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Illumina Braces for Second Quarter Slowdown Due to COVID-19


NEW YORK – Illumina officials warned investors this week that the firm's second quarter 2020 revenues would be down significantly compared to both the previous and the year-ago quarter.

"We expect Q2 to be an extremely challenging quarter with revenue declining sequentially in each region, albeit more modestly in China," Illumina CEO Francis deSouza said on a conference call on Thursday to discuss the firm's first quarter results. Illumina expects to see the biggest revenue decline in the Americas, Illumina CFO Sam Samad added.

"One month in, we can see the second quarter impact will be substantially greater than the impact we experienced in the first quarter, and we are planning accordingly," Samad said. Illumina has adjusted its spending but expects second quarter operating expenses to be flat year over year while it is committed to continuing much of its R&D.

Several Wall Street analysts are predicting revenue decreases of around 20 percent year over year in Q2. In analyst notes, JP Morgan said its models project $687 million in revenues for Q2; Cowen, $658 million; Canaccord Genuity, $650 million; and SVBLeerink, $650.7 million. Illumina's Q2 2019 revenues were $838 million. But many of those analysts see Illumina soon returning to growth.

"As instrument orders have remained unaffected and utilization activities have stabilized in April, we feel confident that the COVID-19 impact will be transitory and the long-term outlook for Illumina remains intact," JP Morgan analyst Tycho Peterson wrote.

Despite the challenging business environment, deSouza touted the firm's ability to keep its operations going around the world. "So far, we’ve been able to overcome any COVID-related challenges and deliver products to customers in a consistent and timely manner," he said, adding that clinical testing has "proved resilient." Also, sequencing systems shipments have picked up again and orders for systems have continued from both research and clinical customers.

The firm's total revenues rose 2 percent year over year, but saw a $24 million hit to sequencing systems revenues, attributable to circumstances brought on in the last couple of weeks of the quarter by the COVID-19 pandemic, and offset by a $4 million bump in sales from customers stocking up on consumables. The sequencing systems revenue drop was due more to problems with shipping instruments, rather than orders, company officials said, although Samad noted that some customers have paused capital expenditures.

Though the firm had previously withdrawn all financial guidance and declined to provide guidance for Q2, company officials provided qualitative statements on the impact the COVID-19 pandemic has already had and will continue to have over the next several months.

Instrument run count data showed that sequencing began to significantly slow down in mid-March. deSouza noted that Illumina is not able to monitor all sequencing systems and cautioned that the runs do not necessarily correlate with the amount of data per run and are not directly correlated with revenues.

Runs in the research and applied sequencing markets, especially at academic institutions, declined rapidly to 55 percent of run counts seen in the fourth quarter of 2019, though run counts have been "roughly flat since the beginning of April," deSouza said. "Clinical [run] volume is currently running at just over 80 percent of what it was in the fourth quarter of last year," he said, noting it declined more slowly but only stabilized in the last two weeks. And while it's too early to tell if it's a real trend, Illumina said its run count monitoring had picked up an uptick for the week of April 19.

Illumina has reduced its Q2 operating budget by about $40 million, including savings from lower travel, marketing, and consulting expenses, and officials said they expect Q2 operating expenses to be flat year over year. "While we have deprioritized some [R&D] work, we will do everything we can to retain our most important product development timelines," Samad said. The firm is reducing spending on contract and temporary labor in certain functions, he added.

Company officials also said they see opportunities for business to pick up again as soon as shelter-in-place orders are lifted. Noninvasive prenatal and cancer testing should pick up quickly once patients feel comfortable going to clinics, deSouza said, and any university researchers not already pivoting to COVID-19 or SARS-CoV-2 research will likely be able to return to their labs before those institutions open back up to students.

Illumina is also working with customers to design workflows for "ultra high-throughput" screening tests that might be used to help determine if people are uninfected and can go back to work. It also sees promise in NGS-based testing for the SARS-CoV-2 virus and research on its evolution.