Illumina, Inc. (ILMN) CEO Management Presents at Citi's 2018 Global Healthcare Conference (Transcript)

|
About: Illumina, Inc. (ILMN)
by: SA Transcripts

Illumina, Inc. (NASDAQ:ILMN) Citi's 2018 Global Healthcare Conference December 7, 2018 10:15 AM ET

Executives

Sam Samad - CFO

Jacquie Ross - VP, IR

Analysts

Dan Arias - Citi

Dan Arias

Hello, everyone, I'm Dan Arias. I'm the Life Sciences Analyst at Citi. Happy to have Sam Samad, CFO of Illumina with us here today; and Jacquie Ross is in the audience. Sam, I believe you want to cover some cautionary language before we get going here?

Sam Samad

I do, yes. Thanks Dan. So, let me go through the Safe Harbor first and we'll go through the questions after that. I've been asked to remind you that my comments today could include forward-looking statements. You should refer to our SEC filings for a discussion of the risks and uncertainties that could cause results to differ materially from our current expectations. It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's discussion will be protected under the Private Securities Litigation Reform Act of 1995. Also, the information discussed today is qualified in its entirety by the proxy statement that Pacific Biosciences has filed with the SEC.

Question-and-Answer Session

Q - Dan Arias

Okay. So that actually gives us a good jumping off point. As some have heard you've acquired Pacific Biosciences, you are in the process of doing that, the proxy statement hit this morning. Maybe we can talk a little bit about that if you have any general comment, comment about the proceedings. I'd love to hear them otherwise I might ask specifically. Why acquire the Company it sounded like Pacific Biosciences was interested in collaboration initially and then you proposed the deal?

Sam Samad

Sure. I mean first of all thanks Dan for having me really glad to be here and be with all of you. So, the Pacific Biosciences' deal is one that's really important for us, really strategic for us. And the whole long-read opportunity and the long-read market is one that we've been looking at for the past number of years. And we've been looking at with a lot of interest because it offers some real important complementary benefits for us, but specifically talking about Pacific Biosciences.

Once again, to think about the markets as they are today. You have the short-read SBS sequencing market, which is still the platform of choice for most applications and the applications that we compete in today offers cost advantage, scalability, accuracy. But for in terms of certain applications, those applications and parts of the genome that are highly repetitive, long-reads sequencing offers some tremendous complementary benefits.

So bringing those two technologies -- these two technologies together offers a lot of advantages for customers and offers a lot of complementary benefits. And we're talking about applications like, as I said, in the long-read space that we don't compete in today at all. So things like pharmacogenomics, functional genomics, clinical microbiology where if you bring in a long-read sequencing complemented with short-read sequencing, you can get essentially for lack of a better term, a perfect deal with the genome.

So when we think about the two -- the two companies coming together and we think about the benefits that we can add in the long-read space. Really comes down to a couple of things. First of all, we are able to expand some of those markets that we don't play in today. Again, the markets that I talked about in terms of potentially pharmacogenomics for instance, we're able to accelerate clinical insights and discovery. And we can expand the product roadmap to accelerate the product roadmaps for both companies.

So some tremendous, I'd say advantages. In terms of why PacBio, just to wrap up on that question, PacBio has made tremendous advances in the last, I would say, few months around or year round accuracy. They're now able to achieve Q40 consensus accuracy, 99.99% accuracy, which is unmatched in the long-read space, and they're announced this 8M SMART chip as well, which is coming out, which is really compelling. So again, their complementary benefits to our technology are really, really important for our customers.

Dan Arias

Okay, that's actually great to start with. I mean maybe along those lines and thinking about some of the technologies that they've been working on. Their path is a little bit checkered in terms of execution and hitting timelines. I guess when you look at the way in which they were thinking about the road map. Is there any obvious reason that things like the 8 million ZMW chip wouldn't be achievable along the timeline that they laid out prior to the deal? I mean, just how do you think about the technological progression given their view of it prior to the deal?

