Illumina, Inc. (NASDAQ:ILMN) JPMorgan Healthcare Conference January 7, 2019 6:00 PM ET
Francis deSouza - President & CEO
Conference Call Participants
Tycho Peterson - Life Science Tools team at JPMorgan
Okay, good afternoon. We’re going to go ahead and get started. I’m Tycho Peterson from the Life Science Tools team at JPMorgan. It’s my pleasure to introduce our next company this afternoon, Illumina.
Two quick things before I turn it over to Francis the breakout will be in the Georgian room across the hall. And then Francis has graciously offered to chair a panel today at 5 o’clock up in the California West room. So that should be very interesting as well. And with that, let me turn it over to Francis.
Good afternoon everyone. And thank you Tyco and the JPMorgan team for hosting Illumina. Before I start, I’d like to remind you that our presentation today includes forward-looking statements.
You should refer to our SEC filings for a discussion of the risks and uncertainties that could cause results to be materially different from our current expectations. The financial results I’m about to share represent unaudited numbers that are currently our best estimates, and I will refer to non-GAAP measures that are reconciled to GAAP measures on our website.
Finally, the information discussed today is qualified in its entirety by the proxy statement that Pacific Biosciences has filed with the SEC. Illumina delivered its 20th year of sequential revenue growth in 2018 with revenue of approximately $3.3 billion, up 21% from 2017.
Sequencing consumables grew about 23%, sequencing systems grew about 10% and micro arrays grew 22%. Our fourth quarter revenue grew 11% year-over-year to approximately $865 million. It was our strongest sequencing system revenue quarter ever, including record NovaSeq shipments.
Looking to 2019, we’re expecting revenue growth in the range of 13% to 14%. We expect our sequencing business to grow in the mid teens with sequencing consumables expected to grow above 20% reflecting the strength of our product portfolio and expanding market opportunities.
We’re forecasting low single digit growth in our arrays business in 2019. Our outlook reflects a cautious view of the consumer opportunity as we start the year. Although we expect this business to re accelerate, as consumer health and international opportunities ramp up. Overall, we expect 2019 revenue of between $3.76 billion and $3.8 billion, representing an increase of approximately $450 million at the midpoint.
Following record system revenue in the fourth quarter, and reflecting expected seasonality, we expect total revenue to be more back end loaded in 2019 than it was in 2018.
We expect GAAP EPS in the range of $6.07 and $6.17 and non-GAAP EPS in the range of $6.50 and $6.60. This excludes the expected impact of our acquisition of Pacific Biosciences, which we continue to expect to close in the middle of the year.
Building on two decades of innovation, researchers and clinicians are continuing to leverage Illumina’s technology to imagine a new possible; to advance science, transform medicine and profoundly impact lives.
Researchers are leveraging Illumina’s technologies to make foundational biological discoveries, which to date has led to more than 220,000 peer reviewed publications. Clinicians are embracing next-generation sequencing or NGS for a new and expanding suite of applications, from non-invasive prenatal screening to liquid biopsy. These NGS based tests allow comprehensive, accurate and cost effective detection and treatment of disease.
These advances profoundly impact lives, ending multi-year diagnostic odysseys [ph] for some and offering personalized and actionable insights for others. This explosion of sequencing across a broad range of applications has been enabled by the dramatic decrease in the cost of sequencing brought about in large part by Illumina’s innovations. Yet, we are just at the start of the NGS story. Less than 0.01% of all species have ever had their DNA sequenced. Less than 0.02% of humans have had their genome sequenced, and we haven’t yet decided the function of 99% of the variance discovered in the genome.
As researchers and clinicians understand and apply more of the genome, the ubiquity and impact of genomics will dwarf everything we have seen to date. Our customers, representing an active install base of more than 13,000 sequencers at 6300 organizations in 90 countries will drive the next chapters of NGS, and they’ll do this together.
Over 5000 Illumina systems are connected to our base base cloud, creating a global community of more than 28,000 active users, and 3700 developers who have built over 8600 custom sequencing workflows on BaseSpace.
Our customers are generating sequencing data at an unprecedented rate and scale. In 2018, over 100 terabytes [ph] of data were generated across our systems, a record for sequencing data generated in a single year. For reference, this is approximately 25 times the size of the entire Netflix catalog.
