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Illumina (NASDAQ:ILMN)
Q1 2018 Earnings Conference Call
April 24, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the first-quarter 2018 Illumina earnings teleconference. My name is Michelle, and I will be your operator for today's call. [Operator instructions] I will now turn the call over to Jacquie Ross. Ma'am, you may begin.

Jacquie Ross -- Vice President Investor Relations

Thank you, Michelle. Good afternoon, everyone, and welcome to our earnings call for the first quarter of fiscal year 2018. Our first-quarter results were released after the close of the market and are available in the Investor Relations section of our website at illumina.com. Participating for Illumina today will be Francis deSouza, president and chief executive officer, and Sam Samad, chief financial officer.

Francis will provide a brief update on the state of our business, and Sam will review our financial results. After that, we will host a question-and-answer session. This call is being recorded, and the audio portion will be archived in the Investors 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 10-Q and 10-K.

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

Francis deSouza -- President and Chief Executive Officer

Thank you, Jacquie, and good afternoon, everyone. We've had a great start to 2018 with revenue of $782 million, up 31% from the first quarter of 2017. As we celebrate our 20th birthday this month, these results highlight the vision, commitment and execution of the entire Illumina family. At the same time, it's clear that we are in the earliest stages of the genomics journey.

We're only just beginning to see how Illumina and our customers will inform and transform patient lives. Illumina is proud to be part of this genomics revolution that is building momentum. While our achievements in the first 20 years have been impressive, the opportunity for Illumina and our customers in the next 20 years looks even more exciting. Reflecting strong demand for sequencing consumables, first-quarter revenue of $417 million grew 31% from the same quarter a year ago.

This performance was driven by consumable growth across our sequencing portfolio with notable strength in our high-throughput family, which grew 34%. As anticipated, consumables from our HiSeq family declined as customers transition to NovaSeq. So HiSeq consumables were down about $20 million sequentially, primarily among our X customers. Excluding the $19 million stocking order in the fourth quarter, NovaSeq consumables grew approximately 60% sequentially with strong performance from both the S2 and S4 flow cells.

The S1 flow cell, which we officially launched at AGBT in mid-February, has received great customer feedback and is expected to ramp throughout 2018. NextSeq delivered another strong quarter with consumables up about 40% from last year and an average pull-through rate at the high end of the $100,000 to $150,000 range. MiniSeq and MiSeq consumables both contributed to the growth on a sequential and year-over-year basis, with pull-through within their expected ranges. Library prep grew 20% from the first quarter of 2017 and represents more than 10% of our sequencing consumable business.

We're very pleased to see consumable growth across our entire instrument portfolio. It's an important reminder that while NovaSeq is a key enabler for some of our customers, the growth in sequencing demand more broadly is a key driver of our business. On the research side, for example, NIH funding of immuno-oncology studies has been growing at 11% over the last five years. Within those studies, sequencing-based I-O studies have been growing more than 40% per year.

We're also seeing growing interest in single-cell research, and our customers are among the 500 scientists contributing to the human cell atlas initiative that aims to transform biological research in medicine by characterizing every cell type in the human body. Commercially, sequencing volume growth is driven across a broad range of applications and platforms. In oncology, it's clear that even ahead of the recent CMS national coverage determination on NGS testing, our customers are seeing mounting awareness in acceptance of NGS-based panels. These tests, like those offered by Foundation and Guardant, are leading to increased demand for sequencing consumables.

There's also a huge amount of interest in immuno oncology, growing testing outside the U.S., including China, and building momentum in liquid biopsy, which offers the promise of less invasive earlier cancer detection. NIPT grew both sequentially and year over year, driven by our VeriSeq CE-IVD product, which continues to gain traction outside the U.S. The Netherlands program is in its earliest stages of its ramp and is expected to contribute to VeriSeq sales more than doubling in 2018. In the U.S., we launched a new study with Harvard Pilgrim to collect data to demonstrate the clinical and economic value of NIPT for average-risk patients.

We firmly believe that all pregnant women should be able to choose NIPT, and our goal is to enable the high-quality data needed by payers to expand averagerisk coverage from today's 40%. Also in the first quarter, we launched the NICUSeq study to demonstrate the clinical utility of wholegenome sequencing for acutely ill newborns with rare and undiagnosed genetic disease, or RUGD. Similar to the Harvard Pilgrim study, this is another example of Illumina actively investing in innovative programs to support broader adoption and reimbursement of sequencing in the clinic over time. While still early days, we're seeing growing adoption of whole-exome and whole-genome sequencing for RUGD patients.

This is an area where early testing can redirect treatment and even save lives. Nicklaus Children's Hospital in Florida just announced that it is partnering with Rady's here in San Diego to offer whole-genome sequencing for very sick children with undiagnosed diseases. And spanning research and clinical, we're seeing growing demand among our service customers who include sequencing among their offerings. In summary, the trajectory of our sequencing consumables business is very exciting, highlighting the growing adoption of sequencing across a broad range of customers and applications.

Our commitment is to enable customers to sequence as much as they need to with the highest-quality consumables on the system with the economics and workflow that makes the most sense for them. Reflecting our broad portfolio of instruments, sequencing system revenue was $112 million in the first quarter of 2018. That's up 18% from the first quarter of 2017 and down sequentially as we expected given the normal capital equipment seasonality. First-quarter NovaSeq shipments were down sequentially as we expected, with order and shipment volumes consistent with our belief that the NovaSeq upgrade cycle will span multiple years.

As we continue to see good uptake from new-to-Illumina or straight-from-benchtop customers with about 25% of NovaSeq orders coming from this group in the first quarter. NovaSeq interest from our current high-throughput customers remains strong. We surveyed our HiSeq and HiSeq X customers during the quarter, and the responses we received further reinforce our conviction in the multiyear transition to NovaSeq. Across our benchtop platforms, we saw another quarter of strong adoption by new-to-sequencing customers who represented approximately 50% of our benchtop shipments in the first quarter.

