At A Glance
Name: Tim Kish
Title: Vice president, CFO, Illumina
Background: VP, Finance, for Biogen; Finance Director, Allied Health & Science
Education: BBA, Michigan State University; MBA, University of Massachusetts
Over the past several quarters, this has been the prevailing theory of the future of SNP-genotyping industry: There’s no longer room in the market for pure-play genotyping instrument or services shops.
Like the bioinformatics sector before it, the SNP-genotyping space, which is said to be worth between $200 million and $300 million, has reached a largely anticipated crossroads. Yet where bioinformatics’ big question was, ‘Is there a commercial market for my software and services?’ genotyping firms have begun asking, ‘How low can my prices go, and how long can my top line — not to mention my shareholders — endure it?'
The space has seen its share of failures or abandonments: Xanthon, Orchid Biosciences, Variagenics, and Intergen have either folded, been sold, or shed their genotyping phenotypes.
The herd-thinning may not stop there. It is estimated that most big SNP-genotyping companies have left between four and five years in cash. The shops that remain will be forced either to hasten their diversification strategies, or find new markets for their existing technologies.
As SG Cowen Securities analyst Eric Schmidt told SNPtech Reporter in February: “I think over the next three or four years these companies are going to have to put up or shut up and show us that they can build a business” out of genotyping.
At Illumina, CFO Tim Kish is drawing up plans to ensure his company’s new genotyping platform, BeadLab, dominates the high-throughput market — while eyeing smaller labs, who he said will become customers when the big ones stop buying.
Kish also said revenue next year will be bolstered after Illumina launches a gene-expression instrument this year, and said the company aims at being cash-flow positive by the end of next year.
SNPtech Reporter caught up with Kish this week.
Illumina’s revenue during the first two quarters of 2003 were significantly increased over the same period in 2002 [see SNIPPETS, page 5 for second-quarter financials, and here]. Was the BeadLab platform central to that revenue growth?
You’re exactly right. We’ve been really quite successful in placing those in the marketplace. We had a goal for selling five of those for the fiscal year … and we’ve already achieved that as of the end of June.
Because of the amount of revenue associated with each one of those, it has helped our earnings increases substantially — both from the standpoint of the instrument itself, and what will continue to happen is a consumable stream [reagent kits, oligonucleotides, and assays] that will flow from those instruments as all of these players ramp up their uses. Most of the people that we’ve sold this to are involved in the HapMap study, and as of today I think about 60 percent of the HapMap SNPs will be performed on our instrumentation.
That will be a fairly attractive revenue base for us over the next 12 to 18 months.
The first two systems that were sold [to Genome Quebec and Sanger Center] are now beginning to get to the level of consumables use that represents a good solid run rate. In 90 days I expect three more systems to be installed. When those come on board, they will also start to use our consumables.
R&D spending has fallen over the past two quarters consecutively and year over year. Will the increases in revenue translate into greater R&D spending?
What is happening at the moment is a large number of our development projects are coming to fruition. We have a number of other initiatives internally that have or are about be completed. And the BeadChip, a new array platform we’ve developed, and a new [BeadArray-based] gene-expression platform that we’ve developed, will be launching before the end of the year.
We have a number of products that are rolling out of the development cycle, and consequently we’re not expecting that R&D expenses will increase over the coming few quarters.
The BeadLab is an expensive unit — it costs between $1.5 and $2 million. Orchid’s former SNPstream, which is now with Beckman Coulter, costs around $250,000; Sequenom’s MassArray platform runs around $500,000; and ABI is getting ready to release its own genotyping platform that analysts suspect will also cost that much. Is Illumina concerned that customers with low- to mid-throughout needs will turn to these other less expensive systems?
What we believe is that between 12 to 18 months, most of the genotyping dollars will be spent in the very high-throughput labs around the globe, [many of them] associated with the HapMap project. So we are initially marketing this system to a universe of about 25 or 30 potential buyers who we believe will spend most of the money in 12 to 18 months.
After that, of course, it will be important to address the middle markets — the smaller markets, if you will — that are addressed by the companies and systems that you mentioned.
And, of course, at the appropriate time, we will have marketing solutions that will address those markets. At the moment we’re going to focus on the large players, and the very high-throughput players, and we will migrate into the people who have a smaller need than a million genotypes a day.
Would that mean adjusting the platform to also make it less expensive?
We haven’t really disclosed how we would do that, but we’d call it a reduced version of the system that we’re selling along several dimensions.
Are you able to disclose Illumina’s revenue outlook for the remainder of 2003?
No, but on aggregate, analysts at Goldman-Sachs, SG Cowan, and Robert W. Baird are projecting around $25 million of revenue for the year. … We are shooting internally for numbers that are at least that size.
Let’s talk about Illumina’s Oligator business. What advances have been made over the past six months in this business, and how will they translate into top-line growth for the rest of the year?
In the last six months, we’ve introduced internally one additional generation of technology that has … reduced our manufacturing cost. We will continue to use a price-leadership strategy in the market, and to leverage that cost advantage. And we hope that that will translate into continuing and increasing revenue with [the] oligo business.
Your cash position at the end of 2002 was among the strongest in the genotyping space. The industry average was $44.8 million, and Illumina’s cash position was $66.3 million. What will Illumina do to ensure to its customers and investors that cash burn is under control — not to say that it is out of control — and that the cash position will remain strong?
We focus on that an awful lot because we have the same objective in making sure we remain cash positive. I think a couple of things will happen. Now that the BeadLab product has been launched, and we’ve begun to see the sale of the instrument and sales of the consumables, we will start to see revenue compared to prior quarters rise, and, we hope, rise significantly. We ought to have significant cash inflow from the sales of those components.
Second, we have additional products that are coming onto the market later this year. In particular, we announced that we are going to launch a gene-expression product.
The gene-expression market is substantially more developed than the genotyping market, and the market has quite a bit of [more] revenue associated with it today than genotyping does, so we believe there is a very decent opportunity there to generate revenue there with our products.
And, in addition, as I mentioned that with R&D, for example, we’re not in a position where we need to expand or R&D.
Many of our projects are rolling out for the development stage and into the commercialization stage, and so by definition we will have some flattening of the R&D curve at a minimum with that occurring.
It’s been our intent not to go back to the capital markets to raise money, unless it’s strategically useful or otherwise opportunistic.
We will work very hard at making sure we are cash-flow positive in the next six to eight quarters, and we think we have all the mechanisms in place here to make that happen.
Editor’s note: In April, SNPtech Reporter published a financial snapshot of nine the pure-play SNP-genotyping companies [See tables here]. That report tracked and compared revenue, R&D spending, cash on hand, as well as R&D spending as a percentage of revenue and cash on hand of these nine shops for fiscal year 2002.
Today’s interview is the first of nine sessions with chief financial officers for each of these companies — Lynx Therapeutics, Orchid Biosciences, Genaissance Pharmaceuticals, DeCode Genetics, Sequenom, Illumina, Pyrosequencing, Third Wave Technology, and Transgenomic.
The goal of these interviews, which are conducted soon after each firm releases its mid-year earnings report, is to shed light on the financial health of the companies mid-year, and to gauge projections for the second half.