SAN FRANCISCO (GenomeWeb) – Illumina's NovaSeq instrument has been on the market just about two quarters, yet the 230 orders it has received to date are 30 percent more than it anticipated. In addition, the company said it is receiving orders from customers it did not expect — including those who have never owned a next-generation sequencing instrument and those who previously only had a benchtop instrument — highlighting its potential to tap into new markets and grow existing ones.
During a conference call discussing its second quarter performance, Illumina CEO Francis deSouza said that commercial customers have been "fueling the early adoption of NovaSeq," and that he expected demand from academic labs to increase later in the year as they begin including instrument purchases in grant applications.
In addition, Illumina's microarray business has continued its resurgence — growing 16 percent to $110 million — largely driven by the consumer market. Shipments to direct-to-consumer customers "have doubled since last year," he said, driven by the health and trait market as well as the ancestry market. Currently, that market is primarily based on microarrays. DeSouza anticipated that eventually, much of the array-based consumer market would transition to sequencing, with newly launched Helix capturing a fair portion of it.
The growth of the array-based DTC market as well as the launch of Helix have "further fueled our enthusiasm for the role our technology will play in developing the consumer genomics market," deSouza said.
New products that Illumina is developing, including the accessory device for NovaSeq and new NovaSeq flow cells are on track for their anticipated launch dates, deSouza said. The new accessory device will enable users to use less input DNA and to perform multiple sequencing experiments in one run. DeSouza said that product would begin shipping in the fourth quarter. New NovaSeq flow cells, the S1 and S4, are also on schedule, deSouza said. The S4 will be made available to early-access users in September and both the S1 and S4 will be broadly available in October.
Illumina continues to make progress on its Project Firefly initiative to develop a sequencing system that aims to pair sequencing-by-synthesis technology with a semiconductor chip, deSouza said. He declined to provide an update on the progress, but said that the firm is on track to launch the sequencing module by the end of the year or early next year, followed by the sample prep module.
NovaSeq
When Illumina launched NovaSeq earlier this year, the company said that it would initially target the 800 or so customers who currently operate HiSeq instruments, anticipating that those customers would be the most likely early adopters.
While that has been borne out somewhat, deSouza said the firm has been "pleasantly surprised" by the number of unanticipated intiial customers: . Approximately one-third of orders for NovaSeq have come from customers who either have never owned an NGS instrument or from those who had previously only owned benchtop instruments, deSouza said.
New sequencing customers have chosen NovaSeq for both research and clinical work, deSouza said. For instance, one customer ordered NovaSeq to power a new evolutionary genomics lab because it "was the right price point" to enable the opening of that lab, he said. Another ordered NovaSeq to do clinical exome testing and routine reproductive health testing "in a country that has been historically underserved," he said.
Another set of customers — those who made the jump from benchtop sequencing to NovaSeq — did so primarily because NovaSeq was the right price point to enable them to scale up. For instance, deSouza said that one customer who had operated only Illumina's benchtop instruments planned to scale up to run 1,000 whole genomes and 300 to 400 exomes annually on the NovaSeq.
Aside from reaching these new customers, deSouza also said that there was still plenty of growth potential among current HiSeq customers. Only about 10 percent of those customers have ordered a NovaSeq instrument, he said. And, although HiSeq consumable usage was down this quarter, customers running the HiSeq X instruments continued to do so at normal levels. DeSouza anticipated that those customers were waiting until the S4 flow cell became available, which would reduce sequencing costs compared to the HiSeq X.
The successful quarter for NovaSeq sales also helped calm worries among some analysts that there is an overcapacity of sequencing throughput on the market. Investment bank First Analysis Securities upgraded Illumina's shares to equal-weight from underweight. In a report, analyst Joseph Munda wrote that the firm's "concerns regarding sequencing overcapacity in the marketplace and the potential rate of adoption for NovaSeq are diminishing." However, he added that the investment firm would "like to see at least one more quarter of solid execution to have more confidence in the outlook."
Similarly, Tim Evans, senior analyst at Wells Fargo, wrote that the one-third of NovaSeq orders from new sequencing and benchtop-only customers "suggests more demand elasticity than we initially anticipated."
DeSouza said that based on feedback from early NovaSeq customers, he thinks that oncology applications will be particularly popular. Because the NovaSeq will enable lower per-base sequencing costs, customers will sequence at greater depth, which is important for identifying somatic mutations, particularly low-frequency ones. Oncology testing shipments in Q2 2017 were up 20 percent over the prior year, and Illumina expects that market to continue to grow, driven by commercial molecular diagnostic laboratories and also liquid biopsy customers.