Illumina 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

40% of HiSeq demand from commercial and hospital markets

” Approximately 90% of HiSeqs ordered were 2500s, and many current customers remain capacity constrained. As a result, approximately 60% of the orders in the quarter were from existing HiSeq customers, as they scaled their facilities to undertake larger projects. Of the new customers, over 40% were from commercial and hospital markets.”

50% of MiSeq demand from commercial markets

“Non-academic customers again accounted for more than 50% of MiSeq orders in Q4, the vast majority of which were commercial, translational, and clinical customers.”

12,000 genomes sequenced

“This quarter saw orders for more than 12,000 genomes, another new record, which included the 10,000-whole-genome order from the University of Cambridge and Genomics England, Ltd. ”

Insatiable demand for whole-genome sequencing

“Interest in the HiSeq X10 continues to be exceptional. Last week the New York Genome Center purchase the fourth X10 to support their mission of offering state-of-the-art technology to accelerate life-saving discoveries. Today I’m pleased to announce that Decode Genetics, now owned by Amgen, has purchased the fifth X10 to focus on population-scale research into the understanding of genetics and disease.

In addition to NYGC and Decode, we’ve spoken with many additional customers who are interested in purchasing the system. We are evaluating the extent to which we can ramp our supply chain to provide more systems this year, and will provide more information to you over the next several quarters. The demand we’ve seen for the $1,000-genome reinforces our view that there is, as far out as we can see, an insatiable demand for whole-genome sequencing.”

Working through supply chain constraints

“Interest in the HiSeq X10 continues to be exceptional. Last week the New York Genome Center purchase the fourth X10 to support their mission of offering state-of-the-art technology to accelerate life-saving discoveries. Today I’m pleased to announce that Decode Genetics, now owned by Amgen, has purchased the fifth X10 to focus on population-scale research into the understanding of genetics and disease.

In addition to NYGC and Decode, we’ve spoken with many additional customers who are interested in purchasing the system. We are evaluating the extent to which we can ramp our supply chain to provide more systems this year, and will provide more information to you over the next several quarters. The demand we’ve seen for the $1,000-genome reinforces our view that there is, as far out as we can see, an insatiable demand for whole-genome sequencing.”

$10 million price tag

“I think it’s relatively safe to assume that customers aren’t going to pay $10 million for a system like this and then only use it half time. So we expect the utilization rates on average to be relatively high.”

Will the x 10 cannibalize other machines

“There could be a bit Doug. We don’t think it will be large. If you recall it in the X Ten, you can only run complete human genomes and if we look across all the samples that are run on our systems globally, we estimate that only 10% to maybe at most 15% of the samples run our whole human genomes. So most of the capacity on the 2500s is used for other applications and that will continue to be the case.”

Growth in the services business to slow because competitors buying X 10

“To be clear what we expect is we expect the growth rate in the services business to slowdown.”

“And we think that’s because there are going to be some service providers who by X10s. We think. And will have to watch who buys X10s and how fast we install them of course and whether we start offering broad service capabilities.

If they do that and depending upon what their markup look like, they would have the ability to sequence more cheaply than what we’re going to price our internal services at so that will I think re-invert the pricing model back to the way it should look and that’s clearly our hope here.”

The biggest surprise is how fast people could come up with $10 m

“I’d say there was one thing that surprised me, and that is how fast customers were able to come up with $10 million to buy X10s. We knew this was going to be a very potent product, and there would be tremendous demand, meaning people who would want to have access to it if they could. What surprised me is how fast people have actually been able to push the button and move forward with this, so that’s probably the standout part of this for me.”

Demand for X 10 still not really broadly commercial

“Yes. It’s coming from multiple segments of the market, so clearly we’ve had some academic labs. We have interest in sort of what we call the nations-type programs, where a country might buy it, or some representative of a country might buy it, to begin to sequence some subset of the population. We clearly have sparked some interest in the pharma and biotech industry”

The 1k price point is so important though, hoping for a second renaissance

“at $1,000 this has catalyzed the imagination of many of our customer types. Our hope is that we have sort of a second Renaissance in genomic discovery begin to happen on the back of the X10. I think it really has that potential broadly.”

We’ve just scratched the surface of understanding the genome. Need large sample sets. 1k genome accomplishes that

“One of the things we think is most important in the long run to opening up clinical sequencing and therefore the real world of personalized medicine is improving the clinical UTI utility of the genome. Today, after all the work we and everybody in the industry’s been doing over the last 15 years, we’ve still only scratched the surface about understanding what the genome really means. All of the analysis now that are done by the brilliant scientists in our field say that the way you break through that barrier is by sequencing very large sample sets, and by that, the numbers pencil out to be hundreds of thousands of samples.”

Tools have finally caught up to what scientists have been wanting to do for 10-15 years

“I think what you’re seeing in terms of the market reaction is a sense that there really is an opportunity now to redo the discovery programs that were done or attempted to be done 10 or 15 years ago, but now with a set of tools it’s up to the task. That’s really what it’s all about.”

This begins to push people towards whole genome sequencing, which is where the real benefit lies

“I think it begins to push people towards whole genome sequencing, which is where we think the market needs to go to get the full scientific benefit of what this technology can provide, and to have visibility into the entire genome without a hypothesis up front.”

Only a few years away from everyone with cancer getting tested genetically

“I think we’re only a few years away from the point where everyone who has cancer gets it tested genomically one way or another, with one kind of panel, or exome, or genome.”