Q4 2019 Earnings Call
And welcome to the fourth quarter 2019 Alumina earnings conference.
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After the speakers presentation, there will be a question and answer session.
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As a reminder, this conference call may be recorded I would now like to introduce your host for today's conference is Jackie Ross Alumina Investor Relations.
During the call today, we will review the financial results released after the close at the market and also commentary on a commercial activity after which we will host a question and answer session.
If you have not had a chance to review the earnings release. It can be found any investor relations section of our web site at alumina Dot com.
Participating for alumina today will be process to do that president and Chief Executive Officer, and Samsung <unk> Chief Financial Officer.
Francis will provide a brief update on the state of our business and some of what do you our financial results.
This call is being recorded and the audio portion will be archived any investor section of our website.
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Forward looking statements are subject to risks and uncertainties actual events or results may differ materially from those projected or discuss.
All forward looking statements are based upon current available information and Illumina assumes no obligation to update these statements.
That's right down the risks and uncertainties that could cause actual results to differ we refer you to the documents that Illumina files with the Securities Exchange Commission, including Aluminas. Most recent forms 10-Q and 10-K.
I will now turn the collaborative process.
Thank you Jackie good afternoon, everyone.
Illumina had a solid them to 29 team.
With fourth quarter revenue of $953 million up 10% from the fourth quarter 2018.
Highlights, including 22% year over year sequencing consumable growth.
Stronger than expected Ivy de partnership and non DTC array revenue.
It's more than offset softer sequencing system revenue and weaker than expected DTC revenue.
Well some variation of mix should always be expected in our dynamic industry. We're pleased to have delivered higher than expected revenue in the fourth quarter.
For 2019, we delivered revenue of $3.5 billion up 6% and inline with the guidance we stuck in July of last year.
We shipped more than 2400 sequencing system, the most illuminants history.
We achieved our 2019 nobody goals with approximately 320 shipments.
Like the higher than 2018.
Total sequencing consumable revenue grew 14% and surpassed $2 billion for the first time.
Including more than a billion dollars of high throughput sequencing consumable.
And total data generated by Illumina sequencers increased 50% highlighting the rapidly growing demand for genomic information.
Back to the fourth quarter, Nova Sea consumable pull through without its highest levels a year.
And then did the highest since the platform was launched driven in part by the UK Biobank, which is now operating at scale.
We shipped more than 100, nobody seek system in the fourth quarter.
As we expected this was more than twice the number we shipped in the first quarter 2019.
No we see Cooper system for 29 team was approximately $1.2 million and looking forward, we are targeting a pull through range of $1.1 million to $1.2 million per node to seek system in 2020.
As we enter Nobody's fourth year I see consumables continue to decline is expected and were below $100 million in the fourth quarter for the first time, some nova seek launch.
At the end of the year, we completed a review of our high speed customer list, indicating an active high peak installed base of approximately 1300.
This review identified approximately 600 card the inactive high seek system that had previously been included in our installed base.
Outside of this review there were approximately 200 decommissions reported to aluminum in 2019.
Moving to mid throughput next week delivered a record number of shipments in 2019, and now has a global installed base of about 3600.
Fourth quarter next each shipments were lower than expected due to customer timing.
Demand for next week DXP continues to grow and represented almost a quarter of 2019 shipments.
Up from approximately 10% last year.
It was a record quarter for next week sequencing consumable revenue.
Given once again by oncology and actually tea.
Next equal Cooper system improved from last quarter and those are the lower end of the 130 to 160000 dollar target range.
With the launch of our New next week 1000, and next week 2000 system, we will update our target go through range. When we have a sizable installed base as a new system.
We expect to ship approximately 500 next week one thousands in 2000 this year.
Our first borders.
Moving to low through but system rather than he was the lower expectations in the fourth quarter, primarily due to many seek.
Demand for my C.D.X. continues to exceed our expectations with particular strength in China, where the system was cleared by the China and M.P.A. in August of 2018.
Earlier this month the might seek D.X. was approved by the P.M.D.I. in Japan, which we expect to contribute to placements in 2020.
Turning to low throughput consumable it was a record revenue quarter.
I think consumable pull through grew closer to our target range of 40 to $45000 and many people through was at the low end of the 20 to 25000 dollar range.
Yeah.
Back to sequencing conceivable.
Total revenue of $2.1 billion, goof, 14% or over $250 million in 2019.
Just over 40% of our sequencing conceivable shipments were for clinical which includes testing for ontology reproductive health and genetic disease. Another.
In total clinical sequencing consumer bowls go about 20% or approximately $130 million in 29 team to approximately $830 million.
College It continues to represent about 20% of total sequencing consumer goals and grew faster than total clinical consumer most in 2019 during pleased adoption of panels, including comprehensive genomic profiling.
As more tests like foundation, one Cdx and garden 360 receive coverage a companion diagnostics.
A man for aluminum sequencing continues to grow.
Additionally, clinical trials like gardens lunar drive increased sequencing consumable utilization and <unk> testing.
Reproductive health once again represented a little more than 10% of sequencing consumable.
Primary reflecting continued growth in N.I.P.T. due to a broader coverage and Amir where are very seek an I.P.T. solution had 80 per cent sample volume growth and growing adoption in China.
Reproductive health continues to grow in the U.S. at a more modest rate compared to a mere and China.
Finally within clinical almost 10% of our sequencing consumable revenue is related to genetic disease testing, which grew slightly below the clinical average.
Growth is driven by companies like centre gene, which has built a genomic repository of over 450000 patients from over 125 countries and is working to help diagnosed patients genetic disease and collaborating with farmer partners to find cures.
It also includes a portion of revenue from genetic testing companies like AMRI, who offered test Taylor toward genetic disease diagnosis among other clinical tests.
