SAN FRANCISCO—Illumina’s new CEO Jacob Thaysen, PhD, shared the sequencing giant’s 2024 priorities and presented preliminary fourth-quarter and full-year 2023 results that beat Wall Street forecasts and pleased investors at the 42nd Annual J.P. Morgan Healthcare Conference.
Illumina, Thaysen said in his presentation, will continue to boost its “topline” or revenues by increasing placements of all its instruments—especially the NovaSeq™ X sequencing system, unveiled in 2022. But it will also work to drive more sequencing activity through partnerships and other initiatives, and by enhancing its commercial processes.
Illumina announced one new partnership last Friday, saying it will collaborate with Janssen Research & Development to develop a novel molecular residual disease (MRD) assay, a whole-genome sequencing-based, multi-cancer research solution designed to detect circulating tumor DNA (ctDNA), with the aim of better understand disease persistence or recurrence after clinical intervention. The value of that collaboration was not disclosed.
The company will also focus on operational excellence by increasing productivity to boost profit margins. But he cautioned that while the economy remains uncertain, Illumina will also assess additional areas where it can cut expenses.
Thaysen cited the more than $175 million in annualized or “run-rate” expenses it reduced since last year through a cost-cutting program that included eliminating an undisclosed number of jobs worldwide, shrinking its real estate footprint, and reducing what it spends on third-party vendors. Illumina launched the cost-cutting initiative last year, to slash its annual expenses by $100 million.
Thaysen also restated that Illumina will move on from its costly purchase of cancer blood test developer Grail, as announced last month, either by selling it to another company or spinning it off through capital markets. By the end of the second quarter, Illumina aims to spell out the terms of its divestment of Grail.
“We are all options on the table,” CFO Joydeep Goswami said at the presentation. “Illumina is evaluating sponsors that could potentially provide financial support if needed. To the extent Illumina needs to provide funding, we will be more likely to issue debt while continuing to prioritize our investment grade-rating.”
“At this point, it’s too early for us to talk about potential valuations,” Goswami added. “Let the market drive that process.”
Illumina’s about-face on Grail reverses a key initiative of CEO predecessor Francis deSouza—one that led to more than three years of opposition from U.S. and European regulators, the latter levying an approximately €432 million ($472 million) fine on Illumina for closing its $7.1 billion acquisition of Grail before gaining approvals. The Grail imbroglio also fueled activist investor Carl C. Icahn’s ongoing effort to change Illumina’s C-suite and board, and thus its direction—a campaign that succeeded when shareholders ousted the deSouza-allied chairman and elected to the board an Icahn ally, and led to deSouza’s resignation in June 2023.
And in another departure from deSouza and deSouza’s predecessor, Jay Flatley, Thaysen said Illumina will focus on containing the cost to customers of its end-to-end sequencing workflow, from sample to insight, rather than simply lowering the cost of sequencing a genome.
“We see customers that are much more interested now to focus on how can you reduce the full cost in the full end-to-end and thereby increase productivity, ease of use and thereby drive new applications. So, this singular focus on also only the cost of sequencing is going to be less relevant in the future,” Thaysen said.
A decade ago, Illumina electrified the J.P. Morgan conference when Flatley trumpeted the arrival of the $1,000 genome, in the form of the company’s HiSeq X10 system. Three years later in 2017, deSouza first articulated Illumina’s commitment to a $100 genome, a commitment he discussed with analysts at the conference two years later. Illumina’s cost of sequencing has fallen further since then, going to $200 by the time Illumina launched NovaSeq X.
During his presentation, Thaysen disclosed that Illumina received 390 orders for NovaSeq X systems and shipped 352 to customers, including 79 during the fourth quarter. Of those shipments, about 35% were purchased by clinical customers, and about 20% by customers who were new to high-throughput sequencing. Illumina entered this year with what Thaysen called a “healthy” backlog of 38 NovaSeq X orders.