NextSeq remains an important platform for a broad set of customers and markets, including the clinical oncology applications just announced with BMS and Loxo Oncology that will run on the NextSeqDx. Lastly, we launched our iSeq platform in the first quarter and shipped units to customers for beta testing. During the beta test, we identified some opportunities to improve our cartridge filling and shipping processes that will enhance product robustness and reliability. We're in the process of validating these improvements and expect to scale shipments midyear.

In the meantime, we continue to see strong interest in iSeq and are approaching 100 orders. Illumina will continue to be an important enabler and innovator of sequencing broadly through the systems and consumables we bring to market. In addition, we have a number of strategic initiatives that we believe will accelerate the adoption of sequencing in consumer and clinical applications and drive future growth. In population genomics, Illumina continues to enable some of the most exciting programs around the world.

These include the Genomics England initiative, which is now halfway through its 100,000 genome target and hopes to complete sequencing all 100,000 genomes this year. After that, the program aims to start using clinical whole-genome sequencing for rare disease diagnosis and management of certain cancers. In the U.S., the almost-$3 billion increase in NIH funding for 2018 included $290 million for the All of Us Precision Medicine Initiative, which is expected to launch later this year. The genomics working group recently recommended that the program include both arrays and whole-genome sequencing.

The detailed plan for the 1 million participants is being finalized, but the program will get started with a pilot of 20,000 participants later this year. While not a population genomics initiative, I also want to highlight that the U.K. Biobank announced that it will be sequencing 50,000 whole genomes over the next two years. This effort is being funded by the Medical Research Council and conducted by the Wellcome Sanger Institute using Illumina technology.

Ultimately, the goal is to sequence all 500,000 samples in the U.K. Biobank, building on the exome sequencing project that is currently under way. Oncology represents one of the most exciting opportunities in sequencing, and Illumina is participating in two ways. First, we are investing and partnering to create distributable companion diagnostics for a broad range of Illumina customers and their patients.

Additionally, through access to our technology, we enable customers to develop their own oncology tests and applications. Our recent announcement with Loxo Oncology and Bristol-Myers Squibb are the first examples of collaborations intended to deliver clinically actionable sequencing-based diagnostics that enable precision medicine for oncology patients. We are partnering with Loxo Oncology to gain approval for our TruSight Tumor 170 test as a companion diagnostic for twp of their pan-cancer drug candidates, Larotrectinib and LOXO-292. With BMS, we are working on companion diagnostic version of our TruSight Oncology 500 to measure biomarkers, including TMB, that may predict whether patients will respond to their immunotherapy checkpoint inhibitors.

Cancer patients may not have multiple chances to receive the right combination of drugs, so companion diagnostics must be accurate and reproducible. And our objective is to offer distributable companion diagnostics to provide end-to-end workflows, including NextSeqDx. This will allow labs to accurately and reproducibly test the patients, so that physicians can select the most effective cancer therapy at initial diagnosis.\ These collaborations are very timely given the recent coverage decisions, which demonstrates how the regulatory and reimbursement environment is progressing. We are very pleased to see these meaningful developments that will accelerate clinical adoption of NGS and allow more patients to benefit from sequencing.

Consumer genomics is another area where the regulatory environment is making progress to accommodate genomic capabilities. In March, 23andMe was granted the first FDA authorization for a direct-to-consumer genetic test for cancer risk. This highlights the agency's support for individuals accessing their genetic information in a responsible manner. Clearly, this authorization broadens the opportunity for personal genomics companies to enable consumers to engage far more directly in their own health.

It promises to be a very interesting area to watch over time. Building on the direct-to-consumer inflection we saw in 2017, our microarray business had a spectacular start to 2018 with 48% growth to a record $152 million. Microarray service revenue doubled to $58 million from the same quarter a year ago and grew 81% sequentially. Microarray consumables grew 26% from last year to $87 million, which was higher than expected.

Given the impressive ramp here, I'd like to thank our microarray team that delivered this rapid growth in both our microarray consumables and services. Finally, I'd like to welcome Phil Febbo who recently joined Illumina as our Chief Medical Officer. Phil previously served as CMO of Genomic Health and will be responsible for leading our medical strategy to drive genomic testing into clinical practice. This is clearly one of Illumina's highest priorities, and we are confident we found the right person to execute on the opportunity ahead.

With that, I'll hand the call over to Sam for a review of our quarterly financials. Sam?

Sam Samad -- Chief Financial Officer

Thanks, Francis. As discussed, first-quarter revenue grew 31% year over year to $782 million, driven largely by growth in sequencing consumables that, once again, exceeded forecast as well as strong performance in both microarray and sequencing services. Additionally, benefit from foreign exchange rates contributed 3% to the year-over-year growth. Geographically, Americas grew revenue 27% versus the prior-year period driven by strong growth in both sequencing instruments and consumables.

EMEA grew 50% due to broad strength across the sequencing business, highlighting strong progress and execution in the region. Asia Pacific grew 21% overall, with 38% shipment growth in Greater China. Revenue from sequencing instruments grew 18% year over year to $112 million, driven by NovaSeq and offset in part by lower shipments of the HiSeq family of instruments, as expected. Microarray instrument revenue was $6 million, up 10% year over year.

Total instrument revenue was, therefore, $118 million, an increase of 18% year over year and represented 15% of total revenue. As Francis noted, first-quarter sequencing consumable revenue was $417 million, up 31% from last year. Microarray consumable revenue of $87 million was up 26%. Total consumable revenue of $504 million grew 30% from last year and represented 65% of total revenue.

First-quarter total product revenue, which includes freight, was $628 million, up 28% from the year-ago quarter. Service and other was $154 million, up 44% from the same quarter last year, driven by strength in genotyping services due to consumer demand as well as sequencing services and instrument maintenance contracts. Moving to gross margin and operating expenses. I will highlight our non-GAAP results, which includes stock-based compensation.

I encourage you to review the GAAP reconciliation of non-GAAP measures, which can be found in today's earnings release and supplementary data available on our website. Please note that all subsequent references to net income and earnings per share refer to the results attributable to the Illumina shareholders. As expected, non-GAAP gross margin of 69.8% was lower compared to the fourth quarter, primarily due to mix, with microarrays contributing 19% of overall revenue, compared to 16% last quarter. Year-over-year gross margin increased 340 basis points, primarily due to favorable mix.

