Carl Icahn slams Illumina’s Q1 outcomes and cost-cutting plan

Carl Icahn speaks at Delivering Alpha in New York on September 13, 2016.

David A Grogan | CNBC

Carl Icahn called on Friday illuminas first-quarter results were “very disappointing” and slammed the DNA sequencing company’s new cost-cutting plans.

The activist investor, which owns a 1.4% stake in Illumina, is in a heated proxy battle with the company over its 2021 acquisition of cancer test developer Grail.

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Icahn and Illumina have been trading jabs for more than a month.

Icahn is seeking seats on Illumina’s board of directors and is urging the company to reverse the Grail acquisition. He also urges the San Diego-based company to oust CEO Francis deSouza “immediately.”

Illumina on Tuesday reported quarterly sales and earnings that beat Wall Street expectations.

But the company also reported net income of $3 million for the quarter, which was more than 96% down from the $86 million it earned in the same period last year.

In an open letter Friday to Illumina shareholders, Icahn accused deSouza of trying “desperately, hilariously, and mostly unsuccessfully” to spin the company’s “decidedly mediocre” earnings results during a press tour this week.

Icahn referenced deSouza’s interview on CNBC’s “Squawk Box” on Wednesday, when the CEO announced strong demand for Illumina’s diagnostic testing services.

“Illumina CEO Francis deSouza seems to think he can fool everyone all the time,” Icahn wrote.

“Those unable to decipher ambiguity might actually get the impression that Illumina is doing fine!” he added.

Icahn also said that the more its CEO did so, the more Illumina’s stock price fell this week, “a clear signal of dissatisfaction with the earnings report and dissatisfaction with Mr. deSouza’s transparent attempt to make a hog with… to smear lipstick”.

Illumina’s stock is down more than 10% since the company reported earnings. Shares ended largely unchanged on Friday after Icahn released his letter.

In that letter, Icahn also shot down cost-cutting plans that Illumina had unveiled to improve its shrinking margins. He called these measures “vague” and “extraordinarily undemanding”.

The company said Tuesday it will enable unnamed “activities” in lower-cost regions of the world and use its new NovaSeq X sequencing system to accelerate genomic discoveries, among other things.

Those plans will help Illumina meet its adjusted operating margin targets of 24% in 2024 and 27% in 2025, the company said in its earnings release.

Icahn called those margin targets “less than modest.” And he argued that “it will be years before they are realized, if at all”.

The company has forecast an estimated operating margin of 22% for 2023, up from the 23.8% it reported in 2022.

Illumina reported a negative operating margin of 5.7% for the quarter, up from 15% for the same period a year ago. The company’s gross margins for the period fell to 60.3%, compared to 66.6% in the first quarter of 2022.

Illumina did not immediately respond to a request for comment on Icahn’s letter.

Criticism of the Grail Deal

Elsewhere in his letter, Icahn criticized deSouza’s positive comments this week about Illumina’s $7.1 billion acquisition of Grail.

DeSouza had told CNBC the deal “makes sense” because Illumina could significantly expand the market for Grail’s early detection test for various types of cancer.

The CEO also praised Grail’s revenue growth of 100% during the quarter compared to the same period last year.

But Icahn said deSouza failed to update the public on a statement issued by the Federal Trade Commission earlier this month that said the deal would stifle competition and innovation.

The FTC also ordered Illumina to divest itself of the acquisition over these concerns.

The European Commission, the executive body of the European Union, also blocked the deal last year over similar concerns.

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

Last week, a U.S. federal appeals court said it would expedite its review of Illumina’s challenge to the FTC’s order.

Icahn’s opposition to the acquisition stems from Illumina’s decision to complete the deal without obtaining approval from these antitrust authorities.

Earlier this month, he slammed Illumina and its management for making the “reckless deal,” calling it “a new low in corporate governance.”

Illumina has urged shareholders to vote down Icahn’s three board nominees at its annual meeting scheduled for May 25th.