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‘Smart Company’ Is Smarting After Q3 Revenue Falls Short

Local medtech firm Illumina Inc. is the global leader in DNA sequencing machines, but apparently the company isn’t selling enough of them.

The multibillion-dollar company watched its valuation plummet 25 percent overnight on Oct. 10 following news that the firm’s third quarter revenue was going to miss Wall Street expectations.

The company reported an expected $607 million in quarterly revenue, which is up 10 percent from the same period last year but less than everybody had hoped for (Q3 revenue guidance was between $625 million to $630 million).

The announcement shook investors, and Illumina’s market cap tumbled from roughly $26.6 billion to $20 billion overnight.

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The main reason for the drop was lower-than-expected sales of its high-throughput instruments, said Illumina’s CEO Francis deSouza in a special investor call last week.

“As a result, total sequencing instrument revenue declined 26 percent year-over-year, a larger decrease than anticipated at the beginning of Q3,” deSouza said.

The company also noted that it expects fourth-quarter revenue will be flat to slightly up.

This is the third time in the past four quarters that Illumina has missed expectations of one kind or another, including an April revenue warning that sent shares tumbling 20 percent.

“The string of bad headlines suggests Illumina’s core business may be slowing as growth opportunities for its machines take their sweet time arriving,” wrote Bloomberg biotech columnist Max Nisen. “If a long-awaited expansion into new markets doesn’t materialize soon, then Illumina will face a lot more pain and may have more trouble fighting off potential acquirers.”

Nisen is referring to the rumor that sprang up in mid-August concerning a potential bid from life science giant Thermo Fisher Scientific to buy Illumina for a $30 billion all-stock offer. The rumor has yet to be confirmed, and many experts believed it to be bogus.

But it wouldn’t be the first time a multinational corporation attempted to acquire Illumina. Back in 2012, Roche Holding AG made a bid of $6.7 billion for Illumina. The company rejected the offer and Illumina’s revenue has doubled since, totaling $2.2 billion last year.

Thermo Fisher is one of Illumina’s very few competitors in the gene-sequencing space, a technology that’s revolutionized the study of biology and the discovery of new medicines.

Thermo Fisher already acquired a locally-based gene-sequencing firm — Life Technologies — in 2014 for $13.6 billion.

Could slowing sales at Illumina nudge the company into M&A talks? Let’s wait and see.

• • •

In other life science news, top executives at PharmAkea Therapeutics are launching a new venture with cash from Bay City Capital and pharmaceutical giant Celgene Corp.

The startup, called Sidecar Therapeutics, received $3 million in a Series A round from the two investors, both of which have a history working with PharmAkea.

The new company is primarily a discovery vehicle founded by PharmAkea, said Vanessa Jacoby, vice president of finance for PharmAkea and the new chief financial officer of Sidecar Therapeutics. Although Jacoby could not discuss the new firm’s targets in detail, she did say the company would be focusing on novel targets that could be potential therapies for fibrosis.

Sidecar’s leadership team will include two other PharmAkea executives.

Robert Williamson, PharmAkea’s current CEO, will also serve as CEO of the new venture. And John Hutchinson, PharmAkea’s president and founder, is also listed as “executive” on regulatory paperwork filed with the Securities and Exchange Commission.

The SEC form also indicated that Carl Goldfischer, managing director and investment partner of Bay City Capital, would serve as director of Sidecar, along with Rupert Vessey, president of Celgene’s Research and Early Development department.

With this team in place, it will be exciting to see what Sidecar Therapeutics cooks up.

• • •

For a last bit of biotech news, Organovo Holdings Inc. is moving forward with plans to create human liver tissue for transplant to patients.

The company, founded in 2007, has primarily used its 3-D printing technology to “bioprint” human tissue for lab use. In short, drugmakers test their drugs on Organovo’s tissue before moving into real human trials. Organovo has sold its bioprinted liver cells to screen drugs for toxicity, for example.

But now the company plans to create human liver tissue, giving people suffering from liver failure another option besides an organ transplant (or it could at least extend their lives as they wait for a transplant).

Organovo said the experimental technology’s path to human therapy would begin with a formal, preclinical development program focused on liver disease.

The move represents a step toward a long-term goal of developing technology capable of bio-printing whole livers, kidneys, and other vital organs.

Contact Brittany Meiling at bmeiling@sdbj.com or 858-643-4626

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