Turning to research and applied shipments of over $1.2 billion represented just under 60% of our sequencing consumable shipments.
As a group research grew over 10% in 2019, driven by genetic disease and cancer.
Genetic disease research includes population genomics initiative, such as the U.K. Biobank and million Veterans program.
Cancer Research was also a strong contributor to grow and includes projects like the cloud initiative at same do children's Research Hospital.
Jude team is building a database to access whole genome of 10000 pediatric patients and survivors, helping researchers to gain valuable insights into the genetic causes of pediatric cancer.
Other research categories include cell and molecular biology research microbiology and infectious disease testing.
This includes projects like J. grid that Japan initiative for Global Research network on infectious disease, which is a collaboration between nine countries in Asia Africa, and utilizes luminous sequencing to research microbial diseases.
Moving to sequencing services and other revenue of $124 million was up 19% from the same quarter a year ago.
Largely driven by upfront revenue from the <unk>, partially offset by gel, which declined is expected to almost zero in the fourth quarter of 2019.
Of the clinical ramp up later this year.
And finally arrays delivered revenue of $160 million down 12% from the same quarter and 2018 due to continued headwinds from our direct to consumer customers.
Set in part by a ray growth and genetic disease research.
Before I had to call over to Sam I'd like to comment and the novel Corona virus outbreak.
Our immediate focus has been our colleagues in China, and our thoughts are with the families and communities impacted.
Over the last few weeks the Lumina has been engaged in a number of ways to help manage the corona virus outbreak.
Scientists have already used to live in a sequencers to identify and published a genomic profile of the Corona virus into the public databases, which is a critical first step to enable the development of diagnostic tests and ultimately potential vaccines.
Our team is actively working with Chinese C.D.C. labs to prepare Corona virus ngs testing protocols and provide the necessary training.
We're also working with our supply chain team to ensure that systems and consume bubbles are delivered to lambs working with novel Corona virus as quickly as possible.
We plan to share these ngs testing protocols with customers to support the global infectious disease community as it mobilizers to address this threat.
Further we're exploring philanthropic programs and collaboration to ensure novel grown a virus sequencing is available by providing sequencing and consumer bowls to those who needed to fight this epidemic.
With that I'll have to call over to Sam.
Thank Frances.
As discussed fourth quarter revenue grew 10% year over year to $953 million, driven by 14% growth and sequencing.
Offset by a 12% decline and micro array.
So don't sequencing revenue of $837 million group, 14% from the fourth quarter of 2018.
Represented 88% of total revenue compared to 85% in the same quarter last year.
Sequencing consumable revenue $572 million grew 22% or over $100 million compared to the fourth quarter of 2018.
While sequencing system revenue was down slightly sequentially and down 12% compared to last year.
With regards to sequencing systems, we are reviewing installed base counts to proactively identify the active systems.
We have completed the work for high seek and are now reviewing next seek might seek and many.
We will revive those installed bases in the next quarter to as we complete the analysis.
Huntley This does not change the reported revenue in any way. However, we do expect system counts to decrease while the pool through per system will therefore increase.
Sequencing service and other revenue over $124 million with down $14 million sequentially due to lower I.B.D. licensing and milestone revenue and lower jaw volumes and the fourth quarter, but up 19% year over year.
Fourth quarter results included an upfront payment associated with the recently announced Roche partnership.
Arrays represented 12% of total revenue in the fourth quarter compared to 15% and the fourth quarter of 2018 and to 16% and the fourth quarter of 2017.
Arrays systems were up 2 million dollar sequentially, but down $5 million from a particularly strong fourth quarter of 2018.
Array consumable as grew $18 million sequential lead you to D.T.C. seasonality with one customer ramping ahead of the holiday season.
But we're mostly down from the same quarter last year.
Erase services were down 6 million dollar sequentially and down $8 million or 32% year over year, you to lower demand from our D.D.C. customer.
Moving to regional results.
America's revenue grew 5% versus the prior year quarter with growth and sequencing consumer goes and I.B.D. partnership revenue, partially offset by D.C.C. headwinds.
And they are delivered the record revenue quarter with 19 per cent growth from the prior you a quarter, including a strong contribution from the U.K. Biobanks, which is now sequencing and full production mode.
Greater China grew 21% from prior you recorder with an easy year over year comp associated with terror for related stocking in China in the fourth quarter of 2018.
The region grew 2% than 29 team with slower research offsetting very strong growth in clinical.
Finally, A.P.J. revenue of $73 million was up 4% from the fourth quarter of 2018, driven by genetic disease research in microbiology, driving sequencing consumable growth both sequentially and year over year.
For the full year the region grew 6%.
Moving to gross margin an operating expenses I will highlight nongaap results that include stock based compensation.
I encourage you to review the gap reconciliation of these nongaap measures, which can be found in today's release and the supplementary data available on our website.
Please note that all subsequent references to net income and earnings per share refer to the results attributable to aluminum shareholders.
Nongaap gross margin, 70.2% was roughly in line with expectation and decreased approximately 230 basis points compared to the third quarter.
With lower I.V.D. licensing and development revenue in addition to variances in production and lap service absorption, partially offset by product mix.
Year over year fourth quarter Nongaap gross margin increased over 100 basis points, primarily due to product mixed in higher I.B.D. licensing and developed from revenue.
Partially offset by lower D.T.C. service volumes.
Non gap operating expenses of $372 million were up $42 million from the third quarter of 2019.
Largely reflecting the timing of affects spend weighted towards the end of the year and we're better than expected.
Nongaap operating margin was therefore, 31% down from 36.1% last quarter.
The non gas tax rate of 18.5% was up from last quarter.
