As recently appointed CEO Jacob Thaysen, PhD, prepares to address the J.P. Morgan 42nd healthcare Conference in San Francisco on Tuesday morning, Illumina (ILMN) investors and analysts will be among those listening intently for reasons to believe that the sequencing giant’s stock might continue a recent climb from a 10-year low to which it had sunk last fall.
Shares of Illumina had closed at $92.26—their lowest price since October 2013—on November 13, four days after the company reported disappointing third-quarter 2023 results and reduced its investor guidance by:
- Projecting a 2–3% drop in consolidated revenues for 2023, down from a 1% gain that Illumina previously estimated.
- Cutting its estimate of how many NovaSeqX sequencing systems it expected to sell in 2023 to between 330 and 340 of its NovaSeq X instruments, down 13% to 15% from its previous forecast of 390 instruments.
Since the gloomy earnings report, Illumina shares have made something of a comeback. The stock bounced back 54%, climbing to $142.53 on December 27, as investors went bargain-hunting, convinced that the sequencing giant’s stock would not stay that low for long.
More recently, Illumina shares have given back some of that gain, sliding nearly 8% to $131.43 on Wednesday. That price marks a 75% plunge from the company’s all-time high of $524.84 at the close of trading August 16, 2021.
The precipitous drop in Illumina’s share price has destroyed $55 billion of the company’s market value according to activist investor Carl C. Icahn—a key argument in his campaign over the past year to reshape Illumina’s direction by pressing for changes in its C-suite, and especially its board.
Interestingly, Illumina’s arguably most important action under Thaysen so far—the company’s decision to divest itself of cancer blood test developer Grail—has been only a modest contributor to Illumina’s stock bounce back.
The first trading day after the Grail decision, Illumina shares inched up just 1.6%, from $127.10 to $129.10, before rising 12% to its December 27 high.
Investors seemed more favorable to the Grail divestment announcement than analysts, judging from the fact that few analysts have even weighed in on Illumina stock since then. Of those who have, only Sung Ji Nam of Scotiabank has upgraded Illumina, going from “Sector Perform” to “Sector Outperform” on December 19.
That day, Conor McNamara, CFA, of RBC Capital Markets lowered Illumina’s 12-month price target about 1%, from $260 to $258, reflecting slight changes to the company’s earnings per share, though RBC retains its overall “Outperform” rating on the stock.
However, a more sobering factor was cited most recently on Thursday by Dan Brennan of TD Cowen when he downgraded Illumina from “Outperform” to “Market Perform”—namely the slower than projected sales of NovaSeqX Plus.
“Illumina’s stock has historically experienced higher highs [as well as] lower lows with each successive high-throughput instrument launch, as demand elasticity has led to double-digit next-generation sequencing consumables growth aided by a bolus of instrument revenues—though this time the [NovaSeq] X cycle has not yet ushered this in,” analyst Dan Brennan wrote in a note to investors.
Illumina acknowledged as much in reporting Q3 results.
“Although we correctly anticipated a sequential decrease in high-throughput consumables revenue due to the NovaSeq X transition, we placed fewer NovaSeq X instruments than we expected in the quarter, as customers’ purchase constraints led to lengthened sales cycles,” Joydeep Goswami, Illumina’s chief financial offer, told analysts on the company’s Q3 earnings call November 9.
Goswami added that Illumina ended the third quarter with more than 310 orders since launch and a total installed base of 273 instruments—including the 97 shipped to customers during Q3.
Sluggish NovaSeq X sales might explain why at an investor group meeting hosted by Leerink Partners last month, Thaysen said 2024 will be a transition year for Illumina as it moves beyond Grail and shifts to an operational excellence mindset while weathering persistent macroeconomic challenges.
“Thaysen also emphasized a transition from focusing on lowering sequencing costs and delivering a quality sequencing product to thinking about lowering overall workflow costs and offering a sample-to-answer workflow that meets the needs of different customers,” Puneet Souda, a senior managing director covering life science tools and diagnostics at Leerink Partners, wrote December 8 in a research note. “Though this remains an attractive goal ultimately, it is likely to require product and workflow buildouts—which is bound to take time and is thus a long-term goal in our view.”
