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Why Shares of Ilumina Slumped 11.3% in September

By Jim Halley – Oct 6, 2021 at 6:26PM

Key Points

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The company's merger with GRAIL concerned investors.

What happened

Shares of applied genomics company Ilumina (ILMN -2.24%) dropped 11.3% in September, according to data provided by S&P Global Market Intelligence. The stock opened at $456.55 a share on Sept. 1 and closed at $405.61 on Sept. 30. The stock fell steadily throughout the month, but its biggest drop came on Sept. 27, when it closed just shy of $15 less than it had the day before. Ilumina's shares are still up more than 4% this year.

A scientist looks at a chemical in a lab.

Image source: Getty Images.

So what

The biggest thing hanging over Ilumina is its somewhat controversial purchase of liquid biopsy company Grail, which was once was a division of Ilumina but was spun off in 2016 into a separate company. In September 2020, it was announced that Grail was being brought back into the Ilumina orbit in an $8 billion deal.

Investors may not have been thrilled with the deal because of the high price Ilumina was paying, but the real controversy came when the company finalized the deal in August despite a pending case before the General Court of the European Union regarding the merger. The company's position is that the European Commission doesn't have jurisdiction over the deal because Grail doesn't have business in the European Union. The company said it will continue to operate Grail as a separate entity until the court's decision, but if it is forced to unravel the merger, that would likely be messy and expensive.

On top of that cloud, it also didn't help that the life sciences sector fell more than 7% over the past month, compared to the S&P 500's decline of more than 4%.

Now what

In the long run, investors can focus on positive signs in the company's financials. Through six months of fiscal 2021, the company reported revenue of $2.219 billion, up 48.7% year over year. The company also reported six-month net income of $333 million, up from $220 million in the same period a year ago, leaving investors with earnings of $2.26 per share, compared to $1.49 per share in the year-ago period.

The life sciences company issued strong full-year guidance, saying that it expected revenue this year to fall between $4.28 billion and $4.34 billion, representing a raise of 32% to 34% over 2020.

As for the impact of the Grail purchase, there's a reason Ilumina is willing to face flak over monopoly concerns. Grail's Next Generation Sequencing (NGS) blood tests add cancer screening, diagnosis, and monitoring to Ilumina's portfolio. The company has said it expects NGS oncology platforms to have a compound annual growth rate of 27% through 2035, reaching a $75 billion market.

Jim Halley has no position in any of the stocks mentioned. The Motley Fool recommends Illumina. The Motley Fool has a disclosure policy.

Stocks Mentioned

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$213.86 (-2.24%) $-4.90

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