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Illumina upgraded to buy by Leerink

March 20, 2017

Investment bank Leerink has upgraded Illumina’s stock to Outperform from Market Perform, anticipating faster than previously expected adoption of its new sequencing instrument, NovaSeq, based on a recent survey by MEDACorp that Leerink commisioned of 40 NGS labs. Leerink set a 12-month price target for Illumina shares at $195.

The investment bank also raised Illumina’s 2018 revenue estimates 3 percent to $3.07 billion and its 2019 revenue estimates to $3.44 billion.

Leerink analysts Puneet Souda and Kai Wang wrote in a note today that Illumina holds about 90 percent of the NGS market and its “accuracy, throughput, and service of its products are all factors to continue to keep customers bound to Illumina.” However, “more importantly,” the MEDACorp survey and conversations with lab directors “point to robust uptake of NovaSeq, supported strongly by customer competition dynamics and instrument continuity plans within customer labs.”

Leerink estimated that 215 NovaSeqs would be installed in 2017, with a 28 percent increase in 2018 to 275 in 2018, and that utilization would increase from $550,000 in 2017 to $1.1 million by the end of 2018.

Based on Leerink’s survey, 73 percent of the 40 labs are interested in purchasing NovaSeq, including 85 percent of the genome centers and 70 percent of hospital diagnostic labs. And those 40 labs are interested in purchasing NovaSeq earlier than previously expected — in the 2017 to 2018 time frame.

In addition, Leerink anticipated that Illumina’s HiSeq 2500 and 3000 instruments would be discontinued by mid-2017. Even diagnostic labs that currently rely on the HiSeq 2500 as their workhorse instrument are rethinking their strategy and anticipate purchasing NovaSeq, due to likely production discontinuation of the HiSeq 2500.

Souda and Wang added that they did not think that the recent budget blueprint, which proposed cutting the National Institutes of Health’s budget by 19 percent, would ultimately come to pass, and instead anticipated that the final cut would likely be in the range of $1 billion to $1.5 billion, as opposed to nearly $6 billion.

In addition, over the years, Illumina has depended less and less on academic revenues as its revenues from the diagnostics sector has grown. Academic revenues are likely to decline further, as the $5 billion liquid biopsy market and diagnostic whole-genome sequencing market grow, Leerink said.

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