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Illumina Inc (ILMN -1.69%)
Q2Â 2019 Earnings Call
Jul 29, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Illumina Earnings Conference Call. [Operator Instructions]
I would now like to introduce your host for today's conference, Ms. Jacquie Ross, Illumina Investor Relations. Ma'am, you may begin.
Jacquie Ross -- Investor Relations
Thank you, Daniel. Good afternoon everyone and welcome to our earnings call for the second quarter of 2019. 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 deSouza, President and Chief Executive Officer and Sam Samad, Chief Financial Officer. Francis, will provide an update on the state of our business and Sam will review our financial results.
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 document 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, Jackie, and good afternoon, everyone. A few weeks ago, we reported second quarter revenue, which fell short of our expectations. We are very disappointed with this and I would like to take the next few minutes to walk you through the components of the shortfall and the actions we're taking as a result. Consistent with our pre-announcement, second quarter revenue of $838 million was impacted by three factors: the timing of population genomics initiatives; lower than expected DTC revenue; and lower than expected revenue associated with our non-high throughput portfolio.
Now that we've had time to analyze the quarter, I would like to share our insights into each of these factors. But before I do, I want to be clear that none of the contributors to our miss in Q2 challenge our conviction about the market, the broad and unbounded genomics opportunity or the competitive position of our technology.
Addressing each contributor in turn. First, as we support a growing number of population genomics programs. It is becoming clear that the ramp in the early phases can vary dramatically from expectations. In 2019, due to a number of logistical factors, we saw several programs ramp more slowly than projected, delaying revenue in the second quarter and throughout 2019. To reflect more variable timelines, we are now allowing for slower ramp up trajectories in our forecasting.
Next, the ongoing weakness in the DTC market has resulted in a significant shortfall in our array business. We have previously based our DTC expectations on customer forecasts, but given unanticipated market softness, we are taking an even more cautious view of the opportunity in the near term. With limited visibility and when the market will return to growth, we have lowered our full-year expectation substantially to reflect the near-term uncertainties.
And lastly, in our analysis over the last four weeks, we have found no consistent contributors to the non-high throughput sequencing and consumables miss. No single theme emerged. Rather, we determined that the miss was linked to a number of customer, program or product-specific factors that routinely impact every quarter, sometimes positively and sometimes negatively. In the case of the second quarter, the net effect of these shifts was negative, but we do not believe indicative of any fundamental changes in the business. Given the revenue shortfall, we're looking carefully at operating expenses to ensure we are spending appropriately through the rest of 2019, but rest assured, we will always prioritize innovation.
In summary, with the exception of the transition in DTC, we do not see any structural or fundamental change in the genomics opportunity. We continue to believe that we are in the early stages of a thesis that will play out over the next decade or more. We're confident that Illumina is well positioned to keep playing an important role in improving human health by helping our customers unlock the power of the genome.
Sam will get into the details of our financial results, but I'm going to start by focusing on growth drivers. This was a strong quarter for oncology testing, driving growth in both sequencing consumables and systems. While these are still early days, it is increasingly clear that genomic information will transform the standard of care for oncology patients. In the US, more than 200 million lives are covered by insurers for targeted or comprehensive genomic testing, and yet of the 18 million cancer patients that were diagnosed in 2018, only a low single-digit percentage of patients who have their tumor sequenced, highlighting the substantial opportunity ahead of us.
Researchers and scientists around the world recognized the need for more-personalized therapies, evidenced by the growing number of targeted and immuno-oncology or IO therapies. In 2018, we saw a 67% increase in the number of experimental therapies in the global IO pipeline, and it's estimated that there are over 1,600 clinical trials currently registered for immuno therapies. In fact, in 2018, 12 new drugs were launched with a predictive biomarker, nine of which were approved for oncology indications and four launched with companion diagnostics.
Regulatory bodies are also working closely with the industry to help accelerate the introduction of novel drugs and diagnostics to the market. In the last two years, the FDA has granted Breakthrough Device Designation for eight genomic assays, including our companion diagnostic assay based on TSO 500 content. Data continues to emerge on applications for early detection, therapy selection and recurrence monitoring, highlighting the opportunity ahead. With the continued emergence of new genomic biomarkers, it is clear that comprehensive genomic profiling or CGP will offer the best insights to improve patient outcomes.
Earlier this year, we launched TSO 500 RUO, our 523 gene assay that includes detection of emerging bio markers such as TMB and MSI. With TSO 500, customers can detect both DNA and RNA variance, which is key for Comprehensive Detection of both known and novel fusions. For example, NTRK Fusions cause cancer across many tumor types and can have multiple fusion partners. So TSO 500's ability to detect novel fusion partners with its hybrid capture enrichment method is crucial to identifying actionable mutations. We have received positive feedback on the robustness of the panel and several customers have become -- have begun validating our offering TSO 500, including global CROs.
We are pleased to share that TSO 500 performance and demand has exceeded our expectations. We continue to partner with three pharma companies to develop a companion diagnostic or CDx for indications associated with NTRK, RET and TMB. Over time, we believe more partners will leverage TSO 500 to identify actionable mutations for additional CDx indications.
Recently, the National Comprehensive Cancer Network updated their prostate cancer guideline with new recommendations, stating NGS is the preferred method when testing patients' MSI status for Lynch syndrome or eligibility for pembrolizumab in castration-resistant prostate cancer. Additionally, the guideline was updated to include NGS as an option when germline testing is recommended. This is a notable development and evidence that NGS-based testing is improving the standard of care. We're excited that our TSO 500 assay could enable testing for both germline and MSI requirements with a single tissue sample.
