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

To: mopgcw who wrote (65)	10/19/2003 9:32:29 AM
From: mopgcw	Respond to of 276

GS: ILMN (IL/N):Q3 loss 17c, 6c better. Achieved 2003 goal of selling 5 SNP systems Annual Earnings Expectations 52-Week Range US$6-2 YTD Price Change 89.91% Market Cap US$209.2mn Fiscal Year (ending in Dec) 2002 2003E 2004E US$-1.04 US$-0.91 US$-0.57 ILMN reported a Q3 loss of $0.17, excluding a litigation related expense of $0.19MM, $0.06 better than our estimate due to higher revenue and lower R&D expenses. Year to date, ILMN has achieved its 2003 goal of installing five SNP genotyping systems. ILMN has also signed 16 service contracts surpassing its 2003 goal of 15. In September, the company also launched a system for gene expression profiling. Due to the upside in Q3/03, we have revised our 2003 loss estimate by $0.11, to $0.91 from $1.02. We also revised our 2004 loss estimate to $0.57 from $0.59. 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. Q3 LOSS OF $0.17/SHARE, $0.06 BETTER ON HIGHER REVENUE Revenues of $8.2 million were $1.5MM higher than expected due to higher consumable sales for previously installed SNP genotyping systems. Excluding $0.19MM of interest expense related to a litigation judgment, total expenses were $13.4MM. The 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 $5.3 million or $0.17 per share on 32.1 million basic shares. 2. REVISED 2003 AND 2004 LOSS ESTIMATES Based on the earlier than expected installation of SNP genotyping systems and related consumable sales, we raised our 2003 revenue forecast to $25.8MM from $21.9MM and our 2004 forecast to $39.3MM from $38.5MM. After fine-tuning expenses, our 2003 and 2004 loss estimates were revised to $0.91 and $0.57 from $1.02 and $0.59, respectively. Revisions to our quarterly estimates are as follows: 2003 old 2003 new ======== ======== Q1/03 (0.28) (0.28) Q2/03 (0.26) (0.26) Q3/03 (0.17) (0.17) Q4/03E (0.24) (0.20) 2003E (1.02) (0.91) 2004 old 2004 new ======== ======== Q1/04E (0.20) (0.19) Q2/04E (0.15) (0.15) Q3/04E (0.12) (0.12) Q4/04E (0.11) (0.11) 2004E (0.59) (0.57) 3. COMPLETED INSTALLATION OF 5 GENOTYPING SYSTEMS In Q2/03, Illumina achieved its 2003 goal of signing 5 sales agreements for its proprietary 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. In Q3/03 Illumina completed installment of systems at Johns Hopkins and the Whitehead Institute/MIT Center for Genome Research. A fifth system was installed in October at the Shanghai National Center for Biochip Technology. 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. Management estimated that thus far customers are running their genotyping systems at 15% of capacity. 4. INTRODUCTION OF GENE EXPRESSION PRODUCTS During Q3/03, Illumina achieved its 2003 goal launching a gene expression system. The systems can be run on Illumina's standard 96 sample Array Matrix platform or its new 8 sample BeadChip. 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 system, which should improve the product's profitability. 5. 2003 MILESTONES - Sign 15 service contracts (16 completed as of Q3/03) -5 genotyping systems (4 installed: one each at the Wellcome Trust Sanger Institute, Genome Quebec, Johns Hopkins University, Whitehead Institute; one pending at National Center for Biochip Technology). - 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