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

Good morning. Please welcome to the stage Vice President of Investor Relations, Sally Schwartz.

So we just had a great week convening innovators across the genomics industry at the Illumina Genomics Forum. And during our Investor Day event today, multiple speakers will touch on how much our customers appreciated it and the groundbreaking technology that we launched at the event. Thank you for joining us here today, both everyone here in the room and everyone joining us virtually on the webcast. My name is Salli Schwartz, and I'm Illumina's Vice President of Investor Relations. Prior to joining Illumina, I spent the past almost dozen years, leading investor relations companies -- Investor Relations teams at various companies. And before that, I held a variety of corporate and financial advisory roles. Before we get started, I need to provide a few cautionary notes. So on this slide behind me are really important disclaimers for our business. They include a statement reflecting the current hold-separate requirement related to our GRAIL business. We encourage you to review them, and they'll be included on the presentation on our website. We have a really full agenda for you today. We're going to focus our conversation on core Illumina, and we have so much to share with you. We'll start the day with Francis deSouza discussing Illumina's vision and growth strategy. Alex will then cover our innovation road map, including the product announcements that we made at our Illumina Genomics Forum last week. Phil is going to discuss where we are and where we're going in clinical markets, and we're going to take a short break. After the break, Susan is going to provide a commercial update and let you know what we're hearing from our customers. And then Joydeep will wrap up the presentations with our long-term financial outlook. After that, we'll move to Q&A with all of our speakers. For those joining us via webcast, you're welcome to submit your questions at any time during the presentation. And so we understand that you are curious about how our third quarter went. We just finished the quarter yesterday, and therefore, we won't be commenting on it today or our full year '22 guidance. We'll have a full update for you in just a few weeks during our third quarter earnings call, which will be on Thursday, November 3. Before we move to Francis' presentation, I wanted to highlight a construct that's really central to the way that we operate. Environmental and social responsibility is core to Illumina's business. And today, you're going to hear components of it across all of our presenter sessions. We understand that with our leadership position comes added accountability. Our 5 corporate and social responsibility pillars reflect our unique position to deepen our impact on human health by focusing on enabling genomics for good. We've been honored to have our work recognized by a number of organizations. And we're going to continue pushing forward with all these critical efforts. Similar to last year, we're going to be hosting an ESG investor event later this month to highlight our latest progress in each of these areas. We're going to have additional details for you on that soon, and we really hope that you'll join us there. On that note, let me welcome Francis deSouza, Illumina's CEO, to the stage for his presentation. Francis?

Hello, everyone. Thank you for joining us. As you saw in that video, we're coming off our sold out Illumina Genomics Forum. It was a terrific customer conference, where we launched a suite of incredible products in front of an in-person audience of over 1,000 people and an online audience of over 10,000 people. It's an exciting time to be at Illumina. Last week at the conference, I was speaking to the crowd and we launched NovaSeq X and us challenging the audience to be bold in their ambitions. And I said, look, for the non-Nobel Prize winners in the room because there were some Nobel Prize winners, think big, think of where your research could go. So I don't know if you saw this morning, the Nobel Prize for medicine. It was -- went to a researcher who did their seminal work partly on Illumina machines on the GA too. So I didn't expect them to move that quickly. In this session, I'm going to talk about how genomics is changing human health and our strategy to continue to lead the large and high-growth next-generation sequencing market. Here are the key messages. Next-generation sequencing represents a $120 billion market opportunity, one that we're still in the very early stages of penetrating. Our strategy is to leverage our proprietary innovation to deliver NGS platforms and select applications to accelerate the penetration into this market and catalyze new, large adjacent NGS markets. Our innovation leadership creates a powerful flywheel that represents a strong competitive advantage. We've attracted and built the deepest talent pool in the industry with a world-class leadership team. And this all sets us up well to deliver superior shareholder value through mid-teens revenue growth and expanding margins over the long term. So let's start where we are now and our position at Illumina at the center of the genomics landscape. Illumina's mission is to improve human health by unlocking the power of the genome. Over the last 2 decades, Illumina has emerged as the clear leader in research and clinical genomics with an installed base of more than 21,000 sequencing systems across more than 9,100 customers in 150 countries. Our world-leading 1,000-plus person clinical genomics team has enabled us to get 72 product approvals from 58 regulatory agencies globally. Our terrific market access team has helped us get coverage for 1 billion lives globally for our genomic testing, and we're working to increase that number to 2 billion by 2026. We have achieved this through our relentless focus on delivering breakthrough innovations. One of our values at Illumina is innovation is in our DNA. And as you saw last week, that's as true today as it's ever been. We have a portfolio of more than 8,400 patents worldwide, and we spent $885 million in R&D last year. More than 300,000 scientific publications used our breakthrough technology, significantly more than anyone else, and we're only just beginning. As we look ahead, I want to ground these conversations in the why, the immense potential of genomics that we've only just begun to unlock. Genomics will transform lifetime health management improving health outcomes and lowering health care costs. We're working towards a world where newborns with suspected genetic diseases will have their genome sequenced as a frontline diagnostic. Carrier screening of parents will be a part of the reproductive process. Omic testing for screening and early detection of deadly diseases like cancer and neurodegenerative diseases will be routine. Our own immune system will be activated as the strongest therapeutic available, and pharmacogenomic testing will select the right treatment at the right level for patients. Therapy effectiveness and recurrence monitoring for cancer and many other diseases will be required at every progressive treatment line. Illumina's products will touch every step of this health management continuum. Each stage of his lifetime journey will involve genomic research, testing and personalized drug development. Today, only 4 million people, that's 0.07% of the world's population ever had their genome sequenced, even once. We'll go from this to over 1 billion people being sequenced dozens of times over their lifetime. Several orders of magnitude more sequencing than is being done today. Now to make this vision of lifetime health management a reality, we have to enable more discoveries, get more applications into the clinic and make genomics a standard of care. Realizing this vision starts with research and biological discoveries from identifying a new biomarker for diagnostic or therapies to targeted mechanisms for drug development. Each discovery must be translated into clinical utility and must then become a standard of care. Since the human genome project completed in 2003, we've seen clinical applications start to go from research through translation to standard of care. And as research continues to expand, the pace of applications continues to accelerate. Our platforms initially power genomic research, which is our first addressable market. In 2005, our TAM included genomic research in areas like genetic disease and genotyping. By 2014, applications such as noninvasive prenatal testing, research disease diagnosis and therapy selection for oncology emerged from research, and we're moving into the clinic. This increased our addressable market to $20 billion. Looking forward to 2027, we see another sixfold increase to an addressable market of $120 billion, driven by first, the emergence of large new clinical applications by cancer screening and minimal residual disease monitoring in oncology. The transition from single point use cases in clinical care to multiple touch points throughout a person's lifetime for screening and disease recurrence monitoring. And the expansion of sequencing-intensive modalities like spatial and single cell. Most of this addressable market is in clinical segments. And today, these applications are less than 10% penetrated. We're focused on accelerating this penetration and estimate it will grow to about 15% over the next 15 years -- over the next 5 years. Later today, you'll hear from Phil Febbo, our Chief Medical Officer, who will review each of these clinical markets in detail. In research and applied markets, the current penetration is higher at 26%, and we expect this to reach about 35% in the next 5 years as democratization of sequencing continues and as research projects increased in size. We have a 4-pronged strategy to strengthen our leadership across these key markets and position ourselves for long-term growth. First, we will deliver breakthrough innovation to remain the NGS platform of choice across research, clinical and applied applications. We'll deliver end-to-end tests in select areas where we have differentiated skill and scale. And we'll accelerate adoption in existing clinical markets like oncology, reproductive health and genetic disease, and fourth, we'll catalyze new areas like drug discovery, proteomics and others, seeding future growth. Let's go through each of these. First, we're focused on being the NGS platform of choice across the dozens of research, applied and clinical markets we serve. To do this, we are relentlessly committed to delivering breakthrough innovations in every aspect of sequencing from sample to insight. And to continually pushing the envelope to dramatically improve output, accuracy, user experience, price and sustainability, while also improving turnaround times. Now these innovations make sequencing more accessible to more labs allowing us to unlock the elasticity in those markets. Time and again, our new products have helped expand and open up new markets. For example, after we launched the HiSeq X and the $1,000 genome, our customers sequenced more genomes in 1 year than in all previous years combined. Alex Aravanis, our CTO and Head of R&D, will talk to you about our exciting new releases and our powerful R&D engine. Susan Tousi, our Chief Commercial Officer; and Phil Febbo, our CMO, will talk about how these products, including the new NovaSeq X will unlock the next wave of elasticity in research, clinical and applied markets. And finally, we have always been committed to our open platform approach, allowing customers and partners to easily and rapidly develop their tests on our platforms. Today, Illumina has, by far, the broadest ecosystem of third-party applications, including LDT and IVD content. Second, we'll work to be -- we'll deliver our own end-to-end applications in addition to being the platform of choice across the dozens of markets we serve. We'll pick only a handful of select applications, so we look to deliver these end-to-end applications. So how do we decide which markets to target. We're looking for markets that meet certain criteria. First, we're looking for large markets with high growth potential. Second, we're looking for markets where it's possible to deliver a highly differentiated product, for example, through proprietary content. Third, we're looking for markets that leverage Illumina's core competencies. And fourth, we're looking for markets that are strategically important to us. So large growing markets, markets where we can deliver a differentiated product that play to our core competencies and are strategically important. So let me give you some examples. In 2013, we entered the noninvasive prenatal testing market through our acquisition of Verinata. That was the first, and at that time, the largest clinical application of genomics. So big market potential for growth. Verinata had a very strong IP position. So it was able to establish a proprietary position in that market, which we like. It was strategically important to us, too, because by entering the clinical genomics market, we acquired a lot of capability, regulatory capability, reimbursement capability that we didn't have as an RUO company. And so not only was that important for us to get into NIPT, but it changed us as a company and set us down a path of targeting clinical genomics. And so that's why we did NIPT. A few years later, we entered the cancer therapy selection market through our TSO 500 product, again, a very large market for cancer therapy selection, genomic testing, high-growth market. We were able to get a proprietary position because at the time, the entire market was focused on small panels and we went after the 500, the large panel market. And strategically, it was important to us because we knew oncology was going to be the largest market for clinical genomics. And so we wanted to get deeper into the oncology space. Now in both of those markets, we continue to support partners who build their own tests to compete with our tests. And in fact, we today still make more money from supporting partners from selling our sequences to partners that create their own tests in ours. So we've established a model where we can enter these applications and still support partners to compete with our applications. And then we entered the cancer screening market through the acquisition of GRAIL. Now GRAIL also fits those criteria. Cancer screening is the largest genomic application that we're likely to see over the next decade. GRAIL has a privileged position. It's not only the only player in the multi-cancer or the detection space and likely to be that way for a while. But it has a very proprietary position because of all the IP that it's generated and the patents that are both issued as well as pending. And strategically, it's very important to us because GRAIL will be servicing millions and then tens of millions of people every year, giving us a front row in terms of being able to innovate for future tests. Now while I'm on GRAIL, I'd like to mention a few things. First, we believe Illumina's acquisition of GRAIL can have life-saving benefits for people who have cancer and don't know about it. We also believe it creates long-term shareholder value for Illumina's shareholders, which is why we did the deal. Second, we believe the GRAIL acquisition is pro-competitive. And the recent decision from the FTC's Chief Administrative Judge supports this view. Third, as we work through this process, we will always be pragmatic and make the right decision looking forward for our shareholders. And finally, in parallel, as we said, to the appealing the EC decision, we are starting to explore options should we have to divest GRAIL in the next 9 to 18 months. Turning now to our third strategic area. Our clinical markets are underpenetrated. As a market leader in clinical genomics, we play an important role in driving markets forward, well beyond delivering technology. We do this in a number of ways, partnering closely with our pioneering customers to create successful implementations from the first population studies in the 100,000 genome project with Genomics England to the first national health system rollout of genomic testing in the NHS. We then help share these learnings across our customers through events like last week's IGF. We also helped demonstrate the clinical utility of NGS through evidence generation to accelerate reimbursion. We currently have more than 260 studies and research collaborations in the pipeline, including our recent work in Belgium to demonstrate the utility of comprehensive genomic profiling within a national health system. Our market access team is working on increasing reimbursement for NGS globally from 1 billion covered lives globally in 2021 to 2 billion by 2026. In addition to reimbursement, we are focused on establishing pathways for regulatory approvals for genomic technologies. We have reached more than 1,000 IVD, EUA product registrations across more than 60 countries. Phil will provide more color in his remarks. And Susan will touch on how our customer relationships support these efforts. Finally, we're working to catalyze new markets seeding the next big genomics markets in areas such as drug discovery, proteomics, cardiovascular and neurological disease. In drug discovery, for example, we're working with multiple pharma partners to support greater genomic target usage in drug development, partnering with groups like Nash Biosciences to develop large data sets. And with Deerfield Management to help advance genetic-based drug targets. In proteomics, we're collaborating with multiple players to accelerate the use of proteomics by leveraging NGS as a high-throughput readout platform. This includes our co-development work with SomaLogic on a proteomic assay that's on track to launch in 2024. This strategy has enabled us to deliver strong and profitable growth. For core Illumina, this represents a 14% CAGR for revenue and a 15% CAGR for operating profit in the last 5 years. We've maintained this growth rate even with vast changes in the industry and challenging global macroeconomic dynamics emerging even stronger. The underlying growth for our markets gives us confidence in our long-term trajectory despite current dynamics. We will enable our long-term growth through our innovation flywheel our breakthrough technology innovation is the underpinning of this flywheel. Our innovations earned as the largest NGS customer base in the world. Now these deep customer relationships with over 9,100 customers, which Susan will talk about, helps us deeply understand how our customers are using sequencing technology, but more importantly, how they need it to evolve. This closeness to our customers gives us an early look into new applications, and it helps us innovate in ways that anticipate and help us meet future market needs. You can see this with some of the innovations from performance stability to sustainability that we delivered last week in the NovaSeq X. This innovation flywheel is a powerful competitive advantage especially when it's coupled with a best-in-class team. On the governance side, we have a world-class Board of Directors with deep experience, broad and complementary skill sets and diverse backgrounds. Two of our independent directors have large public company CEO experience. John Thompson, our Independent Chair, was recently Chairman of Microsoft and previously CEO of Symantec; and Gary Guthart, CEO of Intuitive Surgical. Frances Arnold, a chemistry Nobel Laureate and Professor at Caltech, is, as you can imagine, an active Chair of our Board, Science and Technology Committee. We also have deep regulatory experience, including Scott Gottlieb, the former U.S. FDA Commissioner and deep experience, financial experience in regulated markets from Board members like Caroline Dorsa. The Board's expertise and strength across multiple areas of the industry ensure that we have broad perspectives, critical guidance and strong governance as we develop and implement our growth strategies and advance human health. Finally, Illumina is led by our incredible management team. These leaders represent a wide variety of backgrounds, and each brings both deep technical skill in their area as well as the breadth of experience. I mean, I embarrass a couple of them now, but Alex Aravanis, for example, has been at the company for over a decade, and we're very fortunate to have somebody leading as our CTO and Head of R&D, leading product development, who is both an MD from Stanford as well as a PhD from Stanford in engineering with an expertise in AI. That's a very unique sort of combination to get and is incredibly helpful to us as we plan out future innovations with an eye towards clinical markets. Susan Tousi, our Chief Commercial Officer, another decade-plus veteran and Illumina is in the position of having built our products before she took over her current role as Chief Commercial Officer. You can imagine there are very few people more passionate about getting our innovations into the hands of as many customers as possible. And we're lucky to have a combination of both veterans at Illumina as well as attract some extraordinary new talent. So Carissa Rollins, for example, joined us from UnitedHealthcare, where she was their CIO and is now our Chief Information Officer. We've also had John Frank joined us as our Head of Government Affairs. He joins us from Microsoft, where he was there for over 20 years, including roles like having government affairs for them in EMEA and Deputy General Counsel. This strong team, combined with our huge underpenetrated markets as well as our strategy and innovation flywheel form the foundation for us meeting our long-term targets. And Joydeep will talk about our long-term targets in his section. So now please join me in welcoming Alex Aravanis, who will discuss our recent launches and share more about our innovation road map.

