Illumina, Inc. (ILMN) Earnings Call Transcript & Summary

Welcome to the day 2 of the conference. Sorry for the lack of video. There was a power outage with our supplier. Hopefully, we'll get it rectified here shortly. So unfortunately, we're going to have audio only. But certainly, I don't think it will lack any of the content that will be coming through. Really pleased to be joined by Francis deSouza, President and CEO, obviously, of Illumina. Illumina has been the key anchor tenant here since the conference was started, I don't know, 6 or 7 years ago. So Francis, we certainly appreciate your being with us today and giving us your time.

Thank you, Dan, for having me.

Terrific. I think you may wanted to read the safe harbor statement before we dig into questions. So please, and then we'll begin.

Yes, let me start by saying that I'd like to remind all of you that my comments today could include forward-looking statements. You should refer to our SEC filings for a discussion of the risks and uncertainties that could cause results to differ materially from our current expectations. It's our intent that all forward-looking statements regarding our financial results and commercial activity made during today's discussion will be protected under the Private Securities Litigation Reform Act of 1995. Thanks, Dan.

Terrific. So if I look at my list of questions, obviously, you just had the quarter, so I don't want to redo kind of things that were already expressed in detail in the quarter. But hopefully, we'll maybe put a finer point on some of them and hope to draw some -- maybe some additional insight on that. And then we're certainly going to bring the scope up much higher and kind of talk about where Illumina is in the evolution of sequencing and all the opportunity ahead. So hopefully, there would be a nice balance between kind of the short term and the long term. But maybe starting off with kind of Q2 results. So results came about $35 million short of consensus, and while you didn't give guidance I was hoping you can comment on how your results kind of compared to consensus in that, was this quarter relative to your own expectations? How did they come in?

Yes. Overall, Dan, the quarter is largely in line with our own expectations. There were some gives and takes. The NextSeq 2000, for example, performed ahead of our internal forecast. So really good results in terms of that launch. We also saw solid NovaSeq 2000 placements, and they were up sequentially from Q1. In terms of sequencing consumables, they were a little bit lighter than expected. And really, I think the dynamic playing out there is that the actual run rate in terms of our instruments out in the field were largely as we expected. And so if we shared some of the run rate data compared to our Q4 run rates. And we said that we ended up with 84% in the clinical markets compared to our Q4 run rate and 65% in the research market compared to our Q4 run rate. And so they played out largely as we expected, but the run rates, there's a lag between the run rates translating into revenue. And that's because customers are running at lower inventory levels right now, given the uncertainty of how they will come back into their labs. And so if you think about consensus, I mean, I think one way people got to consensus is they took their run rates and they just applied it to the revenue number. And really, the difference then between where consensus was and the numbers came, could be just that the inventory destocking, the customers running at lower inventories right now.

Okay. So then as we look out in your guidance reflects or your comments reflect kind of a modest pace of improvement going forward from here. Is kind of -- from our checks, it indicated at least that clinical trends are beginning to improve, certainly. And while the research market is still uncertain, I'm just wondering, like, is sequencing being deprioritized amongst academic customers. Does your guidance reflect any weakening of the underlying demand trends? Or is kind of the way I'm thinking about this inappropriate?

Yes. We're certainly not seeing any deprioritization of sequencing in our lab customers. In fact, what we are seeing in the research community in general is that there is money coming into genomics for additional research projects associated with the pandemic. So certainly no deprioritization of genomics-related research. What's happening and the big dynamic is that the labs aren't back in full capacity. At the end of April, 90% of labs weren't back at full capacity. Now that's improved. And so now we're at 2/3 of labs. They're not back at full capacity. So an improvement, but the majority, therefore, are still not yet running at that full capacity, either shut or running at reduced capacity. And that's the big dynamic playing out. This dynamic is more pronounced in the U.S. So in the U.S., right now, about 23% of labs are fully operational. And globally, that is about 32%. So we're seeing the big impact happen right now in the U.S. and that's the big dynamic. We continue to see steady, gradual improvement in terms of labs coming back online. That's not a clean monotonic increase week-on-week. And so it's just variability between one week and the next. But overall, the trend is that people are starting to come back -- coming back into these academic and research labs, and we expect that to continue barring something unexpected happening with the pandemic.

