Illumina Inc (ILMN) 2006 Q1 法說會逐字稿

Good afternoon, and welcome to Illumina's first quarter earnings conference call. This call is being recorded.

At this time I'd like to turn the call over the Bill Craumer, Director of Corporate and Marketing Communications at Illumina. Please go ahead, sir.

Thanks, Keith. Good afternoon, everyone, and welcome to our conference call.

After the close of market today we released our financial results for the first quarter of 2006. During this call we will review our results, update our financial guidance for fiscal 2006, and provide commentary on commercial activity after which we will host a Q&A session.

Presenting for Illumina today will be Jay Flatley, our President and Chief Executive Officer and Christian Henry, our Vice President and Chief Financial Officer.

The call is being recorded and the audio will be archived on our Web site at llumina.com.

During the call we will be updating our financial guidance and discussing financial future activity. Our intent is for these forward-looking statements to be protected under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainty. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current information available and Illumina assumes no obligation to update these statements.

To better understand risk factors we refer you to the document that Illumina files with the Securities and Exchange Commission including Forms 10-K and 10-Q.

I will now turn the call over to Christian.

Thanks, Bill. Good afternoon, everyone, and thanks for joining us today.

I hope that you've all had a chance to review our financial results that we released after the close of market.

I would first like to walk you through our operating results for the first quarter of 2006 and then follow with an update of our financial guidance for fiscal 2006. I will then turn the call over to Jay for an update on the Company's progress.

For the first quarter we are pleased to report our 19th consecutive quarter of revenue growth. For the quarter total revenues were $29.1 million which represents a year-over-year growth of 92%.

On a sequential basis total revenue grew more than 26% over Q4 levels.

On a year-over-year basis Q1 product revenue grew 91% to 23.3 million. This growth was driven primarily by triple-digit increases in both genotyping and gene expression consumables.

For example, revenue from gene expression chips grew more than 400% over the comparable quarter in 2005 and over 100% compared to the fourth quarter.

During the quarter we shipped 24 BeadStations bringing our total cumulative shipments of BeadStation and BeadLab scanners to 150. Of the 24 BeadStations shipped, six units were recorded as long-term deferred revenue in connection with our investment in Genizon Biosciences.

Let me take a moment to discussion our recent purchase of secured convertible debentures in Genizon Biosciences, a Canadian company focused on discovering the genetic basis for common diseases.

Genizon has been using Illumina's GoldenGate genotyping assay for their custom genotyping projects since 2004. Upon the launch of Illumina's whole genome genotyping solutions and in particular the HapMap300, Genizon decided to switch from a competitor's technology and broadly adopt Illumina's products for whole genome genotyping.

As Genizon's primarily technology partner we were excited to participate in their financing, which closed in March. The financing provides Genizon with the opportunity to genotype up to 16,000 samples in a broad range of disease categories.

As a result of our participation in the financing, we concluded that it would be appropriate to defer all revenue related to shipments to Genizon up to the level of our participation in their financing, approximately $3 million. Therefore, in the first quarter we deferred approximately 2.8 million related to shipments of instrumentation and consumables to Genizon.

This deferred revenue is recorded as a long-term liability on our balance sheet. Additionally, the COGS associated with the product shipments was also deferred and is being recorded as a long-term asset.

The deferred revenue in COGS will be released once payment for the purchase debentures become assured. The debentures will become due upon the earlier of our liquidity event by Genizon, or March 2008. Once we exceed the $3 million related to our purchase of the debentures, we will resume revenue recognition.

Turning back to the P&L service and other revenue increased over 95% for the quarter to 5.3 million compared to 2.7 million in Q1 of last year. Services and other revenue included revenue from our genotyping services business and revenue earned from instrument maintenance contracts.

In the first quarter the Company completed and delivered over 20 genotyping services contracts including a significant project under our arrangement with CRUK.

Before discussing our operating expenses for the quarter I would like to describe the effect of FAS 123R which requires us to expense stock options beginning this quarter. The total impact to the P&L for the quarter was approximately 3.1 million, and as prescribed by the standard, the expense is allocated to each operating expense line.

As I indicated on our last call, we have not restated our historical financials for the impact of expensing the options. In the discussion that follows, I will discuss both our GAAP expenses, which includes the effect of FAS 123R and the corresponding non-GAAP figures.

I urge everyone to review the schedule included in our earnings release that reconciles GAAP figures with non-GAAP.

