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Illumina Sequencing Revenue Grows 70 Percent in Q4, Driven by HiSeq

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By Julia Karow

This story was originally published Feb. 10.

Illumina last week reported a 45 percent increase in revenue for the fourth quarter of 2010, largely resulting from growth in its sequencing business.

Sequencing revenue grew by more than 70 percent over the fourth quarter of 2009, supported by "broad adoption of the HiSeq 2000," according to CEO Jay Flatley, who spoke during a conference call to discuss the firm's earnings. Illumina does not break out revenues by application, but he said that sequencing revenues are larger than array revenues.

The company posted total fourth-quarter revenues of $261.3 million, compared to $180.6 million in the prior-year period. Revenue growth was "primarily driven by sequencing products," along with "solid year-over-year growth" of the microarray business, said Christian Henry, Illumina's senior vice president and CFO.

Almost $246 million in revenue derived from product sales, and about $132 million of that came from consumables sales, he said, a 26 percent increase that resulted largely from the growing number of installed Illumina sequencers.

Each system generated consumables sales "at the high end" of the company's projected range of $150,000 to $200,000 per system per year, Henry said. Customers of the HiSeq 2000 in particular bought consumables equivalent to more than $350,000 per system per year, but that number was offset by Genome Analyzers that were used less heavily as customers switched to HiSeq. Illumina expects annual consumables sales per system to increase over time, as more GAs are replaced by HiSeqs.

By the end of the year, Illumina plans to move the production of "a significant amount" of its sequencing consumables to Singapore, Henry said, including "a portion" of those are currently manufactured in San Diego.

About $110 million in revenues came from instrument sales, an 81 percent year-over-year increase that was "largely due to the success of the HiSeq 2000," Henry said.

With a 30 percent increase in production of the system in Q4 versus Q3, Illumina was able to "ship a record number of systems" during the quarter and will be able to "significantly reduce delivery times" this year.

The company was also able to produce and ship 29 HiScanSQ systems during the quarter, which shares many components with the HiSeq and had been held back because the company had given priority to HiSeq orders.

Excluding genome centers, three-quarters of HiSeq shipments during the quarter were tied to trade-ins of old Genome Analyzers, a program that Illumina offered to customers who had purchased GAs in the latter half of 2009, shortly before the HiSeq came out. This lowered the company's growth margins, but the program is now almost complete, Flatley said.

Services and other revenue, which includes genotyping and sequencing services as well as instrument maintenance contracts, increased to $16 million from $13 million last year, mainly due to more maintenance contracts for sequencers.

Research and development costs totaled $45.8 million, up from $40.4 million during the year-ago quarter. Selling, general, and administrative costs rose to $62 million, from $49.5 million last year.

The company recorded $38.4 million in net income, up from $11.7 million during the year-ago quarter.

Henry also commented on Illumina's decision to move its headquarters, first mentioned in a regulatory filing earlier this year (IS 1/11/2011). He said the new location has "significant expansion possibility" that will meet the firm's "long-term expansion needs." Illumina will start moving to the new facility in the fourth quarter.

HiSeq

Demand for HiSeq continues to be strong, and orders during the fourth quarter were "at record levels," said Flatley, not including a large single order from BGI during the year-ago quarter. Almost 90 percent of fourth-quarter orders came from customers other than large genome centers.

He also said the company, whose sequencing products mainly compete with Life Technologies' SOLiD system, believes it has increased its sequencing market share during the quarter. This year, Flatley said, it also received a "significant order" from an unnamed "major genome center" that "had not previously scaled on Illumina technology."

Most likely, he referred to Baylor College of Medicine's Human Genome Sequencing Center, which operates 30 SOLiD 4 systems, along with four HiSeqs, two GAII, three Ion Torrent machines, and one Pacific Biosciences sequencer. Richard Gibbs, the center's director, told In Sequence this week that he had recently ordered another five HiSeq 2000 instruments.

HiSeq customers are "consistently generating" levels of data "well above" the company's product specifications of more than 200 gigabases per run, Flatley reported. At the Advances in Genome Biology and Technology conference last week, several HiSeq customers told In Sequence that they had experienced problems with various aspects of the system's hardware, leading to significant down times, but they attributed this to "growing pains" of a new product that will likely be overcome in the future.

As previously announced, Illumina plans to upgrade its HiSeq customers this spring with new software and reagents that will allow them to produce up to 600 gigabases of data per run and achieve better accuracy.

