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Illumina, Other Genetic Analysis Tool Makers Fall on Outlook


Quarterly revenue fell and the rest of the year looks murky for a company that makes gene analysis tools for researchers.

A leading maker of genetic analysis tools lost almost a third of its value Friday on a weak sales outlook and the news is bringing its rivals down, too.

Illumina (ILMN) shares fell 32% to $27.15 in late-morning trading after the company warned the outlook for DNA testing looks bleak given uncertainty over government funding for scientific research. Illumina says it badly missed a quarterly revenue target and withdrew its forecast for the rest of the year. The company said it generated about $235 million in quarterly revenue compared with Wall Street analyst estimates of $278 million.

That news also is dragging down competitors Thermo Fisher Scientific (TMO), Life Technologies (LIFE), and Bruker (BRKR). Thermo Fisher fell more than 6% to $50.16, Life Technologies dropped 7% to $36.76, and Bruker slid 3% to $13.24.

One of the primary issues contributing to Illumina's sales shortfall is "continued uncertainty surrounding the levels of research funding in the US and Europe," the company says. That statement is having an impact on rival companies.

"We envision entering another earnings season where sluggishness in the US academic markets is a frequent theme," says Leerink Swann analyst Dan Leonard, referring to university research centers that are highly dependent on government grants. He has a hold rating on the stock.

Illumina makes genetic analysis tools used in drug research. The company had net income of about $125 million, or 87 cents a share, on almost $903 million in revenue last year.

Sales rose 41% through the first six months of the year to about $570 million. However, in the third quarter, the company "saw what we believe to be an unprecedented slowdown in purchasing due to uncertainties in research funding," CEO Jay Flatley says in a statement.

Medical research has been a tough business overall. Clinical drug research company Pharmaceutical Product Development (PPDI) agreed to be taken over by private equity buyers Carlyle Group and Hellman & Friedman for $3.9 billion Monday. The $33.25 a share offer was a 30% premium over the stock's previous closing price. But the stock has been down the past couple of years -- it traded at almost $45 a share in late 2008. Private equity has been circling the drug research companies over the past year because of the stock values. Seemingly high premiums being paid for the companies are relative considering where their stocks used to trade. (See Private Equity-backed INC to Pay Whopper Premium for Kendle)

Clinical research organizations are among Illumina's customers. Genomic research centers, academic institutions and government labs make up a significant share of the company's business. In his statement, Flatley specifically singled out concern about National Institutes of Health (NIH) funding.

"We expect these conditions to continue through at least the fourth quarter, while the 2012-2013 US budgets for NIH and other related agencies are determined," he says.

Twitter: @brettchase
No positions in stocks mentioned.
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