GS report:
Stock rating: In-Line
Coverage view: Neutral
Small-Cap Growth
Price: US$3.52
July 20, 2003
ILMN (IL/N): Q2 loss of 26c, 1c worse than
est. Progress in selling SNP systems
ILMN reported a Q2 loss of $0.26, excluding a litigation related expense of $0.19MM,
$0.01 worse than our estimate due to lower other income. To date ILMN has signed 5
sales agreements for its SNP genotyping system, meeting the company's 2003 sales goal.
ILMN has also signed 11 service agreements (2003 goal is 15). We maintain our 2003 and
2004 loss estimates of $1.02 and $0.59, respectively. We continue to rate ILMN In- Line
based on its unique and broadly applicable technology as well as momentum from sales of
its proprietary genotyping system. Risks to our view include weak demand from service
customers, slower than expected sales of the genotyping system, dependence on financial
markets and litigation with ABI. Our coverage view remains Neutral.
1. Q2 LOSS OF $0.26/SHARE, $0.01 WORSE ON LOWER OTHER INCOME
Revenues of $4.8 million were $0.2MM below our estimate due to negative quarterly
fluctuations. Excluding $0.19MM of interest expense related to a litigation judgment, total
expenses were $13.1MM. The expenses were lower than our estimate primarily due to
positive quarterly fluctuations. Other income of ($0.1MM) was $0.4M lower than our
forecast due to losses on investments and lower cash and interest rate levels. The net loss
was $8.4 million or $0.26 per share on 31.8 million basic shares.
2. MAINTAIN 2003 AND 2004 LOSS ESTIMATES OF $1.02 AND $0.59
We have shifted some revenues from Q4/03 to Q3/03 to reflect installation of 2 genotyping systems
in Q3 and 1 system in Q4 as well as Illumina's increased participation in the Hap Map project. Our
yearend revenue forecast is unchanged at $22MM. We have also fine-tuned our expense estimates.
The net effect was neutral to our 2003 loss estimate of $1.02. We maintain our 2004 forecast for
revenues of $38MM (+ 73%), operating expenses of $58MM (+ 12%), and loss per share of $0.59.
Our new quarterly estimates are as follows:
Old New Change
===== ===== ======
Q1/03A (0.28) (0.28) 0.00
Q2/03A (0.25) (0.26) (0.01)
Q3/03E (0.25) (0.23) 0.02
Q4/03E (0.23) (0.24) (0.01)
2003E (1.02) (1.02) 0.00
Old New Change
Q1/04E (0.20) (0.20) 0.00
Q2/04E (0.15) (0.15) 0.00
Q3/04E (0.12) (0.12) 0.00
Q4/04E (0.11) (0.11) 0.00
2004E (0.59) (0.59) 0.00
3. ACHIEVED YEAR END GOAL OF SELLING 5 SNP GENOTYPING SYSTEMS
To date, Illumina has achieved its 2003 sales goal of signing 5 sales agreements for its genotyping
systems. In Q1/03, Illumina recognized revenue from the sales of its first SNP genotyping system to
The Wellcome Trust Sanger Institute. In Q2/03, Illumina completed installation of a system at
Genome Quebec. Illumina has received commitments from three additional customers, including
the National Center for Biochip Technology, Johns Hopkins University, and an undisclosed
research institute. Illumina should recognize revenues from the sales in H2/03. In addition, once the
systems are installed, additional revenue may be recognized from the sale of consumables such as
oligonucleotides. The SNP systems cost $2-3MM per instrument and assuming that the systems are
run for 7-9 hours/day for 250 workdays, consumable sales could total $12-12.5 million/system/year.
4. NO NEAR TERM RESOLUTION IN LITIGATION WITH ABI
In July 2002, Illumina launched its proprietary genotyping system and simultaneously announced
that the launch of the system in development with Applied Biosystems (ABI) would be postponed
due to a delay in optimizing Illumina's array technology with ABI's scanner. In December, in
response to a patent infringement suit filed by ABI, Illumina notified ABI of its breach of their 1999
joint development agreement. The legal battle will likely take years to resolve.
5. QUARTERLY HIGHLIGHTS
a. During Q2/03, Illumina introduced a Sentrix BeadChip for SNP genotyping and gene expression.
Customers will have the option of using the BeadChip array or Illumina's standard 96-well Array
Matrix. The BeadChip platform could provide customers with added flexibility when deciding how
to most efficiently conduct their SNP genotyping experiments.
b. Illumina entered into additional service agreements to bring the total to 11 for the year.
Management noted that the new agreements are with both new and repeat customers.
6. 2003 MILESTONES
- Sign 15 service contracts (11 completed as of Q2/03) *-5 genotyping systems (one installed at the
Wellcome Trust Sanger Institute, Genome Quebec, others pending at National Center for Biochip
Technology, Johns Hopkins University, and an undisclosed research institute). - Develop a
minimum of 100,000 assays for the Hap Map NIH project *- Launch whole genome oligonucleotide
set (Introduced in February 2003) - Launch system for gene expression profiling
*- completed
I, Maykin Ho, PhD, hereby certify that all of the views expressed in this report accurately reflect my
personal views about the subject company or companies and its or their securities. I also certify that
no part of my compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report. |
