Bull of the day: Illumina (ILMN)

Illumina ILMNis the $32 billion leader in genetic sequencing equipment for biotech companies and research labs worldwide.

Illumina, based in San Diego, provides integrated tools and systems for the analysis of genetic variation and function. Through its proprietary technologies, the company offers innovative sequencing and microarray solutions for genotyping, copy number variation analysis, methylation studies, and gene expression profiling of DNA and RNA.

Its customers include leading genomics research centers, academic institutions, government laboratories, hospitals and reference laboratories as well as pharmaceutical, biotechnology, agrogenomics, commercial molecular diagnostics and consumer genomics companies.

Illumina generates revenue from two segments – Product and Service.

Product revenue (87.7% of total revenue in 2021; up 45.1% from 2020) are primarily attributed to partnerships and collaborations to develop distributable clinical in vitro diagnostics (IVDs) for Illumina sequencers. Product revenue consists of proceeds from sales of the Consumables and instruments used in genetic analysis segment. This includes reagents, flow cells and beadchips based on the company’s proprietary technologies.

Revenue from services (12.3%, up 10.7%) includes genotyping and sequencing services as well as instrument maintenance contracts.

Next Generation Sequencing (NGS)

Illumina’s sequencing platform portfolio represents a family of systems designed to meet the workflow, throughput, and accuracy requirements of a full range of sequencing applications.

The Company’s MiSeq Sequencing System is a low-cost desktop sequencing system that provides individual researchers with fast turnaround, high accuracy and streamlined workflow.

NextSeq 500 offers flexibility from whole genome sequencing to targeted panels in a desktop platform. The HiSeq 2500 Sequencing System allows customers to sequence an entire human genome in approximately one day.

How ILMN rose in rank Zacks

Illumina ended the first quarter of 2022 with better than expected earnings and revenue. The solid year-over-year improvement in Core Illumina’s business looks encouraging.

Revenue contributions from the new GRAIL venture, primarily Galleri testing fees, bode well. Shipments of NovaSeq consumables and instruments reached new highs in the quarter as the company saw strong demand for NextSeq 1000, 2000 from new customers.

The company also saw significant growth in the installed base and a record order backlog, instilling optimism. Orders for sequencing consumables topped $1 billion for the first time in the quarter, setting a new record for the company.

Although there was a significant year-over-year decline in adjusted earnings per share, analysts raised estimates for next year. So while this fiscal year will see a 30% decline in EPS, next year will rebound with a 30% gain.

And more encouraging is the flat revenue with projected growth of 15% this year to $5.2 billion and next year expected to cross $6 billion for a 16.5% lead.

Controversy over the GRAIL merger: it’s complicated

Five years ago, Illumina established its GRAIL cancer detection unit. Last year, management decided it would be best to fold the business.

GRAIL’s Galleri blood test detects 50 different cancers before they are symptomatic. Illumina’s acquisition of GRAIL will accelerate access and adoption of this vital test worldwide.

Since the deal was announced last summer, it has come under intense scrutiny from the EU. It’s a shame because as Illumina wrote last August…

The Galleri test is available but costs $950 because it is not covered by insurance. Bringing the two companies together is the fastest way to make the test widely available and affordable. Illumina’s development and market access expertise has already covered genomic testing for more than one billion people worldwide. This experience will contribute to the coverage and reimbursement of the Galleri test.

Late last week, Reuters reported that Illumina’s Grail deal was likely to be blocked by EU regulators. Illumina’s proposed takeover of Grail is likely to be blocked by EU antitrust regulators amid concerns over concessions offered by the U.S. life sciences company, Reuters’ Foo Yun Chee reported, citing people familiar with the matter. .

There are doubts whether concessions offered by Illumina last week to assuage EU concerns over the transaction will increase competition, the author noted. The company has offered competitors worldwide royalty-free licenses for some of its patents and a three-year patent truce with China’s BGI in Europe in a bid to address EU antitrust concerns.

Bullish reaction from analysts regardless of the merger

On July 14, Canaccord analyst Kyle Mikson noted that the EU court had ruled that Illumina’s merger with GRAIL could proceed, but he said the decision did not reflect the merits of the company. merger. The analyst remains positive on the outlook for Illumina with or without GRAIL and believes investors are undervaluing the company’s strong core performance. Mikson reiterated his buy rating and $520 price target on Illumina shares.

On July 13, Piper Sandler analyst David Westenberg observed that EU regulatory uncertainty increased the likelihood that Illumina would have to completely divest the asset, which would be a “net positive for the stock if it was happening.” Westenberg, who sees the EU decision as a “headache” since both companies are based in the United States, says the news is delaying a “compensation event” for Illumina. Still, he reiterates an overweight note on stocks, saying the company has the most comprehensive sequencing product line in a 20% growing market.

Reproductive Health and Genetics Markets

Illumina is currently delivering on its goals of building its presence in the multi-billion dollar global gene sequencing market with highly competitive products in its existing portfolio and pipeline. This market is rapidly expanding globally, which has enabled the company to witness continued growth in the number of non-invasive prenatal testing (NIPT) samples.

Here’s how the company describes its position in this market…

Based on past experience, when Illumina enters a market, the market grows. When Illumina entered the non-invasive prenatal testing space, prices fell, reimbursement increased, the number of providers increased, and more expectant parents gained access to testing.

I completely agree with this point of view because I have been a frequent investor in Natera NTRA, a $4 billion diagnostics company specializing in NIPS (non-invasive prenatal screening). This is a vital area that must be accessible to every woman and her baby, no matter the cost.

Conclusion on ILMN: Be a long term buyer near $200. This leader in genomics will make science and medicine exciting in the coming decades of the century of biology.

Disclosure: I own shares of ILMN and NTRA for the Zacks Healthcare Innovators portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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