Costs of products and services revenue was 9.3 million for the quarter compared to 4.6 million in Q1 of '05. Costs of product and services revenue included stock-based compensation expense of $250,000.

Non-GAAP product and services gross margin was 68.3% for the quarter compared to 67.6% last quarter and 69% in the first quarter of 2005. As we previously indicated, product and services gross margin will fluctuate based primarily on product mix.

In the first quarter revenue was more heavily weighted towards consumables which had a favorable impact on gross margin. In fact, excluding the gross margin associated with the one-time payment from Invitrogen recorded in the fourth quarter, product and services gross margin improved by 2.4% in the first quarter.

Research and development expenses increased by 2.3 million in the quarter to 8.2 million compared to 5.9 million in the first quarter of 2005. Of the 2.3 million increase, approximately 943,000 was related to stock compensation expense.

The remainder of the increase was due primarily to the inclusion of CyVera's research and development expenses in the quarter as compared to 2005.

SG&A expenses were 12.1 million for the quarter compared to 6 million in the first quarter of 2005. Of the $6.1 million increase, 1.9 million was related to stock compensation expense.

The remainder of the increase is related to the expansion of our commercial activities required to support our revenue growth and increased spending in litigation.

For the first quarter we reported a net loss or 104,000, or breakeven, per basic share. This compared to a net loss of 1.2 million, or $0.03 per basic share in the first quarter of 2005.

Without the impact of stock compensation expense, we are pleased to report net income of $3 million, or 10.4% of revenue. On a fully diluted basis this represents earnings of $0.07 per share.

From a cash flow perspective we were cash flow positive from operations in the first quarter, generating approximately 2.4 million. On an overall basis we ended the quarter with 49.0 million in cash which represented a total cash burn of approximately 1.8 million.

This was driven by our-- the cash burn was driven by our investment in Genizon and the purchase of capital equipment associated primarily with the expansion of our BeadArray manufacturing capability.

Accounts receivable via sales outstanding improved for the second consecutive quarter. DSO for the quarter was 66 days compared to 70 days at the end of the fourth quarter and 81 days at the end of the third quarter.

This is especially gratifying given the large increase in shipments during the quarter. Going forward we expect DSO to continue to fluctuate from quarter-to-quarter based on the geographic mix of revenue and we continue to maintain our internal goal at around 75 days.

Inventory grew by 2.6 million during the quarter from 10.3 million at year-end to 12.9 million at the end of the first quarter. The increase in inventory was primarily related to the capitalization of the BeadPools associated with our HumanHap550 and HumanHap240s products which were launched late in the quarter.

I will now update our financial guidance for the remainder of the year. Consistent with our previous call, the following guidance excludes the impact of FAS 123R.

I will provide an overall estimate of the impact of FAS 123R at the end of my remarks. For additional detail, please refer to the table in our earnings release that reconciles our non-GAAP guidance to the related GAAP figures.

Now, let's talk about our view for the remainder of the year. We are currently seeing strong demand for our products and see particularly robust growth in the whole-genome genotyping market.

Given these market conditions and our performance in the first quarter, we now expect annual revenue to be between 130 and 140 million, which is an increase of 15 million over our previous guidance of 115 to 125 million. Our updated revenue guidance represents growth between 77 and 90% over 2005.

Product and services gross margin is expected to center in the upper 60s, but will vary some from quarter-to-quarter based on the product mix. Research and development expense is expected to range between 30 and 35 million for the year, while SG&A expenses are expected to range between 40 and 46 million.

Excluding the impact of expense associated with stock options, we expect to be profitable in each quarter of 2006 with total annual net income between 11 and 18 million. On a primary basis, this would yield earnings per share of 26 to $0.43 assuming weighted average shares of approximately 42 million.

On a fully diluted basis we are estimating total weighted shares of 47 million, which would result in earnings per share of 23 to $0.38.

As a result of the increase in our stock price in the first quarter, we are now forecasting total stock compensation expense to range between 12 and 15 million. This estimate is highly dependent on changes in our underlying stock price.

For the year we now expect to be at least cash flow breakeven. Working capital requirements and spending on capacity expansion continue to be the key drivers of cash flow in 2006.

In the second quarter we expect total revenue to range between 31 and 33 million. Excluding the impact associated with stock options, net income per share should range between $0.07 and $0.09 per diluted share.

At this point, I will turn the call over to Jay for additional comments before we begin the Q&A. Jay?

