Illumina's microarray revenues increased 1 percent in the first quarter due to demand from consumer genetics companies, researchers running genome-wide association studies, and clients of BlueGnome's chips for cytogenetics and pre-implantation genetic diagnosis, the company said this week.
CEO Jay Flatley also told investors during an earnings call this week that interest in the San Diego vendor's microarray instruments and array-based genotyping services in Q1 was "strong" and "robust." He said the firm experienced sequential increases in both sample volume and orders.
Additionally, he noted that during the quarter the firm submitted an array-based test for the diagnosis of constitutional genetic abnormalities to the US Food and Drug Administration.
At the same time, a $107 million charge related to litigation concerning Illumina's BeadArray technology helped turn what would have been a profit to a net loss of $23 million in Q1.
Outlook for Arrays
Illumina's percentage-point uptick in array revenues was dwarfed by a much larger overall revenue increase in Q1. Largely attributable to demand for its sequencing products and services, the firm's revenues during the quarter rose 21 percent to $331 million, compared to $273 million in the first quarter of 2012.
While sequencing remains the company's revenue driver, Flatley said that Illumina's "outlook for arrays is as expected" with "interest remaining high" in such catalog genotyping products as its Infinium OmniExpressExome, CoreExome, and Omni2.5 BeadChips.
He said that in Q1 the company "set a record" for whole-genome association study-related products shipped during a quarter by sending customers enough BeadChips to genotype 300,000 samples.
Illumina spent $88 million in September to acquire Cambridge, UK-based BlueGnome as part of an effort to strengthen its play in the reproductive health market. BlueGnome offers a menu of CytoChips for both constitutional and cancer cytogenetic research as well as its internally produced 24sure bacterial artificial chromosome arrays used in PGD.
In response to an analyst question during the call, Chief Financial Officer Marc Stapley confirmed that BlueGnome grew about 18 percent year over year and generated about $7 million in revenues for Illumina in Q1. The company generated a similar amount of revenue in the fourth quarter of 2012, beating an earlier guidance of $5 million for Q4 2012. Stapley attributed the performance to the "early success" of integrating BlueGnome into Illumina (BAN 1/29/2013).
The company's custom iSelect genotyping arrays are "doing well across many customer types," and among consumer genetics firms in particular, Flatley said. Illumina arrays are currently used as the main technology platform among a number of direct-to-consumer genetic services companies, such as 23andMe. The company also provides arrays to all of the larger companies and organizations that provide genetic ancestry and genealogy testing services, including Family Tree DNA, National Geographic, and Ancestry.com.
Most of these firm's array-based services are priced at less than $200, and Flatley said the firm's consumer array business has "hit a pricing sweet spot" that has led to "significant market elasticity." During the quarter, Illumina signed a deal with a consumer genetics firm for a "large order" of arrays deliverable over several years, Flatley said. He did not name the customer.
During the quarter, Illumina also submitted its Infinium Dx CytoSNP-12 assay and iScan Dx reader for FDA clearance, according to Flatley. "These products are intended to be used as an aid in post-natal diagnosis of autism spectrum disorders, developmental delay, and intellectual disability," he said.
Illumina is the second large microarray vendor to submit a cytogenetics-related package for regulatory clearance in the US. Earlier this year, Affymetrix announced that it had submitted its CytoScan product to the FDA for diagnosis of postnatal constitutional abnormalities (BAN 2/19/2013). Agilent Technologies has said in recent months that it anticipates making a cyto array submission to the agency in 2014 (BAN 1/29/2013).
The company was not affected negatively from the sequestration of the US federal budget, which went into effect during the quarter. Flatley said that the effect of the sequester "remains to be determined" and that, to date, the company has not been impacted.
"We continue to see significant interest in our platforms, and ordering patterns from our academic and government researchers are stable," Flatley said. In spite of the funding cuts, Illumina has benefitted from an increase in awarded grants and contracts related to its sequencing platform, he said.
Stapley told investors in March that the company could lose about $18 million in NIH-derived revenues in 2013 because of the cuts (BAN 3/12/2013).
Flatley also noted that the funding environment has improved outside of the US. Stapley said that the company saw its US revenues increase 28 percent in Q1, compared to a 16 percent increase in Europe, and a 21 percent increase in Asia. Both noted a positive impact from a recent economic stimulus in Japan (BAN 3/12/2013).
While Illumina executives portrayed the company's Q1 performance positively, with Flatley calling it an "extraordinary" quarter, one downside was an unfavorable court ruling that cost the company $107 million and caused an anticipated profit to swing to a loss.
A federal jury decided in March that Illumina had infringed a patent held by Syntrix Biosystems and ordered it to pay Syntrix $96 million, based on a 6 percent royalty rate for Illumina BeadChip products sold between 2005 and May 2012 (BAN 3/19/2013).
Auburn, Wash.-based Syntrix sued Illumina in 2010, alleging that its BeadChip products infringed its IP. Syntrix also alleged that Illumina obtained access to its IP while the two firms were negotiating a potential business relationship 13 years ago.
Stapley said during the call that the $107 million charge was higher than the original $96 million judgment because of the addition of estimated BeadChip royalties from Q1 plus interest. He said that the company continues to believe that the Syntrix litigation "has no merit," and that the firm is appealing the case.
Elsewhere in Q1
Illumina's Q1 revenues of $331 million for the three months ended March 31 beat the average analyst estimate of $310.7 million.
Product revenue rose to $296.2 million from $255.6 million year over year, and its service and other revenue more than doubled to $34.8 million from $17.1 million.
Because of the charges related to the Syntrix litigation, Illumina posted a net loss of $22.6 million, compared to a profit of $26.2 million for the first quarter of 2012.
Illumina's R&D spending in the quarter increased 26 percent to $61.5 million from $48.8 million, while its SG&A expenses climbed 25 percent to $85.1 million from $68 million.
The firm finished the quarter with $443.1 million in cash and cash equivalents and $624.4 million in short-term investments.