In the second quarter, more than 10 NovaSeq systems in the US were associated with CGP, our liquid biopsy customers. Most of these went to customers scaling their NovaSeq operations, but four systems went to first-time NovaSeq customers, highlighting that oncology testing is starting to move firmly into the realm of high throughput. Genetic testing is also showing momentum, five children's hospitals in the US added NovaSeq this quarter to perform pediatric genomic testing. It's estimated that up to 14% of all pediatric hospital admissions are driven by a genetic condition, because genomic testing is the only way to diagnose some conditions. This equips physicians with the ability to save children and their parents a painful and expensive multi-year diagnostic odyssey.
Leveraging the success of Rady Children's Hospitals in genetic disease testing, other hospitals are looking to implement genomics in the pediatric setting. Notably, Florida is funding clinical whole-genome sequencing for critically ill children at the Nicklaus Children's Hospital in Miami.
In the US, more than 150 million lives are covered for whole exome sequencing for patients suspected of a genetic disease. And yet, we believe less than 1% of eligible patients have had their exome or genome sequenced. Just recently Blue Shield of California updated their medical policy to cover rapid whole-genome sequencing for children with undiagnosed disease. This is a huge milestone making Blue Shield of California the first major Blue Cross Blue Shield plan to cover whole-genome sequencing following the positive health technology assessment review from Evidence Street earlier this year.
Moving to reproductive health. We continue to see NIPT expand its reach in both high risk and average risk pregnancies. We see the largest opportunities in the US and in China, where we currently estimate a combined penetration of only 30%. This means that around 70% or just under 15 million births a year could benefit from access to NIPT. In the EU, less than 15% of pregnancies are covered, and we're seeing steady progress on improving coverage. In connection with continued momentum and reimbursement tailwinds, NIPT had a record revenue quarter with growing awareness and adoption. In Europe, customers of our CE-IVD, VeriSeq NIPT products processed nearly twice as many samples in the second quarter compared to the same quarter last year, driven by the positive reimbursement environment and growing awareness of NIPT benefits. We are very excited to see this level of demand for NIPT and believe continued innovation will drive further growth in adoption.
Just last month, we launched the expanded version of VeriSeq NIPT, which is a CE-IVD test that offers the most comprehensive view of the fetal genome compared to other CE-IVD NIPT products. VeriSeq version 2 adds carrier type resolution across the genome, significantly increasing the number of chromosomal abnormalities that can be detected. We're seeing strong interest and expect to upgrade the majority of our partner labs to VeriSeq v2 within a year.
Turning to population genomics, we have seen have seen no change to the level of commitment that governments and other stakeholders have shown toward these projects. In fact, the overall population genomics thesis has not changed. Large scale population initiatives offer the opportunity to personalized medicine and improve the overall standard of care to ensure the optimal clinical and economic outcomes for patients. They allow pharma companies to develop more effective therapies and accelerate the time from discovery to market. And they offer the promise of deepening our understanding of the human genome for the benefit of all.
It's therefore no surprise that we continue to see a growing list of countries, health systems and pharma companies announcing commitments to large scale genomics initiatives. As expected, these are complex programs with many stakeholders, and therefore, it can take years to gain critical mass and ramp in volume. In 2019, we have seen how these large initiatives can have moving timelines. Let me share some insight into the programs that have impacted the most in the near term, but continued to give us confidence that large scale genomics initiatives will be a long-term growth driver.
First, the large deal that we expected to close in the second quarter was one that involved a number of stakeholders. The delays associated with final alignment between all the parties before they can sign off, but it continues to move forward. Second, we have decreased our full-year expectations linked to the All of Us program here in the US due to some risk and the timing of the launch of the 25,000 whole-genome pilot. To be clear, we believe there is no shortage of samples are funding, rather we understand the program is in the process of submitting investigational device exemptions to the FDA, and is working with the IRB to receive approval for the consent process for returning results to volunteers. Additionally, they are in the process of selecting providers for genetic counseling resources. While we remain confident that the program will scale, we now project a 2020 start. Third, we have also decreased our full-year expectations for the NHS commissioning, which you will recall, is the clinical implementation of whole-genome sequencing that is expected to follow the 100,000 genome project in the UK. Incorporating routine genomic testing into a nationalized health service is not a small undertaking and the NHS is in the midst of making the necessary adjustments and building an information system to support the transition.
Beyond these programs, we have seen similar delays in other smaller programs that are also now reflected in our guidance revision. Despite these timing adjustments, we want to reiterate that Illumina is excited to be able to support these efforts to evolve our understanding of human health and disease. While we've seen continued softness in consumer genomics over the past few quarters, we are optimistic about the long-term DTC opportunity. We estimate that less than 10% of individuals in the US and significantly fewer worldwide have ever purchased the DTC test. As such, we do not believe that the DTC market is saturated. In the coming years, we expect to see the level of adoption significantly increase in the US and around the world for applications, including genealogy, wellness, pharmacogenomics, health and entertainment. We view this as a transitory phase of growth which is allowing DTC companies to explore new product offerings that meet evolving consumer interests. Importantly, Illumina is committed to supporting our DTC customers, as we strongly believe genomic insights will empower individuals to become more involved in their daily lives.
Let me now turn to research. The human genome project was launched in 1988. With the help of international researchers, the first human genome was finally completed in 2003. Since then, institutions and researchers from around the world have continued to fund and propel sequencing projects to gain valuable insights into human health. We made impressive progress in our ability to diagnose and treat cancer and even develop life-saving vaccines, but we're still in the early stage of developing treatment for most complex genetic disorders, such as Parkinson's disease, Alzheimer's and Autism. These research efforts are invaluable as they inspire scientists to drive their insights into commercialized products that can touch the lives of millions.