Okay. Maybe on clinical, I know volumes were down 16% from 4Q levels. You cited weak oncology trends. I know Guardant in numbers reflected a year-over-year growth in Q2, maybe in the low teens and some data that we track from third-party suggest maybe pathology volumes that is 3% below pre-COVID levels. So I'm just wondering, can you provide more color as to what's behind the weakness in your oncology volumes?

Yes. So if we sort of put all those numbers sort of apples-to-apples side, if you look at year-on-year and Guardant is up 15% year-on-year. Overall, for oncology for us year-on-year, we've been close to flat. And what's playing out in oncology is a couple of things. One is, overall, there is some reluctance for people to go in to get tested and screened. Now it doesn't mean that the cancers are slowing down. It just means people aren't going back into the hospital. And so we are seeing a bit of a slowdown overall in oncology testing. At some point, there will be a catch-up probably as people go back into the hospital to get screened. Now within that environment, and for us, we said year-on-year, it was kind of flat. Some of our customers like Guardant are still up. And obviously, what's great for Guardant is good for Illumina, too. But then there are other labs that aren't participating quite the same way as Guardant. So overall for us, if you look at oncology testing, year-on-year, it's flat and mostly because people just aren't going into the hospitals as they need to right now.

Okay. Maybe switching over to China. I mean in 1Q, you seemed optimistic about a recovery, though I know 2Q revenues declined sequentially. So can you just parse out kind of how clinical you're kind of between clinical and research, maybe to add some details in China and discuss what the trends and outlook are for both of these segments within China?

Yes. Similarly, well, we're seeing more resilience in the clinical markets than we are in research. And in fact, in China, the clinical business actually grew both year-on-year for us and sequentially and if you look under that, we're seeing strength in the NIPT market where that part of the market is the most resilient and then still strength in oncology testing as well. There is definitely a slowdown in the academic and research market in China playing out right now. Part of it is like the rest of the world, where we're still seeing people come back into the lab. So they're not yet at full capacity. And in some cases, the labs are focused on sort of nongenomic PCR testing for the pandemic. And so we're seeing a little bit of both play out in the academic markets right now, but certainly seeing resilience and growth in the clinical markets in China.

And maybe related to that, as you think about the back half of the year and this kind of modest improvement, what does that portend for this China academic and research market?

Yes. I think the trend we're seeing overall is sort of continued gradual improvement. And again, barring an unexpected turn in the direction of the pandemic. That's a trend we expect to continue to see play out in China, but also in the rest of the world.

Okay. Maybe switching gears over to COVID. You spent considerable time discussing the opportunity across multiple areas: diagnostics, research, screening, surveillance, which of those kind of areas that you've highlighted, which of these represent in your opinion, the biggest realistic opportunity for NGS? I mean maybe think about either the potential revenue opportunity to Illumina or -- I'm not really asking for guidance, but maybe just some way to think about like which one seems maybe incremental, which one seems could actually be more significant?

