Fears that rapid breakthroughs in genetic sequencing will lead to unintended consequences surfaced in a surprising way this week.
Shares of genome-sequencing giant Illumina plummeted 25 percent after the company, which has risen 600 percent in the past five years, shocked the market with a weak sales forecast. With no quick rebound in sight, analysts are pointing to a unique problem for Illumina. Its dominance in the genetic sequencing market was the cause of its decline.
"Illumina has cannibalized themselves," said Bryan Brokmeier, director and senior equity analyst at Cantor Fitzgerald. "That tends to happen a lot more when you have 80 to 90 percent market share, as they've had for a while now."
San Diego-based Illumina trimmed its revenue estimates in a third quarter pre-announcement to $607 million in revenue from $625 million to $630 million. The company also indicated fourth-quarter revenue will be flat to slightly up sequentially. Illumina attributed the decline to a decrease in sales of its high-speed genetic-sequencing instruments that are used to analyze large genomes.
The market has struggled to figure out exactly what is going on at Illumina, and the company hasn't provided an adequate explanation, based on the reaction from investors. It has also missed at least one type of Wall Street expectation in three out of the last four quarters.
Analysts say the real story is that Illumina's technological breakthrough with its newest genetic-sequencing platform, HiSeq X, hurt sales of its older platforms, like the HiSeq 2500, 3000 and 4000. At the same time, the company has sold so many high-end sequencers in recent years, the market is now saturated. Illumina's product cycle is too fast, and customers don't have the capital to continually buy new high-end machines.