Illumina Q1 - Narrow Beat

Last week genetic testing company Illumina released results that narrowly beat market expectations. Compared to the same quarter last year though, their profits have halved. Their numbers this year include a contribution from newly-acquired Grail - a company working on tests for early detection of cancer. Grail had revenues of $10 million for the quarter but spent $85 million on research and development. Clearly, making medical breakthroughs is expensive.

Unfortunately, on the same day that Illumina released their results, they lost a patent dispute in court. Their adversary in the case is one of their competitors, the US unit of Chinese genomics company BGI Group, and this is being fought in multiple countries. A judge in Delaware ordered Illumina to pay $333 million. Illumina had profits of $86 million in the last quarter, so $333 million is significant for them. They may also be forced to pay BGI Group royalties until 2029, when the patent expires. Illumina has appealed the decision, so it will be stuck in the legal system for a little while longer.

In a weak market, the news of the court decision rattled the market and the share price dropped by 24%.

Illumina is one of our 'future hero' stock picks. It's a higher-risk holding because the market has high expectations for the company, so the share price is very sensitive to any negative news. Genetic medicine is in its infancy, and we expect Illumina to play a key role in the industry's growth. We are holders.