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Record Orders for MiSeq, Consumables Drive Illumina's Q1 Sequencing Revenues

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Sales of Illumina's MiSeq benchtop sequencer and sequencing consumables drove double-digit percent sequential revenue growth in the company's sequencing business for the first quarter of 2012, the company reported this week.

In the first quarter, Illumina "had record orders for both the MiSeq instrument and sequencing consumables," chief financial officer Marc Stapley said during a conference call to discuss the company's first quarter earnings.

While Illumina's overall revenue fell 3 percent to $273 million in the first quarter of 2012 from $283 million in the first quarter of 2011, sequencing revenues grew, driven by record orders for the MiSeq and a 20 percent increase in sequencing consumable revenues, CEO Jay Flatley said during the call.

Illumina's total instrument revenue was $80 million, a 30 percent drop year over year, due primarily to a slide in microarray sales and a decrease in HiSeq shipments because most customers have already taken advantage of a trade-in program to swap their Genome Analyzers for HiSeqs.

Consumable revenue now makes up the largest portion of Illumina's sequencing revenues. For the first quarter, average annualized consumable utilization of HiSeq increased to $299,000, up sequentially from $273,000 in the fourth quarter of 2011, but still below a high of over $400,000 during 2010. Additionally, he noted that sample prep revenues were up 35 percent compared to the previous year.

Flatley said that he expects HiSeq consumable revenue to continue to rise due to a nominal price increase, as well as increasing usage in both the US and Asia Pacific.

Despite a strong quarter for the MiSeq and sequencing consumables, the company noted that some customers have recently experienced shipment delays.

Flatley said that at the beginning of the first quarter, the company still had a "large remaining backlog of [MiSeq] instruments" that it had to deliver before it was able to deliver new orders. Now, at the beginning of the second quarter, he said the company is closer to a four- to six-week turnaround time from a customer ordering a MiSeq to being able to operate it in the lab.

With regard to delays in consumable shipments, Christian Henry, Illumina's vice president and general manger of genomic solutions, said that the first quarter saw "stronger demand than anticipated," and resulted in the company shipping out most of its "safety stock" of reagents.

He said that Illumina has been rebuilding that safety stock during the first few weeks of the second quarter, which has "slowed some shipments."

Additionally, he noted that orders for sample prep kits increased dramatically in the first quarter. "The complexity and number of the reagents that we're making and consumables that we're shipping have increased and that's also pushed some of the lead times for people to get sample prep reagents out a little bit."

MiSeq

The launch of MiSeq, in its second full quarter of shipments, has been successful, Flatley said. "The instrument fits nicely into academic research labs, as well as diagnostic, applied, commercial, and clinical settings."

Flatley did not provide details about the number of MiSeq instruments shipped during the first quarter, but writing in a memo after the call, Oppenheimer analyst David Ferreiro estimated that Illumina placed 200 MiSeqs during the quarter.

Flatley did not that he believes the MiSeq system "achieved leading market share in the desktop sequencing market in Q1." He added that the company has seen "no material impact from recent competitive announcements."

MiSeq competes in the benchtop sequencer market with both Life Technologies' Ion Torrent PGM and Roche 454's GS Junior. With regard to the PGM, Flatley said that he estimates about 25 percent of MiSeq customers are also purchasing a PGM, and that in cases "where we're doing a head-to-head competition, we feel strongly about our win rate."

Going forward, he said the challenge will be to "penetrate more broadly into the market," to reach customers that Illumina currently does not reach, "where I think there are some significant wins for the PGM."

As it has previously said, the company is also on track to launch improvements to the MiSeq platform, which will enable 2x250 base reads, increased data output to 7 gigabases per run, and faster run times.

Flatley also noted that Illumina has a trade-in program for customers with Ion Torrent PGMs or 454 instruments who wish to trade them in for a MiSeq.

While he did not disclose details about the program, he said that in the first quarter the company "traded in a number of instruments," and that the number of customers in the "evaluation queue of the trade-in potential is growing considerably," and he "expect[s] that number to grow" over the next couple of quarters.

New Technology

Flatley noted that the company is on track to launch its HiSeq 2500 and 1500 instruments in the second half of the year and that it is "pleased with the orders received," including both upgrades to existing HiSeqs and orders for new instruments.

He said that he anticipates that at least 60 percent of new HiSeq orders will be for the HiSeq 2500 versus the 2000.

Starting this quarter, the company's Illumina Genome Network will offer several "premium service products" on the 2500, "coupled with enhanced sample prep and new informatics software," he said.

He declined to comment further on future products, such as the new sequencing technologies he has previously said the company is developing — chemistry A and chemistry B (IS 2/14/2012).

Chemistry A is already running in-house, with cycle times of less than 10 seconds. According to the company, it has high accuracy, long reads, low reagent costs, and can work in both light and lightless detection instruments. Chemistry B, meantime, will be single molecule with long reads and fast runs, Flatley said previously.

Roche Bid

Last week, Illumina rejected an attempt by Roche to gain control of its board, effectively ending the company's $6.7 billion hostile bid. Illumina called the acquisition price, initially at $44.50 per share and subsequently raised to $51 per share, "grossly inadequate."

Flatley declined to speculate on what would happen next, but said that he was "pleased with the outcome" of last week's annual meeting, where shareholders voted for Illumina's board nominees and not Roche's nominees.

Going forward, the company will continue to evaluate any offer that comes to it either publicly or privately, Flatley said.

Financials

Total first-quarter revenues fell 3 percent to $273 million from $283 million in the first quarter of 2011. Product revenues, including instruments and consumables, were $255.6 million, down 4 percent from $266.7 million in the first quarter of 2011, while revenue from the company's sequencing services business increased 8 percent to $17.1 million from $15.8 million last year.

Research and development expenses for the first quarter of 2012 were $48.8 million compared to $50.2 million in the first quarter of 2011. Selling, general and administrative expenses for the first quarter of 2012 were $68 million compared to $65.7 million for the first quarter of 2011.

Additionally, Illumina incurred $8 million in expenses associated with Roche's unsolicited acquisition bid, and $2.6 million in restructuring charges.

It ended the quarter with $1.3 billion in cash, cash equivalents, and short-term investments.

Illumina's board authorized the company to repurchase up to $250 million of outstanding common shares.

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