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Rapid Response: How mission fuels risk-taking, with Illumina CEO Francis deSouza

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Mm-hmm. I remember clearly the meeting at Illumina and I still get goosebumps when I think about it, where we realize that we could be seeing the signals of cancer in a blood test. We were processing samples from pregnant mothers. One of our scientists noticed that there was something unusual about the maternal DNA. And in all of those cases, the mothers went on to find that they had cancer and didn't know it.

What the FTC is saying is that by us getting into this space, we will reduce innovation in the cancer screening space. Now that's just fundamentally not correct. Our team was actually called into Wuhan at the end of 2019 and the first viral genome of SARS-CoV-2 that was published on Jan 10th was done on Lumina Sequencers. We worked with Moderna and BioNTech. Their entire vaccine development program is based on the data that comes off Illumina Machines. We know if we acquire Grill.

Tens of thousands of lives will be saved that wouldn't be saved if we don't acquire Gram. Mm. That motivates us deeply. That's Francis DeSouza, CEO of Illumina, the world's dominant maker of gene sequencing. D'Souza is locked in a battle with the FTC over the reacquisition of a company Illumina previously spun out.

Called Grail that has a breakthrough cancer screening test. I'm Bob Safian, former editor of Fast Company, founder of the Flux Group, and host of Masters of Scale Rapid Response. I wanted to talk with Francis because Alumina has been a critical driver of COVID vaccines and other extraordinary bioscience advances, yet to keep on the cutting edge of innovation, he's had to embrace ongoing risk taking, even at a public company with a$70 billion market cap. And that risk taking has led to unexpected conflicts, including with the government. The Grail Deal offers a peek into the myriad levers that help to accelerate scale for a company and for an emerging industry and technology.

To cultivate a new marketplace, DeSouza has delved into both research and deal making, and he offers a personal reflection on the lessons and reality of grappling with regulators. What underscores his entrepreneurial efforts is a passion for Illumina's mission of improving human health by unlocking the power of the genome. When your mission and your business model are aligned, the hard decisions about risk, about investment, about priorities become simpler and clearer. It's an approach that all business leaders can rely on.

I'm Bob Safian, and I'm here with Francis D'Souza, the CEO of Illumina. Francis is coming to us from his home in San Francisco. As I ask my questions from my home in Brooklyn. Francis, thanks for joining us. Thanks for having me, Bob. So it's been quite a year for biotech.

Genomic science, gene sequencing, highly effective mRNA, COVID nineteen vaccines rolling out, something Illumina has played a part in, which is great. You're also in the midst of trying to reacquire a company that was spun out of Illumina, Grail, for about eight billion dollars. You face some regulatory hurdles here in the US and in Europe. So Many good things, some challenging ones. I wanna start with a general question. There's often a Perspective for entrepreneurial leaders, particularly out of Silicon Valley. That in order to maintain innovation and to scale while challenging traditional models and institutions, that it's better to ask for forgiveness

Than to ask permission. The health and biotech arena is a little different, but how do you think about that idea of permission versus forgiveness in the way you drive toward innovation? I think there are some really important differences between healthcare and tech and Primarily one of the biggest differences is just the stakes, right? For what you do in healthcare, you are directly impacting the lives of people. And so we feel

an incredible sense of urgency. You can actually impact lives more quickly. Having said that, you also want to move carefully and you want to make sure that you've done all the right things such that, you know, what you put in the market is actually helping and not hurting. Doing the work around the studies, doing the work around the regulatory approval. And then also the way healthcare is set up. you need to do work with the reimbursement entities to make sure that they have the data such that an innovation you bring to market is actually accessible to the community and reached by the communities that you intend to help. And so we share the sense of urgency, but I think there's more work that gets done in healthcare before an innovation comes to market, and rightfully so. Alumas worked successfully to get FDA approval for various innovations and to get the payment systems all in place. Now this deal with Grail has put you in conflict

with a different part of the government with the FTC the Federal Trade Commission As well as with European regulators. Can you explain to us how you find yourself in this situation? You know, Illumina for the first decade plus of our existence, we used to sell genomic analysis tools into the research market. And then in 2013, we entered the clinical market for the first time through the acquisition of a company called Verenada that did non-invasive prenatal testing. Now the way Grail started was we were processing samples from pregnant mothers in our noninvasive prenatal testing lab. And one of our scientists, this incredibly brilliant woman, noticed that although the fetal DNA in the blood was normal and healthy, there was something unusual about the maternal DNA. And so she alerted us, we alerted the doctors to say, look, something seems to be off with the mothers here. And the doctors got back to us and said, no, all the moms are fine, but we'll stay in touch with them and see how they do. And in all of those cases the mothers went on to find that they had cancer and didn't know it.

