Technology is leading the way to cheaper gene-sequencing for the company that has taken command of its industry.

By Richard McGill Murphy, contributor

FORTUNE -- In April, Swiss pharmaceutical giant Roche dropped its hostile takeover bid for Illumina, a supplier of genetic analysis tools based on proprietary chemistry. CEO Jay Flatley argues that Roche's final offer of $51 a share undervalued Illumina (ILMN), which hopes to benefit from a future of personalized medicine in which doctors will be able to consult your unique genetic blueprint to diagnose diseases and evaluate disease risks. "The prospects of our company are incredible right now," Flatley says. Illumina dominates the fast-growing, $1.2 billion gene-sequencing market with a 60% share, according to Morningstar analyst Charlie Miller. Its technology has helped shrink the cost of sequencing a single human genome, which Flatley expects to fall below $1,000 by 2014. Later this year Illumina plans to release a $740,000 system that will be able to sequence an entire human genome in one day. "Turning down Roche was a smart move," says Miller.

Fastest Growing Companies rank: No. 23

HQ: San Diego

Employees: 2,200

The business: Genetic analysis tools for medical researchers

The Risk? Personalized medicine is still more dream than reality, which explains why 77% of Illumina's revenue comes from the academic research market. Most biomedical research labs depend heavily on U.S. government funding, in an era when federal budgets are under siege. Last year sales softened as labs delayed spending over concerns about possible budget cuts at the National Institutes of Health, which directly or indirectly contributes about a third of Illumina's revenue, according to S&P analyst Jeffrey Loo. Meanwhile, rival Life Technologies sells sequencing tools based on a different, semiconductor-based process. If research funding dries up before the clinical market takes off, or if Illumina loses its technological edge, Flatley could wind up wishing that he'd sold out when he had the chance.

This story is from the June 11, 2012 issue of Fortune.