Sam Samad

Sure. I mean they've laid out and we've obviously done due diligence and understood the technology and feel really, really excited about the technology that they have. They've laid out a path where they launch this in the second half of next year, and they have early release in Q1 to some customers, and then they ramp the accessibility or availability of it. We have no reason to believe that there's anything that contradicts that from our perspective. But more importantly, this is also the path for us in terms of what's the strategic value of this deal overtime. So, it's not necessarily dependent on whether they release one quarter or another quarter, but it's the value that this technology brings again to customers and for the complementary benefits that it offers in terms of the ability to have a better view of -- the perfect view of the genome, et cetera.

Dan Arias

Several years ago, Jay had commented on the size of the market that's appropriate for long-read technologies of being 10% of the overall NGS market. Where would you put that percentage today or if you wanted to venture, I guess, as to what that could be going forward?

Sam Samad

Yes, sure. I mean, we haven't given a specific percentage because we haven't talked about our market recently in terms of what's the size of the market. Last number that we published for our size of the market was back in 2014. But in terms of long-read per se specific to your question, the estimates that PacBio has released is that currently today it's about 700 million in size that could grow in the next five years to be about 2.5 billion. So potentially you're looking at a 30% compounded annual growth rates for those applications that we don't compete in today that are long-read applications. And that we think with our scale with our ability to integrate them on our platform, we think we can expand these markets.

Dan Arias

And then maybe obviously there is a regulatory angle to all of these deals. How would you advise us to get comfortable with the regulatory process around it? And I guess the follow up question would be specific to China where there was a lot of activity prior to the deal. Is the intent to send the product to the FDA? Do you think you need approval from China?

Sam Samad

Yes. So, with regards to the regulatory filing overall just to help you think about it, I mean, we will -- obviously, the filing will go FDC, will go through the regulatory, necessary regulatory steps. Right now, our expectation is that this could take somewhere between 7 to 9 months in terms of approval which would get us to somewhere in the middle of next year in terms of potential approval of the deal.

Again, it's complementary technology, its markets that we don't play in today. So, we believe there is definitely a value for customers. And actually if you -- with the channel checks that we do with our customers with the conversations that we've had with our customers, our customers are really excited about the ability to have this complementary benefit of PacBio instrument with Illumina instruments integrate potentially the workflows as well. So, we think there's tremendous value for the customers.

And if you -- if you look at how our customers use these two technologies today is, they will have a number of Illumina instruments, and they will usually have one or two PacBio instruments as well really in the same lab or sitting side-by-side because they -- as I said, they get complementary benefits from the PacBio instrument, and they will have that even more with the integration of the two companies.

Back to your China question, at this point given the level of revenues that PacBio has in China, we don't believe it needs to go for regulatory approval. But I would never say never that that's never going to be the case where China decides to look at it, but at this point we don't believe it should go up for regulatory approval.

Dan Arias

Okay. Maybe we can talk a little bit about the existing Illumina line up, one of everybody's favorite exercises is to sort of track or pontificate on where the utilization of the NovaSeq is and where consumables have gone. When we think about 3Q and where you left the quarter, what is it that you took away from those 90 days that make you think that you're on track to rationalize with the utilization and just to ramp on consumables heading into next year?

Sam Samad

Sure. Yes. I mean, first of all, the NovaSeq introduction has been, definitely has, I would say played out as we expected, but in some cases has also outpaced our expectation. So as you've seen over the course of the last three quarters, we've announced our sequencing consumable growth and we've had tremendous update in terms of NovaSeq consumables. We've had the ramp down on HiSeq and HiSeq X consumables as we've expected, but definitely outpaced by the growth on NovaSeq consumables.

We also announced in Q3 that it was our highest revenue quarter of NovaSeq instruments as well this year. So it was another important touch point or an important data point there for you to keep in mind as well. But really in terms of NovaSeq and utilization, we're seeing a lot of applications that we have not been seeing in the past. We're seeing customers that are basically using NovaSeq for running, going from smaller panels to larger panels to exones, to potentially hold genome sequencing. We're seeing NovaSeq being used for, rare undiagnosed disease testing, we're seeing NovaSeq being used in population genomic studies, and certain labs that are doing a small population studies or even larger population studies.

