This article was originally posted on Feb. 9.
Revenues for Illumina's microarray business were down in the fourth quarter of 2011 compared to the previous quarter, but not because of a lack of interest.
CEO Jay Flatley said last week that Q4 was a "record quarter" for array orders, with custom array orders up 50 percent and whole-genome genotyping orders up 60 percent compared to the third quarter of 2011. Nevertheless, the firm was not able to recognize revenues for some of these orders during the quarter due to manufacturing constraints.
Contributing to the surge in Q4 orders were two large deals with so-called "consumer genetics" firms, Flatley noted, including one from Ancestry.com for approximately $7 million worth of arrays. He did not name the other firm.
Flatley made his comments during an conference call discussing the company's Q4 results. Illumina's overall Q4 revenues dropped 4 percent year over year, a decrease the company pegged to an unfavorable comparison to a particularly strong quarter in 2010.
Flatley did not compare Q4 2011 array orders to array orders in the same period of 2010 and the company does not, as policy, break out numbers for its specific product lines.
In spite of the spike in array orders, Illumina was not able to recognize revenues from them, as the firm was unable to make enough chips to meet demand. In particular, its array manufacturing was strained by greater than expected demand for the firm's new exome arrays.
"The exome array has exceeded our expectations as we have received 1 million orders in samples to date," said chief financial officer Marc Stapley, who blamed a sequential decrease in array consumables on an "inability to ramp supply chain to meet the demand."
This is not the first time that orders have overwhelmed Illumina's manufacturing resources. For instance, the firm's array instrument revenues declined in the second quarter of 2010, even though the company experienced a rise in orders for its HiScan system. The HiScan shares many components with Illumina's HiSeq 2000 sequencer. As HiSeq 2000 orders spiked, Illumina was forced to delay filling HiScan orders until the third quarter of that year (BAN 8/3/2010).
Christian Henry, Illumina's general manager of genomic solutions, noted in the call that the "order flow" for the exon arrays was "much more than we had anticipated." He said that Illumina will ship these orders in the first half of this year, "more in the first quarter than the second."
Illumina launched its 250,000-marker, 12-sample Infinium HumanExome BeadChip in November. Flatley told investors last month that the chip is the "single most successful array we have ever launched" (BAN 1/17/2012).
During the firm's third-quarter earnings call in October, Flatley said that Illumina's exome arrays were the "leading category" of chips ordered in Q3 (BAN 10/25/2011).
Illumina actually offers three exome-focused arrays. In November, it also launched its 950,000-marker, nine-sample OmniExpressExome BeadChip; and it launched its 5-million-marker, four-sample HumanOmni5Exome BeadChip this year (BAN 10/18/2011).
Rival Affymetrix also offers a whole-genome exome array. The Santa Clara, Calif.-based firm launched its Axiom Exome Array in October. The chip contains about 300,000 functional variants and customers have the ability to add an additional 50,000 SNPs selected from Affy's Axiom Genomic Database or other sequencing initiatives.
Illumina's exome array orders align with predictions made from two surveys of array users carried out in the past few months. A survey of genomic researchers conducted by GenomeWeb in partnership with investment firm Mizuho Securities found that most respondents expect exome analysis to be the "most relevant" application for arrays over the next two years (BAN 1/17/12).
In addition, investment firm William Blair reported in a December survey a "great deal of optimism" and a "strong positive reaction" by researchers to the availability of Illumina's exome arrays, despite forecasting flat overall array sales for the next two years (BAN12/13/2011).
'Business as Usual'
During the call last week, Illumina executives commented on the firm's rejection of Roche's unsolicited bid to buy the company for $5.7 billion (see related story, this issue).
Flatley said that some customers have inquired about the deal, but that it has not had an effect on Illumina's operations or business.
"We have obviously gotten responses, but not the kind of responses where they said they will stop ordering from Illumina," said Flatley. "For our customers it is business as usual; they want to keep doing their projects."
Henry portrayed Roche's hostile bid as a "galvanizing event" for Illumina's genomics solutions business. "Although it was an initial shock for some, the reality is that people got right back to work and we're very happy with how things are going internally," he said.
Likewise, Flatley said that Roche's offer has been a "catalyst" for Illumina to "make sure that we continue to deliver. I don't think we run the risk of taking our eye off the ball in any way."
Illumina reported total revenues of $250 million for the quarter ended Jan. 1, 2012, compared to $261 million for the fourth quarter of 2010.
Stapley attributed the Q4 revenue decline on an unfavorable comparison with the fourth quarter of 2010, which saw revenues climb 45 percent on continued demand for the HiSeq and shipments of the HiScan (BAN 2/15/2011).
Instrument revenue for the fourth quarter was $80 million, an 11 percent sequential improvement but a 27 percent decrease 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.
On a year-over-year basis, consumables revenue grew around 9 percent driven by the expansion of the installed base of sequencing instruments, Stapley said.
Ilumina's net income for the quarter was $11.7 million compared to $38.4 million 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.
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 dipped to $86.6 million from $124.9 million in 2010.
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. For the first quarter of 2012, Illumina forecasts revenues of between $250 million and $260 million.
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