The company is also reselling refurbished Genome Analyzers that it received from its trade-in program and expects to "move pretty reasonably numbers of these back out into the field," Henry said. Most of these will go to "markets that are extremely price-sensitive," for example in Latin America and South America, he said, while some will be used as part of collaborations. A portion of the instruments are used for spare parts by the firm's service program. Flatley would not reveal the sales price for refurbished GAs, noting only that it is "not zero" and that the resells afford Illumina "opportunities to be doing creative deals for particular kinds of customers" that could otherwise not afford a next-gen sequencer.

MiSeq

In the meantime, Illumina is preparing production of the MiSeq system, which it plans to start shipping to early-access customers in the third quarter, and broadly in the fourth quarter.

The instrument will be "much easier" to manufacture than the HiSeq, Flatley said, with a quality-control test time of one day rather than seven days, and Illumina expects to produce it "in much higher volume in smaller space with fewer people."

The company recently opened new manufacturing space in Hayward, Calif., Henry added, where it will produce HiSeq, MiSeq, HiScan, and HiScan SQ instruments.

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Flatley said he expects to sell MiSeq to two market segments: existing customers of Illumina sequencing platforms, who will likely use it for library quality control, application development, and targeted sequencing; and to "the broader market."

The latter includes "the remaining portions of the [capillary electrophoresis] market," he said, although he cautioned that some of these sectors, like the forensics market and the food and water testing market, are "very sticky" and may not easily switch over from CE.

In the long run, he said, "clinical applications are going to become very important on MiSeq." Based on feedback from potential customers, the product "hits the sweet spot of performance and throughput that clinical customers are looking for," but it may take several years to develop "a large number of applications in the clinic."

At that point, he said, Illumina "may be selling more [MiSeq systems] to hospitals and markets like that that are deploying these clinical applications in a large way."

Asked whether Illumina will seek regulatory approval for the MiSeq platform — as it received last year for the BeadXpress and is currently seeking for its iScan platform — Flatley said it is currently evaluating "what we do first in sequencing."

Seeking approval for the MiSeq platform is "a no brainer," he said, but for HiSeq, it expects to make a final decision on "how and when" to apply for approval over the next month or so.

Epicentre

Regarding its recent acquisition of Epicentre Biotechnologies (IS 1/18/2011), Flatley said that Illumina plans to develop multiple versions of the firm's Nextera library prep kit, both for MiSeq and HiSeq, including a PCR-free version.

It is also working on harnessing the Nextera technology to increase the insert size for paired-end sequencing. This would enable the company to address more applications that currently require very long reads, Flatley said, pointing to long-range haplotyping as an example.

Epicentre also currently offers "some really good kits" for RNA studies that Illumina will sell for sequencing applications.

In addition, Illumina plans to incorporate a number of enzymes from Epicentre in other products lines, replacing some that it currently purchases from third parties. It had already been using several Epicentre enzymes under license for microarray-related products, he noted.

While Epicentre products that work directly with Illumina systems will be rebranded as Illumina kits, the firm will continue to sell some products under the Epicentre brand, pending an ongoing review of Epicentre's product portfolio. With regard to developing new products, it will focus on reagents that work with its own systems, Flatley said.

Sequencing Apps

Through its Illumina Genome Network, the company currently offers whole human genomes at a price of $10,000 "or somewhat lower," with volume discounts, Flatley said.

He estimated that when prices for whole human genomes get down to about $2,000, exome sequencing will become less attractive and "maybe half the market will be whole genome, and half will be exome." He did not offer an estimate of when this might happen.

Flatley also noted that customers appear to be transitioning from expression arrays to transcriptome sequencing faster than before, and that Illumina believes "the RNA side is a fantastic opportunity" for sequencing.

2010 & Expectations for 2011

Overall, 2010 was "a transformational year" for Illumina, largely due to the launch of the HiSeq 2000, which has been the "most successful product in the company's history," Flatley said.

Illumina achieved a 35 percent increase in full-year revenues during 2010, to $902.7 million. Net income for the full year was $124.9 million, a 73 percent increase over $72.3 million in 2009. R&D expenses for the year totaled $177.9 million, up from $140.6 million during the previous year, and SG&A expenses totaled $221 million, compared to $176.3 million in 2009.

The company ended the year with $249 million in cash and cash equivalents, and $645 million in short-term investments.

Illumina also had approximately $300 million worth of orders at the end of 2010, "the largest backlog" of orders in the company's history, Flatley said.

In 2011, "we see no signs that the demand for sequencing will slow down," Flatley said. Illumina expects revenues to grow approximately 20 percent this year.


Have topics you'd like to see covered in In Sequence? E-mail the editor at jkarow [at] genomeweb [.] com.

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