Amid Strong Demand, Illumina CEO Sees Need for More “Tuck-in” Deals

Xconomy San Diego — 

Shares of San Diego-based Illumina (NASDAQ: ILMN) climbed today by more than $7 a share, or roughly 10 percent, after the gene sequencing equipment maker posted quarterly results that exceeded Wall Street expectations. The stock was above $81 a share in heavy trading this afternoon.

Illumina reported its seventh consecutive quarter of sequential revenue growth—driven by strong global demand for its HiSeq instruments used in genetic sequencing and related consumable supplies. The company also said it has acquired Advanced Liquid Logic (ALL), a Morrisville, NC-based company with proprietary microfluidics technology that uses voltage to manipulate droplets within a sealed microfluidic cartridge, also known as a “Lab-on-a-chip.”

In announcing the deal, Illumina said one of its goals is to provide customers with a holistic set of tools that can be used to quickly and easily analyze biological samples while minimizing the risk of errors and reducing hands-on time in the lab. With the ALL acquisition, Illumina said it will be able to automate high-throughput sample preparation for its lower-volume customers.

Financial terms were not disclosed, although Illumina CEO Jay Flatley indicated in a conference call with shareholders and financial analysts that Illumina is paying as much as $96 million in a combination of an upfront payment and milestones. “We’re not, at this point, disclosing what those milestones are, what the amounts are,” Flatley said, according to a transcript of the call prepared by the website Seeking Alpha.

Earlier this year, Illumina acquired prenatal testmaker Verinata Health for $350 million, and potential milestone payments of $100 million. Preceding that deal, Illumina acquired Cambridge, UK-based BlueGnome for an undisclosed sum.

In discussing the ALL deal yesterday, Flatley offered a general outline of Illumina’s acquisition strategy:

“We have been quite active in M&A and I think you’ll continue to see us do some of these tuck-in type of acquisitions, fewer of the moderate to large ones and some continued rate of these relatively small ones.

“We are looking at technology pieces that accelerate the development of our future platforms, obviously our platform plans go out three to five years, and we have really great expectations about where the technology is going to head and how we’ll be able to improve overall system integration, reducing hands-on time, making this more foolproof so that sequencing can become ever-more prevalent in the clinic and used by less and less sophisticated users.

“So you can imagine, if you think about the entire workflow of sequencing from the earliest parts of the sample prep, all the way through informatics, we’re looking to fill in any bits and pieces along that pipeline that we don’t currently have. Some of that clearly is being done internally through our own research and development efforts but if we have the opportunity to go get it quickly outside at a reasonable price, we will do that.”

Given the company’s strong financial results, Illumina also raised its guidance for the rest of the year—projecting that overall revenue will increase by about 20 percent instead of 15 percent as the company had previously estimated. Illumina also increased its earnings per share guidance to a range of $1.68 to $1.72 per share from prior guidance of $1.55 to $1.62 a share.

“These projections include the impact of both the Verinata and ALL acquisitions, as well as ongoing investment to support our long-term growth,” Illumina CFO Marc Stapley said during the conference call.