Illumina stock crashed Friday after the DNA-reading behemoth slashed its outlook as macro pressures continue to build on life sciences tools companies.
For the full year, Illumina expects to ship just 330 to 340 million of its NovaSeq X instruments, down from its previous outlook for 390. Illumina announced NovaSeq X in September 2022 and touted the system's ability to sequence more than 20,000 genomes in a year.
But customers aren't snapping them up as fast as originally expected, Canaccord Genuity analyst Kyle Mikson said in a report. Instead, purchasing constraints have lengthened sales cycles.
"The decrease in placement expectations is relatively alarming, in our view, after a seemingly strong start to the launch of a product which the company believes will drive long-term growth," he said in a report. "Given the near-term macroeconomic challenges, Illumina lowered its 2023 guidance metrics."
On the stock market today, Illumina stock tumbled 8.1% to 98.37.
Illumina Stock: Launch Slowdown
Mikson notes the NovaSeq X rollout appears to be slowing down. Illumina shipped 97 of its systems in the third quarter, down from 109 in the second.
"However, due to lengthened sales cycles among customers, Illumina expects a further decline in placements," he said.
That dynamic dampened sales, which grew just 1% in constant currency to $1.12 billion and missed expectations for $1.13 billion, according to FactSet. Adjusted earnings, though, beat forecasts at 33 cents per share. Illumina stock analysts projected just 14 cents. Illumina guided to 10-15 cents.
Evercore ISI analyst Vijay Kumar noted Illumina is far from the only life sciences tools company to have guided down heading into year-end.
"Every tools company so far has guided down and is pointing to flat to low single-digit outlook for fiscal year 2024," he said in a report. "And Illumina fits this pattern."
But he cut his price target on Illumina stock to 160 from 180. Kumar still has an outperform rating.
Grail Headache Continues
Meanwhile, Illumina is still struggling with its Grail headache. The company acquired Grail, which makes a cancer detection test, for $8 billion in 2021. The acquisition wrapped despite objections from regulators in the U.S. and Europe. Now, European regulators have ordered Illumina to divest Grail.
RBC Capital Markets analyst Conor McNamara says Illumina's new chief executive Jacob Thayson did the best thing short of "inventing a time machine and convincing his predecessor to forget about Grail." Thayson kicked off his first call as CEO by saying, "Make no mistake. I am here to focus on the core business."
"With $64 billion of market cap gone from the August 2021 peak, we think that one statement should get many investors reengaged with Illumina," McNamara said in a report.
But McNamara also slashed his price target to 260 from 318. He expects DNA sequencing to be a core part of biopharma research in the future and Illumina should maintain a dominant market position. However, the timing of Illumina's return to growth is unclear. He still has an outperform rating on Illumina stock.
Similarly, Canaccord's Mikson lowered his price target on Illumina shares to 120 from 210. He also downgraded the stock to a hold rating from buy.
"Importantly, the company noted that its initial view of 2024 performance is in line with 2023 (i.e., flat revenue and operating margin levels)," he said. "Indeed, this implies Illumina's revenue growth will be nominal for the third year in a row."
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