It happens in Hollywood and on Broadway: Sometimes a great production wins mostly positive reviews from the critics but fails to wow the audience.
The critics here are analysts, who largely applauded Illumina (ILMN) for launching an updated MiSeq series of sequencing systems—namely two new instruments, MiSeq i100 and MiSeq i100 Plus—even as they raised various concerns.
The audience is the investor community, which shrugged as Illumina pressed its case for building on its longtime leadership in next-generation sequencing, judging by how flat the company’s shares fared this past week.
Illumina shares barely blipped up 0.2% the day of the announcement, from $139.66 to an even $140. From there, the stock rose about 3% to $143.76 Thursday, then up another 1% to $145.54 Friday.
Illumina’s lack of stock price momentum is particularly remarkable when you consider how much promotional muscle the sequencing giant put behind the launches of MiSeq i100 and MiSeq i100 Plus—the first major product unveilings under CEO Jacob Thaysen, PhD, who marked a year in the corner office last month. For weeks, Illumina peppered its social media feeds with messages that teased: “Something big is coming. And it’s small.”
Analysts largely agreed that Illumina delivered on its promise of something big—even as they tempered their applause.
“We’re encouraged with management’s continued focus on reaccelerating core business growth and driving organic innovation,” Catherine Ramsey Schulte, a senior research analyst with Baird, wrote Thursday in a research note.
Schulte added, however, that her firm continues to await additional launch details ahead of expected shipments beginning in 2025—including “pull-through” assumptions, through which Illumina is expected to respond to customer demand in real-time and the cycle by which customers are expected to replace existing products with the new instruments.
Tycho Peterson, an equity analyst with Jefferies, raised the issue of pricing. Illumina charges a list price of just below $1 million for its top-of-the-line NovaSeq X sequencing system, unveiled in 2022 by Thayer’s predecessor Francis deSouza. He resigned last year after an intense proxy campaign by activist investor Carl C. Icahn focused on how Illumina’s acquisition of cancer blood test developer Grail led the stock to plunge, waged in part through an exclusive interview with GEN’s “Close to the Edge”.
However, Illumina offers a list price for MiSeq i100 at $49,000, while it lists MiSeq i100 Plus for sale at $109,000.
No meaningful revenue driver, but a “nice upgrade”
“Given the low price point, the new systems are not expected to be a meaningful driver of revenue,” Peterson cautioned Wednesday in a research note.
Yet Peterson stayed positive about the new instruments themselves: “Overall, we view the MiSeqs as a nice upgrade for ILMN to better compete in benchtop.”
While Illumina remains on top in NGS, the longtime giant has faced growing competition in recent years. Longtime rival Pacific Biosciences of California (PacBio; PACB) continues to focus on long-read sequencing. Peterson singled out Oxford Nanopore Technologies (ONT) for its focus on mid-throughput instruments though the company emphasizes that it offers fully scalable formats ranging from pocket to population scale.
Also competing against Illumina in recent years are Thermo Fisher Scientific (TMO), Chinese-owned MGI Tech (688114.SS) and its U.S. subsidiary Complete Genomics; Singular Genomics Systems (OMIC), which markets the G4 NGS platform; and two privately held companies, Element Biosciences, which launched the AVITI™ NGS platform in 2022; and Ultima Genomics, which has aimed the $100 genome.
Illumina’s launch of MiSeq i100 and MiSeq i100 Plus “was an unsurprising response, albeit targeted toward the lower end of the benchtop market as opposed to the higher end” pursued by the company’s NextSeq 1000 and NextSeq 2000 instruments, Peterson added.
Puneet Souda, an analyst with Leerink Partners, wrote Wednesday that the upgrade represented by the new MiSeq instruments “helps more customers enter NGS on LT [low throughput] end, but not a needle mover for overall rev[enue] growth.” While low-throughput accounts for about 60% of ILMN’s install base, it accounts for just 15% of consumables revenue, he estimated.
Low throughput instruments are often used in small-scale experiments, such as small oncology panels or microbial genomes, or quality controlling libraries ahead of larger runs. These applications will benefit from the significant reduction in turnaround time of i100 compared with earlier MiSeq instruments, he noted.
For example, the largest 2 x 150 run on the i100 takes just eight hours—compared with 24 hours for the largest 2 x 150 bp run (two reads, forward and reverse, of 150 base pairs for each DNA fragment) on Illumina’s current MiSeq system.
Pfizer: Activist takes $1B stake
Illumina isn’t the only life-sci company whose high-profile news failed to resonate with investors this past week.
Pfizer (PFE) grabbed more than its usual share of headlines after activist investment firm Starboard Value led by Jeffrey Smith purchased $1 billion worth of the pharma giant’s shares and sought changes to the management of the company, according to unnamed source reports on October 6 by The Wall Street Journal and Reuters.
Starboard’s purchase comes as the value of Pfizer stock has nosedived by more than half (52.5%) from its all-time high of $61.71 during trading on December 20, 2021. While Pfizer has one of the biggest market capitalizations of any biopharma at $165.241 billion as of Friday, that is down 6% from $176.6 billion a year earlier on October 11, 2023, and 47% below the nearly $312.1 billion market cap the company enjoyed on the day of its all-time high stock price.
