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Illumina's Clinical Business Driven by HiSeq 2500 Upgrades, Partnerships, Acquisitions

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Clinical and commercial customers are increasingly driving sales of Illumina's next-generation sequencing instruments, with 45 percent of HiSeq 2500 orders coming from such customers in the second quarter, the company said this week during a conference call discussing its second quarter earnings.

The firm is also expanding its presence in the clinical market through various partnerships and acquisitions. It recently announced a partnership with Pathogenica to co-market its HAI BioDetection kit on the MiSeq, and this week it announced a deal with HLA typing firm HistoGenetics to incorporate the MiSeq instrument into its CLIA-certified HLA typing working (see story, this issue).

Illumina has also been making progress expanding its presence in the noninvasive prenatal testing field through its acquisition of Verinata Health. During the conference call, Illumina President and CEO Jay Flatley said that in the second quarter, reimbursement coverage for Verinata's Verifi prenatal test was "significantly enhanced," and there are now 170 million covered lives in the US, with an additional 25,000 covered lives in Israel through an agreement with Teva. Additionally, more than 60 million lives are contracted for the Verifi test.

Clinical and translational customers are also making up an increasing portion of Illumina's whole-genome sequencing services business. During the second quarter, the US Department of Veterans Affair awarded Personalis and Illumina a contract to sequence 1,000 genomes as part of the Million Veterans Program, and it also secured an order from Inova Translational Medicine Institute, a nonprofit healthcare institute, to sequence 1,000 genomes. Previously, Inova had contracted Complete Genomics for a sequencing project to study preterm birth that it said would serve as a pilot for evaluating how whole-genome sequencing could be implemented within a healthcare setting (CSN 9/14/2011).

In total, Illumina received record orders for 6,000 whole genomes in the second quarter, and shipped 2,500 genomes.

FDA Progress

During the call, Flatley expanded on the company's various strategies for gaining regulatory clearance for its products. Earlier this year, the company submitted its MiSeqDx system along with two cystic fibrosis assays to the US Food and Drug Administration for 510(k) clearance (CSN 1/9/2013).

The company recently applied Europe's CE mark to the system and the assays — a carrier screening assay and a diagnostic assay (CSN 7/3/2013).

Going forward, Flatley said that the company's strategy would be a combination of developing and bringing products through regulatory clearance on its own as well as forging partnerships with specific expertise in various clinical fields.

"What we will put through the FDA will be highly selective," Flatley said, including "applications where we think having an [in vitro diagnostic] kit makes sense to be able to sell very broadly to labs around the globe."

In some cases, Flatley said that intellectual property would prevent Illumina from bringing products through on its own, "unless we specifically partner with that entity to put the product through the FDA jointly."

However, in the case of cystic fibrosis, "we were able to do that on our own."

Flatley said that the company will continue to "partner very broadly across lots of areas of diagnostics," including the HLA typing market, infectious disease, and cancer.

"HLA is a very large market opportunity and we're engaged with multiple customers that want to use next-gen sequencing in that market. HistoGenetics was the first of potentially several that we might work with," he said.

Illumina is also looking to bring Verinata's Verifi test through the FDA to sell as an IVD, and Flatley said that during the second quarter the company began its discussions with the FDA on a trial design, and that it is "pleased with the progress."

Currently, all four US-based NIPT companies use Illumina's sequencing instruments for their tests, so there was some concern that Illumina's Verinata acquisition would put it in direct competition with its customers (CSN 1/16/2013). Flatley said that the company is "broadly engaged in discussion" with those customers, but did not elaborate, and maintained that a key goal of the Verinata acquisition was to "enable overall growth of the NIPT market."

"We believe an IVD test will significantly expand the global market and enable all [NIPT] test providers to be successful in this field," he said.

Clinical Reagents

Another important aspect of Illumina's clinical business is its consumables. Clinical customers have different needs than research customers when it comes to reagents, said Flatley. As such, the company has a line of reagents that it calls TCG reagents.

Diagnostic customers require "more in our reagent kits than we typically provide," he said, including "lot tracking, longer shelf life, [and] the ability for us to continue to manufacture what would otherwise be obsolete products in the RUO space."

The TCG line of reagents includes these features, Flatley said, which increases the cost to Illumina to produce and hold those products. "As a result of that, anybody who is using the TCG reagents pays a premium price to access those reagent sets, and they get essentially premium capability and services associated with those kits," he said.

Financials

Illumina's second quarter revenues increased 23 percent year over year to $346.1 million from $280.6 million. Product revenues increased to $313.5 million from $258.8 million a year ago, while service and other revenue rose to $32.6 million from $21.8 million during the second quarter of 2012.

R&D spending was cut 5 percent to $67.6 million from $71.2 million during the quarter, while SG&A costs rose 29 percent to $88.7 million from $68.5 million.

Illumina finished the quarter with $783.6 million in cash and cash equivalents.

The Scan

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