Illumina unveils plans to cut costs as it faces shrinking margins

A building on the campus at the world headquarters of Illumina is shown in San Diego, California, September 1, 2021.

Mike Blake | Reuters

Illumina on Tuesday unveiled plans to cut costs in a bid to improve the DNA sequencing company’s shrinking margins.

The plans aim to reduce Illumina’s annualized run rate expenses by more than $100 million starting later this year, according to the company’s first-quarter earnings release.

The company reported gross margins of 60.3% for the period, down from 66.6% during the year-earlier period.

“These cost savings will accelerate progress toward higher margins as well as free up capital to increase investment in high-growth areas,” Illumina said in the release.

Among Illumina’s plans is to use its NovaSeq X sequencing system to accelerate genomic discoveries. The system, which launched in September 2022, sequences DNA twice as fast and three times as accurately as previous Illumina products.

The San Diego-based company said it also plans to save by “enabling activities” in more cost-effective areas around the world. Illumina did not reveal any specifics about those activities.

The company is battling criticism and a falling market cap in the wake of its controversial $7.1 billion acquisition of Grail, a cancer test developer.

Illumina’s market value has fallen to roughly $34.5 billion from around $75 billion in August 2021, the month it closed its acquisition of Grail. 

Antitrust regulators have repeatedly pushed back on that deal. 

The Federal Trade Commission earlier this month ordered Illumina to divest the acquisition, saying it would stifle competition and innovation. 

Last year, the European Commission, the executive body of the European Union, blocked the deal over similar concerns.   

Illumina is appealing both orders and expects final decisions in late 2023 or early 2024. 

The Grail deal is also the focus of a proxy fight between activist investor Carl Icahn and Illumina. They have been trading jabs for more than a month.

Icahn, who owns a 1.4% stake in the company, is seeking seats on Illumina’s board of directors and pushing it to unwind the Grail deal. He is also calling for Illumina to oust its CEO Francis deSouza “immediately.” 

The company is urging shareholders to reject Icahn’s three board nominees during its annual shareholder meeting on May 25. 

Illumina has repeatedly claimed that Grail has “tremendous long-term value creation potential.” 

Grail claims to offer the only commercially available early screening test that can detect more than 50 types of cancers through a single blood draw. 

The cancer test generated around $55 million in revenue in 2022 and is expected to rake in up to $110 million this year, Illumina said.