Q4 2021 Illumina Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the fourth quarter 2021 Alumina earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded I would like to now.

Speaker 1: Good day ladies and gentlemen and welcome to the fourth quarter 2021 Illumina earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. Please be advised that today's conference is being recorded. I would like to now pass the conference over to Sally Schwartz, Vice President of Investor Relations. Good afternoon everyone and welcome to our earnings call for the fourth quarter and full year 2021. The first quarter Arizona earnings conference calls for the fourth quarter based on Orville Paraly BulApparently the seventh quarter

Pass the conference over to Sally Schwartz, Vice President of Investor Relations. Good afternoon, everyone and welcome to our earnings call for the fourth quarter and full year 2021.

Speaker 2: During the call today, we will review the financial results released after the close of the market and offer commentary on our commercial activities, after which we will host a question and answer session.

During the call today, we will review the financial results released after the close of the market and offer commentary on our commercial activity.

After which we will hurt our question and answer session.

If you have not had a chance to review the earnings release. It can be found in the Investor Relations section of our website at Illumina Dot com.

Speaker 2: have not had a chance to review the earnings release, it can be found in the investor relations section of our website at Illumina.com

Participating for Illumina today will be Francis desouza.

Speaker 2: Participating for Illumina today will be Francis DeSouza, President and Chief Executive Officer and Sam Samad, Chief Financial Officer.

President and Chief Executive Officer, and Sam Smart Chief Financial Officer.

Francis will provide an update on the state of aluminum business and Sam overview of our financial results which include grill.

Speaker 2: Francis will provide an update on the State of Illumina's business, and Sam will review our financial results, which include GRAIL.

As a reminder, pending the outcome of the European Commission's investigation into aluminum acquisition of Grill. The Commission has adopted an order requiring illumina and grill health and operated as distinct and separate entities for an interim period.

Speaker 2: As a reminder, pending the outcome of the European Commission's investigation into Illumina's acquisition of GRAIL, the Commission has adopted an order requiring Illumina and GRAIL to be held and operated as distinct and separate entities for an interim period.

Speaker 2: Compliance with the order is monitored by a Monitoring Trustee.

Compliance with the order is monitored by a monitoring trustee.

During this period Illumina and grill are not permitted to share confidential business information unless legally required.

Speaker 2: During this period, Illumina and Grail are not permitted to share confidential business information unless legally required, and Grail must be run independently, exclusively in the best interest of Grail.

Grilled must be run independently exclusively in the best interest of Grill.

Virtual interactions between the two companies must be undertaken at arm's length.

Speaker 2: Commercial interactions between the two companies must be undertaken at arm's length.

This call is being recorded and the audio portion will be archived in the investors section of our website.

Speaker 2: This call is being recorded and the audio portion will be archived in the investor section of our website.

It is our intent that all forward looking statements regarding our financial results and commercial activity made during today's call will be protected under the private Securities Litigation Reform Act of 1995.

Speaker 2: It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995.

Forward looking statements are subject to risks and uncertainties.

Actual events or results may differ materially from those projected or discussed.

Speaker 2: Actual events or results may differ materially from those projected or discussed.

All forward looking statements are based upon current available information.

Speaker 2: All forward-looking statements are based upon current available information, and Illumina assumes no obligation to update these statements.

And Illumina assumes no obligation to update these statements.

To better understand the risks and uncertainties that could cause actual results to differ we refer you to the documents that Illumina files with the Securities and Exchange Commission, including Illumina. Its most recent Form 10-Q and 10-K.

Speaker 2: To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Illumina files with the Securities and Exchange...

Speaker 2: including Illumina's most recent forms 10q and 10k. With that, I will now turn the call over to Francis.

With that I will now turn the call over to Francis.

Thank you Sally.

Noon everyone.

I'm excited to share with you how our commitment to innovation is driving growth and unlocking the power of the genome.

Speaker 3: I'm excited to share with you how our commitment to innovation is driving growth and unlocking the power of the genome. My comments will cover

Comments will cover a few key areas, starting with our strong finish and exceptional results for 2021.

Speaker 3: starting with our strong finish and exceptional results for 2021, followed by how our platforms and markets drove those results,

Road by how our platforms and markets drove those results.

Then conclude by highlighting a few of the many trends that will support our momentum and continued growth in 2022 and beyond.

Speaker 3: I'll then conclude by highlighting a few of the many trends that will support our momentum and continued growth in 2022 and beyond.

Let's start with our financial results for both the fourth quarter and full year 2021.

Speaker 3: Let's start with our financial results for both the fourth quarter and full year 2021.

Fourth quarter revenue of approximately $1 $2 billion increased 26% year over year.

Speaker 3: Fourth quarter revenue of approximately $1.2 billion increased 26% year over year, with strong growth across both instruments and consumables, and across all regions.

With strong growth across both instruments and consumables and across all regions.

Full year 2021 revenue of more than $4 $5 billion increased 40% year over year, reflecting 76% growth in sequencing instruments and 43% growth in sequencing consumables.

Speaker 3: full year 2021 revenue of more than $4.5 billion increased 40% year over year, reflecting 76% growth in sequencing instruments, and 43% growth in sequencing consumables.

We're seeing record demand for our instruments across the throughput spectrum and across geographies.

Speaker 3: seeing record demand for our instruments across the throughput spectrum and across geographies.

In 2021, we shipped more than 3200 sequencing instruments and added more than 930, new instrument customers over 50% more than in 2020 or 2019.

Speaker 3: In 2021, we shipped more than 3,200 sequencing instruments and added more than 930 new instrument cups.

Speaker 3: over 50% more than in 2020 or 2019.

Delving now into each of our platforms starting with high throughput.

Speaker 3: Delving now into each of our platforms, starting with hide groups.

We shipped 384 <unk> units in 2021.

Speaker 3: We shipped 384 Novaseq units in 2021. With more than one third of those instruments for oncology tests.

With more than one third of those instruments for oncology testing.

Approximately 50% of Novus seek orders in 2021, or two new to high throughput or new to Illumina customers.

Speaker 3: Approximately 50% of NovaSeq orders in 2021 were new to high throughput or new to Illumina customers.

2021, Nova C consumable pull through of more than $1 $3 million per instrument was the highest ever average even with over double the placements compared to last year.

Speaker 3: 2021 Novacy consumable pull-through of more than $1.3 million per instrument was the highest ever average, even with over double the placements compared to last year.

Moving to mid throughput in 2021, we shipped more than 1100 next seek system.

Speaker 3: Moving to mid throughput in 2021, we shipped more than 1,100 NextSeek systems.

Surpassing 1000 for the first time in nearly doubling 2020 shipments.

Speaker 3: surpassing a thousand for the first time, and nearly doubling 2020 shipments.

This volume was driven by growing next week 550 demand in clinical applications like oncology testing and reproductive health as well as next week 1000, 2000 demand as customers expand into multi you'll make applications.

Speaker 3: This volume was driven by growing Nexseq 550 demand in clinical applications like oncology testing and reproductive health, as well as Nexse Q1 000 and 2000 demand as customers expand into multi-omic applications.

More than 20% of next week 1002 thousand units this year, well placed with new to Illumina customers as we continue to see new customers using higher throughput application.

Speaker 3: More than 20% of NextSe Q1 000 and 2000 units this year were placed with new to Illumina customers, as we continue to see new customers using higher throughput applications.

For low throughput in 2020 , one we shipped more than 1600 unit another record driven in part by the addition of more than 700 new customers.

Speaker 3: For low throughput, in 2021, we shipped more than 1,600 units, another record, driven in part by the addition of more than 700 new customers.

Looking at our continued strong growth through the lens of our market.

Speaker 3: looking at our continued strong growth through the lens of our market.

Our clinical markets currently includes testing for oncology reproductive health and genetic disease.

Speaker 3: Our clinical markets currently include testing for oncology, reproductive health and genetic disease.

In 2021, our consumable shipments to clinical market grew 42% driven in particular by oncology testing, where many customers are building out comprehensive genomic profiling or CGP and expanding into liquid biopsy and monitoring.

Speaker 3: In 2021, our consumable shipments to clinical markets grew 42%, driven in particular by oncology testing, where many customers are building out comprehensive genomic profiling, or CGP, and expanding into liquid biopsy and monitoring.

We continue to see expanding opportunities for our oncology products globally, including new studies launching in Europe , and Asia with a research use only to state oncology 500 assay.

Speaker 3: We continue to see expanding opportunities for our oncology products globally, including new studies launching in Europe and Asia with our research-use-only TruSight Oncology 500reetings.

For example, our recent joined research project with the National Cancer Center, Japan will develop personalized cancer treatment for patients with nasopharyngeal carcinoma.

Speaker 3: For example, our recent joint research project with the National Cancer Center Japan will develop personalized cancer.

Speaker 3: for patients with nasopharyngeal carcinoma, a cancer that occurs more frequently in Asia.

Cancer that occurs more frequently in Asia.

And our partnership with <unk> Center at the Claremont from University Hospital in France, We will assess the clinical value of CGP in patients with late stage disease compared to the current standard of care.

Speaker 3: And our partnership with the Jean Perrin Centre at the Clermont-Ferrand University Hospital in France will assess the clinical value of CGP in patients with late stage disease compared to the current standard of care.

Also in oncology Grill continues to see strong momentum gray.

Speaker 3: Also in oncology, grail continues to see strong momentum.

<unk> launched the gallery tests last year as the first clinically validated multi cancer early detection test to be available to patients and providers.

Speaker 3: GRAIL launched the GALERIE test last year as the first clinically validated multi-cancer early detection test to be available to patients and providers.

Gallery can detect more than 50 types of cancer, most of which have no current screening.

Speaker 3: The gallery can detect more than 50 types of cancer, most of which have no current screening.

It's great to see the initial market reception with multiple large employers and payers adopting gallery and more than 1500 prescribing partners, including participation from leading health systems like the NHS, the Mayo clinic and the Cleveland clinic.

Speaker 3: It's great to see the initial market reception with multiple large employers and payers adopting Galeri and more than 1,500 prescribing partners, including participation in the line.

Speaker 3: like the NHS, the Mayo Clinic, and the Cleveland Clinic.

The team continues to collaborate with pharmaceutical partners like Astrazeneca, Amgen and Bristol Myers Squibb on potential new innovations in the post diagnostics space.

Speaker 3: The team continues to collaborate with pharmaceutical partners like AstraZeneca, Amgen, and Bristol-Myers Squibb on potential new innovations in the post-diagnostic.

Finally, the recent initiatives launched in the U S and EU to beat cancer are very encouraging.

Speaker 3: Finally, the recent initiatives launched in the US and EU to beat cancer are very encouraging.

The U S as cancer Moonshot National initiative, and Europe , beating cancer plan highlight the increasing recognition of early detection as a critical component in the fight against cancer.

Speaker 3: The US' Cancer Moonshot National Initiative and Europe's Beating Cancer Plan highlight the increasing recognition of early detection as a critical component in the fight against cancer.

Illumina is deeply committed to supporting all early detection oncology testing and treatment initiatives to improve care and save lives.

Speaker 3: Illumina is deeply committed to supporting all early detection, oncology testing, and treatment initiatives to improve care and save lives.

Beyond oncology reproductive health also had a strong year in 2021.

Speaker 3: Beyond oncology, reproductive health also had a strong year in 2021.