And I remember clearly the meeting at Illumina and I I still get goosebumps when I think about it, where we realize that we could be seeing the signals of cancer in a blood test. And so we quickly put a team on it aluminum. This was in the twenty fourteen, twenty fifteen time frame. They worked for over a year and came back and said Yeah, it looks like we're seeing signals for cancer, but there is a lot of work that needs to be done between where we are now and actually having a safe test that we can bring to market. We need to do some very large clinical studies and we need to hone the test and understand what specifically are we looking for in the blood. We knew that would take a huge investment, and so We spun out the technology into a company called Grail. We put over forty Illumina people into Grail, and we raised ultimately over two billion dollars, and that's One of the reasons we wanted to spin it out to get access to the capital to move this technology

as quickly as it could. The Grail team worked for a few years and in the fall of twenty nineteen they published their results. And the test they developed is truly extraordinary. This is a blood test that can identify fifty types of cancers across all stages. Now we know cancer kills Ten million people a year around the world, six hundred thousand here in the US alone. We also know that if you catch cancers early, you the patients have a much higher chance of survival. In a lot of cancers, you'll see the odds of survival can get higher, and and up to ninety plus percent if you catch it in stage one or stage two. The challenge is that 71% of people who die of cancer die to cancers that have no screen. In fact, forty five out of the fifty cancers that Grail screens for have no screen today.

like pancreatic cancer, for example. And so there's no ability to catch it early. And so when Grail published their data in the end of twenty nineteen, we realized this was A huge breakthrough. And that this would save a lot of lives. And that's sort of how we initiated the process to acquire Grail. And what we want to do is bring the Grail test to market as fast as possible to people around the US and around the world. Grail has a terrific technology and Illumina. We have the commercial presence in over one hundred and forty countries around the world. We have the teams that can work on reimbursement and regulatory approval, and so we can dramatically accelerate getting this test into the hands of people whose lives it could save. And so the FTC's argument, though, is that

By bringing Grail back to being part of a Lumina that somehow there may be other efforts in this area that will be competitively disadvantaged. In other words, Grail will have an advantage over others who are doing research in this area. Do I understand that right? Yeah, so the FTC has actually in the last four years never been able to successfully challenge a vertical merger. So if a company is buying another company that's not in its space. What the FTC is saying is that by us getting into this space, we will reduce innovation in the cancer screening space, and that we will have an incentive to

Raise prices of sequencing for other players. Now that's just fundamentally not correct because There are no other players. Grail is the only player in that space, and they launched their product a few weeks ago. And in fact, there's nobody even developing a product like that. There are startups that have announced that they're working on single cancer blood tests. for screens or maybe up to eight to ten, but they're a while away from getting into the market and nobody's done fifty. And so first of all, there's no competition in that market to foreclone on. Secondly, they argue that competition may be chilled, and that's not at all been the experience. We have been

delivering clinical tests since 2013 when we entered the non-invasive prenatal testing NIPT space. And then a few years later we entered the clinical space for therapy selection for cancer patients. And what we saw in both of those cases, and we'll start with NIPT, is that once we bought The number of players in that space went up. To compete with our offering. A lot of them use our technology to compete with our test. The number of tests ordered by pregnant moms went up. The price to the consumer of the test went down, reimbursement went up.

And the sequencing price that we charge Our competitors went down. And so it was vastly pro competitive. And the same thing happened in the cancer therapy selection space. Now why is that? It's because the venture community tells us that once we enter a space First of all, it validates the space to say, okay, this is real and it's happening. And then two, the work that Illumina does to put reimbursement in place, to establish regulatory pathways, is work that every other company in the space can leverage. And so once a billing code is established by CMS, that's a billing code that any of our competitors can use. without necessarily having done any of the heavy lifting to get that code. And so what we saw in both the NIPT space and in the cancer therapy selection space is that competition flourished.

We also have a very strong incentive at Illumina to make sure competition flourishes. In both NIPT and in cancer therapy selection, if you combine them, we make Ten times as much revenue and Selling sequences to our competitors. Than we do from selling our own test. And so we have a powerful economic incentive to make sure there's a lot of competition because our core business is to sell the sequencers.

