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

To: mopgcw who wrote (51)	4/28/2003 10:15:16 AM
From: mopgcw	Respond to of 276

GS take: ILMN reported a Q1 loss of $0.28/share, excluding a litigation judgment- related interest expense of $0.19MM. The loss was $0.03 worse than our est. due to lower revenues. During Q1/03, ILMN recognized revenue from the first sale of its production scale genotyping system to The Wellcome Trust Sanger Institute. In Q2/03, ILMN may recognize the sale of a second system to Genome Quebec. We have lowered our projections on revenues and expenses slightly. The revisions were neutral to our 2003 and 2004 loss per share 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 launch of the company's 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. Q1 LOSS OF $0.28/SHARE, $0.03 WORSE ON LOWER REVENUES Revenues of $4.3 million were $1.2MM below our estimate due to negative quarterly fluctuations and lower oligonucleotide sales due to the delayed implementation of NIH grants to academic customers. Included in the revenues was the sale of one genotyping system to The Wellcome Trust Sanger Institute. Excluding $0.19MM of interest expense related to a litigation judgment, total expenses were $12.2MM. The expenses were lower than our estimate primarily due to positive quarterly fluctuations and lower R&D expenses. Investment income of $0.03 million was below our estimate due to lower invested cash levels. The net loss was $8.8 million or $0.28 per share on 31.6 million basic shares. 2. MAINTAIN 2003 AND 2004 LOSS ESTIMATES OF $1.02 AND $0.59 Based on the lower trends on revenues and lower R&D expense, we have fine- tuned our model. The changes were neutral to our 2003 and 2004 loss-per- share estimates of $1.02 and $0.59, respectively. Our quarterly estimates are summarized below: Old New Q2/03 ($0.27) ($0.25) Q3/03 ($0.25) ($0.25) Q4/04 ($0.26) ($0.23) Q1/04 ($0.20) ($0.20) Q2/04 ($0.20) ($0.15) Q3/04 ($0.21) ($0.12) Q4/04 $0.02 ($0.11) Source: Goldman Sachs Research estimates. 3. RECOGNIZED REVENUES FROM FIRST GENOTYPYING SYSTEM During the first quarter, Illumina recognized revenues from the first sale of its genotyping system to The Wellcome Trust Sanger Institute. Illumina has also announced that Genome Quebec intends to purchase a genotyping system with sales potentially recognized in the second quarter. Illumina will continue to target the 20-30 high throughput genotyping centers, which perform over 1 million genotypes per day. The first customers will likely be the participants in the HAP mapping program. In addition to the two mentioned systems, Illumina expects to place an additional 3 systems in 2003 (at $2-3 million each). Assuming that the systems are run for 7-9 hours/day for 250 workdays, consumable sales could total $12-12.5 million/system/year. There is increasing interest in single nucleotide polymorphism (SNP) analysis among pharmaceutical companies, academic institutions and government agencies. However, wide adoption is restricted by high cost per data point and low throughput. Illumina's system is well suited to address these hurdles. 4. LEGAL BATTLE AGAINST APPLIED BIOSYSTEMS CONTINUES 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. RECENT HIGHLIGHTS a. In January, Illumina introduced two SNP genotyping products. One product for genetic linkage analysis and the other product for fine chromosomal or whole-genome mapping are being used in the company's genotyping services operations. The products will also be available for customers of the company's production-scale genotyping systems. b. In February, Illumina introduced its RefSet Oligos for the Human Genome, a whole-genome oligonucleotide reference set for spotted gene expression arrays. 6. 2003 MILESTONES - Sign 15 service contracts - Ship 5 genotyping systems (one installed at The Wellcome Trust Sanger Institute; another announced sale to Genome Quebec) - Develop a minimum of 100,000 assays for the HapMap NIH project - Launch whole genome oligonucleotide set (Introduced in February 2003) - Launch system for gene expression profiling - completed