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Illumina's Sequencing Business Continues to Grow in Q3; Some HiSeq X Not Used at Full Capacity

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NEW YORK (GenomeWeb) – Illumina saw strong growth in its sequencing business during the third quarter, driven by record shipments of sequencing consumables, strong instrument sales, and an increase in volume for its non-invasive prenatal testing business, the company said this week.

Overall, the firm's revenues climbed 35 percent to $481 million, driven by a 47 percent increase year over year for its sequencing-related products.

The firm also announced a number of new sequencing reagent kits last week that will improve the data quality of the NextSeq 500 in early 2015 and expand applications for the HiSeq X Ten and HiSeq 2500 next month. However, the launch of the NeoPrep library preparation system, originally planned for this summer, has been pushed back to the spring of 2015.

While the company continues to receive more orders than expected for its high-throughput HiSeq X Ten platform from a variety of customers, Illumina has found that not all of those customers are ready to install the instruments, and several are utilizing units they have already received at a fraction of their full capacity.

During a conference call to discuss the firm's third quarter earnings, company officials said that revenue from sequencing instruments grew 55 percent year over year, due in particular to strong demand for the HiSeq X Ten and the NextSeq 500, while sales of HiSeq and MiSeq instruments remained stable. Overall, Illumina's instrument revenues, which include both its sequencing and arrays businesses, grew 51 percent to $150 million.

Sequencing consumables revenue increased 36 percent year over year during the quarter, to $200 million, a new record for the company, due to a larger number of installed sequencing instruments, while sales of sample prep products grew 35 percent over last year, due to strong interest in Nextera and TruSight library prep products as well as stranded mRNA and total RNA kits. Overall, consumables revenue for the quarter grew 21 percent year over year, to $261 million.

Services and other revenue grew close to 70 percent year over year to $64 million, driven in large part by Illumina's NIPT services.

HiSeq X Ten

"We continue to be very pleased with the level of interest in the HiSeq X Ten as demand remains well above our original assumptions," said CEO Jay Flatley during the call.

The company now has 15 customers for the HiSeq X Ten, who have ordered a total of 164 HiSeq X instruments. Eleven of these customers have at least one instrument installed at the moment.

Four of the orders came in during the third quarter, including one from the German Cancer Research Center, DKFZ, which will use the HiSeq X Ten to sequence the genomes of cancer patients, and another from the SciLifeLab in Sweden, which will use the platform to sequence the genomes of Swedish individuals.

Flatley said Illumina is able to manufacture sufficient HiSeq X instruments and flow cells to meet customer demand, and its shipments are "now largely determined by our customers' readiness to absorb and utilize systems."

Even if a customer wants a unit shipped, "in general, we don't want them to be installed and then sit idle for weeks at a time," he said, "so we tend to meter them out proportional to the customer's ability to use those instruments."

As a consequence, Illumina does not expect to ship as many HiSeq X units in the fourth quarter as it did in the third quarter.

In the meantime, the company is working on improving its software for the HiSeq X Ten to make it easier to use for less-experienced customers. "When we launched the HiSeq X Ten, we thought it was going to go largely into large-scale centers that knew how to sequence really well and already had a complete infrastructure," Flatley said, but "that's not universally the case."

On average, HiSeq X Ten customers currently use their instruments at about 50 percent of their maximum capacity. While the most experienced customers already have their machines running at 70 to 80 percent capacity, some customers only utilize 20 percent of their capacity at the moment, largely because they do not have enough samples to feed them or because samples arrive in batches.

Several HiSeq X Ten customers are service providers who have not built up a steady stream of samples yet, Flatley said, and over the next six months, "we want to push those lower percentage users up to the 50 percent [utilization] rate or so." Utilization will never reach 100 percent, he said, noting that the best utilization reached by Illumina's "most proficient" HiSeq 2500 customers has been about 90 percent.

Starting in November, Illumina will ship a new reagent kit for the platform, called HiSeq X HD v2, which will allow users to sequence PCR-free libraries and is expected to improve coverage in certain regions of the human genome.

NextSeq 500

Illumina has more than 350 NextSeq instruments installed so far, and "the rollout continues to go incredibly well," according to Flatley. Orders increased 15 percent from the second to the third quarter, and the company expects shipments to grow sequentially through next year, he said.

More than 30 percent of NextSeq orders in the quarter came from customers that did not own any Illumina products before, and about a third came from commercial customers planning to use the instrument for oncology, NIPT, and microbiology applications. "That's what the system was designed to do, to hit a price and performance window that would bring in new applications and new customer types," Flatley said.

Early in 2015, Illumina plans to ship a second-generation reagent kit for the NextSeq that will improve the overall data quality to make it equivalent to HiSeq data. Flatley said that the v2 release will include new dye sets and a better cluster chemistry that improve the signal-to-noise ratio and, as a result, the data accuracy.

HiSeq 2500

About 60 percent of orders for the HiSeq 2500 in the third quarter came from existing HiSeq customers looking to upgrade their machines. Eight orders were for multiple HiSeq 2500 units, at least half of them from current HiSeq owners. "We expect this trend to continue over the next year or two as customers with older generation HiSeqs evaluate upgrade options appropriate for their applications, workflow, and economics," Flatley said.

"HiSeq 2500 remains an integral part of our portfolio with a rich roadmap ahead," he said. Next month, Illumina will start shipping a new reagent kit for the platform, called HiSeq Rapid v2, which will enable 2x250 base paired-end reads and the production of up to 300 gigabases of data in 60 hours in rapid run mode.

The longer reads will improve cancer, microbial genomics, and agricultural applications and will enable researchers to identify gene fusions more accurately and to run more complex metagenomic and de novo assembly projects, Flatley said.

MiSeq

Illumina has more than 3,000 MiSeq instruments installed now and "demand for the MiSeq continues to outperform our expectation," with little evidence of sales being taken away by the NextSeq, Flatley said.

About two thirds of orders for the MiSeq continue to come from government, commercial, translational, and clinical laboratories, and about two thirds are from customers who currently do not own a MiSeq.

The FDA-cleared MiSeq Dx currently only accounts for a small fraction of overall MiSeq shipments, Flatley said, but he expects that number to grow. The company has seen "a general uplift in MiSeq purchases," he said, which it attributes to the availability of the Dx version, which customers might want to switch to at a later point.

During the third quarter, Illumina received "large multi-unit orders" from the Centers for Disease Control, the US Food and Drug Administration, and public health laboratories, "demonstrating the importance of MiSeq as an applied markets tool for pathogen detection, foodborne diseases, and toxicological events," Flatley said.

Annualized consumables pull-through for the MiSeq "remained within our projected range of $40,000 to $45,000," Illumina CFO Marc Stapley said, and for the third quarter in a row, the number of MiSeq customers running at full production levels increased, most of them working in oncology, HLA-typing, and microbiology.

Customized MiSeq versions for HLA typing and for forensics, which Illumina announced earlier this year, are scheduled to be launched "in the coming months," he said.

NeoPrep

The NeoPrep library preparation system, which Illumina announced earlier this year and originally planned to ship this summer, is currently undergoing "extensive testing and performance validation," according to Flatley. Development of the system, which uses technology from Advanced Liquid Logic, has taken more time than expected, and beta testing for the system will start "shortly." Illumina plans to fully commercialize NeoPrep in the spring of 2015.

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