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Illumina Warns of 'Temporary' Slowdown in GWAS Growth Rate, Posts 36 Percent Rise in Q1 Sales

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This story has been updated from a previous version published on April 22 to include additional information from Illumina officials.

Illumina said last week that it expects the growth rate for its whole-genome genotyping BeadChips to slow as customers wait for the company to translate content generated by sequencing efforts like the 1000 Genomes Project into new products. This slowdown, however, will be "temporary," according to company officials.

President and CEO Jay Flatley said that Illumina's whole-genome BeadChips currently constitute the majority of the firm's array revenue, though the company does not break out specific revenue numbers for its product lines. However, the company expects that demand for these chips will taper off during the year, as users finish up projects with the existing generation of chips and wait to adopt future Illumina arrays in what the company predicts will be "another broad round of genome-wide association."

Flatley discussed trends in the GWAS market during Illumina's first-quarter earnings call last week. The San Diego company reported that its Q1 revenues increased 36 percent year over year and upped its revenue guidance for full-year 2009 to a range of $700 million to $720 million from previous guidance of $690 million.

During the call, Illumina officials also discussed trends related to the company's second-generation sequencing business, provided an update on its effort to build a menu of diagnostics, and spoke about the potential impact of the US economic stimulus package on its financial outlook.

For the three-month period ended March 29, total revenues increased to $165.8 million from $121.9 million for the first quarter of 2008. Chief Financial Officer Christian Henry said during the call that Illumina brought in first-quarter consumables revenue of $103 million, marking the first quarter in which the firm eclipsed the $100 million mark for consumables. The company posted $63 million in consumables revenue in the first quarter of 2008.

Henry added that while sales of the firm's BeadChips led the rise in year-over-year consumables revenue in absolute dollars, sequencing consumables drove a 44 percent sequential increase over the fourth quarter. Henry credited Illumina's "growing installed base of Genome Analyzers and increased use in production environments" for pushing sequencing consumable revenue to "record levels."

Top-selling chips for the quarter were the Human 610-Quad, which offers 610,000 SNPs on a four-sample array; the Human 660W, which includes more than 550,000 SNPs plus 100,000 copy number variants; and the Bovine SNP50 BeadChip, a 54,000 SNP, 12-sample array designed for genome-wide selection and comparative genetic studies in cattle.

Flatley said that Illumina's custom and targeted content array products also provided a "significant contribution" to consumable growth during the quarter. He attributed this to sales of the firm's iSelect custom arrays on its 2-million feature Infinium HD platform, which enables researchers to interrogate up to 2,000 custom markers across 12 samples on a BeadChip.

However, shipments of Illumina's next-generation iScan array scanners were "below planned," Flatley said. "Since its launch, we indicated that we expected to ship fewer units of iScans relative to our legacy BeadStations because of its significant increase in throughput, and we saw this effect in the first quarter." Illumina launched iScan last year (see BAN 4/15/2008).

Flatley also said Illumina is expecting a "slowdown" in the growth rate of genome-wide association studies over the next few quarters as researchers await new content from sequencing projects such as the 1000 Genomes Project to be incorporated onto microarrays. Flatley said the slowdown will be "temporary," however, as the new content will "drive a whole new round of rich genome-wide association studies" based on rare variant content.

Affymetrix, Illumina's main rival in the GWAS market, is also predicting a "second wave" of association studies, driven by new content generated from sequencing projects. Jay Kaufman, vice president of product marketing at Affy, told BioArray News last week that this "bolus of new SNPs that are entering and will continue to enter the public domain" will be useful for designing array products to enable "cost-effective and focused study of rare and structural variants as well as other valuable classes of mutations" (see BAN 4/21/2009).

Once these chips become available, Kaufman said that Affy expects a "second, large wave" of GWAS to ensue. "We are very optimistic about this part of our business," he said. Also, Affy will continue to offer chips that feature copy number variation content, said Kaufman. "This is also emerging as an important component of understanding and characterizing the causes of disease," he said.

Flatley did not set a date for when the next generation of Illumina chips might hit the market, but said that the new chips may launch over the course of the next 12 months. "I think through the course of this year, you will begin to see products begin to contain incrementally more information from what's going on in the 1000 Genomes Project," Flatley said.

