By Monica Heger
Investment firm William Blair & Company projects that Illumina's sequencing business will continue to demonstrate rapid growth over the next several years, with revenues for the HiSeq set to increase in the range of 20 percent to 25 percent per quarter and orders for the upcoming MiSeq platform "building nicely."
Based on meetings with company officials, the investment bank estimated in a recent research note that Illumina will continue to add 20 to 30 new HiSeq customers per quarter and will place between 60 and 70 of the instruments per quarter through 2013.
Additionally, the firm estimated that Illumina will ship 50 MiSeq instruments in 2011 and 600 in 2012, although it concluded that those estimates may be on the low side.
William Blair analysts forecast that Illumina will generate $98 million in instrument revenue in the second quarter and $374 million for the rest of the year and reiterated its previous 'Outperform' rating for the company.
"We continue to view HiSeq as a source of earnings upside over the next two years, driven by higher-than-expected consumable usage," analyst Amanda Murphy wrote.
Both existing next-gen sequencing users and new users are purchasing HiSeq instruments. Despite a decline in instrument placements in the first quarter due to the completion of the trade-in program for Genome Analyzers, HiSeq placements are still expected to grow between 20 percent and 25 percent per quarter.
The firm also projected that consumables sales would grow, now that the 600 gigabase upgrade has been fully rolled out. Murphy projected quarterly consumables revenue of $350,000 by the third and fourth quarters of 2011.
The firm said that Illumina is on track to begin shipments of its MiSeq instrument in August. Initially, large genome centers and core labs, particularly those with existing Illumina machines, made up the bulk of customers ordering a MiSeq. However, the company is now also seeing interest from users of Sanger sequencers and other next-gen sequencing platforms.
While Illumina management did not disclose to William Blair & Company the total number of MiSeq orders, the investment firm concluded that the backlog for the lower-cost instrument was "building nicely."
The market for lower-throughput sequencers, while early, is "highly competitive," with Roche's 454 GS Junior, the Ion Torrent PGM, and MiSeq all competing for market share. Murphy said that it is still "too early to call a winner," but there should be a clearer picture by the third and fourth quarters.
The MiSeq will become an "important mechanism for the company to continue to expand the next-generation sequencing market beyond the core 1,500 next-generation platforms currently installed." She added that by 2013, she expected to see "meaningful penetration of the MiSeq into the CE space."
Recently, Illumina made a play to become more competitive in the outsourced sequencing market by lowering its price for whole-human genome sequencing to $5,000 for 10 to 49 genomes and $4,000 for more than 50 genomes. The company's management told William Blair & Company that the market for outsourcing is growing faster than the instrument market.
However, Murphy concluded that while Illumina "has its toe in the water" of the outsourced sequencing marketing, the "instrument/consumable model is more preferable for the company," because otherwise it risks competing with its customers.
Nevertheless, Illumina said it has tripled the number of genomes shipped compared to last quarter, and has around 1,000 genomes in its backlog and has decreased its turnaround time to less than 90 days.
William Blair & Company also provided revenue estimates. For 2011, it estimated total revenue of $1.1 billion, with sequencing contributing 60.8 percent. For 2012 and 2013, it estimated revenues of $1.4 billion and $1.7 billion respectively, with sequencing growing to 68.3 percent of total revenues in 2013.
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