The immunology and computational discovery at Fred Hutchinson Cancer Research Institute resulted in the spin-out of Adaptive Biotechnologies, who successfully went public last month. Separately, after years of genomic research, Johns Hopkins University spun out CancerSEEK, a potentially groundbreaking liquid biopsy early detection test. And new scientific discoveries will continue to unlock future research efforts. For example, scientists at Harvard University have discovered new microfluidics and novel software that can be used to accelerate single-cell ATAC-seq, which could have a meaningful impact on single-cell genomics. We're excited to see sequencing play such a significant role in these monumental research efforts.
According to the SDi Global Assessment report, sequencing technologies are expected to be the most dominant life sciences instruments for research as a percentage of dollar spend. This reinforces our excitement about the Pacific Biosciences acquisition. Integrating workflows for our short technology with PacBio's highly accurate long read sequencing technology will help accelerate research discoveries that we believe will lead to new clinical insights. We continue to work closely with regulators and expect the deal to close before the end of the year.
To date, less than 1% of the variance detected in human genomes have a function clearly ascribe to them. Researchers around the world are working to understand the function of the remaining variance in the human genome, not to mention, all of the other biology that's around this. To that end, innovation and quality remain our priorities as we work to deliver industry-leading tools that support researchers globally as they endeavor to understand the genetic basis of life.
Before I hand over to Sam, I want to provide some of the key trends from the second quarter that give us confidence about the overall health and trajectory of the business. Excluding the large deal that didn't close as expected, second quarter NovaSeq shipments were ahead of expectations. We continue to expect NovaSeq shipments in 2019 to be flat to slightly up from 2018. Pull through per NovaSeq was once again above $1 million per system per year and was up sequentially. Even with our lower full-year revenue expectations, we continue to expect NovaSeq pull through per system to grow compared to 2018, and to be over $1 million per system.
S4 shipments exceeded $100 million for the first time this quarter and more than doubled from the same quarter a year ago. As expected, HiSeq consumables continued to decline, but combined high throughput consumables grew both sequentially and year-over-year. We are pleased with the response to the introduction of S Prime and to the new lower pricing for the S1 and S2 flow cells. Growth in both S1 and S2 revenue more than offset the impact of the price decreases affected in the first quarter, while S Prime Flow Cell shipments, more than doubled in the second quarter of launch.
Off note, lower throughput NovaSeq flow cell introductions and pricing adjustments are part of our strategy to catalyze the next wave of NovaSeq conversions. And in the second quarter, nearly 30% of our NovaSeq purchases were from existing HiSeq customers. NovaSeq system ASPs were lower due to several multi-unit purchases in addition to customers taking advantage of our HiSeq trade-in program. Additionally, new to Illumina or straight from desktop customers represented over half of all NovaSeq orders in the second quarter,\ the highest proportion since launch.
We also continue to see growth in NextSeq placements with system shipments growing sequentially and year-over-year. We're pleased to report that we placed a record number of NextSeq Dx Systems in the quarter and mid-throughput sequencing consumables associated with our NextSeq system were within our targeted range of $130,000 to $160,000.
For the low throughput portfolio, MiniSeq pull through was within targeted range of $20,000 to $25,000, and reflecting the benchtop weakness discussed in the pre-announce, MiSeq pull through was slightly below our $40,000 to $45,000 range. We were encouraged to see that system shipments for the entire low throughput portfolio grew both sequentially and year-over-year.
With that, I'll hand over to Sam, to review our second quarter financial results in detail. Sam?
Sam Samad -- Senior Vice President and Chief Financial Officer
Thanks, Francis. As discussed, second quarter revenue grew 1% year-over-year to $838 million. This was driven by 6% growth in sequencing and offset by a 21% decline in microarrays revenue. Our Americas region delivered revenue of $476 million, up 2% year-over-year, driven by strong clinical performance, notably in oncology and genetic disease. Excluding lower than expected revenues associated with our direct-to-consumer array business, the region's performance was largely in line with our expectations. EMEA revenue of $208 million, grew 3% year-over-year or 7% on a constant currency basis. Strong growth in sequencing consumables driven by cancer and genetic disease research, offset lower than expected sequencing revenue, primarily associated with population genomics and benchtop.
Emerging markets continue to contribute to growth, with approximately half the region's NovaSeq placements shipping to these countries in the second quarter. Greater China was down 9% to $97 million, but allowing for the $13 million tariff stocking orders that we shipped in the second quarter of 2018. Revenues were up 3%, with growth in reproductive health and oncology testing consumables. APJ grew 4% to $57 million, with growth in genetic disease and infectious disease testing, partially offset by what we believe is temporarily moderated growth in oncology and reproductive health as new products are rolled out.
Moving to sequencing, consumable revenue grew 8% from the same quarter a year ago to $497 million or 11%, allowing for the $13 million stocking order that shipped in Q2 of 2018. We did not receive any stocking orders in China in Q2. Array consumables were down 13% from the same quarter a year ago, primarily driven by DTC. Array service and other revenue of $32 million was down 37% from the same quarter a year ago, reflecting lower DTC revenue. Sequencing service and other revenue of $102 million was down 4% year-over-year, with the decline driven by lower GeL sequencing volumes compared to a year ago. Combined, total consumables, service and other revenue represented 84% of total revenue in the second quarter of 2019. This compares to 83% for the full year 2018.
Moving to systems, sequencing system revenue of $129 million, grew 4% from the second quarter of 2018, while arrays system revenue was flat. Combined, instrument revenue represented 16% of total revenue in the quarter.
Before I continue, I will highlight non-GAAP results that includes stock-based compensation. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release and the 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 Illumina's shareholders. Additionally, and as a reminder, Illumina fully deconsolidated Helix from its financial reports in the second quarter. Our results today, therefore include expenses associated with Helix for the month of April only.
