GS report:
Illumina Inc (ILMN)
ILMN reported a Q1 loss of $0.28 including deferred stock comp., $0.01 worse than our estimate due to lower interest income. We maintain our 2002 & 2003 loss est of $1.13 & $1.02, respectively. The oligo business will be the main
revenue driver until ILMN launches a commercial genotyping system w/ partner ABI in H2/02. In addition to commercial launch, 2002 milestones include 1) completing 5 additional genotyping service contracts, 2) adding a 2nd service application, 3)build out commercial marketing channels, and 4)launch a proprietary commercial product. We maintain our Market Outperformer rating.
1. DETAILS OF FIRST QUARTER LOSS OF $0.28
Revenues of $1.3 million were $0.7MM above our estimate due to higher array and oligonucleotide sales. Total expenses of $10.3MM were slightly higher than our estimate of $10.0MM. Investment income of $0.4 million was $0.8MM
lower than our estimate due to the lower interest rate environment. The net loss was $8.7 million or $0.28 per share on 30.2 million basic shares.
2. MAINTAIN 2002 LOSS ESTIMATE OF $1.13 AND 2003 LOSS ESTIMATE OF $1.02 We continue to expect Illumina to launch a commercial genotyping system with their partner Applied Biosystems (ABI) in H2/02, which is in line with company guidance. After launch, we are forecasting gradual sales growth in 2002. Prior to commercial launch we expect revenues to be driven by the oligonucleotide business and SNP genotyping service agreements. For 2002 we have increased our revenue estimate by $6MM to $11MM to reflect sales trends in the oligonucleotide and services businesses. Revenues could be volatile through the year as they are in part related to the completion of service agreements. To reflect current expense trends we have increased total expenses from $44.2MM to $49.5MM. The net impact is neutral to our 2002 loss estimate of $1.13.
2003 represents the first full year of product sales for Illumina. We have increased our revenue estimate by $8MM to $25MM and our expenses from $53MM to $61MM. The net impact is neutral to our 2003 loss estimate of $1.02.
3. GROWING MOMENTUM IN ESTABLISHING SERVICE AGREEMENTS
Illumina has announced five genotyping service agreements in 2002, including those with Oxagen, Boston University, an undisclosed party, and two agreements with John Hopkins. In March, Illumina announced an agreement with Oxagen, whereby it will utilize its BeadArray technology to design assays against disease samples provided by Oxagen. Illumina estimates that the Oxagen agreement is 5-10X larger than previous genotyping service agreements. In the Boston University agreement, Illumina will genotype a
set of SNPs that are thought to be associated with pre-term birth. In one of the agreements with John Hopkins, the university will provide Illumina with samples, that Illumina will genotype for specific SNPs. In both
academic agreements, Illumina will create SNP assays to determine the location of each SNP in the samples provided by the collaborator.
Illumina’s sales force and business development teams have been active in establishing partners for the oligonucleotide business and SNP genotyping services starting in Q3/01. In 2002, Illumina plans to supplement its
service package with a proprietary product, which will also be offered as a stand-alone product for partners to use for in-house research.
4. EXPECT TO LAUNCH COMMERCIAL GENOTYPING SYSTEM IN H2/02
Illumina continues to optimize its Array of Array technology, for the commercial genotyping system under codevelopment with its partner ABI. Illumina has completed array manufacturing scale-up and is finalizing the configuration of the 96-well array that will be launched with the commercial system. Illumina can now manufacture 5,000 arrays per year, which should be sufficient for initial demand upon product launch. Both Illumina and ABI are expecting product launch in mid-02.
5. MAINTAIN MARKET OUTPERFORMER RATING
There is increasing interest in SNP analysis among pharmaceutical companies. However, wide adoption is restricted by high cost per data point and low throughput. Illumina’s system is well suited to address these hurdles. Illumina is developing next generation technologies to analyze genetic variation and function at increased throughput and lower cost. In addition, we believe the broad applicability of its technology lowers the risk profile versus its peers. We maintain our Market Outperformer rating.
Illumina’s 2002 milestones are as follows:
- Announce 5 additional service agreements to bring the total to ten
- Launch a proprietary commercial product
- Add a 2nd application to its services business
- Expand commercial marketing channels, including the establishment of a small European sales force, to leverage its expanded service offering
- Launch a commercial genotyping product with ABI |
