Illumina shed some light last week on how its Genome Analyzer is being adopted by customers and gave an update on improvements that are in the works for the system.
The company also said that it hopes to benefit from National Institute of Health funding for its customers through the American Recovery and Reinvestment Act and hinted at large sequencing projects that might get funded in the future.
During the company's first-quarter earnings call last week, Illumina Vice President and Chief Financial Officer Christian Henry said that the company shipped "a record number" of Genome Analyzers during the quarter, driving an increase in instrument revenue to just over $50 million, compared to $44 million a year ago. He did not disclose the total number of instruments shipped during the quarter.
The company's total first-quarter revenues increased to $165.8 million from $121.9 million in the first quarter of 2008.
Illumina President and CEO Jay Flatley estimated the overall market share of the GA among second-generation sequencers to be 50 percent "or higher."
As in previous quarters, the majority of GAs — more than 80 percent during Q1 — went to customers outside of genome centers, "continuing to demonstrate the broad market adoption of the platform and demand for sequence data," according to Flatley.
Besides academic and government researchers, companies are also now developing an appetite for next-generation sequencing. "We certainly see pharma buying these machines, we see the ag[rigultural] companies buying these machines, we see discovery companies buying the machines," he said.
However, he said that he does not expect pharmaceutical companies to place large orders for sequencers, but rather to adopt one or a couple of instruments. "It's going to become a pervasive tool in any research lab that's doing molecular biology," Flatley predicted. "I think that pertains as much to the commercial customers as it does to the academics."
Not only did the number of installed sequencers increase, but customers also started running them more frequently, reflected by the fact that they have been buying more sequencing reagents. According to Henry, the "annualized consumables pull-through" per instrument amounted to more than $200,000 during the first quarter, 40 percent more than in the first quarter of 2008.
Flatley attributed the increase in consumable sales per instrument to a number of factors: For a start, new customers get up and running more quickly, because instrument installations require less time than a year ago and because Illumina is "staffed appropriately" to perform the installations. Also, existing customers are purchasing additional GAs and require less start-up time to take these instruments into production.
In addition, genome centers now devote fewer instruments to application development and more machines to churning out project data. "Last year, there was still a lot of experimenting going on with a reasonable fraction of the systems that they had installed," Flatley said. "Now, incremental systems they are buying go right into full production."
The increase in sequencing consumable sales contributed to a 63-percent year-over-year increase in total consumables revenue to $103 million for the quarter.
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Move Over, Microarrays
Certain applications are now beginning to move from microarrays to sequencing, Flatley noted, including gene expression, DNA methylation, and chromatin immunoprecipitation analyses.
For example, the number of expression analysis kits ordered for the GA tripled during the first quarter, compared to the same quarter in 2008.
Over the next few years, Illumina will continue to lower the cost of sequencing-based expression analysis, he said, predominantly by improving indexing methods that allow users to multiplex samples. "Once we do that, we think half the [gene expression] market or more will move over to sequencing," Flatley predicted.
Genotyping, however, will likely stay with arrays for the foreseeable future, he said. "We don't see, in any timeframe we can imagine, genotyping moving to sequencing as a replacement technology," at least not until sequencing a human genome costs "well below" $1,000.
Illumina, he pointed out, is not overly concerned about the replacement of microarrays by sequencing. "In some sense, we are indifferent to this shift because we are the only company that has all the technologies."
Another sequencing application that Illumina regards as a "huge opportunity," he said, is targeted resequencing. Earlier this week, the company announced a co-marketing agreement with Agilent Technologies for the combined use of Agilent's SureSelect DNA capture technology with Illumina's GA.
"The technology for doing targeted resequencing isn't perfect yet in anyone's product," Flatley said, but based on an evaluation of available target selection technologies, "our judgment is that the Agilent product is the best."
Flatley also gave an update on planned improvements for the GA. As announced at the Advances in Genome Biology and Technology conference in February, Illumina expects to increase the output of the Genome Analyzer to 95 gigabases per run by the end of the year through a combination of hardware, software, consumables, and reagent improvements (see In Sequence 2/9/2009), resulting in "dramatically lower cost of sequencing and a commensurate expansion of the market," Flatley said this week.
Taking a swipe at third-generation sequencers currently in development by other companies, he said that "We remain optimistic that we can push the technology well beyond even these projected levels, putting us in a very favorable position with respect to the forecast for new platforms that might be brought to market in the next few years."
In addition to ramping up the GA's output, Illumina is also working to improve "the usability and the versatility" of the system, Flatley said, including better software, longer reads, a simpler workflow, faster runs, and better sample indexing.
"In combination, these improvements place us in an excellent position to continue our leadership of the next-generation sequencing market," he said.
Part of the "roadmap" to the 95-gigabase output is a hardware upgrade of the GAII to version GAIIx, which will enable the optical system to capture 20 percent more of the flow cell area, and the instrument to use larger reagent volumes, resulting in longer unattended runs.
The response to the upgrade announcement "has been tremendous," Flatley said, noting that the company has received "well over 100 orders" for the upgrade kit, which will be installed over the next couple of quarters. By the end of the year, he said he expects that 80 to 90 percent of existing customers will have upgraded their instruments, and new instrument shipments will include the upgrade.
The company is also working on semi-ordered arrays that will increase the density of the sequencing clusters in the flow cells. Illumina researchers are currently "exploring a number of different options and making sure we pick the best one and the easiest for customers to use," Flatley said.
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Steering Customers to Stimulus Funding
In addition to the steady growth it is seeing in the next-generation sequencing market, Illumina hopes its sequencing business will benefit from NIH stimulus funding.
Flatley said the company has been "actively working" with customers to help them navigate the various funding opportunities and has "implemented promotional packages" that match the guidelines of some of the grant programs. In response, Illumina has already seen "a significant increase in quote activity across all of our platforms," he said.
Notably, the company has seen customer proposals "for very bold projects that people probably could not have conceived of six months ago, just because they never thought they could get a bolus of money of that magnitude," Flatley said.
He did not elaborate on specific proposals but gave an example of the potential magnitude of these projects. "You could think of these as being things like, 'Maybe we should go sequence 5,000 people.' And that's not something that would have been fundable under the standard NIH budget, but might be under stimulus," he said.
"I do think there are going to be some very large projects financed; we just don't know exactly what they are going to look like right now."
Because it is currently unclear how much, and when, Illumina stands to gain from the stimulus act, the company is not currently including any impact from ARRA in its financial guidance. "At this point, it's still too early to determine what the incremental impact of the stimulus will be to our markets, and when that opportunity will be realized," Flatley said.
Even without a boost from the stimulus act, the firm increased its revenue guidance for full-year 2009 to a range of $700 million to $720 million from previous guidance of at least $690 million.
During the current quarter, the stimulus package actually hurt the company's orders, he said, because there were "definitely some customers" who decided to defer placing an order to a later date because they are waiting for stimulus funding, rather than using existing funding now.
For the second quarter, Illumina anticipates revenues of between $168 million and $173 million, compared to $140.2 million in the second quarter of 2008.