About half of the data generated in 2018 was on NovaSeq, the world’s most powerful sequencer which delivers genomic data faster and more cost effectively than previously possible. Customers are embracing this power to sequence larger cohorts, more broadly and deeply. Since its launch two years ago, NovaSeq users have sequenced more than 600,000 whole-genome equivalence, that’s three times as many as were sequenced in the HiSeq X in its first two years of launch.
As a result NovaSeq revenue has ramped faster than any other platform in Illumina’s history. And we are on track to exceed $1billion in NovaSeq shipments in just over half the time it took HiSeq X, and we’re still at the early stages of adoption. We placed more NovaSeq’s in 2018 than we did in 2017, including more than 100 units in the fourth quarter alone, a record.
To date, new to Illumina or benchtop conversions represent approximately 30% of our NovaSeq install base, and three quarters of our HiSeq customers have yet to purchase a NovaSeq system. This group represents approximately 630 HiSeq customers supporting our confidence in a steady, multi-year transition. NovaSeq’s diverse and flexible flow sell menu with outputs ranging from 500 gigabases to 6 terrabases once again enabled record NovaSeq pull through in the fourth quarter.
The range of flow sells allows customers to optimally match combinations of output, runtime and economics to their applications. Ginkgo Bioworks for example uses S1 for their synthetic biology work, in retail uses the S2 for Exome sequencing and the Sanger Institute uses S4 for its large scale whole genome sequencing for the U.K. bio bank.
Our newest flow cell S Prime ships next month, and will provide the fastest runtime, lowest run cost and longest reads on the NovaSeq platform. S Prime’s combination of functionality and economics exceeds that of our HiSeq 2500 and will enable customers to transition from their legacy systems without sacrificing any capability.
Additionally, we expect the S Prime flow cell to increase utilization among existing customers. For example, HudsonAlpha Institute one of our early access customers is using this flow cell for immune repertoire profiling. Looking ahead, we have a myriad of opportunities for innovation in flow cell design and output.
NovaSeq’s architecture allows for diverse combinations of flow cell parameters including density, form factor and lane configurations, which provides an open ended technology roadmap. With approximately 3000 systems in over 70 countries, NextSeq powers a broadening range of research and clinical applications including an NIPT, CRISPR microbiome and liquid biopsy.
The utility of the NextSeq platform is fueling system adoption and increasing utilization rates. Total NextSeq platform shipments grew more than 25% year-over-year. This included consumable shipment growth of more than 30% with average pull through consistently at the high end of our 100,000 to 150,000 guided range.
In total, the NextSeq family has delivered more than $1.5 billion of shipments since launch and has significant ongoing market potential, especially with an increasing menu of clinical applications and an expanding suite of partners.
Similarly, our benchtop portfolio continues to show strength, across a diverse set of customers. We are particularly pleased to note that more than half of our 2018 benchtop shipments were delivered to new to Illumina customers.
With an active install base of more than 5000 unique customers, MiSeq, MiniSeq and iSeq combined delivered 20% year-over-year consumable growth. We have established several key partnerships to broaden clinical utility of MiSeq and MiniSeq systems. In late August, MiSeq DX received regulatory approval in China and we are working with nine additional partners to deliver clinical applications that can be used to inform patient management.
We’re also working on expanding our Chinese OEM relationships for MiniSeq with several carefully selected partners, including KingMed for oncology and NKY for genetic diseases. Our newest benchtop up system, iSeq shipped approximately 350 units to more than 40 countries in the first two quarters of launch. About half of these were new to Illumina customers. The growing list of iSeq applications ranged from library quality control, to metagenomics, targeted resequencing and infield disease and outbreak monitoring.
For example, the University of Nebraska is using iSeq as part of its effort to monitor Ebola outbreaks in the Democratic Republic of Congo. iSeq’s unique combination of accuracy, footprint and portability enables this research to be conducted locally. We continue to be impressed by the range of innovative applications that our customers are identifying for the newest member of our sequencing family, and we expect the application suite of iSeq to expand in 2019, driven in part by new capabilities, including a new kit that we will ship this quarter. This will enable customers to leverage the ease of use and low capital cost of iSeq for applications that require longer reads.
