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Illumina, Facing Dip in Array Demand, Posts 12-Percent Rise in Q4 Sales

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This article was first published Feb. 5.

By Justin Petrone

"Significant growth" in demand for high-throughput sequencing products drove Illumina's fourth quarter sales up 12 percent year over year, offsetting a decline in array sales, the company said last week.

Illumina reported that total revenues for the three-month period ended Jan. 3 rose to $180.6 million from $160.9 million year over year. The results beat analysts' estimates of $173 million for the quarter.

Product revenue for the quarter rose 10 percent year over year to $168 million, led by "significant growth in our sequencing products," Chief Financial Officer Christian Henry said during the firm's earnings call. Sales of Illumina's microarrays fell compared to the prior year period.

Consumable revenue during the quarter grew 6 percent to $105 million from $99 million in Q4 '08. This figure was "driven by very strong growth in sequencing consumables offset by a decline in microarray consumables," which still continue to compose more than half of all consumable sales, Henry said.

Henry said total sales of instruments in Q4 rose 19 percent to $61 million from $51 million in the prior-year period, largely on the back of "strong growth in sequencing instrumentation, which was partially offset by lower sales of array instruments during the quarter."

Henry attributed the firm's slumping array business to lower sales of whole-genome genotyping arrays, but noted it was partially offset by growth in focused-content arrays.

CEO Jay Flatley said during the call that the company is "very encouraged" by the increase in demand for its genotyping arrays, but is "retaining a cautious outlook for the next several quarters" after a year of seeing demand for its chips plateau.

Illumina expects its array business to rebound in 2011 as researchers adopt its next-generation of Omni arrays for use in GWAS, which contain a rare variant content. (see BAN 1/19/2010)

Drawing content from the 1000 Genomes Project and other sources, Illumina launched its 4-million-feature HumanOmni1-Quad in May 2009, and last month introduced its 12-sample HumanOmniExpress BeadChip, which enables researchers to interrogate over 700,000 variants per sample (see BAN 1/12/2009).

Flatley said that the HumanOmni1-Quad and the firm's 660W-Quad BeadChip were Illumina's "best-selling" arrays during the quarter. The increasing adoption of the Omni1-Quad is a sign of market demand for new content, he said.

In October, Illumina announced a roadmap to debut first a 2.5-million-variant and then a 5-million-variant BeadChip during 2010 as content from 1000 Genomes becomes available. Customers are now "eagerly awaiting their availability" and have "responded positively to the roadmap," Flatley said.

"If you look at the microarray business broadly, we saw strength across the full spectrum," Flatley said. "We did see significant demand for our focused chips," and singled out "strength in ag bio from our bovine and ovine products as well as targeted human panels."

Illumina said orders for its expression arrays grew 28 percent over Q4 '08. Flatley attributed this gain to "key account wins" with the company's HumanHT-12 BeadChips.

One of the reasons the array market is expected to see improvement is that customers that received National Institutes of Health grants through the American Recovery and Reinvestment Act of 2009 are now starting to place orders.

For instance, during Q4 Illumina booked around $16 million in orders directly associated with stimulus grants, according to Flatley. The firm also saw orders materialize last quarter that were likely delayed last year as researchers waited to see if they would receive stimulus funding.

Flatley said that company also "expects and hopes that in the second tranche of funds that comes at the NIH, that there is some additional opportunity for us."

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In addition to the 2.5M and 5M Omni chips Illumina pledges to debut this year, the company is gearing up for the launch of the iScan SQ. This tool, based on the company's iScan system, uses expression and genotyping arrays plus a sequencing module that will enable traditional array users to resequence small genomes or targeted genomic regions. It will also perform a number of other applications, such as mRNA-Seq and ChIP-Seq, and will validate array-based expression and splice-variant data.

The module, which Illumina had previously called Harmonia, will be targeted toward customers "who want to begin to transfer applications over to sequencing but are significant array users," Flatley said.

The iScan SQ will "allow customers to do whole-genome genotyping studies and then do sequencing in local regions of the genome." According to Flatley, it could be adopted by "customers who are perhaps today using our expression arrays and want to begin to migrate their expression use over to sequencing.

"We're really looking at that product as one that will target customers that are principally array users today, but want to overtime to migrate towards sequencing," he added.

Q4 in Full

Illumina reported that fourth-quarter revenues grew 12 percent year over year to $180.6 million from $160.9 million.

Product revenues for the three-month period ended Jan. 3 increased to $167.5 million from $152.8 million, and service and other revenue rose to $13 million from $8.1 million year over year.

Illumina noted that its revenues were affected by one extra week of operating activity compared to the 2008 fourth quarter due to the structure of its financial reporting calendar.

Profit for the quarter fell to $11.7 million from $26.1 million for Q4 2008. The results were affected by a $10 million charge for acquired in-process R&D associated with last year's purchase of Avantome, and with a $16.5-million stock-compensation expense.

Illumina's R&D spending increased 43 percent to $40.4 million from $28.3 million, while SG&A spending jumped 26 percent to $49.5 million $39.2 million year over year.

For full-year 2009, Illumina generated total revenues of $666.3 million, up 16 percent from $573.2 million for 2008. Its products revenues were $627.2 million versus $532.4 million, and its service and other revenues were $39.1 million, down slightly from $40.8 million.

The firm's profit for the year was $72.3 million compared to $39.4 million for 2008.

R&D spending for 2009 jumped to $141 million from $100 million, while SG&A spending rose to $176.3 million from $148 million.

Illumina finished the year with $144.6 million in cash and cash equivalents and $548.9 million in short-term investments.

Company officials expect 2010 revenue growth of around 20 percent.

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