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Genome Analyzer Sales Triple Illumina’s Q3 Tool Revs, But Affy Suits Cry Foul (Again)

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As Illumina reported last week that sales of its Genome Analyzer helped triple instrument revenues during the third quarter, Affymetrix flexed its IP muscle, claiming that Illumina’s sequencer violates two of its patents.
 
The patent lawsuits, Affy’s second round of complaints against Illumina, come less than a year after Illumina acquired Solexa and began to generate revenues from its sequencing technology.
 
The suits are Affymetrix’s first patent dispute involving a next-generation sequencing platform, a technology the company does not currently offer. In addition, the allegation may apply to other sequencing platforms.
 
Last week, Affymetrix sued Illumina in the US, the UK, and Germany, claiming that the company infringes five of its US patents and three of its European patents. The reason the company sued in different countries is that “the infringing acts extend beyond the US market,” Affy said in a statement.
 
Affymetrix claims that Illumina’s sequencing technology infringes two of the patents cited in its US suit: US patent No. 6,420,169, “Apparatus for Forming Polynucleotides or Polypeptides,” granted July 16, 2002; and US patent No. 7,056,666, “Analysis of Surface-Immobilized Polymers Utilizing Microfluorescence Detection,” granted June 6, 2006. Both patents have related US patents with filing dates of 1990, and, according to Illumina, will expire in or before 2010.
 
Affymetrix is seeking a permanent injunction, damages to compensate for infringement, at least triple damages for willful infringement, and attorneys’ fees and expenses.
 
According to the US complaint, filed with the US District Court for the District of Delaware, Affymetrix approached Illumina repeatedly about taking a license to its patents. Last December, when Illumina was in the process of acquiring Solexa, Affy “notified Illumina that many of these patents, including the ‘169 and ‘666 patents, were relevant to the Solexa technology,” according to the filing.
 
Also that month, Affymetrix said, it approached Solexa directly about licensing its patents, in particular the ‘169 and ‘666 patents, as well as an additional patent, US patent 6,576,424, entitled “Arrays and methods for detecting nucleic acids.” Solexa referred discussions to Illlumina, which would acquire Solexa the following month.
 
Responding to the new round of suits, Illumina said in a statement last week that “we believe that we do not infringe any valid claims of the patents asserted by Affymetrix in its recent complaints” and “will continue to defend and support our customers against Affymetrix’s unfounded claims.”
 
This is not the first patent dispute between Affymetrix and Illumina since Affy sued its rival in 2004 claiming that Illumina’s Array Matrix and BeadChip products infringe six Affy patents. In March of this year, a jury found Illumina guilty of infringing five of these patents and awarded Affymetrix $16.7 million in damages.
 
But Illumina claims it has prior art that predates Affy’s patents, and a second phase of the trial, scheduled to begin next February, will determine whether Affy’s patents are valid.
 
Collateral Damage?
 
It is possible that other next-generation sequencing platforms could also be affected by Affy’s ‘169 and ‘666 patents. Helicos BioSciences, for example, like Illumina, uses surface-immobilized oligonucleotide primers on its HeliScope platform, and Intelligent Bio-Systems arrays DNA samples on a surface, but has not said whether they will be immobilized (see In Sequence 10/23/2007). Neither platform is fully commercialized at the moment, and neither company would comment on whether they believe Affy’s patents cover their technologies.
 
Affy would not comment on whether it plans to pursue these companies for licensing agreements.
 
It is unclear if other platforms, including bead-based methods used by ABI’s SOLiD instrument or 454 Life Sciences’ Genome Sequencer, infringe Affy’s patents. The SOLiD platform, which the company launched last week (see related article in this issue) and the Genome Sequencer, which has been on the market since 2005, attach DNA to beads prior to amplifying the DNA. 
 
The technologies then spread the beads on a flat surface, in the case of ABI, or dispense them into the wells of a picotiter plate, in the case of 454, and perform their respective sequencing chemistries.
 
It is also unknown when Affy’s latest US suit against Illumina will actually go to trial, and whether any verdict will be reached before the two patents expire in 2010. It took about two and a half years for Affy’s first suit against Illumina, filed in mid-2004, to go to trial.
 
In the meantime, the Genome Analyzer has been boosting Illumina’s revenues. Last week, the company reported that total revenues for the three months ended Sept. 30 rose 82 percent to $97.5 million from $53.3 million during the same quarter last year, when Illumina had not yet acquired Solexa.
 
Instrument revenues tripled year-over-year to $34.1 million, driven by “the strong uptake” of the Genome Analyzer, according to a company earnings call last week. Illumina did not break down revenues by product categories.
 

Last December, when Illumina was in the process of acquiring Solexa, Affy “notified Illumina that many of these patents, including the ‘169 and ‘666 patents, were relevant to the Solexa technology.”

During the call, CEO Jay Flatley reiterated that Illumina had shipped more than 100 sequencers to date, more than half to customers outside of large genome centers. The company is “delighted by the uptake of the Genome Analyzer,” he said.
 
Illumina is currently working on increasing the system’s throughput and overall performance, as well as on adding new applications, he said. The company’s paired-end technology is still in beta testing with early-access users, but is expected to be fully commercialized by the end of the year.
 
R&D expenses for the quarter increased to $19.8 million from $7.7 million during the year-ago quarter, and net income declined to $14.5 million from $16.2 million during last year’s third quarter. The current period included $0.7 million in non-cash charges related to the Solexa acquisition, and an $8.7 million non-cash stock compensation expense.
 
As of Sept. 30, Illumina had $64.1 million in cash and cash equivalents, and $268.7 million in short-term investments.

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