Okay. All right. Hello, everyone. Welcome. Just a little bit more about my background. As Francis mentioned, trained as a physician scientist, I spent a lot of time at Stanford and academics. Started several companies that got acquired by larger companies, and then I came to my first tenure at Illumina, level a lot of the significant research and development projects there, launched several products. Then spent 5 years as Co-Founder, leading the development of the Galleri test. And then I've been back at Illumina for several years now. My function, research and development oversees everything from the very early breakthroughs all the way through development, through product launches and through on-market support, and it includes all aspects of our technology. So engineering, chemistry, bioinformatics and software, a really incredible team and really a dream job. Okay. Some key messages that I want to import to you in this meeting. Look, today, we have the leading products, I hope you'll agree after seeing what we presented last week that we're going to have the leading products for a long time. We're also investing in things already that are going to be equally exciting in the years to come. And it's really this product leadership that, as Francis said, has positioned us commercially with such a broad set of customers and rapid growth. I also want to talk about our R&D leadership and I'll go more into that. I believe we have the best innovation engine in the world, both in the people, our culture, our processes, and products like the NovaSeq X really speak to that kind of success. I also want to talk about -- I'm going to go into more depth about how we think about developing products to create long-term differentiation and it's this type of differentiation and very hard to replicate technology and products that have given us these leading products that customers prefer and will prefer long term. The last point I will also touch upon is how we think about getting the most out of our R&D dollars. Obviously, we spend a significant amount of shareholder investments on the innovations, and we think deeply about how to make big innovations that we can leverage across multiple products and kind of sell multiple times. So I want to share that thinking with you. Okay. You're going to hear these numbers several times about the unique position we are in with so many customers, so many installed systems. From my point of view, this gives us the opportunity to really see what's going on in the way that perhaps no other company can, right? So I and my team, we regularly meet with our customers, we understand the challenges they're having at times, where they want to go, what are the new applications, what are the new features. And then we feed all that in, in a very customer market-backed way into how we think about the innovations that will be exciting products that our customers want to buy, that they'll want to adopt in greater numbers. These key stats around R&D are really important. So have over 2,200 people in our core R&D team. And again, that's kind of every major discipline of science, engineering, and software. We produce about 400 invention disclosures a year, and that's a testament just to the amount of the -- incredible amount of innovation that we're constantly doing. You know about the hundreds of thousands of patents, right? And again, that's also a demonstration of the wide use of our technology. We have over 1,000 issued patents and then many, many more pending applications. And so we work hard to protect all of those innovations that we're constantly producing around our differentiated products. A few more things. One is we think a lot about the culture of the R&D team, the composition of it, very proud of the diversity, which has gotten significantly better in recent years. This has allowed us to draw on a deeper talent base and really an advantage in how we do R&D. We have very low turnover relative to our industry. I think that speaks to how exciting a place Illumina is to be when you're working on new technology and developing the new science. We have about a 90% acceptance rate in people coming to Illumina when we give them an offer, right? And when I ask them about why they come, and this is very conscious in how we think about it. If they want to work on the products that are going to change the industry that are used by the majority of people, they want to have access to the resources to make those big game-changing investments, and that's what you get at Illumina. And that's why I think we get the best talent in the industry, retain it. We also have a very senior team. I have about 20 vice presidents and distinguished scientists and engineers that help me lead the function. The average tenure of that group is 10 years at Illumina and then many of them even have broader experience in the industry. And so the benefit of that is these are people who literally built everything, both at Illumina and the largest parts of the genomics industry. So that is a unique asset and how we think about where we're going to go that I think is unparalleled. Okay. I want to give you some insight into a few different ways that we think about how to innovate, to create this really enduring differentiated value. The first is, what we'll call, enhancing value beyond just cost per sequencing or dollar per gigabit. Now I don't want you to leave for a second thinking that we're not committed to that. As you just saw, we did a huge price reduction in the cost of sequencing and that is through massive innovation, right? Over time, we are exceptional about learning how to stale technologies and make innovations that allow us to produce the technology at ever decreasing cost and then we can pass it on to our customers, and then we enjoy the elasticity of that. But we think much broader about that. And I'm going to use NovaSeq X as an example to talk about this. So again, I believe we have the underlying technology and infrastructure to produce sequencing technology at lower cost than anyone else. That's a huge advantage. But beyond that, we also scale, right? So that allows people to do much bigger projects, much bigger cohorts, right? And you see that in NovaSeq X with a 3x increase in output and twice the speed and the cost reductions. But because of our experience -- deep experience working with customers, we understand what can slow them down, what can limit adoption, what could lead to inefficiencies or waste in their workflow and we address that very explicitly, and NovaSeq has a huge amount of technology packing to address that. As an example, we do clustering on board, right? One of the few instrument providers that does that. We also have addressable lanes. It makes the fluidics more complex, but it gives tremendous workflow flexibility that customers value. It used to be that you would have to manually load individual sequencing lanes. And if you want to do large numbers of samples, there's a lot of complexity upfront of the sequencer. We've automated that, and now it's eliminated from the customers' hands, and they love that. We've also made the instrument incredibly easy to use. And after the session, we're going to spend some time for those who want to get up and close with the instrument and you'll see how beautiful and elegant it is. And what all this means for our customers is that they can do more sequencing. It's easier to use, and that's great for the discoveries, that's great for their patients and great for our business. I also want to talk about us as a trusted partner to customers, right? So we have 24/7 support through Susan's team. It's worldwide, and we support everything, right? So it's not just the instrument, but if you have a problem upstream, you've to call some other company or you have a problem with the software, you have to call get another company, figure out how to put all that together. Now with Illumina, when you're part of our ecosystem, you get supported across the board, and we do it quickly so that you can get back to sequencing. And again, I think having the full portfolio of products and having that kind of service is something that our customers value, and we're committed to that even in the research and development group by supporting that. We also have a huge menu of applications. And so whether or not you're doing tumor sequencing or you're doing germline sequencing or single cell or even special, we support that, particularly on the software side. And so that means that a customer who wants to get into these new areas, they get that menu day 1, right? And they get it from us and they don't have to pay extra for it. So this, again, allows them to get into new applications very quickly. And then the last thing I want to touch upon is the sustainability and how important that is to customers. We may -- because of our innovations and the uniqueness of chemistry and our packaging, we can now ship ambient, huge value to customers there, not just achieving their ESG goals, but a dramatic reduction in the complexity of how they can use sequencer and cold chain logistics. I'm going to use NovaSeq X to also talk about very specific technology innovations and then how those translated into big product benefits. The first is the ultra-high-density flow cells. So the new flow cells for NovaSeq X are over 300% denser the NovaSeq 6000. And this is why you now get effectively 3 Nova 6000 in a single instrument because of these incredibly dense flow cells. Now this -- to make flow cells this dense, the technology and manufacturing processes did not previously exist. So it was a very long-term research, ultimately development and then scaling operation to do this for the product and meet the demand. So again, an example of something didn't exist, very challenging to do. We made huge investments, had hundreds of people work on it. We not only made the breakthroughs in the basic science and materials about how to do that, we then figured out how to scale it and how to automate it. And now with those increased densities and the reduced costs, we can now bring that to customers and pass it on to them. Similarly with XLEAP-SBS, right? The previous generation of SBS has been amazing and have built our industry. And improving on it was no small feat, right? And maybe a testament to that is all the participants, new participants in the market that have had to use our original version of SBS. But our team, they went back, and this is a team that invented SBS and developed thousands of new chemical structures and discovered an SBS that's even better, more stable, and that is what allowed us then to use it on the high-density flow cells to achieve ultimately longer read lengths, to achieve higher quality and ambient chemistry. So we're very proud of that about innovation, and customers are extremely excited about it. There's a whole new set of compute hardware and algorithms in NovaSeq X. So we have large teams that we've been developing this for years also. It's hard to overstate how important this is to customers. Number one is with all this additional data, you would have a big problem processing the data, which would make the run lengths long, delaying when customers could get their outputs, but we've solved all of that through those innovations. So by having accelerated hardware, better algorithms, now you're actually getting your answers faster, even though the system is producing more data. We also included DRAGEN on board. And so now all the secondary analysis for the first time ever on a high-throughput sequencer is included as part of the cost and with a huge, huge benefit in speed. A few other things. And again, when we innovate, for example, in a high-throughput sequencer and you make a better chemistry to fully take advantage of that new engine, you then have to invent and innovate across the board, and that's how we think about it. So when we did these innovations, we have to do them all so that we can have a product that can fully take advantage of any individual one of them. Last one I'll mention is the optics. And again, no cameras and no objectives and materials existed that could scan at these speeds to create the 300% increase in output. So multiple inventions, multiple years working with leading partners on the materials, the optics to create those. And again, proud to bring those to the market before anyone else so that our customers can benefit from that. So again, I hope you're appreciating here that this is not easy to do. It takes a company like Illumina, which is unique in terms of the scale, the number of people, our ability to make these investments over years and years, make those breakthroughs, protect them with IP and then also figure out how to commercialize them in a robust way. I want to take a little bit of time to talk more about the benefits of the ambient ship, the environmental benefits and then also the customer logistics. So after we -- Francis and I announced this product at IGF, I had several customers come up to me, some of them in tears about how excited they are about this. They thought this would never come. I thought it was a scientific impossibility. And what it means that now instead of filling dumpsters with cardboard and waste, and having big teams that have to manage all of this, a single person can pick up a 10-pound box from UPS. They can load the world's most powerful sequencer, they can process over 100 genomes and they don't have to fill up a landfill and they don't have to manage complex cold chains. The other thing I want to point out is that this is impossible to do with the original version of SBS. The chemistry is just incompatible with ambient ship. So without XLEAP-SBS, it's new bonds and many other new inventions, you can't achieve this. So again, long-term dream of ours to do this, and we couldn't be more thrilled about finally getting this in the customers' hands. And the initial response is just over the moon. Now these innovations, as I mentioned, we leverage across multiple platforms, right? And by making farsighted investments, very big, not incremental, very big leaps in technology and then doing it in a way where we can use it in multiple platforms over time, that gives us a big return on our investment dollar. It also allows -- it's one of the reasons we can do more products faster than anyone else in the industry because of this concept of leverage. And we think about that day 1 in research, right? We don't want to make something that will have to be done in artisanal way. We want to make something that we can scale through semiconductor manufacturing, right? We've worked with vendors very early on, for example, with our operations group around thinking through all of that. So that when we get to the point we want to scale it, we can do it rapidly, we can do it at low cost and it has the flexibility to use for years and years across multiple product lines. A great example of this is bringing the new XLEAP chemistry to the NextSeq 2000. So this wasn't an accident. This was around as we were launching NextSeq 2000 several years ago, thinking about knowing about what we had in development, even though it wasn't perfected yet and said, look, there's going to be an opportunity for customers that will be really exciting, where -- when we have a chemistry and a flow cell technology that can go even denser, we could offer it to our NextSeq 2000 customers. And this is when you're thinking over 5, 10 years, and you're working on all the segments thinking very deeply about this. So NextSeq 2000 has optics and it has engineering that allows it to go to -- at launch to a density that didn't even exist in terms of the chemistry that was needed. And so now with the investments in perfection of XLEAP-SBS and NovaSeq X, we can now bring that to the NextSeq 2000. And this is super exciting for our customers that they're going to get an even deeper road map through their existing investment in this exceptional mid throughput platform. I want to remind you also that we've gone to a longer read lengths with SBS, both with the original SBS, for example. Our recent announcement of the 600 cycle kit for NextSeq 2000, and that's 2 x 300 for those customers who wanted to do much deeper sequencing of TCRs and DCRs of T cell receptors, B cell receptors. This is a great product for them. To my knowledge, this is very difficult to do on any other type of SBS, which is why you'll see them tend to be limited to shorter read lengths, but a unique capability. XLEAP-SBS has even more of this potential to go to longer reads, and we're excited about the road map there around that. I want to highlight another benefit for customers when they buy one of their systems, which is they've come to appreciate that they're getting a great product at launch. Then they're getting extensions, which give increased output over time, reduce cost over time. And now we're even showing that they even get things that were beyond the road map that they expected, which is longer read lengths or even access to a next generation of chemistry. We also had another important announcement at IGF was the launch of our NovaSeq 6000 Dx. This is the world's first FDA-cleared high-throughput sequencer that's IVD compliant. A great product for those customers that need or prefer a cleared instrument, either in their geography or their type of lab environment. Very good initial response to this. It's also a product that has improved features for these types of lab environments. It has streamlined workflows, it has additional automation and has the ability to switch between RUO and Dx. A lot of thought here about how to make -- about making this product exciting for customers that want the Dx version. One other important point is that when we develop our instrument platforms, we develop them in a way that we can make anything Dx. So it's additional cost and expense to do that, but you have to do a lot of upfront work in how you're developing the system, they're documenting it, how you're qualifying it, I mean just a different level of quality. And so we forward think about that so that for those segments where it makes sense or for particular platforms or at the right time, we can bring a DX to market. That required a huge investment in infrastructure to be able to do that. Your average RUO instrument cannot be turned into a Dx instrument. I want to point out that now with the NovaSeq 6000 Dx, we now have the only portfolio of a Dx instrument in every single segment. So the lower throughput desktop, the higher throughput desktop and now the high throughput. For customers who are using the Dx platforms, this is a great opportunity for them because it allows them to scale Dx workflows and stay on a cleared instrument the whole way. Okay. A couple of other areas that we are very important when we think about innovation, creating more value for customers. We call this delivering the kind of the best and most complete view of the genome. So if you take a step back and you think about the people who use our machines, whether or not it's for scientific breakthroughs or clinical applications, in the end of the day to them, it's about getting the insights. They learn something new about science and that gives them the opportunity to publish and share it with the world or they found something they can use to help a patient, get them on a therapy, give a parent an explanation for a developmental disorder. And so the easier that is to do, the faster to do and the more of those insights, well, that makes the technology more valuable. And then over time, it allows them, our customers to justify making even bigger investments in our products and our technology. So we've been working for years to automate this and add more and more value to cover more of the genome, to cover more variant types more accurately and to add more medically relevant ones. Okay. I also want to touch on the amount of data coming off our system. So in 2021, it was 280 petabytes. To put that in context, that's about 100x complete Netflix library of content. This is every year, and in fact, it's almost doubling every year. So it's a lot of data. And again, when we think about our customers, this is a huge call to action, right, which is they want innovation here. And they value innovation, and it affects not only what they can do with our sequencers, but it affects how they think about which sequencers they want to buy, right? So they want this to not only stay the same. They actually wanted to get faster even though there's more data coming out, they want it to be more accurate. They want to be able to do it with fewer experts and they want to get to the insights quickly, not the intermediate complex data processes. So we now have a complete technology stack to do that all for them. And in the case of the NovaSeq X, there really is a supercomputer on board now. That's never been the case in the past, DRAGEN 4.0. With this informatics, we've now increased the accuracy of the genome to 99.83%, and that's in the FDA Truth Challenge reasons. And this is independently tested in those FDA regions and their competition. So this makes it overall the most accurate genome, right? And that's short read, long read, the most accurate overall. And then the graphs on the right are to highlight the massive improvements we've made to speed and cost reduction. And this is through accelerated hardware that's much more efficient at processing this type of data. It requires a lot of engineering to do it. But once we do it, then if you're using DRAGEN on our unique systems, then you can get these answers much faster and you can get them at much lower cost than anywhere else. And that goes straight to the -- those benefits go straight to our customers. I also want to highlight Illumina complete long reads. So at IGF, we talked about the fact that there is now a platform where you can get both short- and long-read information. And that really is true. So Illumina complete long reads, it's not a synthetic long-read technology. It's a way of preparing the DNA, then going through one of our sequencers like a NovaSeq 6000 or a NovaSeq X and getting true long-read information. These are complete contiguous long reads. It's the original single molecule represented. There's no strobing, there's no drop out. And for key hard regions of the genome that have historically been hard, which is about 5%, you get the information you need or we're looking for to make a complex rare disease diagnosis or new science that you're interested in. Now not only is it incredible that you can do this on the existing platform you own or if you're buying a NovaSeq X, the workflow is actually also incredibly easy. It's a single day workflow. Very straightforward. It doesn't require me specialized equipment. We worked a lot to make it really easy to do. It also doesn't use a lot of DNA, most long-read workflows, legacy ones require a lot of DNA, very limiting. We heard that from customers. We wanted to make sure that this was a low-input workflow. And importantly, the accuracy is even better when you combine this with let's call it, the standard whole genome. And so now we're at 99.87%. So now hands down most accurate human genome in the world and one you can do at reasonable cause and one you can do at scale. Now that 0.87%, that 0.83% to 0.87%, that may not sound a lot, that additional 0.04%. But what that represents is, in some cases, a very particular gene that could be relevant to a pharmacogenomics study, it could be a child with a developmental disorder and this gives you insight into that it's a repetitive region. So not a lot in totality of the genome, but tens of additionally important genes for certain customers and certain applications. I want to talk about another aspect of innovation, and that is we think a lot about not only making our existing and still early applications is successful, like tumor sequencing, like whole genome sequencing for rare disease. But all the new applications that people are developing but that use the sequencer kind of as the center of the genomics universe, right? And we've come to appreciate that our sequencers as we increase throughput, as we reduce costs, they're really a universal biology information machine because they allow you to count billions of molecules very accurately. And by attaching those DNA molecules to other things, you can do pretty much anything, right? So you can do proteomics, you can do spatial sequencing. There's really no limit to it. You can see the applications here in our ecosystem. So all the ones that, again, we're working hard to continue to grow with customers like somatic and germline. We've done a lot in transcriptome, still a lot of new and exciting stuff here, single cell spatial proteomics, epigenetics, gene editing. So this whole ecosystem of new app applications. And each one of these, we're very close to partners and customers who are doing these. We have, in some cases, joint commercial arrangements to accelerate these and make it easy for customers to adopt these and scale them. And then in some cases, for example, proteomics, we appreciate we could do something unique by making a full integrated workflow ourselves. And so that's the partnership with SomaLogic. Now we're very excited, and you can imagine, running that new workflow on the NovaSeq X, for example, where you could run many hundreds of samples on a single run to do proteomics, you could do 10,000 targets with 10 logs of dynamic range, and you can do it at the lowest price point, right? So we think that will really help take proteomics to where we've brought genomics. The last is end-to-end workflows. That's another place where we create a lot of value for customers. And so by -- through our innovations and investments around the sequencer, we've created end-to-end workflows for some major applications, right? So today, we have automation software. We have laboratory and information management software, which customers need if they're doing kind of a large sample volumes, particularly in clinical environments. We have the world's leading secondary analysis, right, through DRAGEN, which is on all the FDA competitions, not just in germline, but now in somatic analysis also, and we have an ever-growing portfolio of tertiary analysis, which helps customers with that last mile of going from variant calls all the way to reports and all the way to interpretation. And then you can see these horizontal here where we take advantage of our investments, right? So whether or not it's rare disease or oncology, infectious disease, we use these components and then we make complete workflows. Over 2,600 customers have adopted one or more of these complete workflows. And so the feedback from them is they want more of this. They want more of -- they can buy a single solution and they can get into one of these applications very quickly. They really want to avoid scenarios where they have to get these pieces from different vendors, clue them together, then make them work, have a much larger staff to do all this kind of construction and piecing these things together versus applying their R&D dollars or their other dollars to running samples and doing what is perhaps their core business. So again we think very carefully. It's a large investment. When you do one of these about where it's big enough, where we can do something unique enough to create a lot of value, but when we do, it's tremendously appreciated. Also point out here it's not only a way to kind of drive more business to our sequencers. It's also a way to create more value, right? These other components are things that customers will also invest in. Okay. All right. A minute in there. So I hope I was successful in helping you appreciate that innovation is core to our success, right? Because innovation gives us enduring product leadership which we've had historically, which I think with products like NovaSeq X, the NovaSeq 6,000 Dx, bringing XLEAP to the -- the NextSeq 2000, Illumina-connected complete long reads, our commitment to kind of again, product leadership for years and years to come. We give some insight into how we do that by having the world's largest and I think most successful culture of innovation in this space, how we think about making investments that can be leveraged over many years, unique technology components that are protected by significant IP, how challenging these things are to do and just our repeated success in making these breakthroughs and small miracles happen and then bringing them to customer hands. And then last, I appreciate all of your support and the investor dollars that make this possible and that we try to be very good stewards of how to use this money to do these investments only way we make breakthroughs and great products, but we do it in a way where we're efficient about our use of this capital. All right. I'll stop there. And I'd like to introduce Phil Febbo, our Chief Medical Officer.