Sure, Dan. If you take a step back and sort of look at what's played out over the last few months, I think the reality is we've probably seen 5 years of acceleration and the penetration of NGS into the infectious disease market happened over the last few months. I mean if we were talking last year or even at the beginning of this year, we'd have focused on markets like oncology or reproductive health as the major clinical markets for NGS. And now we're seeing the emergence of infectious disease as another clinical market for NGS. And let's talk about the different parts of the infectious disease market and sort of where they are. So overall, NGS is being pulled into research, diagnostic testing, screening and surveillance. And let's go through each of those. The research need in infectious disease for NGS is very real, and it's happening right now. There are a number of large projects underway and more being ramped up. To understand the mechanism of operation of the virus, to understand the host virus response, we have, for example, the 35,000 patient study happening in the U.K., the genomic study between GEL and the NHS. And the focus of that project, for example, is to understand why some people are much more severely impacted by COVID than others. You also have the GMI project in Ireland playing out where researchers are working to understand what are the protective and risk-bearing genetic factors for COVID-19. And so you have a lot of projects that are being ramped up with some urgency to try and really get a better understanding of the biology of the pandemic that's real, that's happening today. In terms of NGS-based testing, this first wave of testing for COVID-19, as you'd expect, was really done under PCR because PCR was the dominant -- has been the dominant testing modality in infectious disease for a very long time now. But now you're starting to see labs standing up NGS-based testing for COVID-19. And that's different. And there are a number of reasons for that. One is it's becoming clear that labs and communities need testing that's based on a different modality that uses an orthogonal supply chain to PCR because what you're seeing is a constraint in the supplies associated with PCR testing. In the U.S., for example, turnaround times for tests are now in the 10-day plus period in some areas. I was talking to one organization, and they said they've had to turn down 20,000 people in 1 day, in 1 state because they just didn't have access to PCR lab capacity. And so they are keen to get as quickly up as possible and orthogonal testing modality. And so you're seeing labs like the PathGroup that's using our COVIDSeq-cleared offering to start to stand up COVID-19 testing capability based on NGS. You just saw earlier this week, Helix that got their EUA based on SwabSeq, which is another NGS-based testing. And they got funding from the NIH RADx program. And so you're starting to see diagnostics labs being stood up to offer COVID-19-based capabilities -- testing capabilities. Again, the reason is because you need orthogonal supply chain, but also because you get additional information associated with doing NGS-based testing. And if you are a health system, where you not only want to get a diagnostic, yes, no, answer. But you also want to understand how the virus is mutating. And equally importantly, how it's transmitting in your community to impact policy decisions, that's information you need from NGS-based testing that you won't get from PCR. And for example, if you are in a community, and you see that the transmissions are mostly coming from people external to your community, you could make a policy decision associated with shutting off travel into your community. But if you have mostly community-based transmission, you'd make different policy decisions. And so people are realizing that there's a very important role for NGS-based diagnostic testing in a community. So that's the second area. We already started to see demand towards the tail end of Q2. You're starting to see labs being stood up. And so you'll start to see some of the diagnostic processing happen over the course of Q3 and Q4 going forward. The next area that customers are talking to us about is screening. And the idea about screening is that you want to test large sections of the population healthy people as part of a back-to-school or back-to-work program. And so you've seen the example the case at Delaware state being stood up, where they are rolling out screening to the student population, working with Testing for America to test about 3,000 students and faculty each week. You're also seeing UCLA explore a SwabSeq-based solution for screening. And so you're seeing a number of these pilots emerge, and everybody is watching them. To the extent that these pilots become successful as a way to get people safely back into work environments or school environments, you could see those start to scale in other environments. But that's something people are watching right now. And then finally, we're getting pulled into surveillance. And surveillance has 2 parts to it. One is, do you know if an outbreak is happening in your community? And then two, how is the outbreak evolving? And so we were involved very early in this outbreak in Wuhan in December, January with the Chinese CDC, the first SARS-CoV-2 viral genome that was published on January 11 was published on Illumina sequencers. And so there's a very important role for NGS to play in terms of identifying an outbreak. That could be a novel pathogen like our coronavirus right now, the pandemic, but it could also be antimicrobial resistance. It could be bioterrorism. And there's an awareness that we actually don't have a global genomics-based surveillance network. And so one of the key learnings here is that today, it's weeks and months even in developed countries before a country knows that there's even an outbreak happening or that they're even under attack. And so there's an awareness that, that needs to change. And so you're starting to see NGS being deployed around the world and CDCs, for example, in developed countries, but we also shipped sequencers into 10 countries in Africa. So we're being pulled into understanding if an outbreak is happening, that part of surveillance. And then also the part of, well, how is the outbreak transmitting. And is the virus mutating? Is it escaping the diagnostic tests that we have or the therapeutics? How is the geography -- geographic transmission playing out? And so that's another area that we're being pulled into, and that's happening right now.

