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Illumina Guidance Fails to Consider Declines Securities Class Action

Illumina NextSeq 550

When Illumina, Inc. came out with two new genetic sequencing instruments that offered “dramatic technology advances” as well as lower costs and more flexibility, it was right to anticipate good sales of these products. However, the complaint for this class action alleges that in predicting revenues for the third quarter of 2016, it ignored their increasing impact on its sales of an older instrument, which were declining. The complaint alleges that the company ignored these declines when issuing its guidance for the quarter and thus violated the Securities Exchange Act of 1934.

The class for this action is all persons and entities who acquired Illumina common stock between July 26, 2016 and October 10, 2016 and who were damaged thereby.

Illumina makes genetic sequencing products that aid in DNA sequencing and the analysis of genetic variations, which are used in medical, academic, and pharmaceutical fields. For the 2013, 2014, and 2015 fiscal years—the years prior to the class period—revenue from sequencing products were, respectively, 73%, 81%, and 86% of the company’s total revenues.

According to the complaint, Illumina gave investors to understand that, for the third quarter of 2016, its sales pipeline permitted a forecast of revenue of $625 million to $630 million, and also an increased earnings per share. At this news, the stock price rose, from $150.10 to $162.25.

But the complaint claims that the company was already getting fewer orders for its older HiSeq instrument and should have known that those figures were unlikely.

During the class period, the company’s main products were the HiSeq, HiSeq X, NextSeq, and MiSeq. The HiSeq X and NextSeq products were introduced in January 2014, offering lower costs and more flexibility, and the complaint says that customers immediately showed a preference for them. But the complaint claims that this meant a decline in HiSeq sales that the company apparently did not take into consideration.

On October 10, 2016, the company put out a press release announcing that third quarter revenue was only approximately $607 million, well below its forecasts of $625 million to $630 million, which it said was due to “a larger than anticipated year-over-year decline in high throughput sequencing instruments” including the HiSeq product. At this news, the stock price fell to $138.99, a single-day decline of nearly 25%.

Later, the company admitted that the preference for the newer products over the older HiSeq was a “trend” that had been growing all along and “didn’t show up suddenly” in the third quarter. 

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