Illumina (ILMN) delivered some news as sunny as the weather in Hollywood, FL, during this week’s Advances in Genome Biology and Technology (AGBT) General Meeting, announcing the delivery of its first all-new NovaSeq X Plus sequencing system to the Broad Institute of MIT and Harvard, and projecting a 7–10% jump in 2023 revenue after a year in which revenue and profits both declined.

Analysts, however, couldn’t help but see the proverbial clouds in the sky—from the revenue and profit drops to more announcements by Illumina’s competitors, Complete Genomics trumpeting that it had launched the first under-$100-a-genome sequencer.

Yet at the same time, those analysts were as divided in their assessments of Illumina as investors, for whom the NovaSeq X Plus and Complete Genomics announcements appeared to cancel each other out.

Illumina shares fell this week, propelled by concerns about the decline in profits and revenue, and the continuing battle with European regulators over the company’s purchase of cancer blood test developer Grail. Illumina started the week priced at $207.66, then dropped 4% to $198.50 by the close of trading on Wednesday. Shares dipped another 1% on Thursday, to $195.86.

In addition to the mixed news, the stock falloff was propelled in part by skittishness among some analysts over Illumina’s growth prospects this year. At least four analysts lowered their 12-month price targets on Illumina stock—while three other analysts raised their price targets, though one of those only did so by a mere $1 per share.

That analyst, Puneet Souda, a senior research analyst at SVB Securities covering life science tools and diagnostics, elevated his firm’s price target from $249 to $250 a share, and kept his firm’s “Outperform” rating on Illumina.

“We continue to see a strong growth outlook for ILMN, accelerating into 2H23 as NovaSeq X+ install and pull-thru ramps up,” Souda predicted in a research note.

Illumina highlighted the delivery of its first NovaSeq X Plus to the Broad Institute—one of between 40 and 50 systems it expects to ship this quarter. The company also projects shipping more than 300 NovaSeq X Plus instruments this year.

According to Illumina, 155 orders have been placed for NovaSeq X systems, with more than 250 customers deemed “advanced pipeline prospects”—improved numbers from the 140 order and 200+ advanced pipeline prospects reported last month.

“The customer demand for the X Series has been very strong, exceeding our expectation,” Illumina CEO Francis deSouza told analysts Tuesday on the company’s quarterly conference call.

Sub-$100 genome competition

Complete Genomics’ sub-$100/genome system is the DNBSEQ-T20×2 system, which can read as many as 50,000 whole genome sequences in a year and is designed for large population genome projects. It is one of two new sequencers launched at AGBT by the company. The other is the DNBSEQ-G99 system, which can read 150 base pairs from each end of a sample fragment and collects 8–48 gigabytes of data.

Complete Genomics is a subsidiary of MGI Tech, whose shares inched up 1% on the Shanghai Stock Exchange, from CNY 113.35 ($16.72) to CNY 114.56 ($16.90) on Thursday.

Also helping Illumina, Souda observed, are the prospects of more favorable year-over-year revenue and net income comparisons in 2023 vs. 2022 related to COVID-19; as well as the expectation that revenues generated in China will bounce back after that country lifted lockdowns related to the pandemic last month.

A continuing challenge for Illumina, according to Souda, is the ongoing European Commission effort to block Illumina’s $7.1 billion acquisition of Grail, a deal completed in 2021. On Wednesday, Illumina representatives urged EC officials at a closed-door hearing in Brussels not to proceed with an antitrust order directing the company to divest itself of the cancer blood test developer. The EC signaled its intent to undo the deal in December 2022 when it issued a Statement of Objections.

“Any divestment order should be stayed until our appeal of the Commission’s prohibition decision has been resolved,” Illumina stated. “We disagree that the Commission has jurisdiction to review the Grail transaction and believe that divestment is not proportional to the speculative harm the Commission has alleged.”

“Most likely path”

Souda wrote that notwithstanding Illumina’s pleas, “We continue to see Grail divestiture as the most likely path ahead given recent EC divestiture order.

But as he also noted, Grail generated $55 million last year, including $23 million in Q4. Illumina has guided investors to expect between $90 million and $110 million in revenue for Grail this year—with 80% of that growth expected to come from Grail accelerating adoption of its Grail Galleri® test, for which Grail expects to seek FDA approvals in 2024 or 2025: “We believe FDA approval will be key to broader test reimbursement and adoption.”

Michael Ryskin, director in equity research on the Life Science Tools & Diagnostics team at Bank of America, raised his firm’s price target on Illumina shares 9.5%, from $210 to $230 a share—a month after lowering it from $220—while Conor McNamara, CFA, an equity research analyst with RBC Capital Markets, went further by increasing his firm’s price target 7% from $284 to $303.

“A sale, a spinout, or the ability to integrate Grail and extract synergies all offer better outcomes than another year of uncertainty and cash burn,” McNamara concluded in a research note, according to Investor’s Business Daily. “We think any final decision is likely to be a positive catalyst for the stock.”

Analysts lowering their price targets on Illumina shares included:

  • Dan Arias, a managing director covering life sciences and diagnostics for Stifel, from $285 to $235.
  • Julia Qin, lead analyst covering life science tools and diagnostics for JP Morgan, from $300 to $271.
  • Catherine W. Ramsey Schulte, senior research analyst covering life sciences and diagnostics for Baird, from $225 to $224.
  • Luke Sergott, director, healthcare equity research with Barclays, from $160 to $150.

Leaders and laggards

  • Hillstream BioPharma (HILS) shares rocketed 119% on Friday morning, from $1.18 to $2.59 at 10:08 a.m. before settling for a 77% gain to $2.09 at 11:09 a.m.—the second daily surge in as many weeks—after the company reported significantly greater tumor inhibition of cells from the non-small-cell lung cancer cell line Calu-1, when grown with human peripheral blood mononuclear cells (PBMCs) and treated with the combination of Merck & Co.’s Keytruda® (pembrolizumab) and Hillstream’s lead candidate, the iron mediated cell death (IMCD) modulator HSB-1216.
  • Kiora Pharmaceuticals (KPRX) shares zoomed 109% this week from $3.28 on Monday to $6.86 on Thursday, after the company said the FDA approved its IND for a Phase II trial assessing KIO-101 as a treatment for ocular presentation of rheumatoid arthritis and other autoimmune diseases (OPRA+). The 120-patient trial is designed to evaluate the safety and efficacy of KIO-101 eye drops in patients with autoimmune disease who have signs and symptoms of ocular surface disease. The study is expected to begin enrolling patients in Australia in the first half of this year.
  • Phathom Pharmaceuticals (PHAT) shares tumbled 29% on Friday, from $11.56 to $8.25 as of 11:15 a.m., after the company acknowledged receiving complete response letters from the FDA relating to its erosive esophagitis NDA and H. pylori post approval supplement. Both CRLs address specifications and controls for a nitrosamine drug substance related impurity, N-nitroso-vonoprazan (NVP), that was detected in initial commercial launch materials of Voquenza Triple Pak and Voquenza Dual Pak. Phathom said it expects to meet with the FDA in the first quarter to discuss a resubmission plan and timeline that the company believes will lead to approval and launch of products containing vonoprazan.
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