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Second-Half Slump Pulls Genomics Stocks Down Sharply in 2011

NEW YORK (GenomeWeb News) – A strong first half of the year for the GenomeWeb Daily News Index eroded over the back half of 2011 as the stock prices of many genomics tools and some molecular diagnostics vendors fell amid challenging market conditions.

Driving the slide in the genomics tools sector has been uncertainty surrounding public funding sources for research and a slowdown among some customer end markets.

Amid a backdrop of fiscal crises and austerity measures in Europe and concerns about federal funding for the National Institutes of Health in 2012 and beyond many firms are expected to report tepid revenue growth for the near term. Even though Congress recently reached a deal to provide NIH with a 1 percent funding increase for fiscal year 2012, worries remain over potential cuts for 2013.

In general, molecular diagnostics firms fared better in the market in 2011 with some seeing double-digit increases in their stock prices. And though the latest waves of sequencing instruments and services have been met with significant demand from customers as well as media attention, the notable firms in that space had a difficult year on the stock market.

Though not the biggest decliner for the year, Illumina is one of the most notable among the sequencing players in the GWDN Index. Its stock fell 52 percent in 2011, driven primarily by an announcement in early October that its third-quarter revenues were going to fall short of expectations. At the time, Illumina President and CEO Jay Flatley said, "In the quarter, we saw what we believe to be an unprecedented slowdown in purchasing due to uncertainties in research funding and overall economic conditions, as well as temporary excess of sequencing capacity in the market."

Its shares fell 36 percent after that announcement and dragged down stocks across the genomics tools sector.

But among competitors in the sequencing market, the toughest year on the stock market belonged to Pacific Biosciences. Its shares fell 82 percent from the close of 2010. The firm, which went public in October 2010 at $16 per share, finished 2011 with its shares trading at $2.80.

PacBio's shares took a major hit in August when the firm reported its second-quarter results. Though its revenues came in well above consensus estimates, the company reported backlog orders that were lighter than expected by analysts. The firm also became one of several in the genomics tools space to cut its workforce in response to the market slowdown, laying off 130 employees, or 28 percent, of its staff.

Among the other sequencing technologies and/or services firms to see their stock prices decline in 2011 were Complete Genomics (-61 percent) and diversified tools provider Life Technologies (-30 percent).

The other two firms to see their stocks fall more than 50 percent were molecular diagnostic firms Vermillion, which dropped 84 percent and was the biggest decliner among the stocks tracked in the GWDN Index, and Nanosphere, which dropped 66 percent for the year.

However, the best performers among the firms in the Index were all molecular diagnostic players. Topping the list was Cepheid with a 51 percent increase in its stock price in 2011. It beat analysts' estimates on both the bottom and top line for the first three quarters of 2011. The firm also has laid out ambitious plans for rolling out new molecular tests over the next five years and is aiming for 47 tests on the market globally by 2016.

Exact Sciences also had a strong year with its stock price rising 36 percent. The firm, which recently raised $23.6 million in a public offering of stock, is currently conducting clinical studies on its Cologuard colorectal cancer test and aims to file a premarket approval application with the US Food and Drug Administration in late 2012.

Other top performers for the year included Accelr8, which finished up 22 percent for the year but far below its $4.03 per-share price at the mid-point of 2011, Genomic Health (+19 percent), and Luminex (+16 percent).

Overall, the GWDN Index fell around 14 percent for 2011 — and it finished far off the 13 percent gain it had registered through the first six months of the year.

In comparison, the Dow Jones Industrial Average gained nearly 6 percent for 2011, while the Nasdaq slipped around 2 percent and the Nasdaq Biotech Index climbed 12 percent.

Ed. Note: Beckman Coulter, Caliper Life Sciences, Celera, Clinical Data, Compugen, and Orchid Cellmark all started the year in the GWDN Index but were removed, mostly due to acquisitions. Firms joining the Index during the year were Complete Genomics, Danaher, Fluidigm, GenMark Diagnostics, and Pacific Biosciences.