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Gene sequencing has mainly been the province of technology companies catering to researchers, but the pharmaceutical giant Roche, based in Basel, Switzerland, has other plans. It is increasing the pressure on Illumina, a DNA-sequencing company headquartered in San Diego, California, hoping to absorb the firm and use its expertise to capture the growing market in personalized medicine.
Roche proposed a merger in January, offering US$44.50 per share, which Illumina’s board rejected. On 29 March, Roche raised its bid to $51 per share, for a total acquisition price of $6.7 billion. Illumina’s board rejected this offer, too, and adopted a ‘poison-pill’ provision that would give present investors the right to buy new shares at a reduced price, thereby diluting the value of Roche’s shares if the deal goes through. But many observers say that the merger is all but certain. “If Roche really wants this, they are ultimately going to be able to make this go through,” says John Haggerty, a mergers-and-acquisitions lawyer with Goodwin Procter in Boston, Massachusetts.
Roche’s interest in Illumina stems from the latter’s dominant position in genetic research; it claims that 90% of the world’s sequencing is done on its machines. Roche believes that whole-genome sequencing is poised to become a lucrative diagnostic tool, and that Illumina will allow it to break into that market.
Illumina could benefit from Roche’s vast sales force, which would make it more competitive with its major rival, Life Technologies of Carlsbad, California. And Roche’s experience in diagnostics and drug development could speed the translation of sequencing into the clinic, says David Ferreiro, a Boston-based analyst at the investment bank Oppenheimer. Manufacturers are eager to move from next-generation sequencing technology into diagnostic technology, and “Roche could do that a lot faster” than Illumina could, he says.
Yet Illumina has fought back, arguing to its shareholders that Roche’s offer undervalues the company (see ‘Down and up’). Illumina, which started out in the 1990s as a microarray vendor, came to dominate the sequencing market by steadily cutting the cost and improving the speed and ease of use of its products.
However, Illumina now has numerous competitors with new platforms nipping at its heels. The firm is cagey about what technologies could replace its current sequencing machines, even as the newcomers, such as Oxford Nanopore Technologies in Oxford, UK, are promising big leaps in the speed and price of sequencing — with the aim of attaining the $1,000 human genome. Industry observers question whether Illumina’s nimbleness will survive a Roche merger. They point to Roche’s 2007 acquisition of sequencing company 454 Life Sciences in Branford, Connecticut, which has since failed to live up to hopes that it would capture a significant part of the market.
To up the pressure, Roche has nominated six people for Illumina’s board of directors who, if elected by shareholders at the company’s annual meeting on 18 April, might coax the board to work out a deal. But with advisory firms cautioning major shareholders to hold out, Roche will probably continue to raise its price to entice institutional investors and arbitrage traders, who bought Illumina shares expecting Roche to sweeten its offer. “It’s just a matter of how much the Illumina board can force them into raising their price before the stockholders start accepting the offer,” says Haggerty.
For Illumina, the end could be bittersweet. The company may be in a prime position to dominate the potentially lucrative clinical-sequencing market. But it may also see the end of its glory days as a key innovator in sequencing.
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