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Survey Offers 'Cautious Array Forecast' for Illumina as Sequencing, Affymetrix Products Gain Ground

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Investment bank Leerink Swann anticipates a four-percent decline in Illumina's core microarray business this year due to increased adoption of next-generation sequencing, a reduction in available federal funding, and competition from Affymetrix.

In a research note released last week, analyst Dan Leonard commented on the results of the bank's annual survey on microarray trends, highlighting its "cautious array forecast" as sequencing "grabs a bigger market share."

MedaCorp carried out the survey of 43 microarray lab directors last month. Leonard said that responses suggested that spending on genotyping arrays could be stable with 2012 levels. He noted that spending on genotyping chips declined by about 2 percent last year, but is anticipated to stabilize this year with about 1 percent growth.

However, some respondents did not factor the impact of sequestration of the federal budget into their initial responses, and, when asked about the impact of the sequester, said it "would represent a further downside to their plans."

In addition, Leonard said that Affymetrix's Axiom genotyping arrays have become "more competitive" with Illumina's BeadChips over the past year, noting that sales of Axiom arrays grew by 50 percent to $18 million in 2012.

"While this amount pales in comparison to a business we believe totals greater than $250 million in revenue for Illumina, it nonetheless represents a threat at the margin," Leonard said. "Thus, we feel that our minus 4 percent revenue forecast for Illumina's core microarray business in 2013 fairly reflects the market."

Another factor impacting array sales is a continuing shift toward sequencing. Survey respondents who also offer sequencing in their labs said that they planned to purchase in aggregate six new array scanners in the next 12 months, compared to plans to acquire 27 next-generation sequencing instruments in the time frame.

Additionally, Leonard wrote that a plurality of the respondents expected that more than 50 percent of their microarray usage would be replaced by sequencing over the next two years.

"We view these trends as a net positive for Illumina," Leonard wrote in the note, "as we estimate sequencing products and services comprised nearly 70 percent of Illumina's total 2012 revenue."

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