Illumina, Inc.

Good day, ladies and gentlemen, and welcome to the second quarter 2022 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 call is being recorded. I would now like to hand the call over to Sally Schwartz, Vice President of Investor Relations. Please go ahead.

Hello, everyone, and welcome to our earnings call for the second quarter of 2022. 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 host a 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.com. Participating for Illumina today will be Francis D'Souza, President and Chief Executive Officer and Joydeep Goswami, Chief Strategy and Corporate Development Officer, as well as Interim Chief Financial Officer. Francis will provide an update on the state of Illumina's business, and Joydeep will review our financial results, which include GRAIL. 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. Compliance with the order is monitored by an independent monitoring trustee. 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 interests of Grail. 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 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. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current available information, 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's most recent forms, 10Q and 10K. With that, I will now turn the call over to Frantz.

Thank you, Sally. Good afternoon, everyone. Illumina delivered revenues of $1.16 billion in the second quarter. up 3% year-over-year, or 5% on a constant currency basis. While sequencing activity across our markets was robust in the second quarter, with sequencing runs on our connected high and mid-throughput platforms growing more than 15% year-over-year and clinical growing even faster, our second quarter results were impacted by macroeconomic challenges that we expect to play out over the next couple of quarters. Specifically, some customers experienced supply chain pressures that delayed their lab expansions, and others managed inventory and capital more conservatively. We also saw adverse effects of foreign exchange and anticipated COVID-related shutdowns in China. The robust sequencing activity levels, underlying growth of our target markets, and our conversations with customers across the globe indicate these dynamics are temporary. During the quarter, we also made terrific progress on our innovation roadmap and are poised to soon deliver the next generation of breakthrough technologies that will fuel the next era of genomics. Turning now to performance across our platforms, in high throughput, Novaseq shipments in Q2 grew 23% year over year, our highest second quarter ever. Consistent with prior quarters, clinical customers, primarily in oncology testing, drove half of our Novaseq shipments. In mid-throughput, NextSeq 1K, 2K orders were up 20% year-over-year. Despite some shipments shifting from Q2 to Q3 due to supply delays, Q2 NextSeq 1K, 2K shipments increased slightly year-over-year. Low-throughput shipments were relatively flat year-over-year, even with the comparison to last year's COVID surveillance-driven volume. Turning to our markets, we continue to gain traction in clinical. with sequencing consumable shipments for the second quarter up 11% year-over-year, and all of our clinical markets contributing to the increase. As I mentioned earlier, we have seen continued growth in our oncology markets. In Q2, oncology consumables grew almost 20% year-over-year. An area of note is our market-leading TruSight oncology assay. Shipments of TSO grew 45% year-over-year, and we now have delivered distributed comprehensive genomic profiling tests to every major market in the world. We have worked closely with large evidence programs to facilitate clinical utility and drive market access, and we have more than 10 pharma partners developing CDX claims with us. Most recently, we expanded our portfolio by co-developing a new TSO500 HRD test with Merck that leverages Illumina's work with Myriad Genetics. We also co-developed a pan-cancer companion diagnostic for TSO-comprehensive EU with Bayer. Also in oncology, June marks the one-year anniversary of Grail's launch of Gallery. In that time, Gallery delivered the fastest-ever first-year revenue ramp of a cancer screening test. Grail continues to drive progress in clinical evidence generation and commercial use of their multi-cancer early detection test, Gallery. The number of U.S. health systems partnering with Grail to offer Gallery continues to grow, most recently with the addition of Mercy, one of the 25 largest U.S. health systems, and Ochsner Health, the largest Gulf South health system. Also, Grail recently partnered with AstraZeneca to develop companion diagnostic tests that will identify patients with high-risk, early-stage disease. AstraZeneca will use GRAIL technology to recruit patients with early-stage cancer for AstraZeneca's clinical studies, making cancer medicines available where there is greater potential to transform outcomes. More broadly, the trials currently underway for Gallery continue to progress. The NHS Gallery trial in the UK, the largest multi-cancer early detection study, has enrolled 140,000 volunteers in just over 10 months. an unprecedented speed, especially for a trial of this size. Pending successful completion of the trial, the NHS plans to roll out GALERI to an additional 1 million people starting in 2024. This collaboration supports the NHS long-term plan to transform cancer care, with three and four cancers diagnosed at an early stage by 2028. Additionally, GRAIL has completed a final analysis of its Pathfinder study. with data to be presented at the European Society of Medical Oncology Congress, September 9th through 13th. GRAIL has made substantial progress building a network of partners that will support ongoing adoption of GALERI. But commercial progress is proceeding at a more measured pace as health systems ramp up. For these reasons, GRAIL has revised its revenue guidance for the full year 2022 to a range of $50 million to $70 million. Turning to infectious disease and microbiology, the genomic surveillance infrastructure built on Illumina instruments during the pandemic in more than 100 countries is now being used for other diseases like monkeypox. This network is enabling a quicker genetic assessment of this new disease as momentum continues to build for a robust global pathogen infrastructure. We're expanding our surveillance portfolio accordingly. In June, we provided select customers access to our novel viral surveillance panel based on workflows implemented for COVID-19. The panel provides targeted sequencing for the 66 most critical viruses of global public health concern, including monkeypox and polio, and will be commercially available later this year. Our research and applied markets were relatively flat year over year. with growth in the Americas and APJ, offset by declines in EMEA and China. In the quarter, we announced our partnership with Precision Health Research Singapore, or PRECISE, to sequence whole genomes of 100,000 Singaporean participants. Together, we will develop Southeast Asia's most comprehensive population study and gather deep insights into Asian genomic diversity and key genetic, social, environmental, and other factors associated with disease. Before I update you on further advances in our innovation roadmap, I'll turn the call over to Joy Deep.