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Biotech / Medical : Illumina (ILMN) Optics for Genomics -- Ignore unavailable to you. Want to Upgrade?

To: mopgcw who wrote (18)	2/15/2002 2:46:22 AM
From: mopgcw	Read Replies (1) \| Respond to of 276

From GS ILMN reported a Q4 loss of $0.27 including deferred stock comp., in line with our est. We maintain our 2002 & 2003 loss est of $1.13 & $1.02, respectively. ILMN recently signed genotyping service deals w/both academic & corporate partners. ILMN also commissioned new manufacturing capabilities for its oligo business. 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 10 genotyping service contracts, 2) adding a 2nd service application, 3) build out commercial marketing channels, & 4) launch a proprietary commercial product. Maint MO rating. DETAILS OF FOURTH QUARTER LOSS OF $ 0.27 Revenues of $0.7 million were in line with our estimate. Total expenses of $9.7MM were slightly lower than our estimate of $10MM. Investment income of $0.7 million was $0.6 million lower than expected. The net loss was $8.2 million or $0.27 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. The launch of the system has been delayed as the companies try to integrate their respective technology in order to maximize productivity of the commercial product. After launch, we estimate gradual sales growth in 2002. Prior to commercial launch we expect revenues to be driven by the oligonucleotide business and SNP genotyping service agreements. In 2002 we expect total revenues of $5MM. Due to product launch in the second half of 2002, we expect expenses to increase as the company builds a commercial infrastructure. For 2002 we expect total expenses of $44MM, 35% over 2001. We maintain our 2002 loss estimate of $1.13. 2003 represents the first full year of product sales for Illumina, and we are forecasting total revenues of $17MM, based on product sales of $13MM. We expect total expenses of $53MM, up 19% over 2002. We maintain our 2003 loss estimate of $1.02. 3. 2001 MILESTONES During 2001, Illumina was able to complete a SNP genotyping pilot study with GlaxoSmithKline. Under that agreement, Illumina used its BeadArray technology to provide SNP genotyping services on a sample collection provided by GlaxoSmithKline. While this was a pilot study, the agreement validates Illumina’s high-throughput SNP scoring capabilities. Towards the end of 2001 Illumina completed a second genotyping contract with an undisclosed genomics company. Illumina was also able to expand its oligonucleotide manufacturing capabilities to a level that can support the commercial sale of oligonucleotides as well as the company’s SNP genotyping service business. We expect the company to increase its marketing efforts for oligionucleotides. In January 2002, Illumina commissioned new oligonucleotide manufacturing capabilities that tripled its previous capacity and achieved its 2001 goal of being able to manufacture over 5 million oligonucleotides per year. In conjunction with the increased manufacturing capabilities, Illumina introduced a per/oligonucleotide price point of $0.18. Management is confident in its ability to maintain this price point. 4. PROGRESS IN 2002 GOALS During 2002 we expect Illumina to 1) sign 10 genotyping service agreements, 2) launch a commercial genotyping system with ABI, 3) add a second application to their service business, 4) develop worldwide marketing channels, and 4) launch a proprietary commercial product. Illumina has signed one genotyping agreement with Boston University, two genotyping service agreements with John Hopkins, and one with an undisclosed party. The four agreements completed in 2002, in addition to two previously signed contracts, bring the total number of genotyping service agreements to six. We believe that the agreements further validate Illumina’s BeadArray technology. In the agreement with Boston University 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 a samples, which 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. The company continues to optimize its Array of Array technology, which will be used in the commercial genotyping system when it is launched by 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. ABI recently reaffirmed this guideline at a major investor meeting. 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.