This might include for example, metagenomics, microbial genome sequencing, food authentication and environmental DNA profiling. The new [indiscernible] 250 base airflow cell delivers output of 2 gigabases, with greater than 90% raw read accuracy at 20% lower cost per gigabase than current iSeq kits.
We expect this combination of features to drive incremental utilization and iSeq placements. As a point of comparison, more than one third of the consumables kit demand from MiSeq is for similar longer read configurations.
Our customers are using Illumina’s platforms for a range of vast, growing and emerging applications, and I’d like to take a moment to discuss some of our most exciting opportunities and how they will contribute to combined growth over the next few years.
In NIPT, our VeriSeq’s CE-IVD customers ordered over 300,000 tests in 2018, up more than 70% from the previous year, highlighting the rapidly growing clinical NIPT opportunity. We will deliver version two of our VeriSeq NIPT test in the first half of 2019, adding carrier type resolution across the genome and increasing the number of genetic diseases that can be detected.
Standard NIPT tests detect trisomies 13, 18 and 21 as well as sex chromosome abnormalities. Combined, these abnormalities represent a birth incidence of about 0.6%. With a genome wide screen, VeriSeq NIPT version 2 almost doubles the detection of chromosomal abnormalities, which represents a unique competitive differentiation and expands the value of our test.
Additionally we will offer a smaller kit sizes to meet the needs of lower throughput labs. We are committed to innovation in NIPT and delivering the fastest and easiest to use end-to-end solution. Building on the success of NIPT, whole genome sequencing has begun to play a transformative role in diagnosing patients with genetic diseases or rugged.
Rare conditions individually affect a small number of patients. But there are more than 7000 conditions that combined impact over 3% of births or an estimated 4 million babies each year. In this emerging market, genomic testing is poised to become the standard-of-care for rugged patients, although utilization today is still nascent.
Reimbursement has made rapid progress in the last two years with more than 147 million patient lives in the U.S. now covered for rugged whole exome sequencing. Last week, CMS’s final CPT code came into effect, pricing whole genome sequencing at more than $5000 for a single genome for rugged patients. This is a critical benchmark for whole genome sequencing in the Medicare and Medicaid populations.
As we work to end the diagnostic odyssey of rugged patients, we’re excited to announce a collaboration with Mayo Clinic, to develop whole genome sequencing products that will enable comprehensive genome wide analysis. Illumina’s customers worldwide will be able to rapidly identify disease causing variance and provide true precision medicine to rugged patients.
In addition to rugged, next generation sequencing is a revolutionary tool for the management of oncology patients. There are an estimated 17 million new cancer cases worldwide each year and today only a small fraction likely a low single digit percentage of patient tumors are sequenced.
In 2018, we saw significant progress in oncology research to support basic discovery and therapy development as well as regulatory approvals and reimbursement of oncology tests that will drive increasing adoption of sequencing as a standard-of-care in cancer treatment.
Pharma companies are using sequencing to understand therapy response and to stratify patients for clinical trials. For example, NGS is used in many of the 2,250 clinical trials in immuno-oncology registered in the U.S. driven by the emergence of genomic biomarkers like tumor mutational burden or TMB.
In 2018, five large gene panels received breakthrough designations or approvals for therapy selection and minimal residual disease assessment, up from one in 2017. NCCN and ESMO guidelines now include NGS testing for several types of cancer, including TMB assessment in lung cancer. We’re seeing significant progress in reimbursement. In 2018, 50 million additional U.S. lives gained coverage for NGS panels, bringing the total to over 200 million lives.
Looking forward, the availability of therapies that treat cancers based on molecular profile rather than the cancerous tissue of origin will drive more sequencing of tumors. The FDA’s recent approval of Loxo Oncology’s larotrectinib as a pan cancer therapy based on genomic biomarkers is likely the first of more pan-cancer precision oncology therapies to come.
