Illumina Inc. crushed analysts’ estimates for the third quarter, posting revenue of $794 million vs. the Street consensus of $716 million. Driving results were sequencing consumables, which racked up $500 million in the period, with clinical sequencing hitting 96% of pre-COVID-19 levels, up from 84% in the second quarter.
At $794 million, total revenue was down 12% from the same period last year but 26% higher than the second quarter of this year. Gross margin was 66.2%, compared with 71.5% in the prior year period, while R&D spending outpaced 2019’s Q3 at $172 million vs. $151 million.
“Our business accelerated in the third quarter, with sequencing consumable revenue growing 29% from the second quarter,” said Francis deSouza, Illumina’s CEO. “We’re also making progress incorporating genomics into the standard of care in noninvasive prenatal testing, oncology therapy selection and genetic disease diagnosis. Looking forward, we believe our planned acquisition of Grail will catalyze a new era of early cancer detection, transforming cancer survivability and opening up the largest application of genomics we’ve seen.”
Growth in liquid biopsy
Expectations for the liquid biopsy market are running high, with predictions that it could near $6 billion by 2030. Last month, San Diego-based Illumina announced plans to acquire Grail Inc., a liquid biopsy startup in Mountain View, Calif., for $8 billion in cash and stock. The deal, which brings back into the fold a company it spun out in 2016, would give Illumina a major stake in the race to develop a less-invasive way to diagnose cancer.
Exact Sciences Corp. further validated the growth potential in the nascent sector with the news that it will pay $2.56 billion for two blood-based screening companies, Thrive Earlier Detection Corp. and Base Genomics Ltd.
Puneet Souda, of SVB Leerink, gave Illumina’s Q3 results a thumbs up. “We remain Outperform on ILMN with our view that the majority of the population in the developed and the emerging worlds are likely to be sequenced by one or more genetic tests in their lifetime, creating a massive market benefiting ILMN the most,” he wrote.
On the Grail deal, he acknowledged that it makes strategic sense, but underscored the need for near-term advances to generate Illumina’s growth.
“Although we remain confident in the LT value of liquid biopsy and Grail’s transformative potential, in the near term we believe product innovation in the core sequencing franchise with a new product cycle is essential to drive elasticity of demand and accelerate growth in the core business.”
Consumables, NGS tumor profiling
During a Thursday afternoon earnings call, deSouza said sequencing consumables grew 29% sequentially, with strength across the company’s high-, mid- and low-throughput product portfolios.
“Nextseq momentum continued to build, with mid-throughput consumables growing both sequentially and 3% year over year, and we expect continued growth in the fourth quarter. Sequencing instruments also outperformed expectations, with revenue up 24% sequentially,” driven by increased shipments of the Novaseq and Nextseq platforms, he said.
There are encouraging signs that next-generation sequencing (NGS)-based tumor profiling is gaining momentum, de Souza said, pointing to a recent European Society for Medical Oncology recommendation on the use of NGS in oncology and U.S. FDA approval of Guardant Health’s Guardant360 and Foundationone liquid CDx.
Additionally, the American College of Obstetricians and Gynecologists (ACOG) recommended that noninvasive prenatal testing be made available to all pregnant women. “This is a major milestone, and we expect payers to continue to follow ACOG’s guidance, adding to the already 130 million-plus lives covered for average risk in the U.S.,” de Souza said.
On the research front, NGS is carving out a role in infectious disease, he added, with the likeliest near-term case being research and surveillance for programs like Australia’s national COVID-19 tracking system. In population genomics, sequencing for the U.K. Biobank continued, with levels expected to return to normal and continue into 2021.
Illumina also expects whole genome sequencing services for the NHS Genomic Medicine Service to begin later this quarter, and, given the NHS’ focus on COVID-19, build gradually over the next few quarters.
The company withheld full-year guidance due to the continuing uncertainties of the pandemic. That said, deSouza believes customers are learning to deal with the virus, adding to expectations of a continued recovery.
Currently, about 90% of labs are completely or partially open, compared with roughly half in April, at the height of the pandemic, he said. “They are really gradually ratcheting back up, but in a cautious way.”
He also noted the potential for “catch-up” in cancer screening, as people who deferred screening because of COVID-19 begin to return. And as they do, it’s likely they will get a blood-based test, de Souza said.
“We’re seeing that blood-based tests are actually doing better through the course of the pandemic” than tissue-based analyses for cancer testing, he said. “We think [this] is a durable dynamic … that will continue to play out in the coming years.”