Illumina sought to give investors some reasons to be cheerful in the deluge of first-quarter results it released Tuesday after the close of trading.

Yes, Illumina’s quarterly revenue of $1.087 billion was down 11% from $1.223 billion in Q1 2022. However, the reported revenue beat even lower expectations from both a consensus of Wall Street analysts (between $1.066 billion and $1.074 billion) and Illumina’s own guidance to investors (between $1.05 billion and $1.07 billion).

Reiterating earlier guidance, Illumina continues to forecast 7–10% revenue growth this year—including “Core Illumina” revenue growth of 6–9% from activities outside those of its cancer blood test developer Grail—whose 2023 revenue guidance was also reiterated at a range of $90 million to $110 million.

Illumina finished Q1 with a net income of $3 million, down 96.5% from $86 million a year ago. But Illumina CEO Francis deSouza said those numbers are expected to improve in coming quarters since the company will continue the cost-cutting it announced last November, lowering its annualized run-rate expenses by more than $100 million beginning later this year.

To achieve those savings, Illumina plans to step up modularization it began in R&D when it developed its new NovaSeq X sequencing system; conduct more activities at lower-cost hubs; accelerating IT optimization; and carry out “streamlining” of its organization and processes. Illumina did not say if that would include further job cuts—the company reduced its workforce five percent in November—but did say it would be reducing or “rationalizing” its global real estate portfolio and spending on third-party vendors.

Illumina says the additional savings will help it achieve higher margins as well as increase investment in what it deems high-growth areas. The company committed to raising its Core Illumina non-GAAP operating margins to 25% in 2024 and 27% in 2025, from 17.4% in Q1, down from 28.8% in the year-ago quarter.

“As we navigate through this dynamic environment, we are focused on delivering durable success for our shareholders through a balance of investing in breakthrough innovations for future growth, while delivering operating leverage through disciplined expense management across the organization,” deSouza told analysts Tuesday on the company’s quarter conference call.

Sliding shares

Investors reacted coolly to Illumina’s results and promises to do better. Before the company released Q1 results, shares slid 5%, from $229.07 to $218.69, on fears that the results would prove as bad as those delivered last year. While those fears did not come true, Illumina shares fell another 3.5% on Wednesday, closing at $210.96, and slipped 3% further to $203.82 on Thursday as of 10:45 a.m. ET.

Puneet Souda, a senior research analyst at SVB Securities covering life science tools and diagnostics, found even more proverbial silver linings in the clouds of Illumina’s results.

Perhaps the most important silver lining Souda shared is that Illumina’s launch of its NovaSeq X has so far shown positive results. Those results, arguably, validate the company’s assurances that its new sequencing system—announced last September—would deliver the bounce-back that deSouza and other top executives have promised for months, following a year that ended with a net loss of more than $4 billion and a revenue gain of just 1%.

Illumina reported installing 67 NovaSeq X systems in Q1—well above their guidance of 40 to 50 installations for the quarter. The company now expects to install more than 330 NovaSeq Xs this year, up from the 300 it expected previously. The projected 330 installations include about 80 that Illumina expects to generate in the second quarter.

To date, Illumina has reported more than 200 orders for NovaSeq X systems in more than 30 countries worldwide—up from 155 reported during the fourth quarter of 2022.

“While we are encouraged by early install strength, the sentiment on ILMN still remains entangled with near-term questions,” Souda cautioned.

Activist investor Carl C. Icahn

Those questions include two that have received substantial attention from investors, market watchers and news outlets—Illumina’s continuing battle with European and U.S. regulators over the company’s purchase of cancer blood test developer Grail; and the battle with activist investor Carl C. Icahn over his proxy campaign to change Illumina’s board and management, and through that, the company’s direction.

That explains why Souda did not raise SVB’s price target or upgrade the firm’s rating on Illumina shares, which remain at $250 a share and “Outperform,” respectively.

However, two other analysts liked what they heard from Illumina enough to raise their 12-month price targets on the company’s shares:

  • Dan Arias, a managing director covering life sciences and diagnostics for Stifel, up 13% from $235 to $265 and maintaining a “Buy” rating.
  • Catherine W. Ramsey Schulte, senior research analyst covering life sciences and diagnostics for Baird, up 2% from $224 to $229, and maintaining a “Neutral” rating.

Three months earlier, the two analysts were among four who lowered their price targets on Illumina shares  following mixed Q4 2022 results. Arias after a lowered his target 17.5% from $285, while Schulte trimmed her target 0.4% from $225.

The targets set by Schulte and Arias are in the middle of the price target range of $150 to $334 set by analysts polled by Capital IQ.

Widening war of words

Illumina hopes its Q1 results will offer investors another reason to back the company’s slate of incumbent directors—and reject Icahn’s proxy challenge to the board and management, to be decided at Illumina’s Annual Meeting to be held virtually on May 25.