And higher than expected you to income mix in various tax jurisdiction.
For the fourth quarter of 2019 gap net income was $239 million or $1.61 per diluted share and Nongaap net income was $252 million or $1.70 per diluted share.
Moving to cash flow and balance sheet items cash flow from operations was $443 million helped in part by a $58 million sequential decline in inventory.
This is part of an initiative led by our operations and supply chain organization to optimize our working capital.
D.S.L., a 55 days compared to 54 days last quarter.
Fourth quarter capital expenditures were $57 million and free cash flow is $386 million.
And we repurchase $63 million a stock in the fourth quarter, leaving $226 million available for share repurchases under our current plan.
We ended the year with approximately 3.4 billion in cash cash equivalent.
Short term investments.
Are weighted average deluded share accounts for the quarter was 148 million.
Moving to guidance, we expect full year 2020 revenues to grow in the range of 9% to 11% or 3.86 billion to $3.93 billion, representing an increase of approximately $354 million at the midpoint.
Given the new system launch and ongoing weakness Nvtc, we are expecting revenue linear needs to be similar to 2017.
Which suggests just below 22% of revenue in Q1, approximately 24% in q. to approximately 26% and Q3 and approximately 28% in Q4 .
But a four year 2020 and at the midpoint of our revenue guidance range, we expect sequencing revenue to grow approximately 14%.
Glued sequencing consumable gross around 17% and we expect sequencing system revenue to grow year over year, reflecting our next seek 2001 thousand launch more than upsetting the expected step down in Nova seeks shipments.
And we also expect sequencing service another to be roughly flat year over year.
We expect to re revenue to be down approximately 15%, reflecting ongoing weakness in D.C.C.
Note. The D.C.C. revenue represented approximately 50 per cent of total array revenue in 2018 and decrease to about 40% and 2090.
For 2020, we expect D.T.C. to represents approximately 30%.
From a regional perspective, we expect China to grow into high teams driven by clinical sequencing.
We expect for your Nongaap gross margin to be roughly in line with 29 teams.
We expect operating margin to be approximately 30%.
And we expect the 2020 tax rates to be higher than full year 2019, you to a number one time discrete tax benefits and 29 teams that are not expected to repeat in 2020.
We therefore expect gap earnings per share in the range of $6 45 to $6 65.
And non gap earnings per share and the range of $6 80 to $7.
And we expect deluded shares outstanding and 2020 to be about flat compared to queue for 29 team.
No that following the termination of the Pacific Bio Science merger agreement earlier. This month Illumina Feta 98 million dollar reverse termination fees to pack bio.
Additionally, illumina will pay $34 million in continuation advances that may be repayable to alumina, if backfire enters a change of control agreements or raises at least $100 million within a given time frame.
The impact of these famous is not reflected in R.E.P.F. guidance pending devaluation of these amounts this quarter.
Moving to the first quarter of 2020.
We expect total revenue to be between $850 million, an $855 million.
Customers consider and adjust their plants following our next week 2000 launch.
Nongaap operating expenses are expected to increase approximately 600 basis points as a percentage of revenue on a sequential basis.
Primarily due to our bonus a cruel reset at the start of the year.
And we expect the first quarter nongaap P.P.S. to be between $1.20 and $1.25.
<unk> has to be $1.11 to $1.16.
With that I'll have to call back over the Francis.
Thank you Sam.
We're off to a strong start and 2020.
The U.K. biobanking sequencing at scale.
We are contracted with Joe to provide sequencing services starting in the middle of the year significantly strengthening our popped invisibility relative to where we were a year ago.
We launched are most innovative system to date with the next week 1000 in 2000.
The system offers the highest clustered density flows out of any and G.S. system driving down the cost per gig amazed for mid throughput users.
We succeeded in our ambitious target to fully integrate the hardware accelerated bested classify blind that we acquired Atico, just 18 months ago.
We're excited about our two sides software suite potentially transformative solution that simplifies genetic disease diagnosis and reduces barriers to adoption.
I look forward to sharing updates on it after launch.
We continue to extend our clinical portfolio and both T.F.L. 502 site and I.P.T. are progressing through regulatory.
And we're expanding our capabilities through partnerships with the world's leading clinical company.
Including Cajun Roach and adaptive.
Delivered the most compelling I.D.D. menu available on our clinical gray sequencing system.
As our customers discover more biological inside my sequencing at greater depth and volumes across new and emerging application.
Growing clinical utility of genomic information is becoming increasingly clear.
<unk>.
Filled with drawing community awareness and physician adoption well enabled more patients to benefit from the promise of genomics.
With that I'll invite the operator just start the couponing.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.
Please stand by while we compiled the Q. and a roster.
Your first question comes from the line of Tyco Peterson with J.P. Morgan Your line is open.
Hey, Thanks, I'll try to just a couple of quick went up front on the fourth quarter can you quantify the Roche milestone it looks like.
Partnership these stepped up 15 to 20 million. So is that all row shot in the fourth quarter and then looking ahead on instruments, you know coming off for Q. or you will light on instrument revenues are you doing anything different in terms of Nova Chic, you know pricing to try to catalyze the remainder of the high seek upgrade cycle it looks like.
S.P. is the decline a bit and the fourth quarter. So that's the first question and then on next week. Just curious you know as you think about that isn't an upgrade cycle to the installed base or market expansive as those tuning system.
Okay. Thanks.
Yeah, Thank psychos and and the rush milestone we didn't qualify that it didn't come in better than expected sort of c. plus or another line came in better than expected into four I would say approximately 20 million or so better than expected in terms of sequencing and other but we didn't qualify exactly how much of that was real.
You can you can think about it as I.D.D. revenues that we had it's you for that the majority of which was was driven by rose.