So really very, very excited, very, I would say encouraged by the adoption of NovaSeq. We have not, I think if your question was leading to the pull through question. We have not announced the pull through number on NovaSeq or a guidance range. Because of the variability still in terms of the utilization, what NovaSeq has done is, it's really democratized access to sequencing, it's expanded the customer base. And so there's some variability in the utilization, which is actually a good thing, because we have more customers doing more sequencing rather than a few centralized centers. And eventually maybe we'll give that pull through number, but we haven't yet.

Dan Arias

Is there a chance that if we're sitting here, when we're sitting here next year maybe we'll have that?

Sam Samad

Well, if Jacqui is not in the room, I might answer that, but she won't let me right now, so.

Dan Arias

But back to the point of ramping utilization, Am I right about thinking that, if you, so you have the stocking order in 3Q or you've had stocking orders in prior quarters. But if you remove the stocking order from 3Q, the annualized pull-through whatever that might be up was up from 2Q levels, I believe on an apples-to-apples basis, and that was also up from 1Q level as well. So sequentially, are you stepping up each quarter?

Sam Samad

Yes, absolutely, yes. So in Q2 of this year, we announced that the pull-through on NovaSeq, we didn't give the number, but we announced that the pull-through was the highest we've had yet. In Q3, we announced that the Q3 pull-through was the highest we've had again for the last quarter was the highest, we've had ever. So we've got two consecutive record quarters in terms of pull through. And that excludes any of the noise from stocking. So you mentioned the stocking orders and for a handful of Chinese customers that has, that we've excluded from that number.

Dan Arias

Okay. And then maybe if we just think about box placements. I mean, one of the things that occurs to me, is that there seemed like there are several customers lots of customers that have ordered multiple systems but haven't necessarily received multiple systems. So, is there any way you can talk about just on a quarterly basis the percentage or what you're seeing in terms of boxes being shipped to guys that are getting their first one versus those that are being made whole, so to speak on a prior order?

Sam Samad

Yes, we haven't given that split Dan, in terms of what that looks like in terms of either capacity adds versus new customers getting no receipt for the first time. I would say it's fairly balanced but we haven't given that split, the thing to keep in mind is also that the phasing of the flow cell has also impacted that in a way whereby you have the S4 became available and which is our highest throughput flow cell became available in Q4 of 2017 that triggered some multi unit orders, but we haven't given sort of the split of what that capacity add is versus new and it's fairly balanced.

Dan Arias

One of the thing that you have talked about which has been interesting has been this idea that there are customers that are new there are kind of coming out of the woodwork in terms of high throughput users. And I think that gets some focus for you on the quarters, I'm sure the guys that had done conferences like this might have asked about them. Can you just sort of add some color to where these guys are coming from and what has incentivized them to now think about buying a NovaSeq when perhaps they've done MySeq before, streaky looking step up?

Sam Samad

It is, but that's the number that we've been really encouraged by so maybe to give some perspective to the group, one of the things that we've talked about in previous quarters not every quarter, but we've given a metric which said that, roughly 25% to 30% of our orders have been coming from new to sequencing, new to high throughput sequencing or upgrades from our lineup of desktops or bench top instruments.

So in addition to those existing HiSeq, HiSeq X customers that we believe will convert to mostly to NovaSeq overtime, we've had this new bucket of orders from customers that are new to high throughput or upgrading as you said maybe from MySeq or some other lower throughput customers. And that's really encouraging and really important because what's that's done is basically as I said earlier, and I gave some examples on that, but I can give a little bit more color is that it's the marketized sequencing.

NovaSeq is most accessible sequencer and gives you some really, really cost advantages especially if you're doing if you have the samples not even if you have large cohorts of samples, but if you have samples to justify. So, we think customers that basically were outsourcing work before because they didn't have the samples to justify buying a number of sequencers or they didn't think that it was something that was worth investing in for them. But now with NovaSeq, they have a data point where or they have an instrument where you've a certain small capital investment I would say and then you can basically get a lot of cost efficiencies by doing sequencing in-house.

