Leerink Warns Of Looming Uncertainty In Illumina, Downgrades

• Illumina, Inc. ILMN shares have plummeted 20 percent in the last three months, after hitting a high of $240.02 on July 20.
• Leerink’s Dan Leonard downgraded the rating for the company from Outperform to Market Perform, while reducing the price target from $225 to $185.
• While there is uncertainty surrounding growth in the research market, Leonard said that there is concern over Illumina’s ability to penetrate various diagnostics and consumer applications.

Analyst Dan Leonard said that Illumina’s long-standing competitive advantage and the long-term trends in next-gen sequencing, or NGS, are positives. Yet, there is uncertainty surrounding growth in the research market.

Leonard expects the stock to be “range bound” till there is increased visibility into the company’s ability to penetrate various diagnostics and consumer applications.

Illumina’s shares had outperformed the S&P by about 70 percent in 2013 and around 55 percent in 2014. The outperformances were driven by “two clear, distinct product cycles – the HiSeq 2500 and HiSeq X,” the Leerink report stated.

The long-term trends are robust for NGS in biomedical research. Leonard pointed out, however, that it is not evident if the product cycle of HiSeq 3000/4000 will trigger upgrades and replacements at the same rate as with previous product cycles. “We believe this phenomenon has already manifested itself in ILMN’s results year-to-date,” he added.

Referring to the adoption trends in diagnostics, Leonard commented, “We further believe the business model in oncology testing, the largest diagnostics market for ILMN, will take time to evolve following last week's proposed pricing announcements from Medicare. Proposed pricing for oncology panels is below what we would have expected.”