With regards to your second question, so I'll take that one and then Franciscan comments on next week.
Your second question around the A.S.P. on overseas, it's not that we're doing anything special around and doing the A.S.P. or giving reducing the price or giving any discounts to customers. What we this is natural and driven by you know multi unit orders that we have cross to try the 19 as well you can look at an AD.
Bio back a number of placement that we have the the you can buy them to easily have a lower S.P., we'd had a sort of noticing placements in emerging markets, which also have a lower A.S.P. So it's natural dynamics there when you place multi unit orders with some of our customers, but nothing specific on on lowering the price across the board.
Thanks them a high Tyco in terms of the next seek a 1000 in 2000 target basic we're going after already focusing and as you pointed out just to be an upgrade cycle for customers off. The next week 550 today, that's where we expect the bulk of the demand to come from for the next year 2000 it launches.
This quarter and then the 1000 launches later in the year. We also expect a smaller bowlus of orders to come from some might see customers Sweet highlighted a couple of quarters ago that we expect a that we're starting to feed my c. customers that are migrating up and buying bigger instruments, we expect those customers to to me.
Cat that the next week 1002 thousand.
And so that's what we expect the bulk of the customers to come from there's a chance that it might be a small number of ice sheet customers that look at the next week 2000, but that's likely to be a very small number.
Your next question comes from the line of Dan Brennan's with U.P.S. Your line is open.
Great. Thanks for taking the question.
A little more color on coming overseas to center, you're talking about operations bring down <unk> help on how much. It installed base you expect to kind of have upgraded by the end of the year and kind of any more color on the level of looking down and then secondly, just related to high secret Super Bowl. Since you are can I give me more granularity there what what.
What kind of picked him when you're putting your consumable gags five seeking to hold and not 2020.
Alright, so if we look at the.
Nova seek upgrade cycle sort of here's how the numbers are are playing out you know we believe that under half of that <unk> I think ex customer base has started the noticed seek transition and so we still have all her half of that installed base to go that's gonna play out between now and 2024, when we end up.
Life fee hikes, and so you know that see that the numbers we expect.
To happen in terms of the number of an overseas you know last year was a very strong here in terms of Nova seeks placements, which is something you really excited about especially given that it's the third year of that Nova seek upgrade cycle, we expect that and number two coming down this year quite naturally and we expect that to play out similarity over the next couple of years.
And with regard to high C., then we we're not giving specific information on the level of consumable is or what to expect even in terms of pull through we backed away from giving full through ranges on high seek and total consumable as what we've mentioned for Q4 as you heard on the prepared remarks was that consumable Sir Isaac little were less than one.
Hundred million in the quarter, they continue to come down obviously the expectation.
I think intuitively as you would expect and 2020 that I see consumers will continue to come down so, but we haven't given specifics on what that dollar number is.
Your next question comes from the line, Steve <unk> with Wolf Research your lines open.
Oh, hi, good afternoon, and thanks for the time here.
I'm Gonna one on China and one on the next seek launch a as it relates to China I I appreciate that you've given a view dated back to a few weeks ago that there's like British percent recovery of growth in China I Wonder if you could speak to the balance of what you're seeing their between funding dynamic.
Since you know as opposed to you maybe just easier com and then of course, the the broader questions that we have no around the environment given the the Bible outbreak you know to what extent you know that is or is not factor or the one one considers.
And then secondarily now that we're you know a few weeks into and appreciate that still early you know the next week launch how are your higher throughput customers, who might also be no but.
Buyers are owners how are they thinking about using this the system is it is it fair to say that we were comfortable with the the trajectory on nervously quarter is being largely unimpacted by the the next week, given as pretty attractive price for G. dynamics on the the <unk>.
Thanks.
Yeah. So.
Thanks, Steve I'll start with China question, and then I'll get to the next question in terms of China and what we're looking for you know we saw a good growth from China in Q4 a little of it was based on a friend who you're on your calm, but we are seeing but we are seeing growth in and we knew that could be lobbies in terms of this year, we are expecting.
As we said it grows in China, that's gonna be primarily driven from the clinical markets and more specifically in on college. It continues to be a very strong area for us in China, and we expect that to continue to play out this year.
Because of the Corona virus I'll I'll I'll say first and foremost you know our thoughts are with the families and communities that are impacted by the virus in our 21 of our top priority is to make sure we're doing everything they can't help and making sure that our teams stay safe.
I'm, just a financial impact of that it's too early to call the financial impact either into one or for the year and as we get more clarity as displays out we'll certainly communicate transparently with investors.
As we thought through the in fact, it's possible that you know if the epidemic grows.
And if patients start to avoid going to hospitals, there could be an impact to an I.P.G. and cancer testing in China, but it's way too early to call that impact. So we're going to continue to watch that situation and and again will communicate with you. What we see we are deeply engaged in in working on the Corona.
Buyers, we have team's working on that around the world with the Chinese C.D.C. teams as well as C.D.C. teams around the world.
And then in terms of the next seek launch and how our our hi throughput customers, especially some of the legacy heisey customers thinking about it.
So you know as I said, we really expect the the next 1000 in 2000 to appeal to.
To existing next week customers, that's gonna be the bolts of the upgrade cycle is going to be some interest from my c. customers that are upgrading and a little interest from existing high throughput customers, but not much. The reason for that because if you look at the output off the Novosibirsk and you look at the output of the next season, what we've done is restricted.
Cover the ground, but there's very little overlap. So it's a very high end you know if you go through the if you go with the high output flow. So up the next week 2000, you can get to an output of 300 databases.
And at the low end of the Nova seek with the the prime slow so.
