Illumina cuts 2023 sales projections as new CEO takes helm

Unfortunately for Jacob Thaysen, his first quarterly earnings call as Illumina’s new CEO began on a sour note.

The DNA sequencing giant came in below its estimates not only for third-quarter revenue, but also in the number of placements of its latest analyzer hardware, and the company cut its installation projections for the remainder of its fiscal year.

“This was a disappointing result,” Thaysen said on a Thursday call with investors. “The macroeconomic environment remains challenging for our industry and for our customers, with customers increasingly cautious and constrained in their purchasing decisions.”

Illumina posted $1.12 billion in revenues, essentially flat compared to the same three-month period in 2022 and a decline of 5% from this year’s second-quarter haul of $1.18 billion.

And while the company said earlier this year that it was boosting supply capacity, with plans to ship more than 390 of its top-of-the-line NovaSeq X instruments—its latest high-throughput machines, which aim to read a person’s genetic code for a cost of about $200 apiece—by the end of fiscal 2023, those projections have now shrunk to between 330 and 340.

Over the third quarter, the company ended up shipping 97 NovaSeq X sequencers, but Wall Street analysts had been expecting a figure just over 100. 

Illumina also said it expects its core DNA sequencing revenues for the full year to ultimately weigh in under 2022 levels, falling by about 3% to 4%. The company’s stock price dropped nearly 10% in premarket trading following the news.

“While we cannot control the external environment, Illumina’s management team and I remain focused on supporting our customers and our operational execution. Part of my comprehensive review of the business includes re-examining our strategic initiatives and our targets for long-term revenue growth and operating margins. We will lay out our new targets for you later next year,” said Thaysen, the former Agilent executive who was named Illumina’s chief in late September, following the departure of Francis deSouza in June.

“Our initial view is that 2024 results will look very similar to 2023,” he added. “We don’t expect near-term improvement to the macroeconomic environment, and geopolitical issues have been persistent.”

Thaysen has also inherited Illumina’s Grail situation. Currently, the company is appealing regulatory orders in courts on both sides of the Atlantic, after the U.S. Federal Trade Commission and the European Union’s antitrust watchdogs directed Illumina this year to completely divest its ownership of the multi-cancer blood test developer.

In October, the European Commission ordered Illumina to submit a plan for the “disposal of Grail.” The company gets to pick exactly how that will be done, such as by selling Grail to a prospective buyer or spinning it out onto the public market.

To explore his options, Thaysen said he has enlisted the help of a special committee—led by himself and including three other board members—to work with Illumina’s management team and come to “fast decisions” on the divestiture order.

Thaysen said that after it files confidential securities forms with the SEC, Illumina will reach out either to potential investors to help fund Grail’s new beginning or to suitors who may be interested in an acquisition.

These efforts would parallel its ongoing legal appeals, which are working their way through the U.S. Fifth Circuit and the European Court of Justice—the latter of which is now set to hold oral arguments in mid-December.

The company has said it does not plan to take its cases to any higher levels if it were to lose in either court, at which point it would fully switch gears to divestment. However, Thaysen said that the current “appeals are not just about Grail” and that they could also provide Illumina with flexibility for its plans, as well as for any future transactions.

But one of the hardest parts of saying goodbye to Grail may be the price tag. The EC’s divestment order requires that an independent Grail start off on the right foot: specifically, with enough cash to fund two and a half years’ worth of operations, based on its previous long-term plans. 

That could total about $1.75 billion, based on the company’s ongoing operating expenses—for which Illumina is currently on the hook as it continues to manage Grail at arms’ length—but Illumina may not have to come up with that cash on its own. 

“There are several options now on the table to help pay for the 2.5 years of funding requirements,” Illumina’s chief financial officer, Joydeep Goswami, said on the investor call.

“If we went for a spin, there are options around a sponsored spin where a sponsor could put in a fair chunk of the money—some or all of the money that is required,” Goswami said. “The other, more of a capital markets transaction could be split, where you go and raise money in capital markets for Grail and the IPO market. They, of course, depend on specific market conditions and interest in Grail from private placement.”