Illumina, Inc. (NASDAQ:ILMN) 38th Annual J.P. Morgan Healthcare Conference Call January 13, 2020 11:30 AM ET
Francis deSouza - President and Chief Executive Officer
Conference Call Participants
Tycho Peterson - J.P. Morgan
Okay. We're going to go ahead and kick it off. Good morning everybody. Welcome to day one of the healthcare conference. I'm Tycho Peterson from the Life Science Tools and Diagnostics team. It's my pleasure to introduce our next company this morning, Illumina. We'll do a breakout right after in the Borgia Room. And with that, let me turn it over to Francis deSouza.
Thank you, Tycho, and the J.P. Morgan team for hosting Illumina. Good morning, everyone.
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 differ materially 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.
Illumina delivered a solid close to a challenging 2019. Full-year 2019 revenue of approximately $3.5 billion grew 6% from 2018. Record fourth-quarter revenue of approximately $950 million was up 10% year-over-year with stronger-than-expected sequencing consumables and IVD revenue more than offsetting lower-than-expected sequencing system and DTC revenue.
Sequencing consumables grew more than 20% in the fourth quarter and we shipped just over 100 NovaSeqs.
Looking to 2020, we expect full-year revenue growth of between 9% and 11%. We expect operating margin to be approximately 30% and we expect non-GAAP EPS between $6.80 and $7.00, and GAAP EPS between $6.45 and $6.65.
Overall, we expect to see very strong growth in our sequencing business in 2020. At the midpoint of our guidance range, total sequencing is expected to grow at around 14%, and sequencing consumables are expected to grow at 17%.
NovaSeq shipments are expected to be lower than 2019.
In terms of Population Genomics, the midpoint of our guidance range assumes that the UK Biobank will sequence approximately 200,000 whole genomes in 2020 and that All of Us and GEL start midyear and sequence about 60,000 and 20,000 whole genomes respectively. We continue to expect the headwind in arrays in 2020, which is expected to be down 15% compared to 2019.
We shipped more than 2,400 sequencing systems in 2019, an all-time high. This included a record number of NovaSeq and NextSeqs in their third and sixth year respectively, bringing our cumulative installed base to more than 15,000 sequencing systems.
Overall, Illumina supports about 6,600 sequencing customers in 115 countries through our global network of 17 distribution and commercial centers.
In 2019, our customers generated over 150 petabases of data, a 50% year-over-year increase and the equivalent of 500 years of continuous video recording in HD.
Since we introduced the HiSeq 2000 in 2010, we have 10 times more sequencing customers generating more than 50 times the data. Our largest customers today can sequence a whole genome for approximately $800, 20 times cheaper than 2010.
NovaSeq continues to perform exceptionally well. Consumable shipments for the system almost doubled in 2019, resulting in more than 110 petabases of data, more than double 2018. This is the equivalent of sequencing a 30X genome every 30 seconds compared to just two genomes a day 10 years ago.
As we enter the fourth year for NovaSeq, the opportunity remains compelling. Of the 850 HiSeq and HiSeq X customers at launch, a little over one-third have initiated their transitions to NovaSeq, and we continue to believe that a majority of the remaining active HiSeq customers will transition to a newer Illumina sequencing system over time.
NextSeq also had a very strong year, with record 620 shipments. Mid-throughput demand spans research and clinical applications and more than half of NextSeq system and consumables shipments were to clinical customers, driven by growing adoption of NIPT and oncology.
NextSeq Dx outperformed in 2019 with more than 100 new customers. Our low throughput portfolio reaches more labs than any other sequencing platform, with almost 5,600 customers in 115 countries. The affordability and ease-of-use of our low throughput systems make them ideal entry points for labs new to sequencing.
In 2019, we welcomed about 700 new low throughput system customers, many of whom we expect to eventually scale up to NextSeq or NovaSeq.
In addition, many higher throughput customers also use our low throughput systems as a cost-effective way to perform on-demand sequencing. As a result, 85% of all Illumina system customers have an active low throughput system.
