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Illumina Bets Big Orders, Custom Chips, Int'l Sales Will Buoy Array Arm This Year

Illumina last week laid out plans to launch its recently purchased sequencing technology and bead-based platform for diagnostic applications this year.
The firm said it believes its Genome Analyzer, obtained through its acquisition of Solexa last month, and its BeadXpress reader will generate a “significant portion” of revenue over the next 12 months.
Illumina also said it is preparing a second wave of upgrades to its array portfolio for genotyping and gene-expression applications that it believes will continue to grow its array business.
Illumina last week reported that fourth-quarter revenues jumped 163 percent to $60.4 million from $23 million year over year. During a conference call with investors, CFO Christian Henry attributed the jump to “a nearly four-fold increase in consumable revenue” and the launch of eight new Infinium-based whole-genome genotyping products, including the HumanHap550 BeadChip, which became commercially available last April.
“At the end of the fourth quarter, our consumable revenue for systems installed was tracking at more than $600,000 per instrument per year,” Henry noted. Figures for last year were not available.
Additionally, instrument sales doubled over 2005 levels. Henry said roughly three-quarters of Illumina’s business was in North America, 18 percent in Europe, and 6 percent in Asia.
Henry said Illumina expects revenues in 2007 to grow between 60 and 71 percent, or to between $295 million and $315 million. “The revenue growth is expected to be driven by an increase in the demand for genotyping-related products and services, the commercialization of the Illumina Genome Analyzer, and the launch of our BeadXpress platform,” he noted.
During the call, CEO Jay Flatley said the Genome Analyzer “is now achieving 1 billion bases of high-quality sequence in a run. We're now in full commercialization with a significant backlog and are scaling our manufacturing and commercial capability to meet the market demand.
“We believe that the sequencing business will be a significant portion of our total revenue in 2007,” he said.
Backlogs and Custom Arrays
While Illumina’s focus appears to be squarely on the market for its new tools, Flatley also discussed several ways in which the company will rely on its core array business to grow its bottom line.
But rather than continuing on a path of product proliferation — the company launched eight separate whole-genome genotyping products last year — Illumina appears to be trending towards offering more customizable content.
“The market for all-genome genotyping continues to gain momentum,” Flatley said. “The expected success of genotyping studies is likely to drive incremental demand for additional studies on larger, more diverse populations. As these initial studies are completed, we expect to see significant growth in the custom genotyping market,” he added.
Flatley said that Illumina is well positioned to “benefit from the growth in custom genotyping” due to its iSelect genotyping platform.
The company will also rely on large genotyping and expression deals inked over the past few months to drive consumable sales throughout 2007. Specifically, Flatley referenced genotyping deals with Amgen, Erasmus MC, and Johns Hopkins University as “important transactions” that will set the stage for more array demand from Illumina this year.
As Henry noted during the call, Illumina now has a product backlog, and “consumable flow-through” related to those deals will “probably run out over the first few quarters and actually over the course of the year in '07”
According to Flatley, “with these macro factors in place, we believe the genotyping market should experience growth in the range of 30 [percent] to 50 percent in 2007.”

“We believe that the sequencing business will be a significant portion of our total revenue in 2007.”

In October, Flatley estimated that the market for array-based genotyping was $200 million. His projections would grow that space to between $260 million and $300 million by year end (see BAN 10/24/2006).
Illumina is also planning customizable panels to supplement the DNA-methylation assays it launched last month. Illumina currently offers a cancer panel covering 1,500 sites over 800 cancer genes, and Flatley said that “custom content panels will soon be available to meet individual researcher needs.”
In an e-mail to BioArray News this week, Flatley said that the firm will release other standard panels for its methylation assay. He did not elaborate.
One insight into how well Illumina’s array business performs this year may be the firm’s ability to reach customers in Asia. Illumina said Asia represented 6 percent of its business in 2006. By comparison, Affymetrix said Japanese customers represented 13 percent of sales in 2005, the last year for which results are available.
Illumina is betting that this percentage will grow after experiencing large instrumentation sales in Asia during the fourth quarter, and the company’s plan to shift to direct sales and support in key Asian markets, rather than relying solely on distributors.
“Early in the company's history we had more distributors than we do now, and as themarkets develop we tend to go increasingly direct in those countries,” Flatley said during the earnings call.
“For example, we've moved from a pure distribution model in China to a hybrid model where we now have direct sales people there as well as a distributor, because of the level of support and sales work that we provide, it shrunk the distributor discount significantly. And so over time, we will wind up becoming direct in China,” he said.

Flatley also said that Illumina has moved to a similar hybrid model in Australia. Still, it is unclear how that improved presence will affect Illumina’s array business. Flatley said in an e-mail that “Asian customers have approximately the same application profile as those across the rest of the world,” and that Illumina would not provide “any more granularity on the source of Chinese demand.”

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