NEW YORK – Francis deSouza's abrupt departure from Illumina, announced early on Sunday, suggests a major shift at the company, leaving analysts and customers wondering where his successor will steer the company next.
Top of mind is whether the San Diego-based firm will quickly divest Grail, while research-focused customers have wondered whether a new boss might pay more attention to the suddenly more competitive mid-throughput sequencing market. "It is possible that the resignation of deSouza signals that the company or board may be leaning toward streamlining a divestiture of Grail," the liquid biopsy firm that deSouza purchased despite the objections of US and European regulators, Evercore ISI analyst Vijay Kumar wrote in a note to investors.
Illumina must now replace a longtime leader who was apparently popular among many customers. The new CEO will need to answer several pressing questions. First is how much to pivot from deSouza's vision, where Illumina offered both the platform for content developers as well as clinical products — namely Grail's liquid biopsy, but also comprehensive genomic profiling assays — that would compete with those customers.
The primary people pushing that strategy, deSouza and former Chairman John Thompson — voted out in the proxy battle with activist investor Carl Icahn — are now both gone. "So, we'll see a change going forward," said Kyle Mikson, an analyst with Canaccord Genuity.
"Whoever comes in has to execute [on sequencing]," he said. "They still have to grow well in core sequencing, and do clinical, and turn into a data company one day, probably."
Several Wall Street analysts said deSouza's departure was not surprising. "We saw a CEO transition as probable," TD Cowen analyst Dan Brennan said in a note to investors, citing deSouza's 71 percent share of votes in last month's board election. That's "well below" the 95 percent support CEOs typically receive, he said.
"The timing of the announcement comes as the biggest surprise," Barclays analyst Luke Sergott said in a separate note, "given the seemingly successful battle against the recent activist campaign, which resulted in only one board seat awarded to outside interests."
Icahn, who had sought to replace two other members of Illumina's board, including deSouza, unsuccessfully, said he was happy with his resignation.
"While obviously I believe the change of CEO should have come meaningfully sooner, it is still a very positive occurrence," he wrote on Twitter.
Icahn noted that he helped bring Stephen MacMillan, Thompson's successor as chairman, to Hologic as CEO following a 2013 activist campaign.
Some Illumina customers said they were surprised by deSouza's resignation but were hopeful for the company's future. "Two weeks or so ago it seemed that he was staying," said Catharine Aquino, who runs an NGS core lab in Zurich, Switzerland. She recounted her interactions with deSouza, including an instance during the pandemic where he personally helped her lab source SARS-CoV-2 surveillance sequencing kits. "He was very helpful for getting us the kits at the height of the pandemic," she said. "He really was involved, to the point [where] he was asking 'Did you get the kits?'"
What deSouza's departure means for core next-generation sequencing customers remains to be seen. "I think Illumina will be OK," said Chris Mason, a sequencing expert at Weill Cornell Medicine, though he did not elaborate.
Aquino noted that she felt Illumina's focus had recently been about building "bigger and bigger" sequencers. "The smaller sequencers are supposed to be for core facilities like us," she said. "Obviously, I don't necessarily agree that it should be bigger and bigger."
That focus has allowed another challenge to develop under deSouza's watch: competition in the mid-throughput benchtop NGS market from companies like Singular Genomics and Element Biosciences.
"Perhaps a change in leadership will do Illumina good," said Anoja Perera, director of sequencing and discovery genomics at the Stowers Institute. "New vendors are entering the sequencing market, and Illumina needs effective strategies to hold on to its customer base."
As for deSouza's successor, several options are on the table. Mikson said the temporary appointment of Illumina General Counsel Charles Dadswell as CEO suggests the firm's bench is not deep enough, and the candidate will likely come from outside, potentially the medical technology sector that MacMillan is familiar with. He noted that some investors are calling for the return of former CEO and Chairman Jay Flatley, who declined to comment.
Aquino said she'd like to see an executive who will continue to pay attention to smaller customers like her and drive improvements to the NextSeq mid-throughput line.
"It would be nice if it's a woman, for inclusivity," she added.