We also did not see the negative impact associated with the one-time inventory transition reserves that we experienced in the prior-year period. Non-GAAP operating expenses were up slightly from last quarter at $316 million but lower than expected due to the timing of headcount additions and associated benefits as well as the timing of certain investments and the favorable judgment on a patent suit. Compared to last quarter, the $9 million increase largely reflects higher stock-based compensation and expected increase in payroll taxes. Non-GAAP operating margin was 29.5%, down from 31.4% last quarter, reflecting the slightly lower gross margin and increased opex.

Excluding Helix, operating margin was 31.9%, compared to 33.9% in the fourth quarter. Operating margin increased from the 17.5% in the first quarter of 2017, primarily due to improved gross margin and lower operating expenses in relation to sales. The non-GAAP tax rate of 12.9% compares to 18% last quarter and to 24.4% in the first quarter of 2017. In addition to tax reform, Q1 benefited from the recognition of Helix losses attributable to Illumina following our cash investment of $68 million during the quarter.

I'll talk more about this Helix tax benefit in a moment. But excluding this one-time benefit, the non-GAAP tax rate was 18.4%. For the first quarter of 2018, GAAP net income was $208 million, or $1.41 per diluted share. Non-GAAP net income was $214 million, or $1.45 per diluted share.

This was relatively flat compared to last quarter, as lower gross margin and higher opex were more than offset by the favorable Helix contribution. The impact of foreign exchange rate increased Q1 non-GAAP EPS by approximately $0.07 relative to last year. Operating expenses associated with Helix remained relatively flat compared to the fourth quarter. However, there was a tax benefit to Illumina following our participation in this recent Series B financing round.

As a result of our first cash investment, we recognized the one-time $12.7 million, or $0.09 per share, tax benefit for prior-year Helix losses. Excluding this tax impact, first-quarter Helix dilution was about $0.06, flat with last quarter. Cash flow from operations was $255 million. Continued reductions in our collection cycle and improved revenue linearity led to a record DSO of 47 days, compared to 48 days last quarter.

Capital expenditures in Q1 were $90 million. And Q1 free cash flow was $165 million. We ended the quarter with approximately $2.4 billion in cash and short-term investments. Moving to guidance.

Total company revenue is now expected to grow between 15% and 16% in 2018, an increase of $55 million at the midpoint compared to the midpoint of our previous guidance. In total, therefore, we are now expecting 2018 revenue in the range of $3.17 billion and $3.19 billion. As Francis discussed, we are very encouraged by the trends we are seeing in our sequencing consumable business. Our revised revenue guidance range, therefore, reflects the higher sequencing consumable and arrays revenue reported in Q1; an increase in the forecast for our sequencing consumables throughout the rest of 2018; milestone payments associated with our recently announced oncology collaborations.

These will be included in sequencing and other revenue; and finally, no change to our expectations for 330 to 350 NovaSeq shipments this year. Mix remains the primary driver of our gross margin. And consistent with our prior guidance, we continue to expect full-year non-GAAP gross margin to be up modestly from 2017. For 2018, we expect our non-GAAP tax rate to be approximately 18%, which factors in the Helix benefit, a more favorable impact from tax reform and a more favorable geographic mix.

On a go-forward basis for the remainder of the year and excluding the one-time Helix-associated tax benefit, we are projecting a non-GAAP tax rate around 20%. GAAP EPS is now expected to be between $4.45 and $4.55, and non-GAAP EPS is now expected to be between $4.75 and $4.85. This increase primarily reflects the higher revenue projection for the full year, the positive Helix tax benefit and the more favorable tax rate than previously projected. Offsetting these items, we are planning some incremental R&D and commercial projects to capitalize on the momentum we are seeing in the business to drive future growth.

We, therefore, now expect full-year non-GAAP operating expenses to be flat to slightly up on a percentage-of-revenue basis from 2017. For the full year, we are still expecting about $0.25 of Helix dilution. This excludes the previously mentioned tax benefit that resulted from our latest investment in Helix in Q1. We expect share count for the full year to be approximately 148 million.

For the second quarter specifically, we expect modest sequential growth. We expect continued growth in our sequencing consumable and system businesses to be partially offset by a seasonal decline in our microarray business. We expect gross margin to decline about 100 basis points sequentially due to mix and higher costs associated with our pharma collaborations, and we expect operating expenses to be more in line with 2017 levels on a percentage-of-revenue basis given our expected hiring and investment plans. Operator, we'd now like to begin our Q&A session.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator instructions] We do have questions in the queue. And the first question comes from Tycho Peterson from J.P.Morgan.

Your line is open.

Tycho Peterson -- J.P.Morgan --Analyst

Thank you. Francis, wanted -- maybe just jump in on the sequencing instrument number. I think that's really what most people are focusing in on. I know you had talked about it being down due to seasonality.

I'm just curious, was the $20 million decline here, was that in line with your internal estimates? And can you maybe talk about some of the gives and takes? How much of it was HiSeq X Ten dropping off versus maybe an elongated selling cycle for Nova as you start to push into kind of that core 2500 user base? And any early feedback you can provide on trends among the 2500 users that are now using the S1 chips?

Francis deSouza -- President and Chief Executive Officer

Sure. I'd say, overall, the sequencing instrument number came in within our expectations. So we knew coming into Q1 that we have the usual Q4, Q1 seasonality, and so there was no surprise associated with the number. We continue to be -- and I'll go through maybe some of the instruments specifics as you said.

We continue to be very pleased with how the NovaSeq rollout is going. As you know, we planned for this to be a rollout that played out over a number of years. And so to do that, we're very intentional, for example, with how we rolled out the flow cells since the launch of NovaSeq. And overall, it's playing out as we expected, maybe a slight bit better.

We are seeing good interest in upgrading to NovaSeq from the HiSeq customer base. That started to play out last year, starting first with our commercial customers. And then in the second half of the year, we started to see our academic customers start the upgrade cycle, too. But as you know, we closed out the year with only 15% of our 850 HiSeq and HiSeq X customers having bought their first NovaSeq.