Non-GAAP gross margin of 69.5% was down 70 basis points sequentially as expected, driven by non-recurring revenue in sequencing service and other in Q1. Year-over-year, second quarter non-GAAP gross margin decreased approximately 80 basis points, primarily due to the lower volumes in our service business, partially offset by favorable product mix. Non-GAAP operating expenses of $360 million were down $3 million from last quarter and were lower than expected, primarily due to lower variable compensation estimates that now reflect our revised revenue forecast for the year. Non-GAAP operating margin was therefore 26.6%, down from 27.2% last quarter. Excluding Helix, which was included in our April results, operating margin was 27.3% compared to 29.1% last quarter. The non-GAAP tax rate of 17.3% was up from last quarter as expected due to the discrete tax benefit related to uncertain tax positions we saw in Q1.
For the second quarter of 2019, GAAP net income was $296 million or $1.99 per diluted share and non-GAAP net income was $200 million or $1.35 per diluted share, with the primary difference being unrealized gains from equity investments. Cash flow from operations was $143 million. DSO of 51 days, increased from 49 days last quarter. In terms of other items impacting cash, capital expenditures were $47 million in Q2. Our 2019 convertible notes matured on June 15. As a result, we repaid the outstanding $632 million principal in cash, $84 million of which was classified as cash flow from operations. In addition, we issued approximately 400,000 shares for the premium. And finally, we did not repurchase any stock in the second quarter, leaving approximately $488 million available for share repurchases under the current plan as of June 30. We therefore ended the second quarter with approximately $3.2 billion in cash, cash equivalents and short-term investments.
Moving to guidance, and as you saw in our pre-announcement, we are now expecting 2019 revenue growth of approximately 6%. Compared to our prior revenue guidance, the reduction is primarily associated with lower near-term expectations in DTC, reflecting our experience in the first half of 2019 and allowing additional caution in our array consumable and service revenues, a more cautious assumption regarding the ramp of certain population genomics initiatives. Lower non-high throughput systems and consumables, including a delay in a partner program and a generally more cautious view to allow more time for platform of program scale ups and transitions, especially for our large customers.
Moving to the rest of the P&L, we expect non-GAAP gross margin to be down approximately 100 basis points compared to the 70.1% reported for the full-year 2018, primarily due to lower margins associated with lower service volumes, lower ASPs as expected, partially offset by favorable product mix. We expect full-year non-GAAP operating expenses as a percentage of revenue to improve by approximately 125 basis points compared to 2018. This is related to the opex reprioritization activities we've undertaken since the end of the second quarter, which are focused on continued investments for our strategic priorities and identified opportunities for greater leverage across G&A, including lower headcount additions and associated expenses.
We expect non-GAAP other income to be lower in the second half versus the first half due to the lower cash balance following repayment of our 2019 notes. We anticipate that the non-GAAP tax rate will generally be in line with 2018. As a result, non-GAAP full-year earnings per share is expected to be between $6 and $6.10. GAAP earnings per share is expected to be between $6.41 and $6.51. As a reminder, with Helix fully deconsolidated, we don't expect any non-controlling interest going forward. So you should model zero dollars for NCI starting in the third quarter of this year.
And finally, we expect weighted average diluted shares outstanding to be roughly flat year-over-year at approximately 149 million. Although our 2021 notes are currently not convertible, the dilutive shares remain in our Q2 and full-year diluted share count, because our share price has exceeded the conversion price. As such, approximately 1 million shares are included in both Q2 and full-year diluted share count for both the 2019 and 2021 notes.
Moving to third quarter guidance, we expect revenue to grow approximately 2% compared to Q3 of 2018. Non-GAAP gross margin to be slightly down compared to the second quarter of 2019 due to mix. Non-GAAP OpEx as a percent of revenue to improve approximately 100 basis points on a sequential basis as we continue to implement the lower operating expense plan for the rest of the year. Non-GAAP other income to be down sequentially, reflecting the lower cash balance. Non-GAAP tax rate to be slightly higher compared to last quarter. And again, there will be no contribution associated with non-controlling interests.
With that, we'll open up the call to Q&A. Operator?
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Ross Muken with Evercore ISI. Your line is now open.
Ross Muken -- Evercore ISI -- Analyst
Good afternoon, guys. So maybe a two-parter on just the sort of PopSeq outcome. I guess maybe first for Francis, as you think about sort of some of the color you gave us on the push-out of a number of projects, but then counter that again sort of the general excitement, I'm sure you see from the customer base, I guess how are you feeling about sort of the forward cadence of how a number of these are going to roll out and I guess how you evolved your thinking around maybe less so the size of the opportunity, but the timeframe maybe of which it will play out, just sort of at a broad brush? And then Sam on the guidance side, I guess how are you thinking about treating these kind of harder to predict maybe large-scale projects on a go-forward basis just given the fact, you didn't obviously have a ton of experience with them before and now obviously, you're seeing some of the pieces that could maybe move things around, I guess, how does that sort of change the approach there given obviously you guys are always playing the long game?
Francis deSouza -- President and Chief Executive Officer
Sure. Thanks, Ross. I'll start with be the commentary and color on the PopSeq opportunities. And I'd say that we learned a few things in going through the last quarter, we learned about the ramp of the PopSeq opportunities and I'll talk about that and we also learned about the evolving makeup of the PopSeq opportunities and the different drivers. And overall, I'd say, look we are pioneering a whole new area here with our customers, right. This whole area of population genomics is brand new. Over the last few years, it was really just Genomics England that we were working with that, that was the whole sort of PopSeq opportunity and now we are working with dozens of countries around launching these population initiatives in all of those countries.