So, we've seen that in-sourcing, some of them are doing R&D work for pharma companies for instance, and others are doing research work. We know some are doing for instance, as I said earlier, community population genomic studies or larger population genomic studies. And as I said earlier, there're a lot of customers they were doing smaller amounts of work like small panels and now we're doing larger panels and potentially moving to exomes or moving to whole genome sequencing eventually. So with the data points or the cost points that NovaSeq offers you and the accessibility that NovaSeq gives, it's definitely opened up that side of the market.

Dan Arias

Just to clarify. Is it 25% or 30% of orders that you talked about is coming from that crowd, still the number or was it 25%, 30% early on in the process and it's kind of trickled down or is it fair to say that you're close to that range?

Sam Samad

Yes, as of Q3 which is the most recent data point that I think we gave is still roughly in the 25% to 30% range.

Dan Arias

Questions from the audience, take a chance. Maybe ASPs on…

Unidentified Analyst

Have you seen an emergence of point-of-care applications and/or accumulating technologies starting to have to take notice of?

Sam Samad

Can you give me maybe a little bit more detail on the…

Unidentified Analyst

Aspects of genomics directly into the operating theatre and through surgical devices and what have you?

Sam Samad

Not at this point. I mean, definitely that's not an area that's at this point strategic for us. I know there're some potential competitors that have that those technologies, but I won't comment on them right now.

Dan Arias

Maybe just a quick one on ASPs, the list price is obviously one thing and then the sales price is another. How is that trended overtime? And it's kind of difficult to get a feel for that, but my sense is that maybe it hasn't changed dramatically. Could you kind of correct me if I'm wrong or…

Sam Samad

No, I think you're right. I mean, it is a little bit, it fluctuates a bit and it fluctuates depending on most usually depending on multi unit orders. So the more you purchase, you'll get certain discounts, because you purchased a number of instruments as a customer. And so in those quarters where you have more multi unit orders, the ASP could be a little bit lower. But overall, if you look at the trend, it's been fairly consistent.

Dan Arias

Maybe just to your point before on the decommissions or the transition of activity from the older HiSeq and Xs to the NovaSeq. You characterized as, it as being on track. I have to say, I had more decommissioned in 3Q than you decommissioned in 3Q for sure. So what, I believe that was a single-digit number. Can you correct me if I'm wrong there? And what does that say about the utility of those boxes headed into next year? I mean, I think that was a topic of discussion for a lot of folks early in the year, just when you're going to see that?

Sam Samad

Yes, I know you're correct, Dan, that it was in the single-digits. So it's a handful of instruments HiSeq, HiSeq X instruments that was decommissioned in Q3. Before that, let's say for the last couple of quarters or so before that it was in the 20 range. So the one thing, I would caution you there is not to think too much about the HiSeq decommissions as being an indicator of whether customers will transition to NovaSeq or not.

One metric that we gave at the beginning or end of last year was that 15% of those 850 HiSeq and HiSeq X customers had bought the first NovaSeq. Bought their first NovaSeq doesn't necessarily mean that they've transitioned to NovaSeq, it just means that they purchased their first NovaSeq, they're getting experienced with the instruments. They are still running work on HiSeq and HiSeq X, because in a lot of cases, there's validated workflows, there's ongoing samples and work that's being done on HiSeq and HiSeq X, that takes time to complete.

Eventually, I think what you will see is that, yes, you will continue to see HiSeq and HiSeq X consumables and usage come down and NovaSeq increase and outpace the decrease that you're seeing in HiSeq and HiSeq X. But I wouldn't have that necessarily to decommissions, because those instruments are still being used. But eventually that population of HiSeq and HiSeq X customers will transition to, as I said earlier, to NovaSeq and maybe some will go to mid-throughput instruments like NextSeq for instance.

Dan Arias

So that's a perfect opportunity there actually are other sequences in the line of NovaSeq. The NextSeq is an interesting system. It seems like a real jack of all trades type box, I'm kind of interested in what you're seeing in terms of the application that you have that system being run for whole genome sequencing or something that you can do on the box, or I love to see whether or not that's actually the case, or just labs that are pushing for all genome work, end up with the NovaSeq I guess how does the mix look there.

