Illumina cites ambitious growth plans amid Q2 miss and stock tumble

Illumina CEO Jay Flatley

It has been a busy year for Illumina ($ILMN), with deals to expand its product offerings and increase its footprint in growing markets. And the company is counting on new technology to keep up the positive momentum, especially in light of second quarter revenues that missed for the first time in years and stock crashing upon the news.

The San Diego, CA-based company raked in $539.5 million in Q2, up from $447.5 million during the same quarter last year but slightly below the Street's prediction of $542.1 million. Illumina is forecasting 20% revenue growth and is increasing its EPS projections to $3.39 to $3.45 from its previously-announced range of $3.36 to $3.42, the company said in a statement.

Part of the problem could be a drop in array revenue, Illumina CEO Jay Flatley said during the company's Q2 earnings call. Total microarray revenue declined 11% year-over-year, even as Illumina's testing volumes increased. Pricing pressure contributed to the decline, Flatley told investors, as it's becoming more difficult to sell to bio banks doing large-scale projects.

But Flatley highlighted the company's liquid biopsy work and its expansion into new markets as potential sources of growth. A recent study published in the Journal of the American Medical Association (JAMA) found that some maternal blood samples from noninvasive prenatal tests submitted to Illumina between 2012 and 2014 turned up signs of cancer in pregnant women. Now, the company's R&D team is working on creating a test that would target certain types of cancer, Flatley said.

"Ultimately, the goal here would be to create as general a panel as you can but likely this whole market will begin with more targeted panel types from us and from others that have specific knowledge of the variants that are known in particular cancer types," he said.

Illumina is also looking at emerging market to broaden its reach. In June, the company struck a deal with Chinese genomics firm Annoroad to develop noninvasive prenatal screening tools based on its next-generation sequencing (NGS) technology. And Illumina is already working with Chinese NIPT outfit Berry Genomics to bolster its presence in the country, Flatley said, increasing shipments to Chinese hospitals that want to bring the testing in-house.

The company is not ignoring its tried-and-true offerings. Illumina has long relied on strong demand for its sequencing systems to drive growth, and sales of its HiSeq 4000 and NextSeq 500 systems exceeded analysts' expectations during the second quarter. The company also rolled out a new service that helps labs use its HiSeq X products, providing an "easy and streamlined approach" while speeding up processing times, Illumina said on its website.

But Illumina won't stop there. "There's more business out there to be had," Flatley told investors, and the company will continue to drive growth with new offerings in months ahead. "We are continuing to launch new products even though we haven't pre-announced any new systems," he said. "We have lots of products in the pipeline that will be announced virtually every quarter from here through next year."

Analysts don't seem too concerned about Illumina's Q2 miss. The company is still "a top-line growth story," Leerink analyst Dan Leonard said in a note to investors, even though Leerink is slightly trimming its estimates. "The increased use of Illumina's technology in clinical applications is a secular theme that should support durable revenue growth," he added.

Illumina's stock was down 9.5% in after-hours trading.

- check out the transcript at Seeking Alpha
- read Illumina's earnings statement

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