour forth. Reality proved more complicated. The
laborious mapping process did identify some telltale gene sequences that cause illnesses. But most maladies like
cancer, it turns out, vary as much as their victims—blockbuster drugs work great for people who happen to have a
particular genetic code; everyone else needs a treatment tailored to their particular case. Fulfilling the promise of
bespoke cures requires a mapping tool that's accurate, economical, and fast. More than that, it may require a machine
that can analyze the incredibly intricate changes that occur not just to DNA but to other mechanisms in the body when
disease hits.

Pacific Biosciences claims the RS provides the first lens capable of viewing this type of complexity. "The ability to
observe these things in real time has been the goal of modern biology for the last 50 years," says Eric E. Schadt, the
company's chief scientific officer. "PacBio is the only game in town for that type of work." Even competitors, who express
doubts about the RS's commercial prospects, allow that the company has created a scientific marvel. Today, it bestows
scientists with the power to watch the body's mechanism for decoding DNA. Tomorrow it could apply similar steps to
studying all manner of molecular creatures from RNA to ribosomes, giving pharmaceutical companies, hospitals, and
super-food makers fresh insights on the behaviors of viruses and the effects of environmental conditions on organisms
over time. "I think it is a tour de force," says Jonathan M. Rothberg, the chief executive of Ion Torrent Systems, a rival
maker of low-cost sequencing systems. "Technically, it's fantastic."
PacBio was founded in 2004 by a physicist named Stephen Turner. With his mat of short, curly brown hair, thick-rimmed
glasses, and earnest demeanor, he seems most comfortable in front of a white board talking science, making
declarations such as, "Here you have E to the minus lambda Z." Turner is either kind enough or oblivious enough to
assume that his audience can keep up.
Turner, 43, grew up near the University of Wisconsin-Madison, where his father taught math and his mother lectured
about 13th century Italian literature. His folks hoped he'd follow them into academia, and he did, initially (at Cornell
University, where he completed a PhD in physics), but when a graduate student, Jonas Korlach, approached him about
inventing a way to eavesdrop on the enzyme polymerase, he became an entrepreneur.

Polymerase is nature's DNA sequencing machine. As a cell divides, the enzyme travels along strands of DNA, making
copies of the cell's genetic construction. Wouldn't it be cool, Korlach thought, to get a close-up view of polymerase in
action? You'd be able to see how it reads the stream of "bases"—the four types of building blocks strung together in
DNA's helical structure—and makes copies. It's an efficient process. "Polymerase runs along DNA at 1,000 bases per
second," Korlach says. "That makes it extremely fast, and it can hold on for hundreds of thousands of bases, making
extremely few errors."

Intrigued, Turner set to thinking about how to realize Korlach's dream. His breakthrough: really small holes. He coated a
piece of glass with aluminum, hit it with an electron beam, and made a series of holes small enough to hold one
molecule each. The technology gets complicated here, but essentially Turner and Korlach realized that they could fasten
a polymerase molecule near the bottom of one of these holes and fill the well around it with a liquid made up of the four
bases of DNA, known in scientific shorthand as A, T, G, and C. The researchers could then attach fluorescent markers to
each type of base, shine a light into the holes, run the DNA through like thread through the eye of a needle, and pick up
the colors as the bases react with the polymerase.

The crude lab technology worked well enough to convince Turner it could be the basis of a new tool for scientific
discovery. "I'm like, 'Guys, We have to patent this,'" he says. "The reaction from everyone was, 'Hah, hah. Steve wants to
patent a hole.'" Turner thought about his colleagues' reaction and figured he had a marketing problem. Instead of holes,
he started calling them zero-mode waveguides. The name change eventually got his lab partners thinking patents, too.
"It took about three weeks," he says.

Turner decided to quit academia to make a business out of his zero-mode waveguides. From about 2001 to 2003 he
worked alone, making refinements and trying to raise money. (Korlach kept helping on the side, but didn't commit full
time until years later.) Turner and his wife crisscrossed the country, visiting venture capitalists in Boston, New York,
Baltimore, and Silicon Valley. "It doesn't look very good if one person shows up to these meetings, so my wife came
along to act as the business development executive," Turner says. None of the venture capitalists bit, and Turner was
burning through a meager stash of grant money. He decided to make a final stab at turning the holes into a business and
hired a handful of people on the promise that he could pay them for four months. Luckily, that's when Mohr Davidow
Ventures showed up.

The prestigious Silicon Valley VC firm had been keeping a close eye on the sequencing market. They saw investors bail
out of the first wave of sequencing companies after the early promise of the freshly mapped human genome proved too
optimistic. The conventional wisdom was that a modest collection of genomes would reveal a great deal about the root
causes of illnesses. Researchers simply needed some time to look over the genetic code and figure out which A, T, G,
and C combinations were unusual and disease-causing. Bill Ericson, a Mohr Davidow general partner, rightly calculated
that people were underestimating the complexity of the genome and the amount of sequencing work still left to do. In
2004, after performing a worldwide hunt for the next big thing in sequencing, Mohr Davidow settled on Turner's
technology. "We were blown away by the elegance of the solution," Ericson says. "We didn't see any laws-of-physics
showstoppers that would prevent it from working. We saw a lot of hard development." PacBio was born.