This was driven in part by revised American College of Obstetricians, and gynecologists or a cog guidelines, enabling genetic testing coverage for all U S pregnancies.

Speaker 3: This was driven in part by revised American College of Obstetricians and Gynecologists, or ACOG, guidelines enabling genetic testing coverage for all U.S. pregnancy.

As well as increasing adoption of our various he can I P. T V two product globally.

Speaker 3: as well as increasing adoption of our VeriSeq NIPT V2 product to the WHOangs global network.

Our third clinical market genetic disease testing, so tremendous growth and additional evidence generation in 2021.

Speaker 3: Our third clinical market, genetic disease testing, saw tremendous growth and additional evidence generation in 2021.

With significant publications in both the New England Journal of Medicine, and Jama Pediatrics affirming the clinical utility of whole genome sequencing or WGS for critically ill children.

Speaker 3: with significant publications in both the New England Journal of Medicine and JAMA Pediatrics affirming the clinical utility of whole genome sequencing or WGS for critically ill children.

In 2022, we're already seeing an increase in coverage with California, Oregon, and Maryland, Medicaid initiating coverage for WGS in the NICU setting.

Speaker 3: In 2022, we're already seeing an increase in coverage with California, Oregon, and Maryland Medicaid initiating coverage for WGS in the NICU setting.

Expansion of programs for WGS and NICU settings are also occurring globally, including a recent project with Germany's Hanover Medical school to implement the use of WGS in NICU patients.

Speaker 3: expansion of programs for WGS and NICU settings are also occurring globally.

Speaker 3: including our recent project with Germany's Hanover Medical School to implement the use of WGS in NICU patients.

This program contributes to a growing body of evidence from other countries, including the United Kingdom, and Australia as well as in states across the U S showing the WGS offer significant benefits for diagnosis of genetic disease and critically ill infants along with cost efficiencies for help.

Speaker 3: this program contributes to a growing body of evidence from other countries, including the United Kingdom and Australia, as well as in states across the US, showing that WGS offers significant benefits for diagnosis of genetic disease in critically ill infants, along with cost efficiencies for health facilities.

System.

Turning to our research and applied market consumables grew 43% in 2021, driven by projects like all of US along with ongoing Covid surveillance effort that contributed approximately $220 million in total revenue.

Speaker 3: Turning to our research and applied market, consumables grew 43% in 2021, driven by projects like all of us.

Speaker 3: along with ongoing COVID surveillance efforts that contributed approximately $220 million in total revenue.

I'd now like to spend a few minutes.

Speaker 3: I'd now like to spend a few minutes on three key trends that will drive long-term growth.

On three key trends that will drive long term growth.

First is the continued deepening and expansion of alumina as addressable market.

Speaker 3: First, it's a continued deepening and expansion of Illumina's addressable market.

We're seeing further penetration of our existing markets through increased access and adoption.

Speaker 3: We're seeing further penetration of our existing markets through increased access and adoption.

The use of sequencing is proliferating globally across applications and new initiatives continue to integrate genomics into national health care system.

Speaker 3: The use of sequencing is proliferating globally across applications, and new initiatives continue to integrate genomics into national healthcare.

Our technology and genomics expertise are enabling program like our future health the Uk's largest ever health research program that will deliver genetic analysis of DNA samples from up to 5 million volunteers.

Speaker 3: Our technology and genomics expertise are enabling programs like Our Future Health, the UK's largest ever health research program that will deliver genetic analysis of DNA samples from up to 5 million volunteers.

This data will be used for a variety of potential discoveries, including new signals to detect diseases earlier, new ways to better predict high risk population for diseases, and new personalized therapies or tools to delayed diseases or change the course of their progression.

Speaker 3: This data will be used for a variety of potential discoveries, including new signals to detect diseases earlier, new ways to better predict high-risk populations for diseases, and new personalized therapies or tools to delay diseases or change the course of their progression.

We're excited to play a role in this project as the Geno typing partner for the program.

Speaker 3: We're excited to play a role in this project as the genotyping partner for the program.

We also continue to support a growing global Covid surveillance network that will extend to broader pan pathogen and genomic epidemiology work.

Speaker 3: We also continue to support a growing global COVID surveillance network that will extend to broader pan-pathogen and genomic epidemiology work.

This infrastructure is already being used to study other infectious diseases.

Speaker 3: this infrastructure is already being used to study other infectious diseases.

Speaker 3: For example, in South Africa, Dr. Tulio Dolivera's team at CERI, the Center for Epidemic Response and Innovation, is using their fleet of sequencers to study other communicable diseases like HIV and malaria.

For example, in South Africa, Dr. Julia dollar of Arris team at theory, the centre for epidemic response, and innovation is using their fleet of sequences to study other communicable diseases like HIV and malaria.

We expect additional opportunities for repeat them neology applications in the future as global funding for pathogen surveillance and research expense.

Speaker 3: We expect additional opportunities for epidemiology applications in the future as global funding for pathogen surveillance and research expands.

And new sequencing applications and opportunities are growing and evolving rapidly including in multiple nascent spaces like multi omics and drug development.

Speaker 3: And new sequencing applications and opportunities are growing and evolving rapidly, including in multiple nascent spaces, like multiomics and drug development.

We're supporting the spectrum of multi omics applications across our instruments, including proteomics with our co development partnership with Soma logic is off to a strong start.

Speaker 3: We're supporting the spectrum of multi-omic applications across our entire nation.

Speaker 3: including proteomics, where our co-development partnership with Somalogic is off to a strong start.

We're also catalyzing growth in drug discovery, where genomic based methods can dramatically improve speed to market success rates and costs.

Speaker 3: We're also catalyzing growth and drug discovery, where genomic-based methods can dramatically improve speed to market, success rate, and cost.

In addition to our partnership with Nashville, Biosciences, we're collaborating with the Montreal Neurological Institute Hospital the K.

Speaker 3: In addition to our partnership with Nashville Biosciences, we're collaborating with the Montreal Neurological Institute Hospital, Takeda, and Roche to enable large-scale analysis of patient data and identify promising targets for drug development in neurological diseases.

<unk> and Roche to enable large scale analysis of patient data and identify promising targets for drug development in neurological diseases.

Programs like our future health growing applications and increasing global access will support long term adoption of Ngls.

Speaker 3: Programs like Our Future Health, growing applications, and increasing global access will support long term adoption of NGS.

The new markets, we're opening like drug discovery will further enable the adoption, while also improving data equity and the integration of genomics into health care.

Speaker 3: The new markets we're opening, like drug discovery, will further enable adoption while also improving data equity and the integration of genomics into health care.

We're experiencing this increasing demand for genomics as we enter 2022 with our instrument backlog almost twice the size it was entering 2021.

Speaker 3: We're experiencing this increasing demand for genomics as we enter 2022, with our instrument backlog almost twice the size it was entering 2021.

A second trend is a multifaceted growth in our customer base.

Speaker 3: A second trend is the multi-faceted growth in our customer base. Our existing customers.

Our existing customers are growing their instrument fleet.

We're also seeing increasing numbers of customers new to Illumina.

Speaker 3: We're also seeing increasing numbers of customers new to Illumina.

As a result, our installed base has grown to more than 20000 instruments at the end of 2021.

Speaker 3: As a result, our install base has grown to more than 20,000 instruments at the end of 2021.

A third trend is the demand for even greater data generation.

Speaker 3: A third trend is the demand for even greater data generation.

In 2021, and average alumina high throughput customer generated approximately four times more data than in 2017.

Speaker 3: In 2021, an average Illumina high throughput customer generated approximately four times more data than in 2017.

This will continue as customers need more complete genomic information and then N G S become standard in clinical settings.

Speaker 3: This will continue as customers need more complete genomic information and as NGS becomes standard in clinical settings.

Speaker 3: These shifts will increase the number of projects, number of samples per project, and the depth of sequencing per sample.

These shifts will increase the number of projects number of samples for project and the depth of sequencing per sample.

Multiple tests run per patient and as samples are used for read across high intensity applications like multi omics.

Speaker 3: as multiple tests are run per patient and as samples are used for reads across high intensity applications like multi-omics.

This demand for higher throughput sequencing will in turn continue to drive further growth in our sequencing consumables revenue.

Speaker 3: This demand for higher throughput sequencing will, in turn, continue to drive further growth in our sequencing consumable driving.

For 2021 between our consumables and services more than 80% of our revenue is recurring in nature.

Speaker 3: For 2021, between our consumables and services, more than 80% of our revenue is recurring in nature.

This more predictable and profitable revenue stream provides a tremendous base to invest into the business and drive future growth.

Speaker 3: This more predictable and profitable revenue stream provides a tremendous base to invest into the business and drive future growth.

Alumina 2021 performance and significant momentum entering 2020 to demonstrate our strong position to support our customers and partners as these trends accelerate genomics in health care.

Speaker 3: Illumina's 2021 performance and significant momentum entering 2022 demonstrate our strong position to support our customers and partners as these trends accelerate genomics in healthcare.

I'll now turn the call over to Sam to highlight additional details on our results and operations as well as discuss our guidance for 2022.

Speaker 3: I'll now turn the call over to Sam to highlight additional details on our results and operations, as well as discuss our guidance for 2022.

<unk>.

Thanks Russell.

As a reminder, our fourth quarter financial results include the consolidated financial results for Grill.

Speaker 3: As a reminder, our fourth quarter financial results include the consolidated financial results for Grail.

I'll start by reviewing our consolidated financial results followed by segment results for core Illumina N grill.

Speaker 3: I'll start by reviewing our consolidated financial results, followed by segment results for Core, Illumina and Grail, then conclude with our outlook for 2022.

And conclude with our outlook for 2022.

I will be highlighting non-GAAP results, which include park based compensation.

Speaker 3: I will be highlighting non-GAAP results which include stock-based compensation.

I encourage you to review the GAAP reconciliation of these non-GAAP measures.

Speaker 3: I encourage you to review the gap reconciliation of these non- GAAP measures which can be found in today's release and in the supplementary data available on our website.

Which can be found in today's release and in the supplementary data available on our website.

Our record fourth quarter revenue again exceeded our expectations due to continued strength in our core business.

Speaker 3: Our record fourth quarter revenue again exceeded our expectations due to continued strength in our core business.

With consolidated revenue growing 26% year over year to $1 $198 billion.

Speaker 3: consolidated revenue growing 26% year-over-year to $1.198 billion.

For the fourth quarter GAAP net income was $112 million or <unk> 71 per diluted share.

Speaker 3: For the fourth quarter, GAAP net income was $112 million, or 71 cents per diluted share.

And non-GAAP net income was $117 million or <unk> 75.

Speaker 3: and non-GAAP net income was $117 million, or 75 cents per diluted share.

Diluted share.

Which included 66 cents of dilution from Grail operating losses.

Speaker 3: which included 66 cents of dilution from grail operating losses.

Speaker 3: and nine cents of incremental dilution from the 9.8 million shares issued to fund the Grail acquisition.

And nine cents of incremental dilution from the nine 8 million shares issued to fund the Grill acquisition.

Our non-GAAP tax rate was 15, 6%, which decreased 280 basis points year over year, primarily due to a more favorable mix of earnings in jurisdictions with lower statutory tax rate.

Speaker 3: Our non-GAAP tax rate was 15.6%.

