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‘Strong Demand’ for Sequencer Helps Illumina Triple Instrument Revenues in Q1

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Illumina last week said its Genetic Analyzer contributed significantly to the growth in instrument revenue in the first quarter, the first period to include sequencer sales.
 
The company also said it expects the first scientific studies that use the technology to be published soon.
 
Instrument revenue in the three months ended March 31 more than tripled to $19.6 million from $5.9 million, Illumina said. CFO Christian Henry said the increase was primarily the result of “strong demand” for the Genome Analyzer as well as an “impressive uptake” of the BeadXpress multiplex assay system, which Illumina launched late in the quarter.
 
Revenue from genotyping and sequencing services and instrument maintenance, meantime, doubled to $10.8 million, from $5.3 million in the year-ago quarter.
 
Total revenue for the quarter more than doubled to $72.2 million from $29.1 million year over year.
 
Illumina, which now sells three instrument platforms — the Genetic Analyzer, BeadArray platform, and BeadXpress system — decided it will no longer report quarterly instrument placements for each product line, but instead give “occasional updates” on the installed base of each platform.
 
The company did not say how many sequencers it placed during the first quarter. However, CEO Jay Flatley said during a conference call accompanying the first-quarter results that Illumina is seeing “significant early demand” for the sequencer and has received orders from “many of the different geographies around the world.”
 
While “the initial thrust of sales will clearly be biased towards the academic users” and “the bulk of the instruments so far has gone to genome centers,” Flatley said the company is now also seeing orders from other types of users, including industrial customers.
 
Flatley also said that since the company introduced the BeadXpress system in March, four customers, who he did not name, have ordered all three of Illumina’s platforms. This helps support the company’s view that the sequencing platform can complement its genotyping and gene-expression instruments.
 
In early February, Illumina said it had received 40 orders for the Genetic Analyzer, including the 13 systems it had shipped to early-access customers in 2006.
 
Last week, Flatley said the company began scaling up its ability to manufacture the sequencing instrument and sequencing reagents. “We made significant progress in this area, and we will continue to maintain our focus on scale-up over the next few quarters as we see very strong demand in all regions of the world for this system,” Flatley said.
 
“We have built enough capacity, and we are continuing to invest in inventory, to make sure we can ship these products rapidly when the orders come in,” he added in response to an analyst’s question about whether Illumina can keep up with demand.
 
R&D spending in the quarter nearly doubled to $16 million from $8.2 million in the year-ago period.
 
“The principal driver” for this increase was the fact that Illumina added Solexa’s R&D expenditures for the two months following the merger, Henry said. R&D expenses will increase in the future as the company bears the full cost of Solexa’s R&D, he said.
 
Integration and Applications
 
According to Flatley, Solexa’s marketing and technical support teams are now fully integrated with Illumina’s. Illumina is also making “significant investments” in providing technical support for the sequencing system, in particular in the area of bioinformatics.
 
Because the Genome Analyzer produces so much data per run, “there are some bioinformatics challenges that we need to make sure customers can deal with,” Flatley said.
 
“The integration is going well in other areas of the business as well,” he said. For example, the R&D teams in Hayward, Calif.; Little Chesterford, UK; and San Diego have begun to use a “common approach” that enables them to “rapidly develop new products, and effectively utilize our R&D resources across the entire company,” he said.
 
The R&D teams are now collaborating to further improve the Genome Analyzer, which includes developing new applications and increasing throughput and read length, Flatley said.
 
At the Advances in Genome Technology and Biology meeting in February, the company showed that the instrument can produce 50 base-pair read lengths, perform sample multiplexing, and generate paired-end reads. However, commercial kits are not yet available for 50 base-pair reads, Flatley said, and Illumina is “working collaboratively with a couple of customers right now” on paired-end reads, and is “working very hard “ on commercializing a product for paired-end reads.
 

Using the sequencer to further analyze genomic regions first identified with Illumina’s whole-genome chips “is going to become a very major application” of the sequencer “over time.”

In terms of applications for the sequencer, Flatley mentioned a number of specific ones, some of which can go hand in hand with the company’s BeadArray platform.
 
For example, a number of customers are already using the sequencer for chromatin immunoprecipitation, or ChIP, analysis, and Flatley said he “would expect to see some publications in the relatively near term on that application.”
 
One researcher who has a paper in press on a study that uses the Genetic Analyzer for ChIP analysis is Barbara Wold from the California Institute of Technology, In Sequence has learned (see related article, this issue).
 
Flatley also mentioned that some researchers want to use the sequencer to further analyze genomic regions they identified with the company’s whole-genome chips.
 
“We think over time, that is going to become a very major application of this system,” he said.
 
Indeed, three research teams who published whole-genome association studies of diabetes in Science last week told In Sequence they now want to use next-generation sequencing, including Illumina’s sequencer, to help them zero in on specific regions (see related article, this issue).
 
Digital gene expression is another application “that we think holds enormous promise,” especially as a complement to the company’s gene expression chips, Flatley said during the call.
 
In the future, the sequencer could also help researchers discover new methylation sites and provide content for Illumina’s methylation chips, he said.
 
With regards to diagnostics, “our long-term view is that sequencing will become a very powerful diagnostic tool, particularly in areas where you have highly variant diseases” such as cancer, Flatley said. “We think that’s clearly a very important future application of the platform; not one that we could do today.”
 
Illumina said it expects total revenues for the year to range between $305 million and $315 million, or between 65 and 70 percent better than 2006, and more than it anticipated earlier this year. Sequencing revenue will be a “substantial portion” of that, according to Flatley, and the company expects “to see an increase in sequencing revenue over the course of the year.”

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