Diagnostics, BioPharma

5 snippets from Illumina’s latest earnings call

The leader of the sequencing world is ticking over nicely with sales and revenue, according to Tuesday’s earnings call. But what’s happening behind the scenes? Here we take a look at five trends shaping the future of the company.

dna, genomics

San Diego, California-based Illumina shared its Q4 and full-year earnings with investors on Tuesday, generating plenty of optimism for the year ahead.

None of the figures were that surprising, given Illumina had divulged preliminary estimates on January 9, at the J.P. Morgan Healthcare Conference. Along with an exciting product launch, those revelations sent shares up 17 percent.

For the final earnings numbers, the call transcript can be viewed here. If you’re after some company highlights, see below for five observations about where the next-gen biotech is at.

1) In a nutshell, the numbers were good

Revenue for the fourth quarter came in at $619.3 million, a five percent year-on-year increase and slightly above the consensus estimate of $616.41 million. Looking at 2016 more broadly, revenue was up 8 percent to $2.4 billion.

Illumina President and CEO Francis deSouza projects revenue growth between 10-12 percent in 2017, as its new NovaSeq System begins to roll out.

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2) NovaSeq is the new HiSeq

When it came time for the investor Q&A, pretty well all of the queries focused on the NovaSeq. First announced at JPM17, the instrument is expected to accelerate sequencing speed and drastically decrease cost-per-base.

With these benefits, Illumina is looking at the NovaSeq to reinvigorate demand for high-throughput instruments — a market that struggled in 2016.

Throughout the call, deSouza was conservative when it came to projected demand and sales for the NovaSeq. It’s early days and the sales cycle takes months, the Illumina team noted. What was clear, is that the company expects nearly all existing HiSeq customers — a huge percentage of its overall customers base — to eventually upgrade.

“We have started the conversation with all of the 800 customers that are HiSeq customers, and there is going to be interest we think in the majority of them in the coming years to upgrade specifically to NovaSeq,” De Souza stated. “I think there’ll be a small number that potentially look at NextSeq as well. But I think you will see nearly that entire base turnover over the next few years.”

While manufacturing issues had been flagged earlier this year, De Souza said the company is “full speed ahead” and on track for a launch of NovaSeq in the first quarter.

3) Printers are cheap. They get you with the cartridges.

While high-throughput instrument sales declined in Q4 of 2016, consumable sales stood strong, generating $407 million or 66 percent of total revenue.

As the ‘ink’ for the sequencing ‘printer,’ consumables will be somewhat impacted by the customer migration to the NovaSeq.

“As we work through the transition from HiSeq to NovaSeq, customers will pause experiments, work down consumables on hand, place fewer inventory buys, and take time to validate their new workflow,” deSouza said.

Consumables and microarrays remain a cash cow nonetheless.

Revenue from microarrays grew 14 percent year-over-year to approximately $100 million — a significant contribution to the bottom line. Consumer demand was particularly powerful, increasing over 60 percent. The company noted that its array backlog has grown to the highest level since 2012, a boost that will carry over into 2017.

4) The trade winds are shifting

Asia-Pacific markets saw impressive growth in Q4, delivering revenues 29 percent greater than the fourth quarter of 2016. Those figures were propelled by China, which grew approximately 50 percent.

By comparison, revenue in the Americas declined 4 percent, which the company attributed to the decrease in high-throughput instrument shipments.

Illumina cited three factors for the growth in China. It has a burgeoning market for non-invasive prenatal testing (NIPT) and cancer diagnostics.

China is also now coordinating a colossal Precision Medicine Initiative (PMI), announced in March 2016 with $9.2 billion in funding. Genomics and sequencing instruments will play a central role in the initiative.

“We’re seeing customers that are buying X instruments in anticipation of the work that will come out from the Chinese PMI initiative,” deSouza said in the Q&A section of the call, referring to Illumina’s powerful HiSeq X Five and X Ten sequencers.

5) Kids are expensive

Offspring are a long-term investment. While total company revenue is expected to grow 10-12 percent in 2017, GRAIL and Helix are expected to generate less than 1 percent of the revenue respectively.

Both companies were seeded by Illumina and co-investors with $100 million in initial funding.

In January, GRAIL announced plans to raise a $1 billion Series B funding round, cutting the Illumina umbilical cord, so to speak. As it stands, GRAIL is a subsidiary of Illumina. If the Series B closes in Q1 as planned, Illumina’s ownership will drop to just 20 percent.

In the meantime, deSouza said the company can’t recognize any revenue generated through the sale of sequencing instruments to Grail.

“Over time, we fully expect them to become a very large customer of ours and likely own a large number of NovaSeqs,” deSouza noted. “So, that’s going to be over time and not this year.”

Grail’s own sales will be many years in the making, as it embarks upon an unprecedented mission to create a comprehensive, routine cancer blood test.

Photo:  iLexx, Getty Images

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