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Leerink Downgrades Illumina to Market Perform on Near-Term Growth Uncertainties

NEW YORK (GenomeWeb) – Investment bank Leerink lowered its rating on Illumina's stock to Market Perform from Outperform, citing uncertainty about the growth potential of the company's next-generation sequencing products in the research market and a "less compelling" risk-reward profile on the company's stock at current levels, Leerink analyst Dan Leonard wrote in a note.

"We think the outlook for next-gen sequencing in biomedical research remains strong … but should take time to materialize into revenue," Leonard wrote in the note. In the meantime, Illumina's HiSeq 3000/4000 systems remain its primary growth driver, but it's not clear whether the features of these sequencing systems will be sufficient to drive upgrades and replacements at the same rate as in previous product cycles, he said.

The biggest upside for Illumina is its ability to address the clinical diagnostics market, particularly in cancer, and the overall addressable market in clinical diagnostics is expected to exceed $15 billion, according to the note.

However, the adoption curves in diagnostics are different than for research tools, and Illumina's ability to address issues to promote physician adoption, such as reimbursement, will take time and is not entirely within the company's control, Leonard added. 

Illumina currently trades at around 10 times Leerink's forward 12-month revenue estimate, which represents a premium to its own historical ranges, as well as multiples for the firm's peers, Leonard wrote, and some multiple contraction is possible. 

As a result, Leerink has lowered its target price for Illumina's shares to $185 from $225.

In early morning trading on the Nasdaq Thursday, Illumina's stock was trading down around 8 percent at $161.52.

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