Thanks, Christian, and good afternoon, everyone.

The first quarter substantially exceeded our expectations. We reported revenue growth of more than 92% over last year and more than 20% above our published guidance.

On the bottom line achieving 10.4% net profit is a remarkable achievement in only our second quarter in the black. Hopefully, this gives you some sense of the potential and power of our business model.

Additionally, we launched several important new products and completed our program to triple our BeadChip manufacturing capacity.

One of the keys to our strong financial performance was the significant increase in our capability to produce BeadChips. This is highlighted by the fact that we produced more than twice as many BeadChips in the first quarter as we did in the fourth quarter of last year.

The program we announced at the end of Q2 '05 to triple our capacity has been completed, and because we strongly believe the demand for our products will continue to increase over the next couple of years, we've commenced another phase of capacity expansion that will double our BeadChip manufacturing capacity from current levels. This expansion will be implemented in our current facility in San Diego and is expected to be completed during the third quarter of this year.

Another driver of our financial performance for the quarter was our fast track services business. During the quarter we completed 20 genotyping service contracts and have now delivered over a billion genotypes to our customers.

Additionally, our services business gained further momentum with the announcement of several significant new contracts.

One such contract announced in February is with SAIC-Frederick Incorporated under prime contract to the National Cancer Institute. Under this contract our services group will perform whole-genome SNP scans on over 2,500 prostate case and control samples provided by the Institute.

The genotyping supports the cancer genetic markers of susceptibility, or CGEMS, and NCI's strategic initiative. We expect to complete this contract before the end of the second quarter.

Last week we signed a second large services project funded by the Cancer Research UK. This project will investigate the genetic factors involved in prostate cancer and is valued at nearly $7 million.

Our genotyping services group will conduct whole-genome genotyping using our recently launched HumanHap550 BeadChip on more than 4,000 prostate samples and controls. Once this first phase is complete we plan to develop a custom BeadChip that will enable the analysis of the most important 24,000 SNPs discovered in Phase I. This product will then be used to genotype at least 8,000 samples.

The CRUK has been quite excited with the results we've provided on their first project and we look forward to getting started on this new follow-on program.

Over the past 6 months we've signed a wide range of significant whole-genome and genotyping deals that are designed to help elucidate the genetic factors in over 20 major diseases. We strongly believe that this market is in its infancy and that the demand for disease association projects will continue robustly into the foreseeable future.

Only a small fraction of laboratories have adopted whole-genome and genotyping to date and there's a substantial opportunity to expand the number of labs performing genotyping both domestically and internationally.

In addition the pharmaceutical and biotech industries are just beginning to adopt whole-genome genotyping. We believe that the clinical trial, pharmacogenomic and post market surveillance opportunities will be much larger than the research opportunities we have seen to date.

The explosion of the whole-genome genotyping market will also continue to grow our custom genotyping business. As initial whole-genome scans are completed, we expect there to be follow-on custom studies designed to examine all of the SNPs in a particular region of interest.

Our custom genotyping solutions using either GoldenGate or Infinium methods are extremely flexible and will enable researchers to economically study thousands of samples at any level of desired multiplex. We're already experiencing this effect as shown by the continued growth in our custom business and the fact that many whole-genome genotyping contracts that we're now signing exclusively include follow-on custom studies.

As an example, demand for our Array Matrix products in the first quarter was nearly three times the demand of the year-ago quarter.

Since our last conference call, we've launched several important new products. The first I'd like to highlight is our HumanHAP550 genotyping BeadChip.

This chip contains over 550,000 SNP markers on a single microarray and provides the most comprehensive genomic coverage of any commercially available microarray in the market. The product was developed using an approach similar to the HumanHap300.

An advisory committee mad up of HapMap participants and statistical geneticists from several leading institutions collaborated with our development teams to select content based on knowledge gained from the HapMap project. Since the HumanHap550 uses our Infinium assay, the committee was able to select tag SNPs from virtually anywhere in the genome.

This tag SNP approach enabled us to develop a product that will efficiently genotype the entire human genome with unprecedented coverage.

Finally, since the product is manufactured using the same processes as our HumanHap300, the performance of the array and the underlying data quality is comparable to our existing whole-genome products.

The HumanHap300 has fundamentally changed the way the market thinks about performance and quality. Our customers report data quality that sets a new standard for this emerging market.

