Illumina Inc. (NGS: ILMN). While the stock has fallen over the past quarter on news that the company would acquire cancer detection startup Grail, we believe that Illumina is well poised for growth in 2021 and beyond. While certain uses of the company’s systems, particularly those used in research universities, have been negatively impacted by the pandemic, management noted that roughly 90% of its clients’ labs have now returned to at least limited operation, up from about 50% in April.
On a year-to-date basis, earnings fell 33% to $3.28 per share. Year-to-date, total revenue has fallen 12% to roughly $2.29 billion.
As announced on April 14, 2020, the company had withdrawn its 2020 EPS and revenue guidance due to the pandemic.
In 2020, roughly 40% of the company’s new NovaSeq placements have come from new-to-Illumina customers, 40% have come from NovaSeq capacity upgrades, and 20% have come from HiSeq customers that continue to transition to the new machine.
On the third-quarter earnings call, management noted that the use of sequencers in recent scientific studies could accelerate the adoption of genomic tests into routine clinical use for the surveillance of infectious diseases. In particular, the company highlighted Australia’s recently launched national COVID-19 tracking system, which aims to sequence the virus genome of all positive COVID-19 tests in the country. The new tracking system will also help to identify emerging outbreaks of the virus, as well as any mutations of COVID-19 within the Australian population.
Outside of the Australian COVID-19 tracking program, two startups in which Illumina has invested, Ginkgo and Helix, were among seven recipients of funding from the NIH’s rapid acceleration of diagnostics initiative, underscoring the potential for sequencing-based diagnostic tests.
Additionally, as in the first half, the company did not offer full-year guidance due to pandemic-related uncertainties. It specifically noted the risk of new shutdown orders in the U.S. and Europe, as shutdowns and other restrictions last spring weighed on clinical sequencing activities. Certain expenses, such as travel expenses, have also remained lower than they were prior to the pandemic, though management expects higher costs to mostly return next year.
ILMN stock fell sharply in mid-September, declining more than 20% between the publication of a Bloomberg report that Illumina was in talks to acquire cancer detection startup Grail and the eventual announcement of the deal. Formed as a subsidiary of Illumina in 2015 before being spun out a year later, Grail will increase the company’s directly accessible total addressable market, enhance its position in clinical genomics, and accelerate the adoption of NGS-based early multi-cancer detection tests. While the $8 billion price tag surpasses the $2.15 billion acquisition of competitor Thrive Earlier Detection Corp., we believe that the acquisition will benefit Illumina over time as the NGS oncology testing market is expected to rise to $75 billion by 2035.
FINANCIAL STRENGTH & DIVIDEND
On February 5, 2020, the board authorized a $750 million buyback, which superseded all prior authorizations.
ILMN fell sharply in mid-September on news that the company would acquire Grail, although this led the stock to trade in a symmetrical wedge pattern. The shares now appear to have risen above the upper constraints of this wedge, suggesting that the bulls may be about to take control.