And if you had a rank order those 4 over the next, I don't know, 2 years, is it possible to say which you think is at the top and which might be more towards the bottom, just in terms of revenue opportunity for Illumina?

Yes. Let me rank them on sort of a couple of dimensions. One is we have most clarity in how it will play out. And there, I'd say, research is the most clarity. It's happening today. We understand what the research projects out there being funded today. Next is, I guess, surveillance and diagnostics are -- I guess, surveillance maybe is next in terms of clarity. It's an obvious need. We need to roll it out to help with this pandemic and then for future pandemics or bioterrorist attacks, then is diagnostics and then is surveillance in terms of just line of sight into how it will play out. In terms of size, it's a little bit different, right? It depends on how things play out. Obviously, research has been reasonably sizable. I think diagnostics could be decently big. Screening is very variable. You can talk yourself into a scenario where it's huge. You can talk yourself into a scenario where it's less. And so we really have to watch how these pilots play out. Surveillance will be very important strategically. I don't think it will be a huge revenue generator, but strategically, it will be very important.

Great. And then just maybe just to close out the COVID conversation. In terms of NGS, like one thing we hear like on SwabSeq, for instance, is while it could be a really effective solution, I wonder kind of what the revenue opportunity is for Illumina, like we understand maybe the pull-through per test could be in the low single-digit dollars. Is that how we should think about the potential opportunity in terms of thinking like that kind of price point per test if, in fact, this does scale?

Yes. The way I think about it is, look, there's a set of options customers could use, depending on their needs for information content and simplicity of processing. So if you want information on the virus itself then you'll use COVIDSeq and then it's about $20 in terms of reagents that come to Illumina, if you're running something like COVIDSeq, or you want the viral -- the information about the virus as well. Obviously, if you're doing the research, it will be more than that because then you might do the human genome as well as the virus genome. If you are doing SwabSeq or you just want a diagnostic, yes or no, then you should think about it as the single dollars per test that come to Illumina in reagents. And if you're doing very large-scale screening, where you're doing pooling and lots of other mechanisms, you may be able to get more leverage than that. And that's the exciting thing about NGS. That as a platform, it can scale up and down, depending on what your needs are. And for us, of course, all of infectious disease is an incremental new opportunity.

Great. Okay. So maybe shifting gears. I had -- I did want to go back to one question back to trends this year, if you don't mind. When we talk to academic customers, they were of the mindset that they wanted to spend their instrument budgets because those are difficult to kind of get. So it's kind of use it or lose it a little bit. I know your instruments in Q2 were a little bit better than kind of we modeled. So is there a reason not to think we'll see this typical acceleration in the second half of the year, maybe most pronounced in 4Q for NGS instrument placements, if, in fact, our diligence is correct?

Yes. Overall, I think -- I definitely share your optimism, Dan, in terms of instrument placements, and that's what we've seen so far, system placements have been resilient overall. We haven't really seen things like cancellations, for example. And I'm especially encouraged when you look at the percentage of orders, both for actually NovaSeq as well as the NextSeq 2000s that are coming from new to Illumina customers. So we're continuing to see that part of the business to be resilient, which is obviously a really good sign in terms of the setup going into next year. In terms of to call for the end of the year, it's a little bit too early to call how that will play out and so we'll give you an update probably on the Q3 call in terms of what we're seeing around that time frame.

Okay. So maybe switching gears a little bit, a little higher level. So certainly, historically, a big driver for Illumina are kind of instrument cycles, right? They give you a step change in performance and generate meaningful revenues during the launch period. How do we think about the concept of important new instrument launch cycles in the context of the NovaSeq, say, reached a $100 genome, should we be thinking like there's going to be further instrument product cycles to deliver these higher throughput instruments for Illumina? Or could existing NovaSeq instruments already launched, enable this and instead the performance is achieved via largely new flow cells?

