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Illumina Expects Solexa Buy to Help Drive Up to 70 Percent Revenue Growth in 2007

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Less than a week after completing its $615 million acquisition of Solexa, Illumina gave an outlook on its plans — including its expectations for the sequencing business — for 2007 last week.
 
“By adding Solexa’s capability to our own portfolio, we will now compete in the $1 billion sequencing market with what we believe to be the best of breed technology,” said Jay Flatley, Illumina’s president and CEO, in a conference call with analysts last week to discuss the company’s fourth-quarter earnings.
 
The acquisition closed on Feb. 2, so Illumina’s fourth-quarter earnings did not include any results from Solexa, and the company did not report financials for Solexa’s fourth quarter separately.
 
Illumina reiterated that Solexa had completed its early-access phase and that by the end of 2006, Solexa had shipped 13 Genome Analyzers to ten customers in five countries. According to research by In Sequence, current customers include the three NHGRI-funded large-scale genome centers — the Broad Institute, the Genome Sequencing Center at Washington University Medical School, and the Human Genome Sequencing Center at Baylor College of Medicine — as well as the Max Planck Institute for Molecular Genetics in Berlin, the Genome Sciences Center at the British Columbia Cancer Agency in Vancouver, and the Department of Energy’s Joint Genome Institute.
 
“We are now in full commercialization with a significant backlog and are scaling our manufacturing and commercial capability to meet the market demand,” Flatley said during the call last week. “We believe that the sequencing business will be a significant portion of our total revenue in 2007.”
 
For 2007, Illumina expects $295 million to $315 million in revenues, an increase of 60 percent to 71 percent over its 2006 revenues of $184.6 million. Part of that growth, the company hopes, will come from Solexa’s sequencing platform, now called the Illumina Genome Analyzer. The balance is expected to come from additional growth in the company’s legacy BeadExpress platform and genotyping-related products and services.
 
The company believes demand for next-generation sequencing will be strong, and “as researchers realize the dramatic throughput and cost advantages with the Solexa technology, we expect to see a significant ramp in both sequencing instrumentation and consumable sales,” Flatley said. Specifically, he pointed out digital gene expression, microRNA analysis, and methylation analysis as possible applications for the instrument.
 
While the Illumina does not believe the market for gene expression will grow significantly, Solexa’s platform might help it gain further market share in this area. “Solexa’s digital gene expression capability provides a powerful new approach that is unique in the market,” Flatley said. “I should mention that the Illumina Genome Analyzer is already being used in the field to perform digital gene expression [analysis].”
 
Also, Flatley said, the company is hoping to sell sequencers alongside several of its other platforms to the same customers in package deals. “We have many customers that have come to us already and said, ‘Okay, I want to talk to you about sequencers, about BeadStations for doing genotyping [studies], and about BeadExpress for doing low multiplex applications,’” he said in response to an analyst’s question, “and we are going to have the ability to put those together in packages that we think is sort of a unique part of our offering.”
 

“We believe that the sequencing business will be a significant portion of our total revenue in 2007.”

Illlumina projected $64 million to $68 million in revenues for the first quarter of 2007, but did not say how much of that would derive from sequencing. The company posted $60.4 million in fourth-quarter 2006 revenues.
 
As Illumina will now also pay the tab for Solexa’s research and development, the company expects its R&D expenses to roughly double, to between $57 million and $67 million this year, from $33.4 million last year.
 
For now, Illumina is focusing on integrating Solexa and its employees. Solexa’s CEO John West is now senior vice president and general manager of Illumina’s sequencing business, and Omead Ostadan, Solexa’s vice president of marketing, has taken on the same role at Illumina.
 
“On day one, which was just this past Monday, we had the organizational structures defined, computer networks connected, integration maps planned out, and the financial forecasts for 2007 consolidated,” Flatley said last week, adding, “by the end of the first quarter, we expect to have the entire commercial organizations completely integrated.”

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