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Illumina Lowers Q2 Revenue Expectations Despite Growth in Sequencing Business

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This article, originally published July 1, has been updated to include additional information.

By Julia Karow

Illumina said last week that even though its sequencing business grew "significantly" during the second quarter on a sequential basis, overall revenues for the quarter were lower than expected due to a shortfall in its array business.

According to preliminary financial results, Illumina expects to report approximately $161 million in second-quarter revenues, up 15 percent from $140.2 million in the second quarter of 2008 but lower than its guidance of between $168 million and $173 million.

The lower-than-expected revenues were "a direct result of a shortfall in our array business," Illumina said.

The main reason for the slowdown was "customers waiting for new array content, containing new variants derived from the 1000 Genomes Project," president and CEO Jay Flatley said in a conference call last week, in addition to reduced funding from foundations "in a few key accounts."

The company also continued to see a delay in orders for its sequencing and array products as a result of the American Recovery and Reinvestment Act of 2009, reducing revenues for the first half of the year by approximately $10 million to $15 million.

"Many of our customers have been actively writing grants during the first two quarters, and in selected situations, the program has caused order delays as customers wait to learn whether, and to what extent, they will receive stimulus funding," Flatley said.

"In Q2, we saw the impact of these stimulus delays to some extent in our array business, but to a greater extent in sequencing," he added.

Nevertheless, Illumina's sequencing business "saw significant sequential growth" during the second quarter, and "exceeded" the company's expectations, but "not by a sufficient margin to offset the decline in arrays," according to Flatley.

"We achieved record sequencing revenue, unit shipments, and consumable revenue in the quarter," he said.

The company expects that stimulus funding will "have a significant positive impact" on its overall business in the fourth quarter and in 2010, but in the interim, "it is impacting our ability to forecast our business in the near term," he said.

Flatley said Illumina achieved all its manufacturing and operational goals during the second quarter "without issue." The company also scaled up its sequencing instrument and consumable manufacturing capabilities "in anticipation of the unique stimulus opportunity ahead.

"The fundamentals of our market and our competitive position remain intact," according to Flatley.

Some industry observers say Illumina will likely receive significant orders for sequencing instrumentation later this year, partly as a result of pending stimulus grants. According to a note published by research analysts from Leerink Swann last week, the company has "at least several dozen GA orders in backlog at the end of 2Q and a potential pipeline of 150+ additional orders in 2H from top genome centers receiving stimulus funds."

For all of 2009, Illumina now expects between $690 million and $720 million in revenues, based on "the downside risk in our array business and the upside opportunities in sequencing and stimulus," Flatley said.

Illumina plans to provide further information during its second-quarter earnings call, which is scheduled for July 21.

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