Sam Samad

No, it's really, it's broad range types of applications across a number of customers and applications. But mostly it's been in the clinical stage where NextSeq has been the workhorse. And we've seen it across a number of applications in clinical. NIPT is a critical one, key one where NextSeq is doing a lot of works being done on NextSeq.

Oncology testing in some cases being done on NextSeq. When you start getting to the really larger cohorts, deeper sequencing or broader sequencing you start to get to a place where maybe NovaSeq makes more sense economically. But also we've had the validated instruments, the cleared instruments the NextSeqDx also come out and that's been another key development for NextSeq.

We're looking at potentially new software for NextSeq, NextSeq 550 in terms of some new workflows and new software. So, we've got a lot of exciting things happen on NextSeq as well and you're right, it's been in the clinical space it's really been a workhorse.

Dan Arias

And then, the two clinical applications that you mentioned are good point to touch on. The NIPT market I can't think of a faster growing diagnostics market in the last couple of years. What is your expectation for 2019 in terms of guideline changes? I mean, where really off to the race is on the high risk you could argue that somewhat up to the race is on the averages population, but when you guys think about 2019 and what you might have and might have coming to you in terms of guidelines that sort of take you the next step. What is the outlook there? Is this '19 because it seems like it could be the year that '18 was supposed to be and '17, so I guess I'm wondering if that fits your expectations as well?

Sam Samad

Yes, so NIPT has been a really important driver for us and growth driver and a really important market for us as well because there has been the opportunity to benefit a lot of patients, a lot of pregnant women. One of the key things that we've launched in NIPT is a VeriSeq NIPT workflow the CE-IVD, which we launched in Europe, which has seen great results and great adoption in Europe because it offers a very simplified end-to-end workflow for NIPT testing.

And as we look forward in terms of more directly to your question, on the reimbursement landscape and what we're expecting in terms of trends, it's important to break it down in terms of different markets, right. So, if I think about Europe, we've had countries like Belgium, Netherlands where we've received the 100% or where NIPT testing has basically is now 100% covered, so great developments in those markets where all pregnancies are covered to NIPT testing.

You have some markets which have variable contingent screening and coverage. You have some markets like Germany for instance which are doing their health and technology assessment where they look at the clinical and economic utility of NIPT, and potentially, next year they will make a decision on whether to expand coverage and reimbursement. So I would say Europe has been leading the way in terms of in some countries at least in terms of 100% reimbursement for NIPT and we potentially have more markets doing that in the future.

If you think about other outside the U.S. markets like Asia for instance. China obviously is very noteworthy in the sense that you have 20 million births a year. They're fairly underpenetrated in terms of NIPT testing. I mean I would say about 20% to 25% of pregnancies go through NIPT testing. It's mostly out-of-pocket if not all out-of-pocket, but there's a lot of tremendous opportunity to have more penetration in terms of NIPT. I think the government they've announced the target to get to even 70% penetration of NIPT in serum testing of all pregnancies at some point. So, we see a lot of potential upside there. There's even other markets in Asia like Australia, New Zealand, Japan that are very under penetrated as well where there's a lot of opportunity for NIPT penetration.

If I take it back to the U.S., we do have reimbursement for most, if not all, high risk pregnancies. We're still at the 43% reimbursement for average risk pregnancy. So that's another focus of ours. ACOG recently essentially took away a negative guideline that they had around NIPT testing so we were very interested and then encouraged by that because it could be a precursor to issuing guidelines that basically encourage the adoption of NIPT testing and average risk, hasn't happened yet, but we're very encouraged about that as we look towards 2019. So really focus is continue to expand the clinical economic utility and get additional reimbursement both in the US and outside US.