Speaker 3: decreased 280 basis points year over year, primarily due to a more favorable mix of earnings and jurisdictions with lower statutory taxes.

Our weighted average diluted share count for the quarter was approximately $157 million.

Speaker 3: Our weighted average diluted share count for the quarter was approximately 157 million.

Moving to segment results I will start by highlighting the financial results of core Illumina.

Speaker 3: Moving to segment results, I will start by highlighting the financial results of Core Illumination.

Core Illumina, our revenue grew 25% year over year to $1 $193 billion driven by another quarter of record shipments for both clinical and research with notable strength in oncology testing genetic disease testing and population genomics.

Speaker 3: Core Illumina revenue grew 25% year-over-year to $1.193 billion, driven by another quarter of record shipments for both clinical and research.

Speaker 3: with notable strengths in oncology testing, genetic disease testing, and population genomics.

Core Illumina sequencing consumable revenue grew 32% year over year to $792 million drill.

Speaker 3: Cora Lumina sequencing consumables revenue grew 32% year over year to $792 million.

Speaker 3: driven by record NovaSeq consumable shipments resulting from the significant growth in installed base and strong pull-through that again exceeded our guidance.

Driven by record and oversee consumables shipments, resulting from the significant growth in installed base and strong pull through that again exceeded our guidance range.

Sequencing instrument revenue for core Illumina grew 35% year over year to $191 million driven by record in overseas shipments due to continued new to high throughput customer adoption and accelerating demand in oncology testing.

Speaker 3: Sequencing Instruments revenue for Core Illumina grew 35% year over year to $191 million, driven by record Novaseq shipments due to continued new to high throughput customer adoption, and accelerating demand in oncology tests.

Next week 1000, 2000 shipments also reached a new high in the quarter and there was strong growth across all mid and low throughput systems year over year.

Speaker 3: Next week 1000-2000 shipments also reached a new high in the quarter, and there was strong growth across all mid and low throughput systems year over year.

We are entering 2022 with a strong sequencing instrument backlog that is almost double the backlog entering 2021.

Speaker 3: We are entering 2022 with a strong sequencing instrument backlog that is almost double the backlog entering 2021.

Revenue from COVID-19, surveillance again exceeded our expectation driven by the sustained focus on various tracking due to the emergence of the omicron variance.

Speaker 3: Revenue from COVID-19 surveillance again exceeded our expectations, driven by the sustained focus on variant tracking due to the emergence of the Omicron variant.

During the fourth quarter COVID-19 surveillance contributed approximately $42 million in sequencing consumables revenue and $8 million and incremental instrument revenue.

Speaker 3: During the fourth quarter, COVID-19 surveillance contributed approximately $42 million in sequencing consumables revenue and $8 million in incremental instruments.

Core Illumina sequencing service and other revenue of $106 million was flat year over year as revenue growth from instrument service contracts and lab services.

Speaker 3: for a Lumina sequencing service and other revenue of $106 million with flat year

Speaker 3: as revenue growth from instrument service contracts and lab services was offset by lower IVD partnership revenue.

Offset by lower IBD partnership revenue.

Moving to regional results for core Illumina revenue for the Americas region was $619 million growing 25%.

Speaker 3: Moving to regional results for core Illumina. Revenue for the Americas region was $619 million, growing 25% compared to the prior year period. Driven by clinical demand and oncology testing.

Compared to the prior year period, driven by clinical demand in oncology testing.

And genetic disease research for farmer and population genomics initiatives like all of us and Covid surveillance testing.

Speaker 3: Strengthen genetic disease research for pharma, and population genomics initiatives like All of Us, and COVID Surveillance Section.

EMEA delivered revenue of $350 million, representing 23% growth year over year.

Speaker 3: EMEA delivered revenue of $350 million, representing 23% growth year over year, driven by strength in emerging markets, population genomics initiatives, and COVID surveillance testing.

Driven by strength in emerging market population genomics initiatives and covert surveillance testing.

Greater China revenue was $121 million representing growth of 26% year over year due to continued clinical strength in the region driven by the growing installed base in hospitals.

Speaker 3: Greater China revenue was $121 million, representing growth of 26% year-over-year, due to continued clinical strength in the region driven by the growing installed base in hospital.

Finally, a P J revenue of $103 million grew 34% year over year.

Speaker 3: Finally, APJ revenue of $103 million grew 34% year over year.

Driven by record in overseas placements and continued momentum in clinical market, including genetic disease testing and oncology testing.

Speaker 3: driven by record Novaseq placements and continued momentum in clinical markets, including genetic disease testing and oncology testing.

Moving to the rest of the core Illumina P&L for alumina non-GAAP gross margin of 71, 6% increased 470 basis points year over year due primarily to increased fixed cost leverage on higher volume.

Speaker 3: Moving to the rest of the Core Illumina P&L. Core Illumina non-gap growth margin at 71.6% increased 470 basis points year over year due primarily to increased fixed cost leverage on higher volumes.

Core Illumina non-GAAP operating expenses of $580 million were up $141 million year over year, due primarily to head count growth.

Speaker 3: Core Alumina non-gap operating expenses of $580 million were up $141 million year over year due primarily to headcount growth, increased performance-based compensation expenses, higher one-time partnership related expenses.

Increased performance based compensation expenses higher one time partnership related expenses.

And the increased project spend driven by investments, we are making in R&D and operations.

Speaker 3: and increased project spend driven by investments we are making in R&D and operations to support the growth and scale of our business.

Fourth the growth and scale of our business.

non-GAAP operating expenses for the quarter were higher than expected due to higher variable compensation expense and higher partnership expense compared to previous expectations.

Speaker 3: non-GAAP operating expenses for the quarter were higher than expected due to higher variable compensation expense and higher partnership expense compared to previous expectations.

Or aluminum non-GAAP other expense of $8 million was $28 million lower than other income in Q4 2020 due to lower interest income on short term investments liquidated to fund the Grail acquisition.

Speaker 3: Poor aluminum non-GAAP other expense of $8 million was $28 million lower than other income in Q4 2020 due to lower interest income on short-term investments liquidated to fund the GRAIL acquisition, as well as interest expense on the term notes issued in Q1 2021.

As well as interest expense on the term notes issued in Q1 2021 .

Transitioning to the financial results and for a grill.

Speaker 3: Transitioning to the financial results of FurGrail. Grail revenue of $10 million to the quarter consisted of gallery test fees and MRD partnership revenue

Rail revenue $10 million for the quarter consisted of gallery pest season, MRV partnership revenue.

non-GAAP operating expenses totaled $131 million for the quarter, which consisted primarily of expenses related to head count and clinical trials.

Speaker 3: GRAIL non-GAAP operating expenses totaled $131 million for the quarter, which consisted primarily of expenses related to headcount and clinical trials. Moving to

Moving to consolidated cash flow and balance sheet items.

Cash flow from operations was $282 million DSO was 49 days compared to 50 days last quarter driven by revenue linearity.

Speaker 3: Cash flow from operations was $282 million, DSO was 49 days compared to 50 days last quarter driven by revenue linearity, fourth quarter 2021 capital expenditures were $70 million, and free cash flow was $212 million. We did not repurchase any common stock in the fourth quarter.

Fourth quarter 2021 capital expenditures were $70 million and free cash flow was $212 million, we did not repurchase any common stock in the fourth quarter.

We ended the quarter with approximately $1 $3 billion in cash cash equivalents and short term investments.

Speaker 3: We ended the quarter with approximately $1.3 billion in cash, cash equivalents, and short-term investments.

Moving now to 2022 guidance, we expect full year 2022 consolidated revenues to grow 14% to 16%.

Speaker 3: Moving now to 2022 guidance. We expect full year 2022 consolidated revenue to grow 14 to 16% to approximately $5.16 to $5.25 billion.

There were approximately 5.16 to $5 billion to $5 billion.

We expect full year 2022 core alumina revenue to grow 13% to 15%.

Speaker 3: We expect full year 2022 core Illumina revenue to grow 13 to 15.

So approximately five points one one to five 2 billion.

Speaker 3: to approximately $5.11 to $5.2 billion.

Grail expects revenue to be in the range of $70 million to $90 million for 2020 to.

Speaker 3: Grail expects its revenue to be in the range of $70 to $90 million for 2022, consisting primarily of gallery to

Consisting primarily of gallery Pepsi.

For fiscal 2022 at the midpoint of our revenue guidance range, we expect core illumina sequencing revenue to grow approximately 15% year over year, driven by accelerating demand in our base business.

Speaker 3: for Fiscal 2022 at the midpoint of our revenue guidance range.

Speaker 3: We expect core Illumina sequencing revenue to grow approximately 15% year over year, driven by accelerating demand in our base business.

This includes intercompany sales to Grail of approximately $25 million, which are eliminated in consolidation.

Speaker 3: This includes intercompany sales to Grail of approximately $25 million, which are eliminated in consolidation.

We expect core Illumina sequencing instrument growth of approximately 10% year over year, driven by continued strength in Nova and <unk> placement.

Speaker 3: We expect core Illumina sequencing instrument growth of approximately 10% year over year, driven by continued strength in NovaSeq and Nexique glaciers.

We expect core Illumina sequencing consumables growth of approximately 18% year over year, driven by our growing instruments installed base and strong utilization by our customers.

Speaker 3: We expect core Illumina sequencing consumables growth of approximately 18% year over year, driven by our growing instruments and salt bays and strong utilization by our customers.

We expect this strength to expand our platform and we are raising our pull through guidance for novus eat through a range of $1 2 million to $1 $3 million for system for 2022.

Speaker 3: And we are raising our pull-through guidance for NOVSEG to a range of $1.2 million to $1.3 million per system for 2022.

We expect pull through for next seek 1000 2000, and the range of 130000 to $180000 per system in 2022.

Speaker 3: We expect pull-through for next week $1,000, $2,000 in the range of $130,000 to $180,000 per system in 2022.

And pull through for next peak $5 50 in the range of 100000 to $150000 per system.

Speaker 3: and pull through for NEXSEQ 550 in the range of $100,000 to $150,000 per system.

From I think we expect pull through in the range of 35000 to $45000 per system and for many seek we expect pull through in the range of 20000 to $25000 per system.

Speaker 3: For MiSeq we expect pull-through in the range of $35,000 to $45,000 per system. And for MiSeq we expect pull-through in the range of $20,000 to $25,000 per system.

We also expect revenue from Covid surveillance and the range of $130 million to $150 million in 2022.

Speaker 3: We also expect revenue from COVID surveillance in the range of $130 million to $150 million in 2022.

We expect consolidated non-GAAP operating margin in the range of 15, 5% to 16%.

Speaker 3: We expect consolidated non-GAAP operating margin in the range of 15.5 to 16 percent.

In core Illumina non-GAAP operating margin of approximately 28% for 2022.

Speaker 3: and Core Alumina non-gap operating margin of approximately 28% for 2022.

We also expect our consolidated non-GAAP tax rate of approximately 19%.

Speaker 3: We also expect a consolidated non-GAAP tax rate of approximately 19 per cent.

We expect consolidated non-GAAP earnings per diluted share in the range of $4 to $4 20.

Speaker 3: We expect consolidated non-GAAP earnings for diluted share in the range of $4 to $4.00.

Which includes dilution from Grail of $3 75.

Speaker 3: which includes dilution from grail of $3.75, including grail operating loss dilution of approximately $3.25.