Thaysen presented the 352 NovaSeq X shipments to customers in 2023 as a triumph; “Most Successful High-Throughput Product Launch,” the company declared in its slide deck presentation, which compared the number shipped to a company projection that it would sell between 330 and 340 systems.
However, that guidance to investors had been lowered in November from Illumina’s earlier forecast of 390 instruments, when the company issued gloomy third-quarter earnings results that sent shares tumbling to a 10-year low before bouncing back in November and December.
On Tuesday, Illumina investors liked what they heard from Thaysen and the company enough to send shares rising nearly 5%, to $139.74 from $133.66.
NovaSeq X sales helped propel Illumina to about $1.115 billion in revenues during the fourth quarter, up about 3% from Q4 2022, and about 5% above a $1.07 billion estimate offered by a consensus of analysts. For the full 2023, Illumina reported about $4.497 billion in revenues, relatively flat from $4.584 billion in 2022.
“But our focus is beyond the NovaSeq X,” Thaysen added, since Illumina has more than 25,000 instruments of various systems installed, including the more than 2,200 instruments placed with customers in 2023.
“Core” Illumina operations outside of Grail accounted for virtually all of the revenue—about $1.09 billion (97%) in Q4, up 2% year-over-year, and about $4.431 billion (98%) in full-year 2023, down from $4.553 billion in all of 2022.
Illumina will release full fourth quarter and full-year 2023 results on February 8, after the close of financial markets.
For 2024, Thaysen said, “Our preliminary view is that our results will look very similar to ’23,” echoing remarks he made when Illumina released third-quarter results.
That forecast comes despite several product launches by Illumina planned for the first quarter: a 1.5B flow cell (months after launching a 25B flow cell during Q4); Illumina Complete Long Reads (ICLR) enrichment panel; and XLEAP-SBS™ NextSeq™ 1k/2k chemistry.
“I’m very encouraged by the recent positive macroeconomic headlines, and I hope that this will drive momentum in our industry going forward. But until then, we expect our customers to remain cautious and constrained in their purchasing decisions,” Thaysen predicted.
“Very well positioned”
“This will translate into modest instrument purchases, project scopes, and new tests and applications that they have built,” he added. “But if and when the market continues to improve, we are very well positioned to accelerate growth and drive momentum.”
Thaysen had spent more than a decade at Agilent Technologies and five years before that at Dako, the Danish cancer diagnostics developer that Agilent acquired in 2012, before being appointed CEO of Illumina, effective last September. At the time, investors reacted coolly to Thaysen’s appointment because his background had not included any service as a CEO, at Agilent, Dako, or elsewhere.
During the Q&A portion of Thaysen’s presentation, he answered a question from moderator Rachel Vatnsdal, a senior equity research analyst and vice president covering life science tools and diagnostics for J.P. Morgan, by saying Illumina will ultimately benefit from the growing number of competitors it faces in the sequencing business it has long dominated.
Those competitors include Pacific Biosciences (PacBio), which has long specialized in long-reads sequencing; nanopore sequencing company Oxford Nanopore Technologies; China’s BGI Group, BGI spinout MGI and its Complete Genomics subsidiary, which delivered the $100 genome in 2020; Element Biosciences, which markets the AVITI sequencing system; Singular Genomics Systems, which has taken aim at Illumina through its G4 platform; Ultima Genomics, which also markets a sequencing technology that delivers a $100 genome; and 10x Genomics, whose Chromium instruments use various versions of single cell sequencing technology.
“I encourage competition. I think it is great for the industry. I think it’s great for our customers, and it keeps us on our toes, and I love that,” Thaysen said. “I love winning. But what I more love than that is to go out there and make a difference for our customers every day.”
“The infrastructure we built over the last 25 years, our global reach, our compelling offerings around the world and our deep partnership with many of our customers, and our deep commitment, to disciplined innovation will continue, to drive genomics and multi-omics forward for decades,” Thaysen added.