Yes. I mean I think the answer overall, Dan is going to be both. I think if you look at how the NovaSeq cycle has played out, we have it's a very large customer base that we've been upgrading. And we've talked about the fact that we expected the NovaSeq upgrade cycle to be a multiyear upgrade cycle, which it has been, and we've been very deliberate in terms of how we've introduced flow cells over the last few years, starting with the S2 with the NovaSeq launch, but then also the S4 300 cycle, the Xp, the S1, S Prime and now the 1.5. And the intent of these different flow cells was to activate upgrade cycles in different parts of that HiSeq customer base. And one of the levers is that each of these flow cells puts an attractive price point in the hands of a different segment of that customer base. So for example, with the 1.5 that we just launched. We now have the smaller core labs that have access to the $600 genome. And so that does a couple of things. One, it continues to push the economic incentive for them to upgrade instruments to go from the -- an old HiSeq they may have to a NovaSeq. And then two, it also encourages them if they apply for grants right now to think about larger projects, whether it's larger cohorts, deeper sequencing, broader sequencing, richer single cell analysis. And so that's what we wanted to do right now. In terms of sort of innovation and getting innovation in the hands of our customers, you'll see us use both. You'll see us use flow cells as levers for getting innovation in the hands of our customers, like I just talked about. But obviously, we are going to be also innovating across our instruments portfolio. And so over time, you should expect across every part of our portfolio as to put new technology into the market through upgrading the instruments themselves. And so you should expect us to see both.

Okay. And then maybe related to the NovaSeq. So typically, your high-end instrument product cycles follow kind of a bell shape curve, you got this big ramp. And then eventually, you hit the penetration level that you're going to hit, and then it really falls off and moderates. Obviously, this one's different given the flow cells and kind of the flow cell really is the kind of driver of expansion here. So we're about to enter year 5 of the product cycle, right, into 2021. So do we think that the -- is it fair to think the recent level of placements could be sustained for longer kind of given there's still, I think, pretty healthy penetration opportunity ahead for NovaSeq?

Yes. Our expectation is that we are, we still have a segment of the HiSeq customer base that will be upgrading. And it will be a couple of things. One is by -- and specifically, right now, we're talking about the smaller core labs. So one mechanism is by putting this new flow cell, the S4 1.5 into the market, we're increasing the economic incentives for them to upgrade. And then also, you have the cliff out there in the sense that come 2024, you won't really be able to buy HiSeqs or consumables. And so there's sort of this planned upgrade cycle that starts with the small core labs right now and will play out over the next couple of years.

Got it. Okay. Maybe this is kind of a high-level question as well. So I mean, if I go back in my model, and you go back and you look at the evolution of a lot of these product cycle launches that you did or Jay did from 2010 to 2015, obviously, is a whole litany of really exciting products and sequencing growth over that period of time, average like mid-30s. And then if you fast forward for 2016 to 2019 the growth kind of average more kind of in the mid-teens. And while our diligence suggests price demand elasticity continues, obviously, the growth rate is lower. So I mean it's certainly benefited a lot from penetrating new white space during kind of those earlier years. And I'm just wondering now, for your core research market, is it fair to think about like the growth rate going forward more analogous to the last 5 years, kind of that midteens, given the lack of these kind of new greenfield opportunities? Or are there other factors to highlight that maybe limited your growth during that period, factors that weren't considered normal that could lead to more of an acceleration?

