NovaSeq Orders Bring Pleasant Surprises, Says deSouza

EDITS: 4/27 additional details and commentary were added in the final section covering the single-lane device and consumables. 

By Allison Proffitt 

April 26, 2017 Illumina held its first quarter earnings calls yesterday. Francis deSouza, President and CEO, reported that the launch of the company’s new sequencing platform, NovaSeq, “surpassed our expectations, with more than 135 orders in Q1.”

“As far out as we can see, there’s an insatiable demand for high throughput sequencing,” deSouza crowed.  

The company reported revenue of $598 million, a 5% increase compared to $572 million in the first quarter of 2016. Consumables accounted for 65% of total revenue. At the close of the quarter, the company held $1.8 billion in cash, cash equivalents and short-term investments, compared to $1.6 billion as of January 1, 2017.

Most customers who ordered NovaSeq platforms were existing Illumina customers of one of the HiSeq platforms, reflecting the “start of the HiSeq replacement cycle,” deSouza said. In January, deSouza said that the HiSeq install base included 800 customers and about 1,900 instruments. These customers are, “looking to refresh their fleet, and run at the more economic price per gigabase,” he said yesterday. He reiterated that Illumina has about 800 “active” HiSeq customers. “The replacement of older generation instruments by NovaSeq is just beginning.”

About 40% of the 135 NovaSeq orders came from Illumina’s 30 HiSeq X customers, the large genome centers, for example, deSouza clarified. He said the company was particularly surprised by this interest. More than 1/3 of the 30 HiSeq X customers placed NovaSeq orders, deSouza said, “many of which were multi-unit deals.”

About 10% of NovaSeq orders were from customers “new to sequencing”, deSouza said (or at least new to Illumina instruments). He wasn’t particularly surprised by the percentage of new customers. Some of those are “regionally oriented”, he said particularly Chinese groups catalyzed by the China Precision Medicine Initiative. But he did concede that most of Illumina’s new customers “typically show up at the lower end of our portfolio.”

“We were really encouraged to see the broad mix of customers, validating a thesis that there is an upgrade cycle in progress here… but the NovaSeq platform is also attractive to HiSeq X customers, especially as [the S4 flow cell] comes out later in the year.”

The company manufactured and installed more than 25 of the ordered instruments during the first quarter, deSouza reported, and is actively scaling manufacturing capabilities to meet demand. Second quarter manufacturing will still be constrained, though deSouza agreed that doubling the number of NovaSeq placements in Q2, to 50, is a reasonable expectation. DeSouza expects to exit the third quarter with manufacturing scaled to meet quarterly demand.  

But deSouza insists that the new platform will drive more than just the company’s upgrade cycle. Echoing his comments at the platform launch in January, deSouza said, “We expect NovaSeq, with its power and its price point, to drive the elasticity of the market.” He cited new kinds of projects from customers including liquid biopsy, oncology, and deep sequencing projects, and reported that NovaSeq’s capabilities are driving conversations with those new to the high throughput space.

In January, deSouza announced programs through which existing customers could switch from HiSeq products to NovaSeq. For customers who have bought a HiSeq or an X in the past two quarters, deSouza said Illumina will exchange that instrument for partial value applied to a NovaSeq. For customers with X instruments on order that they haven’t received, they can change that order to a NovaSeq and keep all of their investment.

Yet customers seemed to have not taken advantage of those options as the company expected. deSouza reported continued demand for HiSeq and HiSeq X instruments in the first quarter, a “pleasant surprise”, he said.  Some customers chose to acquire additional HiSeq capacity before the broad availability of NovaSeq; some HiSeq X customers added capacity for ongoing whole genome projects.

Customers in China, specifically, took shipment of previously ordered HiSeq X instruments—instead of canceling those shipments and converting the order to NovaSeqs—“at a level that exceeded our expectations,” he said. The HiSeq X platform in general remains very competitive in China, deSouza said. “Until we get to the S4 [flow cell, shipping Q4], it’s going to continue to be a very competitive platform. 

However, deSouza said the company remains “muted” in its outlook for the HiSeq lines. “We expect the vast majority of customers will wait to access the NovaSeq platform.”

Feature Set

NovaSeqs installed during the quarter are already producing data, deSouza said. And the feedback from those customers has been positive.

Illumina has already heard that customers want to address each lane of the flow cell independently, deSouza said, and on Monday the company announced an accessory device and related consumables that would enable this functionality. The updated workflow will be compatible with all NovaSeq flow cells, and will begin shipping in the fourth quarter shortly after the launch of the S4 flow cell. The new workflow “allow customers to load different projects, libraries, and applications in each lane, increasing their multiplex capabilities and reducing the DNA input for each one,” deSouza said.

In follow up emails Joel Fellis, director of Product Marketing, Sequencing Systems for Illumina, said specifics would be provided at the device's commercial launch. But he was able to share some details. "We are developing a device and workflow that will allow users to partition libraries in different lanes of the sequencing flow cell. This device will ensure robust and proper loading of the libraries, and deliver data quality on par with the standard workflow," he said in an email to Bio-IT World. 

DeSouza mentioned consumables with the new workflow, and Fellis clarified that the workflow will use standard NovaSeq consumables, but additional consumables will be required to support the individually addressable lane workflow.

"Illumina is doing extensive development and testing to ensure that this workflow provides robust performance with the highest levels of accuracy," Fellis said. 

On the call, deSouza stressed that these are incremental improvements to the platform. “They’re good, but they’re not going to change fundamentally the demand trajectory,” he said.