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Illumina Reports 4 Percent Revenue Decline for Q4; Rejects Roche Offer Again

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Illumina reported after the close of the market Tuesday that its fourth-quarter revenues dropped 4 percent year over year, while issuing a separate statement once again rejecting Roche's offer to acquire the company for $44.50 per share, or $5.7 billion.

The San Diego-based genetic analysis technologies firm reported total revenues of $250 million for the quarter ended Jan. 1, 2012, compared to $261 million for the fourth quarter of 2010. The decline was expected, as Illumina had previously provided preliminary results at the JP Morgan Healthcare Conference. The Wall Street consensus estimate was $248.3 million.

The Q4 revenue decline was due primarily to an unfavorable comparison with the fourth quarter of 2010, which included a significant number of HiSeq shipments associated with the firm's Genome Analyzer trade-in program and a significant volume of HiScan SQ shipments, Illumina's recently appointed CFO Marc Stapley said on a conference call following the release of the financial results.

Instrument revenue for the fourth quarter was $80 million, an 11 percent sequential improvement but down 27 percent year over year. Consumables revenue for the quarter was $144 million compared to $145 million in the third quarter and $132 million in Q4 2010. Stapley said the sequential decrease in microarray consumables was due to a mix shift toward the firm's exome array and an inability to run the supply chain sufficiently to meet the increased demand.

On a year-over-year basis consumables revenue grew around 9 percent driven by the expansion of the installed base of sequencing instruments, said Stapley.

Ilumina's net income for the quarter was $11.7 million, or $.09 per share, compared to $38.4 million, or $.25 per share, for the fourth quarter of 2010. Its results were affected by $30.2 million in headquarters relocation expense and $8.1 million in restructuring charges.

On a non-GAAP basis, its net income for the quarter was $43.5 million, or $.35 per share, compared to $40.9 million, or $.29 per share, for Q4 2010. It beat analysts' estimates for $.30 per share.

Illumina spent $45.5 million on R&D in the quarter, down slightly from $45.8 million in Q4 2010. Its SG&A spending declined around 2 percent to $60.9 million from $62 million.

For full-year 2011, Illumina reported revenues of $1.06 billion, a 17 percent increase over revenues of $902.7 million for 2010.

Its net income for the year was $86.6 million, or $.62 per share, down from $124.9 million, or $.87 per share, for Q4 2010. On a non-GAAP basis, its profit was $176 million, or $1.30 per share, compared to $142.2 million, or $1.06 per share, for 2010. It beat analysts' expectations for $1.26 per share.

Illumina's R&D spending for the year was $196.9 million, up 11 percent from $177.9 million, and its SG&A spending jumped 19 percent to $261.8 million from $220.5 million. Its headquarters relocation expense for the year was $41.9 million.

The firm finished the quarter with $303 million in cash and cash equivalents and $886.6 million in short-term investments.

For 2012, Illumina expects revenues of between $1.1 billion and $1.175 billion, said Stapley, with non-GAAP EPS of $1.40-$1.50. For Q1 2012, Illumina anticipates revenues of between $250 million and $260 million, and non-GAAP EPS of $.29-$.32.

Looking ahead, Illumina President and CEO Jay Flatley said on the conference call, "While we understand that the potential exists for NIH funding to be cut by as much as 8 percent in 2013, we believe that such a profound reduction in NIH funding is an unlikely scenario."

In a separate announcement Illumina said that its board of directors has unanimously rejected Roche's unsolicited offer to acquire the firm, calling it "grossly inadequate." It noted that Roche's offer came when its share price had dropped to a close of $37.69 on Jan. 24, well below its 52-week high of $79.40, and urged shareholders to reject Roche's bid.

"It is the Board's unanimous belief that Roche's offer dramatically undervalues Illumina and fails to reflect the value of the company's unique leadership position and future growth prospects," said Flatley. "Our industry is nascent, with the promise and potential to experience extraordinary growth in the years ahead as genetic information becomes broadly applied beyond molecular biology research, and into medical diagnostics, reproductive health, and cancer management. As the growth of this industry accelerates, Illumina is singularly positioned to expand its market leadership, and to deliver value to our stockholders that is far superior to Roche's offer."

In a letter sent to Roche Chairman Franz Humer today, Flatley and Illumina Chairman William Rastetter wrote, "Our Board and Illumina management are fully committed to building, fostering, and protecting Illumina's value and to acting in the best interests of all our stockholders. At this juncture, we believe the only course of action consistent with those principles is to vigorously resist Roche's blatantly opportunistic attempt to acquire Illumina at a grossly inadequate price.

"Furthermore, we continue to believe that our highly qualified, independent directors are better positioned to act in our stockholders' interests than directors selected and compensated by you to advance your own strategic objectives at the expense of our stockholders."

Last week Roche announced the names of the candidates it intends to nominate to serve on Illumina's board. If adopted by Illumina's shareholders, the Roche-nominated directors would comprise a majority of the Illumina board.

Flatley was asked on the call about the possible distraction of the Roche bid. "The message we've given to both our customers and our employees is that it's business as usual," he responded. "In some ways it's been a catalyst for our team to make sure that we continue to deliver, and I don't think we run the risk of taking our eye off the ball."

He noted that the Roche has made two offers to buy the firm. According to a US Securities and Exchange Commission filing, Roche initially bid $40 per share for Illumina in early January.

But neither of the offers "would give the kind of value back to our shareholders that we would as a standalone company," said Flatley.

"We continue to doubt that [Illumina's] board would agree to an acquisition for anywhere near Roche’s offer of $44.50/share, but expect that the public negotiating process will be long and drawn out," Leerink Swann analyst Dan Leonard said in a research note.

In early Wednesday trade on the Nasdaq shares of Illumina were up 1 percent at $52.44.

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