Strategic Buy Lights Up This Biotech Stock: Time to Invest?

Key Points

• Illumina is a pioneer in the field of DNA sequencing. It developed next-generation sequencing (NGS) technology, which was faster and cheaper than Sanger sequencing.
• Illumina was forced to divest its GRAIL acquisition after sidestepping the EU and FTC, but shareholders are relieved.
• Illumina acquired Fluent Biosciences, a tactical move that complements and enhances its core business.

Life sciences company Illumina Inc. NASDAQ: ILMN stock surged over 10% following its announcement of the acquisition of Fluent Biosciences. This comes after its divestiture and spin-off of GRAIL, LLC NASDAQ: GRAL on June 24, 2024. Illumina had previously acquired the early detection cancer testing company for $8 billion in 2021.

Illumina's GRAIL Acquisition Backfired, Resulting in Divestiture

Incidentally, Illumina helped seed the company, retaining a 15% interest before acquiring the rest. However, European regulators fined them $471 million for closing the deal before they completed their antitrust review. Illumina also sidestepped the Federal Trade Commission (FTC) in its haste to close the deal. This backfired when they were forced to divest GRAIL after losing its court battles against the European Commission and FTC. Shareholders were relieved by the spin-off and new acquisition. Illumina could finally focus on its core DNA sequencing business. Fluent Biosciences was a tactical acquisition that played into Illumina's core business and enhanced it.

Illumina operates in the medical sector and competes with life sciences companies, including 10X Genomics Inc. NASDAQ: TXG, Pacific Biosciences of California Inc. NASDAQ: PACB, and QIAGEN N.V. NYSE: QGEN.

Illumina is a Pioneer in DNA Sequencing

As a pioneer in DNA sequencing, Illumina created a faster and cheaper next-generation (NGS) sequencing technology compared to the slow and expensive Sanger Sequencing Technology. Illumina's technology significantly reduced the complexity and cost of DNA sequencing, making it accessible to a broader range of users. Gene-editing companies rely on accurate DNA sequencing.

DNA sequencing involves determining the specific order of nucleotides (building blocks) that make up genes. Genes are the instructions for constructing and maintaining an organism. DNA sequencing is used to analyze a single gene and group it into an entry genome of an organism. It's used in research, medicine forensics, and agriculture. Drug companies use it for drug discovery and disease research, and it plays a critical role in personalized medicine. DNA sequencing enables cancer researchers to detect rare somatic variants, perform tumor-normal comparisons, and analyze circulating DNA fragments. CRISPR gene editing can be accelerated with NGS.

The Tactical Acquisition of Fluent Biosciences

Fluent Biosciences is a development of a highly differentiated single-cell technology. Its technology eliminates the need for expensive, complex, and microfluidic consumables. Its novel approach eliminates many of the limitations and barriers of current methods, making single-cell analysis accessible to a larger set of customers. The ability to perform the assay at the point of sample collection helps to catalyze new experiments.

ILMN Stock Triggers a Symmetrical Triangle Breakout

The daily candlestick chart on ILMN illustrates a symmetrical triangle breakout pattern. This pattern is comprised of a descending upper trendline of lower highs converging with an ascending lower trendline of higher lows. The underlying stock eventually breaks before reaching the apex point. With ILMN, the break was to the upside as it gapped up through its upper trendline resistance at $112.47. The daily relative strength index (RSI) spiked to the 63-band. Pullback support levels are at $112.47, $107.94, $103.19, and $97.27.

Illumina Can Focus on Its Core Strengths Again

On May 2, 2024, Illumina reported Q1 2024 EPS of 9 cents, beating consensus estimates by 5 cents. However, revenues fell 1% YoY to $1.08 billion, beating $1.05 billion consensus estimates. The company expects Core Illumina revenue to be flat YoY for fiscal 2024 and a non-GAAP operating margin of around 20%. This was before the GRAIL divestiture. Since that cloud no longer overhands and the Fluent Biosciences acquisition is complementary, sentiment should improve heading into its Q2 2024 earnings release due after the close on Aug. 6, 2024.

Illumina analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $158.57 implies a 36.59% upside. There are 21 analyst ratings comprised of nine Buys, ten Holds, and two Sells.