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Illumina in Discussions with 100 Potential Clinical Customers for MiSeq, Plans Cancer Diagnostics

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Over half of the orders taken for Illumina's MiSeq instrument are for clinical customers and the company is in active discussions with more than a hundred potential customers looking to use the instrument for diagnostics, CEO Jay Flatley said this week during a conference call to discuss the company's first-quarter earnings.

"The clinical market is emerging very rapidly and will be a key story for 2012," he said. "We believe clinical sequencing is nearing an inflection point."

While Flatley did not discuss the number of MiSeqs sold in the quarter, he said that the instrument is well suited for clinical applications, such targeted cancer panels, and over half of MiSeq orders are coming from clinical customers.

Nevertheless, he said that commercial diagnostic customers such as Sequenom and Genomic Health are using the company's HiSeq for clinical purposes and that going forward those customers would be significant drivers of HiSeq consumable revenue.

Of Illumina's current commercial clinical customers, "Sequenom is leading the pack," Flatley said.

Sequenom launched its sequencing-based MaterniT21 prenatal test last year. The company said last week that it had sold more than 4,900 MaterniT21 Plus tests during the first quarter of 2012 and increased its full-year sales goal to 40,000 from a previous target of 25,000 (CSN 4/18/2012).

Sequenom also said last week that it had extended its supply agreement with Illumina from three years to five years, ending in July 2016.

Clinical Products and Services

Flatley said that Illumina is tackling the clinical market on a number of fronts.

The company's Translational and Consumer Genomics business unit, created in January (CSN 1/11/12), is focused on "the top CLIA labs" both inside and outside of the US, he said. This group focuses on instrument and reagent sales to diagnostic companies like Sequenom and Genomic Health, as well as the company's partnership with Siemens to develop an HIV assay on the MiSeq (CSN 11/9/2011).

"[In] that segment, we're very well set up," Flatley said.

One area that is not so far along is developing in vitro diagnostic products based on the company's own proprietary content, Flatley said.

As he explained previously, the company plans to develop products that it takes through FDA clearance within its molecular diagnostics unit, headed up by Greg Heath (CSN 2/8/2012).

The products would be based on biomarkers that it has discovered through its ovarian, gastric, and colon cancer sequencing initiative (IS 1/18/2011).

He did not elaborate on the types of products it plans to develop from its cancer sequencing efforts, but said that he would provide more information in three to six months.

The aim of this effort would be to sell "more broadly to oncologists and physicians," Flatley said — a goal that would require the firm to "supplement our distribution," either by "building it ourselves or potentially through an acquisition."

He added that the company is interested in transactions with diagnostic companies, such as a merger, acquisition, or partnership, when the time is right to help accelerate its "penetration into the [diagnostic] market, either with products, distribution, reimbursement, or all of the above."

Flatley's comments came a week after Illumina successfully fought off a hostile takeover bid from Roche, which had highlighted the clinical promise of the company's sequencing technology as a key selling point.

Illumina has said that it intends to submit the MiSeq to the US Food and Drug Administration for 510(k) clearance, and Flatley reiterated this week that the company is still on track to do that by the end of the year.

So far, in conjunction with Siemens, Illumina has submitted a pre-IDE application for the HIV assay the companies are co-developing. Additionally, he said Illumina "is working on some internal assays" for the MiSeq that it plans to submit to the FDA this year as well.

Front and Back Ends

Aside from diagnostic assays, Flatley indicated that Illumina would be developing a number of other clinically focused products both on its own and together with partners in the areas of sample prep, analysis, and interpretation.

It is developing a PCR-free sample prep protocol that it has already begun to roll out in its services business, as well as sample prep for low-input formalin-fixed paraffin-embedded samples. It plans to launch both the PCR-free sample prep and FFPE sample prep as kits, likely next year.

Additionally, Flatley said that its recently developed software aligner Isaac, will increase genome analysis four- to six-fold and reduce compute requirements from a Linux cluster to a single server.

Illumina has also "nearly completed" an annotation project that aggregates data from multiple publicly available databases, to offer "simple push-button analysis for clinical interpretation," he said.

Combining the sample-prep and analysis improvements with sequencing on the HiSeq 2500 "yields a full workflow allowing clinical genomes to be prepped, sequenced, and interpreted in less than three days," he added.

Also on the interpretation front, Illumina this week launched MyGenome, an application for Apple's iPad that enables users to view a demonstration human genome, learn about possible health implications, and view reports on different disease-associated genetic variants.

Illumina plans in the future to release a version that links to its website, "allowing customers to download and view their own genome once they have been sequenced via Illumina's physician-mediated individual sequencing service," Flatley said.

The company plans to use the app to deliver genetic data to ordering physicians, who will use it to visualize the genome and interrogate it for issues such as Mendelian disorders and pharmacogenomic drug response, before providing direct access to the consumer.

Financials

While Illumina's overall revenue fell 3 percent to $273 million in the first quarter of 2012 from $283 million in the first quarter of 2011, sequencing revenues grew by an undisclosed amount, driven by record orders for the MiSeq and a 20 percent increase in sequencing consumable revenues, Flatley said.

Product revenues, including instruments and consumables, were $255.6 million, down 4 percent from $266.7 million in the first quarter of 2011, while revenue from the company's sequencing services business increased 8 percent to $17.1 million from $15.8 million last year.

Research and development expenses for the first quarter of 2012 were $48.8 million compared to $50.2 million in the first quarter of 2011. Selling, general and administrative expenses for the first quarter of 2012 were $68 million compared to $65.7 million for the first quarter of 2011.

Additionally, Illumina incurred $8 million in expenses associated with Roche's unsolicited acquisition bid, and $2.6 million in restructuring charges.

It ended the quarter with $1.3 billion in cash, cash equivalents, and short-term investments.

Illumina's board authorized the company to repurchase up to $250 million of outstanding common shares.

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