Here is the company making a killing sequencing DNA

August 20, 2014 6:25 PM



(Photo Credit: Duncan Hull)

There was a great article published in Forbes Wednesday morning about how Illumina (ILMN) has been at the forefront of monetizing genetic sequencing technology. Illumina’s efforts have driven down the cost of mapping a patient’s DNA from about $100 million 14 years ago to just $1,000 today. Products sold by Illumina have the potential to save millions of lives by scanning individuals’ DNA for irregularities in the genetic code to identify, detect, and treat genetic disorders.


(Graph above from ChartIQ Visual Earnings)

Advances in genetic sequencing have enabled medical professionals to quickly, accurately, and relatively cheaply map full strands of human DNA which contain over 3 billion lines of genetic code. Illumina has been cashing in on the breakthroughs. The Forbes article points out that since 2008 earnings and sales at Illumina have increased 147% while the stock price has ran up 617%.


Illumina’s fundamentals have been on an incredible run over the past 2 years. The company has beaten earnings estimates from Wall Street 6 times in a row. Revenue has also increased in each of the past 4 quarters by a minimum of 25%. Last quarter sales jumped 29% higher, pushing earnings per share 5 cents above the Estimize consensus and 6 cents ahead of the forecast from Wall Street. In addition to skyrocketing fundamentals, this stock also has upward technical momentum. With these 3 factors going for it, Illumina is exactly the type of stock that a momentum trader might try to ride higher.


What makes the Illumina story even more impressive is the risk that CEO Jay Flatley undertook to get the company where it is today. Back in 2007 before Illumina was the dominant player in full genetic sequencing, Flatley was having doubts about the future of his company’s business selling DNA microarrays. To brighten Illumina’s outlook, Flatley made a massive bet.

Flatley spent $600 million in company stock, three times Illumina’s annual sales, to acquire a company called Solexa which had an experimental DNA sequencer. By incorporating Solexa’s technology and making incremental improvements over time, Illumina was able to drive the price of DNA sequencing down from $250,000 in 2007 to the going rate of about 1,000 bucks.

Illumina became the dominator manufacturer of DNA sequencers nearly 10 years ago and has maintained 80% market share since. But some of the largest opportunities in genetic sequencing may still lie ahead. The use of genetic sequencing to identify, research, and potentially treat cancer could become upwards of an $11 billion global market, dwarfing the company’s current revenues of roughly $450 million. Illumina is certainly on a huge run, but all indicators suggest the uptrend may have plenty more room to run.

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