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Illumina Customers 'Back to Work' as Q4 Sequencing Consumables Recover, MiSeq Drives Growth

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By Monica Heger

This story was originally published Feb. 8.

Illumina's CEO Jay Flatley said this week that the fourth quarter of 2011 could be best characterized as customers "getting back to work" following a surplus in sequencing throughput that led to disappointing consumables sales in the third quarter.

While the company's overall fourth-quarter revenues were down 4 percent compared to the fourth quarter of 2010, sequencing revenues "grew slightly over a year ago," driven primarily by increased demand for sequencing consumables and MiSeq shipments, Flatley said on a conference call discussing the company's fourth-quarter and full-year earnings.

Also on the call, Flatley reaffirmed Illumina's board's decision to reject Roche's $5.7 billion takeover offer (see story, this issue).

Following a lackluster third quarter that saw missed revenue targets driven by budget uncertainty and more sequencing throughput than customers needed from Illumina's V3 chemistry, Flatley said this week that many of those issues have now been solved (IS 10/25/2011).

Customers have adjusted to the throughput of the V3 chemistry, he said. Revenue from sequencing consumables grew more than 30 percent in the fourth quarter compared to the fourth quarter of 2010, and revenues from HiSeq consumables were greater in the fourth quarter than in all of 2010.

Additionally, he said, a planned price increase to the V3 chemistry kit this quarter is expected to help drive consumables revenue going forward.

While it's "hard to be certain that Q3 was the bottom," he said, "many issues have been solved."

Some analysts agreed with Flatley's assessment as well. "Illumina appears to be getting back on track following the negative 3Q11 pre-announcement," wrote Peter Lawson of Mizuho Securities in a research report after the call. As a result, Mizuho slightly increased its 2012 revenue estimates to $1.14 billion from $1.1 billion.

Oppenheimer's David Ferreiro said the results were a "mixed bag," with MiSeq demand a high point, but falling microarray revenues a negative.

Demand for the MiSeq, with "solid interest from clinical markets," underscores the "large benchtop NGS opportunity," he wrote.

And, while HiSeq consumable pull-through was up sequentially, the $273,000-per-instrument in consumable revenue achieved in the fourth quarter was still down significantly from the previous year's $405,000 per instrument, Ferreiro noted.

Oppenheimer has also raised its 2012 revenue estimates to $1.2 billion from $1.05 billion. Additionally, it predicts Illumina will place 850 MiSeq instruments and 240 HiSeqs in 2012.

Quintin Lai, an analyst with Baird, estimated that Illumina placed 160 MiSeq instruments for around $20 million in revenue during the fourth-quarter 2011.

Illumina's sequencing services business hit a record in the quarter, with 900 genomes shipped and $20 million in revenue, up 25 percent from $16 million one year ago.

HiSeq 2500

In January, Illumina announced that it is planning a mid-year launch for its HiSeq 2500 instrument, which would have the capability of sequencing one human genome in a little over 24 hours, 20 exomes in a day, or 30 transcriptomes in five hours (IS 1/10/2012).

Flatley said the company has already started taking orders for the system, which will begin shipping in the second half of the year. The company this month started offering services on the instrument, and in the second quarter is planning to enhance the sample-prep and informatics of the system.

Additionally, he said that the company plans to offer a HiSeq 1500, which would basically be the same enhancements that were applied to the HiSeq 2000, except applied to the HiSeq 1000, the company's single-flow-cell instrument.

Flatley said he has so far been "pleased with customer response" to the 2500 and said that the company is already seeing a "fair number" of orders. He predicted that between 25 percent and 50 percent of current HiSeq 2000 customers will upgrade to the 2500 in the next 12 months.

Customers with large installations — over 20 sequencers — will likely not upgrade all of the machines, he said, but maybe between five and 10.

The fast turnaround feature of the 2500 would be used by customers for projects such as clinical applications, or when a customer does not want to wait for samples to fill up a run. For instance, in an exome sequencing project, "you don't have to wait for hundreds of samples," he said.

Customers doing large-scale projects, where the lowest cost per base is a priority, will likely stick to the 600 gigabase option, he said.

Product Pipeline

Flatley also reiterated the company's intention to develop new sequencing chemistries, including a single-molecule sequencing technology (IS 1/10/2012). He said the company is already running one new chemistry — dubbed chemistry A — in house, with cycle times of less than 10 seconds. Chemistry A has high accuracy, long reads, low reagent costs, and can work in both light and lightless detection instruments.

He said chemistry A may ultimately be launched on an entirely new platform, but also said that it "could theoretically be deployed in our instruments today."

Chemistry B, meantime, will be single molecule with long reads and fast runs, but will have "advantages over other single-molecule technologies," which suffer from low accuracy, he said.

Flatley added that he is unconcerned about Oxford Nanopore's recent announcement that it would commercialize its strand sequencing nanopore technology in 2012 (IS 2/7/2012).

New technology "takes a long time before it can reach robust, commercial performance," he said. And, even if the sequencing landscape is dramatically different in 18 months, "we're prepared to be fully competitive," he said, hinting that the company had other products in its pipeline. "We've only talked about a very small part of our portfolio," he said.

Financials

Illumina's fourth-quarter revenues fell 4 percent to $250 million from $261 million in the fourth quarter of 2010. That decline, which was expected, was due primarily to an unfavorable comparison with the fourth quarter of 2010, which included a significant number of HiSeq shipments associated with the firm's Genome Analyzer trade-in program and a significant volume of HiScan SQ shipments, CFO Marc Stapley said in the call.

Instrument revenue — including its sequencing, array, and PCR businesses — was $80 million, an 11 percent sequential improvement from the third quarter of $72 million, but a decrease from $110 million in last year's fourth quarter.

Consumable revenue was $144 million, up 9 percent from $132 million the previous year, and relatively flat compared to the third quarter of 2011.

Illumina spent $45.5 million on R&D in the quarter, down slightly from $45.8 million in 2010. Its SG&A spending declined around 2 percent to $60.9 million from $62 million.

It finished the quarter with $303 million in cash and cash equivalents and $886.6 million in short-term investments.

For full-year 2011, Illumina reported revenues of $1.06 billion, a 17 percent increase over revenues of $902.7 million for 2010.


Have topics you'd like to see covered by In Sequence? Contact the editor at mheger [at] genomeweb [.] com.

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