So it's a brand new area and there's just not a lot of pattern matching to do in terms of how these things will ramp up. So, we are collectively learning as an ecosystem about how these systems will roll out. And in terms of the ramp what we are learning is all the different things that need to happen to get these things to scale, and in some senses, there is a lot of things that have to happen that are across the countries, so it's about setting up access to the samples, it's about getting the informatics pipeline in place, it's about sort of integrating with the National Health Systems. And in some cases, there are just things that we're learning that are unique about the different opportunities and we're learning together as we go through our customers -- go through with our customers.
And so based on those learnings with the NHS in the UK and GeL with all of us and a number of other initiatives, that's what's caused us to revise our guidance and take a more cautious view in terms of how these deals are going to ramp. In the US, for example, working with all of us, but there are really three things that they're moving the ball forward on. One is on their IDE submission with the FDA. The second one is getting their IRB approval around consent and return of samples. And the third is selecting the genetic counseling services that they're going to be working. They are making progress on all of them, but they are all complex and so from our projections, we've moved out the ramp into 2020.
The other thing that we've learned there beyond the ramp is the makeup of these population genomics initiatives and we continue to see growth in terms of the number of countries that are interested and have announced initiatives. So, in the last quarter, for example, we've heard from countries like Korea talking about their plan to sequence 1 million genomes by 2029, India has announced plans for genome India project that it plans to launch and then we've also learned about the interest in pharma companies in getting involved in these population genomics initiatives.
You've seen the announcement from deCODE partnering with Intermountain to sequence 500,000 individuals. There was a partnership between Mayo and Regeneron, between Nebula Genomics and EMD Serono. And so we're seeing a whole other ecosystem show up in this population genomics world, where as pharma collaborating with these population genomics initiatives. So, it's hugely exciting because it increases the utility of these programs, but it also adds complexity in terms of the ramp up of the process and that's what we are learning.
Sam Samad -- Senior Vice President and Chief Financial Officer
Yeah, and Ross maybe to talk about guidance and your question is a good one. So, I would approach this, I would answer this in kind of two parts. One is obviously what we had in the first half was the best information that we had available at the time with regards to these initiatives. And now, this information has changed, its changed with regards to all of us, it has changed with regards to a couple of other population genomics initiatives and also we had one that was delayed from Q2 to the second half as we talked about that impacted the quarter. But I would say in addition to that in general, we are taking a much more cautious approach related to these population genomics initiatives because of a lot of the things that Francis is just mentioned, because of the fact that the lead times around these are much longer than other deals and because of the fact that I think it's just prudent to be cautious, as we look at these deals going forward. So that's the -- I would say the change in the approach that we're taking.
And in terms of guidance, our guidance reflects really a much lower outlook for these population genomics initiatives in 2019 in the second half. And we're applying that logic for other parts of our business as well, which is reflected in the guidance where we are applying the same logic for other transitions, other large customers other scale ups and we referred to that on the prepared comments.
Operator
Thank you. And our next question comes from Tycho Peterson with JP Morgan. Your line is now open.
Tycho Peterson -- JPMorgan -- Analyst
Hey, thanks for taking my question. Maybe, following up on that understanding that PopSeq and DTC, these shortfalls are kind of beyond your control and I appreciate your comments there. It would be helpful to know what's actually embedded in guidance for the back half of the year for PopSeq, but more importantly, I think most people are focused on what is the recovery for next year might look like, and I know you don't want to talk quantitatively about 2020. But as we think about some of the things you've talked to, China was down, I understand that was a tough comp, I'm curious what you think about a recovery there and then on benchtop, what is your confident in TMB as a market given some of the data we've seen from Bristol and average risk in NIPT seems to be another driver. So I'm wondering if you could talk to those three things in particular, and then just clarify what exactly is in guidance for PopSeq for the remainder of this year? Thanks.
Sam Samad -- Senior Vice President and Chief Financial Officer
So let me start, Tycho and Francis could add some comments as well with regards to the direction of the business, but with regards to the PopGen for the second half, other than the one deal that we talked about that moved from the first half into the second half, we've really derisked our assumptions behind population genomics in the second half and that was a big contributor to the guidance revision. So -- and that's across all of our -- notable ones that I would refer to our All of Us and the NHS commissioning project, where we've really taken out a lot of the sequential growth that we had in the second half.
And then with DTC, we've taken the same approach as well and that's reflected in guidance, and I think you could see it in that 14% decline year-over-year in microarrays in our revised guidance, which basically indicates that we've taken a much more cautious approach with regards to DTC as well, where we're taking customer forecast, but we're also applying an additional measure of caution on those. And as I mentioned earlier, we've applied that same also consistent logic across some of the other large customers that we have, where we have either new products, new applications, in some cases new panels and in some cases new markets like liquid biopsy where we have customers entering.
So we've taken a more cautious approach on those. But in terms of looking forward and beyond for 2020 and beyond that, obviously, we won't be talking about 2020 today, but I can tell you population genomics strategically ended transition of some of these programs into standard of care and to clinical care is still dramatically a very important strategic driver for us. But at this point, it's still not a significant contributor to our business and we've taken a lot of the driver of that out from our 2019 guidance.
Francis deSouza -- President and Chief Executive Officer
So if I look forward then, Tycho and start to think about 2020 and beyond, there are few things I'd say, one, while we have moved the projection of All of Us out of 2019, we certainly expect it to be a contributor in 2020 and what All of Us has said, as you know, is that they wanted to sequence 25,000 genomes in their first year of operation. And so you can expect that some of that shows up obviously in 2020. Similarly, we expect the NHS to start ramping up into next year and that will be a contributor next year. In addition, we have a lot of these other population sequencing initiatives, whether it's France or I talked about Singapore or India and then some of the longer-term seeds that are being sown.
