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Illumina CEO Talks Future of Array Market, Manufacturing Expansion at UBS Conference

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By Justin Petrone

The microarray market is poised to grow to $900 million by 2013, according to an Illumina official, who noted that the company hopes to capture its share with next-generation genotyping arrays for future genome-wide association studies.

At the same time, high demand for its chips and instruments has led to manufacturing constraints that the firm is now working to overcome, according to CEO Jay Flatley.

Flatley said this week that the San Diego company estimates the global market for microarrays today is approximately $800 million, and expects it to grow 13 percent to around $900 million within two years.

This market is characterized by growth in demand for genotyping arrays accompanied by "shrinkage" in the gene-expression market, he said.

Flatley made his comments this week at the UBS Global Life Sciences Conference in New York, which was webcast.

The bulk of Illumina's current array sales are to researchers conducting genome-wide association studies, and Flatley said that after a slowdown in demand for whole-genome genotyping chips last year, the company experienced consecutive sales growth for its arrays. He noted that Illumina has seen a "very rapid transition" of customers to its HumanOmni2.5-Quad DNA Analysis BeadChip.

Illumina began shipping its Omni2.5 in June, along with its HumanOmni1S-8 BeadChip, which contains the majority of new content present on the Omni2.5 and provides a upgrade path for current or former users of Illumina's Omni1-Quad or OmniExpress BeadChips (BAN 6/8/2010).

Illumina is also seeing demand for its HiScan SQ instrument, which allows customers to process arrays and sequence samples using a single system. Flatley noted, however, that the company is still experiencing manufacturing constraints that have forced it to delay delivering the HiScan to customers.

The reason for the constraints stems from the fact that Illumina has experienced even stronger demand for its high-throughput HiSeq 2000 sequencing instrument, which shares many components with the HiScan.

Illumina has made "substantial progress" on increasing the manufacturing output of HiSeq by 50 percent this quarter, Flatley said, but "constraints in the supply chain" mean that the company will carry over a "backlog of orders" into the fourth quarter.

That also means that production of the HiScan will "continued to be constrained" through the third quarter, Flatley said. "One of the design objectives was to make the imaging module of HiSeq almost identical to HiScan," said Flatley. "While that in the long run is a great design goal, in the short run it’s stressing the supply chain."

Flatley initially discussed Illumina's effort to ramp up manufacturing during the firm's second-quarter earnings call in July (BAN 8/3/2010).

Europe and Asia

Illumina is currently investing in manufacturing and logistics in general. During the UBS Global Life Sciences Conference this week, Flatley said that the company is currently expanding its regional distribution center in Europe, located in Eindhoven, the Netherlands, to meet local market demand.

"We have experienced a lot of ramp-up in our requirements for storing reagents and instrumentation locally in Europe," Flatley said, noting that 30 percent of the firm's revenues are generated there. Illumina is now quadrupling the capacity of its European regional distribution facility and expects the upgrade to be completed early next year.

"This is going to be huge in increasing our ability to deliver reagents, instruments, and spare parts to our customers in Europe," Flatley said.

Meantime, Illumina is looking to move more of its product manufacturing from San Diego to Singapore. Looking to take advantage of Singapore's geographic location, low-cost structure, and tax incentives, Illumina has leased a 36,000-square-foot facility in the Southeast Asian country since 2007 and began manufacturing its arrays there in 2008. It currently manufactures around half of its chips in Singapore (BAN 3/30/2010).

Citing the costs and proximity to larger Asian markets, such as India and China, Flatley this week said that Illumina hopes that by the second quarter of 2011 it will be able to manufacture 70 percent of its arrays in Singapore.

The company also said it aims to manufacture 50 percent of its sequencing consumables in Singapore by the end of next year, and will begin manufacturing some of its digital microbead-based BeadXpress and Eco RT-PCR systems in the country in Q2 2011.

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