In late March we also launched a companionship to the HumanHap300 called the HumanHap240s. This product enables researchers who've already run the Hap300 to economically run a second chip on their samples in order to get coverage equivalent to the Hap550.

We're on track to begin shipping the HAP550 before the end of this month while the HAP240s is available for immediate shipment.

Finally, just yesterday we announced the availability of the Illumina AutoLoader. This AutoLoader is the latest in our line of automation solutions and is designed to stage up to 40 high density centrix BeadChips for scanning on a BeadStation.

This is sufficient for 15 hours of unattended walk-away automation. Combined with the new software release for a BeadStation that increases scan speed, our customers can now achieve scanning throughput 400% greater than previously possible.

With these improvements the average scan time for our Hap300 chip is around 25 minutes. We believe that this is the fastest scan time in the industry for whole-genome genotyping products.

The AutoLoader is another example of our focus on automation. Since Illumina's original business was focused on high throughput custom genotyping, we've developed significant expertise in providing automated solutions that not only increase the throughput in researcher's labs, but improves the quality of the data generated as well.

With extensive robotics for sample preparation, positive tracking of samples using LIMS software, and now with the AutoLoader we believe we provide the industry's most comprehensive automation solutions for investigative performing whole-genome or custom genotyping studies.

I'd now like to provide an update on our progress with CyVera. In our last conference call, I indicated that we planned to launch our new CyVera platform before the end of 2006.

As part of our recent prelaunch activities, we've branded our CyVera scanner as the BeadExpress System. Our development program continues on track and we plan on launching the BeadExpress Reader as well as several core assays before year-end.

Our early marketing activities have validated the scientific communities enthusiasm for this system. Researchers particularly like the fact that the same assays that run on the BeadStation platform are being developed for the BeadExpress System.

With the launch of this system we will provide compelling solutions for researchers at virtually every level of multiplex from the infinite multiplex capabilities of our Infinium Assay to the low to mid-complexity of our BeadExpress platform. Consistent with our previously communicated strategy, the BeadExpress platform will be launched into the research market and sold by our direct sales force.

The platform is also designed to address the emerging diagnostics market where we plan to work with partner companies.

Before I conclude my remarks, I'd like to comment on our progress in developing our commercial infrastructure. During the quarter we hired more than a dozen new people to support our growing commercial operations.

In fact, this morning we announced the appointment of Arthur Holden to the position of Senior Vice President of Corporate and Market Development. In this role Arthur will be responsible for developing and executing on our market develop strategies, particularly in the pharmaceutical market and with research consortia.

Arthur brings a wealth of experience in the medical and healthcare technology businesses. He served as CEO of the SNP Consortium and spent much of his career in executive roles in the diagnostics industry at Baxter International.

In summary, we believe that we're uniquely positioned to address an extremely dynamic market opportunity with the industry's most flexible, highest performance and scalable technology platform. Solid execution will enable us to achieve market leadership, significant revenue growth and positive cash flow.

I think we're now ready to open up for questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll pause for just a moment to assemble our roster. We'll go first to Quintin Lai. Please go ahead.

Real quickly with respect to the consumables that you're seeing now on the BeadStations that are placed. Last quarter you talked about a range of 50,000 to 500,000 per year. Are you seeing an increase in consumption per BeadStation placed?

Yeah, we are. You know, the ranges remain about the same in terms of the extremes of consumption, but the average consumption rate, which we've begun to track and I think over the next few quarters will become increasingly statistically meaningful, those average numbers have increased over the last three quarters consistently.

So are we still kind of in the early stage of that ramp as you get more systems placed and I guess how long does it take on average for a newly placed system to hit full stride?

Well that's an interesting new aspect of the whole-genome genotyping market and the whole genome expression market that is in contrast to the custom genotyping business that used to be our core area.

In the custom business it used to take three to six months for customers to ramp-up to full utilization. That's quite different now in the whole-genome genotyping market. Often customers are ordering multiple scanners, and the way that we have programmed how many scanners they require assumes full utilization of those scanners and that utilization may be single shift so seven to eight hours, or in some cases multiple shifts, and so many of the new scanners that we place are used almost full-time right out of the chute.

With the new software upgrade is that going to get pushed to all of the existing BeadStations that are out there now and could that increase the utilization per BeadStation placed?

It will, and it will be available to anybody who wants to use it. You don't have to use it, but you certainly can use the new mode which scans the chips faster.

