Illumina reported last week that second-quarter revenues and profit each increased 66 percent year over year.
According to company officials, the Q2 results were due in part to “rapid uptake” of Illumina’s next-generation HD array products, as well as an increase in demand from emerging markets such as agricultural biotechnology.
The company brought in revenues of $140.2 million for the three months ended June 29, compared to revenues of $84.5 million for the second quarter of 2007. Illumina’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.
The firm posted a profit of $15.4 million, compared to net earnings of $9.3 million for the second quarter of 2007. Following the second-quarter results, Illumina raised its revenue guidance for full-year 2008 to be between $550 million and $560 million, an increase of between 50 percent and 53 percent over its 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 (see BAN 4/29/2008).
Chief Financial Officer Christian Henry called the growth “well balanced” with “approximately equal contributions from our sequencing and microarray businesses to the top-line performance.”
Henry cited demand for the firm’s second-generation sequencer, the Genome Analyzer II, as a key driver of instrument revenue growth, while consumables revenue was driven by “the rapid uptake” of the firm’s new Infinium HD product line.
Added Illumina President and CEO Jay Flatley, “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 [space]. 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.”
Illumina’s Human 610-Quad BeadChip was the most popular array product for the company during the quarter, according to Henry. The array, which pairs SNP content from the company’s HumanHap550 with 60,000 copy number variations in a four-sample format on one slide, began shipping at the beginning of Q2 and is the first in Illumina’s series of 2.3-million-feature HD chips (see BAN 1/8/2008).
Flatley said that Illumina also saw a “significant uptake” of its Human CNV370-QuadBeadChip, and toward the end of the quarter began shipping the Human1M-Duo, a two-sample version of its Human 1M BeadChip product that contains 2.4 million variations and updated CNV content.
Illumina spokesperson Peter Fromen told BioArray News this week that the firm saw new orders from new customers in the quarter for its HD products, as well as new orders from existing customers. He said that customers were not fazed by upgrading to the higher-density arrays because “all of our chips are backward- and forward-compatible, so there are no issues in comparing datasets.”
“About half the content from the BovineSNP50 was discovered using the Genome Analyzer.”
He suggested that the adoption of the 610-Quad was due to a “combination of content, multi-sample capability, and price” and noted that the “1M-Duo didn’t begin shipping until later in the quarter, whereas we shipped 610-Quad during the entire quarter.”
Illumina’s HD chips are less expensive to produce than previous generations of its microarrays. Henry said that, as part of the launch of the Infinium HD product line, the firm has developed new manufacturing equipment to replace its existing infrastructure, which also led to excess capacity and a $4.1 million charge to recognize the write-off.
“The rapid adoption of these Infinium HD products resulted in a $4.1 million non-cash write-off to retire manufacturing equipment not capable of producing the Infinium HD chips,” Flatley noted during the call. “Over the next several quarters, we'll continue to launch more products using the HD format, which may help us achieve higher gross margins.”
Flatley also said that the company is “pleased with customer reception” of its iScan scanner and said that the “availability of iScan makes the economics of our complete system ideal for large-scale, complex, genotyping studies. As more of our chip catalog migrates to the HD technology, both we and our customers will enjoy improved performance and economics.”
Additionally, Flatley said Illumina had a “very strong quarter” in terms of gene-expression orders. He cited the firm’s recently launched HT-12 Expression BeadChip as a growth driver, though he reiterated Illumina’s belief that many current array customers will move to second-generation sequencing in the future to look at gene expression.
“I think that we're starting to get significant traction with that new product,” Flatley said of the HT-12. “So, while we think overall the market over time is going to shift to sequencing, we're still doing OK in the array business.”
One segment of the array business where Illumina has been making some inroads is agricultural biotechnology. During the second quarter, Illumina booked $6 million in orders for its Bovine SNP50 BeadChip, which features 54,000 SNPs equally spaced across the bovine genome.
“Bovine is a very large market,” Fromen said this week. He said that the company’s customers are “predominately academics and breeders at this point,” but ultimately the firm envisions moving content from the bovine array into “more commercial markets, potentially on our BeadXpress platform.”
Illumina is also shipping a 54,000-SNP genotyping product for equine studies, and a canine array that includes 22,000 SNPs. In addition, Flatley said Illumina is working with a number of collaborators in other potential organisms.
“It's a very exciting, long-range, and high-growth opportunity,” Flatley said. He said that the firm’s second-generation sequencing technology, in particular, was fueling agbio array growth, and Fromen said that some of the content on the bovine chip was generated using the Genome Analyzer.
“Very often, it starts with a sequencing project to do discovery and then it translates into implementation of those genetic variations onto a chip, Flatley said. “Typically, that would be deployed in our 12-by-1 format, which allows high-throughput and very low cost.”
Last week Illumina said that the agricultural genotyping company GeneSeek has become an Illumina-certified service provider, and will offer Illumina’s iSelect BovineSNP50, CanineSNP20, and EquineSNP50 BeadChips to its customers for large-scale animal studies.
GeneSeek also plans to become a certified provider of Illumina’s GoldenGate genotyping “soon,” company CEO Abraham Oommen said in a statement. Oommen also noted that the agreement is the first that will be focused on livestock and companion animal research.
GeneSeek is headquartered in Lincoln, Neb., and has facilities in the UK and India.
On the same day it announced its Q2 earnings, Ilumina disclosed 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. “We think it's highly complementary to the very high-end sequencing we have now on the GA II.”
Avantome has used pyrosequencing technology in its lab, Flatley said, but he cautioned that what Illumina eventually winds up launching as an ultimate product may or may not include pyrosequencing technology. “We are not really talking about what the ultimate product might look like,” he said.
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 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.