From GS: ILMN (IL/N): Q4 loss 12c, 4c better. Sales
strong. Cut 2004 losses.
52-Week Range US$10-2
YTD Price Change 28.51%
Market Cap US$297.6mn
ILMN reported a Q4 loss of $0.12, excluding a litigation related expense of $0.19MM,
$0.04 better than our estimate due to higher gross margin and lower R&D expenses.
During Q4/03, ILMN placed its fifth and sixth BeadLab for SNP genotyping in the year,
surpassing its 2003 goal of five systems. ILMN also introduced its mid-market SNP
genotyping system, BeadStation 500G, during Q4/03. We have revised our 2004 loss
estimate to $0.50 from $0.57 due to lower manufacturing costs. We continue to rate
ILMN In-Line based on its broad technologies, rapid sales growth, and increasing
dominance in the genotyping market. Risks to our view include weak demand from
service customers, slower than expected sales, dependence on financial markets and
litigation with ABI. Our coverage view remains Neutral.
1. 2004 MILESTONES
a. Sign 20 genotyping service contracts
b. Ship 20 genotyping systems, including BeadLabs and BeadStations
c. Develop a minimum of 400,000 assays for the HapMap project
d. Operating cash burn of less than $15MM- Cash reserves of $33MM as of 12/31/03
e. Ship whole-genome gene expression product
2. Q4 LOSS OF $0.12/SHARE, $0.04 BETTER
Total revenues of $10.7 million were $0.2MM higher than our forecast and in- line with the
companies pre announcement on January 14. Excluding $0.19MM of interest expense related to a
litigation judgment, total expenses were $14.4MM. Gross margin of 68% was 800 basis points
higher than expected due to better product mix. R&D 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 $4 million or $0.12 per share on 32.2 million
basic shares.
3. REVISED 2004 LOSS ESTIMATE ON HIGH GROSS MARGIN
We are maintaining our 2004 revenue forecast of $39MM (+ 40% from 2003). We have raised our
gross margin to 66% from 60% to reflect an improved product mix with introduction of the Sentrix
BeadChip for whole genome expression in mid-2004. We maintain our forecast for R&D and
SG&A expenses of $20.4MM and $21.9MM, respectively. The net impact was a revision in our
2004 loss estimate to $0.50 from $0.57. Changes to our quarterly estimates are as follows:
Old New Change Q1/04E (0.19) (0.18) 0.01 Q2/04E (0.15) (0.14) 0.01 Q3/04E (0.12) (0.10) 0.02
Q4/04E (0.11) (0.09) 0.02 2004E (0.57) (0.50) 0.07
4. COMPLETED INSTALLATION OF 6 BEADLAB GENOTYPING SYSTEMS
In 2003, Illumina exceeded its 2003 goal of installing 6 proprietary BeadLab 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. Systems were placed at Johns Hopkins and the Whitehead Institute/MIT Center for
Genome Research in Q3/03 as well as at the Shanghai National Center for Biochip Technology and
the University of Tokyo in Q4/03. 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. Assuming the systems are run for 7-9 hours/day for 250 workdays, consumable
sales could reach $12-12.5 million/system/year. In Q4/03, Illumina launched BeadStation 500G a
benchtop instrument for genotype analysis by individual and core laboratories. The BeadStation
allows 200,000 genotypes per day when used with new Sentrix Arrays (see below).
5. INTRODUCED WHOLE GENOME GENE EXPRESSION PRODUCTS
During Q3/03, Illumina achieved its 2003 goal of launching a gene expression product line based
on its Array of Arrays platform. Gene expression can be analyzed using Illumina's standard 96
sample Sentrix Array Matrix platform or its new 8 sample Sentrix BeadChip. In January 2004,
Illumina announced its intent to offer two whole genome gene expression chips on its Sentrix
BeadChip platform starting in mid-2004. One chip has the capacity to analyze six discrete whole
human genomes at once, while the other can compare up to 8 samples in parallel against the 22,000
genes sequenced in a third party database. 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 products, which should improve profitability.
6. REVIEW OF 2003 MILESTONES
a. Sign 15 service contracts- Illumina signed 26 contracts during 2003
b. Install 5 genotyping system- Illumina installed 6
c. Launch system for gene expression profiling- Launched initial product during Q3/03
d. Develop a minimum of 100,000 assays for the Hap Map NIH project- Completed
e. Launch whole genome oligonucleotide set- Introduced in February 2003)
f. Reduce cost of oligonucleotides for genetic analysis- Lowered cost to $0.11 from $0.16 per base
of oligos in plates for large volume users.
I, Maykin Ho, PhD, hereby certify that ... |
