Illumina (NASDAQ: ILMN) shares tumbled 16% this past week as investors reeled from a one-two punch of mixed fourth-quarter and full-year 2024 results, plus the prospect of losing all its revenue from China among that country’s retaliatory moves against the United States for the 10% tariff levied earlier this month by President Donald Trump.
The next-gen sequencing giant finished the fourth quarter of 2024 with a year-over-year swing back into the black with a net income of $187 million, up from a $176 million net loss in Q4 2023, on revenue that dipped nearly 2%, from $1.122 billion to $1.104 billion. Diluted earnings per share (EPS) also climbed out of the red, from negative $1.11 to positive $1.17.
Those results reflected in part Illumina’s spinout of cancer blood test developer Grail (NASDAQ: GRAL) in June according to GAAP results released Thursday. However, Grail accounted for $5 million of intercompany revenue within Illumina’s “core” results, accounting for virtually all of the increase in quarterly revenue, which barely budged, rising 0.6% from $1.097 billion to $1.104 billion. Core net income slid 23% year-over-year from $152 million to $117 million.
For all of last year, Illumina’s net loss grew 5% from $1.161 billion to $1.223 billion, on revenue that fell 3% from $4.505 billion to $4.372 billion. Diluted EPS sunk further into the red, from negative $7.34 to negative $7.69. However, Illumina’s core operations fared much better, as net income more than tripled, zooming 232% from $269 million to $894 million, yielding diluted EPS that also more than tripled, from $1.70 to $5.61.
“2024 was a transformative year for Illumina, enabling us to enter 2025 with momentum,” Illumina CEO Jacob Thaysen, PhD, told analysts Thursday on the company’s Q4 earnings call. “We made significant progress towards our strategic goals, despite market conditions.”
“We built a new leadership team and refined our organization structure, and we rolled out robust operational excellence initiatives to improve our margins and to drive double-digit EPS growth,” Thaysen continued. “We’re just at the beginning of our transformation and are confident that 2025 will bring us closer to our goals.”
Week-long slump
Investors and analysts were not quite as optimistic. Illumina shares dropped nearly 10% Friday from $122.80 to $111.06 on the earnings results, continuing a week-long slump that started with a 1% dip Monday from $132.74 to $131.10, after Barclays analyst Luke Sergott lowered his firm’s 12-month price target on Illumina shares 10%, from $145 to $130; he maintained Barclays’ “Hold” rating. Shares slipped another 5% Tuesday, to $124.20.
Illumina’s Tuesday decline came after the company became a target of retaliation by China in its clash with the United States over trade and tariffs. After President Trump made good on announced plans to carry out a 10% tariff on all imports from China, effective Tuesday 12:01 a.m. February 1. ET, Chinese leader Xi Jinping retaliated by imposing a series of tariffs—while Beijing also singled out Illumina among several U.S. companies for additional scrutiny.
China placed Illumina and PVH (NYSE: PVH)—owner of the Calvin Klein and Tommy Hilfiger fashion brands—on its “Unreliable Entity List” (UEL), which enables Beijing to punish foreign companies, organizations, or individuals deemed to endanger the country’s sovereignty, national security, or development interests; or discriminate against Chinese companies, organizations, or individuals.
Illumina and PVH “violated normal market trading principles, interrupted normal transactions with Chinese companies, adopted discriminatory measures against Chinese companies, and seriously damaged the legitimate rights and interests of Chinese companies,” China’s Ministry of Commerce alleged in a statement. “The Unreliable Entity List working mechanism will take corresponding measures against the above-mentioned entities in accordance with relevant laws and regulations.”
China can punish companies on the UEL by fining them, revoking their personnel’s work permit, status, or residence in the country—or by restricting or barring them from engaging in China-related import or export activities; investing in China; or basing their personnel there, Jacob Harding, a Shanghai- and Los Angeles-based local partner with the law firm Winston & Strawn, wrote in a 2020 blog post.
In addition to targeting Illumina, China also retaliated by launching investigations into Illumina, Google (NASDAQ: GOOG); Intel (NASDAQ: INTC); and Nvidia (NASDAQ: NVDA), the increasingly life sciences-focused Silicon Valley AI and microprocessing giant. Just last month, Nvidia announced it will partner with Illumina to apply genomics and AI technologies to analyze and interpret multi-omic data in drug discovery, clinical research, and human health.