All right. Well, thank you, Alex, and it's great to be here with all of you and have the opportunity to talk to some of you, some of you I've worked with almost a decade in my 2 roles in industry, and you know me quite well. But for those of you who don't, I'm Phil Febbo. I'm the Chief Medical Officer. I'm a medical oncologist and physician scientist. I spent the first 20 years of my career as a physician in academia, first in Boston at the Dana-Farber where I did my training and was on faculty as a physician scientist, bringing genomic insights into understanding the biology and clinical behavior of prostate cancer. And move to Duke University for 6 years, and then to UCSF where I finished my academic time as Professor of Medicine and Urology. And transitioned to industry, because I really -- I've been a -- my career is really focused on bringing insights from a cancer's biology and genetics to care. And whereas in academia, the initial insights and translation is fabulous. It's really moving to industry I felt like I could have the impact, and really make sure that these insights translate into changing care and improved care. So I spent first 5 years of my academic career at Genomic Health as Chief Medical Officer, helping build the evidence and reimbursement for proprietary expression-based tests with our Oncotype DX test. And transitioned to Illumina because at the end of the day, I am strongly biased, and you could argue I'm biased because I'm at Illumina, but I'm actually at Illumina because I am biased that individual's genome and genomic insights should be foundational to health and health care. And that's what drew me to Illumina, and what makes me so excited to be their Chief Medical Officer. I also serve on the foundation boards for the FDA and the American College of Medical Genetics and Genomics. So let's get into it because at Illumina, we've built a clinical playbook. Alex has spoken about our incredible technologies, and increasingly, those technologies are being brought into the clinic. And what I'd like you to take away from today as far as -- sorry, go back. My key messages are talk about that clinical playbook and walk you through the incredible team and infrastructure we've built to deliver to clinical customers, and demonstrate that investment is a good use of investment dollars to drive our business. And also talk you through where we see our key clinical segments driving the business. Francis already talked about some of the market opportunity and Joydeep will follow up on that, but I'm going to walk you through the key clinical segments and where we see real opportunity to drive an improvement in health and health care. That's my role as Chief Medical Officer, but it's also a big driver for our business. So let's talk about the clinical playbook that we've had built and that we've really accelerated over the past 5 years since I've been at Illumina. You've heard about our products and our products are foundational to our playbook, and I'll walk through why that is. Not only our sequencers, but the fact that we're embedded in all the clinical leaders that are bringing genomics to health care. And that gives us insight that we need to have both sequencers and menu on those sequencers. But then again, you also have to have the right to operate, so we'll talk about moving to regulatory approval and the infrastructure we've built to have that right to operate globally. And then you move to the why. So of course, it's one thing to have a sequencer and be able to do testing, but what's the utility? What is the benefit to the patient? What is the benefit to the health care system? And once you demonstrate that benefit, you drive to reimbursement so that our customers move genomics from a cost center to revenue-generating activity, and that really further drives our business. And we then partner with them broadly to ensure that every patient has access and that these tests are adopted. This evolution takes time. It takes time in each segment with each type of testing. It's furthest along in oncology with therapy decision, comprehensive genomic profiling, now the standard of care in the United States and Germany and many countries for patients with non-small cell lung cancer. That's because the providers are there, the clinical tests are there. They're available, they're reimbursed, and now they're being progressively adopted. We've seen that same evolution in NIPT, and we'll touch upon that. Incredible success, the fastest adopted and penetrated diagnostic test ever. And -- but we're earlier in genetic disease where we have evidence, but we've just recently performed a study with Optum showing that whereas there's evidence in guidelines, only 5% of newborn suspected with genetic disease actually get genetic disease testing, so we have more work to do there. And with the pandemic, infectious disease is moving out of the research into surveillance and indeed into clinical testing. So I'll walk through some of those and walk through. But let's start with the playbook. And of course, we're very proud of the sequencers that we have across the markets. And just like research, in clinical labs, one size does not fit all. And so it is incredibly important as a clinical lab begins as an entity and then scales as an entity, as Alex said, that they have a company that can grow with them, that can support that scale, that has products across. And of course, we've built our products, focused on research-use only, and the vast majority of our clinical business right now is supported by our customers taking research-use only products and making their own tests. But the evolution in health care is moving towards a more regulated and an environment where you have to move on to clear or approved products, and that's why we're really proud to have built the MiSeq Dx initially, the NextSeq Dx, and indeed, the announcements of the NovaSeq on Thursday that Francis and Alex made, is an incredible event because it completes our low, mid and high throughput portfolio to both serve RUO and diagnostic machines. But what are companies doing on these machines? And I think starting with the -- on the right side of this test, the laboratory developed tests have been a model for innovators, and we are the platform of choice across all the clinical innovators. We are embedded, they're using our sequencers and we will continue to be the platform of choice. And I think the announcement of the NovaSeq X takes it to the next step, offers them the next level of scalability and -- for their business. The other element is that as we've become more global and as genomic testing has moved outside of early adopting countries and laboratories, it has to move to more content and in vitro device content. And given the diversity of the world and the different evolutions of health care systems across the world, one company cannot produce all that menu, all that clinical menu. So we've taken an open platform approach and worked with innovators to create IVD content on our platform and provided the support so that they could do that. Of course, in areas where we see our internal team and our knowledge of sequencing can further accelerate and accelerate a field and where we can participate more in the value chain, we do develop our own content. So we've done that in oncology with our very first cutting of our teeth with the practice test working with Amgen for RAS testing, and then we've recently released the TSO comprehensive in Europe under a CV IDV mark. We've released content in genetic disease, reproductive health and infectious disease during COVID with the COVIDSeq, which has been a backbone of genomic surveillance across the globe and accounts for between 40% and 50% of submitted sequences to [indiscernible]. And the importance there is once -- with our established installed base and with our growing established installed base and Dx machines, it's very clear to pharma partners that if they want to identify the most number of patients with a variant that can benefit from their drug, Illumina becomes a partner of choice. We haven't been that traditionally, but over the past 5 years, we really built the teams and the infrastructure to support that, and we have the products that are foundational upon which the analytic products, upon which Cdx claims can be placed. So we have the product as far as the sequencers. We're growing the content through partnerships and directly, but you have to have the right to operate. And over the past 10 years, Illumina has worked to make that transition from a strictly research-serving company to a research and clinical serving company. And it's really been working with leaders of product development, and Susan before Alex, and now Alex, as well as leaders, our leadership in our operations. Kevin Pegels, our Chief Operations Officer, together with medical to have a culture of quality. And everyone comes to work at Illumina dedicated to quality. But when you're going -- moving into the clinical markets, you have to document that commitment to quality through processes, documentations and certifications. And so across the globe, we have ISO certifications, MDSAP, IVDR in 3 labs in the United States, in the U.K., Netherlands and Singapore, so that we have access to global markets through those certifications and that commitment to quality, and that becomes incredibly important. And it's resulted in some of the numbers that Francis talked about, with 72 approvals from regulatory authorities, over 1,000 products that are registered across the globe, giving us that right to operate. So that's the how. What about the why? Why should these tests be ordered? And that's the clinical utility. And as Chief Medical Officer, that's where I focus. Like, how do we demonstrate that these tests improve patient outcomes? And in today's super strained health systems across the globe, you also have to say not only to help the individuals, but they help find health care efficiencies. And so you do that through evidence. The coin of the realm is what is the evidence for these in peer-reviewed journals that there's clinical utility, that patients benefit. So in our key segments, we have hundreds of papers, over 800 in reproductive health, oncology, genetic disease testing and infectious disease focused on our products and our technology, improving outcomes. This is across the globe. We're not just focused in the United States, obviously. We look in -- in each environment, that utility equation is not the same, and payers in specific health care systems want to see evidence within their systems for the populations they cover, and we've done that in states. We're highly efficient with this. We're very careful with the dollars that we spend here, and we collaborate with the best medical societies, the best academic centers. There's incredible interest in using our technology to understand how to improve outcomes, and we can partner very efficiently to generate studies that are incredibly powerful. And I want to talk through just a few of those. So for comprehensive genomic profiling, we've worked with Amy Compton-Phillips in her role at Providence, formerly known as Providence St. Joe, and worked with her to facilitate their commitment to internalize CGP and then offer it to every patient with advanced cancer in their system. This is an integrated health care system. They're in charge of that patient, of all the costs associated with that patient. That interaction, that activity, over 10,000 patients have received that test. We have 8 abstracts we've worked together. It's just at ESMO, where we had the opportunity to present a few more. 3 manuscripts in development that will drive the evidence showing how it's good for patients because you identify, for example, every patient with an NTRK fusion where the benefit of getting larotrectinib or entrectinib is incredible. As well as for the health care system efficiency to internalize that and have that so they're not doing test end up. Another study is the Ballett study, and Francis mentioned this. This is our interaction in Belgium. And what's incredible is that Belgium is a single-payer system, and we work with 12 hospitals and 9 Belgian NGS labs to provide comprehensive genomic profiling in collaboration to 960 patients with solid tumors. I have met with Birgit mice, the PI of the program, in her small center outside of Brussels just about 6 months ago, and it's incredible. She has a real-time dashboard leveraging all the informatics that Alex talked about. So in real time, she can tell me how many patients have specific variants, NTRK RAS mutations. That's incredibly powerful because not only does it make sure everyone gets standard of care. But now, they're a great site for additional clinical trials where pharma companies increasingly want to know that these centers already know what variants their patients have to facilitate accrual. In genetic disease, we saw a big opportunity to move from single center evidence where it was becoming more and more clear that children suspected of a genetic disease who were in the NICUSeq benefited from whole genome sequencing rapidly worked from Stephen Kingsmore, Mercy Children's in Kansas and others. But there was no Level 1 randomized controlled study showing that benefit. And so we took on that with key leaders like CHOP, Children's in Boston, and we performed a randomized controlled study, the first one for NICU patients, demonstrating that whole genome sequencing doubles the diagnosis when provided immediately and doubles the opportunity to change management, and doubles the change in management when provided earlier. Highest level of evidence to continue to drive towards coverage. So those are some examples. We also extended from our Baby Bear activities in California that opened up WGS for infants in California. We're doing that in Germany with the Baby Lion. We're doing that in Israel with Baby Bambi. And we also have a growing team to collaborate within China and perform collaborations, bringing whole genome sequencing and insights around that to that country. So they're just a few select. We have hundreds of these collaborations that are very efficient and performed through our teams. And why do we do that? Well, at Illumina, our business grows together with our clinical customers. So while we drive, we drive our business through driving the success of our customers. And that evidence requires drives towards reimbursement. We're very proud that we played a significant and strategic role in getting to the 1 billion lives covered. We're committed to getting to 2 billion lives covered to continue to help our customers, and we do that through meaningful collaborations with key payers and evidence bodies across the globe. And we're just listing some of them here. That's because, as Sean Tuna says, when you have coverage from one payer, you have coverage from one payer. Achieving reimbursement is not passive. It's an active game, and you have to engage. You have to provide the dossiers in the language that they understand to move it forward, and we rise all boats. Certainly, where we have tests that are directly affected, we benefit disproportionately. But because of our extended -- because our sequences are in all clinical leaders, by raising reimbursement, we benefit from that. And when there are particular challenges, we'll engage in risk-sharing projects like we did with Harvard Pilgrim, now known as Point32Health. Where we said, let's -- if you opened up NIPT to all comers, and they will measure the health utilization during the year when you open it