I'm curious, did you expect that so much of your job as CEO or a certain portion of it was gonna be dealing with the FTC on these different kinds of deals? I think everybody was surprised by the actions of the FTC on this deal. I think the prevailing wisdom and the economic experts tell us that This is not typical for the FTC to do. Again, they've not successfully challenged a vertical merger in forty plus years. And then the way it's playing out in Europe is also not typical. The European Commission actually has no jurisdiction as a whole or in any of its twenty seven countries, because Grail does no business in Europe and has no plans to do business in Europe for a while. But the European Commission invoked Article twenty two, which is something they've really never done before. I understand you were recently in D C meeting with congressmen and senators for the first time. What was that like?

Um it was definitely a a novel experience. We at Illumina we're sort of an engineering science company, and so we don't spend much time in D C, but it's clear That there's a need to. What I heard in D C were a few things. One, I think there was just a Almost a bit of shock and awe that a test like this exists. One member of Congress who actually has a medical background

I think two minutes in his his first words were like wow. This is doable. And although the Grail test has been on the market now for a few weeks, they don't really have a substantial marketing department to get the word out. And so most people don't know the Grail tests exist. There was a huge amount of pride that this test was developed here in America and that two American companies we're talking about. And then there was just Honestly a lot of disbelief around how this process is playing out. They were confused about

What is happening from a regulatory perspective? There's a huge amount of support for getting this test out as quickly as possible and to get this beyond the self-pay market where it is today. So today, because Grail doesn't really have the reimbursement in place or the teams that can drive it, the test is offered as a self-pay test. And if you go to their website, you'll see it costs$145 for the test. It's a life saving test, but a lot of people can't afford Especially regularly a nine hundred and forty five dollar test. What we don't want is this test withheld from

communities that already are underserved from a healthcare perspective. And so there was a a lot of interest in seeing how we can accelerate getting this test out to as many people as quickly as possible. the core part of your business is the sequencing machines as in the sequencing process as opposed to the testing. I'm curious whether like This is a distraction for you? Like how important is Grail relative to other things that Illumina is doing?

I'll start by saying that at Illumina, we are focused on improving human health by unlocking the power of the genome. So you know, that's the mission we've been on for a very long time now. And our focus in doing that primarily is, as you said, to develop sequences. So our sequences today are used by children's hospitals. To diagnose children that have genetic diseases. They're used by cancer hospitals to match cancer patients with the right therapies. They're used for carrier screening for people that are considering having a child. They're used in consumer genomics by companies like 23andMe, for example. But they're used in a whole set of different fields, including as far afield as agriculture or even companies that are looking to store IT data in DNA. So there are hundreds of markets that we serve. We have seven thousand customers around the world, and in most cases actually we don't even know what they do until they publish their paper or launch their product because people just buy our sequences and do their thing. Now

In a small set of markets, we offer the test ourselves. So we do both, we have our own test and we enable the uh players who compete with our test. The reason we did that is because we felt we could accelerate those markets. And where we feel there's a big market and the presence of Illumina will accelerate the market, we get in. Economically though, the vast majority of our revenue comes from sequencers, and that's still the biggest driver of our revenue, our profits, and you see a lot of growth in that part of the market, too. Steve Jobs used to famously like he'd worry about what the next thing was and wasn't worried about what the core business was. It was always the next product. For you as a leader trying to scale this business and really scale the way genomics can change and affect human health, how do you balance those pieces of it?

I'm definitely spending a lot of time focusing on things that'll impact us sort of in the three plus year time frame. In a lot of cases, we help accelerate the market in a particular direction by the investments we make in our technology. So we spend a lot of time thinking about What products can we bring in the markets we're in to accelerate it? But also what work do we need to do from a reimbursement perspective, a regulatory perspective, a physician education perspective, so the doctors know to order those tests to accelerate those markets. And then we look at what are the breakthrough markets that are emerging. And that's what led to

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Creative planning where wealth works together. Lear more at creative plating dot com slash masters of scale. Humans will never be more intelligent than AI. There's been two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. I'm Rana El Calyubi.

And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday we release a second Rapid Response exclusively in the Rapid Response feed the guests and topics are just as compelling and timely from Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada.

It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Before the break, Francis DeSouza, the CEO of Illumina, was explaining how he got crossways with the FTC and why he feels the risk is worth the challenge. Now we're gonna dig into some lessons from Ilumina's Covid nineteen experience, which began at the outset in Wuhan. The takeaway here is about making the most of an opportunity, whether planned or unexpected.

