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Illumina's Q2 Array Revenues Rise on Whole-Genome Omni BeadChip Sales

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This story has been updated from a version posted July 28 to include additional comments from Illumina officials.

By Justin Petrone

Increased demand for genotyping arrays for use in genome-wide association studies contributed to a 31 percent spike in second-quarter revenues for Illumina, the company said last week.

While the San Diego firm, which also sells platforms for sequencing and other life science applications, did not provide specific array sales for the three months ended July 5, it did note that BeadChip sales improved over the second quarter of 2009. Sales of sequencing and array consumables climbed 30 percent relative to the same period last year.

The jump in array sales is largely attributable to demand for the firm's next-generation Omni BeadChips, which contain rare variant content generated by the 1000 Genomes Project.

CEO Jay Flatley said during the firm's quarterly earnings call this week that Illumina has seen "encouraging uptake" of its Omni family of whole-genome arrays, which was the "largest component" of the company's microarray shipments in Q2.

Illumina last month launched the Omni2.5-Quad, a four-sample BeadChip that contains 2.5 million markers per sample. The firm has also been releasing supplemental chips that allow users of earlier-generation BeadChips to access the new content that is available on the Omni2.5-Quad. In addition, Illumina has begun offering Infinium Multi-Use Sample Prep kits that enable customers to prepare their samples once and preserve them for use with future Omni arrays (BAN 6/29/2010).

Flatley said that customers are following the company's roadmap for array introduction, and that a "majority of customers that have ordered the Omni2.5 have also purchased these Multi-Use Sample Prep kits, indicating their intent to integrate future supplemental arrays and additional rare variant content into their studies."

A 5-million-marker chip called the Omni5 was planned for launch later this year. However, Christian Henry, chief financial officer and general manager of Illumina's Life Science Business Unit, said it is likely the launch of the Omni5 will be delayed as content continues to be generated by 1000 Genomes.

"We think the Omni5 is going to get pushed out a little bit just based on the availability of the content from the 1000 Genomes Project, so we will probably not be able to get that into the market by the end of the year," Henry said. He added that over the course of the next three months, the company will make a decision on when it will begin manufacturing the Omni5.

In addition to sales of its Omni chips, Illumina saw a second-quarter spike in sales for its focused arrays, such as its High-Density Bovine BeadChip, as well as year-over-year growth in sales of its custom arrays, led by its standard iSelect product. Illumina launched its High-Density Bovine chip earlier this year (BAN 1/12/2010).

From a geographic perspective, Flatley said Illumina saw strong year-over-year revenue growth in all major regions. Of these, he said that Europe delivered the largest contribution to the firm's Q2 growth, though he didn't provide specific numbers.

This trend stands in sharp contrast to rival Affymetrix's performance in Europe. Affy two weeks ago cited lackluster European sales as one factor in why it was forced to revise its guidance earlier this month (BAN 7/27/2010).

Flatley said that Illumina continues to believe that its whole-genome array business has stabilized and that growth will accelerate in the second half of this year.

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'Manufacturing Constraints'

While sales of Illumina's arrays were up for the quarter, array instrument revenues declined, even though the company experienced "strong" orders for its new HiScan system, which enables customers to run array and sequencing experiments on the same instrument. Illumina launched the HiScan and its accompanying SQ sequencing module in the first quarter (BAN 3/23/2010).

Part of the reason Illumina was unable to recognize revenue on array instrument sales during the quarter was increased demand for its HiSeq 2000 high-throughput sequencing instrument, which drove total instrument sales up 30 percent compared to the prior year period, despite the drop in array instrument sales.

"While demand has been robust for HiScan, the system shares many common components with HiSeq," Henry said during the earnings call. "As such, we expect manufacturing constraints to limit our ability to ship the HiScan in volume through the end of the third quarter."