Many of our recent large installations we've already communicated that in terms of the specification we put on their configurations included the use of this higher scan modes because we've obviously known this has been coming for some time.

And Jay, lastly could you give us an update on the Illumina Oligo partnership and what the impact was on the quarter? Because was this the first quarter of full partnership?

The partnership is almost fully implemented. The only parts that remain relate to the installation of our Oligator technology in two of the international [IVGN] sites. That's a minor impact on the overall model so most of it was in place through-- almost all of Q1 but not quite.

The overall revenue for the quarter, I'd say the growth of that was not a very large factor in our overall growth as a company, but that revenue did grow nicely from the Q4 level so we're very pleased with what we saw in Q1 over Q4. We're continuing to deliver per our commitments to Invitrogen both in quality and in timing of deliveries. We think the trend lines in the business look quite good, however, the sales and marketing of this as you know is now out of our hands and that lies exclusively with Invitrogen.

All right. Thanks.

We'll take our next question from Edward Tenthoff with Piper Jaffray. Please go ahead.

Great. Thank you very much and congratulations on a fantastic quarter and also on bringing Arthur on board.

Thanks, Ed.

Just to make sure I got it right, I apologize, I'm actually on the road today, but the 2.8 million in deferred revenues from Genizon, so they were not recognized in the first quarter and as a result 1Q would have been higher? Is that correct?

That's correct, Ted. This is Christian speaking.

Hey, Christian, how are you?

Good.

Wow, that's incredible. And now, when do you expect, again, I know you went into a little detail on this in your prepared remarks, but when do you think that 2.8 or so might hit and if they have incremental revenues in the second quarter would you still have to defer that or no?

No. So-- good question. So we-- I'll address the deferred revenue question first.

Starting in the second quarter, once we hit the 3 million in investment that we made in Genizon, every dollar above that will be recognized as revenue, so we fully expect to start to recognizing revenue for Genizon in the second quarter.

With respect to the timing of the release of the deferral that will be dependent upon when we feel comfortable that Genizon, that the debentures will run to maturity and will ultimately be repaid on those debentures. And so more than likely that's a long-term item, it won't really-- I don't think it will occur until 2007 or early 2008.

Okay. Fair enough.

And then if I may, more of a kind of 30,000 foot-view question, but can you kind of gauge for us where pharma interest is? I know in the past the majority of sales have been to genotyping, but is pharma interest increasing and can you kind of walk us through what that selling cycle's looking like?

I'd say the pharmaceutical interest is definitely on the increase, and we have been interacting with most of the major pharmaceutical accounts since our launch of the whole-genome genotyping products. We have announced publicly some relationships we've established. Clearly, one of those is a standing services contract with GSK and they're widely recognized as sort of the visionary in this area in terms of the pharmaceutical companies and they continue to move very rapidly towards adoption of whole-genome genotyping.

We think other pharmaceutical companies will as well, and I guess the way I'd characterize this is that they've-- as a group sort of moved from the consideration of whether to do whole-genome genotyping more towards the consideration of how to do whole-genome genotyping and that would include considerations about which clinical trials to use it in, which sites to use it, whether to outsource it or bring the technology in house. So I think they're all beginning to seriously think about this and you'll see adoption in the next year to two years on a widespread basis.

Great. Thank you very much and again, congrats.

Thank you.

We'll go next to Zarek Khurshid with Caris & Company. Please go ahead.

Hi, guys thanks for taking my call and congratulations on a fabulous quarter.

Thank you.

Could you just give us some more color on the product revenue line? You know, were there any big box system upgrades, you know, what's going on with the rental program, did some of the rentals from the prior quarter get, you know, actually, you know, placed?

Right. So just to give you a little bit of color on instruments, we didn't really have a lot of new rentals this quarter. We did have, I believe, one system that converted from a rental in prior quarters into a sale.

And in terms of the leasing program, I believe none of the instruments were leased this quarter. So they were all sales.

Great. And one final question.

You know, with regards to the expression growth of 100% sequentially, you know, what do you attribute to that? And do you expect that kind of growth going forward?

Well, we haven't, you know, projected our growth by product line so we're not prepared to give a forecast on it, but we entered the quarter with a strong backlog, we had great production during the quarter and we're seeing continued conversion of customers to using our expression chips. They offer tremendous value, great performance at a terrific price point.

So we continue to be optimistic about our ability to penetrate this market over time, and as I've said, it's not going to be a sprint where we'll have huge conversion all at once, but we keep working hard to convert customers on a quarter-by-quarter basis.