We also expect to see contributions from initiatives like Australia, would they have announced their AUD500 million genomics investment focusing on rare disease and cancer, touched on Singapore, we expect it to continue to see development in the million veterans program here. And so we see population sequencing continuing to build and we certainly expect it to be a bigger contributor in 2020 and going forward than it has been historically.
If we look at China, there are a number of things that we think will serve as growth drivers into the future. We'll start with NIPT, if we look at where we are today, we estimate today there are 3 million to 4 million NIPT tests done annually in China. And the opportunity there is much bigger, because there are 15 million births a year, and so we're expecting to continue to see increased penetration into that NIPT market and we're doing a number of things to continue to drive that for the longer term. So we signed a partnership, for example, with the Medical Information Institute of the China Academy of Medical Science for an NIPT health and economics study, and the idea there is to build evidence on the benefits of NIPT for first-line use, so that we can continue to expand the penetration of NIPT in China.
In addition, we expect oncology to continue to be a driver in the Chinese market and to that end, we've announced a number of partnerships, including one with AnchorDX for IVD partners -- partnership development for oncology assays on the MiSeq Dx. And so that builds on the stable of partners that we're building in China that includes Annoroad and Amoy across the reproductive health and oncology space. Longer term in China, we're also excited about the emergence of a consumer genomics segment in China. So, if you look at companies like regime, they're estimating that they will do tens of thousands of consumer genomics test starting next year and building, and so we think long-term that could be a growth driver in China as well.
Operator
Thank you. And our next question comes from Doug Schenkel with Cowen and Company. Your line is now open.
Doug Schenkel -- Cowen and Company -- Analyst
Hey, good afternoon. I want to talk about underlying growth and then I would like to just try to get a clarification on NextSeq. So starting on underlying growth, just to run through some math, based on your prior disclosures on microarray products and microarray services, it seems like consumer genetics revenue approximated about 10% of total sales coming into this year. If we were to assume that declined pretty robust number like 50% to 60% this quarter, and normalized for that, it would suggest your underlying adjusted growth was only about 6% to 8% in the quarter, even adjusted for the bulk order in the base, you would only get to 8% to 10%, and if I apply the same logic for the full year, I get to a similar number. So given your TAM, your market position and your valuation, it just seems hard to explain this, Francis. So I'm just wondering, as you think about the next few years is that enough?
And then on NextSeq, when you pre-announced Q2 results, you more tightly linked to non-high end NGS weakness to NextSeq coming up light of expectations and then speaking with you after the announcement, you made it clear that the NextSeq shortfall was a function of a companion diagnostic partnership delay and you indicated the impact would be even more meaningful in the second half. I don't think you called out any of this in your prepared remarks today. So I'm just wondering what changed in terms of the partner in assessing your conservatism and change in guidance philosophy, it would be helpful to know if this was Loxo or Bristol or if it was somebody else? Thank you.
Sam Samad -- Senior Vice President and Chief Financial Officer
Yeah Doug, this is Sam. Let me touch on the core growth. So yeah, you're right, I mean as you look at obviously what we talked about both in the pre-announcement and in some of our comments around core growth, sequencing growth is expected to be in the 10% range, and we're seeing sequencing consumable growth or our expectations for sequencing consumable growth to be in the teens. Now having said this, this is definitely lower than what we had guided to at the beginning of the year. So it's definitely a step down from what we had talked about earlier, but part of that is driven by also the population genomics impact that we have. So it's impacting both sequencing as a whole and sequencing consumables. I think if you look at this business, I mean, over the last number of years, there is definitely some cyclicality in some years, but over the course of a number of years, our growth has continued to be at least on the core business and in the mid-teens on sequencing consumables and also in terms of sequencing as a whole.
So without really commenting too much on 2020 right now and going forward, I think although definitely take your comments, we still are very, very positive in terms of the long-term growth of this business, and the things that really give us confidence or things that we saw also in Q2, what we saw is that NovaSeq pull through continues to improve and was higher than what it was in Q1. So sequentially it grew. What we saw is that NovaSeq consumables actually grew, volumes grew about $40 million sequentially and $100 million versus the same quarter in the prior year. NovaSeq placements, if you exclude this one order that we had or the one deal that we had that slipped into the second half, actually NovaSeq placements in the first half are exactly on expectations and for the full year, we expect them to be flat to slightly increasing, which is what we guided to at the start of the year. So across many aspects of our business and across the core aspects, we're still seeing the very encouraging signs that we talked about. But having said this, obviously, we have talked about a big miss and I take that -- and we take that seriously, but we're still very encouraged about the core aspects of our business.
Francis deSouza -- President and Chief Executive Officer
Yeah. If I had just a little bit more color. So, as you know, Doug, this is a cyclical business and it wouldn't be right to take this year's growth rate as sort of indicative of a new normal as we look at next year and going forward, while there have been delays, for example, the ramp-up of some of these population sequencing initiatives, they will ramp up and some of them starting early next year. And the interesting thing about these population sequencing initiatives for a lot of them is that they're not projects, they are not sort of one-off research projects, but they become the standard of care in a National Health System. So for example, the way it's being rolled out in the UK at the NHS is once this is rolled out, it does become a standard of care for the population going forward around genetic disease and oncology testing, and that's how a lot of countries are thinking about it. And so that's all accretive to our growth over time and that's really not a factor this year in terms of revenue for us.