up, not just to high-risk pregnancies, to all pregnancies, and we'll look at the year before where it was just used in high risk. We'll backstop any financial -- increased financial burden in that utilization. What happened is there was a slight incremental cost that we covered, but when they folded into their lives covered, there's only $0.02 per member per month, which is one of the measures they used. And what their decision was to continue that coverage, because they felt the quality and utilization supported its utilization. And that's why we dig in. We have creative programs like that across. And who's doing this work? And whereas Alex talks about the 10 years because Illumina has really built the sequencing world, so we have people who have built this, Illumina has entered the clinical world because of the transition of our tests to the clinical utilization. And we've drawn talent from clinical leaders across the industry to build a medical team that is now 1,000 strong across the globe and driving the incredible work that we've talked about as far as engaging with collaborations, driving evidence, bringing dossiers to payers, bringing applications for registrations in regulated areas, and also partnering with Susan's team that you'll hear about in commercial. Kathryne Reeves' team, our Chief Commercial -- Chief Marketing Officer, to work as a team with our clinical customers. It's taken a commitment on Francis' and on all of our parts to build that investment. Because each time we're choosing to build someone on the medical team, be it a medical affairs person engaging with collaborations or peer-to-peer education or a regulatory person in a region working on those applications, you're choosing between boots on the ground selling and the support. And that's why we work so closely to make that decision and have built over time. It doesn't happen quickly. Money doesn't solve it because they have to come in and be integrated, and it's really a pleasure to lead this incredible team as we drive our clinical business. But as we transition to segments, you'll have to just recognize, as a medical oncologist, I think about the bigger why. And AJ is an incredible person. And as someone I've gotten a chance to get to know, and we featured him last week at our IDF and I've had several opportunities to talk with him and interview him and meet him, he's a 40-year old gentleman. He's now close to 50. But non-smoker, started having some throat-clearing cough. Went to doctors when some -- there was a little blood in his mucus, and that really scared him. Subsequently went through diagnosis, chest X-ray first. Suspicious for mass, CT had metastatic non-small cell lung cancer. He was shocked. He's not a smoker, he takes great care of himself. How could that happen? Of course, 10% of lung cancers are in non-smokers, but he didn't know that. And he did not have enough tissue for comprehensive genomic profiling at diagnosis. But he did have cranial meds, and they were limited and resectable. And together with his doctors, made the hard decision to get a craniotomy, and those meds resected because that's one path of minimizing the impact of those, but also because more tissue is needed. So the tissue was used for comprehensive genomic profiling, and he was still recovering from the craniotomy when some -- the results came back. And it's really interesting, his doctor gave him a rather robust hug, which was a little uncomfortable, but they had found a ROS-Fusion, which can be treated with crizotinib, and that was 12 years ago. For those of you who know, the average life expectancy for someone traditionally, when I trained, was -- with non-small cell lung cancer, cranial mets, 9 months. He's alive 12 years later because of matching his disease. It was really interesting. When I send a note to him saying, look, I'm going to be talking to our investors, I'd like to share your story. Is that okay? He said, and I quote, "You and Illumina are absolutely welcome to use any aspect of my story. Illumina is why I am here today. " So that's the why, and that's the opportunity we have to impact lives. And we've chosen segments that we see the biggest impact to patients and the biggest markets: oncology, reproductive health, genetic disease, infectious disease. And we're going to walk through those. Francis already touched upon it. Joydeep will go into it. I am Chief Medical Officer, I focus on patients, but I am an officer and have to be a good steward of our company. And these are incredible markets so that by driving improvement in care, we're driving company growth. Oncology is the biggest opportunity, and a lot of what I've talked about so far with AJ and others is using genomics to inform treatment decision. And we've seen the movement, and I'll talk a lot about this at my last slide, a movement from single genes to panels to comprehensive genomic profiling, and that's where we are for standard of care in the United States, Germany, Netherlands, Belgium, and a growing number of companies -- countries. We've had incredible early innovators build that market using RUO, and now it's maturing so that increasingly, they're looking for IVD products to decentralize and get into regions across the globe that aren't well served by LDT. Now while that's the most mature market, it is not the biggest market. The bigger markets are in the screening, and Francis spoke about our enthusiasm for screening. If you were at IGF last week, that is going to be using sequencing for early cancer detection through multi-cancer early detection tests will be one of the ways we achieve the moonshot goal of having mortality in the next 25 years. Earlier diagnosis will save lives, and it's incredible that we can now pick up on the cell-free DNA signal and circulating a blood to detect cancers earlier, move away from just detecting -- screening for 5 cancers to as many as 50 cancers. That is an incredible market. And if you look at the basic science, it's very clear, sequencing is front and center. It's going to be the lion's share of every product. It's certainly the foundational to GRAIL's product gallery, and for those that are moving into single cell screening like Freenome for colon cancer, moving to blood-based testing, it's all about sequencing. Monitoring is another very exciting area that we'll see grow over time. Natera has been out there doing whole exome on the tumor and then doing a specific PCR-based assay. But as we have breakthroughs like the NovaSeq X as the cost of sequencing comes down, it's just math and statistics that comprehensive sequencing of the tumor and the cell-free DNA will provide an operationally efficient path to diagnostics that are driving monitoring after definitive local therapy and recurrence, and those are going to be a major impact on the care of oncology patients. And IPT is another more mature market, and Francis has walked through how we participated by buying Verinata, by performing a service, using that service to build a product like VeriSeq NIPT, and using data that we've helped through collaborations to build evidence and then driving reimbursement. So if you look at reimbursement, it's very positive in AMR, EMEA and China. APJ is a little behind. There's a lot of out-of-pocket utilization and payment, but we're seeing really good activity in Japan, South Korea, where there are already mechanisms, where there is some support, but it's not nationalized reimbursement so we don't count it. We expect to move in that direction over the next few years with our team. And Germany is a great example because we worked very hard with the authorities in Germany to get to both reimbursement, and super important, drive to a reimbursement price that could help our customers in region make -- have a meaningful business, and we achieved both. We achieved the reimbursement decision last year. And this year, we had the price set that is -- was very favorable. Importantly, also in the tender, by being engaged, we made sure that the requirements for reimbursed tests met expectations for patients, but they were also perfectly aligned with our product, VeriSeq Version 2. Genetic disease testing is a really exciting place where this is the opportunity. And with the NovaSeq X, we will see the genomes becoming foundational to human health. As we stated, it started with children suspected of genetic disease and demonstrating whole genome as the best way to identify the variance causing their disease. We have health economic studies showing that a whole genome at time of birth is not only best for the children, as I talked about NICUSeq, it's also the most economic. It avoids a series of testing and delays in management that puts a big burden on health care systems. We will see a transition from people suspected of having a genetic disease, both NICU and pediatric population, transition to what are the genetic drivers of common disease. Cardiovascular is first up. We know that there are indeed mendelian genes that drive risk of cardiovascular health, be it cardiovascular disease, atherosclerosis, cardiomyopathies, arrhythmias. And increasingly, people are incorporating that into assessment of cardiac patients. Polygenic risk scores are becoming incredibly exciting because you can identify 5% to 10% of patients with no other history of cardiovascular disease who have as high a risk as an individual inherent mutation in familial hypercholesterolemia genes. That's just the start, because when you look at where industry -- where the pharma industry is going, if you ask the question, how many drugs in development have a variant in the germline that are needed in order for that drug to be beneficial, we had -- we looked at this deeply. There are 38 trials in cardiovascular disease, 66 in neurology, 62 in metabolic and 38 in auto. That means that just like oncology, where therapy has moved from all comers to identifying groups where therapy can be very beneficial based on identifying a variant, that's moving into genetic disease. And what we've seen in oncology is drug development can be 50% more efficient, and more likely to be successful when you have that kind of targeted approach. And I think that's why we're seeing this movement. And it's very exciting because in the same way that we're a platform of choice in oncology, by having an analytically robust whole genome that we're expecting next year, we're going to be the platform upon which those companion diagnostics can be placed. So finally, I'm going to talk about infectious disease. We put this into our research group for the longest time, and it has been robust. But with the pandemic, we've been very proud with how our sequencing technology has sequenced and identified this variant, the virus back in January of 2020, and then track the virus as it's spread across the country. With the -- it was incredible that Moderna never had to have live virus in their lab. They just needed the sequence of the spike protein, and they were off to the races generating a vaccine that was proven effective through the randomized controlled trials by November of 2020. With the emergence of alpha variant, the world became attuned to the variants and the evolution, and sequencing in 2021 took off as far as pathogen surveillance. And that's continued, and I was just at the UN General Assembly the last 2 weeks ago, where a lot of discussion with the WHO is how do we continue to remain vigilant with pathogen surveillance. Each Foundation is focused on this, Rockefeller's Foundation focused on this. The Biden administration has started up, spun up a group. We're going to move forward and see that. So we've seen a transition in the segments from research, which will continue with the microbiome and deeply embedded in research. We'll also see pandemic surveillance continue with the installed base like never before, driven by the current pandemic. And we'll see increasingly, with this understanding of variance, people are more likely to ask the question, what is the sequence of the pathogen? Not only am I infected with something, but what's the sequence? And that's incredibly important for tuberculosis, HIV in areas where we see resistance. So we see that as an incredible. I'm going to end on one slide that we talk about a little bit as far as elasticity. So Illumina has benefited from elasticity in the research markets for years. And I often get asked, is there elasticity in clinical markets? And there is. It's just a little different. And I'm using this walk in testing for cancer to demonstrate that a little bit. So as you -- cancer testing does go from single gene to small panels to comprehensive genomic profiling, and let's say that's where we are today. And what drives that is the utility builds, but clinical labs have to fit the cost of their sequencing and the cost of their goods required in testing. And sequencing is one element of that, but it's been an important element and it's been a constraining part of that, into a likely reimbursed test. And those of you in the diagnostic world as I've been, there's some realistic ceilings to that reimbursed test. So if your cost of sequencing is above your expected price, there's no way you can do testing for that. So it's not going to happen. As we bring sequencing down, it can now -- you can now fit cost into that price envelope. And the more we bring it down, the more margin that a test in clinical lab gets. So you could argue, well, if you just bring it down, you're just going to start, they're going to just get more margin. The challenge is that these clinical testing have to stay competitive. They have to win the orders from health care providers. And the way they do that is offer increasing value, more comprehensive testing, deeper testing, better performance testing. And that's where you get -- every time we bring down the price, it opens up opportunities. And sometimes it opens up incredible opportunities like screening. Screening using cell-free DNA, not possible 5 years ago, would never fit into a reasonable price, full stop. It's now very possible and fits into a reasonable price, especially with the NovaSeq X. So you have those dynamics, which means you get more opportunity, deeper sequencing because of the competitive prices and we'll keep moving. And I'm really excited because, for example, in cancer, of course, a complete understanding of cancer will lead to the best treatment of that patient. So we will get the whole genomes for cancers. It's happening in acute myeloid leukemia, it's going to happen for solid tumors over time. But again, the cost has to come down to fit into that envelope, and we will get to multinome and repeated multinome. So that's how the dynamics play out with respect to laboratory testing, clinical testing and elasticity. So I want to thank you for your attention, and hopefully have shown you that we have a clinical playbook. It's an incredibly powerful playbook. It helps drive our business and the business of our customers. That we have made investments across the playbook to build the team, to drive the clinical markets, fully leverage the incredible insights coming out of Alex's teams, the technologies coming out of Alex's team to be the leader in clinical genomics, and give you a sense for the different markets we're looking at. So now as Chief Medical Officer, after listening to Salli, Francis, Alex and myself for the past 90 minutes, 100 minutes, I'm sure we all need a biologic break. So we're going to go on a break for about 10 minutes, and then Salli will welcome you back, and we'll hear from Susan and Joydeep. Thank you very much. [Break]

