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Illumina CEO 'Optimistic' about Array Business as Q1 Sales Spike 47 Percent

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This story was originally posted on April 27.

By Justin Petrone

"Continued success" of its next-generation sequencing instruments and "strong" array sales contributed to a 47-percent increase in Illumina's first-quarter revenue.

The San Diego-based firm said total receipts for the three months ended April 3 rose to $282.5 million from $192.1 million for year over year. Product revenues rose 53 percent to $266.7 million from $173.7 million.

However, services and other revenues declined 14.5 percent to $15.8 million from $18.5 million due to the completion of a "multimillion dollar service contract" the firm delivered in Q1 2010.

Chief Financial Officer Christian Henry said in an earnings call this week that the jump in product revenues was driven by "continued success" in the firm's sequencing business. Broken down, instrument revenue for the quarter doubled to $114 million year over year, largely due to sales of Illumina's HiSeq 2000 sequencers.

The company also saw "strong demand" for its iScan and HiScanSQ microarray instruments, "which helped contribute to the strong instrument revenue," Henry said.

He added that the first quarter of 2011 was the "second-highest quarter" the firm has ever had, and was defined by array instrumentation sales. The fourth quarter of 2010 reported "record performance," Henry said, without elaborating.

Shipments of the HiScanSQ, Illumina's latest-generation array reader that comes with a sequencing module, were initially delayed after the product debuted last March. The company blamed the delay in part to large orders for the HiSeq, which shares many components with the HiScanSQ.

The delay caused Illumina to significantly expand its manufacturing resources last year to meet demand for both instruments. Array instrument sales have risen correspondingly, the company said (BAN 11/2/2010).

CEO Jay Flatley said during the call that microarray revenue grew during the period because of the increase in array instrument shipments. He said the uptake of the instruments was a "positive indicator" for the company's array business, adding that in general, he is "optimistic" about demand for arrays going forward.

Annualized consumable pull-through from the company's installed base of microarray scanners was within the firm's anticipated target range of $400,000 to $500,000 per system, Henry noted.

Henry attributed the 14.5-percent decline in service revenue to the completion of a "multimillion dollar service contract" penned during Q1 2010. "As we've indicated in the past, we would expect this revenue line item to fluctuate based on the timing of the completion of specific services projects," he said.

Net income during the period rose 14 percent to $24.1 million from $21.2 million for Q1 2010, while R&D spending jumped 15 percent to $50.2 million from $43.7 million.

SG&A spending during the quarter increased 31 percent to $65.9 million from $50.3 million. Part of the increase was a $2.5-million expense related to Illumina's plan to relocate its headquarters within San Diego.

Illumina finished the quarter with $410.3 million in cash and cash equivalents.

"Positive Indicators"

According to Flatley, the growth in microarray consumable sales was due to "significant growth" in demand for the firm's focused chips, such as its methylation arrays, as well as its whole-genome genotyping products. Sales of both products were also buoyed by a general uptake of Illumina's array instruments.

"Certainly, the positive indicators we've had in growing the instrument base is a big help," said Flatley. "We continue to see very positive growth in the focused part of our business."

In particular, he said Illumina's Infinium HumanMethylation27 BeadChip has been "doing extremely well," and the company is "very bullish about the evolution of methylation market over the next few years."

To address the whole-genome genotyping market, the company this week launched its HumanOmni2.5-8 BeadChip, an 8-sample array that offers "cutting edge" rare-variant content from the 1000 Genomes Project, including "full support of copy-number variation applications," according to the firm. Each chip enables researchers to survey 2.4 million markers.

The new array has the "same rare-variant content" as the existing 4-sample version of the Omni2.5 Illumina launched last year, but is now offered in a "more efficient and economical format," Flatley said during the call.

The Omni2.5-8 also represents a "doubling of capacity on the substrate to over 20 million genetic variants," he noted.

"To give you a sense of the magnitude of this increase, on one array, you could now incorporate nearly the entire known catalog of human SNPs," Flatley added.

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Illumina debuted the Omni2.5-8 as it prepares to roll out its Omni5 BeadChip this summer, which will feature around 5 million markers and will complete the "roadmap" the firm first announced in 2009 (BAN 12/8/2009).

However, Flatley said "I would expect that what we'll see is relatively flat performance of the 2.5 over the next couple of quarters as customers wait to get results from the studies that are underway right now.

"We do expect to get a pop from the initial launch of the Omni5, and it's hard to know exactly what that magnitude will look like," he added.

Looking at demand for the firm's Omni arrays in 2012, he said it's a "bit of a wait-and-see" because of the ongoing initial studies. "We expect probably to get the first bit of data in Q3, and then around [the American Society of Human Genetics annual meeting] in Q4 we'll see some very significant results there," he said.

Overall, Flatley said his outlook for the genome-wide association studies market remains "positive."

"Customers that have run the Omni2.5 have provided direct feedback that it's the best performing microarray we've produced to date, and many of these customers are conducting rare-variant proof-of-principle studies on the Omni2.5, and we expect to see the results of these projects later this year," he said. "We continue to believe that noble findings with this rare-variant content will renew demand for genome-wide association studies and new rare-variant products like the Omni5."

Looking to coming quarters, Flatley forecast array growth in the "mid to high single digits."

"What's going to happen in 2012 will depend a lot on what happens in these GWAS studies in the back half of the year," he added. "So we're optimistic about that, and we have to show the results and deliver the revenue."

Asia Pacific

Illumina did not break out regional sales numbers, but during the call, Flatley said the firm's Asian business reported a "very strong" performance.

"In Asia — [and] we include Japan in that region — we had a record revenue quarter," said Flatley. He also noted the firm reported record revenue in the US during the period, but said sales in Europe, which were roughly in line with Q4 2010 sales, were the "weakest" of the three regions. He did not disclose figures for any of the regions.

In China, meantime, Illumina's largest customer continues to be BGI, which ordered 128 HiSeq systems when they became available in early 2010, an order Illumina continues to fulfill (BAN 3/30/2010).

Flatley also addressed the effects of the recent earthquake and tsunami in Japan, saying no Illumina employees were injured in the events, nor did the company's regional sales office sustain material damage.

"We do anticipate some softness in our Japanese business over the next few quarters, but do not expect it to materially impact our results," he said.

Illumina's business has continued to grow in the Asia Pacific market in recent years. In a February SEC filing, the company reported that sales in the region jumped nearly 50 percent to $143 million in 2010 from $96 million in 2009, roughly 16 percent of the company's total receipts for the year (BAN 2/15/2011).


Have topics you'd like to see covered in BioArray News? Contact the editor at jpetrone [at] genomeweb [.] com.

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