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Illumina's Q2 Array Sales Rise 3 Percent on Demand for Infinium, BlueGnome Chips, Consumer Genetics

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Illumina's microarray business continued to grow in the second quarter, with customer demand for its Omni and Core families of genotyping arrays, contributions from recent addition BlueGnome, and sales to direct-to-consumer genetics firms such as 23andMe and Ancestry.com pushing Q2 array revenues up 3 percent year over year.

CEO Jay Flatley told investors in an earnings call that demand for arrays remains "stable" as the market trends toward using arrays to genotype "large sample numbers with moderate content at a lower [average selling price] per sample."

During the call, Flatley also discussed the San Diego firm's total Q2 revenues, which grew 23 percent year over year to $346 million, results that demonstrated "strong underlying trends in every geography in nearly all product lines."

In terms of the firm's arrays, Flatley said that Q2 was the third consecutive quarter that customers ordered enough BeadChips to genotype more than a million samples. He specifically cited demand for the company's Infinium OmniExpressExome, CoreExome, and Omni2.5 BeadChips in the quarter.

The Omni2.5 and OmniExpressExome are targeted to users conducting or validating findings from genome-wide association or sequencing-based studies, while Illumina's CoreExome product is marketed to biobanks and core facilities that want to generate data on samples stored. All three arrays have sold well in recent quarters (BAN 4/13/2013).

Twice in the call, company executives made reference to revenue contributions from BlueGnome, the Cambridge, UK-based company that Illumina acquired last September. BlueGnome sells arrays and software for constitutional and cancer cytogenetics, as well as preimplantation genetic diagnosis and screening, and earlier this year rolled out a high-density, Illumina-manufactured SNP chip for cyto research (BAN 6/18/2013). BlueGnome also continues to sell products manufactured by Agilent Technologies that were available prior to the acquisition, and internally made bacterial artificial chromosome arrays that are used in its PGD and PGS offerings.

While Illumina did not break out BlueGnome's revenues, Flatley said that the 3 percent uptick in array sales was "due primarily to the impact of BlueGnome." And CFO Marc Stapley attributed the firm's jump in Q2 consumable revenue, which rose 17 percent to $215 million in Q2 compared to the second quarter of 2012, to Illumina's "growing installed base, higher demand for sample prep and sequencing consumables, and BlueGnome."

New Chip

During the call, Flatley said that Illumina will begin shipping a new, custom-designed, oncology-focused genotyping array later this year to members of the international OncoArray Consortium, which is funded by the US National Institutes of Health, Cancer Research UK, Genome Canada, and the EU.

In April, members of international Collaborative Oncological Gene-environment, or COGS, project presented findings from the first round of their effort in 13 studies published in five research journals (BAN 4/2/2013). These first studies were focused on breast, prostate, and ovarian cancers, and relied on a custom-designed, 200,000-marker Illumina iSelect BeadChip dubbed the iCOGS array.

As COGS representatives told BioArray News at the time, the consortium planned to embark on a second phase of the project using a new OncoArray containing 600,000 markers to genotype more than 400,000 samples.

Other groups are now collaborating with COGS, and this second phase is being conducted under the banner of the OncoArray Consortium, an Illumina spokesperson told BioArray News this week.

According to Flatley, Illumina will offer the OncoArray to non-consortium members next year.

One analyst asked Flatley during the call if Illumina plans to seek US Food and Drug Administration clearance for the OncoChip. He said that the company does not have any current plan to submit the chip to the FDA.

"We will put it in the market broadly in '14 after selling it sort of on a propriety basis to this consortium group in '13," said Flatley. "We'll clearly monitor its usage and how customers ... apply it and what kinds of clinical environments it gets used in," he said. "So we may change our minds about that at some point, but I'd say the probability of putting that through the FDA is relatively low."

Consumer 'Elasticity'

Another contributor to Illumina's Q2 array growth was sales of its iSelect custom arrays to DTC firms, especially companies that offer genetic genealogy testing. All of the major companies and organizations that offer such testing – 23andMe, Ancestry.com, Family Tree DNA, and National Geographic – rely on Illumina-made chips in their services.

At an investor conference in May, Flatley said that the DTC market now generates about $50 million in annual revenues for the firm. Part of the reason for this growth is a "pricing sweet spot" for its customers' services, which in general cost about $99, though some charge more (BAN 5/21/2013).

"The consumer market continues to show a significant elasticity below the $100 price point, generating strong demand for gene mapping services and our iSelect custom arrays," Flatley said.

He added that for the second quarter in a row Illumina received a "large consumer order, deliverable over several years" and that the firm will continue to project close to $50 million of consumer-related revenue in 2013.

Flatley did not name the customer.

Elsewhere in Q2

While array sales contribute a sizable portion of Illumina's revenues, the firm's next-generation sequencing business continues to drive its top line.

Total revenues for the three months ended June 30 increased to $346.1 million from $280.6 million a year ago, largely on the back of a 33-percent spike in sequencing-derived revenues, especially sales of the firm's HiSeq instruments and related consumables.

Product revenues increased to $313.5 million from $258.8 million a year ago, while service and other revenue rose to $32.6 million from $21.8 million during the second quarter of 2012.

Illumina posted a profit of $35.9 million in Q2, up from $23.4 million a year ago.

R&D spending was cut 5 percent to $67.6 million from $71.2 million during the quarter, while SG&A costs spiked 29 percent to $88.7 million from $68.5 million.

Illumina exited the quarter with $783.6 million in cash and cash equivalents, it said.

During the call, Flatley revealed that Illumina recently paid $96 million to acquire Advanced Liquid Logic, a Morrisville, NC-based technology company that specializes in applying digital microfluidics in bioassay workflows.

According to Illumina, ALL will operate as a wholly owned subsidiary of Illumina, which envisions positioning ALL's technology on the front end of next-generation sequencing workflows.

ALL has a number of existing collaborations with other firms, including a deal with Luminex to develop a battery powered diagnostics system that combines ALL's digital microfluidics platform with Luminex's xMAP technology. ALL has similar partnerships with GenMark Diagnostics and NuGen Technologies.

Flatley said that Illumina "will honor the obligations we have under the existing ALL agreements" and will "give to those third parties particular rights to the technology in specific market segments."

None of the agreements preclude Illumina from pursuing its goal with respect to the technology, "which is very directly focusing into the sequencing marketplace overall," he added.

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