Illumina, Inc. (ILMN)

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Illumina (ILMN)

Q4 2011 Earnings Call

February 07, 2012 5:00 pm ET


Kevin Williams -

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

Marc Stapley - Chief Financial Officer and Senior Vice President

Christian O. Henry - Senior Vice President and General Manager of Genomic Solutions


Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Amanda Murphy - William Blair & Company L.L.C., Research Division

William R. Quirk - Piper Jaffray Companies, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Unknown Analyst

Daniel Arias - UBS Investment Bank, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

Jonathan P. Groberg - Macquarie Research



Good day, ladies and gentlemen. Welcome to the Fourth Quarter and Full Year 2011 Illumina Earnings Conference Call. My name is James, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the call over to Mr. Kevin Williams. Please proceed.

Kevin Williams

Good afternoon, everyone, and welcome to our earnings call for the fourth quarter of 2011. During the call, we will review our financial results released today after the close of the market, offer commentary on our commercial activity and provide financial guidance for 2012. After which, we will host a question-and-answer session. If you have not had a chance to review the earnings release, it can be found in the Investor Relations section of our website at Today, our call will be accompanied by slides which can also be found on our IR website. Presenting for Illumina today will be Jay Flatley, President and Chief Executive Officer; Christian Henry, Senior Vice President and GM, Genomic Solutions; and Marc Stapley, Senior Vice President and Chief Financial Officer. This call is being recorded and the audio portion will be archived in the Investors section of our website.

It is our intent that all forward-looking statements regarding our expected financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current information available, and Illumina assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause results to differ, we refer you to the documents that Illumina files with the Securities and Exchange Commission, including Illumina's most recent Forms 10-Q and 10-K.

With that, I will now turn the call over to Jay.

Jay T. Flatley

Good afternoon, everyone, and thanks for joining us today. Given the release of our 14D-9 and the number of investors and media new to the Illumina story, I plan to discuss more of our background than I normally would on a typical earnings call. I want to begin with a few slides describing who we are, the markets in which we participate and a bit of our history.

Illumina is a global leader in genomic analysis, with market-leading positions in both DNA sequencing and microarrays. Founded in 1998 and headquartered in San Diego, we have over 2,100 employees and a global distribution channel with direct sales in all major countries. We estimate that approximately 90% of the world's DNA sequencing data is generated using Illumina's sequencers. We have an unmatched history of innovation resulting in 9 platform systems in the market and a rich pipeline of exciting new products that we will introduce over the next few years. Our product development engine has allowed us to overtake the leader in the microarray business to take the #1 position, and subsequently, to take over the leadership in DNA sequencing to assume clear leadership in that market as well.

We believe we are singularly positioned in a nascent but rapidly growing next-generation sequencing market. NGS is poised to become the key technology to deliver on the promise of personalized medicine and to drive the routine use of genomic information in medical practice. Our leadership will allow us to capture a large market share from compelling new opportunities in molecular diagnostics, reproductive health, cancer management and industrial end markets such as agricultural, biotechnology, veterinary medicine and forensics. We have a solid track record of operational performance and execution over a period of many years, a record that is rare in the industry and will continue to create shareholder value.

Illumina serves 4 interrelated markets. The core business of the company has been in Life Sciences research, a market of about $4 billion today. We have undisputed leadership in both sequencing and microarrays, with the sequencing business continuing to exhibit the fastest growth rate in the overall Life Sciences market. The applied markets are closely related and have been largely enabled by high throughput DNA sequencing. We've now developed a high-growth recurring revenue business in both the livestock and agricultural segments, which represents approximately 12% of our shipments. Low-cost sequencing has enabled the discovery of key variance in plants and animals that confer favorable traits. Once discovered, these variants are then deployed on microarrays to allow large-scale screening for these traits. Emerging opportunities here include forensics and pet genomics.

The current addressable molecular diagnostics market is about $3 billion in size. It's largely infectious disease testing today, but it's rapidly expanding into new areas like noninvasive, prenatal testing and cancer. Our strategy is to broadly enable the large number of labs pursuing molecular diagnostics using NGS, while we focus internally on our proprietary cancer discovery programs. In the long run, the consumer market will become one of the largest market opportunities, particularly in sequencing, but today it's just beginning to emerge. We believe that in a not very distant future, infants will be sequenced at birth and their genetic profile will be used to manage their health throughout their lifetime. Similarly, adults will become sequenced either as part of their routine medical care or as part of a broad population-based sequencing program.

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