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Illumina Mulls Investments in Array Business, Expects Long-term Growth in Consumer, Ag, IVF Markets

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NEW YORK (GenomeWeb News) – In spite of a 10 percent drop in second quarter microarray revenues, Illumina is considering shifting resources back to its BeadChip business to take advantage of future opportunities in the consumer genomics, agricultural biotechnology, and reproductive health markets.

"I would say in the past few years our R&D investments have been biased more towards sequencing," said CEO Jay Flatley this week. "And we plan to remain extremely competitive in the array market," he said. "If anything, you might see us shift a little bit more investment back toward arrays, both commercially and in R&D."

Flatley discussed Illumina's array business during the firm's Q2 earnings call. The San Diego-based vendor saw its total revenues jump 29 percent during the quarter, mostly on demand for its fleet of next-generation sequencing instruments, related consumables, and noninvasive prenatal test business.

In comparison, Illumina's Infinium BeadChip business fell by a tenth year over year, despite growth in demand for BlueGnome products for in vitro fertilization and reproductive health. Flatley attributed the drop to the completion of a large multiyear biobanking project as well as lower demand from a consumer genomics customer in Q2. He did not name the project or the customer, but said that the firm has not been losing market share in the genotyping market to its main competitor, Affymetrix, claiming that Illumina's share of the genotyping array market is "stable at approximately 80 percent."

Given the amount of the decline in the array business, Illumina decided to update its guidance, forecasting a full-year decrease in chip-generated revenues in the mid to high single digits. Flatley noted that the firm previously included its recently divested Eco PCR instrument business as part of its array bottom line, and that has also impacted the year-over-year comparisons.

But going forward, Illumina anticipates that its array business will "stabilize if not grow due to the impact of consumer, agriculture, and IVF demand," Flatley said.

Illumina is the main supplier of genotyping arrays used by consumer genomics companies, which use them in their ancestry testing and genetic genealogy services. Illumina's clients currently include Ancestry.com, Family Tree DNA, National Geographic's Genographic Project, ScotlandsDNA, 23andMe, and others.

While Flatley did not name the consumer genomics firm that had lower demand for its chips in Q2, 23andMe has previously acknowledged a slowdown in kit sales since a warning letter from the US Food and Drug Administration prompted the Mountain View, Calif.-based company to cease offering personal health interpretations as part of its service last November.

"We have a couple of consumer customers who are doing extremely well," said Flatley. "But we had one customer in particular that had lower volumes in the quarter."

Around that time, 23andMe moved to using a custom-designed genotyping array containing about 650,000 markers, fewer than the 750,000-marker arrays used in other services, making it more difficult for 23andMe customers to export and compare data with customers of other firms, a move that according to some genetic genealogists may have cost them some ancestry-related sales in the process.

Most consumer genomics firms use custom arrays in their services, and Flatley said that Illumina's array business "more and more is going toward customized chips." Because of this trend, there is a "whole group" within Illumina devoted to the creation of custom products for both arrays and sequencing, he said. And such efforts are not limited to the consumer genomics market. According to Flatley, sales to agricultural researchers and companies continue to grow on the basis of custom arrays.

"A couple of years ago, sequencing was the new thing there because you had to sequence a bunch of these organisms initially to be able to develop the array products," said Flatley. "But today, it's more of an array-based market," he said.

To date, Illumina has produced at least 40 custom arrays for various agriculture-related consortia. During the quarter, Illumina and collaborators within the Cotton SNP Chip Consortium designed a 24-sample, iSelect custom BeadChip. Members of the consortium believe that the chip will enable them to identify markers associated with valuable traits that will eventually lead to improved cotton yield and higher-quality crops.

According to Flatley, Illumina expects sales to agricultural researchers to continue to grow in the mid single digits in coming years.

Part of the reason for the sustained use of arrays in the consumer genomics and agricultural research markets is the demand for lower-complexity arrays for projects with large volumes at costs per sample of less than a tenth of the most competitive sequencing applications currently available, prices that Illumina can deliver given the size of the orders and the fact that it makes its arrays in Singapore.

"The genotyping array market today is pretty much a low-cost-per-sample market," said Flatley. "Whether you're in ag or whether you're in consumer, you're talking about a per-sample cost in the $50 to $150 range," he said. "It's going to be a while before sequencing becomes applicable to those markets."

Reproductive health and biobanks

Reproductive health is a third pillar of Illumina's array business. Through its 2012 acquisition of Cambridge, UK-based BlueGnome, the firm gained a menu of CytoChip arrays for prenatal, pediatric, and cancer cytogenetic research, as well as 24sure chips for the pre-implantation genetic screening and diagnosis of embryos as part of the IVF process. The company has since launched its new CytoSNP Karyomapping array for PGS, as well as a sequencing-based PGD application called VeriSeq.

In terms of array sales, Flatley described the IVF market as "coming on strong" and as being a "very young market with a tremendous amount of upside opportunity." At the same time, he reiterated the firm's position that it will migrate some of its array-based applications in the reproductive health market to sequencing over time.

"I think some of the prenatal and IVF applications will move away from arrays to sequencing," said Flatley, describing NGS as a "fundamentally better technology."

One customer segment that should continue to rely on arrays in the years to come is biorepositories. Both Illumina and Affymetrix have launched catalog chips for biobanks in recent years, and announced a number of sizable deals. Affymetrix, for example, last year inked an agreement to genotype the 500,000-sample holdings of the UK Biobank, a contract the Santa Clara, Calif.-based vendor has trumpeted as one of the largest genotyping deals ever. In May, Flatley credited Illumina's rival for its success, describing the competition for such biobanking contracts as being driven primarily by price.

"Technologically, the companies are closer than they may have been a few years ago, to be fair, and so in some deals it becomes a price competition," Flatley said at the time. "On some deals we will compete on price and on some we won't," he said. "So they will win some of those on price."

This week, he said that Illumina expects to supply chips for a "handful of biobank projects" in coming years, and believes that microarrays will continue to be the preferred technology for screening samples.

"Almost by definition, a biobank project is a very large number of samples, and so you need an extremely low price per sample," said Flatley. "These projects tend to be in the $50- to $100-per-sample range, and so sequencing is probably not the technology that's going to address that market segment," he said.

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