About this time last year, DNA sequencing giant Illumina upped its financial projections, estimating its sales would grow 20 percent year-over-year. It exceeded that goal, with revenue rising 21 percent to $3.33 billion by the end of 2018.
It’s a different financial story this summer. On Monday, Illumina (NASDAQ: [[ticker:ILMN]]) informed the markets that it had overshot the mark with its 2019 estimates. The news reflects a slowdown in the demand for mail-in genetic testing kits and a lag in the rollout of some of the government-led population studies for which Illumina provides DNA sequencing tools. The company, which previously forecast as much as 14 percent growth this year compared to 2018, now expects revenue to climb 6 percent.
Illumina reported revenue of $838 million this past quarter, eking out a 1 percent increase over the $830 million it earned in the same period a year ago. That figure beat its preliminary estimate of $835 million, but fell well below Wall Street analysts’ expectations of $866 million. Illumina’s share price slumped about 1.5 percent following the news, from about $304 apiece at market close Monday to just shy of $300 per share at Tuesday’s end.
The company saw a slowdown in demand for direct-to-consumer (DTC) genomics tests—which people purchase from genetic-testing kit companies such as 23andMe and AncestryDNA to learn about their origins and personal traits—and some of its less expensive sequencing services. Its earnings from certain initiatives to sequence the genes of whole populations of people also fell short of expectations as those projects progressed more slowly than expected, the company said in an earnings call.
CEO Francis deSouza said that Illumina has “substantially” lowered its revenue expectations for the DTC market and doesn’t know when it will turn around.
“We have previously based our DTC expectations on customer forecasts, but given unanticipated market softness, we are taking an even more cautious view of the opportunity in the near term,” he said.
In the second quarter, Illumina’s microarrays consumables business, the technology used to support its consumer tests, did $74 million in sales—13 percent less than the same quarter last year and about 9 percent of total second-quarter revenue. In the past two years, Illumina’s revenue from the segment has made up 17 percent of total sales, according to its 2018 annual report.
DeSouza also said the company had reset its expectations as to how long it takes large-scale population studies to get underway.
“As we support a growing number of population genomics programs, it is becoming clear that the ramp in the early phases can vary dramatically from expectations,” he said. “To reflect more variable timelines, we are now allowing for slower ramp-up trajectories in our forecasting.”
Illumina provides sequencing for organizations such as the United Kingdom’s Genomics England, which in December reached its goal of sequencing 100,000 genomes from National Health Service patients with rare diseases, their families, and people with some cancers—then expanded its goal to 5 million whole genomes. Other population genetics projects with which Illumina is involved include Australia’s Genomics Health Futures Mission, the French Plan for Genomic Medicine 2025, and the Singapore 10K Genome Project.
Illumina on Monday reiterated its expectation that its pending acquisition of Pacific Biosciences—a $1.2 billion all-cash agreement announced in November—would close by year’s end. PacBio, based in Silicon Valley, is known for its ability to sequence of long stretches of DNA, or long reads; Illumina machines sequence short strands of genetic material. The acquisition is meant to help Illumina expand the types of sequencing services it can offer its customers.
The company originally expected to complete the buyout by mid-2019, but antitrust regulators have since started reviewing the deal. Illumina expects to find out what US regulators think of the tie-up in the next couple months, deSouza said during the earnings call. The panel in the UK that is reviewing the deal has until mid-December to issue a verdict, he said.
If antitrust issues stymie the transaction, Illumina may have to pay PacBio a $98 million break-up fee. PacBio could be on the hook for a $43 million fee if it backs out of the deal, according to documents filed with securities regulators.