Dan Arias

Yes, and on the international markets, it sounds like one of the things that will be important for adoption there is just lower price points associated with testing, and there are some platform that are coming into the market that will attempt to be disruptive there. What do you say when you think about those newer technologies? And how the pricing might go once you take…

Sam Samad

Yes. So I mean, there are lower cost options and lower price options. We believe our VeriSeq NIPT [Audio Gap] advantages that I mentioned earlier, the end-to-end workflow that it offers, the simplicity that it offers. But also more importantly than the speed, the accessibility, the turnaround time in terms of getting a test done, the reliability of the results, and then the VeriSeq NIPT solution and our NIPT solution also offer certain advantages like fetal fractions and sex [Audio Gap] cost competitive options don't offer. And those are really important in the NIPT space. I mean, I'm not a scientist, but they are really important options to have. So, there are lower cost options. Yes, it's not entirely a bad thing, because I think it'll expand some parts to the market which need those lower costs options. And that's fine. But I really think our solution is differentiated in terms of its reliability, speed and accuracy.

Dan Arias

Let me just hit on oncology real quick. You did bring up reimbursement and we did have some positive developments there this year. How has oncology demand evolved post the more favorable view on reimbursement and do you think that's something that momentum wise carries you '19 as we think about both liquid biopsy, but also tissue sequencing as well?

Sam Samad

Yes, I mean, the development that you're talking about is really important one where we have the NCD, the National Coverage Determination on the FoundationOne test, the potential or the FDA approval of some tests. But really what's more important here is the market as a whole that I want to talk about as well. And I'll get your '19 question, although, obviously, I will give you meaningful directional drivers on '19 given that we haven't announced guidance yet.

Dan Arias

I just assume you're going to do at the end here…

Sam Samad

Probably not, but good try over there. So on the market in general, I mean, what we're really encouraged by and I think all of us should be encouraged by because this is, again, towards the goal of improving human health and improving clinical outcomes. Is the level of work that's being done around immuno-oncology and immunotherapy, and the thousands of clinical trials that are going on in that space.

So to that end, what we have announced is a partnership with two companies Loxo and BMS around developing companion diagnostics in that space that help with biomarkers, with patient selection, with certain -- essentially as you looked at the cancer patients, what are some of those treatments that can help you for the types of patients or the type of the genetic profile of your tumor essentially.

So, I think there're a lot of very important developments. I won't talk too much about what does that meant in terms of the market or the level of demand because we've given on our previous calls indications about the oncology business et cetera. And I can tell you the momentum is great and that markets what we're seeing in terms of the proliferation of testing and the additional interest in terms of genetic testing to accompany those immunotherapy treatments is really, really exciting.

We believe are end-to-end kits that we're developing that will come out at some point we haven't given the timeline yet when we develop them with BMS and Loxo will be IVD end-to-end kits. So, essentially, they carry you from everything from sample prep all the way to interpretation. So from some of those smaller whether it's hospitals, treatment centers clinics et cetera. It gives you an end-to-end tip that you can use to sequence tumors and provide you with an IVD distributable potentially reimbursed kits.

Now we saw some customers as well out there that do their own testing like Foundation has their own tests for instance. Great customer of ours, they will use their own test. We will supply them with reagents with instruments that help them towards that goal as well. But in general, this market has seen a lot of momentum since the NCD decision, the reimbursement of that test. And we believe it's got a lot of potential for growth going forward.

Dan Arias

Do you see that market as one that consolidates over time or do you think there's room for a slew of oncology testing providers? I mean, it's -- Guardant and Foundation have had starts, I think everybody would pretty much agree with that, but there are specialized areas of cancer testing immuno-oncology testing. How do you see the sort of a spectrum of companies providing value there, when you go forward?

Sam Samad

Yes it's hard to say but all else being equal, I don't necessarily see it consolidating over time because again for some of the reasons that I mentioned there's so much activity going on there. The our ability to also introduce some end-to-end IVD kits, helps a lot of these smaller academic or clinics to help in terms of or to help them do their own testing as well.

And if you're thinking about community hospitals as well, I think with more education with more health economic end points that show kind of what the cost benefit is of some of the importance of genomics testing and how they can get essentially benefits in terms of benefits to cost and to the system. I think you will find some of those smaller regional hospitals also look to potentially increase their adoption as well of genomic testing, so I don't necessarily see it as consolidated.

Dan Arias

Sam when you and the team are huddled back in the office the management team, what are one of the two things that you are kind of as a team focused on that are going to continue this trajectory you're on? And then ultimately, what is kind of the -- what is it attached along the top or bottom line in terms of how you're going to improve the business?