Yes. We look forward. So first of all, I'd say the numbers we're dealing with right now are much larger obviously than the numbers between 2010 and 2015. And so in some sense, obviously, to drive that same percentage level of growth, the numbers are just much, much larger. Just to give you some context in terms of the size gap right now. Since the launch of NovaSeq in 2017, so 3.5 years ago. The total sequencing revenue on a dollar basis surpassed the total sequencing revenue of the previous 10 years. So in the last 3.5 years, we've delivered more sequencing revenue than we did in the previous 10 years combined. And so just to give you a sense of the scale we're at now versus where we were then. In terms of looking forward, the -- a lot of the growth for us is to come from the clinical markets, right? And so it's oncology testing around the world. It's NIPT, it's genetic disease. And in the vast majority of those markets, we are very early in the penetration cycle. So in genetic disease, less than 1%. Under 10% in oncology testing and a little bit ahead of that in terms of an NIPT. But you can see there's still lots of opportunity in terms of penetrating the TAM. And so what we are working on as a company is not just putting the products out there, but moving all the other levers necessary to penetrate the clinical market. And so the clinical markets is going to be driven by things like when countries in Europe start reimbursing for NIPT. We've seen some countries already start reimbursing, like the Belgium and Netherlands. We've seen countries like Germany, much larger economies that have said they will start reimbursing, but haven't yet. And so the work we're doing to penetrate that TAM is around clinical utility, reimbursement studies, working with the payer systems around the world and that will drive the growth going forward. But it will be like accelerate for a bit and then there's work we'll do, and it will be across different domains. So bigger numbers means that percentage basis it's unlikely to be that 20% to 30% growth that you saw before. But big untapped TAM in front of us means that there's still the potential for high growth.

Okay. Great. No, it's a good segue over to clinical and kind of PopGen. So you kind of answered just the basic questions in terms of the basic penetration levels across some of the key categories. But as we look out, we had Foundation on this morning, and they were kind of pointed out kind of the partnership that you have with Roche, and obviously, which got announced, I don't know, a couple of quarters ago, along with Qiagen to roll out that they're both going to leverage the Illumina platforms to roll out kind of kits. So maybe 2 questions on clinical. So maybe you can kind of address how that kit opportunity fits within the context of your clinical opportunity. I don't know if you sized that opportunity in the past, but maybe you can go back to the announcements back then and kind of how we should be thinking about those opportunities going forward?

Yes. Our partnership approach is critical in terms of the -- how we believe the fastest way to penetrate these clinical markets play out. So specifically, in oncology testing, for example, one of the things we hear from our customers is we're still in the stage of the market where lots of different approaches are being tried out. In terms of small panels, in terms of different sized panels, medium-sized panels, much bigger panels. And what we want to do is make sure that we enable all of that experimentation to happen and deliver the broadest menu on our sequencers to the market. And to do that, we are partnering with companies like Roche, to do a companion diagnostics. Their companion diagnostics and our sequencers. We're partnering with Qiagen, for example. And that ensures that we have lots of companies pushing our sequencers with their panels into the market and giving customers the broadest choice of menu. In addition to doing that, we also have our own panels and in oncology, we are focused on the large panels, the TSO 500, which is where we believe long term, there's going to be the biggest opportunity, but it's also an area where we need to take the lead to show the market what's possible, and really sort of help drive the utility studies around the need for the benefits of these larger panels. In terms of -- from a business perspective, obviously, by driving our sequencers and having the most partners drive our sequencers. We believe that, that maximizes the opportunity for Illumina, the royalty revenues associated with the partnership are obviously margin accretive to Illumina. And so that's how we are thinking about partnerships. We also have a separate set of partnerships in oncology with the therapy providers, the drug company. And the idea there is to have the TSO 500 be the companion diagnostic to a broad range of precision therapies. And so you've seen announcements from us over the years and the economics there -- there are 2 steps to it. One is there is the revenue associated with the development of the diagnostic, and then there is revenue associated with selling the companion diagnostic as the therapy gets to market.

Great. Francis, and then kind of staying on kind of oncology, have -- I guess when you go back to 2014 was the last time, I think we had a kind of a TAM that was put out there at the time of the X launch and things like that. But when you think about oncology and now you've got not only late-stage oncology, but MRD and screening. I mean has the TAM changed in recent years? How do we think about cumulatively your opportunity across those different buckets?

