Analysts Weigh In On Volatile Biotech Stocks: Illumina, Inc. (ILMN), Heron Therapeutics Inc (HRTX)

While Illumina, Inc. (NASDAQ:ILMN) disappointed investors by lowering revenue outlook, Heron Therapeutics Inc (NASDAQ:HRTX) started the week off strong with good news from the FDA. Analysts weigh in amid yesterday’s after-hours trading action.

Illumina, Inc.

Shares of the Illumina plummeted more than 18% yesterday in after-hours trading, following the release of disappointing results. Dane Leone of BTIG weighs in on the diagnostic company, explaining why he remains cautious on the stock due to its guidance and management changes.

The company posted first quarter revenue of $572 million, marking only a 6% year-over-year increase and falling below the analyst estimate of $597 million. The analyst attributes the miss to lower-than-expected sales of the company’s HiSeq sequencing devices. Leone acknowledges that “1Q’16 YoY comps are the hardest of the year,” but still admits that “most investors had expected the company to beat the consensus number” for the quarter.

Leone is more concerned with the company’s guidance, explaining that management lowered its 2016 revenue growth forecast from 16% down to 12%. This cut stems from underperformance in the European markets. The company will announce updated earnings guidance in early May, at which point Leone will update his estimates.

To compound the challenges, Leone points out that the company will have to manage a mid-year CEO transition as Jay Flatley steps down to be replaced by Francis deSouza, who is currently an executive at the company.

Due to Illumina’s mediocre outlook, Leone reiterates a Neutral rating on the stock without providing a price target.

According to TipRanks, Leone has a 68% success rate recommending stocks with a 6.9% average one-year return per rating. From ratings made in the last 3 months, 50% of the analysts covering Illumina are bullish and 50% are neutral. The average 12-month price target is $187, marking a 5% upside from where shares last closed.


Heron Therapeutics Inc

Sustol, Heron’s pipeline drug indicated to prevent chemotherapy-related nausea and vomiting, received good news yesterday as the FDA announced that it did not find any substantive deficiencies in the product’s New Drug Application (NDA). Shares shot up more than 16% in after-hours trading to $25 following the announcement. Boris Peaker of Cowen & Co. maintained an Outperform rating on the stock with a $47 price target in light of the good news.

As the company now sets its sights on labeling discussions with the FDA, Peaker estimates the FDA will reply to the NDA in the next 2 to 4 weeks, though notes that the FDA did not provide a “specific timeline” for the review. The analyst explains, “In our discussion with management we learned that the FDA has largely completed its review of Sustol manufacturing without raising issues/deficiencies and therefore their key focus is now on labeling negotiation.” Peaker calls this news “encouraging” because “manufacturing has been the key concern” for the drug.

While this is positive news for the company, it does not change Peaker’s model or price target for the stock. Looking forward, the analyst also has his eyes on the Phase 2 study for HTX-011 in patients undergoing hernia repair. Peaker expects results from this test in June, leading into a “catalyst rick” period for the stock.

According to TipRanks, Boris Peaker has a 48% success rate recommending stocks with a 14.6% average return per rating. In the last three months, 100% of analysts covering the biotech company have been on the stock bullish with an average 12-month price target of $44, marking a 104% potential upside from where shares.


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