Including Grail operating loss dilution of approximately $3 25 and.

And incremental dilution of approximately <unk> 50.

Speaker 3: and incremental dilution of approximately $0.50 from the 9.8 million shares issued to fund the Grail acquisition, in line with previous expectations.

From the nine 8 million shares issued to fund the Grail acquisition in line with previous expectations.

And finally, we expect diluted shares outstanding for fiscal 2022 to be approximately 159 million shares.

Speaker 3: And finally, we expect Diluted Shares Outstanding for Fiscal 2022 to be approximately 159 million shares.

For the first quarter of 2022 for consolidated alumina, we expect.

Speaker 3: For the first quarter of 2022 for Consolidated Alumina, we expect revenue to increase 10% to 12% year over year from the first quarter of 2021.

<unk> revenue to increase 10% to 12% year over year from the first quarter of 2021.

This represents a sequential increase from the fourth quarter of 2021, reflecting a strong start to the year.

Speaker 3: This represents a sequential increase from the fourth quarter of 2021, reflecting a strong start to the year.

We expect non-GAAP operating margin to increase approximately 300 basis points sequentially, primarily due to a decrease in operating expenses.

Speaker 3: We expect non-GAAP operating margin to increase approximately 300 basis points sequentially, primarily due to a decrease in operating expenses.

Speaker 3: We expect non-GAAP tax rates to be in line with our full year 2022 guidance of approximately 19%.

We expect non-GAAP tax rate to be in line with our full year 2022 guidance of approximately 19%.

We expect diluted shares outstanding to be in line with our full year 2022 guidance of approximately 159 million shares.

Speaker 3: We expect diluted shares outstanding to be in line with our full year 2022 guidance of approximately 159 million shares.

For core Illumina, we expect non-GAAP operating margin in Q1 to be in line with our full year 2022 guidance.

Speaker 3: For Core Illumina, we expect non-GAAP operating margins in Q1 to be in line with our full year 2022 guidance of approximately 28%.

Approximately 28%.

I'll now hand, the call back over to Francis for his final remarks.

Speaker 3: I'll now hand the call back over to Francis for his final remarks.

Thanks them.

Speaker 4: Thanks Sam. To close, I'd like to thank our teams, our network of partners, and the extraordinary scientists and clinicians we serve. I am incredibly excited for the many opportunities ahead.

To close I'd like to thank our teams our network of partners and the extraordinary scientists and clinicians we serve.

I am incredibly excited for the many opportunities ahead.

Today more than 1 billion people are covered for genomic testing globally and we expect this number to double within five years as genomics accelerates the adoption and potential of personalized medicine.

Speaker 4: Today, more than 1 billion people are covered for genomic testing globally, and we expect this number to double within five years as genomics accelerates the adoption and potential of personalized medicine.

Speaker 4: Illumina will continue to support the growing number of patients around the world accessing the life-saving benefits of genomics.

Alumina will continue to support the growing number of patients around the world accessing the lifesaving benefits of genomics from oncology therapy selection to reproductive health genetic disease testing and pathogen surveillance.

Speaker 4: from oncology therapy selection to reproductive health, genetic disease testing, and pathogen surveillance.

We will also continue to push genomics to new frontiers like drug development in proteomics.

Speaker 4: We will also continue to push genomics to new frontiers, like drug development and proteomics.

Additionally, we will enable discovery across these existing and new markets with a pipeline of innovative products and solutions developed in collaboration with our customers.

Speaker 4: Additionally, we will enable discovery across these existing and new markets with a pipeline of innovative products and solutions developed in collaboration with our customers.

It has been fantastic to see the strong interest and excitement across our customer base for our latest development.

Speaker 4: It has been fantastic to see the strong interest and excitement across our customer base for our latest development.

Speaker 4: including our Breakthrough Chemistry X and our Infinity Long-Read technology.

Including our breakthrough chemistry X and our Infinity long read technology.

We expect to not only directly address unmet market needs, but also revolutionized with scientists and clinicians can expect from sequencing.

Speaker 4: We expect to not only directly address unmet market needs, but also revolutionize what scientists and clinicians can expect from sequencing.

Together, we're enabling genomic based discoveries that can transform health care and ultimately provide a brighter future for human health.

Speaker 4: Together, we're enabling genomic-based discoveries that can transform healthcare, and ultimately provide a brighter future for human health.

I'll now invite the operator to open for Q&A.

Speaker 4: I'll now invite the operator to open for Q&A. Operator?

Operator.

Absolutely.

Speaker 1: Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. If you're streaming this conference, please dial in and press star one. And if you are on a speakerphone, please remember to disconnect your handset. Excuse me, please remember to disconnect and use your hand.

If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two.

To ask a question. Please press star one through streaming this conference. Please dial in and press Star one and if you are on a speaker phone. Please remember to disconnect your handset.

Excuse me, please remember to disconnect and use your handset.

Speaker 1: As a reminder, please limit yourself to one question so that we can accommodate as many analysts as possible. You are welcome to re-enter the queue if you have additional questions.

As a reminder, please limit yourself to one question. So that we can accommodate as many analysts as possible you are welcome to reenter the queue. If you have additional questions.

First question goes to Dan Brennan with Cowen.

Speaker 1: first question goes to Dan Brennan with Cowan. Dan, your line is open. You can go ahead.

Your line is open you can go ahead.

Great. Thanks, Thanks for the questions Congrats obviously on the quarter.

Speaker 5: Great. Thanks. Thanks for the questions. Congrats, obviously, on the quarter. So, I wanted to ask a question on the new products. Obviously, we're going to hear a lot more about this this fall.

So I wanted to ask a question on the new products, obviously, we're going to hear a lot more about this this fall.

As you would expect a material interest in chemistry action Infinity, particularly in light of some of the expected competitive launches that'll be coming between now and around <unk>. So I'm. Just wondering you know you've laid out some basic metrics don't read length accuracy and speed and you talked about revolutionizing things and unmet need so I was hoping french's.

Speaker 5: But as you would expect, there's material interest in chemistry action infinity.

Speaker 5: particularly in light of some of the expected competitive launches that'll be coming between now and around 80 BT. So I'm just wondering, you know, you've laid out some basic metrics on read length, accuracy, and speed, and you've talked about revolutionizing things and unmet needs. So I was hoping Francis.

Speaker 5: that you could provide a little bit more color about maybe how we can think about these products. Obviously, you're not going to give us new factors at this point, but particularly around some of the unmet needs that might be addressed and or this idea of revolutionizing things because, you know, arguably Illumina has done a terrific job.

If you could provide a little bit more color about maybe how we can think about these products, obviously, you're not going to give us new factories at this point, but particularly around some of the unmet needs that might be addressed indoor this idea of revolutionizing things because you know arguably alumina has done a terrific job of evolving.

Speaker 5: evolving their product portfolio, driving higher throughput, lower prices, but revolutionary sounds like a pretty big word for this product, so just wondering and hoping to try to get some more color.

Evolving their product portfolio are driving higher throughput lower prices, but revolutionary sounds like a pretty big word for this product. So just wondering and hoping they're trying to get some more color. Thank you.

Yeah, Thanks, Dan and it has been fantastic as I said to see the reaction of our customers to both chemistry acts and the data we've provided so far on Infinity. So let me go through each of them a little bit with chemistry actually we've been keeping all of you in the loop over the years.

Speaker 3: Yeah, thanks, Dan. And it has been fantastic, as I said, to see the reaction of our customers to both Chemistry X and the data we've provided so far on infinity. So we go through each of them a little bit.

Speaker 3: With Chemistry X, we've been keeping all of you in the loop over the years as we moved from the research phase then into product development and shared some of the early data maybe just over a year ago. And then, as I said a couple of weeks ago, we're now moving Chemistry X from product development into manufacturing with a whole new manufacturing facility and scaling up production.

As we moved from the research Phase then into product development and showed some of the early data maybe just over a year ago and then as I said a couple of weeks ago. We're now moving chemistry X from product development into manufacturing with a whole new manufacturing facility and sort of scaling up production and so it's.

Speaker 3: It's been terrific to see the progress and the innovations that are, you know, in chemistry. As I said, this is a from-the-ground-up rethink of our chemistry, probably the single biggest advance in our chemistry since Solexil was created all those years ago.

Terrific to see the progress and the innovations that are.

In chemistry actually as I said this is a from the ground up rethink of our chemistry, probably the single biggest advance in our chemistry.

Since <unk> was created all those years ago.

Speaker 3: What this means for our customers and in terms of the industry is we can expect a step change in terms of the speed of the chemistry and that will translate into much faster turnaround times for the tests that our customers are running and that's especially relevant for not just very large scale research projects but especially relevant in clinical settings.

What this means for our customers and in terms of the industry. As we can you can expect a step change in terms of the speed of the chemistry and that'll translate into much faster turnaround times for the test that our customers are running and that's especially relevant for not just very large scale research products, but projects, but especially the Ireland.

In clinical settings.

You do want to get some of those results to patients more quickly it means higher accuracy and all of that combines to also enable a really exciting roadmap in terms of price per G. And we've we've talked about the fact that we continue to be committed to re driving down the cost of sequencing to make it more accessible and chemistry axes.

Speaker 3: where you do want to get some of those results to patients more quickly. It means higher accuracy, and all of that combines to also enable a really exciting roadmap in terms of price per G. And we've talked about the fact that we continue to be committed to really driving down the cost of sequencing to make it more accessible, and Chemistry X is a fundamental part of it.

A fundamental part of that and so we're now entering manufacturing and we're closer to to bringing that out into products than we've ever been and I've talked about the fact that this is gonna be foundational to all new products coming out and there's no reason as we look at our existing portfolio wide may not make sense in some parts of our portfolio to have.

Speaker 3: And so we're now entering manufacturing and we're closer to bringing that out into products than we've ever been. I've talked about the fact that this is going to be foundational to all new products.

Speaker 3: coming out, and there's no reason as we look at our existing portfolio why it may not make sense in some parts of our portfolio to have it in there as well.

In there as well in terms of an infinity deal.

Speaker 3: In terms of infinity, the excitement there is because we've sort of rethought how people think about long reads and short reads and again went back to first principles to say what customers don't want is they don't want two different platforms, one for short read and one for short read.

And then there is because we've sort of rethought, how people think about long reads and short reads and again went back to first principles to say cut what customers don't want is they don't want to different platforms. One for short read and one for long read and what Theyre, telling us that they wanted to take some of the best elements of what we've got in SBS high accuracy.

Speaker 3: And what they're telling us is they want to take some of the best elements of what we've got in SBS, high accuracy, low cost.

Where's the low cost.

Low input requirements and apply that to all Reits and so when we looked at how we would rethink long reads. We brought some of the best of those elements and to say low input requirements lower cost maintained high accuracy.

Speaker 3: low input requirements and apply that to all REITs.

Speaker 3: And so when we looked at how we would rethink long reads, we brought some of the best of those elements in to say low input requirements, lower cost, maintain high accuracy.

They also want it to be a single molecule approach they didn't want it to be a composite of multiple molecules and so the team has done a fantastic job innovating to deliver that in terms of our infinity technology, you've seen some data from some of our customers. We've talked about the fact that we were bringing it to market later this year and you'll continue to see more data and more <unk>.