And so that is a multiyear adoption cycle, and it is playing out that way. We also were happy to see the number of new-to-Illumina and straight-from-benchtop customers that continue to drive about a quarter of the purchases of NovaSeqs. That played out again in Q1, and that's exciting for us. And we continue to see examples of new companies that were formed to take advantage of the fact that NovaSeq is really democratizing access to high-throughput sequencing capability.

So we saw customers from around the world. In Australia, there was a customer that was being formed to do a cancer population screening. We saw another customer in China that bought a NovaSeq and has actually started to offer high-throughput sequencing. And so that continue to play out.

Most importantly, though, what's really exciting was to see the growth we're seeing in sequencing consumables. And that was a trend that played out in Q1 across all our system portfolio. So we saw high-throughput sequencing go up as we talked about, but we saw overall sequencing consumables rise across the entire range. And as we've talked about before, that's probably the most accurate reflection of the level of sequencing that's happening in the market.

And as we talked about on the call, there are a variety of drivers across the clinical and research markets that's really driving that consumable demand across the entire portfolio.

Operator

The next question in the queue comes from Doug Schenkel from Cowen and Company. Your line is open.

Doug Schenkel -- Cowen & Company -- Analyst

Good afternoon. My question is on NovaSeq consumable pull-through. So last quarter, NovaSeq consumable revenue grew 80% sequentially. And according to your prepared remarks last quarter, that was excluding an $18 million stocking order.

That stocking order was one of the key reasons you told us to expect that Q1 revenue would be down up to $35 million relative to Q4. Obviously, that didn't happen. And based on your prepared remarks, it appears that Q1 NovaSeq consumable revenue grew pretty robustly sequentially, and that's even relative to a number that includes the stocking order and the pace. By our math, it looks like annualized consumable spend per NovaSeq has been increasing pretty robustly every quarter since launched.

And in Q1, we're coming up with an annualized consumable pull-through number for NovaSeq that's at least around $700,000 per box, maybe above $800,000. So my question is1) are we in the right neighborhood on pull-through? 2) how much of -- how much is the release of the S1 and the S4 and Xp increasing utilization? And is there any reason we shouldn't expect a continuation of the quarter-to-quarter improvement trend in annualized NovaSeq pull-through?

Francis deSouza -- President and Chief Executive Officer

Sure. Thanks, Doug. So I'll start by saying that yes, we did see really strong growth in NovaSeq consumables, as we talked about on the call. And that's driven by a broad range of applications, including oncology testing for targeted therapies; oncology; NIPT application expansion, especially in China; wholegenome sequencing for RUGD; large panels, liquid biopsy.

So we're seeing a range of applications that's driving that really robust growth in NovaSeq consumables. We've also seen, as I talked about on the call, some HiSeq customers then start to ramp down their spending on HiSeq and begin to transition over to NovaSeq. There are still customers, though, that are continuing to run on HiSeq because they are clinical customers, for example, and it will take them time to do the transition; or they are in the midst of working through a sample cohort, and they don't want to switch instruments mid-experiment. But we are seeing that transition start to happen.

So we're seeing the sort of the HiSeqs consumables start to ramp down and NovaSeqs really continuing to build. In terms of S1, it's out there. It's starting to drive demand, and we expect to play out as we plan, right? So all of our flow cells are actually doing well, and the instruments are performing well in the field and giving us good feedback. So we expect each of those target markets to continue to build over the course of this year.

In terms of pull-through then, the -- your numbers may make sense for a particular quarter. But as we said earlier, look, it's still too early to call out a trend in terms of the annualized NovaSeq pull-through. And so while you can do the math on a particular quarter, the reality is we need to wait at least through the second half of this year until we have enough data behind us to start to call an annualized trend that will be meaningful for your model. So at this stage, it will still be a little too volatile for it to be meaningful for use in your models.

So I'd wait maybe a couple more quarters, and we may be at a stage then where we can give you a number that's useful.

Operator

Thank you. The next question comes from Amanda Murphy with William Blair. Your line is open.

Amanda Murphy -- William Blair & Company -- Analyst

Hi, thanks. I actually had just a follow-up to Doug's question in terms of HiSeq consumable trends. So you mentioned, I think, that it was down $20 million sequentially. So obviously, as to your point, you've got -- customers have pipelines that are working through.

So should we think about that as sort of a slow tick down over the course of the year? And then also, just I think one of the questions people had originally and it may still be too early, how are customers thinking about the NovaSeq in terms of conversion? So in other words, if you have a Ten HiSeq Xs, are they buying five NovaSeqs just given the capacity differences in the platforms?

Francis deSouza -- President and Chief Executive Officer

Sure. You'd certainly think of the transition as something that's going to play out not just actually over the course of this year, but as we said, this is sort of a multiyear phenomenon, right? So you'll see it play out this year, next year, the year after. And so it will be that transition over the course of those quarters. In any given quarter, there may be a little bit more that happen and in another quarter, and so it won't be the same in every quarter.

But you can certainly view it as playing out over the next two to three years, as we'd expected. The second -- what was the second part of the question?

Amanda Murphy -- William Blair & Company -- Analyst

Just around converts. So just given the capacity differences with the NovaSeq, how are people thinking about buying them relative to the existing platforms? So in other words, if you have an X Ten, are they buying 5? Or -- I know it's early, but just kind of think about how people are thinking about capacity as of this point.

Francis deSouza -- President and Chief Executive Officer

Yes. In terms of the number of NovaSeqs they're buying, if you look at the number of customers that bought NovaSeqs, a lot of the customers that have bought NovaSeqs were existing HiSeq customers that may have had just one or two HiSeqs, for example. And so obviously, from them, they're moving from a single HiSeq to a single NovaSeq. And as we talked about, certainly, in some of the quarters last year, a lot of our pipeline for NovaSeq where the onesie-twosie customers.

It's still early for us to talk about how customers are thinking about an entire fleet replatforming. Those fleet replatformings are still in front of us, so customers are still buying their initial NovaSeqs and running them. And I think over the coming quarters, we'll start to see full-on conversion. And at that point, it will be more meaningful for us to talk to you about what ratio we're seeing.

