By Monica Heger
This story was originally published Feb. 7.
Illumina said this week that clinical and commercial customers are increasingly making up a larger portion of its customer base.
In the fourth quarter of 2011, around 26 percent of the company's revenue was derived from "commercially oriented" customers — an indication that "new funding sources will come into the market as our products move deeper and deeper into clinical applications," Christian Henry, general manager of Illumina's genetic analysis business, said during a conference call discussing the company's fourth-quarter and full-year earnings.
Illumina is currently in discussions with more than 70 potential customers interested in using the MiSeq for diagnostic applications and it doubled clinical placements of the HiSeq instrument in 2011 compared to 2010. Additionally, CEO Jay Flatley said that the company is planning to launch "premium products" in the second half of this year that would have a clinical bent.
During the call, Flatley said that while the company is not reorienting to focus on diagnostic applications, it has recognized that molecular diagnostics is an emerging opportunity where "sequencing will become a core technology."
As such, the company now has two arms focusing on the clinical market: the recently launched Translational and Consumer Genomics business segment, which will focus on CLIA labs and the consumer market (CSN 1/11/2012); and its molecular diagnostic segment run by Greg Heath, general manager of diagnostics, that is focused on developing diagnostic products that the company plans to take through US Food and Drug Administration accreditation.
The latter business segment is currently focused on ovarian, breast, and colon cancer and Flatley said it would have assays through the validation phase by mid-year. He did not elaborate.
One of the main focuses of the Translational and Consumer Genomics business segment will be to target CLIA labs, which Flatley said Illumina was "underserving previously."
He cited the trisomy 21 testing area, in particular, as a large market, potentially $1 billion per year. The company has a supply deal with Sequenom, which launched its MaterniT21 assay in October, and is currently the supplier for Verinata Health, Aria Diagnostics, and Natera, all of which plan to launch trisomy 21 tests this year.
Flatley said that the sequencing-based diagnostic portion of Illumina's business currently generates under $100 million in revenue annually — or less than a tenth of its total revenue — but it is a "rapidly growing part of our business."
In order to be successful, there are a number of steps the company should take to "modify the way our products are configured," he said. For example, unlike the research market, clinical customers do not want rapidly evolving technology. Additionally, they want improved ease of use.
Illumina has also built up a regulatory team, Flatley said, that will help take its platforms through FDA clearance, which is a "critical step." He added that he is "quite confident" in that aspect.
The company has not yet made a big investment in the reimbursement side of the clinical market, but he said that would happen either "organically" or "potentially through an acquisition."
MiSeq and HiSeq
Flatley reiterated previous statements that the MiSeq instrument would be particularly suited for clinical applications and said that the company plans to file the instrument for 510(k) clearance with the FDA this year.
The instrument has "had a very successful launch, and is well positioned to penetrate the diagnostic market," he said.
Illumina is in "active discussions with 70 clinical partners interested in using the MiSeq for diagnostic applications," and already, around 50 percent of MiSeq orders are for clinical purposes, he noted.
Improvements to the system — including 2x250 base pair read lengths, faster run times and throughput increases, which the company announced in January — will further render the system to be "ideally suited for running deep coverage targeted cancer panels," Flatley said.
Those improvements will be available by mid-2012 as a free upgrade.
The HiSeq, too, has been well-adopted by clinical customers, said Flatley, with clinical placements doubling in 2011 over 2010. In fact, the HiSeq has "created a new market for high-throughput clinical tests," he said. Companies are now able to run complex tests in a high-throughput manner at lower costs than previous versions of a simpler test, he said.
In January, Illumina announced its plans to launch by mid-year the HiSeq 2500, a machine that could function either as a HiSeq 2000 or as a lower-throughput, faster sequencing machine (IS 1/10/2012).
This month, the company's services business began offering the capability to sequence 20 exomes in a day or 30 transcriptomes in five hours on the HiSeq 2500, Flatley said. In the second quarter it will offer additional "premium products" on the 2500 through its services business that will enable a genome in a day. "This capability will become very critical for applications such as clinical sequencing," he said.
In its earnings call today, Illumina reported fourth-quarter revenue of $250 million, a four percent decrease compared to $261 million in the fourth quarter of 2010. For full-year 2011, Illumina reported revenues of $1.06 billion, a 17 percent increase over revenues of $902.7 million for 2010.
The firm finished the quarter with $303 million in cash and cash equivalents and $886.6 million in short-term investments.
In 2012, Illumina expects first-quarter revenues of between $250 million and $260 million and full year revenues of between $1.1 billion and $1.175 billion.
While there is still some uncertainty in these numbers due to the potential for the National Institutes of Health's budget to be cut by as much as 8 percent, Flatley said that this is an "unlikely scenario." Additionally, Henry added that as more of Illumina's customers are of the clinical and commercial arenas, the company's revenues will not be as dependent on fluctuations in government funding.
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