Speaker 3: And they also wanted to be a single molecule approach. They didn't want it to be a composite of multiple molecules. And so the team has done a fantastic job innovating to deliver that in terms of our InCinity technology. You've seen some data from some of our customers. We've talked about the fact that we're bringing it to market later this year. And you'll continue to see more data and more information.

Information from us.

Our next question goes to Tycho Peterson with J P. Morgan Tyco. Your line is open you can go ahead.

Speaker 1: Our next question goes to Tyco Peterson with JP Morgan. Tyco, your line is open. You can go ahead.

Hey, Thanks, guys.

Speaker 5: Hey, thanks. On guidance, 10% sequencing instrument growth, I'm just wondering if you could put a little bit more color around that. You know, obviously, you've got the NovaSeq DX launch. How material do you think that could be? And then, Francis, your comments a minute ago, you know, how do you avoid freezing the market ahead of, you know, Chemistry X being rolled out? And then, a follow-up on GRAIL guidance as well, $70 million to $90 million is, you know, a big step up from $10 million in the fourth quarter. So, can you just talk a little bit about scale-up plans and how you plan to get there?

Guidance, 10% sequencing instrument growth I'm, just wondering if you could put a little bit more color around that you know obviously, you've got to know the <unk> Dx launch how material do you think that could be.

And then Francis your comments a minute ago, you know how do you avoid freezing the market ahead of chemistry X being rolled out and then a follow up on Grail guidance as well as $70 million to $90 million is a big step up from $10 million in the fourth quarter. So can you just talk a little bit about scale up plans and how you plan to get there.

Yeah. So maybe I can start Tycho this is Sam thanks for the questions.

Speaker 3: Yeah, so maybe I can start, Tycho. This is Sam, and thanks for the question.

About the guidance on instruments and I will just provide a couple of brief comments I mean first of all let me say instruments in 2021 represented.

Speaker 3: about the guidance on instruments. And I'll just provide a couple of brief comments. I mean, first of all, let me say instruments in 2021 represented.

Incredible performance, we're entering the year now in 2022 with a record backlog of instruments. So it gives us a lot of confidence about the guide that to 10%.

Speaker 3: incredible performance. We're entering the year now in 2022 with a record backlog of instruments, so it gives us a lot of confidence about the guide, the 10%. As we think about, you know, some of the drivers behind this, you know, continued very strong placements of NovaSeq.

As we think about some of the drivers behind this continued very strong placements of Novus seek continued very strong placements on the mid throughput side with next week 2000, 1000, and we've talked about in 'twenty, one the record performance across those two platforms.

Speaker 3: Continued very strong placements on the mid-throughput side with Nexe Q2 000-1000, and we've talked about in 2021 the record performance across those two platforms.

Speaker 3: Now, there is a headwind, which is COVID surveillance. You know, we placed...

Now there is a headwind which is a covert surveillance we placed.

Quite a few instruments for Covid surveillance in 2021, and we don't expect frankly to place instruments for Covid surveillance in 2022, so that's a year over year headwind, that's factored into the 10% growth in terms of the guidance for Nova C. D. That's the product that we're very excited to launch it will be launched later this year. It does not represent the material.

Speaker 3: quite a few instruments for COVID surveillance in 2021, and we don't expect, frankly, to place

Speaker 3: instruments for COVID surveillance in 2022. So that's a year-over-year headwind that's factored into the 10% growth in terms of the guide.

Speaker 3: For NovaSeq DX, that's a product that we're very excited to launch. It will be launched later this year. It does not represent the material impact in terms of growth for instruments in 2022.

No impact in terms of growth for instruments in 2022.

So for instance, maybe yeah, so let's talk about.

Speaker 3: So, Francis, maybe, yeah, so let's talk about, you know, chemistry X and what that means in terms of our customers and how do we avoid, as you said, freezing the market potential.

Chemistry, <unk> and what that means in terms of our customers and how do we avoid as you said freezing the market potentially you know one of the exciting things we hear from our customers about being with the alumina is that you are you a part of this exciting roadmap and that you are not only getting access to what we provide today, but you know that we have.

Speaker 4: One of the exciting things we hear from our customers about being with Illumina is that you are part of this exciting roadmap and that you're not only getting access to what we provide today, but you know that we are going to continue to innovate and bring new products out.

Going to continue to innovate and bring new products out and so for our customers. It's been exciting to watch this journey of chemistry ex develop and we've been I think good about sharing the data through this whole process. So they know what's coming and they can get a sense for what it can mean for them.

Speaker 3: For our customers, it's been exciting to watch this journey of Chemistry X develop, and we've been, I think, good about sharing the data through this whole process. So they know what's coming. They can get a sense for what it can mean for them. We don't have a new product announced, so there's nothing to freeze the market for. And our customers also know that they've been working on this for a long time.

We don't have a new product announced so theres nothing to freeze the market for and our customers also know that.

Done this several times that whenever we introduce a new product we do have programs in place that involve trade ins or if you've already placed an order and it's in our backlog you can switch that if you want to the new instrument and so over the years, we've developed a number of pretty robust programs around enabling a seamless upgrade for our.

Speaker 4: done this with us several times, that whenever we introduce a new product, we do have programs in place that involve trade-ins, or if you've already placed an order and...

Speaker 4: It's in our backlog, you can switch that if you want to the new instrument. And so over the years, we've developed a number of pretty robust programs around enabling a seamless upgrade for our customers.

Our customers now also the other thing we've learned is especially in the clinical markets that when a new instrument comes out typically some of our customers will buy one of the new instruments for example, and use that to develop their new workflows to get familiar with the new instrument and then plan an upgrade over a multiyear period.

Speaker 4: Now also, the other thing we've learned is, especially in the clinical markets, that when a new instrument comes out, typically some of our customers will buy one of the new instrument, for example, and use that to develop their new workflows to get familiar with the new instrument and then plan an upgrade over a multiyear period. And so that could still play out, that as we introduce a new instrument in the future, they may buy one to sort of get comfortable with it and then use that to plan an upgrade over a multiyear period.

So that could still play out that as we introduce a new instrument of the future. They may buy by one to sort of get comfortable with it and then use that to plan an upgrade over a multiyear period.

And then the in terms of Grail.

Speaker 4: And then in terms of GRAIL, the momentum we're seeing with GRAIL has been terrific to watch. They are seeing traction, as we said, with employers. And what's been interesting there is we expected traction with financial services companies, with tech companies, some of the companies that traditionally are more forward leaning in terms of using benefits as a way to attract talent.

The momentum we're seeing with Vale has been terrific to watch.

They are seeing traction as we said with employers and what's been interesting there as you know we expected traction with financial services companies with Tech companies. Some of the companies that traditionally are more forward leaning in terms of using.

<unk> benefits as a way to attract talent. What we are really excited about is that we're seeing customers across industries. We've seen as we said large logistics players and transport players that are signed up to offer this benefit to their employees to their employees and so that's been exciting to see we're also really.

Speaker 4: What we are really excited about is that we're seeing customers across industry.

Speaker 4: We've seen, as we said, large logistics players and transport players that are signed up to offer this benefit to their employees. And so that's been exciting to see. We're also really pleased with the number of prescribing providers.

Pleased with the number of prescribing providers that have now got experience with the gallery tests. So we said there are over 1500 prescribing providers that ordered the test in 2021 last year going into this year and so that's a great base.

Speaker 4: that have now got experience with the gallery test. So we said there are over 1,500 prescribing providers that ordered the test in 2021 last year going into this year. And so that's a great base of healthcare professionals that have some experience now with gallery and should be more comfortable ordering going forward.

Health care professionals that are.

That have some experience now with gallery and should be more comfortable ordering going forward in terms of the guidance. Most of the guide for a gallery for Grail. This year is gallery, there is a component of it associated with the Mardi.

Speaker 4: In terms of the guidance, most of the guide for Grail this year is gallery. There is a component of it associated with MRD, but it is a smaller percentage. Now as we look at that number, that could be a potential area for upside and we'll keep watching the traction they're making in that.

But it is a smaller percentage now as we look at that number that could be a potential area for upside and we will keep watching the traction they're making in that space.

Our next question goes to Dan Arias with Stifel.

Speaker 1: Our next question goes to Dan Arias with Stifle. Dan, your line is open. You can go ahead.

Dan Your line is open you can go ahead.

Right.

Good afternoon, guys. Thanks, Francis just back on chemistry ask is there anything you can add there on the per Gigabases economics that might be at play.

Speaker 6: Afternoon guys, thanks Francis just back on chemistry X. Is there anything you can add there on the per gigabase economics that might be at play? How much cheaper do you think genome?

How much cheaper it evening genome price it could be for the <unk> crowd and then for the mid and lower throughput users should those folks also see.

Cost of sequencing decrease if they're running in Mexico, and then if I could just sneak in a second one on the Nashville Biosciences collaboration what's the timeline for the 250000.

Speaker 6: The National Biosciences Collaboration, what's the timeline for the 250,000 San...

<unk> thousand and samples that I think you're sequencing there.

Got a whole genome. Thanks.

Yeah. So let me start with chemistry X and what it could mean, we know just apples to apples chemistry lung machines chemistry ex that you will get significant.

Speaker 3: Yeah, so let me start with chemistry X and what it could mean. We know just apples to apples, chemistry 1 versus chemistry X, that you will get significant cost reduction.

Cost reduction.

Yes, now ultimately that looks like depends on everything else.

Speaker 4: Now, ultimately, that looks like it depends on everything else we've been...

So ultimately Basel.

Speaker 4: So ultimately, the final cost per key is only partial chemistry. So we have to look at optics, the data, the data, all that. It's a little early to say the specific impact. It depends.

Cost per key.

Harsh chemistry, so we have to look at uptick uptake dozens of data all of that.

Little early stage specific impact it dependent.

Ill.

Speaker 4: Talk to you about the Tenth Zone in the entire topic.

And so on.

Oh Gee.

Therefore earnings.

Speaker 4: Therefore, the state is more specific about what or when can give you the specific value.

<unk>.

What specific.

But what.

Quinn.

And stuff.

The pricing.

Speaker 4: But you can be very confident that a giant start is a cost reduction with chemists like Dr. Edelstein. And this has a specific...

Can be very confident of that.

Pardon.

Cost reductions with tenants.

After it all.

At this half.

Yes.

Perfect.

Okay.

Yes.

Nashville.

As that comes together.

For instance, you were cutting in and out a little bit there I don't know if you.

Speaker 1: Francis, you were cutting in and out a little bit there. I don't know if you want to.

Want to try to.

Fix that or if you want to try to restate.

Speaker 1: fix that or if you want to try to restate your answer there or anything like that.

Answer there or anything like that.

Yeah, Let me let me just the summary, I'll stay on chemistry <unk>. It gives us a big step forward in terms of delivering price reductions.

Speaker 3: Yeah, let me, just a summary I'll say on Chemistry X is it gives us a big step forward in terms of delivering price reductions in terms of sequencing for our customers, but ultimately the specific number will depend on the type of instrument we build it into as well as the other components of the technology ecosystem that we build into that instrument, the data paths, the optics and so on.

In terms of sequencing for our customers, but ultimately the specific number will depend on the type of instrument, we build it into as well as the other components of the technology ecosystem that we build into that instrument that data pads, the optics and so on.

And so stay tuned as we get more specific we will share that with you.

