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FTC's Second Request to Roche Could Lead to NimbleGen Divestiture, Analysts Say

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By Justin Petrone

A request made to Roche by the US Federal Trade Commission seeking more information about its array business in light of its $5.7 billion hostile bid for Illumina is unlikely to have an impact on the outcome of the deal, according to several analysts.

The FTC made its so-called "second request" to Roche last week, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. Roche announced its intention to acquire Illumina for $44.50 per share in late January and Illumina rejected the offer last month. Roche initially had a 30-day-period to provide the FTC with information related to its planned acquisition of Illumina. The second request extended that period by 10 days past the request date of March 14.

A Roche spokesperson this week declined to provide additional information on the request. But some analysts who spoke with BioArray News appeared to see it as a common occurence in such deals, and argued that, should the FTC determine that the potential combination of Roche's NimbleGen array business and Illumina's BeadChip businesses violates antitrust legislation, Roche would as a result most likely divest the NimbleGen business.

"The fact that they received a second request means the FTC has some anticompetitive concerns that were not resolved in the initial 30-day period," said Amanda Murphy, an analyst for investment firm William Blair.

Murphy said that 60 percent of the time a company receives a second request, the FTC either blocks the deal or requires a divestiture. "It seems to me that Roche is focused more on the [next-generation sequencing] side of [Illumina's] business so a deal could still get done with a potential divestiture on the array side, perhaps whole-genome arrays," said Murphy.

Zarak Khurshid, of Wedbush Securities, held similar views. "It seems like a formality," he said of the FTC's request. "If worse comes to worst, Roche would divest the NimbleGen business to get the deal done," noting that Illumina's BeadChip business "dwarfs" NimbleGen's business in terms of revenues.

Dan Leonard, who covers the life science tools and diagnostics sector for Leerink Swann, also said that it was unlikely that overlap between the two firm's array offerings could block a transaction. "I don't think Roche's array business would be enough to scuttle a deal," he said.

Overlapping Businesses?

Illumina and Roche NimbleGen's array businesses are roughly the same age. Illumina was founded in 1998, while NimbleGen Systems was founded a year later and continued to operate as an independent firm until Roche acquired it for $272 million in 2007.

The way the two companies make their chips is different. Illumina’s BeadArray platform relies on 3-micron silica beads that self assemble in microwells on either of two substrates: fiber optic bundles or planar silica slides, according to its website. Each bead is covered with hundreds of thousands of copies of a specific oligonucleotide that act as the capture sequences in one of the firm's assays. The BeadArray technology was first developed in David Walt's lab at Tufts University.

The NimbleGen technology was developed at the University of Wisconsin, Madison . Called maskless array synthesis, it relies on digital light processing and photochemistry to synthesize long-oligo, high-density arrays.

These differing manufacturing approaches have caused the firms to focus on different market segments. While Illumina has developed a menu of catalog and custom whole-genome genotyping arrays for association studies, Roche NimbleGen has positioned itself as a custom array shop, offering high-density arrays with long oligos for applications like comparative genomic hybridization, methylation profiling, and chromatin immunoprecipitation-on-chip.

One Roche NimbleGen product line that directly competes against Illumina's offering is its CGH designs, including its CGX cytogenetics arrays and its CNV arrays for copy number profiling, which compete against Illumina's own menu of chips containing CNV content, as well as its cytogenetics offerings, such as its HumanCytoSNP-12 BeadChip.

Both firms also sell products for sequence capture. Roche NimbleGen sells sequence capture arrays and solution-phase SeqCap EZ libraries, while Illumina offers solution-phase TruSeq kits for target enrichment.

"They do have overlapping businesses in the array world, like capture arrays on the front end of sequencing and some [custom] products," said Piper Jaffray's Bill Quirk though he said the "main overlap" between Roche and Illumina will actually be in the companies' respective sequencing businesses. "This overlap is not covered in this FTC request," he noted.

"Certainly in broad terms, NimbleGen has offerings that compete with BeadChips, but the question would be, presumably, to what extent?" said Alastair Mackay of GARP Research. Mackay said that determining that overlap is "not an easy thing to figure out, unless one is intimately familiar with their catalogs."

He added that "since there are so many customer-designed chips," any potential combination would raise the issue of where the two sales forces compete for business.

Date Set

Though Illumina has rejected Roche's overtures to buy the firm, Roche has pressed on with its hostile bid. Last month Roche said that it intends to nominate six candidates for Illumina's board at Illumina's annual shareholders' meeting. Roche also is moving to change Illumina's bylaws in order to expand the number of members on Illumina's board so that it can gain a majority and successfully complete its purchase of Illumina. Illumina meantime has been urging shareholders to reject Roche's nominees and its plan to increase the board size.

This week Illumina set a date for its annual shareholders meeting. It will be held on April 18 in New York.

Leerink Swann's Leonard called the timing of the meeting an "interesting nuance," as Illumina is incorporated in Delaware and Delaware law requires that Illumina hold its meeting within 13 months of the last one. Illumina's last shareholders meeting was held on May 10, 2011, meaning that, technically, the firm could have scheduled its meeting for as late as June 10.

Leonard noted that by setting an earlier date for the meeting, Illumina gave Roche less time to raise its bid.


Have topics you'd like to see covered inBioArray News? Contact the editor at jpetrone [at] genomeweb [.]com

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