ILMN

Illumina, Inc. (ILMN)

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Illumina, Inc. (ILMN)

June 12, 2013 12:20 pm ET

Executives

Jason T. Flatley - Chief Executive Officer, President and Director

Marc A. Stapley - Chief Financial Officer and Senior Vice President

Analysts

Isaac Ro - Goldman Sachs Group Inc., Research Division

David C. Clair - Piper Jaffray Companies, Research Division

Presentation

Isaac Ro - Goldman Sachs Group Inc., Research Division

Okay, good morning, everybody. Isaac Ro, the Life Sciences analyst here with Goldman. I'm happy to have the team from Illumina with us again this year. Before we get started, I do have to read the disclosure, so please bear with me for a minute. We are required to make certain disclosures in public appearances about Goldman's relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 1% or more ownership. I am prepared to read disclosures for any issuer now or at the end of this call if you would like me to. However, these disclosures are available to our most -- in our recent reports available to you as clients in our firm portals. So with that, Jay, thanks for being here, and Marc, great to have you.

Jason T. Flatley

Our pleasure.

Isaac Ro - Goldman Sachs Group Inc., Research Division

A lot is going on in the markets you serve and in the business in particular. So a lot of things I want to touch on, the products, as well as on sort of the use of cash and the financials. But maybe we can just start out with the most recent quarter. I think the biggest takeaway I had was that the placement of HiSeqs was probably [ph] bigger than expected. And the confidence you guys expressed around the pipeline there was pretty notable, particularly given the funding environment that we're in. So can you give us a little sense of how you feel about the visibility you have on the pipeline there and really, your expectations for the balance of the year in terms of HiSeq demand?

Jason T. Flatley

Yes, we have a reasonable visibility on what's going to happen with HiSeqs over probably 6 months or so. It gets a little hazier out 3 quarters, but we track our pipeline through a win of about 9 months overall. HiSeq demand has been quite strong for us, and I think there's a couple of key contributors to that, certainly, the rapid mode capability of the 2500 has vastly exceeded our expectations. And this is becoming more and more the standard mode that customers are operating their systems in, particularly for clinical applications for fast turnarounds important in an IPT, often in cancer sequencing. The rapid run mode becomes the default way to use the system. We're also seeing this used quite regularly in core labs, where they're trying to manage their cues effectively. So we're really pleased with that. And clearly, I think in the high end of the marketplace, the product performed vastly better than anything the competitors have. So the strength of that product line really has continued to be very surprising for us.

Isaac Ro - Goldman Sachs Group Inc., Research Division

You mentioned visibility, I think, a couple of quarters out, Can you qualitatively say what that visibility looked like maybe a year ago? Is it fair to say that the tail has gotten a little shorter just because of the sequester is there something else?

Jason T. Flatley

No, I would say that. I think where we are today, the demand is stronger than we would've forecast a year ago. But as we look out, we don't see any direct impact from the sequester, at least anything that we can determine in our numbers.

Isaac Ro - Goldman Sachs Group Inc., Research Division

One more on the HiSeq. If I look back to our last quarter comments, it sounded like, if I recalled Christian saying that you have a little bit more of an interest in pharma. And as I think the pharma end markets historically, you had a bit of a renaissance for them to take on big capital equipment and really be more directly involved, maybe they will have 1 or 2, but you don't see big pharmas or sequencers the way you did in the last generation. So what will you say is the marginal source of demand from that end market?

Jason T. Flatley

I think that characterization is accurate. In pharma, we see purchases of HiSeqs and MiSeqs for all the pharma companies in the research laboratories and particularly in the large companies that have multiple sites. They buy them for every site because it is a day-to-day research tool, that's almost an imperative now for anybody doing molecular biology. What we don't see is a fleet of large sequencers being put in place for doing large-scale discovery, which is might have happened 10 years ago. We certainly don't see that trend in pharma. Pharma is also doing some outsourcing, so our services business, we have quite a few contracts from pharma that come into the services part of our business as well.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Sure. On the depths outside of the business, you've been very successful with MiSeq. It's having a great run. And I think in the last few quarters, you talked about the strength of head-to-head market share that you're seeing in the channel. Can you give us a sense, in the last couple of months, just given the news from your major competitor there and some of the disruption you might see? Has there been a tangible or notable change in your ability to convert some of those orders and win more accounts, just given that the others guys may be a little bit distracted?

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