Great. Thank you.

Our next question's from Constance Vasai with Cowan. Please go ahead.

Hi, congratulations on a very nice quarter.

I was just wondering if you might be able to characterize the percent of sales that consumables comprise?

Connie, it was little bit more than 50%.

Okay. And do you expect these levels to increase significantly over the next few quarters? Or will it be just a slow trend as your installed base continues to grow?

Well, I think it will be dependent upon how people ramp-up, as Jay kind of alluded to a couple of questions ago, we are seeing the average consumables per system increase every quarter and so as that continues we'll see it become a greater proportion of revenue. We haven't really given guidance on how that changes necessarily over time, but I do believe it will be a greater proportion than it is today.

Okay. And-- I think most of my questions have been answered.

I guess there is some question about how large the genotyping market really is, and Jay mentioned in his prepared remarks that Illumina might be targeting some of the more underpenetrated markets where perhaps Wall Street has not been able to see. Would you be able to characterize what types of labs those are and where you're seeing them both in the U.S. and ex-U.S.?

Sure. The labs that have adopted whole-genome genotyping so far are the very large scale labs that are extremely well funded. They're a small percentage of the total labs worldwide that we think will ultimately adopt whole-genome genotyping.

There's many other labs that will go into a process where they'll be raising money, applying for grants and we're seeing very robust application flow for grants to do whole-genome genotyping and so we think the number of labs that will do this over the next couple of years will expand dramatically. We also think that there will be additional adoption and significant adoption in the pharmaceutical and biotech industries.

And have you applied to any of the research funding that's been designated for the cancer genome project?

We haven't disclosed any of that Constance so at the time that those grants become awarded we'll announce them if we've participated in winning any of them.

Okay. And then just a last quick question.

In terms of the Markman hearing. I know it was pushed out to, I think, it was early or mid-April. Is that correct? Have we had any update on that?

It's this Thursday.

Okay. Thursday. Great. Thank you.

We'll take our next question from Isaac Ro with Leerink Swann. Please go ahead.

Hi, guys. Thanks for taking my question.

First off, could you guys maybe give us a sense of where you are at capacity right now for your BeadArrays given the recent increases to your current facilities?

Well as I said in my remarks, we've tripled our capacity since the second quarter and, you know, we were running at pretty near full production for the quarter just completed, so that will give you a sense of what we can generate with what we had in place, and we are certainly now embarking on a significant expansion program beyond that.

We have the ability, as we've mentioned before, to continue to increase capacity on sort of a modular basis as we watch what's happening in the market. We track the large deals that we win or lose, and we can adjust capacity relatively rapidly based on that. So the lead time for us to add increments of capacity is in the range of about three months.

Okay. And then maybe could you give maybe the list price for the combined AutoLoader and BeadStation as it stands today?

It would be about, depending on, you know, what options you buy, which applications and which software, it will range between about 300 and $350,000.

Great. Thank you.

We'll take our next question from Charles Ning of Goldman Sachs. Please go ahead.

Hi, thanks for taking my question.

Could you characterize or give some color on the demand for BeadLabs? I know they're a little choppy but you haven't sold one in the last two quarters, so just a little color, please.

Sure. I mean, we continue to be, you know, our sort of market model for BeadLabs is unchanged and we believe there's going to be continuing demand for BeadLabs. They will be bought typically by customers who want to become instantly fully automated running custom genotyping.

The distinction, as I think we've mentioned over the past couple of quarters between a BeadLab station installation and a BeadLab installation is becoming very, very blurry and certainly, no one should think about that anymore in terms of being a large dollar installation versus a smaller installation. And the reason I say that is that some of our recent BeadStation installations for doing whole-genome genotyping are in the range of 2 to $4 million installations and those dwarf any BeadLabs we've ever installed.

So it's not really appropriate anymore to think about BeadLabs as being the high-priced installation versus BeadStations. The way to think about a BeadLab is for someone who is very interested in doing large-scale custom genotyping.

Having said that, we think there will continue to be customers who will want to do that. And then there will also be many customers who want to do both and so they may buy a base configuration that's a BeadLab and then layer on top of that the upgrades to do Infinium genotyping and wind up with a 3 or $4 million configuration.

You previously said that there were about 30 to 40 BeadLabs, or potential installations BeadLabs. Would you say that some of those have actually purchased BeadStations since then?