Thaysen added that Illumina expects to make up for fewer installations of NovaSeq X than planned through higher use of the sequencing systems by customers, according to Souda.
Souda has raised his firm’s price target on Illumina shares 21%, from $140 to $170, based on the expectation of a Grail divestiture and updated discounted cash flow figures that included lower risk-free-rate expectations.
In addition to customer purchase constraints, Brennan and other analysts have cited as factors in Illumina’s slowed sales a growing number of competitors, weakened sales in China, and Icahn’s continuing activism.
Icahn has responded to the planned divestment of Grail by expressing hope that it “happens in a way that will truly open a path for Illumina to be successful again”—and by announcing continued efforts to oust from Illumina’s board directors who had joined the board during the tenure of Thaysen’s predecessor CEO, Francis deSouza.
Icahn has sued deSouza and the legacy board members in Delaware Chancery Court, accusing them of breaching their financial duty by directing Illumina’s three-year effort to acquire cancer blood test developer Grail, as well as the company’s defense of the $7.1 billion deal in the face of opposition from U.S. and European regulators.
The lawsuit came four months after deSouza resigned as CEO following a proxy challenge from Icahn that was partly successful. Shareholders of the sequencing giant ousted a deSouza ally as chair and elected to the board one of three allies nominated by Icahn.
“We have major misgivings that as long as this current board remains in power, even if there is a divestiture, it will come with far too many strings attached. Why should stockholders trust the legacy conflicted directors with the GRAIL divesture process?” Icahn wrote in a December 18 open letter to shareholders. “We believe that, without the influence of the legacy directors, CEO Jacob Thaysen, the new directors and Illumina’s employees will restore Illumina back to the great company it once was and can be again.”
Leaders & laggards
- ABVC BioPharma (ABVC) shares leaped 58% on Wednesday, from $1.20 to $1.93, after the company and its subsidiary BioLite received a milestone payment from AiBtl BioPharma of 46 million shares—valued at a total $460 million—tied to achieving an undisclosed first milestone under a global licensing agreement with AiBtl covering ABVC’s central nervous system drugs with the indications of MDD (Major Depressive Disorder) and ADHD (Attention Deficit Hyperactivity Disorder). AiBtl has become a subsidiary of ABVC, which holds 57% of AiBtl’s consolidated shares. ABVC said it expects AiBtl to achieve additional milestones, allowing ABVC to receive remaining licensing fees of up to $7 million cash and 5% royalties of net sales, up to $200 million.
- Humanigen (HGEN) shares cratered 84%, falling from 13 cents to 2 cents after the company filed for Chapter 11 bankruptcy protection from creditors in U.S. Bankruptcy Court in Delaware. In a Wednesday filing, Humanigen listed total debts of $44.1 million and total assets of just $521,000. The company had struggled financially since 2021, when the FDA rejected its application for emergency use authorization (EUA) of lenzilumab as a treatment for patients hospitalized with COVID-19—a setback that sent the company’s stock plunging 54%. Last July Humanigen acknowledged it was studying restructuring options because it could not continue as a going concern. At the time, the FDA said it could not conclude that the known and potential benefits of the antibody outweighed known and potential risks of its use as a treatment for COVID-19. Humanigen said it would pursue a $2 million sale of the company to an entity formed by CEO Cameron Durrant, MD.
- TC BioPharm (TCBP) shares tumbled 26% on Wednesday, from $3.13 to $2.31, after the company announced an additional cost-cutting initiative that includes reducing its headcount by approximately 50%, scaling back its R&D to strictly process development for commercial applications and manufacturing; implementing a focused manufacturing platform targeting only the product it needs to complete the Phase II ACHIEVE trial (NCT05358808) in 2024; and further cutbacks designed to yield process-related efficiencies. The company intends to cut its cash-burn by approximately 50% when the cuts become fully effective in Q1 2024. “Unfortunately, the public markets continue to be difficult to navigate and as a consequence, these steps are being taken immediately to preserve cash,” TC BioPharm CEO Bryan Kobel stated.
