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Illumina Reports 'Astonishing' Demand for New NGS Systems; Little Cannibalization of MiSeq, HiSeq

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This article was originally published April 24.

NEW YORK (GenomeWeb) – Illumina said last week that it has already taken double the number of orders anticipated for its recently launched HiSeq X Ten system, prompting the company to scale its manufacturing capabilities.

The firm shipped 65 of its NextSeq 500 systems in the first quarter of 2014 and achieved record orders for its HiSeq and MiSeq systems, all of which helped to drive a 27 percent jump in revenues to $421 million for the quarter, compared to $331 million in the first quarter 2013, Illumina said last week in a conference call discussing its Q1 performance.

"We saw astonishing demand for our new instruments — the NextSeq 500 and the HiSeq X Ten — while the existing systems in our sequencing portfolio exceeded our expectations," CEO Jay Flatley said during the call.

Because the HiSeq X Ten enables whole genomes to be sequenced at a lower cost than Illumina provides through its Fast Track services business, the firm saw nearly 70 percent of orders for whole genomes being submitted to partners in its Illumina Genome Network, compared to less than 10 percent in the previous quarter, a trend Flatley said would continue.

In addition, Illumina said it is on track to ship its long-read sequencing kits based on Moleculo technology late in the second quarter, and its NeoPrep sample prep system is on track for a summer launch.

Demand for a number of Illumina's sample prep kits, including the Nextera XT and Nextera Rapid Exome capture kits, helped drive a 16 percent increase in its sample prep revenues, and Flatley estimated that the firm possesses around 20 percent to 30 percent of the NGS sample prep market.

HiSeq X Ten, NextSeq 500

Illumina launched the HiSeq X Ten and NextSeq 500 systems at the JP Morgan Healthcare conference in San Francisco earlier this year.

The HiSeq X Ten system consists of 10 HiSeq X units, each of which can generate 1.8 terabases of sequence in under three days. Customers order the $10 million system as a set of 10 units, with additional units available for $1 million each. At launch, Illumina said that it would likely only supply five systems in 2014 due to its complexity. However, during this week's call, Flatley said that the company had already taken orders from nine customers, totaling 104 HiSeq X units. He also disclosed that the Wellcome Trust Sanger Institute recently ordered a system.

As such, he said, the company is "actively scaling our manufacturing capabilities to meet this over-planned demand."

There are two main constraining factors to scaling the manufacturing process — the supply of the hi-resolution cameras and the internal production of the patterned flow cells.

Flatley said that he is "optimistic" about getting more cameras from the supplier, and with regards to the patterned flow cells, he said that volume production had "only recently begun, and as a result we believe flow cell production rate will be the key factor to scaling HiSeq X Ten shipments through the end of 2014."

In addition, the company had originally said that the HiSeq X Ten would be geared toward customers that were "sophisticated users" of sequencing technology with complete bioinformatics and LIMs capabilities for sample tracking and management. It also said that orders would be filtered such that only customers with appropriate access to large numbers of samples and sufficient bioinformatics capabilities would initially receive systems.

However, Flatley said that while the company is still only placing systems with customers that have access to sufficient numbers of samples, "there are many other potential buyers who are less sophisticated in terms of sequencing," and the company is now working to improve its bioinformatics capabilities and sample support infrastructure around the X Ten to serve these customers.

He said that software solutions by NextBio, which Illumina acquired last year, is one way in which Illumina is working to address the bioinformatics challenge and said that NextBio software would "increasingly be bundled into X Ten sales."

Illumina also shipped 65 of its NextSeq 500 systems in the quarter, 85 percent of which were to existing customers. Moving forward, however, Flatley said that around one-third of the existing pipeline consists of new customers, demonstrating that "this product is additive to our total addressable opportunity."

Flatley said that the switch from a four-channel chemistry to a two-channel chemistry may have "muted" the order rate and been partially responsible for the vast majority of NextSeq 500 orders being from existing customers. "It took a while for customers to believe that the new chemistry performed as well as the four-channel chemistry does," he said, but "all questions about that were erased once customers began getting them into their sites and up and running."

Going forward, he said the pipeline for the NextSeq 500 is "extremely strong." Additionally, he said that the company has seen "significant interest in our trade-in program for competitive platforms and expect this to drive incremental orders in the future quarters."

HiSeq and MiSeq

The launch of NextSeq 500 did result in some cannibalization of HiSeq, Flatley said, but "the magnitude of this impact was well within our forecasts." Additionally, he said, overall demand for the entire HiSeq family, including the HiSeq 2000, HiSeq 2500, and HiSeq X Ten, increased this quarter. Purchases within HiSeq shifted away from the HiSeq 2000 and 1500 systems and toward the HiSeq 2500 and HiSeq X Ten, he added.

Additionally, "some of the customers that opted for NextSeq over HiSeq bought multiple units," so there was no impact on revenue.

The HiSeq 2500 "remains a very important part of our portfolio with a long road map ahead of it," Flatley said, citing the 1-terabase kits that began shipping this month and the planned 2x250 kits that will ship later this quarter.

Shipments of the MiSeq system reached their highest levels since launch, Flatley said, which he believes was "catalyzed" by the US Food and Drug Administration's clearance of MiSeqDx and the subsequent lower list price of MiSeq at $99,000 and MiSeqDx at $125,000. "Cannibalization of MiSeq by NextSeq was insignificant, with approximately two-thirds of [MiSeq] orders from new customers," he added.

The FDA clearance served to boost MiSeq orders both directly and indirectly, he said. Not only did the clearance make the MiSeqDx attractive to clinical customers, but it boosted potential customers' confidence in the MiSeq system for research purposes as well. Additionally, he said the price reduction to $99,000 "greatly enhanced" the company's competitive position. "We won the vast majority of head-to-head competitive situations," he said.

Use of the MiSeq during the quarter also exceeded the firm's forecast with annual per-system consumable pull-through above the projected $40,000 to $45,000 range. "Thirty separate accounts ordered production level consumables," CFO Marc Stapley said during the call.

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