But that's still in front of us.

Operator

Thank you. The next question comes from Puneet Souda from Leerink Partners. Your line is open.

Puneet Souda -- Leerink Partners -- Analyst

Yeah. Hi, Francis, thanks for taking my question. So I had a question on -- you talked about population study and the whole-genome sequencing. And I just wanted to understand -- and there's a significant drop here in the sequencing costs from -- of an exome on NovaSeq compared to 4000 and 2500, whatever it was run, but -- and that has accelerated significant volume demand.

But I'm just trying to understand for whole genomes, it was already sitting at parity in terms of sequencing costs in the genome centers with HiSeq X. You talked about a couple of projects. But I'm just trying to understand, if you're -- are you happy with the progress on the whole-genome demand that you're seeing in the market? Or is there room for acceleration there with maybe improved pricing to drive that population genetics and larger studies here for whole genomes and for genome centers?

Francis deSouza -- President and Chief Executive Officer

Sure. NovaSeq was a really big step forward in terms of democratizing access to the -- to high-throughput genomics and more specifically, to democratizing access to the price points for whole-genome sequencing that previously were only available to customers who could spend the $6 million or the $10 million to buy an X. And so NovaSeq was actually a move toward driving the market or enabling the market to do more whole-genome sequencing. And we certainly started to see that play out in a number of areas.

We've seen customers that are now doing bigger cohorts because of NovaSeq. We've now seen customers that are doing deeper sequencing and doing more studies with those hard-to-find applications like liquid biopsies, for example, or deeper tumor sequencing because of NovaSeq, and we think customers do broader sequencing. So we've seen customers that were looking at small panels go to large panels or to exomes and from there to genomes. And we certainly had examples of all of those happen since we've launched NovaSeq.

And so we're very pleased with how that thesis is playing out. We continue to believe in the long-term elasticity of this market, though. And we continue to believe that whole-genome sequencing is an important driver not just of volume, but we'll have benefits -- the lower price of sequencing will have benefits in a whole bunch of applications, too. So single cells, whole exomes, more panels will all be enabled by these better price points.

We've talked about the fact that we continue to really looking into the future that there is elasticity in this market. And one of the reasons we put out there is that there is going to be continued reductions in price in the coming years, enabled by this NovaSeq architecture. It's what have the market start thinking about what they could do as the price of sequencing go -- goes down. And we started those dialogues already.

So we believe that the price points we will label right now are expanding the markets, and we believe there is continued elasticity in this market in the years to come.

Operator

The next question comes from Ross Muken with Evercore. Your line is open.

Ross Muken -- Evercore ISI -- Analyst

Good afternoon, guys, and congrats. So on the clinical side, there's just been a huge bevy of news updates, both on the policy side as you noted in the call, and then you've had some pretty interesting relationships. You called out one of them, but on the tumor mutation side, it seems like a lot happening. Help us understand how some of these recent developments help frame the next, I don't know, 18 to 36 months in that market and how some of the incremental clarity is allowing for maybe pharma and others to sort of dive in and also push on the liquid biopsy side as well.

Francis deSouza -- President and Chief Executive Officer

You bring up a really good point, Ross. We're definitely seeing a much more favorable market starting to emerge, both on the regulatory and reimbursement side on a number of fronts. And maybe I'll just touch on a few of them. And I'd also say that some of this is actually the result of work that we have been doing at Illumina, together with our customers and partners, to create the necessary studies, to build the bodies of evidence, to engage in dialogue with regulatory bodies around the world.

And so the work we've been doing over the last two to three years, it feels like it's contributed to an acceleration in the momentum we're seeing, both from a regulatory perspective and a reimbursement perspective. I mean, if you think about some of the things that have happened recently, the FDA approval of the FoundationOne companion diagnostic will definitely encourage the development of further breakthrough NGS tests now that there's a clear pathway to approval. The CMS determination of oncology and NGS reimbursement opened the door for reimbursement of other companion diagnostics, so 501(k)s and LDTs in oncology. And in the last month, the FDA-issued final guidance on NGS testing development and validation helps because it provides a framework for companies who are developing these NGS-based tests to use for development and validation themselves.

And it takes a little bit of a mystery around what the FDA is looking for. We're also sitting at a good place given what's happened over the last few months in markets like RUGD. We now have whole-exome sequencing testing covered for 124 million lives here in the U.S. for RUGD conditions.

And so there's a lot happening in terms of regulatory approvals. We saw that with the approval that the FDA gave 23andMe, for example, for the BRCA testing, the mutations, the chain mutations that they can report on in the BRCA1 and 2 gene. So a lot of the momentum is starting to build. A lot of it has yet to show up, though, in terms of our revenue.

So I feel like we're laying the groundwork for the continued building of the oncology markets, the reproductive health markets, the consumer genomics markets. And those will pay dividends into the future.

Operator

Next question comes from Dan Leonard with Deutsche Bank. Your line is open

Dan Leonard -- Deutsche Bank -- Analyst

Lots to talk on sequencing and consumables, and actually, the microarray business was a big source of upside variance versus our model. So I'm wondering, Francis, if you could elaborate on the trends in microarray and whether or not -- I know there's a seasonal aspect there, and you were probably planning for some of that to shrink, but whether or not any of the upside in the guidance in the balance of the year assumes a more bullish outlook on the microarray business.

Francis deSouza -- President and Chief Executive Officer

Yes, you're right. I mean, our microarray business has definitely been a very strong performer for us. Overall, as we said, we saw 48% growth in arrays in Q1. And that's driven by a number of factors.

One big factor, obviously, that we've talked about is the DTC market, the direct-to-consumer market. The consumer genomics market has hit an inflection point, we feel, in 2017, but it's still in the very, very earliest stages of adoption given how much innovation is happening in the space, given the penetration in the space and given now a more favorable regulatory environment. In 2017, as you know, we genotyped or sequenced on our platforms 7 million samples, and that's more than we did in the previous 10 years combined. Genealogy is the first breakout application for consumer genomics, but the growing rate of discovery enabled by our sequencing systems is broadening this market to include health, wellness, nutrition, fitness.