You can get a 500 gig of bases of output and so does the clerk gap there and so you can you you know you self identify and most of our high throughput customers. We think we'll go with the smaller slow so on the Novosibirsk and the next year 2000 in 1000 will continue to appeal to that meant throughput customer base.
Your next question comes from the line of Bill Quirk Piper Sandler Your line itself.
Great. Thanks, and good afternoon, everybody so quickly thinking about the the clinical psychology girl for the next couple of years. There there are several very innovative.
Screening options as walls or currents monitoring tests coming on line.
How should we think about this business overall trending relative to 2019 could it possibly in fact influx back to the I think of 30% maybe year or two ago.
And then separately on Corona virus are there any analogous situations to other outbreaks things like <unk> for example, and and if so if you've studied the impact on what happened say in the in the Middle East region to your business during that outbreak and take a look at that relative to <unk>. Thanks.
Well. Thank you Bill So I will first talk about the clinical oncology market, specifically touching on the potential impacts of the screening opportunity in emerging monitoring opportunities on the growth rate and then I will talk about the current a virus. So in terms of clinical psychology testing today the.
Bulk of the revenue that we get from clinical psychology, and the bulk of the growth frankly is coming from customers that are using N.G.S. based testing various types of panels for therapy selection and so that's sort of the bulk of the revenue that we're we're seeing in clinical psychology. That's the most penetrated part of the clinical on college you market.
Frankly, it's still exists already stages, it's still about 80% of penetrated as we look at the other areas in clinical psychology, we see really exciting opportunities and potentially much larger opportunities coming from a monitoring and screening both of them are in the very very very nascent stages customers.
Barton Grail and Pheno murdering some really exciting work there the monitoring opportunity is starting to play out maybe a little bit further along than the screening opportunity today, where we're seeing the already use off look good biopsies to monitor the effectiveness of a therapy to look for M.R.D. and.
Or a recurrence of a cancer and so their customers like garden.
Are are starting to sell tests into that space again very early stage, we're starting to see revenue from it and and when we think disparate represents a potential large growth opportunity for us in in the future years.
Screening is a little bit earlier again super nice and but hugely exciting I don't know if you've had a chance to look at the results that companies like <unk> publishing over the last a few months at ASKO and ASMO, but you know the Grail results. For example shows that they are able to in those.
Studies have very low false positive rates. So there are numbers indicate maybe less than 0.5% false positive rate and high levels of specificity for over 20 different types of cancer. So they're still in the in the study stage, they're talking about having a test maybe end up this year sometime next year, obviously that.
Represents a very meaningful market opportunity in terms of impact on on human life and represents a very big opportunity in terms of revenue for those companies and also for aluminum, but that's something that'll play out not much this year, but in in in future years.
If you think about Corona virus and how.
How that's playing out and you know we looked at you know how immerse plays out and played out in Sars played out and it's a little bit different because the markets a little bit further ahead in terms of the state of the harder than G.S. testing. The way. This will play out we think is that and just will play a number of.
Critical roles in combating this current of ours outbreak a while we believe first line testing of patients will be done with our T.P.C.R.N.G.S. will be used in a number of specific ways, one and we've already seen in Plano trend G.S. will be used to initially sequence of virus and create the publically available reference needed to help develop diagnostics.
And then ultimately cures. So we started to see that plan already with Corona buyers and we saw that previously with Sars.
And you have to also be used to confirm the string patients it'll be used for detecting a novel mutate mutations in Nevada genome, we saw that in in other outbreaks not just immersion Sars, but we saw that the people and then also it'll be used for beat me logical surveillance, which would be very important in terms of tracking this outbreak.
And then finally, we expect N.G.S. to also be used as a last resort testing for patients with inconclusive test. So for example, when a patient presents with suspicious symptoms, but the R.T.V.C.R. test or negative for Corona viruses and also for other viruses and similar symptoms like influenza, then we expect and G.S. just abuse.
And and that's our point of view based on what we've seen with previous outbreaks as I said earlier our teams around the world are currently engaged and have been working for example in China was a C.D. 18 since December and we're working on C.D.C. teams around the World now we're also engaged with philanthropic organizations and collaborate.
<unk>.
Make sure that N.G.S. testing is available globally to to monitor this outbreak and and build maybe to emphasize a couple of data points on the clinical business and own color G. as well back to your initial question. So for 29 team for our comments earlier, our sequencing consumable in terms of clinical grew by.
Approximately 20% and oncology in terms of oncology sequencing consumables grew above that so over 20% and when we look at also on top customers in in college you. They grew also above that average above the oncology average. So just just some data points around on college in clinical group.
Your next question comes from the line up there <unk> with Bank of America Your line itself.
Hi, Good afternoon, Hey, a couple of questions. The first one can you talk a little bit more about hi, seek decommissions I'm sort of surprised by the number and just sort of talk about the labs that are not using it are are those customers now out so.
More or did they by next week for something else and that and that sort of like believing in the next question which is.
No surprise to see that the Nova see consumable guide for 2020 was about 1.1 to 1.2 million per box.
So I'm just wondering you know if you're heisey customers are in our in those concerns are coming down to surprise why that Nova seek number isn't the higher.
Then than it is.
Alright.
So so thank you there it let me start with the high peak decommissioning number. So you know that's the result focus we are footing on getting closer to our customers getting more visibility and how our customers are using the instruments and so we spend some time already looking through the instruments to see which I'm instruments are active which instruments are not active so that's.
A new model for as a understanding what instruments are are being used out in the field. So the total number 800 isn't what God decommissioned last year. So that's about 200. The total number instead of a catch up to say okay of all the instruments, we have out in the field how are they being used which ones are are being used a lot which ones are being used.
And and when we came down to is about 800 that we feel are largely inactive it doesn't change anything in terms of the the revenue we're getting from a high peaks or consumer bowls.
