On June 11, the gene sequencing giant Illumina (ILMN 1.02%) announced that its CEO, Francis deSouza, resigned after a tenure of roughly 10 years and that the company would start looking for a replacement. The market's reaction was muted, and it's unclear whether deSouza's as-yet-unknown successor will opt to take the business's strategy in another direction. 

Still, over the last 10 years, the 201% total return of its shares lagged the market's return of 222%, so new leadership could bring a breath of fresh air for shareholders who are aching for growth. But it'll be hard for the company to make a clean break from its recent shambolic attempted acquisition of Grail, even with a new leader at the helm.

So should investors think about the possibility of greener pastures to come as part of a justification for a purchase of this stock, or take care to avoid the risk of its further dysfunction?

Why the CEO stepped down

Illumina's announcement didn't attempt to blame its former CEO for anything, but it's important for investors to understand the context of his resignation. In 2021, the company acquired Grail, a cancer diagnostic testing business, for $7.1 billion. But it didn't wait for antitrust regulators in the U.S. or the European Union to approve the deal before closing the transaction. That was a big mistake. 

As a result, regulators at the Federal Trade Commission (FTC) ruled more than once that the acquisition must be blocked and also that it must be unwound entirely due to the threat of monopoly that allowing it to advance would entail. Regulators in the E.U. arrived at the same conclusion, threatening massive fines while also demanding that Grail be spun off once again.

The issue is a pressing one, as Illumina was counting on Grail to shore up its rate of growth, which in recent years slowed somewhat as the company is starting to reach the bottom of the markets for its various gene sequencer devices. In the past five years, its quarterly revenue only rose by 30.9%, reaching nearly $1.1 billion. Grail, on the other hand, saw its sales rise by 100% year over year in the first quarter, bringing in $20 million.

Now, Illumina's shares trade down 39% compared to the middle of 2020. After losing multiple appeals and getting its arguments further rebuffed by regulators on both sides of the Atlantic, it seems very likely that Illumina will need to detach Grail despite signaling the contrary over the last couple of years. It's unclear how much the process will cost. And it is hard to imagine how it would support higher share prices, given the wider context of deceleration. In sum, the CEO is leaving the company after many years of successful leadership that was unfortunately punctuated by one big and avoidable fiasco. 

Is this a buying opportunity?

Are there signs now that Illumina is a smart buy, given what's going on? Not exactly. 

While its gene sequencers are still a core part of the biopharma industry's set of standard equipment, that has been true for more than the last 10 years. To put it differently, it is not very likely that undiscovered major customers are waiting in the wings. At this point, developing products with wholly novel sequencing capabilities via investment in research and development (R&D) is the long-term strategy. And that will take time to pay off, though given its leading position in its markets, it will probably succeed. 

In the meantime, its stock's valuation isn't anything to jump at. Its price-to-sales (P/S) multiple is 7.3, whereas the biopharma sector's average is 5.3. Nor are Wall Street's estimates about its near-term growth anything to write home about; analysts anticipate, on average, that its top line will rise by only 7.3% in 2023 and 15.6% in 2024. Without a rapidly expanding segment like what would have been provided by Grail, it's hard to see that changing.

Illumina will probably be around for the long term, and there is a good chance that it will be able to recover from its current doldrums. Its products are simply too engrained in the way that biological research is performed for the business to wither entirely. But until it has a clear plan for returning to a faster pace of growth, there's not really a compelling investment thesis for buying it, regardless of whether there's a new leader steering the ship or not.