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Illumina Q2 Revenues up 23 Percent; Acquires Advanced Liquid Logic for up to $96M

NEW YORK (GenomeWeb News) – Illumina's second quarter revenues rose 23 percent year over year, the company announced after the close of the market on Tuesday.

Separately, it also announced it has acquired liquid handling solutions firm Advanced Liquid Logic for up to $96 million.

Total revenues for the three months ended June 30 increased to $346.1 million from $280.6 million a year ago, besting the consensus Wall Street estimate of $331.8 million. Product revenues increased to $313.5 million from $258.8 million a year ago, while service and other revenue rose to $32.6 million from $21.8 million during the second quarter of 2012.

On a conference call following the release of the earnings results, Illumina President and CEO Jay Flatley said that sequencing revenues increased 33 percent year over year, "driven by strong demand for consumables and HiSeq instruments." He added that sample prep shipments rose almost 50 percent "with strength in both our Nextera and TruSeq product lines."

He also disclosed that Illumina had signed a research-use only agreement with BGI but provided no details about the deal, saying only that the two parties are working on a clinical agreement.

Illumina's microarray business grew 3 percent year over year with customer demand for its Omni and Core families of genotyping arrays, contributions from recent addition BlueGnome, and sales to direct-to-consumer genetics firms such as 23andMe and Ancestry.com driving the increase, Flatley said.

He said that demand for arrays remains "stable" as the market trends toward using arrays to genotype "large sample numbers with moderate content at a lower [average selling price] per sample."

During the call, Flatley also said that Illumina will begin shipping a new, custom-designed, oncology-focused genotyping array later this year to members of the EU-funded international Collaborative Oncological Gene-environment, or iCOGS, project.

Illumina will offer the OncoChip to non-consortium members next year. Asked if Illumina plans to seek US Food and Drug Administration clearance for the OncoChip, Flatley said no.

Illumina posted a profit of $35.9 million, or $.26 per share, up from $23.4 million, or $.18 per share, a year ago. On a non-GAAP basis, EPS was $.43, beating the average analyst expectation for $.40.

R&D spending was cut 5 percent to $67.6 million from $71.2 million during the quarter, while SG&A costs spiked 29 percent to $88.7 million from $68.5 million.

Illumina exited the quarter with $783.6 million in cash and cash equivalents, it said.

"Our business demonstrated strong trends globally and our 2013 strategic initiatives for robust long-term growth are progressing as planned," Flatley said in a statement. As a result, the firm increased its guidance for full-year 2013.

Revenue growth is anticipated at 20 percent while non-GAAP EPS is forecast in the range of $1.68 to $1.72, including the impact of the Verinata and Advanced Liquid Logic acquisitions. The firm said at the start of the year that it expected to report revenue growth of 15 percent and non-GAAP EPS between $1.55 and $1.62 for 2013.

Illumina also said that it purchased Advanced Liquid Logic, or ALL, which will operate as a wholly owned subsidiary of Illumina. The $96 million price tag paid by Illumina includes upfront and milestone payments, though Flatley declined to disclose details about the milestones or the amounts.

ALL has developed a proprietary digital microfluidic technology based on electrowetting that manipulates small droplets within a sealed disposable cartridge "to perform complex laboratory protocols."

The technology, Illumina said, will enable it to deliver "the simplest and most efficient" sample-to-answer workflow for next-generation sequencing.

"For our research customers, ALL's technology will further streamline the industry's simplest NGS workflow, while for clinical and applied markets, where ease of use and consistency are especially valued, it will allow us to offer integrated, end-to-end solutions," Christian Henry, SVP and GM of Illumina's Genomic Solutions business, said in a statement.

In the past year, ALL has forged a number of deals with other omics tools firms for use of its technologies. Luminex recently disclosed a deal with the company for use of ALL's digital microfluidics technology to develop an automated, handheld, battery powered diagnostic system based on its xMAP technology, as PCR Insider reported.

A year ago, ALL and GenMark said they would co-develop an all-digital, fully integrated in vitro diagnostic platform which would combine ALL's electrowetting technology and GenMark's electrochemical detection.

Additionally, in April 2012 NuGen Technologies launched an instrument called the Mondrian SP System which uses ALL's microfluidics technology and produces Illumina sequencing libraries, as In Sequence reported at the time.

On the conference call, Flatley said that Illumina "will honor the obligations we have under the existing ALL agreements and to give to those third parties particular rights to the technology in specific market segments. None of those agreements, we think, preclude Illumina from doing exactly what is our goal with respect to the technology, which is very directly focusing into the sequencing marketplace overall."

Several analysts responded to the earnings results by raising their target price on Illumina's stock, but also expressed some lingering concerns.

Goldman Sach's Isaac Ro increased his price target to $73 from $65, but kept a Neutral rating on the company "given a lack of tangible near-term catalysts to support a materially above-consensus view on Illumina's organic growth potential. In addition, we continue to have a cautious stance on the 2H outlook for US government austerity," he said in a research note today.

Sung Ji Nam of Cantor Fitzgerald increased her price target to $63 from an earlier target of $53 and said Illumina "remains ahead of the curve on the competitive front, with timely and relevant technology improvements … and strategic expansion into the diagnostic arena." Diversification into markets outside the academic space "is taking place faster than we expected (representing approximately 40 percent of shipments YTD vs. about 30 percent last year)," she added.

But, she said, "we are not sure whether Illumina can sustain its revenue growth momentum, and if medium-term catalysts (HiSeq 2500 output upgrade in 2H, MiSeq Dx for [cystic fibrosis], Verinata ramp pre-IVD kit development) can match the significant benefit from the HiSeq 2500 new product/upgrade cycle this year."

Shares of Illumina on the Nasdaq were up 11 percent in afternoon trading at $81.76.

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