Another Wake-Up Call from Illumina’s Q2 Earnings Call
Los Angeles, Monday August 4th, 2025 – Last Friday, Illumina, the company that brought us the $1,000 genome and helped rewrite biology, posted earnings that should shake the life sciences world out of its slumber. Sequencing consumables are flatlining. Instrument sales are down, and revenue are still declined about 3-4% year over year (~$1.06B in Q2 vs. ~$1.11B a year ago). The company is projecting a full-year revenue decline of (0.5%) to (2.5%), not growth! This is a company that should be growing 10% p.a. and worth $100B. Instead? It’s flat for four years and valued at $15B.
Let that sink in: a company with alien-level tech is being priced like the Clorox company or Snapchat. And Illumina isn’t alone: the tools and diagnostics ecosystem is gasping for air, and unless we stop treating precision medicine’s foundation as disposable, it may go from undervalued to completely uninvestable.
The Workhorses Behind Precision
LSRT companies provide the instruments, reagents, and data pipelines that enable diagnostics and countless discoveries, from liquid biopsies to CRISPR. They build the sequencers that decode genomes, the mass specs that map proteins, the chips that run assays, and the software pipelines to make sense of it all.
They are the workhorses of precision medicine. And they’re being treated like laboratory pack-mules.
Consider this: Illumina’s instruments delivered the first $1,000 genome and brought sequencing into clinics worldwide. But in the race to the $100 (and even talks of $10!) genome, the market began treating sequencing like a commodity (more on that below). Gross margins have eroded and the stock has collapsed, an 80% drop from its peak, wiping out some $55B in market value. This isn’t just Illumina’s problem, it’s a wake-up call: if we starve tool makers, the precision medicine engine stalls.
The Tale of the Last Five Years: From Boom to Bust
The COVID era brought a flood of capital to life sciences. Then the party ended. Biotech venture capital peaked in 2021, then plummeted, valuations crashed, and bankruptcies spiked. And we are still “paying for our sins”, as some investments were undoubtedly mismanaged, obliterating investor capital. What followed, using the lens of LSRT customers?
- For academic customers, NIH budgets didn’t keep pace with inflation, forcing institutions and labs to spend more on salaries and overhead, and less on wet lab experiments and equipment. Looming cuts of up to 40% could collapse research pipelines. As Illumina put it on the call: “In research, we are actively helping customers navigate a constrained funding environment”. Illumina’s own academic/government segment dropped 15% year over year, as labs freeze hiring and push out projects.
- Pharma retrenched. R&D is slowing, trial starts dropped, and tools purchases have slowed, just when AI needs them most to generate complex high quality data to “solve biology”.
- Diagnostics companies failed to monetized its value. A $150,000 therapy may be reimbursed easily, but the $200 test that guides it? Pays pennies. Payers (insurers and government programs) continually pressure lab test prices downward, treating diagnostics as costs to minimize rather than investments that save “wheelbarrows of cash”. Diagnostics firms can’t readily finance innovation or new instrument purchases when they’re struggling to break even. That’s not economics; that’s institutional penny-pinching.
- Applied markets suffered funding pressure. AgBio is cutting R&D. Food or environmental safety, forensics and similar customers are underfunded, and often dependent on unpredictable government support.
In short, all downstream markets / customers for LSRT firms are under pressure. Sales stagnate. Valuations crumble. And innovation stalls.
The $10 Genome: A Poisoned Chalice
The sequencing sector embraced a race to the bottom: Illumina popularized the $1,000 genome, now the industry talks about a $10 genome, cheaper than your morning coffee and croissant. But elasticity has obviously broken. Falling prices haven’t driven enough new volume. Competitors like Ultima, Element, MGI and Roche (with new machines not even commercialized yet) are eating into Illumina’s margins and dominance. Even its operating margin slipped from its peak, and the logic “cheaper = more demand = more profit” is breaking down.
Illumina’s story is a warning: if we celebrate raw affordability over sustainable value, we’ll hollow out the innovation engine.
The Vicious Cycle We Must Disrupt
Right now, the system runs like this: Funding dries up -> fewer tools developed -> slower science -> less reason to invest in tools. Breaking out of that loop requires bold action.
Major stakeholders (pharma, policymakers, payers) seem to think that tools and diagnostics are cost centers. So what must change, *today*:
- Pharma steps up. Essentially every blockbuster drug has roots in academic science (and tools firms that support them). It's time pharma reinvests upstream: fund core labs, co‑develop platforms, treat R&D like strategic investment, not overhead.
- Reimburse diagnostics for their value. A $200 test that prevents a $20,000 hospitalization isn’t a cost, it’s cash flow saved. Payers must reflect that.
- Stop idolizing low-cost over value. The wonder isn't the $10 genome; it’s the diagnosis that saves or changes a life!
- Align incentives with outcomes. Use value‑based reimbursement, streamline coverage for breakthrough tests, and form public‑private tool development coalitions.
Don’t Let the Engine Stall
The lesson from Illumina’s continued saga is that incentives in the sequencing market became misaligned with sustainable innovation. The world cheered the $100 genome, but nobody asked who would pay for the value that such cheap data creates. If the answer is “no one, because everything must be low cost,” then the outcome is what we see: the sequencing industry leader’s value evaporating, less money for R&D, and a chilling signal to would-be innovators. It’s a microcosm of a broader issue: healthcare has been squeezing the costs of tools and diagnostics without proportionate reward for the benefits they deliver. We have diagnostics that prevent costly late-stage disease, but payers balk at paying even a few hundred dollars for them; we have research tools that can accelerate drug discovery, but pharma treats them as expenses to minimize. This “race to the bottom” in pricing, whether $10 genomes or $100 lab tests, ultimately backfires; it starves the golden goose of future breakthroughs.
That era must end. If we continue on the current path – starving labs of funds, treating diagnostics as an afterthought, and dis-incentivizing tool innovation – we will undermine the very precision medicine revolution that everyone is so excited about. It’s a paradox we can ill afford: scientific breakthroughs are poised to explode, but the tools and test makers are in retreat. It doesn’t have to be this way. We can choose to invest in the boring stuff that underpins miracles. We can decide that diagnosing disease early is just as valuable as treating it, and pay accordingly. We can insist that the vast wealth generated in healthcare be used in part to fertilize the soil of future discoveries, not just harvest the fruits. And we can hold both private industry and public institutions accountable for supporting continuous innovation and investments in underlying tools.
The precision medicine ecosystem is an intricate web: academia discovers, tools enable, diagnostics guide, pharma treats, payers and policy set the rules. Right now, the strands of that web connected to diagnostics and tools are fraying. Strengthening them will take work from all sides, but the payoff is immense. Robust funding for research and tools means better data, which means better AI models, more targets, more cures. Fair reimbursement for diagnostics means more incentive to develop the next groundbreaking test, which means patients benefit from early, tailored interventions. In short, investing in tools and diagnostics yields outsized returns in lives saved and diseases conquered.
Last Friday’s earnings call from Illumina was yet another wake-up call. For some investors, it was yet another disappointment. For the rest of us in this industry we love dearly, it must be a command: act now, or watch the infrastructure behind tomorrow’s cures erode.
Tools and diagnostics save lives. It’s time to pay and plan like they do.
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Note: Some of the companies listed in this article may be DeciBio Consulting clients.
Author: Stephane Budel, Partners at DeciBio Consulting, LLC
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