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Illumina Q3 Revenues Down 12 Percent

NEW YORK – Illumina reported after the close of the market on Thursday that its third quarter 2020 revenues fell 12 percent year over year.

For the three months ended Sept. 27, 2020, Illumina recorded total revenues of $794 million compared to $907 million a year ago, beating the consensus Wall Street estimate of $715.9 million.

Total sequencing revenues were $708 million, representing 89 percent of total revenue. Sequencing consumables revenues were $500 million, down 5 percent year over year, offset by 3 percent growth year over year for mid-throughput systems. Sequencing system revenues were $109 million. Sequencing services and other revenues were $99 million, down 28 percent year over year, attributable to $30 million in one-time in vitro diagnostic licensing and development revenue in Q3 2019. Microarray revenues were $88 million, down 16 percent year over year, reflecting lower consumables and service revenue driven by COVID-19-related headwinds.

"Our business accelerated in the third quarter with sequencing consumable revenue growing 29 percent from the second quarter," Illumina CEO Francis deSouza said in a statement. "We're also making progress incorporating genomics into the standard of care in non-invasive pre-natal testing, oncology therapy selection, and genetic disease diagnosis. Looking forward, we believe our planned acquisition of Grail will catalyze a new era of early cancer detection, transforming cancer survivability and opening up the largest clinical application of genomics we've seen."

On a conference call following the release of the results, deSouza said that sequencing run volumes were recovering relative to pre-pandemic levels. Clinical sequencing run volumes were up to 96 percent of pre-pandemic levels; research run volumes, 82 percent. Non-invasive prenatal testing run volumes had fully recovered to pre-pandemic levels, he said. Sequencing for the UK Biobank was also returning to normal.

Novaseq purchases have "rebounded nicely," deSouza said, and the NextSeq 2000 and 550 are "exceeding expectations." About one-third of all NextSeq 2000 placements are going to customers new to Illumina, he added.

During the Q&A portion of the call, deSouza justified the $8 billion cost for the deal to buy Grail, which he said Illumina expects to close in the second half of 2021. "Early detection of cancer represents by far the largest clinical application of genomics we're likely to see over the next decade or two," he said. "What attracted us to Grail was its unique position, in terms of being the closest to having a commercial test and having the performance characteristics consistent with being closest to having a commercial test."

For the 12 deadliest cancers, Grail's test has sensitivity of "high 60 percent, with false positives of less than 1 percent," he said. Grail has also "created a remarkable bolus of data" with its large clinical studies, in which it has enrolled over 100,000 people and has obtained US Food and Drug Administration approval to return results to patients. "Having that FDA approval is very attractive," deSouza said.

By region, Americas revenues were $436 million; Europe, Middle East, and Africa revenues were $213 million; China, $83 million; and Asia Pacific and Japan, $62 million, roughly flat year over year.

Illumina's Q3 net income was $179 million, or $1.21 per share, compared to $234 million, or $1.58 per share, in the year-ago period. On an adjusted basis, EPS was $1.02, beating analysts' consensus estimate for EPS of $.77.

Illumina's R&D expenses grew 14 percent to $172 million from $151 million, while its SG&A expenses grew less than 2 percent to $192 million from $189 million. "Operating expenses were higher due to compensation expenses and increased R&D project spending, partially offset by decreased travel," Illumina CFO Sam Samad said.

Samad said the firm repurchased shares of common stock worth $125 million during the quarter, leaving $295 million remaining in the firm's repurchase plan.

The company finished the quarter with $1.76 billion in cash and cash equivalents and $1.56 billion in short-term investments.

Illumina reiterated that it has withdrawn its full year 2020 revenue and EPS guidance due to uncertainties around the COVID-19 pandemic. However, Samad said the firm expected total Q4 revenues to grow modestly compared to Q3, including sequencing instrument and microarray revenues.

The firm is planning to release a CE-IVD-marked TruSight Oncology comprehensive panel sometime in 2021, deSouza said, to address an expanding market for tumor mutational burden (TMB) profiling, driven by the European Society of Molecular Oncology's recommendation for TMB testing using such panels to screen patients for clinical trials. He noted that Aetna had recently announced coverage for TMB profiling with large panels.

Illumina's shares were down 5 percent to $299.10 in morning trading on the Nasdaq.