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

To: mopgcw who wrote (59)	7/25/2003 2:26:59 AM
From: mopgcw	Read Replies (1) \| Respond to of 276

GS report: Stock rating: In-Line Coverage view: Neutral Small-Cap Growth Price: US$3.52 July 20, 2003 ILMN (IL/N): Q2 loss of 26c, 1c worse than est. Progress in selling SNP systems ILMN reported a Q2 loss of $0.26, excluding a litigation related expense of $0.19MM, $0.01 worse than our estimate due to lower other income. To date ILMN has signed 5 sales agreements for its SNP genotyping system, meeting the company's 2003 sales goal. ILMN has also signed 11 service agreements (2003 goal is 15). We maintain our 2003 and 2004 loss 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 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. Q2 LOSS OF $0.26/SHARE, $0.01 WORSE ON LOWER OTHER INCOME Revenues of $4.8 million were $0.2MM below our estimate due to negative quarterly fluctuations. Excluding $0.19MM of interest expense related to a litigation judgment, total expenses were $13.1MM. The expenses were lower than our estimate primarily due to positive quarterly fluctuations. Other income of ($0.1MM) was $0.4M lower than our forecast due to losses on investments and lower cash and interest rate levels. The net loss was $8.4 million or $0.26 per share on 31.8 million basic shares. 2. MAINTAIN 2003 AND 2004 LOSS ESTIMATES OF $1.02 AND $0.59 We have shifted some revenues from Q4/03 to Q3/03 to reflect installation of 2 genotyping systems in Q3 and 1 system in Q4 as well as Illumina's increased participation in the Hap Map project. Our yearend revenue forecast is unchanged at $22MM. We have also fine-tuned our expense estimates. The net effect was neutral to our 2003 loss estimate of $1.02. We maintain our 2004 forecast for revenues of $38MM (+ 73%), operating expenses of $58MM (+ 12%), and loss per share of $0.59. Our new quarterly estimates are as follows: Old New Change ===== ===== ====== Q1/03A (0.28) (0.28) 0.00 Q2/03A (0.25) (0.26) (0.01) Q3/03E (0.25) (0.23) 0.02 Q4/03E (0.23) (0.24) (0.01) 2003E (1.02) (1.02) 0.00 Old New Change Q1/04E (0.20) (0.20) 0.00 Q2/04E (0.15) (0.15) 0.00 Q3/04E (0.12) (0.12) 0.00 Q4/04E (0.11) (0.11) 0.00 2004E (0.59) (0.59) 0.00 3. ACHIEVED YEAR END GOAL OF SELLING 5 SNP GENOTYPING SYSTEMS To date, Illumina has achieved its 2003 sales goal of signing 5 sales agreements for its genotyping systems. In Q1/03, Illumina recognized revenue from the sales of its first SNP genotyping system to The Wellcome Trust Sanger Institute. In Q2/03, Illumina completed installation of a system at Genome Quebec. Illumina has received commitments from three additional customers, including the National Center for Biochip Technology, Johns Hopkins University, and an undisclosed research institute. Illumina should recognize revenues from the sales in H2/03. In addition, 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. 4. NO NEAR TERM RESOLUTION IN LITIGATION WITH ABI 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. QUARTERLY HIGHLIGHTS a. During Q2/03, Illumina introduced a Sentrix BeadChip for SNP genotyping and gene expression. Customers will have the option of using the BeadChip array or Illumina's standard 96-well Array Matrix. The BeadChip platform could provide customers with added flexibility when deciding how to most efficiently conduct their SNP genotyping experiments. b. Illumina entered into additional service agreements to bring the total to 11 for the year. Management noted that the new agreements are with both new and repeat customers. 6. 2003 MILESTONES - Sign 15 service contracts (11 completed as of Q2/03) -5 genotyping systems (one installed at the Wellcome Trust Sanger Institute, Genome Quebec, others pending at National Center for Biochip Technology, Johns Hopkins University, and an undisclosed research institute). - 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 I, Maykin Ho, PhD, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.