And then also if we look at the placement of instruments, which over a multi-quarter period, once you adjust for the lumpiness of the business is an indicator of the future growth of our business. If you look at on the high throughput side, we're pleased with NovaSeq's performance, shipments are ahead both Q1 and first half expectations, orders are up both sequentially and year-over-year. So the NovaSeq demand at the high throughput end of the portfolio is still very robust. And then if you look at NextSeq, we talked about the record placement of NovaSeq systems and the lower throughput portfolio shipments also grew both sequentially and year-over-year. And so those are good indicators, we believe our future growth.
Operator
Thank you. And our next question comes from Steve Beuchaw with Wolfe Research. Your line is now open.
Steve Beuchaw -- Wolfe Research -- Analyst
Hi, good afternoon, and thanks for the questions. So at risk of seeming uncreative, I do want to circle back to a couple of points that have already been raised in the Q&A and try to get a little bit more detail. The first is China. I wonder if you could give us some color as to why it is that the China segment of the business decelerated in the quarter and what it is your expectation is for growth in China in the back half of the year? And then the second thing I'd like to hear about is how you're thinking about revenue particularly associated with assays around TMB, it does seem like there's been a fair amount of evolution in the way that the biopharma sector is thinking about TMB during 2Q, so would really appreciate some clarity there? Thanks so much.
Sam Samad -- Senior Vice President and Chief Financial Officer
Yeah. Thanks, Steve. I'll start -- Sam with China and thanks for the question. Obviously, the quarterly growth was lower than what we've seen over the past few quarters in terms of China, and we have had some choppiness in China over the past few quarters because -- more so because of tariffs and some pre-buying ahead of tariffs, although we didn't have any of that this quarter. But Francis alluded to some of the really positive things that we are going on in China and that we saw in the quarter in terms of the clinical part of the business, the growth around clinical in terms of oncology testing, in terms of NIPT, in terms of the work that we're doing with some of the partners and the panels that they are placing on our instruments, on our Dx instruments. But having said this, we have and expect to see for the full year notable impact regarding some customer transition and the customer transition is around some customers, a couple of large customers that essentially are scaling operations outside of China and moving some volumes outside of China, although we also have seen a customer move volumes or plan to move volumes into China, but hasn't done so yet. So when we refer to customer transition, this is really what we're referring to is, we're seeing some lag in terms of volumes between customers that we're doing work in China and now planning to scale out of China and also customers that are moving into China, but the volumes haven't move there yet. So there is a little bit of noise in that and that's dampening our growth for the year.
Francis deSouza -- President and Chief Executive Officer
And then, if I take your oncology question, Steve. Look, TMB is an interesting area of research, but it's certainly not a big driver of our oncology business today. If I think about what's really driving our oncology business, a lot of it is driven by customers that are using our assays or our partner assays on our sequencers to identify the mutational profile of a tumor to -- then connect a patient with the appropriate personalized therapy. So, mutation profiling of the tumor and tumor normal sequencing is one of the big drivers, liquid biopsy is another big driver of our business, with customers using our sequencing to monitor for cancer recurrence to do the cancer profiling and then, obviously to do the big studies around potential for cancer screening. Those are some of the big use cases that are drivers of our oncology business today. TMB is one of the additional biomarkers that some of our customers are looking at and there's lots of interest in trying to understand the predictive capability of TMB and if you look at our TSO 500 assay, it has measurement of TMB as one of the components of the assay, but it also does DNA and RNA profiling, it also does MSI and it looks for fusion's both known and novel fusions. So, a whole set of things in the TSO 500 assay, including as one of them for some of our customers, looking for TMB and then assessing its value as a predictive biomarker for the effectiveness of the therapy.
Operator
Thank you. [Operator Instructions] Our next question comes from Derik De Bruin with Bank of America Merrill Lynch. Your line is now open.
Michael Ryskin -- Bank of America Merill Lynch -- Analyst
Hey guys, this is Michael Ryskin on for Derrick. Thanks for taking the question. I want to touch on the opex comments you mentioned something in the prepared remarks about lower head count additions -- G&A, but can you provide some more details on what you're targeting? If there is any areas you're actually scaling down and also, how quickly will be able to scale back up, whether it's in 2020 or some further point down the relative support to the growth once the top line starts?
And then quick follow-up on PacBio. In the prepared remarks, again, you mentioned I think the 4Q close, but clearly there has been a lot of noise with the CMA etc. So, could we just talk about if it doesn't close, what would the plan B? Is it fair to think that will be more share buybacks or is there something else in the deal pipeline? Thanks.
Sam Samad -- Senior Vice President and Chief Financial Officer
Thanks, Michael. So, let me talk about opex and the approach that we've taken and some of the opex initiatives that we're going to be implementing now going into the second half, but obviously we take as seriously, both in terms of Q2 and in terms of the guidance revision for the year. So, we've taken a very focused approach with regards to OpEx whereby, we're not going to impact innovation, I mean, making sure that we safeguard innovation is critical for us. So, we are really still focused on ensuring that we have the right level of spend in investment behind our strategic priorities. But in terms of other areas where we can ensure that we are at least offsetting portion of this guidance revision on the top line with some opex initiatives, we're taking a very focused approach in terms of slowing down, hiring in certain cases, I would say, a pretty intense focus on G&A to make sure that we take -- we focus on anything that's discretionary and apply a measure of restraint and phasing and timing and also in some cases, we have to make some trade-offs as well and we're going to have to delay certain things, but I think with regards to your question, we are very focused on making sure that we don't impact innovation, because that really help sustain our long-term growth.
Operator
Thank you.
Sam Samad -- Senior Vice President and Chief Financial Officer
And then PacBio, did you want to talk about the PacBio?
