GS: ILMN (IL/N):Q3 loss 17c, 6c better. Achieved
2003 goal of selling 5 SNP systems
Annual Earnings Expectations
52-Week Range US$6-2
YTD Price Change 89.91%
Market Cap US$209.2mn
Fiscal Year (ending in Dec)
2002 2003E 2004E
US$-1.04 US$-0.91 US$-0.57
ILMN reported a Q3 loss of $0.17, excluding a litigation related expense of $0.19MM,
$0.06 better than our estimate due to higher revenue and lower R&D expenses. Year to
date, ILMN has achieved its 2003 goal of installing five SNP genotyping systems. ILMN
has also signed 16 service contracts surpassing its 2003 goal of 15. In September, the
company also launched a system for gene expression profiling. Due to the upside in
Q3/03, we have revised our 2003 loss estimate by $0.11, to $0.91 from $1.02. We also
revised our 2004 loss estimate to $0.57 from $0.59. 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. Q3 LOSS OF $0.17/SHARE, $0.06 BETTER ON HIGHER REVENUE
Revenues of $8.2 million were $1.5MM higher than expected due to higher consumable
sales for previously installed SNP genotyping systems. Excluding $0.19MM of interest
expense related to a litigation judgment, total expenses were $13.4MM. The expenses
were lower than our estimate primarily due to positive quarterly fluctuations. Other
income of ($0.2MM) was $0.5M lower than our forecast due to losses on investments and
lower cash and interest rate levels. The net loss, excluding the litigation charge of
$0.19MM, was $5.3 million or $0.17 per share on 32.1 million basic shares.
2. REVISED 2003 AND 2004 LOSS ESTIMATES
Based on the earlier than expected installation of SNP genotyping systems and related consumable
sales, we raised our 2003 revenue forecast to $25.8MM from $21.9MM and our 2004 forecast to
$39.3MM from $38.5MM. After fine-tuning expenses, our 2003 and 2004 loss estimates were
revised to $0.91 and $0.57 from $1.02 and $0.59, respectively. Revisions to our quarterly estimates
are as follows:
2003 old 2003 new
======== ========
Q1/03 (0.28) (0.28)
Q2/03 (0.26) (0.26)
Q3/03 (0.17) (0.17)
Q4/03E (0.24) (0.20)
2003E (1.02) (0.91)
2004 old 2004 new
======== ========
Q1/04E (0.20) (0.19)
Q2/04E (0.15) (0.15)
Q3/04E (0.12) (0.12)
Q4/04E (0.11) (0.11)
2004E (0.59) (0.57)
3. COMPLETED INSTALLATION OF 5 GENOTYPING SYSTEMS
In Q2/03, Illumina achieved its 2003 goal of signing 5 sales agreements for its proprietary
genotyping systems. System installation can take 2-3 months. The first system was installed at the
Wellcome Trust Sanger during Q1/03. During Q2/03, Illumina completed installation of a second
system at Genome Quebec. In Q3/03 Illumina completed installment of systems at Johns Hopkins
and the Whitehead Institute/MIT Center for Genome Research. A fifth system was installed in
October at the Shanghai National Center for Biochip Technology. 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. Management
estimated that thus far customers are running their genotyping systems at 15% of capacity.
4. INTRODUCTION OF GENE EXPRESSION PRODUCTS
During Q3/03, Illumina achieved its 2003 goal launching a gene expression system. The systems
can be run on Illumina's standard 96 sample Array Matrix platform or its new 8 sample BeadChip.
In the gene expression market, Illumina intends to target middle-market customers conducting
experiments on 100-1,000 genes. Relative to the SNP genotyping systems, the gene expression
systems can be installed more quickly thereby shortening the sales cycle versus the genotyping
systems. In addition, Illumina is using its oligonucleotide sales force to sell its gene expression
system, which should improve the product's profitability.
5. 2003 MILESTONES
*- Sign 15 service contracts (16 completed as of Q3/03) *-5 genotyping systems (4 installed: one
each at the Wellcome Trust Sanger Institute, Genome Quebec, Johns Hopkins University,
Whitehead Institute; one pending at National Center for Biochip Technology). - 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 |