[Presentation]

Please welcome back to the stage, Vice President of Investor Relations, Salli Schwartz.

Welcome back, everyone. Let's get started with the second half of today's program. A reminder for all of you that are joining us via webcast, you're welcome to submit your questions at any time using the Q&A function that's on the right-hand side of your screen. I'd now like to introduce Susan Tousi, Illumina's Chief Commercial Officer for this next session. Susan?

It's such a pleasure to be here and coming off our genomics forum. So this is a perfect time to give you an update about our commercial excellence. A little bit about me. I am an engineer by training inducted into the National Academy of Engineering. I also hold an MBA. Prior to coming to Illumina, I spent decades in the high-tech industry, started as an engineer at HP, came up through the ranks and ended up leading businesses based on technologies that I help to create. But really the pinnacle of my career has been the last 10 years here at Illumina. I spent about 9 of those years running product development. And there, I had the benefit of working with our incredible scientists and engineers always driving innovation but also bringing everything I've learned in the consumer electronics industry, which is about cost reduction and integration and scalability and manufacturability and user design, and it's been a pleasure to be able to bring some of my knowledge to expanding our product portfolio. When Francis asked me to take on as Chief Commercial Officer last year, it was really kind of the opportunity of a lifetime because being able to spend more time with our customers helping them understand about our products and technology and really kind of exploring the impossible with them. Our customers really are the change makers, the drivers. So it's been fantastic and look forward to telling you a little bit more about that. So as far as our commercial organization goes, we are very unrivaled in terms of our scale, our depth of expertise, our experience in taking these transformative technologies and getting them into the hands of our customers in every corner of the world. And in fact, as we were launching a product at the Genomics Forum last week, we had members of our commercial team getting trained on all of the specific elements and features and functions and the services and support of our instruments. And now they're setting off on what will be tens of workshops and road shows throughout every corner of the world. So the engine is now in place, and we're going to get this technology into the hands of our customers. We are really the market makers of the industry, and I don't say that lightly. If you look at the major inflection points in genomics that have driven growth and scale and samples and new applications and really have come with the launch of our products. And here we are kind of doing that again with the NovaSeq X Series. Last week, as you heard, we had a sold-out event at our genomics forum. We also have a sold-out event at our Genomic Health Strategy Summit, which is kind of our next PopGen summit with everyone in person. We had about 130 people there. Our customers ask us to make introductions for them to other people who are running big projects or running new applications. They trust us. They see us as the center of the ecosystem. And I have the absolute pleasure of making the first calls to some of our biggest and most prestigious customers and tell them about the NovaSeq X. And I was doing that in just the days leading up to the formal announcement. And with those customers, as we always do, we were kind of discussing what would they do with this new capability. What new applications? How can we grow samples? What's next on their kind of vision for their institution? And all of those first conversations led to sales, and I can't wait to share some of the quotes from them. But really kind of seeing their minds wide open on what is the possibility now that they have this incredible horsepower and this incredible performance at a cost structure that makes their dreams come true. We're also now leading into kind of this next generation of a multiyear adoption cycle of this new technology. And we've seen this, and I'll show you the comparison with kind of how we saw NovaSeq 6000. We actually think this will be more accretive and kind of a bigger benefit to our business than ever before because we still have clinical customers who will be adopting and scaling NovaSeq 6000 and now the 6000 Dx on the applications that they already have validated. They may not take the expense and time to validate them on a new instrument. So we'll keep cranking away on current set of applications, keep scaling those. And our clinical customers will then bring on the NovaSeq X for new assays, new applications, ones that have much deeper depth and have kind of broader multiomics content and they will kind of -- will grow the adoption cycle in that way. Typically, research customers go first, clinical customers will bring it on for new assays, new menu, new tests. And then there will be a whole new range of applications. These are the large-scale projects that we're waiting for us to release our next major offering. And these will be sample sizes in the millions. And so at the end of this adoption cycle, the high throughput market will be bigger than ever, and we will have created kind of that next major inflection point in the industry. And how do we do this? Well, we have a huge organization across the world. We've invested billions of dollars. You could think about what does it take to create the commercial reach that we have with more than 2,000 members of our commercial organization, what does it take to create all the factories and the scale. We have 6 factories around the world. We have more than 500,000 square feet of ISO accredited kind of FDA-certified factories where we can produce our clinical products. We have 19 distribution centers across the world so we can get that last mile closer to a customer. And that was really beneficial because when Shanghai was shut down, for instance, during the lockdowns in China, we were able to get product into Beijing and get distribution through the country through that channel. So our commercial reach and our footprint has come through the investment of $1.4 billion. And that's not just in the factory space. But if you think about all the precision tooling that it takes to create our flow cells and all the components of our products, our reagents, scale up our [ FFN ]. And we have verified, validated clinical-grade technology across all these factories to produce our products at scale. And that's how we can ship more than 1 million kits a year. We can ship thousands of instruments a year with high-quality and continuous supply to every region of the world. And I should mention also that we are increasingly opening up what are more kind of commercial sites, and we call them solution centers. These are in geographies where we see the opportunity to expand the commercial footprint to be closer to our customers. They typically -- although they're mostly commercial offices, we have labs where we feature every single one of our instruments and our workflows and we train customers on the technology. It's a big deal when we open up a solution center. Recently, we've opened them in Brazil, in Dubai and recently in Milan because it shows our commitment -- to our commitment to customers in the area. We have like big launch events where we open up our doors and I had the benefit of being in Brazil when we opened our office there. We had more than 100, actually near 150 customers show up for our launch event, and they were thrilled to see our investment and our kind of staying power in the region. We have more than 9,000 customers, and the sentiment from our customers as shown by our Net Promotor Scores is that they trust us. Customers trust us. They buy into their technology, they buy up our product line. Our Net Promotor Score at 54 is excellent not just in our industry but across any industry and it keeps getting better. We're highly invested to being a customer-centric organization and having that trust and that loyalty with our customers and it shows. Our customer growth has been very significant. We've had 45% growth in our customer base since 2019. And our instrument installed base today is more than 20,000 instruments across the world. Those instruments are increasingly going into clinical applications, as you heard from my colleague, Phil Febbo. So 6,800 of them are using clinical applications. The high throughput consumables going into our clinical applications are also growing. So if you look at kind of who's purchasing that incredible franchise of our high-throughput consumables. Just 5 years ago, it was less than 30% clinical and now it's 43% clinical. And those clinical customers typically have much more kind of sustained needs. They're growing their tests, not only a number of tests they do, but their test menu. And so we see them as a big growth driver of the future. Our customers also want to have a relationship with us. That was true, as I mentioned, in our customer event. And if you looked at the tweets and the social media and how excited they are to be part of the Illumina ecosystem, but also in the fact that they connect to us through our proactive kind of connectivity, which means that we can be monitoring the performance of their instruments and ensuring 100% uptime. It also means that we can see if they are stalled in runs or if there's something going on and it gives us a very good understanding of kind of continuity of our business and where we might have issues and need to put more focus. It was certainly very useful to us during the pandemic when we saw kind of the downturn in runs, and we could see exactly when they were coming back up. And it is not only a great tool for us to kind of drive our business but also a feature for our customers. And customers are -- that rate of customers connecting to us keeps getting higher. Next year, we're also -- we're going to look at auto replenishment through this means because customers want to have a continuous supply, sometimes they don't want to carry the inventory, but they want to know they get consumables when they need it. And for us, that makes all the sense in the world. It drives efficiency and we can kind of count on that consumable stream with those customers. And if you look at the quotes, oftentimes, I visit customers all the time. I'm on the road all the time. Last week was great because they came to us as all of our customers without having to leave San Diego. But typically, when I'm on their sites, they are so excited to introduce me to our field application scientists and field service engineers who are resident at many of our largest customers actually have our employees sitting with them in their labs, making sure the instruments are running and the consumables are flowing. And so they introduced them as kind of part of their company. They really appear like an employee of the customer, but they are well logged and that level of intimacy with our customers is something that we really value and cherish. We're really proud to be part of the first of programs around the world. And I mentioned last week, we had our Genomics Health Strategy Summit, and this was about 130 people. We were going to capitate the 100, but agreed to 130 people around the world who're running the big population scale, nation scale projects for sequencing, driving precision medicine in their countries. And if you think about the very first one, which was Genomics England that did 100,000 samples, I mean, we were with them at the table from the very start. Scoping the program, looking at the strategy, how is it going to work? How are you going to manage data? How do you bring in clinical samples? How are you going to get subscription into participants into this study? And then increasingly, providing them not only all of the genotyping, but also the sequencing. So we're the only partner who does genotyping and sequencing at the scale that these projects need. And then, of course, they count on us and they count on us to help raise funds for driving samples, bringing foundations and other bodies and increasingly, pharma companies to the table who want to fund these studies. They count on us for the technology, they count on as making sure the technology works and building the infrastructure. Even for Genomics England, we ran the samples when we ran the lab. And increasingly, our data management is very important for this scale of genomics. And if you look at the big programs around the world, GEL used the DRAGEN technology for their 100,000 samples. U.K. biobank use DRAGEN to run their 500,000-plus samples at this point. All of us -- the 1 million sample project in the U.S., our precision medicine project. We partnered with The Broad and the DRAGEN-GATK and DRAGEN was used for that study as well. So DRAGEN increasingly becoming the standard for secondary analysis and you heard all from Alex about why DRAGEN has highest accuracy and you can understand why it would be adopted. And if it was even going to be a question, we've now built it into the NovaSeq X platform. So customers were delighted to hear about that. It reduces the complexity of the data management, the cost structure of data management, oftentimes, it costs as much to manage the data as it did to sequence a sample, and now we can kind of reduce that barrier, reduce that cost and drive more value and more samples into sequencing. And increasingly, they're looking for ways of doing the data sharing and the data management across all the people that they want to share data with. These studies that they do, investing in running 100,000 samples or 500,000 or 1 million or millions in the future. They really benefit from making these databases open to researchers across the world to drive new insights and findings, new drug targets, things that add value to this asset that they now created. And so they're looking for secure data management. And our Illumina-connected analytics product is fairly new on the scene. Singapore PRECISE is a first to implement our Illumina Connected Analytics for their federated data and data sharing with other population scale programs. And we see Illumina Connected Analytics being an incredible asset for these projects in the future and Singapore being the first one to do that. But we're driving not only the easy data sharing by having a common bioinformatics platform with DRAGEN but then by having a common data infrastructure platform of secure data sharing around the globe. We're going to drive more insights and more value out of projects like this. We're really excited. The next scale of projects is even bigger. We're enabling that with the introduction of NovaSeq X. If you think about our future health, that's a study of 5 million samples. And now with NovaSeq X, they can think about not starting as an exome project but growing directly to genomes. And we had great conversations. In fact, we had a wrap-up with the Genomic Health strategy summit participants after the introduction of the NovaSeq X and really challenged them to think bigger. There are studies, for instance, one across Africa that would be 3 million samples across Continental Africa. And that would move the needle in a major way in what is today a lack of diversity in samples that are available to the public. So we're really excited about what this new introduction is going to mean for the next scale of these programs. I want to talk a little bit about why our success and the adoption of our products, not only the development of our products, but ultimately the adoption of our products and those becoming kind of the gold standard in the industry is really driven by this deep intimacy we have with customers. So more than 9,000 customers, and as I told you, we have our employees