Is Illumina profitable, and what drove the 2005 net loss?

No. Illumina reported a net loss of $20.9 million, or $0.52 per share, for 2005, compared with a net loss of $6.2 million in 2004. The largest single item was a $15.8 million charge for acquired in-process research and development from the CyVera acquisition. The company recorded a modest profit in the fourth quarter of 2005 but said it may not be profitable in 2006.

How much revenue came from outside the United States?

About 38% of 2005 revenue, or $28.0 million, came from customers outside the United States, compared with 52% in 2004 ($26.4 million).

What is the main legal risk disclosed?

Affymetrix filed suit in July 2004 alleging that the BeadArray products infringe six of its patents and seeking an injunction and unspecified damages. Illumina believes it has meritorious defenses, and trial is scheduled for October 16, 2006. The filing states that an unfavorable outcome could have a material adverse effect on the business.

Does Illumina have enough cash to fund operations?

Management anticipates that current cash and cash equivalents, sales revenue and grant funding will be sufficient to fund anticipated operating needs, barring unforeseen developments. The company had cash and cash equivalents of $50.8 million and no credit facility or committed sources of capital as of January 1, 2006, and it notes that it may need additional funding in the future.

ILMN 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 6, 2006. Cited figures are marked; the original filing is the authoritative source.

Illumina, Inc. reported total revenue of $73.5 million^a for the year ended January 1, 2006, up 45% from $50.6 million in 2004, with product revenue rising to $57.8 million and service and other revenue to $13.9 million.

The company still posted a net loss of $20.9 million^b, or $0.52 per share, which compares with a net loss of $6.2 million in the prior year. The loss was driven in large part by a $15.8 million non-cash charge for acquired in-process research and development from the April 2005 CyVera acquisition, and the company recorded accumulated deficit of $144.6 million. Management stated that it recorded a modest profit in the fourth quarter of 2005 but may not be profitable in 2006, partly because SFAS 123R is expected to add $9.0 million to $12.0 million of expense in 2006.

The company operates in a single segment focused on SNP genotyping and gene expression tools built on its BeadArray technology. Cash and cash equivalents were $50.8 million^c at year-end, down from $54.8 million, and the company had no credit facility. Operating cash use narrowed to $9.0 million from $19.6 million.

Management expects current cash, sales and grant funding to be sufficient for anticipated operating needs, barring unforeseen developments, but notes that additional capital may be needed in the future. Key risks include a pending patent infringement lawsuit from Affymetrix seeking an injunction and damages, with trial scheduled for October 16, 2006, and a former employee's inventorship suit. The company also depends on Invitrogen to sell its oligo products under a collaboration agreement, and about 38%^d of 2005 revenue came from customers outside the United States.

02—Key points

Key Highlights

Total revenue rose 45% to $73.5 million in 2005 from $50.6 million in 2004, led by product revenue growth of 43% to $57.8 million.
Net loss narrowed to $20.9 million ($0.52 per share) in 2005 but was affected by a $15.8 million acquired in-process R&D charge tied to CyVera.
Operating cash use declined to $9.0 million from $19.6 million, and cash and cash equivalents stood at $50.8 million at January 1, 2006.
As of January 1, 2006, the company had installed 11 BeadLabs and shipped 115 BeadStations, and began shipping the HumanHap300 BeadChip covering more than 317,000 SNPs in January 2006.
Affymetrix filed a complaint alleging six patents are infringed by the BeadArray products; trial is scheduled for October 16, 2006.
Under the Invitrogen collaboration, Invitrogen handles oligo sales and marketing and profits are split equally, with the company recording $1.1 million of milestone revenue in Q4 2005.
The company expects SFAS 123R to add $9.0 million to $12.0 million of expense in 2006, which may keep it from remaining profitable.

03—Questions

Frequently Asked Questions

Is Illumina profitable, and what drove the 2005 net loss?
No. Illumina reported a net loss of $20.9 million, or $0.52 per share, for 2005, compared with a net loss of $6.2 million in 2004. The largest single item was a $15.8 million charge for acquired in-process research and development from the CyVera acquisition. The company recorded a modest profit in the fourth quarter of 2005 but said it may not be profitable in 2006.
How much revenue came from outside the United States?
About 38% of 2005 revenue, or $28.0 million, came from customers outside the United States, compared with 52% in 2004 ($26.4 million).
What is the main legal risk disclosed?
Affymetrix filed suit in July 2004 alleging that the BeadArray products infringe six of its patents and seeking an injunction and unspecified damages. Illumina believes it has meritorious defenses, and trial is scheduled for October 16, 2006. The filing states that an unfavorable outcome could have a material adverse effect on the business.
Does Illumina have enough cash to fund operations?
Management anticipates that current cash and cash equivalents, sales revenue and grant funding will be sufficient to fund anticipated operating needs, barring unforeseen developments. The company had cash and cash equivalents of $50.8 million and no credit facility or committed sources of capital as of January 1, 2006, and it notes that it may need additional funding in the future.

04—Continue

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