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Piper Jaffray Upgrades Illumina to Overweight Rating

NEW YORK (GenomeWeb) – Investment bank Piper Jaffray today upgraded Illumina's shares to Overweight on bullish views around the next-generation sequencing firm's HiSeq X Ten platform.

Analyst William Quirk upgraded Illumina's shares from a previous Neutral rating and increased the price target on its shares to $192 from $166.

Quirk based the rating upgrade on recent discussions he had with three HiSeq X Ten customers, out of a total of about nine who have installed and validated the systems. Based on those interviews, "we believe instrument utilization is further along than expected," Quirk said.

The customers told Quirk that they are using the platforms at near-capacity and reported turnaround times of between 30 and 70 days. On average, the customers sequenced 130 genomes per instrument per month, which would suggest annual consumable sales of $1.1 million per instrument, Quirk said. By comparison, Illumina's HiSeq 2500 has an annual pull-through of between $300,000 and $350,000.

The customers also told Quirk that validation times for the HiSeq X Ten are close to one month, compared to his previous estimate of three months. He estimated 92 instruments have been installed and validated as of the end of the third quarter, which would indicate a potential pull-through of $16.3 million.

He further noted the emergence of population-based sequencing studies, such as the UK's 100,000 Genomes Project, as a growth driver. Other growth opportunities include expanded use of the HiSeq X Ten beyond whole-genome sequencing, and possibly an unbundling of the instruments, which currently is sold in sets of at least 10 instruments.

Quirk also pointed to the clinical market for potential growth for Illumina. In recent checks of the chlamydia/gonorrhea and HPV channels, about 38 percent of respondents said they are already using NGS technologies, though two-thirds of them said they are using Thermo Fisher's Ion Torrent system, while one-third are using Illumina's MiSeq.

However, Illumina's general momentum in NGS and the workflow benefits of the company's NextSeq 500 high-throughput desktop instrument, as well as the eventual launch of the NeoPrep sample preparation system, put the company in position for future share gains, Quirk said.

He expects Illumina to target the clinical oncology space, and cited the firm's recent partnership with AstraZeneca, Janssen Biotech, and Sanofi to develop a universal NGS-based oncology test system for multi-analyte companion diagnostics.

Illumina's shares were up 7 percent in afternoon trading on the Nasdaq at $164 .66. The San Diego-based firm is scheduled to report its third quarter financial results on Oct. 20 after the close of the market.