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Illumina Posts 66 Percent Revenue, Profit Gain in Q2; Acquires Sequencing Startup

This article has been updated to include comments from a conference call and a stock quote.
NEW YORK (GenomeWeb News) – Illumina reported after the close of the market on Tuesday that its second-quarter revenues and profit each increased 66 percent year over year. The firm also said that it has acquired Avantome, a privately held developer of low-cost, long read-length sequencing technology.
Illumina brought in revenues of $140.2 million for the three months ended June 29, 2008, compared to revenues of $84.5 million for the second quarter of 2007.
“Growth compared to last year was well balanced, and we saw approximately equal contributions from our sequencing and microarray businesses to the top-line performance,” Illumina CFO Christian Henry said during the firm’s conference call.

The firm’s consumables revenue increased 78.3 percent to $82 million from $46 million year over year, and its instrument revenues rose 70 percent to $43 million from $25 million. Service and other revenues contributed $12 million to the quarter.

Henry cited demand for the Genome Analyzer II as a key driver of instrument revenue growth, while consumables revenue was driven by “the rapid uptake of our new Infinium HD product line.”

Illumina President and CEO Jay Flatley credited the strength of the array business for the firm exceeding its expectations for the quarter. He added, “As we look forward in the array market, we continue to feel really good about what's happening in whole genome association studies in that. As these very large projects come through, we're going to continue to see greater adoption of new versions of our chip, particularly as we begin to sequence these very large numbers of samples.”

The firm posted a profit of $15.4 million, or $.23 per share, compared to net earnings of $9.3 million, or $.16 per share, for the second quarter of 2007. The most recent quarter includes a $4.1 million charge of impairment of manufacturing equipment and a $2.7 million charge for amortization of intangible assets compared with a $662,000 charge in the second quarter of 2007 for amortization of intangible assets.
Illumina said in a statement that the impairment charge relates to the write-off of its prior generation manufacturing equipment, which resulted from “the faster than anticipated customer transition to the new Infinium HD product line.”
Illumina’s R&D costs rose 28.6 percent to $23.5 million from $18.2 million for the comparable period of 2007, while its SG&A expenses increased 52.8 percent to $35.6 million from $23.3 million.
The San Diego-based firm finished the quarter with $133 million in cash and cash equivalents.
Following the second-quarter results, Illumina raised its revenue guidance for full-year 2008. Illumina officials said they now expect fiscal 2008 revenues to be between $550 million and $560 million, which represents growth of between 50 percent and 53 percent over 2007 results. The guidance is an increase of $30 million over the mid-range of its 2008 guidance that was provided after the first quarter.
Ilumina also announced that it will acquire DNA sequencing technology startup Avantome, which was co-founded by Mostafa Ronaghi, a senior research associate at the Stanford University Genome Technology Center. Under the terms of the acquisition, Illumina will make an up-front payment of $25 million and contingent payments of up to $35 million for Avantome.
Ronaghi has been developing a miniaturized pyrosequencer under a three-year, $1.8 million Advanced Sequencing Technology award that he received in 2004 from the National Human Genome Research Institute.
“Avantome is a development-stage company, so we're not going to disclose a lot about the underlying technology,” Flatley said during the call. “What we will say is that we do think it's highly complementary to the very high-end sequencing we have now on the GA II, and that this system is targeted for a different part of the market that really will be optimized for much lower-cost, long-read sequencing that happens very quickly.

“They have used pyrosequencing technology in their lab, but what we wind up launching as an ultimate product may or may not include pyrosequencing technology,” he added. “We are not really talking about what the ultimate product might look like.”

Ronaghi will join Illumina as senior vice president and chief technical officer following the deal, and Avantome co-founder Helmy Eltoukhy will join the firm as director of Avantome sequencing development.
Illumina expects to close the acquisition in the next few weeks.
Illumina's shares closed Wednesday at a 52-week high of $91.95, up 9.3 percent for the day.

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