Illumina has recently been “aggressively” increasing its sales and marketing headcount in Europe and Asia in an effort to boost sales in those regions, and is ramping up BeadChip production at its Singapore facility with the expectation that the plant will boost gross margins sometime next year, according to company officials.
News of the expansion was disclosed this week during the company’s fourth-quarter financial report, which showed an 86-percent increase in revenue but a loss brought on by legal expenses and a costly settlement with chief rival Affymetrix.
During the firm’s Q4 earnings call, CEO Jay Flatley told investors and analysts that the company has been “aggressively adding people” and is setting up an internal training resource to build its sales and marketing team
“Going forward we’re going to need to add more people, particularly on the sales and marketing side, but we’re pretty optimistic about our ability to do that,” Flatley said. He said that Illumina will train people at the firm’s San Diego headquarters at what it calls “Illumina University,” an effort designed to enable the company to “hire people that are somewhat less experienced and start to grow our own people on the sales and marketing side of the business and tech support, of course, as well.”
Discussing potential new hires, Flatley said the company is “biased a little more heavily in ‘08 towards strengthening Europe and Asia,” and that Illumina is “probably a little bit lighter in Europe and Asia” when it comes to sales and marketing. In particular, the company plans to add headcount at the Singapore location this year to help boost BeadChip manufacturing.
As of 2006, Illumina employed around 800 people and had commercial offices in Cambridge, UK; Beijing; Singapore; and Tokyo, according to that year’s financial report, the most recent year for which statistics are available.
In Singapore, Illumina is gradually building a manufacturing facility that will enable it to exploit the country’s comparatively low corporate tax rate, though that benefit won’t be felt until 2009 as more products are manufactured at the facility, Chief Financial Officer Christian Henry said during this week’s call.
“We won’t really get the full benefit of [Singapore’s lower tax rate] ... for a full year here, so ‘09 is when you should see it come in,” he said. “Of course, it’s really dependent on how much we manufacture over there, and consequently how much of our income is kept offshore because that’s what’s really driving the tax rate down.
“So, it will also be dependent on growing ex-US revenues, he said. “One of the reasons why you see us hiring a lot of people in Europe and in Asia is because we see such a large opportunity in front of us there.”
Illumina first discussed its desire to move some production offshore last year, mainly to cut corporate tax expenses. In May, Flatley said that the addition of manufacturing capabilities in Singapore is “part of an overall strategy to mitigate our tax exposure as we are a very profitable company and have used most of our net operating loss carried forward.” (see BAN 5/8/2007).
This week, Flatley said that the firm slowly began establishing its manufacturing facility in Singapore in Q4, and that the company has the “ability to move over five or 10” of the instruments used to manufacture its BeadChips into Singapore “and begin to shake those out without having any impact on the capacity here in San Diego.”
Flatley said the firm will ramp up the Singapore facility in a “gradual way,” and that it is a “very manageable process; the lease is done on the building so all of that’s in place and we’re starting to look at the hiring side of it. We’re pretty confident we can pull that off without too big a hiccup.”
The company plans to train new employees internally at what it calls “Illumina University,” a strategy aimed at enabling Illumina to “hire people that are somewhat less experienced.”
Illumina’s main competitor in the gene-expression and genotyping markets, Affymetrix, invested in a Singapore manufacturing plant in 2005. During Affy’s fourth-quarter earnings call last week, CFO John Batty said that roughly a quarter of the firm’s GeneChips are being produced in that nation today.
The Array Market
According to Flatley, the array market is currently “pretty stable.” He said that Illumina has benefited from a product-proliferation strategy that introduced 14 new chips last year and that the company’s multi-sample chip formats have given the firm an advantage in the market.
“We’ve seen huge growth in our multi-sample products ... and in the whole-genome side we continue to do extremely well,” he said. “So, we feel real comfortable with what’s going on in the array part of the business.”
Illumina’s best-selling chips are its Human1M BeadChip, which began shipping in Q2, and its HumanHap550-Duo chip, which began shipping in Q3. Flatley said that the firm’s 12-sample iSelect custom BeadChips have also experienced “rapid uptake.” Three animal-focused panels have been designed through iSelect for bovine, canine, and equine studies.
Illumina will also launch two products this quarter using its new 2.1-million marker HD format, the Infinium 610-Quad and the Human 1M-Duo. Flatley said the “Infinium HD product family will fuel robust growth in the genotyping market over the next few years both for genome-wide association and for targeted studies.”
Q4 in Full
Illumina this week said that its total receipts for the three months ended Dec. 31, 2007, rose 86 percent to $112.6 million from $60.4 million year over year.
The results include the operations of Solexa, which Illumina acquired in January 2007 for $600 million.
Illumina also said that last year’s profit of $17.1 million, or $.34 per share, swung to a loss of $4.1 million, or $.07 per share, on legal expenses and a costly settlement with Affymetrix.
The loss was primarily due to $54.5 million in litigation expenses related to the settlement of the intellectual property dispute with Affymetrix, under which Illumina will pay Affy $90 million.
The litigation expenses were partially offset by a tax benefit of $25.3 million attributable to a reversal of the firm’s valuation allowance. Excluding these and other items, Illumina would have reported a $22.5 million loss for the quarter.
Illumina’s R&D expenses more than doubled year over year to $20.1 million from $8.8 million, while SG&A costs more than doubled to $30 million from $14.9 million.
For full-year 2007, total receipts nearly doubled to $366.8 million from $184.6 million in 2006. Net loss for the year swelled to $278.4 million, or $5.14 per share, from a profit of $40 million, or $.82 per share, in 2006.
Fiscal 2007 results include the settlement charges plus non-cash charges of $306.8 million associated with the acquisition of Solexa.
For the year, Illumina spent $73.9 million on R&D compared with $33.4 million year over year, while SG&A expenses jumped to $101.3 million from $54.1 million.
Illumina finished 2007 with $174.9 million in cash and cash equivalents.