even at customer sites. We listen to our customers. We're talking to them all the time. We convene them and like the genomics forum. And so we have a great voice of customer really informing what we do next. And an example of that is in our mid-throughput range. So in our mid-throughput platforms, we have the NextSeq 500 and the 550 DX. And what customers kept telling us is they wanted more horsepower. Multiomics is really growing. They want to be able to run multiomic samples and really understand kind of the biology to a greater depth. They want to have higher output per sample because if you're doing multiomics and if you're doing any clinical application, you need to have more output. They wanted to reduce cost per G, they want a faster turnaround time. And all of these things led to the NextSeq 1,000/2,000 platform. And the NextSeq 1,000/2,000 was also the first in which we built the DRAGEN technology directly into the box, reducing all that overhead of data processing. And to the NextSeq 1000/2000 as a result has allowed us to grow our mid-throughput offering. In fact, it didn't really replace the NextSeq 500 because especially the 500 -- the 550Dx has a huge clinical menu now built on it. So we keep scaling in the NextSeq 550Dx while adding the NextSeq 1000/2000, which has really been the fastest adopted mid-throughput platform in the industry. And you can see ways that we do that, not only kind of building the product based on voice of customer, but also kind of convening customers into really understanding how to utilize the technology. We held a multiomic symposium. We had like leaders in the field, the most respected and prestigious researchers can have talked about how to do multiomic studies. We had 4,000 participants who kind of -- who particularly in those studies in those webinars. And really, it's that loop of building what customers want, training them on the technology, building the application space and kind of then growing the adoption of the technology. And I think the mid-throughput has been a great example of that. And they also want to know that the investments that they're making has longevity. And so introducing new offerings based on the capital that they've invested in, like we did with the long read kits for the NextSeq 1000/2000. This was a huge and popular product for that community. Many customers who were holding on to their MiSeq because that was the only platform that did the 2 by 300 long reads are now able to step up into 1000/2000 and to have the horsepower that comes with our mid-throughput series. And so the offerings for the long reads. And then we just announced that we're going to take the XLEAP Chemistry and put it on the 1000/2000. And this will be available in the first half of 2024. This was met with like a great applause from our customers who have invested in the 1000/2000 or on the crux of investing into this platform. It gives them the ability to have 500 G data on the same system that they purchased that was capped at 360 G. So it gives them a whole another range of applications that they can bring on to the 1000/2000. And of course, our biggest announcement which we made recently, and that is the NovaSeq X. And once again, that customer intimacy, the voice of customer, we delivered something that was truly beyond what customers expected. They expect us to deliver higher throughput and get to kind of higher levels of output per run and lower cost, but to address all the sustainability issues we're -- I think it kind of blew them away, and that is what we heard from them. So talking about more flexibility. The NovaSeq X Series has 2 flow cells. The Xplus has 2 flow cells and there's the X model, which has 1 flow cell can later be upgraded to have a 2 flow cell version, which is in the Xplus. And each of those flow cells, the highest output flow cell has 8 lanes. Each of those 8 lanes can be addressed separately, which is huge flexibility for our customers because they can kind of pool libraries for any 1 lane of the flow cell, means they need fewer indexes and kind of manage it a lot easier for their workflow, run different applications in each lane of the flow cell, huge flexibility, huge kudos for that. Of course, customers asked all of last week. So is it locked for applications like the X10 was we could only do whole genomes and the answer is no. You can run any application. Any application you can load onto the flow cell. If you want to do millions of microbes, go for it. The other question was because our SBS chemistry is absolutely the standard in the industry, the entire ecosystem of applications, as you saw from Alex's slide, all of these multiomics applications, many of them from partners have been built on SBS chemistry. So the question was, can our libraries work on the new XLEAP chemistry. Will our adapters work, will our indexes work. And the answer is yes. You can port over all the applications that you run today, all the applications that the world of genomics has built, you can port them over to our NovaSeq X, and that was a huge kudos as well. And then, of course, kind of maximizing their ROI and making sure this is going to be efficient and scalable and help them run their business. They were pretty blown away by the fact that we built in, as you heard, a supercomputer, we built in tracking FPGA, 3x the horsepower, a lot more flexibility. And yet, it's the same size and footprint as a NovaSeq 6000. It has the same power requirements, the same heat management and venting requirements. So literally, they can do a one-for-one replacement in their infrastructure of something that has 3x the horsepower. And this is huge because having to think about new connections and new venting, if you visited any of our customers that have 20 NovaSeqs or 30 or 40, they have had a substantial investment in that infrastructure. And having to control the environment differently or building a whole new facility is a slowdown and a cost and a hassle that is very difficult. So being able to do drop in replacement was huge for them. And then, of course, building in the bioinformatics. So when you're talking about doing data processing, when you're cranking out 16 terabases of data, it's huge. And even if they don't use the DRAGEN pipelines that we're going to have available and will be regularly updating on the product, just being able to do VCL to fast queue conversion and then taking a fast queue and doing compression on it, automated in the system is incredible. And so all of a sudden, like all of the complexities it has, when we were talking to programs that were conceiving of millions of samples they kept saying, well, we're going to have needs like football fields and NovaSeq 6000 is like unachievable. It can't be done. Just operationally, and we can't get to it. All of a sudden, once again, we've solved that problem. So we should see the sample sizes increasing, people being able to dream big on what they can do. And of course, the sustainability. They did not expect us to reduce like the entire cold chain requirement in shipping our consumables to them. Our customers that have fleets of NovaSeq 6000 when they receive consumables for us, it's a big event. They have to stop what they're doing. They have to take the entire team that runs the lab and they're receiving boxes and unpacking them and dealing with dry eye. And now we've reduced all of that. And so it is a huge efficiency for them. It allows them to scale faster. It's a huge cost reduction. It allows them to keep their staff busy doing what they do best, and that is to kind of run genomics and run our multiomic applications. And of course, our customers are scientists. They're physicians, they care about the environment. So reducing the environmental impact of doing big science and doing big precision medicine is incredibly meaningful and important to them. So when does it launch? When is it available and in what models? I mentioned the NovaSeq X, which is going to have a list price of $985,000. It's basically what NovaSeq 6000 is. NovaSeq Xplus, which is $1.25 million. The first product that we'll launch is in NovaSeq Xplus in Q1 of next year, we expect about February when we're shipping product and then the NovaSeq X will come in the second half of the year. All the flow cells, the first flow cell that's available is in Q1, and that is comparable at 3 terabases of output is comparable to our high output flow cell or at S4 flow cell on the NovaSeq 6000. Comparable, but it runs twice as fast, that run for 6 terabases takes 24 hours compared to like 44 hours on the NovaSeq 6000. So twice as fast, so they can turn around a lot more samples and be efficient. And it's about 35% less cost per G. Across the lineup, customers in yet between 30% to 60% cost reduction if they're adopting the high output flow cell on the NovaSeq Xplus. So that is the 8 terabase flow cell. They're going to be able to get to $2 per G, which is a 60% cost reduction from what they have on the high output of NovaSeq 6000 today. So incredible offering, incredible compelling price points and customers were asking all the right questions last week and thinking about how they adopt this technology. So we are very confident that we're going to catalyze this next wave of new samples and growth in the industry. We're hearing it already. All the things that we're thinking about internally in our 4 walls before we started to have the first customer conversations. Things like driving from exomes to genomes. We're making that completely feasible, cost-effective, efficient to do from a data standpoint. Going from bulk on RNA experiments to single cell experiments and to kind of scale up the number of cells, going from single method applications to every sample really being a multi-omic sample that gives a much richer understanding of the biological content of that sample. For clinical applications, getting to greater depth and all of these things, greater depth allowing for going to genomes, allowed to go into multi-homing study, adding proteomics, for instance, in clinical samples, adding methylation, all the things that lead to greater clinical utility, greater evidence generation, all those new applications that Phil so eloquently talked about that are going to make a difference in patient success and patient impact. And then, of course, new types of samples. We have a number of customers in the pharma space that want to do high throughput screening studies. They want them to be statistically powered. Now they can get to higher and higher power statistical confidence, build their models, build their imputation engines and do that efficiently on the NovaSeq X series. And of course, I talked about the population studies that are going to get to bigger and bigger sample sizes. If you think about where we are in this industry, we really are still at the very beginning. And I know we show these numbers all the time, but we live it and breathe it. We hear it from customers. We are at the very beginning. If you think about the number of species that are sequenced, it's thousands. If you take your microbiome alone, it's millions of species, and we want to understand that for your -- for better health. If you look at the number of genomes that have been done, it's less than 4 million. Now we're talking about projects, each 1 alone, that's going to be in the 4 million or 5 million sample size. And if you look at the number of variants characterized, today, it's less than 1%. And we need to get as close to 100% at least of the known variants today characterized for us to lead to the health applications that all of us want for the future. And so we think there are massive projects on the horizon. We're going to drive this incredible inflection point once again in the industry, and this is the start with the introduction of NovaSeq X. We are confident having done this time and time again, that there is elasticity model that we really experience every time we have one of these introductions. We bring the cost down, but the growth of output far outweighs the cost reduction, and we see a financial growth and business growth based on that action. So this is the experience with the NovaSeq 6000, which we launched in early 2017, we brought the cost of sequencing down by 70% over this period. At the same time, we had a 500% increase in the amount of data that was produced. So we're confident that we're going to experience another cycle just like this with the cost reduction we made with the Xplus and of course, the just kind of the complexity reduction that we made. Just talking about the adoption cycle and comparing it to the adoption of the NovaSeq 6000, we think it will be similar to that, but I think we're going to have a longer tail of high throughput volume usage of our 6,000 and our 6,000 pluses. So in the first year, we see the research customers. They all want access to the new technology. They're applying for grants. They want to be competitive. They want to get more for their research dollar so they're the first to kind of make those purchases, but our clinical customers will also be interested in getting their hands on it to do tech dev to start building their next series of assays on the new technology. And then over the course of several years, in fact, we're year 6 in NovaSeq 6000, and we still see customers even as of last week, scaling in 6000 and then now in our 6000 DXs. So we'll see kind of a long cycle here where the consumables for 6000 will continue to be strong, especially in the clinical applications while we're ramping up into the X plus for several years to come. And our customers agree. And here you see the first customers that have placed orders with us. And once again, these were just the personal conversations that the reach outs that I made over the course of several weeks. Eric Lefkofsky, who's CEO of Tempus, who absolutely wants to get hands on this technology. And once again, this is kind of for future applications and scaling their clinical operation. Kari Stefannson, I love his quote. He's the Founder and CEO of deCODE, now owned by Amgen but going from sequencing populations to sequencing whole nations. And we're absolutely going to see that with this introduction. Professor Seo from Macrogen, who has been a proponent of whole genome sequencing really since the start of the industry. And he was blown away by this capability and the introduction and what it's going to mean for the growth of Macrogen, their ability to bring whole genomes throughout the world. Aris and John Overton from Regeneron, once again, they have an incredibly efficient engine, insight engine that's driving to new drug discovery, new drug targets and they can't wait to get their hands on the NovaSeq X and be able to kind of power their statistical studies. And of course, Stacey Gabriel from the Broad and the Broad is a launch partner as well. All of these are launch partners with us. And of course, the Broad will scale their research applications. They're looking at how they take exomes to genomes and get to that next level of scale in their incredibly respected institution around the world. With that, I hope I've convinced you that we have an unrivaled incredibly powerful commercial engine that's going to take this technology like we've done time and time again and drive adoption around every corner of the globe, that we are the market makers. And here again, the market is a buzz because of our introduction and that we are going to be sitting down with all the change makers in this industry and talking about how we drive the growth of samples and the growth of clinical applications. And of course, this new technology, this new chemistry, this new capability is going to drive another inflection point in growth in our industry. With that, thank you very much. And it's my pleasure to introduce my colleague, Joydeep. Joydeep is not only the Head of Strategy at our company, but he is also our interim CFO. So, Joydeep. Thank you.

