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Illumina’s Next-Gen Sequencer Exceeding Sales Expectations as Q2 Revenues Rise 103 Percent

Illumina officials said this week that the firm’s Genome Analyzer, the next-generation DNA sequencing instrument it gained through the acquisition earlier this year of Solexa, is exceeding sales expectations and played a key role in the firm’s strong second-quarter results.
 
Last week, the firm received an order for 20 Genome Analyzers from a single, unnamed customer. But perhaps more surprising to Illumina’s management has been the number of orders coming from outside the core genome centers – a trend that the firm attributes to the low cost and flexibility of the instrument.
 
Illumina also this week reported second-quarter revenues of $84.5 million, a 103 percent increase year over year. Company officials said new products were the primary reason for the increase.
 
Earlier this year, Illumina launched both the Genome Analyzer and the BeadXpress system for low- to mid-multiplexing in genotyping, gene expression, and protein-based applications. Flatley said the firm is “pleased with initial uptake” of the BeadXpress, which Illumina obtained through its $17.5 million acquisition of CyVera two years ago, and that orders have exceeded the firm’s expectations.
 
But it’s been the rapid market uptake of the Genome Analyzer that has surprised Illumina officials.
 
“The sequencing business is performing beyond our expectations and holds great promise as we further the technical capabilities of the platform, build out new applications, and explore numerous ways in which to integrate the technology with the BeadArray platform,” Jay Flatley. Illumina’s president and CEO, said during the firm’s second-quarter conference call this week.
 
“What’s particularly interesting is that we’re seeing strong demand across a broad market with more than half of our orders coming from outside the core genome centers,” said Flatley, adding that sales have exceeded the company’s initial expectations.
 
“A key factor in next-gen sequencing is the simplification of the sample prep process and the lower cost,” he said. “So this enables almost any university laboratory to purchase one system, for example, and have a real impact doing DNA sequencing, when that isn’t quite true in the traditional sequencing business.
 
“That accounts for the rapid broadening of the market,” said Flatley. “The other factor is that the technology is so versatile that many customers want to do pure experimentation with this [and] see what applications they might develop.”
 
As of June 13, the firm had received 75 orders for the Genome Analyzer. Adding to that total was last week’s order for another 20 systems.
 
While the system is being sold to customers outside of the core genome centers, it is not yet being placed at reference labs for clinical diagnostic applications, said Flatley. “That’s not a general use of the system today,” he said. “We certainly think it will be one in the future. Diagnostic sequencing is going to be a great opportunity, but today that’s really not where we’re focused.”
 
He said diagnostic uses for the system are a “few years away” from making a revenue contribution to Illumina.
 
New Products Driving Growth
 
The Genome Analyzer and BeadXpress are two of a number of new products the firm has launched since the beginning of the year that are driving revenue growth. “Strong uptake of new products introduced over the past six months continues to drive growth and profitability,” said Flatley.
 
“We believe we’re in the earliest stages of realizing the potential opportunity of a fully integrated company product portfolio,” he added.
 
With the acquisitions of CyVera and Solexa and the subsequent launch of their key technologies, Illumina now offers three instrument platforms.
 
“Underlying our acquisition of both the CyVera technology and the Solexa technology was this concept of providing end-to-end capabilities for our customers, all the way from sequencing the human genome on a de novo basis with this platform … through large-scale resequencing using arrays for doing whole-genome association analysis,” said Flatley.
 

“What’s particularly interesting is that we’re seeing strong demand across a broad market with more than half of our orders coming from outside the core genome centers.”

“Ultimately, that then progresses down the analysis chain to the BeadXpress platform, where customers want to look at a reduced number of markers to find ultimately the causal or highly correlated markers,” he said. “That paradigm of research is playing out as we expected.”
 
In addition to the new instrument platforms and a variety of collaborations announced during the quarter, Illumina introduced its Human 1M DNA Analysis BeadChip (see BioCommerce Week 7/4/2007). The chip contains both widely known copy number variation sites as well as novel CNV content derived from Illumina’s collaboration with DeCode Genetics, and it will compete against Affymetrix’s new Genome-Wide Human SNP Array 6.0, which contains more than 1.8 million markers.
 
Asked during the conference call if the firm had to hire additional salespeople to keep up with the demand of these new products, Flatley replied that the firm is “hiring significantly, particularly on the commercial side of the business for tech support, marketing, and the direct sales force.”
 
He said the additional staff was necessary to support the sequencers being sold outside of the genome centers. “Our hiring requirements are pretty steep, and we’re struggling a little bit there, but I think we’re doing overall fine in terms of bringing on sufficient people.”
 
Q2 Sales Up 103 Percent
 
Illumina said that its second-quarter revenues rose 103 percent year over year to $84.5 million from $41.6 million.
 
Company officials said during the call that consumables sales were $45.8 million for the quarter, up 126 percent year over year, while instrument revenues were up 94 percent to $25.4 million, and service revenues were up 110 percent to $10.1 million.
 
Illumina posted net income of $9.3 million, or $.16 per share, for the quarter, compared with net income of $6.8 million, or $.14 per share, in the comparable period a year ago.
 
The firm’s R&D spending more than doubled to $18.2 million from $8.6 million in the second quarter of 2006. The surge is attributable to the addition of Solexa’s operations, company officials said, including the addition of 125 Solexa R&D employees.
 
Illumina finished the quarter with $81.1 million in cash and cash equivalents.
 

The firm increased by $30 million its revenue guidance for fiscal 2007 to between $335 million and $345 million.

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