Biotech Values

[DewDiligence]

Illumina Earnings Miss Drags Down Rivals

[As previously noted (#msg-67809056, #msg-67789894), the sell-off for PKI, which derives a relatively small portion of its revenues from sales of instruments and consumables used in drug/biotech research, strikes me as an overreaction.]

http://www.bloomberg.com/news/2011-10-07/illumina-shares-fall-after-company-drops-full-year-forecast.html

›By Michelle Fay Cortez and Elizabeth Lopatto - Oct 7, 2011 4:31 PM ET

Illumina Inc. (ILMN), maker of tools for genetic analysis, fell the most ever after dropping its profit forecast because of concerns that research funding will be reduced, sending shares of rival equipment makers down.

Illumina plunged 32 percent to $27.18 at the close in New York, the biggest decline since the San Diego-based company sold shares to the public in July 2000. Life Technologies Corp. (LIFE) fell 6.5 percent to $36.82, while Thermo Fisher Scientific Inc. (TMO) declined 5.9 percent to $50.49.

Purchasers delayed orders in the third quarter because of “uncertainty” surrounding research funding the U.S. and Europe, Illumina said in a statement yesterday. The company said third-quarter revenue is expected to be about $235 million, less than analysts’ estimates of $278 million. The weakness in demand may continue as the U.S. government, looking to curtail spending, mulls the research budget for agencies including the National Institutes of Health.

“It’s a pretty safe assumption, given the rhetoric coming out of Washington, that NIH budgets aren’t going up,” said Les Funtleyder, a money manager and health-care strategist at Miller Tabak & Co. in New York. “All these companies have run into similar problems. Illumina is still among the leaders, but it’s a leader in a slowing industry.”

Sluggishness in the U.S. academic markets may be a frequent theme for the coming earnings season, said Dan Leonard, an analyst for Leerink Swann in Boston. It may trigger a spate of mergers and acquisitions, he said.

Possible Consolidation

“If we’re entering a multiyear period where research budgets are going to be under pressure, you could see additional consolidation,” he said in a telephone interview. “These are high-quality companies that generate a lot of cash and their business isn’t going away.”

Leonard estimated that 75 percent of Illumina’s problems stem from internal problems. While the company introduced powerful new products that have been embraced by consumers, it hasn’t found ways to utilize capacity, he said.

“It’s like a catch-up stage on the customer side,” Leonard said. “They have all the new toys, and they need to use them more optimally.”

On July 26, Illumina had forecast adjusted earnings-per- share growth of 33 percent to 36 percent from last year’s $1.06.

Diagnostic toolmaker PerkinElmer Inc. (PKI) fell 8.3 percent to $17.93, while Bruker Corp. (BRKR) declined 4.4 percent to $13.09. Affymetrix Inc. (AFFX) dropped 4.8 percent to $5.42.‹