Francis deSouza -- President and Chief Executive Officer
Yes, so where we are with PacBio to close on that question is, we are currently working in Phase II, as you know, with the CMA and the way that works is that they have appointed a panel that we are working with to provide the information they need to make the decision to answer questions that they have and the CMA has up to the middle of December to come back with a decision. They've not always taken that full time so they could come back with a decision before that, but that's the time they have.
Similarly, we're working in the US, here with the FTC. And we are providing them with the additional information they need to provide be the information to the commissioners that will then make a decision. We expect that decision to come in before the CMA time runs out. And so we would be looking for that decision in the next couple of months.
Operator
Thank you. And our next question comes from Mark Massaro with Canaccord Genuity. Your line is now open.
Mark Massaro -- Canaccord Genuity -- Analyst
Hey, guys. Thanks for the questions. The first one is on DTC. Francis, I appreciate your comments about WeGene looking to ramp-up likely in 2020, but, obviously, there are some large US customers that have sort of slowed down. So can you just speak to -- and you also talked about how it may take or you expect a ramp in the coming years. Certainly the coming years is a wide range and so can you just give us a sense of your conviction of the US DTC market ramping sometime in 2020?
My second question is on the $100 genome, based on the backdrop of slower sequencing consumables than expected, can you just give us a sense for what guideposts you're looking at to determine when customers will be ready for the $100 genome?
Sam Samad -- Senior Vice President and Chief Financial Officer
Sure. So, let's start with the DTC. At this point, we are not ready to call when the DTC market will return to growth. The approach we've taken so far is that we take the estimates from our customers who are the DTC service providers and based on the learnings from the last quarter, what we're doing going forward is, we're taking a more cautious view of the numbers they give us. So we're going to be working closely with them to continue to get their estimates of where the market is going to go and then we'll take a more cautious view on those numbers going forward. We do know that a number of seeds are being placed for future growth and it's the expansion here in the US beyond primarily genealogy-driven market more into healthcare. We know that both here in the US and abroad, there is a drive for sequencing instead of array-based products to provide more information to customers, and we know that there are many DTC customers being set up outside the US in countries like China, Korea and Japan. But at this stage we're not calling when those trends will sort of net to an overall growth for the DTC market yet.
In terms of the $100 genome, the approach we're taking is twofold. One is from an engineering perspective, we are doing all the work to make sure that when we provide the $100 genome, we can do so in a way that is friendly to our financials. So that we can do so in a way that's helpful from a margin perspective. So we're doing all the engineering work to take costs out of the system and deliver the innovation that allows us to do that. But more importantly, we are spending time with customers, understanding the demand that will be generated from $100 genome, understanding from the retailers' perspective, population perspective, what are the cohorts that get enabled from a $100 genome and when we feel like the demand will kick off elasticity such a little more than compensate for the drop in price and we have the product ready. Those two things intersect is when we will bring it to the market.
Operator
Thank you. And our last question comes from Dan Brennan with UBS. Your line is now open.
Daniel Brennan -- UBS -- Analyst
Great, thanks for taking the question, guys. I had a question on oncology, I know you've spent some time throughout the Q&A on it, but I believe it's a little shy of 20% of revenue. So can you just give us some color, how did oncology do in the quarter in terms of the growth rate? What's kind of assumed in your 2019 guidance for oncology growth? And Francis, like, what factors should we be aware of what the regulatory coverage or timing of customer products that could accelerate growth in oncology? Thank you.
Francis deSouza -- President and Chief Executive Officer
Sure. So let's start by saying that if you look at the things to watch for as we're going forward. One of the things we continue to track obviously is the penetration of NGS testing into both the leading cancer centers and hospitals, as well as the penetration of NGS testing into the community hospitals in the US where the bulk over time of the tumor profiling will happen. There have been some studies that have come out recently that have been interesting around the penetration of NGS testing and the increasing adoption of larger panels and whole-genome exome. From an external perspective, obviously, we continue to track what's happening in terms of guidelines and in terms of reimbursement. And we've seen significant progress happen even over the last year in terms of reimbursement for NGS testing and those are leading indicators that haven't yet played out we believe to their full extent.
In addition, the NCCN guidelines that I talked about that recommends NGS testing as preferred testing for MSI therapy selection, as well as NGS is an option for germline testing just came out in the last few weeks. And so, whether it's reimbursement, guidelines, a lot of those things are still in the very early stages of playing out, but our good forward indicators of what the size of that opportunity could be.
Sam Samad -- Senior Vice President and Chief Financial Officer
And then, with regards to the actual numbers that I think you're looking for in terms of what was the growth in Q2, what's the growth for the year and you cited the number, I think that we gave for 2018. As we mentioned in our -- on the Q1 call, we won't be updating those numbers in terms of the actual growth, in terms of oncology testing and clinical and research every quarter or giving forward-looking comments around that. So, all I can tell you is we are still very pleased and we're very pleased with the growth that we're seeing in oncology testing and across clinical, but we will not be giving those specific breakdowns on a quarterly basis.
Operator
Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to Jacquie Ross for any closing remarks.
Jacquie Ross -- 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 third fiscal quarter.
Operator
[Operator Closing Remarks]
Duration: 64 minutes
Call participants:
Jacquie Ross -- Investor Relations
Francis deSouza -- President and Chief Executive Officer
Sam Samad -- Senior Vice President and Chief Financial Officer
Ross Muken -- Evercore ISI -- Analyst
Tycho Peterson -- JPMorgan -- Analyst
Doug Schenkel -- Cowen and Company -- Analyst
Steve Beuchaw -- Wolfe Research -- Analyst
Michael Ryskin -- Bank of America Merill Lynch -- Analyst
Mark Massaro -- Canaccord Genuity -- Analyst
Daniel Brennan -- UBS -- Analyst