And so we believe that, that market has headroom to continue to expand. And as that market expands, it's obviously driving the growth in our microarray business. We're also seeing a -- this phenomenon take hold outside the U.S. We are tracking now over 100 companies around the world that are targeting the direct-to-consumer market, and we're seeing some pretty exciting emerging companies, for example, in China where the opportunity is clearly sizable, right? So in April, WeGene, which is a personal genomics company, announced that it will use our microarray platform to establish a lab in Asia and expand its consumer DNA testing offering.

It will start by offering genealogy testing for over the 50 subgroups in China. So really, this is starting to emerge as a global phenomenon, not just a U.S. phenomenon as well, so that's a very exciting. And then on the question then around the full year and what we expect from microarrays compared to our previous estimates, I mean, obviously, the full year also includes some of the benefit that we saw in terms of the stronger-than-expected microarray performance in Q1.

So it is higher than our prior expectations as we look toward full year '18.

Operator

Next question in the queue comes from Derik De Bruin with Bank of America.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Hi, good afternoon.

Francis deSouza -- President and Chief Executive Officer

Hey, Derik.

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Hey. So I'm going to sneak in two questions. One is on -- and it's sort of a follow-up to Dan's question, on the sequencing services business, you had a couple of quarters of 20% growth. How should we think about sequencing services going forward? And could you do a little bit of a breakdown on what's consumer -- milestones in oncology and companion diagnostics programs? And then just what's sort of regular sequencing services in terms of instrument upkeep? And then, the other question I'm going to ask is you said NextSeq placements grew Mini, and MiSeq placements grew.

Nova was within the range. I'm just wondering, was there something in the Nova ASP in terms of people doing trade-ins or products come in? And was the -- what's the -- what was sort of -- what is the ASP to Nova? Because I think that could be one of the reasons why maybe our models were off on the instrument numbers for the quarter.

Francis deSouza -- President and Chief Executive Officer

OK. So let's start with the sequencing services and the strength in sequencing services. So I got that. I got the question around the oncology programs and the question around NovaSeq ASPs.

So it's a 3TER, Derek. Hold up. OK, on the sequencing services, the strength there was driven by things like the work we're doing for GeL. And so we talked about the fact that the GeL project has done over 50,000 of its 100,000 genomes and is actually on a pretty robust phase in terms of working through the samples of their getting.

So the pipelines are flowing, and they expect -- we expect, I guess, 20, to complete that project over the course of this year. And so that accelerated pace is then translating into some of the strength you're seeing in sequencing services, for example. The oncology program. So you saw over the last few weeks, we announced partnerships with Loxo Oncology, obviously, and BMS around creating companion diagnostics for their therapeutics, Opdivo and Yervoy, and then Larotrectinib and LOXO-292.

Those are multiyear collaborations. We are kicking them off now. They certainly have milestones that happen over the course of the next couple of years. And the way the deal is structured, there's some revenue upfront and some tied to the achievement of the milestones.

And that's about as much as sort of we're talking about the specifics of those agreements. We're obviously hugely excited about it. You should also expect that we are going to continue to do more partnerships like those. I mean, be strategic around those collaborations.

Those partnerships did not have any revenue impact in Q1, and so the revenue associated with those partnerships is obviously still in front of us. And you should look to see us do more in the coming quarters. In terms of the NovaSeq ASP, it was roughly within range as we've been seeing over the last few quarters. It was slightly down because a multi-unit deal shipped over the course of the quarter, and that is the biggest driver of the variation in ASPs quarter to quarter.

And so in a quarter where you're seeing mostly the onesie-twosies, you will see a slightly higher ASP. In a quarter where customers are taking multi-unit orders, you'll see the average ASP in the quarter to be slightly lower.

Sam Samad -- Chief Financial Officer

Yes. Maybe just to add a couple of comments to Francis' comments really along the same lines. First of all, on the sequencing services, the maintenance contracts piece, the other piece is beyond the GeL piece that Francis talked about, which was favorable for Q1, those are really, essentially, I would say, growing and performing on track in terms of expectations. So nothing unusual there.

You will see some movements between quarters. But really, there's nothing unusual to point out or material to point out. GeL was definitely one of the key aspects in terms of the performance of that business in the quarter, at least the category of sequencing services. The other piece with regards to the oncology collaborations, as Francis said, we haven't recognized any milestones or contributions from them.

We will going forward as these start to kick off. The other thing to keep in mind is down the road, we would expect to see after these take effect, after these collaborations -- and we're talking here over the long term, we will start to see also additional consumables and instrument sales as a result of these collaborations as well, mostly in the form of NextSeqDx and the related consumables, so you will see that. But that's not for now. That's not for '18.

That's down the road.

Operator

The next question comes from Dan Arias with Citi. Your line is open.

Dan Arias -- Citi -- Analyst

Afternoon, guys, thanks. Francis, wondering if you could just help us with how much of the S4 volume is going to non-genome centers. And for the labs that are taking the S4, are you seeing them move pretty wholesale to that configuration just in terms of what are they running? Or is it a mix for their different experiences there, but maybe just an overall view?

Francis deSouza -- President and Chief Executive Officer

Yes, sure. We don't provide that specific breakdown, but from just a color perspective, you know we are seeing broader adoption from -- for S4. It's not just to genome centers. And in the sales that happen to genome centers, the way the NovaSeq adoption is going, and frankly, the way we expect it to go and expected it to go, is we're seeing customers buy one or two NovaSeqs first.

And then over time, phase in additional NovaSeqs. A lot of customers are continuing initially to run their Xs or their HiSeqs side by side with the NovaSeqs and moving workloads on to the NovaSeqs rather than just shutting down what's happening -- rather than completely shutting down the Xs of the NovaSeqs. And so that's how we expect the rollout to go. The replatforming isn't going to be sort of a big cutoff that happens but a phasing in and a gradual phasing out of the other high-throughput platforms.

Operator

The next question in the queue comes from Bill Quirk with Piper Jaffray. Your line is open.

William Quirk -- Piper Jaffray -- Analyst

Great. Thanks. Good afternoon, everybody. First question is on the recent CMS decision.