Flatley similarly noted that demand for HiSeq had impacted the firm's ability to build HiScans for customers. "One of the good news/bad news stories about how we did the design here, of course, is that we really wanted to make the optics module and most of the electronics exactly the same or as similar as possible to HiSeq, so that we would have improved manufacturing capabilities of those platforms," he said. However, "because of the volume constraints in our ability to make HiSeqs, it also constrains our ability to make the HiScan SQ," he said.

As a result, "we’ve been able to ship perhaps fewer of those than we might have liked to in an ideal case."

Delivery times for HiSeqs are at the moment in the range of six weeks to eight weeks and the firm has shipped 100 of the sequencers since the platform launched earlier this year. In comparison, it can take three or four months for a customer to get a HiScan SQ system. Henry said that Illumina has been scaling up manufacturing to a "feverish pace" to address demand for both the HiSeq and the HiScan SQ. He expects current orders for HiScans to be fulfilled in the third quarter.

"We have seen very strong demand for that product and we’re scaling up production so that we can ship more of that in the back of the year," Henry said. Two-thirds of the demand for the HiScan SQ is from customers new to Illumina, Henry added, including university-affiliated hospitals, small- and mid-sized core laboratories, and agbio customers.

"There is a lot of demand building up" for the HiScan SQ," he noted. "In our manufacturing process, we’ve focused a little bit more on HiSeq 2000 in the quarter, so we weren’t able to fulfill all those orders."

Helixis Acquisition

Illumina also announced last week that it has acquired privately held real-time PCR and nucleic acid-analysis firm Helixis to complement its array, sequencing, and digital microbead-based BeadXpress systems.

Final terms of the acquisition, which closed on April 30, call for Illumina to pay $70 million in cash and up to $35 million in contingent consideration payments based on the achievement of certain revenue-based milestones through Dec. 31, 2011. The company last week also introduced a new benchtop PCR instrument developed by Helixis, called the Eco real-time PCR system, that it will begin shipping this month.

Flatley said that RT-PCR is a "very important market segment in the tools space" and that the acquisition of Helixis was "very consistent with our strategy of having tools that address the broad range of complexity that customers want, all the way from full sequence down to single marker."

He added that the Eco would not replace or compete with the BeadXpress, which the firm has positioned as its lower-multiplex platform in the past, because while BeadXpress can assay a single marker, the system is "less competitive" compared to RT-PCR when it assays less than 40 markers. "PCR of course is more competitive in the lower complexity space, so certainly there is that market synergy," Flatley said.

He noted that Illumina enjoys a "built-in market" for the Eco because "most of the customers that are using our sequencing instruments require PCR instrumentation in the front end or in the sample prep process for preparing the sequencing samples."

Upon launch, the Eco's US list price will be $13,900, which Flatley said is "approximately a quarter of the price of systems in the market with comparable performance." He called the Eco system "ideal for personal use in the laboratory" and said that Illumina will be developing its own reagent kits for use with the system.

Q4 in Full

Illumina reported this week that its second-quarter revenues grew 31 percent year over year.

The firm brought in total revenues of $212 million for the three-month period ended July 4, compared to $161.6 million for the second quarter of 2009. Its product revenues jumped to $198.5 million from $153.2 million, while its service and other revenues increased to $13.5 million from $8.4 million.

Consumables revenues for the quarter were $126 million, up from $97 million, with demand coming from both the sequencing and microarray segments. Instrument revenues, in comparison, were $70 million for Q2 2010, up from $54 million for the comparable period of 2009.

Illumina posted a profit of $29.8 million for the quarter compared to $24.7 million for Q2 2009.

The firm spent $43.7 million on R&D during the quarter, up 32 percent from $33.1 million for Q2 2009. Its SG&A expenses climbed 28 percent to $53.7 million from $41.9 million.

Illumina finished the quarter with $785.4 million in cash and investments.

The firm said that it expects to report full-year revenue growth of around 28 percent over its 2009 revenues of $666 million.

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