By Julia Karow
This story was originally published on April 28.
Illumina said last week that its first-quarter revenues grew almost 50 percent, largely driven by "continued success" of its sequencing business.
The firm also disclosed that it recently began shipping a new reagent kit for its HiSeq 2000, which increases the instrument's output to about 600 gigbases per run and reduces the reagent cost of sequencing a human genome to under $5,000.
It also reduced its HiSeq order backlog so it can now ship the instrument within "commercially reasonable" times, and has almost completed trade-ins of Genome Analyzers for HiSeqs.
Illumina has also started taking orders for the lower-cost MiSeq system, which it plans to launch in the third quarter, and has already built "a healthy order book."
During a conference call to discuss the firm's first-quarter earnings, Jay Flatley, Illumina's president and CEO, said that the sequencing business had "another outstanding quarter."
The firm does not break out its sequencing and microarray revenues, but he said that sequencing revenues grew 80 percent year over year, driven by "broad adoption" of the HiSeq 2000.
Furthermore, the increased number of installed HiSeqs led to "significant growth" in sequencing consumables sales, which increased more than 70 percent compared to the prior-year quarter. For the first time, he added, HiSeq reagent sales exceeded reagent sales for the Genome Analyzer.
The company booked $282.5 million in total revenues for the quarter, a 47 percent jump over the first quarter of 2010. Product sales generated $266.7 million, a 54 percent increase over the prior-year quarter that was driven by the sequencing business.
Services and other revenue, which includes sequencing and genotyping services as well as instrument maintenance contracts, contributed the remaining $16 million in Q1 revenue, down from $18 million in the year-ago quarter, when the firm had a multi-million service contract.
The company reported $148 million in consumables sales, up from $114 million during the prior-year quarter, an increase that resulted mostly from the growing installed base of sequencers. Also included in that number were consumables sold through Epicentre Biotechnologies, which Illumina acquired in early January.
Instrument revenues doubled during the quarter, to $114 million, largely because of sales of the HiSeq 2000, but also helped by installations of HiScan and HiScan SQ systems.
R&D expenses amounted to $50.2 million, up from $43.7 million last year, and SG&A expenses were $65.9 million, up from $50.3 million a year ago.
Illumina recorded $24.1 million in net income, up from $21.2 million during the first quarter of 2010. As of April 3, the company had $410.3 million in cash and cash equivalents and $724.3 million in short-term investments.
HiSeq
Illumina continued to scale up manufacturing of the HiSeq during the first quarter and has now reduced its order backlog for the instrument to "a more desirable level," Flatley said.
This, he said, enables the company to ship HiSeqs "within commercially reasonable lead times," which CFO Christian Henry later explained is typically four to eight weeks.
During the quarter, 75 percent of HiSeqs were shipped to customers other than large genome centers, and these smaller customers comprised 90 percent of orders for the system. Generally, the majority of HiSeq orders from new customers are for single units, Flatley said, while existing customers who already have a HiSeq often order a second instrument, and a "handful of customers" who already have multiple units order several more.
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During the quarter, HiSeq customers purchased reagents that would translate to between $300,000 and $400,000 per instrument per year. This is in line with Illumina's expectations, but slightly lower than last quarter, likely because customers were waiting for the release of a new reagent kit, released last week, that triples the output to about 600 gigabases per run.
The new kit is priced higher than the previous one, but still reduces the reagent cost of sequencing a human genome on the HiSeq to "well below" $5,000, Flatley said.
He explained that it is difficult for Illumina to provide a number for the total cost of sequencing a human genome for a customer, because overhead and amortization costs differ vastly between institutions. However, he said, "it's certainly, in most institutes, under $10,000 if they are running the 600 G kit."
For the Genome Analyzer, customers bought slightly more reagents per system during the quarter than Illumina had predicted — the firm had estimated a range of $150,000 to $200,000 per system and year.
On the data analysis side, Flatley said that Illumina already has "pieces of our software running up in the cloud," and over the next six to 12 months, the firm plans to "allow customers to migrate data and compute capabilities up to the cloud in an Illumina-centric environment."