“The last straw”
China accounted for just 7% of Illumina’s total revenue, or roughly $290 million. And despite a 1% rise in China business during Q4, Illumina’s revenues from China operations have declined for the past three years—down 6% in 2022, 18% in 2023, and 20% in 2024, Leerink Partners analyst Puneet Souda reported Friday in a research note, predicting: “We expect it to continue to decline over the next few years.”
“China UEL appears to be the last straw in a challenging relationship,” Souda noted, given the stiff competition Illumina faces from Chinese sequencing companies. These include BGI Genomics (300676.SZ), a subsidiary of BGI Group that provides clinical molecular diagnostic solutions and high-throughput sequencing (NGS) research services; MGI Tech (688114.SS), a developer of high throughput sequencers and other core lab tools and technology; and its U.S. subsidiary Complete Genomics, which develops genomic sequencing tools for research, healthcare, and industrial applications.
All of Illumina’s revenue from China is at risk, Souda asserted, even were President Trump to reverse the tariff imposed on Chinese imports, since BGI and MGI sales in the United States face restriction from the proposed BIOSECURE Act, which would forbid the awarding of federal contracts, including procurement of drugs for Medicare and Medicaid, to “foreign adversary biotech companies of U.S. national security concern.” The measure singles out BGI, MGI, and two other companies: WuXi AppTec (2359.HK) and WuXi Biologics (2269.HK). Despite bipartisan support, the bill failed to be included in the 2025 National Defense Authorization Act (NDAA) but may resurface in some form this year.
“Next-gen sequencing remains strategic to national interests, thus we believe ILMN has limited avenues to grow in China,” Souda concluded. “Mgmt. is in dialogue to identify a resolution, but with limited options we see an upcoming exit from China.”
“Catch-22”
“M[anagement] is now facing a catch-22 in addressing, guiding or taking action publicly on their China business with negotiation/discussions ongoing,” Souda added.
That appears to explain why Thaysen limited his comments to analysts on China: “At this time, we are not going into the details of our China business in more detail than the revenue.”
While Illumina has disclosed that 7% of its revenue comes from China, RBC Capital Markets analyst Conor McNamara estimated in a research note that China also accounts for <5% of profits.
“Through a combination of cost cuts, buybacks, and continued tax rate improvements, it’s our belief ILMN can offset any EPS headwinds if China sales decline faster than anticipated,” McNamara opined.
McNamara lowered RBC’s price target rating 1%, from $250 to $247, but kept the firm’s “Outperform” rating and emphasized several of Illumina’s strengths.
“While many analysts are focused on potential headwinds that ILMN faces, we think investors should be focused on the actual reasons to own the stock: double-digit (and accelerating) EPS growth; ~6% FCF [free cash flow] yield; dominant market share in expanding TAM [total addressable market]; membership in the 70/85 club (70% GMs and 85% recurring revenue); and ILMN is the AI stock in LST&Dx [life sciences tools and diagnostics],” McNamara wrote. “Those are five good reasons to own ILMN even if you don’t believe our thesis: revenue acceleration will drive multiple expansion.”
Another Illumina strength, he contended, was higher than anticipated conversions of customers to its NovaSeqX sequencing system from older systems. Though NovaSeqX’s higher price and fewer days in Q4 led to consumable revenue 2% below expectation, the system now accounts for 65% of high-throughput volume now on the X, with Illumina expecting that percentage to rise to 75% by the end of Q2.
“We believe 2025 pricing headwinds will be lower than what is in guidance and [Wall] Street [analyst] estimates,” McNamara added.
Souda highlighted another Illumina strength, and a challenge: The company remains dominant among clinical users while facing growing competition in the research market.
In addition to BGI and MGI, he said, privately-held Element Biosciences is gaining ground among mid-throughput users, while another privately-held rival, Ultima Genomics, last month celebrated its UG 100
sequencing platform being selected by 14 biopharma funders of the UK Biobank’s Pharma Proteomics Project —which they launched last month as the world’s largest and most comprehensive proteomics study to date—along with Thermo Fisher Scientific (NYSE: TMO)‘s Olink® Explore HT proteomics platform.
On February 20, Roche Holding (SIX Swiss: ROG) has scheduled a webinar where it plans to introduce its high-throughput, single-molecule nanopore sequencing technology called SBX (sequencing by Xpansion) technology. SBX encodes the sequence of a target nucleic acid molecule into a surrogate polymer called an Xpandomer, promising to deliver “highly accurate whole genome sequencing performance with over 15 billion reads in four hours of sequencing.”