Looking ahead, we are focused on three key areas to further scale the reach and impact of genomics. They are: Enabling breakthrough genomics research; accelerating the clinical adoption of genomics; and continuing our roadmap of technology leadership and innovation.
In our first focus area, Illumina continues to enable breakthrough research in liquid biopsy, CRISPR, synthetic biology, and many other areas.
Emerging applications are a key area of growth as research moves closer to potential treatments and cures. In the US, for example, the first sickle-cell patient who received CRSPR-modified cells is showing promising early results.
Novel methods and initiatives are going mainstream. Just last week, single cell multimodal sequencing was named Method of the Year by Nature. Population research program such as All of Us and the UK Biobank are gaining momentum following the success of Genomics England or GEL.
Launched in 2012, the 100,000 Genomes Project was designed to assess whole genome sequencing as a clinical tool to enable better and earlier diagnoses. GEL delivered population-specific insights and the necessary genomic infrastructure to support future implementation of personalized healthcare in the UK.
Since then, more than 50 similar programs have been initiated globally. While most are currently in the planning or pilot phase, these programs plan to genotype or sequence more than 10 million people.
Population genomics research initiatives are already providing valuable data. For example, Singapore's program identified 52 million novo variants specific to local populations that might have otherwise been overlooked.
This is an important first step. But for this knowledge to benefit patients, findings from population research must be implemented in a clinical setting. Population research initiatives can lead to much larger permanent population health system programs.
In addition to the UK; France, Singapore, and Australia are currently planning population health system programs that integrate genomic testing into the national standard of care. We believe that many of the announced population genomics research initiatives could ultimately integrate with the health systems in this way.
If all 50 initiatives transition to population health system programs, sequencing could be available to more than 4 billion people as a matter of routine. This is Illumina's vision for population health. It's not simply about a finite one-time research program, but about ensuring that all patients have access to sequencing as an ongoing standard of care.
While the range of applications will increase over time, population health system programs are most likely to start with therapy selection for certain cancers or genetic disease. And indeed, this is exactly where the UK's National Health Service is starting.
Once again, the UK is charting new territory. 21 rare diseases and four cancer groups have been added to the national test directory, which means patients in the UK will be offered whole genome sequencing as a standard of care.
I am excited to announce that we have signed a contract with GEL to deliver sequencing lab testing services for the NHS. We expect testing services to begin ramping around the middle of this year in support of the NHS ambitions to sequence between 300,000 and 500,000 patients by the end of 2025.
Beyond population health systems programs, our goal is to make the benefits of clinical sequencing accessible to everyone with a multipronged strategy to accelerate clinical adoption.
We're providing industry-leading technologies to innovative customers like Guardant and Tempus who are developing content, raising awareness, and driving adoption in clinical markets.
We're developing distributable IVD kits for select applications to accelerate and broaden the reach of clinical sequencing, and we are partnering with leading clinical companies to expand the clinical menu available in our Dx platforms.
Our initial efforts are focused on expanding clinical adoption across oncology, genetic disease, and reproductive health including NIPT.
Millions of families have benefited from NIPT since 2011 and adoption continues to grow. In 2019, we estimate about 8 million NIPT assays were performed globally, up 20% from 2018.
While adoption is growing quickly, NIPT has reached just over 10% of global births with access to prenatal care. Even in the most developed NIPT markets in the US, Europe, and China, there is plenty of room for continued growth.
Insurance coverage and reimbursement are improving, and patient and clinician awareness is growing. Illumina has succeeded in enabling the NIPT market with access to a broad portfolio of intellectual property.
We also believe that the availability of IVD solutions is a critical enabler of clinical adoption as evidenced by the growth of our VeriSeq CE-IVD NIPT solution which saw 80% sample growth in 2019. Since its launch in mid-2017, our customers have processed more than 890,000 samples on VeriSeq NIPT, potentially preventing about 40,000 unnecessary invasive diagnostic procedures.