The company is also working on a product that will enable customers to "very graphically and easily build complex workflows," allowing them to obtain data that can be further analyzed with third-party programs, even if they do not know any programming languages. That, he said, has been "one of the challenges" customers have had.
Illumina has almost completed trade-ins of Genome Analyzers for HiSeqs, a program it offered to customers who had bought GAs in the second half of 2009 and early 2010, when the HiSeq launched. About half of HiSeq shipments to customers other than genome centers during the first quarter included "trade-in-related promotions," Flatley said, compared to three quarters during the fourth quarter of 2010.
In the future, Illumina will offer only "very modest discounts" to current GA owners who want to trade their instruments in for a HiSeq, Henry said.
While there have been some orders for the HiSeq 1000, which has half the throughput of the HiSeq 2000 and can be upgraded to the larger system, "it's nowhere near the demand for the 2000," Flatley said.
MiSeq
In April, Illumina started taking its first orders for the lower-priced MiSeq platform, which it plans to launch later this year, and has "already built a healthy order book," Flatley reported. He said the company is "on track" to ship the first MiSeq units in the third quarter and larger numbers in the fourth quarter.
He said the company has overcome the "technical hurdles" of developing the MiSeq and is currently integrating the system, which involves "optimizing recipes," improving software to increase its accuracy, and decreasing the amount of reagents used.
The software will be increasingly automated and user-friendly and require less compute infrastructure and more "cloud-type implementation," he said.
The firm is also extensively testing the hardware, software, and reagents of MiSeq so when it starts shipping the instruments, "they are very robust in the field."
Most of the orders for MiSeq so far have come from customers who already own a HiSeq or a Genome Analyzer, including large genome centers. But Illumina is also seeing "tremendous interest" from customers who currently use capillary electrophoresis sequencers and want to reduce the cost of amplicon sequencing, he said.
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"We think there is a huge incentive for the capillary market to begin to transfer over to next-gen sequencing," Flatley said, cautioning that funding might be a limitation for current capillary users, though the company is "pretty optimistic that the market will begin to shift pretty quickly."
Customers have "already identified numerous applications" for the MiSeq, he said, including targeted resequencing, whole-genome sequencing of small organisms, clinical and screening applications, and quality-control for high-throughput sequencing.
In addition, the system's fast run times make it "a potent application development platform" for the HiSeq, which uses the same sequencing chemistry.
Conversely, the company believes that clinical and diagnostic applications developed on the HiSeq "can be deployed in the field on a low-cost MiSeq instrument" in the future, he said.
Illumina Genome Network
Illumina offers human whole-genome sequencing services through its Illumina Genome Network, which consists of its internal sequencing facility and participating third-party service providers — currently the National Center for Genome Resources and Macrogen in Korea with the Genomic Medicine Institute at Seoul National University. Earlier this year, Illumina said it had received orders for about 1,000 genomes so far (IS 1/18/2011).
During the first quarter, Flatley said, IGN completed three times as many genomes as during the previous quarter. He did not disclose the actual number of genomes but said it was "off of a reasonably small base." Most of these genomes were sequenced by Illumina itself, though one IGN partner also provided some sequencing.
IGN's turnaround time is now under 90 days, and so far, "every single order ….has been delivered on time," he said.
The company has also "significantly scaled" its whole-genome sequencing service capability "to support the growth" of IGN, he said, and the improved HiSeq throughput will help increase it further.
Epicentre
In early January, Illumina acquired Epicentre Biotechnologies, a reagent provider that sold, among other products, the Nextera technology to rapidly prepare libraries for next-gen sequencing (IS 3/8/2011).
Flatley said that during the first quarter, Nextera kits generated "nearly as much revenue" as they did in all of 2010, when Epicentre was still independent. He did not disclose the size of those revenues.
He said Illumina is improving the Nextera technology's sensitivity, reducing the amount of sample required, and reducing the number of amplification cycles. These improvements will go into new Nextera kits that the company plans to roll out over the next few quarters as well as in 2012.
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