In exchange for its investment, Mohr Davidow called for Turner and his team to head to Silicon Valley. Turner then
started hiring, beginning with a chief executive officer. He tapped Hugh Martin, a Valley veteran who'd run an
engineering group at Apple (AAPL) and served as president of the 1990s-era gaming company 3DO. His big hit came via
ONI Systems, an optical networking company he founded in 1998, took public, and sold to Ciena (CIEN) for close to $1
billion. ONI produced hundreds of millions of dollars in returns for Mohr Davidow, which had invested in the company,
buying Martin a lot of goodwill.
Equipped with game-show-host looks and a fierce competitive streak, Martin has developed a legendary skill for wooing
workers away from rivals. That came in handy at PacBio, which required a Manhattan Project-worthy menagerie of
technical and scientific talent. He needed experts in nanotechnology, electrical engineering, thermal engineering,
industrial design, organic chemistry, enzymology, signal processing, software, and more. In one case, Martin got in a
bidding war over a superstar chemist with General Electric (GE) chief Jeff Immelt—and won.
The company had hoped to buy a lot of the technology it needed off the shelf. But the PacBio team came to realize they
had to craft most of their own tools from scratch to meet their unusual requirements. The mishmash of such diverse skills
added to the problems. At times they simply could not understand each other. "I have sat through half an hour of a
meeting and realized that we're not making progress because of these interdisciplinary vocabularies," Turner says. "To
an enzymologist, a substrate is part of a chemical process. To a nanochemist, a substrate is a flat thing you build
machines on." The staff resorted to inventing their own words to cover complex topics. The Monster, for example, is
PacBionese for "the photo- physical phenomenon in which, if a fluorophore gets excited, and while in that state gets hit
with the right wavelengths of light, can get further excited. Thus, instead of being in the S1 state, it will be in the S2
state." And so forth.

The workers toiled away for years, getting hints that all of this effort would result in a working product but few proofs. To
keep them going, Martin rewarded them with perks—a $100,000 gym, lobster feasts, and a custom 24-foot, twin-axle
barbecue. The rewards worked. Computer scientists and biologists slogged on side-by-side through six-day weeks and
holidays. One Thanksgiving they manned their work stations for the day and then stayed up all night cooking turkeys on
the barbecue.

One limitation of sequencing machines has been their inability to sequence an entire 3 billion-base strand of DNA in one
go. Companies in the field apply various techniques to carve up and analyze DNA, but they all tend to stumble over long,
repetitive strings of bases. They see a bunch of T's or C's in a row and struggle to figure out how they weave into the
whole. That drawback means hundreds of millions of bases in the genome are left unmapped. And it turns out that
cancer cells and plants often exhibit repetitive and complex patterns of bases that give sequencing machines fits.

PacBio's use of polymerase means its technology can handle much longer strings of bases, known in the trade as "long
reads." That breakthrough, plus the raw speed of PacBio's systems, which can analyze a SARS or cholera variant in
minutes instead of the usual hours or days, has the early RS customers excited. "Our hope is that in areas like tumors, it
will provide us with better information about which therapeutics to provide to patients," Steve McPhail, the CEO at
Expression Analysis, which performs genomics services for pharmaceutical and biotech companies. "It will allow us to go
places where we have never been before, and do things we have never been able to do before."

Years into this adventure, PacBio still has a tough road ahead. The consensus view among rivals and some outsiders is
that the company is unrealistic about its commercial prospects. Three years ago, PacBio executives were sending
competitors into panic mode with claims about shattering speed and cost barriers. "Everyone had been thinking that the
true next-generation machine would come from PacBio, but people seem to have backed off those claims now," says
Raymond McCauley, the chief science officer at the startup Genomera and a former executive at the sequencing
company Illumina (ILMN). PacBio went public last October with its shares hitting $17.47. Today they trade at about $12.
Just as damning are the suggestions that PacBio will be relegated to niche status. It's unclear how big an advantage
they will get in the cancer and agriculture fields from the long reads. "We'll have to see if they can come up with a killer
app to sell lots of machines," says Ion Torrent's Rothberg.

The competitive jabs underscore the sequencing market's resurrection. Illumina, based in San Diego, has set a torrid
pace for all rivals, regularly pushing down prices. Where it took 13 years and $2.7 billion to churn through the human
genome the first time, conventional sequencers can now do the job in days for a few thousand dollars. Jay T. Flatley,
Illumina's CEO, predicts the price of sequencing a human genome will fall below $1,000 in the next three to five years.
Next stop: mass sequencing. "Ultimately, it will take a system where you put a drop of blood in one end, press a button,
and get the answer out the other side." If that happens, patients will be able to get sequencing done in their doctor's
office, and every man and woman will get their genomes mapped routinely throughout their lives. That would enable
customized medicine and more detailed checks on how individuals' body chemistry changes over time.

George M. Church, a professor of genetics at Harvard Medical School, says there are two dozen to three dozen
companies in the process of building sequencing machines. He serves as an adviser to many, including PacBio. "They
would all like to believe there is one market, and that they're the ones who own it," he says. "In reality there are about
eight niches, and no one has them." In other words, there's room for a PacBio that's good with cancer, an Illumina that
caters to the mass market, and an Ion Torrent tempting new types of customers with low-cost gear. "This is the most
rapidly changing technology I have ever seen," says Church.

For now, Martin says PacBio will focus on its long-read technology. The company is working to add more holes to its
chips and speed up its chemistry. "Everyone has to bitch about the new guy," Martin says.

If Martin sounds irked, it's because his stake in PacBio's success goes beyond the financial. In September 2009 he was
diagnosed with multiple myeloma, a devastating form of blood cancer. The disease had already devoured one vertebra
and started to spread throughout his body. Martin had surgery to fix his back and started chemotherapy, all while PacBio
sought to close another funding round and prepare for its initial public offering. "I looked around and thought about what I
could do to get a cure as fast as possible," he says. "There's no CEO more motivated than me."