By focusing on a long term mission, D'Souza has been able to advance an emerging marketplace even in the short term. And so over the last eighteen months there's been certainly discussion about the accelerated adoption of technology overall because of the pandemic, that it's been accelerated by five, ten years. In the health science area, I mean, obviously with MRNA vaccines, that has accelerated or feels like it's accelerated. But in your core business, does it not accelerate faster because of sort of Adoption and recognition of it, а mim you have to move at the pace of science.

Or can you speed things up? You can absolutely speed things up once you have a product by working on things like reimbursement and regulatory pathways and education. A lot of times you have to educate the doctors on what the test is, when it can be used, how it can be used. And so this is a market where bringing the product out is in some sense just the beginning of the journey. Now, you brought up a really good point about the pandemic. I believe the pandemic has accelerated the field of genomics by five plus years. Our team was actually called into Wuhan at the end of 2019, and the first viral genome of SARS-CoV-2 that was Published on Jan 10th was done on Illumina Sequencers out of Shanghai. We sin have been involved not just in China but around the world in doing surveillance of how this virus is evolving. So when you hear about the Delta and the the other variants, a lot of that is done on Illumina Sequencers. We've also donated sequencers to and and consumables to over ten countries in Africa. I know we were in Mozambique the other day training teams on the ground on how to use sequencing, and some of these countries have never had sequencing before. We're used in India to track how

The variants are emerging there. And so we've seen this whole field of genomic epidemiology emerge, and we've seen genomics enter the vernacular of the culture, where people are talking about variants and mutations, and they're very aware of what genomics does. We've seen Other fields accelerate too the whole area of genomic vaccines, MRNA vaccines. You know, we worked with uh Moderna and BioNTech. Moderna, their entire vaccine development program is based on the data that comes off Illumina machines and MRNA vaccines for COVID are only the first step for them. They're working on cancer vaccines and malaria vaccines. We've also seen acceleration in the use of liquid biopsies for our cancer patients, and that's using blood tests instead of tissue samples. And so we saw a whole set of fields in medicine dramatically accelerated through the pandemic.

And so this is in some ways as you're describing this, this is sort of adoption of science and technology that existed, but just wasn't applied to these purposes or with this breadth. That's exactly it. We have been doing work now since the first human genome was sequenced, you know, in the beginning of this century, so two decades now. We've seen the emergence of gene therapies over the last, you know, eighteen months to two years that are having really dramatic results with curing a patient off sickle cell cancer or inherited blindness. We've seen the emergence of CRISPR and gene editing into the clinic in the last couple of years. So again, technology that's been developed over the last couple of decades.

But is now finding clinical applications. Yeah, you know, a lot of the listeners to this podcast are entrepreneurs and entrepreneurs, right? They're engaged in trying to figure out how to scale. And as I'm listening to you, there's this sort of balance, I guess, that I'm curious about like what things you make happen. To be able to generate that scale, to accelerate that scale, and what things are like you keeping your eyes open and saying, Oh, here's something that I can Delve into further. Like there's already momentum in an area that I can make more of. That's a great observation. There are things that

have been developed over the last couple of decades that are now ready for prime time. But There are also a number of things that are really exciting that are much earlier stage that are in the stage of when we first discovered Grail, where you look at something and you think, Wow This could have a massive impact in the next five to ten years. But at Illumina, we spend about eighteen percent of our revenue on R D, which is twice our industry's average. And it's a statement partially to the opportunity in front of us. That's just so vast and we're still so early on. And I guess the more sequences that are out there, the more data that's being collected that you can then look for these patterns that

As you talk about Graham, like you weren't necessarily looking for that pattern, it just sort of emerged from data that was being created. You're absolutely right. We weren't looking for it. We were looking to understand the health of the baby and and we stumbled upon signs of cancer in the blood in the mom. And that is going to continue to be true. The more data we collect, the more we'll understand how genomics in your genome translates into health and disease. What's exciting too is that With the advances in machine learning and AI, you can actually find signals that are very powerful before you even understand the biology. And that's what happened here in cancer screening, where initially we thought you would be looking for known mutations in cancer genes.

