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Illumina Provides Updates on China Business, Grail, Upcoming Sequencing Chemistries

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NEW YORK – Illumina on Thursday provided a number of updates on its business, including sales in China, its cancer liquid biopsy subsidiary Grail, and upcoming sequencing chemistries.

On a conference call with investors following the release of the firm's first quarter 2022 earnings, CFO Sam Samad said the company expects COVID-related restrictions in China to negatively impact second quarter revenues by approximately $32 million, and revenue going forward by about 3 percent. That's after shutdowns in Shanghai and other regions in China that began in March and cost Illumina approximately $10 million in Q1.

"But we're optimistic that as we get into June and beyond, this will start to ease. The underlying fundamentals of demand in China are really strong," he said. For example, Illumina added more than 35 new Chinese hospitals to its customer base in Q1.

Illumina also provided an update on Grail, announcing a multiyear partnership with life insurance company Munich Re Life US to provide Galleri to policyholders.

The partners will collaborate to offer the multi-cancer early detection test to existing life insurance policyholders who are at high risk of cancer, such as those aged 50 and older, CEO Francis deSouza said.

Illumina expects its Grail business to grow a lot over the rest of the year. The firm anticipates at least $70 million in revenues from Grail, with only $10 million already booked.

The firm is also working with European regulators to finalize the $8 billion purchase of Grail.

It continues to engage the European Commission, which is conducting an in-depth investigation into the acquisition, de Souza said. "The clock is paused as we are working with them to see if there are remedies that could get this deal approved, and we expect a decision on that to come either later in Q2 or in Q3," he added. "We are also engaged with the EU General Court as we work through the jurisdiction of the European Commission to review this deal, and we expect a decision on that similarly to come either later in Q2 or early Q3."

Illumina officials also commented on price increases for 2022. "We've done our typical price increase that we do in Q1," Samad said, adding that it was "consistent with what we've done in past years," raising prices on some products, mostly sequencing reagents and library preparation, by a "low single-digit" percentage. "We have not done anything that's a significant inflationary price increase that we passed on to our customers," he said.

Despite the slowdown in China, Illumina continues to post strong sales. The San Diego-based firm saw a 20 percent increase in instrument sales, year over year, driven by its highest-throughput platform, NovaSeq.

"More than half of NovaSeq shipments were to clinical customers, and we saw particular strength in oncology testing as high-throughput sequencing and comprehensive genomic profiling become increasingly critical to cancer patient care," deSouza said.

Sales of oncology testing sequencing consumables also grew around 20 percent, year over year, driven by 120 percent year-over-year growth in the TruSight Oncology 500 assay. Illumina officials noted that the firm won CE-IVD marking for the TruSight Oncology comprehensive assay in Q1 and recently applied for regulatory approval in Japan.

Research and applied markets continue to grow, as well. "Lab budgets, specifically for NGS, are increasing, including for both academic labs, growing approximately 9.5 percent, and pharmaceutical and industry labs, growing at approximately 14 percent," year over year, deSouza said.

DeSouza also addressed sequencing technology development and inbound competition in the short-read sequencing market from startups such as Singular Genomics Systems and Element Biosciences, among others.

Illumina's R&D teams "are making really good progress" on both its long-read technology, code-named "Infinity," and its next-generation sequencing chemistry, called Chemistry X, he said. For Infinity, the plan is to release customer data over the course of the year ahead of launch, he noted, while Illumina plans to release more information on Chemistry X during a forum in late September and at an investor event in October.

"This chemistry is giving us a lot of headroom in terms of performance, but also in terms of price reduction," he said.

However, he did not disclose more details about the technology. "This approach of limited disclosure while promising a revolutionary product is not in-line, historically, with Illumina's prior launches," SVB Securities Analyst Puneet Souda wrote in a note to investors. "Though we expect faster and cheaper Chemistry X to drive increasing elasticity of demand for Illumina, we remain on the sidelines and await detailed specs that should outline if there is meaningful reduction in instrument run time (thus sample turnaround time) and/or immediate lowering of price per Gb."

Compared to new entrants, who tout prices as low as $5.50 per Gb, deSouza said Illumina can offer a lower total cost of ownership. "The price per [gigabase] is one part of the equation, but then you have to look at things like the compute infrastructure. And if you look at what we've got in the NextSeq, for example, or the NovaSeqs, that extends well beyond just core sequencing," he said, adding that these systems offer on-board field-programmable gate array chips to speed up computing and feature built-in lossless data compression algorithms. A NextSeq 2000 running a P3 flow cell offers sequencing costs as low as $17 per Gb.

"Having said all that, we also have a lot of headroom in terms of continuing to drive the price per [gigabase] down," he said.

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