VeriSeq NIPT is now registered in 25 countries, with 11 more in process.
Building on this success, we have begun our FDA submission for TruSight NIPT. This process will be ongoing throughout 2020, and we'll update you when we submit the final module.
TruSight NIPT could be the first NIPT IVD kit available in the US, and we hope this will enable more labs to offer NIPT testing.
Moving to genetic diseases, the value of genomic testing is increasingly clear and adoption is just beginning. Over 300 million lives are affected by genetic diseases globally and these conditions can be debilitating with families spending upwards of five years being referred from doctor to doctor looking for the underlying cause.
These diagnostic odysseys are expensive. In the US, for example, we estimate that pediatric genetic diseases costs upward of $57 billion every year.
Despite broad coverage in the US with more than 150 million covered lives for whole exome sequencing and 14 million for whole genome sequencing, utilization remains less than 1%.
To improve adoption, similar to NIPT, patient and clinician awareness is important, but we also need clinical solutions that help doctors find what can be a needle in a haystack.
We are delighted to announce today our TruSight software suite, developed in collaboration with the Mayo Clinic and other key opinion leaders, reducing the interpretation bottleneck potentially from weeks to hours.
Combined with Illumina's NovaSeq and DNA PCR free library prep, TruSight software offers a complete whole genome sequencing analysis workflow. We believe that this combination of products will set the standard for scalable and rapid interpretation of genomic information, enabling whole genome sequencing to become the standard of care in undiagnosed diseases.
By enabling clinical care teams to turn millions of variants into an answer, we will make it easier for genetic disease patients to benefit from valuable genomic insights.
Similar to what we're seeing in oncology, nearly 40% of the population will be touched by cancer at some point. Sequencing is most widely used today to inform therapy selection for cancer patients, but we estimate that only 8% of tumors globally are sequenced. This will increase as more genomic biomarkers emerge, more precision oncology therapies are approved, and coverage of CDX tests expands. Today, in the US, more than 244 million lives have coverage for oncology panels.
There is an even bigger opportunity in therapy monitoring to assess minimal residual disease resistance, effectiveness, and recurrence. But less than 1% of patients today have been tested using NGS assays.
We're also very encouraged by the exciting data from customers like GRAIL and Freenome that suggests early screening could soon become a reality.
Ultimately, we believe that treating cancer will require multiple NGS tests, spanning the continuum of screening to diagnosis, from therapy selection to monitoring.
For clinical NGS testing to become a standard of care, our customers need clear Dx platforms that enable distributable IVD solutions to be performed in almost any lab.
With the release of MiSeqDx in 2013, Illumina delivered the first FDA-regulated and CE-IVD marked sequencing system. In 2017, NextSeq Dx was released to support larger sample sizes and a broader set of applications, including VeriSeq NIPT and, when available, our TSO 500 comprehensive panel.
To fulfill the growing interest in our Dx platform for deeper sequencing at higher throughput, we are in the process of developing NovaSeq Dx. NovaSeq Dx is intended for IVD use and we're targeting CE-IVD marking in 2022 and FDA clearance in a similar timeframe.
With this growing portfolio of Dx systems, we are partnering with leading clinical companies around the world to reach more patients more quickly with a broad IVD menu. Working with partners,. we can build a complete portfolio of high-impact clinical IVD tests, all available on a single-family of Dx systems.
We can leverage partners' commercial footprints to broaden channel reach. We can work together to expand coverage and reimbursement and we can collaborate to give doctors and patients more opportunities to learn about genomics.
IVD partnerships are a key enabler of Illumina's clinical strategy and we are thrilled to announce a groundbreaking partnership with Roche, one of the world's leading diagnostic companies to accelerate the adoption of distributable NGS-based testing in oncology.
Our agreement includes Roche IVD kits for both the NextSeq Dx and NovaSeq Dx, in addition to the potential inclusion of CDx claims for current and pipeline Roche medicines for Illumina's TruSight Oncology 500 panel.