“Promptly assessing” impact
After insisting that “wherever Illumina operates, we comply with all applicable laws and regulations,” Thaysen said Illumina was “promptly assessing’ the impact of China’s retaliatory moves against Illumina and acknowledged that Illumina’s 2025 guidance did not reflect any impact from those actions.
Answering a question from Citi analyst Patrick Donnelly, Thaysen also said Illumina has remained able to sell into China: “We continue to serve our customers and their patients in China, and we will do our best to continue to do so. We believe the opportunity in China is vast and we will work through the current challenges with speed and hopefully get a resolution as fast as possible.”
Donnelly lowered Citi’s price target on Illumina shares 21%, from $165 to $130, and maintained his firm’s “Neutral” rating.
Added Ankur Dhingra, Illumina’s CFO, who was appointed by Thaysen last April: “We weren’t anticipating any meaningful growth contribution from China. It being stable would have been good, [so] very good to see the Q4 growth of 1%. Now certainly, with the announcement, we are assessing the situation while we’re still supporting our customers on the ground.”
Jefferies equity analyst Tycho Peterson characterized the responses of Illumina management as “avoiding” and “dodging” key questions posed by him and other analysts on the earnings call. Peterson took issue with Illumina not revising its guidance before releasing Q4 results to reflect a possible change in China operations.
“Plenty of risk remaining”
“While we do not expect the business to go to zero overnight, given a relatively new management team (CFO <1 year) that is still building credibility, we are surprised there were zero error bars baked into guidance, with plenty of risk remaining,” Peterson wrote.
Peterson also noted that Azenta Life Sciences (NASDAQ: AZTA), parent of the R&D genomics services provider GENEWIZ, disclosed that it could move customers from its Chinese NGS business, which the company estimated at between $20 million to $25 million, to MGI if needed.
“On a positive note, ILMN should be able to offset some headwinds (we estimate at least $0.30 worst case)” to its EPS resulting from China, added Peterson. He also lowered Jefferies’ price target on Illumina shares 17%, from $145 to $120, while maintaining his firm’s “Hold” rating.
President Trump carried out the tariffs on Chinese imports through an Executive Order titled, “Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China.”
The order accuses the Chinese Communist Party (CCP) of subsidizing and incentivizing domestic chemical companies to export fentanyl and related precursor chemicals for the production of synthetic opioids sold illicitly in the United States, resulting in a “national emergency” for the United States. The order also cited China’s support for transnational criminal organizations (TCOs) involved in the trafficking of illicit opioids.
“Despite multiple attempts to resolve this crisis at its root source through bilateral dialogue, PRC officials have failed to follow through with the decisive actions needed to stem the flow of precursor chemicals to known criminal cartels and shut down the money laundering TCOs,” the order states. “The CCP does not lack the capacity to severely blunt the global illicit opioid epidemic; it simply is unwilling to do so.”
Leaders and laggards
- BioXcel Therapeutics (NASDAQ: BTAI) shares plummeted 45% over two days, from 30 cents to 19 cents Thursday and 16.5 cents Friday, after the company announced a 1-for-16 reverse stock split effective 5 p.m. ET Friday, with the split-adjusted stock set to begin trading Monday. Every 16 shares of BioXcel’s common stock issued and outstanding will be automatically converted into one share of common stock. BioXcel said the move was part of its plan to regain compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. BioXcel’s shares have cratered 96% over the past year, having closed at $3.78 on February 7, 2024.
- Sionna Therapeutics (NASDAQ: SION) shares jumped 39% Friday on their first day of trading, from the initial public offering (IPO) price of $18 to $25. The cystic fibrosis therapy developer focuses on treatments that normalize the function of the cystic fibrosis transmembrane conductance regulator (CFTR) protein by directly stabilizing CFTR’s nucleotide-binding domain 1 (NBD1). Sionna raised approximately $191 million in gross proceeds by selling 10,588,233 shares of its common stock. That translates to approximately $173 million in net proceeds—a figure that would rise to approximately $199.6 million if underwriters exercise in full their option to purchase 1,588,234 additional shares at the IPO price.
The post StockWatch: Illumina Tumbles on Q4 Results, China Retaliation appeared first on GEN – Genetic Engineering and Biotechnology News.
