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Illumina Inc ILMN

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Liquid Biopsy Creates Large Opportunities for Testmakers, Including Potential First Mover Illumina

Julie Utterback, CFA Senior Equity Analyst

Analyst Note

| Julie Utterback, CFA |

The nascent liquid biopsy market may expand rapidly in the next five to 10 years, and one area of expansion--early cancer detection--could significantly change how cancer is treated. We believe liquid biopsies (a noninvasive method of analyzing tumors using fluids such as blood) may induce a paradigm shift in when cancer is detected and then treated, enabling earlier-stage treatments, where survival rates are higher and treatment costs per patient are lower. In general, a host of incentives for end users, practitioners, and payers could enable the widespread adoption of these tests, and we estimate the liquid biopsy market for early cancer detection could eventually exceed $70 billion in the U.S. alone, with global demand expanding the opportunity even further.
We cover three possible leaders in liquid biopsy for early cancer detection--narrow-moat Illumina, no-moat Exact Sciences, and no-moat Guardant Health. Based on our assessment of their valuations, we think the market is exuberant about liquid biopsy, so investors focused on value may have to pick and choose their entry points. Illumina, through its pending acquisition of Grail, could become the first mover and long-term leader in pan-cancer biopsies (for multiple cancers in one test). After further research into Illumina's opportunities with the Grail acquisition, which is scheduled to close in mid-2021, we recently increased our fair value estimate to $343 per share from $285. In our base scenario, we assume that liquid biopsy for the early detection of cancer succeeds with Illumina and its liquid biopsy peers, cumulatively reaching about $12 billion of annual sales in pan-cancer by the end of our 10-year forecast, and we assume that Illumina accounts for over half of that revenue potential with its first-mover and technology advantages. With Grail, we think Illumina's EPS growth can accelerate from the midteens in the next couple of years to over 40% compounded annually during the five years ended in 2027.

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Company Profile

Business Description

Illumina provides tools and services to analyze genetic material with life science and clinical lab applications. The company generates revenue from sequencing tools and dedicated consumables (73% of 2019 sales). Illumina’s high-throughput technology enables whole genome sequencing in humans and other large organisms. Its lower throughput tools enable applications that require smaller data outputs, such as viral and cancer tumor screening. Illumina also sells microarrays (10% of sales) that enable lower-cost, focused genetic screening with primarily consumer and agricultural applications. Services account for 17% of sales and include basic maintenance services, clinical lab applications (such as noninvasive prenatal, oncology, and rare-disease screening), and whole genome sequencing.

200 Illumina Way
San Diego, CA, 92122
T +1 858 202-4500
Sector Healthcare
Industry Diagnostics & Research
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 30, 2020
Stock Type Aggressive Growth
Employees 7,700