October 7, 2011 / 5:51 PM / 8 years ago

Snap Analysis: Gene sequencers edge away from Illumina's woes

(Reuters) - As Illumina Inc announced it was battling slower purchases by customers who depend on federal funding for research, several peers in gene sequencing rushed to reassure investors they don’t have the same kind of risk exposure.

“They’re all saying ‘Don’t sell my stock on (Illumina’s) news,” Leerink Swann analyst Dan Leonard said.

Illumina shares lost almost a third of their value, in more than 10 times their normal trading volume, after the company forecast weak third-quarter revenue and suspended its full-year outlook, on the back of uncertainty related to research funding in the United States and Europe.

The S&P 500 Life Sciences Tools & Services sub-index dropped more than 7 percent.

“Illumina stock price has come down because even though it says it didn’t see the slowdown in the second quarter,” its peers were more realistic, Robert W Baird analyst Quintin Lai said.

Companies that make gene sequencing devices — like Illumina, Affymetrix and Life Technologies — see a large portion of their revenue from academic researchers, who have stepped back from starting new projects in light of uncertain funding.

Funds available from the National Institute of Health (NIH) are set to reduce in 2012, once the stimulus money authorized by the Obama Administration for two years expires.

However, Fluidigm Corp tried to calm jittery investors by reaffirming its 2011 forecast, and Bruker Corp said it expects to top its own quarterly revenue forecast of about $400 million.

“If you are worried about spending on capital equipment in academia, Illumina has about 25 percent exposure (to federal funding), while Affymetrix has 12-13 percent and Life Technologies has just over 10 percent exposure,” said Mizuho Securities USA analyst Peter Lawson.

PerkinElmer, Waters, Thermo Fisher Scientific and Mettler-Toledo are also part of the pool of genetic analysis tool makers. However, these companies face lower risk from funding woes as they are more diversified in their product offering.

Also, analysts do not see much more room for trimming academic funding, as larger cuts to NIH’s budget may risk a slowdown in innovation.

“Right now is the Nobel Prize season, (academics) want to publish papers, so even with decreased amount of funding they are still on the cutting edge of research,” Baird’s Lai said.

(Reporting by Vidya L Nathan and Kavyanjali Kaushik in Bangalore; Editing by Anthony Kurian and Ian Geoghegan)

This story is corrected to clarify that the spending in paragraph 9 refers to capital equipment in academia, not all academic purchases, after analyst Peter Lawson revised his statement.

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