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Illumina's Q3 Revenues Increase 5 Percent; Shares Plunge on Estimate Miss

NEW YORK (GenomeWeb News) – Illumina reported after the close of the market Tuesday that its third-quarter revenues rose 5 percent, and it swung from a loss to a profit.

The San Diego-based firm missed analysts' consensus estimate, and its shares plunged 21 percent to $32.99 in after-hours trade — though its shares were trading at $35.23 in early Wednesday trade. The shortfall was due to a few issues, including a quality control issue related to sequencing reagent kits that could impact Illumina's Q4 revenues as well.

Illumina brought in total revenues of $158.4 million for the three-month period ended Sept. 27, compared to $150.3 million for the third quarter of 2008. The revenues came in around $4 million below the low end of Illumina's guidance for the quarter and missed analysts' consensus estimate of $167.3 million.

Consumables revenues were $87 million for the quarter compared to $90 million for the third quarter of 2008. "Late in the third quarter we estimate that we lost approximately $6 to $8 million in revenue due to a sequencing reagent quality issue, which prevented us from shipping certain kits," CFO and SVP of Corporate Development Christian Henry said during a conference call following the release of the results.

He added that the reagent issue also is expected to have a negative impact of up to $15 million on the firm's fourth-quarter revenues.

Instrument revenue for the quarter was $61 million compared to $47 million in the third quarter of 2008. That growth was due to sales of its Genome Analyzer next-generation sequencing instrument and its iScan instruments.

Services and other revenue was $8 million, down from $10 million in the comparable period the year before. The decline was due to the overall downward trend in Genome-Wide Association Studies and more of the firm's genotyping services have moved to certified providers, said Henry.

"Q3 was a disappointing quarter for Illumina, with three key factors contributing to our revenue miss" Jay Flatley, the firm's president and CEO, said during the call. He cited the reagent quality issue, stimulus-related delays, and the continuing decline in the whole genome genotyping market.

He said that the firm recognized a non-material contribution from stimulus-related research activities. According to Flatley, around $8 million to $10 million of orders the firm expected to receive were delayed as grants were awaiting funding. "In Q4, we've begun to receive some orders related to stimulus, but cannot predict how much will hit Q4 versus sliding into 2010," he said.

Flatley said that the quality issue was related to raw materials for the firm's paired-end sequencing kits, which cost the company between $6 million and $8 million in revenues. "We've removed the shipping hold, we've ramped manufacturing, and we expect to rapidly clear our backlog," he said.

Illumina posted net income of $17.1 million, or $.12 per share, for the quarter compared to a net loss of $10.1 million, or $.08 per share, for the third quarter of 2008. The results from 2008 include $24.7 million in charges related to Illumina's acquisition of Avantome.

The firm's R&D spending for the quarter increased 25 percent to $34.3 million from $27.6 million, while its SG&A spending rose 7 percent to $42.1 million from $39.4 million.

Illumina finished the quarter with $238.5 million in cash and cash equivalents.

The company said that it expects minimum Q4 revenues of $165 million, which implies full-year 2009 revenues of $651 million. This represents 3 percent year-over-year growth in the fourth quarter and 14 percent for the full year, but it is well below analysts' current consensus estimate of $200.2 million for Q4 and $694.8 million for full-year 2009.

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