Sam Samad

Yes, boy, I mean I wish it was a one or two things would make my life easier, but there are so many things that we are looking because this month -- sorry. Yes, for sure, absolutely. I mean this is our nascent market, still a nascent market, and we've got tremendous opportunities for growth, tremendous opportunities to improve human health. And honestly, we take this mission and this obligation, this privilege very seriously at Illumina because we are really helping to change how we treat major, major disease categories.

But to make it maybe a little bit more specific, I mean our priorities are very specific to a number of areas. One is continuing to think about how we can proliferate more genomics testing and more. As I said, you think about how we can contribute to this whole immunotherapy landscape. These advances in immune therapy from a genomics testing standpoint whether it's through the introduction of companion diagnostics end-to-end kits or helping our customers do you know more genomics testing and more sequencing.

The other one is NIPT as I talked about earlier. Rare undiagnosed disease is another key priority of ours that we focused on because that diagnostic odyssey for children and their families those that are born with rare undiagnosed diseases massive. The clinical struggle that they go through is massive the cost struggle is massive as well both for the family and for the system as a whole. And if we can diagnose some of these diseases early, it would help the family so much. And not just for the child, but also family members, who might get sequenced as well. Because they, sometimes they're affected by the same conditions.

The other one that we really look at, which is going to be a, we believe a paradigm changer is this population genomics initiative. And how they can take large precision medicine health initiatives and basically take them from, just a population genomics initiative so now part of standard-of-care and to clinical practice. Genomics England was a recent example of that. So, all of those are key priorities that we take very, very seriously and we take as a privilege that we have to deliver on.

Now, if you ask me one thing that I focus very much on is basically our ability to execute through all that, not to be defocused, but to take that responsibility very seriously and continue to execute with speed, with urgency, with passion to improve human health. And I say that with all seriousness that this is a privilege that every single person of the 7,000-person Illumina team takes very seriously.

Dan Arias

Can you talk about the role of the clinical genomics lab? And I believe today you're providing services for Ancestry.com, but what other applications might you be providing services to, particular in light of the, your comment earlier that folks are now in-sourcing given the price point for the NovaSeq where you would be an outsourced option in the case of Ancestry?

Sam Samad

Yes. So, the clinical genomics are genotyping services because for Ancestry, we do them over microarray services as opposed to sequencing services. It's an option that we provide to our customers. It's a service that we provide. I wouldn't necessarily call it a strategic option that this is something that, we're focused strategically on in terms of growing, but it's definitely an important option that we provide to some of our customers that needs that service.

I mean, in the specifically if I talked about the microarray space, for instance, and consumer genomics, we have one customer, which is Ancestry that relies on us for some of these microarray services. We have other customers that just purchased instruments and consumables from us. And that's fine.

Again, it's the same thing. We offer that optionality to our customers. Because what really matters is how they would like to be serviced and what they would like in terms of whether they send the samples back to us, or they just send them to a different lab and they get them done, and they use our instruments and consumables. We also do services as well for and NIPT test out, what we call test send out services in our lab.

The GeL collaboration was also being done as part of our service offering that we set up with Genomics England. So I would say those are more localized examples, but it's not necessarily something that we are focused on either growing separately as a strategic option. And what's more important for us is, how we provide broader access to sequencing, how we grow the adoption of sequencing, and how customers utilize our instruments and consumables for that.

Dan Arias

I quite do not agree things to say about 23andMe demand in the fourth quarter recently. Any comment on overall consumer genomics demand as we head into the holidays for you guys?

Sam Samad

Yes, obviously, I can't comment on Q4. But honestly, I can't comment on Labcorp, it's their information, so I can't really add any value there, any insights in terms of what they're saying. But I will just point out a couple of things around consumer genomics as a whole maybe which is what I can say more, with more provide more information on. First of all, this is still a nascent market. This is the reason I'd say it's a nascent market is because 2017 saw definitely an inflection of demand and consumer genomics and 7 million samples, which was more than the last 10 years combined. But it's still in terms of genealogy, which is the application up to that point was the application was still in the low single digits of penetration across the U.S. population.

