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Illumina Q3 Sales Rise 50 Percent on 'Substantial' Demand for Arrays, Sequencers


This story was originally posted on Oct. 27.

By Justin Petrone

Illumina last week said its third-quarter revenues rose 50 percent year over year due to "substantial" demand for its sequencing and microarray products.

Total receipts for the three months ended Oct. 3 increased to $237.3 million from $158.4 million for the third quarter of 2009. Chief Financial Officer Christian Henry said during an earnings call following the release of the results that product revenue grew 49 percent to $225 million year over year and was led by "significant uptake" of the firm's sequencers.

"Our microarray business also showed very strong growth relative to last year, and was up for the fourth consecutive quarter," Henry said.

Illumina's total consumable revenue for the quarter rose 53 percent to $133 million from $87 million in Q3 '09. The company does not break out its consumable revenue by product line, but Henry said that Illumina's microarray consumable business grew more than 50 percent year over year and was driven by sales of its whole-genome BeadChips.

Illumina's strong array sales were led by the firm's Omni 2.5-Quad, which became the firm's "bestselling array in its first full quarter of shipment," Henry noted. Illumina launched the Omni2.5-Quad, a four-sample BeadChip that contains 2.5 million markers per sample, in June (BAN 6/8/2010). In addition to the Omni 2.5, Illumina's Omni-1Quad and OmniExpress also contributed to the growth in the array business during the quarter.

During the call, CEO Jay Flatley attributed the demand for the chips to a renewed interest in genome-wide association studies. "Larger centers" that have been "historic users" of genome-wide arrays are "coming back to the marketplace," Flatley said.

"There’s a whole series of pilot studies that are getting kicked off here, and I think … we’ll begin to see the early results from these studies sometime in the second quarter … [of] next year," he said. "Obviously, we’re hopeful that there’s going to be some interesting discoveries come from that that will continue to seal the growth in the marketplace."

Illumina still plans to launch a 5-million-feature Omni BeadChip for GWAS next year. The firm had originally pledged to make the Omni5 available this fall, but delayed the debut pending the release of more rare content from the 1000 Genomes Project.

Flatley said that Illumina now hopes to begin delivering the Omni5 by the middle of 2011.

In addition to Illumina's GWAS-related chips, the company saw "strength" in its focused-content arrays during the quarter. Flatley specifically named the firm's Cancer SNP Panel and Major Histocompatibility Complex Panel sets, as well as its BovineHD and BovineSNP50 BeadChips and PorcineSNP60 BeadChip as products that sold well.

Microarray instrumentation sales also grew during the quarter. Flatley noted that array revenue grew "substantially on a sequential and on a year-over-year basis with strong performance across consumables and instruments."

As with consumables, the firm did not break out sales of its array scanners. Total instrument revenue for the quarter rose 45 percent to $88 million over Q3 '09.

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Much of this growth was attributable to orders for the company's iScan system, and Flatley said that array instrument orders "nearly doubled" from the third quarter of 2009. There was also sequential order growth for the company's HiScan and HiScanSQ systems, he said. Illumina launched the HiScanSQ, which enables customers to analyze arrays and perform sequencing on one instrument, earlier this year (BAN 3/23/2010).

"Many customers are upgrading their BeadArray readers to iScan or HiScan to increase capacity and gain access to our next generation of BeadChips," Flatley said. He also cited the "flexibility of the HiScanSQ to perform both microarray and sequencing applications" as a selling factor.

Flatley noted that annualized consumable pull-through for Illumina's scanners was "above our targeted range of between $400,000 and $500,000 per system and "reached levels last seen in Q1 of 2009."

HiSeq vs. HiScan

While orders are up for its next-generation microarray scanners, Illumina is still struggling to fill them. Since the HiScan systems share many of the same components as the HiSeq 2000 sequencing instrument, the firm has used its resources to manage the "significant demand" for HiSeq, while ramping up manufacturing to accommodate the orders for HiScans.

The San Diego-based company also this week introduced a new high-throughput sequencer called the HiSeq 1000. The instrument is a "single-flow-cell version of the 2000, offering the same performance but half the throughput," Flatley said.

He also said it will "allow customers to access to the latest technology roadmap at a lower entry price." Illumina expects to begin shipping HiSeq 1000 by the end of the first quarter of 2011.

Though HiScan's and HiSeq's shared components will over time "drive manufacturing efficiencies," Flatley acknowledged that in the short term, "it’s led to manufacturing constraints due to the significant demand for HiSeq."

He said the firm plans to "significantly ramp" HiScan manufacturing during Q4 to support demand for both HiScan and HiScanSQ shipments.

"We didn’t order enough parts for the influx of demand that exceeded the expectation" for HiScans and HiSeqs, Flatley said. "As we saw that demand level, in every month we sort of tweaked the demand for the parts upward and upward, and I think now we’re at the point where we’re manufacturing enough units that we’re going to be handling the backlog." Flatley estimated that it will take "a couple quarters" to meet the orders in the backlog.

The company expects to increase manufacturing by around 70 percent, compared to pre-Q2 levels, by the end of this year to accommodate sales of its HiScan and HiSeq systems.

Elsewhere in Q3

Illumina's Q3 revenues of $237.3 million beat analysts' expectations of $218.2 million for the quarter.

The company posted a net income of $35.4 million, compared to $17.1 million in the year-ago quarter. R&D spending rose 30 percent to $44.8 million from $34.4 million, while SG&A expenses were up 31 percent to $55 million from $42.1 million in the third quarter of 2009.

During the quarter, Illumina used approximately $31 million for "strategic investments" and $16 million to repurchase common stock, causing the firm to end Q3 with $210.8 million in cash and cash equivalents and $596 million in short-term investments.

During the call, Flatley described the firm's strategic investments as "fundamentally technology pieces that could play broadly into our platforms," and could, like the firm's other existing technologies, eventually be applied to diagnostics." He did not elaborate.

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