Credit: Shutterstock photoA s medical science seeks to uncover the links between genetics and disease to come up with precise treatments, gene sequencing -- which makes a blueprint of the body's molecular structure -- plays a critical role.
Illumina ( ILMN ) plays a similarly crucial role in providing researchers and diagnostic companies with the advanced tools needed for facilitating the process. These tools include sequencing instruments and related consumables such as reagents and microarrays.
Illumina is "a leading player in one of the fastest-growing technologies in research -- next-generation sequencing," said Dan Leonard, analyst with Leerink Partners.
Growing demand for Illumina's next-generation sequencing products helped the company log year-over-year revenue growth of 24% in 2013 and 31% in 2014.
Analysts polled by Thomson Reuters expect revenue to climb 21% this year to $2.26 billion.
Widening The Market
Illumina's technical advances have largely been responsible for lowering the cost of sequencing a genome to $1,000 today from $1 million a decade ago, says Ross Muken, analyst with Evercore ISI.
By driving the cost lower, volume has been going up.
"It now makes sense to sequence many things that before were cost prohibitive," Muken said.
He points to medical specialists who might now consider genetic sequencing as "one of the parameters" looked into for treatment options in cancer.
But most genetic analysis for cancer is still for research.
One genetic diagnostic test has made "huge headway" for Illumina, Muken said. It's the FDA-approved test for use in high-risk pregnancies, known as NIPT: noninvasive prenatal testing.
NIPT examines fetal DNA for chromosomal abnormalities. One use is for assessing the risk for Down syndrome.
Illumina says it was responsible for nearly 50,000 NIPT tests during the first quarter, a 13% gain from the prior quarter. Some 50 labs around the world sent samples to Illumina for analysis. The company plans to launch a lower-cost prenatal testing product this summer, called VeriSeq NIPT.
Illumina's noninvasive prenatal screening product for the China market -- developed in collaboration with Berry Genomics -- recently gained approval for use in hospitals and labs in China.
But Illumina's HiSeq X platform has been the biggest single driver behind the firm's outperformance since 2014, Leonard says.
Financially, Illumina has run off five straight quarters of double-digit revenue and earnings growth.
First-quarter revenue rose 28% from the prior year to $539 million. Earnings -- which can vary quarter to quarter depending on the timing of shipments -- jumped 72% to 91 cents per share.
Sequencing instrument revenue in the quarter grew 32% vs. a year earlier due to "incremental demand" for the HiSeq X as well as NextSeq 500, CEO Jay Flatley said in a post-earnings conference call. He and other execs were unavailable to comment for this article.
During the conference call, Flatley said Illumina shipped a record number of HiSeq X products in the quarter. One customer was an unnamed European cancer center setting up a whole-genome sequencing facility, with the goal of using tumor sequencing as part of standardized care.
Illumina's total instrument revenue grew 26% year over year to $146 million. The razor/razor-blade-type consumable portion gained 27% to $308 million, or 57% of the total. The rest came from services and other areas.
Most of Illumina's sequencing platform's dollar-value growth still comes from the research side, Leonard said: "As we roll into 2016, growth will transition to diagnostics. The technology is moving rapidly into diagnostics. But we're in very early innings there."
The reason: "We don't know enough about what to do with (genetics) information to translate it into effective treatments. We learn more every day. It is a curve."
Even Flatley stated recently that the genomics market "remains nascent."
Illumina was founded in 1998. Its first genotyping technology launched in 2002. By 2006, with the acquisition of Solexa, it had the technology to expand into whole genome sequencing.
Illumina sells products to a number of customers working in oncology, reproductive health and rare genetic disorders.
"Business today is largely driven by the biomedical research market," Leonard said.
Research customers include universities, government labs, hospitals and reference labs.
On the diagnostic side, customers includeFoundation Medicine ( FMI ),Invitae ( NVTA ) andSequenom ( SQNM ), as well as general testing labs.
Acquisitions over the past few years expanded Illumina into clinical and genomic informatics and sequencing and array applications.
Buyouts in clinical areas included Myraqa in 2014, Verinata Health in 2013 and BlueGnome in 2012. The latter two specialized in reproductive health.
Illumina ships about 50% of its products to customers outside America. European shipments in Q1 rose 30% from a year earlier despite foreign exchange headwinds related to the euro and British pound. Asia-Pacific shipments grew 10%. Weakness in Japan was partially offset by strength in China, where shipments more than doubled, mostly on the positive impact of HiSeq X.
Bullish Earnings Outlook
Illumina expects overall HiSeq X shipments to fall off a bit in the second quarter from the strong first quarter.
Still, management raised its earnings forecast for the full year to a range of $3.36 to $3.42 from prior guidance of $3.12 to $3.18. Analysts polled by Thomson Reuters see earnings rising 25% to $3.43 this year and 20% to $4.10 next year.
The firm's stock price set a new high of 220.95 intraday Tuesday and has risen about 15% since May 1, despite news in early June that a competing high-throughput gene sequencer known as Revolocity would enter the market. The rival sequencing system is from Complete Genomics, a unit of BGI, formerly Beijing Genomics Institute.
Other rivals in gene sequencing includeThermo Fisher Scientific ( TMO ) and privately held Oxford Nanopore Technologies, based in the U.K. "There are lots of upstarts, but none that seem to threaten the (Illumina) throne," Muken said. "No one is even close."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
