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Stronger-than-Expected Demand for HiSeq Contributes to 50 Percent Boost in Sequencing Sales for Illumina in Q2

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By Julia Karow

This article, originally published July 28, has been updated with additional information from Illumina's second-quarter earnings call.

Illumina's sequencing revenues grew by more than 50 percent in the second quarter, as the company saw "very strong demand" for its HiSeq 2000 sequencing system as well as "strong demand" for sequencing consumables, the firm said last week.

Illumina launched the HiSeq, which has a list price of $690,000 and offers the greatest throughput of its sequencers, earlier this year. So far, it has shipped more than 100 HiSeq instruments for revenue, representing "the fastest instrument scale-up in the company's history for the most complex product it has ever built," according to Illumina President and CEO Jay Flatley, who spoke during a conference call to discuss the firm's second-quarter earnings last week.

Demand for HiSeq "has vastly exceeded our initial expectations," said Christian Henry, Illumina's senior vice president, general manager of life sciences, and chief financial officer. In response, the company has already "significantly increased" production of the instrument and plans to ramp it up by at least another 50 percent in the current quarter "to meet customer demand with reasonable ship schedules," according to Flatley. He said the company would like delivery times for the HiSeq to be in the range of six to eight weeks, noting that it is "considerably longer right now."

More customers than the company had anticipated are choosing the HiSeq over the Genome Analyzer, "assuming they have the funds to support the higher purchase price," Flatley said. Among those customers are the Broad Institute, which recently purchased 51 HiSeqs to replace an equal number of Genome Analyzers (IS 6/8/2010), and the Wellcome Trust Sanger Institute, which Flatley said recently placed an order for 20 HiSeqs, also as part of a trade-in program for GAs.

Besides large genome centers, HiSeq customers include "a wide array" of academic researchers, core labs, service laboratories, diagnostic startup companies, and biopharmaceutical firms, he said. Excluding major genome centers, more than 40 percent of HiSeq orders came from new customers. "We really broadened the market with this platform," Flatley noted, adding that "even in the smallest labs, we see customers migrating towards this platform if they can get the funds to buy it."

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About 20 percent of HiSeq shipments in the second quarter that went to non-genome center customers were trade-ins for Genome Analyzers, and Illumina expects this percentage to increase in the second half of the year "as more customers take advantage of our trade-in programs to gain access to HiSeq," Flatley said. While that will lower the company's growth margins in the short term, it is expected to increase reagent sales, as the HiSeq can consume more than twice as much in reagents than the GA. Also, Illumina said it will resell traded-in GAs as used after refurbishing them.

As of now, the HiSeq has been a robust platform in customers' labs, Flatley said. "When you put this many units into the field so quickly, you always are a bit concerned about how robustly they operated in the customers' hands," but that has not been a problem so far, he said.

Flatley also commented on the HiScanSQ system, which combines a microarray scanner and a sequencing module. Illumina launched the platform this spring (IS 3/23/2010) and began shipping it late in the second quarter, he said. Demand for the HiSeqSQ has been strong, with two-thirds of it coming from new customers, including university-affiliated hospitals, small- and mid-sized core labs, and customers in the agricultural business.

However, since the system shares many components with the HiSeq 2000, for which demand has been even stronger, the firm has not been able to manufacture as many units as it wanted, and expects manufacturing constraints to limit its ability to ship the HiScan "in volume" through the end of the third quarter, Flatley said. Delivery time for the HiSeqSQ is currently three to four months, and Illumina would like to cut this down to at most two months, he added.

In total, Illumina booked $212 million in revenues during the second quarter, up 31 percent over the same quarter last year. Of that, $199 million resulted from product revenue, a 30 percent increase over last year, and $13 million from services, a 60 percent increase due to additional maintenance contracts from the growing number of installed sequencing systems.

Consumables revenues totaled $126 million for the quarter, a 30 percent increase over the year-ago quarter due to "strong demand" for both sequencing and microarray consumables. The annualized consumables pull-through per sequencing system was "at the high end of our projected range" of between $150,000 and $200,000, Henry said.

Instrument revenues for the quarter were $70 million, up 30 percent over last year's second quarter, due to "the success of the HiSeq 2000," he said.

As of July 4, the company had $237.2 million in cash and cash equivalents, and $548.2 million in short-term investments.

Illumina provided no information about the commercial status of new sequencing technologies it has been developing, including the Avantome technology and the platform developed by its partner, Oxford Nanopore Technologies.

In response to an analyst's question, Flatley said Illumina continues "to be very excited about the prospects of" Oxford Nanopore's technology and that "at the time that it does become a product, it will be potentially disruptive in pricing and throughput."

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