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'Strong Demand' for SNP Chips Helps Illumina Q4 Revenue Surge 49 Percent


Illumina last week said fourth-quarter revenue swelled 43 percent as a loss in the prior-year period swung to a profit in the current quarter, and Chief Financial Officer Christian Henry said it will "probably" make an acquisition that is on the "smaller rather than the larger side."

CEO Jay Flatley said sales of the firm’s whole-genome Infinium HD BeadChips comprised the majority of its revenue, and that its Human610-Quad was its best-selling product for the quarter.

The San Diego firm said total revenues for the three-month period ended Dec. 28, 2008, increased to $160.9 million from $112.6 million for the fourth quarter of 2007.

Henry said during the firm’s fourth-quarter conference call that sales of consumables related to Illumina’s microarray and second-generation sequencing platforms contributed equally to the revenue growth.

He also said that consumable revenue totaled $98.6 million for the quarter compared to $56.2 million in the fourth quarter of 2007, driven by "strong demand for Infinium HD BeadChips as well as sequencing kits."

During the call, Flatley said Illumina now holds a 70-percent share in the market for high-multiplex genotyping tools, which it plans to maintain by launching additional products supported by the generation of more human variation data on second-generation sequencers.

Flatley said that Illumina’s four-sample 660W-Quad BeadChip, which debuted in November and was developed in collaboration with the Hospital for Sick Children and the Sanger Center, "highlights our ability to rapidly add new and differentiated content to our existing arrays, increasing the value to our customers."

He said that, in the future, Illumina’s "capabilities to rapidly deploy new content will become increasingly important as novel markers are discovered on our sequencing platform."

According to Flatley, Illumina is also seeking to benefit from the 1000 Genomes Project, an international effort launched last year that will use second-generation sequencing to create a new, more detailed map of the human genome.

"As the 1000 Genomes Project begins to generate lots of content, which they already are, and other sources of sequencing data come into the public domain, we’ll be able to take some of the additional discoveries of variants, of which there is predicted to be a very large number, [and ] move those variants on to our chips," Flatley said.

This, in turn, will enable researchers to "begin a whole other round of what we call rich genome-wide association studies. The expectation is that those next phases of studies will use significantly more samples because … to get statistical significance on variants that are at a lower percentage, you just need a larger sample size," he said. "I think that’s clearly going to be the trend, particularly as we get out toward the end of this year. I think that cycle will really begin to kick in a large impact in 2010."

Flatley also cited the recent agricultural biotechnology-related genotyping arrays the firm has launched as evidence of the "technical interplay between genotyping and sequencing." So far, the company has launched SNP chips for bovine, equine, canine, porcine, and ovine studies.

Members of the International Sheep Genome Consortium, for example, told BioArray News recently that they intend to use the OvineSNP50 BeadChip in a new round of association studies later this year (see BAN 1/27/2009).

"Significant portions of the content on these chips were generated using the Genome Analyzer, highlighting the coupled use of sequencing for discovery and arrays for deployment," said Flatley. He said that agbio products are becoming a "significant contributor to Illumina’s growth," and that last year the company received "approximately $50 million in orders from this emerging market.

"For us, the reason that the ag market is so exciting is because the sample numbers are huge," Flatley said. "Many of these customers are talking about sample numbers in the many tens of thousands to millions of samples."

According to Flatley, the market for second-generation sequencing is growing faster than the array market, a trend that is likely to continue this year. However, he said Illumina "still believes that the array market will grow nicely" on the back of some additional products.

In the expression-array market, the company hopes to attract customers with its HT12 12-sample BeadChip. Flatley said that the dollar value of expression arrays shipped last year grew 40 percent in 2008 over 2007.

The company is also looking to upgrade custom array projects to two new formats. Illumina last month launched the Universal-32 BeadChip, which is designed to transition customers from its older Array Matrix to its current BeadChip format. The Universal-32 improves per-sample scan times by a factor of four, includes content from 384 to 3,000 markers per sample, and processes up to 32 samples per chip, Flatley said.

Illumina is also migrating its iSelect custom products to the 2.1-million marker Infinium HD format, a move expected to enable customers to interrogate between 3,000 and 200,000 custom markers across 12 samples on a single chip, he said.

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Acquisition 'Probable'

During the earnings call, company officials also discussed the possibilities of a new round of acquisitions this year. CFO Henry said that Illumina is currently looking at "more technologies and opportunities than it could have ever imagined."

"There are an awful lot of assets out there for sale. The challenge for us is to make sure we don’t get distracted from our core business, which is firing on all cylinders right now, and so we’re really looking for where the diamonds are in the rough, if you will, and it takes a lot of time and energy to find that," Henry said.

He said that Illumina is unlikely to "go on a large acquisition binge," and predicted that any acquisitions this year will "probably be on the smaller rather than the larger side."

Last month, Illumina made an $18 million equity investment in Oxford Nanopore to support the development of its BASE sequencing technology. And last July, Illumina paid $25 million to acquire Avantome, a private company developing a low-cost, long read-length sequencing technology (see BAN 7/22/2008).

Q4 in Full

For the fourth quarter, Illumina said product revenues increased to $152.8 million from $101.1 million, while its service and other revenue decreased to $8.1 million from $11.5 million.
Illumina posted a profit of $28.9 million, or $.22 per share, compared to a net loss of $4.1 million, or $.04 per share, for the fourth quarter of 2007. The 2007 fourth quarter included charges of $54.5 million related to the settlement of litigation.

Illumina's R&D spending rose 41 percent to $28.3 million from $20.1 million, while its SG&A spending increased 31 percent to $39.2 million from $30 million.

During the quarter, Illumina brought its Singapore facility up to full production, and by now has manufactured more than 30,000 chips at the site at "yields equivalent or slightly better than that in San Diego," Flatley said during the conference call.

He said the ramp-up was part of a "continued expansion in infrastructure" that will also include "significant" growth in the number of Illumina’s sales, support, and operations personnel.

"We have very large quotas that we carry for our sales force, and so as we get bigger, it makes sense to shrink territories down and give more customer attention, so you’re seeing growth there on the SG&A side," Flatley said. "The other element of SG&A that will be growing in 2009 will be focused on some of the core infrastructure around our systems."

Flatley added that Illumina’s Business Applications Group, responsible for global sales, will likely add 400 to 500 people to its payroll this year, bringing total headcount to close to 2,000, double the number employed at the end of 2007.

For full-year 2008, Illumina's revenues jumped 56 percent to $573.2 million from $366.8 million. Its product revenue for the year swelled to $532.4 million from $326.7 million in 2007, while its service and other revenue remained flat at $40.8 million.

Illumina's net income for 2008 was $50.5 million, or $.38 per share, compared to a net loss of $278.4 million, or $2.57 per share, for 2007. The 2007 results include charges of $303.4 million for acquired in-process R&D, versus $24.7 million for similar charges in 2008.

R&D costs for the year grew 35 percent to $100 million from $73.9 million for 2007, while SG&A spending rose 46 percent to $148 million from $101.3 million.

Illumina finished 2008 with $327 million in cash and cash equivalents.

The company expects first-quarter revenue to be between $158 million and $164 million, or 20 percent above the same period of 2008, and said earnings per share is projected to grow between $.23 and $.26. Full-year 2009 revenue is projected to be between $690 million and $720 million.

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