Building on this progress, we believe that a broadly available standardized oncology testing platform will further increase clinical adoption. With this goal in mind, I am pleased to announce the availability of TruSight Oncology 500 research use on assay. TSO 500 is a pan-cancer RUO assay kit that enables comprehensive tumor profiling. The assay includes biomarkers relevant to immuno and targeted therapies including the detection of novel fusions such as [indiscernible] ALK [ph]
We are working with our pharma partners to develop a regulated version of the assay for clinical testing. We’re also developing a blood based version of TSO 500 that can measure TMB, an emerging driver for liquid biopsies. After a rigorous review of several assays the Frederick National Laboratory has chosen TSO 500 to support several NCI sponsored clinical studies. Over the course of five-year collaboration with Illumina, liquid biopsies will be assessed for upto 7000 patient samples. One study will investigate the concordance between results obtained from matched tissue and circulating tumor DNA.
This study has the potential to produce one of the largest tissue and CT DNA concordance datasets ever analyzed. Moving to pep -- population genomics GeL completed sequencing of its 100,000 genomes at the end of last year. In 2019, the U.K. will begin to offer whole genome sequencing for cancer and genetic disease patients. The world is watching as this national health service becomes the first to offer whole genome sequencing as standard-of-care.
Beyond the U.K. we’re tracking about 50 population genomic initiatives around the world, many in the early stages of development. In the U.S., all of us will begin its multi-year program to genotype and sequence 1 million participants using our NovaSeq system.
Additionally, Illumina has developed a custom global diversity array and is making a scientific contribution by supplying this array to the three selected genome centers. Looking abroad, France will launch a pilot program this year for whole genome and exome sequencing as well as RNA-Seq ramping up to 235,000 samples a year over time.
In 2019, we expect several additional countries to develop their programs and begin to scale, including Turkey, Israel, Saudi Arabia, Qatar and Singapore. All these initiatives represent exciting opportunities for countries, health systems and even individuals to use genomic information to improve health.
In fact, we believe that consumers all over the world will play a key role in the management of their own health and that consumer genomics will be viewed as an empowering tool to inform health and lifestyle choices.
In 2018, nearly 12 million consumer tests were processed on Illumina technology. This is more than the cumulative volume in the previous three years. To date, most of these tests have been associated with genealogy, but we saw a growing evidence of an emerging consumer health market in 2018.
23andMe for example received FDA authorization to include pharmacogenetics information in its reports to consumers. And Mayo Clinic launched a new gene guide DNA test on the Helix platform that assesses health and disease risk. While consumer genomics has been predominantly a U.S. phenomenon, we’re seeing an emerging consumer business outside the U.S. In 2018, we saw strong interest in China, South Korea and Japan with the number of accounts almost doubling in some geographies.
Looking to 2019, we are excited to welcome the PacBio team to Illumina. Combining PacBio’s highly accurate long reads and Illumina’s highly accurate and scalable short reads will provide researchers and clinicians with a more perfect view of the genome, enhancing their ability to make novel discoveries and broaden clinical utility across a range of applications.
For example, in population sequencing, we expect researchers to leverage PacBio technology to create population specific reference genomes and Illumina’s NovaSeq platforms to apply these insights of scale to the remainder of the population.
Combining these complementary strengths, researchers will be able to create comprehensive accurate databases without compromising economics, scale or speed. After the deal closes, we will expand the distribution of PacBio’s products through our global commercial channel. We will also develop workflows that enable users to simply and economically prepare samples for dual platform use, combined management of the analysis of both data types and integrate their data into a single repository.
And we’ll bring together the expertise of both development teams and the strengths of each technology to create unique new products and platforms that set the pace for innovation in our industry. By adding complementary long read technology to the Illumina portfolio, we are once again pushing the boundaries of what customers can achieve with next generation sequencing. We will continue to support their efforts to advance science transform medicine and impact lives.
As we look beyond 2019, we see a multitude of substantial emerging opportunities where next generation sequencing could play a transformative role. In the early detection of cancer, in the management of cardiovascular disease across a myriad of infectious disease or the microbiome or neurology for example.
In fact, in the coming years, we expect sequencing to become ubiquitous in research and medicine. The insights we will gain from sequencing not just thousands, but millions of species and not just a million human genomes, but hundreds of millions will lay the foundation for a world in which nearly all diseases will be better understood and the lives of patients much improved. As proud as we are of the role we have played in enabling the advances of the past decade, we are even more excited and energized by the future.
To end, we are at the very beginning.