So, that's why I say, it's still underpenetrated, a lot of room to grow. We've seen that since transitioning to more health applications, wellness applications, 23andMe was did the sort of got cleared by the FDA for BRCA 1, BRCA 2 mutations and cancer risk. Recently, they got approved by the FDA to also issue results of pharmacogenomics to their customers. But you know this is still I would say a very much evolving market. And it goes through seasonality and that's seasonality ebbs and flows as we've talked about in the past depending on holiday season depending on you know when kits get bought, when kits get returned so just keep that in mind there's seasonality in that market. But I can't comment on Q4 or what LabCorp said.

Dan Arias

Okay. Maybe if I do speak with arrays. Love to talk about the All of Us project. There’s obviously a large sequencing portion of what will take place there because there's also an array portions. Can you talk about whether the array portion has been awarded? If so, did Illumina do well there? And then maybe the follow up would be, when do you expect the sequencing efforts for All of Us to really get going?

Sam Samad

Yes I'll talk about it more in general, Dan, because I don’t think the results have been announced yet. So, essentially, yes, very exciting another population genomics initiative, which is tremendously exciting very compelling. It's essentially it's a one million sample initiative to be sequenced or genotyped or a combination of the two over 10 years. And it's about 1.5 billion commitment by the government towards that.

So, this will play out over a number of years. This is not something that's going to be you know ramping up, starting January and you know complete a big portion of it in 2019. This will play out over time and we'll probably scale initially -- so for us, it'll probably be something that we look for in the second half of 2019 to start you know essentially ramping up. But in the initial stages, it'll likely be maybe 10,000 samples a year eventually moving to 100,000 samples a year maybe more.

The one thing I'll remind you with these type, there would be types of population genomics initiatives. GeL is a great example, Genomics England. We announced that in 2014. The collaboration with GeL and it just got completed now in the end of 2018. So that's four years later it's a 100,000 genomes. So, the All of Us which is a million genomes or genotype or sequencing and genotype samples that will take some time.

Dan Arias

Yes okay. So, to that point there is that project is largely ramping up and there will be a headwind associated with that. And you've talked about population sequencing really as being more of a 2020 driver but not so much '19. But there obviously is some activity growing there. Is there a way you can kind of characterize what percentage of that headwind you might offset this year, how you're thinking about offsetting that.

Sam Samad

Yes, just maybe to clarify. It's more of a 2020 plus driver is how I would look at it in terms of population genomics because it's more of a long term driver as opposed to just one year whether it's '20 or '19 or '21. But it's definitely a great momentum driver over the long run. In terms of the answer to your question, definitely the GeL collaboration ramped up significantly in 2018 as we were working towards the 100,000 genome projects and that just got completed so we're very excited about what that means in terms of the next phase.

If I think about the offsets as you think about '19 but also beyond, the All of Us is one part of it, which will start to ramp up in the second half. You've got the UK Biobank has a 50,000 project as well that will start ramping. France has announced their population genomics. Two pilot sites that will start to ramp up on their population genomics initiative. But in general, if you look at also all of the things that are going on in that space, I mean, there's 30 plus populations genomics initiatives.

We talked in Q3 about Bangladesh population genomics initiative, which was really exciting to look at that happening now sort of developing markets, you've got the Precision Medicine Initiative in China with which is ramping up, you've got an Australia population genomes. I mean, literally every day, there's an announcement about a new population genomics initiative. Most, if not the majority of which are ones that will ramp up overtime because these are government programs that will take some time to ramp.

The GeL one is really exciting, if I can just say one last slug about it. And it's really exciting because it's completed. But now let's moves to essentially clinical practice and it moves to the next phase, which is this genomics medical service initiative that GeL is or the DNA test is setting up. Now, if you have rare undiagnosed disease, or if you have certain types of cancer it's there's a pathway to getting sequence as part of just normal clinical practice, which is really exciting.

Dan Arias

Okay. We could go on for days, but I think we're out of time. So, I do appreciate you coming, I would just say happy holidays to you and Jacquie.

Sam Samad

And thank you again. Thank you for the time.