Speaker 3: And so, you know, stay tuned as we get more specific, we'll share that.

Okay, great that sounded much better or.

Speaker 1: OK, great. That sounded much better. Our next question goes to Vijay Kumar with Evercore. Vijay, your line is open. You can go ahead.

Next question goes to Vijay Kumar with Evercore. Your line is open you can go ahead.

Hey, guys congrats on the print and I.

Speaker 7: Hey guys, congrats on the print and I had a question on the guidance here. Sam, your Q1 revenue guidance up sequentially, I guess we haven't seen that historically.

I had a question on the on the guidance here.

Sam.

Your Q1.

Revenue guidance up sequentially here, So I guess, we haven't seen that historically.

Speaker 7: And your guidance implies sequential ramp-up throughout the year. I guess maybe just talk about the visibility you have. You know, I know you made some comments around backlog being twice as high.

And your guidance implies sequential ramp up throughout the year I guess, maybe just talk about the visibility you have.

I know you made some comments around backlog being twice as high.

So talk about the visibility into the guide enough friends, So I think.

Speaker 7: to talk about the visibility to the guide. And now, Frances, I think on the 70 to 90 for Grail, is that the gross contribution? Is there some intercompany elimination net number? Is that a net number? Is there a proxy for gallery volumes? Thank you.

On the 70 to 90 grill.

Is that the gross contribution is there some intercompany elimination and that number is that a net number is that a proxy for a gallery volumes. Thank you.

Yeah. Thanks, Vijay So let me let me actually take both questions. So I'll take the first one on the guide.

Speaker 3: Yeah, thanks Vijay. So let me actually take both questions. So I'll take the first one on the guide.

The visibility on the guide is good I think we have a balanced guide and we're very confident about achieving the guide that we have with regards to Q1.

Speaker 3: You know, the visibility on the guide is good. I think we have a balanced guide, and we're very confident about achieving the guide that we have. With regards to Q1, you know, you are correct. We are entering the year with very strong momentum in Q1. I mean, the business is really, is very strong. We're seeing very strong momentum on clinical with oncology testing, genetic disease testing, and NIPT. And our research markets are also robust.

You are correct, we were entering the year with very strong momentum in Q1, I mean, the business is really.

Is very strong we're seeing very strong momentum on clinical with oncology testing and genetic disease testing and IPP and our research markets are also robust.

We have a very strong backlog as we set a record backlog in fact in terms of instruments. So that's what's driving the Q1 momentum as we look forward towards the year. You know this is a year that reflects a more I would say linearity that's more similar to prior to the pandemic, where we see a ramp or an increase in terms of sequential revenues throughout the year.

Speaker 3: We have a very strong backlog, as we said, a record backlog, in fact, in terms of instruments. So that's what's driving the Q1 momentum. As we look forward towards the year, you know, this is a year that reflects a more, I would say, linearity that's more similar to prior to the pandemic, where we see a ramp or an increase.

Speaker 3: in terms of sequential revenues throughout the year. There are a few things that we've considered in the guide that have been reflected in that 14 to 16 percent, Vijay, that we have factored in that we believe also de-risk.

There are a few things that we have considered in the guide that has been reflected in that 14% to 16% Vijay that we have factored in that we believe also de risks. The guide. So let me mention a couple of those for instance.

Speaker 3: The guy so let me mention a couple of those, for instance, you know, one is with regards to.

One is with regards to covert surveillance as I mentioned in the prepared remarks, we're assuming $130 million to $150 million in terms of Covid surveillance revenues not the step down from last year.

Speaker 3: Cobit surveillance, as I mentioned in the prepared remarks, we're assuming 130 to 150M dollars in terms of Colvin surveillance revenues. That's a step down from last year. It's at the midpoint, approximately 80M dollars of a step down.

At the midpoint approximately $80 million of the step down. We've we've also reflected a step down in terms of population genomics driven by the.

Speaker 3: We've also reflected a step down in terms of population genomics driven by the termination of the U.K. Biobank, the finishing and the wrap-up of the U.K. Biobank. So that's a step down in terms of population genomics revenues year over year.

The.

Termination of the UK biobank for finishing in the wrap up of the UK biobank. So that's a step down in terms of population genomics revenues year over year.

Speaker 3: You know, and NovaSeq is showing very, very strong pull through. As we said, in 2021, we exceeded $1.3 million per instrument.

And <unk> is showing very very strong pull through as we said in 2021, we exceeded $1 $3 million for instruments and were reflecting the pull through guidance range of one two to one $3 million.

Speaker 3: And we're reflecting a pull-through guidance range of 1.2 to 1.3 million dollars. You know, to make sure that we factor in these significant instruments that are coming into the installed base that will take some time to ramp up to those levels of pull-through that we're seeing across, that we saw across the average in 2021.

To make sure that we factor in the significant instruments that are coming into the installed base that will take some time to ramp up to those levels of pull through that we're seeing across that we saw across the average in 2021. So in general very confident about the guide good visibility.

Speaker 3: So in general, very confident about the guide, good visibility and, you know, but the backdrop to all of this is still a pandemic year here in year three. And, you know, the uncertainty that goes with that.

<unk>.

But the backdrop to all of this is still a pandemic year here in year, three and the uncertainty that goes with that with regards to the grille to $70 million to $90 million.

Speaker 3: With regards to Grail, the $70 million to $90 million, that's end Grail sales to their customers. So, we do have intercompany elimination of revenues that impact our total consolidated Illumina revenues, but the $70 million to $90 million is the total end Grail sales to their customers. That's not impacted by intercompany. The sales from us to Grail show up on the core business, and then they're eliminated in the total consolidated view.

And greater sales to their customers.

So we do have intercompany elimination of revenues that impact our total consolidated alumina revenues, but the $70 million to $90 million is the total and grill sales to their customers. So that is not impacted by inter company. The sales from us the Grail show up on the core business and then they are in they are eliminated and the total consolidated.

View.

Our next question goes to Derek Broome with Bank of America. Derrick. Your line is open you can go ahead.

Speaker 1: Our next question goes to Derek DeBrun with Bank of America. Derek, your line is open. You can go ahead.

Hi, Good afternoon. Thank you for taking my question. So two related questions one on the new platform you're alluding to.

Speaker 8: Hi, good afternoon. Thank you for taking my question. So, two related questions. One, on the new platform you're alluding to, are you going to take a high-seq X approach and basically segment this and make it for, like, whole human genome or single-cell applications? Are you going to make it broadly accessible? And then a follow-on on that is…

Are you going to take a Hiseq X approach and basically segment this and make it for like whole human genome for single cell applications, where are you going to make it broadly accessible and then a follow on that is you know I can certainly see.

Speaker 8: I mean, you know, I can certainly see elasticity of demand in the research market. I mean, that clearly has been proven out. But what are your assumptions for the clinical market as you lower price? What are your sort of, like, volume assumptions?

Elasticity of demand in the research markets I mean that clearly has been proven out but what are your assumptions for the clinical market as you lower price what are your sort of like volume assumptions I mean don't you have to keep clinical.

Speaker 8: clinical pricing sort of at a premium for a while longer before you can really sort of see the volumes in there to make it up.

Clinical pricing sort of at a premium for a while longer before you can really start to see the volumes in there to make it up.

Thanks.

Great. Thanks, Derrick so let's take both.

Speaker 4: Great. Thanks, Derek. So let's take both.

This new chemistry can be applied across the the throughput spectrum. So all options at this point are on the table.

Speaker 4: This new chemistry can be applied across the throughput spectrum. So all options at this point are on the table. There are options, like you said, where we could create an instrument that targets and catalyzes a segment of the market.

There are options like you said, where we could create an instrument that targets <unk>.

And catalyze as a segment of the market so as as Youre alluding to Hiseq X was extraordinarily successful in opening up the whole genome sequencing market that before.

Speaker 4: As you're alluding to, HiSeqx was extraordinarily successful at opening up the whole genome sequencing market.

Speaker 4: that before HiSeqX enabled the $1,000 price point, a very small part of the market was whole genomes. And after HiSeqX, you've seen just an explosion in terms of the number of customers that could do whole genome sequencing and that did in fact do whole genome sequencing.

<unk> enabled a $1000 price point.

A small part of the market was whole genomes and after Hiseq X you know you've seen just an explosion in terms of the number of customers that could do whole genome sequencing and that did in fact do whole genome sequencing and so one of the options on the table that chemistry will allow us to do is again look for opportunities like that to catalyze certain segments of the <unk>.

Speaker 4: And so one of the options on the table that chemistry X would allow us to do is again look for opportunities like that to catalyze certain segments of the market.

I mean, you can imagine lots of parts of the market that could be capitalized. So for example.

Speaker 4: I mean, you could imagine lots of parts of the markets that could be catalyzed. So for example, you know, hypothetically, you could look at the single-cell market, and we hear from lots and lots of customers that they would love, to be able to do much, much, much larger experiments.

Pathetically you could look at the single cell market and then we hear from lots and lots of customers that they would love love to be able to do much much much larger experiments.

Speaker 4: you know, with using single cells. And so, something like Chemistry X could enable that part of the market. We also hear from our customers that they would love to run much, much larger experiments targeting understanding the genomic drivers of neurological conditions.

Using single cells, and so something like chemistry execute enabled that part of the market. We also hear from our customers that they would love to run much much larger experiments.

Targeting understanding the genomic drivers of neurological conditions like autism, Alzheimer's and Parkinson's and so you can imagine that this could enable some of those kinds of experiments.

Speaker 4: like autism and Alzheimer's and Parkinson's. And so you can imagine that this could enable some of those kinds of experiments.

In the and so again it depends on where we decided to use his chemistry, but the benefits. It provides in terms of lower cost, but also faster turnaround time, because one of the other things you could get with with this chemistry as you could see scenarios, where you can have certain tests being returned to customers within a single shift and <unk>.

Speaker 4: And so again, depends on where we decide to use this chemistry, but the benefits it provides in terms of lower costs, but also faster turnaround time. Because one of the other things you could get with this chemistry is you could see scenarios where you could have certain tests being returned to customers within a single shift.

That would be fundamentally enabling to some clinical applications. So even if the price was the same just the ability to turn results around in a single eight hour shift would open up potentially some segments of the market.

Speaker 4: And that would be fundamentally enabling to some clinical applications. So even if the price was the same, just the ability to turn results around in a single eight hour shift would open up potentially some segments of the market.

Speaker 4: From our customer, in terms of the price perspective, there are some parts of the clinical market where because we provide end-to-end solutions, we're already at the stage where the

From our customer in terms of the price perspective, there are some parts of the clinical market, where because we provide end to end solutions, we're already at the stage, where the customers buy the product and it's priced in terms of the PURA report or a per sample fee and those markets like an IPO for example, or genetic disease diagnose.

Speaker 4: Customers buy the product and it's priced in terms of a per report or a per sample fee and and those markets like an IPT For example or genetic disease diagnosis are already enabled at the price point They are and so so it's not it's not necessary that the per sample price needs to change because reimbursements already in place Allowing our lab customers to have a profitable business in those areas

<unk> are already enabled at the price point. They are so it's not it's not necessary that the per sample price needs to change because reimbursement already in place, allowing our lab customers to have a profitable business in those areas.

But there are other clinical markets, where the lower price point will be fundamentally enabling.

Speaker 4: but there are other clinical markets where the lower price point will be fundamentally enabling.

