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Illumina Sees Expanding Sequencing Market in COVID-19 Response, Despite Short-Term Woes

NEW YORK – While Illumina has taken a hit to revenues due to the COVID-19 pandemic, the firm sees an expanded total addressable market in the new coronavirus normal.

"If you had talked to us in January, or certainly by December or before, we really would have talked to you much more about the clinical opportunity in oncology and reproductive health, but not a lot about infectious disease," Illumina CEO Francis deSouza told investors on a Thursday conference call following the release of the firm's second quarter financial results.

"What's becoming very clear is that there is a role for genomics in a number of areas in infectious disease," specifically research, diagnostics, screening, and surveillance. Illumina officials touted recent developments in each area that could bring in revenue for the sequencing firm.

For research, several projects announced earlier this year, such as collaborations with Genomics England or Genomics Medicine Ireland, are underway.

The firm's next-generation sequencing-based COVID-19 test, COVIDSeq, now has obtained Emergency Use Authorization from the US Food and Drug Administration, while Ginkgo Bioworks and Helix, two companies with close ties to Illumina, recently won funding from the National Institutes of Health for NGS-based diagnostics. In May, Illumina led a $70 million investment into Ginkgo. NGS is "going to be an important part of the diagnostic testing market going forward and that's new and that's real, deSouza said."

Illumina is in talks with 12 organizations in 10 countries that are evaluating COVIDSeq. One partner, India's Institute of Genomics and Integrative Biology, completed a clinical validation study of COVIDSeq and reported sensitivity of more than 98 percent along with an increase in diagnostic yield of between 8 percent and 10 percent compared to PCR, deSouza said.

Illumina also announced its technology would be used in a screening program at Delaware State University as the school attempts to bring students back to campus for the fall semester.

"[Screening] represents an entirely new opportunity around thinking about how you create safe environments in schools and work, and that's a new part of the market that's becoming accessible to genomics," deSouza said.

Though Illumina saw "very little" COVID-19-related revenue in the second quarter, "we expect that to start to build into the back half of the year," deSouza said. "We are modeling little COVID-related revenue certainty in Q3, but there are a number of areas where our customers are looking to use sequencing that we expect to start to contribute revenue in Q3, and then ramping in Q4."

Over the three months ended June 30, 2020, Illumina saw a 25 percent reduction in total revenues and was hit particularly hard in the research sequencing market, officials said.

Sequencing run rates in research, a metric the firm has been providing to gauge the recovery, are still only 65 percent of what they were in Q4 2019 before the pandemic.

But projects affected by COVID-19 have more often been deferred, rather than cancelled, deSouza said. "Even in cases where there is a deadline associated with the funding for those projects, in many cases the deadlines are being pushed out to allow them to come back and pick up on the work," he said.

Customers have suggested to Illumina "that there is additional funding coming into the mix as a result of the pandemic," deSouza said. Genomics research into host response and disease severity are among "a whole host of other things that's driving more dollars into the research market," he said. Early proposals for the NIH budget are calling for an increase of around $5.5 billion, he added.

For COVIDSeq, Illumina began working with several early-access customers at the end of the quarter, deSouza said. The firm is pursuing EUA amendments to add the ability to collect saliva samples, improve automation, run the test on its NextSeq platform, and add an RNA extraction method. Sequencing on the mid-throughput NextSeq instruments "will enable lower throughput labs to offer COVID-19 diagnostic testing locally, which could supplement current PCR test providers who are experiencing turnaround times of up to 10 business days," deSouza said.

During the Q&A part of the call, Cowen analyst Doug Schenkel questioned how big a role NGS-based testing could play. "I think it's fair to say there is a ton of debate in both the clinical, as well as the investor, community about how big a role Illumina NGS approaches such as SwabSeq can play, as a true clinical testing solution given the associated complexity and logistical challenges," he said.

He pointed to the Broad Institute, which he said "[has] no plans to use Illumina NGS" in its COVID-19 testing, despite the access to instruments and expertise to do so.

In response, deSouza noted that turnaround times for PCR-based testing can be as much as 10 days, or more. "When you ask the labs why that is, they will tell you there are supply chain constraints, that all the PCR testing services are competing for some of the same elements in the supply chain," he said. "We were talking to one lab and they said on a given day they will turn down 20,000 people for tests just because there is no capacity; so, there is clearly need for a sizable system that doesn't compete for the same supply chain."

On the topic of infectious disease surveillance, deSouza said he was aware of several initiatives that are beginning to look at COVID-19 tracking and epidemiology. Others are "looking to put together infrastructure that will last beyond this pandemic," he said, including unspecified efforts from the Centers for Disease Control. "This is something that I think is durable because it's becoming very clear that we need a global pathogen surveillance network that's genomics-based." In addition to coronavirus, an early warning system could be useful for threats like antimicrobial resistance and bioterrorism, he said.

In addition to the market opportunities provided by the pandemic, Illumina officials provided updates on several new products.

The new NovaSeq 6000 v1.5 reagent kit has a longer shelf life and enables extra cycles, deSouza said, which could bring down the sequencing costs of a genome to $600. The kit supports the new PCR-free library prep, which the firm released in late July and said can reduce prep time by as much as 75 percent.

"Customers are showing continued interest in the P3 flow cell [for NextSeq 2000], which remains on track for a fourth quarter launch," deSouza said.