And so he said we know that these mutations in these genes give you a much higher chance of having cancer. And we did those tests, but at the same time we unleashed sort of the AI algorithms to say, and look for anything else. And see if there's any other signal that We don't understand, but maybe better. And what we found was, you know, the AI algorithms sort of develop very complex signatures based on methylation patterns that are very, very, very indicative that a person has cancer and also point to where in your body the cancer is. In ninety-three percent of the cases, that blood test can tell you If you have a cancer, what tissue it's in. So it's in the pancreas. And frankly

we still have work to do to understand why. What's the biology that drives those incredibly complicated methylation signatures? Hugely exciting area of research. It also points to the opportunity for a new area for drug targets to say like if those methylation signatures are deeply associated with cancer, then what if you could disrupt them? And so to your point, the more data you have, the smarter we get and the better our algorithms are that can help us lead the way. The last year year and a half, and I've had this discussion with other folks in the medical science areas such opportunity in the midst of like A really difficult year.

In in so many ways. When you look back on the last year, year and a half for Illumina, like Has it been a good year? Has it been a bad year, hard year? Like how do you encapsulate what the experiences of going through this? It's been a hugely tragic year. When you think about the last, you know, eighteen months

So many people have died. There's been so much suffering. This Huge human cost. The stress of people being cooped up at home, the pressures of people losing their jobs, the pressure of people that lose their insurance. The enormous frustration of seeing the inequity of access to

vaccines, the uh inequity of access to testing. And it's highlighted Just Really problematic structural issues about equity. you know, in our society here in the US and around the world. And in the midst of that, we've seen people rally and on the front lines, but have done just heroic work.

And part of that are the scientists. It has been just an unbelievable year in terms of medical innovation and scientific innovation. You know, the MRNA vaccines are It's hard to use any other word other than miraculous. Vaccine development takes ten to fifteen years on average. The fastest for moms was four years. And yet in less than a year we went from identifying Pathogen to having a highly, highly effective vaccine for it. I got goosebumps and and got, you know, I was choked up when I saw the first.

trucks starting to roll. I still get choked up when I think about it. Starting to roll the Pfizer vaccines that got published. I mean it truly was just miraculous work that happened. I mentioned that there are scale leaders who are listening to this. Are there lessons about scale and otherwise you would draw from the experience you've had? Dealing with The acquisition side, dealing with

the government like are there Things that maybe you would have done differently or that you would try to do differently next time you might warn people about. I think we did a number of things right, especially around innovation, but there are definitely areas I think we could have done better and I think we will work on to do better in the future. One is it Turns out it is important to have a presence in DC.

turns out it is important to spend time making sure that the people that are driving policies and regulations really understand A what's at stake, B what that market actually looks like. And that's something that I wish we had done more off earlier and something we will start to do more off going forward. A lot of tech companies cite competition from China. as evidence that whatever monopolies may seem like they're in place You know, the alternative is to seed ground to Chinese firms that are government connected. Is that similar for Illumina with Beijing Genomics Institute? It is part of the discussion. Today we at Illuminan and we at America really are the leaders in genomic sequencing. And it's a field that we've been leading for a while and and it's through big investments we make in in R and D.

BGI does sell sequencers around the world, but We believe and and it's been validated in court that they are infringing on our IP, that they're using some of our technology. And you know, it's gonna continue to be erased to uh Keep staying ahead of where the market is. If we are blocked from getting into other areas, and BGI is not, it does create an uneven playing field where To the point you made earlier, BGI will just have access to more data to drive more innovation than we will. And if we let that happen,

Then You know, we risk losing our lead in this very, very important area for the future. And What's at stake for Illumina right now?

The single biggest thing that's at stake is that We know if we acquire Grail. Tens of thousands of lives will be saved. that wouldn't be saved if we don't declare Grail. That motivates us deeply. We feel there's a moral imperative we have

As hard as we can. To make sure that everybody understands that and that, you know, we do get this test to everyone. You know, we are deeply passionate about equity of access to genomic technologies. It's why we drive the cost of sequencing down so aggressively as we have. And we don't want to get into a world where genomic tests are only available to the self pay market and the wealthy. And so that's the biggest thing at stake. There's tens of thousands of lives that we could be saving by accelerating the access to this test. Well, this has been great, Francis. I really appreciate it. Likewise, thank you.

To share this episode with a friend, go to masters of scale dot com slash rapid response. Masters of Scale Rapid Response is a wait what original. The show is recorded remotely using sanitized audio gear. I'm your rapid response host, Bob Safian. Host for Masters of Scale is Reed Hoffman. Our executive producers are June Cohen and Darren Triff. Our supervising producer is Jay Punjabi.

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