Despite record revenue and continued demand for its DNA sequencers and consumables, Illumina’s net income for 2021’s fourth quarter dropped to $112 million—down 56% compared to the same period the year before—following bigger spends on R&D and administrative expenses.
Still, the company’s $1.2 billion in total sales reached a new quarterly high point, representing a 26% gain over revenues raised during the last three months of 2020. For the full year, Illumina brought in over $4.5 billion, amounting to a 40% increase compared to the prior fiscal year.
That translated into $762 million in annual net income—more than the $656 million logged during the first year of the COVID-19 pandemic, but a bit less than the $990 million Illumina saw in 2019.
Illumina spent $350 million on R&D last quarter, $150 million more than the year before, and $1.1 billion for the year, totaling about 26% of the company’s annual revenue. Selling, general and administrative expenses, meanwhile, totaled $426 million for the quarter and about $2.1 billion for the year.
“We believe there is still a lot of innovation needed to open up this market and make genomics as widely accessible as we think it will need to be—because we believe it's ultimately going to be a key component of our healthcare system,” CEO Francis deSouza said in an interview.
“We need to continue to drive the prices down. We need to make the end-to-end system simpler to use. We need to have more cleared products on the market,” deSouza said. “And we need to add not just genomics, but transcriptomics and proteomics, and have a multi-omic view of an individual. So all of that is what drives our R&D spend.”
That includes the development of Infinity, an improvement upon the company’s library prep system, which aims to unlock longer reads of DNA through its currently installed base of short-read instruments.
By offering strings of up to 10 kilobase pairs in length from the same machine, Illumina aims to compete with developers of more specialized, long-read hardware such as Pacific Biosciences and Oxford Nanopore, while researchers’ needs for DNA sequencing continue to grow more complex.
Infinity was announced in January during the J.P. Morgan Healthcare Conference, alongside a new project dubbed Chemistry X, described as a ground-up redevelopment of the company’s reagents, dyes and polymerases. Chemistry X will serve as the main platform for new machines going forward, and Illumina has already begun setting up a new large-scale manufacturing facility.
During 2021, the company shipped more than 3,200 genetic sequencers and added over 930 new customers—an increase of more than half compared to 2020 or 2019—with Illumina’s total installed base of machines passing 20,000 as a result.
And by the end of last year, Illumina’s backlog of orders for instruments and consumables had doubled compared to the start of year—growth that Chief Financial Officer Sam Samad attributed to organic demand, rather than troubles in the international supply chain.
“We’ve taken a lot of steps to ensure the integrity of the supply chain, and that we can provide products to customers,” Samad said on a call with investors. “We’ve increased the amount of distribution center capacity we have, we’ve increased our safety stocks of consumables…we have not really seen disruptions.”
Illumina’s earnings report included its consolidated numbers as well as a section just for Grail, the cancer blood test developer it’s been holding at arm’s length since its $8 billion acquisition last August, which was completed despite an ongoing antitrust investigation by the European Commission.
Until the competition watchdogs in Brussels come to a final decision—which deSouza said is now expected in the second quarter of this year, instead of on a previous timeline that had pointed to the end of March—Ilumina is required to hold onto Grail as a distinct and separately operated company.
After launching its highly anticipated Galleri test in the middle of last year, which aims to detect the early signs of as many as 50 different types of cancer from a single blood draw, Grail logged about $12 million in revenue during 2021, a small drop compared to the $931 million it racked up in year-long expenses.
At several points over the past few months as the deal’s regulatory review has continued, deSouza has said that the full integration of Grail into Illumina’s business is the only path forward—that, otherwise, the Galleri screening test’s international rollout would be slower and ultimately more lives would be lost to cancer as a result.
“The European regulatory and reimbursement environment is complex,” with approvals necessary at continental, national and sometimes regional levels, he said. “That is a lot of work and we have a lot of people on the ground doing that. That is not something that we could just do as a favor or as a consulting assignment to Grail—that will take a lot of people working in our company.”
“Similarly, we have production labs that do millions of genomic tests a year in the U.S. and outside—they’re our labs, with our people and our other tests, and that’s not something we could rent to somebody else to just roll their test in our environment,” he said.
“It really touches every part of our company to get the benefits of accelerating Grail,” deSouza added. “We've lowered the cost of sequencing by over 99% since 2007…we couldn’t just send in our engineers to optimize their product. Those are the kinds of things that we could really only do if they’re fully part of the loop.”
Currently, Grail’s prescription test does not enjoy broad insurance coverage, and is available to the public for $950 per screening.
In addition, part of the company’s revenues came from research partnerships developing a second blood test for tracking minimal residual disease and monitoring patients for cancer recurrence.
In 2022, Illumina expects Grail’s income to rise dramatically as Galleri’s adoption grows, to between $70 million and $90 million.
For Illumina more broadly, the company expects to see 2022 revenue grow 14% to 16%—to between $5.16 billion and $5.25 billion—driven in part by 10% year-over-year gains in the number of placements of its analyzers.
And while last year the company saw $220 million in revenues from international COVID-19 surveillance work—including sequencing the virus’ genome to spot emerging variants and mutations—Illumina expects those efforts to slow over 2022, with sales dropping to between $130 million and $150 million.