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Oncology Opportunities Provide 'Pot of Gold at the End of the Double Rainbow' for Illumina

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NEW YORK – Illumina's cancer-related business is bigger than ever, having secured — at least for the time being — its acquisition of Grail and riding a surge of orders related to oncology testing.

Orders for the NovaSeq, Illumina's highest-throughput platform, are accelerating, driven by next-generation sequencing-based cancer testing, CEO Francis deSouza said on a conference call with investors this week following the release of the firm's third quarter financial results.

"Oncology testing customers represented the highest proportion of NovaSeq shipments for the quarter as large oncology testing labs added to their fleets," he said. Expanded reimbursement in the US for genomic testing for therapy selection and a move toward larger panels helped explain the demand. TruSight Oncology 500, Illumina's research-use-only comprehensive genomic profiling assay, had a record quarter, with over 340 customers now using the assay in their labs.

"But you're also seeing new customers and some of our smaller customers getting into oncology therapy selection," he said. "And at the same time, we're seeing really strong pull-through … so that's sort of the pot of gold at the end of the double rainbow."

What does it mean? Overall, Illumina is seeing continued strength in its core business as it officially bringing Grail on board. Sequencing instrument revenue in Q3 grew 65 percent year over year and consumables revenues were up 45 percent, resulting in near-record total revenue of $1.08 billion.

On the core business side, NovaSeq was not the only instrument category to succeed in the quarter, as mid-throughput platforms, such as the NextSeq 1000 and 2000, also drove growth. In the quarter, half of those placements were to new customers or to customers upgrading from low-throughput instruments. Benchtop instruments also grew, with a surge in MiSeq placements.

Illumina officials saw other trends that could drive future sequencing revenues, outside of oncology applications. A California state prenatal screening program is being revised to include noninvasive prenatal testing, for example, and the state has issued a request for proposal, deSouza said. Also, the Italian Ministry of Health has issued new guidelines supporting NIPT.

Michigan has become the first state to offer rapid whole-genome sequencing under Medicaid to acutely ill infants and children. "Other states, like California and Florida, are making progress in this direction as well," he said.

Illumina CFO Sam Samad said the company did well in a "challenging global environment." He acknowledged "small pockets of supply constraints for certain products in specific geographies," but said there was no material impact to the company's results.

Grail

Q3 was also the first quarter that Illumina reported results for Grail, which it acquired in August, as a separately operated part of the company. Recently appointed Grail CEO Bob Ragusa, an Illumina veteran, laid out the division's strategy and goals for the near term.

"We see significant pre-reimbursement opportunities for [Grail's cancer screening test] Galleri, and it's really across three main channels: employer, health systems, and medical practices," Ragusa said. "One of the key elements of working with the team now is to make sure that we can, in fact, ramp up the commercial scale of the organization to really meet the demand that's out there."

Illumina is operating Grail separately largely because of an ongoing regulatory inquiry in Europe. While deSouza reiterated Illumina's position that it will ultimately be able to fully fold Grail's operations into its own, he made the case that Grail has already appreciated as an asset.

"We know that if we create a lot of value in Grail, then no matter what the regulatory outcome is, it's still a big win, not only for people who are getting screened but also for our shareholders because we'll have an asset significantly appreciated," he said. In the last year or so, Grail has published study results, launched Galleri, and begun rolling it out to thousands of customers in the US and the UK. "So it's clear the business has created significant value from maybe 12, 15 months ago when we announced the deal," deSouza said.

Illumina has already begun offering Grail's Galleri test to its employees, deSouza said, but they're not the only groups the company will target in the early stages of releasing the test.

Ragusa said he was encouraged by progress across Grail's three primary channels. "In the employer channel, we are gaining momentum and expect to announce notable new partnerships in the technology, industrial, professional services, and transportation sectors. We are also successfully engaging with key high-cancer-risk areas of public sector employers, such as firefighters."

Grail has also signed agreements with several health partners who will begin to provide access to Galleri in Q4. "We're also in contract discussions with several additional influential health systems that we expect will begin offering Galleri to patients early next year," he said.

In addition, Grail will continue to expand its partnerships with medical practices. "We are focused on onboarding physicians in these networks and see positive prescriber trends. We also recently partnered with Genome Medical, an independent healthcare provider, to serve individuals who prefer a telemedicine option," Ragusa said. "In addition, we partnered with PWNHealth, a national telehealth network to further extend our service capability for some employer programs." He noted that the state of New York granted approval for the Galleri test last month.

Grail reported approximately $2 million in revenues for the period between Aug. 18 and Oct. 3, representing "both revenue recognized from the sale of our Galleri tests and generated from our minimal residual disease (MRD) collaboration agreements with biopharmaceutical companies," Ragusa said. "Collaboration income will continue as an important component of Grail's revenue and as an attractive future growth element of our business." But the revenue mix could be variable in the early going, he noted, so overall revenue is not a good indicator of sample volume.

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