What it does mean is that there are fewer active instruments in the field and the ones that our customers are using actually are being utilized more than the previous model that estimated and that the pool trooper instrument at those labs is actually higher than the old model had estimated so they'll customers aren't doing anything different they aren't outsourcing.
They still have both the active and inactive instruments, but when we looked at it they were using they were using some instruments more.
And so that's the dynamic of how it plays out.
In terms of your second question Derek with regards to know receipt. So yes. Our guide for 2020 is 1.1 million to 1.2 million pulled trooper instruments, we're very pleased and 2019 with the performance that we've seen in terms of the pull through on Novosibirsk. As we mentioned that was 1.2 million for the year was a record quartering cute.
For our expectation now and the fourth year of launching 2020 is that as we start seeing some of those lower throughput customers convert and move over and even newer customers that are using nova seek with the s. prime and the S. one flow. So that you will start to see lower throughput from from those customers impacting the average.
That's natural in the fourth fourth your lunch for the instrument, but that's that's the that's the driver for the 1.1 to 1.2 million pull through Guy.
In addition to a sand pointed out some of the smaller customers. We expected come online. This year, you know and and some part of the reason for the guide. We gave you know there will be an offsetting influence happening as you see some of these large pop gen customers continue to sequence like the U.K. Biobanks that's related running that's really running in full force as well.
As you know NHS commissioning coming online and so that'll be the offsetting factor that'll glad this year.
Your next question comes from the line of Dan areas with Stiefel Your line itself.
[noise] afternoon, guys, they sort of questions pauses for a little bit of a cold here, but Francis the next you couldn't you just talk to the rationale for the launch of the 1000 unit in the context of just thinking back to the no. The 6000 5000.
Back then it seemed like customers that upgraded really wanted the higher capacity option and to not have to wait around to acquire it. So I guess I'm just I'm curious about the way and what you see it as being different and then maybe a little anything more specific you can say too.
P. three flow sell launch later this year in terms of timing I'm curious about how much we should expect demands for that configuration to be captured a 2020 like.
Sure and I hope, you're cold gets better soon.
I will answer the.
And answer the the next question for so why do the 1000, if we expect the majority of customers to to buy the 2000, and then I'll talk about P. three.
So the strategy of having you know.
The higher and lower and instrument is one that we view.
Many many times so you pointed out with the notice C. 5000, 6000, we have I see 3000 4000 me in the high C. 2020 500.
And what this allows our sales schemes to do is that allows us to start the conversation with customers that a lower price point and and some customers do by the lower insofar as you pointed out what happens in that conversation is the vast majority of cases may end up buying the higher priced instrument and that's laid out in every one of those.
Instances I talked about going back a decade right. So, but it's important for our our our wraps to be able to have that lower priced instruments. So they can start the conversation and that's been been strategy in terms of the p. three flow cell.
The way they affect us to play out is that the customers for the first you know a couple of full quarters of next week 2000 are going to be excited about the fact that they can buy a flow. So who's output is comparable to today's next week. So they can make you know they can compare the new machine on an equivalent output.
Using equivalent workflows from the old machine to the new machine.
But we do expect that a lot of our next scene customers are going to buy the instrument how within I to their future business and we'll do very attracted by the higher output and the economics associated with the P. three in terms of timing. We said, we expect that to come towards the end of the year, obviously, though it's public now and the <unk>.
<unk> that flow sell our public now so it's you know it's something that customers know about anything plan for.
Yeah.
Hmm next question comes from the line of <unk> <unk>. Your line is open.
Ah Hey, good afternoon. So just a couple of things on Nov a sick.
First just just looking back.
Regarding guidance for consumable pull through per box of 1.1 to 1.2 million per Nova how does that compared to 2019.
And it it guesses the reduction in high school consumable revenue below $100 million, which is a little bit blower. I think you guys have been track in the last few corridors I'm just wondering if that indicative of.
Larger programs on high seek axes being largely completed at this point and some of those large customers with those projects now increasingly moving over to Nova. So those are the looking back topics I'd like to cover and then then looking ahead.
The assumption that Nova seek placements are lower on 2020 versus 2019, a function of trying to head for the potential that there's some nova cannibalization.
A function of reducing the number of high six that are out there to replace so maybe having a bottle a little bit more visibility on on what the replacement outlook is.
A function of being in year four of the roll out or or maybe just a little bit of all the above.
And finally is is there anything structural that would prevent you from implementing the blue Green chemistry on a high around platform like Nova sick or actually on an overseer in the future. Thank you.
Yeah.
Hey, Thanks for the question so I'll start with the first one and all all our transition to Francis for the second and third with regards to know the C. So for the full year 2019, we communicated the flow through is 1.2 million per instrument and going forward, we expected to be in 20 21.1 too.
1.2 million so essentially the high end of the range of the equivalent to what we saw in 2019.
And with regard to your question on high sick I think it's it's exactly exactly right as we get deeper into this upgrade cycle as we get deeper into the cycle, where customers are transitioning from high 16 overseas as some of these some of this work transitions over and completes on high. So you can lose over to the new instrument you do expect to see consumer.
Come down on high C., which is what we've we've indicated is that we we expect them 2020 to continue to see I see consumables come down and obviously notice he consumer will stay free.
And then don't you asked about a couple of other things one you know from tens of nosy placements why are we expecting that to be lower this year given that we've had two back to back very strong years.
Placements is it a is it being influenced you asked by next week and capitalization. There and then you asked is there a structural reason or any structural reason why the moving kind of street couldn't in the future be implemented I noticed so in terms of notice he placements as we look at this year the work week.