Good morning, everybody. Pleasure to see you and thank you again for your time. So as Susan mentioned, I've been here for about 3 years. I really came to Illumina attracted by the potential of our technologies and our infrastructure to impact human health in the next decade or more. Prior to Illumina, I served with Thermo Fisher for about 16 years, so really a long time in the life sciences industry. At Thermo Fisher, I led P&Ls where various businesses, including the Clinical Oncology division and also several geographies, including the Asia Pacific region. Prior to that, I was a consultant at McKinsey & Company for about 5 years, really focusing on pharmaceutical R&D and R&D productivity and several large private equity deals where we were assisting these clients. So I want to take the next 25 minutes or so to weave together the various themes that you've heard from my colleagues into our long-term financial picture. So in terms of my key messages, as you've seen, we have a proven track record of delivering profitable growth, driven by our emphasis on innovation and of course, on operational excellence. As we look forward, we see significant opportunities in several large, growing and underpenetrated markets, coupled with our leading technology, we expect to deliver mid-teens revenue growth over the long term. In addition, we expect to deliver high-teens operating profit growth, really driving towards disciplined pricing, capturing economies of scale and of course, continuing on our discipline around strategic cost management. And lastly, our disciplined capital allocation framework will allow us to make investments on both organic and inorganic fronts to build our sustainable market leadership and unlock new applications for genomics. Turning a little bit to our past track record. As you've seen, we've delivered strong revenue growth through -- on the back of our launches such as NovaSeq and our entry into clinical markets and all of this despite the headwinds that were provided by the pandemic. On the gross margin front, we have continued to deliver gross margins in the 68% to 71% range, really delivering again, very disciplined pricing, consistent innovations that drive down our cost of goods sold and continuing to deliver manufacturing productivity, while at the same time, continuing to reduce prices for our customers. And we have delivered operating profit growth that has exceeded our revenue growth, again, focusing on economies of scale and continuing to extract operating leverage while being very deliberate and continuing to invest in our R&D and our commercial and clinical infrastructure. Now turning to our overall customer base. As several speakers have mentioned, we have a large and diversified customer base. About 50% of our revenues now come from outside the United States. On our end markets, we continue to drive greater participation into these clinical markets where our products are increasingly speced into our customer workflow. So these include our instruments, our consumables and reagents and our software. And these have led to our clinical business growing at almost 25%. Our installed base, again, driven by our innovative technologies has continued to expand rapidly. And this, coupled by strong pull-through in our instruments has led to a recurring revenue that today accounts for about 80% of our total revenues. Now for the long term. We expect to deliver mid-teens revenue growth really driven by our innovation and continuous expansion into large, growing markets. In the short term, though, in 2023, we do expect some moderation of this growth driven by some of the macroeconomic headwinds that we are seeing and some expected typical supply constraints on our NovaSeq instruments for the first few quarters. Again, as I mentioned, this is very typical of large instrument launches as we see initial interest and demand in these outstripping our ability to supply them. We expect though that these headwinds will be overcome by the end of 2023. Turning to gross margins. We expect to continue to deliver gross margins in the high 60s to low 70s range, again, driven by economies of scale, continued focus on innovations that drive down cost of goods sold and in terms of leveraging manufacturing efficiencies. On the operating profit side, we expect to continue to deliver high-teens operating profit growth and driven by capturing economies of scale while maintaining our ability to invest in R&D and commercial infrastructure. Let me dive a little bit deeper into each of these elements. So as Francis and others have mentioned, we participate in several very large, growing and underpenetrated markets. Our technology innovations that Alex and Phil and Susan talked about enable us to drive the adoption of NGS into these markets. I want to emphasize, this penetration is not just on genomics, but increasingly in the multiome arena, where NGS is now delivering the ability to assess not only DNA but RNA and proteins and methylation at scale. It's really the innovation and the change that we are driving. We expect that these markets by 2027 will reach about $120 billion in size. I guess this is a chart which a lot of you have been waiting for. So let me spend a little bit more time on it. So path to our mid-teens growth. And really, we look at 4 different components to it. Not surprisingly, the first part of that is really around consumables demand elasticity. The second component is an expansion around the workflow participation. The few areas in terms of mitigation of -- to growth that we will talk about. And then lastly, you have to adjust it for growth on instruments, services and arrays. Let me click through some of these in turn. So on the consumables demand elasticity, we see 3 areas here. The first one is, of course, the increase in number of samples. And again, this should be familiar to you by now because participation in some of these large markets, especially around clinical demand driven by markets such as MRD and minimal residual disease screening and screening early disease screening, including oncology, really are driving a demand for more samples, but longitudinal testing of the same patients multiple times over their lifetime. Other areas that are increasing the number of samples included as Susan was mentioning, right, a demand for larger population genomics cohorts and larger clinical cohorts, which are often driven by the increased interest of pharmaceutical and biotech companies in using genomics and of course, increasing the multiomics into their drug discovery and development processes. And of course, then new technologies or new techniques such as single cell and spatial are also increasing the number of samples that are analyzed through our instruments. Number two, on the consumable demand elasticity is really an increase in number of samples per analysis or rather a number of analyses per sample, I'm sorry. This is really being driven by a move towards multiomic analysis to the same sample. And again, that in turn is being facilitated and enabled by improvements in our technology. So of course, one clear aspect of this is a reduction in the amount of sample that is required for each of these analyses. And let's talk a little bit about that, which then allows you to do more analysis of the same often limited sample. The other place that our innovations are driving more multiomic analysis capability to do multiomic analysis is innovations that are built into our instruments and consumables, right? So Alex, I think, talked about the ability to run the same sample with different multiomic analysis and the same sample on the same chip at the same time, right? This is impossible to do with any other technology existing in the market. And this, you can see how it enables you to open up these markets now and drive towards this. So you're going to start seeing things moving from just analyzing DNA to simultaneously analyze DNA plus RNA plus protein and so on. So we do expect a strong increase in the analysis for sample. And the third area is really around increasing intensity of sequencing, right? So as you move, as you drive down the price of sequencing, as you enable more sequencing at scale, you are going to see more gigabase of output per analysis. Let me give you a few examples of this, right? So as you move from small panel through a complete genomic profile of a sample. The intensity of that analysis, intensity output increases by about fivefold. As you move from this comprehensive genomic analysis to whole genome sequencing, which Susan pointed out, is increasingly what customers are looking at, that output per sample increases by another 40x right? And then if you move from solid tumor DNA towards liquid biopsy, which is again a very big transition in the field and you're hearing it from a lot of our customers, that's about a 12- to 15-fold increase in the output from a sequencing run. All right. Moving towards greater workflow participation. So a lot of the investments that we are making in addition to our core technology, as Alex was pointing out, is really to provide more value and more options for our customers around the workflow. So upstream and downstream of the sequencing. On the upstream side, there are developments and library prep that are making it easier for our customers to accurately prepare their samples for sequencing. Downstream, there's been a lot of work around software, around bioinformatics, which is making it easier to extract insights from the sequencing that comes off our instruments. In particular, as Alex mentioned, we are focusing on a few key end-to-end workflows that really will enable our customers to do a lot more from their sequencers. This includes the examples that we have pointed out on proteomics, which is really bringing proteomics -- multiplex proteomics to our customers at scale and products such as TSO-500, which allow therapy selection for a distributed customer base, again, at scale. Touching on a few of the headwinds that will moderate our overall revenue growth. So of course, probably the most important of these is price. But here, as you have seen, we will maintain our commitment to drive price down for our customers and continue to drive demand elasticity for our customers. We also expect, given the attractive market we are playing in, that there will continue to be new entrants coming into the marketplace. We intend to stay ahead and lead the market in new technology, though, with our investments in R&D. We also expect our customers to continue to drive productivity in their own operations, right? So this will reduce the amount of reagents they use per experiment. And lastly, as I've talked about some macroeconomic headwinds. Moving to the nonsequencing consumable part of our business. We expect high single-digit growth for our instruments, arrays and services over the long term. All right. Let me hear a few things around the operational excellence and our gross margin and our operating margin. So as I mentioned, we intend to maintain and expect to maintain our gross margins in the high 60s to low 70s range. We will achieve this through disciplined pricing, innovation that continues to drive less expensive materials, improve processes and greater productivity. Some of these include things like automation -- process automation and standardization that will continue to drive costs down through lower rework costs and lower factor costs. We will continue to capture economies of scale in our operations and continue to drive a more diversified manufacturing base that allows -- and more in-sourcing that allow us to further reduce our factor costs. On the operating margin side. We're committed to delivering high teens growth in our operating profit by capturing economies of scale while maintaining our investments in industry-leading R&D and commercial infrastructure, especially around clinical and solution selling. We intend to capture or reduce our cost to serve through our highly connected instruments that Susan mentioned and also through investments in e-commerce. And of course, we will continue to drive scale in our G&A expenses. We move to capital allocation. The 3 areas we are focused on in capital allocation, and of course, our primary focus continues to be on organic investments in R&D and commercial infrastructure. And I'll come to this in a little bit more detail in a little while. On the M&A or inorganic front, we intend to continue our investments in key licenses and bolt-on acquisitions that will allow us to continue to deliver IP-protected, differentiated technologies faster to our customers. And lastly, we continue to intend to use share repurchases as the preferred mechanism to return capital to our shareholders while maintaining an investment-grade debt rating. We focused a little bit more on our organic investments and reiterate some of the things I've said earlier. So first of all, on the organic investment side, we intend to continue to maintain a high degree of investment as a percentage of revenue on our R&D infrastructure. This will allow us to continue to accelerate the frequency of our new platform introductions as Alex had mentioned, to continue to advance our innovation road map with a focus on sustainable IP-protection. And of course, then it will enable continued investment in our clinical and medical infrastructure that are necessary to drive adoption into the clinical markets. On the sales and marketing front, again, our intent here is to continue to maintain the strong investment that we have had here to develop the kind of differentiated infrastructure that Phil and Susan talked about, while continuing to extract economies of scale and reduce the cost to serve. So in particular, the investments that we are focused on here are around geographical expansion into fast-growing emerging markets, continuing to expand the investments in our clinical and in our infrastructure to serve pharma and biotech customers who are increasingly adopting genomics into their drug discovery and development processes. And lastly, continue to invest in areas such as e-commerce, instrument utilization tracking, auto replenishment, et cetera, to continue to reduce our cost to serve. So with that, let me wrap up with leaving you with a few key messages. So we definitely play in very large, growing and underpenetrated markets, which then coupled with our technology leadership and our commercial infrastructure leadership will allow us to deliver mid-teens growth in the long term. We will deliver high-teens operating profit growth in the long term, really focusing on economies of scale and strong strategic cost management while continuing to invest in our R&D and commercial capabilities. And lastly, our disciplined capital allocation framework will allow us to provide both organic and inorganic investments to build sustainable market leadership and to unlock new sequencing applications. So with that, I will conclude my presentation here and ask Sally to come up and set us up for Q&A. Thank you.

Thank you, Joydeep. While we're assembling everything up here, let me just give a few updates to you here. First of all, we're going to post the slides from today's presentation, so you don't have to write down everything that you saw to remember it. They'll be on our website at investor.Illumina.com. We've also included, for your reference, a glossary at the back of the deck for all the many acronyms that we've used here today. And then for Q&A, a few instructions for everybody here in the room. [Operator Instructions] So with that, we're going to go ahead and get started, and I'd like to first just welcome our speakers to the stage. All right. Well, we're going to go back here with this -- right here with these 2 gentlemen here, with their hand raised in the middle. To your left, Natalie.

Luke Sergott, Barclays. So we'll just start out here, when we're thinking about -- I know we're not talking that much about GRAIL, but can you just update us with the litigation road map, when you expect the timing of the EC, whether you're going to hear the trial, and then how that framework works within your 9 to 18 months? And then more strategically, as you guys have done vertical and horizontal M&A and most of those have been blocked, give us an update on how you're thinking about that strategy and continue unlocking these overall markets?

Sure. So let me take a cut at that. So let me start by laying out the time frame. So we expect the next step to be from the European Commission. We'll get the prohibition order, which we expected -- sorry, we got the prohibition order. We expect the divestiture order to come out at the either the end of this year or very early next year, and that will lay out a time frame for the divestiture. So we're waiting to see what they come up with. You can expect it to be -- they want it to be in an orderly way, and so it will be sometime, 6 to 12 to 18-month kind of time frame. But again, it will be laid out in the divestiture order. We also have in parallel going on our appeals to the European Court around the jurisdiction order, and we're appealing the prohibition order. We expect the appeal for the jurisdiction to play out in the back half of next year, so it will go on in parallel. And so what I was talking about was in Pac, we have started our own work stream to evaluate strategic options for GRAIL. And the time frame I laid out was just based on our observation on the typical time that kind of process takes. And so those -- that's sort of what's playing out in terms of time frame. In terms of our M&A we have seen, obviously, the regulatory challenges that are on GRAIL. And then a few years ago, when we did PacBio, we saw similar regulatory challenges. In between, however, we've done around 5 deals that we've been able to close, and so what we're seeing is that we are able to do the technology tuck-in type of deals that we've now built into our product. So the loss of data compression, for example, that's built into our NovaSeq X came from an acquisition. And so we're seeing success with technology sort of tuck-ins in that kind of M&A. Obviously, there's more scrutiny now on bigger deals, would be our observation going forward.

Great. This is Dan Brennan from Cowen. Maybe I just wanted to -- just on a near-term question on '23, since you commented slightly below. Just wanted to understand, slightly means moderately. And then when we think about the comments that you made on the -- kind of on the product cycle. Could you give us a little more flavor, kind of what's baked into that long-term growth rate in terms of NGS consumable growth, which I think will help us get a sense on this demand elasticity? Kind of the level of upgrades, is it going to be similar to how we saw the NovaSeq upgrade in terms of existing customers? I know you gave a lot of color at the time. And then also share loss, are you assuming any share loss in these long-term assumptions?

Yes, I can -- let me start off on that, right? So when we -- we're still -- obviously, this is not the time to give exact budget guidelines on 2023, right? So we're going to do that in February. But we do see like the macroeconomic headwinds that we -- all of us are seeing in the markets, right? So that, we're assuming, will take a few points of our growth for next year if they continue, right, and they continue to worsen. But again, I think that is a temporary thing. We've gone through these cycles before, right? So in the perspective of the long term, for 2023, we wanted to clarify that was one other thing. And the other thing that we mentioned as well was the initial, maybe a few quarters where the interest that Susan mentioned on NovaSeq X would outstrip the initial ability to serve and service that backlog. Again, what we typically see is by the end of the first year, so by the end of 2023, we'll have outrun that, and we'll be back in kind of delivering the demand that our customers have quarter-over-quarter, right? So that's -- that was the first part of your question, I think, right? The second part, you talked about in terms of elasticity of demand, right? And there, I think it's important to remember the 3 things that we talked about which are driving that elasticity demand, right? So we do and we are starting to see and have continued to see, right, that these new applications are driving the number of samples that are being analyzed. One of the first things we saw with multiple of our customers was also that second piece, right, where the number of analysis per sample. So this drive towards multiomics that you're seeing not only from us, but other companies in our space, right, really being enabled by some of the innovations that we are doing. So we are expecting an acceleration actually in the amount of number of analyses per sample. And then the last component of that was what Susan had pointed out, right, that throughout the history of sequencing, we are seeing that as price comes down, as people get more comfortable with sequencing, the output per analysis continues to increase, right? So if you take a look at those, and I've put up some numbers in terms of the fold increase expected in that, right? So those are well within the kind of increases you're expecting on each customer kind of moving towards more analysis for samples, or having a higher output as they move towards things that give them an even bigger insight on the biology of what's going on in that sample for that patient.