Icahn is nominating three allies to Illumina’s board—Andrew J. Teno, a portfolio manager at Icahn Capital since October 2020; Jesse A. Lynn, general counsel of Icahn Enterprises; and Vincent J. Intrieri, founder and CEO of VDA Capital Management, a private investment fund, and a former Icahn employee from 1998–2016.

Illumina has rejected the three as lacking the qualifications and experience it seeks in board members, and has defended its pursuit of Grail under deSouza.

Icahn has stepped up his war of words against Illumina in recent days. In an exclusive interview with GEN’s “Close to the Edge” published Wednesday, Icahn vowed to press on with his proxy challenge until it succeeds in securing board seats for his allies—an effort he acknowledged would take several years.

On Monday, Icahn issued his latest open letter to investors. In it, he chided the Governance Committee of Illumina’s board for disclosing in the company’s recently-filed proxy statement that it will propose the appointment of two new directors after the 2023 annual meeting. Those two would increase the size of Illumina’s board to 11 directors, and further push back against Icahn’s effort to gain a board majority.

Icahn also took issue with Illumina revealing the planned appointment within the proxy statement rather than through a separate Form 8-K regulatory filing, “likely in the hopes that the move would go unnoticed until after the election.”

“This action demonstrates a blatant attempt to disenfranchise Illumina shareholders—in the midst of a proxy contest—by packing the board with two additional handpicked directors,” Icahn wrote. “We question why Illumina’s board decided not to add these two unnamed individuals to the company’s slate so that shareholders would have an opportunity to choose for themselves at the upcoming annual meeting whether they wished to have them added to the board.”

Icahn also faulted Illumina’s board for basing deSouza’s 2022 total compensation on only the results of “Core Illumina”—thus excluding results generated by Grail. While Core Illumina ended last year with an operating profit of $481 million—down 40% from $808 million in 2021—Grail finished 2022 with an operating loss of $4.657 billion, dragging down results for all of Illumina to a net loss of $4.404 billion (vs. $762 million in net income the previous year).

“Why should Francis deSouza be compensated solely based on the performance of Core Illumina and be allowed to stick shareholders with the absurdly large GRAIL operating losses?” Icahn not-so-rhetorically asked. “Why is CEO Francis deSouza being held to one standard when shareholders are subject to another? Furthermore, where is the accountability and how can the board of directors allow this situation to go unchecked?”

Leaders & laggards

  • Evelo Biosciences (EVLO) shares slumped 33% from 14.9 cents a share to 10 cents on Tuesday, after the company said it was halting development of its whole-microbe product candidate EDP1815 in atopic dermatitis and reduce its workforce by an unspecified amount. The moves followed EDP1815 missing its primary endpoint in a Phase II trial (NCT05121480) by not showing a favorable proportion of patients who achieved an EASI-50 response at week 16 vs. placebo. Evelo said it will shift resources to its next-generation extracellular vesicle (EV) platform and on its first EV candidate EDP2939, a psoriasis treatment.
  • IN8bio (INAB) shares nearly tripled, rocketing 186% from $1.05 to an even $3 on Monday, after the company announced new positive data from a Phase I trial (NCT03533816) sponsored by University of Kansas Medical Center which assessed INB-100 (also called DeltEx Allo) in leukemia patients. At the 49th Annual Meeting of the European Society for Blood and Marrow Transplantation (EBMT), researchers reported that all seven evaluable patients treated with INB-100 stayed alive, progression-free, and in durable complete remission as of April 21. IN8bio said the result showed the curative potential of INB-100 in high-risk or relapsed AML and other blood cancer patients undergoing hematopoietic stem cell transplantation.
  • Virios Therapeutics (VIRI) shares jumped 55% on Tuesday, from 62.5 cents to 97 cents, after the company announced positive initial FDA feedback on its proposed Phase III fibromyalgia program for its lead candidate IMC-1 (famciclovir and celecoxib), which is designed to synergistically suppress herpes virus replication, and thus reduce virally promoted fibromyalgia disease symptoms. The FDA found Virios’ Phase III plan acceptable, subject to review of final results from a recently-completed chronic toxicology program. Virios said it will submit final toxicology reports and associated data in May.
  • Vyant Bio (VYNT) shares tumbled 36% on Tuesday, from 55 cents to 35 cents, after the company said it will voluntarily delist its securities from The Nasdaq Capital Market on or about May 14. The following day, Vyant shares would begin trading on the over-the-counter Pink Open Market, and offer limited information on its financial status and business activities. Vyant cited reasons that included an expected reduction in operating expenses by eliminating SEC reporting costs, “which would allow the Company to focus more resources on its continued pursuit and exploration of satisfactory strategic alternative transactions and/or execution of an orderly wind down of the Company, if necessary.” Vyant shrunk its workforce in February.
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