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Resurgence in HiSeq Sales Helps Drive Illumina Revenue Growth in Q1 2013

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Illumina's $331 million in revenue for the first quarter of 2013 was driven primarily by sales of its HiSeq instrument, consumables, and services business.

Revenue from the firm's sequencing business grew 32 percent year over year to more than $235 million. Its sequencing consumables were especially strong, with sales increasing 40 percent year over year, "as a result of our larger installed base, higher utilization per instrument, and gains in our sample-prep business," CEO Jay Flatley said during a conference call discussing the company's first quarter results.

Annual consumable pull-through for the HiSeq instruments are now around $300,000 to $350,000 and for the MiSeq are between $45,000 and $50,000.

Additionally, Flatley said that the company's contract with BGI has expired, but it is in the process of renegotiating it. BGI is currently Illumina's largest customer with over 100 of its instruments. However, it recently completed an offer to purchase sequencing services firm Complete Genomics for $118 million. How that will impact BGI's relationship with Illumina is still unclear.

New Products: Moleculo, Rapid Exome, TruSeq

Earlier this year, Illumina announced that it had acquired Moleculo, a Stanford University spinout that is developing long-read sequencing technology (IS 1/8/2013).

Flatley reiterated the company's plans to introduce the Moleculo technology into its services business in the second quarter of 2013 and as a kit by the end of the year.

New sample prep products also helped drive the company's consumables growth, including its Nextera line of products, and especially the recently launched Nextera Rapid Exome kit, which has been "well-received," said Flatley.

"Sample prep kits continued to demonstrate robust year over year growth, as more customers switched from competitors' products or home brew," he said.

Later this month, Illumina plans to begin shipments of its TruSeq RNA kits to tap into the mid-plex real-time PCR market, which Flatley estimated at $330 million.

He didn't provide an update on progress the company may have made in developing new sequencing technologies. Earlier this year, Flatley said that the company was investing in the internal development of nanopore sequencing, an initiative that is separate from the 15 percent stake it owns in Oxford Nanopore (IS 1/29/2013).

He also did not provide an update on the firm's chemistry A and chemistry B technologies. However, Flatley previously said that due to the Moleculo acquisition, the company planned to focus less on those chemistries.

HiSeq Resurgence, MiSeq Dip

In the first quarter of 2013, Illumina saw a "resurgence" in HiSeq sales, 40 percent of which were to "first-time customers," Flatley said, including a "large order" from a Japanese pharmaceutical company and the Tohoku Genome Center in Japan.

The new customers were a mix of commercial customers, translational customers, and non-traditional customers, Flatley said. In addition, the noninvasive prenatal testing market was a significant driver of HiSeq sales. Currently, all the US-based NIPT firms with tests on the market run them on the HiSeq, including Ariosa, Natera, Sequenom, and Verinata, which Illumina acquired earlier this year. Additionally, Germany's LifeCodexx markets its test in German-speaking countries on the HiSeq.

Demand for the HiSeq 2500 is particularly strong, and two-thirds of HiSeq shipments were the 2500 version, according to Flatley. Currently, 20 percent of the company's installed base has upgraded to the 2500, and Flatley said he expects that 35 percent will have upgraded by the end of the year.

"Feedback from customers continues to be positive," he added.

In the second half of the year, the company is planning to launch a software and reagent upgrade that will enable the HiSeq 2500 to deliver 300 gigabases of data in 60 hours.

While HiSeq orders surged in the first quarter of the year, MiSeq orders were "modestly lower sequentially." However, Flatley said that this drop was expected, due to the particularly strong sales in fourth-quarter 2012, during which the company took orders for 300 MiSeq instruments. Flatley did not specify how many MiSeq systems were ordered in the first quarter of 2013.

Nevertheless, he said that "interest in MiSeq remains high," and the company's "competitive position is strong," with MiSeq winning 80 percent of head-to-head competitions against competitors' platforms.

Additionally, he said that the UK's Health Protection Agency placed a "multi-unit order" for MiSeqs in the first quarter. He also noted that Illumina plans to focus on "expanding our commercial reach this year with 50 additional sales representatives" who will focus on those non-traditional markets. The firm is in the early stages of making these hires.

Currently, MiSeq customers are split about 50/50 between academic and non-academic, he said, though the company plans to focus on expanding the non-academic base and has seen an "uptick" in such markets as forensics, Flatley said.

"We're confident in our ability to broaden our geographical reach while building awareness in peripheral markets like microbiology and food safety," he added.

Financial Details

Illumina recognized revenues of $331 million for the first quarter of 2013, compared to $272.8 million for the first quarter of 2012.

Its product revenue rose to $296.2 million from $255.6 million year over year. This included an 11 percent increase in instrument revenue, to $88 million, driven primarily by HiSeq sales, as well as a 19 percent increase in consumables revenue to $205 million due to growth in the installed base, higher demand for sample prep products, and an increase in the BlueGnome business.

Illumina's service and other revenue more than doubled to $34.8 million from $17.1 million.

The services business had "record shipments" from the company's Fast Track service and 4,000 genomes shipped in the quarter, a 60 percent sequential increase, said Flatley.

The decrease in turnaround times is helping to drive the services business, he said. For example, one project done in the first quarter included more than 1,000 genomes, which was completed in 12 weeks.

The company also added two partners to its Illumina Genome Network — Peking University and the Hudson Alpha Institute.

The company had a net loss of $22.6 million, or $0.18 per share, for the quarter, driven by a $105.9 million charge for legal contingencies. Last month, a federal court jury ordered Illumina to pay $96 million in damages to Syntrix Biosystems for patent infringement.

Illumina's R&D spending in the quarter increased 26 percent to $61.5 million from $48.8 million, while its SG&A expenses climbed 25 percent to $85.1 million from $68 million. These increases were driven primarily by expenses related to the acquisitions of Moleculo and prenatal test developer Verinata Health.

The firm finished the quarter with $443.1 million in cash and cash equivalents.

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