--Illumina stock down nearly 32% Friday
--Warns on third-quarter revenue and withdraws full-year estimates
--Peers take tumble too but most aren't seen as tied to government research funding
By Russ Britt
A dire revenue warning from biotech firm Illumina Inc. (ILMN) swept away nearly a third of the company's market value Friday and caused other players in the sector to tumble as investors feared the worst.
Illumina plummeted nearly 32% to $27.22 in midday trading. The company warned Thursday night that it expected third-quarter revenue to be about $235 million, well off the $278 million projected by Wall Street analysts. It also said it wouldn't provide future forecasts and was withdrawing its full-year estimates.
Illumina cited uncertainty over research funding in the U.S. and Europe as well as excess capacity and drops in purchased upgrades of its Genome Analyzer equipment.
"In the quarter, we saw what we believe to be an unprecedented slowdown in purchasing due to uncertainties in research funding and overall economic conditions, as well as a temporary excess of sequencing capacity in the market," Jay Flatley, Illumina's chief executive, said in a written statement. "We expect these conditions to continue through at least the fourth quarter, while the 2012-2013 U.S. budgets for [the National Institutes of Health] and other related agencies are determined."
The news caused a panic among investors in other medical-research-gear makers, including Agilent Technologies Inc. (A), Waters Corp. (WAT), Thermo Fisher Scientific Inc. (TMO), Life Technologies Corp. (LIFE), Human Genome Sciences Inc. (HGSI), PerkinElmer Inc. (PKI) and Affymetrix Inc. (AFFX). All were down 6% or more in recent action, with PerkinElmer and Affymetrix off nearly 9%.
Illumina reportedly gets 80% of its funding through government sources, but the average of the others is somewhat lower, said Bryan Brokmeier, an analyst with Maxim Group. Concerns over the drying up of government funding for research have sent Illumina shares plunging from an intraday high of more than $78 reached in July.
Illumina's warning, while not unexpected, was a surprise in its severity, Brokmeier said. "This was worse than what people were expecting," he said.
Although the company had been considered one of the premier providers of research gear, a slew of analysts cut their rating on the company's shares Friday, including Brokmeier, who downgraded Illumina to hold from buy.
Deutsche Bank's Ross Muken did the same and lowered his price target from $52.50 to $30.
"The magnitude of [Illumina's] miss will come as a surprise to many and the implication that [the fourth quarter] and [first half of 2012] revenue will be barely growing should serve to keep the stock within a depressed range [for the medium term]," Muken said in a note.
-Russ Britt; 415-439-6400; AskNewswires@dowjones.com