Illumina Sequencing Update – Long-term Diversification Outlook – 17 November 2021

What recent developments in the broader sequencing and diagnostics industry are important to note as context, especially as we come on to Illumina’s recent acquisition of Grail?

Illumina is reporting the two businesses separately given the scrutiny around the Grail acquisition, but how do you assess the firm’s recent performance? We know that sequencing revenues grew 43% and represented 92% of core Illumina revenues. Consumables also grew significantly at about 45% YoY, so very positive data overall. Do you expect this performance to continue? Might the company have to overcome any longer-term hurdles?

You mentioned an explosion across different segments, particularly when assessing Illumina’s uptake and placements across its portfolio. There was double NovaSeq shipments YoY and generally very positive news in this regard. The company noted this largely came from oncology and clinical applications, but where do you think the incremental volume is coming from and to what extent do you expect this success to continue?

Do you expect any specific nuance by geography, particularly when considering Illumina’s geographic footprint and growth opportunity across that?

How are you assessing Illumina around protecting its short-read sequencing market share, given increased competition from players such as BGI, as well as encroachment from long-read sequencing?

What are your thoughts on PacBio’s entry into short-read via the Omniome acquisition? You mentioned some potential markets where any shifting of platforms will be slightly more difficult, but what is your take on having these two under the same umbrella, which Illumina tried to do by acquiring PacBio, but that failed?

How hopeful are you that PacBio has the expertise to address the Omniome technology limitations? You said it would take some work on PacBio’s end, but are you confident it can do this? You noted this is a longer term expectation for it to materialise in any meaningful way as a threat to Illumina. What are your expectations for PacBio to do this appropriately and what does that tell us about the timeline for it to become a greater threat to Illumina?

You said you don’t think PacBio is done acquiring. What do you think is next on the docket for the company to address or consider acquiring for it to materialise the strategy as fast as possible? What are your expectations for it to execute this as successfully as possible, trying to sense out the potential threat to Illumina?

Could you expand on Oxford Nanopore and the extent to which it might play in the industry, particularly against PacBio? Where do you expect Oxford to play, given what we’ve touched on?

Illumina is receiving continued pressure around acquisitions. In our previous Interview [see Illumina’s Pending Grail Acquisition – Expectations Following FTC Pushback – 30 August 2021], you said you’re quite cautious about the likelihood of Illumina being able to keep Grail – you mentioned companies such as SomaLogic and Encodia as potential avenues. What’s the likelihood of any acquisition such as this having more favourable regulatory scrutiny, meaning Illumina could actually acquire it? Would it be possible? Do you think it’s differentiated enough? If not, what is a potential way to get around that or a plan B?

You touched on the patent dynamics between BGI and Illumina, and pricing is a consideration for where you expect them to be more vs less competitive, but is the threat BGI poses to Illumina’s core portfolio overstated? How might the dynamic between the two fare?

We know Illumina has been making moves to decrease its price point to potentially aid the broader conversation with Grail, but also for the broader competitive dynamic. Where is price for Illumina currently and where would it need to be to fend off some competition from BGI or any other pricing pressure in the shorter term?

You said Illumina should explore proteomics further, perhaps via an Encodia or SomaLogic acquisition. What is the TAM here vs long-read vs liquid biopsy? Is this as exciting or value-accretive as some of the acquisitions that have been heavily scrutinised, including the failed PacBio acquisition?

What is potentially being overlooked or underestimated around Illumina’s longer-term growth profile? What risks might be at play?

Could you summarise your expected short- and long-term outcomes for Illumina? Is there anything else we should monitor?