It looks like some smaller private payers maybe following CMS' lead in terms of extending reimbursement coverage for next-generation sequencing assays for oncology testing. So I guess, I'd be curious about what your thoughts are there, Francis, about that becoming maybe a little bit bigger phenomenon here on the way to CMS. And then secondly, just maybe you could talk to us about timing around the Harvard Pilgrim NIPT study, when you might expect to start to see this influence either guidelines or private payer recommendations.

Francis deSouza -- President and Chief Executive Officer

Yes. Both good points. I think the CMS decision has been so good on a number of fronts. Obviously, it's great in terms of directly providing a reimbursement path for oncology tests.

And frankly, the final coverage determination was even better than the draft that was submitted a few months ago because it took away restrictions around things like number of tests, for example, or the fact that get it can only be done on IVDs. And so we are really happy with what the NCD means for the oncology NGS testing market. It really makes that -- those tests available to millions, tens of millions of customers that, frankly, wouldn't have had access to that test before. But the knock-on effect is also there, as you pointed out.

And we have seen, as you've noted, some private payers follow in that footsteps. And so that's been really encouraging to see. Obviously, CMS is in an influential player in the market. So that's been positive.

In terms of the Harvard Pilgrim, that's also something I'm personally very excited about because it's sort of an innovative partnership that we're doing with Harvard Pilgrim. And the intent here is to work with them to do a real world study and get the results back associated with expanding coverage for NIPT, right? And the intent here is to get the data. The test runs about 18 months is when you should think about getting to completion and get that data. And in that time, we're entering sort of a -- again, it's a partnership with them.

So in return for helping them, we are getting access to the data to put the study together. And so really, it's the back half of next year we should start to see the data come back from that study.

Operator

The next question comes from Patrick Donnelly with Goldman Sachs. Your line is open.

Patrick Donnelly -- Goldman Sachs -- Analyst

Great. Thanks. Maybe just one on NextSeq. That's been particularly strong for the last few quarters with pull-through coming in either at the high end or above your previously guided range.

So have we gotten to the point where we need to reset expectations around that system? And then also, is there any particular application or two you'd call out NextSeq kind of gaining outsized momentum?

Francis deSouza -- President and Chief Executive Officer

Yes. NextSeq has definitely emerged as our sort of mid-throughput workhorse instrument. It's definitely a workhorse instrument in the clinical markets. And as you pointed out, we've had a few quarters now where the pull-through in NextSeq was above our guided range.

This quarter, it was within the guided range, but we certainly had a number of quarters before that's where it was above that. We're not at the stage where we're ready to change the range, so we'll just -- we'll point out where it falls within or outside the range. But it's definitely a workhorse platform for us. The applications that are running on it, there are a number of applications that are driving the demand for NextSeq to NextSeq consumables and things like oncology testing.

It's the core and service labs that are doing the oncology testing as well as medical research labs. We are seeing NextSeq be used a lot for NIPT. It's another sort of big clinical application that's driving the demand for NextSeq. And so I said those are some of the big applications.

And then we've obviously announced a number of partnerships that are on the NextSeq globally, and so those will also drive the demand of NextSeq.

Sam Samad -- Chief Financial Officer

Yes. One small additional thing I'd add is we're also seeing some examples of customers moving MiSeq work over to NextSeq as well, given the larger sample sizes and the improved economics that come with NextSeq.

Operator

The next question in the queue comes from Steve Beuchaw with Morgan Stanley. Your line is open.

Steve Beuchaw -- Morgan Stanley -- Analyst

Hi, thanks for taking the question.

Sam Samad -- Chief Financial Officer

Hi, Steve.

Steve Beuchaw -- Morgan Stanley -- Analyst

Sam, I don't want you to think we've forgotten about you. I just wanted to ask a few quick model clarification questions, not a complicated three-parter. It's a simple three-parter. One is, can you give us any sense of how substantial the contribution is from the pharma collaborations that you've announced this year on the top line? Second, currency.

How much do we think currency does for us on the top line this year? And then last one is just on opex. You called out a few timing items there. Can you give us any sense of magnitude of the timing items on opex that you called out there?

Sam Samad -- Chief Financial Officer

Yes. So let me start with the pharma collaborations. We -- as we indicated, they're definitely part of our revised guidance range and part of the reason why we've also upgraded guidance to the 15% to 16% for the year. We're not going to size them at this point, Steve.

It's still very early in the process of working through some of these collaborations, and we will be giving color as we go in terms of the progress of these partnerships. But at this point, we're not providing a specific sizing as to what that revenue impact is, but they are included in the 15% to 16% revised guidance. With regards to currency on the top line for Q1, as we mentioned in our prepared comments, it was a 3 percentage point improvement in terms of growth or benefit tailwinds in terms of growth that helped us. And for the year, really, I would say more or less in line with our prior expectations in terms of currency benefit, which was included in the guidance.

So really not much has changed for the full year. But potentially, we could still see some tailwind there from appreciation in the euro, which we've seen benefit from in Q1. But I'd say in terms of the full year, not much has changed from our previously announced guidance. And then the last question was around opex, I believe.

With regards to opex, as we mentioned, there was a -- we were definitely below expectations in Q1, slightly higher than Q4 sequentially, but below expectations in Q1, driven by opex spend, some, I would say, projects that have shifted into Q2 and the second half of the year. I would say, largely, in terms of opex, we are flat. As a percentage of sales, we're still flat to slightly increasing compared to 2017. So I think the best way to look at it is we are slightly increasing versus what we mentioned earlier.

When I say earlier, in terms of our previous guidance. And the reason for that, as we said in the prepared comments is we believe that we have some potentially very accretive investments that we can use to drive and continue some of the momentum in the business that we've seen. And so that's why, if anything, I would encapsulate it as slightly higher opex as a percentage of sales compared to what we had announced versus '17.

Operator

And the next question in the queue comes from Catherine Schulte with Baird. Your line is open.

Catherine Schulte -- Robert W. Baird & Company -- Analyst

Hey, guys. Thanks for taking the question. I was just wondering if you could elaborate a bit more on the Chief Medical Officer hire last month. Any additional commentary you can give on where Phil's focus will be? And any specific projects he'll be initially working on?