Roche will leverage its broad commercial reach into pathology and clinical labs and robust portfolio of oncology diagnostics and therapeutics to help expand lab, clinician and patient access to critical NGS diagnostic tests on Illumina's Dx platforms.
We will also work with Roche to expand companion diagnostic claims for on-market therapies, further strengthening the clinical utility of TSO 500 to offer a comprehensive tumor profile.
By partnering closely, we expect to accelerate the demand for NGS-based tests in pursuit of our shared goal of enabling as many cancer patients as possible to have access to these potentially life-impacting IVD tests and therapies.
With the path to broader adoption of distributable tests now clear, we are seeing growing demand from both clinical and translational labs for increasing amounts of clinical grade genomic information at lower cost.
To meet this demand, Illumina is introducing the next wave of innovations to drive lower-cost sequencing without compromising accuracy. Data density has been a key focus as it directly impacts sequencing throughput and, therefore, cost.
As we push density to the nanometer scale, the fundamental challenge has been accurately resolving DNA clusters when adjacent clusters are only a few hundred nanometers away.
To address this challenge, our development teams have delivered two breakthrough innovations. A new blue-green SBS chemistry and the first implementation of super resolution optics in any sequencing platform.
These breakthroughs allow us to more than double the theoretical density of our technology by leveraging shorter wavelengths and pushing the boundaries of physics to image below the diffraction limit of light. For perspective, the flow cell area needed to sequence a 30X genome is reduced 30 fold versus our benchtop portfolio.
These are the innovations that set the stage for the next generation of Illumina sequencers, including the NextSeq 1000 and the NextSeq 2000 that we're launching today at our global sales meeting in San Diego.
We believe that these are among our most innovative systems releases ever, with more than 75 breakthrough innovations and more than 60 associated patent applications filed.
NextSeq 2000 offers higher output, greater ease-of-use, greater breadth of applications and all at lower sequencing cost, highlighting Illumina's ongoing commitment to lowering the barriers of cost and complexity in sequencing adoption.
As sequencing becomes more deeply embedded in research and clinical settings, customers of all scales have a clear desire to sequence more samples more deeply, often through new and emerging applications.
Just as NextSeq 500 and 550 allowed our benchtop customers to take on larger studies and higher output methods, the NextSeq 1000 and NextSeq 2000 provide access to a flexible platform that enables higher intensity applications, which until now have been largely limited to the high throughput systems.
With the cost efficiencies and much improved user experience, customers can undertake projects with greater outputs and sequencing intensity to further scientific discoveries and clinical use cases.
With two-and-a-half times the output of the NextSeq 550, the new NextSeq 2000 will allow customers to sequence more deeply and analyze more samples in a single run at half the cost.
The new flow cells are designed to work seamlessly with our smaller integrated cartridges that decrease storage and waste footprint by almost 4 times.
We have also significantly improved the efficiency and turnaround time of secondary analysis, with a simplified workflow and turnkey informatics suite. This is the first system to have our DRAGEN Bio-IT Platform integrated onboard, enabling a 3 times reduction in data touch points and 6 times secondary analysis.
With a list price of $335,000, NextSeq 2000 will ship in limited quantities later this quarter, with the P2 flow cell that will enable existing NextSeq customers to transition seamlessly and start to benefit from the easier workflow, data management and lower cost.
Later this year, we will launch the P3 flow cell for the NextSeq 2000 with an output of up to 300 gigabases. And around the same time, we will launch the NextSeq 1000 with a list price of $210,000.
As customers consider and adjust their plans following these launches, we expect a more muted start to 2020 with revenue linearity similar to 2017. In total, we're expecting to ship approximately 500 NextSeq 1000s and 2000s this year.
Illumina will continue to lead the genomics revolution in 2020 with new sequencing innovations, new products and new partnerships intended to accelerate the adoption of research and clinical sequencing for the benefit of humanity.
Nearly 17 years after completion of the first human genome, we remain in the earliest phases of discovering everything the genome has to teach us and I have never been more excited by the opportunity for Illumina as we enter 2020.