Pfizer has reeled from falling sales of Comirnaty®, the COVID-19 vaccine it co-developed with BioNTech (BNTX), and setbacks like the withdrawal of sickle cell disease drug Oxbryta® (voxelotor) after 16 patients dosed with the drug died in two clinical trials. Pfizer inherited Oxbryta when it acquired Global Blood Therapeutics (GBT) for $5.4 billion in 2022. GBT was one in a series of acquisitions totaling about $70 billion that Pfizer made during a buying spree funded by much of the $92 billion it generated from Comirnaty. Other acquisitions by Pfizer include Biohaven Pharmaceutical Holdings (for $11.6 billion in 2022) and Arena Pharmaceuticals (for $6.7 billion in a deal completed in 2022).
“The entire concept of PFE’s aggressive business development strategy and lack of return (so far) is likely one of the major reasons behind the Starboard stake. So, it is not overly surprising to see a firm such as Starboard make an attempt to change the trajectory of the company, despite the fact that a material operational improvement may not be the simplest of tasks,” Jared Holz, Mizuho Securities America healthcare equity strategist, wrote in a research note on October 7, as reported by Yahoo Finance.
“This is one of the most disappointing names in large-cap healthcare with an uninspiring chart over almost any duration dating back to the 1990s,” Holz added.
Investors initially seemed upbeat about Starboard’s challenge to Pfizer, lifting its shares 3.5% Wednesday from $29.18 to $30.19. But the stock surrendered most of that gain the following day, slipping 3% Thursday to $29.34, then dipping another nearly 1% Friday to $29.16.
No “low-hanging fruit”
“We await future developments, but we do not see low-hanging fruit to boost shareholder value,” David Risinger of Leerink Partners wrote on October 6 in a research note.
Risinger offered three reasons for his pessimism:
- Pfizer faces revenue growth constraints over the next five years, driven by losses of exclusivity of aging drugs losing patent protection, as well as competitive pressures.
- Pfizer has already carried out significant cost-cutting. In May, the company set a $1.5 billion goal for trimming expenses, on top of an earlier $4 billion cost-cutting target.
- The company’s debt levels are relatively high, he said, and may only be partially reduced by monetizing non-core holdings, such as its stake in Haleon, a maker of consumer health products.
Earlier this month Pfizer raised about £2.4 billion ($3.2 billion) by selling part of its stake in Haleon, whose products include Sensodyne toothpaste and Advil. The selloff reduced Pfizer’s stake in Haleon from 22.6% to 15%.
Albert Bourla, DVM, Pfizer’s chairman and CEO, agreed to meet with Starboard executives this week to discuss what the firm wants from Pfizer.
However, Starboard’s campaign for Pfizer got more heated and personal than activist investor campaigns typically get, when two retired top Pfizer executives—Bourla’s predecessor as CEO Ian Read and ex-CFO Frank D’Amelio—stated publicly that they sided with Bourla and Pfizer over Starboard’s efforts to drive changes at the company, adding: “We are confident that over time they will deliver shareholder value.”
Starboard answered back by making public a letter to Pfizer’s board signed by Smith. The letter accused Pfizer of compelling Read and D’Amelio to side with the company by “threaten[ing] to commence costly litigation against them, claw back prior compensation, and cancel unvested performance stock units.”
Starboard requested that Pfizer’s board investigate those actions and hold accountable those responsible. The investment firm also said that the two retired Pfizer executives initially “expressed concerns about the trajectory of the business” in meetings initiated by the investment firm.
“As former company executives and significant individual shareholders with a deep appreciation for Pfizer’s customers, employees, and shareholders, Mr. Read and Mr. D’Amelio shared our desire to see Pfizer pursue a better path forward. Therefore, they offered to be of assistance,” Smith and Starboard asserted.
Leaders and laggards
- Gritstone Bio (GRTS) shares plunged 70% from $0.20 to $0.06 Thursday, then dipped another 17% to $0.05 Friday after the company voluntarily filed for Chapter 11 protection from creditors in U.S. Bankruptcy Court for the District of Delaware. Gritstone said it is in discussions with a potential “stalking horse” bidder when the company is offered at auction and intends to present the Court an agreement with the stalking horse as soon as next week “to enter into a value-maximizing transaction” and continue its vaccine R&D activity. Gritstone shares plummeted 62% on October 1 after hiring Raymond James to help review “potential value-maximizing strategies.”
- Relief Therapeutics Holding (RLF) shares on the SIX Swiss Exchange more than doubled, soaring 116% over two days after the company announced “promising” preliminary results from its proof-of-concept, investigator-initiated “Early Phase I” trial (NCT05533866) assessing RLF-TD011 for the treatment of epidermolysis bullosa (EB). Shares climbed 40% from CHF 2.95 ($3.44) on October 7 to CHF 4.13 ($4.82) on October 8, then jumped another 54% to CHF 6.36 ($7.42) on Wednesday. Relief stated, without furnishing details, that a microbiome analysis showed a statistically significant reduction in Staphylococcus aureus and an increase in beneficial bacteria in EB wounds, accompanied by a “marked” improvement in alpha microbiome diversity. The company also reported a “notable” correlation between wound size reduction and S. aureus reduction. Further analyses will be available “in the coming weeks,” Relief added.
- 10x Genomics (TXG) shares tumbled 25% from $20.81 to $15.67 Thursday, a day after the company reported preliminary third-quarter revenue of $1251.7 million, 1% below Q3 2023 and 6.5% below a Wall Street consensus forecast of $162.26 million. The developer of single cell, spatial, and in situ technologies blamed the revenue decline on a realignment of U.S. sales reps and slower spending by customers. Canaccord Genuity analyst Kyle Mikson cut his firm’s price target on 10x shares more than one-third (37.5%), from $32 to $20. However, Jefferies analyst Tycho Peterson predicted that patient investors will be rewarded, adding: “We take comfort that it is neither a demand nor competitive issue.”