And so that's sort of how we're thinking about the options in front of us with chemistry yet.

Speaker 4: And so that's sort of how we're thinking about the options in front of us with Chemistry X.

Yes.

Hi, operator, we're ready for the next question.

Okay.

Hi, operator.

Yes.

Our next question goes to Kyle Michelson of Canaccord pilot.

Speaker 1: Our next question goes to Kyle Mikeson of Canaccord. Kyle, your line is connected.

Kyle Your line is connected you may proceed.

Great. Thanks for taking the question.

Speaker 9: Great, thanks for taking the question. Just a two-part question. So most of these new kind of square root platforms are launching in the near term with like low to mid throughput capability, which is suitable for the clinical market, like hospitals and clinical research. I'm just wondering if that's gonna be an early focus for you as, you know, maybe that will lead into any clinical market share or growth in the near to medium term that.

Just a two part question. So most of these new kind of show Repot firms are launching in the near term with like low to mid throughput capability, which is suitable for the clinical market like hospitals and clinical research.

I was just wondering if that's going to mean early focus for you added just maybe that will eat into any clinical market share growth in the near to medium term that.

Part of the market, that's kind of under penetrated right now and then the second part of my question I want to ask was immuno Francis you mentioned earlier, the Biden administration relaunched the cancer Moonshot initiative, and our references and multi cancer early detection tests particular involving studies or trials to accelerate development and market adoption of the handset test. So I'd just like to understand your level of confidence there.

Speaker 9: the part of the market that's kind of under-penetrated right now. And then the second part of my question I wanted to ask was, you know, Francis, you mentioned earlier the Biden administration relaunched the Cancer Moonshot Initiative, and it references multi-cancer early detection tests, particularly involving, you know, studies or trials to accelerate development and market adoption of the M-SED tests. So I'd just like to understand your level of confidence that the initiative is going to move the needle for the M-SED industry overall. And, you know, importantly, could it improve the domestic or global perception of the merger, specifically?

The initiative is going to move the needle for the M said industry overall, and importantly could it improve the Dennis domestic or global perception of the merger specifically.

With regard, obviously and potentially have any downstream impact on the ongoing trials of reviews.

Speaker 9: obviously, and potentially have any downstream impact on the ongoing trials or analyses. Thanks.

Yes.

Okay.

One moment, while we reconnect our speakers.

Okay.

Kyle pardon that interruption, but could you repeat your question now that the speakers are connected.

Speaker 1: Kyle, pardon that interruption, but could you repeat your question now that the speakers are connected?

Sure I can you hear me.

Yes, we can.

Perfect Okay.

Speaker 9: Perfect. Okay. Yeah. So the two part question, the first of which was most of these kind of competing new short replatforms that are launching in your term are low to mid throughput, which is suitable for the clinical market.

The two part question the first of which was most of these kind of competing neutral REIT platforms that are launching in the near term are low to mid throughput, which is suitable for the clinical market.

That's going to meet our early focus for these emerging companies I'm. Just wondering if you think that's going to eat into any of our clinical market share of growth in the near to medium term given the area still pretty Underpenetrated and then the second question I had was about grill the cancer Moonshot initiative at the vitamin administration.

Speaker 9: That's going to be an early focus for these emerging companies. I'm just wondering if you think that's going to eat into any of your clinical market share or growth in the near to medium term, given the area is still pretty underpenetrated.

Speaker 9: And then the second question I had was about GRAIL, the cancer moon shot initiative that the Biden administration kind of announced recently, mentions multi-cancer detection tests.

Have announced recently mentioned multi cancer related action tests I just want to understand if you think the initiatives can move the needle for the M said industry overall and could it improve the domestic or the global perception of the merger, specifically and potentially have any downstream impact on the ongoing trials of reviews.

Speaker 9: I just want to understand if, you know, you think the initiative is going to move the needle for the MSED industry overall and could it improve the domestic or the global perception of the merger specifically and potentially have any downstream impact on the ongoing trials or reviews? All right. So, we'll take both. The first question.

Alright, So I will take both the first question is around you know.

Entrants in the low to mid throughput market and how we expect that to play out.

Let me jump there first I'll say.

You know obviously, we have a terrific products in that part of the market and we just you know in the last couple of years along the next seek 1000 2000 that are squarely targeted at that space, and we think that especially well suited for the clinical market because.

Have the from a clear perspective on them I think the Axa next week the acts that our workforce is already in the clinical market and then you have the terrific price performance that you get out of the next week 1000 2000.

Speaker 4: market and then you have the terrific price performance that you get out of the

Those instruments actually 1000 2000 represent the most powerful mid throughput products on the market, even including some of the entrants that are coming in and I think that will continue to provide very compelling value to our customers going forward.

Speaker 4: forward. The other interesting dynamic though that we're seeing playing out in the market is more and more...

Another interesting dynamic that we're seeing play out in the market is more and more of the new customers are coming in are coming in at higher ends of the portfolio than we've seen historically and so what what's playing out in the market is that the applications that are emerging for sequencing or more data intensive in sequence.

Speaker 4: So what's playing out in the market is that the applications that are emerging for sequencing are more data-intensive and sequencing-intensive. They are high-intensity applications that are just demanding more sequencing and more

<unk> intensive they are high intensity application.

That are demanding more sequencing and more and more performance Bauer and so what that means is I think and we saw this play out in in.

The PC market, we saw this play out with who and iphones that you know the devices just need to be more and more powerful in fact is somebody was telling me that.

Is nova seek the new might peak and I think that sort of that the ethos. We're seeing in the market that there is this insatiable demand for more power and what we consider it today. If you were targeting what's the low and mid throughput today.

Speaker 4: demand for more power, and what we consider today, if you're targeting what's the low and mid-throughput today, you better show up with a lot of power because today, the future low and mid will look a lot more like today's high-throughput market. In terms of Grail and the Cancer Moonshot, it's obviously great to have an increased national focus.

The better show up with a lot of power because today you know the future low admit will look a lot more like today's high throughput market.

In terms of Grail in the cancer Moon shot you know, it's obviously a great to have a and increased national focus on cancer and bending the mortality curve for cancer. So that's terrific to see.

Specialty exciting to see our recognition that the early detection of cancer and specifically you know early detection of multiple cancer simultaneously simple test arent important thrust in terms of this fight against cancer and suggest the the attention being put on this space I think is great to see.

We're going to watch to see how that plays out in terms of you know additional funding or accelerated regulatory review of reimbursement, but we feel it is all very helpful. In terms of accelerating that market. It's obviously, especially helpful for Grail because rail is the only product.

Speaker 4: It's obviously especially helpful for grail because grail is the only product in the market today.

In the market today that can detect 50 cancers.

And identify tissue of origin. So that's obviously really exciting from a grade perspective.

Okay. We will proceed in our questions. Our next question is from sung <unk> Nam of BTG Sangji. Your line is connected please proceed.

Speaker 1: Okay, we will proceed in our questions. Our next question is from Sungji Nam of BTIG. Sungji, your line is connected, please proceed.

Hi, Thanks for taking the question just on the Grail multi cancer MRV tests that you're expected to launch next year was wondering if you might be able to comment on the performance characteristics against some of the single cancer MRV test they're available on the market today, and then could we expect.

Speaker 10: Hi. Thanks for taking the question. Just on the GRAIL multi-cancer MRD test that you're expected to launch next year, was wondering if you might be able to comment on the performance characteristics against some of the single-cancer MRD tests that are available on the market today, and then could we expect potential interim data readouts throughout this year? Yeah, so the...

A potential interim data readouts throughout this year.

Yeah. So the ultimate performance characteristics, you know will be will be announced as the product gets launched of course, but you know given the approach that our Grail is taking here as some of the things that we know already and some of the things that you can watch for one is because it's leveraging the same underlying technology of the gallery tab.

Speaker 4: But given the approach that Grail is taking, here are some of the things that we know already and some of the things that you can watch for. One is because it's leveraging the same underlying technology as the gallery test, this is a test that will be.

You know this is a test that will be able to detect there are kinds of multiple types of cancer not just a single cancer and so that's really helpful. Because sometimes the cancer that emerges may not be the exact same cancer as a patient had before until grills approach will be able to detect that also because you are not.

Speaker 4: Also, because you're not depending on a tissue biopsy first to create the test for a patient, you should also be able to get the test.

Depending on a tissue biopsy first to create the test for a patient you should also be able to get the test.

Into the patients' hands much faster than you would have approached the required a tissue biopsy. So another key metric to watch which is very very important for some patients. It how quickly a patient can get that test and have it ready for the patient and so you know the grille approach just you know conceptually is much.

Speaker 4: So another key metric to watch, which is very, very important for some patients, is how quickly a patient-

Speaker 4: have it ready for the patient. And so, you know, the GRAIL approach, just, you know, conceptually, is much faster from that perspective, and so that's another key metric to watch for. And then, you know, in terms of the...

So from that perspective, and so that's another key metric to watch for.

And then you know in terms of the performance of the gallery testing today in terms of sensitivity and specificity for early detection is is really strong you know it has an extraordinarily low false positive rate and center since the MRV test is going to be leveraging the same technology. You know that's something to watch for two that they're bringing a lot of expertise.

He's around delivering this.

The screening test with high positive predictive value into the M. R D market.

So does this answer your question.

Yes. Thank you.

Thank you Sanjay.

Our next question is from Puneet suiter of SBB Leerink.

Speaker 1: Our next question is from Puneet Suda of SVB Lear Inc.

Puneet. Your line is connected you have received.

Thanks.

Speaker 11: Thanks Francis and Sam thanks for taking the question. I'll just ask two in one. First one is I know you've asked quite a bit about Chemistry X already but...

This.

And Tim Thanks for taking the question.

I'll just ask two.

One first one is I know you've asked quite a bit of bad chemistry X already but just.

I just wanted to clarify that the benefit of the chemistry X is equal across all applications from genome to exome to routine RNA seek to single cells.

Speaker 11: I just want to clarify that the benefit of the Chemistry X is equal across all applications from genome to exome to routine RNA-seq to single cells. I just want to make sure. And then does it get you...

Just want to make sure and then does it get you closer to $100 genome or $100 genome or meaningfully lower versus what a genome prices today and lastly, if I could just want to clarify on the 10 kilo base.

Speaker 11: closer to $100 genome or $100 genome or meaningfully lower versus what a genome price is today.

Speaker 11: And lastly, if I could just want to, you know, clarify on the 10 kilobase.

Speaker 11: reads that you're getting with Infinity, is that, you know, is that core technology still SBS? That's my understanding. And so, at the end of the day, you know, is this on the lower end of the long read sequencing read lengths that are being produced by native long reads? So, this is being viewed as a synthetic, so I just want to make sure we're thinking about that correctly. Thank you.

Read that youre getting with Infinity.

Is that you know.

Is that is that core technology is still SBS, that's my understanding and so at the end of the day. You know does this is this on the lower end of the long read sequencing read lengths that are being produced by native long read. So this is being viewed as a synthetic so I just want to make sure we're thinking about.

That correctly. Thank you.

Yeah. So let me take your questions in order first Chemistry Act is it specific to an application or is it work across all applications. So the answer is it works across all applications.

It is a chemistry that is not tied to a specific obligation. So you should you will get the benefits of this chemistry across any application you run on a sequencer that uses this chemistry.