Probably.

Okay.

And the other factor that's going to change the dynamic this market a little bit is that the BeadLab was originally configured to do custom genotyping using our GoldenGate Assay.

Over time as we introduce our ability to do more custom genotyping on the Infinium Assay, customers may not need to use BeadLabs at all to do more customized genotyping and so those configurations, as we continue to say, will become increasingly blurry and we'll probably stop reporting very soon the difference between those two configurations. It's not very meaningful anymore, I guess, is the bottom line.

Thanks.

Ladies and gentlemen, as a reminder, star one for questions. If you'd like to ask a question, you may do so by hitting star one on your telephone. We'll go next to Un Kwan with Infinity Capital. Please go ahead.

Hi there. Thanks for taking my call. Great quarter.

I was wondering, number one, do you think you can give us an update on diagnostic partnership negotiations for the CyVera platform?

There's not a lot we can tell you there until we're ready to announce those negotiation or those agreements and so as they come to fruition we will clearly announce them. I guess what we could say is that we expect to have one or more of those before the end of the year.

Okay. All right.

And then going into the year, what are your expectations for the run rate on installed instruments? I noticed that it was flat sequentially, and is this just a seasonality trend or do you see that increasing throughout the year?

This is Christian. Are you referring to the number of BeadStations we sell on a given quarter?

Right.

Yeah. I think what our expectation there is that, and what I think we've talked about a little bit before is that in any given quarter, you're going to see some fluctuation, but as long as you see the overall average increasing over several quarters, that's really an indication of, you know, of the growth in our business from an installed base perspective. So we obviously expect to increase from 24 over the remainder of the year on a quarterly basis, but it's going to vary from any given quarter.

Okay.

I'd use the moving average calculation if you want to get any statistical significance.

Right.

Two or three quarter moving average.

Okay.

And lastly, would you be able to roughly breakdown on your consumables side the proportion that's attributed toward the custom genotyping business versus your whole-genotyping business?

No, we haven't provided that breakdown. What we have said, however, is that we expect our whole-genome genotyping consumables to cross through on a total revenue basis to exceed what we do in custom genotyping during this year.

Okay.

And I think the other piece, Un, is that we did have record revenue levels in the custom business as well as the whole-genome business this quarter.

Okay. All right. Thanks very much.

Thank you.

We'll go next to Quintin Lai as a follow-up from Robert W. Baird. Please go ahead.

All right. Thanks for taking my follow-up.

Have you gotten any kind of indication about what percentage of your customers will go back and take the HumanHap240 to rerun their library of samples?

We don't know where it will wind up, but we've had a number of customers who started off with the 300 knowing from the beginning that they were going to supplement with the 240, and that, you know, I'd probably say that's 20 or 25% of the initial customers had that in mind. How many of the addition 75% will decide and become funded to do that is open to speculation at this point.

Okay.

And then with respect to the pricing per data point for the high density chips, is it still one of these cases as you rollout the 550, that the price per data point keeps coming down with each next generation?

Well, on average the prices per data point continue to go down. The 550, of course, provide, you know, the highest value in the market and has the greatest coverage, and so the list price of that is substantially higher, for example, than our 300K chip but on a price per data point it is lower.

It's not just one ratio proportion up then?

That's right.

Okay. Thank you.

We'll take our next question from Edward Tenthoff as a follow-up from Piper Jaffray. Please go ahead.

Great. Thanks. Just one quick question.

Did I read correctly recently that you guys are working with the University of San Diego for prostate cancer?

Yes, there were a few articles that got published based on some publicity that happened at the recent cancer meeting and we've had a scientific collaboration with UCSD.

During the development of our DASL Assay we ran some paraffin embedded samples and out of that effort we discovered some very promising prostate cancer markers. And so we've not talked yet about how we plan to deliver that to the market in terms of a product.

Okay. Thanks.

Ladies and gentlemen, as a reminder, star one for questions, please. If you'd like to ask a question, star one on your telephone. We'll pause just a moment. It appears we have no further questions. At this time, I'd like to turn the conference back over to your speakers for any additional or closing remarks.

Thanks, Keith. Let me just remind everyone that a transcript of the call will be archived on our Web site page at Illumina.com. Thanks again for joining us. We look forward to speaking to you again next quarter.

Ladies and gentlemen, this does conclude today's teleconference. We appreciate your participation and you may disconnect your phone lines at this time.