Gene sequencing titan Illumina (NASDAQ:ILMN) usually uses its presentation at the J.P. Morgan Healthcare Conference to make its biggest product announcements of the year, and the company is scheduled to take the podium Monday, Jan. 13.

Three years ago, Illumina announced a new high-end sequencer, NovaSeq, and the stock jumped 17% in a day. As the company went on to execute a flawless product rollout, this growth stock had an incredible year, ending 2017 54% higher than the share price the day before the conference. More recently the stock has stagnated, currently trading 10% below its peak in September 2018. 

What might we hear from Illumina at this year's conference, and could it provide a boost to the stock in 2020? Here are some educated guesses.

1. What's next after a failed deal?

The biggest news in recent days was the failure of the attempted acquisition of Pacific Biosciences (NASDAQ:PACB). The outcome had been clear to investors for weeks, so the stock barely moved when the companies made it official in a press release on Jan. 2. As it was, PacBio probably needed the deal more than Illumina did, and analysts had mixed feelings about the deal anyway.

DNA sequences

Image source: Getty Images.

Illumina will no doubt provide some insight into where the company goes from here. PacBio's sequencers use long-read technology, which can read an individual strand of DNA, whereas Illumina's technology chops DNA into segments and reassembles the DNA sequence data from the segments using computational tools. The short-read technology is inherently cheaper and faster, putting Illumina's products in the sweet spot for most commercial applications, but long-read technology is growing in importance for research.

When questioned last month about the possible failure of the deal, Illumina emphasized that the company has internal efforts under way to develop long-read technology, but also granted that it could be open to some sort of distribution agreement with PacBio if they remained separate companies.

Illumina may provide some insight into a new strategy for the long-read niche next week. Investors will also be looking for clues to its capital allocation strategy now. Share buybacks could increase, or the company could be on the prowl for other acquisition targets, such as businesses that could give it more complete end-to-end clinical solutions.

2. A new platform is in the works and could be announced

Illumina spends at least 18% of revenue on research and development (R&D), with the highest priority being its sequencer platforms. So it's no surprise that about two out of every three years, there's a new sequencer announced at the J.P. Morgan conference. There was no platform announcement last year, so this could be the year for one.

The obvious move for Illumina would be a replacement for the MiSeq line, the company's highest-selling model among its small benchtop sequencers. The successful MiSeq family accounts for about half of the company's installed base of sequencers, but it's a little long in the tooth, having been launched in 2011. 

The MiSeq sequencers cost about one-third of the next platform up, the midrange NextSeq, but sequences at a much slower rate. The maximum run on a MiSeq takes twice as long as one on NextSeq and produces only one-eighth the amount of sequencing data. Perhaps more important to Illumina and its shareholders is the fact that NextSeq instruments typically pull through between $130,000 and $160,000 in consumable revenue annually, whereas MiSeq instruments are expected to pull through only between $40,000 to $45,000.

Scientist placing sample in an Illumina MiSeq

One of Illumina's MiSeq sequencers. Image source: Illumina.

Lately, the average usage of MiSeq units has been falling. The MiSeq variant that is specialized for clinical applications, MiSeq Dx, is producing growth, but as a family, the average consumable revenue from the MiSeq installed base fell below the $40,000-per-unit target last quarter. Illumina attributed the decline to customers moving up to higher-end instruments, which is a good thing. But what should be happening is that new customers attracted to the low entry price should be taking up the slack. A refresh of this part of the product line could drive an expansion of the overall sequencing market.

An announcement of a new platform is not a sure thing. Illumina's R&D spending in Q3 dropped 5% from the period a year earlier, while it would typically increase ahead of the launch of a new platform as the company builds and tests prototypes. CFO Sam Samad explained the drop by saying it was due to delayed hiring and "program reprioritization and project spend that shifted from the third quarter to the fourth quarter." That would indicate that a platform launch has been delayed, so the company would have to decide whether to announce the launch before the product was available, potentially affecting sales of MiSeq in the meantime.

3. The next step to the $100 genome

Three years ago, the NovaSeq line was announced with the message that the platform will eventually bring down the cost to sequence the whole human genome to $100, a  big improvement over approximately $1,000 today. Even with the latest consumables, that figure is still nowhere in sight. Illumina has understandably been slow to bring down the price of consumables because if lower prices don't stimulate more sequencing demand, the company would hurt its business more than help it with aggressive price moves.

But with the lack of competition for NovaSeq, Illumina knows that its best opportunity for growth is to stimulate demand for sequencing, and analysts have been probing the company about the elasticity of demand at the high end and asking about the path to the $100 genome.

Illumina will probably use next week's presentation to give more clarity on the future of sequencing costs for its customers. The company could announce a new NovaSeq flow cell that enables higher throughput with lower cost per run, perhaps bringing down the cost of sequencing the human genome to $500 or less. That move would come just as several large population studies are starting to ramp up, and hopefully give a boost to NovaSeq placements and usage.

Could this get Illumina shares moving again?

Illumina will probably talk about end-to-end clinical solutions, such as its TruSight Oncology 500 kit and its collaborations with other companies to produce end-to-end diagnostic products. But the real needle-movers for investors could be a new platform, a move with consumables that stimulates demand at the high end, a credible strategy for long-read sequencing products for research markets, or a new merger or acquisition announcement. Announcements that reinvigorate investor interest in the long-term story for the undisputed leader in the expanding market for gene sequencing could be a catalyst for the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.