Illumina Stock Plunges Despite Strong Results, Gene-Sequencing Sales

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The gene-sequencing supplier

Illumina

delivered on its March quarter financial forecasts, as global demand for genetically-informed cancer treatment made up for Covid lockdowns at China’s labs, but Wall Street analysts cut their forecasts for the stock price regardless.

In calls Thursday, the company reaffirmed its ambitions to increase sales in blood-based cancer screening and new drug discovery.

Illumina
’s
March quarter sales rose 12% year over year, to $1.22 billion. Sequencing instrument sales of $212 million were up 20%, while consumable sales of $784 million rose 13%. Net profits were $86 million, or 55 cents a share, compared with $147 million, or $1.00. Backing out noncash charges, March 2022 profits were $1.07 a share, compared with $1.89.

Both sales and earnings beat consensus forecasts, but not by as much as Illumina’s 2021 performance seems to have led investors to expect. In Friday morning trading, the stock sank 14.5% to $249.37.

Wall Street analysts trimmed their price targets, while leaving their stock ratings intact. While Illumina’s sales and profits had allowed it to lose less ground than most biotechs in the past year, its descent is speeding up. The stock is now down 41% since the sector’s February 2021 peak, compared to a 55% drop for the

SPDR S&P Biotech ETF

(XBI) and the Nasdaq’s 14% drop.

Still, Illumina has an intact growth story and its shares command a multiple of 60 times this year’s consensus earnings forecast, according to FactSet.  

“Demand is being driven by a dramatic expansion in reimbursement for the use of genomic testing in cancer therapy selection,” Chief Executive Francis deSouza told Barron’s, late Thursday.

China’s rolling lockdowns probably deprived Illumina of about $10 million in March quarter sales, said deSouza, and could subtract about 3 percentage points from the 10%-to-12% growth rate that the company had expected for this June quarter. The company believes that China will reopen in the year’s second half, and Illumina reaffirmed its guidance for 14% to16% sales growth this year, with net earnings ranging around $2.43 a share, and cash earnings around $4.10 a share.

The company’s Grail business had $10 million in March sales of its Galleri blood test, which looks for telltale genetic fragments to give early warning on dozens of different cancers. Grail lost $172 million on March operations. Illumina stuck to its guidance that Grail sales this year can reach $70 million to $90 million. The CEO has said that cancer screening could become the biggest market for sequencing.

Antitrust regulators in the U.S. and Europe want to unwind Illumina’s $8 billion acquisition of Grail, which the governments believe will stifle competitive efforts in cancer early-detection by rivals like

Guardant Health

(GH) and

Exact Sciences

(EXAS). Their labs rely on Illumina sequencing systems. Illumina is fighting those antitrust cases and says it will appeal any adverse initial rulings.

In this week’s earnings calls, Illumina discussed another growth initiative in which it is joining with drug developers to expand the use of sequencing in the discovery of new drugs. Psychiatric disorders arise from complex interactions of many genes in the brain, for example, and teasing out treatment targets will require genomic studies of large numbers of people—and a reduced cost of sequencing that Illumina promises in its future products.

Thursday, the company announced that it will work with the healthcare-focused investment firm Deerfield Management to use sequencing in Deerfield’s start-up ventures. While Illumina could reap returns from any discovered drugs, deSouza says the real aim is to encourage the biotech industry to use more sequencing systems and consumables.

Illumina bull Kyle Mikson, at

Canaccord Genuity
,
came away from the sequencer’s earnings results with renewed confidence in his Buy rating. The company’s near term cautions about China’s slowdowns moved Mikson to trim his price target to $520, from $555.

“[W]e believe core Illumina should continue to outperform expectations in 2022 and beyond,” the analyst wrote in a note Friday.

Write to Bill Alpert at [email protected]