Market Leader with Industry-Leading Revenue Growth and Margins with Q4 Net Income up 90%
Market leader in niche space, with industry-leading revenue growth and profit margins
Comprehensive product and services portfolio, and partnerships enable continued market leadership
Bullish analysts see 38% share price upside potential
Illumina, Inc. (NASDAQ: ILMN) is a global biotechnology and genomics company that produces sequencing and array solutions, and offers genome solutions, sequencings kits and library preparation solutions. Consumers, such as the Federal health department, research centers, public laboratories, hospitals, pharmaceutical companies and genomics companies, use the company’s products to research gene variations for healthcare and drug development. Illumina was founded in 1988 and reported annual sales of $1.9 billion for 2014.
The company is focused on $20 billion in total sales opportunities in the areas of oncology ($12 billion), life sciences ($5 billion), reproductive and genetic health ($2 billion) and new and emerging markets ($1 billion).
Shares Could Rise to $270 over Next 12 Months
Illumina shares closed at $196.02 on March 20, 2015, up 28.5% year-over-year and close to the top of the company’s 52-week range of $127.69 – $213.33, with a market capitalization of $28.19 billion.
Wall Street analysts have an average one-year price target of $230, which reflects 15% upside over current levels. Bullish analysts expect shares to rally to $270 over the next year, and 17 analysts have Strong Buy or Buy ratings on shares.
With earnings up 52% from $1.80 per share for 2013 to $2.74 per share for 2014, the company has a price-to-earnings ratio of 82.51x.
As the table below shows, Illumina trades at a premium to peers but has the highest net profit margins (29.9% vs. peer average of 14.1%) and the highest long-term-growth forecast of 22.5% (vs. 12.4% for its peers).
Illumina does not pay dividends.
Industry-Leading Portfolio of Next-Generation Sequencing Machines
In January 2015, Illumina introduced multiple new sequencing systems, adding to the company’s already impressive portfolio of the most comprehensive machines in the industry. The MiSeq FGx forensic genomics system is the first fully validated forensic system and offers a more robust analysis of genetic markers. The MiSeq helps criminal laboratories identify genes from “no suspect” cases with highly compromised samples and is compatible with existing DNA databases. The NextSeq 500 is the only sequencing system that is capable of array scanning and is made for cytogenetics and prenatal genetic diagnosis.
To meet the needs of smaller laboratories, Illumina improved on its HiSeq X Ten system by introducing the HiSeq X Five, a smaller scale system that uses five instruments to sequence over 9,000 genomes. The company also improved on its HiSeq 2500 system by adding the HiSeq 3000 and 4000 systems. The new systems deliver more throughput sequencing at a lower price per data point. The 3000 system uses single flow cell technology and the 4000 system uses dual flow cell technology. The new systems are more cost effective for laboratories that use sequencing across multiple applications.
The company expects to launch the VeriSeq NIPT, a non-invasive prenatal test for an array of 48 samples, and research-only kits for the MiSeqDx for clinical and research opportunities in the second half of 2015.
Sequencing Solutions Complement Illumina Portfolio
The company offers the newly introduced NeoPrep, a library preparation system that allows reproducible sequencing libraries to easily be loaded onto any laboratory system. The innovative system is the first commercial product that uses microfluidic technology to reduce use time from hours to minutes. NeoPrep can create 16 libraries per run and 160 libraries per week.
Additionally, Illumina offers the HiScan and iScan, array scanners used in connection with the company’s systems for genetic analysis research. The scanners provide rapid, sensitive and accurate imaging by leveraging the company’s high-multiplex BeadArray and BeadChips technology.
Dedicated R&D to Maintain Leadership
In early 2015, Illumina signed a 15-year lease to develop a 360,000 square foot life sciences campus in Foster City, California, that will include two Class A laboratories. The research and science campus will have state-of-art design with multiple amenities, and targeted to achieve LEED Gold certification. Illumina has the option to add another 160,000 square foot building at a later time.
