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Analysts Increase Valuations, Upgrade Illumina

NEW YORK (GenomeWeb News) – Two investment banks today issued bullish opinions on Illumina, noting the continued uptake of the company's next-generation sequencers as well as the benefits of persistent rumors about a possible purchase of Illumina by Roche, and the penetration of the technology into the diagnostics arena.

Piper Jaffray upgraded the San Diego firm to an Overweight rating from Neutral and raised the price target on Illumina's stock to $61 from $47. Separately, Leerink Swann increased its valuation to a range of $62 to $63 from an earlier range of $57 to $59 while it maintained an Outperform rating.

In a research note Piper Jaffray's William Quirk said that its internal data indicates Illumina continues to gain market share in the next-generation sequencing market with the HiSeq installed based increasing to 730 systems to date from 645 at the end of June, a 13 percent improvement. At the same time, the installed base for MiSeq's jumped 101 percent to 141 instruments from 70 during the same period.

Quirk added that his firm's data suggests Life Technologies' SOLiD, SOLiD 5500, and SOLiD 550xl systems lost ground as the installed base for those systems dipped slightly to 381 installations from 382.

Life Tech's desktop systems, however, showed strength as the Ion Torrent Personal Genome Machine grew 32 percent to 221 instruments and the Ion Proton has traction with 42 initial placements, he said.

Leerink Swann's Dan Leonard also noted growing adoption of Illumina's HiSeq platform and said that a university sequencing lab that he visited on Thursday had replaced its two SOLiD 5500xl platforms with one HiSeq, citing "performance challenges and lack of customer demand for the SOLiD."

However, he noted sluggish demand for the MiSeq "as customers balk at the instruments' higher run cost vs. the HiSeq."

Leonard said that there is a 50-50 chance that Illumina will launch a new sequencing instrument this year, and if it does it will likely target researchers looking for instruments with a lower throughput and lower cost but with faster run times than what is already available.

Even if Illumina does not launch any new sequencing platform this year, though, improvements made by the company to the sequencing workflow — including sample preparation and informatics —could drive incremental placements of existing platforms, Leonard said, adding that he anticipates new products that will address sample prep and informatics in 2013.

Another driver to Illumina's stock price is a rumor that Roche may once again be courting Illumina, according to Piper Jaffray's Quirk. Last month, a Swiss newspaper reported that after being rebuffed in early 2012 by Illumina, Roche had renewed its efforts, this time with an offer of $66 per share. The newspaper, L'Agefi, also said that an announcement of an acquisition could come during the first half of January.

While both Roche and Illumina have not commented on the report and there is no confirmation of such a deal, Illumina's stock has seen a bump-up resulting from the chatter. On Thursday, Illumina's stock closed at $55.55, up 6 percent from $52.17 on Dec. 19, the day before L'Agefi ran its story.

In afternoon trading today on the Nasdaq, its shares were at $54.94, or down about 1 percent.

Quirk said that as long as the rumors of a deal persist, "we believe there is likely a mid-50's floor in [Illumina's] shares."

Lastly, Leonard said that Illumina could benefit as sequencing technology penetrates the diagnostics space, where an arms race in the technology is starting. A recent survey conducted by Leerink Swann found strong interest in next-gen sequencing among molecular diagnostic laboratory directors, and the university that Leonard visited on Thursday is adding a clinical sequencing lab in the next few months.

"While we believe diagnostics applications remain exploratory at this point, and thus instrument utilization could be low (outside of Trisomy 21), we nonetheless view diagnostics as an attractive source of incremental box placements," he said.

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