To be done this year in terms of the notes seek upgrades cyclists really go after the smaller core labs right. So those that's the upgrade cycle that got activated last year with S. Prime with S. ones, and then eschews new pricing and so as we look at the pipeline. This year, we expected to be a lot more full of the ones. He tuesdays with a small core laughs and.
So that's what weeks, that's a dynamically expect to be playing out in our customer base in in our sales teams and so that will result in a total number that's smaller than some of the big you know a multi unit purchase as you saw last year in three to four with customers like the U.K. Biobank. For example, so instead of doing 10 units placements <unk>.
More deals to be 122 units and and that's frankly, the biggest driver in terms of placement number being down this year compared to last year.
We don't expect much cannibalization between the next week and the Novosibirsk.
They they target very different price points, both in terms of capital, but also in in terms of Cosper G. and there's no overlap in terms of the output and so when you add those three those three variables together, it's very easy for customers to self select if you have the sample volume to allow you to.
Go purchase and oversee <unk> you will always do that because you get superior economics, and even with the new next week 2000 running the P. three flow. So you still get superior economics on the Nova see if you have the sample volume and if you don't have the sample volume it'll never cost in for you to go to a notice he can so there's very little overlap in turn.
The the segments that are targeting so maybe some but we don't expect much.
And they are a question about structural reason file you can use the blue Green chemistry, nobody seeks, but frankly anywhere and the answer in there isn't any the you know we we view that as a core architectural component in our tool kit now as we do other elements of things you saw in Nova seek for example, the.
Hardware acceleration tool kit that we built into next week 1000 in 2000 based on the the medical technology. That's also another core architectural components and there's no reason why that can show up in any of our future instruments, both up and down to portfolio.
What will decide whether it does show up frankly is that design point for the next instrument, we put out and if we have something better in the tool kit and that's always sort of an active debate internally. So at any given point, we'll pick the best components. We have the the design point, we're going but there's absolutely no structural reason as you point out.
Well I those components couldn't show up in a future version of ice throughput instrument or lower through buttons.
Your next question comes from the line of Puneet soda with S. Phoebe Leerink. Your line is open.
Yeah I for instance, thanks. So my first question is I was hoping to get a better view into the and it just clinical Ram and the level of visibility you have there you made comments around clinical samples ramping and second half. This year. This is one of the largest project if not the largest and and.
You know I appreciate that you're expecting 300, 500000 patients sequence by 2025 target, but how do we burst out to the 5 million potential g. knows that I'm interested let lay it out earlier and and and what should we expect in the second half this year and on <unk> I I completely get your common.
It's around 2000 uptake our checks are suggesting the same among academic customer smaller labs, but I just wanted to understand in terms of those that have diagnostic instruments or instruments and diagnostic setting next seeks and my cheeks, what's your expectation.
For those customers to upgrade given the new chemistry, given that these instruments are validated in some of them are using next to the x. any any thoughts on next week or 2000 D.X. appreciated. Thank you.
Sure. Thank you put it so I got three questions. One is give you an update on the N.H.S. Ram and how you know that's looking for the back half of Thier and then also commented on how to bridge you know the fact that we've talked about three to 500000 samples, whereas you have secretary Hancock talking about 5 million genome is being done so so bridge.
That.
You also asked about next week and you know that upgrade cycle, especially talking about the D.X. instruments and you know whether you know that <unk> that D.X. customers for next week, you know, we'll be part of this upgrade cycle.
<unk> you know NHS, we are happy with how things are progressing frankly since you know over the last few months, you've given you the update announced a J.P. Morgan that we have signed the contract with Joe to provide the lab testing services. The genomic lab testing services for the N.H.S.R. teams are deeply engaged.
There should here here in California to to review plans going forward. So as off now we feel very good about how things are tracking in terms of steam ran for the N.H.S. and we expect to see that's a mid year going forward. The first phase is a 300000 scaling up to 500000 Jean.
To be sequence and we've done it bottoms of analysis with that team on how you get there and what we said publicly is that you know genomic testing is going to be a standard of care for just over 20 genetic diseases and for different types of cancers, you know starting the middle of the year, when we ramp up with D.N.A.
<unk> so standard of care for the U.K. population 55 60 million people.
But obviously there are a lot more than than 20 genetic diseases and a lot more than four cancers, and so secretary Hancock is really driving the N.H.S. to be more ambitious about how we want to roll this out for the entire U.K. population.
Not since they're not 20 genetically is there a 6000, janicke d.'s and they're awfully lot more than than for cancers, and so because you start to do the build up off what happens when you expand this across cancer indications and across more genetic diseases as well as other areas that don't make testing could be helpful for better out.
Comes at lower costs, that's how you get to a number like 5 million, that's not yet a committed pass with a committed timeframe, but but that's the ambition.
So that's the the N.H.S. ramp intensive next week and the upgrade path, especially around D.X. you know the way we expect to D.X. market to play out is that if you are a nexi custody x. customer today or you are in the pipeline to buy an X.C.D.X., we expect that he will either.
Keep using the when you have four you will buy a new next C.D.X. and that are more likely than not you won't be purchasing the 2000 and at one time right now and that goes to the point you made which was look you have validated where it flows in a lot of cases, you may actually have a clear asaib build on Howard cleared box and so you'll.
Certainly keep an eye out for when the 1000 2000, D.X. instrument gets announced and comes to market, but for the foreseeable future. You know your capacity ads will be D.X. boxes next week D.X. boxes and so.
So we don't expect those customers to be driving the pipeline for next week 1000 in 2000 right now.
Your next question comes from a line up Patrick Donnelley with city you're line is open.
Thanks, guys, Sam maybe just going to guide and somebody already you talked about maybe just a bit more color. There you know one q., obviously came kind of well below where the street was only looking for 1% of of growth on the revenue side B.P.F. <unk> pretty big year over year to cause she can just talk through that a bit more and then on top of out on the got in touch the full.
