Genome sequencing solutions company Illumina (NASDAQ: ILMN) stock has fallen under its pandemic lows. A surprise earnings miss, and lowered guidance has caused shares to spiral down (-49%) for the year. The Company leads the market with its next-generation genome sequencing systems and analysis tools. It has a 90% market share of the global sequencing market with over 17,000 active sequencing machines installed throughout 115 countries. The cost of DNA sequencing has fallen from $100 million per human genome in 2001 to less than $600 today. Illumina’s machines accelerate the advancement of precision medicine applications. While demand was still robust, the macroeconomic uncertainty has caused many of its clients to hold less inventory and delay orders to preserve capital. Molecular diagnostics providers are a key growth driver for the Company. Rising interest rates are having a material impact on Illumina as its customers tend to be rate sensitive causing them to scale back purchases and expenses to preserve precious capital. Some of its clients include Natera (NASDAQ: NTRA), Exact Sciences (NASDAQ: EXAS), Invitae, and Myriad Genetics (NASDAQ: MYGN) in addition to clinical labs, pharmaceutical companies, academic institutions, healthcare systems, and hospitals. FX headwinds and supply chain disruptions have had a direct impact on its top and bottom lines. The Company expects the effects to reverberate for the near-term future.
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The Grail Acquisition Dilemma
Illumina was challenged by the Federal Trade Commission (FTC) and the European Commission (EC) on its completed $7.8 billion acquisition of GRAIL, a cancer test maker, over antitrust concerns. GRAIL developed Galleri, a blood test that can detect over 50 types of cancers from one blood draw. It’s a powerful early detection tool with a low false-positive and false-negative rate. Most blood tests on the market only detect five types of cancers. Early detection is the first line of preventative care as cancer risk rises with age. It partnered with Fountain Health Insurance to offer Galleri as part of annual wellness benefits. GRAIL partnered with AstraZeneca (NASDAQ: AZN) to develop companion diagnostic tests to identify high-risk and early stage patients for novel therapies. On Sept. 1, 2022, Illumina won a lawsuit brought by the FTC to unwind the merger. The FTC plans to appeal the decision. Riding the momentum of this court ruling, Illumina plans to appeal the EC’s decision to prohibit the merger. Rumor is that Illumina is in talks with EU antitrust officials over plans to divest GRAIL.
Earnings Shock
On Aug. 11, 2021, Illumina released its fiscal second-quarter 2021 results for the quarter ending June 2022. The Company reported non-GAAP earnings-per-share (EPS) profit of $0.57 versus $0.64 consensus analyst estimates, a (-$0.07) miss. Diluted GAAP EPS was (-$3.40) which included $609 million in legal contingencies. The Company saw revenues grow 3.2% year-over-year (YoY) to $1.16 billion missing analyst estimates for $1.22 billion. Illumina CEO Francis deSouza commented, “Our second quarter results did not meet our expectations as challenges in a complex macroeconomic environment more than offset the growth we continue to see in sequencing runs on our platforms. As we strategically navigate these dynamics, we continue to advance our innovation roadmap in support of our long-term growth trajectory. At our upcoming Illumina Genomics Forum and Investor Day events, we look forward to showcasing our breakthrough technologies that demonstrate the power and potential of genomics.”
Here’s What the Charts Say
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for ILMN stock. The weekly rifle chart peaked at the $238.74 Fibonacci (fib) level. Shares collapsed on the Q2 2022 earnings report and commenced its breakdown. The weekly 5-period moving average (MA) resistance is falling at $196.14 followed by the weekly 15-period MA at $200.70. The weekly stochastic peaked and crossed back down just under the 40 band as shares fell through the weekly market structure low (MSL) buy trigger at $194.80. The daily rifle chart is attempting an inverse pup breakdown as shares slip under the daily 5-period MA at $190.02 followed by the falling daily 15-period MA at $195.73. The daily lower Bollinger Bands (BBs) sit at $177.76. The daily stochastic has stalled under the 30-band on the bounce to set up a make or break with the daily MAs attempt an inverse pup versus stochastic attempting a mini pup. Attractive pullback levels sit at the $181.17, $177.62, $170.75 fib, $162.51, $153.42 fib, and the $143.74 fib.
Taking Down Expectations
Illumina slashed it fiscal full-year 2022 EPS to come in between $2.75 to $2.90 from $4.00 to $4.20) versus $4.12 consensus analyst estimates. Full-year revenues are expected to come in between $4.67 billion to $4.72 billion versus $5.21 billion consensus analyst estimates.
The Gamechanger
During its Genomics Forum and Investor Day Sept. 29, Illumina unveiled two NovaSeq X Series products that can process up to 20,000 human genomes annually at 2.5X faster than current machines. This can slash the cost of sequencing to $200 from just under $600. CEO deSouza commented, “This will be a huge force in terms of significantly increasing accessibility to genomics in a number of ways. It will democratize access to genomics by allowing sequencing to be offered to hospitals and researchers at much lower prices.”
