shares of Illumina (ILMN 3.91%) It rose 8% last week and another 4% on Monday, reaching its highest level since mid-August, following news that the company had developed a faster gene-sequencing machine.
Illumina’s stock is still down more than 45% this year, and the company has some headaches, but for now, I think it’s a very good deal in the long run.
Illumina stock trades at approximately 40 times earnings, with a price-to-sales ratio of 6.6. Both may seem high, but this biotechnology has enormous growth potential, given that revenues have increased by 4,526% over the past decade.
Competitive big moat
Illumina A dominant player in the production of gene sequencers, with an 80% share of the market. While researchers in academia and biopharmaceutical companies use gene sequencers for genetic testing, the company has taken a giant leap forward with its new sequencer, his NovaSeq X. The NovaSeq X has 2.5x the throughput of his current top model and can analyze 20,000. annual genome. NovaSeq X not only speeds up medical genetic research, it also reduces the cost of gene sequencing. It cost him $1 million to generate the human genome in 2007 when the company first introduced gene sequencing. With the new system, some of the company’s clients say the device leads to his $100 genome.
A Look at Illumina’s Financials
of of biotech companies The stock took a hit when it released its second-quarter report in mid-August. The good news is that earnings were $1.16 billion for him, up 3% year over year. However, his loss per share in Illumina was his $3.40 and his earnings per share in the same period last year was his $1.26. The company also announced cautious guidance of $5 billion to $7 million in annual revenue, or 4% to 5% growth, on a loss per share of $2.93 to $2.78. Illumina cited a number of reasons, including inflation, reduced client spending, slow expansion of customer labs, the impact of a high dollar, and a recession in China.
But if we take a step back, these are all short-term macroeconomic challenges to be overcome. Over the past eight quarters, the company’s earnings have increased in every quarter except his one. Illumina has over 9,100 machine customers in 150 countries. Serving these clients long-term with the supplies and technical expertise needed to keep the machines running also adds to the benefits of biotechnology.
The problem of being near-proprietary
Over the years, Illumina has acquired gene sequencing competitors, including Solexa in 2007 and Epicenter Biotechnologies in 2011. Pacific Biosciences Withdrawn by the Federal Trade Commission (FTC) in 2019. Just last year, the FTC voted against biotech’s $7.1 billion acquisition of cancer researcher Grail, which spun out of Illumina in 2015. Ultimately, the FTC’s decision was overturned by an Administrative Law Judge on September 1, 2022. The purchase has been put on hold as the European Commission withdrew the deal as anti-competitive on September 6th. Illumina said it plans to appeal the decision, but clearly this will complicate matters for the company and increase legal costs, at least in the short term.
Illumina’s takeaway is that it will help accelerate Grail’s ability to market Galleri blood tests that detect more than 50 types of cancer. This is because Illumina has obtained regulatory approval and insurance reimbursement and has the resources to expand production and distribution. This makes it affordable for more people. The regulator’s concern is that by combining the genetic sequencing capabilities of the two companies into one entity, the acquisition could stifle innovation and lead to higher prices.
I’m looking forward to
Illumina is bullish about the potential of its gene-sequencing products, saying the company’s market could reach $120 billion by 2027, but next year as sales of new sequencers increase. , can be harsh.
Looking at who the company is clashing with, it’s clear that others see potential in Illumina. Former President Barack Obama, Bill Gates, and Nobel laureate and Illumina Director Francis Arnold spoke at the Illumina Genomics Forum, which concluded earlier this month. The company has also just launched a strategic research collaboration with AstraZeneca Discovery of drug targets. The two companies said they will work together on artificial intelligence-based genome analysis and interpretation to help identify better prospects for drug discovery target discovery.
Illumina does not have to complete a Grail purchase to continue its phenomenal growth. However, it helps every time the situation is resolved. If the purchase is allowed or doomed for good, the stock should be able to continue its upward trajectory. In the meantime, buying Illumina while it’s down 47% year-on-year makes sense for long-term investors.
Jim Harry I do not have any positions in any of the stocks mentioned. The Motley Fool invests in and recommends Pacific Biosciences of California. The Motley Fool recommends Illumina. The Motley Fool Disclosure policy.