Francis deSouza -- President and Chief Executive Officer

Yes. I am very excited to have Phil Febbo join the leadership team here at Illumina. He has a deep background as chief medical officer of Genomic Health before this but also, both in a commercial environment as well as an academic environment in the places like UCSF. He is going to have a very important role here on the leadership team in terms of guiding our overall medical strategy.

That includes working with the thought leaders in the different domains that we work in, so reproductive health in oncology, making sure that we deeply understand where they're trying to go as well as they understand what's coming, and so what they should be thinking about from us. He also has a very key role to play in our conversation with the payer community in terms of making sure that we have a deep partnership with them to develop the studies that will generate the evidence of clinical utility as well as the economic analysis associated with getting our tests broadly adopted. He'll also have a role in terms of working with the regulatory bodies around the world, making sure that we are communicating the responsible use of our technologies in the different countries around the world. So lots of work there.

He'll also be responsible in terms of engaging with the physician community to share our vision of how genomics and NGS testing can help drive forward a number of domains. So he has lots of work to do.

Operator

And Jack Meehan from Barclays. Your line is open.

Jack Meehan -- Barclays -- Analyst

I want to get your perspective on guidance. You highlighted a number of positive dynamics that play in the first quarter, the clinical opportunities, the outlook for sequencing consumables, the NovaSeq placement outlook. Was there any thought around taking up guidance more meaningfully at this point? And are there any concerns that you have in the market right now?

Francis deSouza -- President and Chief Executive Officer

Thank you for the question. I would say, first of all, we've got some tremendous momentum in the business, so we're very excited about the momentum. We're very excited about what we've seen in Q1 in terms of the fantastic results that we've seen across sequencing consumables and definitely, the much better expected performance across microarrays that we saw in Q1. Having said this, it's still only Q1, and so we have upgraded guidance for the year from 13% to 14% to now 15% to 16%.

But obviously, it has only been three months since we've announced guidance -- original guidance. So I would say, at this stage, nothing in the market that really concerns or alarms us. I would say, in terms of NovaSeq performance, going exactly as expected. And we've seen the upgrade cycle, as we talked about, we expect it to be a multiyear upgrade cycle, and that's what's playing on -- playing out in the market.

We've seen tremendous performance across consumables. Nothing really that I would say is concerning and momentum across the clinical business as well. But having said this, it's only Q1, and that's why we've kept it to 15% to 16% at this stage.

Operator

Thank you. We have time for one last question. The last question comes from Mark Massaro with Canaccord Genuity. Your line is open.

Mark Massaro -- Canaccord Genuity -- Analyst

Hey, thank you. Francis, I'm curious if you could comment whether or not you think the 23andMe approval of the BRCA variance might be opening up a floodgate for other variance to come. And then, as we think about the consumer genomics inflection here, where do you expect -- whether it's from ancestry, fitness or nutrition, where do you think the biggest initial uptake will be from partners like Helix?

Francis deSouza -- President and Chief Executive Officer

Yes. I think we have seen even over the last year, sort of really good progress in terms of the regulatory approval for direct-to-consumer testing. So if you remember a year ago, the FDA approved the first 10, what they called, GHRs, Genetic Health Risk, reports to be published to direct-to-consumer without physician intervention. And at the time, they didn't allow cancer predisposition testing.

This was a year ago. But they allowed things like Alzheimer's and Parkinson's and a set of condition that they felt could be responsibly reported back to the consumer. And even though at the time, they specifically said they weren't going to allow cancer predisposition testing, they continued, obviously, to engage with companies like 23andMe. And what they were looking for was the studies that would show that consumers could understand what was and what wasn't in the report they were getting.

And we are thrilled to see the work that 23andMe has done with the FDA to get those reports cleared. Given now what we saw last year and now with the new approvals, I have no doubt that you will continue to see more play out in the future. It's certainly the stated vision of Anne at 23andMe to continue to put genomic information in the health of -- in the hands of consumers in a responsible way. And so that's their mission.

They're continuing to engage to make sure that happens. And at the same time, you're seeing other companies like Helix, certainly, and Ancestry also look to move more into the health reporting stage. I know Ancestry is moving from being primarily focused on genealogy. They're adding more health reports to their offering.

And frankly, Helix has always been targeted at that market, even at founding. And if you look at some of the partners that Helix signed up and some of the partners they have announced recently, for example, the new Helix partnership with PerkinElmer, really allows them to report on the ACMG's list of 59 genes that are known to cause severe disease. And so that's a report that they're specifically targeting through their partnership with PerkinElmer. So I think you can continue to see more of that happen.

And I think as we expand the health part of the consumer genomics market, that expands the whole market, obviously.

Operator

Thank you. I'll now turn the call back over to Jacquie with Illumina.

Jacquie Ross -- Vice President Investor Relations

Thank you. As a reminder, a replay of this call will be available as a webcast in the Investors section of our website as well as through the dial-in instructions contained in today's earnings release. Thank you for joining us today. This concludes our call, and we look forward to our next update following the close of the second fiscal quarter.

Operator

[Operator signoff]

Duration: 65 minutes

Call Participants:

Jacquie Ross -- Vice President Investor Relations

Francis deSouza -- President and Chief Executive Officer

Sam Samad -- Chief Financial Officer

Tycho Peterson -- J.P.Morgan --Analyst

Doug Schenkel -- Cowen & Company -- Analyst

Amanda Murphy -- William Blair & Company -- Analyst

Puneet Souda -- Leerink Partners -- Analyst

Ross Muken -- Evercore ISI -- Analyst

Dan Leonard -- Deutsche Bank -- Analyst

Derik De Bruin -- Bank of America Merrill Lynch -- Analyst

Dan Arias -- Citi -- Analyst

William Quirk -- Piper Jaffray -- Analyst

Patrick Donnelly -- Goldman Sachs -- Analyst

Steve Beuchaw -- Morgan Stanley -- Analyst

Catherine Schulte -- Robert W. Baird & Company -- Analyst

Jack Meehan -- Barclays -- Analyst

Mark Massaro -- Canaccord Genuity -- Analyst

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