GS: ILMN (IL/N): Beat Q1 est. on lower expenses.
Growing presence in genotyping market.
Maintain estimates.
52-Week Range US$11-4
YTD Price Change -6.43%
Market Cap US$336.3mn
Current Yield —
Fiscal Year (ending in Dec)
2004 2005E 2006E
US$-0.27 US$-0.04 US$0.10
ILMN reported Q1 loss of $0.03, $0.03 & $0.04 better than our est and cons, respectively.
Instrument sales were strong. Sales of oligonucleotides were boosted by recent
collaboration with Invitrogen. Further benefit is expected when the commercial phase
starts in Q3/05. We maintain our 2005 loss estimate of $0.04 and 2006E-07E EPS of
$0.10 and $0.17, respectively. We maintain our In-Line rating based on broad
technologies, rapid sales growth, & increasing dominance in the genotyping mkt. Risks
are weaker sales and dependence on financial mkts. Our coverage view is Neutral
1. MAINTAIN 2005-07 YEARLY ESTIMATES
For 2005, we have adjusted our quarterly estimates, but maintain our full year loss
estimate of $0.04. We project revenues of $79.1MM, which reflect 56% growth over 2004
with increasing penetration of Beadchip gene expression and genotyping products. We
also maintain our 2006 and 2007 EPS estimates of $0.10 and $0.17, respectively.
2. OLIGONUCLEOTIDE DEAL WITH INVITROGEN ON TRACK FOR LAUNCH OF
COMMERCIAL PHASE IN Q3/05
In December 2004, ILMN entered into a collaboration with Invitrogen which will use its 350
salespeople to market and distribute ILMN's Oligator (oligonucleotide) DNA synthesis technology.
Management noted that the collaboration is on track for Invitrogen to assume oligonucleotide sales
and marketing responsibility in Q3/05. Illumina will be responsible for manufacturing of
plate-based and tube-based olignonucleotides. The collaboration with Invitrogen should expand
Illumina's Oligator synthesis technology into the tube-based oligonucleotide market, which is 4
times larger than the plate-based market that ILMN currently serves. Management expects the
collaboration to yield annual sales of $100M within the next few years. Profits will be shared
equally.
3. COMPLETED ACQUISITION OF CYVERA WITH COMPLEMENTARY TECHNOLOGIES
On April 11, 2005 Illumina completed the acquisition of CyVera for $17.5MM in cash ($2.5MM)
and stock (1.6MM shares of ILMN). Illumina also assumed the outstanding stock options of
CyVera. CyVera has a digital microbead platform which complements Illumina's offering of
bead-based assays and services. CyVera's beads are imprinted with holographic elements that give
each bead a unique "address" that can be used like a bar code for identification. Potential
applications include analysis of nucleic acids, proteins and antibodies (as with ILMN's beads).
Cyvera has also developed Virtual Cytometer, a scanner for readout of beads from microtiter plates.
Up to 120 samples can be assayed per hour on the CyVera system. CyVera's bead technology is
optimized to the range of 10 to 1,000 targets per sample. In contrast, Illumina's beads are designed
for applications ranging from 384 to more than 200,000 targets per sample in gene expression and
genotyping applications. The two approaches should be complementary. By integrating CyVera's
beads into Illumina's BeadArray-based products, Illumina should be able to provide a more
comprehensive offering to the markets for molecular diagnostics and R&D biomarkers.
Management expects that products incorporating CyVera's technology to be available H2/06.
4. LAUNCH OF DASL ASSAY ENABLES GENE EXPRESSION ANALYSIS OF PARTIALLY
DEGRADED SAMPLES
In January 2005, ILMN launched its DASL assay, which offers a new approach for generating gene
expression profiles from partially degraded RNA samples, such as those found in
paraffin-embedded samples. There are approximately 400MM paraffin-embedded samples in North
America for cancer alone. Other methods for analyzing degraded RNA samples involve more
expensive and lower throughput approaches.
The DASL (cDNA-mediated Annealing, Selection, extension and Ligation) assay enables
researchers to analyze over 500 genes in parallel per sample and runs on the company's BeadStation
/ BeadLab systems and its Sentrix arrays.
5. SENTRIX MICROARRAY DELIVERS LOWER-COST SOLUTION FOR GENE
EXPRESSION ANALYSIS
Last month, Illumina began shipping two Sentrix BeadChips that enable whole-genome expression
profiling of multiple samples on the same microarray. The Sentrix BeadChips should reduce the
cost of genome-wide expression analysis, with pricing as low as $100/sample. One chip (Sentrix
Human-6 BeadChip) has the capacity to analyze six discrete whole human genomes at once. The
other chip (Sentrix HumanRef-8 BeadChip) can compare up to 8 samples in parallel against 23,000
genes sequenced in a third party database, the RefSeq database, which is widely used in genetic
analysis. The company intends to release whole-genome expression products for the mouse and rat
in H2/05.
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. Illumina is using its
oligonucleotide sales force to sell its gene expression products, which should improve profitability.
I, Maykin Ho, Ph.D., hereby |
