At several points over the past few months, as Illumina has moved forward with its $8 billion acquisition of the cancer blood test maker Grail despite the deal falling under the regulatory microscope, Francis deSouza, CEO of the DNA sequencing giant, has said that a full integration of the two companies is the only path forward.
Without it, deSouza has said, Grail’s multi-cancer early detection test will take much longer to reach physicians and clinics the world over, ultimately resulting in more lives lost to the disease.
“The European regulatory and reimbursement environment is complex,” with layers of approvals necessary from continental, national and in some places regional authorities, deSouza said in an interview.
“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,” he added.
Currently, Grail’s prescription-only test is available in the U.S. after a highly anticipated launch last year, but it does not yet enjoy broad insurance coverage; it carries an out-of-pocket price of $950 per screening that aims to detect the signs of as many as 50 different types of cancer. But in the future, Illumina plans to throw its considerable weight behind the test to help drive up its adoption.
“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,” deSouza said.
“It really touches every part of our company to get the benefits of accelerating Grail,” he 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.”
So far, Grail has logged about $12 million in revenue during 2021—a small drop compared to the $931 million it racked up in year-long expenses. Part of the company’s revenues also came from research partnerships as Grail works to develop a second blood test for tracking minimal residual disease and monitoring patients for cancer recurrence.
In 2022, Illumina expects Grail’s income to begin rising dramatically as Galleri sees wider use, to between $70 million and $90 million.
Illumina’s earnings report included its consolidated numbers as well as a section just for Grail, which it’s been holding at arm’s length since completing its acquisition last August despite an ongoing antitrust investigation by the European Commission.
Until the regulators in Brussels come to a final decision—which deSouza now expects in the second quarter of this year, rather than at the end of March—Ilumina is required to hold onto Grail as a distinct and separately operated company.
For Illumina more broadly, and despite record revenue and continued demand for its DNA sequencers and consumables, the company’s net income for 2021’s fourth quarter dropped to $112 million—down 56% compared to the same period the year before—thanks to bigger spends on R&D and administrative expenses.
Still, the company’s $1.2 billion in total sales reached a new quarterly high, representing a 26% gain over revenues raised during the last three months of 2020. For the full year, Illumina brought in more than $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,” deSouza said.
“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,” he 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 the developers of more specialized, long-read hardware—such as Pacific Biosciences and Oxford Nanopore—while researchers’ requests of DNA sequencing technologies continue to become more complex.
Illumina announced Infinity 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 more than 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 the 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.”
For 2022, Illumina expects to see its revenues 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 anticipates those efforts will slow over 2022, with sales dropping to between $130 million and $150 million.