Strategic Partnerships Expand Illumina’s Commercial Presence
Illumina and biopharmaceutical company Merck Serono recently announced a collaboration to develop a next-generation sequencing oncology diagnostic that can be used as a universal system that is comprehensive and precise during clinical trials.
The company entered into an exclusive agreement with French biotechnology company bioMerieux to develop a next-generation sequencing epidemiology solution over the next four years. The collaboration matches bioMerieux’s microbiology technology with Illumina’s high resolution MiSeq sequencing technology to build a culture collection that standardizes genomic profiles of infectious agents to promote the prevention and spreading of diseases.
The US Agency for International Development, the Broad Institute and Illumina formed a public-private partnership to train and educate individuals in West Africa to use genome sequencing to help with diagnosis, vaccine development and therapies to combat the Ebola epidemic in the region.
In August 2014, the company entered into a strategic partnership with three top-tier pharmaceutical companies: Britain’s AstraZeneca (AZN), Janssen Biotech and France’s Sanofi (SNY). The mission of the consortium is to promote commercialization and new standards for easier regulatory agency approvals for clinical trials.
Illumina Protects Intellectual Property and Patents To Protect Revenue
General counsel Charles Dadswell announced that Illumina and its Verinata Health subsidiary were suing British molecular diagnostics company Premaitha Health citing patent infringement on two of its exclusive license agreements for using cell-free fetal DNA for non-invasive prenatal testing (NIPT). Illumina acquired Verifi NIPT technology and associated agreements when it purchased Verinata for $450 million in early 2013. The companies will present their cases to the Patents Court in the United Kingdom. Illumina is seeking settlement for damages and injunctive relief.
Management Focused on Growth, Fiscal Discipline
Jay Flatley has served as Illumina’s Director and Chief Executive Officer since 1999, overseeing strategic actions to promote significant growth. Under his watch, sales have grown from $1.3 million in 2000 to $1.9 billion in 2014. Prior to joining the company, Flatley held senior positions with life sciences company Molecular Dynamics and Swiss pharmaceutical company Amersham Pharmacia Biotech Inc.
Marc Stapley holds the position of Chief Financial Officer, responsible for all finance, accounting and investor relation functions. Before joining the company in 2012, Mr. Stapley worked senior financial positions with pharmaceutical company Pfizer Inc (PFE) and French telecommunications company Alcatel-Lucent (ALU). Stapley has been key to maintaining fiscal discipline and a robust balance sheet.
Richard Klausner is Senior VP and Chief Medical Officer, positions he has held since joining the company in 2013. Klausner oversees the company’s strategies for developing genome technology for use in clinical medicine and public health. He brings over 15 years of clinical health experience to the company and its executive management team.
Q4 2015 Revenue Up 32% to $512.4 million, Net Income Up 90% YOY
For the three months ended December 28, 2014, Illumina reported total revenue of $512.4 million (up 32%), gross profit of $384.9 million (up 48%), income from operations of $202.9 million (up 175%) and net income of $153.3 million (up 90%), or $1.03 per share.
Product revenue was up 34% and accounted for approximately 88% of total revenue, while service and other revenue was up 22% and accounted for the remaining 12%.
As of December 28, 2014, Illumina had $636.2 million in cash and cash equivalents, $304.3 million in long-term debt and $1.46 billion in total stockholders’ equity.
Management Expects Significant Revenue Gains in 2015
For full-year 2015, management estimates non-GAAP earnings of $3.12-$3.18 per share on approximately 20% revenue growth, with 73% gross margin and a 28% pro forma tax rate.
Illumina is a leader in its niche sector and enjoys high barriers to entry with patent protections and hard to replicate technology, services and customer mind share. While shares have done very well over the years, the company’s strong leadership in a growing market, bold execution, rich margins and continued revenue growth, well ahead of peers, has analysts excited about future growth, with 38% share price upside in the bullish case and 15% on the average 12-month share price target.