Yes. And then the other thing I'd add is, you should expect a similar sort of multi-year upgrade path like we saw with the NovaSeq 6000 Dx because this is going to be one of the largest upgrade cycles in the history of high throughput sequencing, and we have a big installed base of NovaSeq 6000s and still some HiSeqs. And so you should see this be that 5-year upgrade cycle that we saw last time. Initially led by the large genome centers and research institutes, and then we'll activate the clinical part of the market in the following years.

Going to quickly take a question that we've had come in from online. This is from Vijay Kumar at Evercore, around margins. So he's asking margins have come down from the low 20 -- high 20s, excuse me, to the low teens. What's going to get them back to historical levels for Core Illumina? And then will the rollout of NovaSeq X have any gross margin implications for 2023?

Yes. So on margins, right? So in the long term, well, we have seen margins come down. A part of this was investing. We retooled our R&D investments to allow us to deliver ever faster product innovation introductions, right? So we do expect that as we complete that economies of scale, both on the R&D side but also on our G&A and our commercial side, will drive coupled with growth, right, will drive the operating margins higher. So as we model this into our subsequent years, we do expect the high-teens operating margin growth that I talked about earlier. I'm sorry, I'm forgetting the second part of the question.

The second part was NovaSeq X, any impact on gross margins for 2023?

Yes. So I think on that front, right, as Alex talked about, we have driven a lot of innovation to make sure that -- and as we traditionally have done, right, that are that our ability to deliver lower prices to our customers are underpinned by innovations in our COGS and all 4 of the specific instruments. So one specific example that Alex referred to was the ability that we have taken a chip that was already pretty efficient with NovaSeq 6000 and we've tripled the capacity of that chip, the same chip and even made it smaller. So things like that allow us to reduce the amount of cost plus the standardization of processes that we have talked about. So we do expect to maintain our gross margins at -- in the high 60s to low 70s as we transition to NovaSeq X. Year-on-year, mix also drives the margins. In years in which there are more instruments sold than consumables relatively, you will see a small dip in margins, but that quickly corrects as the consumables demand catches up.

Patrick Donnelly from Citi. Maybe a follow-up on that margin question. You guys talked a lot about the R&D engine. Francis, you called out, I think -- just short of $900 million of spend last year on R&D. I guess given NovaSeq X is coming out, you know you didn't call it out as an opportunity on the margin side. But how do you think about that spend going forward? Is there opportunity to refine, optimize that? Maybe just talk about kind of what goes into that spend, how you think about the ROI? And then I just want to follow up on Luke's question on the GRAIL piece. You kind of mentioned the divestment order could come in a month or 2, the appeal is another year. During that time of between, is it more just kind of wait and see, and you're going to pay out the appeal process? Or is there an opportunity to divest GRAIL during that period as well?

Sure, so let me take the first question first. So I'd say we are continually looking across our spend profile to identify opportunities to optimize costs. So that's a continual process. There are periods when we do scale up investment, and certainly coming into these launches was a period of scaling up investment into R&D. Because at the same time, we're retooling our development process to make sure that we could have future launches more quickly. So that -- some of that work is now behind us. We will also balance that with the work that we are putting into the pipeline around future launches. So we are at the beginning of a lot of S-Curves on technology between the flow cells, the optics, the chemistry, the compute. And so there's an opportunity for us to continue to drive new releases based on these new components across our portfolio. So at Illumina, we build out 10-year road maps. And so every year, we sort of reassess the 10-year road map. What's in the 10-year road map are looking for opportunities for future instrument upgrades that are better, faster, cheaper, more accurate, faster. So there's some of that work going on. We're looking for opportunities to deliver end-to-end solutions that will catalyze markets. You heard about some of them today. And we're also looking at sort of next-gen technology. So that's the mix we constantly look at to see, are we set up for the future that we know our customers want? We also look across the company, though, for opportunities to optimize costs. And there, we continue to find new opportunities around G&A, for example, as we scale to get more efficiencies. And that's the mix that leads us to a charter course where we can see expanding margins that even as our revenue scale, our costs won't scale as high. And it should be -- you should see expanding margins going forward. In terms of GRAIL, we are going to treat these as parallel paths. So some of our -- some of our path forward is going to be dependent on what comes out in the divestiture order for the European Commission. And that will sort of lay out the parameters around what is or isn't possible at the time. And that may be in parallel with a potential appeal. And so -- but again, a lot of it is dependent around how the next couple of months bare. The way we are approaching it right now is there are 2 separate work streams. There is a work stream around divestiture that we're looking at that is independent of -- that's an independent path on its own, and we'll follow the guidelines laid out by the divestiture order.

I think just to emphasize as well, right, on GRAIL, we are taking a pragmatic approach. I think there is nothing that is causing us to elongate the time we will get that resolved as efficiently as possible, but taking care that we maintain shareholder value and GRAIL's value to succeed, right? So I just wanted to assure you this is not us looking for an opportunity to elongate the process.

We want to get it resolved as quickly as possible.

Maybe I'll make a comment on the R&D spend, which is that the investments are not just to have the next NovaSeq X and similar type products and other categories as Joydeep and I think I said is to have more product introductions faster, right, so -- and to drive growth. So it's not just to maintain kind of a similar type of new upgrades, but getting more expensive. It's actually to get more products over time and actually do it in a way where each of those is less cost, because we're doing more and we're doing it faster.

Go up front here. We'll go to Dan.

So a follow-up to Dan Brennan's question from earlier. I was hoping to get more color on how you're thinking about the layered adoption cycle on the high-throughput instrument side. So when you launched the NovaSeq initially, you shared that there were 500 -- sorry, 800 high-throughput customers. Where does that number stand today? How many are research that would want the latest and greatest technology, and how many are clinical that will be scaling up the last generation of the technology?

Sure. Maybe Susan, we'll turn it over to you.

Sure. Our customer base for high-throughput has grown, as you can imagine. And we have -- I don't know if we put the actual numbers out there, Salli, if you're okay with me sharing some of them, but about 1,500 customers in high-throughput today. And we have -- about 40% of those are clinical customers, that growing base of clinical customers. And in terms of how we see that impacting the adoption cycle, as I mentioned, I think that for many of our clinical customers who will start to take on maybe a few sequencers in kind of immediately, because they want tech dev of new assays. They already had in mind, they're going to do a ctDNA assay and so they're not going to develop that directly on a 6000 at this point. They'll probably -- because they want to have kind of higher depth. They want to have multiomics. They'll kind of target that on the new instrument, they'll bring the instrument, as you saw with Tempus, to really kind of road test and understand the performance on the new chemistry. But the thought of moving applications, and we have customers today that are asking us to continue HiSeq consumables because of applications they have validated. So I think there will be a long tail of usage of the 6000, and we just introduced the 6000 Dx. And so for many of our markets overseas, it's going to be important to have a Dx product to meet the regulatory requirements of IVDR or others. And so they'll continue to adopt and scale the 6000 Dx. But there's going to be -- because the new clinical applications are driving to higher intensity to multiomics, there's going to be a deep interest in getting to the new technology for new applications as soon as possible. In general, I see that the pull-through on 6000s and 6000 Dxs being robust, because these are applications -- these are clinical applications that they've already validated. They've done a site specific PMA or other, and then they're growing those tests as they bring on kind of the next generation of applications. So I see it as being once again a multi-year, but like for -- like we're seeing with the NovaSeq 6000, even in year 6, I think in Q1 of this year, we had like the highest number of 6000s ever sold in year 6 of the instrument.

Go ahead. We'll stay up front here for a minute, and then I promise I'll get around.

Puneet Souda, SVB Securities. So a rather simple but an important question. I know elasticity demand has talked about quite a bit. if I could boil it down to what is your expectation for pull-through for X Plus, NovaSeq X Plus at the study state? Because if I look back last 15 years from the GA days, the pull-through has gone from sort of sub-100, 100,000 to now 1.3 million on NovaSeq 6000. So where do you expect with a 25B flow cell, where you can be on the pull-through? Because I think the question really is that with the subsequent lowering of cost per gigabase, how much leverage do you have in trying to drive the pull-through higher? And if pull-through is not going to go as higher, then is it the instrumentation, installed base that's going to drive the growth more longer term? So this is longer term, and then just one clarification for maybe Joydeep is does the GRAIL -- I mean, does the guide include GRAIL in it, the long-term guide? And is the mid-teens off of a lower 2023 base, or inclusive off of it?

Yes. So let me start by talking about pull-through. And I'll start by saying, well, initially, of course, when we first launched it, as you know, with our other instruments, it takes a few quarters for pull-through to normalize to a steady state. And because we have a small end at the beginning, the pull-through will sort of bounce around a bit, but it will get to a steady state. And when it does, we do expect the pull-through to be higher. To continue that trend, as you've been saying, from the GA. Every time we've launched a newer, bigger instrument, the pull-through per instrument has gone up from the previous instrument. So our expectation is that we will continue that trend with Dx once we get to a steady state, and it takes a while to get to a steady state with the new instrument. And that will be driven partly by the elasticity we talked about, that will be enabled by the excess. People do more sequencing, bigger cohorts and run those machines harder than they have historically. We also do expect DTC as we saw with the NovaSeq, that this Dx will fundamentally enable new use cases which will bring new customers to the fold. As you recall, one of the upside surprises around the 6000 was how many new customers new to high-throughput customers, were coming to Illumina and starting with the 6000. And so what we're hearing from customers already around Dx is the new use cases that it enabled, and we expect that trend to continue too as we get to Dx. So to your point, it will be both. It will be -- we do have an expectation on the higher throughput per instrument, and we do expect new customers to come out and open up the number of customers that are accessing high throughput sequencing because of what Dx enables. So with that, I'll turn it over to Joydeep to talk.

Yes. And maybe just to add one other thing, right? So remember, Alex said -- and what Alex and Susan mentioned, right, this is also about twice as fast. So if you're thinking about a number of runs that can be done per unit time, we are actually accelerating that, right? So we do expect throughput in the long term to continue to accelerate for all the reasons Francis mentioned, and that speed piece is an important piece to keep in mind. So you asked me about 2 things there. So first, does the mid-teens, no, it doesn't, right? So we're talking primarily about our core business today and really, a lot of the discussion here or most of the discussion has been about the core business and our confidence in that business and the markets we play in. And then in terms of the growth, whether that takes into account a lower 23%, the confidence we want to project to you was really on the capability for growth in the mid-teens area. So we're not trying to game it by one year or the other, right? We do expect that in the long term, we will, given the elasticity, given some of the innovations we're putting out in the market, that really allow us to pull in new customers to open up new applications, will drive our growth rate in that range.

I promised to go over here, so we'll do that. Over here.

Derik De Bruin from Bank of America. So I'm going to squeeze in a couple. But I guess the first one, you mentioned the IP of GRAIL. And I'm just sort of curious, does GRAIL have IP that's blocking some of the other people doing early stage multi-cancer detection? And I guess how would you sort of think about that? I mean, if you're forced to divest GRAIL, how does that sort of IP arrangement work? And then the second follow-up is like, what are sort of the trading economics on people going from a NovaSeq 6000? I mean, so people just bought when they do it? What's the economics? And is it possible -- I mean, we talked to some scientists, I think they were interested in -- would you ever make the NovaSeq 6000 backwards compatible as well?

Yes. All right, so a bunch of questions there. So let's go through it. So first of all, again, today is intended to be core Illumina, but I will quickly answer the GRAIL question as well. GRAIL has a huge IP portfolio around their methylation-based approach to multi-cancer early detection. So 230 patents issued, 170 pending, really robust patent portfolio. At this point, they're the only company in the world doing multi-cancer early detection for 50 cancers. So -- it depends on, I guess, what the other companies decide to do and what approaches they want to land on, and they'll have to navigate the IP portfolio that exists with GRAIL and other players. What we are seeing right now is other players show up with single cancer tests, like colorectal cancer and so on. And so I guess they have a very rich portfolio, but since there's nobody else doing it, we'll wait to see how that plays out over time. If we do spin it out, their IP is around their test for early detection. It's not something Illumina does. It doesn't sort of play out on our sequencers. We have all the IP we need for the existing sequencers we have and for the road map going forward, so it really shouldn't have an impact on this at all. I'm trying to think about the second and third part of your question.

Trade-in economics for upgrading NovaSeq 6000 to Dx? And then would you consider making the 6000 compatible, backward compatible?

Susan, maybe you can talk to us about the trade-in programs.

Sure. And remember that many of our clinical customers are not going to want to trade in because they're utilizing their 6000s on their current applications. But we will have -- we do have trade-in value depending on when you purchase the instrument and how many you're kind of trading up for. I think they're in the range of 15%. If you've bought kind of 6 months or previously before, and maybe 20% if you're like changing in a fleet. And if you're nearer term, then it really depends kind of customer by customer. So we want to make sure our customers are happy if they purchased fairly recently. And if they should have been in the NovaSeq X, we want to kind of make a streamlined path to do that.

This is a very similar approach to what we've done historically, right? So every time whether we launch the NovaSeq or so, taking a very similar approach to trade-ins. In terms of making XLEAP-SBS or chemistry X available on the 6000, we'll listen to feedback on that. But it's unclear whether there'd be a need for that given now that we've launched Dx. The NovaSeq 6000 was 5 years ago now. And so again, we're open to feedback, but it's unlikely. I think people would want us to go back and make it on the 6000.