"Don't think of this … as sort of a digital event where one day you didn't have it, and the next day you [do], because there will be chips that will come out that will have [an] increasing percentage of content that comes from these rare variation projects, " he said. "An ultimate chip might be two years away by the time people really get done discovering all these and screening them, but there will be products that contain increasing amount of rare-variant information. "

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Moving Over to Sequencing

Illumina saw "very strong growth" in demand for its expression arrays year-over-year, with sales of expression arrays up 23 percent in Q1, Flatley said. At the same time, he said the company is seeing its customers move expression projects to its second-gen sequencer, the Genome Analyzer II.

For example, the number of expression analysis kits ordered for the GA II tripled during the first quarter, compared to the same quarter in 2008, Flatley said.

Flatley has in the past forecast that most expression projects will eventually migrate from arrays to sequencing, and said the firm continues to be "really optimistic about the potential of expression and using sequencing because you can get so much information that you could never get from arrays."

Illumina will "continue to push over the next few years to advance our technology, [and] drive the cost of doing it down, and that largely can be done by indexing, and once we do that, we think half the market or more will move forward to sequencing," Flatley said.
GA II customers are also adopting Illumina's applications for DNA methylation profiling and chromatin immunoprecipitation analyses, Flatley said. He forecast, though, that genotyping applications will remain on Illumina's array platform. "We don't see in any timeframe … genotyping moving to sequencing as a replacement technology," Flatley said. "We feel that, until sequencing gets to be well below $1,000, customers will remain focused on doing genotyping when the content is known and the targets they are trying to interrogate are very well known."

Last week, Illumina and Agilent Technologies entered into a non-exclusive co-marketing agreement focused on researchers conducting targeted resequencing. Under the terms of that agreement, the firms will co-market Agilent's SureSelect Target Enrichment System with Illumina's GA II (see BAN 4/21/2009).

Flatley said last week that targeted re-sequencing is going to be a "huge opportunity" for the company. "Based on our evaluation, and we've done a broad evaluation, both internally and with our customers, our judgment is that the Agilent product is the best, and that's why we did a co-marketing agreement with them," he said.

Dx Developments

During the call, Flatley also provided an update on Illumina's plans to move into the molecular diagnostics market. In November, Flatley said that the company planned to have a Clinical Laboratory Improvement Acts-compliant lab open by the middle of this year.

The company also said at the time that it planned to submit an assay in Q1 ‘09 to US regulators that would run on its digital microbead-based BeadXpress reader. Once cleared, the CLIA lab will offer both sequencing and array-based services in addition to tests (see BAN 11/18/2008).

Flatley said last week that Illumina has been "working real hard" on the CLIA lab and "making great progress." He said that the company will provide a more detailed update on the status of the lab in the summer. The company is also "making good progress" towards submitting an assay for ovarian cancer detection on the BeadXpress to the US Food and Drug Administration for 510(k) clearance. Flatley said that Illumina would provide an update on the submission process around the same time.

Illumina is also eyeing possible acquisitions to build out its molecular diagnostics business. Flatley said that the company has been "presented with lots of different opportunities" in diagnostics, but is facing the "classic problem" of inexpensive deals for firms that may not bring much value to Illumina versus more expensive deals involving "really great companies with great business models [that] are doing well." Such a dilemma presents a "classic tension in any acquisition situation," Flatley said. He stressed that Illumina will be "very cautious" about possible diagnostic deals because the company presently has a "high growth rate" and is "very profitable."

Indeed, Illumina's first-quarter net income increased 76 percent to $18.8 million, or $.14 per share, from $10.7 million, or $.08 per share, for the first quarter of 2008.

"We want to make sure that whatever we do, if we do something, that it's strategically very consistent with the direction that we're moving and can advance our diagnostics in a significant way," Flatley said. "We don't want to be impatient about this and make a mistake, so we'd rather be patient and get it right."

Illumina's first-quarter R&D spending rose 59 percent to $32.7 million from $20.6 million. Its SG&A spending increased 27 percent to $42.8 million from $33.8 million.

Illumina finished the quarter with $351.1 million in cash and cash equivalents and $321.4 million in short-term investments. For Q2, Illumina anticipates revenues of between $168 million and $173 million and EPS of between $.27 and $.30.

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