Yes. Dan, TAM has significantly expanded since we last sized it in 2014. When we sized it in 2014, the bulk of the TAM was associated with solid tumor profiling for therapy selection. Very important, especially as we started to see some precision therapies emerge on the market. Since then, though, a number of other opportunities have opened up. There is the -- there are segments associated with MRD and recurrence monitoring, which could be very large. And then there's the possibility for cancer screening to come to the market over the next year. All of that is also being fueled by the emergence of liquid biopsy as another testing modality in addition to solid tumors. And liquid biopsy opens up a lot of potential in terms of the market. Because not only is it the way you do cancer screening, but it also means that you can do monitoring of the progress of a therapy while the therapy is playing out, which is something you really couldn't do with solid tumors. And so take the TAM we put out add in MRD, add in recurrence monitoring and add in what could be a very large opportunity in cancer screening that's going to start to emerge in the next year, all fueled by liquid biopsy. And you can see how that TAM is now much larger than we talked about in 2014.

Okay. And then I mean, I think you alluded to it a little bit earlier. Well, particularly related to the licensing business with Qiagen and Roche. But as the clinical market becomes a bigger portion of your revenues, what's the right way to think about the impact on Illumina's margins?

Yes. We haven't really comment on it too much. But as we discussed, royalty revenues, for example, from IVDs are likely to be margin accretive. And so you should look at that also, the tests are going to be -- the price of the test in the market are going to be driven more by how reimbursement plays out in the market. And they are likely to stay at a price point, even as the cost of sequencing sort of continues to drop. And so the pricing in those markets will likely be sort of more durable over time even as we take the cost of sequencing down for the research markets, for example. So those are some of the puts and takes. But in general, we expect that the clinical markets will have good profit margins as well.

Okay. And maybe just a comment on Ancestry. We had them yesterday, they entered the consumer health market, introducing its sequencing-based test. Can the consumer NGS testing market being material future contributor to Illumina? Like, how should we think about that opportunity?

Yes. We're excited, obviously, by the work that Ancestry is doing. We believe just like Ancestry does that over time, the consumer health market is going to be much larger than the genealogy market, which is what's fueled the growth in the direct-to-consumer genomics space over the last decade. And so we're really excited about Ancestry taking a leadership role in terms of launching its direct-to-consumer health offerings. Obviously, we're at the early stages of that, but whether it's predisposition notification, over time, maybe pharmacogenomic profiles, there are a number of important areas where we think consumers will be interested in getting access to their genomic information. Could be things like carrier screening, for example. So there's lots of areas where, over time, we think this could be a substantial market for Ancestry and for us.

Okay. When we got about 7 minutes left, sorry from jumping on a little bit here. Just wanted to circle back on 1 or 2 things. So PopGen, can you just remind us, I don't know, I think it came up on the Q2 call, and I apologize, but what's assumed in guidance this kind of -- or not guidance, what's assumed in the outlook for this gradual improvement in Q3 and Q4 from POPSEQ? And can this meaningfully expand in 2021 as COVID restrictions lift?

