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Illumina Says Sequencing-Based Expression Apps Won’t 'Cannibalize' Growth of Arrays

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Illumina believes that digital gene expression applications on its Genome Analyzer next-generation sequencing platform have the capability to significantly impact the gene expression market, but according to the company’s CEO, the firm’s future growth drivers will remain in the more traditional markets of array-based SNP genotyping and gene expression, as well as sequencing, according to Jay Flatley, the company’s CEO.
 
Jay Flatley told investors during the firm’s second quarter earning’s call last week that the two digital gene expression applications the firm launched last week for use on its Genome Analyzer — one for tag-based expression profiling, the other for small RNA discovery and analysis — will provide “a powerful complement” to traditional array-based expression analysis.
 
“Our view is that, over time, the power of whole transcriptome sequencing is going to be significant for multiple reasons. Certainly the ability to do expression analysis across the genome without knowing the sequence and do to that in a digital way ... we think will revolutionize the market for gene expression,” he said.
 
His comments were in line with recent statements at several investment conferences where Flatley suggested that gene expression on the Genome Analyzer could eventually replace fluorescence-based “analog” microarray gene expression methods (see BAN 6/19/2007).
 
However, Flatley’s line on digital gene expression softened somewhat during last week’s call as he said that it was unlikely that the firm’s sequencing instrument — which is selling better than expected — would detract from sales of its existing microarray products for genotyping and gene expression.
 
“If you were to model our array business out over the next five years, I don’t believe there would be significant cannibalization from sequencing,” he said. “Applications like expression may migrate more to sequencing than genotyping will, because of the added power and the quality of digital data that you get from sequencing versus the quality of data you get from analog expression-based chips,” he noted.
 
BC Cancer Research Center
 
One of the first customers to use the digital gene expression applications offered by Illumina is Martin Hirst’s lab at the British Columbia Cancer Research Center in Vancouver. Hirst runs a service lab for developing tag libraries for various customers using serial analysis of gene expression, a method commonly called SAGE.
 
“There are wide-ranging projects, everything from Arabidopsis to cancer cell lines, depending on our customer’s interest,” Hirst told BioArray News this week. He said that his lab is using both applications to serve its customers. “What Illumina has developed is a SAGE technique … on a flow cell,” he explained. “So we are generating 5 million Roth tags per lane and mapping depending on the organism anywhere between 3 [million and] 5 million of these tags per lane,” he said.
 
Hirst’s facility also offers microarrays — both catalog chips from Affymetrix and custom bioarrays from NimbleGen Systems. He said that of all the applications with which he has experience, Illumina’s sequencer has the greatest potential for replacing chromatin immunoprecipitation (ChIP)-on-chip projects. 
 
“It’s comprehensive and its digital,” he said of the digital gene expression technology versus existing ChIP tools. “Some areas you can’t align due to repetitive regions and the cost to do a whole-genome tiling array … But we have a technology here that is digital and we can query the genome of any species at any depth,” Hirst said.
 
Regarding digital gene expression’s ability to “cannibalize” other areas within the gene expression space, Hirst was less certain. “For gene expression it depends on your application. I think for discovery-based gene expression work, tag-based [sequencing] has some advantages,” he said. “But if you had a well-defined set of clinical markers, I think microarrays will be the way to go. So it remains to be seen,” Hirst added.
 
Growth Drivers
 
Though the emerging market for digital gene expression applications is intriguing, it is not a market that Illumina believes will immediately contribute to top-line growth. Instead, Flatley said last week that two products alone continue to dominate its sales — its HumanHap550 genotyping array and the recently launched Genome Analyzer.
 
In the case of the Analyzer, Illumina is “seeing a strong demand across a broad market with more than half of orders coming from outside the core genome centers,” Flatley said. “Driving the adoption of the platform ... is the breadth of applications the Genome Analyzer has enabled on a single platform,” he added.
 
According to Flatley, the firm also received an order for 20 Genome Analyzers from a single, unnamed customer last week. As of June 13, the firm had received 75 orders for the Genome Analyzer, Flatley said.
 

“If you were to model our array business out over the next five years, I don’t believe there would be significant cannibalization from sequencing.”

On the genotyping side, Flatley noted that during the quarter, Illumina’s HumanHap550 “retained its place as our best selling product.” He added that the firm has seen a “broadening of the genotyping market” and that Illumina is seeing some of its customers “order follow-on BeadStations just to increase capacity, and we are seeing labs order systems together to outfit a new lab or effort.”
 
He also said that he anticipated Illumina’s genotyping revenues to increase over the next 18 months as customers adopt the firm’s Human 1M BeadChip product and as service demands increase from pharma customers as well as other users. “Our services business is continuing to gain traction as customers continue to outsource genotyping studies,” he said. “We expect our services business to continue as a strong growth driver for us in the future. As an example, during the last three quarters we have delivered service orders to four of the five largest pharmaceutical companies,” said Flatley.
 
Q2 Revenue, R&D Spending Doubles
 
Illumina last week said second-quarter revenues and R&D spending more than doubled over last year as profits jumped 37 percent.
 
Total receipts for the three months ended June 30 increased to $84.5 million from $41.6 million year over year.
 
Product revenues jumped to $74.3 million from $36.4 million, while service and other revenue increased to $10.1 million from $4.8 million year over year.
 
R&D spending swelled to $18.2 million from $8.6 million in the year-ago period, while profit for the second quarter increased to $9.3 million from $6.8 million.
 
lllumina said it had around $343 million in cash, equivalents, and short-term investments as of June 30.
 
The company raised its expected full-year 2007 revenue to between $335 million and $345 million, which is $30 million higher than projections it made in April and as much as 86 percent better than 2006 receipts.
 
Third-quarter revenues are expected to be between $88 million and $92 million, or as much as 74 percent over the same period last year.

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