Visibility into some of the pop seek revenues timing of some of those emissions will have you have to start obviously and 2019, we saw some pushouts, which talk to a confidence level in the numbers, particularly about 200000 from U.K. biobank, how how how much can we see that shift either upside or or downsized from that number back.
Sure you know when we think about a cue on and thanks for the question by the way I trick when we think about the Q1 number I mean.
First of all as we look at cross Q1, but also across all of 2020. This is not unlike other years, where we've had instrument launches so going back to 2017, I know Nova seek is a different instrument, but the linear it is very similar to what we saw in 2017 and when we think about Q1, if you're looking if you're.
Comparing versus a cue for obviously you have you have two or three big factor is the drive the decline from Q4 him to Q1, one is seasonality and the lower instrument placements specifically in overseas in Q1 versus queue for seasonality across a you know most of the business across sequencing consumable as as well and then what we.
Also I've seen in the past, where Q1, usually is a big step up because of the D.T.C. business and some of the the processing of samples that come back after the holidays.
Doesn't exist this year, because we have obviously a very much weaker the D.C. performance for both Q1 and a year and then finally you know another key factor is the fact that with the launch of next year 2000, you will have a constraint next seek shipments in Q1, because customers are pausing waiting for the new instruments to come out and the new ones from.
Will not be available until late in Q1. So you will have much fewer next seek a shipments overall and q. and so those are the key factor is the drive the sequential declined from Q4 interest you want as we think about the rest of the year. You know obviously you will have the next seek 2000 launched that continues to wrap up you have.
Instrument placements for Nova sequel ramp up across the year, you will have the population genomics opportunities that we talked about so the <unk> bankers any full production mode and will continue to processing continue to process goes 200000, 200000 samples that we talked about across the full year, but then you have.
I've also the expectations that we shared and J.P. Morgan around all of US starting in the middle of the year, the N.H.S. commissioning with a with jail starting in the middle of the year. So we have obviously confidence with the with the Ram that we expect over the course of 2020, but Q1 is constrained for the reasons that I mentioned.
And you know obviously the next week 2000 lunch plays a big part of that but it's not unlike other launch years that we've got before.
Your next question comes from the line of Dan Leonard with Wells Fargo Your lines open.
Thank you just wanted to circle back on those pop seek expectations. So <unk> how comprehensive is that disclosure meeting meeting the three programs you flag the U.K. biobank all of us in in N.H.S.R.R. Those the three you've gotten permission to offer some disclosure and there could be other ones that are material coming into the.
Fold and 2020 or or those really the three that that's our are going to drive numbers in in 2020.
Maybe I'll start and a infectious and try men as well. So this is not about you know when we are permission to disclose this is about we want to make sure. We focus on the key pop trend projects and those three are the key pop jump projects that we talked about last year and we wanted to talk about this year and provide very specific visible.
City to them. So you could buy back would just started and will continue to process all across all of 2020, all of US, which was big talking pound points in 2019, and we want it to you know give clarity as to when we expect that to start than the numbers samples associated with it and obviously the NHS commissioning project, which was also a talking points.
Here and now we're pleased to say that we have disagreements with Joe and the N.H.S. and that's going to start as well and you know the U.K. by bankers started to there are others.
Relations you know mix initiatives within our 2020 financials, we will not be specifically talking about those those are part of our business. Some of those started and 29 t. and some of them. We expect to start and 2020, what we really want it to focus on the three key material one.
Thank you.
Your next question comes your final question comes from the line up Jack Me have with Barclays. Barclays. Your line is open.
Thank you good afternoon.
Just moving around out I was hoping you know following the conclusion on the pack bio you know potential deal I was just hoping and give us an update on alumina strategy in long read and sequencing.
You know it seems like a women is going to need to innovate their way into that market. So maybe just what's the strategy moving forward how big of a priority is this in terms of R. and D. and can you maybe give us some cover around the level prioritization versus some of the other things you're working on like clinical thanks.
Yeah sure let me, let me ask that track so.
We continue to believe for the long read market will be a and adjacent to market in in the overall sequencing market representing about 5% of the overall sequencing market and that for the foreseeable future. The two markets will interest like very little to be honest, the big market as far as with her and so on call you testing or night.
P T don't really need the long read capability and the big markets for long read you know Denovos sequencing you you species sequencing really need that wrong long lead capability in social reads onto a student technology for that market. So we continually that'll be a complimentary market to the short read.
Market, representing about 5% of the overall sequencing market. What we were excited about in in the fact ideal was that in our engineering teams are fantastic gets driving the price the cost of a machine down after we have terrific engineering and operations teams and and just terrific technologist and what we wanted to do is trying to accelerate that.
Market, because we know that there is a knock on effect about what's good for that market is good for our market because once you sequence and new species. For example, you do the bulk sequencing in that species on short dream technology, and so you know we're going to continue to look for ways to to move that market more quickly than it is moving now but it.
A small part of the overall sequencing market. It dwarfs in comparison to the clinical market opportunity, which is much much larger than the belonging mark it off a change so in terms of trade offs that we would do internally you know, it's it's not even close when we think about spending more to drive the ecology testing market for it for example verse.
Along with any market, having said that you know we've been public about the fact that you know we have our own long read programs that we're working on internally, we are going to continue to to work on those internally, but you know far and away the higher priority for US continues to be you know the short read core markets, both the research markets and the clinical market.
There are no further questions at this time I will turn the call back over to the presenters.
And he other reminder, replace it cost will be available Uh huh.
Section of our website.
Doing today.
I'm going to foreign to run it on the size of the first fiscal corner.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating now disconnect.
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