🧬 Why Is Illumina Desperate For Grail?

Ford crosses $100B in market value.

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🧬 Illumina: On The Trail Of Grail?

Months after completing the acquisition of Grail, Illumina Inc. (ILMN) released quarterly updates ahead of results, while the regulators are yet to chime in on the acquisition. Can regulators be taken for granted as shipments hit a record high and revenue and EPS projections beat analyst estimates? (Tweet This)

Baying For Blood

Founded in 1998, Illumina Inc. (ILMN) is a DNA sequencing machine maker. The company designs, manufactures and markets integrated systems for analyzing genetic variations. Grail was spun-off from Illumina back in 2016, with the former parent retaining a 12% stake. Grail’s specialty is blood testing for cancer tumors.

Four years later, the company decided to bring back Grail in its fold for $8B – something the regulators are evaluating. The company had earlier faced flak regarding its proposed acquisition of Pacific Biosciences in 2019 for $1.2B, a proposal which was later put in cold storage.

Regulators can go their own way, but Illumina was determined to get Grail back. In early 2021, the company filed lawsuits in European courts to prevent regulators from investigating the deal while asserting there was no legal impediment to the acquisition in the US. It unilaterally consummated the deal in August 2021, leaving the regulators red-faced.

Now it was the regulator’s turn to pay back in kind. The Federal Trade Commission announced it wants to undo the merger. At issue is the FTC’s view that this acquisition will give Illumina the ability to squeeze out the competition.

Even as the FTC’s counterparts in the EU reviewed the acquisition, they insisted Grail be kept a separate entity, run independently, not share confidential data, and maintain arm’s length interactions. The review is expected to end in 3 weeks. Illumina decided waiting is not a prudent course of action and has challenged this order at the EU’s General Court in Luxembourg.

So what is Illumina’s obsession with Grail? Last June, Grail launched its Galleri blood test – a single test that can detect the presence of multiple cancers. This is currently the only test available by prescription in the US for people who may already have an elevated Cancer-risk.

Grail expects ~50M people to take this test before formally applying for a full FDA approval in 2023. Currently, some 11 employers and eight health systems have adopted the test, and over 1.5K providers had prescribed it in 2021.

Brighter Side Of Business

On Tuesday, the company released its Q4 updates ahead of declaring results. Preliminary figures show Q4 revenue grew at 25% Y-o-Y to $1.19Bm courtesy of both its instruments and the consumables category. For the full year 2021, the company expects revenue growth of 39% Y-o-Y to $4.52B. Illumina also is expected to report the highest number of shipments in its history.

For 2022, the company projected ~15% growth in revenue Y-o-Y (~$5.2B in total) and EPS of around $4.2. Both these projections were higher than analyst estimates of $4.9B and $4.03 per share, respectively. The company expects the momentum to remain strong for the foreseeable future, given the strong interest in genomics in healthcare.

Illumina also signed collaboration agreements with healthcare companies: breast cancer diagnostics company Agendia NV to develop genome-based testing; drugmaker Boehringer Ingelheim to understand the efficacy of its new meds; conduct studies on genomics-based testing with Optum, a United Healthcare group company; and Nashville Biosciences, affiliated to Vanderbilt University, to work with 250K human DNA samples to improve medicine treatment.

This news was enough for analysts to pay attention to the company and upgrade their earlier ratings. With the regulatory decision regarding the merger with Grail hanging like the Sword of Damocles, whether these upgrades come a bit too soon is anybody’s guess.

For now, the euphoria of strong financials will keep concerns at bay until February 4th rolls around and the European Commission is ready to pronounce its stance. Illumina has put a stake in the ground and seems to have decided to defend itself come what may. Shareholders may have their questions, but they’ll be relegated to the background just a little bit for now!

Market Reaction
ILMN ended at $399.51, down 3.35%.

Company Snapshot 📈

ILMN $399.51 -13.86 (3.35%)

Analyst Ratings (17 Analysts) BUY 12%  HOLD 65%  SELL 24%

Newsworthy 📰

Milestone: Ford’s market cap tops $100B for the first time ever (F +2.25%)

Tumble: Virgin Galactic shares fall after announcing plans to add up to $500M in debt (SPCE -18.92%)

Mend: Delta Air sees a fast recovery from Omicron turbulence (DAL +2.12%)

Later Today 🕒

  • JPMorgan Chase & Co. Earnings (JPM)
  • Wells Fargo & Co. Earnings (WFC)
  • BlackRock Inc. Earnings (BLK)
  • Citigroup Inc. Earnings (C)
  • First Republic Bank Earnings (FRC)
  • Shift Technologies Inc. Earnings (SFT)
  • 7:00 PM IST: Retail Sales
  • 7:45 PM IST: Industrial Production

Today’s Market Terminology: Pension Fund

A pension fund is a fund set up to pay the pension benefits of a company’s workers after retirement

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