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HiSeq, Sample Prep Drive Illumina's Q2 Revenue Growth; ALL Buy Aimed at Low-, Mid-Throughput Market

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Illumina's HiSeq instrument continues to dominate the high-throughput next-generation sequencing market, as sales of the system drove a 23 percent spike in second-quarter revenues over the year-ago period, the company said this week during a conference call.

The firm also announced this week that it has acquired Advanced Liquid Logic for $96 million in up-front and milestone payments.

ALL uses microfluidic technology to automate liquid handling. On the call, President and CEO Jay Flatley said the acquisition fits into Illumina's "core strategy" of developing "sample to answer solutions," and that ALL's technology will be especially well suited for its low- to mid-throughput customers.

Earlier this month, Illumina launched whole-genome phasing using Moleculo technology through its services business, and Flatley reiterated during the call that the company is on track to have commercial kits in early access by the end of the year.

Additionally, Flatley said that the firm is planning a number of upgrades to its HiSeq and MiSeq instruments for the second half of the year, and said that its ordered array technology will be in early access by the end of the year and commercialized in early 2014.

The firm is also in discussions with BGI regarding supply agreement contracts. Flatley said that the two entities have signed a research-use-only agreement but are still working on a clinical contract. He did not elaborate.

BGI purchased Complete Genomics earlier this year (IS 5/7/2013). How that deal will impact Illumina is still unclear, but BGI is Illumina's largest single customer, with more than 100 Illumina next-gen sequencing systems installed.

Due to its strong quarter, Illumina raised its revenue guidance for the year and is now predicting a 20 percent increase in 2013 revenue over 2012 revenue. Previously, the company estimated of 15 percent revenue increase.

ALL Acquisition and Sample Prep

Illumina has recently been making inroads into the sample-prep market, including the launch of new TruSeq and Nextera products. Flatley said that the ALL acquisition will further bolster the company's position in this field and help it to develop "automated and integrated solutions for low- to mid-throughput customers" using ALL's "proprietary digital microfluidics technology."

ALL holds around 100 patents in liquid handling and has pending an additional 200 patent applications, Flatley said.

Flatley said that ALL's technology could be used "extensively in the sample prep process," enabling customers to use "smaller amounts of reagents" and to eliminate many pipetting steps. "Fast forward some number of years," he added, and "clearly, this gives us an interesting technology to integrate with sequencing itself."

Over the last few years, ALL has formed a number of partnerships and deals with other companies, including an exclusive partnership with NuGen Technologies to commercialize ALL's digital microfluidics cartridge technology, instrumentation, and software. NuGen also used ALL's technology in the development of its Mondrian SP System for automated next-gen library preparation (IS 4/17/2012).

ALL also has agreements with GenMark to develop a digital in vitro diagnostic platform and with Luminex to develop an automated, handheld, battery powered diagnostic system.

On the call, Flatley said that Illumina will "honor the obligations we have under the existing ALL agreements." Those agreements "give to those third parties particular rights to the technology in specific market segments," he added, and do not "preclude Illumina from doing exactly what is our goal with respect to the technology, which is very directly focusing into the sequencing marketplace overall."

Illumina is also bolstering its position in the sample prep market through its TruSeq and Nextera products. Due to demand for both of those product lines, Flatley said that sample-prep shipments in the second quarter grew "close to 50 percent" year over year.

Sequencing consumables grew 26 percent over the prior-year quarter, due to sample-prep growth and the company's larger HiSeq and MiSeq installed base.

HiSeq

Sequencing instrument revenues increased 37 percent year over year, driven by "strong demand for the HiSeq and 2500 upgrades," Flatley said.

Orders for HiSeq systems were split nearly equally between new and existing customers, and more than 75 percent of HiSeq orders were for the 2500. Additionally, the firm has completed around 80 percent of ordered upgrades from the HiSeq 2000 to the 2500, and expects to complete the remaining ordered upgrades in the third quarter.

Flatley said that later in the second half the company would introduce new reagents that would enable sequencing runs on the 2500 of up to 300 gigabases in 60 hours.

Future upgrades to the HiSeq system will continue to focus on reducing turnaround time, rather than increasing throughput, Flatley said. "If you're doing anything other than whole-genome sequencing, you need to multiplex lots of samples," he said, so "it doesn't make sense to push [throughput] too far."

Competitively, Flatley said the HiSeq systems are in "great shape." Despite early speculation that Life Technologies' Ion Torrent Proton system could be a "replacement for the HiSeq," that talk has "diminished quite significantly," Flatley said.

MiSeq

While HiSeq remains the dominant platform in the high-throughput market, the desktop sequencing space still remains competitive. Ion Torrent is a "very capable and aggressive competitor," Flatley said. Nevertheless, he said that in head-to-head situations, Illumina wins 80 percent of the time, and the company is continuing to work on reaching application markets and geographical regions where it is historically not as strong. Additionally, during the second quarter, around 60 percent of MiSeq orders were from new customers.

Illumina is also planning upgrades to its MiSeq system in the third quarter that will enable 15 gigabases per run. The upgrade will include new versions of the chemistry, an increase in the number of reads, as well as the ability to do 300 base paired-end runs. Cycle times will also be decreased such that a full run with paired 300 base reads will take around 60 hours, according to Flatley.

Ordered arrays

Illumina is also developing an ordered array technology that will increase cluster density and reduce turnaround time. Flatley said that the company is on track to hit its targets of having the first arrays in early access before the end of the year and to deploy them commercially in early 2014. Initially, the ordered arrays will be deployed selectively, for the "most important application areas," Flatley said.

He did not disclose specifics about the performance enhancements that the ordered arrays would bring, but said that these improvements would vary system by system, with the HiSeqs reaping the greatest advantages and MiSeqs seeing a less dramatic advantage.

Financials

Illumina's second-quarter revenues rose to $346.1 million from $280.6 million in the prior-year quarter. Product revenues increased to $313.5 million from $258.8 million, which included a 31 percent increase in total instrument revenue to $95 million and a 17 percent increase in consumable revenue to $215 million, driven by a higher installed base, higher demand for sample-prep products, and the BlueGnome business.

Service and other revenues rose to $32.6 million from $21.8 million year over year.

Research and development spending dipped to $67.6 million from $71.2 million year over year, while SG&A costs rose to $88.7 million from $68.5 million.

Illumina finished the quarter with $783.6 million in cash and cash equivalents.

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