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Illumina's Q3 Revenues Fall Short of Guidance; Shares Tumble

NEW YORK (GenomeWeb) – Illumina said today that it expects that its third quarter 2016 revenues will fall short of its previously anticipated $625 million to $630 million.

The genetic analysis technologies company said in a statement prior to releasing its full Q3 results that it expects total revenues of $607 million, a 10 percent increase over its Q3 2015 revenues of $550 million, but short of its guidance.

The shortfall was driven by a "larger than anticipated year-over-year decline in high-throughput sequencing instruments," the company said in a statement.

The firm also missed analysts' average expectation for revenues of $628.1 million in Q3.

In Tuesday morning trade on the Nasdaq, shares of Illumina tumbled 25 percent to $138.37 in response to the announcement.

During a conference call with investors, Illumina CEO Francis deSouza said that the firm received fewer orders than it had expected for HiSeq 2500 and HiSeq 4000 instruments and also "closed one less HiSeq X system deal than anticipated," shipping 26 total HiSeq X units in the quarter. As a result, the firm's sequencing instrument revenue declined 26 percent, year-over-year, deSouza said. The firm's sequencing consumables revenue was in line with expectations.

DeSouza said that the firm would provide additional details about its Q3 performance and provide an update on Q4guidance during a conference call after it releases its full quarterly results on Nov. 1. In general, though, deSouza said that the company expects Q4 revenue to be "flat to slightly up" over Q3. However, the firm is "no longer counting on an uptick in high-throughput sequencing instrument" sales, he said.

Following the announcement, investment firm Janney Montgomery Scott downgraded Illumina to a Sell rating from Neutral. "We believe there is more downside than upside risk to revenue numbers as instrument sales continue to decline," Paul Knight, an analyst at Janney Montgomery Scott, wrote in a research note. In addition, he added that Illumina's diagnostis business would take six to nine years to "develop significant commercial traction and the consequent investment in Helix and Grail will limit market expansion at the company."

Other analysts noted that the revenue miss may be indicative of an overcapacity of HiSeq instruments. Amanda Murphy, an analyst with William Blair, wrote, "While there may be overcapacity in the system, which may take some time to sort out, we continue to believe the sequencing space is far from mature."

Doug Schenkel of Cowen and Company noted that Illumina said its fourth quarter revenues would increase over the third quarter — a "pretty low bar" compared to its historic growth. Nevertheless, he added, Illumina "remains the market leader in one of the most promising areas of healthcare," and "competitive dynamics seemingly remain favorable." Importantly, Schenkel wrote, the clinical end market as well as sales to Asia Pacific and European customers performed as expected.

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