Yes. So let's talk through some of the specific population sequencing programs and how they're likely to play out, both for the rest of this year and then going into 2021. So in the U.S., all of us has continued to make progress even through the pandemic. They just got their IDE from the FDA in Q2, which was an important step forward. They expect to get started in the second half of this year. So we expect them to do a little bit of processing samples in the Q3, ramp-up in Q4 and be much more a 2021 story. So continuing to make progress through the pandemic ramping up and should be in a good position going into 2021. The U.K. NHS project. And as a reminder, that's where the U.K. is going to be the first country in the world to standardize on genomic test as a standard of care for the U.K. population that has either one of other number of cancers or one other number of genetic diseases. So hugely exciting, it'd be the first country in the world to make genomic testing a standard of care in perpetuity. So going forward, it will be built into their health care system. That project, we signed a contract with GEL last year to process -- to help them process some of the samples. This year, that project has been put on hold, and the GEL lab has been pointed at doing the 35,000-patient genomic study to understand why some people get COVID-19 much more seriously than others. So the NHS rollout has been put on hold while we process the COVID samples, we expect that to pick up again, hopefully, next year. The U.K. Biobank, and as a reminder, this is the pharma consortium that's working with the U.K. Biobank. They came into this year, processing in full force. They continued processing samples in Q2, but at a significantly reduced rates than what they were doing in Q1. They are going to continue sequencing over the course of the year. And so we expect them, certainly going to '21 to start ramping up again, but they're continuing to sequence over the course of this year. In the U.S., there's the Million Veteran's Program there was actually no disruption to that program in Q2. In fact, they just hit their 75,000 genome milestone and expect to get to 100,000 genomes this year. And that program is now expanding, targeting 2 million veterans up from the initial scope of 1 million. And then a new project that's coming in that I just touched on is the GEL Genomic project, which is, again, about 35,000 patient study that's playing out right now. So that's sort of a roundup of how the different population programs are playing out over the course of this year and going into next year.

And then maybe one more on that. So we had Eric Green on this morning, Francis, and he was discussing, I think it's IHCC, which I guess, is an international consortium, and I didn't go and looked. But we did a report earlier this year. I'm just wondering COVID, obviously, disrupted everything. But how do you think about PopGen? I know you've given some numbers in the past about the number of programs and Jacquie has given some color to the Street. Where are we in the confidence level and outlook for PopGen as we look out even beyond '21?

Yes. I'd say that we continue to make progress with them. If anything, I think this pandemic has sort of underlined the importance of genomics as part of a national health system. In the case of the pandemic, especially to understand predisposition testing, a predisposition to -- and susceptibility to the severe COVID-19 impact. So I'd say, we'll continue to make progress. And I guess and sort of stay tuned as we give you updates on how they're rolling out.

Okay. So Illumina was successful in securing a PI blocking BGI from entering the market in the U.S. I know until the court case concludes, which I think could be late next year. So does this PI prevent BGI from launching outside the U.S.? And then secondarily, if BGI eventually does get to the market, how -- what type of impact can this have and why?

The injunction issued by the U.S. court applied throughout the U.S. and just the U.S. We have, however, also obtained preliminary injunctions against BGI in the U.K., and we're currently seeking injunctions in Denmark, Finland, Germany, Sweden, Switzerland, Turkey. And so from our perspective, we're going to continue to innovate and continue to protect our intellectual property, wherever we see it being infringed. We continue to expect that this is a giant market opportunity. There will be -- there will continue to be competition. Our focus is going to be to continue to just innovate and make sure we are delivering the best value to our customers so that we continue to be the better choice for them.

Okay. And then maybe final one would just be on M&A. with $3 billion of cash and $1 billion of debt. And I know you've talked about in the past, you look for deals maybe where the value of sequencing isn't being driven to the point where it's really leveraging what you can do. So BlueBee, I think, Enancio was some of the recent deals. I guess the question is here, what's your appetite for a larger deal? I mean is that something you could undertake and why? And kind of how is the deal funnel?

Yes. From an M&A perspective, our goal is to lower the barriers of sequencing and to grow and catalyze the markets that we serve. And that means we're constantly evaluating both internal projects as well as acquisitions across the sequencing workflow. So it could be all the way from front end library prep, to back-end informatics solutions, if we feel that either it will make sequencing more accessible, like BlueBee does, for example, or it will catalyze the market in some way. From our perspective, we are generally size agnostic. It could be a small technology tuck-in like Enancio that has this terrific lossless data compression algorithm that we're excited about, all the way to much bigger opportunities if we feel that it accelerates the market.

Okay. Great. Well, Francis, with that, I think we're out of time. So thanks for bearing with all the questions. I'm really glad you're able to participate. Hopefully, we hit on a lot of the important points, short term and long term for Illumina. And thank you for all of you who are participating on the phone.

Thank you, Dan, and thanks to all of you. Take care. Bye-bye.