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Illumina Sees Q1 Orders Rise for Exome, Cyto, and Methylation Chips amid Decline in Array Instruments


Demand remains strong for at least some of Illumina's microarray portfolio, as the company said this week that sales of certain chips contributed to a spike in consumable revenues during the first quarter.

At the same time, Illumina saw microarray instrumentation sales decrease in Q1, causing total array revenue to decline year-over-year, contributing to a 3 percent drop in total revenues compared to the first quarter of 2011.

"Within the family of arrays, we're seeing some strong growth in some and not much in others," said CEO Jay Flatley this week in a conference call recapping the results. Flatley said that the firm forecasts "single-digit" growth in its array consumables business for the rest of the year, and "flattish" or diminished demand for its array instruments.

Illumina's total revenues were $272.8 million for the three-month period ended April 1, down from $282.5 million last year. During the call, Chief Financial Officer Marc Stapley attributed the decline to lower array instrument shipments and the end of a trade-in program that allowed customers to swap its Genome Analyzer sequencing instrument for the HiSeq.

Consumable revenue for the quarter jumped 17 percent in Q1 to $173 million from $138 million last year. Stapley said that the growth came from Illumina's larger installed base of next-generation sequencers, as well as increased shipments of the firm's Infinium microarrays, "most notably" its exome family of products.

According to Flatley, Illumina shipped the "highest number" of Infinium samples in its 13-year history. Illumina's BeadChips contain multiple arrays, and Flatley was referring to the number of samples that could be run on all the chips Illumina shipped.

Illumina introduced its exome family of arrays last year. It now offers four chips containing exonic content: the HumanExome BeadChip, the HumanOmniExpressExome BeadChip, the HumanOmni2.5Exome BeadChip, and the HumanOmni5Exome BeadChip (BAN 10/18/2011).

Arrays on the 12-sample HumanExome BeadChip contain 240,000 markers, while arrays on the eight-sample HumanOmniExpressExome BeadChip include 700,000 markers plus the 240,000 markers from the HumanExome BeadChip and room for up to 30,000 more markers selected by customers. Meantime, arrays on the eight-sample HumanOmni2.5Exome BeadChip contain 2.5 million SNPs plus the 240,000 exonic markers; and arrays on the HumanOmni5Exome BeadChip consist of 4.3 million SNPs plus the 240,000 exonic markers and the possibility to add 200,000 more customer-selected markers.

Since Illumina launched the chips, exome array orders have been high, with the company reporting similar demand in both the third and fourth quarters of 2011 (BAN 10/25/2011, BAN 2/14/2012).

In Q1, Illumina received orders for chips to survey genetic variation in approximately 300,000 more exome samples, bringing the total samples ordered to date to be run on the exome arrays to approximately 1.3 million, "by far the highest number of samples for any content collection in the company's history," Flatley said.

'Good Growth'

Flatley said that Q1 also marked "record samples" ordered for the company's arrays for cytogenetics research and methylation analysis.

With regards to its main offering for cytogeneticists, the HumanCytoSNP-12, Flatley said that Illumina has been "competing effectively" against "two competitors, both with quality products." He did not name the competitors. Affymetrix, Agilent Technologies, and Roche NimbleGen all manufacture arrays that are targeted to the cytogenetics research market.

"I think that is a market that's probably more competitive than the other parts of our array business, but we continue to do okay there," Flatley said of the cytogenetics research market.

Flatley also noted that Illumina continues to make progress in its plan to submit the HumanCytoSNP-12 to the US Food and Drug Administration for clearance by the end of the year. He said the firm is currently conducting clinical trials for the submission.

In terms of Illumina's methylation array sales, Flatley said only that the company saw "good growth" during the quarter. Illumina sells two catalog arrays for methylation analysis, the HumanMethylation27 BeadChip, which lets researchers interrogate 27,578 CpG loci, covering more than 14,000 genes, and the HumanMethylation450 BeadChip, which offers coverage of more than 450,000 methylation sites.

According to a PubMed search, more than 20 papers have been published so far this year that mention Illumina's methylation arrays. The majority of these recent studies relied on the firm's HumanMethylation27 BeadChip.

'Higher Horsepower'

While demand for Illumina's exome, cyto, amd methylation arrays continues to be solid, Flatley said during the call that he expects customers that have used its arrays for genome-wide association studies in the past to move to next-gen sequencing in coming years.

For years Illumina had hoped for a second round of association studies fueled by the availability of rare variant content made available on its Omni family of arrays, with the Omni5 containing the most markers (BAN 6/14/2011).

Flatley said this week, however, that researchers will require a "much larger number of samples" to make the discoveries that Illumina had hoped to make possible on products like the Omni5. He said that in the future, researchers will likely move to low-pass sequencing to identify causal variants. As Illumina provides both technologies, he said that this transition would not hurt the firm.

"While that might be disappointing for that particular chip, it again speaks to the complexity of human biology, and in the long run plays right into the strength of our business because what it means is that you need to bring higher horsepower technologies to make the discoveries," Flatley said.

He predicted that over the "next couple of years," the market will experience a "transition of what's traditionally been done on array-based GWAS over to low-pass sequencing." Flatley added that low-pass sequencing will offer researchers the ability to "multiplex lots of samples together and efficiently conduct the equivalent of a GWAS study" while allowing them to "look at every single variant in the sample as opposed to only those that you preselect and put on an array."

Q1 Results

Contributing to Illumina's total Q1 revenues of $272.8 million were consumables revenue of $173 million, up 20 percent sequentially and 17 percent year over year; and $80 million in instrument revenue, a 30 percent year-over-year decline. The firm's services and other revenues were $17 million for the quarter, up from $16 million for Q1 2011.

Illumina posted net income of $26.2 million for the quarter, compared to $24.1 million for Q1 2011.

The firm's R&D spending dipped 3 percent to $48.8 million from $50.2 million, while SG&A spending increased around 3 percent to $68 million from $65.7 million.

Other costs incurred during the quarter included $2.6 million in restructuring charges, $2.1 million tied to its headquarters relocation, and $1.7 million in acquisition-related expense.

The company also reported $8.1 million in costs associated with Roche's hostile takeover bid, which effectively ended last week after Roche said that it wouldn't extend its tender offer to acquire the firm. Flatley did not comment on the bid during the call, other than to note that he was "pleased with the outcome" of last week's annual meeting, where shareholders voted for Illumina's board nominees instead of Roche's nominees.

Illumina finished the quarter with $260.2 million in cash and cash equivalents.

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