This DNA Giant Is Getting Back to Its Roots

By Rob Spivey, director of research, Altimetry

One of biotech’s most dramatic meltdowns may be headed for a reversal…

Just a few years ago, Illumina (ILMN) was the envy of the biotech world. It was the backbone of modern genomics. Its DNA sequencing systems powered cutting-edge breakthroughs in cancer, rare diseases, and personalized medicine.

But then, it bet big on an acquisition that unraveled everything.

In 2020, Illumina moved to acquire cancer-detection startup GRAIL. The deal drew immediate antitrust scrutiny in both the U.S. and Europe.

By the time regulators forced Illumina to unwind the deal last year, it had spent billions of dollars. The company burned through goodwill and watched its profitability collapse.

Shares are down more than 80% from their peak.

That disaster created a vacuum – and activist investor Keith Meister, of Corvex Management, saw his chance. He joined Illumina’s board in March after a long proxy battle. And he has wasted no time pushing for change.

Today, we’ll take a closer look at what attracted Meister to the business. Illumina’s core business remains exceptional. Corvex’s involvement could reignite profitability… and investor confidence.

Illumina’s ‘crown jewel’ was never the problem…

The biotech’s strength has always been in its core sequencing platform. Illumina holds more than 75% of the global market. It serves drug developers, hospitals, and academic labs.

And sequencing has become the backbone of medicine – from tracing pathogens to tailoring cancer treatment.

Even amid the GRAIL distraction, that core business kept delivering. Illumina shipped 2,200 of its various machines in 2023. Global installed base growth approached double digits. Revenue exceeded $4.5 billion.

But Uniform return on assets (“ROA”) tells a different story. Returns were more than 40% in 2018, putting Illumina among the most profitable large-cap biotech names.

By 2022, that number had collapsed to 6%.

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The GRAIL acquisition ended up being a major distraction. It caused serious regulatory pushback… leading to the threat of a nearly $500 million fine from the European Union.

Regulators were so quick to resist the acquisition that the businesses never had a chance to try combining successfully.

And while the main business was still working, it didn’t get the attention or the resources it needed to keep succeeding.

The downturn wasn’t because the sequencing business failed. It was because Illumina diverted resources into a regulatory sinkhole.

Illumina’s turnaround clock is ticking…

With the GRAIL saga winding down and a seasoned activist getting involved, we’re already seeing results. Uniform ROA has started climbing back up over the past two years. It reached 16% in 2024.

We’ve seen this exact scenario before. Corvex led a campaign aimed at fast-food corporation Yum Brands (YUM), forcing a spinoff of its China business.

Yum China was a much riskier business because its brands – KFC, Pizza Hut, and Taco Bell – were newer to the market. Stores started faltering. Sales at Chinese KFC locations were way off their highs, down from $1.7 million to just $1.2 million.

After the two companies split in 2016, Yum Brands’ stock doubled within five years.

But investors don’t see the similarities… and they don’t want to get burned again. They don’t trust Illumina’s recovery.

We can see this through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Investors believe Illumina’s Uniform ROA will fade right back to 2022 lows around 6%. Said another way, they think the recent recovery is a short-term blip.

Take a look…

This trend isn’t what you’d expect from a company that’s righting the ship.

This disconnect is what attracted Meister and Corvex…

Activists join boards to push for operational change. Corvex wants Illumina to refocus on the profitable core and exit the distractions.

The company’s turnaround is already underway. After reshuffling its board back in March, the new members… are already pushing Illumina in the right direction.

The market is still pricing Illumina like a business in decline. But Uniform Accounting shows it’s capable of far more.

With Corvex now driving the agenda, Illumina has a real shot at returning to strong profitability.

Regards,

Rob Spivey
May 20, 2025