It absolutely is a big step forward in terms of price reduction and so depending on the the form factor depending on the instrument, we put out it'll be able to deliver you know are lower cost and in that part of the market and so again, it's it's one component as you know chemistry is one part of it.

Speaker 4: depending on the instrument we put out, it'll be able to deliver a lower cost in that part of the market. Again, it's one component, as you know, chemistry is one part of it, but it's a part that's going to give us a big step forward, whatever form factor we choose to release this chemistry in, whatever instrument type. In terms of infinity...

But it is a part that's going to give us a big step forward whatever form factor, we choose to release this chemistry and whatever instrument type them in terms of infinity.

It is SBS and one of the things we've heard loudly from customers is that they want a single platform that can scale up and down read lengths would they don't want in their labs is multiple different technologies that have multiple different different upfront workflows that requires them to train tech differently that have multiple.

And put DNA requirements and so.

Big Big requirement in this market is going to be you have a single chemistry, a single center platform that scales up and down and that's what infinity delivers it on SBS.

And so it gives you all the things that you already know and they're familiar with with Sps and so you know for our 8000 customers in you know 20000 instruments in the field, that's really great news.

In terms of the 10-K B, it's absolutely not a below ranked to be honest. This is exactly where you know some of the other long lead players are in the market now.

Our summit can go bigger than that but that's not where the majority of the market.

Got it thank you.

Thank you puneet.

Speaker 1: Thank you, Puneet. Our next question is from Tejas Savant of Morgan Stanley . Tejas, your line is connected. Please proceed with your question.

The next question is from Talos Savant of Morgan Stanley .

Ross Your line is connected please proceed with your question.

Hey, guys good evening.

Speaker 4: Hey guys, good evening. A two-parter for you, Francis. Just a point of clarification first in Chemistry X. I think I heard you mention earlier that you might bring it to some parts of the existing portfolio as well. So just to put a finer point on that, does this mean that it could be backwards compatible at least selectively? And then second one on the Grail guide here, is it fair to assume 85,000 tests at the midpoint using that sort of $950 list price, or are you assuming a lower effective ASP in your guidance assumptions?

Two parter for you Francis just a point of clarification first in chemistry acts.

I heard you mentioned earlier that you might bring it to some parts of the existing portfolio as well. So just to put a finer point on that does this mean that it could be backwards compatible at least selectively and then second one on the grille guide here is.

Is it fair to assume sort of 85000 tests at the midpoint.

Using that sort of $950 list price or are you are you assuming a lower.

Active ESP in your guidance assumptions.

Yeah. So thank you for that let me take the first question you know what I've said is we will be using chemistry acts for all new platforms going forward, but to your point, there's no technical reason why selectively we couldn't bring chemistry exited parts of your current portfolio.

Speaker 4: So thank you for that. Let me take the first question. What I've said is we will be using Chemistry X for all new platforms going forward, but to your point, there's no technical reason why selectively we couldn't bring Chemistry X to parts of the current portfolio. We don't have plans that we've announced or...

On a plan that we've announced around that at all but but technically speaking you know that it's absolutely backwards compatible for some parts of our portfolio.

And then the grille, let me, let me take that one in France, and so with regard to the grille, Hey, Josh and thanks for the question by the way no I would not assume that actually the price is as you said that the approximately $950 range, but I would not assume that that price is uniform across you know that.

We'll guide or the total revenue guide because there could be different pricing assumptions, depending on the collaborations or partnerships that they have so I would not make that assumption.

Around the test volume.

They asked us to answer your question.

Yes, I've got thank you.

Thank you Jay Haas. Our next question is from Patrick Donnelly with Citi.

Speaker 1: Thank you, Tejas. Our next question is from Patrick Donnelly of Citi. Patrick, your line.

Patrick Your line is connected please proceed.

Hey, guys. Thanks for taking the questions it.

Speaker 12: Hey, guys. Thanks for taking the questions. It might be one for you, Sam, just in terms of the backlog, obviously encouraging to hear it's almost double what it was coming in last year. Can you just talk about how much of that is just a natural organic build as the numbers get bigger versus any supply chain issues? Obviously, that was a big topic. A quarter ago, do you feel like you're mostly past kind of the worst part? And what's the expectations there for the next couple quarters? Have things normalized a bit for you? Yeah, I think the simple answer

It might be one for you Sam just in terms of the backlog, obviously encouraging to hear it's almost double what it was coming in last year can you just talk about how much of that is just a natural organic build as the numbers get bigger versus any supply chain issues I'm, saying was a big topic a quarter ago do you feel like you're mostly past kind of the worst part and what's your expectation there for the next couple of quarter.

There are some things normalize a bit for ya.

Yeah, I think the simple answer Patrick and thanks for the question is is really a it's organic build it's a it's the strength of the business.

The strength in terms of demand that we're seeing in clinical and the applications across clinical and research to some extent and you know some of that backlog of instruments. Some of it is consumables. So it's a you know it reflects the broad base of our business.

In terms of the supply chain to address your question I mean, as we talked about last quarter.

Speaker 3: In terms of supply chain, to address your question, I mean, as we talked about last quarter, you know...

Obviously supply chain is more complicated these days with pandemic with Covid, but we have taken a lot of our staff and done a lot of initiatives to help preserve the continuity of the supply chain to make sure our customers have uninterrupted access to product.

Speaker 3: We have taken a lot of steps and done a lot of initiatives to help preserve the continuity of the supply chain to make sure our customers have uninterrupted access to products. So we have not seen really disruptions in the supply chain given some of these actions.

So we have not seen really disruptions in supply chain given some of these actions you know aside from very isolated cases that we see traditionally that but nothing unusual in terms of disruptions to supply chain. We've we've made sure that we've increased the amount of distribution center capacity that we have we've increased safety stock on consumables.

We've taken a lot of steps to ensure the integrity of the supply chain continues and that we can provide product to customers. So I just want to make sure that's clear.

Thank you Patrick.

Our next question is from Luke <unk> of Barclays.

Please proceed.

Great. Thanks for the questions.

Speaker 6: Great. Thanks for the questions. So, can you give us an update on the EC deadline suspension and ultimately what that means? And then as you guys kind of walk through the timelines and the appeals process, just give us an idea of the

So can you give us an update on the easy deadline suspension and ultimately what that means.

And then as you guys kind of walked through the timelines and the appeals process just give us an idea of the.

Of of how you could see that playing out if things don't go your way and then your appeal and then again.

Speaker 6: of how you could see that playing out if things don't go your way, and then you appeal, and then again, just from a timing perspective. And then, lastly, I just wanted to get an idea of the margin characteristics here throughout the year and the guidance, and really how we should be thinking about the pacing there. Yeah, so I'll take the first question, which is around timing the various regulatory, you know, processes underway. So, first...

Just from a timing perspective and then.

Lastly, I just wanted to get a.

Idea of the the margin characteristics here throughout the year and the guidance and really how we should be thinking about the pacing there.

Yeah. So I'll take the first question, which is around.

Timing of the various regulatory.

And our processes underway. So first in terms of our phase two review with the European Commission. We are currently in the phase where we are in.

In discussions around potential remedies.

That could work for this deal and so the pause around right now is.

Both of US both sides of the time.

I've worked through that and.

Got potential remedies together and so what that means is it pushes the timeline out a little bit initially the timeline was that we expect it to get to a decision by the end of March. It's now looking like that decision is a Q2 decision there separately and other processes you know going on in Europe around Uh Huh.

A case in Luxembourg.

Looking at the jurisdictional issues associated.

Here and that's a decision that also likely in Q2 ish time frame.

So it will be we'll be watching for that the hearing happened in.

In Q4, and we're waiting for a decision in that timeframe.

That's the timeframe associated with the processing in Europe , Yeah. There you know if either of them go our way, where we're done and we can start with under the European part of the process and we can start integrating.

If the review doesn't go our way there's still an appeal process that are that we could look at after that decision happened.

Yeah, and look with regards to the margin evolution throughout the year I mean, we'll provide more updates on that as we go forward. We give you an update with regards to Q1 and what our guidance is for Q1 in terms of operating margin. We mentioned that Q1 is gonna be a 300 basis point improvement from Q4 sequentially across consolidated Illumina and.

We said that core Illumina in Q1 would be approximately 28% now going forward you know, we don't usually provide quarterly.

Margin sort of comments.

We'll provide more updates as the year as we go deeper into the year.

Okay. Thank you.

Thank you Luke.

Our next question is from John Sour beer of UBS John Please proceed.

Speaker 1: Our next question is from John Sauerbeer of UBS. John , please proceed.

Hi, Thanks for taking my question.

Speaker 13: So, I think in your presentation to me last month, you said around 40% of mid-throughput customers are currently in clinical, and I believe around similar for the low-throughput. You know, any thoughts on what the outlook is for 2022 on these, and, you know, what is the timeline it takes to get to 50-50 there? Yeah. So, I think – and I'll start – the – you know, we have continued to see, you know,

He presentation you last month, you said around 40% mid throughput customers are currently in Konin clinical and I believe around similar for the low throughput.

Any thoughts on what the outlook is for 2022 amazing what is the timeline it takes to get to a 50 50.

Yeah.

Yeah. So I think I'll start the you know we have continued to see the percentage of our business are targeted.

Talking to clinical I would continue to grow so if you look at our overall sequencing consumable revenue you've seen that sort of steadily grow from the late forties towards that mid Forty's now and that's continuing to grow and if you look at how last year played out you know you'll continue to see the clinical segment grow faster than the research segment and so you know those lines are.

Steadily going in one direction only in fact, our last year. The largest single segment that we target became oncology testing the clinical segment and.

And that's likely to continue to be our largest segment for a long time. So that's overtaken you know genetic disease research, which for a very long time as you know was our largest segment.

And so you know we don't have a specific timeframe around when it crosses 50%, but its definitely heading heading in that direction. Yeah. There's one other dynamic John that I would that I would add you know.

With regards to clinical it grew faster than research last year. If you exclude the impact of surveillance revenues, which are now mostly characterized under research. So I just want to make sure. That's clear that's actually a dampening a little bit the contribution of clinical as a percent of total illumina revenues and but if you look over the last I mean.

Speaker 3: In regards to clinical, it grew faster than research last year if you exclude the impact of surveillance revenues which are now mostly caretakers.

Practices comment if you look over the last three years the growth of clinical has exceeded the growth of research and you know that just reflects both markets are growing very robustly, but did that just reflects the fact that clinical markets. You know with regards to oncology testing genetic disease testing in I P. T have been growing really really well.

And in practice.

Great. Thanks for taking the question.

Youre welcome.

Okay.

Thank you John .

Speaker 1: Thank you, John . There are no additional questions waiting at this time, so I'll hand the conference back over to Sally Schwartz for any closing remarks.

There are no additional questions waiting at this time, so I'll hand, the conference back over to Sally Schwartz for any closing remarks.

Thank you as a reminder, a replay of this call will be available in the investors section of our website. Thank you for joining US today. This concludes our call and we look forward to our next update following the close of the first fiscal quarter of 2022.

This concludes the alumina at Q4 'twenty one earnings call. Thank you all for your participation you may now disconnect your lines.

Speaker 1: This concludes the Illumina Q421 earnings call. Thank you all for your participation. You may now disconnect your lines.

Yes.

Yeah.